Sales & Trading

As a leading provider of best execution and liquidity in small- and mid-cap securities for institutional investors around the world, Jefferies significantly broadened its product base to address the evolving needs of its customers in an increasingly global marketplace. Revenues grew 26 percent in 2006 with an increasingly diversified revenue stream.

	#2 among brokerages, based on minimizing total transaction costs 2
	A Top 5 Trader of more than 2,400 stocks3

A transformational year in sales & trading

New businesses and products

	Prime Brokerage Jefferies established a dedicated Prime Brokerage team to focus on growing hedge funds. With a 20-person team of industry veterans assembled by year-end and an expanding base of hedge fund clients, the group has tremendous growth potential and opportunity for Jefferies' existing trading clients with a small- and mid-cap stock focus.
	Derivatives Jefferies welcomed a team of experienced equity derivatives professionals during 2006 and began offering listed options, ETFs and OTC options and swaps. The team quickly established its presence as a major player in listed equity options, averaging over 1.3 million options contracts traded per day for customers in the fourth quarter alone, attracting new accounts to the Firm and expanding existing relationships.
	JETS In electronic trading, we recruited an experienced quantitative strategies team and launched our new JETS (Jefferies Electronic Trading Solutions) product, a robust front-end trading tool that enables clients to easily employ a wide variety of complex direct market access and Jefferies proprietary algorithmic trading strategies.
	Indices Jefferies introduced 20 proprietary equity indices to track the performance of small- and mid-cap companies and distinct industry- and market-oriented opportunities, both domestic and global.
	Connectivity Jefferies broadened connectivity with additional exchange memberships, increased our global footprint to now include London Stock Exchange (LSE), Deutsche Börse (Xetra), Euronext, Oslo Bors, Dubai International Financial Exchange (DIFX), Tokyo Stock Exchange (TSE) and JASDAQ, and added Nominated Adviser (NOMAD) status on the Alternative Investment Market (AIM) of the LSE.

Continued leadership in established businesses
In 2006, Jefferies ranked as a Top 5 trader of over 2,400 stocks¹ and #2 among brokerages², based on minimizing total transaction costs. We successfully executed many large block trades and distributions for our clients during the year, working closely with Jefferies' equity capital markets group to place securities. Equity research also played a large role in the success of our efforts, adding continued depth and insight to our overall offering. Year over year, revenues from total equities grew approximately 23 percent. Our US convertibles desk traded $23 billion (notional value) in bonds—a nearly 50 percent jump over 2005, with a continued focus on serving the needs of our diverse and global client base.

As increased globalization of the markets began impacting mid-cap companies, Jefferies' high yield sales and trading desk has responded by sourcing bonds more globally and distributing both in the US and abroad. We significantly augmented our research staff and increased the number of European companies and corporate credits under coverage. The group also provided distribution expertise in the placement of many key high yield offerings, and traded over 1,500 issues with more than 600 institutions during the year. Jefferies' Fixed Income division increased its market making capabilities more than 60 percent to 3,800 issues during the year, added an emerging markets team in New York and London, and fully established its Eastern European trading operations.

We augmented our securities finance operations in London and our correspondent clearing group continued to attract new clients and add new products. Jefferies Financial Products expanded the reach of commodity-linked products with a significant increase in European clients and the development of new products linked to the Reuters Jefferies CRB Index, including ETFs in Europe and Asia.