Archipelago Announces Second Quarter 2005 Results

Archipelago Holdings, Inc. (PCX: AX), owner and operator of the Archipelago Exchange(R) (ArcaEx(R)), the nation's first totally open, all-electronic stock exchange, reported net income of $3.0 million, or $0.06 per diluted share, for the second quarter of 2005, down from the $13.2 million net income, or $0.28 per diluted share, reported in the first quarter of 2005.

During the second quarter of 2005, Archipelago incurred $8.4 million of expenses in conjunction with its announced merger with the New York Stock Exchange (NYSE). Excluding these expenses, diluted earnings per share would have been $0.17. A full reconciliation of this item is included in the attached table entitled "Reconciliation of non-GAAP financial measures to GAAP measures."

"The significant event of this quarter was undoubtedly our announced merger with the NYSE which has received a positive response from investors, as evidenced in our share price," commented Jerry Putnam, Chairman and CEO of Archipelago. "The related merger expenses along with high discretionary advertising spending, as we continued to focus on building our brand with corporate issuers, were key factors in our net income decline for the quarter."

Second Quarter Financial Highlights

Total revenues for the second quarter of 2005 were $127.8 million as compared to $133.7 million for the first quarter of 2005 and $128.9 million for the second quarter of 2004.
Gross margins were $54.4 million for the second quarter of 2005 as compared to $55.2 million in the first quarter of 2005 and $47.8 million in the second quarter of 2004. As a percentage of total revenues, gross margins increased to 42.6% for the second quarter of 2005 from 41.3% for the first quarter of 2005 and 37.1% for the second quarter of 2004.
Indirect expenses increased to $50.6 million for the second quarter of 2005 from $34.2 million for the first quarter of 2005 and $30.7 million for the second quarter of 2004. In addition to the $8.4 million of NYSE merger expenses, our results for the second quarter of 2005 included $10.2 million of discretionary marketing expenses for continued building of our brand, a $7.1 million and $7.5 million increase from the first quarter of 2005 and the second quarter of 2004, respectively.
As of June 30, 2005, Archipelago had $207.0 million of cash and cash equivalents and no long-term debt obligations.

Second Quarter Volume Highlights

Total U.S. market volumes decreased to 258.6 billion shares for the second quarter of 2005 from 262.8 billion shares for the first quarter of 2005. Clients executed 35.6 billion shares, or 13.8% of total U.S. equity securities, on ArcaEx during the second quarter of 2005 compared to 35.8 billion shares, or 13.6 %, for the first quarter of 2005 and 33.6 billion, or 14.0%, for the second quarter a year ago.
ArcaEx market share decreased to 23.1% in Nasdaq-listed stocks from 23.5% for the first quarter of 2005 and 25.5% for the second quarter in 2004.
ArcaEx market share increased to 3.3% in NYSE-listed stocks from 2.5% for the first quarter of 2005 and 1.5% for the second quarter in 2004. ArcaEx market share increased to 29.7% in AMEX-listed stocks from 25.5% for the first quarter of 2005 and 22.2% for the second quarter of 2004.
ArcaEx ETF volume grew to 6.2 billion shares, up from 4.9 billion shares for the first quarter of 2005 and 3.8 billion for the second quarter of 2004.
The internal match rate rose to 88.9% on ArcaEx compared to an internal match rate of 88.4% for the first quarter of 2005 and 86.3% for the second quarter a year ago.

Second Quarter Business Highlights

The NYSE and Archipelago announced that they had entered into a definitive merger agreement that will lead to the creation of NYSE Group, Inc.
ArcaEx began opening for trading at 4:00 AM Eastern Time for all U.S. listed and OTC stocks, following Securities and Exchange Commission approval.
American Dairy, Inc., and Zero Air Pollution(R) listed exclusively on ArcaEx, a facility of the Pacific Exchange.
On July 20, 2005, Barclay's Global Investors announced their plans to transfer the listing of 20 iShares(R) exchange traded products to ArcaEx.

To supplement Archipelago's consolidated financial statements prepared in accordance with United States generally accepted accounting principles (GAAP) and to better reflect period-over-period comparisons, Archipelago uses non- GAAP financial measures of operating performance. A non-GAAP financial measure is a numerical measure of performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure, calculated and presented in accordance with GAAP. Non-GAAP financial measures do not replace and are not superior to the presentation of GAAP financial results but are provided to present the effects of direct costs recorded by Archipelago in connection with its announced merger with the NYSE and to improve overall understanding of the company's current financial performance and its prospects for the future. Specifically, Archipelago believes the non-GAAP financial results provide useful information to both management and investors regarding certain additional financial and business trends relating to financial condition and operating results. In addition, management uses these measures for reviewing financial results and evaluating financial performance.

Important Acquisition Information with Respect to Archipelago's Merger with the NYSE

In connection with the proposed merger of Archipelago and the NYSE, the parties filed a registration statement on Form S-4 with the Securities and Exchange Commission ("SEC") on July 21, 2005, containing a preliminary joint proxy statement/prospectus regarding the proposed transaction. The registration statement has not yet become effective. The parties will file other relevant documents concerning the proposed transaction with the SEC.

Such final documents, however, are not currently available. ARCHIPELAGO'S SHAREHOLDERS AND MEMBERS OF THE NYSE ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED BY THE PARTIES WITH THE SEC, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Archipelago's shareholders and members of the NYSE are able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about Archipelago and the NYSE, at the SEC's website (http://www.sec.gov) as they are filed with the SEC. Copies of the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to Archipelago, Attention: Investor Relations, at 100 S. Wacker Drive, Suite 1800, Chicago, Illinois 60606 or calling (888) 514-7284.

Archipelago, NYSE and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from Archipelago stockholders in respect of the proposed transaction. Information regarding Archipelago's directors and executive officers is available in Archipelago's proxy statement for its 2005 annual meeting of stockholders, dated March 31, 2005. Additional information regarding the interests of such potential participants are included in the joint proxy statement/prospectus and the other relevant documents filed with the SEC when they become available.

This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

About Archipelago

Archipelago Holdings, Inc. (PCX: AX) owns and operates the Archipelago Exchange (ArcaEx). ArcaEx is the first totally open all-electronic stock market in the United States. Through its alliance with the Pacific Exchange, Inc., Archipelago operates ArcaEx as the exclusive equities trading facility of PCX Equities, Inc. Through ArcaEx, Archipelago customers can trade over 8,000 equity securities, including securities listed on the New York Stock Exchange(R), Nasdaq(R), American Stock Exchange(R) and Pacific Exchange(R). ArcaEx is regulated by the Pacific Exchange. The Archipelago ECN, a precursor to ArcaEx, was one of the four original ECNs, formed in December 1996 with Townsend Analytics.

Certain statements in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on Archipelago's current expectations and involve risks and uncertainties that could cause Archipelago's actual results to differ materially from those set forth in the statements. There can be no assurance that such expectations will prove to be correct. Factors that could cause Archipelago's results to differ materially from current expectations include: general economic and business conditions, industry trends, competitive conditions, regulatory developments as well as other risks or factors identified in the Company's filings with the Securities Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2004 which is available on the Company's website at http://www.archipelago.com. You should not place undue reliance on forward- looking statements, which speak only as of the date of this press release. Except for any obligation to disclose material information under the Federal securities laws, Archipelago undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this press release.

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