UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended ~~March 31,~~June 30, 2007


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

For the transition period from to

Commission File No. 001-31720

PIPER JAFFRAY COMPANIES

(Exact name of registrant as specified in its charter)


DELAWARE
(State or other jurisdiction of		30-0168701
incorporation or organization)		(IRS Employer Identification No.)

800 Nicollet Mall, Suite 800
Minneapolis, Minnesota		55402
(Address of principal executive offices)		(Zip Code)

(612) 303-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filerþ Accelerated Filero Non-Accelerated Filero

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yeso Noþ

As of ~~April~~July 27, 2007, the registrant had ~~18,880,350~~18,483,270 shares of Common Stock outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Piper Jaffray Companies

Consolidated Statements of Financial Condition


	March 31,			December 31,			June 30,			December 31,
	2007			2006			2007			2006
(Amounts in thousands, except share data)	(Unaudited)						(Unaudited)
Assets

Cash and cash equivalents	$	49,884		$	39,903		$	22,624		$	39,903
Cash and cash equivalents segregated for regulatory purposes		35,000			25,000			25,000			25,000
Receivables:
Customers		41,889			51,441			58,610			51,441
Brokers, dealers and clearing organizations		104,645			312,874			134,337			312,874
Deposits with clearing organizations		33,530			30,223			26,421			30,223
Securities purchased under agreements to resell		183,215			139,927			128,149			139,927

Trading securities owned		690,737			776,684			711,279			776,684
Trading securities owned and pledged as collateral		301,837			89,842			87,278			89,842

Total trading securities owned		992,574			866,526			798,557			866,526

Fixed assets (net of accumulated depreciation and amortization of $50,622 and $48,603, respectively)		26,183			25,289
Fixed assets (net of accumulated depreciation and amortization of $52,008 and $48,603, respectively)								25,958			25,289
Goodwill		231,567			231,567			231,567			231,567
Intangible assets (net of accumulated amortization of $3,733 and $3,333, respectively)		1,067			1,467
Intangible assets (net of accumulated amortization of $4,133 and $3,333, respectively)								667			1,467
Other receivables		35,112			39,347			41,040			39,347
Other assets		87,596			88,283			84,628			88,283


Total assets	$	1,822,262		$	1,851,847		$	1,577,558		$	1,851,847


Liabilities and Shareholders’ Equity

Short-term bank financing							$	33,000		$	—
Payables:
Customers	$	56,990		$	83,899			72,537			83,899
Checks and drafts		8,319			13,828			9,522			13,828
Brokers, dealers and clearing organizations		43,322			210,955			42,187			210,955
Securities sold under agreements to repurchase		310,222			91,293			54,599			91,293
Trading securities sold, but not yet purchased		274,002			217,584			218,533			217,584
Accrued compensation		64,431			164,346			85,990			164,346
Other liabilities and accrued expenses		134,310			145,503			113,871			145,503

Total liabilities		891,596			927,408			630,239			927,408

Shareholders’ equity:
Common stock, $0.01 par value;
Shares authorized: 100,000,000 at March 31, 2007 and December 31, 2006;
Shares issued: 19,487,319 at March 31, 2007 and December 31, 2006;
Shares outstanding: 17,057,801 at March 31, 2007 and 16,984,474 at December 31, 2006		195			195
Common stock, $0.01 par value:
Shares authorized: 100,000,000 at June 30, 2007 and December 31, 2006;
Shares issued: 19,487,319 at June 30, 2007 and December 31, 2006;
Shares outstanding: 17,081,693 at June 30, 2007 and 16,984,474 at December 31, 2006								195			195
Additional paid-in capital		717,075			723,928			722,674			723,928
Retained earnings		339,102			325,684			348,428			325,684
Less common stock held in treasury, at cost: 2,429,518 shares at March 31, 2007 and 2,502,845 at December 31, 2006		(126,060	)		(126,026	)
Less common stock held in treasury at cost: 2,406,492 shares at June 30, 2007 and 2,502,845 shares at December 31, 2006								(124,779	)		(126,026	)
Other comprehensive income		354			658			801			658


Total shareholders’ equity		930,666			924,439			947,319			924,439


Total liabilities and shareholders’ equity	$	1,822,262		$	1,851,847		$	1,577,558		$	1,851,847

Piper Jaffray Companies

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended					Three Months Ended						Six Months Ended
	March 31,					June 30,						June 30,
(Amounts in thousands, except per share data)	2007			2006		2007			2006			2007			2006

Revenues:

Investment banking	$	83,733		$	70,481	$	75,597		$	63,604		$	159,330		$	134,085
Institutional brokerage		41,928			44,661		37,174			38,157			79,102			82,818
Interest		17,410			14,685		13,816			13,521			31,226			28,206
Other income		581			13,285		406			(889	)		987			12,396


Total revenues		143,652			143,112		126,993			114,393			270,645			257,505

Interest expense		6,702			8,153		4,417			9,143			11,119			17,296


Net revenues		136,950			134,959		122,576			105,250			259,526			240,209


Non-interest expenses:

Compensation and benefits		80,116			72,924		71,707			60,653			151,823			133,577
Occupancy and equipment		7,722			8,109		8,849			6,718			16,571			14,827
Communications		6,259			5,383		5,997			5,593			12,256			10,976
Floor brokerage and clearance		3,515			2,675		4,176			3,373			7,691			6,048
Marketing and business development		5,681			5,179		6,380			6,122			12,061			11,301
Outside services		7,317			6,292		9,122			6,836			16,439			13,128
Cash award program		356			1,275		390			886			746			2,161
Other operating expenses		3,400			4,437		804			2,910			4,204			7,347


Total non-interest expenses		114,366			106,274		107,425			93,091			221,791			199,365


Income from continuing operations before income tax expense		22,584			28,685		15,151			12,159			37,735			40,844

Income tax expense		7,862			9,979		4,774			4,230			12,636			14,209


Net income from continuing operations		14,722			18,706		10,377			7,929			25,099			26,635


Discontinued operations:
Income/(loss) from discontinued operations, net of tax		(1,304	)		5,151		(1,051	)		(3,792	)		(2,355	)		1,359


Net income	$	13,418		$	23,857	$	9,326		$	4,137		$	22,744		$	27,994


Earnings per basic common share
Income from continuing operations	$	0.86		$	1.01	$	0.61		$	0.43		$	1.47		$	1.44
Income/(loss) from discontinued operations		(0.08	)		0.28		(0.06	)		(0.20	)		(0.14	)		0.07

Earnings per basic common share	$	0.79		$	1.29	$	0.55		$	0.22		$	1.33		$	1.51

Earnings per diluted common share
Income from continuing operations	$	0.82		$	0.98	$	0.58		$	0.40		$	1.40		$	1.37
Income/(loss) from discontinued operations		(0.07	)		0.27		(0.06	)		(0.19	)		(0.13	)		0.07

Earnings per diluted common share	$	0.74		$	1.25	$	0.52		$	0.21		$	1.27		$	1.44

Weighted average number of common shares outstanding
Basic		17,071			18,462		17,073			18,556			17,072			18,509
Diluted		18,018			19,146		17,919			19,669			17,969			19,408

Piper Jaffray Companies

Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended						Six Months Ended
	March 31,						June 30,
(Amounts in thousands)	2007			2006
(Dollars in thousands)							2007			2006

Operating Activities:

Net income	$	13,418		$	23,857		$	22,744		$	27,994
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		2,158			4,741			4,413			7,874
Deferred income taxes		8,061			2,705			8,123			(8,797	)
Gain on disposal of fixed assets		(34	)		—
Loss on disposal of fixed assets								314			359
Stock-based compensation		5,477			6,530			12,503			14,634
Amortization of intangible assets		400			400			800			800
Forgivable loan reserve								—			200
Decrease (increase) in operating assets:
Cash and cash equivalents segregated for regulatory purposes		(10,000	)		—
Receivables:
Customers		9,712			5,139			(7,217	)		(9,265	)
Brokers, dealers and clearing organizations		208,103			85,357			178,566			162,667
Deposits with clearing organizations		(3,307	)		9,546			3,802			6,039
Securities purchased under agreements to resell		(43,288	)		(45,483	)		11,778			(21,039	)
Net trading securities owned		(69,590	)		(61,546	)		69,093			(40,567	)
Other receivables		3,957			(11,052	)		(1,424	)		(13,843	)
Other assets		(12,890	)		(16,791	)		(4,551	)		(11,487	)
Increase (decrease) in operating liabilities:
Payables:
Customers		(26,792	)		(1,462	)		(11,364	)		37,488
Checks and drafts		(5,509	)		(5,390	)		(4,306	)		(17,163	)
Brokers, dealers and clearing organizations		(174,980	)		(9,271	)		(169,257	)		8,455
Securities sold under agreements to repurchase		6,844			943			1,465			(161	)
Accrued compensation		(106,369	)		(66,365	)		(77,923	)		(44,106	)
Other liabilities and accrued expenses		(5,437	)		8,308			(31,690	)		33,391
Assets held for sale		—			45,086			—			24,489
Liabilities held for sale		—			(58,182	)		—			(24,204	)

Net cash used in operating activities		(200,066	)		(82,930	)
Net cash provided by operating activities								5,869			133,758

Investing Activities:

Purchases of fixed assets, net		(3,165	)		(4,912	)		(5,500	)		(5,281	)


Net cash used in investing activities		(3,165	)		(4,912	)		(5,500	)		(5,281	)


Financing Activities:

Increase (decrease) in securities loaned		7,410			(6,059	)		408			(4,559	)
Increase (decrease) in securities sold under agreements to repurchase		212,085			(27,316	)
Decrease in securities sold under agreements to repurchase								(38,159	)		(47,450	)
Increase in short-term bank financing		—			102,000			33,000			—
Repurchase of common stock		(10,000	)		—			(17,442	)		—
Excess tax benefits from stock-based compensation		1,911			—			2,068			—
Proceeds from stock option transactions		2,062			—			2,266			—


Net cash provided by financing activities		213,468			68,625
Net cash used in financing activities								(17,859	)		(52,009	)


Currency adjustment:
Effect of exchange rate changes on cash		(256	)		175			211			830


Net increase (decrease) in cash and cash equivalents		9,981			(19,042	)		(17,279	)		77,298

Cash and cash equivalents at beginning of period		39,903			60,869			39,903			60,869


Cash and cash equivalents at end of period	$	49,884		$	41,827		$	22,624		$	138,167


Supplemental disclosure of cash flow information -
Cash paid during the period for:
Interest	$	6,226		$	10,511		$	10,822		$	22,063
Income taxes	$	1,336		$	2,329		$	1,815		$	24,588

Noncash financing activities -
Non-cash financing activities -
Issuance of common stock for retirement plan obligations:
8,619 shares and 190,966 shares for the three months ended March 31, 2007 and 2006, respectively	$	598		$	9,013
8,619 shares and 190,966 shares for the six months ended June 30, 2007 and 2006 respectively							$	598		$	9,013

Piper Jaffray Companies

Notes to the Consolidated Financial Statements

(Unaudited)

Note 1Background

Piper Jaffray Companies is the parent company of Piper Jaffray & Co. (“Piper Jaffray”), a securities broker dealer and investment banking firm; Piper Jaffray Ltd., a firm providing securities brokerage and investment banking services in Europe headquartered in London, England; Piper Jaffray Financial Products Inc., an entity that facilitates customer derivative transactions; Piper Jaffray Financial Products II Inc., an entity dealing primarily in variable rate municipal products; and other immaterial subsidiaries. Piper Jaffray Companies and its subsidiaries (collectively, the “Company”) operate as one reporting segment providing investment banking services and institutional sales, trading and research services. As discussed more fully in Note 4, the Company completed the sale of its Private Client Services branch network and certain related assets to UBS Financial Services, Inc., a subsidiary of UBS AG (“UBS”), on August 11, 2006, thereby exiting the Private Client Services (“PCS”) business.

Basis of Presentation

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

The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and reflect all adjustments that in the opinion of management are normal and recurring and that are necessary for a fair statement of the results for the interim periods presented. In accordance with these rules and regulations, certain disclosures that are normally included in annual financial statements have been omitted. The consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

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

Note 2Summary of Significant Accounting Policies

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, for a full description of the Company’s significant accounting policies.

Note 3Recent Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments,” (“SFAS 155”), which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,”(“SFAS 133”), and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”). The provisions of SFAS 155 provide a fair value measurement option for certain hybrid financial instruments that contain an embedded derivative that would otherwise require bifurcation. SFAS 155 also provides clarification that only the simplest separations of interest payments and principal payments qualify for the exception afforded to interest-only strips and principal-only strips from derivative accounting under paragraph 14 of SFAS 133. The standard also clarifies that concentration of credit risk in the form of subordination is not an embedded derivative. Lastly, the new standard amends SFAS 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 was effective for the Company for all financial instruments acquired or issued beginning January 1, 2007. The adoption of SFAS 155 did not have a material effect on the consolidated financial statements of the Company.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements, but its application may, for some entities, change current practice. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS 157 on the Company’s consolidated results of operations and financial condition.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”(“SFAS 159”). SFAS 159 permits entities to choose to measure certain financial assets and liabilities and other eligible items at fair value, which are not otherwise currently allowed to be measured at fair value. Under SFAS 159, the decision to measure items at fair value is made at specified election dates on an irrevocable instrument-by-instrument basis. Entities electing the fair value option would be required to recognize changes in fair value in earnings and to expense upfront costs and fees associated with the item for which the fair value option is elected. Entities electing the fair value option are required to distinguish on the face of the statement of financial position, the fair value of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. If elected, SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007, with earlier adoption permitted provided that the entity also early adopts all of the requirements of SFAS 157. The Company is currently evaluating the impact of SFAS 159 on the Company’s consolidated results of operations and financial condition.

In April 2007, the FASB issued FSP No. FIN 39-1, “Amendment of FASB Interpretation No. 39” (“FSP FIN 39-1”). FSP FIN 39-1 modifies FIN No. 39, “Offsetting of Amounts Related to Certain Contracts,” and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. FSP FIN 39-1 is not expected to have a material affect to our consolidated financial statements.

Note 4Discontinued Operations

On August 11, 2006, the Company and UBS completed the sale of the Company’s PCS branch network under a previously announced asset purchase agreement. The purchase price under the asset purchase agreement was approximately $750 million, which included $500 million for the branch network and approximately $250 million for the net assets of the branch network, consisting principally of customer margin receivables.

In accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the results of PCS operations have been classified as discontinued operations for all periods presented. The Company recorded a loss from discontinued operations, net of tax, of ~~$1.3~~$1.1 million and $2.4 million for the three months and six months ended ~~March 31,~~June 30, 2007, respectively, related to ~~additional litigation-related expenses, occupancy restructuring costs and costs related to~~the cost of decommissioning a PCS-oriented back office ~~system.~~system, litigation-related expenses and restructuring charges. The Company expects to incur additional discontinued operations costs in the third quarter of 2007 asrelated to decommissioning the ~~Company converts from a~~ PCS-oriented ~~back office system to a capital markets~~ back office system. In addition, the Company may incur discontinued operations expense or income related to changes in litigation reserve estimates for retained PCS litigation matters and for changes in estimates to occupancy and severance restructuring charges.

In connection with the sale of the Company’s PCS branch network, the Company initiated a plan in 2006 to significantly restructure the Company’s support infrastructure. All restructuring costs related to the sale of the PCS branch network are included within discontinued operations in accordance with SFAS 144. See Note 12 for additional information regarding the Company’s restructuring activities.

Note 5Derivatives

Derivative contracts are financial instruments such as forwards, futures, swaps or option contracts that derive their value from underlying assets, reference rates, indices or a combination of these factors. A derivative contract generally represents future commitments to purchase or sell financial instruments at specified terms on a specified date or to exchange currency or interest payment streams based on the contract or notional amount. Derivative contracts exclude certain cash instruments, such as mortgage-backed securities, interest-only and principal-only obligations and indexed debt instruments that derive their values or contractually required cash flows from the price of some other security or index.

The Company uses interest rate swaps, interest rate locks, and forward contracts to facilitate customer transactions and as a means to manage risk in certain inventory positions. The Company also enters into interest rate swap agreements to manage interest rate exposure associated with holding residual interest securities from its tender option bond program. As of ~~March 31,~~June 30, 2007 and December 31, 2006, the Company was counterparty to notional/contract amounts of ~~$6.3~~$6.6 billion and $5.8 billion, respectively, of derivative instruments.

The market or fair values related to derivative contract transactions are reported in trading securities owned and trading securities sold, but not yet purchased on the consolidated statements of financial condition. The Company does not utilize “hedge accounting” as described within SFAS No. 133. Derivatives are reported on a net-by-counterparty basis when a legal right of offset exists under a legally enforceable master netting agreement in accordance with FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts.”

Fair values for derivative contracts represent amounts estimated to be received from or paid to a counterparty in settlement of these instruments. These derivatives are valued using quoted market prices when available or pricing models based on the net present value of estimated future cash flows. The valuation models used require inputs including contractual terms, market prices, yield curves, credit curves and measures of volatility. The net fair value of derivative contracts was approximately ~~$19.8~~$28.3 million and $19.7 million as of ~~March 31,~~June 30, 2007 and December 31, 2006, respectively.

Note 6Securitizations

In connection with its tender option bond program, the Company securitizes highly rated municipal bonds. At ~~March 31,~~June 30, 2007 and December 31, 2006, the Company had ~~$277.7~~$296.7 million and $279.2 million, respectively, of par value of municipal bonds in securitization. Each municipal bond is sold into a separate trust that is funded by the sale of variable rate certificates to institutional customers seeking variable rate tax-free investment products. These variable rate certificates reprice weekly. Securitization transactions meeting certain SFAS 140 criteria are treated as sales, with the resulting gain included in other income on the consolidated statements of operations. If a securitization does not meet the sale-of-asset requirements of SFAS 140, the transaction is recorded as a borrowing. The Company retains a residual interest in each structure and accounts for the residual interest as a trading security, which is recorded at fair value on the consolidated statements of financial condition. The fair value of retained interests was ~~$8.7~~$3.9 million and $8.1 million at ~~March 31,~~June 30, 2007 and December 31, 2006, respectively, with a weighted average life of ~~8.2~~8.5 years and 8.4 years, respectively. The fair value of retained interests is estimated based on the present value of future cash flows using management’s best estimates of the key assumptions — expected yield, credit losses of 0 percent and a 12 percent discount rate. At ~~March 31,~~June 30, 2007, the sensitivity of the current fair value of retained interests to immediate 10 percent and 20 percent adverse changes in the key economic assumptions was not material. The Company receives a fee to remarket the variable rate certificates derived from the securitizations.

Certain cash flow activity for the municipal bond securitizations described above includes:


	Three Months Ended:				Six Months Ended
	March 31,				June 30,
(Amounts in thousands)	2007		2006
(Dollars in thousands)					2007		2006
Proceeds from new securitizations	$	—	$	7,578	$	29,000	$	7,578
Remarketing fees received		37		38		60		68
Cash flows received on retained interests		2,083		2,527		2,562		3,325

Three securitization transactions were designed such that they did not meet the asset sale requirements of SFAS 140, and as a result, the Company has consolidated these trusts. ~~As a result,~~Accordingly, the Company recorded an asset for the underlying bonds of ~~$49.7~~$49.5 million and $51.2 million as of ~~March 31,~~June 30, 2007 and December 31, 2006 respectively, in trading securities owned and a liability for the certificates sold by the trust for $48.6 million and $50.1 million as of ~~March 31,~~June 30, 2007 and December 31, 2006 respectively, in other liabilities and accrued expenses on the consolidated statements of financial condition.

The Company enters into interest rate swap agreements to manage interest rate exposure associated with holding the residual interest securities from its securitizations, which have been recorded at fair value and resulted in a liability of approximately ~~$6.5~~$1.0 million and $5.7 million at ~~March 31,~~June 30, 2007 and December 31, 2006, respectively.

The Company has contracted with a major third-party financial institution to act as the liquidity provider for the Company’s tender option bond securitized trusts. The Company has agreed to reimburse this party for any losses associated with providing liquidity to the trusts. The maximum exposure to loss at ~~March 31,~~June 30, 2007 was ~~$250.2~~$269.4 million, representing the outstanding amount of all trust certificates at those dates. This exposure to loss is mitigated by the underlying bonds in the trusts, which are either AAA or AA rated. These bonds had a market value of approximately ~~$262.0~~$275.9 million at ~~March 31,~~June 30, 2007. The Company believes the likelihood it will be required to fund the reimbursement agreement obligation under any provision of the arrangement is remote, and accordingly, no liability for such a guarantee has been recorded in the accompanying consolidated financial statements.

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

Note 12Restructuring

The Company implemented a specific restructuring plan in 2006 to reorganize the Company’s support infrastructure as a result of the PCS branch network sale to UBS.

The restructuring charges included the cost of severance, benefits, outplacement costs and equity award accelerated vesting costs associated with the termination of employees. The severance amounts were determined based on a one-time severance benefit enhancement to the Company’s existing severance pay program in place at the time of termination notification and will be paid out over a benefit period of up to one year from the time of termination. Approximately 295 employees have received a severance package. In addition, the Company has incurred restructuring charges for contract termination costs related to the reduction of office space and the modification of technology contracts. Contract termination fees are determined based on the provisions of Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which among other things requires the recognition of a liability for contract termination under a cease-use date concept. The Company also incurred restructuring charges for the impairment or disposal of long-lived assets determined in accordance with SFAS 144. All restructuring costs related to the sale of the PCS branch network are included within discontinued operations in accordance with SFAS 144.

For the ~~three~~six months ended ~~March 31,~~June 30, 2007 the Company incurred ~~$0.4~~$0.7 million of expense to revise ~~occupancy restructuring~~contract termination cost estimates.

The following table presents a summary of activity with respect to the restructuring-related liabilities included in other liabilities and accrued expense on the statements of financial ~~condition.~~condition:

PCS
(Amounts in thousands) Restructuring
Balance at December 31, 2006
$ 28,583
Provision charged to discontinued operations 375
Cash outlays (6,238 )
Noncash write-downs (291 )

Balance at March 31, 2007
$ 22,429


	PCS
(Dollars in thousands)	Restructuring
Balance at December 31, 2006	$	28,583
Provisions charged to discontinued operations		682
Cash outlays		(10,517	)
Non-cash write-downs		(398	)

Balance at June 30, 2007	$	18,350

Note 13Shareholders’ Equity

Share Repurchase Program

In the third quarter of 2006, the Company’s board of directors authorized the repurchase of up to $180.0 million in common shares through December 31, 2007. The Company executed an accelerated stock repurchase under this authorization in the amount of $100 million during 2006. During the ~~three~~six months ended ~~March 31,~~June 30, 2007, the Company repurchased 158,687 shares of the Company’s common stock at an average price of $63.02 per share for an aggregate purchase price of $10 million. The Company has $70.0 million remaining under this authorization.

Note 14Geographic Areas

The following table presents revenues and long-lived assets by geographic region:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands)	2007		2006		2007		2006
Revenues:
Domestic operations	$	109,354	$	99,617	$	221,831	$	224,380
International operations		13,222		5,633		37,695		15,829

Consolidated	$	122,576	$	105,250	$	259,526	$	240,209


	June 30,		December 31,
(Dollars in thousands)	2007		2006
Long-lived assets:
Domestic operations	$	23,252	$	22,503
International operations		2,706		2,786

Consolidated	$	25,958	$	25,289

Note 15Earnings Per Share

Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive restricted stock and stock options. The computation of earnings per share is as follows:


	Three Months Ended:				Three Months Ended				Six Months Ended
	March 31,				June 30,				June 30,
(Amounts in thousands, except per share data)	2007		2006		2007		2006		2007		2006
Net income	$	13,418	$	23,857	$	9,326	$	4,137	$	22,744	$	27,994
Shares for basic and diluted calculations:
Average shares used in basic computation		17,071		18,462		17,073		18,556		17,072		18,509
Stock options		131		14		118		125		125		70
Restricted stock		816		670		728		988		772		829

Average shares used in diluted computation		18,018		19,146		17,919		19,669		17,969		19,408

Earnings per share:
Basic	$	0.79	$	1.29	$	0.55	$	0.22	$	1.33	$	1.51
Diluted	$	0.74	$	1.25	$	0.52	$	0.21	$	1.27	$	1.44

Prior to January 1, 2006, the Company accounted for stock-based compensation under the fair value method of accounting as prescribed by SFAS 123, as amended by SFAS 148. As such, the Company recorded stock-based compensation expense in the consolidated statements of operations at fair value, net of estimated forfeitures.

Effective January 1, 2006, the Company adopted the provisions of SFAS 123(R) using the modified prospective transition method. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on fair value, net of estimated forfeitures. Because the Company historically expensed all equity awards based on the fair value method, net of estimated forfeitures, SFAS 123(R) did not have a material effect on the Company’s measurement or recognition methods for stock-based compensation.

Employee and director stock options granted prior to January 1, 2006, were expensed by the Company on a straight-line basis over the option vesting period, based on the estimated fair value of the award on the date of grant using a Black-Scholes option-pricing model. Employee and director stock options granted after January 1, 2006, are expensed by the Company on a straight-line basis over the required service period, based on the estimated fair value of the award on the date of grant using a Black-Scholes option-pricing model. At the time it adopted SFAS 123(R), the Company changed the expensing period from the vesting period to the required service period, which shortened the period over which options are expensed for employees who are retiree-eligible on the date of grant or become retiree-eligible during the vesting period. The number of employees that fell within this category at January 1, 2006 was not material. In accordance with SEC guidelines, the Company did not alter the expense recorded in connection with prior option grants for the change in the expensing period.

Employee restricted stock grants prior to January 1, 2006, are amortized on a straight-line basis over the vesting period based on the market price of Piper Jaffray Companies common stock on the date of grant. Restricted stock grants after January 1, 2006, are valued at the market price of the Company’s common stock on the date of grant and amortized on a straight-line basis over the required service period. The majority of the Company’s restricted stock grants provide for continued vesting after termination, so long as the employee does not violate certain post-termination restrictions, as set forth in the award agreements or any agreements entered into upon termination. The Company considers the required service period to be the greater of the vesting period or the post-termination restricted period. The Company believes that the post-termination restrictions meet the SFAS 123(R) definition of a substantive service requirement.

The Company recorded compensation expense, net of estimated forfeitures, within continuing operations of ~~$5.4~~$7.0 million and ~~$4.7~~$5.6 million for the three months ended ~~March 31,~~June 30, 2007 and 2006, respectively, and $12.4 million and $10.3 million for the six months ended June 30, 2007 and 2006, respectively, related to employee stock option and restricted stock grants. The tax benefit related to the total compensation cost for stock-based compensation arrangements totaled ~~$2.1~~$2.7 million and ~~$1.8~~$2.1 million for the three months ended ~~March 31,~~June 30, 2007 and 2006, respectively and $4.8 million and $3.9 million for the six months ended June 30, 2007 and 2006, respectively.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model using assumptions such as the risk-free interest rate, the dividend yield, the expected volatility and the expected life of the option. The risk-free interest rate assumption is based on the U.S. treasury bill rate with a maturity equal to the expected life of the option. The dividend yield assumption is based on the assumed dividend payout over the expected life of the option. The expected volatility assumption for 2007 grants is based on a combination of Company historical data and industry comparisons. The Company has only been a publicly traded company for approximately 3942 months; therefore, it does not have sufficient historical data to determine an appropriate expected volatility solely from the Company’s own historical data. The expected life assumption is based on an average of the following two factors: 1) industry comparisons; and 2) the guidance provided by the SEC in Staff Accounting Bulletin No. 107, (“SAB 107”). SAB 107 allows the use of an “acceptable” methodology under which the Company can take the midpoint of the vesting date and the full contractual term. The following table provides a summary of the valuation assumptions used by the Company to determine the estimated value of stock option grants in Piper Jaffray Companies common stock for the ~~three~~six months ended ~~March 31:~~June 30:


	2007			2006
Weighted average assumptions in option valuation:
Risk-free interest rates		4.68	%		4.55	%
Dividend yield		0.00	%		0.00	%
Stock volatility factor		32.20	%		40.08	%
Expected life of options (in years)		6.00			6.00
Weighted average fair value of options granted	$	28.57		$	22.14

At ~~March 31,~~June 30, 2007, net capital calculated under the SEC rule was ~~$347.7~~$357.9 million, ~~or 615.2 percent of aggregate debit balances; this amount~~and exceeded the minimum net capital required under the SEC rule by ~~$346.6~~$356.1 million.

Piper Jaffray Ltd., which is a registered United Kingdom broker dealer, is subject to the capital requirements of the Financial Services Authority (“FSA”). As of ~~March 31,~~June 30, 2007, Piper Jaffray Ltd. was in compliance with the capital requirements of the FSA.

Note 1718Income Taxes

The Company adopted the provisions of FIN 48 on January 1, 2007. Implementation of FIN 48 resulted in no adjustment to the Company’s liability for unrecognized tax benefits. As of the date of adoption the total amount of unrecognized tax benefits was $1.1 million, all of which relates to tax benefits that if recognized, would impact the annual effective tax rate. Included in the total liability for unrecognized tax benefits is $0.2 million of interest and penalties, both of which the Company recognizes as a component of income tax expense. The Company or one of its subsidiaries file income tax returns in the U.S. federal jurisdiction, all states, and various foreign jurisdictions. The Company is not subject to U.S. federal, state and local or non-U.S. income tax examination by tax authorities for taxable years before 2004.

There was no change in the unrecognized tax benefit during the ~~three~~six month period ended ~~March 31,~~June 30, 2007.

Note 1819Definitive Agreement to Acquire Fiduciary Asset Management LLC

On April 13, 2007, the Company announced a definitive agreement to acquire Fiduciary Asset Management LLC (“FAMCO”), a St. Louis-based investment management firm, for approximately $66.0 million in cash upon closing and future cash consideration based on financial performance. The Company currently expects the transaction to close late in the third quarter of 2007, subject to certain regulatory approvals and customary closing conditions, including the receipt of third-party consents. The allocation of the purchase price and determination of intangible assets and goodwill will be made once the transaction closes. For more information regarding the Company’s acquisition of FAMCO, please refer to the Company’s Form 8-K, filed with the SEC on April 13, 2007.

Note 20Definitive Agreement to Acquire Goldbond Capital Holdings Limited

On July 3, 2007, the Company announced the signing of a definitive agreement to acquire Goldbond Capital Holdings Limited (“Goldbond”), a Hong Kong-based investment bank, for approximately $51.3 million. The purchase price is subject to adjustment based on an audit of Goldbond’s consolidated net asset value as of March 31, 2007. Consideration for the transaction will be paid in cash upon closing, except for $4.1 million to be paid in the form of restricted stock of the Company as partial consideration for the equity interest held by one of the sellers. The Company currently expects the transaction to close late in the third quarter of 2007, subject to customary closing conditions and certain regulatory approvals, including approval from the shareholders of Goldbond Group Holdings Limited, an indirect equity holder in Goldbond that is listed on the Hong Kong Stock Exchange. For more information regarding the Company’s acquisition of Goldbond, please refer to the Company’s Form 8-K, filed with the SEC on July 3, 2007.

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


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

The following information should be read in conjunction with the accompanying consolidated financial statements and related notes and exhibits included elsewhere in this report. Certain statements in this report may be considered forward-looking. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward looking statements include, among other things, statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, and also may include our belief regarding the effect of various legal proceedings, as set forth under “Legal Proceedings” in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2006, as updated in our subsequent reports filed with the SEC. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including those factors discussed below under “External Factors Impacting Our Business” as well as the factors identified under “Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006, as updated in our subsequent reports filed with the SEC. These reports are available at our Web site at www.piperjaffray.com and at the SEC Web site at www.sec.gov. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.

Executive Overview

Our continuing operations are principally engaged in providing investment banking, institutional brokerage and related financial services to middle-market companies, private equity groups, public entities, non-profit entities and institutional investors in the United States, Europe and Asia. Our revenues are generated primarily through the receipt of advisory and financing fees earned on investment banking activities, commissions and sales credits earned on equity and fixed income institutional sales and trading activities, net interest earned on securities inventories and profits and losses from trading activities related to these securities inventories.

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

Discontinued operations include the operating results of our Private Client Services (“PCS”) retail brokerage business and related restructuring costs. We closed on the sale of our PCS branch network and certain related assets to UBS Financial Services, Inc., a subsidiary of UBS AG (“UBS”), on August 11, 2006. Our PCS retail brokerage business provided financial advice and a wide range of financial products and services to individual investors through a network of approximately 90 branch offices. In the ~~first~~second quarter of 2007, discontinued operations recorded a net loss of ~~$1.3~~$1.1 million, which included costs related to decommissioning a retail-oriented back-office system, costs for PCS litigation-related expenses and restructuring ~~charges that were higher than originally estimated and costs related to decommissioning a PCS-oriented back office system.~~charges. We expect to incur additional costs in the ~~second and~~ third ~~quarters~~quarter of 2007 related to decommissioning the ~~PCS-oriented~~retail-oriented back office system. Costs associated with implementing a new ~~back office~~back-office system to support our capital markets business will be recorded in continuing operations. See Notes 4 and 12 to our unaudited consolidated financial statements for a further discussion of our discontinued operations and restructuring.

As part of our growth strategy and our efforts to diversify our revenues following the sale of our PCS branch network, we announced on April 13, 2007, the signing of a definitive agreement to acquire Fiduciary Asset Management, LLC (“FAMCO”) a St. Louis-based investment management firm. This acquisition will allow us to enter the investment management ~~business and redeploy capital from the sale of the PCS~~ business. We currently expect the transaction to close late in the third quarter of 2007, subject to certain regulatory approvals and customary closing conditions, including the receipt of ~~third-party~~third party consents. In addition, on July 3, 2007, we entered into a definitive agreement to purchase all equity interests in Goldbond Capital Holdings Limited (“Goldbond”), an investment bank and financial services company based in Hong Kong. With this acquisition, we will gain capital markets capabilities required to accelerate the growth of our Asia platform, including corporate finance, sales and trading, equity capital markets and research. We also expect this transaction to close late in the third quarter of 2007, subject to customary regulatory approvals. Both of these transactions are important components in our plan to redeploy capital from the sale of our PCS branch network.

In the third quarter of 2006, we entered into a strategic relationship with CIT Group, Inc. (“CIT”), which allowed us to offer expanded debt financing solutions to middle-market companies. During the second quarter, CIT announced the acquisition of a mergers and acquisitions advisory firm, creating a significant overlap with our advisory capabilities that resulted in our mutual agreement to terminate the alliance agreement effective July 30, 2007. Revenues generated from this agreement were not significant. We are evaluating several alternatives for providing debt solutions to effectively address our clients’ debt needs going forward.

We plan to continue our focus on ~~the~~revenue growth through expansion of our ~~existing~~ capital markets ~~businesses through~~business and entry into and expansion of the investment management business. Within our capital markets business, our efforts will be focused on growing our sector expertise, product depth and geographic ~~reach.~~reach, as demonstrated by the pending acquisition of Goldbond. The pending acquisition of FAMCO will allow us to enter the investment management business. We expect that continued growth of these businesses will come from a combination of internal organic growth and acquisitions. In addition, as opportunities arise we intend to use our capital to a greater extent to facilitate customer activity and engage in principal activities that leverage our expertise. Our principal activities will result in greater commitments of capital on our own behalf, and may include, among other things, proprietary positions in equity or debt securities of public and private companies. Our growth initiatives will require investments in personnel and other expenses, which may have a short-term negative impact on our profitability as it may take time to develop meaningful revenues from the growth initiatives.

RESULTS FOR THE THREE MONTHS AND SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2007

Net revenues from continuing operations for the three months ended ~~March 31,~~June 30, 2007 were ~~$137.0~~$122.6 million. For the three months ended ~~March 31,~~June 30, 2007, our net income, including continuing and discontinued operations, was ~~$13.4~~$9.3 million, or ~~$0.74~~$0.52 per diluted share, ~~down~~up from net income of ~~$23.9~~$4.1 million, or ~~$1.25~~$0.21 per diluted share, for the prior-year period. For the three months ended ~~March 31,~~June 30, 2007, net income from continuing operations totaled ~~$14.7~~$10.4 million, or ~~$0.82~~$0.58 per diluted share, ~~down~~up from ~~$18.7~~$7.9 million, or ~~$0.98~~$0.40 per diluted share, for the corresponding period in 2006.

For the six months ended June 30, 2007, net revenues from continuing operations were $259.5 million, an increase of 8 percent over the year-ago period. Net income for the first half of 2007 was $22.7 million, or $1.27 per diluted share, down from net income of $28.0 million, or $1.44 per diluted share, for the prior-year period. For the six months ended June 30, 2007, net income from continuing operations totaled $25.1 million, or $1.40 per diluted share, down from $26.6 million, or $1.37 per diluted share, for the corresponding period in ~~the first quarter of 2006~~2006. The year-ago period included a net gain of ~~$6.6~~$5.6 million, ~~after tax,~~ or ~~$0.35~~$0.29 per diluted share, related to our ownership of two seats on the New York Stock Exchange, Inc. (“NYSE”).

EXTERNAL FACTORS IMPACTING OUR BUSINESS

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

Factors that differentiate our business within the financial services industry also may affect our financial results. For example, our business focuses on specific industry sectors. These sectors may experience growth or downturns independently of general economic and market conditions, or may face market conditions that are disproportionately better or worse than those impacting the economy and markets generally. In either case, our business could be affected differently than overall market trends. Given the variability of the capital markets and securities businesses, our earnings may fluctuate significantly from period to period, and results of any individual period should not be considered indicative of future results.

Results of Operations

FINANCIAL SUMMARY FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND JUNE 30, 2006

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


									Results of Operations															Results of Operations
	Results of Operations								as a Percentage of Net															as a Percentage of Net
	For the Three Months Ended								Revenues						Results of Operations									Revenues
	March 31,								For the Three Months Ended						For the Three Months Ended									For the Three Months Ended
						2007			March 31,						June 30,									June 30,
(Amounts in thousands)	2007			2006		v2006			2007			2006
																					2007
(Dollars in thousands)															2007			2006			v2006			2007			2006
Revenues:
Investment banking	$	83,733		$	70,481		18.8	%		61.1	%		52.2	%	$	75,597		$	63,604			18.9	%		61.7	%		60.4	%
Institutional brokerage		41,928			44,661		(6.1	)		30.6			33.1			37,174			38,157			(2.6	)		30.3			36.3
Interest		17,410			14,685		18.6			12.7			10.9			13,816			13,521			2.2			11.3			12.8
Other income		581			13,285		(95.6	)		0.5			9.8			406			(889	)		N/M			0.3			(0.8	)


Total revenues		143,652			143,112		0.4			104.9			106.0			126,993			114,393			11.0			103.6			108.7

Interest expense		6,702			8,153		(17.8	)		4.9			6.0			4,417			9,143			(51.7	)		3.6			8.7


Net revenues		136,950			134,959		1.5			100.0			100.0			122,576			105,250			16.5			100.0			100.0


Non-interest expenses:
Compensation and benefits		80,116			72,924		9.9			58.5			54.0			71,707			60,653			18.2			58.5			57.6
Occupancy and equipment		7,722			8,109		(4.8	)		5.6			6.0			8,849			6,718			31.7			7.2			6.4
Communications		6,259			5,383		16.3			4.6			4.0			5,997			5,593			7.2			4.9			5.3
Floor brokerage and clearance		3,515			2,675		31.4			2.6			2.0			4,176			3,373			23.8			3.4			3.2
Marketing and business development		5,681			5,179		9.7			4.1			3.8			6,380			6,122			4.2			5.2			5.8
Outside services		7,317			6,292		16.3			5.3			4.7			9,122			6,836			33.4			7.4			6.5
Cash award program		356			1,275		(72.1	)		0.3			0.9			390			886			(56.0	)		0.3			0.8
Other operating expenses		3,400			4,437		(23.4	)		2.5			3.3			804			2,910			(72.4	)		0.7			2.8


Total non-interest expenses		114,366			106,274		7.6			83.5			78.7			107,425			93,091			15.4			87.6			88.4


Income from continuing operations before tax expense		22,584			28,685		(21.3	)		16.5			21.3			15,151			12,159			24.6			12.4			11.6

Income tax expense		7,862			9,979		(21.2	)		5.8			7.4			4,774			4,230			12.9			3.9			4.0


Net income from continuing operations		14,722			18,706		(21.3	)		10.7			13.9			10,377			7,929			30.9			8.5			7.6


Discontinued operations:
Income/(loss) from discontinued operations, net of tax		(1,304	)		5,151		N/M			N/M			3.8
Loss from discontinued operations, net of tax																(1,051	)		(3,792	)		(72.3	)		(0.9	)		(3.7	)


Net income	$	13,418		$	23,857		(43.8)	%		9.8	%		17.7	%	$	9,326		$	4,137			125.4	%		7.6	%		3.9	%

For the three months ended ~~March 31,~~June 30, 2007, net income, including continuing and discontinued operations, totaled ~~$13.4~~$9.3 million. Net revenues from continuing operations increased ~~slightly~~16.5 percent to ~~$137.0~~$122.6 million for the ~~first~~second quarter of 2007. For the three months ended ~~March 31,~~June 30, 2007, investment banking revenues increased ~~18.8~~18.9 percent to ~~$83.7~~$75.6 million, compared with revenues of ~~$70.5~~$63.6 million in the prior-year period. ~~All~~This increase in investment banking ~~businesses contributed~~revenues was attributable to ~~this increase.~~higher equity and public finance underwriting activity, offset in part by lower merger and acquisition revenue. Institutional brokerage revenues decreased ~~6.1~~2.6 percent to ~~$41.9~~$37.2 million for the second quarter of 2007, compared with ~~$44.7~~$38.2 million in the corresponding period in the prior year, due primarily to lower equity trading ~~volumes and lower fixed income trading gains.~~volumes. In the ~~first~~second quarter of 2007, net interest income increased to ~~$10.7~~$9.4 million, compared with ~~$6.5~~$4.4 million in the ~~first~~second quarter of 2006. The increase was primarily driven by ~~two primary factors. First,~~significantly reduced borrowing needs following the sale of our PCS branch network in the third quarter of 2006, we repaid $180 million in subordinated debt, resulting in lower interest expense in the first quarter of 2007. Second, the impact of higher short-term interest rates on net inventories and other net earning assets resulted in higher interest income.August 2006. In the ~~first~~second quarter of 2007, other income ~~decreased to $0.6~~was $0.4 million, compared with ~~$13.3~~a loss of $0.9 million in the prior-year ~~period, which included~~period. The loss in the second quarter of 2006 was a ~~$10.2 million gain related to~~result of a decline in the market value of NYSE Group, Inc. restricted shares that we received in connection with the sale of our ~~ownership of~~ two seats on the ~~NYSE that were exchanged for cash and restricted shares of common stock of NYSE Group, Inc.~~NYSE. Non-interest expenses increased to ~~$114.4~~$107.4 million for the three months ended ~~March 31,~~June 30, 2007, from ~~$106.3~~$93.1 million in the corresponding period in the prior year. This increase was primarily attributable to ~~increased~~higher compensation and benefits, ~~expenses due to higher investment banking revenues.~~occupancy and outside services expenses.

~~CONSOLIDATED~~ NON-INTEREST EXPENSES FROM CONTINUING OPERATIONS

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

For the three months ended ~~March 31,~~June 30, 2007, compensation and benefits expenses increased ~~9.9~~18.2 percent to ~~$80.1~~$71.7 million, from ~~$72.9~~$60.7 million in the corresponding period in 2006. This increase was due to higher variable compensation costs resulting from higher investment banking revenues. Compensation and benefits expenses as a percentage of net revenues increased to 58.5 percent for the ~~first~~second quarter of 2007, compared with ~~54.0~~57.6 percent for the ~~first~~second quarter of 2006. ~~The compensation and benefits ratio was lower in the year-ago period due to the gain related to our two seats on the NYSE.~~

Occupancy and Equipment- In the ~~first~~second quarter of 2007, occupancy and equipment expenses were ~~$7.7~~$8.8 million, compared with ~~$8.1~~$6.7 million for the corresponding period in 2006. In the ~~first~~second quarter of ~~2006,~~2007, we ~~wrote-off $0.4~~incurred costs of $0.9 million to relocate office space in ~~fixed assets~~New York City. We also made investments in ~~connection with the modification of~~technology to support our ~~fixed income trading system.~~growth initiatives.

Communications- Communication expenses include costs for telecommunication and data communication, primarily consisting of ~~expense~~expenses for obtaining third-party market data information. For the three months ended ~~March 31,~~June 30, 2007, communication expenses were ~~$6.3~~$6.0 million, an increase of ~~16.3~~7.2 percent from the prior-year period. This increase was due to higher market data service expenses from obtaining expanded services and price increases.

Floor Brokerage and Clearance- For the three months ended ~~March 31,~~June 30, 2007, floor brokerage and clearance expenses were ~~$3.5~~$4.2 million, compared with ~~$2.7~~$3.4 million for the three months ended ~~March 31,~~June 30, 2006. This increase was a result of higher expenses associated with accessing electronic communication networks as we increased after market support of deal-related stocks. We anticipate our floor brokerage costs to increase modestly because we have outsourced our NYSE floor trading operations. Expenses from our NYSE floor trading operations have historically been included within compensation and benefits expenses, and will be included within floor brokerage and clearance expenses in future periods.

Marketing and Business Development- Marketing and business development expenses include travel and entertainment and promotional and advertising costs. In the ~~first~~second quarter of 2007, marketing and business development expenses ~~were $5.7~~increased to $6.4 million, compared with ~~$5.2~~$6.1 million in the ~~first~~second quarter of ~~2006, an increase of 9.7 percent. This~~2006. The increase was ~~driven by~~due to higher travel expenses and increased supply costs.

Outside Services- Outside services expenses include securities processing expenses, outsourced technology functions, outside legal fees and other professional fees. Outside services expenses increased to ~~$7.3~~$9.1 million in the ~~first~~second quarter of 2007, compared with ~~$6.3~~$6.8 million for the prior-year ~~period.~~period, an increase of 33.4 percent. This increase was due to ~~higher outside legal fees and increased trading system expense~~expenses related to ~~volume increases in our European business. We anticipate incurring additional expenses during 2007 associated with implementing~~the implementation of a new back-office system to support our capital markets ~~business.~~business and higher outside legal fees. We anticipate incurring additional expenses in the third quarter of 2007 related to the implementation of the new back-office system.

Cash Award Program- In connection with our spin-off from U.S. Bancorp in 2003, we established a cash award program pursuant to which we granted cash awards to a broad-based group of our employees. The award program was designed to aid in retention of employees and to compensate for the value of U.S. Bancorp stock options and restricted stock lost by our employees as a result of the spin-off. The cash awards are being expensed over a four-year period ending December 31, 2007. For the three months ended ~~March 31,~~June 30, 2007, cash awards expense decreased to $0.4 million, compared with ~~$1.3~~$0.9 million in the prior-year period. The sale of our PCS branch network resulted in either the forfeiture ~~and~~or accelerated vesting of approximately half of our cash awards in the prior year period and as a result, our ongoing cash award expense decreased. We anticipate incurring approximately ~~$1.1~~$0.9 million of cash award expense within continuing operations for the remainder of 2007.

Income Taxes- For the three months ended ~~March 31,~~June 30, 2007, our provision for income taxes from continuing operations was ~~$7.9~~$4.8 million, equating to an effective tax rate of 31.5 percent. For the three months ended June 30, 2006, income taxes from continuing operations were $4.2 million, equating to an effective tax rate of 34.8 percent. ~~For the three months ended March 31, 2006, income taxes from continuing operations were $10.0 million, equating to an~~The decreased effective tax rate was attributable to an increase in the ratio of ~~34.8 percent.~~municipal interest income, which is non-taxable, to total taxable income.

NET REVENUES FROM CONTINUING OPERATIONS (DETAIL)


	For the Three Months Ended							For the Three Months Ended
	March 31,				2007 vs.			June 30,					2007 vs.
(Dollars in thousands)	2007		2006		2006			2007		2006			2006
Net revenues:
Investment banking
Financing
Equities	$	40,710	$	32,787		24.2	%	$	40,801	$	26,967			51.3	%
Fixed income		20,026		16,453		21.7
Debt									25,247		20,272			24.5
Advisory services		24,876		22,591		10.1			11,706		17,934			(34.7	)

Total investment banking		85,612		71,831		19.2			77,754		65,173			19.3

Institutional sales and trading
Equities		31,110		32,161		(3.3	)		28,013		30,800			(9.0	)
Fixed income		19,133		20,173		(5.2	)		16,036		12,890			24.4

Total institutional sales and trading		50,243		52,334		(4.0	)		44,049		43,690			0.8

Other income		1,095		10,794		(89.9	)		773		(3,613	)		N/M


Total net revenues	$	136,950	$	134,959		1.5	%	$	122,576	$	105,250			16.5	%

For the three months ended ~~March 31,~~June 30, 2007, investment banking revenues increased ~~19.2~~19.3 percent to ~~$85.6~~$77.8 million, compared with ~~$71.8~~$65.2 million in the corresponding period in the prior year. Equity financing revenues increased ~~24.2~~51.3 percent to ~~$40.7~~$40.8 million in the ~~first~~second quarter of 2007, due to ~~an increase in convertible revenues resulting from~~the completion of a higher number of ~~completed transactions and increased~~public equity offerings with higher average revenue per transaction. ~~We completed six convertible financings during~~In the ~~first~~second quarter of 2007, we completed 34 equity financings, raising $4.5 billion in capital, compared with ~~two convertible~~25 equity financings, raising $3.2 billion in capital, in the prior-year period. ~~Equity~~Debt financing revenues also increased due to our London office, which completed four equity financings in the first quarter of 2007, compared with one equity financing in the prior-year period. Fixed income financings revenues in the ~~first~~second quarter of 2007 increased ~~21.7~~24.5 percent to ~~$20.0~~$25.2 million driven by increased ~~high-yield and structured products revenues. In addition,~~ public finance ~~revenues increased as we underwrote 94~~activity. We were the sole underwriter of 138 municipal issues with a par value of ~~$1.6~~$2.2 billion during the ~~first three months~~second quarter of 2007, compared with 90125 municipal issues with a par value of ~~$1.4~~$1.7 billion in the prior-year period. Advisory services revenues ~~increased 10.1~~decreased 34.7 percent to ~~$24.9~~$11.7 million in the ~~first~~second quarter of 2007, as ~~higher~~we completed fewer merger and acquisition transactions and average revenues per transaction ~~more than offset the decline in completed transactions.~~declined. We completed 87 mergers and acquisitions transactions ~~valued at $2.0 billion~~ during the ~~first~~second quarter of 2007, compared with ~~14 deals valued at $2.2 billion~~11 mergers and acquisitions transactions in the prior-year period.

For the three months ended ~~March 31,~~June 30, 2007, institutional sales and trading revenues ~~decreased 4.0 percent~~were $44.0 million or essentially flat to ~~$50.2 million, compared with $52.3 million for~~ the ~~three months ended March 31, 2006.~~prior-year period. Equity institutional sales and trading revenue decreased ~~3.3~~9.0 percent in the ~~first~~second quarter of 2007, to ~~$31.1~~$28.0 million due to lower ~~volumes and pressure by institutional clients to reduce commissions in our traditional equity~~volumes. Partially offsetting this decrease was incremental sales and trading ~~business.~~revenue from our European sales and trading operations. Fixed income institutional sales and trading revenues ~~decreased 5.2~~increased 24.4 percent to ~~$19.1~~$16.0 million in the ~~first three months~~second quarter of 2007 due primarily to ~~lower trading gains~~stronger high yield and ~~a decline in revenues related to taxable~~structured products ~~offset in part by increased net interest spreads.~~revenues.

Other income/loss includes gains and losses from investments in private equity and venture capital funds as well as other firm investments and management fees from our private capital business. In addition, other income/loss included interest expense from our subordinated debt prior to its repayment in August 2006. In the ~~first~~second quarter of 2007, other income totaled ~~$1.1~~$0.8 million, compared with ~~$10.8~~a loss of $3.6 million in ~~first~~the three months ended June 30, 2006. The fluctuation is a result of ~~2006. In~~two factors. First, in the ~~first~~third quarter of 2006, we ~~recorded~~repaid $180 million in subordinated debt, resulting in lower interest expense in the second quarter of 2007. Second, in the second quarter of 2006, we recognized a ~~$10.2 million gain related~~loss due to a decline in the market value of NYSE Group, Inc. restricted shares that we received from the sale of our ~~ownership of~~ two seats on the ~~NYSE, which were exchanged for cash and restricted shares of common stock of NYSE Group, Inc.~~NYSE.

DISCONTINUED OPERATIONS

Discontinued operations include the operating results of our PCS business and restructuring costs. The sale of the PCS branch network to UBS closed on August 11, 2006.

Our PCS retail brokerage business provided financial advice and a wide range of financial products and services to individual investors through a network of approximately 90 branch offices. Revenues were generated primarily through the receipt of commissions earned on equity and fixed income transactions and for distribution of mutual funds and annuities, fees earned on fee-based client accounts and net interest from customers’ margin loan balances.

In the ~~first~~second quarter of 2007, discontinued operations recorded a net loss of ~~$1.3~~$1.1 million ~~which~~that included ~~costs for additional PCS litigation-related expenses and occupancy charges that were higher than originally estimated. The loss also includes~~ costs related to decommissioning a ~~PCS-oriented back office system.~~retail-oriented back-office system, PCS litigation-related expenses and restructuring charges. We expect to incur additional costs in the ~~second and~~ third ~~quarters~~quarter of 2007 related to decommissioning ~~this~~the retail-oriented back-office system. In addition, we may incur discontinued operations expense or income related to changes in litigation reserve estimates for retained PCS litigation matters and for changes in estimates to occupancy and severance restructuring charges. See Note 4 to our unaudited consolidated financial statements for further discussion of our discontinued operations.

FINANCIAL SUMMARY FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

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


									Results of Operations
									as a Percentage of Net
	Results of Operations								Revenues
	For the Six Months Ended								For the Six Months Ended
	June 30,								June 30,
						2007
(Dollars in thousands)	2007			2006		v2006			2007			2006

Revenues:
Investment banking	$	159,330		$	134,085		18.8	%		61.4	%		55.8	%
Institutional brokerage		79,102			82,818		(4.5	)		30.5			34.5
Interest		31,226			28,206		10.7			12.0			11.7
Other income		987			12,396		(92.0	)		0.4			5.2


Total revenues		270,645			257,505		5.1			104.3			107.2

Interest expense		11,119			17,296		(35.7	)		4.3			7.2


Net revenues		259,526			240,209		8.0			100.0			100.0


Non-interest expenses:
Compensation and benefits		151,823			133,577		13.7			58.5			55.6
Occupancy and equipment		16,571			14,827		11.8			6.4			6.2
Communications		12,256			10,976		11.7			4.7			4.6
Floor brokerage and clearance		7,691			6,048		27.2			3.0			2.5
Marketing and business development		12,061			11,301		6.7			4.7			4.7
Outside services		16,439			13,128		25.2			6.3			5.5
Cash award program		746			2,161		(65.5	)		0.3			0.9
Other operating expenses		4,204			7,347		(42.8	)		1.6			3.0


Total non-interest expenses		221,791			199,365		11.2			85.5			83.0


Income from continuing operations before tax expense		37,735			40,844		(7.6	)		14.5			17.0

Income tax expense		12,636			14,209		(11.1	)		4.8			5.9


Net income from continuing operations		25,099			26,635		(5.8	)		9.7			11.1


Discontinued operations:
Income/(loss) from discontinued operations, net of tax		(2,355	)		1,359		N/M			(0.9	)		0.6


Net income	$	22,744		$	27,994		(18.8	)%		8.8	%		11.7	%


N/M — not Meaningful

Except as discussed below, the description of non-interest expenses from continuing operations, net revenues from continuing operations and discontinued operations as well as the underlying reasons for variances to prior year are substantially the same as the comparative quarterly discussion, and the statements in the foregoing discussion also apply.

For the six months ended June 30, 2007, net income, which includes both continuing and discontinued operations, totaled $22.7 million, an 18.8 percent decrease from the year-ago period. Net revenues from continuing operations increased to $259.5 million for the six months ended June 30, 2007, an increase of 8.0 percent from the corresponding period in the prior year. Investment banking revenues increased 18.8 percent to $159.3 million for the six months ended June 30, 2007, compared with revenues of $134.1 million in the prior-year period. This increase was driven by higher equity and public finance underwriting activity. Institutional brokerage revenues decreased 4.5 percent over the prior-year period to $79.1 million as a result of decreased equity commissions, partially offset by increased revenues related to our high-yield and structured products. Net interest income for the first six months of 2007 increased to $20.1 million, up from $10.9 million for the first six months of 2006. This increase was primarily driven by significantly reduced borrowing needs following the sale of our PCS branch network in August 2006. Other income for the six months ended June 30, 2007 was $1.0 million, compared with $12.4 million for the corresponding period in the prior year. In the first six months of 2006, we recorded a $9.1 million gain related to our ownership of two seats on the NYSE, which were exchanged for cash and restricted shares of the NYSE Group, Inc. Non-interest expenses increased to $221.8 million for the six months ended June 30, 2007, from $199.4 million for the six months ended June 30, 2006. This increase was attributable to increased variable compensation and benefits expenses due to higher investment banking revenues and increased outside services expense due to cost related to implementation of a new back-office system to support our capital markets business.

NON-INTEREST EXPENSES FROM CONTINUING OPERATIONS

Outside Services –Outside services expenses increased 25.2 percent to $16.4 million for the six months ended June 30, 2007, compared with $13.1 million for year-ago period. This increase was due to higher outside legal fees and increased trading system expense related to volume increases in our European business. In addition, we incurred costs associated with implementing a new back-office system to support our capital markets business. We anticipate incurring additional implementation costs in the third quarter of 2007.

NET REVENUES FROM CONTINUING OPERATIONS (DETAIL)


	For the Six Months Ended
	June 30,				2007 vs.
(Dollars in thousands)	2007		2006		2006

Net revenues:
Investment banking
Financing
Equities	$	81,511	$	59,754		36.4	%
Debt		45,273		36,725		23.3
Advisory services		36,582		40,525		(9.7	)

Total investment banking		163,366		137,004		19.2

Institutional sales and trading
Equities		59,123		62,961		(6.1	)
Fixed income		35,169		33,063		6.4

Total institutional sales and trading		94,292		96,024		(1.8	)

Other income		1,868		7,181		(74.0	)


Total net revenues	$	259,526	$	240,209		8.0	%

For the first six months of 2007, investment banking revenues increased 19.2 percent to $163.4 million, compared with $137.0 million in the first six months of 2006. Equity financing revenues increased 36.4 percent to $81.5 million for the six months ended June 30, 2007. This increase was due to a higher number of completed transactions and increased revenue per transaction. During the six months ended June 30, 2007, we completed 59 equity financings, raising $8.1 billion in capital, compared with 54 equity offerings, raising $7.5 billion in capital, during the six months ended June 30, 2006. Debt financing revenues for the six months ended June 30, 2007 increased 23.3 percent to $45.3 million, compared with the year-ago period. This increase resulted from increased corporate debt and public finance revenues. We were the sole underwriter of 232 public finance issues with a par value of $3.8 billion in the first six months of 2007, compared with 215 public finance issues with a par valued of $3.1 billion in the prior-year period. Advisory services revenues decreased 9.7 percent to $36.6 million for the six months ended June 30, 2007 due to a decline in U.S. merger and acquisition revenues. We completed 16 U.S. mergers and acquisitions transactions for the first six months of 2007, compared with 23 deals for the first six months of 2006.

For the six months ended June 30, 2007, institutional sales and trading revenues were down slightly compared to the prior-year period. Equity institutional sales and trading revenue decreased 6.1 percent for the six months ended June 30, 2007, to $59.1 million. This decline is due to lower volumes and pressure by institutional clients to reduce commissions in our traditional equity sales and trading business. Partially offsetting this decrease is incremental sales and trading revenue from European sales and trading operations. Fixed income institutional sales and trading revenues increased 6.4 percent to $35.2 million for the six months ended June 30, 2007, compared with $33.1 million for the corresponding period in 2006. We were able to improve year-over-year performance through increased high-yield and structured product revenues.

DISCONTINUED OPERATIONS

In the second half of 2007, discontinued operations recorded a net loss of $2.4 million. The underlying reasons for costs recorded to discontinued operations for the six months ended June 30, 2007 are substantially the same as those described in the discussion for the three months ended June 30, 2007.

Recent Accounting Pronouncements

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

Critical Accounting Policies

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

For a full description of our significant accounting policies, see Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year-ended December 31, 2006. We believe that of our significant accounting policies, the following are our critical accounting policies.

VALUATION OF FINANCIAL INSTRUMENTS

Trading securities owned, trading securities owned and pledged as collateral, and trading securities sold, but not yet purchased, on our consolidated statements of financial condition consist of financial instruments recorded at fair value. Unrealized gains and losses related to these financial instruments are reflected on our consolidated statements of operations.

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

A substantial percentage of the fair value of our trading securities owned, trading securities owned and pledged as collateral, and trading securities sold, but not yet purchased, are based on observable market prices, observable market parameters, or derived from broker or dealer prices. The availability of observable market prices and pricing parameters can vary from product to product. Where available, observable market prices and pricing or market parameters in a product may be used to derive a price without requiring significant judgment. In certain markets, observable market prices or market parameters are not available for all products, and fair value is determined using techniques appropriate for each particular product. These techniques involve some degree of judgment.

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

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure certain financial assets and liabilities and other eligible items at fair value, which are not otherwise currently allowed to be measured at fair value. Under SFAS 159, the decision to measure items at fair value is made at specified election dates on an irrevocable instrument-by-instrument basis. Entities electing the fair value option would be required to recognize changes in fair value in earnings and to expense upfront costs and fees associated with the item for which the fair value option is elected. Entities electing the fair value option are required to distinguish on the face of the statement of financial position, the fair value of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. If elected, SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007, with earlier adoption permitted provided that the entity also early adopts all of the requirements of SFAS 157. We are currently evaluating the impact of SFAS 159 on our results of operations and financial condition.

Under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” we are required to perform impairment tests of our goodwill and intangible assets annually and more frequently in certain circumstances. We have elected to test for goodwill impairment in the fourth quarter of each calendar year. The goodwill impairment test is a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of our operating segment based on a discounted cash flow model using revenue and profit forecasts and comparing those estimated fair values with carrying values, which includes the allocated goodwill. If the estimated fair value is less than the carrying values, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires us to allocate the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying value. We completed our last goodwill impairment test as of October 31, 2006, and no impairment was identified.

As noted above, the initial recognition of goodwill and other intangible assets and the subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired assets or businesses will perform in the future using valuation methods including discounted cash flow analysis. Events and factors that may significantly affect the estimates include, among others, competitive forces and changes in revenue growth trends, cost structures, technology, discount rates and market conditions. Additionally, estimated cash flows may extend beyond ten years and, by their nature, are difficult to determine over an extended time period. To assess the reasonableness of cash flow estimates and validate assumptions used in our estimates, we review historical performance of the underlying assets or similar assets.

In assessing the fair value of our operating segment, the volatile nature of the securities markets and our industry requires us to consider the business and market cycle and assess the stage of the cycle in estimating the timing and extent of future cash flows. In addition to estimating the fair value of an operating segment based on discounted cash flows, we consider other information to validate the reasonableness of our valuations, including public market comparables and multiples of recent mergers and acquisitions of similar businesses. Valuation multiples may be based on revenues, price-to-earnings and tangible capital ratios of comparable public companies and business segments. These multiples may be adjusted to consider competitive differences including size, operating leverage and other factors. If during any future period it is determined that an impairment exists, the results of operations in that period could be materially adversely affected.

STOCK-BASED COMPENSATION

As part of our compensation to employees and directors, we use stock-based compensation, consisting of stock options and restricted stock. Prior to January 1, 2006, we elected to account for stock-based employee compensation on a prospective basis under the fair value method, as prescribed by Statement of Financial Accounting Standards No. 123, “Accounting and Disclosure of Stock-Based Compensation,” and as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” The fair value method required stock based compensation to be expensed in the consolidated statement of operations at their fair value.

Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment,” (“SFAS 123(R)”), using the modified prospective transition method. SFAS 123(R) requires all stock-based compensation to be expensed in the consolidated statement of operations at fair value, net of estimated forfeitures. Because we had historically expensed all equity awards based on the fair value method, net of estimated forfeitures, SFAS 123(R) did not have a material effect on our measurement or recognition methods for stock-based compensation.

Compensation paid to employees in the form of stock options or restricted stock is generally amortized on a straight-line basis over the required service period of the award, which is typically three years, and is included in our results of operations as compensation expense, net of estimated forfeitures. The majority of our restricted stock grants provide for continued vesting after termination, provided the employee does not violate certain post-termination restrictions as set forth in the award agreements. We consider the required service period to be the greater of the vesting period or the post-termination restricted period. We believe that our non-competition restrictions meet the SFAS 123(R) definition of a substantive service requirement.

Stock-based compensation granted to our non-employee directors is in the form of common shares of Piper Jaffray Companies stock and/or stock options. Stock-based compensation paid to directors is immediately vested (i.e., there is no continuing service requirement) and is included in our results of operations as outside services expense as of the date of grant.

In determining the estimated fair value of stock options, we use the Black-Scholes option-pricing model. This model requires management to exercise judgment with respect to certain assumptions, including the expected dividend yield, the expected volatility, and the expected life of the options. The expected dividend yield assumption is based on the assumed dividend payout over the expected life of the option. The expected volatility assumption for grants subsequent to December 31, 2006 is based on a combination of our historical data and industry comparisons, as we have limited information on which to base our volatility estimates because we have only been a public company since the beginning of 2004. The expected volatility assumption for grants prior to December 31, 2006 were based solely on industry comparisons. The expected life of options assumption is based on the average of the following two factors: industry comparisons and the guidance provided by the SEC in Staff Accounting Bulletin No. 107 (“SAB 107”). SAB 107 allowed the use of an “acceptable” methodology under which we can take the midpoint of the vesting date and the full contractual term. We believe our approach for calculating an expected life to be an appropriate method in light of the ~~lack of~~limited historical data regarding employee exercise behavior or employee post-termination behavior. Additional information regarding assumptions used in the Black-Scholes pricing model can be found in Note 1516 to our unaudited consolidated financial statements.

CONTINGENCIES

We are involved in various pending and potential legal proceedings related to our business, including litigation, arbitration and regulatory proceedings. Some of these matters involve claims for substantial amounts, including claims for punitive and other special damages. The number of these legal proceedings has increased in recent years. We have, after consultation with outside legal counsel and consideration of facts currently known by management, recorded estimated losses in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies,” to the extent that claims are probable of loss and the amount of the loss can be reasonably estimated. The determination of these reserve amounts requires significant judgment on the part of management. In making these determinations, we consider many factors, including, but not limited to, the loss and damages sought by the plaintiff or claimant, the basis and validity of the claim, the likelihood of a successful defense against the claim, and the potential for, and magnitude of, damages or settlements from such pending and potential litigation and arbitration proceedings, and fines and penalties or orders from regulatory agencies.

Under the terms of our separation and distribution agreement with U.S. Bancorp and ancillary agreements entered into in connection with the spin-off in December 2003, we generally are responsible for all liabilities relating to our business, including those liabilities relating to our business while it was operated as a segment of U.S. Bancorp under the supervision of its management and board of directors and while our employees were employees of U.S. Bancorp servicing our business. Similarly, U.S. Bancorp generally is responsible for all liabilities relating to the businesses U.S. Bancorp retained. However, in addition to our established reserves, U.S. Bancorp agreed to indemnify us in an amount up to $17.5 million for losses that result from certain matters, primarily third-party claims relating to research analyst independence. U.S. Bancorp has the right to terminate this indemnification obligation in the event of a change in control of our company. As of ~~March 31,~~June 30, 2007, approximately $13.2 million of the indemnification remained available.

As part of our asset purchase agreement with UBS, ~~on August 14, 2006,~~ for the sale of our PCS branch network that closed in August 2006, UBS agreed to assume certain liabilities of the PCS business, including certain liabilities and obligations arising from litigation, arbitration, customer complaints and other claims related to the PCS business. In certain cases we have agreed to indemnify UBS for litigation matters after UBS has incurred costs of $6.0 million related to these matters. In addition, we have retained liabilities arising from regulatory matters and certain litigation relating to the PCS business prior to the sale.

Subject to the foregoing, we believe, based on our current knowledge, after appropriate consultation with outside legal counsel and after taking into account our established reserves, the U.S. Bancorp indemnity agreement and the assumption by UBS of certain liabilities of the PCS business, that pending litigation, arbitration and regulatory proceedings will be resolved with no material adverse effect on our financial condition. However, if, during any period, a potential adverse contingency should become probable or resolved for an amount in excess of the established reserves and indemnification and assumption obligations, the results of operations in that period could be materially adversely affected.

Liquidity and Capital Resources

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

We have a liquid balance sheet. Most of our assets consist of cash and assets readily convertible into cash. Securities inventories are stated at fair value and are generally readily marketable. Receivables and payables with customers and brokers and dealers usually settle within a few days. As part of our liquidity strategy, we emphasize diversification of funding sources. We utilize a mix of funding sources and, to the extent possible, maximize our lower-cost financing alternatives. Our assets are financed by our cash flows from operations, equity capital, bank lines of credit and proceeds from securities sold under agreements to repurchase. The fluctuations in cash flows from financing activities are directly related to daily operating activities from our various businesses.

We currently do not pay cash dividends on our common stock.

In connection with the sale of our PCS branch network on August 14, 2006, our board of directors authorized the repurchase of up to $180 million in common shares through December 31, 2007. We executed an accelerated share repurchase under this authorization in the amount of $100 million during 2006. During the first quarter of 2007, we repurchased 158,687 shares of outstanding common stock for an aggregate purchase price of $10.0 million under this authorization. We have $70.0 million remaining under authorization.

On April 13, 2007, we announced the signing of a definitive agreement to acquire FAMCO, a St. Louis-based investment management firm. The purchase price under the agreement is approximately $66.0 million in cash upon closing and future cash consideration based on financial performance of FAMCO in each of the 2008, 2009 and 2010 calendar years. We currently expect the transaction to close late in the third quarter of 2007. We anticipate funding the purchase of FAMCO through existing funding sources.

On July 3, 2007, we entered into a definitive agreement to purchase all equity interests in Goldbond, an investment bank and financial services company based in Hong Kong. The purchase price under the agreement is $51.3 million, all of which will be paid in cash at the time of closing except $4.1 million to be paid in our restricted stock. The purchase price is subject to adjustment based on an audit of Goldbond’s consolidated net asset value as of March 31, 2007. We currently expect the transaction to close late in the third quarter of 2007. We anticipate funding the purchase of Goldbond through existing funding sources.

In connection with the sale of our PCS branch network on August 14, 2006, our board of directors authorized the repurchase of up to $180 million in common shares through December 31, 2007. We executed an accelerated share repurchase under this authorization in the amount of $100 million during 2006. In the first quarter of 2007, we repurchased $10 million in common shares. During the second quarter of 2007, we did not repurchase any shares of outstanding common stock under this authorization due to the pending Goldbond announcement. We have $70.0 million remaining under authorization.

FUNDING SOURCES

We have available discretionary short-term financing on both a secured and unsecured basis. Secured financing is obtained through the use of repurchase agreements and secured bank loans. Bank loans and repurchase agreements are typically collateralized by the firm’s securities inventory. Short-term funding is generally obtained at rates based upon the federal funds rate.

To finance customer receivables we utilized an average of ~~$12~~$5 million in short-term bank loans and an average of $1 million in securities lending arrangements in the ~~first~~second quarter of 2007. This compares to an average of ~~$16~~$35 million in short-term bank loans and an average of ~~$235~~$224 million in securities lending arrangements in the ~~first~~second quarter of 2006. The reduction in customer receivable financing from the ~~first~~second quarter of 2006 to the ~~first~~second quarter of 2007 iswas due to the sale of the PCS branch network and the related customer margin loans, which were financed in large part by securities lending ~~arrangements, to UBS.~~arrangements. Average net repurchase agreements (excluding economic hedges) of ~~$105~~$113 million and ~~$116~~$120 million in the ~~first~~second quarter of 2007 and 2006, respectively, were primarily used to finance inventory. Growth in our securities inventory is generally financed through repurchase agreements. Bank financing supplements ~~these sources~~repurchase agreement financing as necessary. On ~~March 31,~~June 30, 2007, we had no$33 million in outstanding short-term bank financing.

As of ~~March 31,~~June 30, 2007, we had uncommitted credit agreements with banks totaling $675 million, comprised of $555 million in discretionary secured lines and $120 million in discretionary unsecured lines. We have been able to obtain necessary short-term borrowings in the past and believe we will continue to be able to do so in the future. We also have established arrangements to obtain financing using as collateral our securities held by our clearing bank or by another broker dealer at the end of each business day.

CONTRACTUAL OBLIGATIONS

Our contractual obligations have not materially changed from those reported in our Annual Report to Shareholders on Form 10-K for the year ended December 31, 2006.

CAPITAL REQUIREMENTS

As a registered broker dealer and member firm of the NYSE, our broker dealer subsidiary is subject to the uniform net capital rule of the SEC and the net capital rule of the NYSE. We have elected to use the alternative method permitted by the uniform net capital rule, which requires that we maintain minimum net capital of the greater of $1.0 million or 2 percent of aggregate debit balances arising from customer transactions, as this is defined in the rule. The NYSE may prohibit a member firm from expanding its business or paying dividends if resulting net capital would be less than 5 percent of aggregate debit balances. Advances to affiliates, repayment of subordinated liabilities, dividend payments and other equity withdrawals are subject to certain notification and other provisions of the uniform net capital rule and the net capital rule of the NYSE. We expect that these provisions will not impact our ability to meet current and future obligations. In addition, we are subject to certain notification requirements related to withdrawals of excess net capital from our broker dealer subsidiary. Piper Jaffray Ltd., our registered United Kingdom broker dealer subsidiary, is subject to the capital requirements of the U.K. Financial Services Authority.

Off-Balance Sheet Arrangements

We enter into various types of off-balance sheet arrangements in the ordinary course of business. We hold retained interests in non-consolidated entities, incur obligations to commit capital to non-consolidated entities, enter into derivative transactions, enter into non-derivative guarantees, commit to short-term “bridge loan” financing for our clients and enter into other off-balance sheet arrangements.

We enter into arrangements with special-purpose entities (“SPEs”), also known as variable interest entities. SPEs are corporations, trusts or partnerships that are established for a limited purpose. SPEs, by their nature, generally are not controlled by their equity owners, as the establishing documents govern all material decisions. Our primary involvement with SPEs relates to securitization transactions related to our tender option bond program in which highly rated fixed rate municipal bonds are sold to an SPE. We follow Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - - a Replacement of FASB Statement No. 125,” (“SFAS 140”), to account for securitizations and other transfers of financial assets. Therefore, we derecognize financial assets transferred in securitizations provided that such transfer meets all of the SFAS 140 criteria. See Note 6, “Securitizations,” in the notes to our unaudited consolidated financial statements for a complete discussion of our securitization activities.

We have investments in various entities, typically partnerships or limited liability companies, established for the purpose of investing in emerging growth companies or other private or public equity. We commit capital or act as the managing partner or member of these entities. These entities are reviewed under variable interest entity and voting interest entity standards. If we determine that an entity should not be consolidated, we record these investments on the equity method of accounting. The lower of cost or market method of accounting is applied to investments where we do not have the ability to exercise significant influence over the operations of an entity. For a complete discussion of our activities related to these types of partnerships, see Note 7, “Variable Interest Entities,” to our consolidated financial statements included in our Annual Report to Shareholders on Form 10-K for the year ended December 31, 2006.

We enter into derivative contracts in a principal capacity as a dealer to satisfy the financial needs of clients. We also use derivative products to manage the interest rate and market value risks associated with our security positions. For a complete discussion of our activities related to derivative products, see Note 5, “Derivatives,” in the notes to our unaudited consolidated financial statements.

In the third quarter of 2006, we entered into a strategic relationship with CIT Group (“CIT”) to provide clients with debt solutions, including senior secured and unsecured debt, second lien facilities, subordinated financings and mezzanine loans. Our strategic relationship with CIT offers us the possibility of making commitments of capital alongside CIT in connection with offering debt solutions to our clients as opportunities arise.

Our other types of off-balance-sheet arrangements include contractual commitments and guarantees. For a discussion of our activities related to these off-balance sheet arrangements, see Note 15, “Contingencies, Commitments and Guarantees,” to our consolidated financial statements included in our Annual Report to Shareholders on Form 10-K for the year ended December 31, 2006.

Enterprise Risk Management

Risk is an inherent part of our business. In the course of conducting business operations, we are exposed to a variety of risks. Market risk, credit risk, liquidity risk, operational risk, and legal, regulatory and compliance risk are the principal risks we face in operating our business. We seek to identify, assess and monitor each risk in accordance with defined policies and procedures. The extent to which we properly identify and effectively manage each of these risks is critical to our financial condition and profitability. For a full description of our risk management framework, see Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year-ended December 31, 2006.

VALUE-AT-RISK

Value-at-Risk (“VaR”) is the potential loss in value of our trading positions due to adverse market movements over a defined time horizon with a specified confidence level. We ~~perform a daily historical simulated VaR analysis on substantially all of our trading positions, including fixed income, equities, convertible bonds and all associated economic hedges. We~~ use a VaR model because it provides a common metric for assessing market risk across business lines and products. The modeling of the market risk characteristics of our trading positions involves a number of assumptions and approximations. While we believe that these assumptions and approximations are reasonable, different assumptions and approximations could produce materially different VaR estimates.

We ~~report an~~perform a daily historical simulated VaR analysis on substantially all of our trading positions, including fixed income, equities, convertible bonds and all associated economic hedges. This analysis includes empirical VaR ~~based on net realized trading revenue volatility. Empirical~~and simulated VaR ~~presents an inclusive measure of our historical risk exposure,~~ as it incorporates virtually all trading activities and types of risk including market, credit, liquidity and operational risk. The exhibit below presents VaR using the past 250 days of net trading revenue.described below. Consistent with industry practice, when calculating VaR we use a 95 percent confidence level and a one-day time horizon for calculating both empirical and simulated VaR. This means, that over time, there is a 1 in 20 chance that daily trading net revenues will fall below the expected daily trading net revenues by an amount at least as large as the reported VaR.

~~The following table quantifies the empirical VaR for each component of market risk for the periods presented:~~

At March 31, At December 31,
(Dollars in thousands) 2007 2006

Interest Rate Risk $ 239 $ 281
Equity Price Risk 286 261

Aggregate Undiversified Risk 525 542
Diversification Benefit (107 ) (112 )

Aggregate Diversified Value-at-Risk $ 418 $ 430

The table below illustrates the daily high, low and average value-at-risk calculated for each component of market risk during the three months ended March 31, 2007 and the year ended December 31, 2006, respectively.

For the Three Months Ended March 31, 2007
(Dollars in thousands) High Low Average

Interest Rate Risk $ 279 $ 234 $ 263
Equity Price Risk 286 257 272
Aggregate Undiversified Risk 562 519 536
Aggregate Diversified Value-at-Risk 439 411 422

For the Year Ended December 31, 2006
(Dollars in thousands) High Low Average

Interest Rate Risk $ 355 $ 262 $ 308
Equity Price Risk 346 254 290
Aggregate Undiversified Risk 679 521 598
Aggregate Diversified Value-at-Risk 541 404 474

We use model-based VaR simulations for managing risk on a daily basis. Model-based VaR derived from simulation has inherent limitations, including reliance on historical data to predict future market risk and the parameters established in creating the models that limit quantitative risk information outputs. There can be no assurance that actual losses occurring on any given day arising from changes in market conditions will not exceed the VaR amounts shown below or that such losses will not occur more than once in a ~~20- day~~20-day trading period. ~~In addition, different VaR methodologies and distribution assumptions could produce materially different VaR numbers.~~ Changes in VaR between reporting periods are generally due to changes in levels of risk exposure, volatilities and/or correlations among asset classes. We anticipate our aggregate VaR may increase in future periods as we commit more of our own capital to proprietary investments.

We report an empirical VaR based on net realized trading revenue volatility. Empirical VaR presents an inclusive measure of our historical risk exposure, as it incorporates virtually all trading activities and types of risk including market, credit, liquidity and operational risk. The exhibit below presents VaR using the past 250 days of net trading revenue.

The following table quantifies the ~~model-based~~empirical VaR ~~simulated~~ for each component of market risk for the periods presented:


	At March 31,			At December 31,			At June 30,			At December 31,
(Dollars in thousands)	2007			2006			2007			2006

Interest Rate Risk	$	679		$	574		$	470		$	281
Equity Price Risk		171			177			293			261

Aggregate Undiversified Risk		850			751			763			542
Diversification Benefit		(159	)		(150	)		(219	)		(112	)

Aggregate Diversified Value-at-Risk	$	691		$	601		$	544		$	430

The table below illustrates the daily high, low and average empirical VaR calculated for each component of market risk during the three months ended June 30, 2007 and the year ended December 31, 2006, respectively.


For the Six Months Ended June 30, 2007
*(Dollars in thousands)*	High		Low		Average
Interest Rate Risk	$	470	$	354	$	388
Equity Price Risk		293		257		279
Aggregate Undiversified Risk		763		623		667
Aggregate Diversified Value-at-Risk		544		411		446


For the Year Ended December 31, 2006
*(Dollars in thousands)*	High		Low		Average
Interest Rate Risk	$	355	$	262	$	308
Equity Price Risk		346		254		290
Aggregate Undiversified Risk		679		521		598
Aggregate Diversified Value-at-Risk		541		404		474

We use simulated VaR for managing risk on a daily basis. Model-based This involves constructing a distribution of hypothetical daily changes in the value of our positions based on market risk factors embedded in the current portfolio and historical observations of daily changes in these factors. Simulated VaR derived from models has inherent limitations, including reliance on historical data to predict future market risk and the parameters established in creating the models that limit quantitative risk information outputs. Different VaR methodologies and distribution assumptions used in the models could produce materially different VaR numbers.

The following table quantifies the simulated VaR for each component of market risk for the periods presented:


	At June 30,			At December 31,
*(Dollars in thousands)*	2007			2006
Interest Rate Risk	$	588		$	574
Equity Price Risk		421			177

Aggregate Undiversified Risk		1,009			751
Diversification Benefit		(286	)		(150	)

Aggregate Diversified Value-at-Risk	$	723		$	601

Supplementary measures ~~employed by Piper Jaffray~~used to monitor and manage market risk exposure include ~~the following:~~ net market position, duration exposure, option sensitivities, and inventory turnover. All metrics are aggregated by asset concentration and are used for monitoring limits and exception approvals.

We anticipate our aggregate VaR may increase in future periods as we commit more of our own capital to proprietary investments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding disclosure. During the ~~first~~second quarter of our fiscal year ended December 31, 2007, there was no change in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~The following supplements and amends our discussion set forth under Item 3 “Legal~~There are no material changes from the legal proceedings previously disclosed in Part I, Item��3—“Legal Proceedings” inof our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2006.~~

~~Initial Public Offering Litigation~~

~~On December 5,~~ 2006 ~~the U.S. Court~~and Part II, Item 1—“Legal Proceedings” of ~~Appeals~~our Quarterly Report on Form 10-Q for the Second Circuit issued its decision in re Initial Public Offering Securities Litigation, No 05-3349-CV (Dec. 5, 2006) vacating the class certifications and remanding for further proceedings. Plaintiffs petitioned the Second Circuit for rehearing and rehearing en banc of its decision, and the Second Circuit denied the petition for rehearing on April 6,quarter ended March 31, 2007.

ITEM 1A. RISK FACTORS

The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the SEC, as updated in our subsequent reports on Form 10-Q filed with the SEC. These risk factors describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

The following information updates the risk factors set forth in our Annual Report on Form 10-K.

There are risks associated with the pending acquisition of ~~FAMCO.~~Goldbond.

We announced the ~~signing~~acquisition of ~~a definitive agreement to acquire Fiduciary Asset Management LLC~~Goldbond Capital Holdings Limited (“~~FAMCO”~~Goldbond”), ~~a St. Louis-based~~an investment ~~management firm, on April 13, 2007.~~bank and financial services company based in Hong Kong. There are certain risks associated with this acquisition, including the following: the transaction may not be completed or completed within the expected timeframe, costs or difficulties relating to the integration of the ~~FAMCO~~Goldbond and Piper Jaffray businesses may be greater than expected and may adversely affect our results of operations and financial condition, ~~and~~ the expected benefits of the ~~FAMCO~~Goldbond acquisition ~~and entering the asset management business, including increased profitability and shareholder returns,~~ may take longer than anticipated to achieve and may not be achieved in their entirety or at ~~all.~~all, and the proposed transaction would expand our international operations, which are subject to unique risks such as the risk of non-compliance with foreign laws and regulations and economic and political conditions in the countries where we operate.

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

The table below sets forth the information with respect to purchases made by or on behalf of Piper Jaffray Companies or any ~~��affiliated~~“affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the quarter ended ~~March 31,~~June 30, 2007.

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

Total Number of
Shares Purchased as Approximate Dollar Value
Total Number Part of Publicly of Shares that May Yet Be
of Shares Average Price Paid Announced Plans or Purchased Under the Plans
Period Purchased per Share Programs or Programs(1)
Month #1
(January 1, 2007 to January 31, 2007) 2,302 (2) $ 71.51 0
Month #2
(February 1, 2007 to February 28, 2007) 126,390 (3) $ 67.04 25,250
Month #3
(March 1, 2007 to March 31, 2007) 133,437 (4) $ 62.19 133,437

Total 262,129 $ 64.61 158,687 $70.0 million


						Total Number of
						Shares Purchased as		Approximate Dollar Value
	Total Number					Part of Publicly		of Shares that May Yet Be
	of Shares			Average Price Paid		Announced Plans or		Purchased Under the Plans
Period	Purchased			per Share		Programs		or Programs(1)
Month #1 (April 1, 2007 to April 30, 2007)		3,409	(2)	$	63.17		0
Month #2 (May 1, 2007 to May 31, 2007)		3,420	(2)	$	63.51		0
Month #3 (June 1, 2007 to June 30, 2007)		2,435	(2)	$	61.02		0

Total		9,264		$	62.73		0	$70.0 million


(1)		On August 14, 2006 we announced that our board of directors had authorized the repurchase of up to $180 million of common shares over a period commencing with the closing of the sale of our PCS branch network to UBS and ending on December 31, 2007. We have $70 million of repurchase authorization remaining, and we expect to conduct open market share repurchases under this authorization through December 31, 2007.

(2)		Consists of shares of common stock withheld from recipients of restricted stock to pay taxes upon the vesting of the restricted stock.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


~~(3)~~(a)		~~Consists~~The Company’s 2007 annual meeting of ~~25,250~~shareholders was held on May 2, 2007. The holders of 16,035,338 shares of common stock, repurchased on the open market pursuant to a 10b5-1 plan established with an independent agent at an average price per share of $67.39, and 101,140 shares of common stock from recipients of restricted stock to pay taxes upon the vesting84 percent of the ~~restricted stock~~outstanding shares entitled to vote as of the record date, were represented at ~~an average price per share of $66.95.~~the meeting in person or by proxy.


~~(4)~~(c)		~~Consists~~At the annual meeting, Andrew S. Duff, Samuel L. Kaplan and Frank L. Sims were elected as Class I directors to serve three-year terms expiring at the annual meeting of ~~shares~~shareholders in 2010. The following table shows the vote totals for each of ~~common stock repurchased on the open market pursuant to a 10b5-1 plan established with an independent agent.~~these individuals:


Name	Votes For		Authority Withheld
Andrew S. Duff		15,556,164		479,175
Samuel L. Kaplan		14,921,877		1,113,462
Frank L. Sims		15,790,228		245,111

At the annual meeting, our shareholders also ratified the selection of Ernst & Young LLP as the Company’s independent auditors for the year ending December 31, 2007, and approved the amendment and restatement of the Company’s Amended and Restated Certificate of Incorporation to provide for the declassification of the Board of Directors. The following table indicates the specific voting results for each of these items:


							Broker
Proposal	Votes For		Votes Against		Abstentions		Non-Votes
Ratification of the selection of Ernst & Young LLP as the independent auditor for the year ended December 31, 2007.		15,909,508		105,650		20,180		0

Approval of the amendment and restatement of the Amended and Restated Certificate of Incorporation to provide for the declassification of our Board of Directors		15,767,400		214,338		53,598		0

ITEM 6. EXHIBITS

Exhibit

Method of

Number

Description

Filing

Description

Filing

2.1

Agreement of Purchase and Sale dated April 12, 2007 among Piper Jaffray Companies, Piper Jaffray Newco Inc., WG CAR, LLC, Charles D. Walbrandt, Joseph E. Gallagher, Jr., Wiley D. Angell, James J. Cunnane, Jr. and Mohammed Riad.

)

Equity Purchase Agreement, dated July 3, 2007, among Piper Jaffray Companies, all owners of the equity interests in Goldbond Capital Holdings Limited (“Sellers”), Ko Po Ming, and certain individuals and entities who are owners of certain Sellers

)

10.1

Piper Jaffray Companies Deferred Compensation Plan for Non-Employee Directors (As Amended and Restated Effective April 1, 2007).

Filed herewith

3.1

Amended and Restated Certificate of Incorporation

Filed herewith

3.2

Amended and Restated Bylaws

Filed herewith

31.1

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

Filed herewith

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

Filed herewith

31.2

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

Filed herewith

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

Filed herewith

32.1

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

Filed herewith

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

Filed herewith

Exhibit Index

Exhibit

Method of

Number

Description

Filing

Description

Filing

2.1

)

10.1

Piper Jaffray Companies Deferred Compensation Plan for Non-Employee Directors (As Amended and Restated Effective April 1, 2007).

Filed herewith

3.1

Amended and Restated Certificate of Incorporation

Filed herewith

3.2

Amended and Restated Bylaws

Filed herewith

31.1

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

Filed herewith

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

Filed herewith

31.2

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

Filed herewith

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

Filed herewith

32.1

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

Filed herewith

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

Filed herewith


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of ~~March 31,~~June 30, 2007 and December 31, 2006
Consolidated Statements of Operations for the three months and six months ended ~~March 31,~~June 30, 2007 and ~~March 31,~~June 30, 2006
Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2007 and ~~March 31,~~June 30, 2006
Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits
Signatures
Exhibit Index
~~Deferred Compensation Plan for Non-Employee Directors~~Amended and Restated Certificate of Incorporation
Amended and Restated Bylaws
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Section 906 ~~Certifications~~Certification


	March 31,		December 31,		June 30,		December 31,
(Amounts in thousands)	2007		2006
(Dollars in thousands)					2007		2006

Receivable arising from unsettled securities transactions, net	$	—	$	18,233	$	—	$	18,233
Deposits paid for securities borrowed		59,852		271,028		59,103		271,028
Receivable from clearing organizations		26,431		6,811		51,831		6,811
Securities failed to deliver		8,464		1,674		5,279		1,674
Other		9,898		15,128		18,124		15,128

	$	104,645	$	312,874	$	134,337	$	312,874


	March 31,		December 31,		June 30,		December 31,
(Amounts in thousands)	2007		2006
(Dollars in thousands)					2007		2006

Owned:
Corporate securities:
Equity securities	$	12,842	$	14,163	$	30,760	$	14,163
Convertible securities		75,248		59,118		47,660		59,118
Fixed income securities		219,624		235,120		137,409		235,120
Asset-backed securities		199,941		158,108		179,694		158,108
U.S. government securities		17,240		10,715		7,589		10,715
Municipal securities		441,498		364,160		350,231		364,160
Other		26,181		25,142		45,214		25,142

	$	992,574	$	866,526	$	798,557	$	866,526


Sold, but not yet purchased:
Corporate securities:
Equity securities	$	40,998	$	31,452	$	35,004	$	31,452
Convertible securities		1,583		2,543		4,952		2,543
Fixed income securities		13,729		16,378		19,985		16,378
Asset-backed securities		129,187		51,001		61,991		51,001
U.S. government securities		80,935		109,719		92,796		109,719
Municipal securities		—		5		200		5
Other		7,570		6,486		3,605		6,486

	$	274,002	$	217,584	$	218,533	$	217,584


						Weighted Average									Weighted Average
				Weighted		Remaining		Aggregate					Weighted		Remaining		Aggregate
	Options			Average		Contractual		Intrinsic		Options			Average		Contractual		Intrinsic
	Outstanding			Exercise Price		Term (Years)		Value		Outstanding			Exercise Price		Term (Years)		Value
December 31, 2006		510,181		$	43.25		7.8	$	11,172,964		510,181		$	43.25		7.8	$	11,172,964

Granted		35,641			70.13						35,641			70.13
Exercised		(44,106	)		46.86						(48,287	)		46.90
Canceled		(2,327	)		39.62						(12,642	)		40.98

June 30, 2007											484,893		$	44.92		7.5	$	5,241,693

March 31, 2007		499,389		$	44.86		7.8	$	8,529,564

Options exercisable at March 31, 2007		191,936		$	46.37		7.2	$	2,988,444
Options exercisable at June 30, 2007											187,188		$	46.35		6.9	$	1,755,823


				Weighted					Weighted
	Nonvested			Average		Non-Vested			Average
	Restricted			Grant Date		Restricted			Grant Date
	Stock			Fair Value		Stock			Fair Value
December 31, 2006		1,556,801		$	43.81		1,556,801		$	43.81

Granted		604,958			70.13		612,951			70.01
Vested		(285,220	)		48.67		(310,626	)		48.79
Canceled		(56,156	)		43.89		(147,796	)		48.52


March 31, 2007		1,820,383		$	51.79
June 30, 2007							1,711,330		$	51.89


			Trading				Trading
	Trading		Securities Sold,		Trading		Securities Sold,
March 31, 2007	Securities Owned		But Not Yet
June 30, 2007					Securities Owned		But Not Yet
(Dollars in thousands)	or Pledged		Purchased		or Pledged		Purchased

Fair value of securities excluding derivatives, based on quoted prices and independent sources	$	957,227	$	266,432	$	761,379	$	214,893
Fair value of securities excluding derivatives, as determined by management		9,166		—		5,559		—
Fair value of derivatives, as determined by management		26,181		7,570		31,619		3,640

	$	992,574	$	274,002	$	798,557	$	218,533


(1)		Incorporated herein by reference to Item 2.1 of the Company’s Form 8-K, filed with the Commission on ~~April 13,~~July 3, 2007.


PIPER JAFFRAY COMPANIES

By	/s/ Andrew S. Duff

Its		Chairman and ~~CEO~~Chief Executive Officer

By	/s/ Thomas P. Schnettler

Its		Vice Chairman and Chief Financial Officer