INTERACTIVE BROKERS CANADA INC. (a wholly-owned subsidiary of IBG LLC)

Transcription

1 Financial statements of INTERACTIVE BROKERS CANADA INC. (a wholly-owned subsidiary of IBG LLC)

2 Table of contents Independent Auditor s report... 1 Statements of comprehensive loss... 2 Statements of financial position... 3 Statements of changes in equity... 4 Statements of cash flows

3 Deloitte & Touche LLP 1 Place Ville Marie Suite 3000 Montreal QC H3B 4T9 Canada Independent Auditor s Report To the Shareholders of Interactive Brokers Canada Inc. Tel: Fax: We have audited the accompanying financial statements of Interactive Brokers Canada Inc., which comprise the statements of financial position as at, December 31, 2010 and January 1, 2010, and the statements of comprehensive (loss) income, statements of changes in equity and statements of cash flows for the years ended and December 31, 2010, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Interactive Brokers Canada Inc. as at, December 31, 2010 and January 1, 2010 and its financial performance and its cash flows for the years ended and December 31, 2010 in accordance with International Financial Reporting Standards. 1 Chartered accountant auditor permit No February 17, 2012 Montreal (Canada)

4 Statements of comprehensive loss Year ended December 31, (in Canadian Dollars) Revenue Commission income 26,559,293 24,231,728 Interest income 311, ,663 Other income 53,143 27,228 Total revenue 26,923,637 24,432,619 Interest expense 888,432 1,219,476 Total net revenue 26,035,205 23,213,143 Non-interest expenses Execution and clearing 22,347,091 20,049,334 Employee compensation and benefits 1,560,001 1,571,648 Communications 568, ,659 Service fees 503, ,963 Occupancy 110, ,858 Amortization of property plant and equipment 36,858 7,694 Consulting fees 20,671 48,360 General and administrative Other administrative expenses 372, ,154 Parent company - administrative, consulting and guarantee fees 239, ,383 Non-income taxes 140, ,641 Professional Services 126, ,972 Total non-interest expenses 26,026,694 23,617,666 Net earnings (loss) before income taxes 8,511 (404,523) Income tax expense (21,463) 54,793 Deferred income taxes 65,595 5,358 Comprehensive loss (35,621) (464,674) Page 2 of 20

5 Statement of financial position As at December 31, (in Canadian Dollars) December 31, December 31, January 1, Assets Current assets Cash & cash equivalents 34,071,104 36,083,894 34,535,963 Margin deposits with regulated entities 458,946, ,197, ,207,591 Accounts receivable from clients (Note 4) 353,591, ,431, ,402,087 Accounts receivable from brokers and dealers - 3,429,583 1,664,946 Accounts receivable from affiliates 469, ,880 1,154,729 Current tax asset 21, Other assets 109,295 80,374 68, ,208, ,846, ,034,220 Non-current assets Deferred tax asset 70, , ,581 Property plant and equipment (Note 6) 111,747 27,364 1, , , , ,390, ,020, ,165,514 Liabilities Current liabilities Accounts payable to clients (Note 4) 807,907, ,057, ,274,624 Payable to brokers and dealers 7,829,125 4,785,165 3,573,843 Accounts payable and accrued liabilities 866,832 1,038, ,673 Income taxes payable - 51,476 15,837 Subordinated loan (Note 7) 10,004,775 10,004,775 10,004,775 Accounts payable to affiliates 520, , , ,128, ,722, ,403,002 Shareholders equity Capital stock (Note 8) 500, , ,000 Capital contribution 20,800,000 20,800,000 20,800,000 Deficit (1,037,783) (1,002,162) (537,488) 20,262,217 20,297,838 20,762, ,390, ,020, ,165,514 Page 3 of 20

6 Statements of changes in equity Year ended December 31, (in Canadian Dollars) Share Capital Capital Contribution Retained Earnings Shareholder's Equity At January 1, ,000 20,800,000 (537,488) 20,762,512 Comprehensive loss (464,674) (464,674) At December 31, ,000 20,800,000 (1,002,162) 20,297,838 Comprehensive loss (35,621) (35,621) At 500,000 20,800,000 (1,037,783) 20,262,217 Page 4 of 20

7 Statements of cash flows Year ended December 31, (in Canadian Dollars) Operating activities Net (loss) (35,621) (464,674) Adjustment for: Income tax expense recognized in profit or (loss) (21,463) 54,793 Interest expense recognized in profit or (loss) 888,432 1,219,476 Deferred income taxes 75,571 (16,236) Amortization of property plant and equipment 36,858 7, , ,052 Changes in working capital (Note 9) (1,701,662) 2,028,958 Interest paid (1,103,651) (1,229,580) Income taxes paid (30,014) (19,154) Net cash generated by operating activities (1,891,549) 1,581,275 Investing Activities Purchase of property plant and equipment (122,152) (33,345) Disposition of property plant and equipment (121,241) (33,345) Decrease in cash (2,012,790) 1,547,931 Cash, beginning of year 36,083,894 34,535,963 Cash, end of year 34,071,104 36,083,894 Page 5 of 20

8 1. Description of the business Interactive Brokers Canada Inc. (the Corporation ), whose registered office is located at 1800 McGill College Avenue, Suite 2106, Montreal, QC, Canada, was incorporated under the Canada Business Corporations Act in Toronto, Ontario on December 14, 2000, and is wholly-owned by IBG LLC (the Group ). The Corporation began its operations in June 2002 and carries customer accounts of Canadian residents for execution and clearing of securities and commodities transactions. These transactions are cleared through its affiliate in the U.S., Interactive Brokers LLC. The financial statements were approved and authorized by the Corporation s directors on February 17, Significant accounting policies These financial statements have been prepared on the accrual basis using accounting policies in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). The disclosures concerning the Corporation s transition from Canadian Generally Accepted Accounting Principles (Canadian GAAP ) to IFRS are included in Note 3. All amounts are presented in Canadian Dollars unless otherwise noted and reflect the following significant accounting policies: Classification and measurement of financial instruments The accounting framework for financial instruments requires that all financial assets and liabilities be classified based on their characteristics, management s intention, or the choice of category in certain circumstances. When they are initially recognized, all financial assets are classified as at fair value through profit or loss (FVTPL), held to maturity, available for sale or loans and receivables, while financial liabilities are classified as financial liabilities measured at amortized cost. When they are initially recognized, all financial assets and liabilities, including derivative financial instruments, are recorded at fair value in the statement of financial position. In subsequent periods, they are measured at fair value, except for items that are classified in the following categories; measured at amortized cost; financial assets held to maturity; loans and receivables and financial liabilities at amortized costs. To date, the Corporation has not classified any financial asset as held to maturity. Classification depends on the purpose for which the financial instruments were acquired or issued, their characteristics and the Corporation s designation of such instruments. Statement of financial position line item Accounts receivable from brokers and dealers Accounts receivable from affiliates Accounts receivable from clients Accounts payable to clients Accounts payable to brokers and dealers Accounts payable and accrued liabilities Accounts payable to affiliates Classification Loans and receivables Loans and receivables Loans and receivables Financial liabilities measured at amortized cost Financial liabilities measured at amortized cost Financial liabilities measured at amortized cost Financial liabilities measured at amortized cost Page 6 of 20

9 2. Significant accounting policies (continued) Loans and receivables Loans and receivables are accounted for at amortized cost using the effective interest method less any impairment. Other liabilities Other liabilities are recorded at amortized cost using the effective interest method and include all financial liabilities. Property plant and equipment Property plant and equipment are recorded at cost and amortized over their estimated useful lives, based on the straight-line method and the following periods: Computer equipment Furniture and fixtures 3 years 5 years Income taxes The Corporation uses the liability method of accounting for current and deferred income taxes. Deferred income taxes are recognized based on the expected tax consequences of differences between the carrying amount of balance sheet items and their corresponding tax values, using the income tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets are recognized to the extent it is probable they will be realized. Foreign currency translation Foreign currency denominated monetary assets and liabilities are translated into Canadian dollars at the year-end exchange rates. Foreign currency denominated revenue and expenses are translated at exchange rates in effect at the transaction dates. Translation gains and losses are included in other income in the statement of comprehensive loss. Translation gains were 29,069 and 27,238 in 2011 and 2010, respectively. Use of estimates The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Page 7 of 20

10 2. Significant accounting policies (continued) Stock-based compensation The Corporation uses the fair value method to measure compensation expense for awards of common stock of Interactive Brokers Group, Inc. ( IBG, Inc. ) (See Note 12) at the date of grant. The fair value of shares of common stock is amortized over the vesting period. 3. Transition to International Financial Reporting Standards The Corporation adopted IFRS on January 1, 2011 with a transition date of January 1, Under IFRS 1, First Time Adoption of International Financial Reporting Standards, IFRS standards are applied retrospectively at the transition date with all adjustments to assets and liabilities taken to retained earnings unless certain exemptions are applied. The Corporation is not applying any exemptions on its adoptions of IFRS other than the use of estimates. IFRS employs a conceptual framework that is similar to Canadian GAAP. Cash flows The adoption of IFRS has not changed the actual cash flows of the Corporation. As there have been no changes to the Corporation s cash flows, no reconciliations have been presented. Financial position The adoption of IFRS has not changed the financial position of the Corporation. As there have been no changes to the Corporation s financial position, no reconciliations have been presented. Equity The adoption of IFRS has not changed the equity of the Corporation. As there have been no changes to the Corporation s equity, no reconciliations have been presented. Comprehensive income The adoption of IFRS has not changed the comprehensive income of the Corporation. As there have been no changes to the Corporation s comprehensive income, no reconciliations have been presented. Exemptions The Company has determined that its initial adoption of IFRS, the adoption mandatory exceptions are not applicable to its financial statements. Further, the Company has elected to not take any optional exemptions in connection with adoption of IFRS as the Company has determined that such exemptions are either not applicable or the Company s prior period financial statements were prepared on a basis consistent with IFRS standards. Page 8 of 20

11 4. Accounts receivable from or payable to clients Client transactions are recorded as cash or margin transactions. In a margin transaction, the Corporation extends a loan to a client for the purchase of securities, using securities held by the client as collateral. Loan amounts are subject to limits imposed by regulatory bodies, as well as to credit review and the Corporation s daily margin monitoring procedures. Margin loans are payable on demand. Interest is charged on margin loans and paid on customer credit balances based on floating rates indexed to benchmarks. Accounts receivable from and payable to clients are due by the transaction settlement date, except for margin accounts. At, the Corporation had no aged receivables. 5. Cash and cash equivalents December 31, 2010 January 1, 2010 Cash 1,371,104 1,413,894 1,535,963 Short-term investments 32,700,000 34,670,000 33,000,000 34,071,104 36,083,894 34,535, Property plant and equipment Computer equipment at cost Furniture and fixtures at cost Total Cost Balance on January 1, ,198 49, ,748 Additions 33,344-33,344 Disposals Balance on December 31, ,542 49, ,092 Additions 122, ,152 Disposals (1,312) - (1,312) Balance on 214,382 49, ,932 Accumulated amortization Balance on January 1, 2010 (58,484) (49,550) (108,034) Eliminated on disposals of assets Depreciation expense (7,694) - (7,694) Balance on December 31, 2010 (66,178) (49,550) (115,728) Eliminated on disposals of assets Depreciation expense (36,858) - (36,858) Balance on (102,635) (49,550) (152,185) Net Book Value 111, ,747 December 31, ,364-27,364 January 1, ,713-1,713 Page 9 of 20

12 7. Subordinated loan Parent corporation Loan, repayable on demand Rate Loan Balance January 1, % 10,004,775 December 31, % 10,004, % 10,004,775 This loan is subordinated to the claims of the Corporation s ordinary creditors, and the repayment must be approved by the regulatory bodies governing investment dealers. 8. Capital stock Authorized, An unlimited number of common shares, without par value. The one (1) issued share is fully paid for. December 31, December 31, January 01, Issued 1 common share 500, , , Changes in working capital Margin deposits with regulated entities (13,749,057) (46,989,506) Accounts receivable from clients 138,839,652 (269,029,082) Accounts receivable from brokers and dealers 3,429,582 (1,764,637) Accounts receivable from affiliates 155, ,849 Other assets (50,040) (11,470) Accounts payable to clients (133,150,314) 317,783,225 Payable to brokers and dealers 3,043,960 1,211,322 Accounts payable and accrued liabilities (171,561) 110,720 Accounts payable to affiliates (49,186) 188,536 (1,701,662) 2,028, Related party transactions The Corporation s immediate parent and sole shareholder is IBG LLC, a limited liability company organized in the United States of America. The Group is comprised of the Corporation, Timber Hill Canada ( THC ), Timber Hill LLC and Interactive Brokers LLC, registered broker dealers in the United States, Timber Hill Europe AG ( THE ), and other operating companies. The Group is consolidated into IBG Inc., a U.S. Corporation, which is the sole managing member of IBG LLC. Shares of IBG Inc. s Class A common stock ( Common Stock ) have been granted to employees of the Corporation under employee incentive plans (Note 12). Page 10 of 20

13 10. Related party transactions (continued) Included in assets in the statement of financial position were the following amounts with related parties at December 31, Affiliates Receivable from affiliates 469, ,880 Included in liabilities in the statement of financial position were the following amounts with related parties at December 31, Parent corporation Subordinated loan 10,004,775 10,004,775 Affiliates Payable to affiliates 520, ,682 Included in the statements of comprehensive loss were the following amounts with related parties at December 31, Parent corporation Interest 887,388 1,218,805 Consulting fees 20,671 48,360 Account maintenance fees 356, ,381 Administrative allocation 146, ,703 Affiliates Administrative allocation - 8,879 Brokerage charges 21,424,302 19,189,067 Commission income 26,559,293 24,231,728 Rent expense 91,571 52,509 Key Management Personnel The aggregate compensation of the key management personnel of the Corporation is set out below: Short-term employee benefits 166, ,526 Share based payments 11,675 9,210 Post-employment benefits - - Termination benefits , ,736 Page 11 of 20

14 11. Financial instruments and risk management Financial instruments significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognized, in respect of each class of financial asset, financial liability and equity instruments, are disclosed in Note 2 to the financial statements. The carrying amount of financial assets and liabilities represents their respective fair values, determined in accordance with the accounting policies disclosed in Note 2 to the financial statements. Trading activities and related risks The Corporation s customers trading activities expose it to market and credit risks. These risks are managed in accordance with established risk management policies and procedures. To accomplish this, management has established a risk management process that includes: A regular review of the risk management process by executive management as part of its oversight role; Defined risk management policies and procedures supported by a rigorous analytic framework; and Articulated risk tolerance levels as defined by executive management that are regularly reviewed to ensure that the Corporation s risk-taking is consistent with its business strategy, capital structure, and current and anticipated market conditions. Market risk The Corporation is exposed to various market risks. Exposures to market risks arise from foreign currency exchange rate fluctuations and changes in interest rates. Currency risk Currency risk arises from the possibility that fluctuations in foreign exchange rates will impact the value of financial instruments. As described in Note 2, substantially all of the Corporation s assets and liabilities are denominated in Canadian dollars, minimizing the Corporation s currency risk. The Corporation did not have significant exposure to foreign currencies as of and Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments. The Corporation is exposed to interest rate risk on cash and margin balances. These risks are managed through the Corporation s investment policies. The Corporation s exposure to interest rate risk at is limited to the interest generated on cash balances of 1% on $34,177,681 (2010-1% on $35,394,799), which attracted an average variable interest rate of 0.91% ( %). Page 12 of 20

15 11. Financial instruments and risk management (continued) The sensitivity analysis below has been determined based on the exposure to interest rates at the reporting date, with all other variables held constant: Impact on Profit (in $000s) Average Variable Rate + 1% Average Variable Rate 1% (341) (361) Assumptions and method used in computing the above analysis: The 1% sensitivity is based on reasonably possible changes over a financial year; and Balances will remain stable throughout the year. Credit risk The Corporation is exposed to risk of loss if an individual, counterparty or issuer fails to perform its obligations under contractual terms ( default risk ). Both cash instruments and derivatives expose the Corporation to default risk. The Corporation has established policies and procedures for mitigating credit risk on principal transactions, including reviewing and establishing limits for credit exposure, maintaining collateral, and continually assessing the creditworthiness of counterparties. Liabilities to other brokers and dealers related to unsettled transactions (i.e., securities failed-toreceive) are recorded at the amount for which the securities were purchased, and are paid upon receipt of the securities from other brokers or dealers. In the case of aged securities failed-toreceive, the Corporation may purchase the underlying security in the market and seek reimbursement for any losses from the counterparty. The carrying amount of financial assets recorded in the Corporation s financial statements represent the Corporation s maximum exposure to credit risk without taking account of the value of collateral, if any. None of the financial assets are past due or impaired. None of the financial assets are more than one month old as at the reporting date. Concentrations of credit risk The Corporation s exposure to credit risk associated with its trading and other activities is measured on an individual customer and counterparty basis, as well as by groups of counterparties that share similar attributes. Concentrations of credit risk can be affected by changes in political, industry, or economic factors. To reduce the potential for risk concentration, credit limits are established and exposure is monitored in light of changing counterparty and market conditions. As of December 31, 2011, the Corporation did not have any concentrations of credit risk. Page 13 of 20

16 11. Financial instruments and risk management (continued) Liquidity risk The Corporation manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The following tables summarize the maturity profile of the Corporation s financial assets and liabilities. The table has been drawn up based on the undiscounted cash flows of financial assets and liabilities based on the earliest date on which the Corporation can be required to pay. The table includes both interest and principal cash flows. Less than 3 months 3 months to 1 year 1-5 years 5+ years (in $000s) 2011 Liabilities: Payable to clients $807,908 $807,908 Payable to brokers and dealers 3,199 3,199 Accounts payable and accrued liabilities Accounts payable to affiliates Subordinated loan 10,005 10,005 Total $822, $822, Liabilities: Payable to clients $941,058 $941,058 Payable to brokers and dealers 4,785 4,785 Accounts payable and accrued liabilities 1,090 1,090 Accounts payable to affiliates Subordinated loan 10,005 10,005 Total $957, $957,723 Total Fair Value At, substantially all of the Corporation s assets and liabilities, including financial instruments, were carried at fair value based on market prices, as published by exchanges and clearinghouses, or were assets which are short-term in nature and were carried at amounts that approximate fair value. The Corporation s margin deposits with regulated entities of $458,946,154 are classified as Level 1 financial instruments. Capital management The Corporation manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. Page 14 of 20

17 11. Financial instruments and risk management (continued) The capital structure of the Corporation consists of debt, which includes the subordinated loan disclosed in Note 7, cash and cash equivalents and equity attributable to the stockholder of the Corporation, comprising issued capital and retained earnings, respectively. The Corporation s risk management committee reviews the capital structure periodically and makes adjustments as necessary. The Corporation s overall strategy remains unchanged from Incentive compensation plans Return on Investment Dollar Units ( ROI Dollar Units ) Between 1998 and 2006, Interactive Brokers Group LLC granted all non-member employees ROI Dollar Units, which are redeemable under the amended provisions of the Plan, and in accordance with regulations issued by the Internal Revenue Service (Section 409A of the Internal Revenue Code). Upon redemption, the grantee is entitled to accumulated earnings on the face value of the certificate, but not the actual face value. For grants made in 1998 and 1999, grantees may redeem the ROI Dollar Units after vesting on the fifth anniversary of the date of their grant and prior to the tenth anniversary of the date of their grant. For grants made between January 1, 2000 and January 1, 2005, grantees must elect to redeem the ROI Dollar Units upon the fifth, seventh or tenth anniversary date. These ROI Dollar Units will vest upon the fifth anniversary of the date of their grant and will continue to accumulate earnings until the elected redemption date. For grants made on or after January 1, 2006, all ROI Dollar Units shall vest on the fifth anniversary date of their grant and will be automatically redeemed. Subsequent to the IPO, no additional ROI Dollar Units have been or will be granted, and non-cash compensation to employees will consist primarily of grants of shares of Common Stock as described below under 2007 Stock Incentive Plan. Compensation expense for the ROI Dollar Unit plan for the years ended and 2010, of $39,726 and $38,812 is included in employee compensation and benefits expenses in the statement of comprehensive income, respectively. For the years ended and 2010, payables to employees of the Corporation for ROI Dollar Units were $243,438 and $291,325, of which $186,705 and $222,313 were vested, respectively. These amounts are included in accounts payable and other liabilities in the statement of financial position. Employee Incentive Plans In connection with its Initial Public Offering in May 2007, IBG, Inc. adopted the 2007 Stock Incentive Plan and the 2007 ROI Unit Stock Plan, each of which is discussed below ROI Unit Stock Plan Page 15 of 20

18 12. Incentive compensation plans (continued) Certain employees of the Company held ROI Dollar Units that entitled each holder thereof to accumulated earnings on the face value of the certificate representing his or her ROI Dollar Units. Subsequent to the IPO, no additional ROI Dollar Units have been or will be granted. In connection with the IPO, ROI Dollar Units were, at the employee's election, redeemable for cash, as provided for under the ROI Dollar Unit plan, or the accumulated earnings attributable to the ROI Dollar Units as at December 31, 2006 may have been invested in shares of Common Stock pursuant to the Interactive Brokers Group, Inc ROI Unit Stock Plan (the ROI Unit Stock Plan ). All ROI Dollar Units held by employees of the Company that were outstanding as of December 31, 2006 were so invested, and 1,123 shares of restricted Common Stock to be issued to employees of the Company under the ROI Unit Stock Plan have been or will be distributed in accordance with the following schedule, subject to the conditions below: 10% on the date of the IPO; and an additional 15% on each of the first six anniversaries of the date of the IPO, assuming continued employment with Group companies and compliance with other applicable covenants. Compensation expenses recognized in the statement of comprehensive income for the 2007 ROI Unit Stock Plan for the years ended and 2010, were $0 and $4,668, respectively Stock Incentive Plan Under the Interactive Brokers Group, Inc Stock Incentive Plan (the Stock Incentive Plan ), up to 20.0 million shares of Common Stock may be granted and issued to directors, officers, employees, contractors and consultants of IBG, Inc. and its subsidiaries. The purpose of the Stock Incentive Plan is to promote IBG, Inc. s long-term financial success by attracting, retaining and rewarding eligible participants. The Stock Incentive Plan is administered by the Compensation Committee of IBG, Inc. s board of directors. The Compensation Committee has discretionary authority to determine which employees are eligible to participate in the Stock Incentive Plan. The Compensation Committee establishes the terms and conditions of the awards under the Stock Incentive Plan, including the number of awards offered to each employee and all other terms and conditions applicable to such awards in individual grant agreements. Awards are expected to be made primarily through grants of Common Stock. The Stock Incentive Plan awards are subject to issuance over time and may be forfeited upon an employee s termination of employment or violation of certain applicable covenants prior to issuance, unless determined otherwise by the Compensation Committee. The Stock Incentive Plan provides that, upon a change in control, the Compensation Committee may, at its discretion, fully vest any granted but unissued shares of Common Stock awarded under the Stock Incentive Plan, or provide that any such granted but unissued shares of Common Stock will be honored or assumed, or new rights substituted therefore by the new employer on a substantially similar basis and on terms and conditions substantially comparable to those of the Stock Incentive Plan. Page 16 of 20

19 12. Incentive compensation plans (continued) IBG, Inc. granted awards in connection with the IPO and is expected to continue to grant awards on or about January 1 of each year to specific employees as part of an overall plan of equity compensation. Shares of restricted Common Stock granted to employees of the Corporation at the time of the IPO have been or will be issued in accordance with the following schedule: 10% on the date of the IPO; and An additional 15% on each of the first six anniversaries of the date of the IPO, assuming continued employment with IBG, Inc. and compliance with non-competition and other applicable covenants. Corporation employees have been granted the following awards of Common Stock under the Stock Incentive Plan: Fair Value at Date of Shares Grant (USD) In connection with IPO December 31, , ,693 December 31, , ,124 December 31, , ,944 December 31, , ,107 17, ,584 61,393 1,189,452 The following is a summary of Stock Plan share activity for the year ended : 2007 Stock Incentive Plan Shares 2007 ROI Unit Stock Incentive Plan Shares Balance, December 31, ,682 - Granted 17,528 - Distributed to employees (5,361) - Forfeited by employees - - Balance, 46,849 - Estimated future grants under the Stock Incentive Plan are being accrued for ratably during each year. Compensation expense recognized in the statement of comprehensive income for the years ended and 2010, were $256,102 and $175,971, respectively. For the year ended, the Corporation s employees were granted awards of 17,528 shares of Common Stock, with a fair value at the date of grant of $255,801 (US$260,584) based upon the December 2011 Volume Weighted Average Price ( VWAP ) (US$14.87) of IBG, Inc. s Common Stock. These share grants were issued to IBG LLC as of, to be held as Treasury Stock, and will be distributed to employees in accordance with the following schedule: 10% on the anniversary of the IPO; and Page 17 of 20

20 12. Incentive compensation plans (continued) An additional 15% on each of the next six anniversaries of the date of the IPO, assuming continued employment with IBG, Inc. and compliance with non-competition and other applicable covenants. Shares granted under the 2007 ROI Unit Stock Plan and the Stock Incentive Plan are subject to forfeiture in the event an employee ceases employment with the Corporation. The plans provide that employees who discontinue employment with the Corporation without cause and continue to meet the terms of the plans post-employment provisions will forfeit 50% of unvested previously granted shares unless the employee is over the age of 59, in which case the employee would be eligible to receive 100% of unvested shares previously granted. Distributions of remaining shares to former employees will occur on or about the calendar quarter end next following the anniversary of the discontinuation of employment over a five (5) year vesting schedule, 12.5% in each of the first four years and 50% in the fifth year. Through, a total of 173 shares have been distributed under these post-employment provisions. These distributions are included in the Stock Plans activity tables above. 13. Securities owned and securities held short, at fair value The Corporation applies the IAS 39 fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly; and Level 3 Prices or valuations that require inputs that are both significant to fair value measurement and unobservable. Information related to fair value classification is described in Note 11. Page 18 of 20

21 13. Securities owned and securities held short, at fair value (continued) Financial Assets At Fair Value as of Level 1 Level 2 Level 3 Total Margin deposits with regulated entities 458,946, ,946, ,946, ,946,154 Financial Liabilities At Fair Value as of December 31, 2010 Level 1 Level 2 Level 3 Total Margin deposits with regulated entities 445,197, ,197, ,197, ,197,097 Financial Liabilities At Fair Value as of January 1, 2010 Level 1 Level 2 Level 3 Total Margin deposits with regulated entities 398,207, ,207, ,207, ,207, Income Taxes The provision for the income taxes is comprised of : Current Tax Current tax expense in respect of the current year 50,599 54,793 Adjustments recognized in the current year in relation to the current tax of prior years (72,062) - (21,463) 54,793 Deferred tax Deferred tax expense recognized in the current year (6,467) 5,358 Adjustments recognized in the current year in relation to the deferred tax of prior years 72,062-65,595 5,358 44,132 60,151 Statutory tax rate reconciliation: Earnings before income tax ,511 (404,523) Income tax expense 2,417 - IFC deduction (14,121) - recognised as deferred tax assets 51,995 5,358 Effect of expenses that are not deductible in determining taxable earnings 75,903 - Effect of Quebec compensation tax 54,793 Adjustments recognized in the current year in relation to the current tax of prior years (72,062) - 44,132 60,151 Page 19 of 20

22 14. Income Taxes (continued) Deferred tax assets are further comprised of: December 31, 2010 January 1, 2010 Compensation costs deductible in future years 70,246 87, ,581 Unrealized losses deductible in future years - 58,420-70, , , Risk adjusted capital requirements The Corporation is subject to IIROC Risk Adjusted Capital Rule 17.1, which requires the maintenance of minimum net capital. At, the Company had risk adjusted capital of $23,473,000, which was $23,223,000 in excess of required Risk Adjusted Capital of $250, (in $000s) Total Financial Statement Capital 30,267 Non Allowable Assets 784 Net Allowable Assets 29,483 Total Margin Required 6,103 Risk Adjusted Capital 23,480 Early Warning Excess 23,217 Early Warning Reserve 22,912 The Early Warning Excess and the Early Warning Reserve are levels established by IIROC to take corrective measures to make sure the member's Risk Adjusted Capital remains greater than nil. 16. Litigation In the normal course of business, the Corporation is involved in various claims. Though the outcome of these pending claims as at cannot be determined with certainty, the Corporation believes that their outcome will have no significant adverse impact on its financial position, operating results or cash flows. Page 20 of 20