Exhibit 10.3

                                WARRANT AGREEMENT

      THIS WARRANT AGREEMENT (this  "Agreement"),  is dated June 3, 2004, by and
between A.B. Watley Group Inc., a Delaware corporation (the "Company"),  and the
persons  whose  names are set on Schedule  "A"  (individually,  the  "Securities
Holder", or collectively, the "Securities Holders").

                                   WITNESSETH:

      WHEREAS,  the  Securities  Holders  each  acquired  Series  A  Convertible
Preferred Stock (the "Series A Stock") from the Company for an aggregate  amount
of Five Million Four Hundred  Seventy Two Thousand One Hundred Forty One Dollars
($5,472,141), including interest and dividends through May 31, 2004, pursuant to
that certain  Preferred  Stock Purchase  Agreement dated November 29, 2001 among
A.B. Watley Group Inc. and the Securities Holders (the "Preferred Stock Purchase
Agreement").

      WHEREAS,  certain Securities  Holders,  namely,  DMG Legacy  International
Ltd., DMG Legacy  Institutional  Fund LLC, and DMG Legacy Fund LLC (collectively
the "Note  Holders")  each  acquired  an interest in a note dated March 27, 2002
issued by the Company for an aggregate amount of One Million Eighty Six Thousand
Five Hundred Forty Eight Dollars  ($1,086,548),  including  interest through May
31, 2004 (the "Note").

      WHEREAS,  in consideration for the cancellation of all obligations owed by
the  Company  to  the  Securities  Holders  in  connection  with  the  Series  A
Convertible Preferred Stock and the Note, the Company will, subject to the terms
and provision under this Agreement, issue Warrants to the Securities Holders.

      WHEREAS,  subject  to the terms and  provisions  of this  Agreement,  each
warrant  (individualy,  a "Warrant," and collectively,  the "Warrants"),  issued
under this  Agreement  entitles the  Securities  Holder,  upon the exercise of a
Warrant,  to receive one Company's  Common Share at the price  designated as the
"Exercise Price" herein.

      NOW, THEREFORE, in consideration of the mutual agreements contained herein
and intending to be legally bound hereby, the parties hereto agree as follows:

                                    ARTICLE I

                                 FORM OF WARRANT

      The  Warrants   shall  be  evidenced  by  a   certificate   (the  "Warrant
Certificate").  The text of the Warrant  Certificate  (and the related  forms of
exercise and assignment)  shall be  substantially in the form attached hereto as
Exhibits  A, B,  and C,  and  may  have  such  identification,  designation  and
information  thereon  as  the  Company  may  deem  appropriate  and  as  is  not
inconsistent  with the  provisions of this  Agreement,  or as may be required to
comply with any law or with any rule or regulation made pursuant thereto.

<PAGE>

                                   ARTICLE II

                  EXERCISE PRICE, TERM, AND METHOD OF EXERCISE

      Section 2.01. Agreement to Sell and Purchase;  Purchase Price. The Company
agrees to sell to each Securities  Holder,  and each Securities Holder agrees to
purchase from the Company,  the Total Number of Warrants set forth opposite each
Securities  Holder's  name on  Schedule  "A" in  consideration  for (i)  each of
Securities  Holder's  respective Series A Convertible  Preferred Stock purchased
pursuant to the Preferred Stock Purchase Agreement;  and (ii) each Note Holder's
respective rights in the Note.

      Section  2.01 (i) and (ii) are  collectively  referred  to  herein  as the
Purchase Price (the "Purchase Price")

      Section 2.02.  Exercise Price. The exercise price  ("Exercise  Price") for
each of the Common  Shares to be  received  upon  exercise  of a Warrant  issued
hereunder shall be $0.01.

      Section 2.03. Warrant Rights and Term.

            (a) Each Warrant shall entitle the Securities Holder,  upon exercise
thereof and subject to the provisions  thereof and of this Agreement,  including
provisions  relating to adjustments upon the occurrence of certain events as set
forth in  Article  III  hereof to receive  from the  Company  one fully paid and
nonassessable  Common Share (i) at any time during the period  commencing on the
date hereof,  and ending at 5:00 p.m., on June 2, 2011 or, if such date is not a
business  day in the City of New York then on the next  succeeding  business day
(the  "Expiration  Date"),  or (ii) as  otherwise  provided  in Section  2.03(b)
hereof.

            (b) If at any time during the period  commencing  on the date hereof
and ending on the date that is three hundred and sixty five (365)  calendar days
after the date hereof (i) the Company or any  Affiliate  of the Company  files a
registration  statement  under the  Securities  Act of 1933,  as  amended,  with
respect to an offering of equity  securities by the Company for its own account,
or an offering for the account of any shareholder of the Company or any group of
such shareholders  (other than a registration  statement on Form S-4 or Form S-8
or any  successor  forms or other forms not available  for  registering  capital
stock  of the  Company  for sale to the  public),  (ii) the  Common  Shares  are
otherwise eligible for inclusion in such registration  statement,  as determined
in good  faith  by the  Board  of the  Directors  of the  Company,  in its  sole
discretion,  and (iii) the exercise of such Warrants during such period will not
result in, or be deemed to result  in, a change of  control of the  Company in a
manner that would cause the Company and/or its Affiliates to lose the benefit of
any or all of the net operating  losses of the Company  and/or such  Affiliates,
then  notwithstanding  Section  2.03(a),  the  Warrants  may be exercised by the
Securities Holder at any time thereafter.  In addition,  if requested in writing
by the Securities Holder, the Company shall use commercially  reasonable efforts
to include in such  registration  statement  any Common  Shares  received by the
Securities Holder from the exercise of the Warrants.

<PAGE>

            (c) When used in this Agreement,  "Affiliate" or "Affiliates"  means
with respect to any specified Person (as defined herein), any other Person that,
directly or  indirectly,  through one or more  intermediaries,  controls,  or is
controlled  by, or is under common  control with,  the Person  specified  (where
control of a Person means the power, direct or indirect,  to cause the direction
of the management and policies of such Person whether by contract or otherwise);
"Subsidiary" or "Subsidiaries" (all such Persons  collectively) means any Person
that the Company now or hereafter shall at the time own,  directly or indirectly
through another Person, at least a majority of the outstanding  capital stock or
equity  interests  (or other  beneficial  interests) or a majority of the voting
power  of  such  Person;   and  "Person"  means  an   individual,   partnership,
corporation,  association,  trust, joint venture,  unincorporated  organization,
limited liability company, joint stock company, and any government, governmental
department or agency or political subdivision thereof or any other entity.

      Section 2.04.  Expiration.  Each Warrant not  exercised by 5:00 p.m.,  New
York time, on the Expiration  Date shall become void, and all rights  thereunder
and all rights in respect thereof under this Agreement shall thereupon cease.

      Section 2.05. Method of Exercise.

            (a) The  Securities  Holder may  exercise its rights with respect to
all or any whole  number  of  Warrants  evidenced  by the  Warrant  Certificate.
Exercise  of the  Warrants  shall  be  effected  by  surrender  of  the  Warrant
Certificate, with the exercise form thereon duly executed, to the Company at its
office as designated in Section 5.04 hereof.

            (b) Upon receipt of the Warrant  Certificate  with the exercise form
duly executed,  the Company shall deliver to the Securities Holder  certificates
for the total number of whole Common Shares for which the Warrants  evidenced by
such Warrant Certificate are being exercised.

            (c) In the event that the Securities  Holder shall  exercise  rights
with  respect  to  less  that  all  of the  Warrants  evidenced  by the  Warrant
Certificate surrendered upon the exercise of Warrants, a new Warrant Certificate
for the balance of such Warrants  shall be delivered by the Company to the W ant
Holder.

            (d) The exercise  rights of Securities  Holder shall be limited such
that,  unless  Securities  Holder gives written notice 75 days in advance to the
Company of Securities Holder's intention to exceed the Limitation on Exercise as
defined herein, with respect to all or a specified amount of the Warrant and the
corresponding  number of the underlying  shares, in no instance shall Securities
Holder  (singularly,  together with any Persons who in the  determination of the
Securities Holder,  together with the Securities  Holder,  constitute a group as
defined in Rule 13d-5 of the  Exchange  Act) be entitled to exercise the Warrant
(i) if Securities  Holder is the  beneficial  owner of more than Four and 99/100
percent  (4.99%) of the  outstanding  shares of common stock of the Company,  or
(ii) to the extent such exercise would result in Securities Holder  beneficially
owning more than Four and 99/100 percent  (4.99%) of the  outstanding  shares of
common stock of the Company.  For these purposes,  beneficial ownership shall be
defined and  calculated in  accordance  with Rule 13d-3,  promulgated  under the
Exchange Act (the  foregoing  being  herein  referred to as the  "Limitation  on
Exercise").

<PAGE>

                                   ARTICLE III

                   ADJUSTMENTS TO WARRANTS UPON CERTAIN EVENTS

      Section 3.01.  Mechanical  Adjustments.  The number of Common Shares to be
received  upon the  exercise of each Warrant  (such shares being  referred to in
this Agreement as the "Warrant Shares" shall be subject to adjustment as follows
if any off the  events so listed in clause  (a),  clause (b) or clause (c) below
occur after the date hereof and prior to exercise of each Warrant:

            (a) In case the Company shall (i) pay a dividend in Common Shares or
make  a  distribution  in  Common  Shares,  (ii)  subdivide  or  reclassify  its
outstanding  Common Shares into a greater number of shares,  or (iii) combine or
reclassify its  outstanding  Common Shares into a smaller number of shares,  the
number of  Warrant  Shares to be  received  upon the  exercise  of each  Warrant
immediately or thereto shall be adjusted so that the number of Warrant Shares to
be received upon exercise of each Warrant shall be determined by multiplying the
number of Warrant  Shares  theretofore  to be received upon the exercise of each
Warrant  by a  fraction,  of which the  numerator  shall be the number of Common
Shares  outstanding   immediately   following  such  action  and  of  which  the
denominator shall be the nun ber of Common Shares outstanding  immediately prior
thereto.

            (b) Effect of Sale, Merger or Consolidation. In the event of (i) any
conversion or  reclassification  of the Common Shares into securities of another
corporation, or (ii) the consolidation of the Company with, or the merger of the
Company  with or into,  any  other  corporation  where  the  Common  Shares  are
converted into other  securities,  each Warrant shall be  exercisable,  upon the
terms  and  conditions  specified  in this  Agreement,  only for the  number  of
securities  of the Person into which  Common  Shares are  converted or resulting
from such  consolidation or surviving such merger,  as the case may be, to which
the Common Shares  issuable  (immediately  prior to such event) upon exercise of
each Warrant  would have been  entitled  upon such event.  In any such case,  if
necessary,  the  provisions  set forth in this  Article III with  respect to the
rights and interests  thereafter of the Securities Holder shall be appropriately
adjusted  so  as  to be  reasonably  applicable  to  any  securities  thereafter
deliverable on the exercise of the Warrants.

            (c) If on the date immediately  preceding the date that the Warrants
first become  exercisable  pursuant to Section  2.03(a)  hereof,  the Securities
Holder's margin brokerage account with the Company reflects a debit balance, the
number of  Warrant  Shares to be  received  upon the  exercise  of each  Warrant
immediately  prior  thereto  shall be reduced by one (1) Warrant  Share for each
$.01 of  liability  due and payable by the  Securities  Holder to the Company as
reflected in the debit  balance of such  Securities  Holder's  margin  brokerage
account with the Company.

            (d) In the event that the  provisions  of this Article III fail as a
result of an unintentional  oversight to provide expressly for the adjustment of
the number of Warrant Shares to be received up on exercise of each Warrant under
circumstances  that,  based upon the purposes and intentions  expressed  herein,
would  otherwise  have been  addressed,  the Board of  Directors  of the Company
shall, in good faith, cause an equitable  adjustment to be made to the number of
Warrant  Shares to be received  upon exercise of each Warrant to correct such an
oversight.

<PAGE>

      Section 3.02. Notice of Adjustment.  Whenever the number of Warrant Shares
to be  received  upon the  exercise  of each  Warrant  is  adjusted,  as  herein
provided,  the Company shall promptly cause to be prepared a certificate  signed
by its President or a Vice President and by its Treasurer or Assistant Treasurer
or its Secretary or Assistant Secretary,  setting forth in reasonable detail the
event  requiring the  adjustment,  the amount of the  adjustment,  the method by
which such  adjustment was  calculated  (including a description of the basis on
which the Board of Directors of the Company made any  determination  hereunder),
the number of Warrant  Shares to be received  upon the exercise of Warrant,  and
shall promptly cause copies of such certificate to be mailed (by first class and
pos prepaid) to the Securities Holder in accordance with Section 5.04 hereof.

      Section  3.03.  Notice of  Certain  Events.  In the event that at any time
prior to the expiration the Warrants and prior to their exercise in full:

            (a) the Company  shall (i) pay a dividend in Common Shares or make a
distribution  in Common Shares,  (ii)  subdivide or reclassify  its  outstanding
Common  Shares into a greater  number of shares,  or (iii) combine or reclassify
its outstanding Common Shares into a smaller number of shares;

            (b)  there  shall  be  a  voluntary  or   involuntary   dissolution,
liquidation  or  winding  up o the  Company  (other  than in  connection  with a
consolidation, merger or sale of all or substantially all o its property, assets
and business as an entity);

(each such event hereinafter referred to as a "Notification Event"), the Company
shall mail to the  Securities  Holder,  not less than fifteen (15) days prior to
the record date, if any, in connection with such  Notification  Event (provided,
however, that, if there is no record date, or, if fifteen (15) days prior notice
is impracticable,  as soon as practicable)  written notice specifying the nature
of such event and the  effective  date of, or the date on which the books of the
Company shall close or a record shall be taken with respect to, such event. Such
notice shall also set forth facts  indicating  the effect of such action (to the
extent  such  effect  may be known at the date of such  notice)  on the kind and
amount of the Common  Shares or other  securities or property  deliverable  upon
exercise of the Warrants.

      Section  3.04.  Effect of Adjustment  on Warrant  Certificates.  Except as
provided in is Section 3.04, the form of Warrant Certificate need not be changed
because of any change in the number of Warrant Shares issuable upon the exercise
of a Warrant,  and Warrant  Certificates  issued before or after such change may
state the same number of Warrant  Shares  issuable  upon exercise of Warrants as
are stated in the  Warrant  Certificates  theretofore  issued  pursuant  to this
Agreement.  The Company may, however, at any time, in its sole discretion,  make
any change in the form of Warrant  Certificate  that it may deem appropriate and
that  does not  affect  the  substance  thereof,  and any  Warrant  Certificates
thereafter  issued,  whether in  exchange  or  substitution  for an  outstanding
Warrant Certificate or otherwise, may be in the form as so changed.

<PAGE>

      Section  3.05.  Cash  Dividends.  Notwithstanding  the  providions of this
Article III, in the event the Company  declares a cash dividend,  the Securities
Holder shall be entitled to such cash dividend which shall be equal to number of
Common  Shares to be received upon the exercise of each Warrant times the dollar
value of the cash dividend payable per each Common Stock.

                                   ARTICLE IV

            RIGHTS, COVENANTS AND REPRESENTATIONS OF WARRANT HOLDERS

      Section 4.01. No Rights as Shareholders.  The Securities  Holder, as such,
shall not be entitle to vote or to receive  dividends  or otherwise be deemed to
be the holder of Common  Shares for any purpose,  nor shall  anything  contained
herein or in any Warrant  Certificate be construed to confer upon any Securities
Holder, as such, any of the rights of a holder of shares of beneficial  interest
of the  Company  or any right to vote upon or give or  withhold  consent  to any
action of the Company (whether upon any reorganization,  issuance of securities,
reclassification or conversion of Common Shares,  consolidation,  merger,  sale,
lease,  conveyance  or  otherwise),  receive  notice of meetings or other action
affecting  shareholders  (except  for  notices  expressly  provided  for in this
Agreement)  or receive  dividends  or  subscription  rights,  until such Warrant
Certificates shall have been surrendered for exercise accompanied by an Election
to  Exercise.  If, at the date of surrender  of such  Warrant  Certificate,  the
transfer  books for the  Common  Shares  shall be closed,  certificates  for the
Common  Shares  shall be  issuable on the date on which such books shall next be
open (whether before,  on or after the Expiration  Date). The Securities  Holder
shall,  upon the exercise of Warrants,  not be entitled to any  dividends if the
record date with respect to payment of such  dividends  shall be a date prior to
the date such Common Shares became issuable upon the exercise of such Warrants.

      Section 4.02.  Replacement  Warrants.  If any Warrant Certificate is lost,
stolen,  mutilated  or  destroyed,  the Company  may,  upon  receipt of evidence
satisfactory to the Company of such loss,  theft,  mutilation or destruction and
on such terms as to indemnity or otherwise as the Company may it its  discretion
require (which shall, in the case of a mutilated  Warrant  Certificate,  include
the surrender thereof), issue a new Warrant Certificate of like denomination and
tenor as the lost, stolen,  mutilated or destroyed  Certificate.  Applicants for
such  substitute  Warrant   Certificates  shall  also  comply  with  such  other
reasonable  regulations and pay any such  reasonable  charges as the Company may
prescribe.  In the event any Warrant  Certificate is lost, stolen,  mutilated or
destroyed,  and the owner  thereof  desire;  to exercise the Warrants  evidenced
thereby,  the Company may, in lieu of issuing a substitute Warrant  Certificate,
authorize  the exercise  thereof upon receipt of the above  evidence and on such
terms of indemnity as it may require.

      Section 4.03.  Maintenance  of Sufficient  and Proper Common  Shares.  The
Company  shall at all times from and after the date that the  Warrants are first
exercisable  until the  Expiration  Date reserve and keep  available a number of
authorized  Common  Shares  sufficient  to permit  the  exercise  in full of all
outstanding Warrants.

<PAGE>

      Section 4.04.  Legend.  In addition to any other legends  required by law,
the certificates  evidencing  Warrants shall bear  substantially  the legend set
forth in Exhibit A hereto and the Common  Shares  issuable  upon the exercise of
the Warrants shall bear substantially the following legend:

            THE  SECURITIES   EVIDENCED  BY  THIS   CERTIFICATE  HAVE  NOT  BEEN
            REGISTERED  UNDER THE SECURITIES  ACT OF 1933, AS AMENDED,  OR UNDER
            THE SECURITIES LAWS OF ANY STATE, AND NEITHER THE SECURITIES NOR ANY
            INTEREST  THEREIN  MAY BE SOLD,  ASSIGNED,  TRANSFERRED,  PLEDGED OR
            OTHERWISE  DISPOSED OF EXCEPT IN COMPLTANCE  WITH, OR PURSUANT TO AN
            EXEMPTION FROM, THE REQUIREMENTS OF SUCH ACT OR SUCH LAWS.

      Section 4.05.  Assignment.  The Securities  Holder may assign,  subject to
compliance with Section 4.06 hereof,  in whole or in part, its rights under this
Warrant  Agreement,  and any such transferee shall be entitled to all rights and
subject to all obligations hereunder.

      Section 4.06.  Compliance with Securities Act. The Securities  Holder,  by
acceptance hereof,  agrees that this Warrant and the Warrant Shares to be issued
to the Securities Holder upon exercise hereof are being acquired for investment,
solely for the  Securities  Holder's  own  account  and not as a nominee for any
other Person,  and that the Securities  Holder will not offer,  sell,  transfer,
assign or otherwise  dispose of this Warrant or any such Warrant  Shares  except
under  circumstances  which will not result in a violation of the Securities Act
of 1933, as amended, and further agrees that, notwithstanding the foregoing, the
Company  may  reasonably  require  an opinion  of  counsel  (such  opinion to be
reasonably  acccptable  to the Company)  under the  Securities  Act of 1933,  as
amended,  in connection  with any transfer of the Warrant or the Warrant  Shares
issuable thereunder.

      Section 4.07. Representations and Warranties. The Securities Holder hereby
represents  and warrants to the Company that:  (i) the  Securities  Holder is an
"accredited  investor" as such term is defined in Rule 501(a) of Regulation D of
the  Securities  Act  of  1933,  as  amended;  (ii)  the  Securities  Holder  as
substantial  experience in evaluating  transactions  and investing in securities
similar  to  those  contemplated  by this  Agreement  so that it is  capable  of
evaluating  the merits of its  investment in the Company and has the capacity to
protect its own interests;  (iii) the  Securities  Holder  understands  that the
purchase  of the  Warrants  and the Warrant  Shares  hereunder  are  speculative
investments which involve a high degre of risk of loss of its investment therein
and such  Securities  Holder is able to bear the economic risk of its investment
in the  Warrants  and the  Warrant  Shares  for an  indefinite  period  of time,
including the risk of a complete loss of such Securities  Holder's investment in
such securities;  (iv) the Securities Holder  acknowledges that the Warrants and
the Warrant Shares have not been registered under the Securities Act of 1933, as
amended and, therefore, cannot be sold unless subsequently registered under such
Act or an exemption  from such  registration  is available;  (v) the  Securities
Holder  acknowledges  that it has had a full  opportunity  to ask  questions and
receive  answers  concerning  the terms and  conditions  of the  offering of the
Warrants  and the  Warrant  Shares  and has had  full  access  to the  Company's
officers and such other information  concerning the Company as it has requested;
and (vi) the  Securities  Holder  has  reviewed  with its own tax  advisors  the
federal,  state,  local and foreign tax  consequences of this investment and the
transactions  contemplated  by this Agreement and the  Securities  Holder relies
solely on such  advisors and not on any  statements  or  representations  of the
Company, its directors,  officers,  employees or agents to such tax consequences
and the  Securities  Holder  understands  that it (and not the Company)  shal be
responsible  for any of its own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.

<PAGE>

                                    ARTICLE V

                                   CONDITIONS

      Section 5.01.  Condition Precedent to Company's obligation to Preform. The
obligation of the Company to issue the Warrants shall not become  effetive unitl
the date on which each of the  following  conditions  is satisfied (or waived by
the Company):

            (i) the  Company  shall  receive  (a) the  original  Series  A Stock
certificates  from each Securities  Holder, in negotiable form, duly endorsed in
blank, or with stock transfer powers attached thereto, and (b) the original Note
from each Note Holder, in negotiable form, duly endorsed in blank, or with stock
transfer powers attached thereto. All securities  transferred hereunder shall be
transferred with good and marketable title, free and clear of any and all liens,
claims, encumbrances and adverse interests of any kind; and

            (ii) the Company shall receive releases to all financing  statements
filed by the Securities Holders againt the Company.

                                    ARTICLE V

                                     GENERAL

      Section 5.01. Taxes on Issuance of Common Shares. All Common Shares issued
upon  the  exercise  of a  Warrant  shall  be  validly  issued,  fully  paid and
nonassessable,  and the  Company  shall pay all  taxes  and other  governinental
charges  that may be imposed in respect to the issue or delivery  thereof  other
than taxes  imposed on net  income of the  Securities  Holder as a result of the
exercise of the Warrants and receipt of Common Shares.  The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer  involved in the issue of any  certificate for Common Share in any name
other  than  that  of the  registered  holder  of the  Warrant  or its  designee
surrendered in connection  with the receipt of such Common  Shares,  and in such
case the Company shall not be required to issue or deliver any share certificate
until such tax or other charge has been paid or it has been  established  to the
Company's satisfaction that no tax or other charge is due.

<PAGE>

      Section  5.02.  Dates  and  Time.  If any date set  forth in this  Warrant
Agreement  shall  fall on a day other than a day that is a full  "business  day"
(which means a day other than a Saturday,  a Sunday or any day on which  banking
institutions  in the State of New York are  authorized  or  obligated  by law or
executive  order to be closed) in New York, New York,  said date shall be deemed
to be the next full business day  succeeding  that date.  All times shall be the
legal time then in effect in New York, New York.

      Section 5.03.  Binding  Agreement.  All of the covenants and provisions of
this  Agreement by or for the benefit of the Company shall bind and inure to the
benefit of its respective successors and assigns hereunder. Nothing expressed in
this Agreement and nothing that may be implied from any of the provisions hereof
is intended, or shall be construed,  to confer upon or give to any Person, other
than the Company and the Securities Holder, any legal or equitable right, remedy
or claim  under or by reason of his  Agreement  or of any  covenant,  condition,
stipulation,  promise  or  agreement  herein,  and  all  covenants,  conditions,
stipulations,  promises and agreements  contained in this Agreement shall be for
the sole and exclusive  benefit of the Company,  the Securities Holder and their
respective successors and assigns.

      Section 5.04. Notices. Any communication, notice or otherwise deemed to be
given  hereunder  shall be duly given if in writing  and  delivered,  or sent by
first class mail,  certified or  registered,  postage  prepaid and  addressed as
follows:

                               (a) If to the Company:

                                          A.B. Watley Group Inc.
                                          40 Wall Street
                                          New York, New York 10005
                                          Attention: J. Amore

                                          with a copy to:

                                          Gottbetter & Partners, LLP
                                          488 Madison Avenue
                                          New York, New York 10022
                                          Attention: Adam S. Gottbetter, Esq.
                                          Facsimile: (212) 400-6900

                               (b) If to the Securities Holder:

                                          See Schedule A

<PAGE>

      Any party may change the  address  to which any  communication,  notice or
demand  shall be given by giving  notice of such change in  conformity  with the
provisions of this Section.

      Section  5.05.  Governing  Law.  This  Agreement  and each Warrant  issued
hereunder  shall be governed by and construed in accordance with the laws of the
State of New York,  without  giving  effect to the  conflict  of laws  rules and
principles thereof.

      Section  5.06.  Amendment.  This  Agreement  and each Warrant  Certificate
issued  hereunder may not be modified or amended except by written  agreement of
the Company and the Securities Holder.

      Section 5.07.  Headings.  The Article and Section  headings herein are for
convenience  only and are not part of this  Agreement  and shall not  affect the
interpretation thereof.

      Section 5.08.  Counterparts.  This Agreement may be executed in any number
of  counterparts,  each of  which  when so  executed  shall be  deemed  to be an
original,  and all such counterparts  shall together  constitute but one and the
same instrument.

      Section 5.09. Mutual Release.

            (a) Except with regard to the provisions of this Agreement,  each of
the parties hereby fully and forever release,  acquit,  and discharge the others
together  with  their   respective   partners,   employees,   agents,   parents,
subsidiaries, affiliates or other representatives,  heirs, executors, successors
and  assigns,  as the case may be,  of and from any and all  claims,  causes  of
action, demands, rights, liabilities, charges, obligations, costs, expenses, and
attorney's  fees of  every  kind,  nature  and  description,  whether  legal  or
equitable, civil or criminal, liquidated or unliquidated, know or unknown, which
the parties now have,  ever had,  now have or hereafter  can,  shall or may have
for,  upon, or by reason of their dealings with each other from the beginning of
the world to the date of this Agreement.

            (b)  Except  to  enforce  the terms of this  Agreement,  each of the
parties agrees not to initiate or  voluntarily  participate in any legal action,
charge or complaint against the others. If any party voluntarily participates in
any such action,  charge,  or complaint,  the other shall be entitled to recover
their attorney's fees incurred in defending such action, charge or complaint.


                            [SIGNATURE PAGE FOLLOWS]

<PAGE>


      IN WITNESS  WHEREOF,  the parties  hereto have duly executed and delivered
this Warrant Purchase Agreement, all as of the day and year first above written.


A.B. WATLEY GROUP INC.

By:
         Name:
         Title:


SECURITIES HOLDERS:

SDS MERCHANT FUND, L.P.                         DMG LEGACY INTERNATIONAL LTD.

By: /s/ Steve Derby                             By: /s/ Thomas E. McAuley
   ------------------------------------            -----------------------------
    Name: Steve Derby                           Name: Thomas E. McAuley
         ------------------------------              ---------------------------
    Title: Managing Member                      Title: Managing Member
          -----------------------------               --------------------------
Dated:                                          Dated:


DMG LEGACY INSTITUTIONAL                        DMG LEGACY FUND LLC
  FUND LLC

By: /s/ Thomas E. McAuley                       By: /s/ Thomas E. McAuley
   ------------------------------------            -----------------------------
    Name: Thomas E. McAuley                     Name: Thomas E. McAuley
         ------------------------------              ---------------------------
    Title: Managing Member                      Title: Managing Member
          -----------------------------               --------------------------
Dated:                                          Dated:


<PAGE>


                                                                    Schedule A

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                    NUMBER OF         VALUE OF       NUMBER OF        VALUE OF          NUMBER OF
                                     SERIES A         SERIES A     WARRANTS TO BE   NOTE INTEREST     WARRANTS TO BE      TOTAL
   NAME, ADDRESS & TEL/FAX        PREFERRED STOCK  PREFERRED STOCK    ISSUED IN     BEING CANCELLED      ISSUED IN       NUMBER OF
NUMBER OF SECURITIES HOLDER(S)     TENDERED FOR      (INCLUDING       EXCHANGE       (INCLUDING          EXCHANGE      WARRANTS TO
                                   CANCELLATION       INTEREST)     FOR SERIES A      INTEREST)     FOR NOTE INTEREST   BE ISSUED
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>              <C>              <C>              <C>               <C>                <C>
SDS Merchant Fund, L.P.                275           $2,950,664      2,682,422           $0                 0           2,682,422
a Delaware limited
partnership
c/o SDS Capital Partners
One Sound Shore Drive
Greenwich, CT  06830
Attention:  Steve Derby
Fax No.: (203) 629-0345
------------------------------------------------------------------------------------------------------------------------------------
DMG Legacy International Ltd.          141           $1,512,886      1,375,351        $651,929           592,663        1,968,014
a British Virgin
Islands company
c/o DMG Advisors LLC
One Sound Shore Drive
Greenwich, CT  06830
Attention:  General Counsel
Fax No.:  (203-629-0345
------------------------------------------------------------------------------------------------------------------------------------
DMG Legacy Institutional
Fund LLC                                84            $901,294        819,358         $388,381           353,073        1,172,431
a Delaware limited
liability company
c/o DMG Advisors LLC
One Sound Shsore Drive
Greenwich, CT  06830
Attention:  General Counsel
Fax No.:  (203)-629-0345
------------------------------------------------------------------------------------------------------------------------------------
DMG Legacy Fund LLC                     10            $107,297         97,543          $46,239            42,035         139,578
a Delaware limited
liability company
c/o DMG Advisors LLC
One Sound Shore Drive
Greenwich, CT  06830
Attention:  General Counsel
Fax No.:  (203) 629-0345
------------------------------------------------------------------------------------------------------------------------------------
                                       510           $5,472,141      4,974,674       $1,086,548          987,771        5,962,445
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>


                                    Exhibit A

THE SECURITIES  EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,  OR UNDER THE SECURITIES  LAWS OF ANY STATE,
AND NEITHER  THE  SECURITIES  NOR ANY  INTEREST  THEREIN MAY BE SOLD,  ASSIGNED,
TRANSFERRED,  PLEDGED OR OTHERWISE  DISPOSED OF EXCEPT IN  COMPLIANCE  WITH,  OR
PURSUANT TO AN EXEMPTION FROM, THE REQUIREMENTS OF SUCH ACT OR SUCH LAWS.

No. __

                                           June ___, 2004
                                           Warrants for __________ Common Shares


                       VOID AFTER 5:00 P.M., NEW YORK TIME
                                 ON JUNE 2, 2011

                             A.B. WATLEY GROUP INC.

                           WARRANTS FOR COMMON SHARES

      This Warrant Certificate certifies that _________________ (the "Securities
Holder"),  or its  registered  assigns is the  registered  holder of ___________
Warrants (the "Warrants"), which upon exercise entitles the Securities Holder to
receive  shares of  common  stock,  par value  $0.001  per  share  (the  "Common
Shares"),  of A.B. Watley Group Inc., a Delaware  corporation  (the  "Company").
Each Warrant  entitles the holder  thereof to receive from the Company one fully
paid and  nonassessable  Common Share,  subject to adjustment as provided in the
Warrant  Agreement  dated  June  3,  2004 by and  between  the  Company  and the
Securities Holder (the "Warrant  Agreement").  Each Warrant shall be exercisable
only upon presentation and surrender of this Warrant Certificate,  together with
the Form of Election to  Exercise  duly  executed,  at the  principal  executive
office of the  Company  (i)  during  the  period  commencing  on the date of the
Warrant Agreement and ending at 5:00 p.m., New York time, on June 2, 2011 or, if
such  date is not a  business  day iti the  City of New  York,  then on the next
succeeding  business day (the "Expiration  Date"), or (ii) as otherwise provided
in Section  2.03(b) of the Warrant  Agreement.  This Warrant will expire at 5:00
p.m.,  New York  time,  on the  Expiration  Date.  As  provided  in the  Warrant
Agreement,  the number of Common  Shares to be received upon the exercise of the
Warrants is, upon the happening of certain  events,  subject to  modification or
adjustment.

      This Warrant may be exercised in whole or in part by  presentation of this
Warrant  with  exercise  form  annexed  hereto duly  executed  at the  principal
executive office of the Company in York, New York.

      This Warrant  Certificate  is subject to all of the terms,  provisions and
conditions of the Warrant  Agreement,  including the  provisions of such Warrant
Agreement relating to the amendment  thereof,  which Warrant Agreement is hereby
incorporated  herein by reference  and made a part  hereof.  Reference is hereby
made to the Warrant Agreement for a full description of the rights,  limitations
of rights,  obligations,  duties and immunities of the Company and the holder of
this Warrant Certificate.

<PAGE>

      If this Warrant  Certificate shall be exercised in part, the holder hereof
shall be entitled to receive upon surrender  hereof another Warrant  Certificate
evidencing the number of Warrants not exercised.

      No holder of this Warrant  Certificate shall be deemed to be the holder of
Common  Shares or any other  securities  of the Company  that may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained in
the Warrant  Agreement  or herein be construed to confer upon the holder of this
Warrant Certificate as such any of the rights of a shareholder of the Company or
any right to for the  election  of  directors  or upon any matter  submitted  to
shareholders  at any meeting  thereof,  give or withhold  consent to any Company
action (whether upon any reorganization, issuance of shares, reclassification or
conversion of shares, change of par value, or exchange of shares, consolidation,
merger, conveyance or otherwise) or to receive notice of meetings, or to receive
dividends or subscription  rights or otherwise,  until this Warrant  Certificate
shall have been exercised and the Common Shares to be received upon the exercise
hereof shall have become issuable as provided in the Warrant Agreement.

      Except as specifically  set forth in the Warrant  Agreement,  this Warrant
may not be transferred or otherwise disposed of without the prior consent of the
Company.

      WITNESS the signature of the proper officer of the Company.


Dated:     _______________                      A.B. WATLEY GROUP INC.


                                                By: _________________________
                                                    Name:  Robert Malin
                                                    Title: Vice Chairman


<PAGE>


                                    EXHIBIT B

                              ELECTION TO EXERCISE

      1. The  undersigned  hereby  elects to  purchase  ______  shares of Common
      Stock,  par value $.001 per share,  of A.B. Watley Group Inc. at $0.01 per
      share for a total of $______  and  pursuant  to the terms of the  attached
      Warrant,  and tenders herewith payment of the aggregate  Exercise Price of
      such Warrant Shares in full.

      2. Please issue a certificate or  certificates  representing  said Warrant
      Shares  in the  name  of the  undersigned  or in  such  other  name  as is
      specified below:


Dated:                          By:  _____________________________

                                Name: ____________________________

                                Title:    ________________________


<PAGE>


                                    EXHIBIT C

                                 ASSIGNMENT FORM

                  (TO BE EXECUTED BY THE REGISTERED HOLDER IN
                    ORDER TO TRANSFER WARRANT CERTIFICATES)


FOR VALUE  RECEIVED,  the  undersigned  hereby  sells,  assigns,  and  transfers
___________** of the Warrants represented by this Warrant Certificate unto

_________________________________

PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

_________________________________


                              _________________________________________
                              (Print name)

                              _________________________________________
                              (Address)

                              _________________________________________


and does hereby irrevocably constitute and appoint  ____________________________
Attorney to transfer this Warrant Certificate on the records of the Company with
full power of substitution in the premises.


Dated: _________________                Signature(s) _________________________


                                        Signature(s) _________________________

                                        Guaranteed: __________________________


** Insert  here the number of  Warrants  evidenced  on the face of this  Warrant
Certificate (or, in the case of a partial assignment,  the portion thereof being
assigned),  in either case without making any  adjustment for additional  Common
Stock or any  other  securities  or  property  or cash  which,  pursuant  to the
adjustment   provisions  referred  to  in  this  Warrant  Certificate,   may  be
deliverable upon exercise.

                                     NOTICE

The  Signature(s) to the Purchase Form or the Assignment Form must correspond to
the  name(s)  as  written  upon the face of this  Warrant  Certificate  in every
particular without alteration or enlargement or any change whatsoever.