##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED
    DECEMBER 31, 2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   001-32878
 (Commission File Number)
      PENSON WORLDWIDE,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

6211

75-2896356(State or Other Jurisdiction
    of
    Incorporation or Organization)

(Primary Standard Industrial
    Classification Code Number)

(I.R.S. Employer
    Identification No.)   1700 Pacific Avenue, Suite 1400
    Dallas, Texas 75201(214) 765-1100 (Address, including zip
    code, and telephone number, including area code, of the
    registrants principal executive offices)
  Securities registered pursuant to Section 12(b) of the
    Act
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $0.01 per share

NASDAQ Global Select Market   Securities registered pursuant to Section 12(g) of the
    Act
    None
  o þ
  o þ
  Regulation S-T o o
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




---



##### 





PENSON
    WORLDWIDE, INC.Form 10-K
    For the Fiscal Year Ended December 31, 2010
    TABLE OF CONTENTS
  Basis of Presentation


1Special Note Regarding Forward-Looking
    Statements


1PART I


5Item 1.


Business


5Item 1A.


Risk Factors


25Item 1B.


Unresolved Staff Comments


40Item 2.


Properties


41Item 3.


Legal Proceedings


41Item 4.


Reserved


43PART II


43Item 5.


Market for the Registrants Common
    Equity, Related Stockholder Matters and Issuer Purchases of
    Equity Securities


43Item 6.


Selected Financial Data


46Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


47Item 7A.


Quantitative and Qualitative Disclosure About
    Market Risk


64Item 8.


Financial Statements and Supplementary
    Data


65Item 9.


Changes in and Disagreements with Accountants
    on Accounting and Financial Disclosure


66Item 9A.


Controls and Procedures


66Item 9B.


Other Information


66PART III


67Item 10.


Directors, Executive Officers of the
    Registrant and Corporate Governance


67Item 11.


Executive Compensation


67Item 12.


Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters


67Item 13.


Certain Relationships and Related
    Transactions, and Director Independence


67Item 14.


Principal Accounting Fees and Services


67PART IV


68Item 15.


Exhibits and Financial Statement
    Schedules


68Signatures


69EX-10.43EX-10.44EX-12.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



Basis of
    Presentation  Form 10-K,
       Special
    Note Regarding Forward-Looking Statements    
    interest rate fluctuations;
    general economic conditions and the effect of economic
    conditions on consumer confidence;
    reduced margin loan balances maintained by our customers;
    fluctuations in overall market trading volume;
    our ability to successfully implement new product offerings;
    our ability to obtain future credit on favorable terms;
    reductions in per transaction clearing fees;
    legislative and regulatory changes; 1




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
    monetary and fiscal policy changes and other actions by the
    Board of Governors of the Federal Reserve System (Federal
    Reserve);
    our ability to attract and retain customers and key
    personnel; and
    those risks detailed from time to time in our press releases and
    periodic filings with the SEC.   2




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Glossary
    of selected terms
  Algorithmic traders
  Algorithmic trading
  ASP
  Back-end trading software
  Clearing
  Clearing firm and/or
  Client
  Correspondent and/or and/or and/or
  Custody
  Customers
  Direct access Direct market
    access
  Electronic Communications Network ECN
  Execution routing
  FCM
  Front-end trading software
 3




---



##### Table of Contents



Level I market information
  Level I trading software
  Level II market information
  Level II trading software
  Online trading
  Settlement
 4




---



##### Table of Contents



PART I  Item 1.
    Business  Overview
               5




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##### Table of Contents



Percentage of Net


Percentage of TotalCorrespondent Type

Revenues


CorrespondentsDirect market access


14.4
%


8.8
%Retail


15.5
%


36.2
%Online


15.7
%


7.8
%Institutional


17.0
%


30.4
%Other


37.4
%


16.8
%   Managements Discussion and Analysis of Financial
    Condition and Results of Operations
    Clients
  non-U.S. entities
   6




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Industry
    trends
    Shift to outsourced solutions.
  Increase in trading in multiple
    markets.
  Industry consolidation.
  Demand for increased reporting capabilities and integrated
    technology solutions.
  Opportunities in the Canadian, European, Asian and Australian
    markets.
  Our
    product offering
  Clearing
    and related services
     7




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Technology
    and data products
    Our
    competitive strengths
  Established
    market position as the largest independent provider of
    correspondent clearing services in our primary
    markets.
    Fully-integrated
    securities-processing and technology solutions.
   8




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Flexible
    services and infrastructure.
    Highly
    attractive and diversified client base.
  Our client base comprises the following
    categories:
  Scalable,
    recurring revenue model.
    Proven
    and highly motivated management team.
  non-executive
  Business
    strategies
  Leverage
    existing platform to expand our product offerings and client
    base.
    
    Focusing on high-volume direct access and online
    broker-dealers and the futures trading
    industry.  We will continue to market our clearing
    services to the growing futures trading, direct access and
    online
    broker-dealer
    markets and on margin lending as a core complementary service.
    Further expanding our client base in the institutional and
    retail brokerage markets.  We are expanding our
    focus on the traditional institutional and retail brokerage
    industry. Many institutional and retail brokers in the 9




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U.S. have outsourced their clearing functions, and we
    believe this trend is continuing internationally, which creates
    opportunities for us globally. We are also targeting these firms
    for our technology products and services, which we believe will
    increase as we finalize the transition to Broadridges
    systems. See Business  Strategic
    Acquisitions for a description of the Ridge acquisition.  
    Expanding our client base in the quantitative trading
    sector.  Our technology products enable us to
    increasingly market our services to the rapidly growing
    quantitative trading sector. This sector is among the most
    significant drivers of growth in the overall securities markets
    and we intend to increase our focus on this market sector.
    Expanding our futures business.  Our purchase
    of GHCO in February, 2007 was a significant step in expanding
    our futures clearing operations and our purchase of FCG in
    November, 2007 gives us the ability to expand our futures
    offering to clients that need risk management and other services.
    Expand offering of portfolio
    margining.  Portfolio margining allows us to
    extend margin lending to cover a higher percentage of the
    purchase price of securities than the percentage required under
    Regulation T based on a risk calculation model approved by
    the SEC. We approve our correspondents internally for portfolio
    margining based on several factors including account size, net
    capital, regulatory background and margin experience. At
    December 31, 2010, we had 881 portfolio margining accounts
    with a weighted average balance of approximately
    $123.9 million in the fourth quarter of 2010.
    Expand offering of foreign exchange
    products.  In 2009, we launched our foreign
    exchange product, which provides our customers a focused
    traditional and technology-based center of competency in both
    deliverable and non-deliverable foreign exchange. Our foreign
    exchange product is traditionally used by correspondents to
    facilitate international transactions in equities and bonds.
    These services can be accessed through direct contact with our
    foreign exchange department or through our electronic trading
    platform.  Expanding
    our operations internationally.
  non-U.S. markets U.S.-based
  Enhance
    revenue potential of each client relationship.
    Capitalize
    on industry trends.
   10




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Pursue
    accretive acquisitions.
    Securities
    processing
    Clearing
    and related operations
  United
    States
        Canada
  and/or
   11




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United
    Kingdom
    Asia
    Australia
    Internet
    account portfolio information services
    Holding
    and safeguarding securities and cash deposits
    Securities
    borrowing and lending
   12




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Proprietary
    trading
    Futures
    products
    Technology
    and data products
             13




---



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Institutional
    and active retail front-end trading software
      Global
    execution infrastructure
    Global
    data products
  tick-by-tick simple-to-use
   14




---



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Key
    licensed technology and proprietary customization
    
    see critical information in real-time on a continuously updated
    basis;
    manage their buying power across different accounts containing
    diverse instruments such as equities, options and futures, and;
    receive highly customized reports relating to their activity.  non-U.S. customers, non-U.S. affiliates
  Sales and
    marketing
         15




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Strategic
    acquisitions
  Section 1-02(w) Regulation S-X.
  90-day
     16




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17




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Competition
            Intellectual
    property and other proprietary rights
    Legal Proceedings
 18




---



##### Table of Contents



Government
    regulation
    cease-and-desist
          Dodd-Frank
    Wall Street Reform and Consumer Protection Act
    Regulation
    of clearing activities
   19




---



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Regulation
    of securities lending and borrowing
      Rules 8c-1
 20




---



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bona-fide
   21




---



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Regulation
    of internet activities
    Regulatory
    capital requirements
      30-day
     22




---



##### Table of Contents



on-site
         23




---



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Margin
    risk management
        Local
    regulations
    Employees
      Public
    reporting
  Form 10-K, Form 10-Q, Form 8-K,
 24




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Item 1A.
    Risk
    Factors  Many factors could have an effect on PWIs financial
    condition, cash flows and results of operations. We are subject
    to various risks resulting from changing economic,
    environmental, political, industry, business and financial
    conditions. The principal factors are described below.
  Risks
    related to our business and our industry
  We
    face substantial competition from other securities and
    commodities processing and infrastructure firms, which could
    harm our financial performance and reduce our market
    share.
      We
    depend on a limited number of clients for a significant portion
    of our clearing revenues.
  30-day
  Our
    clearing operations could expose us to legal liability for
    errors in performing clearing functions and improper activities
    of our correspondents.
   25




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Our
    provision of sponsored and direct market access could expose us
    to legal liabilities for trading activity by third
    parties
    Market
    weaknesses and lower trading volumes may negatively affect our
    results of operations and profitability.
    Continuing
    low, short-term interest rates have negatively impacted the
    profitability of our margin lending business.
     26




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Our
    margin lending business subjects us to credit risks and if we
    are unable to liquidate an investors securities when the
    margin collateral becomes insufficient, the profitability of our
    business may suffer.
    
    the pledged securities may not be actively traded;
    there may be an undue concentration of securities
    pledged; or
    an order to stop transfer by the issuer of securities may be
    issued with regard to pledged securities.    We
    rely, in part, on third parties to provide and support the
    software and systems we use to provide our services. Any
    interruption or cessation of service by these third parties
    could harm our business.
     27




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Our
    anticipated transition of certain support services to Ridge and
    Broadridge may involve unforeseen delays, costs or technological
    complications. If we are unable to transition our services
    efficiently to Broadridge, we may experience interruptions or
    difficulties with respect to the services Broadridge is expected
    to provide.
    Our
    products and services, and the products and services provided to
    us by third parties, may infringe upon intellectual property
    rights of third parties, and any infringement claims could
    require us to incur substantial costs, distract our management
    or prevent us from conducting our business.
    We may
    not be able to protect our intellectual property rights against
    unauthorized use and infringement by third parties, and our
    failure to do so may weaken our competitive position, and any
    legal claim we seek to pursue may require us to incur
    substantial cost and distract management and us from conducting
    our business.
   28




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If our
    clients account information is misappropriated, we may be
    held liable or suffer harm to our reputation.
      Our
    risk management policies and procedures may leave us exposed to
    unidentified risks or an unanticipated level of
    risk.
    We may
    be subject to material litigation proceedings that could cause
    us significant reputational harm and financial
    loss.
  time-to-time
 29




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Any
    slowdown or failure of our computer or communications systems
    could subject us to liability for losses suffered by our clients
    or their customers.
    
    computer viruses or undetected errors in our internal software
    programs or computer systems;
    inability to rapidly monitor all intraday trading activity;
    inability to effectively resolve any errors in our internal
    software programs or computer systems once they are detected;
    heavy stress placed on our systems during peak trading
    times; or
    power or telecommunications failure, fire, tornado or any other
    natural disaster.    If our
    operational systems and infrastructure fail to keep pace with
    our anticipated growth, we may experience operating
    inefficiencies, client dissatisfaction and lost revenue
    opportunities.
      
    to improve our systems for operations, financial controls, and
    communication and information management;
    to refine our compliance procedures and enhance our compliance
    oversight; and 30




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
    to recruit, train, manage and retain our employees.    A
    failure in the operational systems of third parties could
    significantly disrupt our business and cause
    losses.
    If we
    are unable to respond to the demands of our existing and new
    clients, our ability to reach our revenue goals or maintain our
    profitability could be diminished.
    Our
    existing correspondents may choose to perform their own clearing
    services as their operations grow, in which case we would lose
    the revenues generated by such correspondents.
      Our
    ability to sell our services and grow our business could be
    significantly impaired if we lose the services of key
    personnel.
   31




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We may
    face risks associated with potential future acquisitions that
    could reduce our profitability or hinder our ability to
    successfully expand our operations.
    
    diversion of managements time and attention to the
    negotiation of the acquisitions;
    difficulties in assimilating acquired businesses, technologies,
    operations and personnel including, but not limited to, the
    increased trade volume of acquired businesses;
    the need to modify financial and other systems and to add
    management resources;
    assumption of unknown liabilities of the acquired businesses;
    unforeseen difficulties in the acquired operations and
    disruption of our ongoing business;
    dilution to our existing stockholders due to the issuance of
    equity securities that may make it difficult for us to raise
    capital from equity financing in the future;
    possible adverse short-term effects on our cash flows or
    operating results; and
    possible accounting charges due to impairment of goodwill or
    other purchased intangible assets.    Our
    ability to borrow a limited amount of funds under our Amended
    and Restated Credit Facility may adversely affect our liquidity
    and our results of operations.
  day-to-day
  Covenants
    in our credit agreement and certain other debt instruments
    restrict our business in many ways.
     32




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Our
    revenues may decrease due to declines in trading volume, market
    prices, liquidity of securities markets or proprietary trading
    activity.
    
    reduced trading activity;
    illiquid markets;
    declines in the market values of securities carried by our
    customers and correspondents;
    the failure of buyers and sellers of securities to fulfill their
    settlement obligations;
    reduced margin loan balances of investors; and
    increases in claims and litigation.      Continued
    market instability could negatively affect our operations and
    financial condition.
   33




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Our
    significant
    non-U.S.
    operation exposes us to global exchange rate fluctuations that
    could impact our profitability.
      and/or
  Requirements
    to close out fails resulting from short sales could increase our
    costs and adversely affect our securities lending
    business.
     34




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General
    economic and political conditions and broad trends in business
    and finance that are beyond our control may contribute to
    reduced levels of activity in the securities markets, which
    could result in lower revenues from our business
    operations.
    
    the availability of short-term and long-term funding and capital;
    the level and volatility of interest rates;
    legislative and regulatory changes;
    currency values and inflation; and
    national, state and local taxation levels affecting securities
    transactions.    Our
    quarterly revenue and operating results are subject to
    significant fluctuations.
    
    changes in the proportion of clearing operations revenues and
    interest income;
    the lengthy sales and integration cycle with new correspondents;
    the gain or loss of business from a correspondent;
    changes in per-transaction clearing fees;
    changes in bad debt expense from margin lending as compared to
    historical levels;
    changes in the rates we charge for margin loans, changes in the
    rates we pay for cash deposits we hold on behalf of our
    correspondents and their customers and changes in the rates at
    which we can invest such cash deposits;
    changes in the market price of securities and our ability to
    manage related risks;
    fluctuations in overall market trading volume;
    the relative success
    and/or
    failure of third party clearing competitors, many of which have
    increasingly larger resources than we have as a result of recent
    consolidation in our industry;
    the relative success
    and/or
    failure of third party technology competitors including, without
    limitation, competitors to our Nexa business;
    our ability to manage personnel, overhead and other
    expenses; and
    the amount and timing of capital expenditures.    period-to-period
 35




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Our
    involvement in futures and options markets subjects us to risks
    inherent in conducting business in those markets.
    We may
    not be able to or determine not to hedge our foreign exchange
    risk.
    The
    securities and futures businesses are highly dependent on
    certain market centers that may be targets of
    terrorism.
    Extreme market volatility may cause investors to avoid
    participation in equity markets, which could lead to
    substantially reduced trading volumes.
    Risks
    related to government regulation
  All
    aspects of our business are subject to extensive government
    regulation. If we fail to comply with these regulations, we may
    be subject to disciplinary or other action by regulatory
    organizations, and we could suffer significant reputational and
    financial loss.
    
    sales methods;
    trade practices among broker-dealers and FCMs;
    use and safekeeping of investors funds and securities; 36




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##### Table of Contents




    capital structure;
    margin lending;
    record keeping;
    conduct of directors, officers and employees; and
    supervision of investor accounts.      non-U.S. businesses non-U.S. markets
  The
    regulatory environment in which we operate has experienced
    increasing scrutiny by regulatory authorities in recent years
    and further changes in legislation or regulations may affect our
    ability to conduct our business or reduce our
    profitability.
      Recently
    enacted financial reform legislation and related regulations may
    negatively affect our business activities, results of operations
    and profitability.
   37




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If we
    do not maintain the capital levels required by regulations, we
    may be subject to fines, suspension, revocation of registration
    or expulsion by regulatory authorities.
  and/or
         38




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Procedures
    and requirements of the USA PATRIOT Act may expose us to
    significant costs or penalties.
    Risks
    related to our corporate structure
  Our
    discontinued operations expose us to legal and other
    risks.
    Provisions
    in our certificate of incorporation and bylaws and under
    Delaware law may prevent or frustrate a change in control or a
    change in management that stockholders believe is
    desirable.
    
    a classified board of directors;
    limitations on the removal of directors;
    advance notice requirements for stockholder proposals and
    nominations of directors at meetings of our
    stockholders; and
    the inability of stockholders to act by written consent or to
    call special meetings.     39




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Risks
    related to our requirements as a public company
  Our
    stockholders could be harmed if our management and larger
    stockholders use their influence in a manner adverse to other
    stockholders interests.
    The
    price of our common stock may be volatile.
    
    reductions in market prices or volume;
    changes in securities or other government regulations;
    quarterly variations in operating results;
    our technological capabilities to accommodate any future growth
    in our operations or clients;
    announcements of technological innovations, new products,
    services, significant contracts, acquisitions or joint ventures
    by us or our competitors;
    issuance and sales of our securities in financing
    transactions; and
    changes in financial estimates and recommendations by securities
    analysts or our failure to meet or exceed analyst estimates.    Our
    internal control over financial reporting may not be effective
    and our independent registered public accounting firm may not be
    able to provide an attestation report as to their effectiveness,
    which could have a significant and adverse effect on our
    business and reputation.
    Item 1B.
    Unresolved
    Staff Comments   40




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Item 2.
    Properties  Description
    of property
    Item 3.
    Legal
    Proceedings  In re Sentinel Management Group, Inc.
       41




---



##### Table of Contents



Various Claimants v. Penson Financial Services, Inc., et
    al.
     42




---



##### Table of Contents



Realtime Data, LLC d/b/a IXO v. Thomson Reuters et
    al.
      Item 4.
    Reserved PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities  Market
    information
      Price RangeHigh

Low2010Quarter ended March 31, 2010

$
10.48


$
7.87Quarter ended June 30, 2010

$
10.42


$
5.64Quarter ended September 30, 2010

$
5.95


$
4.56Quarter ended December 31, 2010

$
5.40


$
4.532009Quarter ended March 31, 2009

$
8.43


$
4.02Quarter ended June 30, 2009

$
12.04


$
6.73Quarter ended September 30, 2009

$
11.74


$
8.37Quarter ended December 31, 2009

$
11.07


$
8.56  43




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Holders
    Dividend
    policy
      and/or
  PWIs
    purchases of its equity securities
    Total Numberof Shares


Average PricePeriod

Repurchased


Paid per ShareOctober


7,449


$
5.15November


11,297



5.10December


9,344



4.89Total


28,090


$
5.05     Recent
    sales of unregistered securities
   44




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Stock
    Performance Graph
    Cumulative Total Return to Stockholders
    Penson Worldwide, Inc., NASDAQ Composite Index and NASDAQ
    Financial Stocks Index
    % Return to Stockholders, May 16, 2006 to December 31,
    2010
  Total
    Return Performance
  
     45




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Item 6.
    Selected
    Financial Data    Year Ended December 31,2010


2009


2008


2007


2006(In thousands, except per share data)Consolidated statement of operations data:Net revenues

$
288,348


$
289,881


$
293,170


$
264,725


$
198,189Total expenses


317,564



264,045



276,521



222,767



160,611Income (loss) from continuing operations before income taxes


(29,216
)


25,836



16,649



41,958



37,578Income tax expense (benefit)


(9,369
)


9,825



5,993



15,125



13,299Income (loss) from continuing operations


(19,847
)


16,011



10,656



26,833



24,279Income from discontinued operations, net of tax(1)


















243Net income (loss)

$
(19,847
)

$
16,011


$
10,656


$
26,833


$
24,522Earnings (loss) per share  basicEarnings (loss) per share from continuing operations

$
(.73
)

$
.63


$
.42


$
1.02


$
1.07Earnings per share from discontinued operations


















0.01Earnings (loss) per share

$
(.73
)

$
.63


$
.42


$
1.02


$
1.08Earnings (loss) per share  dilutedEarnings (loss) per share from continuing operations

$
(.73
)

$
.63


$
.42


$
1.00


$
1.05Earnings per share from discontinued operations


















0.01Earnings (loss) per share

$
(.73
)

$
.63


$
.42


$
1.00


$
1.06Weighted average shares outstanding  basic and
    dilutedBasic


27,034



25,373



25,217



26,232



22,689Diluted


27,034



25,591



25,416



26,817



23,058     (1)
    
    Concurrent with our public offering, we split off certain
    non-core business operations into SAMCO Holdings, a newly formed
    company which gives effect to a capital contribution to SAMCO in
    an amount equal to the difference between the net book value of
    the division to be split off, as of such date, and the value of
    the 1,041,667 shares of our common stock to be exchanged in
    the split off. Except as otherwise indicated, financial
    information presented sets forth the results of operations and
    balance sheet data of the entities split off as discontinued
    operations.  46




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As of December 31,2010

2009

2008

2007

2006(In thousands)Consolidated balance sheet data:Cash and cash equivalents

$
138,614


$
48,643


$
38,825


$
120,923


$
103,054Total assets


10,254,184



7,251,075



5,539,195



7,846,977



4,644,390Notes payable


259,729



132,769



75,000



55,000



10,000Total stockholders equity


300,921



298,902



264,467



265,428



211,784   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion and analysis should be read in
    conjunction with Part II, Item 6 Selected
    Financial Data and our audited consolidated financial
    statements and the related notes included elsewhere in this
    annual report on
    Form 10-K.
    This discussion contains forward-looking statements that involve
    risks and uncertainties. Our actual results could differ
    materially from those anticipated in the forward-looking
    statements as a result of certain factors including the risks
    discussed in Item 1A Risk Factors,
    Special Note Regarding Forward-Looking Statements
    and elsewhere in this annual report on
    Form 10-K.
  Market
    and Economic Conditions in 2010
    
    The Federal Reserve maintained its low interest rate policy,
    setting the targeted federal funds rate at 0.25%. In 2008, the
    targeted federal funds rate fell from an average of 3.22% in the
    first quarter to an average of 1.06% in the fourth quarter,
    averaging 2.09% for the year. Since then, it has remained at
    0.25%.
    After rising 7% from year end 2009, to a first half high of
    11,205 in April 2010, the Dow Jones Industrial Average fell 14%,
    to the years low of 9,686 in July 2010, and then rebounded
    20%, to a high for the year of 11,585 at December 29, 2010.
    For the year, the Dow increased 11%.
    Average daily volume in equities in the US fell 5% during 2010,
    to 8.1 billion shares, from 8.5 billion shares in
    2009, largely due to the aftermath of the May 6, 2010
    Flash Crash. This event caused the Dow Jones
    Industrial Average to plunge over 900 points and then rapidly
    rebound. From that day through August 2010, investors withdrew
    nearly $57 billion from US stock mutual funds, the most
    during any four-month period since 2008, according to the
    Investment Company Institute. Third quarter 2010 average daily
    trading volumes declined 27% as compared to the second quarter
    2010 and 19% relative to the third quarter of 2009.
    The Chicago Board Options Exchange Volatility Index
    (VIX), a popular measure of implied stock market
    volatility, fell 16% to a three-year low of 17.4 in April 2010
    from 21.2 in December 2009. It increased 80% to the years
    high of 31.9 in May 2010 following the
    May 6th Flash Crash, and then steadily
    declining 45% to 17.6 in December 2010.
    Short interest activity declined modestly in 2010. The average
    number of shares sold short among New York Stock Exchange listed
    companies fell 1%, to 13.8 billion in 2010, from
    14.0 billion in 2009.
    Margin debt rebounded. Aggregate debits in securities margin
    accounts of New York Stock Exchange member organizations
    increased 24%, to an average of $249.3 billion in 2010,
    from $200.4 billion in 2009.
    In July, the Dodd-Frank Act became effective. While it did not
    include any specific provisions aimed at the clearing industry,
    it is generally believed that when the final rules are
    determined by the various regulatory agencies, there will be a
    broad impact on the securities industry.
    Congress passed, and the President signed, the Tax Relief,
    Unemployment Insurance Reauthorization and Job Creation Act of
    2010, extending most of the existing tax cuts, including those
    on dividends and capital gains, for another two years. 47




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##### Table of Contents



Market
    and Economic Conditions in 2009
    
    The Federal Reserve maintained its low interest rate policy. For
    all of 2009, the targeted federal funds rate was set at 0.25%.
    In 2008, the targeted federal funds rate fell from an average of
    3.22% in the first quarter to an average of 1.06% in the fourth
    quarter, averaging 2.09% for the year.
    After falling 25% from year end 2008, to a low of 6,547 in early
    March 2009, the Dow Jones Industrial Average rebounded 61%, to
    end 2009 at 10,428.
    The VIX, the ticker symbol for the Chicago Board Options
    Exchange Volatility Index, a popular measure of implied stock
    market volatility, fell fairly steadily. In December 2009, it
    averaged 21, down 60% from 52 in December 2008.
    Short interest declined. The average number of shorted shares of
    New York Stock Exchange listed companies fell 7%, to
    14.5 billion in 2009, from 15.6 billion in 2008.
    Margin debt fell. Aggregate debits in securities margin accounts
    of New York Stock Exchange member organizations declined 30%, to
    $200.4 billion in 2009, from $285.2 billion in 2008.
    There were no major regulatory changes that broadly affected the
    securities industry in 2009. However, government and regulatory
    officials in the U.S. did discuss increased restrictions on
    shorting stocks and sponsored access, and taxing securities
    transactions as well as raising taxes on capital gains.  Market
    and Economic Conditions in 2008
    
    The Federal Reserve lowered the targeted federal funds rate by
    approximately 400 basis points to approximately .25% at
    December 31, 2008 from 4.25% at December 31, 2007.
    The VIX, the ticker symbol for the Chicago Board Options
    Exchange Volatility Index, a popular measure of implied stock
    market volatility, reached an intraday high of more than 89 in
    October 2008, versus an average of about 19 since 1990.
    In September and October of 2008, the U.S., U.K. and other
    countries implemented a series of temporary and other, more
    lasting restrictions on the short sales of shares of financial
    service companies.
    New York Stock Exchange short interest, which, as a percentage
    of total shares outstanding at month end, reached a high of 4.86
    in July 2008, an increase of 43% from December 2007, and,
    following the implemented restrictions, declined 26%, to 3.59 in
    December 2008.
    The Dow Jones Industrial Average closed at 8,778 on
    December 31, 2008, having previously reached a low of 7,392
    in November 2008, from a high for the year of 13,338 in January
    2008.
    Consolidated NASDAQ trading volume increased 47%, to 2.3
    trillion shares in 2008, from 1.5 trillion shares in 2007.
    Margin debt on NYSE stocks declined 42%, to $187 billion in
    December 2008, from $323 billion in December 2007.  Overview
   48




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##### Table of Contents



Fiscal
    2010 Highlights
  
    On June 25, 2010, we closed our acquisition of the clearing
    and execution services business of Ridge Clearing &
    Outsourcing Solutions, Inc.
    On May 6, 2010, we sold $200 million 12.5% senior
    second lien secured notes due May 15, 2017.
    On May 6, 2010, we signed a new three-year $75 million
    revolving credit facility. We signed an amendment to the credit
    facility on October 29, 2010, which revised certain
    financial covenants and provided additional availability of
    funds under the facility.
    We increased our correspondent count to 430 as of
    December 31, 2010.
    Our interest earning average daily balances reached a record
    $8.1 billion for the three months ended December 31,
    2010.
    As of December 31, 2010, our PFSA subsidiary which began
    clearing operations in December 2009, had 48 correspondents and
    was profitable for the fourth quarter of 2010.  Acquisition
    of Ridge
  90-day
   49




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##### Table of Contents



Acquisition
    of FCG
    Acquisition
    of GHCO
    Acquisition
    of Schonfeld
   50




---



##### Table of Contents



Financial
    overview
  Net
    revenues
  Revenues
         51




---



##### Table of Contents



Interest
    expense from securities operations
      Expenses
  Employee
    compensation and benefits
    Other
    operating expenses
    Profitability
    of services provided
   52




---



##### Table of Contents



Results
    of operations
    Year Ended December 312010


2009


2008Revenues:Clearing and commission fees


53
%


50
%


51
%Technology


7
%


8
%


8
%Interest, gross


32
%


35
%


57
%Other revenues


16
%


19
%


15
%Total revenues


108
%


112
%


131
%Interest expense from securities operations


8
%


12
%


31
%Net revenues


100
%


100
%


100
%Expenses:Employee compensation and benefits


41
%


39
%


39
%Floor brokerage exchange and clearance fees


14
%


11
%


9
%Communications and data processing


21
%


16
%


13
%Occupancy and equipment


11
%


10
%


10
%Correspondent asset loss










9
%Other expenses


12
%


11
%


13
%Interest expense on long-term debt


11
%


4
%


1
%Total expenses


110
%


91
%


94
%Income (loss) before income taxes


(10
)%


9
%


6
%Income tax expense (benefit)


(3
)%


3
%


2
%Income (loss) before income taxes


(7
)%


6
%


4
%   Comparison
    of years ended December 31, 2010 and December 31,
    2009
  Overview
   53




---



##### Table of Contents



%Change


Change fromAmount


Previous Year(In thousands)Revenues:Clearing and commission fees

$
8,143



5.6Technology


(3,374
)


(14.2
)Interest:Interest on asset based balances


4,396



6.0Interest on conduit borrows


(14,382
)


(57.4
)Money market


535



23.1Interest, gross


(9,451
)


(9.4
)Other revenue


(8,861
)


(16.1
)Total revenues


(13,543
)


(4.2
)Interest expense:Interest expense on liability based balances


(464
)


(3.0
)Interest on conduit loans


(11,546
)


(61.5
)Interest expense from securities operations


(12,010
)


(35.0
)Net revenues


(1,533
)


(.5
)Expenses:Employee compensation and benefits


6,648



5.9Floor brokerage, exchange and clearance fees


7,977



24.6Communications and data processing


14,826



32.6Occupancy and equipment


2,774



9.4Other expenses


809



2.4Interest expense on long-term debt


20,485



198.053,519



20.3  54




---



##### Table of Contents



Net
    revenues
                    Employee
    compensation and benefits
   55




---



##### Table of Contents



Floor
    brokerage, exchange and clearance fees
    Communication
    and data processing
    Occupancy
    and equipment
    Other
    expenses
    Interest
    expense on long-term debt
    Provision
    for income taxes
    Net
    income (loss)
    Comparison
    of years ended December 31, 2009 and December 31,
    2008
  Overview
   56




---



##### Table of Contents



%Change


Change fromAmount


Previous Year(In thousands)Revenues:Clearing and commission fees

$
(5,509
)


(3.7
)Technology


1,602



7.2Interest:Interest on asset based balances


(36,723
)


(33.5
)Interest on conduit borrows


(24,410
)


(49.3
)Money market


(4,405
)


(65.5
)Interest, gross


(65,538
)


(39.5
)Other revenue


9,736



21.5Total revenues


(59,709
)


(15.6
)Interest expense:Interest expense on liability based balances


(36,295
)


(70.1
)Interest on conduit loans


(20,125
)


(51.7
)Interest expense from securities operations


(56,420
)


(62.2
)Net revenues


(3,289
)


(1.1
)Expenses:Employee compensation and benefits


(614
)


(0.5
)Floor brokerage, exchange and clearance fees


6,267



24.0Communications and data processing


6,176



15.7Occupancy and equipment


530



1.8Vendor related asset impairment


(3
)


(0.4
)Correspondent asset loss


(26,421
)


(100.0
)Other expenses


(4,901
)


(13.1
)Interest expense on long-term debt


6,490



168.4(12,476
)


(4.5
)  57




---



##### Table of Contents



Net
    revenues
                    Employee
    compensation and benefits
    Floor
    brokerage, exchange and clearance fees
   58




---



##### Table of Contents



Communications
    and data processing
    Occupancy
    and equipment
    Correspondent
    asset loss
      Other
    expenses
  Legal Proceedings
  Interest
    expense on long-term debt
    Income
    tax expense
    Net
    income
    Liquidity
    and capital resources
  Operating Liquidity 
 59




---



##### Table of Contents



Capital Resources 
    Form S-3,
    (Rule 15c3-1), Rule 15c3-1,
 60




---



##### Table of Contents



(Rule 15c3-3).
    Contractual
    obligations
    Less Than








More ThanContractual Obligations

Total


1 Year


13 Years


45 Years


5 Years(In thousands)Long-term debt obligations and accrued interest(1)

$
284,478


$
3,900


$



$
80,578


$
200,000Capital lease obligations


8,064



5,425



2,639







Operating lease obligations


24,026



5,702



8,768



5,245



4,311Total

$
316,568


$
15,027


$
11,407


$
85,823


$
204,311     (1)
    
    The long-term debt obligations and accrued interest consists of
    our 12.50% Senior Second Lien Secured Notes due 2017 and
    accrued interest of $203,195, 8.00% Senior Convertible
    Notes due 2014 and accrued interest of $60,400 and our Ridge
    Seller Note and accrued interest of $20,883. Only interest
    accrued at December 31, 2010 has been included.    Off-balance
    sheet arrangements
      Critical
    accounting policies
   61




---



##### Table of Contents



Revenue
    recognition
      percentage-of-completion Revenue Recognition
  Fair
    value
    and/or
  
    Level 1  Inputs are quoted prices in active
    markets for identical assets or liabilities that the Company has
    the ability to access at the measurement date. Assets and
    liabilities utilizing Level 1 inputs include corporate
    equity, U.S. Treasury and money market securities.
    Valuation of these instruments does not require a high degree of
    judgment as the valuations are based on quoted prices in active
    markets that are readily and regularly available.
    Level 2  Inputs other than quoted prices in
    active markets that are either directly or indirectly observable
    as of the measurement date, such as quoted prices for similar
    assets or liabilities; quoted prices in markets that are not
    active; or other inputs that are observable or can be
    corroborated by observable market data for substantially the
    full term of the assets or liabilities. Assets and liabilities
    utilizing Level 2 inputs include certificates of deposit,
    term deposits, corporate debt securities and Canadian government
    obligations. These financial instruments are valued by quoted
    prices that are less frequent than those in active markets or by
    models that use various assumptions that are derived from or
    supported by data that is generally observable in the
    marketplace. Valuations in this category are inherently less
    reliable than quoted market prices due to 62




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##### Table of Contents



the degree of subjectivity involved in determining appropriate
    methodologies and the applicable underlying assumptions.  
    Level 3  Valuations based on inputs that are
    unobservable and not corroborated by market data. The Company
    does not currently have any financial instruments utilizing
    Level 3 inputs. These financial instruments have
    significant inputs that cannot be validated by readily
    determinable data and generally involve considerable judgment by
    management.    Software
    development
    Goodwill
        Stock-based
    compensation
   63




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosure about Market Risk    intra-day
     64




---



##### Table of Contents



and/or
  Item 8.
    Financial
    Statements and Supplementary Data  Form 10-K. page F-1.
  Quarterly
    results of operations (unaudited)
  Dec. 31,


Sep. 30,


Jun. 30,


Mar. 31,


Dec. 31,


Sep. 30,


Jun. 30,


Mar. 31,Quarter Ended

2010


2010


2010


2010


2009


2009


2009


2009(In thousands, except per share data)Revenues:Clearing and commission fees

$
42,901


$
37,818


$
38,103


$
34,366


$
34,826


$
36,911


$
38,183


$
35,125Technology


5,167



4,661



5,207



5,384



5,410



6,266



6,452



5,665Interest, gross


27,105



22,995



20,078



20,590



22,246



25,096



30,841



22,036Other


11,768



9,345



12,575



12,554



19,266



12,551



11,809



11,477Total revenues


86,941



74,819



75,963



72,894



81,748



80,824



87,285



74,303Interest expense from securities operations


6,924



5,024



4,854



5,467



7,328



8,601



10,804



7,546Net revenues


80,017



69,795



71,109



67,427



74,420



72,223



76,481



66,757Expenses:Employee compensation and benefits


29,063



31,125



31,927



27,634



27,780



27,204



29,188



28,929Floor brokerage, exchange and clearance fees


11,395



10,320



9,559



9,088



7,666



8,544



8,759



7,416Communications and data processing


18,935



17,802



12,134



11,397



11,572



11,745



11,568



10,557Occupancy and equipment


8,278



8,181



7,928



7,804



7,385



7,422



7,365



7,245Other expenses


7,746



8,018



11,676



6,725



8,823



7,652



7,700



9,181Interest expense on long-term debt


9,530



9,315



7,429



4,555



4,303



3,480



1,876



68584,947



84,761



80,653



67,203



67,529



66,047



66,456



64,013Income (loss) before income taxes


(4,930
)


(14,966
)


(9,544
)


224



6,891



6,176



10,025



2,744Income tax expense (benefit)


(1,726
)


(5,552
)


(2,176
)


85



2,550



2,309



3,910



1,056Net income (loss)

$
(3,204
)

$
(9,414
)

$
(7,368
)

$
139


$
4,341


$
3,867


$
6,115


$
1,688Earnings (loss) per share  basic

$
(0.11
)

$
(0.33
)

$
(0.29
)

$
0.01


$
0.17


$
0.15


$
0.24


$
0.07Earnings (loss) per share  diluted

$
(0.11
)

$
(0.33
)

$
(0.29
)

$
0.01


$
0.17


$
0.15


$
0.24


$
0.07Weighted average shares outstanding  basic


28,394



28,295



25,830



25,573



25,491



25,411



25,329



25,260Weighted average shares outstanding  diluted


28,394



28,295



25,830



25,704



25,651



25,765



25,614



25,300  65




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Managements
    evaluation of disclosure controls and procedures
  Rule 13a-15(e)
  Changes
    in internal control over financial reporting
    Managements
    report on internal control over financial reporting
  Rules 13a-15(f) 15d-15(f)
        Inherent
    limitation of the effectiveness of internal control
    Item 9B.
    Other
    Information   66




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##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Equity
    compensation plans
  Number of Securities to


Weighted-Averagebe Issued Upon Exercise


Exercise Price of


Number of Securitiesof Outstanding Options,


Outstanding Options,


Remaining AvailablePlan Category

Warrants and Rights(a)


Warrants and Rights


for Future IssuanceEquity Compensation Plans Approved by Security Holders(b)


1,188,380


$
14.33



2,507,927Equity Compensation Plans Not Approved By Security Holders










1,188,380


$
14.33



2,507,927     (a)
    
    Includes shares issuable for unvested restricted stock units.(b)
    
    Includes shares issuable pursuant to the Penson Worldwide, Inc.
    Amended and Restated 2000 Stock Incentive Plan, of which there
    were 2,440,978 shares remaining available for future
    issuance and the Penson Worldwide, Inc. 2005 Employee Stock
    Purchase Plan of which there were 66,949 shares remaining
    available for future issuance.    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   67




---



##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  1. Financial statements
  page F-1 Form 10-K.
  PageNumberReports of Independent Registered Public
    Accounting Firm


F-2Statements of Financial Condition


F-4Statements of Operations


F-5Statements of Stockholders Equity


F-6Statements of Cash Flows


F-7Notes to the Consolidated Financial Statements


F-8    2. Financial statement schedules.
      3. Exhibit list.
   68




---



##### Table of Contents



Signatures      By:
    /s/  PHILIP
    A. PENDERGRAFT   Title:
    Chief Executive Officer  Date:
    Signature

Title

Date/s/  ROGER
    J. ENGEMOEN, JR.Roger
    J. Engemoen, Jr.

Chairman

March 3, 2011/s/  PHILIP
    A. PENDERGRAFTPhilip
    A. Pendergraft

Chief Executive Officer
    (Principal Executive Officer)
    and Director

March 3, 2011/s/  DANIEL
    P. SONDaniel
    P. Son

Non Executive Vice Chairman and Director

March 3, 2011/s/  KEVIN
    W. MCALEERKevin
    W. McAleer

Executive Vice President & Chief Financial Officer
    (Principal Financial
    and Accounting Officer)

March 3, 2011/s/  JAMES
    S. DYERJames
    S. Dyer

Director

March 3, 2011/s/  DAVID
    JOHNSONDavid
    Johnson

Director

March 3, 2011/s/  THOMAS
    R. JOHNSONThomas
    R. Johnson

Director

March 3, 2011/s/  DAVID
    M. KELLYDavid
    M. Kelly

Director

March 3, 2011/s/  DAVID
    A. REEDDavid
    A. Reed

Director

March 3, 2011  69




---



##### 



Index to
    consolidated financial statements
   
 Penson Worldwide, Inc. consolidated financial statements:Reports of Independent Registered Public
    Accounting Firm


F-2Consolidated Financial Statements:Statements of Financial Condition


F-4Statements of Operations


F-5Statements of Stockholders Equity


F-6Statements of Cash Flows


F-7Notes to the Consolidated Financial Statements


F-8   F-1




---



##### Table of Contents



Report of
    independent registered public accounting firm            Internal Control  Integrated
    Framework
  BDO
    USA, llp
      F-2




---



##### Table of Contents



Report of
    independent registered public accounting firm
      Internal Control  Integrated Framework
            BDO
    USA, llp
      F-3




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Consolidated
    Statements of Financial Condition
  December 31,2010


2009(In thousands,except par values)ASSETSCash and cash equivalents

$
138,614


$
48,643Cash and securities  segregated under federal and
    other regulations (including securities at fair value of $14,197
    at December 31, 2010 and $0 at December 31, 2009)


5,407,645



3,605,651Receivable from broker-dealers and clearing organizations
    (including securities at fair value of $2,498 at
    December 31, 2010 and $5,149 at December 31, 2009)


257,036



225,130Receivable from customers, net


2,209,373



1,038,796Receivable from correspondents


129,208



74,992Securities borrowed


1,050,682



1,271,033Securities owned, at fair value


201,195



223,480Deposits with clearing organizations (including securities at
    fair value of $213,015 at December 31, 2010 and $356,582 at
    December 31, 2009)


423,156



433,243Property and equipment, net


37,743



34,895Other assets


399,532



295,212Total assets

$
10,254,184


$
7,251,075LIABILITIES AND STOCKHOLDERS EQUITYPayable to broker-dealers and clearing organizations

$
128,536


$
336,056Payable to customers


7,498,626



5,038,338Payable to correspondents


469,542



249,659Short-term bank loans


338,110



113,213Notes payable


259,729



132,769Securities loaned


1,015,351



898,957Securities sold, not yet purchased, at fair value


115,916



97,308Accounts payable, accrued and other liabilities


127,453



85,873Total liabilities


9,953,263



6,952,173Commitments and contingenciesSTOCKHOLDERS EQUITYPreferred stock, $0.01 par value, 10,000 shares
    authorized; none issued and outstanding as of December 31,
    2010 and 2009






Common stock, $0.01 par value, 100,000 shares
    authorized; 32,054 issued and 28,454 outstanding as of
    December 31, 2010; 29,022 issued and 25,548 outstanding as
    of December 31, 2009


321



290Additional paid-in capital


278,469



258,375Accumulated other comprehensive income, net


4,367



1,748Retained earnings


72,635



92,482Treasury stock, at cost; 3,600 shares at December 31,
    2010; 3,474 shares at December 31, 2009


(54,871
)


(53,993
)Total stockholders equity


300,921



298,902Total liabilities and stockholders equity

$
10,254,184


$
7,251,075    F-4




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Consolidated
    Statements of Operations
  Year Ended December 31,2010


2009


2008(In thousands, except per share data)RevenuesClearing and commission fees

$
153,188


$
145,045


$
150,554Technology


20,419



23,793



22,191Interest, gross


90,768



100,219



165,757Other


46,242



55,103



45,367Total revenues


310,617



324,160



383,869Interest expense from securities operations


22,269



34,279



90,699Net revenues


288,348



289,881



293,170ExpensesEmployee compensation and benefits


119,749



113,101



113,715Floor brokerage, exchange and clearance fees


40,362



32,385



26,118Communications and data processing


60,268



45,442



39,266Occupancy and equipment


32,191



29,417



28,887Correspondent asset loss










26,421Other expenses


34,165



33,356



38,260Interest expense on long-term debt


30,829



10,344



3,854317,564



264,045



276,521Income (loss) before income taxes


(29,216
)


25,836



16,649Income tax expense (benefit)


(9,369
)


9,825



5,993Net income (loss)

$
(19,847
)

$
16,011


$
10,656Earnings (loss) per share  basic

$
(0.73
)

$
0.63


$
0.42Earnings (loss) per share  diluted

$
(0.73
)

$
0.63


$
0.42Weighted average common shares  basic


27,034



25,373



25,217Weighted average common shares  diluted


27,034



25,591



25,416    F-5




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Consolidated
    Statements of Stockholders Equity
  AccumulatedPreferred








Additional





Other





TotalStock


Common stock


Paid-In


Treasury


Comprehensive


Retained


StockholdersAmount


Shares


Amount


Capital


Stock


Income (loss)


Earnings


Equity(In thousands)Balance, December 31, 2007

$




25,543


$
282


$
238,253


$
(45,886
)

$
6,964


$
65,815


$
265,428Net income


























10,656



10,656Foreign currency translation adjustments, net of tax of $6,440






















(9,989
)






(9,989
)Repurchase of treasury stock






(714
)










(7,431
)










(7,431
)Stock-based compensation expense






188



2



4,521















4,523Exercise of stock options






36







168















168Excess tax deficiency from stock-based compensation plans














(459
)














(459
)Purchases of stock under the employee stock purchase plan






110



1



999















1,000Issuance of common stock






44



1



570















571Balance, December 31, 2008






25,207



286



244,052



(53,317
)


(3,025
)


76,471



264,467Net income


























16,011



16,011Foreign currency translation adjustments, net of tax of $3,077






















4,773







4,773Repurchase of treasury stock






(77
)










(676
)










(676
)Stock-based compensation expense






275



3



5,084















5,087Excess tax deficiency from stock-based compensation plans














(473
)














(473
)Purchases of stock under the employee stock purchase plan






108



1



655















656Equity component of the conversion feature attributable to
    senior convertible notes, net of tax of $5,593














8,822















8,822Issuance of common stock






35







235















235Balance, December 31, 2009






25,548



290



258,375



(53,993
)


1,748



92,482



298,902Net loss


























(19,847
)


(19,847
)Foreign currency translation adjustments, net of tax of $1,689






















2,619







2,619Repurchase of treasury stock






(126
)










(878
)










(878
)Stock-based compensation expense






469



5



4,981















4,986Exercise of stock options






21







88















88Excess tax deficiency from stock-based compensation plans














(32
)














(32
)Purchases of stock under the employee stock purchase plan






86



1



471















472Issuance of common stock






2,456



25



14,586















14,611Balance, December 31, 2010

$




28,454


$
321


$
278,469


$
(54,871
)

$
4,367


$
72,635


$
300,921    F-6




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Consolidated Statements of Cash
    Flows
  Year Ended December 31,2010


2009


2008(In thousands)Cash flows from operating activities:Net income (loss)

$
(19,847
)

$
16,011


$
10,656Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Depreciation and amortization


20,789



19,158



20,247Deferred income taxes


(593
)


5,131



977Stock-based compensation


4,986



5,087



4,523Debt discount accretion


3,658



1,534



Debt issuance costs


1,805



1,081



Contingent consideration accretion


201







Changes in operating assets and liabilities:Cash and securities  segregated under federal and
    other regulations


(1,800,563
)


(1,195,735
)


(1,005,993
)Net receivable/payable with customers


1,277,676



1,072,964



736,513Net receivable/payable with correspondents


155,490



142,377



(63,611
)Securities borrowed


231,536



(293,329
)


1,089,050Securities owned


32,722



235,270



(234,799
)Deposits with clearing organizations


12,028



(103,306
)


(35,589
)Other assets


18,624



(43,318
)


92,189Net receivable/payable with broker-dealers and clearing
    organizations


(241,887
)


65,517



449,542Securities loaned


115,671



56,452



(882,064
)Securities sold, not yet purchased


12,981



40,418



(25,495
)Accounts payable, accrued and other liabilities


(47,383
)


(12,353
)


8,051Net cash provided by (used in) operating activities


(222,106
)


12,959



164,197Cash flows from investing activities:Business combinations, net of cash acquired


(1,921
)


(32,262
)


(33,370
)Purchases of property and equipment


(20,359
)


(21,741
)


(19,031
)Net cash used in investing activities


(22,280
)


(54,003
)


(52,401
)Cash flows from financing activities:Net proceeds from issuance of senior second lien secured notes


193,294







Net proceeds from issuance of convertible notes






56,200



Proceeds from revolving credit facility


31,500



50,000



20,000Repayments of revolving credit facility


(120,000
)


(36,500
)


Net borrowing (repayments) on short-term bank loans


224,722



(20,905
)


(196,380
)Exercise of stock options


88







168Excess tax benefit from stock-based compensation plans


48



27



75Purchase of treasury stock


(878
)


(676
)


(7,431
)Issuance of common stock


472



656



1,000Net cash provided by (used in) financing activities


329,246



48,802



(182,568
)Effect of exchange rates on cash


5,111



2,060



(11,326
)Increase (decrease) in cash and cash equivalents


89,971



9,818



(82,098
)Cash and cash equivalents at beginning of period


48,643



38,825



120,923Cash and cash equivalents at end of period

$
138,614


$
48,643


$
38,825Supplemental cash flow disclosures:Interest payments

$
26,054


$
10,633


$
18,277Income tax payments

$
6,632


$
3,807


$
19,639Supplemental disclosure of non-cash activities:Common stock issued in connection with the Ridge acquisition

$
14,611


$



$
Note issued in connection with the Ridge acquisition

$
20,578


$



$
    F-7




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes
    to the Consolidated Financial Statements
 (In
    thousands, except per share data or where noted)
  1.
    Basis of
    presentation  Organization and Business
          2.
    Summary
    of significant accounting policies  Securities Transactions
  Securities Lending Activities
 F-8




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Reverse Repurchase and Repurchase Agreements
  Revenue Recognition
    percentage-of-completion Revenue Recognition
  Income Taxes
 F-9




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Property and Equipment
  Goodwill
  Balance, December 31, 2008

$
94,887Goodwill acquired


17,936Balance, December 31, 2009


112,823Goodwill acquired


28,724Balance, December 31, 2010

$
141,547     Intangibles
  Gross Carrying


Accumulated


Net Carrying2010

Amount


Amortization


ValueCustomer related intangible assets

$
41,029


$
6,249


$
34,780Purchased technology


14,082



13,742



340Other


2,760



363



2,397Total

$
57,871


$
20,354


$
37,517   Gross Carrying


Accumulated


Net Carrying2009

Amount


Amortization


ValueCustomer related intangible assets

$
20,007


$
3,762


$
16,245Purchased technology


14,082



13,094



988Other


2,760



251



2,509Total

$
36,849


$
17,107


$
19,742  F-10




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Financing Costs
  Operating Leases
  Stock-Based Compensation
  Managements Estimates and Assumptions
  Cash and Cash Equivalents
  Securities Owned and Securities Sold, Not Yet
    Purchased
  Fair Value of Financial Instruments
  Allowance for Doubtful Accounts
 F-11




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  account-by-account
  Balance, December 31, 2007

$
6,493Bad debt expense


2,302Write-offs


(635
)Balance, December 31, 2008


8,160Bad debt expense


1,752Write-offs


(207
)Balance, December 31, 2009


9,705Bad debt expense


5,185Write-offs


(713
)Balance, December 31, 2010

$
14,177   Software Costs and Expenses
  Net Income (Loss) Per Share
 F-12




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Foreign Currency Translation Adjustments
  Reclassifications 
  3.
    Acquisitions  Acquisition
    of Ridge
  90-day
     F-13




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Acquisition
    of First Capitol Group, LLC
    Acquisition
    of GHCO
    Acquisition
    of the clearing business of Schonfeld Securities,
    LLC
   F-14




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    5.
    Computation
    of net income (loss) per share    Year Ended December 31,2010


2009


2008Basic and diluted:Net income (loss)

$
(19,847
)

$
16,011


$
10,656Weighted average common shares outstanding  basic


27,034



25,373



25,217Incremental shares from outstanding stock options






26



33Incremental shares from non-vested restricted stock units






101



12Shares issuable






18



154Convertible debt






73



Weighted average common shares and common share
    equivalents  diluted


27,034



25,591



25,416Basic earnings (loss) per common share

$
(0.73
)

$
0.63


$
0.42Diluted earnings (loss) per common share

$
0.73
)

$
0.63


$
0.42     6.
    Fair
    value of financial instruments  and/or
 F-15




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    
    Level 1  Inputs are quoted prices in active
    markets for identical assets or liabilities that the Company has
    the ability to access at the measurement date. Valuation of
    these instruments does not require a high degree of judgment as
    the valuations are based on quoted prices in active markets that
    are readily and regularly available.
    Level 2  Inputs other than quoted prices in
    active markets that are either directly or indirectly observable
    as of the measurement date, such as quoted prices for similar
    assets or liabilities; quoted prices in markets that are not
    active; or other inputs that are observable or can be
    corroborated by observable market data for substantially the
    full term of the assets or liabilities. These financial
    instruments are valued by quoted prices that are less frequent
    than those in active markets or by models that use various
    assumptions that are derived from or supported by data that is
    generally observable in the marketplace. Valuations in this
    category are inherently less reliable than quoted market prices
    due to the degree of subjectivity involved in determining
    appropriate methodologies and the applicable underlying
    assumptions.
    Level 3  Valuations based on inputs that are
    unobservable and not corroborated by market data. The Company
    does not currently have any financial instruments utilizing
    Level 3 inputs. These financial instruments have
    significant inputs that cannot be validated by readily
    determinable data and generally involve considerable judgment by
    management.    U.S.
    government and agency securities
      Canadian
    government obligations
    Corporate
    equity
    Corporate
    debt
    Listed
    option contracts
   F-16




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Certificates
    of deposit and term deposits
    Money
    market
      December 31, 2010

Level 1


Level 2


TotalCash and securities  segregated under federal and
    other regulationsU.S. government and agency securities

$
6,197


$



$
6,197Money market


8,000







8,000$
14,197


$



$
14,197Receivable from broker-dealers and clearing organizationsU.S. government and agency securities

$
2,498


$



$
2,498$
2,498


$



$
2,498Securities ownedCorporate equity

$
290


$



$
290Listed option contracts


168







168Corporate debt






79,404



79,404Certificates of deposit and term deposits






24,432



24,432U.S. government and agency securities


49,997







49,997Canadian government obligations






46,904



46,904$
50,455


$
150,740


$
201,195Deposits with clearing organizationsU.S. government and agency securities

$
203,843


$



$
203,843Money market


9,172







9,172$
213,015


$



$
213,015Securities sold, not yet purchasedCorporate equity

$
264


$



$
264Listed option contracts


287







287U.S. government and agency securities


90,870







90,870Canadian government obligations






24,495



24,495$
91,421


$
24,495


$
115,916   F-17




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  December 31, 2009

Level 1


Level 2


TotalReceivable from broker-dealers and clearing organizationsU.S. government and agency securities

$
5,149


$



$
5,149$
5,149


$



$
5,149Securities ownedCorporate equity

$
2,021


$



$
2,021Listed option contracts


127







127Corporate debt






70,398



70,398Certificates of deposit and term deposits






26,368



26,368U.S. government and agency securities


73,775







73,775Canadian government obligations






33,691



33,691Money market


17,100







17,100$
93,023


$
130,457


$
223,480Deposits with clearing organizationsU.S. government and agency securities

$
261,050


$



$
261,050Money market


95,532







95,532$
356,582


$



$
356,582Securities sold, not yet purchasedCorporate equity

$
16


$



$
16Listed option contracts


228







228Corporate debt






63,850



63,850Canadian government obligations






33,214



33,214$
244


$
97,064


$
97,308   7.
    Segregated
    assets  Rule 15c3-3 Rule 15c3-3.
 F-18




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  8.
    Receivable
    from and payable to broker-dealers and clearing
    organizations    December 31,2010


2009Receivable:Securities failed to deliver

$
64,233


$
62,613Receivable from clearing organizations


192,803



162,517$
257,036


$
225,130Payable:Securities failed to receive

$
60,767


$
51,695Payable to clearing organizations


67,769



284,361$
128,536


$
336,056       9.
    Receivable
    from and payable to customers and correspondents     F-19




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  10.
    Securities
    owned and securities sold, not yet purchased    December 31,2010


2009Securities Owned:Corporate equity

$
290


$
2,021Listed option contracts


168



127Corporate debt


79,404



70,398Certificates of deposit and term deposits


24,432



26,368U.S. federal and agency securities


49,997



73,775Canadian government obligations


46,904



33,691Money market






17,100$
201,195


$
223,480Securities Sold, Not Yet Purchased:Corporate equity

$
264


$
16Listed option contracts


287



228Corporate debt






63,850U.S. federal and agency securities


90,870



Certificates of deposit and term deposits






33,214Canadian government obligations


24,495



$
115,916


$
97,308   11.
    Reverse
    repurchase and repurchase agreements   F-20




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  12.
    Property
    and equipment    December 31,2010


2009Equipment

$
42,251


$
33,729Software


73,364



61,925Furniture


5,217



5,146Leasehold improvements


6,938



6,825Other


1,919



1,826129,689



109,451Less accumulated depreciation and amortization


91,946



74,556Property and equipment, net

$
37,743


$
34,895     13.
    Short-term
    bank loans     F-21




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  14.
    Notes
    payable    December 31,2010


20098.00% Senior Convertible Notes with a principal amount of
    $60,000, unsecured. Payable in full in June 2014

$
47,141


$
44,26912.50% Senior Second Lien Secured Notes with a principal
    amount of $200,000. Payable in full in May 2017


195,024



Bank credit line up to $100,000, unsecured, with a variable rate
    of interest that approximated 7.0% at December 31, 2009.
    Paid in full in May 2010






88,500Ridge Seller Note with a principal amount of $20,578, unsecured,
    with a variable rate of interest that approximated 5.8% at
    December 31, 2010. Payable in full in June 2015


17,564



$
259,729


$
132,769   Senior
    convertible notes
      business-day trading-day
   F-22




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
          Senior
    second lien secured notes
       F-23




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Revolving
    credit facility
    Ridge
    seller note
  90-day
 F-24




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  90-day
    Amount2011

$
2012


2013


2014


60,0002015


20,578Thereafter


200,000$
280,578   15.
    Stockholders
    equity    Preferred


Common


TreasuryStock


Stock


StockBalance, December 31, 2007






25,543



2,683Issuance of common stock






44



Repurchase of treasury stock






(714
)


714Stock-based compensation






188



Purchases under the employee stock purchase plan






110



Exercise of stock options






36



Balance, December 31, 2008






25,207



3,397Issuance of common stock






35



Repurchase of treasury stock






(77
)


77Stock-based compensation






275



Purchases under the employee stock purchase plan






108



Balance, December 31, 2009






25,548



3,474Issuance of common stock






2,456



Repurchase of treasury stock






(126
)


126Stock-based compensation






469



Purchases under the employee stock purchase plan






86



Exercise of stock options






21



Balance, December 31, 2010






28,454



3,600  F-25




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Additional
    paid-in capital
    Comprehensive
    income (loss)
      Year Ended December 31,2010


2009


2008Net income (loss)

$
(19,847
)

$
16,011


$
10,656Foreign currency translation gain (loss)


2,619



4,773



(9,989
)Comprehensive income (loss)

$
(17,228
)

$
20,784


$
667     Year Ended December 31,2010


2009


2008Canadian DollarsStatement of operations

$
0.99


$
0.88


$
0.95Balance sheet


1.01



0.95



0.82British PoundsStatement of operations

$
1.54


$
1.56


$
1.85Balance sheet


1.57



1.61



1.44Australian DollarsStatement of operations

$
0.96


$
0.90


$
Balance sheet


1.02



0.90



     Dividends
    16.
    Financial
    instruments with off-balance sheet risk   F-26




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    intra-day intra-day
          17.
    Related
    party transactions     F-27




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
             F-28




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
        Form 10-Q,
  18.
    Employee
    benefit plan   F-29




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
   19.
    Stock-based
    compensation      Stock
    options
        Weighted


AggregateWeighted


Average


IntrinsicNumber of


Average


Contractual


Value of In-theShares


Exercise Price


Term


Money Options(In whole dollars)


(In years)Outstanding, December 31, 2007


1,169


$
17.10



5.79


$
946Granted














Exercised


(36
)


4.72







Forfeited, cancelled or expired


(105
)


18.95







Outstanding, December 31, 2008


1,028


$
17.35



4.78


$
206Granted














Exercised














Forfeited, cancelled or expired


(96
)


19.35







Outstanding, December 31, 2009


932


$
17.13



3.91


$
290Granted














Exercised


(21
)


4.22







Forfeited, cancelled or expired


(144
)


17.82







Outstanding, December 31, 2010


767


$
17.36



3.05


$
34Options exercisable at December 31, 2010


757


$
17.31



3.04


$
34  F-30




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Restricted
    stock units
    Weighted


WeightedAverage


Average


AggregateNumber of


Grant Date


Contractual


IntrinsicUnits


Fair Value


Term


Value(In whole dollars)


(In years)Outstanding, December 31, 2007


390


$
17.39



2.6


$
5,596Granted


599



10.07







Vested and issued


(188
)


15.22







Forfeited


(52
)


17.97







Outstanding, December 31, 2008


749


$
12.06



2.9


$
5,704Granted


207



6.72







Vested and issued


(275
)


12.76







Forfeited


(107
)


10.06







Outstanding, December 31, 2009


574


$
10.17



2.4


$
5,202Granted


407



8.32







Vested and issued


(441
)


9.92







Forfeited


(119
)


9.37







Outstanding, December 31, 2010


421


$
8.83



2.1


$
2,061     Employee
    stock purchase plan
     F-31




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Other
    20.
    Commitments
    and contingencies    Capital


OperatingLeases


Leases2011

$
5,425


$
5,7022012


2,143



4,7382013


496



4,0302014






2,8332015






2,4122016 and thereafter






4,311$
8,064


$
24,026          F-32




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    21.
    Income
    taxes    Year Ended December 31,2010


2009


2008Income (loss) before income taxes:U.S.

$
(30,398
)

$
14,975


$
25,993Non-U.S.


1,182



10,861



(9,344
)$
(29,216
)

$
25,836


$
16,649     Year Ended December 31,2010


2009


2008Current:Federal

$
(9,196
)

$
1,125


$
8,804State


1,054



354



617Non-U.S.


(634
)


3,215



(4,405
)(8,776
)


4,694



5,016Deferred:Federal

$
(995
)

$
4,557


$
930State


(66
)


543



110Non-U.S.


468



31



(63
)(593
)


5,131



977Total

$
(9,369
)

$
9,825


$
5,993     Year Ended December 31,2010


2009


2008Federal statutory income tax rate


35.0
%


35.0
%


35.0
%Lower tax rates applicable to
    non-U.S.
    earnings


2.0



(2.1
)


(2.4
)International trade tax credit


1.6







(4.8
)State and local income taxes, net of U.S. federal income tax
    benefits


(2.2
)


2.3



5.2Stock-based compensation


(3.1
)


2.2



3.4Other, net


(1.2
)


0.6



(0.4
)32.1
%


38.0
%


36.0
%    F-33




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Deferred
    income taxes consist of the following:
  December 31,2010


2009Current deferred taxes:Bad debt allowance

$
3,495


$
2,158Accrued expenses


2,291



Prepaid assets


(751
)


(690
)$
5,035


$
1,468Non-current deferred taxes:Net operating loss carry forwards

$
1,275


$
Fixed asset basis differences


(4,656
)


(2,890
)Intangible assets


(5,865
)


(3,155
)Stock-based compensation


2,046



1,824Equity component of the conversion feature attributable to
    senior convertible notes


(4,103
)


(4,968
)Other


278



(137
)Valuation allowance


(1,275
)


$
(12,300
)

$
(9,326
)Total

$
(7,265
)

$
(7,858
)   non-U.S. income
 F-34




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Income Taxes
  Balance at December 31, 2007


826Additions based on tax positions related to the current year


657Reductions for tax positions of prior years


(526
)Balance at December 31, 2008


957Additions based on tax positions related to the current year


230Reductions for tax positions of prior years


(191
)Balance at December 31, 2009


996Additions based on tax positions related to the current year


79Additions for tax positions of prior years


148Balance at December 31, 2010

$
1,223     22.
    Segment
    information    UnitedDecember 31, 2010

States

Canada

Other

ConsolidatedRevenues

$
244,959


$
46,412


$
19,246


$
310,617Interest, net


62,553



4,092



1,854



68,499Income (loss) before tax


(30,398
)


2,043



(861
)


(29,216
)Net income (loss)


(21,194
)


2,505



(1,158
)


(19,847
)Segment assets


8,474,114



1,481,780



298,290



10,254,184Goodwill and intangibles


177,307



538



1,219



179,064Capital expenditures


14,104



5,219



1,036



20,359Depreciation and amortization


14,589



1,444



1,509



17,542Amortization of intangibles


3,232







15



3,247   F-35




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  UnitedDecember 31, 2009

States

Canada

Other

ConsolidatedRevenues

$
260,064


$
52,404


$
11,692


$
324,160Interest, net


60,710



3,649



1,581



65,940Income before tax


14,975



10,442



419



25,836Net income


8,396



7,285



330



16,011Segment assets


5,918,739



1,122,703



209,633



7,251,075Goodwill and intangibles


131,715



538



312



132,565Capital expenditures


18,435



1,272



2,034



21,741Depreciation and amortization


13,346



1,120



1,556



16,022Amortization of intangibles


3,136











3,136   UnitedDecember 31, 2008

States

Canada

Other

ConsolidatedRevenues

$
291,643


$
71,302


$
20,924


$
383,869Interest, net


61,535



11,365



2,158



75,058Income (loss) before tax


25,993



(9,554
)


210



16,649Net income (loss)


15,532



(4,964
)


88



10,656Segment assets


4,610,951



607,500



320,744



5,539,195Goodwill and intangibles


116,915



538



312



117,765Capital expenditures


14,803



1,130



3,098



19,031Depreciation and amortization


13,265



1,536



1,314



16,115Amortization of intangibles


4,121



11







4,132   23.
    Regulatory
    requirements  (Rule 15c3-1), Rule 15c3-1, (Rule 15c3-3).
      24.
    Guarantees   F-36




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      25.
    Vendor
    related asset impairment  In re Sentinel Management Group, Inc.
     F-37




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
          26.
    Correspondent
    asset loss  and/or and/or
    27.
    Stock
    repurchase program   F-38




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  28.
    Restructuring
    charge    29.
    Condensed
    financial statements of Penson Worldwide, Inc. (parent
    only)    Penson
    Worldwide, Inc. (parent only)
    Condensed Statements of Financial Condition
  December 31,2010


2009AssetsCash and cash equivalents

$
921


$
249Receivable from affiliates


237,244



202,929Property and equipment, net


9,643



9,848Investment in subsidiaries


243,001



234,032Other assets


99,057



2,990Total assets

$
589,866


$
450,048Liabilities and stockholders equityNotes payable

$
259,728


$
132,769Accounts payable, accrued and other liabilities


29,217



18,377Total liabilities


288,945



151,146Total stockholders equity


300,921



298,902Total liabilities and stockholders equity

$
589,866


$
450,048  F-39




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Penson
    Worldwide, Inc. (parent only)
    Condensed Statements of Operations
  Year Ended December 31,2010


2009


2008Revenues

$
13,562


$
5,075


$
5,097ExpensesEmployee compensation and benefits


15,933



12,753



11,533Floor brokerage, exchange and clearance fees


458







Communications and data processing


2,131



2,562



60Occupancy and equipment


8,176



7,170



4,745Other expenses


5,157



4,522



6,562Interest expense on long-term debt


30,633



10,187



3,85462,488



37,194



26,754Loss before income taxes and equity in earnings of subsidiaries


(48,926
)


(32,119
)


(21,657
)Income tax benefit


(24,418
)


(16,182
)


(10,669
)Loss before equity in earnings of subsidiaries


(24,508
)


(15,937
)


(10,988
)Equity in earnings of subsidiaries


4,661



31,948



21,644Net income (loss)

$
(19,847
)

$
16,011


$
10,656  F-40




---



##### Table of Contents



Penson
    Worldwide, Inc.
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Penson
    Worldwide, Inc. (parent only)Condensed Statements of Cash Flows
  Year Ended December 31,2010


2009


2008Cash flows from operating activities:Net income (loss)

$
(19,847
)

$
16,011


$
10,656Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Depreciation and amortization


6,825



5,376



4,722Deferred income taxes


(593
)


5,131



977Stock based compensation


4,986



5,087



4,523Debt discount accretion


3,658



1,534



Debt issuance costs


1,805



882



Changes in operating assets and liabilities:Net receivable/payable with affiliates


(2,404
)


(62,674
)


(6,494
)Other assets


(26,666
)


1,410



(2,417
)Accounts payable, accrued and other liabilities


8,862



4,921



(5,695
)Net cash provided by (used in) operating activities


(23,374
)


(22,322
)


6,272Cash flows from investing activities:Purchase of property and equipment, net


(6,620
)


(9,409
)


(3,545
)Subordinated loan to subsidiary


(70,000
)






Increase in investment in subsidiaries


(8,969
)


(39,796
)


(5,216
)Net cash used in investing activities


(85,589
)


(49,205
)


(8,761
)Cash flows from financing activities:Net proceeds from issuance of senior second lien secured


193,294







Net proceeds from issuance of convertible notes






56,200



Proceeds from revolving credit facility


31,500



50,000



20,000Repayments of revolving credit facility


(120,000
)


(36,500
)


Exercise of stock options


88







168Excess tax benefit on exercise of stock options


48



27



75Purchase of treasury stock


(878
)


(676
)


(7,431
)Issuance of common stock


472



656



1,000Net cash provided by financing activities


104,524



69,707



13,812Effect of exchange rates on cash


5,111



2,060



(11,326
)Increase (decrease) in cash and cash equivalents


672



240



(3
)Cash and cash equivalents at beginning of period


249



9



12Cash and cash equivalents at end of period

$
921


$
249


$
9Supplemental cash flow disclosures:Interest payments

$
21,130


$
5,350


$
4,265Income tax payments

$
1,402


$
3,409


$
11,762Supplemental disclosure of non-cash activities:Common stock issued in connection with the Ridge acquisition

$
14,611


$



$
  F-41




---



##### Table of Contents



INDEX TO
    EXHIBITS
  Incorporated by Reference

FilingExhibit

Name of Exhibit

Form

File Number

Exhibit

Date2
.1

Asset Purchase Agreement by and between SAI Holdings, Inc. and
    Schonfeld Securities, LLC, dated as of November 20, 2006

8-K

001-32878

2.1

11/21/062
.2

Purchase Agreement by and among Goldenberg Hehmeyer &
    Co. and Goldenberg LLC, Hehmeyer LLC, GHCO Partners LLC, GH
    Traders LLC, each of the Principals listed on the signature
    pages thereto and SAI Holdings, Inc., GHP1, Inc., GHP2, LLC and
    Christopher Hehmeyer in his capacity as Sellers
    Representative

8-K

001-32878

2.1

11/7/062
.3

Letter Agreement, dated as of October 8, 2007, by and among
    SAI Holdings, Inc., Penson Financial Services, Inc., Schonfeld
    Group Holdings LLC, Schonfeld Securities, LLC, Opus Trading
    Fund LLC and Quantitative Trading Strategies LLC

8-K

001-32878

2.1

10/12/072
.4

Letter Agreement, dated as of April 22, 2010, by and among
    SAI Holdings, Inc., Penson Financial Services, Inc., Schonfeld
    Group Holdings LLC, Schonfeld Securities, LLC, and Opus Trading
    Fund LLC

8-K

001-32878

2.1

4/28/102
.5*

Asset Purchase Agreement by and among Penson Worldwide, Inc.,
    Penson Financial Services, Inc., Broadridge Financial Solutions,
    Inc. and Ridge Clearing & Outsourcing Solutions, Inc.,
    dated November 2, 2009

10-K

001-32878

2.4

3/5/103
.1

Form of Amended and Restated Certificate of Incorporation of
    Penson Worldwide, Inc.

S-1/A

333-127385

3.1

5/1/063
.2

Form of Third Amended and Restated Bylaws of Penson Worldwide,
    Inc.

8-K

001-32878

3.2

6/5/094
.1

Specimen certificate for shares of Common Stock

S-1

333-127385

4.1

4/24/064
.2+

Amended and Restated Registration Rights Agreement between Roger
    J. Engemoen, Jr., Philip A. Pendergraft and Daniel P. Son and
    Penson Worldwide, Inc. dated November 30, 2000

S-1

333-127385

4.2

8/10/054
.3

Indenture, dated June 3, 2009, between Penson Worldwide,
    Inc. and U.S. Bank National Association

8-K

001-32878

4.1

6/5/094
.4

Form of 8.00% Senior Convertible Note due 2014

8-K

001-32878

4.2

6/5/094
.5

Indenture, dated May 6, 2010, between Penson Worldwide,
    Inc. and U.S. Bank National Association

8-K

001-32878

4.1

5/7/104
.6

Form of 12.5% Senior Second Lien Secured Notes due 2017

8-K

001-32878

4.2

5/7/1010
.1+

Penson Worldwide, Inc. Amended and Restated 2000 Stock Incentive
    Plan

DEF 14A

001-32878

Appendix A

4/8/0910
.2+

Penson Worldwide, Inc. 2005 Employee Stock Purchase Plan

S-1/A

333-127385

10.2

4/24/06




---



##### Table of Contents



Incorporated by Reference

FilingExhibit

Name of Exhibit

Form

File Number

Exhibit

Date10
.3

1700 Pacific Avenue Office Lease by and between F/P/D Master
    Lease, Inc. and Penson Financial Services, Inc. (f/k/a Service
    Asset Management Company) dated May 20, 1998 as amended
    July 16, 1998, February 17, 1999, September 20,
    1999, November 30, 1999, May 25, 2000 and
    January 9, 2001

S-1

333-127385

10.3

8/10/0510
.4

Lease of Premises between Downing Street Holdings (330 Bay St),
    Inc. and Penson Financial Services Canada Inc. (one of our
    subsidiaries) dated September 17, 2002

S-1

333-127385

10.4

8/10/0510
.5

Offer to Lease between Penson Financial Services Canada Inc. and
    360 St-Jacques Nova Scotia Company dated October 14, 2003

S-1

333-127385

10.5

8/10/0510
.6

Lease agreement between Derwent Valley London Limited, Derwent
    Valley Central Limited, Penson Financial Services Limited, and
    Penson Worldwide, Inc. effective August 11, 2005

S-1

333-127385

10.6

8/10/0510
.7

Remote Processing Agreement between Penson Worldwide, Inc. and
    SunGard Data Systems Inc. dated July 10, 1995, as amended
    September 13, 1996 and August 1, 2002

S-1/A

333-127385

10.11

8/10/0510
.8

Form of SAMCO Reorganization Agreement by and between Penson
    Worldwide, Inc., SAI Holdings, Inc. and Penson Financial
    Services, Inc. and SAMCO Capital Markets, Inc. and SAMCO
    Holdings, Inc.

S-1/A

333-127385

10.12

5/1/0610
.9

Form of Transition Services Agreement by and between SAMCO
    Holdings, Inc. and Penson Worldwide, Inc.

S-1/A

333-127385

10.13

5/1/0610
.10+

Employment Letter Agreement between the Company and Andrew
    Koslow dated August 26, 2002

S-1

333-127385

10.15

8/10/0510
.11+

Form of Indemnification Agreement entered into between Penson
    Worldwide, Inc. and its officers and directors

S-1

333-127385

10.16

8/10/0510
.12

Registration Rights Agreement by and between Penson Worldwide,
    Inc. and Schonfeld Securities, LLC, dated as of
    November 20, 2006

8-K

001-32878

10.1

3/21/0610
.13

Stockholders Agreement effective as of November 20,
    2006 between Penson Worldwide, Inc. and Schonfeld Securities, LLC

8-K

001-32878

10.2

11/21/0610
.14

Guaranty Agreement made as of November 20, 2006 by
    Schonfeld Group Holdings LLC in favor of SAI Holdings, Inc. and
    Penson Financial Services, Inc.

8-K

001-32878

10.3

11/21/0610
.15

Unconditional Guaranty Agreement made as of November 20,
    2006 by Schonfeld Group Holdings LLC, Schonfeld Securities LLC
    and Steven B. Schonfeld in favor of Penson Financial Services,
    Inc.

8-K

001-32878

10.4

11/21/06




---



##### Table of Contents



Incorporated by Reference

FilingExhibit

Name of Exhibit

Form

File Number

Exhibit

Date10
.16

Termination/Compensation Payment Agreement, dated as of
    November 20, 2006, by and among Opus Trading Fund LLC,
    Quantitative Trading Solutions, LLC and Penson Financial
    Services, Inc.

8-K

001-32878

10.5

11/21/0610
.17+

Employment Letter Agreement between the Company and Kevin W.
    McAleer dated February 15, 2006

S-1/A

333-127385

10.22

3/21/0610
.18+

Executive Employment Agreement between the Company and Philip A.
    Pendergraft dated April 21, 2006

S-1/A

333-127385

10.23

5/1/0610
.19+

Executive Employment Agreement between the Company and Daniel P.
    Son dated April 21, 2006

S-1/A

333-127385

10.24

5/1/0610
.20

Eighth Amendment to 1700 Pacific Avenue Office Lease by and
    between Berkeley First City, Ltd. and Penson Worldwide, Inc.
    dated April 12, 2006

S-1/A

333-127385

10.25

5/9/0610
.21

Amendment to Remote Processing Agreement between Penson
    Worldwide, Inc. and SunGard Data Systems Inc. dated
    July 10, 1995, as amended September 13, 1996 and
    August 1, 2002

8-K

001-32878

10.10

7/31/0610
.22

Letter Agreement dated February 16th, 2007, amending that
    certain Purchase Agreement dated as of November 6, 2006
    among Goldenberg Hehmeyer & Co., Goldenberg LLC,
    Hehmeyer LLC, GH Trading LLC, GHCO Partners LLC, Christopher
    Hehmeyer, Ralph Goldenberg, SAI Holdings, Inc., GH1 Inc. and GH2
    LLC and Christopher Hehmeyer in his capacity as Sellers
    Representative

8-K

001-32878

10.2

2/16/0710
.23

Schedule E, dated July 23, 2007, to the Remote
    Processing Agreement between Penson Worldwide, Inc. and SunGard
    Data Systems Inc. dated July 10, 1995, as amended
    September 13, 1996 and August 1, 2002

10-Q

001-32878

10.2

11/13/0710
.24+

Amended and Restated Executive Employment Agreement between the
    Company and Daniel P. Son, dated December 31, 2008

10-K

001-32878

10.44

3/16/0910
.25+

Amended and Restated Executive Employment Agreement between the
    Company and Philip A. Pendergraft, dated December 31, 2008

10-K

001-32878

10.45

3/16/0910
.26+

Amendment to Compensation Letter between the Company and Andrew
    B. Koslow, dated December 31, 2008

10-K

001-32878

10.46

3/16/0910
.27+

Amendment to Compensation Letter between the Company and Kevin
    W. McAleer, dated December 31, 2008

10-K

001-32878

10.47

3/16/0910
.28

Purchase Agreement by and among Penson Worldwide, Inc. and
    J.P. Morgan Securities Inc. and Morgan Keegan &
    Company, Inc., dated May 28, 2009

8-K

001-32878

10.1

5/29/0910
.29+

2010 Executive Bonus Plan

8-K

001-32878

10.1

2/16/10




---



##### Table of Contents



Incorporated by Reference

FilingExhibit

Name of Exhibit

Form

File Number

Exhibit

Date10
.30

Purchase Agreement, dated April 29, 2010, between Penson
    Worldwide, Inc., Penson Holdings, Inc., SAI Holdings, Inc. and
    J.P. Morgan Securities, Inc., as representative of the
    initial purchasers

8-K

001-32878

10.1

4/30/1010
.31

Amendment Agreement, dated June 25, 2010, among Penson
    Worldwide, Inc., SAI Holdings, Inc., Penson Financial Services,
    Inc., Penson Financial Services Ltd, Penson Financial Services
    Canada Inc., Broadridge Financial Solutions, Inc., Ridge
    Clearing & Outsourcing Solutions, Inc., Broadridge
    Financial Solutions (Canada) Inc. and Ridge Clearing &
    Outsourcing Solutions Limited

10-Q

001-32878

10.2

8/6/1010
.32

Seller Note, dated June 25, 2010, with Penson Worldwide,
    Inc., as Issuer and Broadridge Financial Solutions, Inc., as
    Payee

10-Q

001-32878

10.4

8/6/1010
.33

Amended and Restated Pledge Agreement, dated as of May 6,
    2010, with Penson Worldwide, Inc., Penson Holdings, Inc., and
    SAI Holdings, Inc. as pledgors, in favor of Regions Bank

10-Q

001-32878

10.6

8/6/1010
.34

Intercreditor Agreement, dated as of May 6, 2010, between
    Regions Bank, U.S. Bank National Association, Penson Worldwide,
    Inc., Penson Holdings, Inc., and SAI Holdings, Inc.

10Q

001-32878

10.7

8/6/1010
.35

Amended and Restated Guaranty, dated May 6, 2010, with SAI
    Holdings, Inc., and Penson Holdings, Inc.

10-Q

001-32878

10.8

8/6/1010
.36

Amendment, Assignment and Assumption Agreement, dated
    June 25, 2010 among Penson Worldwide, Inc., SAI Holdings,
    Inc., Penson Financial Services, Inc., Broadridge Financial
    Solutions, Inc. and Ridge Clearing & Outsourcing
    Solutions, Inc.

10-Q/A

001-32878

10.3

9/16/1010
.37

Second Amended and Restated Credit Agreement, dated the
    6th day of May, 2010, by and among the Company, Regions
    Bank, as Administrative Agent, Swing Line Lender, and Letter of
    Credit Issuer, the lenders party thereto and the other parties
    thereto

10-Q/A

001-32878

10.5

9/16/1010
.38

Master Services Agreement by and between Penson Worldwide, Inc.
    and Broadridge Financial Solutions, Inc., dated November 2,
    2009

10-K

001-32878

10.35

3/5/1010
.39

Service Bureau and Operations Support Services Schedule to the
    Master Services Agreement between Penson Worldwide, Inc. and
    Broadridge Financial Solutions, Inc., dated November 2,
    2009, by and between Penson Financial Services, Inc. and Ridge
    Clearing & Outsourcing Solutions, Inc. dated
    November 2, 2009

10-K

001-32878

10.36

3/5/10




---



##### Table of Contents



Incorporated by Reference

FilingExhibit

Name of Exhibit

Form

File Number

Exhibit

Date10
.40

Service Bureau and Operations Support Services Schedule to the
    Master Services Agreement between Penson Worldwide, Inc. and
    Broadridge Financial Solutions, Inc., dated November 2,
    2009, by and between Penson Financial Services Canada Inc. and
    Ridge Clearing & Outsourcing Solutions, Inc. dated
    November 2, 2009

10-K

001-32878

10.37

3/5/1010
.41+

Letter Agreement, effective August 31, 2010, between Penson
    Worldwide, Inc. and Daniel P. Son

10-Q

001-32878

10.1

11/9/1010
.42+

Consulting Agreement, effective September 1, 2010, between
    Penson Worldwide, Inc. and Holland Consulting, LLC

10-Q

001-32878

10.2

11/9/1010
.43*

First Amendment to the Second Amended and Restated Credit
    Agreement, dated the 29th day of October, 2010, by and
    among the Company, Regions Bank, as Administrative Agent, Swing
    Line Lender, and Letter of Credit Issuer, the lenders party
    thereto and the other parties thereto10
.44*+

Executive Bonus Plan.11
.1

Statement regarding computation of per share earnings

S-1/A

333-127385

11.1

5/1/0612
.1*

Statement regarding computation of ratios21
.1*

List of Subsidiaries23
.1*

Consent of BDO USA, LLP31
.1*

Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002 (filed
    herewith)31
.2*

Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002 (filed
    herewith)32
.1*

Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 (filed
    herewith)32
.2*

Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 (filed
    herewith)     *
    
    Filed herewith.+
    
    Management contracts or compensation plans or arrangements in
    which directors or executive officers are eligible to
    participate.
    
    Confidential treatment has been requested for certain
    information contained in this document. Such information has
    been omitted and filed separately with the Securities and
    Exchange Commission.