Unless the context otherwise requires, the "Company" or "we" shall mean LaBranche & Co Inc. and its wholly-owned subsidiaries.

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the "2008 10-K") and our Condensed Consolidated Financial Statements and the Notes thereto contained in this report.

Executive Overview

For the first quarter of 2009, our US GAAP net loss was $29.7 million, or $0.51 per share, compared to a net loss of $40.1 million, or $0.65 per share for the same period in 2008. These GAAP earnings were affected by significant unrealized losses of $29.7 million in the first quarter of 2009 and $79.2 million in the first quarter of 2008 in connection with the change in value of our NYX shares. Excluding these losses in each quarter, our pro-forma net loss for the first quarter of 2009 was $11.9 million, or $0.20 per share, compared to pro-forma net income for the first quarter of 2008 of $7.8 million, or $0.13 per share.

Once entirely dependent on our traditional NYSE floor trading business, we have diversified over the past several years and are benefitting as a result. We are putting capable people in key positions in New York, London and Hong Kong and expect, notwithstanding the difficult market, to see opportunity in providing service, information and capital to market participants. Though gross volumes have declined thus far in 2009 in some products, such as equity options, and we expect these declines to continue throughout 2009, we think the demand for risk capital will continue to be strong, particularly as the marketplace adjusts to the disappearance of many large financial institutions as a result of the financial crisis.

In past reports, we have discussed the ongoing migration to electronic markets. Though market structures and the behavior of participants will continue to change, we believe that the move to electronic markets in equities and equity based derivatives is virtually complete. In adapting to this environment, we have gone through many changes. Our head count has declined by two thirds from its peak. Our orientation has become far more technological, and technologists have been given greater responsibility in risk management, capital investment and trading itself. We are continually developing quoting and messaging protocols and plan to expand our automated footprint, and we are now able to quote and make markets on more exchanges worldwide. Despite the changes in market structure in the past several years, we believe all markets should allow humans to interact at the time of sale when necessary.

Our designated market makers on the NYSE, once called "specialists," depend mostly on proprietarily-developed algorithms in a fast trading environment. In the NYSE's new market model, which commenced in January 2009, we have developed our designated market maker algorithms to quote more at the national best bid and offer, or "NBBO," and thereby increased our trading participation rates to approximately 12.5% through February and March 2009. These participation rates increased to approximately 20% by the end of April 2009 and

we believe these trends will continue as our algorithm team continues to build on our original platform. Going forward, we think our designated market maker business is going to be more dependent on NYSE volume and our ability to increase volumes by providing liquidity and quoting more often at the NBBO. Our revenue mix in the designated market maker business, therefore, has shifted in the new market model to being more dependent on quoting revenues for providing quotes and liquidity at the NBBO than in the prior market model, when we relied more on principal trading revenues.

We are continuing to seek additional opportunities to build our institutional brokerage business. In 2008, start-up costs and our initial facilitation trading results contributed to losses in this business. However, this business was slightly profitable on a pro-forma basis in the first quarter of 2009, and our sales trading revenues have increased significantly as we have made key hires of sales and position traders and increased market trading in over-the-counter and bulletin board securities. We also plan to provide execution and trading services in the secondary syndicated loan market.

In January 2009, our senior options trading team left the firm. In the first quarter of 2009, therefore, we reduced our market-making activities and positions until we had replaced the team that left with a new team. This has resulted in a loss in our options book for the first quarter of 2009, which was our only market making division to produce negative results in this year's first quarter. We are committed to growing this business however, and we believe we have the best possible management in place to return to positive results. On April 13, 2009, our new options market-making team joined our Company, and we believe them to be highly capable options traders. Thus, we believe we are making the necessary changes to return our options business to profitability soon.

While we do not know how events will change our markets and our activities, we are certain that we will need to be flexible in our business plan going forward. One benefit from the move to electronic markets is that we have been able to manage our costs much more effectively, which gives us added flexibility in engaging in new business. Also, our balance sheet is liquid and strong and will give us the ability to make better choices as new opportunities present themselves as we seek to achieve positive results.

Regulation G Reconciliation of Non-GAAP Financial Measures

In evaluating the Company's financial performance, management reviews results from operations, which excludes non-operating charges. Pro-forma loss per share is a non-GAAP (generally accepted accounting principles) performance measure, but the Company believes that it is useful to assist investors in gaining an understanding of the trends and operating results for the Company's core business. Pro-forma loss per share should be viewed in addition to, and not in lieu of, the Company's reported results under U.S. GAAP.

The following is a reconciliation of U.S. GAAP results to pro-forma results for the periods presented:

                                                                    Three Months Ended March 31,
                                                      2009                                              2008
                                    Amounts as         (1) (2)      Pro forma       Amounts as         (1) (2)         Pro forma
                                     reported        Adjustments     amounts         reported        Adjustments        amounts
Revenues, net of interest
expense                            $    (26,951 )   $      29,720   $    2,769     $    (22,693 )   $      79,246     $    56,553
Total expenses                           22,662                -        22,662           48,739              (886 )        47,853

(Loss) income before (benefit)
provision for income taxes              (49,613 )          29,720      (19,893 )        (71,432 )          80,132           8,700
(Benefit) provision for income
taxes (3)                               (19,866 )          11,888       (7,978 )        (31,195 )          32,053             858

Net (loss) income applicable to
common stockholders                $    (29,747 )   $      17,832   $  (11,915 )   $    (40,237 )   $      48,079     $     7,842

Basic per share                    $      (0.51 )   $        0.31   $    (0.20 )   $      (0.65 )   $        0.78     $      0.13
Diluted per share                  $      (0.51 )   $        0.31   $    (0.20 )   $      (0.65 )   $        0.78     $      0.13

(1) Revenue adjustment reflects loss in each accounting period, based on the change in fair market value of the Company's restricted and unrestricted NYX shares at the end of each such period versus the beginning of such period.

(2) Expense adjustment reflects the expense associated with early extinguishment of the Company's debt in accounting period.

(3) In the first quarter of 2008, the Company recognized a tax benefit due to the release of a tax reserve for an expired tax year, which resulted in a reduced provision for income taxes.

New Accounting Developments

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157 (ASC 820), "Fair Value Measurements" ("SFAS 157") (ASC 820). SFAS 157 (ASC 820) defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 (ASC 820) nullifies the guidance in EITF 02-3 (ASC 815 and 932) which precluded the recognition of a trading profit at the inception of a derivative contract, unless the fair value of such derivative is obtained from a quoted market price, or other valuation technique incorporating observable market data. SFAS 157 (ASC 820) also precludes the use of a liquidity or block discount, when measuring instruments traded in an active market at fair value. SFAS 157 (ASC 820) requires that costs related to acquiring financial instruments carried at fair value should not be capitalized, but rather should be expensed as incurred. SFAS 157 (ASC 820) also clarifies that an issuer's credit standing should be considered when measuring liabilities at fair value. SFAS 157 (ASC 820) is effective for financial statements issued for fiscal years beginning after November 15, 2007 and was adopted by us as of January 1, 2008. SFAS 157 (ASC 820) must be applied prospectively, except that the provisions related to block discounts and the guidance in EITF 02-3 (ASC 815 and 932) are to be applied as a one time cumulative effect adjustment to opening retained earnings in the first interim period for the fiscal year in which SFAS 157 (ASC 820) is initially applied. The adoption of SFAS 157 (ASC 820) resulted in no cumulative change to the accumulated deficit. Please refer to Footnote 11 of our Consolidated Financial Statements for additional information and disclosure.

In February 2008, the FASB issued FSP FAS 157-2 (ASC 820) which delays the effective date of Statement 157 (ASC 820) to all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in an entity's financial statements on a recurring basis (at least annually to fiscal years beginning after November 15, 2008. Such items include
a) nonfinancial assets acquired and liabilities assumed in purchase business combinations and b) intangible assets and goodwill. FSP FAS 157-2 (ASC 820) was adopted on January 1, 2009 and resulted in no material change to the accumulated deficit.

In October of 2008, the FASB issued FSP FAS 157-3 (ASC 820) which clarifies the application of SFAS 157 (ASC 820) in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that asset is not active. The FSP shall be effective upon issuance, including prior periods for which financial statements have not been issued. Revisions resulting from a change in the valuation technique or its application shall be accounted for as a change in accounting estimate pursuant to FASB 154 (ASC 250). The disclosure provisions of Statement
154 (ASC 250) for a change in accounting estimate are not required for revisions resulting from a change in valuation technique or its application. As of March 31, 2009, we do not hold any securities that would be subject to change based on FSP FAS 157-3 (ASC 820).

Accounting for Fair Value Option for Financial Assets and Financial Liabilities

In April 2009, the FASB issued FSP No. FAS 157-4 (ASC 820) which provides additional guidance for estimating fair value in accordance with SFAS 157 (ASC 820) when the volume and level of activity for an asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP shall be effective for interim and annual reporting periods ending June 15, 2009. The Company does not expect this FSP to have a material impact on its consolidated financial statements.

Derivative Instruments and Hedging Activities

In March 2008, the FASB issued FASB Statement No. 161 (ASC 815), "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement 133" (ASC 815). SFAS 161 (ASC 815) amends and expands the disclosures required by SFAS 133 (ASC 815) so that they provide an enhanced understanding of
1) how and why an entity uses derivative instruments, 2) how derivative instruments and related hedged items are accounted for under SFAS 133 (ASC 815) and its related interpretations, and 3) how derivative instruments affect an entity's financial position, financial performance, and cash flows. SFAS 161 (ASC 815) is effective for both interim and annual reporting periods beginning after November 15, 2008, with early adoption encouraged. We are not subject to SFAS 133 (ASC 815) at this time. Since this amendment relates solely to disclosures related to SFAS 133 (ASC 815), there is no effect on our financial position.

The Hierarchy of Generally Accepted Accounting Principles

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Adoption of SFAS 162 will not have a material effect on the Consolidated Financial Statements.

Critical Accounting Estimates

Goodwill and Other Intangible Assets

We determine the fair value of each of our reporting units and the fair value of each reporting unit's goodwill under the provisions of SFAS No. 142 (ASC 350) , "Goodwill and Other Intangible Assets." In determining fair value, we use standard analytical approaches to business enterprise valuation ("BEV"), such as the market comparable approach and the income approach. The market comparable approach is based on comparisons of the subject company to similar companies engaged in an actual merger or acquisition or to public companies whose stocks are actively traded. As part of this process, multiples of value relative to financial variables, such as earnings or stockholders' equity, are developed and applied to the appropriate financial variables of the subject company to indicate its value. The income approach involves estimating the present value of the subject company's future cash flows by using projections of the cash flows that the business is expected to generate, and discounting these cash flows at a given rate of return. Each of these BEV methodologies requires the use of management estimates and assumptions. For example, under the market comparable approach, we assigned a certain control premium to the public market price of our common stock as of the valuation date in estimating the fair value of our specialist reporting unit. Similarly, under the income approach, we assumed certain growth rates for our revenues, expenses, earnings before interest, income taxes, depreciation and amortization, returns on working capital, returns on other assets and capital expenditures, among others. We also assumed certain discount rates and certain terminal growth rates in our calculations. Given the subjectivity involved in selecting which BEV approach to use and in determining the input variables for use in our analyses, it is possible that a different valuation model and the selection of different input variables could produce a materially different estimate of the fair value of our goodwill.

We review the reasonableness of the carrying value of our goodwill annually as of December 31, unless an event or change in circumstances requires an interim reassessment of impairment. During the three months ended March 31, 2009, there were no changes in circumstances that necessitated goodwill impairment testing prior to our required year-end test date. We cannot provide assurance that a change in circumstances requiring an interim assessment or future goodwill impairment testing will not result in impairment charges in subsequent periods. During the first quarter of 2009 a significant revenue decrease occurred

which management of the Company does not believe will be a permanent trend. However, if revenues in future quarters do not reflect the estimates used to determine the BEV then a potential trigger necessitating a goodwill impairment test before December 31, 2009 could occur.

Another of our intangible assets, as defined under SFAS No. 142 (ASC 350), is our trade name. We determine the fair value of our trade name by applying the income approach using the royalty savings methodology. This method assumes that the trade name has value to the extent we are relieved of the obligation to pay royalties for the benefits received from it. Application of this methodology requires estimating an appropriate royalty rate, which is typically expressed as a percentage of revenue. Estimating an appropriate royalty rate includes reviewing evidence from comparable licensing agreements and considering qualitative factors affecting the trade name. Given the subjectivity involved in selecting which BEV approach to use and in determining the input variables for use in our analyses, it is possible that a different valuation model and the selection of different input variables could produce a materially different estimate of fair value of our trade name.

We review the reasonableness of the carrying amount of our trade name on an annual basis in conjunction with our goodwill impairment assessment. During the three months ended March 31, 2009, there were no changes in circumstances that necessitated trade name impairment testing prior to our required year-end test date. We cannot provide assurance that a change in circumstances requiring an interim assessment or future trade name and stock listing rights impairment testing will not result in impairment charges in subsequent periods. During the first quarter of 2009 a significant revenue decrease occurred which management of the Company does not believe will be a permanent trend. However, if revenues in future quarters do not reflect the estimates used to determine the BEV then a potential trigger necessitating a trade name impairment test before December 31, 2009 could occur.

Financial Instruments

"Financial instruments owned, at fair value" and "Financial instruments sold, but not yet purchased, at fair value" are reported in our consolidated financial statements, at fair value, on a recurring basis. Pursuant to SFAS No. 157 (ASC 820), the fair value of a financial instrument is defined as the amount that would be received to sell an asset or paid to transfer a liability, or the "exit price," in an orderly transaction between market participants at the measurement date.

We have adopted Statement of Financial Accounting Standards, or SFAS No. 157 (ASC 820) "Fair Value Measurements," which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 (ASC 820) outlines a fair value hierarchy that is used to determine the value to be reported. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (which are considered "level 1" measurements) and the lowest priority to unobservable inputs (which are considered "level 3" measurements). The three levels of the fair value hierarchy under SFAS No. 157 (ASC 820) are as follows:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2   -   Quoted prices for similar instruments in active markets, quoted prices in
              markets that are not active or financial instruments for which all
              significant inputs are observable, either directly or indirectly;

Level 3   -   Valuation is generated from model-based techniques that use significant
              assumptions not observable in the market. These unobservable assumptions
              would reflect our own estimates of assumptions that market participants
              would use in pricing the asset or liability. Such valuation techniques
              include the use of option pricing models, discounted cash flow models and
              similar techniques.

Non-Marketable Securities

The measurement of non-marketable securities is a critical accounting estimate. Investments in non-marketable securities consist of investments in equity securities of private companies and limited liability company interests and are included in other assets in the condensed consolidated statements of financial condition. Certain investments in non-marketable securities are initially carried at cost, unless there are third-party transactions evidencing a change in value. For certain other investments in non-marketable securities we adjust their carrying value by applying the equity method of accounting pursuant to APB
18 (ASC 325). Under the equity method the investor recognizes its share of the earnings and losses of an investee in the periods for which they are reported by the investee in its financial statements. The assets included in this section represent limited liability companies that are service providers and whose value is affected by nonfinancial components. In addition, if and when available, management considers other relevant factors relating to non-marketable securities in estimating their value, such as the financial performance of the entity, its cash flow forecasts, trends within that entity's industry and any specific rights associated with our investment-such as conversion features-among others.

Non-marketable investments are tested for potential impairment whenever events or changes in circumstances suggest that such investment's carrying value may be impaired.

Use of Estimates

The use of accounting principles generally accepted in the United States of America requires management to make certain estimates. In addition to the estimates we make in connection with fair value measurements and the accounting for goodwill and identifiable intangible assets, the use of estimates is also important in determining provisions for potential losses that may arise from litigation, regulatory proceedings and tax audits.

We estimate and provide for potential losses that may arise out of litigation, regulatory proceedings and tax audits to the extent that such losses are probable and can be estimated, in accordance with SFAS No. 5 (ASC 450), "Accounting for Contingencies" and FIN 48 (ASC

740), "Accounting for Uncertainty in Income Taxes". Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different. Our total liability in respect of litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress of each case or proceeding, our experience and the experience of others in similar cases or proceedings, and the opinions and views of legal counsel. Given the inherent difficulty of predicting the outcome of our litigation and regulatory matters, particularly in cases or proceedings in which substantial or indeterminate damages or fines are sought, we cannot estimate losses or ranges of losses for cases or proceedings where there is only a reasonable possibility that a loss may be incurred. See "Legal Proceedings" in Part II, Item 1 of this Quarterly Report on Form 10-Q for information on our judicial, regulatory and arbitration proceedings.

Recent Regulatory Developments

Regulation SHO and Short Selling Rules.

On October 14, 2008, the Securities and Exchange Commission adopted several final rules concerning short selling practices in US securities markets. Among the rules were (a) an "interim final temporary rule" that extends, until July 31, 2009, the recently imposed Rule 204T requiring that firms buy or borrow securities to close-out any fail to deliver position in an equity security resulting from a long or a short sale by the beginning of regular trading hours on the next settlement day following the date the fail to deliver position arose; (b) a rule eliminating the options market maker exception to the close-out requirement for short sales under Regulation SHO; and (c) an antifraud rule prohibiting misrepresentations by a "short" seller regarding its ability or intention to deliver securities by the settlement date in connection with both long and short sales. The rules are generally consistent with the series of emergency orders issued by the SEC in September and October 2008. Included in the interim final temporary Rule 204T are certain exemptions and extends the time to deliver securities to cover such short sales by up to two trading days for certain bona fide market makers (such as our specialist and market-making businesses) in connection with their bona fide market-making activities. We currently are unable to make a determination as to whether and how such new rules will affect our business in the future. We believe that the new rules' exemptions and additional time to cover failed short positions has enabled our market-making business to comply with the new requirements of Regulation SHO while maintaining our market-making and liquidity provision obligations, but cannot provide assurance that these provisions will continue to work for our benefit.

New NYSE Market Model

In December 2008, the NYSE introduced a new market model following the approval by the SEC on October 24, 2008, that resulted in significant changes in NYSE's market structure. The new market model was fully implemented in January 2009, and the changes include, among other things, (a) specialists are now called "Designated Market Makers", or "DMMs"; (b) the alteration of NYSE's priority and . . .