Gfi (GFIG) 10-Q 2006 Q2 Quarterly report

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

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
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	80-0006224
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
100 Wall Street, New York, NY	10005
(Address of principal executive offices)	(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 x   NO o

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

Large accelerated filer o             Accelerated filer o            Non-accelerated filer x

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

The number of shares of registrant’s common stock outstanding on July 31, 2006 was 28,398,359.

Table of Contents

Part I—Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Statements of Financial Condition as of June 30, 2006 (unaudited) and December 31, 2005	4
	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2006 (unaudited) and June 30, 2005 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2006 (unaudited) and June 30, 2005 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 (unaudited) and June 30, 2005 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41
Part II—Other Information
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 4.	Submission of Matters to a Vote of Security Holders	43
Item 6.	Exhibits	43

2

Available Information

Our Internet website address is www.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 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 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 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.

3

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)

	June 30, 2006				December 31, 2005
	(Unaudited)
ASSETS
Cash and cash equivalents		$	131,503			$	144,148
Deposits with clearing organizations		7,914				7,824
Accrued commissions receivable, net of allowance for doubtful accounts		118,713				89,727
Receivables from brokers, dealers and clearing organizations		370,397				208,938
Property, equipment and leasehold improvements, net		34,905				31,674
Software inventory, net		6,937				5,687
Goodwill		26,713				26,683
Intangible assets, net		1,733				2,355
Other assets		65,270				59,101
TOTAL ASSETS		$	764,085			$	576,137
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Accrued compensation		$118,777				$	88,628
Accounts payable and accrued expense		34,230				22,455
Payables to brokers, dealers and clearing organizations		281,688				165,766
Notes payable, net		16,778				31,247
Other liabilities		27,436				28,914
Lease termination costs payable to affiliate		250				875
Total Liabilities		$	479,159			$	337,885
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred Stock, $0.01 par value; 5,000,000 shares authorized and none outstanding at June 30, 2006 and December 31, 2005		—				—
Common stock, $0.01 par value; 100,000,000 shares authorized; 28,371,075 and 27,904,568 shares outstanding at June 30, 2006 and December 31, 2005, respectively		284				279
Additional paid in capital		211,310				195,360
Retained earnings		75,868				44,790
Accumulated other comprehensive loss		(2,536		)		(2,177		)
Total Stockholders’ Equity		284,926				238,252
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	764,085			$	576,137

See notes to condensed consolidated financial statements

4

GFI GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 (In thousands except share and per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
REVENUES:
Brokerage revenues:
Agency commissions	$	130,134		$	100,718		$	267,044		$	188,689
Principal transactions	41,792			27,635			82,852			55,747
Total brokerage revenues	171,926			128,353			349,896			244,436
Analytics and market data	4,271			4,711			9,465			10,113
Long-term contract revenue	5,881			—			5,881			—
Interest income	2,395			883			4,628			1,943
Other income	3,093			6,376			3,284			6,125
Total Revenues	187,566			140,323			373,154			262,617
EXPENSES:
Compensation and employee benefits	113,701			80,896			230,546			156,373
Communications and quotes	9,303			6,341			16,956			12,140
Travel and promotion	8,549			6,041			16,080			11,802
Rent and occupancy	4,841			3,913			10,454			7,341
Depreciation and amortization	4,048			3,599			7,884			7,691
Professional fees	5,320			2,927			9,364			5,396
Clearing fees	6,798			2,974			12,275			6,345
Interest	1,772			597			3,524			1,841
Other expenses	3,843			5,809			7,399			9,818
Cost of long-term contract	5,180			—			5,180			—
Lease termination costs to affiliate	(92		)	(2,266		)	(92		)	(2,266		)
Total Expenses	163,263			110,831			319,570			216,481
INCOME BEFORE PROVISION FOR INCOME TAXES	24,303			29,492			53,584			46,136
PROVISION FOR INCOME TAXES	10,207			12,810			22,505			20,300
NET INCOME	$	14,096		$	16,682		$	31,079		$	25,836
EARNINGS PER SHARE
Basic	$	0.50		$	0.62		$	1.10		$	1.00
Diluted	$	0.48		$	0.60		$	1.07		$	0.96
WEIGHTED AVERAGE SHARES OUSTANDING BASIC
Class A common stock	—			—			—			976,881
Common stock	28,258,827			26,791,156			28,150,812			24,021,564
WEIGHTED AVERAGE SHARES OUTSTANDING DILUTED	29,130,663			27,726,612			29,044,558			27,001,747

See notes to condensed consolidated financial statements

5

GFI GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
NET INCOME	$	14,096		$	16,682		$	31,079		$	25,836
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain/(loss) on foreign exchange derivative contracts, net of tax	(120		)	4,096			(514		)	2,858
Foreign currency translation adjustment, net of tax	92			(88		)	155			(182		)
COMPREHENSIVE INCOME	$	14,068		$	20,690		$	30,720		$	28,512

See notes to condensed consolidated financial statements

6

GFI GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)

	Six Months Ended June 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	31,079		$	25,836
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	7,884			7,691
Amortization of loan fees	128			222
Provision for allowance for doubtful accounts	433			122
Deferred compensation	5,322			1,697
Benefit from deferred taxes	(1,944		)	(673		)
Loss on Fenics purchase obligation	—			2,030
Loss (gain) on foreign exchange derivative contracts	2,763			(8,005		)
Lease termination cost to affiliate	(92		)	(2,266		)
(Increase) decrease in operating assets:
Deposits with clearing organizations	(90		)	(462		)
Accrued commissions receivable	(29,419		)	(28,441		)
Receivables from brokers, dealers and clearing organizations	(161,459		)	103,615
Software inventory	(1,476		)	(1,307		)
Other assets	(2,895		)	(7,982		)
Increase (decrease) in operating liabilities:
Accrued compensation	30,149			16,598
Accounts payable and accrued expenses	5,247			542
Payables to brokers, dealers and clearing organizations	115,921			(118,442		)
Income taxes payable—current	3,781			1,827
Other liabilities	(5,699		)	2,001
Cash paid to affiliate for lease termination	(462		)	(358		)
Cash used in operating activities	(829		)	(5,755		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for acquisition of minority interest in Fencis Limited	(117		)	(4,200		)
Purchase of property, equipment and leasehold improvements	(10,267		)	(3,132		)
(Payments on)/proceeds from foreign exchange derivative contracts	(3,045		)	2,182
Cash used in investing activities	(13,429		)	(5,150		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable	(40,000		)	(54,500		)
Proceeds from notes payable	25,000			4,000
Repayment of loan notes payable	—			(9,250		)
Issuance of common stock	—			73,735
Payment of loan fees	(575		)	—
Proceeds from exercise of stock options	4,841			1,573
Cash paid for taxes on vested restricted stock units	(1,632		)	—
Tax benefit from stock option exercises	7,435			—
Bank overdraft	6,389			—
Cash provided by financing activities	1,458			15,558
Effects of foreign currency translation adjustment	155			(181		)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(12,645		)	4,472
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	144,148			105,161
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	131,503		$	109,633
SUPPLEMENTAL DISLCOSURE:
Interest paid	$	3,559		$	2,031
Income taxes paid, net of refunds	$	5,909		$	18,613

See notes to condensed consolidated financial statements

7

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 sole wholly-owned subsidiary GFInet inc. (“GFInet”), provides brokerage services, market data 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 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 Group PTE Ltd. and Fenics Limited and its subsidiaries (“Fenics”). As of June 30, 2006, Jersey Partners, Inc. (“JPI”) owned approximately 45% of the Company’s outstanding common shares. The Company’s chief executive officer, Michael Gooch, is a 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 condensed consolidated financial statements. Management believes that the estimates utilized in the preparation of the condensed consolidated financial statements are reasonable and prudent. Actual results could differ materially from these estimates.

All material 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 year ended December 31, 2005 (the “2005 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.

Cash and Cash Equivalents—Cash and cash equivalents consist of cash and highly liquid investments with maturities, when purchased, of three months or less.

Receivables from and Payables to Brokers and Dealers—Receivables from and payables to brokers and dealers primarily represent securities transactions which have not settled as of their stated settlement dates. These transactions relate primarily to the simultaneous purchase and sale of securities by GFI Securities Limited and GFI Securities LLC to facilitate principal brokerage transactions. Securities transactions executed by GFI Securities LLC and cleared through a clearing broker on a fully-disclosed basis are presented net.

Accrued Commissions Receivable—Accrued commissions receivable represents amounts due from brokers, dealers, banks and other financial and nonfinancial institutions for the execution of securities, commodities, foreign exchange and derivative brokerage transactions. Accrued commissions receivable are presented net of allowance for doubtful accounts of approximately $3,319 and $3,202 as of June 30, 2006

8

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

and December 31, 2005, respectively. The allowance is based on management’s estimate and is reviewed on a periodic basis based on the aging of outstanding receivables and counterparty exposure.

Brokerage Transactions—The Company provides brokerage services to its clients in the form of either agency or principal transactions.

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

Principal Transactions—Principal transaction revenue is primarily derived from matched principal transactions. In matched principal transactions, the Company simultaneously agrees to buy instruments from one customer and sell them to another customer. A very limited number of brokerage desks are allowed to enter into unmatched principal transactions to facilitate a customer’s execution needs for transactions initiated by such customers or for the purpose of proprietary trading to arbitrage the value between an exchange traded fund and its component securities. These unmatched positions are intended to be held short term. The Company earns revenue from principal transactions on the spread between the buy and sell price of the security that is brokered.

Additionally, from time to time, under the circumstances described above, if a transaction fails to settle on a timely basis or if a customer defaults on its obligations, the Company may hold securities positions overnight. These positions are marked to market on a daily basis. Principal transactions revenues and related expenses are recognized on a trade date basis.

Analytics and Market Data Revenue Recognition—Analytics revenue consists mostly of fees for licenses of analytical software products as well as maintenance, installation, customer training and technical support of those products. Market data revenue primarily consists of subscription fees and fees from customized one-time sales. Analytics revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery of the product has occurred and no significant implementation obligations remain, the fee is fixed and determinable, and collectibility is probable. Fees for future updates of software products are considered separate arrangements and related revenues are recognized when the customer acknowledges participation in the update and delivery occurs. Market data revenue from subscription fees is recognized over the term of the subscription period, which is generally two years. Market data revenue from customized one-time sales is recognized upon delivery of the data.

The Company markets its analytics and market data products through its direct sales force and indirectly through resellers. The Company’s license agreements for such products do not provide for a right of return.

Goodwill and Intangible Assets—In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142 Goodwill and Intangible Assets (“SFAS 142”), goodwill and intangible assets with indefinite lives are no longer amortized, but instead are tested for impairment annually or more frequently if circumstances indicate impairment may have occurred. The Company has selected January 1st 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. Certain of

9

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

these foreign exchange derivative contracts are designated and qualify as foreign currency cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS 133”). The Company reclassifies gains and losses on the designated foreign exchange derivative contracts included in other comprehensive income into earnings at the time the hedged transactions are recognized. The Company measures effectiveness by assessing the changes in the expected future cash flows of the hedged items. The ineffective portion of the hedges, if any, is included in other income. There is no portion of the derivative instruments’ gains or losses that has been excluded from the assessment of effectiveness. For foreign exchange derivative contracts that do not qualify for hedge accounting under SFAS 133, the Company records these contracts at fair value and all realized and unrealized gains and losses are included in other income in the Condensed Consolidated Statement of Income.

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 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 net income as other income.

Segment and Geographic Information—The Company’s only operating segment consists of its brokerage and analytics and market data operations. This segment operates across domestic and international markets. Substantially all of the Company’s identifiable assets are in the United States and the United Kingdom.

Long-Term Construction-Type Contract—The Company was a party to a long-term construction-type contract pursuant to which the Company developed an online currency trading system and customized it for a customer. The contract was accounted for using the completed-contract method in accordance with the Accounting Research Bulletin No. 45, Long-Term Construction-Type Contracts, and with the applicable guidance provided by the Statement of Position No. 81-1, Accounting for Performance of Construction Type and Certain Production Type Contracts (“SOP 81-1”). Under the completed contract method, the revenues and expenses are deferred and netted on the balance sheet until such time as the project is substantially complete. SOP 81-1 states that a contract is considered substantially complete when only inconsequential actions remain incomplete, the remaining costs in comparison to the total costs to be incurred are immaterial and the potential risk is insignificant in amount. As of June 30, 2006, the contract is considered to be substantially complete in consideration of the above-mentioned requirements. The contract revenues and expenses of $5,881 and $5,180, respectively, have been recognized during the second quarter of 2006.

Share-Based Compensation—The Company’s share-based compensation consists of stock options and restricted stock units (the “RSUs”). The Company adopted SFAS No. 123(R), Share-Based Payment (“SFAS 123(R)”) during the first quarter of 2006, using the modified prospective approach. 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. Upon adoption, the Company recognized a $142 ($90 after-tax) gain to record forfeitures at the date

10

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

of grant. This was reported as an offset to the compensation and employee benefits expense line item in the Consolidated Statements of Income. This adjustment was not reflected as a cumulative effect adjustment because the amount was not material to the Company.

For share based awards issued prior to the adoption of SFAS 123(R), the Company followed the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, prospectively to all awards granted, modified, or settled after January 1, 2003. Pursuant to this method, the Company expensed the grant-date fair value of options issued to employees on or after January 1, 2003 over the related vesting period and the compensation expense related to modifications of outstanding options was calculated as the difference between fair value of the existing and modified options on the date of modification. Prior to January 1, 2003, the Company used the intrinsic method as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, as permitted by SFAS 123.  For RSUs, the fair value at the date of grant is recorded as deferred compensation and is amortized to compensation expense over the vesting period of the grants.

The following pro forma financial information shows the effect, net of tax, on net income as if the fair value method had been applied.

	Three Months Ended				Six Months Ended
	June 30, 2005				June 30, 2005
Net income—as reported		$	16,682			$	25,836
Add:
Effect of stock-based employee compensation included in reported net income, net of tax		336				1,018
Deduct:
Total stock-based employee compensation determined under fair value method, net of tax		(336		)		(1,147		)
Net income—pro forma		$	16,682			$	25,707
Basic earnings per share—as reported		$	0.62			$	1.00
Basic earnings per share—pro forma		$	0.62			$	0.99
Diluted earnings per share—as reported		$	0.60			$	0.96
Diluted earnings per share—pro forma		$	0.60			$	0.95

Recent Accounting Pronouncement—In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertain tax positions in accordance with SFAS No. 109, Accounting for Income Taxes. The Company will be required to recognize in its financial statements the largest tax benefit of a tax position that is “more-likely-than-not” to be sustained on audit based solely on the technical merits of the position as of the reporting date. FIN 48 also provides guidance on new disclosure requirements, reporting and accrual of interest and penalties, accounting in interim periods and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Only tax positions that meet the “more-likely-than-not” threshold at that date may be recognized. The cumulative effect of initially applying FIN 48 will be recognized as a change in accounting principle as of the end of the

11

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

period in which FIN 48 is adopted. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.

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

	June 30, 2006			December 31, 2005
Receivables from brokers, dealers and clearing organizations:
Contract value of fails to deliver		$	303,121		$	161,069
Balance receivable from clearing organizations		67,276			47,869
Total		$370,397			$	208,938
Payables to brokers, dealers and clearing organizations:
Contract value of fails to receive		$	268,308		$	148,971
Balance payable to clearing organizations		505			466
Payable to financial institutions		12,875			16,329
Total		$	281,688		$	165,766

4. INTANGIBLE ASSETS

Intangible assets consisted of the following:

	June 30, 2006			December 31, 2005
Gross intangible assets
Customer base/relationships		$	2,490		$	2,490
Trade name		1,750			1,750
Core technology		3,230			3,230
Covenants not to compete		550			550
Patent		34			34
Total gross intangible assets		8,054			8,054
Accumulated amortization		6,321			5,699
Net intangible assets		$	1,733		$	2,355

Amortization was $261 and $203 for the three months ended June 30, 2006 and 2005, respectively, and $622 and $404 for the six months ended June 30, 2006 and 2005, respectively.

12

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

At June 30, 2006, expected amortization expense for the definite lived intangible assets is as follows:

2006 (remaining six months)	$	411
2007	361
2008	260
2009	260
2010	255
Total	$	1,547

5. NOTES PAYABLE

In February 2006, the Company amended and restated the terms of its credit agreement with Bank of America N.A. and certain other lenders (the “2004 Credit Agreement”). The amended and restated credit agreement (the “2006 Credit Agreement”) provides for maximum borrowings of $135,000 and has an expiration date of February 24, 2011. The Company had outstanding borrowings under its 2006 Credit Agreement as of June 30, 2006 and under its 2004 Credit Agreement as of December 31, 2005 as follows:

	June 30, 2006			December 31, 2005
Loan Available(1)		$	135,000		$	80,000
Loans Outstanding		17,784			31,805
Letters of Credit Outstanding		6,500			6,500

(1) Amounts available include up to $50,000 and $30,000 for letters of credit as of June 30, 2006 and December 31, 2005, respectively.

The outstanding loans bore interest rates ranging from 3.63% to 8.25% at June 30, 2006 and 5.39% at December 31, 2005. At June 30, 2006 and December 31, 2005, notes payable were recorded net of unamortized loan fees of $1,006 and $558, respectively.

13

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

6. EARNINGS PER SHARE

Basic and diluted earnings per share for the three and six months ended June 30, 2006 and 2005 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Basic earnings per share
Net income applicable to stockholders	$	14,096	$	16,682	$	31,079	$	25,836
Income allocated to participating preferred stockholders	—		—		—		(903		)
Income available to common stockholders	$	14,096	$	16,682	$	31,079	$	24,933
Weighted average common shares outstanding:
Class A common stock	—		—		—		976,881
Common stock	28,258,827		26,791,156		28,150,812		24,021,564
Weighted average common shares outstanding	28,258,827		26,791,156		28,150,812		24,998,445
Basic earnings per share—Class A common stock and common Stock	$	0.50	$	0.62	$	1.10	$	1.00
Diluted earnings per share
Net income applicable to stockholders	$	14,096	$	16,682	$	31,079	$	25,836
Weighted average common shares outstanding	28,258,827		26,791,156		28,150,812		24,998,445
Effect of dilutive shares:
Options and warrant	871,836		935,456		893,746		885,416
Convertible preferred shares	—		—		—		500,724
Redeemable convertible preferred shares	—		—		—		617,162
Weighted average shares outstanding and common stock equivalents	29,130,663		27,726,612		29,044,558		27,001,747
Diluted earnings per share	$	0.48	$	0.60	$	1.07	$	0.96

Outstanding options to purchase 49,724 shares were excluded from the computation of diluted earnings per share for the six months ended June 30, 2005 because their effect would be anti-dilutive. In addition, 17,197 and 256,870 RSUs for the three months ended June 30, 2006 and 2005, respectively, and 112,105 and 200,492 RSUs for the six months ended June 30, 2006 and 2005, respectively, were also excluded from the computation of diluted earnings per share because their effect would be anti-dilutive.

7. SHARE-BASED COMPENSATION

The Company issues RSUs to its employees under the GFI Group Inc. 2004 Equity Incentive Plan (the “2004 Equity Incentive Plan”). The fair value of RSUs is determined at the date of grant. Additionally, the fair value of RSUs is recorded as deferred compensation and is amortized to compensation expense over the vesting period of the grants, which is generally over three years.

14

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

During the second quarter of 2006, the Company modified certain RSUs to accelerate their vesting periods. The modified RSUs were measured at the incremental fair value of the RSUs calculated on the date of modification, in addition to the amount calculated as fair value on the date of grant. All modified RSUs are reflected as cancellations and grants in the summary of RSUs below.

The following is a summary of RSU transactions under the 2004 Equity Incentive Plan during the six months ended June 30, 2006:

	RSUs		Weighted-Average Grant Date Fair Value
Outstanding December 31, 2005	599,225			$	32.03
Granted	247,907			54.31
Vested	(103,943	)		29.69
Cancelled	(35,952	)		33.24
Outstanding June 30, 2006	707,237			$	40.12

The weighted average grant-date fair value of RSUs granted for the six months ended June 30, 2006 was $54.31 per unit, compared with $23.50 per unit for the same period in the prior year. Total compensation expense and related income tax benefits recognized in relation to RSUs is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Compensation expense	$	3,271	$	398	$	5,134	$	584
Income tax benefits	516		156		1,216		235

At June 30, 2006, total unrecognized compensation cost related to the RSUs prior to the consideration of expected forfeitures was approximately $22,843 and is expected to be recognized over a weighted-average period of 2.26 years. The total fair value of RSUs vested during the six months ended June 30, 2006 was $3,087. No RSUs vested during the six months ended June 30, 2005.

As of June 30, 2006, 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 six months ended June 30, 2006:

	GFI Group 2002 Plan					GFInet 2000 Plan
	Options		Weighted Average Exercise Price			Options		Weighted Average Exercise Price
Outstanding December 31, 2005	953,437			$	13.75	658,662			$	11.88
Exercised	(167,223	)		13.76		(240,552	)		11.79
Terminated	(3,685	)		14.49		(526	)		9.50
Outstanding June 30, 2006	782,529			$	13.75	417,584			$	11.93

15

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

The following table summarizes information about options outstanding under the GFI Group 2002 Plan as of June 30, 2006:

	Stock Options Outstanding							Stock Options Exercisable
Exercise Price	Options Outstanding		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price			Number Exercisable		Weighted Average Exercise Price
$11.88		622,103		7.76		$	11.88		450,660		$	11.88
21.00		160,426		8.00		21.00			54,764		21.00

The following table summarizes information about options outstanding under the GFInet 2000 Plan as of June 30, 2006:

	Stock Options Outstanding							Stock Options  Exercisable
Exercise Price	Options Outstanding		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price			Number Exercisable		Weighted Average Exercise Price
$9.50		277,554		3.92		$	9.50		277,554		$	9.50
11.88		47,659		6.24		11.88			47,659		11.88
14.25		12,723		4.51		14.25			12,723		14.25
19.00		61,523		4.55		19.00			61,523		19.00
23.75		18,125		3.98		21.00			18,125		21.00

Total compensation expense and related income tax benefit recognized in relation to the stock options is as follows:

	Three Months  Ended June 30,				Six Months  Ended June 30,
	2006		2005		2006		2005
Compensation expense	$	107	$	158	$	187	$	1,113
Income tax benefit	20		65		51		445

At June 30, 2006, total unrecognized compensation cost related to unvested stock option awards prior to the consideration of expected forfeitures was approximately $424 and is expected to be recognized over the weighted average period of 0.6 years.

For the six months ended June 30, 2006 and 2005, the total fair value of vested options was $214 and $249, respectively. The total intrinsic value of options exercised for the six months ended June 30, 2006 and 2005 was $17,042 and $538, respectively. Additionally, the total intrinsic value of options outstanding and exercisable at June 30, 2006 was $49,018 and $38,324, respectively.

8. COMMITMENTS AND CONTINGENCIES

Purchase Obligations—The Company has various unconditional purchase obligations. Certain of these obligations include the purchase of quotes from a number of information service providers during the normal course of business. As of June 30, 2006, the Company had total purchase commitments for quotes

16

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

of approximately $14,721, with $11,698 due within the next twelve months and $3,023 due between one to two years.

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. 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. Tax reserves have been established, which the Company currently believes to be adequate in relation to the potential for additional tax assessments. Once established, reserves 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 income tax and litigation contingencies and contingencies related to the employer portion of National Insurance Contributions in the U.K.

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. It is the opinion of the Company’s management, after consultation with counsel, that the ultimate resolution of these matters, while not likely to have a material adverse effect on the consolidated financial condition of the Company, could be material to the Company’s operating results for any particular period.

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 clearinghouses. Under the membership agreements, members are generally required to guarantee certain obligations. Additionally, if a member becomes unable to satisfy its obligations to the clearinghouse, other members may be required to meet shortfalls. To mitigate these performance risks, the exchanges and clearinghouses often 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.

17

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

9.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

Disclosure regarding the Company’s financial instruments with off-balance sheet risk is described in “Note 18—Financial Instruments with Off-Balance Sheet Risk” contained in the Company’s 2005 Form 10-K. There have been no material changes to our off-balance sheet risk during the six months ended June 30, 2006.

10. 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 19—Financial Instruments” contained in the Company’s 2005 Form 10-K.

For the three and six months ended June 30, 2006 and 2005, there was no hedge ineffectiveness. Additionally, at June 30, 2006, the Company estimates that $2,341 of net derivative losses included in accumulated other comprehensive loss will be reclassified into earnings over the next twelve months. Unrealized gains (losses) before tax totaling ($172) and $5,907 for the three months ended June 30, 2006 and 2005, respectively, and ($734) and $4,248 for the six months ended June 30, 2006 and 2005, respectively, were recorded as other comprehensive income (loss). There has been no discontinuance of cash flow hedges that would require a reclassification of gains into earnings. Management does not anticipate any events or transactions that would result in the reclassification into earnings of gains and losses that are reported in accumulated other comprehensive income due to hedge discontinuance.

The Company’s derivatives are summarized below, showing the fair value of the related assets and liabilities that are included in other assets or other liabilities in the Condensed Consolidated Statements of Financial Condition as of June 30, 2006 and December 31, 2005 as follows:

	Asset/(Liabilities)	June 30, 2006				December 31, 2005
Foreign exchange derivative contracts:
Assets			$	4,106			$	2,196
Liabilities			(1,461		)		(79		)
Fenics purchase obligation			(58		)		(144		)

The fair values of the Company’s foreign exchange derivative contracts were estimated based on quoted market prices of comparable instruments. The fair value of the Fenics purchase obligation was estimated using an exchange option model that included assumptions of management’s estimate of the fair value of the common stock of the Company and the common stock of Fenics, volatility, correlation and the expected life of the obligation.

11. REGULATORY REQUIREMENTS

GFI Securities LLC is a registered broker-dealer with the SEC and the National Association of Securities Dealers, Inc. 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

18

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

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. At June 30, 2006, under these requirements, minimum capital, as defined, must be maintained as follows:

	GFI Securities LLC			GFI Brokers  Limited			GFI Securities Limited			GFI (HK) Securities LLC
Net Capital		$	31,480		$	23,321		$	26,084		$	747
Minimum Net Capital required		250			9,354			15,058			386
Excess Net Capital		$	31,230		$	13,967		$	11,026		$	361

GFI Group PTE Ltd is subject to the compliance requirements of the Monetary Authority of Singapore (“MAS”), which require that GFI Group PTE Ltd, among other things, maintain stockholders’ equity of 3,000 Singapore dollars, measured annually. At December 31, 2005, GFI Group PTE Ltd. had stockholders’ equity of 4,219 Singapore dollars (or approximately $2,535), which exceeded the minimum requirement by approximately 1,219 Singapore dollars (or approximately $733).

GFI Securities Limited’s Japanese branch is subject to certain licensing requirements established by the Foreign Securities Firms Law (the “FSFL”). As part of their licensing requirements, GFI Securities Limited’s Japanese branch is required to maintain “brought-in” capital, as defined under the FSFL, of 50,000 Japanese Yen. At June 30, 2006, GFI Securities Limited’s Japanese branch was in compliance with this licensing requirement by maintaining “brought-in” capital of 50,000 Japanese Yen (approximately $437). GFI Securities Limited is also subject to the Japan Securities Dealers Association’s (“JSDA”) financial requirement that revenue plus “brought-in” capital exceed a ratio of 120.0% of relevant expenditure. At June 30, 2006, GFI Securities Limited’s revenue plus “brought-in” capital ratio was 142.6%, which exceeded the JSDA’s financial requirement by approximately 22.6%.

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. This branch commenced operation on February 1, 2006. The establishment of the branch was approved by FSA and acknowledged by Banque de France in France. The branch will be subject to the conduct of business rules of the Autorite Des Marches Financiers when dealing with resident customers of France and will be regulated, in part, by the FSA.

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.

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 June 30, 2006.

19

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

12. GEOGRAPHIC INFORMATION

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

Information regarding revenue for the three and six months ended June 30, 2006 and 2005, and information regarding long-lived assets (defined as property, equipment, leasehold improvements and software inventory) in geographic areas as of June 30, 2006 and December 31, 2005 is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Revenues:
North America	$	88,243	$	71,880	$	172,859	$	129,929
Europe	84,735		57,562		171,590		112,869
Asia-Pacific	14,588		10,881		28,705		19,819
Total	$	187,566	$	140,323	$	373,154	$	262,617

	June 30, 2006			December 31, 2005
Long-lived Assets, as defined:
North America		$	27,222		$	25,200
Europe		12,902			10,645
Asia-Pacific		1,718			1,516
Total		$	41,842		$	37,361

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

13. Other Comprehensive Income (Loss)

	Three Months Ended June 30								Six Months Ended June 30
	2006				2005				2006				2005
Unrealized gain (loss) on foreign exchange derivative contracts
Current Period Change:
Before Tax Amount		$	(172	)		$	5,907			$	(734	)		$	4,248
Tax (Expense) Benefit		52				(1,811		)		220				(1,390		)
After Tax Amount		$	(120	)		$	4,096			$	(514	)		$	2,858
Foreign currency translation adjustment
Before Tax Amount		$	166			$	(161	)		$	279			$	(334	)
Tax (Expense) Benefit		(74		)		73				(124		)		152
After Tax Amount		$	92			$	(88	)		$	155			$	(182	)

20

GFI GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(In thousands except share and per share amounts)

The Company reclassified the following out of other comprehensive income into other income for each period noted:

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Gross loss		$	1,192		$	551		$	2,691		$	441
Net of tax		834			386			1,884			309

14. RELATED PARTY TRANSACTION

Office Lease Termination with an Affiliate

In the fourth quarter of 2005, the Company ceased use of the premises it had leased from an affiliate and recorded a liability for the remaining rent plus other charges at that time. During the second quarter of 2006, the Company reduced the liability by £172 (or approximately $318) due to payments of rent on the sublease and other related charges. Additionally, the Company reduced its estimate for related termination charges by £50 (or $92). The remaining accrual balance is expected to be paid within the next four months. The remaining balance includes approximately $95 which will be paid to third parties.

21

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 June 30, 2006, and the related condensed consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2006 and 2005, and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2006 and 2005. 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, 2005, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 22, 2006, 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, 2005 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
August 10, 2006

22

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

This Quarterly Report on 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 2005 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 or investments in establishing new brokerage desks;

·competition from current and new competitors;

·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 the Company’s brokerage services;

·financial difficulties experienced by the Company’s customers or key participants in the markets in which the Company focuses its brokerage services;

·risks associated with potential acquisitions by us of businesses or technologies;

·our ability to manage our international operations;

·uncertainties associated with currency fluctuations;

·our failure to protect or enforce our intellectual property rights;

·our ability to keep up with rapid technological change;

·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—Managements 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

Our business generally benefits when there is robust trading volume and volatility in the markets we serve. Market volatility is driven by a range of external and internal factors, some of which are market

23

specific and some of which are correlated to macro-economic conditions. In many of the over the counter markets in which we provide inter-dealer brokerage services, objective and easily identifiable third party reporting of volume levels is not available. As a result, we look to broader market information and specific volatility events in our key markets, as indictors of likely trading volume levels. We also monitor market-specific developments in each of our markets. Trading volume in many of our inter-dealer markets is driven by the trading activity of our dealer clients that, in turn, are responsive to the trading activity and demand of their “buy-side” clients. Those “buy-side” clients include smaller banks, insurance companies and financial institutions, investment funds, trading firms and, increasingly, hedge funds.

During the second quarter 2006, the global business environment was generally positive for our business, with satisfactory trading volume levels and modest volatility in the credit markets, and more pronounced volatility in certain global foreign exchange, equity and commodity markets. We continued to benefit from our strategic diversity across product classes and our revenues grew across all geographic regions.

Credit:

Credit markets experienced modest volatility in the second quarter due to inflation, interest rate, general economic and credit quality concerns. Despite mixed economic indicators in the U.S., interest rates continued to rise as the Federal Reserve and global central banks battled inflationary concerns. The markets’ inflation concerns negatively affected emerging market and high yield bonds as the returns on these instruments became less attractive to investors. The health of the U.S. automotive industry remained in question as indicated by Ford’s credit rating being lowered by Standard & Poor’s to single B from BB late in the quarter, while Europe saw its first significant corporate bond default in over a year with France’s Global Automotive Logistics filing for bankruptcy protection in May. Volatility in the global credit markets decreased in the second quarter of 2006 from the second quarter of 2005, as evidenced by decreased volatility on the Dow Jones CDX North American Investment Grade, North American High Yield and iTraxx Europe indices. In comparison to the second quarter of 2005, which included the unexpected credit downgrades of General Motors and Ford, the second quarter of 2006 was not as volatile.

Financial:

The foreign exchange and interest rate markets were relatively volatile in the second quarter of 2006 due to uncertainty in the direction of short-term U.S. interest rates affecting the price of the U.S. dollar relative to other currencies. The Federal Reserve indicated in April that it was close to the end of its program of steady interest rate increases, only to reverse course a few weeks later. This uncertainty about the direction of U.S. interest rates added to the volatility in the markets. The U.S. dollar generally weakened in the quarter, depreciating versus the Euro, the British Pound Sterling and the Japanese Yen. The U.S. Dollar Index, which measures the dollar’s performance against a trade weighted basket of six major currencies, fell 5.1% in the quarter. Short-term interest rates rose in the U.S. and Europe as global economic activity remained strong in the quarter. The Chicago Mercantile Exchange and the Chicago Board of Trade reported record volume levels in the second quarter for interest rate futures contracts.

Equity:

Global equity markets experienced considerable volatility in the second quarter as stock markets generally declined due to inflation and interest rate concerns and their affect on future economic growth and corporate profits. Both the U.S. Federal Reserve and the European Central Bank raised short-term interest rates in the quarter. The Dow Jones World Stock Index, excluding the U.S., fell nearly 0.9% in the quarter, below the Dow Jones Industrial Average, which increased 0.4%. The Dow Jones Stoxx 600 Index of the largest publicly traded European companies declined 4.1% in the second quarter after six straight quarters of increases.  Emerging equity markets in Latin America and Asia lost much of their gains from the first quarter 2006. The Chicago Board of Options Exchange Standard and Poor’s 500 Volatility Index

24

indicated a higher volatility level for the second quarter of 2006 compared to the second quarter of 2005, as well as compared to the previous quarter. The NYSE Group Inc., Nasdaq Stock Market Inc. and the International Securities Exchange all reported volume increases in the second quarter.

Commodity:

The majority of our brokerage desks in the commodity product category focus on energy related products. The energy sector of the commodity markets remained volatile in the second quarter of 2006. Natural gas prices continued their downward trend for the year, decreasing 15.3% in the second quarter, and 45.6% year-to-date on the New York Mercantile Exchange (“NYMEX”) following a mild winter in the Northeast that led to higher inventories. Crude oil prices, on the other hand, rose over 11.0% on NYMEX due to political issues in the Middle East, Asia and Latin America, and continued strong domestic and foreign demand. Other energy markets, such as coal and electricity, were also affected by concerns regarding supply and demand of energy resources. InterContinentalExchange, an electronic energy marketplace, reported record volume levels in the second quarter of 2006, while NYMEX has reported futures and options daily volumes through June 2006 that are significantly ahead of annual numbers for previous years.

Results of Operations

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
REVENUES:
Brokerage revenues:
Agency commissions	$	130,134		$	100,718		$	267,044		$	188,689
Principal transactions	41,792			27,635			82,852			55,747
Total brokerage revenues	171,926			128,353			349,896			244,436
Analytics and market data	4,271			4,711			9,465			10,113
Long-term contract revenue	5,881			—			5,881			—
Interest income	2,395			883			4,628			1,943
Other income	3,093			6,376			3,284			6,125
Total revenues	187,566			140,323			373,154			262,617
EXPENSES:
Compensation and employee benefits	113,701			80,896			230,546			156,373
Communications and quotes	9,303			6,341			16,956			12,140
Travel and promotion	8,549			6,041			16,080			11,802
Rent and occupancy	4,841			3,913			10,454			7,341
Depreciation and amortization	4,048			3,599			7,884			7,691
Professional fees	5,320			2,927			9,364			5,396
Clearing fees	6,798			2,974			12,275			6,345
Interest	1,772			597			3,524			1,841
Other expenses	3,843			5,809			7,399			9,818
Cost of long-term contract	5,180			—			5,180			—
Lease termination costs to affiliate	(92		)	(2,266		)	(92		)	(2,266		)
Total Expenses	163,263			110,831			319,570			216,481
INCOME BEFORE PROVISION FOR INCOME TAXES	24,303			29,492			53,584			46,136
PROVISION FOR INCOME TAXES	10,207			12,810			22,505			20,300
NET INCOME	$	14,096		$	16,682		$	31,079		$	25,836

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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 June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
REVENUES:
Brokerage revenues:
Agency commissions	69.4	%	71.8	%	71.6	%	71.9	%
Principal transactions	22.3		19.7		22.2		21.3
Total brokerage revenues	91.7		91.5		93.8		93.2
Analytics and market data	2.3		3.4		2.5		3.9
Long-term contract revenue	3.1		—		1.6		—
Interest income	1.3		0.6		1.2		0.6
Other income	1.6		4.5		0.9		2.3
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%
EXPENSES:
Compensation and employee benefits	60.6	%	57.6	%	61.8	%	59.5	%
Communications and quotes	5.0		4.6		4.5		4.7
Travel and promotion	4.6		4.3		4.3		4.5
Rent and occupancy	2.6		2.8		2.8		2.8
Depreciation and amortization	2.2		2.6		2.1		2.9
Professional fees	2.8		2.1		2.5		2.1
Clearing fees	3.6		2.1		3.3		2.4
Interest	0.9		0.4		0.9		0.7
Other expenses	2.0		4.1		2.0		3.7
Cost of long-term contract	2.8		—		1.4		—
Lease termination to affiliate	—		(1.6	)	—		(0.9	)
Total Expenses	87.1	%	79.0	%	85.6	%	82.4	%
INCOME BEFORE PROVISION FOR INCOME TAXES	12.9		21.0		14.4		17.6
PROVISION FOR INCOME TAXES	5.4		9.1		6.0		7.7
NET INCOME	7.5	%	11.9	%	8.4	%	9.9	%

Three Months Ended June 30, 2006 Compared to the Three Months Ended June 30, 2005

Net income for the three months ended June 30, 2006 was $14.1 million as compared to net income of $16.7 million for the three months ended June 30, 2005, a decrease of $2.6 million or approximately 15.6%. Total revenues increased by $47.3 million, or 33.7%, to $187.6 million for the three months ended June 30, 2006 from $140.3 million for the same period from the prior year. Our increased revenues were primarily due to increased brokerage revenues across our financial, equity and commodity product categories. Our total brokerage personnel headcount increased by 199 to a total of 828 at June 30, 2006 from 629 at June 30, 2005. Total expenses increased by $52.5 million, or 47.4%, to $163.3 million for the three months ended June 30, 2006 from $110.8 million for the same period from the prior year. Expenses increased primarily due to a higher number of brokerage personnel as compared with the corresponding period in 2005 and the resulting increase in performance related brokerage bonuses.

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Revenues

Brokerage Revenues

We offer our brokerage services in four broad product categories: credit, financial, equity and commodity. The charts below detail our brokerage revenues by product category in dollars and as a percentage of our total brokerage revenues for the periods indicated.

	Three Months Ended June 30,
	2006			2005
BROKERAGE REVENUES:
Credit	$	59,838		$	60,749
Financial	38,942			29,835
Equity	46,109			21,869
Commodity	27,037			15,900
Total brokerage revenues	$	171,926		$	128,353
BROKERAGE REVENUES:
Credit	34.8		%	47.3		%
Financial	22.7			23.3
Equity	26.8			17.0
Commodity	15.7			12.4
Total brokerage revenues	100.0		%	100.0		%

Total brokerage revenues increased by $43.5 million, or 33.9%, to $171.9 million for the three months ended June 30, 2006, as compared to $128.4 million for the three months ended June 30, 2005. Agency commissions increased by $29.4 million, or 29.2%, to $130.1 million for the three months ended June 30, 2006 as compared to $100.7 million for the three months ended June 30, 2005. Principal transactions increased by $14.1 million, or 50.9%, to $41.8 million for the three months ended June 30, 2006 from $27.7 million for the three months ended June 30, 2005. Broker productivity (defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period) decreased slightly for the three months ended June 30, 2006 as compared to the same period from the prior year.

Credit product brokerage revenues decreased slightly for the three months ended June 30, 2006 as compared to the corresponding period in 2005, primarily the result of lower volumes in certain sectors of the U.S. corporate bond markets. Although our total credit product brokerage revenue decreased slightly in the second quarter of 2006, revenues from certain of our credit derivatives brokerage desks in our credit product category were higher in the second quarter of 2006 compared to the second quarter of 2005. Volatility in the second quarter of 2005 was higher compared to the second quarter of 2006 due to credit downgrades in U.S. corporate bond sectors, such as the automotive industry, which led to increased trading activity in the second quarter of 2005. We continued to invest in the development of credit products by increasing our credit product brokerage personnel, which increased by 38 to a total of 223 employees at June 30, 2006 from 185 employees at June 30, 2005.

The increase in financial product brokerage revenues of $9.1 million was primarily attributable to brokerage desks covering emerging markets, interest rate derivatives and exotic foreign exchange options all of which benefited from global interest rate movements caused by economic growth, high energy costs and inflationary fears. During the second quarter of 2006, we continued to invest in our foreign exchange and interest rate derivatives businesses, particularly in Asia. The increase in our financial product brokerage revenues was generated primarily from our existing financial product desks, which contributed $5.3 million of the increase in financial product brokerage revenues. The remaining $3.8 million increase in financial product brokerage revenues was attributable to the addition of eleven new or restructured

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financial product desks since June 30, 2005. This investment in and development of financial products was highlighted by a financial product brokerage personnel increase of 70 to a total of 257 employees at June 30, 2006 from 187 employees at June 30, 2005, including the addition of 54 brokerage personnel in Asia.

The increase in equity product brokerage revenues of $24.2 million in the second quarter of 2006 was primarily due to our new Paris office contributing $13.0 million in brokerage revenues, revenues from our investment in other equity products in 2005 and increased business from our hedge fund customers. Global equity markets experienced considerable volatility in the quarter due to economic and inflation concerns and higher interest rates. New or restructured equity product desks, including desks in our Paris office, contributed $18.1 million of the total increase in equity product brokerage revenues. The remaining $6.1 million increase in equity product brokerage revenues was attributable to existing equity product desks. Our investment in and development of equity products was highlighted by an equity product brokerage personnel increase of 40 to a total of 171 employees at June 30, 2006 from 131 employees at June 30, 2005.

The increase in commodity product brokerage revenues of $11.1 million was primarily attributable to our Starsupply brokerage business that generated approximately $6.8 million in brokerage revenues in the second quarter of 2006, significant volatility in oil and gas markets and investment in new desks. In addition, in the second quarter of 2006, our European brokerage business in electricity, coal, emissions, dry freight and gold markets continued to perform well. Our new or restructured commodity product desks, including the desks acquired from Starsupply, contributed $8.7 million of the increase in commodity product brokerage revenues. Our existing commodity desks contributed $2.4 million of the total increase in commodity product brokerage revenue. Our investment in and development of commodity products was highlighted by a commodity product brokerage personnel increase of 51 to a total of 177 employees at June 30, 2006 from 126 employees at June 30, 2005.

Analytics and Market Data

Revenues from our analytics and market data products decreased by $0.4 million, or 8.5%, to $4.3 million for the three months ended June 30, 2006 as compared to $4.7 million for the three months ended June 30, 2005. The decrease was primarily due to a decrease in annual update fees for upgrades of software products in the three months ended June 30, 2006 as compared to the comparable period in 2005, as we continue to reduce the use of annual update fees in favor of monthly subscription fees.

Long-Term Contract Revenue

Long-term contract revenue consists of revenues recognized under a contract pursuant to which we developed an online currency trading system and customized it for a customer. During the second quarter of 2006, the contract was substantially completed and consequently, we recorded $5.9 million in long-term contract revenues. See Cost of Long-Term Contract below for further discussion relating to the costs. See Note 2 to the Condensed Consolidated Financial Statements for further discussion.

Interest Income

Interest income increased by $1.5 million, or 166.7%, to $2.4 million for the three months ended June 30, 2006 as compared to $0.9 million for the three months ended June 30, 2005. The increase is mainly attributable to the higher level of average cash balances in the U.S. and the increase in interest income on clearing accounts related primarily to our equity and corporate bond brokerage operations.

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Other Income

Other income decreased $3.3 million, or 51.6%, to $3.1 million for the three months ended June 30, 2006 from $6.4 million for the three months ended June 30, 2005. The decrease was primarily attributable to a net gain of $7.6 million relating to our foreign exchange derivative contracts recorded during the second quarter of 2005, which was offset by the transactional net gains (losses) based on foreign currency fluctuations and net gains (losses) on foreign exchange derivative contracts. During the first quarter of 2005, we discontinued hedge accounting for a foreign exchange derivative contract, which resulted in a termination of the contract and the execution of a new contract. The new contract did not qualify for hedge accounting and all unrealized gains and losses on the contract were recorded directly to earnings. The new contract was settled on June 30, 2005. Consequently, we recorded $8.4 million of gains from a new foreign exchange derivative contract, net of $0.8 million reclassified from accumulated other comprehensive loss into earnings on the original contract. Other income for the three months ended June 30, 2006 mainly consisted of transactional net gains (losses) based on foreign currency fluctuations and net gains (losses) on foreign exchange derivative contracts.

Expenses

Compensation and Employee Benefits

Compensation and employee benefits increased by $32.8 million, or 40.5%, to $113.7 million for the three months ended June 30, 2006 from $80.9 million for the three months ended June 30, 2005. The increase was primarily due to an increase in the number of brokerage personnel from 629 at June 30, 2005 to 828 at June 30, 2006 and an increase in brokerage personnel performance bonuses of $17.2 million resulting in large part from our overall higher brokerage commission revenues.

Total compensation and employee benefits as a percentage of total revenues increased to 60.6% at June 30, 2006 from 57.6% from June 30, 2005. Bonus expense represented 51.3% and 50.6% of total compensation and employee benefits expense for the three months ended June 30, 2006 and 2005, respectively. A significant 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 represented 6.3% and 3.2% of total compensation and employee benefits for the three months ended June 30, 2006 and 2005, respectively.

Communications and Quotes

Communications and quotes increased by $3.0 million, or 47.6%, to $9.3 million for the three months ended June 30, 2006 from $6.3 million from the three months ended June 30, 2005. The increase was primarily due to a change in our product mix with equity and commodity comprising a larger percentage of total brokerage revenues in the second quarter of 2006 compared to the second quarter of 2005. These product categories generally have higher communications and quotes expenses as a percentage of total brokerage revenues than that of the credit product category. Expense levels as a percentage of revenue may vary between product categories due to brokerage commission and volume levels and the need for third party data, technology and analytical support.

Travel and Promotion

Travel and promotion increased by $2.6 million, or 43.3%, to $8.6 million for the three months ended June 30, 2006 from $6.0 million for the three months ended June 30, 2005. This expense, as a percentage of our total brokerage revenues for the three months ended June 30, 2006 increased to 4.9% from 4.7% for the same period from the prior year. The increase was primarily due to a change in our revenue product mix with equity and commodity comprising a larger portion of total brokerage revenues in the second quarter of 2006 compared to the second quarter of 2005. These product categories typically have higher

29

travel and entertainment expenses as a percentage of total brokerage revenue than that of the credit product category.

Rent and Occupancy

Rent and occupancy increased by $1.0 million, or 25.6%, to $4.9 million for the three months ended June 30, 2006 from $3.9 million for the three months ended June 30, 2005. The increase was primarily due to the increase in repairs and maintenance, insurance and utilities resulting from the lease of additional office space in the U.S., London and Paris.

Depreciation and Amortization

Depreciation and amortization increased by $0.4 million, or 11.1%, to $4.0 million for the three months ended June 30, 2006 from $3.6 million for the three months ended June 30, 2005. The increase was primarily due to the increase in property and equipment costs, including software development costs.

Professional Fees

Professional fees increased by $2.3 million, or 76.7% to $5.3 million for the three months ended June 30, 2006 from $3.0 million for the three months ended June 30, 2005. The increase was primarily due to an increase in professional fees related to our continuing preparation to satisfy the requirements of the Sarbanes-Oxley Act of 2002 that are or will be applicable to us.  The increase was also attributable to an increase in audit, tax and other consulting fees, of which $0.6 million was incurred during the second quarter of 2006 relating to our secondary offering.

Clearing Fees

Clearing fees increased by $3.8 million, or 126.7%, to $6.8 million for the three months ended June 30, 2006 from $3.0 million for the three months ended June 30, 2005. This increase was due to a higher volume in the number of principal transactions executed during the three months ended June 30, 2006, as compared to the same period in the prior year which was partially due to the rapid growth of our equities business in Paris. Principal transactions are generally settled through third party clearing organizations that charge us a fee for their services. We also use the services of floor brokers on certain stock exchanges to assist in the execution of transactions. Fees paid to floor brokers in these circumstances are included in clearing fees.

Interest Expense

Interest expense increased by $1.2 million, or 200.0%, to $1.8 million for the three months ended June 30, 2006 from $0.6 million for the three months ended June 30, 2005. The increase was primarily due to higher interest charges on clearing accounts related primarily to our equity and corporate bond brokerage operations, which was offset by the lower interest expense under our credit facility.

Other Expenses

Other expenses decreased by $2.0 million, or 34.5%, to $3.8 million for the three months ended June 30, 2006 from $5.8 million for the three months ended June 30, 2005. The decrease was primarily due to a charge of $3.2 million made during the second quarter of 2005 in connection with newly-hired brokerage personnel in Singapore to buy-out their employment contracts with their former employers. There was no comparable charge in the three months ended June 30, 2006. This decrease was partially offset by an increase in irrecoverable Value Added Tax related to increased purchases in communications and quotes in the U.K. and other general office and miscellaneous expenses, such as office supplies and computer equipment expenses.

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Cost of Long-Term Contract

Cost of long-term contract represents the development and customization costs we incurred under a contract whereby we developed an online currency trading system and customized it for a customer. During the second quarter of 2006, the contract was substantially completed and consequently, we recorded $5.2 million in long-term contract costs. See Long-Term Contract Revenue above for further discussion relating to the revenues. See Note 2 to the Condensed Consolidated Financial Statements for further discussion.

Lease Termination Costs to Affiliate

Lease termination costs decreased by $2.2 million, or 95.7%, to a gain of $0.1 million for the three months ended June 30, 2006 from $2.3 million of gain for the three months ended June 30, 2005. Lease termination costs to affiliate represent the estimated lease termination costs in connection with a former lease in the U.K. with an affiliate. In April 2005, we and the affiliate executed an amendment to the lease termination agreement entered into in December 2004. The amendment accelerated termination of the lease to April 2005 and required us to pay a termination charge. As a result of the amendment, in the second quarter of 2005, we reduced our lease termination liability by approximately £1.2 million (or $2.3 million).  Further, we signed a new eighteen-month sublease agreement with the affiliate with rent of £0.5 million (or $0.9 million) per annum plus other related charges. However, in November 2005, we vacated the premise and accrued £0.5 million (or $0.9 million) for the remaining rent plus other related charges during the fourth quarter of 2005. During the second quarter of 2006, we reduced our estimate for related termination changes by £0.1 million (or $0.1 million). See Note 14 to the Condensed Consolidated Financial Statements for further discussion.

Provision for Income Taxes

Our provision for income taxes totaled $10.2 million for the three months ended June 30, 2006 and $12.8 million for the three months ended June 30, 2005. Our effective tax rate was approximately 42.0% for the three months ended June 30, 2006 as compared to 43.4% for the comparable period in 2005. The reduction in the effective tax rate was primarily due to income received on tax-exempt investments, decrease in state and local income taxes, and decrease in taxes related to foreign operations, which was partially offset by an increase in non-deductible expenses.

Six Months Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005

Net income for the six months ended June 30, 2006 was $31.1 million as compared to net income of $25.8 million for the six months ended June 30, 2005, an increase of $5.3 million or approximately 20.5%. Total revenues increased by $110.6 million, or 42.1%, to $373.2 million for the six months ended June 30, 2006 from $262.6 million compared to the same period from the prior year. Our increased revenues were primarily due to increased brokerage revenues resulting from the continued growth in our brokerage personnel headcount in each of our product categories either through organic growth in existing businesses, the acquisition of companies or desks, or the opening of desks in developing product areas. Our total brokerage personnel headcount increased by 199 to 828 at June 30, 2006 from 629 at June 30, 2005. Total expenses increased by $103.1 million, or 47.6% to $319.6 million for the six months ended June 30, 2006 from $216.5 million for the same period from the prior year. Expenses increased primarily due to a higher number of brokerage personnel as compared with the corresponding period in 2005 and the resulting increase in performance related brokerage bonuses.

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Revenues

Brokerage Revenues

We offer our brokerage services in four broad product categories: credit, financial, equity and commodity. The charts below detail our brokerage revenues by product category in dollars and as a percentage of our total brokerage revenues for the periods indicated.

	Six Months Ended June 30,
	2006			2005
BROKERAGE REVENUES:
Credit	$	131,111		$	112,402
Financial	78,430			56,120
Equity	87,568			42,871
Commodity	52,787			33,043
Total brokerage revenues	$	349,896		$	244,436
BROKERAGE REVENUES:
Credit	37.5		%	46.0		%
Financial	22.4			23.0
Equity	25.0			17.5
Commodity	15.1			13.5
Total brokerage revenues	100.0		%	100.0		%

Total brokerage revenues increased by $105.5 million, or 43.2%, to $349.9 million for the six months ended June 30, 2006, as compared to $244.4 million for the six months ended June 30, 2005. Agency commissions increased by $78.4 million, or 41.4%, to $267.0 million for the six months ended June 30, 2006 as compared to $188.7 million for the six months ended June 30, 2005. Principal transactions increased by $27.2 million, or 48.8%, to $82.9 million for the six months ended June 30, 2006 from $55.7 million for the six months ended June 30, 2005. Broker productivity (defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period) increased by approximately 5.6% for the six months ended June 30, 2006 as compared to the same period from the prior year.

The increase in credit product brokerage revenues of $18.7 million was due to a number of factors including continued overall growth in the credit derivatives market, the development of new credit products, the sectorization of credit products and the rollout of CreditMatch, a credit derivatives trading platform, in Europe. Our existing credit product desks contributed $14.3 of the total increase in credit product brokerage revenues. The remaining $4.4 million increase was generated by the addition of eleven new or restructured credit product desks since June 30, 2005. Our investment in and development of credit products was highlighted by a credit product brokerage personnel increase of 38 to a total of 223 employees at June 30, 2006 from 185 employees at June 30, 2005.

The increase in financial product brokerage revenues of $22.3 million was primarily attributable to brokerage desks covering emerging markets, interest rate derivatives and exotic foreign exchange options that benefited from global interest rate movement caused by economic growth, high energy costs and inflationary fears. We also invested heavily in our foreign exchange and interest rate derivatives businesses, particularly in Asia. The increase in our financial product brokerage revenues was generated primarily from our existing financial product desks, which contributed $15.4 million of the increase in financial product brokerage revenues. The remaining $6.9 million increase in financial product brokerage revenues was attributable to the addition of eleven new or restructured financial product desks since June 30, 2005.

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Our investment in and development of financial products was highlighted by a financial product brokerage personnel increase of 70 to a total of 257 employees at June 30, 2006 from 187 employees at June 30, 2005.

The increase in equity product brokerage revenues of $44.7 million was primarily due to our new Paris office that contributed $23.4 million in brokerage revenues during the first six months of 2006, a substantial investment in other equity products in 2005 and increased business from our hedge fund customers. Global equity markets experienced considerable volatility in the first six months due to global economic growth, rising interest rates and inflation concerns. New or restructured equity product desks, including desks in our Paris office, contributed $32.4 million of the total increase in equity product brokerage revenues. The remaining $12.3 million increase in equity product brokerage revenues was attributable to existing equity product desks. Our investment in and development of equity products was highlighted by an equity product brokerage personnel increase of 40 to total of 171 employees at June 30, 2006 from 131 employees at June 30, 2005.

The increase in commodity product brokerage revenues of $19.7 million was primarily attributable to our Starsupply brokerage business that generated approximately $13.4 million in brokerage revenues in the first six months of 2006, continued volatility in certain commodity markets and investment in new desks. Our new or restructured commodity product desks, including the desks acquired from Starsupply, contributed $16.2 million of the increase in commodity product brokerage revenues. Our existing commodity desks contributed $3.5 million of the total increase in commodity product brokerage revenue. Our investment in and development of commodity products was highlighted by a commodity product brokerage personnel increase of 51 to a total of 177 employees at June 30, 2006 from 126 employees at June 30, 2005.

Analytics and Market Data

Revenues from our analytics and market data products decreased by $0.6 million, or 5.9%, to $9.5 million for the six months ended June 30, 2006 as compared to $10.1 million for the six months ended June 30, 2005. The decrease was primarily due to a decrease in annual update fees for upgrades of software products in the six months ended June 30, 2006 compared to the comparable period in 2005 as we continue to reduce the use of annual update fees in favor of monthly subscription fees.

Long-Term Contract Revenue

Long-term contract revenue consists of revenues recognized under a contract pursuant to which we developed an online currency trading system and customized it for a customer. During the second quarter of 2006, the project was substantially completed and consequently, we recorded $5.9 million in long-term contract revenues. See Cost of Long-Term Contract below for further discussion relating to the costs. See Note 2 to the Condensed Consolidated Financial Statements for further discussion.

Interest Income

Interest income increased by $2.7 million, or 142.1%, to $4.6 million for the six months ended June 30, 2006 as compared to $1.9 million for the six months ended June 30, 2005. The increase is mainly attributable to the higher level of average cash balances in the U.S. and the increase in interest income on clearing accounts related primarily to our equity and corporate bond brokerage operations.

Other Income

Other income decreased $2.8 million, or 45.9%, to $3.3 million for the six months ended June 30, 2006 from an increase of $6.1 million for the six months ended June 30, 2005. The decrease was primarily attributable to a net gain of $7.6 million relating to our foreign exchange derivative contracts recorded

33

during the second quarter of 2005, which offset by the transactional net gains (losses) based on foreign currency fluctuations and net gains (losses) on foreign exchange derivative contracts.  During the first quarter of 2005, we discontinued hedge accounting for a foreign exchange derivative contract, which resulted in a termination of the contract and the execution of a new contract. The new contract did not qualify for hedge accounting and all unrealized gains and losses on the contract were recorded directly to earnings. The new contract was settled on June 30, 2005. Consequently, we recorded $8.4 million of gains from a new foreign exchange derivative contract, net of $0.8 million reclassified from accumulated other comprehensive loss into earnings on the original contract. Other income for the six months ended June 30, 2006 mainly consisted of transactional net gains (losses) based on foreign currency fluctuations and net gains (losses) on foreign exchange derivative contracts.

Expenses

Compensation and Employee Benefits

Compensation and employee benefits increased by $74.1 million, or 47.4%, to $230.5 million for the six months ended June 30, 2006 from $156.4 million for the six months ended June 30, 2005. The increase was primarily due to an increase in the number of brokerage personnel from 629 at June 30, 2005 to 828 at June 30, 2006 and an increase in brokerage personnel performance bonuses of $45.5 million resulting in large part from our overall higher brokerage commission revenues.

Total compensation and employee benefits as a percentage of total revenues increased to 61.8% at June 30, 2006 from 59.5% from June 30, 2005. Bonus expense represented 54.2% and 49.4% of total compensation and employee benefits expense for the six months ended June 30, 2006 and 2005, respectively. A significant 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 represented 5.6% and 3.1% of total compensation and employee benefits for the six months ended June 30, 2006 and 2005, respectively.

Communications and Quotes

Communications and quotes increased by $4.9 million, or 40.5%, to $17.0 million for the six months ended June 30, 2006 from $12.1 million from the six months ended June 30, 2005. The increase was primarily due to a change in our product mix with equity and commodity comprising a larger percentage of total brokerage revenues in the second quarter of 2006 compared to the second quarter of 2005. These product categories generally have higher communications and quotes expenses as a percentage of total brokerage revenues than that of the credit product category. Expense levels as a percentage of total brokerage revenue may vary between product categories due to brokerage commission and volume levels and the need for third party data, technology and analytical support.

Travel and Promotion

Travel and promotion increased by $4.3 million, or 36.4%, to $16.1 million for the six months ended June 30, 2006 from $11.8 million for the six months ended June 30, 2005. This expense, as a percentage of our total brokerage revenues for the six months ended June 30, 2006 decreased to 4.6% from 4.8% for the same period from the prior year. The increase was primarily due to a change in our revenue product mix with equity and commodity comprising a larger percentage of total brokerage revenues in the second quarter of 2006. These product categories typically have higher travel and entertainment expenses as a percentage of total brokerage revenue than that of the credit product category.

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Rent and Occupancy

Rent and occupancy increased by $3.0 million, or 40.5%, to $10.4 million for the six months ended June 30, 2006 from $7.4 million for the six months ended June 30, 2005. The increase was primarily due to the increase in rent expenses resulting from the lease of additional office space in the U.S., London and Paris and the related increase in repairs and maintenance.

Depreciation and Amortization

Depreciation and amortization increased slightly by $0.2 million, or 2.6%, to $7.9 million for the six months ended June 30, 2006 from $7.7 million for the six months ended June 30, 2005. The increase was primarily due to the increase in property and equipment costs, including software development costs.

Professional Fees

Professional fees increased by $4.0 million, or 74.1%, to $9.4 million for the six months ended June 30, 2006 from $5.4 million for the six months ended June 30, 2005. The increase was primarily due to an increase in professional fees related to our continuing preparation to satisfy the requirements of the Sarbanes-Oxley Act of 2002 that are or will be applicable to us.  The increase was also attributable to an increase in audit, tax and consulting fees, of which $0.6 million was incurred during the second quarter of 2006 relating to our secondary offering.

Clearing Fees

Clearing fees increased by $6.0 million, or 95.2%, to $12.3 million for the six months ended June 30, 2006 from $6.3 million for the six months ended June 30, 2005. This increase was due to a higher volume in the number of principal transactions executed during the six months ended June 30, 2006 as compared to the same period in the prior year which was partially due to the rapid growth of our equities business in Paris. Principal transactions are generally settled through third party clearing organizations that charge us a fee for their services. We also use the services of floor brokers on certain stock exchanges to assist in the execution of transactions. Fees paid to floor brokers in these circumstances are included in clearing fees.

Interest Expense

Interest expense increased by $1.7 million, or 94.4%, to $3.5 million for the six months ended June 30, 2006 from $1.8 million for the six months ended June 30, 2005. The increase was primarily due to higher interest charges on clearing accounts related to our equity and corporate bond brokerage operations, which were offset by the lower interest expense under our credit facility.

Other Expenses

Other expenses decreased by $2.4 million, or 24.5%, to $7.4 million for the six months ended June 30, 2006 from $9.8 million for the six months ended June 30, 2005. The decrease was primarily due to a charge of $3.2 million made during the second quarter of 2005 in connection with newly-hired brokerage personnel in Singapore to buy-out their employment contracts with their former employers, as well as a charge of $2.0 million for an increase in the fair value of the Fenics purchase obligation due to our initial public offering. There were no comparable charges in the six months ended June 30, 2006. This decrease was partially offset by increases in irrecoverable Value Added Tax related to increased purchases in communications and quotes in the U.K., litigation reserves and other general office and miscellaneous expenses, such as office supplies and computer equipment expenses.

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Cost of Long-Term Contract

Cost of long-term contract represents the development and customization costs we incurred under a contract pursuant to which we developed an online currency trading system and customized it for a customer. During the second quarter of 2006, the contract was substantially completed and consequently, we recorded $5.2 million in long-term contract costs. See Long-Term Contract Revenue above for further discussion relating to the revenues. See Note 2 to the Condensed Consolidated Financial Statements for further discussion.

Lease Termination Costs to Affiliate

Lease termination costs decreased by $2.2 million, or 95.7 %, to a gain of $0.1 million for the six months ended June 30, 2006 from $2.3 million of gain for the six months ended June 30, 2005. In April 2005, we and the affiliate executed an amendment to the lease termination agreement we entered into in December 2004. The amendment accelerated termination of the lease to April 2005 and required us to pay a termination charge. As a result of the amendment, in the second quarter of 2005, we reduced our lease termination liability by approximately £1.2 million (or $2.3 million).  Further, we signed a new eighteen-month sublease agreement with the affiliate with rent of £0.5 million (or $0.9 million) per annum plus other related charges. However, in November 2005, we vacated the premise and accrued £0.5 million (or $0.9 million) for the remaining rent plus other related charges during the fourth quarter of 2005. During the second quarter of 2006, we reduced our estimate for related termination changes by £0.1 million (or $0.1 million). See Note 14 to the Condensed Consolidated Financial Statements for further discussion.

Provision for Income Taxes

Our provision for income taxes totaled $22.5 million for the six months ended June 30, 2006 and $20.3 million for the six months ended June 30, 2005. Our effective tax rate was approximately 42.0% for the six months ended June 30, 2006 as compared to 44.0% for the comparable period in 2005. The reduction in the effective tax rate was primarily due to income received on tax-exempt investments and a decrease in taxes related to foreign operations.

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Quarterly Results of Operations

The following table sets forth, by quarter, our unaudited statement of income data for the period from January 1, 2005 to June 30, 2006. Results of any period are not necessarily indicative of results for a full year.

	Quarter Ended
	June 30, 2006			March 31, 2006		December 31, 2005				September 30, 2005				June 30, 2005			March 31, 2005
	(dollars in thousands)
Revenues
Brokerage revenues:
Agency commissions	$	130,134		$	136,910		$	104,335			$	98,559		$	100,718		$	87,971
Principal transactions	41,792			41,060			31,250				27,420			27,635			28,112
Total brokerage revenues	171,926			177,970			135,585				125,979			128,353			116,083
Analytics and market data	4,271			5,194			3,388				3,894			4,711			5,402
Long-term contract revenue	5,881			—			—				—			—			—
Interest income	2,395			2,233			1,458				1,236			883			1,060
Other income (loss)	3,093			191			(145		)		(420		)	6,376			(251		)
Total revenues	187,566			185,588			140,286				130,689			140,323			122,294
Expenses
Compensation and employee benefits	113,701			116,845			89,511				81,461			80,896			75,477
Communications and quotes	9,303			7,653			7,064				6,656			6,341			5,799
Travel and promotion	8,549			7,531			7,017				5,833			6,041			5,761
Rent and occupancy	4,841			5,613			3,447				4,662			3,913			3,428
Depreciation and amortization	4,048			3,836			4,159				3,434			3,599			4,092
Professional fees	5,320			4,044			2,507				2,797			2,927			2,469
Clearing fees	6,798			5,477			3,858				3,480			2,974			3,371
Interest	1,772			1,752			1,016				778			597			1,244
Other expenses	3,843			3,556			1,855				2,217			5,809			4,009
Cost of long-term contract	5,180			—			—				—			—			—
Lease termination costs to affiliate	(92		)	—			1,070				—			(2,266		)	—
Total expenses	163,263			156,307			121,504				111,318			110,831			105,650
Income before provision for taxes	24,303			29,281			18,782				19,371			29,492			16,644
Provision for income taxes	10,207			12,298			7,363				8,523			12,810			7,490
Net income	$	14,096		$	16,983		$	11,419			$	10,848		$	16,682		9,154

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

	Quarter Ended
	June 30, 2006			March 31, 2006			December 31, 2005			September 30, 2005			June 30, 2005			March 31, 2005
Revenues
Brokerage revenues:
Agency commissions		69.4	%		73.8	%		74.4	%		75.4	%		71.8	%		72.0	%
Principal transactions		22.3			22.1			22.3			21.0			19.7			23.0
Total brokerage revenues		91.7			95.9			96.7			96.4			91.5			95.0
Analytics and market data		2.3			2.8			2.4			3.0			3.4			4.4
Long-term contract revenue		3.1			—			—			—			—			—
Interest income		1.3			1.2			1.0			0.9			0.6			0.8
Other income (loss)		1.6			0.1			(0.1	)		(0.3	)		4.5			(0.2	)
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Expenses
Compensation and employee benefits		60.6	%		63.0	%		63.8	%		62.3	%		57.6	%		61.7
Communications and quotes		5.0			4.1			5.0			5.1			4.6			4.8
Travel and promotion		4.6			4.1			5.0			4.5			4.3			4.7
Rent and occupancy		2.6			3.0			2.5			3.6			2.8			2.8
Depreciation and amortization		2.2			2.1			3.0			2.6			2.6			3.3
Professional fees		2.8			2.2			1.8			2.1			2.1			2.0
Clearing fees		3.6			3.0			2.8			2.7			2.1			2.8
Interest		0.9			0.9			0.7			0.6			0.4			1.0
Other expenses		2.0			1.9			1.3			1.7			4.1			3.3
Cost of long-term contract		2.8			—			—			—			—			—
Lease termination costs to affiliate		—			—			0.8			—			(1.6	)		—
Total expenses		87.1	%		84.3	%		86.7	%		85.2	%		79.0	%		86.4	%
Income before provision for taxes		12.9			15.7			13.3			14.8			21.0			13.6
Provision for income taxes		5.4			6.6			5.2			6.5			9.1			6.1
Net income		7.5	%		9.1	%		8.1	%		8.3	%		11.9	%		7.5	%

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The tables below detail our brokerage revenues by product category in dollars and as a percentage of our total brokerage revenues for the indicated periods.

	Quarter Ended
	June 30, 2006			March 31, 2006			December 31, 2005				September 30, 2005				June 30, 2005			March 31, 2005
	(dollars in thousands)
Brokerage Revenues:
Credit	$	59,838		$	71,273			$	55,443			$	51,472		$	60,749		$	51,653
Financial	38,942			39,488				29,213				30,804			29,835			26,285
Equity	46,109			41,459				29,931				25,993			21,869			21,002
Commodity	27,037			25,750				20,998				17,710			15,900			17,143
Total brokerage revenues	$	171,926		$	177,970			$	135,585			$	125,979		$	128,353		$	116,083
Brokerage Revenues:
Credit	34.8		%	40.0		%		40.9		%		40.8		%	47.3		%	44.5		%
Financial	22.7			22.2				21.5				24.5			23.2			22.6
Equity	26.8			23.3				22.1				20.6			17.0			18.1
Commodity	15.7			14.5				15.5				14.1			12.4			14.8
Total brokerage revenues	100.0		%	100.0		%		100.0		%		100.0		%	100.0		%	100.0		%

Liquidity and Capital Resources

Net cash used by operations improved to $0.8 million for the six months ended June 30, 2006, compared with $5.8 million for the six months ended June 30, 2005. The improvement is primarily related to our increased net income that is positively adjusted by certain non-cash items such as deferred compensation expense and net losses on foreign exchange derivative contracts, offset by an increase in cash used for working capital. The significant working capital changes are related to the net receivables from the broker dealers and clearing organizations and other liabilities, offset by an increase in accrued compensation.

Net cash used in investing activities for the six months ended June 30, 2006 was $13.4 million compared to $5.2 million used in the six months ended June 30, 2005. The increase in cash used for investing activities was primarily due to significantly higher capital expenditures during the first half of 2006 than the comparable period of 2005. The increase in capital expenditure was primarily due to our continued investment in the development of software for internal use and an increase in the purchase of computer equipment.

Net cash provided by financing activities for the six months ended June 30, 2006 was $1.5 million compared to $15.6 million generated for the six months ended June 30, 2005. Cash provided by financing activities for the six months ended June 30, 2005 consisted of net proceeds received from our initial public offering, offset by the repayments of the notes payable to Jersey Partners Inc. in January 2005 and the outstanding principal balance under our 2004 Credit Agreement in February 2005. In the first six months of 2006, cash provided by financing activities consisted of net cash paid on borrowings under our 2006 Credit Agreement, offset by the cash proceeds received and tax benefits realized from the exercise of stock options and cash proceeds from a bank overdraft. The bank overdraft was due to the timing of a transfer between certain of our bank accounts, which was not completed until immediately after June 30, 2006.

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 and GFI Group Pte Ltd. 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

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subject to the regulated capital requirements of the Securities and Futures Commission in Hong Kong. GFI Group PTE Ltd. is subject to the regulatory compliance requirements with the Monetary Authority of Singapore. At June 30, 2006, GFI Securities LLC, GFI Securities Limited, GFI Brokers Limited, GFI (HK) Securities LLC and GFI Group PTE Ltd. were in compliance with their respective regulatory capital requirements. See Note 11 to the condensed consolidated financial statements for further discussion. 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. As of June 30, 2006, the balance receivable from clearing organizations was $67.3 million, an increase of $19.4 million compared to the balance as of June 30, 2005. The main reason for this increase was due to the growth of our principal transactions business, primarily in the equity product category.

Although we have no material commitments for capital expenditures, we anticipate that we will experience a substantial increase in our capital expenditures and lease commitments consistent with our anticipated growth in operations, infrastructure and personnel. We currently anticipate that we will continue to experience significant growth in our operating expenses for the foreseeable future and that our operating expenses will be a material use of our cash resources.

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 2006 Credit Facility, 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

Our contractual obligations and off-balance sheet entities are described in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our 2005 Form 10-K. Except as described below in this Form 10-Q, there have been no material changes to those obligations or arrangements during the six months ended June 30, 2006.

We have various unconditional purchase obligations. Certain of these obligations are for the purchase of quotes from a number of information service providers during the normal course of business. As of June 30, 2006, we had total purchase commitments for quotes of approximately $14.7 million, with $11.7 million due within the next twelve months and $3.0 million due between one to two years.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements at June 30, 2006.

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 2005 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 2005 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 Pronouncement

In June 2006, the Financial Accounting Standards Board issued Interpretation (“FASB”) No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB No. 109 (“FIN 48”). FIN 48 clarifies

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the accounting for uncertain tax positions in accordance with SFAS No. 109, Accounting for Income Taxes. The Company will be required to recognize in its financial statements the largest tax benefit of a tax position that is “more-likely-than-not” to be sustained on audit based solely on the technical merits of the position as of the reporting date. FIN 48 also provides guidance on new disclosure requirements, reporting and accrual of interest and penalties, accounting in interim periods and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Only tax positions that meet the “more-likely-than-not” threshold at that date may be recognized. The cumulative effect of initially applying FIN 48 will be recognized as a change in accounting principle as of the end of the period in which FIN 48 is adopted. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISLCOSURES 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 2005 Form 10-K. Except as described below in this Form 10-Q, there have been no material changes to those market risks during the six months ended June 30, 2006.

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 six months ended June 30, 2006.

At June 30, 2006, we had outstanding foreign exchange derivative contracts to purchase and sell foreign currency that qualified as foreign currency cash flow hedges under SFAS 133 with notional amounts translated into U.S. Dollars of $74.4 million. We would have paid $1.2 million at June 30, 2006 to settle these contracts, which represents the fair value. At June 30, 2006, the net fair value of these contracts was minimal. At June 30, 2006, if the Euro strengthened by 10% against the U.S. Dollar and the U.S. Dollar strengthened by 10% against the British Pound, it would decrease the fair value of these contracts and, as a result, accumulated other comprehensive income would decrease by approximately $2.9 million, net of tax.

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 U.S. Dollar strengthened by 10% against the Euro and the British Pound, the net impact to our net income would have been a reduction of approximately $2.1 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 were effective as of the end of the period covered by this quarterly report in providing a reasonable level of assurance that information we are required to disclose in reports we file or furnish under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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 and determined that there have been no changes in our internal controls over financial reporting during the first quarter of 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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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. We believe proceedings of these types are common in the inter-dealer brokerage industry due to its highly competitive nature. 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 August 2006, the NASD fined one of our subsidiaries an aggregate of $45,000 for issues relating to the registration of one individual on one of our brokerage desks and the failure to provide information as required by TRACE requirements and censured one of our officers in relation to the registration issue.

Although the ultimate outcome of these proceedings cannot be ascertained at this time, after consultation with counsel, we believe that damages, if any, resulting from such proceedings will not, in the aggregate, have a material adverse effect on our financial condition, but may be material to our operating results for any particular period or may affect our reputation.

ITEM 1A.RISK FACTORS

There have been no material changes in our risk factors from those disclosed in the 2005 Form 10-K. See “Risk Factors” in Part I, Item 1A of the 2005 Form 10-K.

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

Under our 2004 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. During the quarter ended June 30, 2006, we withheld shares of common stock to satisfy tax withholding obligations as follows:

Date	No. of Shares		Average Market Price
April		—		—
May		16,997		$	55.34
June		4,596		54.07

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

At the 2006 Annual Meeting of Stockholders, which was held on May 31, 2006 (the “Annual Meeting”), the stockholders of the Company elected two directors to serve until the 2009 Annual Meeting of Stockholders or until successors are duly elected and qualified.

The affirmative vote of a plurality of the votes cast by holders of shares of common stock was required to elect the directors.

The following table sets forth the number of votes cast for and withheld with respect to each nominee.

Nominee	For	Withheld
Geoffrey Kalish	26,037,441	527,256
John R. MacDonald	26,037,471	527,226

The following is a list of the Company’s directors whose term of office continued after the 2006 Annual Meeting:

Michael A. Gooch
Colin Heffron
John W. Ward
Marisa Cassoni

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).

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of August, 2006.

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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Exhibit Index

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).

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