Gfi 10Q 2008 Q3 Quarterly report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
OR
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: 000-51103

GFI GROUP INC.
(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		80-0006224 (I.R.S. Employer Identification No.)
55 Water Street, New York, NY (Address of principal executive offices)		10041 (Zip Code)

Registrant's telephone number, including area code:(212) 968-4100

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. YES ý NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ý		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO ý

The number of shares of registrant's common stock outstanding on October 31, 2008 was 118,305,442.

Table of Contents

		Page

	Part I—Financial Information
Item 1.	Financial Statements	4
	Condensed Consolidated Statements of Financial Condition as of September 30, 2008 (unaudited) and December 31, 2007	4
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2008 (unaudited) and September 30, 2007 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2008 (unaudited) and September 30, 2007 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 (unaudited) and September 30, 2007 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	52
	Part II—Other Information
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6.	Exhibits	54

Available Information

Our Internet website address iswww.gfigroup.com. Through our Internet website, we make available, free of charge, the following reports as soon as reasonably practicable after electronically filing them with, or furnishing them to, the Securities and Exchange Commission (the "SEC"): our annual reports on Form 10-K; our proxy statements for our annual and special stockholder meetings; our quarterly reports on Form 10-Q; our current reports on Form 8-K; Forms 3, 4 and 5 filed on behalf of directors and executive officers; and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Information relating to the corporate governance of the Company is also available on our website, including information concerning our directors, board committees, including committee charters, our code of business conduct and ethics for all employees and for senior financial officers and our compliance procedures for accounting and auditing matters. In addition, the Investor Relations page of our website includes certain supplemental financial information that we make available from time to time.

Our Internet website and the information contained therein or connected thereto are not incorporated into this Quarterly Report on Form 10-Q.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GFI GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share and per share amounts)

		September 30, 2008			December 31, 2007

		(Unaudited)
ASSETS
	Cash and cash equivalents	$	349,137		$	240,393
	Deposits with clearing organizations		8,310			8,462
	Accrued commissions receivable, net of allowance for doubtful accounts of $5,076 and $4,173 at September 30, 2008 and December 31, 2007, respectively		154,469			169,119
	Receivables from brokers, dealers and clearing organizations		489,093			317,849
	Property, equipment and leasehold improvements, net of depreciation and amortization of $82,745 and $79,824 at September 30, 2008 and December 31, 2007, respectively		72,784			56,142
	Goodwill		209,507			93,709
	Intangible assets, net		45,814			11,981
	Other assets		135,310			78,159

TOTAL ASSETS		$	1,464,424		$	975,814

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
	Accrued compensation	$	129,755		$	174,472
	Accounts payable and accrued expenses		60,621			40,287
	Payables to brokers, dealers and clearing organizations		465,889			194,736
	Short-term borrowings, net		164,251			55,291
	Long-term obligations, net		59,465			—
	Other liabilities		102,070			58,835

	Total Liabilities	$	982,051		$	523,621

Commitments and contingencies
STOCKHOLDERS' EQUITY
	Preferred stock, $0.01 par value; 5,000,000 shares authorized, none outstanding at September 30, 2008 and December 31, 2007		—			—
	Common stock, $0.01 par value; 400,000,000 shares authorized; 119,309,619 and 118,190,376(1) shares issued at September 30, 2008 and December 31, 2007, respectively		1,193			1,182
	Additional paid in capital(1)		276,965			262,006
	Retained earnings		225,080			196,284
	Treasury stock, 996,236 and 400,000(1) common shares at cost, at September 30, 2008 and December 31, 2007, respectively		(18,476	)		(7,076	)
	Accumulated other comprehensive loss		(2,389	)		(203	)

	Total Stockholders' Equity		482,373			452,193

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,464,424		$	975,814

(1): Restated to reflect the four-for-one stock split effected on March 31, 2008
See notes to condensed consolidated financial statements

GFI GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share amounts)

				Three Months Ended September 30,					Nine Months Ended September 30,

				2008			2007		2008		2007
REVENUES:
	Brokerage revenues:
		Agency commissions		$	182,591		$	198,405	$	613,754	$	562,396
		Principal transactions			43,771			46,467		156,397		136,888

			Total brokerage revenues		226,362			244,872		770,151		699,284
		Software, analytics and market data			14,034			4,855		38,450		14,672
		Interest income			2,187			2,589		6,948		6,988
		Other income			555			2,427		3,718		2,238

	Total Revenues				243,138			254,743		819,267		723,182
EXPENSES:
		Compensation and employee benefits			176,462			158,845		528,390		453,827
		Communications and market data			12,640			11,329		35,565		33,084
		Travel and promotion			11,845			9,929		36,859		28,935
		Rent and occupancy			14,969			6,439		28,342		17,529
		Depreciation and amortization			7,192			6,747		23,563		17,694
		Professional fees			7,756			4,459		20,119		12,360
		Clearing fees			12,026			8,063		33,714		22,532
		Interest			3,508			1,703		10,341		5,554
		Other expenses			7,317			4,580		19,045		16,265

	Total Expenses				253,715			212,094		735,938		607,780

	(LOSS) INCOME BEFORE INCOME TAXES				(10,577	)		42,649		83,329		115,402
	(BENEFIT FROM) PROVISION FOR INCOME TAXES				(3,861	)		16,746		30,415		45,752

	NET (LOSS) INCOME			$	(6,716	)	$	25,903	$	52,914	$	69,650

	(LOSS) EARNINGS PER SHARE
		Basic		$	(0.06	)	$	0.22	$	0.45	$	0.60
		Diluted		$	(0.06	)	$	0.22	$	0.44	$	0.59
	WEIGHTED AVERAGE SHARES OUTSTANDING(1)
		Basic			118,039,998			117,340,915		117,812,412		116,286,863
		Diluted			118,039,998			119,616,287		119,382,347		118,927,077

(1): Restated to reflect the four-for-one stock split effected on March 31, 2008
See notes to condensed consolidated financial statements

GFI GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

(In thousands)

		Three Months Ended September 30,						Nine Months Ended September 30,

		2008			2007			2008			2007
NET (LOSS) INCOME		$	(6,716	)	$	25,903		$	52,914		$	69,650
OTHER COMPREHENSIVE (LOSS) INCOME:
	Loss on available for sale securities, net of tax		(1,068	)		—			(62	)		—
	Foreign currency translation adjustment, net of tax		(1,953	)		(76	)		(2,124	)		(34	)

COMPREHENSIVE (LOSS) INCOME		$	(9,737	)	$	25,827		$	50,728		$	69,616

See notes to condensed consolidated financial statements

GFI GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

				Nine Months Ended September 30,

				2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	52,914		$	69,650
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			23,563			17,694
		Amortization of loan fees			308			168
		Provision for doubtful accounts			1,815			2,502
		Loss on disposal of fixed assets			236			—
		Deferred compensation			20,108			14,944
		Provision for deferred taxes			13,115			1,163
		(Gain) loss on foreign exchange derivative contracts			(1,429	)		6,541
		Losses from equity method investments			2,819			695
		Tax expense (benefit) related to share-based compensation			107			(14,471	)
	(Increase) decrease in operating assets:
		Deposits with clearing organizations			152			(396	)
		Accrued commissions receivable			22,034			(55,261	)
		Receivables from brokers, dealers and clearing organizations			(171,244	)		(427,744	)
		Other assets			(50,938	)		559
	(Decrease) increase in operating liabilities:
		Accrued compensation			(44,717	)		5,021
		Accounts payable and accrued expenses			14,589			5,183
		Payables to brokers, dealers and clearing organizations			271,153			406,991
		Other liabilities			18,368			45,511

			Cash provided by operating activities		172,953			78,750

CASH FLOWS FROM INVESTING ACTIVITIES:
	Net cash used for business acquisitions				(149,614	)		(2,754	)
	Purchases of other investments, net				(3,620	)		(3,964	)
	Purchase of property, equipment and leasehold improvements				(33,244	)		(18,954	)
	Payments on foreign exchange derivative contracts				(3,787	)		(5,187	)

			Cash used in investing activities		(190,265	)		(30,859	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Repayment of short-term borrowings				(174,500	)		(61,186	)
	Proceeds from short-term borrowings				283,500			29,300
	Proceeds from issuance of long-term obligations				60,000			—
	Repurchases of common stock				(11,401	)		(7,076	)
	Cash dividend paid				(24,118	)		—
	Payment of loan fees				(883	)		—
	Proceeds from exercise of stock options				573			7,874
	Cash paid for taxes on vested restricted stock units				(4,884	)		(3,857	)
	Tax (expense) benefit related to share-based compensation				(107	)		14,471

			Cash provided by/(used in) financing activities		128,180			(20,474	)

	Effects of foreign currency translation adjustment				(2,124	)		(34	)
INCREASE IN CASH AND CASH EQUIVALENTS					108,744			27,383
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					240,393			181,484

CASH AND CASH EQUIVALENTS, END OF PERIOD				$	349,137		$	208,867

SUPPLEMENTAL DISCLOSURE:
Interest paid				$	9,202		$	5,393
Income taxes paid, net of refunds				$	36,955		$	30,259

See notes to condensed consolidated financial statements

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands except share and per share amounts)

1. ORGANIZATION AND BUSINESS

The condensed consolidated financial statements include the accounts of GFI Group Inc. and its subsidiaries (collectively the "Company"). The Company, through its wholly-owned subsidiary GFInet inc. ("GFInet"), provides brokerage services, market data, trading system software and analytics software products to institutional clients in markets for a range of credit, financial, equity and commodity instruments. The Company complements its brokerage capabilities with value-added services, such as data, trading system software and analytics products for decision support, which it licenses to the financial services industry and other corporations. The Company's principal operating subsidiaries include: GFI Securities LLC, GFI Brokers LLC, GFI Group LLC, GFI Securities Limited, GFI Brokers Limited, GFI (HK) Securities LLC, GFI (HK) Brokers Ltd., GFI Group PTE Ltd., GFI Korea Money Brokerage Limited, Amerex Brokers LLC, Fenics Limited and subsidiaries ("Fenics") and Trayport Limited ("Trayport"). As of September 30, 2008, Jersey Partners, Inc. ("JPI") owns approximately 43% of the Company's outstanding shares of common stock. The Company's chief executive officer, Michael Gooch, is the controlling shareholder of JPI.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The Company's condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingencies in the consolidated financial statements. Management believes that the estimates utilized in the preparation of the consolidated financial statements are reasonable and prudent. Actual results could differ materially from these estimates.

All intercompany transactions and balances have been eliminated.

The condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (the "2007 Form 10-K"). The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for the fair statement of the results for the interim period. The results of operations for interim periods are not necessarily indicative of results for the entire year.

Brokerage Transactions—The Company provides brokerage services to its clients in the form of either agency or principal transactions. Principal transactions revenues and related expenses are recognized on a trade date basis.

Agency Commissions—In agency transactions, the Company charges commissions for executing transactions between buyers and sellers. Agency commissions revenues and related expenses are recognized on a trade date basis.

Principal Transactions—Principal transactions revenue is primarily derived from matched principal transactions. The Company earns revenue from principal transactions on the spread between the buy and sell price of the security that is brokered. In matched principal transactions, the Company

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

simultaneously agrees to buy instruments from one customer and sell them to another customer. A limited number of brokerage desks are occasionally permitted to enter into unmatched principal transactions in the ordinary course of business while brokering in illiquid markets and for the purpose of facilitating clients' execution needs for transactions initiated by such clients. These unmatched positions are intended to be held short term.

However, from time to time, under the circumstances described above, or if a matched principal transaction fails to settle on a timely basis or if a customer defaults on its obligations, the Company may hold securities positions overnight or until such transaction is settled. These positions are marked to market on a daily basis.

Software, Analytics and Market Data—Software revenue consists primarily of fees charged for Trayport electronic trading software, which are typically billed on a subscription basis ranging from one to two years. Analytics revenue consists primarily of fees for Fenics pricing tools. Market data revenue primarily consists of subscription fees and fees from customized one-time sales of data. Market data subscription fees are recognized on a straight-line basis over the term of the subscription period, which ranges from one to two years. Market data revenue from customized one-time sales is recognized upon delivery of the data.

The Company markets its software, analytics and market data through its direct sales force and, in some cases, indirectly through resellers. In general, the Company's license agreements for its analytics and data products do not provide for a right of return.

Goodwill and Intangible Assets—Goodwill represents the excess of the purchase price allocation over the fair value of tangible and identifiable intangible net assets acquired. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142,Goodwill and Intangible Assets, goodwill and intangible assets with indefinite lives are no longer amortized, but instead are tested for impairment annually or more frequently if circumstances indicating impairment may have occurred. In the event the Company determines that the value of goodwill has become impaired, it will incur a charge for the amount of impairment during the fiscal quarter in which such determination is made. The Company has selected January 1^st as the date to perform the annual impairment test. Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives.

Derivative Financial Instruments—The Company uses foreign exchange derivative contracts to reduce the effects of fluctuations in certain receivables and payables denominated in foreign currencies. For the nine months ended September 30, 2008 and year ended December 31, 2007, none of these contracts were designated as foreign currency cash flow hedges under SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, as amended ("SFAS No. 133"). Contracts that are not designated as foreign currency cash flow hedges are recorded at fair value and all realized and unrealized gains and losses are included in other income in the Condensed Consolidated Statements of Operations.

Foreign Currency Translation Adjustments and Transactions—Assets and liabilities of foreign subsidiaries having non-U.S. dollar functional currencies are translated at the period end rates of

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

exchange, and revenue and expenses are translated at the average rates of exchange for the period. Gains or losses resulting from translating foreign currency financial statements are reflected in foreign currency translation adjustments and are reported as a separate component of comprehensive income and included in accumulated other comprehensive loss in stockholders' equity. Gains or losses resulting from foreign currency transactions are included in other income in the Condensed Consolidated Statements of Operations.

Income Taxes—In accordance with SFAS No. 109,Accounting for Income Taxes, the Company provides for income taxes using the asset and liability method under which deferred income taxes are recognized for the estimated future tax effects attributable to temporary differences and carry-forwards that result from events that have been recognized either in the financial statements or the income tax returns, but not both. The measurement of current and deferred income tax liabilities and assets is based on provisions of enacted tax laws. Valuation allowances are recognized if, based on the weight of available evidence, it is more likely than not that some portion of the deferred tax assets will not be realized. Effective January 1, 2007, the Company adopted FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes,an interpretation of SFAS No. 109 ("FIN 48"). It is the Company's policy to provide for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.

Share-Based Compensation—The Company's share-based compensation consists of stock options and restricted stock units ("RSUs"). The Company follows SFAS No. 123(R),Share-Based Payment ("SFAS 123(R)"), to account for its stock-based compensation. SFAS 123(R) revised the fair value-based method of accounting for share-based payment liabilities, forfeitures and modifications of stock-based awards and clarified guidance in several areas, including measuring fair value, classifying an award as equity or as a liability and attributing compensation cost to service periods. Additionally, under SFAS 123(R), actual tax benefits recognized in excess of tax benefits previously established upon grant are reported as a financing cash flow, as opposed to operating cash flows. In recent periods, the only share-based compensation issued by the Company has been RSUs. The Company records the fair value of the RSUs at the date of grant as deferred compensation and amortizes it to compensation expense over the vesting period of the grants.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS 157 requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy, as defined. Additionally, companies are required to provide enhanced disclosure for certain financial instruments within the hierarchy, including a reconciliation of the beginning and ending balances separately for each major category of assets and liabilities which are measured at fair value using significant unobservable inputs. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 ("FSP 157-2") which delays the effective date of

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

SFAS 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of FSP 157-2. The Company adopted SFAS 157 on January 1, 2008 except as it applies to those nonfinancial assets and liabilities within the scope of FSP 157-2. The adoption of SFAS 157 as it relates to the financial assets and liabilities did not have a material impact on the Company's consolidated financial statements. The Company will adopt SFAS 157 for those nonfinancial assets and liabilities as noted in FSP 157-2 on January 1, 2009. The Company is currently evaluating the impact of adopting SFAS 157 for nonfinancial assets and liabilities on its consolidated financial statements. In October 2008, the FASB issued FASB Staff Position No. FAS 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active ("FSP 157-3"). FSP 157-3 amends SFAS 157 by incorporating an example to illustrate key considerations in determining the fair value of a financial asset in an inactive market. FSP 157-3 was effective upon issuance and applicable to prior periods for which financial statements have not been issued. The Company adopted FSP 157-3 as of September 30, 2008. The adoption of FSP 157-3 did not have a material impact on the Company's consolidated financial statements. See Note 11 for further discussion of Financial Instruments.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 ("SFAS 159"). SFAS 159 provides a "Fair Value Option" under which a company may irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. This Fair Value Option will be available on a contract-by-contract basis with changes in fair value recognized in earnings as those changes occur. The Company adopted SFAS 159 on January 1, 2008 and did not elect to apply the Fair Value Option to any specific financial assets or liabilities. The adoption of SFAS 159 did not have a material impact on the Company's consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No.51 ("SFAS 160"). SFAS 160 requires reporting entities to present noncontrolling (minority) interests as equity (as opposed to as a liability or mezzanine equity) and provides guidance on the accounting for transactions between an entity and noncontrolling interests. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will be adopted by the Company on January 1, 2009. The Company is currently evaluating the impact of adopting SFAS 160 on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (revised 2007) ("SFAS 141(R)"). SFAS 141(R) requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires the expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. SFAS 141(R) applies to all transactions or other events in which the Company obtains control of one or more businesses, including those sometimes referred to as "true-mergers" or "mergers of equals" and combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

veto rights. SFAS 141(R) is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will be adopted by the Company on January 1, 2009. The Company is currently evaluating the impact of adopting SFAS 141(R) on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 amends and expands the disclosure requirements of SFAS No. 133 and requires entities to provide enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair values and amounts of gains and losses on derivative contracts, and disclosures about credit-risk related contingent features in derivative agreements. SFAS 161 is effective for fiscal years beginning after November 15, 2008 and will be adopted by the Company on January 1, 2009. The Company is currently evaluating the impact of adopting SFAS 161 on its consolidated financial statements.

In April 2008, the FASB issued FSP 142-3,Determining the Useful Life of Intangible Assets ("FSP 142-3"). FSP 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure such asset's fair value. FSP 142-3 is effective for fiscal years beginning after December 15, 2008 and will be adopted by the Company on January 1, 2009. The Company is currently evaluating the impact of adopting FSP 142-3 on its consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles". The Company is currently evaluating the impact of adopting SFAS 162 on its consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities," ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in computing earnings per share under the two-class method described in SFAS No. 128, "Earnings Per Share". FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008 and will be adopted by the Company on January 1, 2009. The Company is currently evaluating the impact of adopting FSP EITF 03-6-1 on its consolidated financial statements.

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

3. RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS

		September 30, 2008		December 31, 2007

Receivables from brokers, dealers and clearing organizations:
	Contract value of fails to deliver	$	465,123	$	272,885
	Balance receivable from clearing organizations		23,970		44,964

Total		$	489,093	$	317,849

Payables to brokers, dealers and clearing organizations:
	Contract value of fails to receive	$	445,953	$	185,404
	Payable to financial institutions		15,819		8,882
	Balance payable to clearing organizations		4,117		450

Total		$	465,889	$	194,736

Substantially all fail to deliver and fail to receive balances at September 30, 2008 and December 31, 2007 have subsequently settled at the contracted amounts.

4. GOODWILL AND INTANGIBLE ASSETS

On January 31, 2008, the Company completed the acquisition of substantially all of the outstanding shares of Trayport, a leading provider of real-time electronic trading software for brokers, exchanges and traders in the commodities, fixed income, currencies and equities markets, for approximately £85,428 (or approximately $169,780), including cash acquired of £7,622 (or approximately $15,150) and £1,387 (or approximately $2,745) of direct transaction costs related to the acquisition. Additionally, £2,524 (or approximately $5,016) of the purchase price was paid in short-term loan notes, payable within one year. At September 30, 2008, $158 of these notes were outstanding. Included as part of the purchase price is £7,287 (or approximately $12,988) that was deposited into an escrow account with a third-party escrow agent as collateral for the indemnification obligations of certain of the former Trayport shareholders. Any amounts remaining in the escrow account at March 31, 2009 that are not subject to pending claims will be distributed to the former Trayport shareholders. The purchase price is subject to final working capital adjustments, which are not expected to be material. The Company financed the transaction with proceeds of the private placement of senior secured notes and amounts drawn under its Credit Agreement, as defined in Note 5. See Note 5 below for further discussion of the senior secured notes and Credit Agreement.

This acquisition was accounted for as a purchase business combination. Assets acquired were recorded at their fair value as of January 31, 2008. The results of the acquired company have been included in the condensed consolidated financial statements since the acquisition. Management determined the fair value of the identifiable intangible assets acquired based upon an independent

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

4. GOODWILL AND INTANGIBLE ASSETS (Continued)

valuation model. The purchase price allocation, as presented below, was translated into U.S. dollars based on the foreign exchange rate on January 31, 2008:

				Useful Life

Assets:
Cash		$	15,150
Accounts receivable			8,704
Property and equipment			469
Software inventory			6,587
Intangible assets subject to amortization—
	Trade name		3,657	10 Years
	Customer relationships		33,243	15 Years
	Non compete agreement		839	4 Years
Other assets			481
Goodwill			115,798

Total assets acquired		$	184,928
Total liabilities assumed			15,148

Net Assets Acquired		$	169,780

Total intangible assets acquired in the Trayport transaction that are subject to amortization totaled $37,739 and have a weighted-average useful life of approximately 14 years.

Changes in the carrying amount of the Company's goodwill for the nine months ended September 30, 2008 were as follows:

	Brokerage		All Other		Total

Balance as of December 31, 2007	$	80,816	$	12,893	$	93,709
Goodwill acquired during the year		—		115,798		115,798

Balance as of September 30, 2008	$	80,816	$	128,691	$	209,507

During the first quarter of 2008, the Company completed the annual goodwill impairment test that is required by SFAS 142. The results of the testing did not indicate any goodwill impairment. SFAS 142 requires that impairment testing be performed between annual tests, if events change or circumstances occur that may indicate impairment. SFAS 142 prescribes a two step process for impairment testing whereby management first compares the fair value of each reporting unit with recorded goodwill to that reporting unit's book value. If management determines, as a result of this first step, that the fair value of the reporting unit is less than its carrying value, a second step in the impairment test process would require that the recorded goodwill at that business unit be written down to the value implied by the reporting unit's recent valuation. As a result of the decline in our stock price since December 31, 2007, which decreased our market capitalization, we conducted interim goodwill impairment testing for the quarter ended September 30, 2008 to determine whether an impairment of our recorded goodwill existed. The result of this interim testing did not indicate an impairment of goodwill.

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

4. GOODWILL AND INTANGIBLE ASSETS (Continued)

The Company had the following intangible assets as of September 30, 2008 and December 31, 2007:

		September 30, 2008			December 31, 2007

Gross intangible assets
	Customer base/relationships	$	46,282		$	13,039
	Trade name		7,771			4,114
	Core technology		3,230			3,230
	Covenants not to compete		3,184			2,345
	Favorable lease agreements		620			620
	Propriety knowledge		110			110
	Patent		33			32

Total gross intangible assets			61,230			23,490
	Accumulated amortization		(15,416	)		(11,509	)

Net intangible assets		$	45,814		$	11,981

Amortization was $1,376 and $817 for the three months ended September 30, 2008 and 2007, respectively, and $3,907 and $2,658 for the nine months ended September 30, 2008 and 2007.

At September 30, 2008, the expected amortization expense for the definite lived intangible assets is as follows:


2008 (remaining three months)	$	1,373
2009		5,431
2010		5,381
2011		5,175
2012		4,015

Total	$	21,375

5. SHORT-TERM BORROWINGS AND LONG-TERM OBLIGATIONS

In January 2008, pursuant to a note purchase agreement with certain institutional investors (the "2008 Note Purchase Agreement"), the Company issued $60,000 in aggregate principal amount of senior secured notes due in January 2013 (the "Senior Notes") in a private placement. The Senior Notes bear interest at 7.17%, payable semi-annually in arrears on the 30^th of January and July. The Company's obligations under the Senior Notes are secured by substantially all of the assets of the Company and certain assets of the Company's subsidiaries. The 2008 Note Purchase Agreement includes operational covenants with which the Company is required to comply, including among others, maintenance of certain financial ratios and restrictions on additional indebtedness, liens and dispositions. At September 30, 2008, the Senior Notes were recorded net of deferred financing costs of $535.

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

5. SHORT-TERM BORROWINGS AND LONG-TERM OBLIGATIONS (Continued)

In June 2008, in accordance with the 2008 Note Purchase Agreement, the Company was notified by one of the purchasers of these securities that the rate at which the Senior Notes would bear interest would be increased to include a premium of 100 basis points due to a change in the risk based capital factor attributed to the Senior Notes by one of the purchasers of these securities pursuant to generally applicable insurance regulations for U.S. insurance companies. As a result, we currently accrue interest on the Senior Notes at 8.17%. The premium interest will cease to accrue if the risk based capital factor attributed to the Senior Notes is subsequently reduced or if the Company is successful in its pending appeal of the change in the capital factor.

In January 2008, the Company amended the terms of its revolving credit agreement (the "Credit Agreement") with Bank of America, N.A. and certain other lenders to increase the maximum permitted borrowings by $105,000 to $265,000. The Credit Agreement, as amended, modified certain definitions and covenants, including certain financial covenants and approved the issuance by the Company of senior secured notes in an aggregate principal amount of up to $150,000. The Credit Agreement provides for such notes to rank pari passu with the commitments under the Credit Agreement, in relation to the security provided.

The Company had the following availability and outstanding borrowings under its Credit Agreement as of September 30, 2008 and December 31, 2007:

	September 30, 2008		December 31, 2007

Loan Available(1)	$	265,000	$	160,000
Loans Outstanding	$	165,000	$	56,000
Letters of Credit Outstanding	$	7,172	$	7,193

(1): Amounts available include up to $50,000 for letters of credit as of September 30, 2008 and December 31, 2007.

The weighted average interest rate of the outstanding credit facility borrowings was 3.94% and 5.84% at September 30, 2008 and December 31, 2007, respectively. At September 30, 2008 and December 31, 2007, short-term borrowings under the Credit Agreement were recorded net of unamortized loan fees of $749 and $709, respectively.

In certain previous periods' financial statements, we referred to short-term borrowings under our Credit Agreement as Notes Payable on our Statement of Financial Condition and Statement of Cash Flows. To better distinguish obligations due under the Credit Agreement from long-term obligations due under our Senior Notes, we now refer to borrowings under our Credit Agreement as "Short-term borrowings" in the Condensed Consolidated Statements of Financial Condition and Condensed Consolidated Statements of Cash Flows included in these financial statements.

6. STOCKHOLDERS' EQUITY

On January 11, 2008, at a special meeting of stockholders, the stockholders of the Company approved an amendment to the Company's Second Amended and Restated Certificate of Incorporation to increase the amount of Authorized Common Stock from 100,000,000 shares to 400,000,000 shares.

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

6. STOCKHOLDERS' EQUITY (Continued)

On March 31, 2008, the Company effected a four-for-one split of the Company's common stock. Accordingly, all historical share and per share data have been retroactively restated in the accompanying condensed consolidated financial statements. Additionally, the par value of the additional shares resulting from the split were reclassified from additional paid in capital to common stock.

During the first nine months of 2008, the Company repurchased 596,236 shares of its common stock on the open market at an average price of $19.11 per share and for a total cost of $11,401, including sales commissions. These repurchased shares were recorded at cost as treasury stock in the Condensed Consolidated Statements of Financial Condition.

On March 31, 2008, the Company paid a special cash dividend of $0.125 per share, which, based on the number of shares outstanding on the record date for such dividend, totaled $14,693. On May 15, 2008, the Company paid a quarterly cash dividend of $0.03 per share, which, based on the number of shares outstanding on the record date for such dividend, totaled $3,530. On August 29, 2008, the Company paid a quarterly cash dividend of $0.05 per share which based on the number of shares outstanding on the record date for such dividend, totaled $5,895. The dividends were reflected as reductions of retained earnings in the Condensed Consolidated Statements of Financial Condition.

7. EARNINGS PER SHARE

Basic and diluted (loss) earnings per share for the three and nine months ended September 30, 2008 and 2007 were as follows:

		Three Months Ended September 30,					Nine Months Ended September 30,

		2008			2007		2008		2007
Basic (loss) earnings per share
Net (loss) income		$	(6,716	)	$	25,903	$	52,914	$	69,650
Weighted average common shares outstanding			118,039,998			117,340,915		117,812,412		116,286,863

Basic (loss) earnings per share		$	(0.06	)	$	0.22	$	0.45	$	0.60

Diluted (loss) earnings per share
Net (loss) income applicable to stockholders		$	(6,716	)	$	25,903	$	52,914	$	69,650
Weighted average common shares outstanding			118,039,998			117,340,915		117,812,412		116,286,863
Effect of dilutive shares:
	Options and RSU's		—			2,275,372		1,569,935		2,640,214

	Weighted average shares outstanding and common stock equivalents		118,039,998			119,616,287		119,382,347		118,927,077

Diluted (loss) earnings per share		$	(0.06	)	$	0.22	$	0.44	$	0.59

For the three months ended September 30, 2008 and 2007, 2,661,471 RSUs and 842,788 RSUs, respectively, were excluded from the computation of diluted (loss) earnings per share because their

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

7. EARNINGS PER SHARE (Continued)

effect would be anti-dilutive and for the nine months ended September 30, 2008 and 2007, 1,374,002 RSUs and 819,759 RSUs, respectively, were excluded from the computation of diluted earnings per share because their effect would be anti-dilutive.

As a result of the net loss reported for the three months ended September 30, 2008, common shares underlying options to purchase 431,992 shares of common stock and 431,963 RSU's were excluded from the calculation of diluted loss per share for that period.

8. SHARE-BASED COMPENSATION

The Company issues RSUs to its employees under the GFI Group Inc. 2008 Equity Incentive Plan (the "2008 Equity Incentive Plan"), which was approved by the Company's stockholders on June 11, 2008. Prior to June 11, 2008, the Company issued RSU's under the GFI Group Inc. 2004 Equity Incentive Plan (the "2004 Equity Incentive Plan").

The 2008 Equity Incentive Plan permits the grant of non-qualified stock options, stock appreciation rights, shares of restricted stock, restricted stock units and performance units to employees, non-employee directors or consultants. The Company issues shares from authorized but unissued shares, which are reserved for issuance upon the vesting of RSUs granted pursuant to the 2008 Equity Incentive Plan. As of September 30, 2008, there were 7,910,222 shares of our common stock available for future grants of awards under this plan, which amount, pursuant to the terms of the 2008 Equity Incentive Plan, may be increased for the number of shares subject to awards under the 2004 Equity Incentive Plan that are ultimately not delivered to employees. The fair value of RSUs is based on the closing price of the Company's common stock on the date of grant and is recorded as deferred compensation and amortized to compensation expense over the vesting period of the grants, which is generally three years.

Modified RSUs are reflected as cancellations and grants in the summary of RSUs below.

The following is a summary of RSU transactions under both the 2008 Equity Incentive Plan and the 2004 Equity Incentive Plan during the nine months ended September 30, 2008:

				Weighted- Average Grant Date Fair Value

Outstanding December 31, 2007		4,458,452		$	15.68
	Granted	1,156,672			12.92
	Vested	(1,548,881	)		14.29
	Cancelled	(577,234	)		15.96

Outstanding September 30, 2008		3,489,009		$	15.34

The weighted average grant-date fair value of RSUs granted for the nine months ended September 30, 2008 was $12.92 per unit, compared with $17.74 per unit for the same period in the

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

8. SHARE-BASED COMPENSATION (Continued)

prior year. Total compensation expense and related income tax benefits recognized in relation to RSUs are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,

	2008		2007		2008		2007
Compensation expense	$	7,284	$	5,358	$	20,312	$	14,864
Income tax benefits	$	2,659	$	2,095	$	7,414	$	5,674

At September 30, 2008, total unrecognized compensation cost related to the RSUs prior to the consideration of expected forfeitures was approximately $40,624 and is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of RSUs vested during the nine months ended September 30, 2008 and 2007 was $22,150 and $11,069, respectively.

As of September 30, 2008, the Company had stock options outstanding under the GFI Group Inc. 2002 Stock Option Plan (the "GFI Group 2002 Plan") and the GFInet inc. 2000 Stock Option Plan (the "GFInet 2000 Plan"). No additional grants will be made under these plans. For stock options previously granted or modified, the fair value was estimated on the date of grant or modification using the Black-Scholes option pricing model.

The following is a summary of stock option transactions during the nine months ended September 30, 2008:

		GFI Group 2002 Plan					GFInet 2000 Plan

		Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding December 31, 2007			784,448		$	3.30		382,156		$	3.32
	Exercised		(123,800	)		3.21		(41,780	)		4.19
	Cancelled		(9,000	)		2.97		—			—

Outstanding September 30, 2008			651,648		$	3.32		340,376		$	3.22

9. COMMITMENTS AND CONTINGENCIES

Purchase Obligations—The Company has various unconditional purchase obligations. Certain of these obligations include the purchase of market data from a number of information service providers during the normal course of business. As of September 30, 2008, the Company had total purchase commitments for market data services of approximately $22,002 with $18,025 due within the next twelve months and $3,977 due between one to three years. Additionally, the Company has purchase commitments for capital expenditures of $2,100 primarily related to the build-out of the Company's new office space in New York, as well as for disaster recovery facilities.

Contingencies—In the normal course of business, the Company and certain subsidiaries included in the condensed consolidated financial statements are, and have been in the past, named as defendants in various lawsuits and proceedings and are, and have been in the past, involved in certain regulatory examinations. Additional actions, investigations or proceedings may be brought from time to time in the future. The Company is subject to the possibility of losses from these various contingencies.

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

9. COMMITMENTS AND CONTINGENCIES (Continued)

Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. The Company accrues a liability for the estimated costs of adjudication or settlement of asserted and unasserted claims existing as of the reporting period.

The Company is subject to regular examinations by various tax authorities in jurisdictions in which the Company has significant business operations. The Company regularly assesses the likelihood of additional tax assessments that may result from these examinations in each of the tax jurisdictions. A tax accrual has been established, which the Company currently believes to be adequate in relation to the potential for additional tax assessments. Once established, the accrual may be adjusted based on new information or events. The imposition of additional tax assessments, penalties or fines by a tax authority could have a material impact on the Company's effective tax rate.

Additionally, the Company has recorded reserves for certain contingencies to which it may have exposure, such as reserves for certain litigation contingencies and contingencies related to the employer portion of National Insurance Contributions in the U.K.

In January 2008, the Company's U.K. subsidiary, GFI Holdings Limited ("Holdings"), applied to the High Court in London, England, for a declaration that it was contractually entitled to terminate the employment agreements of three senior brokers in September 2007 by reason of their gross misconduct, repudiatory breaches of contract and breaches of fiduciary duty. Following the termination of their employment in September 2007, the three former employees threatened to bring claims against Holdings in respect of past and future bonuses, and restricted stock units in the aggregate amount of approximately $10,000. Holdings is therefore also seeking a declaration that the former employees are not entitled to receive any further bonus payments or payments or benefits of any kind. The former employees have filed a counterclaim but the amount is unquantified. While the Company cannot predict the outcome of any litigation, it believes that the former employees were in serious breach of their obligations and are not therefore entitled to any of the amounts claimed.

In April 2008, Donald P. Fewer, formerly the head of the Company's North American credit division resigned. Following Mr. Fewer's resignation, 22 of the Company's credit brokerage staff resigned and defected to a competitor, notwithstanding various contractual obligations and fiduciary duties. In connection with these actions, GFI Securities LLC has commenced two arbitration proceedings before the Financial Industry Regulatory Authority ("FINRA") Dispute Resolution against Tradition Asiel Securities, Inc., Standard Credit Securities Inc. and certain of the departing employees asserting a number of claims, including tortious interference with contract, breach of fiduciary duty, unfair competition, misappropriation of confidential and proprietary information and the violation of certain FINRA rules of conduct and breach of contract. Certain former employees who are parties to the proceedings have also filed claims or counterclaims against GFI Securities and the Company seeking monetary damages for, inter alia, GFI's alleged breach of their employment agreements and the covenant of good faith and fair dealing. They also seek declaratory judgments relating to the enforceability of the restrictive covenants in their employment or other agreements. In the Supreme Court of the State of New York, Mr. Fewer has filed a lawsuit alleging the Company breached obligations to him, in which the Company has asserted counterclaims based upon his breach of fiduciary duties. In connection with these various proceedings, the Company or its affiliates are seeking equitable relief and monetary damages in an amount to be determined in the course of such proceedings.

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

9. COMMITMENTS AND CONTINGENCIES (Continued)

Based on currently available information, the claims and counterclaims brought against the company in these matters are not expected to have a material adverse impact on the Company's financial position. However, if the claims and counterclaims succeed in respect a significant portion of the amounts previously threatened or made, these matters may be material to the Company's results of operations or cash flows in a given period. It is not presently possible to determine the Company's ultimate exposure to these matters and there is no assurance that the resolution of these matters will not significantly exceed the reserves accrued by the Company.

Risks and Uncertainties—The Company primarily generates its revenues by executing and facilitating transactions for its customers. Revenues for these services are transaction based. As a result, the Company's revenues could vary based upon the transaction volume of certain securities, commodities, foreign exchange and derivative markets.

Guarantees—The Company, through its subsidiaries, is a member of certain exchanges and clearing houses. Under the membership agreements, members are generally required to guarantee certain obligations. To mitigate the performance risks of its members, the exchanges and clearing houses may, from time to time, require members to post collateral, as well as meet certain minimum financial standards. The Company's maximum potential liability under these arrangements cannot be quantified. However, management believes that the potential for the Company to be required to make payments under these arrangements is unlikely. Accordingly, no contingent liability is recorded in the Condensed Consolidated Statements of Financial Condition for these arrangements.

10. FINANCIAL INSTRUMENTS WITH MARKET AND CREDIT RISKS

Disclosure regarding the Company's financial instruments with off-balance sheet risk is described in "Note 16—Financial Instruments with Market and Credit Risks" of the Notes to the Consolidated Financial Statements contained in the Company's 2007 Form 10-K. There have been no material changes to our off-balance sheet risk during the nine months ended September 30, 2008.

11. FINANCIAL INSTRUMENTS

The Company is exposed to market risk associated with movements in foreign currency exchange rates. There have been no material changes to our risk management policy as described in "Note 17—Financial Instruments" of the Notes to the Consolidated Financial Statements contained in the Company's 2007 Form 10-K.

As of and for the nine months ended September 30, 2008 and 2007, the Company had no foreign exchange derivative contracts that were designated as foreign currency cash flow hedges.

The Company's financial assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with SFAS 157. In accordance with SFAS 157, the Company has categorized its financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

11. FINANCIAL INSTRUMENTS (Continued)

Financial assets and liabilities recorded on the Condensed Consolidated Statements of Financial Condition are categorized based on the inputs to the valuation techniques as follows:

Level 1—Financial assets and liabilities whose values are based on unadjusted quoted prices for identifiable assets or liabilities in an active market that the company has the ability to access at the measurement date (examples include active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities).

Level 2—Financial assets and liabilities whose values are based on quoted prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:

•: Quoted prices for identifiable or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds which trade infrequently);
•: Inputs other than quoted prices that are observable for substantially the full term of the asset or liability (examples include interest rate and currency swaps), and

Level 3—Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability. The Company currently does not have any Level 3 financial assets or liabilities.

Valuation Techniques

The Company uses the following valuation techniques in valuing the financial instruments at September 30, 2008:

The Company evaluates its marketable securities in accordance with SFAS No. 115,Accounting for Certain Investments in Debt and Equity Securities, and has determined certain of its investments in marketable securities should be classified as trading securities or available-for-sale and reported at fair value at September 30, 2008. The Company's trading and available-for-sale marketable securities were all categorized as Level I and the fair values of these securities were based on quoted market prices.

The Company uses foreign exchange derivative contracts, including forward contracts and foreign currency swaps, to reduce the effects of fluctuations in certain receivables and payables denominated in foreign currencies. Fair value of the Company's foreign exchange derivative contracts is based on the indicative prices obtained from the banks that are counter-parties to these foreign exchange derivative contracts and management's own calculations and analyses. At September 30, 2008, the Company's foreign exchange derivative contracts have been categorized in Level 2 of the SFAS 157 fair value hierarchy.

The fair value of corporate bonds owned as a result of matched principal transactions is estimated using recently executed transactions and market price quotations. At September 30, 2008, corporate bonds held by the Company are categorized in Level 2 of the SFAS 157 fair value hierarchy.

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

11. FINANCIAL INSTRUMENTS (Continued)

Financial Assets and Liabilities Measured at Fair Value on a recurring basis as of September 30, 2008:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Balance at September 30, 2008

Other assets	$	5,794	$	5,403	$	11,197
Other liabilities	$	—	$	1,541	$	1,541

Other assets include marketable securities that are accounted for either as trading or available-for-sale securities, corporate bonds and foreign exchange derivative contracts. Other liabilities include foreign exchange derivative contracts.

12. REGULATORY REQUIREMENTS

GFI Securities LLC is a registered broker-dealer with the SEC and the Financial Industry Regulatory Authority (FINRA). GFI Securities LLC is also a registered introducing broker with the National Futures Association and the Commodity Futures Trading Commission. Accordingly, GFI Securities LLC is subject to the net capital rules under the Exchange Act and the Commodity Exchange Act.

Under these rules, GFI Securities LLC is required to maintain minimum Net Capital, as defined, of not less than the greater of $250 or 2% of aggregate debits, as defined. GFI Brokers Limited and GFI Securities Limited are subject to the capital requirements of the Financial Services Authority in the United Kingdom ("FSA"). GFI (HK) Securities LLC is subject to the capital requirements of the Securities and Futures Commission in Hong Kong, which require that GFI (HK) Securities LLC maintain minimum capital, as defined, of approximately $386.

The following table sets forth information about the net capital that certain of the Company's subsidiaries were required to maintain as of September 30, 2008:

	GFI Securities LLC		GFI Brokers Limited		GFI Securities Limited		GFI (HK) Securities LLC

Net Capital	$	31,781	$	88,500	$	40,298	$	744
Minimum Net Capital required		250		13,612		29,997		386

Excess Net Capital	$	31,531	$	74,888	$	10,301	$	358

In addition to the minimum net capital requirements outlined above, certain of the Company's subsidiaries are subject to additional regulatory requirements.

GFI Group PTE Ltd is subject to the compliance requirements of the Monetary Authority of Singapore ("MAS"), which requires that GFI Group PTE Ltd, among other things, maintain stockholders' equity of 3,000 Singapore dollars (or approximately $2,095), measured annually. At December 31, 2007 the required measurement date, GFI Group PTE Ltd. had stockholders' equity of

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

12. REGULATORY REQUIREMENTS (Continued)

6,988 Singapore dollars (or approximately $4,832), which exceeded the minimum requirement by approximately 3,988 Singapore dollars (or approximately $2,761).

GFI Securities Limited's Japanese branch is subject to certain licensing requirements established by the Financial Instruments and Exchange Law (the "FIEL") in Japan. As part of the licensing requirements, GFI Securities Limited's Japanese branch is required to maintain minimum "brought-in" capital and stockholders' equity of 50,000 Japanese Yen each (approximately $472), as defined under the FIEL. In addition, GFI Securities Limited's Japanese branch is also subject to the net capital rule promulgated by the FIEL, which requires that net worth; including "brought-in" capital, exceed a ratio of 140.0% of the risk equivalent amount including relevant expenditure. At September 30, 2008, GFI Securities Limited's Japanese branch was in compliance with these capital requirements.

GFI Securities Limited's Dubai branch is registered with the Dubai Financial International Centre and is authorized by the Dubai Financial Services Authority ("DFSA") to provide financial service activities. The branch is subject to the conduct of business rules of the DFSA and has been granted a waiver from prudential regulation by the DFSA.

GFI Securities Limited's Paris branch was established through the exercise of its passport right to open a branch in a European Economic Area state. The establishment of the branch was approved by FSA and acknowledged by Banque de France in France. The branch is subject to the conduct of business rules of the Autorite Des Marches Financiers when dealing with resident customers of France and is regulated, in part, by the FSA.

GFI Securities Limited's Dublin branch was established through the exercise of its passport right to open a branch within a European Economic Area state. The establishment of the branch was approved by FSA and acknowledged by the Irish Financial Services Regulatory Authority ("IFSRA") in Ireland. The branch is subject to all of the conduct of business rules of the IFSRA and is regulated, in part, by the FSA.

GFI Securities Limited's Tel Aviv branch is registered as a foreign corporation in Israel and is conditionally exempt from the requirement to hold a Securities License in accordance with the Israeli Securities law. The branch is therefore not subject to any capital requirements.

GFI Brokers Limited's Sydney branch is registered as a foreign corporation in Australia and is conditionally exempt from the requirement to hold an Australian financial services license under the Australian Securities and Investments Commission Corporations Act of 2001 in respect of the financial services it provides in Australia. This exemption applies to foreign companies regulated by the FSA in accordance with U.K. regulatory standards.

GFI (HK) Brokers Ltd. is registered with and regulated by the Hong Kong Monetary Authority. As part of this registration, GFI (HK) Brokers Ltd. is required to maintain stockholders' equity of 5,000 Hong Kong dollars (or approximately $644). At September 30, 2008, GFI (HK) Brokers Ltd. had stockholders' equity of 8,670 Hong Kong dollars (or approximately $1,111), which exceeded the minimum requirement by 3,670 Hong Kong dollars (or approximately $470).

GFI Korea Money Brokerage Limited is licensed and regulated by the Ministry of Finance and Economy to engage in foreign exchange brokerage business, and is subject to certain regulatory requirements under the Foreign Exchange Transaction Act and regulations there under. As a licensed

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

12. REGULATORY REQUIREMENTS (Continued)

foreign exchange brokerage company, GFI Korea Money Brokerage Limited is required to maintain minimum paid-in capital of 5,000 Korean Won (or approximately $4). At September 30, 2008, GFI Korea Money Brokerage Limited met the minimum requirement for paid-in-capital of 5,000 Korean Won.

These regulatory rules may restrict the Company's ability to withdraw capital from its regulated subsidiaries. The Company's regulated subsidiaries were in compliance with all minimum net capital requirements as of September 30, 2008.

13. SEGMENT AND GEOGRAPHIC INFORMATION

The Company has three operating segments: North America Brokerage, Europe Brokerage and Asia Brokerage. Additionally, the Company aggregated its operating segments into two reportable segments: Brokerage and "All Other". The Brokerage segment includes operations from North America and Europe. The All Other segment captures costs that are not directly assignable to one of the operating business segments, primarily consisting of the Company's corporate business activities and operations from software, analytics and market data. In addition, the All Other segment includes the Company's Asia Brokerage operations as it does not meet the quantitative threshold for separate disclosure.

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

13. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

Selected financial information for the Company's reportable segments is presented below for periods indicated:

		Three Months Ended September 30,						Nine Months Ended September 30,

		2008			2007			2008			2007
Revenue
Brokerage		$	205,657		$	222,163		$	695,979		$	638,023
All Other			37,481			32,580			123,288			85,159

	Total Consolidated Revenue	$	243,138		$	254,743		$	819,267		$	723,182

Interest Revenue:
Brokerage		$	13		$	30		$	37		$	42
All Other			2,174			2,559			6,911			6,946

	Total Consolidated Interest Revenues	$	2,187		$	2,589		$	6,948		$	6,988

Interest Expense:
Brokerage		$	507		$	444		$	1,653		$	895
All Other			3,001			1,259			8,688			4,659

	Total Consolidated Interest Expense	$	3,508		$	1,703		$	10,341		$	5,554

Depreciation and Amortization:
Brokerage		$	—		$	—		$	—		$	—
All Other			7,192			6,747			23,563			17,694

	Total Consolidated Depreciation and Amortization	$	7,192		$	6,747		$	23,563		$	17,694

(Loss) Income before Income Taxes:
Brokerage		$	47,874		$	72,656		$	210,582		$	210,199
All Other			(58,451	)		(30,007	)		(127,253	)		(94,797	)

	Total Consolidated (Loss) Income before Income Taxes	$	(10,577	)	$	42,649		$	83,329		$	115,402

In addition, with the exception of goodwill, the Company does not identify or allocate assets by operating segment, nor does its chief operating decision maker evaluate operating segments using discrete asset information. See Note 4 for goodwill by reportable segment.

The Company primarily offers its products and services in North America, Europe and the Asia-Pacific region.

Information regarding revenues for the three and nine months ended September 30, 2008 and 2007, respectively, and information regarding long-lived assets (defined as property, equipment,

GFI GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

(In thousands except share and per share amounts)

13. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

leasehold improvements and software inventory) in geographic areas as of September 30, 2008 and December 31, 2007, respectively, are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,

	2008		2007		2008		2007
Revenues:
United States	$	75,652	$	103,211	$	286,410	$	312,652
United Kingdom		115,190		103,317		367,219		280,966
Other		52,296		48,215		165,638		129,564

Total	$	243,138	$	254,743	$	819,267	$	723,182

	September 30, 2008		December 31, 2007

Long-lived Assets, as defined:
United States	$	61,910	$	45,126
United Kingdom		18,362		11,810
Other		5,358		5,029

Total	$	85,630	$	61,965

Revenues are attributed to geographic areas based on the location of the relevant legal entities.

14. OTHER COMPREHENSIVE INCOME (LOSS)

		Three Months Ended September 30,						Nine Months Ended September 30,

		2008			2007			2008			2007
Loss on available for sale securities
	Before Tax Amount	$	(1,493	)	$	—		$	(68	)	$	—
	Tax Benefit		425			—			6			—

	After Tax Amount	$	(1,068	)	$	—		$	(62	)	$	—

Foreign currency translation adjustment
	Before Tax Amount	$	(3,450	)	$	(178	)	$	(3,755	)	$	(104	)
	Tax Benefit		1,497			102			1,631			70

	After Tax Amount	$	(1,953	)	$	(76	)	$	(2,124	)	$	(34	)

15. SUBSEQUENT EVENT

In October 2008, the Board of Directors declared a quarterly cash dividend of $0.05 per share payable on November 28, 2008 to shareholders of record on November 14, 2008.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
GFI Group Inc.
New York, New York

We have reviewed the accompanying condensed consolidated statement of financial condition of GFI Group Inc. and subsidiaries (the "Company") as of September 30, 2008, and the related condensed consolidated statements of operations and comprehensive (loss) income for the three-month and nine-month periods ended September 30, 2008 and 2007, and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2008 and 2007. These interim financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition of GFI Group Inc. and subsidiaries as of December 31, 2007, and the related consolidated statements of income, comprehensive income, cash flows and changes in stockholders' equity for the year then ended (not presented herein); and in our report dated February 28, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial condition as of December 31, 2007 is fairly stated, in all material respects, in relation to the consolidated statement of financial condition from which it has been derived.

/s/DELOITTE & TOUCHE LLP

New York, New York
November 7, 2008

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

This Quarterly Report on Form 10-Q (this "Form 10-Q") contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words "believe," "anticipate," "expect," "estimate," "intend," "project," "will be," "will likely continue," "will likely result," or words or phrases of similar meaning. These forward-looking statements are based largely on the expectations of management and are subject to a number of risks and uncertainties including, but not limited to, the following:

•: the risks and other factors described under the heading "Risk Factors" and elsewhere in our 2007 Form 10-K;
•: expansion and growth of our operations generally or of specific products or services;
•: our ability to attract and retain key personnel, including highly qualified brokerage personnel;
•: our entrance into new brokerage markets, including investments in establishing new brokerage desks;
•: competition from current and new competitors;
•: our ability to keep up with rapid technological change and to continue to develop and support our electronic brokerage systems in a cost effective manner.
•: future results of operations and financial condition;
•: the success of our business strategies;
•: economic, political and market factors affecting trading volumes, securities prices or demand for our brokerage services;
•: financial difficulties experienced by our customers or key participants in the markets in which we focus our brokerage services;
•: risks associated with potential acquisitions by us of businesses or technologies;
•: the maturity of key markets and any resulting contraction of commissions;
•: our ability to manage our international operations;
•: uncertainties associated with currency fluctuations;
•: our failure to protect or enforce our intellectual property rights;
•: changes in laws and regulations governing our business and operations or permissible activities and our ability to comply with such laws and regulations;
•: uncertainties relating to litigation; and
•: changes in the availability of capital.

The foregoing risks and uncertainties, as well as those risks discussed under the headings "Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 3—Quantitative and Qualitative Disclosures About Market Risk" and elsewhere in this Quarterly Report, may cause actual results to differ materially from the forward-looking statements. The information included herein is given as of the filing date of this Form 10-Q with the SEC and future events or circumstances could differ significantly from these forward-looking statements. The Company does not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Business Environment

As an inter-dealer broker, our results of operations are impacted by a number of external market factors, including market volatility, organic growth of the derivative and other markets in which we provide our brokerage services, the particular mix of transactional activity in our various products and the competitive environment in which we operate. Outlined below are management's observations of these external market factors during the most recent fiscal period. The factors outlined below are not the only factors that have impacted our results of operations for the most recent fiscal period, and additional or other factors may impact, or have different degrees of impact, on our results of operations in future periods.

Market Volatility

As a general rule, our business benefits from volatility in the markets that we serve, as periods of increased volatility typically coincide with more robust trading by our clients and a higher volume of transactions. Market volatility is driven by a range of external factors, some of which are market specific and some of which are correlated to general macro-economic conditions. During the third quarter of 2008, particularly in September, the markets in which we operate experienced heightened volatility as the ongoing credit crisis in the U.S. resulted in historic changes to the financial industry, a substantial freezing of the credit markets and far-reaching government intervention.

The credit markets experienced periods of significant volatility in the third quarter of 2008 as Lehman Brothers and Washington Mutual Inc. declared bankruptcy. Following this period of significant volatility, the credit crisis caused a loss of investor confidence and lending substantially froze. The credit crisis also spread overseas as international banks and financial firms struggled with problematic mortgage and debt portfolios and, in September, various European governments proposed financial rescue plans. The volume of investment grade and high yield bonds issued in the third quarter fell 68% and 51%, respectively, from the prior year, according to Thomson Reuters. Volatility in the U.S. Treasury markets approached or exceeded all-time highs as investors sought safe havens. Investment grade bonds were also volatile in the quarter with the premium on double-A rated bonds over treasuries widening to 3.98 percentage points at quarter end from 2.35 at the beginning of the quarter according to Merrill Lynch indexes.

The global equity markets experienced periods of considerable volatility as demonstrated by historical price volatility of the Chicago Board Options Exchange SPX ("VIX") and Dow Jones Industrial Average ("DJIA") volatility indices. The VIX closed at a record high at the end of the quarter, reflecting investor anxiety after the U.S. House of Representatives failed to pass a financial bailout package intended to ease the credit crisis. Global equity market indices were volatile in the quarter with the DJIA decreasing 4.4% and experiencing its largest single day point decline, and the Dow Jones World Index, excluding the U.S., dropping 22% in dollar terms. The decline in equities was broad based with the pan-European Dow Jones Stoxx 600 Index down 12.0% and the Japanese Nikkei Index down 17%. Emerging markets were also generally down on global economic uncertainty and decreasing commodity prices with the Emerging Markets MSCI Index plunging 27% in the third quarter, its largest point drop on record.

Interest rate and foreign exchange markets experienced periods of heightened volatility resulting from global economic and inflationary concerns, as well as the Federal Reserve and central banks globally acting to combat the credit crisis. The U.S. Dollar Index, which measures the performance of the U.S. dollar against a basket of currencies, increased 5.0% in the quarter. The U.S. dollar strengthened 11.8% versus the Euro, rallied 12.0% against the British Pound and was little changed versus the Japanese Yen.

Commodity markets also experienced periods of heightened volatility as demonstrated by price movements on the S&P GSCI Energy and Non-Energy commodity indices as compared to the third quarter of 2007 and the second quarter of 2008. Commodity prices hit highs in early July, then dropped

sharply until early September, at which point they rallied as the U.S. government took steps to stabilize the financial system. The Reuters CRB Commodity Price Index fell 11.8% in September, the largest monthly drop in the 48-year history of the index. Oil futures prices decreased 37% in the quarter from a peak of $145.29 a barrel on July 3 to $91.15 on September 16, amid a broad commodity sell-off based on deteriorating demand. Oil futures ended the third quarter down 28%. Other commodities such as gold and grain were also volatile in the third quarter as investors shifted their funds to a strengthening U.S. dollar. Gold fell 5.6% in the quarter, but was fairly volatile throughout the period, including a decrease of up to 20%.

Growth in Underlying Markets and New Product Offerings

Our business has historically benefited from growth in the OTC derivatives markets due to either the expansion of existing markets, including increased notional amounts outstanding or increased transaction volumes, or the development of new products or classes of products. The level of growth in these markets is difficult to measure on a quarterly basis as there are only a few independent, objective measures of growth in outstanding notional amount of OTC derivatives, all of which are published retrospectively and do not measure transactional volumes. Therefore, to help gauge growth in any particular quarter, management also looks to the published results of large OTC derivatives dealers and certain futures exchanges as potential indicators of transactional activity in the related OTC derivative markets.

The International Swaps and Derivatives Association ("ISDA") released its Mid-Year 2008 Market Survey in September 2008 detailing growth in global notional outstanding in various over-the-counter markets. The ISDA statistics indicated that there was growth in the notional outstanding for all derivative categories over the previous year's first half results, including interest rate and currency derivatives, which were up 33.9%, credit default swaps, which were up 20.1%, and equity derivatives, which were up 18.7%. However, credit default swaps decreased 12.2% from the Year-End 2007 Market Survey, its first sequential period decline. ISDA attributed this decline to the industry's efforts to reduce risk through netting of offsetting transactions.

Despite these indicators of growth in notional outstanding amount of OTC derivatives, a trend is underway of decreasing trading volumes in certain OTC derivatives products as hedge funds deploy decreased amounts of trading capital due to investor redemptions and reduced borrowing. Some impact of this trend can be seen in transaction volumes of certain products traded on futures exchanges. For several years, exchange traded derivatives have exhibited generally similar growth rates to those of related OTC derivative markets. In the third quarter, CME Group Inc. ("CME"), excluding its New York Mercantile Exchange operations, reported a 10% decrease in quarterly average daily volumes, while the New York Mercantile Exchange ("NYMEX"), Intercontinental Exchange, and International Securities Exchange's average daily volumes were up, respectively, 23%, 12% and 27%, which are somewhat lower rates of growth than in prior years. In addition, several exchanges reported decreases in average daily volumes for August versus the prior year. Because there is currently minimal or no exchange-based trading activity of credit futures, exchange-traded volumes are not an effective indicator of activity levels of OTC credit products.

In addition, newer products and our expansion into growing markets and new geographical areas have historically contributed to the growth in our brokerage revenues. New products have developed in certain wet and dry freight and property derivative markets, while the currency and interest rate derivative markets have grown, in part, due to the growth of emerging markets in Eastern Europe, Asia and Latin America. While hedge fund deleveraging in the structured credit and high yield markets have recently led to lower volumes in these products, transactional volumes in single name and index credit product derivatives have remained relatively robust. Our recent expansion with new offices in Calgary, Chile, Dubai and Tel Aviv all look to capitalize on regional growth opportunities, as does our minority interest in an Argentinean inter-dealer broker.

Competitive Environment

Another major external market factor affecting our business and results of operations is competition, which may take the form of competitive pressure on the commissions we charge for our brokerage services or competition for brokerage personnel with extensive experience in the specialized markets we serve. Competition for the services of productive brokers remained intense in the quarter as other inter-dealer brokers sought to bolster their derivative brokerage capabilities by hiring, or attempting to hire certain of our key brokerage personnel. During the third quarter, there was also consolidation in the dealer market and retraction in the hedge fund industry, which may lead to increased competition to provide brokerage services to a smaller number of market participants.

Efforts to regulate credit derivatives and to create a central clearinghouse for credit derivatives were accelerated in the third quarter as the credit crisis and failure of Lehman Brothers have highlighted the need to better understand and manage counterparty exposure. As a result, there may be increased competition as the credit markets in the U.S. and Europe emphasize clearing, automation and transparency.

Financial Overview

As more fully discussed below, our results of operations are significantly impacted by our revenue growth and the amount of compensation and benefits we provide to our employees. The following factors had a significant impact on our revenues and employee costs during the three month period ended September 30, 2008:

•

For the three months ended September 30, 2008, revenues decreased 4.6% from $254.7 million for the three months ended September 30, 2007 to $243.1 million. A significant factor contributing to this decline was an approximately $9.6 million net charge for unsettled trades directly related to the Lehman Brothers bankruptcy, which impacted our matched principal business. Factors which positively contributed to revenue in the current quarter included:

•: the acquisition of Trayport Limited in January 2008;
•: the increase in our brokerage personnel (consisting of brokers, trainees and clerks) from 1,021 at September 30, 2007 to 1,082 at September 30, 2008;
•: heightened volatility and volume growth in certain markets in which we provide brokerage services such as cash equities and equity derivatives;
•: the continued development and expansion of our hybrid brokerage capabilities, including CreditMatch® in Europe and EnergyMatch® in the U.S.; and
•: the continued development, marketing and sale of our trading software, data and analytical products.

Offsetting these growth factors were the departure of almost two dozen of our credit division personnel in New York to a competitor, as described under Part II Item 1-Legal Proceedings, decreased activity in certain structured credit products due to hedge fund deleveraging, the demise or merger of several of our major customers and thinner trading in the more complex structured credit markets.

•: The most significant component of our cost structure is compensation and employee benefits, which includes salaries, sign-on bonuses, incentive compensation and related employee benefits and taxes. Our compensation and employee benefits have grown from $158.8 million for the three months ended September 30, 2007 to $176.5 million for the three months ended September 30, 2008. The main factors contributing to the growth in compensation and employee benefits were $14.5 million in severance and other costs from a restructuring initiative implemented during the quarter, a $6.4 million accrual for broker bonus compensation which will be paid in cash rather than, as originally contemplated, in RSUs , higher fixed salaries due

to a higher employee headcount, and an increase in sign-on bonuses for certain newly-hired brokers and certain existing brokers who, in each case, sign long-term employment agreements with us.

Our compensation and employee benefits for all employees have both a fixed and variable component. Base salaries and benefit costs are primarily fixed for all employees, while bonuses constitute the variable portion of our compensation and employee benefits. Within overall compensation and employee benefits, employment costs associated with our brokerage personnel are the largest component. Bonuses for brokerage personnel are primarily based on the operating results of their related brokerage desk as well as their individual performance. For many of our brokerage employees, their bonus constitutes a significant component of their overall compensation. Additionally, a portion of our bonus expense is subject to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period.

Further, we grant sign-on bonuses for certain newly-hired brokers or for certain of our existing brokers who agree to long-term employment agreements. These sign-on bonuses may be paid in the form of cash, RSUs or forgivable loans and are typically amortized over the term of the related employment agreement, which is generally two to four years. These employment agreements typically contain forfeiture provisions for the forfeiture of unvested RSUs and the repayment of all or a portion of any sign-on bonus or forgivable loan should the employee voluntarily terminate his or her employment or if the employee's employment is terminated for cause during the initial term of the agreement.

Results of Consolidated Operations

The following table sets forth our condensed consolidated results of operations for the periods indicated:

				Three Months Ended September 30,					Nine Months Ended September 30,

				2008			2007		2008		2007
				(dollars in thousands)
REVENUES:
Brokerage revenues:
		Agency commissions		$	182,591		$	198,405	$	613,754	$	562,396
		Principal transactions			43,771			46,467		156,397		136,888

			Total brokerage revenues		226,362			244,872		770,151		699,284
		Software, analytics and market data			14,034			4,855		38,450		14,672
		Interest income			2,187			2,589		6,948		6,988
		Other income			555			2,427		3,718		2,238

Total Revenues					243,138			254,743		819,267		723,182

EXPENSES:
	Compensation and employee benefits				176,462			158,845		528,390		453,827
	Communications and market data				12,640			11,329		35,565		33,084
	Travel and promotion				11,845			9,929		36,859		28,935
	Rent and occupancy				14,969			6,439		28,342		17,529
	Depreciation and amortization				7,192			6,747		23,563		17,694
	Professional fees				7,756			4,459		20,119		12,360
	Clearing fees				12,026			8,063		33,714		22,532
	Interest				3,508			1,703		10,341		5,554
	Other expenses				7,317			4,580		19,045		16,265

Total Expenses					253,715			212,094		735,938		607,780

(LOSS) INCOME BEFORE INCOME TAXES					(10,577	)		42,649		83,329		115,402
(BENEFIT FROM) PROVISION FOR INCOME TAXES					(3,861	)		16,746		30,415		45,752

NET (LOSS) INCOME				$	(6,716	)	$	25,903	$	52,914	$	69,650

The following table sets forth our condensed consolidated results of operations as a percentage of our total revenues for the periods indicated:

				Three Months Ended September 30,						Nine Months Ended September 30,

				2008			2007			2008			2007
				(dollars in thousands)
REVENUES:
Brokerage revenues:
		Agency commissions			75.1	%		77.9	%		74.9	%		77.8	%
		Principal transactions			18.0			18.2			19.1			18.9

			Total brokerage revenues		93.1			96.1			94.0			96.7
		Software, analytics and market data			5.8			1.9			4.7			2.0
		Interest income			0.9			1.0			0.8			1.0
		Other income			0.2			0.9			0.5			0.3

Total Revenues					100.0	%		100.0	%		100.0	%		100.0	%

EXPENSES:
	Compensation and employee benefits				72.6			62.4			64.5			62.8
	Communications and market data				5.2			4.4			4.3			4.6
	Travel and promotion				4.9			3.9			4.5			4.0
	Rent and occupancy				6.2			2.5			3.5			2.4
	Depreciation and amortization				3.0			2.6			2.9			2.4
	Professional fees				3.2			1.8			2.5			1.7
	Clearing fees				4.9			3.2			4.1			3.1
	Interest				1.4			0.7			1.3			0.8
	Other expenses				3.0			1.8			2.3			2.2

Total Expenses					104.4	%		83.3	%		89.8	%		84.0	%

(LOSS) INCOME BEFORE INCOME TAXES					(4.4	)		16.7			10.2			16.0
(BENEFIT FROM) PROVISION FOR INCOME TAXES					(1.6	)		6.6			3.7			6.3

NET (LOSS) INCOME					(2.8	)%		10.2	%		6.5	%		9.6	%

Three Months Ended September 30, 2008 Compared to the Three Months Ended September 30, 2007

Net loss for the three months ended September 30, 2008 was $6.7 million as compared to net income of $25.9 million for the three months ended September 30, 2007, a decrease of approximately $32.6 million. Total revenues decreased by $11.6 million, or 4.6%, to $243.1 million for the three months ended September 30, 2008 from $254.7 million for the same period in 2007. Our decreased revenues were primarily due to slightly decreased brokerage revenues combined with the $9.6 million reduction in revenue related to the Lehman Brothers bankruptcy discussed above. This decrease in revenues was largely offset by revenues from Trayport Limited following its acquisition in January 2008. Our total brokerage personnel headcount increased by 61 to a total of 1,082 employees at September 30, 2008 from 1,021 employees at September 30, 2007. Total expenses increased by $41.6 million, or 19.6%, to $253.7 million for the three months ended September 30, 2008 from $212.1 million for the same period from the prior year. Expenses increased primarily due to a number of non-recurring items expensed in the third quarter of 2008. These items included a $14.5 million charge for severance and other expenses related to a front office restructuring initiative that involved closing certain under-performing brokerage desks and reducing headcount by approximately 55 employees, a $6.4 million accrual for broker bonus compensation which will be paid in cash rather than, as originally contemplated, in RSUs, $7.8 million in costs related to the abandonment of our

offices at 100 Wall Street and our move to 55 Water Street in New York, and expenses totaling $1.8 million related to discontinued merger discussions. We also wrote-off a $3.1 million investment in an unconsolidated affiliate, which was deemed to be permanently impaired. Clearing fees increased $3.9 million to $12.0 million in the three months ended September 30, 2008 from $8.1 million in the same period in 2007, due in large part to the growth of matched principal brokerage revenues from our cash equities businesses in North America and Europe. Additionally, higher sign-on and retention bonus expenses and a higher salary base due to a greater employee headcount as compared to the third quarter of 2007 also contributed to higher expenses for the three months ended September 30, 2008. This growth in expenses was partially offset by lower performance-related compensation, including a $3.5 million reduction in compensation expense recognized during the quarter in connection with the $9.6 million charge against revenue due to the Lehman Brothers bankruptcy.

The following table sets forth the changes in revenues for the three months ended September 30, 2008 as compared to the same period in 2007 (dollars in thousands, except percentage data):

				For the Three Months Ended September 30,

				2008		%*			2007		%*			Increase (Decrease)			%**
Revenues
	Brokerage revenues:
		Credit		$	60,029		24.7	%	$	87,845		34.5	%	$	(27,816	)		(31.7	)%
		Equity			69,941		28.8			59,155		23.2			10,786			18.2
		Financial			45,542		18.7			49,298		19.4			(3,756	)		(7.6	)
		Commodity			50,850		20.9			48,574		19.1			2,276			4.7

			Total brokerage revenues		226,362		93.1			244,872		96.1			(18,510	)		(7.6	)
	Other revenues				16,776		6.9			9,871		3.9			6,905			70.0

Total Revenues				$	243,138		100.0	%	$	254,743		100.0	%	$	(11,605	)		(4.6	)%

*

Denotes % of total revenues

Denotes % change in 2008 as compared to 2007

•

Brokerage Revenues—We offer our brokerage services in four broad product categories: credit, equity, financial and commodity. Below is a discussion on our brokerage revenues by product category for the three months ended September 30, 2008.

•: Broker productivity (defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period) across all product categories decreased by approximately 13.1% for the three months ended September 30, 2008 compared to the same period in 2007. This decrease is due to lower brokerage revenues and higher brokerage personnel headcount in the third quarter of 2008 year over year.
•: The decrease in credit product brokerage revenues of $27.8 million in 2008 was due to a number of factors including the defection of up to two dozen credit brokers to a competitor from our New York office in April 2008, the $9.6 million net charge related to the Lehman Brothers bankruptcy, decreased activity in certain structured credit products due to hedge fund deleveraging and thinner trading in the more complex structured credit markets globally. Credit derivatives revenues were down substantially in the quarter. The decrease was partially offset by the strong performance of CreditMatch and our cash fixed income business in Europe. Our credit product brokerage personnel increased by 8 to 282 employees at September 30, 2008, up from 274 employees as of September 30, 2007.

•: The increase in equity product brokerage revenues of $10.8 million in 2008 was primarily due to the continued growth in our cash equities and equity derivatives business in Europe and North America. This growth was driven, in part, by heightened volatility in global equity markets due to the ongoing credit crisis and global economic and inflationary concerns. Our equity product brokerage personnel increased by 31 to a total of 232 employees at September 30, 2008, up from 201 employees at September 30, 2007.
•: The decrease in financial product brokerage revenues of $3.8 million in 2008 was primarily attributable to lower volumes in various interest rate derivative products in the quarter as well as a reduction in revenues associated with the sale of certain U.S. dollar interest rate swap and forward rate agreement desks in the first quarter of 2008. Our financial product brokerage personnel increased by 2 to a total of 272 employees at September 30, 2008, up from 270 employees at September 30, 2007.
•: The increase in commodity product brokerage revenues of $2.3 million in the third quarter of 2008 was primarily attributable to our European commodity and energy business, including wet freight, electric power, metals and emissions. During the quarter, we also introduced our North American EnergyMatch electronic platform for contracts on ERCOT. Our commodity product brokerage personnel increased by 20 to a total of 296 employees at September 30, 2008, up from 276 employees at September 30, 2007.

•

Other Revenues

•: The increase in other revenues in the third quarter of 2008 to $16.8 million from $9.9 million in the third quarter of 2007 was primarily related to an increase in software, analytics and market data revenues related to the January 31, 2008 acquisition of Trayport Limited, a provider of electronic trading software, which generated software and consulting revenue of $8.2 million in the third quarter of 2008. This was partially offset by a decrease in interest and other miscellaneous income.

Expenses

The following table sets forth the changes in expenses for the three months ended September 30, 2008 as compared to the same period in 2007 (dollars in thousands, except percentage data):

			For the Three Months Ended September 30,

			2008		%*			2007		%*			Increase (Decrease)		%**
Expenses
		Compensation and employee benefits	$	176,462		72.6	%	$	158,845		62.4	%	$	17,617		11.1	%
		Communications and market data		12,640		5.2			11,329		4.4			1,311		11.6
		Travel and promotion		11,845		4.9			9,929		3.9			1,916		19.3
		Rent and occupancy		14,969		6.2			6,439		2.5			8,530		132.5
		Depreciation and amortization		7,192		3.0			6,747		2.6			445		6.6
		Professional fees		7,756		3.2			4,459		1.8			3,297		73.9
		Clearing fees		12,026		4.9			8,063		3.2			3,963		49.2
		Interest		3,508		1.4			1,703		0.7			1,805		106.0
		Other expenses		7,317		3.0			4,580		1.8			2,737		59.8

	Total Expenses		$	253,715		104.4	%	$	212,094		83.3	%	$	41,621		19.6	%

*: Denotes % of total revenues
**: Denotes % change in 2008 as compared to 2007

•

Compensation and Employee Benefits

•: The increase in compensation and employee benefits of $17.6 million was primarily attributable to several non-recurring items including severance and other costs of $14.5 million in connection with a restructuring initiative that involved closing certain under-performing desks and reducing headcount by approximately 55 employees, or 3% of our global workforce. We expect these 55 employees to leave our payroll in the fourth quarter of 2008. In addition, we recorded a $6.4 million accrual for broker bonus compensation which will be paid in cash rather than in RSUs, as originally contemplated. Higher sign-on and retention bonus expenses and a higher salary base due to a greater brokerage employee headcount also contributed to higher expenses for the quarter year over year. This expense growth was partially offset by lower performance-related compensation, including a $3.5 million reduction in compensation expense recognized during the quarter in connection with the $9.6 million charge against revenue due to the Lehman Brothers bankruptcy.
•: Total compensation and employee benefits as a percentage of total revenues increased to 72.6% for the three months ended September 30, 2008 as compared to 62.4% for the same period in the prior year. Performance bonus expense represented 45.7% and 56.2% of total compensation and employee benefits expense for the three months ended September 30, 2008 and 2007, respectively. This decrease is largely the result of decreased revenue in the three months ended September 30, 2008 as compared to the same period in 2007, lower broker productivity, and a shift in product mix to lower margin equity and commodities products. In April 2008, almost two dozen of our credit division managers, brokers and other personnel in New York defected to a competitor, notwithstanding that many of them did so in breach of contractual obligations. The departure of these employees resulted in increased hiring, retention, bonus compensation and litigation costs and, as a result, compensation and employee benefits as a percentage of revenues were under pressure in the third quarter and will likely remain so in the near-term. A portion of our bonus expense is subject to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period. Additionally, sign-on bonus expense, which includes the amortization of sign-on bonuses initially made in prior periods, represented 8.4% and 4.0% of total compensation and employee benefits for the three months ended September 30, 2008 and 2007, respectively. This increase is primarily due to a large increase in sign-on bonuses paid in the second quarter of 2008 in connection with the hiring of new employees and the retention of existing employees to rebuild our U.S. Credit division.
•: As discussed above, we initiated a restructuring of our brokerage operations to better position ourselves to respond to evolving market conditions. The initiative entailed the closure of certain under performing brokerage desks and a reduction in headcount of approximately 55 employees. The reduction in headcount was across all product categories. Severance and termination fees in the quarter represented 4.9% of total compensation and benefits expense as compared to 0.3% the previous year.

•

All Other Expenses

•: Communications and market data expenses increased $1.3 million for the three months ended September 30, 2008 from the same period in the prior year. The third quarter of 2008 included $0.6 million in increased bandwidth purchases and similar increased telecommunications costs in connection with growth of our operations in Asia, as well as $0.2 million in costs related to our corporate headquarters move to 55 Water Street. The remaining $0.5 million in additional costs is related to our expansion into new offices and our increased brokerage headcount relative to the same period in 2007.

•: Travel and promotion, as a percentage of our total brokerage revenues for the three months ended September 30, 2008, increased to 5.2% from 4.1% for the same period from the prior year. This increase was primarily attributable to a change in product mix that resulted in a higher percentage of revenue coming from cash credit and equity products as compared to structured derivative products. There tends to be greater competition and, therefore, higher promotional expenses for these products.
•: The increase in rent and occupancy costs of $8.5 million was largely attributable to $7.8 million in costs related to the abandonment of our offices at 100 Wall Street and our move to 55 Water Street in New York. See Note 9 to the Condensed Consolidated Financial Statements for further discussion of the Company's relocation project.
•: The increase in depreciation and amortization was primarily due to the increase in capitalized equipment costs and amortization expense of intangibles resulting from the acquisition of Trayport Limited. See Note 4 to the Condensed Consolidated Financial Statements for further discussion on the acquisition of Trayport Limited. We expect that depreciation and amortization will continue to increase in the future as a result of capital expenditures related to our new office space in New York, as well as our continued investment in software development.
•: The increase in professional fees was primarily due to a $1.8 million increase in professional and legal fees related to our merger discussions with a competitor, and $0.8 million in litigation and other legal expenses, including expenses related to the defection of credit division personnel to subsidiaries of Cie Financiere Tradition in violation of their contractual obligations. The remaining net increase was mainly attributable to an increase in strategic and other consulting fees.
•: The increase in clearing fees was partially due to the growth of matched principal brokerage revenues from our cash equities business. Clearing fees, as a percentage of our total revenues from principal transactions, increased to 27.5% for the three months ended September 30, 2008, from 17.4% for the same period from the prior year. This increase was largely due to the Lehman Brothers loss included in our matched principal revenues as well as the higher number and types of matched principal transactions executed for our equity products division in Europe and North America. Principal transactions are generally settled through third party clearing organizations that charge us a fee for their services. We also use the services of stock exchanges and floor brokers to assist in the execution of transactions. Fees paid to floor brokers and execution fees paid to exchanges in these circumstances are included in clearing fees. In addition, clearing fees also include fees incurred in certain equity transaction executed on an agency basis.
•: Interest expense increased $1.8 million in the third quarter of 2008 from the same period in 2007 due to our acquisition of Trayport in January of 2008 and the additional borrowings required to fund the acquisition. We also incur interest expense in relation to clearing facilities for our matched principal business.
•: Other expenses increased $2.7 million in the third quarter of 2008 from the same period in 2007 due primarily to the $3.1 million write-off of an investment in an unconsolidated affiliate which was deemed to be permanently impaired.
•: Our effective tax rate was 36.5% for the three months ended September 30, 2008, as compared to 39.3% for the same period in the prior year. Each quarter, we adjust our provision for income tax expense to the expected annual effective rate. As a result, our effective tax rate may vary by quarter, and our effective tax rate in any given quarter may not match our expected 2008 annual effective tax rate. The reduction in the effective tax rate was primarily due to a decrease in taxes related to our foreign operations. The United

Kingdom lowered its statutory corporate income tax rate from 30% to 28% on April 1, 2008. In addition, the geographic mix of our earnings for the quarter has shifted to jurisdictions with lower tax rates, resulting in a lower aggregate effective tax rate.

Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007

Net income for the nine months ended September 30, 2008 was $52.9 million as compared to net income of $69.7 million for the nine months ended September 30, 2007, a decrease of approximately $16.8 million or 24.1%. Total revenues increased by $96.1 million, or 13.3%, to $819.3 million for the nine months ended September 30, 2008 from $723.2 million for the same period from the prior year. Our increased revenues were primarily due to increased brokerage revenues across all product categories, with the most significant dollar increases in equity and commodities, offset by the $9.6 million reduction in revenue related to the Lehman Brothers bankruptcy discussed above. Our acquisition of Trayport Limited in January of 2008 also contributed $21.4 million in revenues for the nine-months ended September 30, 2008. Our total brokerage personnel headcount increased by 61 to a total of 1,082 employees at September 30, 2008 from 1,021 employees at September 30, 2007. Total expenses increased by $128.1 million, or 21.1%, to $735.9 million for the nine months ended September 30, 2008 from $607.8 million for the same period from the prior year. Expenses increased in large part due to higher sign-on and retention bonus expenses and a higher salary base due to a greater employee headcount as compared to the same period in 2007. In addition, we recorded a number of non-recurring items in the nine months ended September 30, 2008. These items included a $14.5 million charge for severance and other expenses related to a front office restructuring initiative that involved closing certain under-performing brokerage desks and reducing headcount by approximately 55 employees, a $6.4 million accrual for broker bonus compensation which will be paid in cash rather than, as originally contemplated, in RSUs, $7.8 million in costs related to the abandonment of our offices at 100 Wall Street and our move to 55 Water Street in New York, and expense of $1.8 million related to discontinued merger discussions. We also wrote-off a $3.1 million investment in an unconsolidated affiliate which was deemed to be permanently impaired. Clearing fees increased $11.2 million to $33.7 million in the nine months ended September 30, 2008 from $22.5 million in the same period in 2007, due in large part to the growth of matched principal brokerage revenues from our cash equities business. This expense growth was partially offset by lower performance-related compensation, including a $3.5 million reduction in compensation expense recognized during the nine months ended September 30, 2008 in connection with a $9.6 million charge against revenue due to the Lehman Brothers bankruptcy.

The following table sets forth the changes in revenues for the nine months ended September 30, 2008 as compared to the same period in 2007 (dollars in thousands, except percentage data):

				For the Nine Months Ended September 30,

				2008		%*			2007		%*			Increase (Decrease)		%**
Revenues
	Brokerage revenues:
		Credit		$	246,999		30.1	%	$	245,092		33.9	%	$	1,907		0.8	%
		Equity			218,293		26.6			168,822		23.3			49,471		29.3
		Financial			143,884		17.6			140,164		19.4			3,720		2.7
		Commodity			160,975		19.6			145,206		20.1			15,769		10.9

			Total brokerage revenues		770,151		94.0			699,284		96.7			70,867		10.1
	Other revenues				49,116		6.0			23,898		3.3			25,218		105.5

Total Revenues				$	819,267		100.0	%	$	723,182		100.0	%	$	96,085		13.3	%

*: Denotes % of total revenues
**: Denotes % change in 2008 as compared to 2007

•

Brokerage Revenues—We offer our brokerage services in four broad product categories: credit, equity, financial, and commodity. Below is a discussion on our brokerage revenues by product category for the nine months ended September 30, 2008.

•: Broker productivity (defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period) across all product categories increased by approximately 3.0% for the nine months ended September 30, 2008, as compared to the same period from the prior year.
•: The increase in credit product brokerage revenues of $1.9 million for the first nine months of 2008 as compared with the same period of 2007 was due to a number of factors, including credit and equity market volatility related to the ongoing credit crisis and global inflationary and economic concerns, and the continued success in Europe of CreditMatch®, partially offset by the $9.6 million loss related to a net charge in connection with the Lehman Brothers bankruptcy. Credit derivatives revenues experienced strong growth in Europe and Asia, while down in North America. Our credit product brokerage personnel headcount increased from 274 at September 30, 2007 to 282 employees at September 30, 2008, although headcount fluctuated over the period as almost two dozen of our credit division managers, brokers and other personnel in New York defected to a competitor in April 2008.
•: The increase in equity product brokerage revenues of $49.5 million for the nine months ended September 30, 2008 as compared with the same period in 2007 was primarily due to the continued growth of our Paris office, which specializes in cash equities and equity derivatives, as well as our cash equity and equity derivatives business in the U.K. and U.S. Our equity product brokerage personnel headcount increased by 31 to 232 employees at September 30, 2008, up from 201 employees at September 30, 2007.
•: The increase in financial product brokerage revenues of $3.7 million in the first nine months of 2008 as compared with the first nine months of 2007 was primarily attributable to growth in emerging market interest rate, non-deliverable forwards and currency derivatives globally. Our financial product brokerage personnel increased by 2 to a total of 272 employees at September 30, 2008, up from 270 employees at September 30, 2007.
•: The increase in commodity product brokerage revenues of $15.8 million in the first nine months of 2008 as compared with the first half of 2007 was primarily attributable to growth in European commodity and energy products, including dry and wet freight, metals and electricity. Our commodity product brokerage personnel headcount increased by 20 to a total of 296 employees at September 30, 2008, up from 276 employees at September 30, 2007.

•

Other Revenues

•: The increase in other revenues in 2008 to $49.1 million from $23.9 million in 2007 was primarily related to an increase in software, analytics and market data revenues of $23.8 million and an increase in other income of $1.5 million. The increase in software, analytics and market data revenue was primarily attributable to the January 31, 2008 acquisition of Trayport Limited, a provider of electronic trading software, which provided software revenues of $21.4 million in the first nine months of 2008, and increased subscription revenues for our analytics and market data products. The increase in other income was primarily attributable to net transactional gains resulting from foreign currency fluctuations and net gains and losses on foreign exchange derivative contracts.

Expenses

The following table sets forth the changes in expenses for the nine months ended September 30, 2008 as compared to the same period in 2007 (dollars in thousands, except percentage data):

			For the Nine Months Ended September 30,

			2008		%*			2007		%*			Increase (Decrease)		%**
Expenses
		Compensation and employee benefits	$	528,390		64.5	%	$	453,827		62.8	%	$	74,563		16.4	%
		Communications and market data		35,565		4.3			33,084		4.6			2,481		7.5
		Travel and promotion		36,859		4.5			28,935		4.0			7,924		27.4
		Rent and occupancy		28,342		3.5			17,529		2.4			10,813		61.7
		Depreciation and amortization		23,563		2.9			17,694		2.4			5,869		33.2
		Professional fees		20,119		2.5			12,360		1.7			7,759		62.8
		Clearing fees		33,714		4.1			22,532		3.1			11,182		49.6
		Interest		10,341		1.3			5,554		0.8			4,787		86.2
		Other expenses		19,045		2.3			16,265		2.2			2,780		17.1

	Total Expenses		$	735,938		89.8	%	$	607,780		84.0	%	$	128,158		21.1	%

*

Denotes % of total revenues

Denotes % change in 2008 as compared to 2007

•

Compensation and Employee Benefits

•: The increase in compensation and employee benefits of $74.6 million was primarily attributable to an increase in the number of brokerage personnel from 1,021 employees at September 30, 2007 to 1,082 employees at September 30, 2008 and an increase in broker performance bonuses of $26.6 million resulting in large part from the increase in our brokerage revenues. In addition, in the nine months ended September 30, 2008 we experienced several non-recurring items including severance and other costs of $14.5 million in connection with a restructuring initiative that involved closing certain under-performing desks and reducing headcount by approximately 55 employees, or 3% of our global workforce. We expect these 55 employees to be removed from our payroll in the fourth quarter of 2008. Further, we recorded a $6.4 million accrual for broker bonus compensation which will be paid in cash rather than, as originally contemplated, in RSUs.
•: Total compensation and employee benefits as a percentage of total revenues increased to 64.5% for the nine months ended September 30, 2008 as compared to 62.8% for the same period in the prior year. Additionally, higher sign-on and retention bonuses and a higher salary base due to a higher employee headcount as compared to the third quarter of 2007, also contributed to an increase in this expense. In April 2008, almost two dozen of our credit division managers, brokers and other personnel in New York defected to a competitor, notwithstanding that many of them did so in breach of contractual obligations. The departure of these employees resulted in increased hiring, compensation and litigation costs and, as a result, compensation and employee benefits as a percentage of revenues will remain elevated in the near-term. Bonus expense represented 51.1% and 53.6% of total compensation and employee benefits expense for the nine months ended September 30, 2008 and 2007, respectively. This decrease in the period was due, in part, to the decreased credit revenues from the defection of the North America credit division employees, decreased activity in certain structured credit products due to deleveraging and thinner trading in the more complex structured markets. A portion of our bonus expense is subject

to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period. Additionally, sign-on bonus expense, which includes the amortization of sign-on bonuses initially made in prior periods, represented 6.0% and 4.1% of total compensation and employee benefits for the nine months ended September 30, 2008 and 2007, respectively. This increase in sign-on expense is primarily due to a large increase in sign-on bonuses paid in the second quarter of 2008 in connection with the hiring of new employees and the retention of existing employees to rebuild our North American credit division.

•: As discussed above, we initiated a restructuring of our brokerage operations to better position us to respond to evolving market conditions. The initiative entailed the closure of certain under performing brokerage desks and a reduction in headcount of approximately 55 employees. The reduction in headcount was across all product categories. Severance and termination fees in the year represented 2.0% of total compensation and benefits expense as compared to 0.6% the previous year.

•

All Other Expenses

•: Communications and market data expenses increased $2.5 million for the nine months ended September 30, 2008 from the same period in the prior year. These costs are up primarily due to our expansion into new offices and our increased brokerage headcount.
•: The increase in travel and promotion was primarily attributable to an increase in promotion costs and a change in product mix. Travel and promotion, as a percentage of our total brokerage revenues for the nine months ended September 30, 2008, increased to 4.8% from 4.1% for the same period from the prior year. This increase was primarily attributable to a change in product mix that resulted in a higher percentage of revenue coming from cash credit and equity products as compared to structured derivative products. There tends to be greater competition and, therefore, higher promotional expenses for these products.
•: The increase in rent and occupancy costs of $10.8 million was primarily attributable to $7.8 million in costs related to the abandonment of our offices at 100 Wall Street and our move to 55 Water Street in New York. See Note 9 to the condensed consolidated financial statements for further discussion of the Company's relocation project.
•: The increase in depreciation and amortization was primarily due to the increase in capitalized equipment costs and amortization expense of intangibles resulting from the acquisition of Trayport Limited. See Note 4 to the Condensed Consolidated Financial Statements for further discussion on the acquisition of Trayport Limited. We expect that depreciation and amortization will continue to increase in the future as a result of capital expenditures related to our new office space in New York, as well as our continued investment in software development.
•: The increase in professional fees of $7.8 million was primarily due to a $4.2 million increase in litigation and other legal expenses, including expenses related to the defection of credit division personnel to subsidiaries of Cie Financiere Tradition in violation of their contractual obligations. In addition, the Company incurred $1.8 million in professional fees related to its discontinued merger discussions with a competitor. The remaining $1.8 million increase was mainly attributable to an increase in strategic and other consulting fees.
•: The increase in clearing fees was partially due to the growth of our cash equities business in Europe and North America. Clearing fees, as a percentage of our total revenues from principal transactions, increased to 21.6% for the nine months ended September 30, 2008, from 16.5% for the same period from the prior year. This increase was partially due to the higher number and types of matched principal transactions for equity products we execute in Europe and North America. Principal transactions are generally settled through third

party clearing organizations that charge us a fee for their services. We also use the services of stock exchanges and floor brokers, to assist in the execution of transactions. Fees paid to floor brokers and execution fees paid to exchanges in these circumstances are included in clearing fees. In addition, clearing fees also includes fees incurred in certain equity transaction executed on an agency basis.

•: Interest expense increased $4.8 million in the nine-months ended September 30, 2008 from the same period in 2007 due to our acquisition of Trayport Limited in January of 2008 and the additional borrowings required to fund the acquisition. The company also incurs interest expense in relation to its clearing facilities for its Matched Principal business.
•: Other expenses increased $2.8 million in the nine month period ended September 30, 2008 from the same period in 2007 due to the $3.1 million write-off of an investment in an unconsolidated affiliate which was deemed to be permanently impaired.
•: Our effective tax rate was 36.5% for the nine months ended September 30, 2008 as compared to 39.6% for the same period in the prior year. Each quarter, we adjust our provision for income tax expense to the expected annual effective rate. As a result, our effective tax rate may vary by quarter, and our effective tax rate in any given quarter may not match our expected 2008 annual effective tax rate. The reduction in the effective tax rate was primarily due to a decrease in taxes related to our foreign operations. The United Kingdom lowered its statutory corporate income tax rate from 30% to 28% on April 1, 2008. In addition, the geographic mix of our earnings for the nine months ended September 30, 2008 has shifted to jurisdictions with lower tax rates, resulting in a lower aggregate effective tax rate.

Results of Segment Operations

Our operations are managed along three operating segments: North America Brokerage, Europe Brokerage and Asia Brokerage. Our brokerage operations provide brokerage services in four broad product categories: credit, financial, equity and commodity. We aggregated our operating segments into two reportable segments: "Brokerage" and "All Other". The Brokerage segment includes operations from North America and Europe. The All Other segment captures costs that are not directly assignable to the Brokerage segment, primarily consisting of our corporate business activities and operations from software, analytics and market data. Additionally, the All Other segment includes our Asia brokerage operations as it does not meet the quantitative threshold for separate disclosure in accordance with Statement of Financial Accounting Standards No. 131,Disclosures About Segments of an Enterprise and Related Information.

The following tables summarize our revenues, expenses and pre-tax income by segment:

		Three Months Ended September 30,				Nine Months Ended September 30,

		2008		2007		2008		2007
Revenues
Brokerage		$	205,657	$	222,163	$	695,979	$	638,023
All Other			37,481		32,580		123,288		85,159

	Total Consolidated Revenues	$	243,138	$	254,753	$	819,267	$	723,182

		Three Months Ended September 30,				Nine Months Ended September 30,

		2008		2007		2008		2007
Expenses
Brokerage		$	157,783	$	149,507	$	485,397	$	427,824
All Other			95,932		62,587		250,541		179,956

	Total Consolidated Expenses	$	253,715	$	212,094	$	735,938	$	607,780

		Three Months Ended September 30,						Nine Months Ended September 30,

		2008			2007			2008			2007
Pre-Tax (Loss) Income
Brokerage		$	47,874		$	72,656		$	210,582		$	210,199
All Other			(58,451	)		(30,007	)		(127,253	)		(94,797	)

	Total Consolidated Pre-Tax (Loss) Income	$	(10,577	)	$	42,649		$	83,329		$	115,402

Segment Results for the Three Months Ended September 30, 2008 Compared to the Three Months Ended September 30, 2007

•

Revenues

•: Revenues for Brokerage represent revenues generated from transactions in North America and Europe. Total revenues for Brokerage decreased by $16.5 million or 7.4% to $205.7 million for the three months ended September 30, 2008 from $222.2 million for the three months ended September 30, 2007. The decrease in revenues was due to an overall decrease in revenues due to the factors described above under "Financial Overview".
•: Revenues for All Other primarily consisted of revenues generated from our brokerage operations in Asia and software, analytics and market data. Total revenues from All Other increased by $4.9 million or 15.0%, to $37.5 million for the three months ended September 30, 2008 from $32.6 million for the three months ended September 30, 2007. Revenues for our Asia brokerage operations decreased by $1.0 million or 4.5%, to $22.1 million for the three months ended September 30, 2008 from $23.1 million for the three months ended September 30, 2007. Revenues for our software, analytics and market data increased by $9.2 million or 189.0%, to $14.0 million for the three months ended September 30, 2008 from $4.8 million for the three months ended September 30, 2007. The increase was primarily related to $8.2 million of revenues generated by Trayport Limited.

•

Expenses

•: Total expenses for Brokerage increased by $8.3 million or 5.5%, to $157.8 million for the three months ended September 30, 2008 from $149.5 million for the three months ended September 30, 2007. The increase was primarily due to an increase in compensation and employee benefits, communications and market data, travel and promotion and clearing fees.

The Company records certain direct expenses other than compensation and employee benefits to the operating segments; however, the Company does not allocate certain expenses to its operating segments that are managed separately at the corporate level. The unallocated costs include rent and occupancy, depreciation and amortization, professional fees, interest and other expenses and are included in the expenses for All Other described below. Management does not consider the unallocated costs in its measurement of segment performance.

•: Total expenses for All Other increased by $33.3 million or 53.3%, to $95.9 million for the three months ended September 30, 2008 from $62.6 million for the three months ended September 30, 2007. The increase was primarily due to an increase in compensation and employee benefits, rent and occupancy, depreciation and amortization, interest and other expenses. Additionally, we did not allocate these expenses and the provision for income taxes to the individual segment for internal reporting purposes, as we did not believe that allocating these expenses was beneficial in evaluating segment performance.

Segment Results for the Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007

•

Revenues

•: Revenues for Brokerage represent revenues generated from transactions in North America and Europe. Total revenues for Brokerage increased by $58.0 million, or 9.1%, to $696.0 million for the nine months ended September 30, 2008 from $638.0 million for the nine months ended September 30, 2007. The increase in revenues was due to an increase in revenues generated from our four product areas. The factors that contributed to the increase in these product areas include those described above under "Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007".
•: Revenues for All Other primarily consisted of revenues generated from our brokerage operations in Asia and software, analytics and market data. Total revenues from All Other increased by $38.1 million, or 44.8%, to $123.3 million for the nine months ended September 30, 2008 from $85.2 million for the nine months ended September 30, 2007. Revenues for our Asia brokerage operations increased by $13.3 million, or 21.4%, to $75.5 million for the nine months ended September 30, 2008 from $62.2 million for the nine months ended September 30, 2007. Revenues for our software, analytics and market data increased by $23.8 million, or 162.1%, to $38.5 million for the nine months ended September 30, 2008 from $14.7 million for the nine months ended September 30, 2007. The increase was primarily related to $21.4 million of revenues generated by Trayport Limited.

•

Expenses

•: Total expenses for Brokerage increased by $57.6 million or 13.5%, to $485.4 million for the nine months ended September 30, 2008 from $427.8 million for the nine months ended September 30, 2007. The increase was primarily due to an increase in compensation and employee benefits, communications and market data, travel and promotion and clearing fees.

The Company records certain direct expenses other than compensation and employee benefits to the operating segments; however, the Company does not allocate certain expenses to its operating segments that are managed separately at the corporate level. The unallocated costs include rent and occupancy, depreciation and amortization, professional fees, interest and other expenses and are included in the expenses for All Other described below. Management does not consider the unallocated costs in its measurement of segment performance.
•: Total expenses for All Other increased by $70.6 million or 39.2%, to $250.5 million for the nine months ended September 30, 2008 from $179.9 million for the nine months ended September 30, 2007. The increase was primarily due to an increase in compensation and employee benefits, rent and occupancy, depreciation and amortization, interest and other expenses. This increase was partially offset by the decrease in long-term contract costs compared to the same period in the prior year. Additionally, we did not allocate these expenses and the provision for income taxes to the individual segment for internal reporting purposes, as we did not believe that allocating these expenses was beneficial in evaluating segment performance.

Quarterly Results of Operations

The following table sets forth, by quarter, our unaudited statement of operations data for the period from October 1, 2006 to September 30, 2008. Results of any period are not necessarily indicative of results for a full year and may, in certain periods, be affected by seasonal fluctuations in our business.

				Quarter Ended

				September 30, 2008			June 30, 2008		March 31, 2008		December 31, 2007		September 30, 2008		June 30, 2007			March 31, 2007			December 31, 2006
				(dollars in thousands)
Revenues
	Brokerage revenues:
		Agency commissions		$	182,591		$	192,074	$	239,089	$	186,827	$	198,405	$	179,466		$	184,525		$	151,890
		Principal transactions			43,771			53,532		59,094		51,366		46,467		42,044			48,377			33,890

			Total brokerage revenues		226,362			245,606		298,183		238,193		244,872		221,510			232,902			185,780
	Software, analytics and market data				14,034			13,157		11,259		4,850		4,855		4,491			5,326			4,232
	Contract revenue				—			—		13		—		11		204			—			1,092
	Interest income				2,187			2,078		2,683		2,726		2,589		2,297			2,102			2,366
	Other income (loss)				555			688		2,462		1,590		2,416		(380	)		(13	)		601

	Total revenues				243,138			261,529		314,600		247,359		254,743		228,122			240,317			194,071

Expenses
	Compensation and employee benefits				176,462			158,730		193,198		151,020		158,845		143,474			151,508			122,465
Communications and market data					12,640			11,744		11,181		11,538		11,329		11,299			10,456			10,545
Travel and promotion					11,845			13,291		11,723		13,057		9,929		10,170			8,836			9,242
	Rent and occupancy				14,969			6,759		6,614		6,132		6,439		5,529			5,561			5,511
Depreciation and amortization					7,192			8,449		7,922		6,992		6,747		5,720			5,227			6,799
	Professional fees				7,756			7,351		5,012		5,539		4,459		4,332			3,569			5,397
	Clearing fees				12,026			10,486		11,202		10,200		8,063		6,940			7,529			6,312
	Interest				3,508			3,748		3,085		1,522		1,703		2,002			1,849			2,170
	Other expenses				7,317			4,636		7,086		6,023		4,574		6,909			4,649			4,046
	Contract costs				—			—		6		—		6		127			—			639
Lease termination costs to affiliate					—			—		—		—		—		—			—			(57	)

Total expenses					253,715			225,194		257,029		212,023		212,094		196,502			199,184			173,069

(Loss) income before income taxes					(10,577	)		36,335		57,571		35,336		42,649		31,620			41,133			21,002
(Benefit from) provision for income taxes					(3,861	)		12,687		21,589		10,128		16,746		12,553			16,453			7,593

Net (loss) income				$	(6,716	)	$	23,648	$	35,982	$	25,208	$	25,903	$	19,067		$	24,680		$	13,409

The following table sets forth our quarterly results of operations as a percentage of our total revenues for the indicated periods:

				Quarter Ended

				September 30, 2008			June 30, 2008			March 31, 2008			December 31, 2007			September 30, 2007			June 30, 2007			March 31, 2007			December 31, 2006
Revenues
Brokerage revenues:
		Agency commissions			75.1	%		73.4	%		76.0	%		75.5	%		77.9	%		78.7	%		76.8	%		78.2	%
		Principal transactions			18.0			20.5			18.8			20.8			18.2			18.4			20.1			17.5

			Total brokerage revenues		93.1			93.9			94.8			96.3			96.1			97.1			96.9			95.7
Software, analytics and market data					5.8			5.0			3.6			2.0			1.9			2.0			2.2			2.2
Contract revenue					—			—			—			—			—			0.1			—			0.6
Interest income					0.9			0.8			0.9			1.1			1.0			1.0			0.9			1.2
Other income (loss)					0.2			0.3			0.8			0.6			0.9			(0.2	)		—			0.3

	Total revenues				100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Expenses
Compensation and employee benefits					72.6	%		60.7	%		61.4	%		61.1	%		62.4	%		62.9	%		63.0	%		63.1	%
Communications and market data					5.2			4.5			3.6			4.7			4.4			5.0			4.4			5.4
Travel and promotion					4.9			5.1			3.7			5.3			3.9			4.5			3.7			4.8
Rent and occupancy					6.2			2.6			2.1			2.5			2.5			2.4			2.3			2.8
Depreciation and amortization					3.0			3.2			2.5			2.8			2.6			2.5			2.2			3.5
Professional fees					3.2			2.8			1.6			2.2			1.8			1.9			1.5			2.8
Clearing fees					4.9			4.0			3.6			4.1			3.2			3.0			3.1			3.3
Interest					1.4			1.4			1.0			0.6			0.7			0.9			0.8			1.1
Other expenses					3.0			1.8			2.3			2.4			1.8			3.0			1.9			2.1
Contract costs					—			—			—			—			—			0.1			—			0.3
Lease termination costs to affiliate					—			—			—			—			—			—			—			—

Total expenses					104.4	%		86.1	%		81.7	%		85.7	%		83.3	%		86.1	%		82.9	%		89.2	%

(Loss) income before income taxes					(4.4	)		13.9			18.3			14.3			16.7			13.9			17.1			10.8
(Benefit from) provision for income taxes					(1.6	)		4.9			6.9			4.1			6.5			5.5			6.8			3.9

Net (loss) income					(2.8	)%		9.0	%		11.4	%		10.2	%		10.2	%		8.4	%		10.3	%		6.9	%

Liquidity and Capital Resources

Net cash provided by operating activities increased to $173.0 million for the nine months ended September 30, 2008, compared with $78.8 million provided by operating activities for the nine months ended September 30, 2007. This improvement is largely attributable to the $120.7 million increased net payable to brokers, dealers and clearing organizations, an increase in accounts payable and accrued expenses, as well as to the increase in certain non-cash items such as deferred compensation, accrued taxes on share-based compensation and provision for income taxes. These increases were partially offset by a decrease of $16.8 million in net income to $52.9 million for the nine months ended September 30, 2008 from $69.7 million for the nine months ended September 30, 2007, as well as the decrease in accrued compensation, a smaller increase in other liabilities as compared to the increase in the nine months ended September 30, 2007 and an increase in other assets.

Net cash used in investing activities for the nine months ended September 30, 2008 was $190.3 million compared to $30.9 million used in the nine months ended September 30, 2007. The increase in cash used for investing activities was primarily attributable to $149.6 million in net cash used for the acquisition of substantially all of the outstanding shares of Trayport. See Note 4 to the

Condensed Consolidated Financial Statements for further details of the Trayport acquisition. Additionally, the increase in cash used in investing activities was due to increased capital expenditure resulting from an increase in the purchase of leasehold improvements, computer equipment and our continued investment in the development of trading systems and other software for internal use.

Net cash provided by financing activities for the nine months ended September 30, 2008 was $128.2 million, compared to $20.5 million used in financing activities for the nine months ended September 30, 2007. The cash provided by financing activities primarily consisted of net borrowings of $109.0 million under the Credit Agreement and the issuance of $60.0 million of Senior Notes, which was offset by payments for cash dividends of $24.1 million and $11.4 million in repurchases of common stock in the nine months ended September 30, 2008. In the same period in 2007, we did not pay any dividends and we repurchased $7.1 million of common stock. See Note 5 to the Condensed Consolidated Financial Statements for further discussion of our short term borrowings and long term obligations.

Our liquidity and available cash resources are in part restricted by the regulatory requirements of our operating subsidiaries, including GFI Securities LLC, GFI Securities Limited, GFI Brokers Limited, GFI (HK) Securities LLC, GFI (HK) Brokers Ltd., GFI Group Pte Ltd and GFI Korea Money Brokerage Limited. GFI Securities LLC is subject to regulatory capital requirements under the Exchange Act and the Commodity Exchange Act. GFI Securities Limited and GFI Brokers Limited are subject to the regulated capital requirements of the FSA. GFI (HK) Securities LLC is subject to the regulated capital requirements of the Securities and Futures Commission in Hong Kong. GFI (HK) Brokers Ltd. is subject to regulatory compliance requirements under the Monetary Authority of Hong Kong. GFI Group PTE Ltd. is subject to the regulatory compliance requirements with the Monetary Authority of Singapore. GFI Korea Money Brokerage Limited is subject to the regulated capital requirements of the Ministry of Finance and Economy of South Korea. At September 30, 2008, all of our regulated subsidiaries were in compliance with their respective regulatory capital requirements. In addition to these regulatory capital requirements, our liquidity may be impacted by the amount of capital that we maintain in clearing accounts and with exchanges to support our principal transactions business. See Note 12 to the Condensed Consolidated Financial Statements for a further discussion of these regulatory requirements.

In June 2007, we signed a new lease for an office which currently serves as our primary U.S. office space and headquarters. We completed our move to this new office in August 2008. We anticipate that the aggregate cost of the build out of the new office space and relocation costs will be approximately $30.2 million of which $29.3 million was paid through September 30, 2008. In addition, as of September 30, 2008, we had purchase commitments related to this build out of approximately $0.9 million. These purchase commitments are expected to be paid during the fourth quarter of 2008 and are included in our purchase obligations as disclosed in Note 9 to the Condensed Consolidated Financial Statements.

It is our expectation that from time to time we may purchase additional shares of our common stock on the open market in accordance with a stock repurchase program authorized by the Board. See Note 11 to our 2007 Form 10-K for further discussion of the stock repurchase program.

We believe that, based on current levels of operations and anticipated growth, our cash from operations, together with cash currently available and the available borrowings under our Credit Agreement, will be sufficient to fund our operations for at least the next twelve months. Poor financial results, unanticipated expenses, unanticipated acquisitions or unanticipated strategic investments could give rise to additional financing requirements sooner than we expect. There can be no assurance that equity or debt financing will be available when needed or, if available, that the financing will be on terms satisfactory to us and not dilutive to our then-current stockholders.

Contractual Obligations and Commitments

The following table summarizes certain of our contractual obligations as of September 30, 2008:

	Payments Due by Period

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in thousands)
Contractual Obligations
Operating leases	$	132,768	$	12,526	$	23,949	$	20,402	$	75,891
Short-term borrowings(1)		164,555		164,555		—		—		—
Interest on Long-term obligations		22,059		4,902		9,804		7,353		—
Long-term obligations		60,000		—		—		60,000		—
Purchase obligations(2)		24,102		19,494		4,608		—		—

Total	$	403,484	$	201,477	$	38,361	$	87,755	$	75,891

(1): Amounts listed under Short-term borrowings represent outstanding borrowings under our Credit Agreement and vary from the Short-term borrowings reflected in our financial statements because our financial statements reflect the total debt net of unamortized loan fees. See Note 5 to the Condensed Consolidated Financial Statements for further information.
(2): Amounts listed under Purchase Obligations include agreements for quotes with various information service providers. Additionally, such amounts include purchase commitments for capital expenditures for the build-out of our new office space in the U.S. and other purchase commitments for capital expenditures. See Note 9 to our Condensed Consolidated Financial Statements for further discussion.

We have unrecognized tax benefits of approximately $6.2 million after recognizing the impact of the adoption of FIN 48. Due to the uncertainty of the amounts to be ultimately paid as well as the timing of such payments, all FIN 48 liabilities which have not been paid are excluded from the Contractual Obligations and Commitments table.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements at September 30, 2008.

Critical Accounting Policies and Estimates

We have disclosed in Note 2 to our Condensed Consolidated Financial Statements and in "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2007 Form 10-K those accounting policies that we consider to be significant in determining our results of operations and financial condition. There have been no material changes to those policies that we consider to be significant since our 2007 Form 10-K. The accounting principles utilized by us in preparing our Condensed Consolidated Financial Statements conform in all material respects to generally accepted accounting principles in the United States of America.

Recent Accounting Pronouncements

liabilities which are measured at fair value using significant unobservable inputs. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 ("FSP 157-2") which delays the effective date of SFAS 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of FSP 157-2. The Company adopted SFAS 157 on January 1, 2008 except as it applies to those nonfinancial assets and liabilities within the scope of FSP 157-2. The adoption of SFAS 157 as it relates to the financial assets and liabilities did not have a material impact on the Company's consolidated financial statements. The Company will adopt SFAS 157 for those nonfinancial assets and liabilities as noted in FSP 157-2 on January 1, 2009. The Company is currently evaluating the impact of adopting SFAS 157 for nonfinancial assets and liabilities on its consolidated financial statements. In October 2008, the FASB issued FASB Staff Position No. FAS 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active ("FSP 157-3"). FSP 157-3 amends SFAS 157 by incorporating an example to illustrate key considerations in determining the fair value of a financial asset in an inactive market. FSP 157-3 was effective upon issuance and applicable to prior periods for which financial statements have not been issued. The Company adopted FSP 157-3 as of September 30, 2008. The adoption of FSP 157-3 did not have a material impact on the Company's consolidated financial statements. See Note 11 to our Condensed Consolidated Financial Statements for further discussion of Financial Instruments.

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No.51 ("SFAS 160"). SFAS 160 requires reporting entities to present noncontrolling (minority) interests as equity (as opposed to as a liability or mezzanine equity) and provides guidance on the accounting for transactions between an entity and noncontrolling interests. SFAS 160 is effective for fiscal years beginning after December 15, 2008 and will be adopted by the Company on January 1, 2009. The Company is currently evaluating the impact of adopting SFAS 160 on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities ("SFAS No. 161"). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 and requires entities to provide enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair values and amounts of gains and losses on derivative contracts, and disclosures about credit-risk related contingent features in derivative agreements. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 and will be adopted by the Company on January 1, 2009. The Company is currently evaluating the impact of adopting SFAS No. 161 on its consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles". The Company is currently evaluating the impact of adopting SFAS 162 on its consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our quantitative and qualitative disclosures about market risk are described in "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 7A—Quantitative and Qualitative Disclosures about Market Risk" contained in the 2007 Form 10-K. Except as described below in this Form 10-Q, there have been no material changes to those market risks during the nine months ended September 30, 2008.

Foreign Currency Exposure Risk

We are exposed to market risk associated with movements in foreign currency exchange rates. There have been no material changes to our risk management policy during the nine months ended September 30, 2008.

While our international results of operations, as measured in U.S. dollars, are subject to foreign exchange rate fluctuations, we do not consider the related risk to be material to our results of operations. If the Euro and the British Pound strengthened by 10% against the U.S. Dollar, the net impact to our net income would have been a reduction of approximately $0.5 million.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company's management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) were effective as of the end of the period covered by this Form 10-Q.

In addition, the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the Company's internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) and determined that there have been no changes in our internal controls over financial reporting during the most recent fiscal quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, we are and have been party to, or otherwise involved in, litigations, claims and arbitrations that involve claims for substantial amounts. These proceedings have generally involved either competitor claims in connection with new employee hires, or claims from former employees in connection with the termination of their employment from us. There is also potential for client claims alleging the occurrence of errors in the execution of brokerage transactions. We are also currently and will, in the future, be involved, in examinations, investigations or proceedings by government agencies and self-regulatory organizations. These examinations or investigations could result in substantial fines or administrative proceedings that could result in censure, the issuance of cease and desist orders, the suspension or expulsion of a broker dealer and its affiliated persons, officers or employees or other similar consequences.

In January 2008, the Company's U.K. subsidiary, GFI Holdings Limited ("Holdings"), applied to the High Court in London, England, for a declaration that it was contractually entitled to terminate the employment agreements of three senior brokers in September 2007 by reason of their gross misconduct, repudiatory breaches of contract and breaches of fiduciary duty. Following the termination of their employment in September 2007, the three former employees threatened to bring claims against Holdings in respect of past and future bonuses and restricted stock units in the aggregate amount of approximately $10.0 million. Holdings is therefore also seeking a declaration that the former employees are not entitled to receive any further bonus payments or payments or benefits of any kind. The former employees have filed a counterclaim but the amount is unquantified. While the Company cannot predict the outcome of any litigation, it believes that the former employees were in serious breach of their obligations and are not therefore entitled to any of the amount claimed.

Based on currently available information, the claims and counterclaims brought against the Company in these matters are not expected to have a material adverse impact on the Company's financial position. However, if the claims and counterclaims succeed in respect of a significant portion of the amount previously threatened or made, these matters may be material to the Company's results of operations or cash flows in a given period. It is not presently possible to determine the Company's ultimate exposure to these matters and there is no assurance that the resolution of these matters will not significantly exceed the reserves accrued by the Company.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in the 2007 Form 10-K. See "Risk Factors" in Part I, Item 1A of our 2007 Form 10-K.

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

The table below sets forth the information with respect to purchases made by the Company of its common stock during the quarterly period ended September 30, 2008.

Issuer Purchases of Equity Securities

Period		Average Price Paid Per Share

July
Stock Repurchase Program(a)	—	$	—	—	402,191
Employee Transactions(b)	12,278	$	10.04	N/A	N/A
August
Stock Repurchase Program(a)	—	$	—	—	453,696
Employee Transactions(b)	43,003	$	11.60	N/A	N/A
September
Stock Repurchase Program(a)	—	$	—	—	719,091
Employee Transactions(b)	149,669	$	4.77	N/A	N/A
Total
Stock Repurchase Program(a)	—	$	—	—	719,091
Employee Transactions(b)	204,950	$	6.52	N/A	N/A

(a): In August 2007, the Board authorized the Company to implement a stock repurchase program to repurchase a limited number of shares of the Company's common stock on the open market. Under the repurchase plan, the Board authorized the Company to repurchase stock of common shares on the open market in an amount not to exceed, during any calendar year, the number of shares issued upon the exercise of stock options plus the number of shares underlying grants of RSUs that are granted or which management reasonably anticipates will be granted in such calendar year. Any repurchases are also subject to compliance with certain covenants and limits under the Company's Credit Agreement.
(b): Under our 2004 Equity Incentive Plan and the 2008 Equity Incentive Plan, we allow employees to elect to have us withhold shares of common stock to satisfy minimum statutory tax withholding obligations arising on the vesting and settlement of restricted stock units. When we withhold these shares, we are required to remit to the appropriate taxing authorities the market price of the shares withheld, which could be deemed a purchase of the shares of common stock by us on the date of withholding.

ITEM 6. EXHIBITS

Exhibits:

Exhibit No.			Description

	15		Letter re: Unaudited Interim Financial Information
	31.1		Certification of Principal Executive Officer.
	31.2		Certification of Principal Financial Officer.
	32.1		Written Statement of Chief Executive Officer Pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
	32.2		Written Statement of Chief Financial Officer Pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 to be signed on its behalf by the undersigned, thereunto duly authorized, on the 10th day of November, 2008.


		GFI GROUP INC.
		By:		/s/ JAMES A. PEERS
				Name: James A. Peers Title: Chief Financial Officer (principal financial and accounting officer)

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GFI GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share and per share amounts)

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

Issuer Purchases of Equity Securities

ITEM 6. EXHIBITS

SIGNATURES

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Legalese
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Gfi (GFIG) Inactive 10-Q2008 Q3 Quarterly report

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