Edgar Filing: PIPER JAFFRAY COMPANIES

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-31720

PIPER JAFFRAY COMPANIES

(Exact Name of Registrant as specified in its Charter)


DELAWARE (State or Other Jurisdiction of Incorporation or Organization)		30-0168701 (IRS Employer Identification No.)

800 Nicollet Mall, Suite 800 Minneapolis, Minnesota (Address of Principal Executive Offices)		55402 (Zip Code)

(612) 303-6000
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer: þ	Accelerated filer: o	Non-accelerated filer: o	Smaller reporting company: o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No þ

As of July 28, 2010, the registrant had 19,813,804 shares of Common Stock outstanding.

Piper Jaffray Companies

Index to Quarterly Report on Form 10-Q


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			3
Consolidated Statements of Financial Condition as of June 30, 2010 and December 31, 2009			3
Consolidated Statements of Operations for the three and six months ended June 30, 2010 and June 30, 2009			4
Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and June 30, 2009			5
Notes to Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures About Market Risk			50
Item 4. Controls and Procedures			50
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			50
Item 1A. Risk Factors			50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			51
Item 6. Exhibits			52
Signatures			53
Exhibit Index			54
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Piper Jaffray Companies

Consolidated Statements of Financial Condition


	June 30,			December 31,
	2010			2009
(Amounts in thousands, except share data)	(Unaudited)
Assets

Cash and cash equivalents	$	46,845		$	43,942
Cash and cash equivalents segregated for regulatory purposes		4,006			9,006
Receivables:
Customers		57,307			71,859
Brokers, dealers and clearing organizations		250,212			262,061
Securities purchased under agreements to resell		231,040			149,682

Financial instruments and other inventory positions owned		438,542			662,618
Financial instruments and other inventory positions owned and pledged as collateral		408,602			137,371

Total financial instruments and other inventory positions owned		847,144			799,989

Fixed assets (net of accumulated depreciation and amortization of $63,049 and $59,563, respectively)		15,979			16,596
Goodwill		316,934			164,625
Intangible assets (net of accumulated amortization of $13,866 and $10,686, respectively)		63,946			12,067
Other receivables		46,027			33,868
Other assets		124,112			139,635


Total assets	$	2,003,552		$	1,703,330


Liabilities and Shareholders’ Equity

Short-term financing	$	57,069		$	90,079
Variable rate senior notes		120,000			120,000
Payables:
Customers		50,671			48,179
Brokers, dealers and clearing organizations		47,135			71,818
Securities sold under agreements to repurchase		323,121			36,134
Financial instruments and other inventory positions sold, but not yet purchased		468,650			335,795
Accrued compensation		65,985			157,022
Other liabilities and accrued expenses		53,896			65,687

Total liabilities		1,186,527			924,714

Shareholders’ equity:
Common stock, $0.01 par value:
Shares authorized: 100,000,000 at June 30, 2010 and December 31, 2009;
Shares issued: 19,509,813 at June 30, 2010 and 19,504,948 at December 31, 2009;
Shares outstanding: 15,210,801 at June 30, 2010 and 15,633,690 at December 31, 2009		195			195
Additional paid-in capital		842,622			803,553
Retained earnings		163,081			155,193
Less common stock held in treasury, at cost: 4,299,012 shares at June 30, 2010 and 3,871,258 shares at December 31, 2009		(189,099	)		(181,443	)
Other comprehensive income		226			1,118


Total shareholders’ equity		817,025			778,616


Total liabilities and shareholders’ equity	$	2,003,552		$	1,703,330

See Notes to Consolidated Financial Statements

Piper Jaffray Companies

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended					Six Months Ended
	June 30,					June 30,
(Amounts in thousands, except per share data)	2010		2009			2010		2009
Revenues:

Investment banking	$	71,745	$	62,150		$	115,493	$	86,500
Institutional brokerage		32,084		60,852			81,179		115,879
Interest		12,648		8,973			23,768		16,261
Asset management		15,873		3,240			25,027		6,249
Other income/(loss)		3,495		(950	)		6,422		(4,549	)

Total revenues		135,845		134,265			251,889		220,340

Interest expense		8,192		1,975			14,650		4,168


Net revenues		127,653		132,290			237,239		216,172


Non-interest expenses:

Compensation and benefits		77,678		79,377			142,774		129,701
Occupancy and equipment		8,056		7,680			15,725		14,198
Communications		6,199		5,430			12,688		11,529
Floor brokerage and clearance		3,307		3,232			5,924		6,114
Marketing and business development		6,095		3,419			11,417		7,864
Outside services		7,735		7,415			15,739		14,934
Restructuring-related expenses		-		3,572			-		3,572
Other operating expenses		6,747		3,747			11,981		6,298


Total non-interest expenses		115,817		113,872			216,248		194,210


Income before income tax expense		11,836		18,418			20,991		21,962

Income tax expense		4,458		6,842			13,103		13,111


Net income	$	7,378	$	11,576		$	7,888	$	8,851


Net income applicable to common shareholders	$	5,712	$	9,475		$	6,213	$	7,269


Earnings per common share
Basic	$	0.36	$	0.59		$	0.39	$	0.45
Diluted	$	0.36	$	0.59		$	0.39	$	0.45

Weighted average number of common shares outstanding
Basic		15,901		16,104			15,869		15,987
Diluted		15,925		16,117			15,925		15,995

See Notes to Consolidated Financial Statements

Piper Jaffray Companies

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
(Dollars in thousands)	2010			2009
Operating Activities:

Net income	$	7,888		$	8,851
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of fixed assets		3,651			3,540
Deferred income taxes		16,080			8,607
Stock-based compensation		15,908			20,479
Amortization of intangible assets		3,180			1,228
Decrease/(increase) in operating assets:
Cash and cash equivalents segregated for regulatory purposes		5,000			18,999
Receivables:
Customers		15,213			(36,864	)
Brokers, dealers and clearing organizations		11,796			25,587
Securities purchased under agreements to resell		(81,358	)		(94,225	)
Securitized municipal tender option bonds		-			55,743
Net financial instruments and other inventory positions owned		85,581			(9,244	)
Other receivables		(3,507	)		(15,099	)
Other assets		(314	)		32,946
Increase/(decrease) in operating liabilities:
Payables:
Customers		2,590			11,826
Brokers, dealers and clearing organizations		305			4,423
Securities sold under agreements to repurchase		(14,443	)		(441	)
Tender option bond trust certificates		-			(59,262	)
Accrued compensation		(68,266	)		(11,531	)
Other liabilities and accrued expenses		(14,346	)		25,498


Net cash used in operating activities		(15,042	)		(8,939	)

Investing Activities:

Business acquisition, net of cash acquired		(182,105	)		-
Purchases of fixed assets, net		(2,735	)		(1,558	)


Net cash used in investing activities		(184,840	)		(1,558	)


Financing Activities:

Decrease in securities loaned		(25,988	)		-
Increase/(decrease) in securities sold under agreements to repurchase		301,430			(44,633	)
Increase/(decrease) in short-term financing		(33,010	)		54,000
Repurchase of common stock		(39,177	)		(4,242	)
Reduced tax benefits from stock-based compensation		-			(2,941	)
Proceeds from stock option transactions		98			-


Net cash provided by financing activities		203,353			2,184


Currency adjustment:
Effect of exchange rate changes on cash		(568	)		969


Net increase/(decrease) in cash and cash equivalents		2,903			(7,344	)

Cash and cash equivalents at beginning of period		43,942			49,848


Cash and cash equivalents at end of period	$	46,845		$	42,504


Supplemental disclosure of cash flow information -
Cash paid/(received) during the period for:
Interest	$	16,295		$	490
Income taxes	$	2,374		$	(36,688	)

Non-cash investing activities -
Issuance of common stock for acquisition of Advisory Research Holdings, Inc.:
893,105 shares for the six months ended June 30, 2010	$	31,822		$	-

Non-cash financing activities -
Issuance of common stock for retirement plan obligations:
81,696 shares and 134,700 shares for the six months ended June 30, 2010 and 2009, respectively	$	3,634		$	3,756

Issuance of restricted common stock for annual equity award:
699,673 shares and 585,198 shares for the six months ended June 30, 2010 and 2009, respectively	$	31,121		$	16,331

See Notes to Consolidated Financial Statements

Piper Jaffray Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 1 Background

Piper Jaffray Companies is the parent company of Piper Jaffray & Co. (“Piper Jaffray”), a securities broker dealer and investment banking firm; Piper Jaffray Ltd., a firm providing securities brokerage and investment banking services in Europe headquartered in London, England; Piper Jaffray Asia Holdings Limited, an entity providing investment banking services in China headquartered in Hong Kong; Fiduciary Asset Management, LLC (“FAMCO”) and Advisory Research Holdings, Inc. (“ARI”), entities providing asset management services to separately managed accounts, closed end funds and partnerships; Piper Jaffray Financial Products Inc., Piper Jaffray Financial Products II Inc. and Piper Jaffray Financial Products III Inc., entities that facilitate derivative transactions; and other immaterial subsidiaries. Piper Jaffray Companies and its subsidiaries (collectively, the “Company”) operate in two reporting segments: Capital Markets and Asset Management. A summary of the activities of each of the Company’s business segments is as follows:

Capital Markets

The Capital Markets segment provides institutional sales, trading and research services and investment banking services. Institutional sales, trading and research services focus on the trading of equities and fixed income products with institutions, government, and non-profit entities. Revenues are generated through commissions and sales credits earned on equity and fixed income institutional sales activities, net interest revenues on trading securities held in inventory, profits and losses from trading these securities and strategic trading opportunities. Investment banking services include management of and participation in underwritings, merger and acquisition services and public finance activities. Revenues are generated through the receipt of advisory and financing fees.

Asset Management

The Asset Management segment provides asset management services and products in equity and fixed income securities and private equity investments to institutional and high net worth individuals through proprietary distribution channels. Revenues are generated in the form of management fees and performance fees. The majority of the Company’s performance fees, if earned, are recognized in the fourth quarter.

Basis of Presentation

The consolidated financial statements include the accounts of Piper Jaffray Companies, its wholly owned subsidiaries and other entities in which the Company has a controlling financial interest. All material intercompany balances have been eliminated. Certain financial information for prior periods has been reclassified to conform to the current period presentation.

The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and reflect all adjustments that in the opinion of management are normal and recurring and that are necessary for a fair statement of the results for the interim periods presented. In accordance with these rules and regulations, certain disclosures that are normally included in annual financial statements have been omitted. The consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles. These principles require management to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for a full year.

Note 2 Summary of Significant Accounting Policies

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, for a full description of the Company’s significant accounting policies. Changes to the Company’s significant accounting policies are described below.

Principles of Consolidation

The consolidated financial statements include the accounts of Piper Jaffray Companies, its wholly owned subsidiaries, and all other entities in which the Company has a controlling financial interest. All material intercompany balances have been eliminated. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”).

Voting interest entities are entities in which the total equity investment at risk is sufficient to enable each entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right or power to make decisions about or direct the entity’s activities that most significantly impact the entity’s economic performance. Voting interest entities, where we have a majority interest, are consolidated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 810, “Consolidations” (“ASC 810”). ASC 810 states that the usual condition for a controlling financial interest in an entity is ownership of a majority voting interest. Accordingly, the Company consolidates voting interest entities in which it has all, or a majority of, the voting interest.

As defined in ASC 810, VIEs are entities that lack one or more of the characteristics of a voting interest entity described above. With the exception of entities eligible for the deferral codified in FASB Accounting Standards Update (“ASU”) No. 2010-10, “Consolidation: Amendments for Certain Investment Funds,” (“ASU 2010-10”) (generally asset managers and investment companies), ASC 810 states that a controlling financial interest in an entity is present when an enterprise has a variable interest, or combination of variable interests, that have both the power to direct the activities of the entity that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity or the rights to receive benefits from the entity that could potentially be significant to the entity. Accordingly, the Company consolidates VIEs in which the Company has a controlling financial interest. For more on ASC 810 and VIEs, please see “Consolidation of Variable Interest Entities” under Adoption of New Accounting Standards below.

Entities meeting the deferral provision defined by ASU 2010-10 (generally asset managers and investment companies) are evaluated under the historical VIE guidance. Under the historical guidance, a controlling financial interest in an entity is present when an enterprise has a variable interest, or combination of variable interests, that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. Accordingly, the Company consolidates VIEs subject to the deferral provisions defined by ASU 2010-10 in which the Company is deemed to be the primary beneficiary.

When the Company does not have a controlling financial interest in an entity but exerts significant influence over the entity’s operating and financial policies (generally defined as owning a voting or economic interest of between 20 percent to 50 percent), the Company accounts for its investment in accordance with the equity method of accounting prescribed by FASB Accounting Standards Codification Topic 323, “Investments – Equity Method and Joint Ventures” (“ASC 323”). If the Company does not have a controlling financial interest in, or exert significant influence over, an entity, the Company accounts for its investment at cost.

Note 3 Recent Accounting Pronouncements

Adoption of New Accounting Standards

Accounting for Transfers of Financial Assets

In June 2009, the FASB issued guidance amending the Accounting Standards Codification Topic 860, “Transfers and Servicing,” (“ASC 860”) designed to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Additionally, the new guidance eliminates the qualifying special-purpose entity (“QSPE”) concept. The updates were effective for the Company January 1, 2010. The recognition and measurement provisions were effective for prospective transfers with the exception of existing QSPEs which must be evaluated at the time of adoption. The disclosures required by ASC 860 are applied to both retrospective and prospective transfers. The adoption of ASC 860 did not have an impact on the Company’s consolidated financial statements.

Consolidation of Variable Interest Entities

In June 2009, the FASB updated the accounting standards related to the consolidation of variable interest entities (“VIE”). The standard requires, among other things, a qualitative rather than quantitative analysis to determine the primary beneficiary (“PB”) of the VIE, continuous assessments of whether the entity is the PB of the VIE, and enhanced disclosures about involvement with VIEs. This standard was effective for the Company January 1, 2010 and is applicable to all entities with which the enterprise has involvement, regardless of when that involvement arose. The adoption of the new standard did not have an impact on the Company’s consolidated financial statements.

In February 2010, the FASB issued ASU 2010-10, which addresses the application of the amendments to VIE consolidation described above by reporting entities in the asset management industry by deferring the effective date of the standard’s new recognition and measurement requirements for certain investment funds. However, the standard’s new disclosure requirements will continue to apply to all entities. ASU 2010-10 was effective for the Company January 1, 2010. The adoption of this standard led to the deferral of the application of the updated consolidation guidance in ASC 810 to certain of the Company’s investment funds within the scope of ASU 2010-10.

Fair Value Measurements

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements,” (“ASU 2010-06”) amending FASB Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). The amended guidance requires entities to disclose additional information regarding assets and liabilities that are transferred between levels of the fair value hierarchy and to disclose information in the Level III rollforward about purchases, sales, issuances and settlements on a gross basis. ASU 2010-06 also further clarifies existing guidance pertaining to the level of disaggregation at which fair value disclosures should be made and the requirements to disclose information about the valuation techniques and inputs used in estimating Level II and Level III fair value measurements. The guidance in ASU 2010-06 was effective for the Company January 1, 2010, except for the requirement to separately disclose purchases, sales, issuances, and settlements on a gross basis in the Level III rollforward, which becomes effective for fiscal years (and for interim periods within those fiscal years) beginning after December 15, 2010. While the adoption of ASU 2010-06 did not change accounting requirements, it did impact the Company’s disclosures about fair value measurements.

Note 4 Acquisition of Advisory Research Holdings, Inc.

On March 1, 2010, the Company completed the purchase of all the issued and outstanding shares of common stock, junior subordinated debentures, senior subordinated notes and promissory notes of Advisory Research Holdings, Inc. (“ARI”), an asset management firm based in Chicago, Illinois. The purchase was completed pursuant to the securities purchase agreement dated December 20, 2009. The fair value as of the acquisition date was $212.1 million, consisting of $180.3 million in cash and 893,105 shares (881,846 of which vest ratably over four years) of the Company’s common stock valued at $31.8 million. The fair value of the 881,846 shares of common stock with vesting restrictions was determined using the market price of the Company’s common stock on the date of the acquisition discounted for the liquidity restrictions in accordance with the valuation principles of ASC 820. The remaining 11,259 shares have no vesting restrictions and the fair value was determined using the market price of the Company’s common stock on the date of the acquisition. A portion of the purchase price payable in cash was funded by proceeds from the issuance of variable rate senior notes (“Notes”) in the amount of $120 million pursuant to the note purchase agreement (“Note Purchase Agreement”) dated December 31, 2009 with certain entities advised by Pacific Investment Management Company LLC (“PIMCO”).

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations.” Accordingly, goodwill was measured as the excess of the acquisition-date fair value of the consideration transferred over the amount of acquisition-date identifiable assets acquired net of assumed liabilities. The Company recorded $152.3 million of goodwill as an asset in the consolidated statement of financial condition, which is expected to be deductible for tax purposes and has been allocated to the Company’s Asset Management segment. During the second quarter of 2010, the Company recorded a decrease to goodwill of $0.1 million as a result of a measurement period adjustment to the fair value of the customer relationship intangible asset. The final goodwill recorded on the Company’s consolidated statement of financial condition may differ from that reflected herein as a result of future measurement period adjustments. In management’s opinion, the goodwill represents the reputation and expertise of ARI in the asset management business.

Identifiable intangible assets purchased by the Company consisted of customer relationships and the ARI trade name with acquisition-date fair values of $52.2 million and $2.9 million, respectively. During the second quarter of 2010, the Company recorded an increase to identifiable intangible assets of $0.1 million as a result of the measurement period adjustment described above. Acquisition costs of $1.5 million were incurred in the fourth quarter of 2009 and $44,000 of acquisition costs were incurred in the six months ended June 30, 2010, and are included in outside services on the consolidated statement of operations.

The following table summarizes the fair value of assets acquired and liabilities assumed at the date of the acquisition:


(Dollars in thousands)
Assets:
Cash and cash equivalents	$	2,008
Other receivables		8,861
Fixed assets		377
Goodwill		152,282
Intangible assets		55,059
Other assets		369

Total assets acquired		218,956


Liabilities:
Accrued compensation		149
Other liabilities and accrued expenses		6,726

Total liabilities assumed		6,875



Net assets acquired	$	212,081

The amounts above reflect a $0.1 million increase in intangible assets offset by a corresponding decrease to goodwill due to a measurement period adjustment from the preceding period. The overall net assets acquired increased by $0.1 million from the preceding period based on ARI’s final working capital adjustments as reflected in other assets and other liabilities and accrued expenses.

ARI’s results of operations have been included in the Company’s financial statements prospectively beginning on the date of acquisition. Since the date of acquisition, ARI had net revenues of $15.8 million and net income of $3.7 million. The following unaudited pro forma financial data assumes the acquisition had occurred at the beginning of each period presented. Pro forma results have been prepared by adjusting the Company’s historical results to include ARI’s results of operations adjusted for the following changes: depreciation and amortization expenses were adjusted as a result of acquisition-date fair value adjustments to fixed assets, intangible assets, deferred acquisition costs and lease obligations; interest expense was adjusted for revised debt structures; and the income tax effect of applying the Company’s statutory tax rates to ARI’s results. The unaudited pro forma information presented does not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the applicable periods presented, nor does it indicate the results of operations in future periods.


	Three Months
	Ended June 30,		Six Months Ended June 30,
(Dollars in thousands)	2009		2010		2009
Net revenues	$	141,900	$	245,284	$	232,624
Net income	$	13,144	$	9,635	$	11,010


Note 5		Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased

Financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased were as follows:


	June 30,		December 31,
(Dollars in thousands)	2010		2009
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	13,493	$	3,070
Convertible securities		43,067		75,295
Fixed income securities		122,397		112,825
Municipal securities:
Taxable securities		197,422		151,144
Tax-exempt securities		140,219		147,809
Short-term securities		51,741		25,204
Asset-backed securities		70,871		70,425
U.S. government agency securities		156,668		125,576
U.S. government securities		11,740		70,111
Derivative contracts		39,526		18,530

	$	847,144	$	799,989


Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	11,359	$	26,474
Convertible securities		2,905		3,678
Fixed income securities		72,551		122,339
Asset-backed securities		9,964		8,937
U.S. government agency securities		140,156		67,001
U.S. government securities		220,354		102,911
Derivative contracts		11,361		4,455

	$	468,650	$	335,795

At June 30, 2010, and December 31, 2009, financial instruments and other inventory positions owned in the amount of $408.6 million and $137.4 million, respectively, had been pledged as collateral for the Company’s repurchase agreements, secured borrowings and securities loaned.

Inventory positions sold, but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price, thereby creating a liability to purchase the security in the market at prevailing prices. The Company is obligated to acquire the securities sold short at prevailing market prices, which may exceed the amount reflected on the consolidated statements of financial condition. The Company economically hedges changes in market value of its financial instruments and other inventory positions owned utilizing inventory positions sold, but not yet purchased, interest rate derivatives, credit default swap index contracts, futures and exchange-traded options.

Derivative Contract Financial Instruments

The Company uses interest rate swaps, interest rate locks, credit default swap index contracts and foreign currency forward contracts to facilitate customer transactions and as a means to manage risk in certain inventory positions and firm investments. The following describes the Company’s derivatives by the type of transaction or security the instruments are economically hedging.

Customer matched-book derivatives: The Company enters into interest rate derivative contracts in a principal capacity as a dealer to satisfy the financial needs of its customers. The Company simultaneously enters into an interest rate derivative contract with a third party for the same notional amount to hedge the interest rate and credit risk of the initial client interest rate derivative contract. In certain limited instances, the Company has only hedged interest rate risk with a third party, and retains uncollateralized credit risk as described below. The instruments use interest rates based upon either the London Interbank Offer Rate (“LIBOR”) index or the Securities Industry and Financial Markets Association (“SIFMA”) index.

Trading securities derivatives: The Company enters into interest rate derivative contracts to hedge interest rate and market value risks associated with its fixed income securities. The instruments use interest rates based upon either the Municipal Market Data (“MMD”) index or the SIFMA index. The Company also enters into credit default swap index contracts to hedge credit risk associated with its taxable fixed income securities.

Firm Investments: The Company enters into foreign currency forward contracts to manage the currency exposure related to its non-U.S. dollar denominated firm investments.

The following table presents the total absolute notional contract amount associated with the Company’s outstanding derivative instruments:


(Dollars in thousands)		June 30,		December 31,

Derivative Instrument	Derivative Category	2010		2009
Customer matched-book	Interest rate derivative contract	$	6,512,327	$	6,795,186
Trading securities	Interest rate derivative contract		234,500		234,500
Trading securities	Credit default swap index contract		215,000		-
Firm investments	Foreign currency forward contract		4,418		-

		$	6,966,245	$	7,029,686

The Company’s interest rate derivative contracts, credit default swap index contracts and foreign currency forward contracts do not qualify for hedge accounting, therefore, unrealized gains and losses are recorded on the consolidated statements of operations. The following table presents the Company’s unrealized gains/(losses) on derivative instruments:


(Dollars in thousands)		Three Months Ended					Six Months Ended

Derivative Category	Revenue Category	June 30, 2010			June 30, 2009		June 30, 2010			June 30, 2009
Interest rate derivative contract	Institutional brokerage	$	(2,013	)	$	1,866	$	(3,054	)	$	11,582
Credit default swap index contract	Institutional brokerage		3,073			-		3,073			-
Foreign currency forward contract	Other income/(loss)		457			-		514			-

		$	1,517		$	1,866	$	533		$	11,582

The gross fair market value of all derivative instruments and their location on the Company’s consolidated statements of financial condition prior to counterparty netting are shown below by asset or liability position (1):


(Dollars in thousands)		Asset Value at			Liability Value at

Derivative Category	Financial Condition Location	June 30, 2010		Financial Condition Location	June 30, 2010
Interest rate derivative contract	Financial intruments and other inventory positions owned	$	476,959	Financial intruments and other inventory positions sold, but not yet purchased	$	444,915
Credit default swap index contract	Financial intruments and other inventory positions owned		4,351	N/A		-
Foreign currency forward contract	Financial intruments and other inventory positions owned		537	N/A		-

		$	481,847		$	444,915


(1) Amounts are disclosed at gross fair value in accordance with the requirement of ASC 815.

N/A – Not Applicable

Depending upon the product and terms of the transaction, the fair value of the Company’s derivative contracts can be observed or priced using models based on the net present value of estimated future cash flows. The inputs for the valuation models include contractual terms, market prices, yield curves, credit curves and measures of volatility. Derivatives are reported on a net basis by counterparty when legal right of offset exists and when applicable provisions are stated in master netting agreements. Cash collateral received or paid is netted on a counterparty basis, provided a legal right of offset exists.

Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. Credit exposure associated with the Company’s derivatives is driven by uncollateralized market movements in the fair value of the contracts with counterparties and is monitored regularly by the Company’s financial risk committee. The Company reflects counterparty credit risk in calculating derivative contract fair value. The majority of the Company’s derivative contracts are substantially collateralized by its counterparties, which are major financial institutions. The Company has a limited number of counterparties who are not required to post collateral. Based on market movements, the uncollateralized amounts representing the fair value of the derivative contract can become material, exposing the Company to the credit risk of these counterparties. As of June 30, 2010, the Company had $27.3 million of uncollateralized credit exposure with these counterparties (notional contract amount of $268.9 million), including $13.8 million of uncollateralized credit exposure with one counterparty.

Note 6 Fair Value of Financial Instruments

The Company records financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased at fair value on the consolidated statements of financial condition with unrealized gains and losses reflected in the consolidated statements of operations.

The degree of judgment used in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Pricing observability is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and other characteristics specific to the instrument. Financial instruments with readily available active quoted prices for which fair value can be measured generally will have a higher degree of pricing observability and a lesser degree of judgment used in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment used in measuring fair value.

The following is a description of the valuation techniques used to measure fair value.

Cash Equivalents

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Actively traded money market funds are measured at their net asset value and classified as Level I.

Financial Instruments and Other Inventory Positions Owned

Equity securities – Equity securities are valued based on quoted prices from the exchange for identical assets or liabilities as of the report date. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level I.

Convertible securities – Convertible securities are valued based on observable trades, when available. Accordingly, these convertible securities are categorized as Level II. When observable price quotations are not available, fair value is determined based upon model-based valuation techniques with observable market inputs, such as specific company stock price and volatility and unobservable inputs such as option adjusted spreads. These instruments are categorized as Level III.

Corporate fixed income securities – Fixed income securities include corporate bonds which are valued based on recently executed market transactions, pricing service data from external providers when available or broker quotes. Accordingly, these corporate bonds are categorized as Level II. When observable price quotations are not available, fair value is determined based upon model-based valuation techniques with observable inputs such as specific security contractual terms and yield curves and unobservable inputs such as credit spreads. These instruments are categorized as Level III.

Taxable municipal securities – Taxable municipal securities are valued using recently executed observable trades or market price quotations and therefore are generally categorized as Level II.

Tax-exempt municipal securities – Tax-exempt municipal securities are valued using recently executed observable trades or market price quotations and therefore are generally categorized as Level II.

Short-term municipal securities – Short-term municipal securities include auction rate securities, variable rate demand notes, and other short-term municipal securities. Auction rate securities were historically traded and valued as floating rate notes, priced at par due to the auction mechanism. Beginning in 2008, the auction rate securities market experienced dislocation due to uncertainties in the credit markets. During 2009, certain areas of the auction rate market began to function; however, lower credit issuers remain illiquid.

Accordingly, auction rate securities with limited liquidity are valued based upon internal models with observable inputs such as specific security contractual terms and yield curves and unobservable inputs such as yield curves and liquidity discounts. These instruments are categorized as Level III. Variable rate demand notes and other short-term municipal securities are valued using recently executed observable trades or market price quotations and therefore categorized as Level II.

Asset-backed securities – Asset backed securities are valued using observable trades, when available. Certain asset-backed securities are valued using models where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data. These asset-backed securities are categorized as Level II. Other asset-backed securities, which are principally collateralized by aircraft and have experienced low volumes of executed transactions, result in less observable transaction data. These assets are valued using cash flow models that utilize unobservable inputs including airplane lease rates, aircraft valuation, trust costs, and other factors impacting security cash flows. The Company’s aircraft asset-backed securities had a weighted average yield of 9.6% at June 30, 2010. The Company also has a minimal amount of asset-backed securities collateralized by residential mortgages. These are valued using cash flow models that utilize unobservable inputs including credit default rates ranging from 6-10%, prepayment rates ranging from 4-8% of CPR, severity ranging from 50-80% and valuation yields ranging from 7-9%. These asset-backed securities are categorized as Level III.

U.S. government agency securities – U.S. government agency securities include agency debt bonds and mortgage bonds. Agency debt bonds are valued by using either direct price quotes or price quotes for comparable bond securities and thus, are categorized as Level II. Mortgage bonds include mortgage bonds, mortgage pass-through securities and agency collateralized mortgage-obligations (“CMO”). Mortgage pass-through securities and CMO securities are valued using recently executed observable trades or other observable inputs, such as prepayment speeds and therefore, generally are categorized as Level II. Mortgage bonds are valued using observable market inputs, such as market yields ranging from 95–165 basis point spreads to treasury securities, or models based upon prepayment expectations ranging from 222-454 Public Securities Association (“PSA”) prepayment levels. These securities are categorized as Level II.

U.S. government securities – U.S. government securities include highly liquid U.S. treasury securities which are generally valued using quoted prices and therefore categorized as Level I.

Derivatives – Derivative contracts are financial instruments, such as forwards, futures, swaps or option contracts, that derive their value from underlying assets, reference rates, indices or a combination of these factors. A derivative contract generally represents future commitments to purchase or sell financial instruments at specified terms on a specified date or to exchange currency or interest payment streams based on the contract or notional amount. The Company’s interest rate derivatives are valued using market standard pricing models based on the net present value of estimated future cash flows. The valuation models incorporate market observable inputs, including contractual terms, yield curves and measures of volatility. These measurements are classified as Level II within the fair value hierarchy and are used to value interest rate swaps and interest rate locks. In addition, the Company has a limited number of interest rate derivatives valued using valuation models that utilize market observable inputs, including contractual terms, yield curves and measures of volatility and unobservable inputs including credit default rates. These instruments are classified as Level III within the fair value hierarchy. The Company’s credit default swap index contracts and foreign currency forward contracts are valued using market price quotations and classified as Level II.

Investments

The Company’s investments valued at fair value include investments in public companies, warrants of public or private companies and investments in certain illiquid municipal bonds. Investments in public companies are valued based on quoted prices on active markets and reported in Level I. Company-owned warrants, which have a cashless exercise option, are valued using the Black-Scholes option-pricing model and reported as Level III assets. Investments in certain illiquid municipal bonds that the Company is holding for investment are reported as Level III assets.

The following table summarizes the valuation of our financial instruments by pricing observability levels defined in ASC 820 as of June 30, 2010:


							Counterparty
							Collateral
(Dollars in thousands)	Level I		Level II		Level III		Netting (1)			Total
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	13,493	$	-	$	-	$	-		$	13,493
Convertible securities		-		31,896		11,171		-			43,067
Fixed income securities		-		118,801		3,596		-			122,397
Municipal securities:
Taxable securities		-		197,422		-		-			197,422
Tax-exempt securities		-		140,219		-		-			140,219
Short-term securities		-		48,216		3,525		-			51,741
Asset-backed securities		-		46,534		24,337		-			70,871
U.S. government agency securities		-		156,668		-		-			156,668
U.S. government securities		11,740		-		-		-			11,740
Derivative instruments		-		56,325		19,195		(35,994	)		39,526

Total financial instruments and other inventory positions owned:		25,233		796,081		61,824		(35,994	)		847,144

Cash equivalents		12,053		-		-		-			12,053

Investments		2,779		-		3,038		-			5,817

Total assets	$	40,065	$	796,081	$	64,862	$	(35,994	)	$	865,014


Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	11,359	$	-	$	-	$	-		$	11,359
Convertible securities		-		2,905		-		-			2,905
Fixed income securities		-		72,542		9		-			72,551
Asset-backed securities		-		9,669		295		-			9,964
U.S. government agency securities		-		140,156		-		-			140,156
U.S. government securities		220,354		-		-		-			220,354
Derivative instruments		-		38,588		-		(27,227	)		11,361

Total financial instruments and other inventory positions sold, but not yet purchased:		231,713		263,860		304		(27,227	)		468,650

Investments		-		-		19		-			19

Total liabilities	$	231,713	$	263,860	$	323	$	(27,227	)	$	468,669


(1)		Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.

The following table summarizes the valuation of our financial instruments by pricing observability levels defined in ASC 820 as of December 31, 2009:


							Counterparty
							Collateral
(Dollars in thousands)	Level I		Level II		Level III		Netting (1)			Total
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	3,070	$	-	$	-	$	-		$	3,070
Convertible securities		-		75,295		-		-			75,295
Fixed income securities		-		112,825		-		-			112,825
Municipal securities:
Taxable securities		-		151,144		-		-			151,144
Tax-exempt securities		-		147,809		-		-			147,809
Short-term securities		-		7,379		17,825		-			25,204
Asset-backed securities		-		46,186		24,239		-			70,425
U.S. government agency securities		-		125,576		-		-			125,576
U.S. government securities		70,111		-		-		-			70,111
Derivative instruments		-		54,391		-		(35,861	)		18,530

Total financial instruments and other inventory positions owned:		73,181		720,605		42,064		(35,861	)		799,989

Cash equivalents		13,352		-		-		-			13,352

Investments		1,139		-		2,240		-			3,379

Total assets	$	87,672	$	720,605	$	44,304	$	(35,861	)	$	816,720


Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	26,474	$	-	$	-	$	-		$	26,474
Convertible securities		-		3,678		-		-			3,678
Fixed income securities		-		114,568		7,771		-			122,339
Asset-backed securities		-		6,783		2,154		-			8,937
U.S. government agency securities		-		67,001		-		-			67,001
U.S. government securities		102,911		-		-		-			102,911
Derivative instruments		-		19,294		-		(14,839	)		4,455

Total financial instruments and other inventory positions sold, but not yet purchased:		129,385		211,324		9,925		(14,839	)		335,795

Investments		-		-		19		-			19

Total liabilities	$	129,385	$	211,324	$	9,944	$	(14,839	)	$	335,814


(1)		Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.

The Company’s Level III assets were $64.9 million and $44.3 million, or 7.5 percent and 5.4 percent of financial instruments measured at fair value at June 30, 2010, and December 31, 2009, respectively. Transfers between levels are recognized at the beginning of the reporting period. There were $14.7 million of net transfers of financial assets from Level II to Level III during the six months ended June 30, 2010 related primarily to asset-backed securities and derivatives for which external prices and valuation inputs became unobservable. There were $3.9 million of net transfers of financial liabilities from Level III to Level II for the six months ended June 30, 2010 related to asset-backed securities for which market trades were observed in the quarter that provided transparency into the valuation of these liabilities. Transfers between Level I and Level II were not material for the six months ended June 30, 2010.

The following tables summarize the changes in fair value associated with Level III financial instruments during the six months ended June 30, 2010 and 2009:


	Balance at														Balance at
	December 31,		Purchases/			Net transfers			Realized gains/			Unrealized gains/			June 30,
(Dollars in thousands)	2009		(sales), net			in/(out)			(losses) (1)			(losses) (1)			2010
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Convertible securities	$	-	$	9,269		$	(86	)	$	1,596		$	392		$	11,171
Fixed income securities		-		3,193			-			377			26			3,596
Municipal securities:
Short-term securities		17,825		(12,090	)		-			(130	)		(2,080	)		3,525
Asset-backed securities		24,239		(7,754	)		4,370			3,759			(277	)		24,337
Derivative instruments		-		-			10,369			-			8,826			19,195

Total financial instruments and other inventory positions owned:		42,064		(7,382	)		14,653			5,602			6,887			61,824

Investments		2,240		-			-			-			798			3,038

Total assets	$	44,304	$	(7,382	)	$	14,653		$	5,602		$	7,685		$	64,862


Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Fixed income securities	$	7,771	$	(7,911	)	$	-		$	3		$	146		$	9
Asset-backed securities		2,154		1,903			(3,872	)		(4	)		114			295

Total financial instruments and other inventory positions sold, but not yet purchased:		9,925		(6,008	)		(3,872	)		(1	)		260			304

Investments		19		-			-			-			-			19

Total liabilities	$	9,944	$	(6,008	)	$	(3,872	)	$	(1	)	$	260		$	323


	Balance at														Balance at
	December 31,		Purchases/			Net transfers			Realized gains/			Unrealized gains/			June 30,
(Dollars in thousands)	2008		(sales), net			in/(out)			(losses) (1)			(losses) (1)			2009
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Convertible securities	$	3,671	$	-		$	(3,671	)	$	-		$	-		$	-
Fixed income securities		2,138		3,516			637			7			275			6,573
Municipal securities:
Short-term securities		17,750		175			(100	)		-			(662	)		17,163
Asset-backed securities		22,560		9,226			10,613			416			1,409			44,224
U.S. government agency securities		6		(1	)		(5	)		-			-			-

Total financial instruments and other inventory positions owned:		46,125		12,916			7,474			423			1,022			67,960

Investments		433		-			-			-			(348	)		85

Total assets	$	46,558	$	12,916		$	7,474		$	423		$	674		$	68,045


Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Asset-backed securities	$	-	$	415		$	1,297		$	(49	)	$	(98	)	$	1,565

Total financial instruments and other inventory positions sold, but not yet purchased:		-		415			1,297			(49	)		(98	)		1,565

Investments		366		-			-			-			(347	)		19

Total liabilities	$	366	$	415		$	1,297		$	(49	)	$	(445	)	$	1,584


(1)		Realized and unrealized gains/(losses) related to financial instruments are reported in institutional brokerage on the consolidated statements of operations. Realized and unrealized gains/(losses) related to investments are reported in other income/(loss) on the consolidated statements of operations.

Some of the Company’s financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include cash, securities either purchased or sold under agreements to resell, receivables and payables either from or to customers and brokers, dealers and clearing organizations and short-term financings.

Note 7 Variable Interest Entities

In the normal course of business, the Company periodically creates or transacts with entities that are investment vehicles organized as limited partnerships or limited liability companies. These entities were established for the purpose of investing in equity and debt securities of public and private investments and were initially financed through the capital commitments of the members. The Company has investments in and/or acts as the managing partner or member of these entities. In certain instances, the Company provides management and investment advisory services for which it earns fees generally based upon the market value of assets under management and may include incentive fees based upon performance. At June 30, 2010, the Company’s aggregate net investment in these investment vehicles totaled $16.5 million. The Company’s remaining capital commitments to these entities was $2.9 million at June 30, 2010.

Variable interest entities (“VIEs”) are entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities. The determination as to whether an entity is a VIE is based on the amount and nature of the members’ equity investment in the entity. The Company also considers other characteristics such as the power through voting rights or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance. For those entities that meet the deferral provisions defined by ASU 2010-10, the Company considers characteristics such as the ability to influence the decision making about the entity’s activities and how the entity is financed. The Company has identified certain of the entities described above as VIEs. These VIEs had net assets approximating $889.4 million at June 30, 2010. The Company’s exposure to loss from these VIEs is $5.5 million, which is the carrying value of its capital contributions recorded in other assets on the consolidated statement of financial condition at June 30, 2010. The Company had no liabilities related to these VIEs at June 30, 2010.

The Company is required to consolidate all VIEs for which it is considered to be the primary beneficiary. The determination as to whether the Company is considered to be the primary beneficiary is based on whether the Company has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. For those entities that meet the deferral provisions defined by ASU 2010-10, the determination as to whether the Company is considered to be the primary beneficiary is based on whether the Company will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both. It was determined the Company is not the primary beneficiary of these VIEs and accordingly does not consolidate them.

The Company has not provided financial or other support to these VIEs that it was not previously contractually required to provide as of June 30, 2010.

Note 8 Receivables from and Payables to Brokers, Dealers and Clearing Organizations

Amounts receivable from brokers, dealers and clearing organizations at June 30, 2010 and December 31, 2009 included:


	June 30,		December 31,
(Dollars in thousands)	2010		2009
Receivable arising from unsettled securities transactions, net	$	99,389	$	35,324
Deposits paid for securities borrowed		82,552		166,399
Receivable from clearing organizations		17,792		21,388
Deposits with clearing organizations		29,353		18,010
Securities failed to deliver		10,034		13,102
Other		11,092		7,838

	$	250,212	$	262,061

Amounts payable to brokers, dealers and clearing organizations at June 30, 2010 and December 31, 2009 included:


	June 30,		December 31,
(Dollars in thousands)	2010		2009
Deposits received for securities loaned	$	-	$	25,988
Payable to clearing organizations		22,914		11,975
Securities failed to receive		3,554		22,118
Other		20,667		11,737

	$	47,135	$	71,818

Deposits paid for securities borrowed and deposits received for securities loaned approximate the market value of the securities. Securities failed to deliver and receive represent the contract value of securities that have not been delivered or received by the Company on settlement date.

Note 9 Collateralized Securities Transactions

The Company’s financing and customer securities activities involve the Company using securities as collateral. In the event that the counterparty does not meet its contractual obligation to return securities used as collateral, or customers do not deposit additional securities or cash for margin when required, the Company may be exposed to the risk of reacquiring the securities or selling the securities at unfavorable market prices in order to satisfy its obligations to its customers or counterparties. The Company seeks to control this risk by monitoring the market value of securities pledged or used as collateral on a daily basis and requiring adjustments in the event of excess market exposure.

In the normal course of business, the Company obtains securities purchased under agreements to resell, securities borrowed and margin agreements on terms that permit it to repledge or resell the securities to others. The Company obtained securities with a fair value of approximately $329.1 million and $332.3 million at June 30, 2010 and December 31, 2009, respectively, of which $227.9 million and $144.5 million, respectively, has been either pledged or otherwise transferred to others in connection with the Company’s financing activities or to satisfy its commitments under financial instruments and other inventory positions sold, but not yet purchased.

At June 30, 2010, the Company’s securities sold under agreements to repurchase (“Repurchase Liabilities”) exceeded 10 percent of total assets. The majority of Repurchase Liabilities at June 30, 2010, consisted of municipal obligations.

The following is a summary of Repurchase Liabilities as of June 30, 2010:


	Carrying
	Amount of		Repurchase
(Dollars in thousands)	Assets Sold		Liabilities		Interest Rates
Overnight maturity	$	202,917	$	175,000	1.31%
On demand maturity		158,385		148,121	0%-0.95%

	$	361,302	$	323,121

Note 10 Other Assets

Other assets include investments in public companies valued at fair value, equity and debt investments in private companies valued at cost, investments in private equity partnerships that are valued using the equity method of accounting, net deferred tax assets and prepaid expenses.

Other assets at June 30, 2010 and December 31, 2009 included:


	June 30,		December 31,
(Dollars in thousands)	2010		2009
Investments at fair value		5,817		3,379
Investments at cost		27,004		33,687
Investments valued using equity method		16,173		14,825
Net deferred income tax assets		63,978		80,058
Prepaid expenses		7,217		5,840
Other		3,923		1,846

Total other assets	$	124,112	$	139,635

At June 30, 2010, the estimated fair market value of investments carried at cost totaled $36.9 million. The estimated fair value of investments at cost is based upon the net present value of estimated future cash flows.

Note 11 Goodwill and Intangible Assets

The following table presents the changes in the carrying value of goodwill and intangible assets for the six months ended June 30, 2010:


(Dollars in thousands)
Goodwill
Balance at December 31, 2009	$	164,625
Goodwill recorded in purchase of ARI		152,282
FAMCO earn-out payment		27

Balance at June 30, 2010	$	316,934


(Dollars in thousands)
Intangible assets
Balance at December 31, 2009	$	12,067
Intangible assets acquired in purchase of ARI		55,059
Amortization of intangible assets		(3,180	)

Balance at June 30, 2010	$	63,946

The addition of goodwill and intangible assets during the six months ended June 30, 2010 primarily related to the acquisition of ARI, as discussed in Note 4. Management identified $55.1 million of intangible assets, consisting primarily of the customer relationships ($52.2 million), which will be amortized over a weighted average life of 10 years, and the ARI trade name ($2.9 million), which has an indefinite life and will not be amortized.

The following table summarizes the aggregate future amortization of the Company’s intangible assets:


(Dollars in thousands)
Years Ended December 31,
Remainder of 2010	$	4,367
2011		8,276
2012		7,668
2013		7,325
2014		6,938
Thereafter		26,512

Total	$	61,086

Note 12 Short-Term Financing

The following is a summary of short-term financing and the weighted average interest rates on borrowings as of June 30, 2010 and December 31, 2009:


					Weighted Average
	Outstanding Balance				Interest Rate
	June 30,		December 31,		June 30,			December 31,
(Dollars in thousands)	2010		2009		2010			2009
Bank lines (secured)	$	-	$	68,000		N/A			1.35	%
Commercial paper (secured)		57,069		22,079		1.28	%		1.25	%

Total short-term financing	$	57,069	$	90,079

N/A – Not Applicable

The Company has committed short-term bank line financing available on a secured basis and uncommitted short-term bank line financing available on both a secured and unsecured basis. The Company uses these credit facilities in the ordinary course of business to fund a portion of its daily operations and the amount borrowed under these credit facilities varies daily based on the Company’s funding needs.

The Company’s committed short-term bank line financing at June 30, 2010, consisted of a $250 million committed revolving credit facility with U.S. Bank, N.A. Advances under this facility are secured by certain marketable securities. The unpaid principal amount of all advances under this facility will be due on September 30, 2010. The Company pays a nonrefundable commitment fee on the unused portion of the facility on a quarterly basis.

The Company’s uncommitted secured lines at June 30, 2010, totaled $275 million with three banks and are dependent on having appropriate collateral, as determined by the bank agreement, to secure an advance under the line. The availability of the Company’s uncommitted lines are subject to approval by the individual banks each time an advance is requested and may be denied. In addition, the Company has established arrangements to obtain financing by another broker dealer at the end of each business day related specifically to its convertible inventory.

In 2009, the Company initiated a secured commercial paper program to provide another funding source for its securities inventory. The senior secured commercial paper notes (“Series A CP Notes”) are secured by the Company’s securities inventory with maturities on the Series A CP Notes ranging from twenty-seven days to two hundred seventy days from the date of issuance. The Series A CP Notes are interest-bearing or sold at a discount to par with an interest rate based on the London Interbank Offered Rate (“LIBOR”) plus an applicable margin.

As part of these short-term financing arrangements, the Company is subject to various financial and operational covenants. At June 30, 2010, the Company was in compliance with all covenants related to its financing facilities.

Note 13 Variable Rate Senior Notes

On December 31, 2009, the Company issued unsecured variable rate senior notes (“Notes”) in the amount of $120 million. The initial holders of the Notes are certain entities advised by PIMCO. Interest is based on an annual rate equal to LIBOR plus 4.10%, adjustable and payable quarterly. The weighted average interest rate for the six months ended June 30, 2010, was 4.37%. The proceeds from the Notes were used to fund a portion of the ARI acquisition discussed further in Note 4 to our consolidated financial statements. The unpaid principal amount of the Notes will be due on December 31, 2010.

Note 14 Legal Contingencies

The Company has been named as a defendant in various legal actions, including complaints and litigation and arbitration claims, arising from its business activities. Such actions include claims related to securities brokerage and investment banking activities, and certain class actions that primarily allege violations of securities laws and seek unspecified damages, which could be substantial. Also, the Company is involved from time to time in investigations and proceedings by governmental agencies and self-regulatory organizations. The Company has established reserves for potential losses that are probable and reasonably estimable that may result from pending and potential legal actions, investigations and regulatory proceedings.

Given uncertainties regarding the timing, scope, volume and outcome of pending and potential legal actions, investigations and regulatory proceedings and other factors, the amounts of reserves are difficult to determine and of necessity subject to future revision. Subject to the foregoing, management of the Company believes, based on its current knowledge, after consultation with outside legal counsel and taking into account its established reserves, that pending legal actions, investigations and regulatory proceedings will be resolved with no material adverse effect on the consolidated financial condition of the Company. However, if during any period a potential adverse contingency should become probable or resolved for an amount in excess of the established reserves, the results of operations in that period could be materially adversely affected.

Note 15 Restructuring

On August 11, 2006, the Company completed the sale of its Private Client Services (“PCS”) branch network and certain related assets to UBS Financial Services, Inc., a subsidiary of UBS AG (“UBS”), thereby exiting the PCS business. In connection with the sale of the Company’s PCS branch network, the Company initiated a plan to significantly restructure the Company’s support infrastructure. All restructuring costs related to the sale of the PCS branch network were included within discontinued operations. The following table presents a summary of activity with respect to the restructuring-related liabilities included in other liabilities and accrued expenses on the consolidated statements of financial condition:


	PCS
(Dollars in thousands)	Restructuring
Balance at December 31, 2009	$	7,565
Recovery of provision charged to operations		(118	)
Cash outlays		(1,265	)
Non-cash write-downs		(17	)

Balance at June 30, 2010	$	6,165

Note 16 Shareholders’ Equity

Share Repurchase Program

In the second quarter of 2008, the Company’s board of directors authorized the repurchase of up to $100 million in common shares through June 30, 2010. During the six months ended June 30, 2010, the Company repurchased 893,050 shares of the Company’s common stock at an average price of $33.57 per share for an aggregate purchase price of $30.0 million. The share repurchase authorization expired as of June 30, 2010.

Issuance of Shares

During the six months ended June 30, 2010, the Company issued 881,846 restricted shares and 11,259 unrestricted shares in conjunction with the acquisition of ARI as described in Note 4. The restricted shares issued in conjunction with the acquisition of ARI vest ratably over four years in equal installments beginning on March 1, 2011, and ending on March 1, 2014. These restricted shares provide for continued vesting after termination, so long as the employee does not violate certain non-solicitation restrictions.

During the six months ended June 30, 2010, the Company issued 81,696 common shares out of treasury stock in fulfillment of $3.6 million in obligations under the Piper Jaffray Companies Retirement Plan and issued 369,341 common shares out of treasury stock as a result of vesting and exercise transactions under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan.

Note 17 Earnings Per Share

The Company calculates earnings per share using the two-class method. Basic earnings per common share is computed by dividing net income applicable to common shareholders by the weighted average number of common shares outstanding for the period. Net income applicable to common shareholders represents net income reduced by the allocation of earnings to participating securities. All of the Company’s outstanding restricted shares are deemed to be participating securities because they are eligible to share in the profits (e.g. receive dividends) of the Company. Losses are not allocated to participating securities. Diluted earnings per common share is calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive stock options. The computation of earnings per share is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands, except per share data)	2010			2009			2010			2009
Net income	$	7,378		$	11,576		$	7,888		$	8,851
Earnings allocated to participating securities (2)		(1,666	)		(2,101	)		(1,675	)		(1,582	)

Net income applicable to common shareholders (1)	$	5,712		$	9,475		$	6,213		$	7,269


Shares for basic and diluted calculations:
Average shares used in basic computation		15,901			16,104			15,869			15,987
Stock options		24			13			56			8
Restricted stock (2)		-			-			-			-

Average shares used in diluted computation		15,925			16,117			15,925			15,995


Earnings per share:
Basic	$	0.36		$	0.59		$	0.39		$	0.45
Diluted	$	0.36		$	0.59		$	0.39		$	0.45


(1)		Net income applicable to common shareholders for diluted and basic EPS may differ under the two-class method as a result of adding the effect of the assumed exercise of stock options to dilutive shares outstanding, which alters the ratio used to allocate earnings to common shareholders and participating securities for purposes of calculating diluted and basic EPS.

(2)		Participating securities were included in the calculation of diluted EPS using the two-class method, as this computation was more dilutive than the calculation using the treasury-stock method.

The anti-dilutive effects from stock options were immaterial for the periods ended June 30, 2010 and 2009.

Note 18 Employee Benefit Plans

Certain employees participated in the Piper Jaffray Companies Non-Qualified Retirement Plan (“the Non-Qualified Plan”), an unfunded, non-qualified cash balance pension plan. The Company froze the plan effective January 1, 2004, thereby eliminating future benefits related to pay increases and excluding new participants from the plan. Effective December 31, 2009, the Company resolved to terminate the Non-Qualified Plan through lump sum cash distributions to all participants. These lump-sum cash payments, totaling $10.4 million, were based on the December 31, 2009 actuarial valuation of the Non-Qualified Plan and were distributed on March 15, 2010. In 2010, the Company recognized settlement expense of $0.2 million in compensation and benefits expense on the consolidated statement of operations related to the settlement of all Non-Qualified Plan liabilities.

Note 19 Stock-Based Compensation

The Company accounts for equity awards in accordance with FASB Accounting Standards Codification Topic 718, “Compensation – Stock Compensation,” (“ASC 718”), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations at grant date fair value over the service period of the award, net of estimated forfeitures.

The Company’s primary stock-based compensation plan, Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan, (the “Incentive Plan”), permits the grant of equity awards, including restricted stock and non-qualified stock options, to the Company’s employees and directors for up to 7.0 million shares of common stock. The Company periodically grants shares of restricted stock to employees and grants shares of Piper Jaffray Companies common stock to its non-employee directors. The Company also previously granted options to purchase Piper Jaffray Companies common stock to employees and non-employee directors. The Company believes that such awards help align the interests of employees and directors with those of shareholders and serve as an employee retention tool. The awards granted to employees under the Incentive Plan have the following vesting periods: approximately 80 percent of the awards have three-year cliff vesting periods, approximately 10 percent of the awards vest ratably from 2011 through 2013 on the annual grant date anniversary, and approximately 10 percent of the awards cliff vest upon meeting a specific performance-based metric prior to May 2013. The director awards are fully vested upon grant. The plan provides for accelerated vesting of option and restricted stock awards if there is a change in control of the Company (as defined in the plan), in the event of a participant’s death, and at the discretion of the compensation committee of the Company’s board of directors.

Employee and director stock options were expensed by the Company on a straight-line basis over the required service period, based on the estimated fair value of the award on the date of grant using a Black-Scholes option-pricing model. The maximum term of the stock options granted to employees and directors is ten years. The Company has not granted stock options since 2008.

Restricted stock grants are valued at the market price of the Company’s common stock on the date of grant. Restricted stock grants are amortized over the service period. The majority of the Company’s restricted stock grants provide for continued vesting after termination, so long as the employee does not violate certain post-termination restrictions. These post-termination restrictions do not meet the criteria for an in-substance service condition as defined by ASC 718. Accordingly, such restricted stock grants are expensed in the period in which those awards are deemed to be earned, which is generally the calendar year preceding the February grant date each year.

Performance-based restricted stock awards granted in 2008 and 2009 were valued at the market price of the Company’s common stock on the date of grant. The restricted shares are amortized on a straight-line basis over the period the Company expects the performance target to be met. The performance condition must be met for the awards to vest and total compensation cost will be recognized only if the performance condition is satisfied. The probability that the performance condition will be achieved and that the awards will vest is reevaluated each reporting period with changes in actual or estimated outcomes accounted for using a cumulative effect adjustment.

In 2010, the Company established the 2010 Employment Inducement Award Plan (the “Inducement Plan”) in conjunction with the acquisition of ARI. The Company granted $7.0 million (158,801 shares) in restricted shares under the Inducement Plan to ARI employees upon closing of the transaction. These shares vest ratably over five years in equal installments beginning on March 1, 2011, and ending on March 1, 2015. The Company will record compensation expense for this $7.0 million restricted stock grant on a pro rata basis over the five year vesting period. Unvested shares granted under the Inducement Plan are cancelled upon the termination of employment by the award recipient.

The Company recorded compensation expense of $10.6 million and $13.4 million for the three months ended June 30, 2010 and 2009, respectively, and $19.2 million and $19.8 million for the six months ended June 30, 2010 and 2009, respectively, related to employee restricted stock. The tax benefit related to the total compensation cost for stock-based compensation arrangements totaled $4.2 million and $5.2 million for the three months ended June 30, 2010 and 2009, respectively, and $7.6 million and $7.7 million for the six months ended June 30, 2010 and 2009, respectively.

In accordance with ASC 718, if any equity award is forfeited as a result of violating the post-termination restrictions, the lower of the fair value of the award at grant date or the fair value of the award at the date of forfeiture is recorded within the consolidated statements of operations as other income. The Company recorded $2.2 million and $3.8 million of forfeitures through other income for the three and six months ended June 30, 2010. The amount the Company recorded to other income from cancellations for the three and six months ended June 30, 2009, were not significant.

The following table summarizes the changes in the Company’s non-vested restricted stock for the six months ended June 30, 2010:


				Weighted
	Non-Vested			Average
	Restricted			Grant Date
	Stock			Fair Value
December 31, 2009		3,512,749		$	40.46
Granted		921,075			44.24
Vested		(572,275	)		66.88
Cancelled		(117,849	)		37.69

June 30, 2010		3,743,700		$	38.14

As of June 30, 2010, there was $29.9 million of total unrecognized compensation cost related to restricted stock expected to be recognized over a weighted average period of 2.76 years.

The following table summarizes the changes in the Company’s outstanding stock options for the six months ended June 30, 2010:

Weighted Average

Weighted

Remaining

Aggregate

Options

Average

Contractual

Intrinsic

Outstanding

Exercise Price

Term (Years)

Value

December 31, 2009

538,804

44.50

5.7

4,237,480

Granted

Exercised

(2,456

)

40.06

Cancelled

(15,105

)

42.14

June 30, 2010

521,243

44.60

5.4

96,207

Options exercisable at June 30, 2010

404,579

45.62

4.7

96,207

As of June 30, 2010, there was no unrecognized compensation cost related to stock options expected to be recognized over future years.

Cash received from option exercises for the six months ended June 30, 2010 was $0.1 million. There were no options exercised for the six months ended June 30, 2009. The tax benefit realized for the tax deduction from option exercises was immaterial for the six months ended June 30, 2010.

Note 20 Segment Reporting

On March 1, 2010, the Company completed the purchase of ARI, which expanded the Company’s asset management business and resulted in a change to its reportable business segments. In connection with this change, the Company has reclassified prior period segment results to conform to the current period presentation.

Basis for Presentation

The Company structures its segments primarily based upon the nature of the financial products and services provided to customers and the Company’s management organization. It evaluates performance and allocates resources based on segment pre-tax operating income or loss and segment pre-tax operating margin. Revenues and expenses directly associated with each respective segment are included in determining their operating results. Other revenues and expenses that are not directly attributable to a particular segment are allocated based upon the Company’s allocation methodologies, based on each segment’s respective net revenues, use of shared resources, headcount or other relevant measures. The financial management of assets is performed on an enterprise-wide basis. As such, assets are not assigned to the business segments.

Reportable segment financial results are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2010			2009			2010			2009
Capital Markets

Investment banking
Financing
Equities	$	34,776		$	23,294		$	51,764		$	27,357
Debt		14,355			20,126			29,536			32,514
Advisory services		23,197			19,574			35,172			28,389

Total investment banking		72,328			62,994			116,472			88,260

Institutional sales and trading
Equities		27,501			30,384			54,428			61,046
Fixed income		9,733			35,166			37,109			62,971

Total institutional sales and trading		37,234			65,550			91,537			124,017

Other income/(loss)		2,423			344			4,408			(2,310	)


Net revenues		111,985			128,888			212,417			209,967

Operating expenses (1)		103,114			109,041			196,140			185,453


Segment pre-tax operating income	$	8,871		$	19,847		$	16,277		$	24,514


Segment pre-tax operating margin		7.9	%		15.4	%		7.7	%		11.7	%

Asset Management

Management and performance fees	$	15,873		$	3,240		$	25,027		$	6,249

Other income/(loss)		(205	)		162			(205	)		(44	)


Net revenues		15,668			3,402			24,822			6,205

Operating expenses (1)		12,703			4,831			20,108			8,757


Segment pre-tax operating income/(loss)	$	2,965		$	(1,429	)	$	4,714		$	(2,552	)


Segment pre-tax operating margin		18.9	%		N/M			19.0	%		N/M

Total

Net revenues	$	127,653		$	132,290		$	237,239		$	216,172

Operating expenses (1)		115,817			113,872			216,248			194,210


Total segment pre-tax operating income	$	11,836		$	18,418		$	20,991		$	21,962


Pre-tax operating margin		9.3	%		13.9	%		8.8	%		10.2	%
N/M – Not meaningful (1) Operating expenses include intangible amortization as set forth in the table below:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2010			2009			2010			2009
Capital Markets	$	-		$	-		$	-		$	-
Asset Management		2,204			614			3,180			1,228

Total amortization	$	2,204		$	614		$	3,180		$	1,228

Geographic Areas

The Company operates in both U.S. and non-U.S. markets. The Company’s non-U.S. business activities are conducted through European and Asian locations. Net revenues disclosed in the following table reflect the regional view, with net investment banking revenues allocated to geographic locations based upon the location of the client and investment banking team and net institutional sales and trading revenues allocated based upon the location of the client.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands)	2010		2009		2010		2009
Net revenues:
United States	$	111,094	$	120,939	$	206,109	$	201,611
Europe		6,117		5,292		13,613		7,641
Asia		10,442		6,059		17,517		6,920

Consolidated	$	127,653	$	132,290	$	237,239	$	216,172

Long-lived assets are allocated to geographic locations based upon the location of the asset. The following table presents long-lived assets by geographic region:


	June 30,		December 31,
(Dollars in thousands)	2010		2009
Long-lived assets:
United States	$	448,509	$	260,439
Europe		698		965
Asia		11,630		11,943

Consolidated	$	460,837	$	273,347

Note 21 Net Capital Requirements and Other Regulatory Matters

Piper Jaffray is registered as a securities broker dealer with the SEC and is a member of various self regulatory organizations (“SROs”) and securities exchanges. The Financial Industry Regulatory Authority (“FINRA”) serves as Piper Jaffray’s primary SRO. Piper Jaffray is subject to the uniform net capital rule of the SEC and the net capital rule of FINRA. Piper Jaffray has elected to use the alternative method permitted by the SEC rule, which requires that it maintain minimum net capital of the greater of $1.0 million or 2 percent of aggregate debit balances arising from customer transactions, as such term is defined in the SEC rule. Under its rules, FINRA may prohibit a member firm from expanding its business or paying dividends if resulting net capital would be less than 5 percent of aggregate debit balances. Advances to affiliates, repayment of subordinated debt, dividend payments and other equity withdrawals by Piper Jaffray are subject to certain notification, approval and other provisions of the SEC and FINRA rules. In addition, Piper Jaffray is subject to certain approval requirements related to withdrawals of excess net capital.

At June 30, 2010, net capital calculated under the SEC rule was $241.9 million, and exceeded the minimum net capital required under the SEC rule by $240.9 million.

Piper Jaffray Ltd., which is a registered United Kingdom broker dealer, is subject to the capital requirements of the U.K. Financial Services Authority (“FSA”). As of June 30, 2010, Piper Jaffray Ltd. was in compliance with the capital requirements of the FSA.

Piper Jaffray Asia Holdings Limited operates three entities licensed by the Hong Kong Securities and Futures Commission, which are subject to the liquid capital requirements of the Securities and Futures (Financial Resources) Rules promulgated under the Securities and Futures Ordinance. As of June 30, 2010, Piper Jaffray Asia regulated entities were in compliance with the liquid capital requirements of the Hong Kong Securities and Futures Ordinance.

Note 22 Income Taxes

The Company’s effective income tax rate for the six months ended June 30, 2010 was 62.4%, compared to 59.7% for the six months ended June 30, 2009. The provision for income taxes for the six months ended June 30, 2010 was unusually high due to a $5.3 million write-off of a deferred tax asset resulting from restricted stock grants that vested at share prices lower than the grant date share price. The provision for income taxes for the six months ended June 30, 2009 was high compared to pre-tax income because the Company did not record a tax benefit related to its U.K. subsidiary net operating loss carry forward deductions and incurred approximately $3.0 million of one-time tax expense items.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following information should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes and exhibits included elsewhere in this report. Certain statements in this report may be considered forward-looking. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward looking statements include, among other things, statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, and also may include our belief regarding the effect of various legal proceedings, as set forth under “Legal Proceedings” in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2009 and in our subsequent reports filed with the SEC. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including those factors discussed below under “External Factors Impacting Our Business” as well as the factors identified under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009, as updated in our subsequent reports filed with the SEC. These reports are available at our Web site at www.piperjaffray.com and at the SEC Web site at www.sec.gov. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.

Executive Overview

Our business principally consists of providing investment banking, institutional brokerage, asset management and related financial services to corporations, private equity groups, public entities, non profit entities and institutional investors in the United States, Europe and Asia. We operate through two reportable business segments:

Capital Markets – The Capital Markets segment provides institutional sales, trading and research services and investment banking services. Institutional sales, trading and research services focus on the trading of equity and fixed income products with institutions, government, and non-profit entities. Revenues are generated through commissions and sales credits earned on equity and fixed income institutional sales activities, net interest revenues on trading securities held in inventory, profits and losses from trading these securities and strategic trading opportunities. Investment banking services include management of and participation in underwritings, merger and acquisition services and public finance activities. Revenues are generated through the receipt of advisory and financing fees.

Asset Management – The Asset Management segment provides asset management services with product offerings in equity and fixed income securities and private equity investments to institutions and high net worth individuals through proprietary distribution channels. It generates revenues in the form of management and performance fees. The majority of our performance fees, if earned, are recognized in the fourth quarter. As part of our growth strategy, we expanded our asset management business through the acquisition of Advisory Research Holdings, Inc. (“ARI”), a Chicago-based asset management firm. The transaction closed on March 1, 2010. For more information on our acquisition of ARI, see Note 4 of the accompanying unaudited consolidated financial statements included in this report.

Our business is a human capital business. Accordingly, compensation and benefits comprise the largest component of our expenses, and our performance is dependent upon our ability to attract, develop and retain highly skilled employees who are motivated and committed to providing the highest quality of service and guidance to our clients.

Results for the three and six months ended June 30, 2010

For the three months ended June 30, 2010, we recorded net income of $7.4 million, or $0.36 per diluted common share, compared with net income of $11.6 million, or $0.59 per diluted common share for the corresponding period in the prior year. Net revenues for the second quarter of 2010 were $127.7 million, down 3.5 percent from $132.3 million reported in the year-ago period. Investment banking and asset management revenues increased, but were more than offset by lower fixed income institutional brokerage revenues. For the three months ended June 30, 2010, non-compensation expenses were $38.1 million, an increase of 10.6 percent compared to the second quarter of 2009. The increase primarily resulted from additional non-compensation costs related to the ARI acquisition, including intangible amortization, and higher expenses driven by an increase in business activity.

For the six months ended June 30, 2010, net income was $7.9 million, or $0.39 per diluted common share, compared with net income of $8.9 million for the prior-year period, or $0.45 per diluted common share. Net revenues for the first half of 2010 increased 9.7

percent to $237.2 million, as compared to 2009, driven by higher investment banking revenues and increased asset management revenues driven by the results for ARI, partially offset by lower institutional brokerage revenues, primarily related to fixed income.

External Factors Impacting Our Business

Performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity. Overall market conditions are a product of many factors, which are beyond our control and mostly unpredictable. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions, the volatility of the equity and fixed income markets, changes in interest rates (especially rapid and extreme changes), the level and shape of various yield curves, the volume and value of trading in securities, and the demand for asset management services as reflected by the amount of assets under management.

Factors that differentiate our capital markets business within the financial services industry also may affect our financial results. For example, our business focuses on a middle-market clientele in specific industry sectors. If the business environment for our focus sectors is impacted disproportionately as compared to the economy as a whole, or does not recover on pace with other sectors of the economy, our business and results of operations will be negatively impacted. Further, we may not participate or may participate to a lesser degree than other firms in sectors that experience significant activity, and our operating results may not correlate with the results of other firms who participate in these sectors. Given the variability of the capital markets and securities businesses, our earnings may fluctuate significantly from period to period, and results for any individual period should not be considered indicative of future results.

As a participant in the financial services industry, we are subject to complex and extensive regulation of our business. In light of recent conditions in the global financial markets and the global economy, legislators and regulators have increased their focus on the regulation of the financial services industry. This increased focus has resulted in the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which was signed into law during the third quarter. Dodd-Frank will significantly restructure and intensify regulation in the financial services industry, which could increase our cost of doing business (or alter certain business practices) and change the competitive landscape, potentially substantially.

Outlook for the remainder of 2010

In the second quarter of 2010, equity financing and advisory fee revenues rebounded from the relatively weak first quarter, reflective of the improved market environment for equity underwriting and merger and acquisition activity. We will need constructive capital markets to realize revenues from our backlogs, which continue to be strong across all investment banking businesses. Fixed income sales and trading market conditions during the second quarter of 2010 were challenged, compared with very favorable fixed income trading conditions in 2009. Concerns over world economic conditions and widening credit spreads, along with a steeply sloped interest rate curve resulted in lower revenues associated with our client flow business and municipal strategic trading. We anticipate that the recent market volatility in the fixed income markets will continue during the second half of 2010, and will have a negative impact on our municipal institutional brokerage revenues. The acquisition of ARI has added scale to our asset management business, provided a more stable revenue stream and a platform to support future organic growth.

Results of Operations

Financial Summary for the Three Months Ended June 30, 2010 and June 30, 2009

The following table provides a summary of the results of our operations and the results of our operations as a percentage of net revenues for the periods indicated.


										As a Percentage of Net
	Three Months Ended									Revenues
	June 30,									For the Three Months Ended
						2010				June 30,
(Dollars in thousands)	2010		2009			v2009				2010			2009
Revenues:

Investment banking	$	71,745	$	62,150			15.4		%		56.2	%		47.0		%
Institutional brokerage		32,084		60,852			(47.3	)			25.1			46.0
Interest		12,648		8,973			41.0				9.9			6.8
Asset management		15,873		3,240			389.9				12.4			2.4
Other income/(loss)		3,495		(950	)		N/M				2.8			(0.7	)


Total revenues		135,845		134,265			1.2				106.4			101.5

Interest expense		8,192		1,975			314.8				6.4			1.5


Net revenues		127,653		132,290			(3.5	)			100.0			100.0


Non-interest expenses:

Compensation and benefits		77,678		79,377			(2.1	)			60.9			60.0
Occupancy and equipment		8,056		7,680			4.9				6.3			5.8
Communications		6,199		5,430			14.2				4.9			4.1
Floor brokerage and clearance		3,307		3,232			2.3				2.6			2.5
Marketing and business development		6,095		3,419			78.3				4.8			2.6
Outside services		7,735		7,415			4.3				6.0			5.6
Restructuring-related expenses		-		3,572			(100.0	)			-			2.7
Other operating expenses		6,747		3,747			80.1				5.2			2.8


Total non-interest expenses		115,817		113,872			1.7				90.7			86.1


Income before income tax expense		11,836		18,418			(35.7	)			9.3			13.9

Income tax expense		4,458		6,842			(34.8	)			3.5			5.1


Net income	$	7,378	$	11,576			(36.3	)	%		5.8	%		8.8		%


N/M - Not Meaningful

For the three months ended June 30, 2010, we recorded net income of $7.4 million. Net revenues for the three months ended June 30, 2010 were $127.7 million, a 3.5 percent decrease from the year-ago period. For the second quarter of 2010, investment banking revenues increased 15.4 percent to $71.7 million, compared with revenues of $62.2 million in the prior-year period. The increase in investment banking revenues was attributable to higher equity activity as well as increased advisory services revenues as compared to the corresponding period of 2009. In the second quarter of 2010, institutional brokerage revenues decreased 47.3 percent to $32.1 million, compared with $60.9 million in the corresponding period in the prior year, primarily due to reduced trading results in municipal products and corporate credits. In the second quarter of 2010, the fixed income business experienced a challenging trading environment, compared with a favorable environment in the corresponding period in 2009. In the second quarter of 2010, net interest income decreased to $4.5 million, compared with $7.0 million in the second quarter of 2009. The decrease was primarily the result of

interest expense on the $120 million of variable rate senior notes issued December 31, 2009, to finance a portion of the ARI acquisition. For the three months ended June 30, 2010, asset management fees were $15.9 million, compared with $3.2 million in the prior-year period. The increased revenues were driven by the results for ARI, which we acquired on March 1, 2010. In the second quarter of 2010, other income increased to $3.5 million, compared with a loss of $1.0 million in the prior-year period, due to income associated with the forfeitures of stock-based compensation and gains recorded on our firm investments. Non-interest expenses increased to $115.8 million for the three months ended June 30, 2010, from $113.9 million in the corresponding period in the prior year, primarily as a result of amortization related to intangible assets acquired in the ARI acquisition, completed in March 2010.

Consolidated Non-Interest Expenses

Compensation and Benefits - Compensation and benefits expenses, which are the largest component of our expenses, include salaries, incentive compensation, benefits, stock-based compensation, employment taxes and other employee costs. A portion of compensation expense is comprised of variable incentive arrangements, including discretionary incentive compensation, the amount of which fluctuates in proportion to the level of business activity, increasing with higher revenues and operating profits. Other compensation costs, primarily base salaries and benefits, are more fixed in nature. The timing of incentive compensation payments, which generally occur in February, have a greater impact on our cash position and liquidity, than is reflected in our statements of operations.

For the three months ended June 30, 2010, compensation and benefits expenses decreased 2.1 percent to $77.7 million from $79.4 million in the corresponding period in 2009. Compensation and benefits expenses as a percentage of net revenues were 60.9 percent for the second quarter of 2010, compared with 60.0 percent for the second quarter of 2009. In the second quarter of 2010, our mix of business shifted with investment banking contributing a higher percentage of revenues. Investment banking has a higher level of compensation, which increased our compensation and benefits expenses as a percentage of net revenues. If this mix of business continues, we anticipate upward pressure on this compensation ratio.

Occupancy and Equipment - In the second quarter of 2010, occupancy and equipment expenses were $8.1 million, compared with $7.7 million for the corresponding period in 2009. The increase was attributable to additional occupancy expense from our acquisition of ARI as well as incremental occupancy costs as we began transitioning to new space in New York City. We anticipate occupancy costs will further increase in the third quarter of 2010 as we incur additional expense in New York City and begin transitioning to new space in Hong Kong.

Communications - Communication expenses include costs for telecommunication and data communication, primarily consisting of expenses for obtaining third-party market data information. For the three months ended June 30, 2010, communications expenses were $6.2 million, compared with $5.4 million for the prior-year period. The increase was due to higher market data service expenses.

Floor Brokerage and Clearance - For the three months ended June 30, 2010, floor brokerage and clearance expenses were $3.3 million, essentially flat compared with the three months ended June 30, 2009.

Marketing and Business Development - In the second quarter of 2010, marketing and business development expenses increased to $6.1 million, compared with $3.4 million in the second quarter of 2009. This increase was driven by higher travel costs associated with increased investment banking activities as well as incremental expense from the acquisition of ARI.

Outside Services - Outside services expenses include securities processing expenses, outsourced technology functions, outside legal fees and other professional fees. Outside services expenses increased to $7.7 million in the second quarter of 2010, compared with $7.4 million for the prior-year period, due primarily to additional costs from our acquisition of ARI.

Restructuring-Related Expense - During the second quarter of 2009, we recorded a pre-tax restructuring charge of $3.6 million, primarily consisting of employee severance costs and charges related to leased office space.

Other Operating Expenses - Other operating expenses include insurance costs, amortization of intangible assets, license and registration fees, expenses related to our charitable giving program and litigation-related expenses, which consist of the amounts we reserve and/or pay out related to legal and regulatory matters. In the second quarter of 2010, other operating expenses increased to $6.7 million, compared with $3.7 million in the second quarter of 2009. This increase was primarily due to increased litigation-related expenses and intangible amortization expense related to the acquisition of ARI.

Income Taxes - For the three months ended June 30, 2010, our provision for income taxes was $4.5 million, equating to an effective tax rate of 37.7 percent. For the three months ended June 30, 2009, income taxes was $6.8 million, equating to an effective tax rate of 37.1 percent.

Segment Performance

We measure financial performance by business segment. Our two reportable segments are Capital Markets and Asset Management. We determined these segments based upon the nature of the financial products and services provided to customers and the Company’s management organization. Segment pre-tax operating income or loss and segment pre-tax operating margin are used to evaluate and measure segment performance by our management team in deciding how to allocate resources and in assessing performance in relation to our competitors. Revenues and expenses directly associated with each respective segment are included in determining their operating results. Other revenues and expenses that are not directly attributable to a particular segment are allocated based upon the Company’s allocation methodologies, generally based on each segment’s respective net revenues, use of shared resources, headcount or other relevant measures.

The following table provides our segment performance for the periods presented:


	Three Months Ended
	June 30,
								2010
	2010			2009				v2009
(Dollars in thousands)
Net revenues
Capital Markets	$	111,985		$	128,888				(13.1	)	%
Asset Management		15,668			3,402				360.6

Total net revenues	$	127,653		$	132,290				(3.5	)	%


Pre-tax operating income/(loss)
Capital Markets	$	8,871		$	19,847				(55.3	)	%
Asset Management		2,965			(1,429	)			N/M

Total pre-tax operating income/(loss)	$	11,836		$	18,418				(35.7	)	%


Pre-tax operating margin
Capital Markets		7.9	%		15.4		%
Asset Management		18.9	%		N/M
Total pre-tax operating margin		9.3	%		13.9		%


N/M - Not meaningful

Capital Markets


	Three Months Ended
	June 30,
							2010
	2010			2009			v2009
(Dollars in thousands)
Net revenues:
Investment banking
Financing
Equities	$	34,776		$	23,294			49.3		%
Debt		14,355			20,126			(28.7	)
Advisory services		23,197			19,574			18.5

Total investment banking		72,328			62,994			14.8

Institutional sales and trading
Equities		27,501			30,384			(9.5	)
Fixed income		9,733			35,166			(72.3	)

Total institutional sales and trading		37,234			65,550			(43.2	)

Other income/(loss)		2,423			344			604.4


Total net revenues	$	111,985		$	128,888			(13.1	)	%


Pre-tax operating income	$	8,871		$	19,847			(55.3	)	%

Pre-tax operating margin		7.9	%		15.4	%

Capital Markets net revenues decreased 13.1 percent to $112.0 million in the second quarter of 2010, compared with $128.9 million in the prior-year period, primarily driven by a decrease in fixed income institutional sales and trading revenues offset in part by higher investment banking revenues.

Investment banking revenues comprise all the revenues generated through financing and advisory services activities including derivative activities that relate to debt financing. To assess the profitability of investment banking, we aggregate investment banking fees with the net interest income or expense associated with these activities.

Investment banking revenues increased 14.8 percent to $72.3 million in the second quarter of 2010, compared with $63.0 million for the corresponding period in 2009, primarily driven by increased equity financing revenues. For the three months ended June 30, 2010, equity financing revenues increased to $34.8 million, compared with $23.3 million in the prior-year period due to an increase in the average revenue per transaction. During the second quarter of 2010, we completed 28 equity financings, raising $3.5 billion in capital for our clients, compared with 23 equity financings, raising $5.8 billion for the corresponding period in 2009. Debt financing revenues in the second quarter of 2010 decreased 28.7 percent to $14.4 million, compared with $20.1 million in the second quarter of 2009, resulting from a decline in both the number of public finance transactions completed and average revenue per transaction. During the second quarter of 2010, we completed 121 public finance issues with a total par value of $1.6 billion, compared with 137 public finance issues with a total par value of $3.8 billion during the prior-year period. For the three months ended June 30, 2010, advisory services revenues increased 18.5 percent to $23.2 million due to a higher aggregate value of completed transactions. We completed 11 transactions with an aggregate enterprise value of $4.6 billion during the second quarter of 2010, compared with 11 transactions with an aggregate enterprise value of $1.8 billion in the second quarter of 2009.

Institutional brokerage revenues comprise all the revenues generated through trading activities, which consist primarily of facilitating customer trades. To assess the profitability of institutional brokerage activities, we aggregate institutional brokerage revenues with the

net interest income or expense associated with financing, economically hedging and holding long or short inventory positions. Our results may vary from quarter to quarter as a result of changes in trading margins, trading gains and losses, net interest spreads, trading volumes and the timing of transactions based on market opportunities.

For the three months ended June 30, 2010, institutional brokerage revenues declined 43.2 percent to $37.2 million, compared with $65.6 million in the prior-year period, driven by significantly lower fixed income institutional brokerage revenues. Fixed income institutional brokerage revenues were $9.7 million in the second quarter of 2010, compared with $35.2 million in the prior-year. In the second quarter of 2010, investor concerns over credit risk led to widening credit spreads and lower client activity in municipal products and reduced trading performance across products, including municipal strategic trading and taxable securities. In addition, we experienced a very favorable fixed income trading environment in the second quarter of 2009. We anticipate that municipal institutional brokerage revenues will continue to be negatively impacted during the remainder of 2010 by interest rate and credit risks. Equity institutional brokerage revenues decreased to $27.5 million in the second quarter of 2010, compared with $30.4 million in the prior period in 2009. Revenues associated with the U.S. equities declined due to lower client volumes.

Other income/loss includes gains and losses from our merchant banking activities, other firm investments, income associated with the forfeiture of stock-based compensation and interest expense related to firm funding. In the second quarter of 2010, other income increased to $2.4 million, compared with $0.3 million of income in the prior-year period as a result of gains associated with our firm investments and income associated with the forfeiture of stock-based compensation.

Segment pre-tax operating margin for the second quarter of 2010 decreased to 7.9 percent from 15.4 percent for the corresponding period in the prior year. In the second quarter of 2010, we experienced a shift in business with investment banking contributing a higher percentage of revenues and fixed income institutional sales and trading contributing a lower percentage. Investment banking activities generally have a higher level of compensation than fixed income institutional sales and trading. This, along with a decline in net revenues, drove the decline in our segment pre-tax operating margin. If this mix of business continues, we anticipate continued pressure on our segment pre-tax operating margin.

Asset Management


	Three Months Ended
	June 30,
								2010
	2010				2009			v2009
(Dollars in thousands)
Net revenues:
Management and performance fees	$	15,873			$	3,240			389.9	%

Other income/(loss)		(205	)			162			N/M


Net revenues	$	15,668			$	3,402			360.6	%

Pre-tax operating income/(loss)	$	2,965			$	(1,429	)		N/M

Pre-tax operating margin		18.9		%		N/M


N/M - Not meaningful

Asset management revenues comprise all the revenues generated through management and investment advisory services performed for various funds and separately managed accounts. Asset management revenues increased 389.9 percent to $15.9 million in the second quarter of 2010, compared with $3.2 million for the corresponding period in 2009, due to the acquisition of ARI completed on March 1, 2010.

Other income/loss includes gains and losses from our investments in funds and partnerships. Other income/loss was a loss of $0.2 million in the second quarter of 2010, compared with a gain of $0.2 million in the second quarter of 2009. The loss in the second quarter of 2010 was due to a decrease in the fair market value of a fund investment driven by a decline in equity prices.

Segment pre-tax operating margin for the second quarter of 2010 was 18.9 percent, compared to a negative margin for the corresponding period in the prior year.

The following table summarizes the changes in our assets under management for the three months ended June 30, 2010:


(Dollars in millions)
Assets under management:
Balance at March 31, 2010:	$	12,849

Net inflows/(outflows)		(260	)

Net market appreciation/(depreciation)		(742	)


Balance at June 30, 2010:	$	11,847

Assets under management decreased $1.0 billion to $11.8 billion in the second quarter of 2010. The decrease resulted primarily from market depreciation of the underlying assets in the funds due to a decline in equity prices during the quarter.

Financial Summary for the Six Months Ended June 30, 2010 and June 30, 2009

The following table provides a summary of the results of our operations and the results of our operations as a percentage of net revenues for the periods indicated.


										As a Percentage of Net
	Six Months Ended									Revenues
	June 30,									For the Six Months Ended
						2010				June 30,
(Dollars in thousands)	2010		2009			v2009				2010			2009
Revenues:

Investment banking	$	115,493	$	86,500			33.5		%		48.7	%		40.0		%
Institutional brokerage		81,179		115,879			(29.9	)			34.2			53.6
Interest		23,768		16,261			46.2				10.0			7.5
Asset management		25,027		6,249			300.5				10.5			2.9
Other income/(loss)		6,422		(4,549	)		N/M				2.8			(2.1	)


Total revenues		251,889		220,340			14.3				106.2			101.9

Interest expense		14,650		4,168			251.5				6.2			1.9


Net revenues		237,239		216,172			9.7				100.0			100.0


Non-interest expenses:

Compensation and benefits		142,774		129,701			10.1				60.2			60.0
Occupancy and equipment		15,725		14,198			10.8				6.6			6.6
Communications		12,688		11,529			10.1				5.3			5.3
Floor brokerage and clearance		5,924		6,114			(3.1	)			2.5			2.8
Marketing and business development		11,417		7,864			45.2				4.8			3.6
Outside services		15,739		14,934			5.4				6.6			6.9
Restructuring-related expenses		-		3,572			(100.0	)			-			1.7
Other operating expenses		11,981		6,298			90.2				5.2			2.9


Total non-interest expenses		216,248		194,210			11.3				91.2			89.8


Income before income tax expense		20,991		21,962			(4.4	)			8.8			10.2

Income tax expense		13,103		13,111			(0.1	)			5.5			6.1


Net income	$	7,888	$	8,851			(10.9	)	%		3.3	%		4.1		%


N/M - Not Meaningful

Except as discussed below, the description of non-interest expense and net revenues as well as the underlying reasons for variances to prior year are substantially the same as the comparative quarterly discussion.

For the six months ended June 30, 2010, net income totaled $7.9 million, compared with $8.9 million in the corresponding period in 2009. Net revenues were $237.2 million for the six months ended June 30, 2010, an increase of 9.7 percent from the year-ago period. For the six months ended June 30, 2010, investment banking revenues increased 33.5 percent to $115.5 million, compared with revenues of $86.5 million for the first six months of 2009. The increase in investment banking revenues was driven by higher equity financing activity in the first half of 2010. Institutional brokerage revenues decreased 29.9 percent to $81.2 million, compared with revenues of $115.9 million in the prior-year period primarily due to reduced trading results in municipal products and corporate credits

as a result of a challenging trading environment in the second quarter of 2010 and, to a lesser extent, lower U.S. equity and convertible revenues. Net interest income for the first six months of 2010 decreased to $9.1 million, down from $12.1 million for the first six months of 2009. The decrease was primarily the result of interest expense on the $120 million of variable rate senior notes issued December 31, 2009 to finance a portion of the ARI acquisition. For the first half of 2010, asset management fees were $25.0 million, compared with $6.2 million in the prior-year period. The increased revenues were attributed to the results for ARI, which we acquired on March 1, 2010. Other income for the six months ended June 30, 2010 was $6.4 million, compared with a loss of $4.5 million for the corresponding period in 2009. The change in other income is attributable to gains recorded on our firm investments and higher income associated with the forfeitures of stock-based compensation. Non-interest expenses increased to $216.2 million for the six months ended June 30, 2010, from $194.2 million in the corresponding period in the prior year, primarily as a result of higher compensation and benefits expense, increased business activity and additional non-compensation expense related to the ARI acquisition, including intangible amortization expense.

Consolidated Non-Interest Expenses

Compensation and Benefits - For the six months ended June 30, 2010, compensation and benefits expenses increased 10.1 percent to $142.8 million from $129.7 million in the corresponding period in 2009. This increase was due to additional salary expense from the acquisition of ARI, increased net revenues and a change in the mix of our revenues to a higher proportion of investment banking revenues, which has a higher level of compensation. Compensation and benefits expenses as a percentage of net revenues were 60.2 percent for the first six months of 2010, compared with 60.0 percent for the first six months of 2009. If this mix of business continues, we anticipate upward pressure on this percentage.

Floor Brokerage and Clearance - For the six months ended June 30, 2010, floor brokerage and clearance costs were $5.9 million, compared with $6.1 million for the six months ended June 30, 2009, due to reduced trading volumes.

Income taxes - For the six months ended June 30, 2010, our provision for income taxes was $13.1 million, equating to an effective tax rate of 62.4 percent. For the six months ended June 30, 2009, income taxes were $13.1 million, equating to an effective tax rate of 59.7 percent. Income tax expense recorded in the first half of 2010 included a $5.3 million write-off of a deferred tax asset resulting from restricted stock grants that vested at share prices lower than the grant date share prices. For more information on the write-off of this deferred tax asset, see “Income Taxes” within our Critical Accounting Policies. The effective tax rate of 59.7 percent for the first half of 2009 included approximately $3.0 million of one-time items that increased tax expense.

Segment Performance

The following table provides our segment performance for the periods presented:


	Six Months Ended
	June 30,
								2010
	2010			2009				v2009
(Dollars in thousands)
Net revenues
Capital Markets	$	212,417		$	209,967				1.2		%
Asset Management		24,822			6,205				300.0

Total net revenues	$	237,239		$	216,172				9.7		%


Pre-tax operating income/(loss)
Capital Markets	$	16,277		$	24,514				(33.6	)	%
Asset Management		4,714			(2,552	)			N/M

Total pre-tax operating income/(loss)	$	20,991		$	21,962				(4.4	)	%


Pre-tax operating margin
Capital Markets		7.7	%		11.7		%
Asset Management		19.0	%		N/M
Total pre-tax operating margin		8.8	%		10.2		%


N/M - Not meaningful

Capital Markets


	Six Months Ended
	June 30,
								2010
	2010			2009				v2009
(Dollars in thousands)
Net revenues:
Investment banking
Financing
Equities	$	51,764		$	27,357				89.2		%
Debt		29,536			32,514				(9.2	)
Advisory services		35,172			28,389				23.9

Total investment banking		116,472			88,260				32.0

Institutional sales and trading
Equities		54,428			61,046				(10.8	)
Fixed income		37,109			62,971				(41.1	)

Total institutional sales and trading		91,537			124,017				(26.2	)

Other income/(loss)		4,408			(2,310	)			N/M


Total net revenues	$	212,417		$	209,967				1.2		%


Pre-tax operating income	$	16,277		$	24,514				(33.6	)	%

Pre-tax operating margin		7.7	%		11.7		%


N/M - Not meaningful

Capital Markets net revenues of $212.4 million for the six months ended June 30, 2010, were essentially flat compared with net revenues of $210.0 million in the prior year period as an increase in investment banking revenues was offset by decreases in institutional sales and trading revenues.

For the six months ended June 30, 2010, investment banking revenues increased to $116.5 million, compared with $88.3 million in the prior-year period. Equity financing revenues increased to $51.8 million in the first half of 2010, compared with $27.4 million in the corresponding period in the prior year. During the six months ended June 30, 2010, we completed 44 equity financings, raising $5.3 billion in capital for our clients. During the six months ended June 30, 2009, we completed 27 equity financings, raising $5.9 billion. In the first half of 2010, debt financing revenues declined to $29.5 million, compared with $32.5 million in the corresponding period in 2009 due to a decline in public finance and derivative revenues. In the first half of 2010, we completed 234 public finance issues with a total par value of $3.3 billion, compared with 230 public finance issues with a total par value of $5.7 billion in the first half of 2009. Advisory services revenues for the first six months of 2010 increased 23.9 percent to $35.2 million due to increased activity and a higher aggregate value of completed transactions. For the six months ended June 30, 2010, we completed 23 advisory transactions with an aggregate enterprise value of $6.3 billion, compared with 17 advisory transactions with an aggregate enterprise value of $2.4 billion in the first half of 2009.

For the six months ended June 30, 2010, institutional sales and trading revenues decreased 26.2 percent to $91.5 million, compared with $124.0 million for the prior-year period. Equity institutional sales and trading revenue decreased 10.8 percent to $54.4 million in the first half of 2010, compared with $61.0 million in the first half of 2009. Revenues associated with U.S. equities and convertibles business declined due to lower volumes. Fixed income institutional sales and trading revenues decreased to $37.1 million for the six months ended June 30, 2010, compared with $63.0 million for the corresponding period in 2009. In the second quarter of 2010, concerns over credit risk led to widening credit spreads and lower client activity in municipal products and taxable securities. In addition, during the first half of 2009 we experienced a very favorable fixed income trading environment. We anticipate that municipal institution brokerage revenues will continue to be impacted during the remainder of 2010 by interest rate and credit risks.

For the six months ended June 30, 2010, other income/loss was a gain of $4.4 million, compared with a loss of $2.3 million in the corresponding period in 2009. In the first half of 2010, we recorded income associated with unrealized gains on firm investments and income from the forfeiture of stock-based compensation.

Segment pre-tax operating margin for the six months ended June 30, 2010 decreased to 7.7 percent from 11.7 percent for the corresponding period in the prior year. In 2010, we experienced a shift in business with investment banking contributing a higher percentage of revenues and fixed income institutional business contributing a lower percentage. Investment banking has a higher level of compensation. This, along with a decline in net revenues, drove the decline in our segment pre-tax operating margin. If this mix of business continues, we anticipate continued pressure on our segment pre-tax operating margin.

Asset Management


	Six Months Ended
	June 30,
								2010
	2010				2009			v2009
(Dollars in thousands)
Net revenues:
Management and performance fees	$	25,027			$	6,249			300.5	%

Other income/(loss)		(205	)			(44	)		365.9


Net revenues	$	24,822			$	6,205			300.0	%

Pre-tax operating income/(loss)	$	4,714			$	(2,552	)		N/M

Pre-tax operating margin		19.0		%		N/M


N/M - Not meaningful

For the six months ended June 30, 2010, asset management revenues increased to $25.0 million as compared to $6.2 million in the first half of 2009. The increase was driven by the acquisition of ARI, which was completed on March 1, 2010.

For the six months ended June 30, 2010, other income/loss was a loss of $0.2 million. The loss in the first half of 2010 was due to a decrease in the fair value of a fund investment driven by a decline in equity prices.

Segment pre-tax operating margin for the first six months ended June 30, 2010 was 19.0 percent compared to a negative margin for the corresponding period in the prior year.

The following table summarizes the changes in our assets under management for the six months ended June 30, 2010:


(Dollars in millions)
Assets under management:
Balance at December 31, 2009	$	6,859

Assets under management aquired in ARI acquisition		5,563

Net inflows/(outflows)		(410	)

Net market appreciation/(depreciation)		(165	)


Balance at June 30, 2010	$	11,847

For the six months ended June 30, 2010, assets under management increased $4.9 billion to $11.8 billion as compared to $6.9 billion at December 31, 2009. The increase was attributable to the acquisition of ARI, which was completed on March 1, 2010.

Recent Accounting Pronouncements

Recent accounting pronouncements are set forth in Note 3 to our unaudited consolidated financial statements, and are incorporated herein by reference.

Critical Accounting Policies

Our accounting and reporting policies comply with generally accepted accounting principles (“GAAP”) and conform to practices within the securities industry. The preparation of financial statements in compliance with GAAP and industry practices requires us to make estimates and assumptions that could materially affect amounts reported in our consolidated financial statements. Critical accounting policies are those policies that we believe to be the most important to the portrayal of our financial condition and results of operations and that require us to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by us to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical, including whether the estimates are significant to the consolidated financial statements taken as a whole, the nature of the estimates, the ability to readily validate the estimates with other information (e.g. third-party or independent sources), the sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be used under GAAP.

For a full description of our significant accounting policies, see Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year-ended December 31, 2009. We believe that of our significant accounting policies, the following are our critical accounting policies.

Valuation of Financial Instruments

Financial instruments and other inventory positions owned, financial instruments and other inventory positions sold, but not yet purchased and certain firm investments on our consolidated statements of financial condition consist of financial instruments recorded at fair value. Unrealized gains and losses related to these financial instruments are reflected on our consolidated statements of operations.

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. When available, we use observable market prices, observable market parameters, or broker or dealer prices (bid and ask prices) to derive the fair value of the instrument. In the case of financial instruments transacted on recognized exchanges, the observable market prices represent quotations for completed transactions from the exchange on which the financial instrument is principally traded. Bid prices represent the highest price a buyer is willing to pay for a financial instrument at a particular time. Ask prices represent the lowest price a seller is willing to accept for a financial instrument at a particular time.

A substantial percentage of the fair value of our financial instruments and other inventory positions owned, and financial instruments and other inventory positions sold, but not yet purchased, are based on observable market prices, observable market parameters, or derived from broker or dealer prices. The availability of observable market prices and pricing parameters can vary from product to product. Where available, observable market prices and pricing or market parameters in a product may be used to derive a price without requiring significant judgment. In certain markets, observable market prices or market parameters are not available for all products, and fair value is determined using techniques appropriate for each particular product. These techniques may involve some degree of judgment. Results from valuation models and other valuation techniques in one period may not be indicative of the future period fair value measurement.

For investments in illiquid or privately held securities that do not have readily determinable fair values, the determination of fair value requires us to estimate the value of the securities using the best information available. Among the factors considered by us in determining the fair value of such financial instruments are the cost, terms and liquidity of the investment, the financial condition and operating results of the issuer, the quoted market price of publicly traded securities with similar quality and yield, and other factors generally pertinent to the valuation of investments. In instances where a security is subject to transfer restrictions, the value of the security is based primarily on the quoted price of a similar security without restriction but may be reduced by an amount estimated to reflect such restrictions. Even where the value of a security is derived from an independent source, certain assumptions may be required to determine the security’s fair value. For example, we assume that the size of positions that we hold would not be large enough to affect the quoted price of the securities if we sell them, and that any such sale would happen in an orderly manner. The actual value realized upon disposition could be different from the current estimated fair value.

Depending upon the product and terms of the transaction, the fair value of the Company’s derivative contracts can be observed or priced using models based on the net present value of estimated future cash flows. The valuation models used require inputs including contractual terms, market prices, yield curves, credit curves and measures of volatility. The valuation models are monitored over the life of the derivative product. If there are any changes in the underlying inputs, the model is updated for those new inputs.

FASB Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to inputs with little or no pricing observability (Level III measurements). Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Instruments that trade infrequently and therefore have little or no price transparency are classified within Level III based on the results of our price verification process. The Company’s Level III assets were $64.9 million and $44.3 million as of June 30, 2010 and December 31, 2009, respectively, and represented approximately 7.5 percent and 5.4 percent of financial instruments measured at fair value. At June 30, 2010, this balance primarily consisted of asset-backed securities, principally collateralized by aircraft and residential mortgages, that have experienced low volumes of executed transactions, such that unobservable inputs had to be utilized for the fair value measurements, convertible securities for which no recent trade activity was observed, resulting in the use of unobservable inputs, and uncollateralized derivative contracts for which the fair market value has been adjusted for credit exposure to the counterparty. Asset-backed securities collateralized with airplane leases are valued using cash flow models that utilize unobservable inputs including airplane lease rates, trust costs, aircraft valuation and other factors impacting security cash flows. Asset-backed securities collateralized with residential mortgages are valued using cash flow models that utilize unobservable inputs that include credit default rates, prepayment rates and severity rates. Convertible securities are valued using models that utilize observable inputs such as specific company stock price and volatility and unobservable inputs that include option adjusted spreads. The derivative contracts are valued using a model based on net present value of estimated cash flows discounted for credit exposure with the counterparty. The discount is based upon a credit review conducted by management.

During the first half of 2010, we recorded net sales of $7.4 million of Level III assets, primarily consisting of $7.8 million of net sales of asset-backed securities and $12.1 million of net sales of short-term municipal securities, offset with $9.3 million in net purchases of convertible securities and $3.2 million in net purchases of fixed income securities. We had net transfers of $14.7 million of assets from Level II to Level III in the first six months of 2010. Transfers of assets from Level II to Level III were related to derivatives and asset-backed securities, where no recent trade activity was observed and valuation inputs became unobservable. During the first half of 2010, net gains (realized and unrealized) on Level III assets of $13.3 million were attributed to increased fair values of certain derivatives as well as gains on the sale of certain asset-backed securities and certain convertible securities. These net gains were offset by decreased fair values of certain short-term municipal securities.

During the six months ended June 30, 2010, we recorded net sales of $6.0 million of Level III liabilities primarily consisting of $7.9 million of net sales related to fixed income securities made to facilitate customer activity offset by $1.9 million in net purchases of asset-backed securities. There were $3.9 million of net transfers of financial liabilities from Level III to Level II for the six months ended June 30, 2010 related to asset-backed securities for which market trades were observed in the quarter that provide for transparency into the valuation of these liabilities.

Financial instruments carried at contract amounts have short-term maturities (one year or less), are repriced frequently or bear market interest rates and, accordingly, the carrying amount of those contracts approximate fair value. Financial instruments carried at contract amounts on our consolidated statements of financial condition include receivables from and payables to brokers, dealers and clearing organizations, securities purchased under agreements to resell, securities sold under agreements to repurchase, receivables from and payables to customers and short-term financing.

Goodwill and Intangible Assets

We record all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangible assets, at fair value. Determining the fair value of assets and liabilities acquired requires certain management estimates. At June 30, 2010, we had goodwill of $316.9 million. Of this goodwill balance, $152.3 million was recorded in 2010 as a result of the acquisition of Advisory Research Holdings, Inc. and $105.5 million is a result of the 1998 acquisition by U.S. Bancorp of our predecessor, Piper Jaffray Companies Inc., and its subsidiaries.

Under FASB Accounting Standards Codification Topic 350, “Intangibles – Goodwill and Other,” we are required to perform impairment tests of our goodwill and indefinite-lived intangible assets annually and on an interim basis when certain events or circumstances exist that could indicate possible impairment. We have elected to test for goodwill impairment in the fourth quarter of each calendar year. The goodwill impairment test is a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of our principal reporting units based on the following factors: our market capitalization, a discounted cash flow model using revenue and profit forecasts, public market comparables and multiples of recent mergers and acquisitions of similar businesses. Valuation multiples may be based on revenues, price-to-earnings and tangible capital ratios of comparable public companies and business segments. These multiples may be adjusted to consider competitive differences including size, operating leverage and other factors. The estimated fair values of our reporting units are compared with their carrying values, which includes the allocated goodwill. If the estimated fair values are less than the carrying values, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires us to allocate the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying value.

As noted above, the initial recognition of goodwill and other intangible assets and the subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired assets or businesses will perform in the future using valuation methods including discounted cash flow analysis. Our estimated cash flows typically extend for five years and, by their nature, are difficult to determine over an extended time period. Events and factors that may significantly affect the estimates include, among others, competitive forces and changes in revenue growth trends, cost structures, technology, discount rates and market conditions. To assess the reasonableness of cash flow estimates and validate assumptions used in our estimates, we review historical performance of the underlying assets or similar assets. In assessing the fair value of our reporting units, the volatile nature of the securities markets and our industry requires us to consider the business and market cycle and assess the stage of the cycle in estimating the timing and extent of future cash flows.

We completed our annual goodwill impairment testing as of November 30, 2009, and no impairment was identified. We also tested the definite-lived intangible assets acquired as part of the FAMCO acquisition and concluded there was no impairment.

Stock-Based Compensation

As part of our compensation to employees and directors, we use stock-based compensation, consisting of restricted stock and stock options. The Company accounts for equity awards in accordance with FASB Accounting Standards Codification Topic 718, “Compensation – Stock Compensation,” (“ASC 718”), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations at grant date fair value over the service period of the award, net of estimated forfeitures.

Compensation paid to employees in the form of restricted stock or stock options is generally accrued or amortized on a straight-line basis over the required service period of the award and is included in our results of operations as compensation expense. The majority of these awards have a three-year cliff vesting schedule and provide for continued vesting after termination, so long as the employee

does not violate certain post-termination restrictions as set forth in the award agreements or any agreements entered into upon termination. These post-termination restrictions do not meet the criteria for an in-substance service condition as defined by ASC 718. Accordingly, such restricted stock and option grants are expensed in the period in which those awards are deemed to be earned, which is generally the calendar year preceding our annual February equity grant. If any of these awards are cancelled, the lower of the fair value at grant date or the fair value at the date of cancellation is recorded within other income in the consolidated statements of operations.

Performance-based restricted stock awards are amortized on a straight-line basis over the period we expect the performance target to be met. The performance condition must be met for the awards to vest and total compensation cost will be recognized only if the performance condition is satisfied. The probability that the performance conditions will be achieved and that the awards will vest is reevaluated each reporting period with changes in actual or estimated compensation expense accounted for using a cumulative effect adjustment.

Stock-based compensation granted to our non-employee directors is in the form of unrestricted common shares of Piper Jaffray Companies stock. Stock-based compensation paid to directors is immediately expensed and is included in our results of operations as outside services expense as of the date of grant.

We granted stock options in fiscal years 2004 through 2008. In determining the estimated fair value of stock options, we used the Black-Scholes option-pricing model. This model requires management to exercise judgment with respect to certain assumptions, including the expected dividend yield, the expected volatility, and the expected life of the options.

Contingencies

We are involved in various pending and potential legal proceedings related to our business, including litigation, arbitration and regulatory proceedings. Some of these matters involve claims for substantial amounts, including claims for punitive and other special damages. We have, after consultation with outside legal counsel and consideration of facts currently known by management, recorded estimated losses in accordance with FASB Accounting Standards Codification Topic 450, “Contingencies,” to the extent that claims are probable of loss and the amount of the loss can be reasonably estimated. The determination of these reserve amounts requires significant judgment on the part of management. In making these determinations, we consider many factors, including, but not limited to, the loss and damages sought by the plaintiff or claimant, the basis and validity of the claim, the likelihood of a successful defense against the claim, and the potential for, and magnitude of, damages or settlements from such pending and potential litigation and arbitration proceedings, and fines and penalties or orders from regulatory agencies.

Given the uncertainties regarding timing, size, volume and outcome of pending and potential legal proceedings and other factors, the amounts of reserves are difficult to determine and of necessity subject to future revision. Subject to the foregoing, we believe, based on our current knowledge, after appropriate consultation with outside legal counsel and after taking into account our established reserves, that pending litigation, arbitration and regulatory proceedings will be resolved with no material adverse effect on our financial condition. However, if, during any period, a potential adverse contingency should become probable or resolved for an amount in excess of the established reserves, the results of operations in that period could be materially adversely affected.

Income Taxes

We file a consolidated U.S. federal income tax return, which includes all of our qualifying subsidiaries. We also are subject to income tax in various states and municipalities and those foreign jurisdictions in which we operate. Amounts provided for income taxes are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as tax loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income taxes are provided for temporary differences in reporting certain items, principally, amortization of share-based compensation. The realization of deferred tax assets is assessed and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized. We believe that our future taxable profits will be sufficient to recognize our U.S. deferred tax assets. If however, our projections of future taxable profits do not materialize, we may conclude that a valuation allowance is needed. We have recorded a deferred tax asset valuation allowance of $5.0 million related to certain foreign subsidiary net operating loss carry forwards.

We record deferred tax benefits for future tax deductions expected upon the vesting of share-based compensation. If deductions reported on our tax return for share-based compensation (i.e., the value of the share-based compensation at the time of vesting) exceed the cumulative cost of those instruments recognized for financial reporting (i.e., the grant date fair value of the compensation computed in accordance with ASC 718), we record the excess tax benefit as additional paid-in capital. Conversely, if deductions reported on our tax return for share-based compensation are less than the cumulative cost of those instruments recognized for financial reporting, we offset the deficiency first to any previously recognized excess tax benefits recorded as additional paid-in capital and any remaining deficiency is recorded as income tax expense. As of June 30, 2010, we do not have any available excess tax benefits within additional paid-in capital. Approximately 570,000 shares of restricted stock vested in the first half of 2010 at values less than the grant date fair value resulting in $5.3 million of income tax expense in the first half of 2010.

We establish reserves for uncertain income tax positions in accordance with FASB Accounting Standards Codification Topic 740, “Income Taxes” when, it is not more likely than not that a certain position or component of a position will be ultimately upheld by the relevant taxing authorities. Significant judgment is required in evaluating uncertain tax positions. Our tax provision and related accruals include the impact of estimates for uncertain tax positions and changes to the reserves that are considered appropriate. To the extent the probable tax outcome of these matters changes, such change in estimate will impact the income tax provision in the period of change.

Liquidity, Funding and Capital Resources

Liquidity is of critical importance to us given the nature of our business. Insufficient liquidity resulting from adverse circumstances contributes to, and may be the cause of, financial institution failure. Accordingly, we regularly monitor our liquidity position, including our cash and net capital positions, and we have implemented a liquidity strategy designed to enable our business to continue to operate even under adverse circumstances, although there can be no assurance that our strategy will be successful under all circumstances.

The majority of our tangible assets consist of assets readily convertible into cash. Financial instruments and other inventory positions owned are stated at fair value and are generally readily marketable in most market conditions. Receivables and payables with customers and brokers and dealers usually settle within a few days. As part of our liquidity strategy, we emphasize diversification of funding sources to the extent possible and maximize our lower-cost financing alternatives. Our assets are financed by our cash flows from operations, equity capital, and other short-term funding arrangements. The fluctuations in cash flows from financing activities are directly related to daily operating activities from our various businesses.

Certain market conditions can impact the liquidity of our inventory positions, requiring us to hold larger inventory positions for longer than expected or requiring us to take other actions that may adversely impact our results.

A significant component of our employees’ compensation is paid in annual discretionary incentive compensation. The timing of these incentive compensation payments, which generally are made in February, has a significant impact on our cash position and liquidity when paid.

We currently do not pay cash dividends on our common stock and do not plan to in the foreseeable future.

On April 16, 2008, we announced that our board of directors had authorized the repurchase of up to $100 million in shares of our common stock. In the second quarter of 2010, we repurchased 893,050 shares or $30 million of our common stock under this authorization. On June 30, 2010, this authorization expired and our board of directors approved a new repurchase authorization on July 28, 2010 of up to $75 million in shares of our common stock. This new authorization expires on September 30, 2012.

We currently do not have a credit rating, which may adversely affect our liquidity and increase our borrowing costs by limiting access to sources of liquidity that require a credit rating as a condition to providing funds.

Funding Sources

Short-term financing

Short-term financing is obtained primarily through the use of repurchase agreements, securities lending arrangements, commercial paper issuance and bank lines of credit and is typically collateralized by the firm’s securities inventory. In addition, we have established arrangements to obtain financing by another broker dealer at the end of each business day related specifically to our

convertible inventory. Short-term financing is generally obtained at rates based upon the federal funds rate and/or the London Interbank Offer Rate. We have available both committed and uncommitted short-term financing with a diverse group of banks.

Uncommitted Lines - We use uncommitted lines in the ordinary course of business to fund a portion of our daily operations, and the amount borrowed under our uncommitted lines varies daily based on our funding needs. Our uncommitted secured lines total $275 million with three banks and are dependent on having appropriate collateral, as determined by the bank agreement, to secure an advance under the line. Collateral limitations could reduce the amount of funding available under these secured lines. We also have a $100 million uncommitted unsecured facility with one of these banks. These uncommitted lines are discretionary and are not a commitment by the bank to provide an advance under the line. These lines are subject to approval by the respective bank each time an advance is requested and advances may be denied. We manage our relationships with the banks that provide these uncommitted facilities in order to have appropriate levels of funding for our business. At June 30, 2010, we had no advances against these lines of credit.

Committed Lines - Our committed line is a $250 million revolving secured credit facility. We use this credit facility in the ordinary course of business to fund a portion of our daily operations, and the amount borrowed under the facility varies daily based on our funding needs. Advances under this facility are secured by certain marketable securities. The facility includes a covenant that requires our U.S. broker dealer subsidiary to maintain a minimum net capital of $150 million, and the unpaid principal amount of all advances under the facility will be due on September 30, 2010. At June 30, 2010, we had no advances against our committed line of credit.

Commercial Paper Program - In 2009, we initiated a secured commercial paper program to fund a portion of our securities inventories. The maximum amount that may be issued under the program is $300 million, of which $57.1 million was outstanding at June 30, 2010. The commercial paper notes are secured by our securities inventory with maturities on the commercial paper ranging from 27 days to 270 days from date of issuance.

Average net repurchase agreements (excluding repurchase agreements used to facilitate economic hedges) of $342 million and $90 million and short-term bank loans of $95 million and $38 million in the second quarter of 2010 and 2009, respectively, were primarily used to finance inventory as well as customer and trade-related receivables. We also used an average of $10 million in securities lending arrangements and an average of $47 million in commercial paper in the second quarter of 2010 to finance inventory and receivables. Growth in our securities inventories is generally financed through a combination of these various short-term financing arrangements.

Variable rate senior notes

On December 31, 2009, we issued variable rate senior notes (“Notes”) in the amount of $120 million. The initial holders of the Notes are certain entities advised by Pacific Investment Management Company LLC (“PIMCO”). The proceeds from the Notes were used to fund a portion of the ARI acquisition, discussed above under “Executive Overview.” The unpaid principal amount of the Notes will be due on December 31, 2010.

Contractual Obligations

Our contractual obligations have not materially changed from those reported in our Annual Report to Shareholders on Form 10-K for the year ended December 31, 2009.

Capital Requirements

As a registered broker dealer and member firm of FINRA, our U.S. broker dealer subsidiary is subject to the uniform net capital rule of the SEC and the net capital rule of FINRA. We have elected to use the alternative method permitted by the uniform net capital rule, which requires that we maintain minimum net capital of the greater of $1.0 million or 2 percent of aggregate debit balances arising from customer transactions, as this is defined in the rule. FINRA may prohibit a member firm from expanding its business or paying dividends if resulting net capital would be less than 5 percent of aggregate debit balances. Advances to affiliates, repayment of subordinated liabilities, dividend payments and other equity withdrawals are subject to certain notification and other provisions of the uniform net capital rule and the net capital rule of FINRA. We expect that these provisions will not impact our ability to meet current and future obligations. We also are subject to certain notification requirements related to withdrawals of excess net capital from our broker dealer subsidiary. At June 30, 2010, our net capital under the SEC’s Uniform Net Capital Rule was $241.9 million, and exceeded the minimum net capital required under the SEC rule by $240.9 million.

Although we operate with a level of net capital substantially greater than the minimum thresholds established by FINRA and the SEC, a substantial reduction of our capital would curtail many of our revenue producing activities.

Piper Jaffray Ltd., our broker dealer subsidiary registered in the United Kingdom, is subject to the capital requirements of the U.K. Financial Services Authority. Each of our Piper Jaffray Asia entities licensed by the Hong Kong Securities and Futures Commission is subject to the liquid capital requirements of the Securities and Futures (Financial Resources) Rule promulgated under the Securities and Futures Ordinance.

Off-Balance Sheet Arrangements

In the ordinary course of business we enter into various types of off-balance sheet arrangements. The following table summarizes our off-balance-sheet arrangements at June 30, 2010 and December 31, 2009:


													Total
Expiration Per Period at June 30, 2010													Contractual Amount
	Remainder of						2013-		2015-				June 30,		December 31,
(Dollars in thousands)	2010		2011		2012		2014		2016		Later		2010		2009
Customer matched-book derivative contracts (1)(2)	$	-	$	-	$	-	$	155,090	$	149,349	$	6,207,888	$	6,512,327	$	6,795,186
Trading securities derivative contracts (2)		-		-		-		-		12,500		222,000		234,500		234,500
Credit default swap index contracts (2)		-		-		-		-		215,000		-		215,000		-
Foreign currency forward contract (2)		4,418		-		-		-		-		-		4,418		-
Loan commitments		-		-		-		-		-		-		-		5,000
Private equity and other principal investments		-		-		-		-		-		-		2,927		3,652


(1)		Consists of interest rate swaps. We have minimal market risk related to these matched-book derivative contracts; however, we do have counterparty risk with two major financial institutions, which are mitigated by collateral deposits. In addition, we have a limited number of counterparties (contractual amount of $268.9 million at June 30, 2010) who are not required to post collateral. Based on market movements, the uncollateralized amounts representing the fair value of the derivative contract can become material, exposing us to the credit risk of these counterparties. At June 30, 2010, we had $27.3 million of credit exposure with these counterparties, including $13.8 million of credit exposure with one counterparty.

(2)		We believe the fair value of these derivative contracts is a more relevant measure of the obligations because we believe the notional or contract amount overstates the expected payout. At June 30, 2010 and December 31, 2009, the net fair value of these derivative contracts approximated $28.2 million and $14.1 million, respectively.

Derivatives

Derivatives’ notional contract amounts are not reflected as assets or liabilities on our consolidated statements of financial condition. Rather, the market value, or fair value, of the derivative transactions are reported on the consolidated statements of financial condition as assets or liabilities in financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased, as applicable. Derivatives are presented on a net basis by counterparty when a legal right of offset exists and when applicable provisions are stated in a master netting agreement.

We enter into derivative contracts in a principal capacity as a dealer to satisfy the financial needs of clients. We also use derivative products to hedge the interest rate, market value and credit risks associated with our security positions. Our interest rate hedging strategies may not work in all market environments and as a result may not be effective in mitigating interest rate risk. For a complete discussion of our activities related to derivative products, see Note 5, “Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased,” in the notes to our unaudited consolidated financial statements.

Loan Commitments

We may commit to short-term bridge-loan financing for our clients or make commitments to underwrite corporate debt. We had no loan commitments outstanding at June 30, 2010.

Private Equity and Other Principal Investments

We have committed capital to certain non-consolidated private-equity funds. These commitments have no specified call dates. We had $2.9 million of fund commitments outstanding at June 30, 2010.

Special Purpose Entities

As of June 30, 2010, we have investments in various entities, typically partnerships or limited liability companies, established for the purpose of investing in equity and debt securities of public and private investments. We commit capital or act as the managing partner or member of these entities. Some of these entities are deemed to be VIEs. For a complete discussion of our activities related to these types of entities, see Note 7, “Variable Interest Entities,” to our unaudited consolidated financial statements.

Other Off-Balance Sheet Exposure

Our other types of off-balance-sheet arrangements include contractual commitments. For a discussion of our activities related to these off-balance sheet arrangements, see Note 17, “Contingencies and Commitments,” to our consolidated financial statements included in our Annual Report to Shareholders on Form 10-K for the year ended December 31, 2009.

Enterprise Risk Management

Risk is an inherent part of our business. In the course of conducting business operations, we are exposed to a variety of risks. Market risk, liquidity risk, credit risk, operational risk, legal, regulatory and compliance risk, and reputational risk are the principal risks we face in operating our business. We seek to identify, assess and monitor each risk in accordance with defined policies and procedures. The extent to which we properly identify and effectively manage each of these risks is critical to our financial condition and profitability.

With respect to market risk and credit risk, our risk management process is focused on daily communication among traders, trading department management and senior management concerning our inventory positions and overall risk profile. Our risk management functions supplement this communication process by providing their independent perspectives on our market and credit risk profile on a daily basis. The broader goals of our risk management functions are to understand the risk profile of each trading area, to consolidate risk monitoring company-wide, to assist in implementing effective hedging strategies, to articulate large trading or position risks to senior management, and to ensure accurate mark-to-market pricing.

In addition to supporting daily risk management processes on the trading desks, our risk management functions support our financial risk committee. This committee oversees risk management practices, including defining acceptable risk tolerances and approving risk management policies.

Market Risk

Market risk represents the risk of financial volatility that may result from the change in value of a financial instrument due to fluctuations in its market price. Our exposure to market risk is directly related to our role as a financial intermediary for our clients, to our market-making activities and our proprietary activities. Market risks are inherent to both cash and derivative financial instruments. The scope of our market risk management policies and procedures includes all market-sensitive financial instruments.

Our different types of market risk include:

Interest Rate Risk - Interest rate risk represents the potential volatility from changes in market interest rates. We are exposed to interest rate risk arising from changes in the level and volatility of interest rates, changes in the shape of the yield curve, changes in credit spreads, and the rate of prepayments. Interest rate risk is managed through the use of appropriate hedging in U.S. government securities, agency securities, mortgage-backed securities, corporate debt securities, interest rate swaps, options, futures and forward contracts. We utilize interest rate swap contracts to hedge a portion of our fixed income inventory and to hedge rate lock agreements and forward bond purchase agreements we may enter into with our public finance customers. Additionally, we historically used interest rate swap agreements to hedge residual cash flows from our tender option bond program. Our interest rate hedging strategies may not work in all market environments and as a result may not be effective in mitigating interest rate risk. These interest rate swap contracts are recorded at fair value with the changes in fair value recognized in earnings.

Equity Price Risk - Equity price risk represents the potential loss in value due to adverse changes in the level or volatility of equity prices. We are exposed to equity price risk through our trading activities in the U.S. and European markets on both listed and over-the-counter equity markets. We attempt to reduce the risk of loss inherent in our market-making and in our inventory of equity securities by establishing limits on the notional level of our inventory and by managing net position levels with those limits.

Currency Risk — Currency risk arises from the possibility that fluctuations in foreign exchange rates will impact the value of financial instruments. A portion of our business is conducted in currencies other than the U.S. dollar, and changes in foreign exchange rates relative to the U.S. dollar can therefore affect the value of non-U.S. dollar net assets, revenues and expenses. A change in the foreign currency rates could create either a foreign currency transaction gain/loss (recorded in our consolidated statements of operations) or a foreign currency translation adjustment to the stockholders’ equity section of our consolidated statements of financial condition.

Value-at-Risk

Value-at-Risk (“VaR”) is the potential loss in value of our trading positions due to adverse market movements over a defined time horizon with a specified confidence level. We perform a daily VaR analysis on substantially all of our trading positions, including fixed income, equities, convertible bonds, exchange traded options, and all associated economic hedges. These positions encompass both customer-related activities and proprietary investments. We use a VaR model because it provides a common metric for assessing market risk across business lines and products. Changes in VaR between reporting periods are generally due to changes in levels of risk exposure, volatilities and/or correlations among asset classes and individual securities.

We use a Monte Carlo simulation methodology for VaR calculations. We believe this methodology provides VaR results that properly reflect the risk profile of all our instruments, including those that contain optionality and accurately models correlation movements among all of our asset classes. In addition, it provides improved tail results as there are no assumptions of distribution, and can add additional insight for scenario shock analysis.

Model-based VaR derived from simulation has inherent limitations including: reliance on historical data to predict future market risk; VaR calculated using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or offset with hedges within one day; and published VaR results reflect past trading positions while future risk depends on future positions.

The modeling of the market risk characteristics of our trading positions involves a number of assumptions and approximations. While we believe that these assumptions and approximations are reasonable, different assumptions and approximations could produce materially different VaR estimates.

The following table quantifies the model-based VaR simulated for each component of market risk for the periods presented computed using the past 250 days of historical data. When calculating VaR we use a 95 percent confidence level and a one-day time horizon. This means that, over time, there is a 1 in 20 chance that daily trading net revenues will fall below the expected daily trading net revenues by an amount at least as large as the reported VaR. Shortfalls on a single day can exceed reported VaR by significant amounts. Shortfalls can also accumulate over a longer time horizon, such as a number of consecutive trading days. Therefore, there can be no assurance that actual losses occurring on any given day arising from changes in market conditions will not exceed the VaR amounts shown below or that such losses will not occur more than once in a 20-day trading period.


	June 30,			December 31,
(Dollars in thousands)	2010			2009
Interest Rate Risk	$	1,793		$	1,147
Equity Price Risk		238			68
Diversification Effect (1)		(275	)		(74	)

Total Value-at-Risk	$	1,756		$	1,141


(1)		Equals the difference between total VaR and the sum of the VaRs for the two risk categories. This effect arises because the two market risk categories are not perfectly correlated.

We view average VaR over a period of time as more representative of trends in the business than VaR at any single point in time. The table below illustrates the daily high, low and average value-at-risk calculated for each component of market risk during the six months ended June 30, 2010 and the year ended December 31, 2009, respectively.

For the Six Months Ended June 30, 2010


(Dollars in thousands)	High		Low		Average
Interest Rate Risk	$	4,359	$	1,231	$	2,129
Equity Price Risk		3,414		27		242
Diversification Effect (1)						(282	)
Total Value-at-Risk	$	4,227	$	1,217	$	2,089

For the Year Ended December 31, 2009


(Dollars in thousands)	High		Low		Average
Interest Rate Risk	$	2,947	$	531	$	1,397
Equity Price Risk		951		21		221
Diversification Effect (1)						(252	)
Total Value-at-Risk	$	2,937	$	513	$	1,366


(1)		Equals the difference between total VaR and the sum of the VaRs for the two risk categories. This effect arises because the two market risk categories are not perfectly correlated. Because high and low VaR numbers for these risk categories may have occurred on different days, high and low numbers for diversification benefit would not be meaningful.

Trading losses incurred on a single day exceeded our one-day VaR on two occasions during the first half of 2010.

The aggregate VaR as of June 30, 2010 was higher compared to levels reported as of December 31, 2009. This is due mainly to higher inventory balances.

In addition to VaR, we also employ additional measures to monitor and manage market risk exposure, including the following: net market position, duration exposure, option sensitivities, and inventory turnover. All metrics are aggregated by asset concentration and are used for monitoring limits and exception approvals.

Liquidity Risk

Market risk can be exacerbated in times of trading illiquidity when market participants refrain from transacting in normal quantities and/or at normal bid-offer spreads. Depending on the specific security, the structure of the financial product, and/or overall market conditions, we may be forced to hold onto a security for substantially longer than we had planned. Our inventory positions subject us to potential financial losses from the reduction in value of illiquid positions.

We are also exposed to liquidity risk in our day-to-day funding activities. We have a relatively low leverage ratio of 2.5 as of June 30, 2010. We calculate our leverage ratio by dividing total assets by total shareholders’ equity. Our U.S. broker dealer had net capital of $241.9 million as of June 30, 2010. We manage liquidity risk by diversifying our funding sources across products and among individual counterparties within those products. For example, our treasury department actively manages the use of repurchase agreements, securities lending arrangements, commercial paper issuance and secured and unsecured bank borrowings each day depending on pricing, availability of funding, available collateral and lending parameters from any one of these sources. We also added a committed bank line to our funding sources during 2008 to further manage liquidity risk, which we renewed in September 2009.

In addition to managing our capital and funding, the treasury department oversees the management of net interest income risk and the overall use of our capital, funding, and balance sheet.

We currently act as the remarketing agent for approximately $6.2 billion of variable rate demand notes, all of which have a financial institution providing a liquidity guarantee. As remarketing agent for our clients’ variable rate demand notes, we are the first source of liquidity for sellers of these instruments. At certain times, demand from buyers of variable rate demand notes is less than the supply generated by sellers of these instruments. In times of supply and demand imbalance, we may (but are not obligated to) facilitate liquidity by purchasing variable rate demand notes from sellers for our own account. Our liquidity risk related to variable rate demand notes is ultimately mitigated by our ability to tender these securities back to the financial institution providing the liquidity guarantee.

Credit Risk

Credit risk in our business arises from potential non-performance by counterparties, customers, borrowers or issuers of securities we hold in our trading inventory. The global credit crisis also has created increased credit risk, particularly counterparty risk, as the interconnectedness of the financial markets has caused market participants to be impacted by systemic pressure, or contagion, that results from the failure or expected failure of large market participants.

We have concentrated counterparty credit exposure with six non-publicly rated entities totaling $27.3 million at June 30, 2010. This counterparty credit exposure is part of our derivative program, consisting primarily of interest rate swaps. One derivative counterparty represents 50.5 percent, or $13.8 million, of this exposure. Credit exposure associated with our derivative counterparties is driven by uncollateralized market movements in the fair value of the interest rate swap contracts and is monitored regularly by our financial risk committee.

We are exposed to credit risk in our role as a trading counterparty to dealers and customers, as a holder of securities and as a member of exchanges and clearing organizations. Our client activities involve the execution, settlement and financing of various transactions. Client activities are transacted on a delivery versus payment, cash or margin basis. Our credit exposure to institutional client business is mitigated by the use of industry-standard delivery versus payment through depositories and clearing banks.

Credit exposure associated with our customer margin accounts in the U.S. and Hong Kong is monitored daily. Our risk management functions have created credit risk policies establishing appropriate credit limits and collateralization thresholds for our customers utilizing margin lending.

Credit exposure associated with our investments in private company debt instruments are monitored regularly by our financial risk committee. These investments are recorded in other assets at amortized cost on the consolidated statement of financial condition. At June 30, 2010, we had two debt investments totaling $10.0 million. One of these debt investments totaling $5.5 million is in default as of June 30, 2010; however, we currently believe that the value of our secured collateral exceeds $5.5 million and accordingly, we have not recorded an impairment loss on this loan as of June 30, 2010.

Our risk management functions review risk associated with institutional counterparties with whom we hold repurchase and resale agreement facilities, stock borrow or loan facilities, derivatives, TBAs and other documented institutional counterparty agreements that may give rise to credit exposure. Counterparty levels are established relative to the level of counterparty ratings and potential levels of activity.

We are subject to credit concentration risk if we hold large individual securities positions, execute large transactions with individual counterparties or groups of related counterparties, extend large loans to individual borrowers or make substantial underwriting commitments. Concentration risk can occur by industry, geographic area or type of client. Potential credit concentration risk is carefully monitored and is managed through the use of policies and limits.

We also are exposed to the risk of loss related to changes in the credit spreads of debt instruments. Credit spread risk arises from potential changes in an issuer’s credit rating or the market’s perception of the issuer’s credit worthiness. We enter into credit default swap index contracts to hedge this risk, which may not work in all market environments and as a result may not be effective in mitigating credit risk. These credit default swap index contracts are recorded at fair value with the changes in fair value recognized in earnings.

Operational Risk

Operational risk refers to the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. We rely on the ability of our employees, our internal systems and processes and systems at computer centers operated by third parties to process a large number of transactions. In the event of a breakdown or improper operation of our systems or processes or improper action by our employees or third-party vendors, we could suffer financial loss, regulatory sanctions and damage to our reputation. We have business continuity plans in place that we believe will cover critical processes on a company-wide basis, and redundancies are built into our systems as we have deemed appropriate. These control mechanisms attempt to ensure that operations policies and procedures are being followed and that our various businesses are operating within established corporate policies and limits.

Legal, Regulatory and Compliance Risk

Legal, regulatory and compliance risk includes the risk of non-compliance with applicable legal and regulatory requirements and the risk that a counterparty’s performance obligations will be unenforceable. We are generally subject to extensive regulation in the various jurisdictions in which we conduct our business. We have established procedures that are designed to ensure compliance with applicable statutory and regulatory requirements, including, but not limited to, those related to regulatory net capital requirements, sales and trading practices, use and safekeeping of customer funds and securities, credit extension, money-laundering, privacy and recordkeeping.

We have established internal policies relating to ethics and business conduct, and compliance with applicable legal and regulatory requirements, as well as training and other procedures designed to ensure that these policies are followed.

Reputation and Other Risk

We recognize that maintaining our reputation among clients, investors, regulators and the general public is critical. Maintaining our reputation depends on a large number of factors, including the conduct of our business activities and the types of clients and counterparties with whom we conduct business. We seek to maintain our reputation by conducting our business activities in accordance with high ethical standards and performing appropriate reviews of clients and counterparties.

Effects of Inflation

Because our assets are generally liquid in nature, they are not significantly affected by inflation. However, the rate of inflation affects our expenses, such as employee compensation, office space leasing costs and communications charges, which may not be readily recoverable in the price of services we offer to our clients. To the extent inflation results in rising interest rates and has other adverse effects upon the securities markets, it may adversely affect our financial position and results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information under the caption “Enterprise Risk Management” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Form 10-Q is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding disclosure.

As a result of the acquisition of ARI on March 1, 2010, we have implemented internal controls over financial reporting to include consolidation of ARI, as well as acquisition-related accounting and disclosures. The acquisition of ARI represents a material change in internal control over financial reporting since management’s last assessment of the internal control over financial reporting. ARI utilizes separate accounting systems and processes to record financial data.

We intend to extend our Sarbanes-Oxley 404 compliance program to include ARI. Our management is reviewing and evaluating our internal control procedures and the design of those control procedures relating to the ARI acquisition and anticipates that we will complete an evaluation and review of the ARI internal control over financial reporting as of December 31, 2010.

Except for the change related to the acquisition of ARI, during the second quarter of the fiscal year ended December 31, 2010, there was no change in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The discussion of our business and operations should be read together with the legal proceedings contained in Part I, Item 3 “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.

ITEM 1A. RISK FACTORS.

The discussion of our business and operations should be read together with the risk factors contained in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC, as updated in our subsequent reports on Form

10-Q filed with the SEC. These risk factors describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The table below sets forth the information with respect to purchases made by or on behalf of Piper Jaffray Companies or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the quarter ended June 30, 2010.


						Total Number of
						Shares Purchased as		Approximate Dollar Value
	Total Number					Part of Publicly		of Shares that May Yet Be
	of Shares			Average Price Paid		Announced Plans or		Purchased Under the Plans
Period	Purchased			per Share		Programs		or Programs (1)
Month #1 (April 1, 2010 to April 30, 2010)		0		$	-		0	$	61 million
Month #2 (May 1, 2010 to May 31, 2010)		71,726	(2)	$	34.35		48,000	$	60 million
Month #3 (June 1, 2010 to June 30, 2010)		845,050	(3)	$	33.60		845,050	$	31 million

Total		916,776		$	33.66		893,050		0	(4)


(1)		On April 16, 2008, we announced that our board of directors had authorized the repurchase of up to $100 million of common stock through June 30, 2010.

(2)		Consists of 48,000 shares of common stock repurchased on the open market pursuant to a 10b5-1 plan established with an independent agent at an average price per share of $33.02, and 23,726 shares of common stock withheld from recipients of restricted stock to pay taxes upon the vesting of the restricted stock at an average price per share of $37.05.

(3)		Consists of 845,050 shares of common stock repurchased on the open market pursuant to a 10b5-1 plan established with an independent agent at an average price per share of $33.60.

(4)		Authorization expired June 30, 2010. Our board of directors approved a new repurchase authorization on July 28, 2010 of up to $75 million in shares of our common stock. This new authorization expires on September 30, 2012.

In addition, a third-party trustee makes open-market purchases of our common stock from time to time pursuant to the Piper Jaffray Companies Retirement Plan, under which participating employees may allocate assets to a company stock fund.

ITEM 6. EXHIBITS.


Exhibit			Method of
Number		Description	Filing

	31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.	Filed herewith

	31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.	Filed herewith

	32.1	Certifications furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith

	101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Financial Condition as of June 20, 2010 and December 31, 2009, (ii) the Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009, (iii) the Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 and (iv) the notes to the Consolidated Financial Statements, tagged as blocks of text.	Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 4, 2010.


	PIPER JAFFRAY COMPANIES
	By	/s/ Andrew S. Duff
	Its Chairman and Chief Executive Officer

	By	/s/ Debbra L. Schoneman
	Its Chief Financial Officer

Exhibit Index


Exhibit			Method of
Number		Description	Filing

	31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.	Filed herewith

	31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.	Filed herewith

	32.1	Certifications furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith

	101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Financial Condition as of June 20, 2010 and December 31, 2009, (ii) the Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009, (iii) the Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 and (iv) the notes to the Consolidated Financial Statements, tagged as blocks of text.	Filed herewith