Gfi (GFIG) 10-Q 2006 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006

OR

oTRANSITION 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 October 31, 2006 was 28,600,909.

Table of Contents

Part I—Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Statements of Financial Condition as of September 30, 2006 (unaudited) and December 31, 2005	4
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2006 (unaudited) and September 30, 2005 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2006 (unaudited) and September 30, 2005 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 (unaudited) and September 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	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
Part II—Other Information
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 6.	Exhibits	44

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 the corporate governance of the Company is also available on our website, including information concerning our directors, board committees, including committee charters, our code of business conduct and ethics for all employees and for senior financial officers and our compliance procedures for accounting and auditing matters. In addition, the Investor Relations page of our website includes 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)

	September 30, 2006				December 31, 2005
	(Unaudited)
ASSETS
Cash and cash equivalents		$	161,866			$	144,148
Deposits with clearing organizations		7,842				7,824
Accrued commissions receivable, net of allowance for doubtful accounts		122,718				89,727
Receivables from brokers, dealers and clearing organizations		318,509				208,938
Property, equipment and leasehold improvements, net		36,332				31,674
Software inventory, net		6,685				5,687
Goodwill		26,713				26,683
Intangible assets, net		1,488				2,355
Other assets		65,991				59,101
TOTAL ASSETS		$	748,144			$	576,137
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Accrued compensation		$	104,454			$	88,628
Accounts payable and accrued expense		24,978				22,455
Payables to brokers, dealers and clearing organizations		241,624				165,766
Notes payable, net		17,681				31,247
Other liabilities		49,266				28,914
Lease termination costs payable to affiliate		157				875
Total Liabilities		$	438,160			$	337,885
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred Stock, $0.01 par value; 5,000,000 shares authorized and none outstanding at September 30, 2006 and December 31, 2005		—				—
Common stock, $0.01 par value; 100,000,000 shares authorized; 28,550,093 and 27,904,568 shares outstanding at September 30, 2006 and December 31, 2005, respectively		286				279
Additional paid in capital		218,409				195,360
Retained earnings		92,459				44,790
Accumulated other comprehensive loss		(1,170		)		(2,177		)
Total Stockholders’ Equity		309,984				238,252
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	748,144			$	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 September 30,								Nine Months Ended September 30,
	2006				2005				2006				2005
REVENUES:
Brokerage revenues:
Agency commissions		$	138,961			$	98,559			$	406,005			$	287,248
Principal transactions		34,478				27,420				117,330				83,167
Total brokerage revenues		173,439				125,979				523,335				370,415
Analytics and market data		4,954				3,894				14,419				14,006
Long-term contract revenue		—				—				5,881				—
Interest income		2,150				1,236				6,778				3,179
Other income (loss)		(585		)		(420		)		2,699				5,705
Total Revenues		179,958				130,689				553,112				393,305
EXPENSES:
Compensation and employee benefits		112,543				81,461				343,089				237,833
Communications and quotes		9,799				6,656				26,755				18,795
Travel and promotion		7,069				5,833				23,149				17,634
Rent and occupancy		4,594				4,662				15,048				12,003
Depreciation and amortization		4,338				3,434				12,222				11,126
Professional fees		4,391				2,797				13,755				8,193
Clearing fees		5,884				3,480				18,159				9,825
Interest		1,124				778				4,648				2,619
Other expenses		3,098				2,217				10,497				12,036
Cost of long-term contract		—				—				5,180				—
Lease termination costs to affiliate		(93		)		—				(185		)		(2,266		)
Total Expenses		152,747				111,318				472,317				327,798
INCOME BEFORE PROVISION FOR INCOME TAXES		27,211				19,371				80,795				65,507
PROVISION FOR INCOME TAXES		10,621				8,523				33,126				28,823
NET INCOME		$	16,590			$	10,848			47,669				$	36,684
EARNINGS PER SHARE
Basic		$	0.58			$	0.40			$	1.69			$	1.39
Diluted		$	0.57			$	0.39			$	1.64			$	1.34
WEIGHTED AVERAGE SHARES OUSTANDING BASIC
Class A common stock		—				—				—				647,676
Common stock		28,441,089				27,177,546				28,248,634				25,085,118
WEIGHTED AVERAGE SHARES OUTSTANDING DILUTED		29,221,795				28,105,318				29,104,286				27,373,647

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 September 30,					Nine Months Ended September 30,
	2006			2005		2006		2005
NET INCOME	$	16,590		$	10,848	$	47,669	$	36,684
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain on foreign exchange derivative contracts, net of tax	1,374			862		861		3,720
Foreign currency translation adjustment, net of tax	(8		)	402		146		220
COMPREHENSIVE INCOME	$	17,956		$	12,112	$	48,676	$	40,624

See notes to condensed consolidated financial statements

6

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

	Nine Months Ended September 30,
	2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	47,669			$	36,684
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,222				11,126
Amortization of loan fees		181				317
Provision for allowance for doubtful accounts		381				526
Loss on disposal of fixed assets		122				—
Deferred compensation		8,199				2,473
Benefit from deferred taxes		(3,315		)		1,881
Loss on foreign exchange for notes payable		865				—
Loss on Fenics purchase obligation		—				2,030
Loss/(gain) on foreign exchange derivative contracts		1,952				(7,652		)
Lease termination cost to affiliate		(185		)		(2,266		)
(Increase) decrease in operating assets:
Deposits with clearing organizations		(18		)		752
Accrued commissions receivable		(33,372		)		(33,202		)
Receivables from brokers, dealers and clearing organizations		(109,571		)		11,931
Software inventory		(1,869		)		(2,056		)
Other assets		(5,042		)		(11,868		)
Increase (decrease) in operating liabilities:
Accrued compensation		15,826				6,962
Accounts payable and accrued expenses		2,381				93
Payables to brokers, dealers and clearing organizations		75,858				(22,899		)
Income taxes payable—current		5,628				(3,083		)
Other liabilities		15,316				18,561
Cash paid to affiliate for lease termination		(467		)		(352		)
Cash provided by operating activities		32,761				9,958
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for acquisition of minority interest in Fenics Limited		(116		)		(4,286		)
Cash used for the acquisition of assets from Starsupply Petroleum		—				(15,150		)
Purchase of property, equipment and leasehold improvements		(15,265		)		(8,895		)
(Payments on)/proceeds from foreign exchange derivative contracts		(352		)		2,223
Cash used in investing activities		(15,733		)		(26,108		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable		(52,000		)		(54,500		)
Proceeds from notes payable		38,000				18,000
Repayment of loan notes payable		—				(9,250		)
Issuance of common stock		—				73,651
Payment of loan fees		(612		)		—
Proceeds from exercise of stock options		7,057				9,243
Cash paid for taxes on vested restricted stock units		(1,866		)		—
Tax benefit from stock option exercises		9,965				—
Cash provided by financing activities		544				37,144
Effects of foreign currency translation adjustment		146				220
INCREASE IN CASH AND CASH EQUIVALENTS		17,718				21,214
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		144,148				105,161
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	161,866			$	126,375
SUPPLEMENTAL DISLCOSURE:
Interest paid		$	4,444			$	2,711
Income taxes paid, net of refunds		$	13,684			$	29,232

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 September 30, 2006, Jersey Partners, Inc. (“JPI”) owned approximately 44% of the Company’s outstanding shares of common stock. The Company’s chief executive officer, Michael Gooch, is the controlling shareholder of JPI.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingencies in the 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 fiscal 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 $3,244 and $3,202 as of September 30, 2006 and December 31, 2005, respectively. The allowance is based on management’s

8

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

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 is 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. During second quarter of 2006, the contract was considered to be substantially complete and the related revenues and expenses were recognized.

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 of grant. This was reported as an offset to the compensation and employee benefits expense line item in

10

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

the Condensed 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				Nine Months Ended
	September 30, 2005				September 30, 2005
Net income—as reported		$	10,848			$	36,684
Add:
Effect of stock-based employee compensation included in reported net income, net of tax		390				1,470
Deduct:
Total stock-based employee compensation determined under fair value method, net of tax		(390		)		(1,536		)
Net income—pro forma		$	10,848			$	36,555
Basic earnings per share—as reported		$	0.40			$	1.39
Basic earnings per share—pro forma		$	0.40			$	1.39
Diluted earnings per share—as reported		$	0.39			$	1.34
Diluted earnings per share—pro forma		$	0.39			$	1.34

Recent Accounting Pronouncements—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. The Company is currently evaluating the impact of adopting FIN 48 on its consolidated financial statements.

In Septembers 2006, the SEC staff issued Staff Accounting Bulletin No. 108 (“SAB No. 108”), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 provides guidance on how prior year misstatements should be taken into

11

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

consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. The SEC Staff believes registrants should quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relative quantitative and qualitative factors are considered, is material. SAB 108 is effective for the first fiscal year ending after November 15, 2006. The Company is currently evaluating the impact of adopting SAB 108 on its consolidated financial statements and does not anticipate it will be material.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS 157 requires companies to disclose the fair value of its financial instruments according to a fair value hierarchy, as defined. Additionally, companies are required to provide enhanced disclosure for certain financial instruments within the hierarchy, including a reconciliation of the beginning and ending balances separately for each major category of assets and liabilities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 157 on its consolidated financial statements.

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

	September 30, 2006			December 31, 2005
Receivables from brokers, dealers and clearing organizations:
Contract value of fails to deliver		$	306,586		$	161,069
Balance receivable from clearing organizations		11,923			47,869
Total		$	318,509		$	208,938
Payables to brokers, dealers and clearing organizations:
Contract value of fails to receive		$	230,284		$	148,971
Balance payable to clearing organizations		993			466
Payable to financial institutions		10,347			16,329
Total		$	241,624		$	165,766

12

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

4.INTANGIBLE ASSETS

Intangible assets consisted of the following:

	September 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		(6,566		)		(5,699		)
Net intangible assets		$	1,488			$	2,355

Amortization was $245 and $201 for the three months ended September 30, 2006 and 2005, respectively, and $867 and $605 for the nine months ended September 30, 2006 and 2005, respectively.

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

2006 (remaining three months)	$	166
2007	361
2008	260
2009	260
2010	255
Total	$	1,302

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”) provided for maximum borrowings of $135,000 and has an expiration date of February 24, 2011. In September 2006, the Company entered into an agreement that increased the maximum permitted borrowings under the 2006 Credit Agreement to $160,000. The Company had outstanding borrowings under its 2006 Credit Agreement as of September 30, 2006 and under its 2004 Credit Agreement as of December 31, 2005 as follows:

	September 30, 2006			December 31, 2005
Loan Available(1)		$	160,000		$	80,000
Loans Outstanding		18,670			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 September 30, 2006 and December 31, 2005, respectively.

13

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

The outstanding loans bore interest rates ranging from 3.97% to 8.25% at September 30, 2006 and 5.39% at December 31, 2005. At September 30, 2006 and December 31, 2005, notes payable were recorded net of unamortized loan fees of $989 and $558, respectively.

Subsequent to September 30, 2006, the Company borrowed $86,000 under the 2006 Credit Agreement to fund the acquisition of substantially all of the North American brokerage operations and assets of Amerex Energy. See Note 15 for further discussion.

6.EARNINGS PER SHARE

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Basic earnings per share
Net income applicable to stockholders	$	16,590	$	10,848	$	47,669	$	36,684
Income allocated to participating preferred stockholders	—		—		—		(903		)
Income available to common stockholders	$	16,590	$	10,848	$	47,669	$	35,781
Weighted average common shares outstanding:
Class A common stock	—		—		—		647,676
Common stock	28,441,089		27,177,546		28,248,634		25,085,118
Weighted average common shares outstanding	28,441,089		27,177,546		28,248,634		25,732,794
Basic earnings per share—Class A common stock and Common stock	$	0.58	$	0.40	$	1.69	$	1.39
Diluted earnings per share
Net income applicable to stockholders	$	16,590	$	10,848	$	47,669	$	36,684
Weighted average common shares outstanding	28,441,089		27,177,546		28,248,634		25,732,794
Effect of dilutive shares:
Options and warrant	780,706		927,772		855,652		899,690
Convertible preferred shares	—		—		—		331,982
Redeemable convertible preferred shares	—		—		—		409,181
Weighted average shares outstanding and common stock equivalents	29,221,795		28,105,318		29,104,286		27,373,647
Diluted earnings per share	$	0.57	$	0.39	$	1.64	$	1.34

Outstanding options to purchase 32,967 shares were excluded from the computation of diluted earnings per share for the nine months ended September 30, 2005 because their effect would be anti-dilutive. In addition, 167,208 and 109,690 RSUs for the three months ended September 30, 2006 and 2005, respectively, and 130,674 and 119,952 RSUs for the nine months ended September 30, 2006 and 2005, respectively, were also excluded from the computation of diluted earnings per share because their effect would be anti-dilutive.

14

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

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. 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 nine months ended September 30, 2006:

	RSUs		Weighted-Average Grant Date Fair Value
Outstanding December 31, 2005	599,225			$	32.03
Granted	414,419			54.81
Vested	(133,337	)		31.44
Cancelled	(36,125	)		33.31
Outstanding September 30, 2006	844,182			43.25

The weighted average grant-date fair value of RSUs granted for the nine months ended September 30, 2006 was $54.81 per unit, compared with $27.27 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 September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Compensation expense		$	2,817		$	636		$	7,951		$	1,220
Income tax benefits		1,813			251			3,029			486

At September 30, 2006, total unrecognized compensation cost related to the RSUs prior to the consideration of expected forfeitures was approximately $29,831 and is expected to be recognized over a weighted-average period of 2.19 years. The total fair value of RSUs vested during the nine months ended September 30, 2006 and 2005 was $4,192 and $108, respectively.

As of September 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.

15

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

The following is a summary of stock option transactions during the nine months ended September 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	(252,505	)		13.37		(315,895	)		11.69
Terminated	(3,685	)		14.49		(526	)		9.50
Outstanding September 30, 2006	697,247			13.89		342,241			12.06

The following table summarizes information about options outstanding under the GFI Group 2002 Plan as of September 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		543,663		7.49		$	11.88		448,397		$	11.88
21.00		153,584		7.74		21.00			56,607		21.00

The following table summarizes information about options outstanding under the GFInet 2000 Plan as of September 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		225,999		3.70		$	9.50		225,999		$	9.50
11.88		34,843		6.47		11.88			34,843		11.88
14.25		12,723		4.26		14.25			12,723		14.25
19.00		51,603		4.42		19.00			51,603		19.00
23.75		17,073		3.74		23.75			17,073		23.75

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

	Three Months Ended September 30,						Nine Months Ended  September 30,
	2006			2005			2006			2005
Compensation expense		$	61		$	140		$	248		$	1,253
Income tax benefit		51			97			102			542

At September 30, 2006, total unrecognized compensation cost related to unvested stock option awards prior to the consideration of expected forfeitures was approximately $350 and is expected to be recognized over the weighted average period of 0.5 years.

16

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

For the nine months ended September 30, 2006 and 2005, the total fair value of vested options was $340 and $401, respectively. The total intrinsic value of options exercised for the nine months ended September 30, 2006 and 2005 was $23,499 and $16,358, respectively. Additionally, the total intrinsic value of options outstanding and exercisable at September 30, 2006 was $43,661 and $36,200, 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 September 30, 2006, the Company had total purchase commitments for quotes of approximately $13,522, with $11,086 due within the next twelve months and $2,436 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.

17

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

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.

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 nine months ended September 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 nine months ended September 30, 2006 and 2005, there was no hedge ineffectiveness. Additionally, at September 30, 2006, the Company estimates that $967 of net derivative losses included in accumulated other comprehensive loss will be reclassified into earnings over the next twelve months. Unrealized gains before tax totaling $1,963 and $1,329 for the three months ended September 30, 2006 and 2005, respectively, and $1,230 and $5,578 for the nine months ended September 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 September 30, 2006 and December 31, 2005 as follows:

Asset/(Liabilities)	September 30, 2006				December 31, 2005
Foreign exchange derivative contracts:
Assets		$	2,223			$	2,196
Liabilities		(476		)		(79		)
Fenics purchase obligation		(58		)		(144		)

18

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

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, as well as assumptions regarding the volatility, correlation and the expected life of the obligation.

Included in other assets in the Condensed Consolidated Statements of Financial Condition as of September 30, 2006 were $2,688 of assets primarily relating to exchange traded equity instruments held by the Company and recorded at current market value.

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 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 $385.

The following table sets forth the minimum capital, as defined, that certain of the Company’s subsidiaries must be maintained as of September 30, 2006:

	GFI Securities LLC			GFI Brokers  Limited			GFI Securities Limited			GFI (HK) Securities LLC
Net Capital		$	35,486		$	22,609		$	23,169		$	1,734
Minimum Net Capital required		250			9,068			15,652			385
Excess Net Capital		$	35,236		$	13,541		$	7,517		$	1,349

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

GFI Group PTE Ltd is subject to the compliance requirements of the Monetary Authority of Singapore (“MAS”), which 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”) in Japan. In July 2006, GFI Securities Limited’s Japanese branch obtained a full securities license with the FSFL. As part of the 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 (approximately $424). In addition, GFI Securities Limited is required to maintain a capital base of 1,000,000 Japanese Yen (approximately $8,471). GFI Securities Limited’s

19

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

Japanese branch is also subject to the net capital rule promulgated by the FSFL, which requires that net worth, including “brought-in” capital, exceed a ratio of 120.0% of relevant expenditure. At September 30, 2006, GFI Securities Limited and its Japanese branch were in compliance with these capital requirements and maintained a ratio in excess of 120.0%.

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.

GFI (HK) Brokers Ltd. was registered with the Hong Kong Monetary Authority during the third quarter of 2006. As part of this registration, GFI (HK) Brokers Ltd. is required to maintain stockholders’ equity of 5,000 Hong Kong dollars (or approximately $642). At September 30, 2006, GFI (HK) Brokers Ltd. had stockholders’ equity of 6,625 Hong Kong dollars (or approximately $850), which exceeded the minimum requirement by 1,625 Hong Kong dollars (or approximately $208).

These regulatory rules may restrict the Company’s ability to withdraw capital from its regulated subsidiaries. The Company’s regulated subsidiaries were in compliance with all minimum net capital requirements as of September 30, 2006.

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 nine months ended September 30, 2006 and 2005, and information regarding long-lived assets (defined as property, equipment, leasehold improvements and software inventory) in geographic areas as of September 30, 2006 and December 31, 2005 is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Revenues:
North America	$	76,469	$	66,733	$	249,328	$	196,662
Europe	86,757		53,758		258,347		166,626
Asia-Pacific	16,732		10,198		45,437		30,017
Total	$	179,958	$	130,689	$	553,112	$	393,305

20

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

	September 30, 2006			December 31, 2005
Long-lived Assets, as defined:
North America		$	28,079		$	25,200
Europe		13,201			10,645
Asia-Pacific		1,737			1,516
Total		$	43,017		$	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 September 30,								Nine Months Ended September 30,
	2006				2005				2006				2005
Unrealized gain (loss) on foreign exchange derivative contracts
Current Period Change:
Before Tax Amount		$	1,963			$	1,329			$	1,230			$	5,578
Tax (Expense) Benefit		(589		)		(467		)		(369		)		(1,858		)
After Tax Amount		$	1,374			$	862			$	861			$	3,720
Foreign currency translation adjustment
Before Tax Amount		$	(81	)		$	717			$	197			$	383
Tax (Expense) Benefit		73				(315		)		(51		)		(163		)
After Tax Amount		$	(8	)		$	402			146				$	220

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Gross loss		$	710		$	728		$	3,401		$	1,169
Net of tax		497			509			2,381			818

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 third quarter of 2006, the Company reduced its estimate for related termination charges by £50 (or $93). Of the remaining accrual balance of $157, approximately $62 and $95 will be paid to the affiliate and third parties, respectively. Such payments are expected to be paid in the fourth quarter of 2006.

21

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

15.SUBSEQUENT EVENT

On October 1, 2006, the Company completed an acquisition of substantially all of the North American brokerage operations and assets of the following Texas limited partnerships (collectively, “Amerex Energy”): Amerex Natural Gas I, Ltd., Amerex Power Ltd., Amerex Emissions, Ltd. and Amerex Retail Energy Services, Ltd. Amerex Energy operated as a leading interdealer broker of electric power, natural gas and emissions products and related derivative and option contracts in North America. The purchase price was $86,000 plus direct transaction costs related to the acquisition, such as legal and other professional fees. The Company utilized borrowings under its 2006 Credit Agreement to fund this acquisition. The acquisition will be accounted for as a purchase business combination. The acquired assets, results of operations and cash flows of Amerex Energy are not included in the accompanying condensed consolidated financial statements because the acquisition occurred subsequent to the third quarter of 2006.

22

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have reviewed the accompanying condensed consolidated statement of financial condition of GFI Group Inc. and subsidiaries (the “Company”) as of September 30, 2006, and the related condensed consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2006 and 2005, and the condensed consolidated statements of cash flows for the nine-month periods ended September 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

November 10, 2006

23

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

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

·the risks and other factors described under the heading “Risk Factors” and elsewhere in our 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—Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and ‘‘Item 3—Quantitative and Qualitative Disclosures About Market Risk’’ and elsewhere in this Quarterly Report, may cause actual results to differ materially from the forward-looking statements. The information included herein is given as of the filing date of this Form 10-Q with the SEC and future events or circumstances could differ significantly from these forward-looking statements. The Company does not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

24

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 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, is 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 third quarter of 2006, the global business environment was generally positive for our business, with satisfactory trading volume levels and modest volatility in the credit, financial and equity markets and more pronounced volatility in certain commodity markets. The U.S. Federal Reserve halted its two-year program of increasing short-term interest rates in the third quarter of 2006. While the third quarter of 2005 included the market effects from hurricanes Katrina and Rita, as well as from the terrorist bombings in London, global markets in the third quarter of 2006 were impacted by the Israel/Lebanon crisis, and tensions surrounding the Iranian and North Korean nuclear programs.

Credit:

The credit markets experienced moderate volatility in the third quarter of 2006. Volatility in the global credit markets in the third quarter of 2006 was generally in-line with that of the third quarter of 2005, as evidenced by the volatility levels on the Dow Jones CDX North American Investment Grade, North American High Yield and Itraxx Europe indices.

The bond market rallied in the third quarter of 2006 as inflation concerns abated and bond yields decreased. This was reflected, in part, by the fact that the Lehman Brothers Aggregate Bond Total Return Index rose 4.1% in the quarter. The credit derivatives market in the first half of 2006 continued its significant growth according to surveys published by both the International Swaps and Derivatives Association (ISDA) and the British Bankers Association in September. The ISDA report indicated total credit derivatives notional amounts outstanding at $26.0 trillion at June 30, 2006, up 109% from $12.4 trillion the prior year. We believe that this strong year-over-year growth in the notional value of the underlying credit derivatives market has resulted in a higher volume of transactions in the over the counter market in the third quarter of 2006.

Financial:

The foreign exchange and interest rate markets remained active in the third quarter as the U.S. Dollar remained strong despite the Federal Reserve halting its program of raising short-term interest rates. The U.S. Dollar strengthened versus the Euro and Japanese Yen in the quarter, but lost value to the British Pound Sterling. Emerging market currencies were mixed over the quarter with the Mexican Peso strengthening and the Brazilian Real decreasing versus the U.S. Dollar. Both the Chicago Mercantile Exchange and the Chicago Board of Trade reported foreign exchange and/or interest rate volume statistics indicating double-digit growth in futures volume during the third quarter of 2006.

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Equity:

The equity markets experienced moderate volatility in the third quarter of 2006 as stock markets worldwide generally were active due to U.S. short term interest rates remaining unchanged, continued economic growth, and lower energy costs. The Dow Jones World Stock Index, excluding the U.S., rose 3.2% in the quarter, and the Dow Jones Industrial Average increased 4.7%. The Dow Jones Stoxx 600 Index, an index of the largest publicly traded European companies, rose 6.5% in the third quarter after a 4.1% decline in the second quarter. Equity market performance in Latin America and Asia was mixed in the quarter, as slowing U.S. economic growth weighed heavily on these markets. The Chicago Board Options Exchange Standard and Poor’s 500 Volatility Index indicated a lower volatility level for the third quarter of 2006, as compared to the third quarter of 2005. The ISDA Mid-Year Market Survey reported total notional amounts outstanding for equity derivatives at $6.4 trillion as of June 30, 2006, up approximately 32% from the prior year.

Commodity:

The energy markets remained volatile in the third quarter of 2006, as rapid price increases were followed by significant price declines. Crude-oil futures hit an intraday record $78.40 a barrel in July following the outbreak of hostilities between Israel and Lebanon. In addition, expectations for an active hurricane season and the potential disruption of production also contributed to higher crude oil and natural gas prices. The cooling of tensions in the Mideast conflict along with the lack of significant storm activity led to prices deflating by quarter end. Oil prices on the New York Mercantile Exchange (“NYMEX”) were down 15% in the quarter, while natural gas futures saw large fluctuations with prices peaking during the summer followed by a rapid decrease resulting in a loss of 8.0% for the quarter. NYMEX and the InterContinentalExchange both reported record energy contract volume in September.

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Results of Operations

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
REVENUES:
Brokerage revenues:
Agency commissions	$	138,961		$	98,559		$	406,005		$	287,248
Principal transactions	34,478			27,420			117,330			83,167
Total brokerage revenues	173,439			125,979			523,335			370,415
Analytics and market data	4,954			3,894			14,419			14,006
Long-term contract revenue	—			—			5,881			—
Interest income	2,150			1,236			6,778			3,179
Other income (loss)	(585		)	(420		)	2,699			5,705
Total revenues	179,958			130,689			553,112			393,305
EXPENSES:
Compensation and employee benefits	112,543			81,461			343,089			237,833
Communications and quotes	9,799			6,656			26,755			18,795
Travel and promotion	7,069			5,833			23,149			17,634
Rent and occupancy	4,594			4,662			15,048			12,003
Depreciation and amortization	4,338			3,434			12,222			11,126
Professional fees	4,391			2,797			13,755			8,193
Clearing fees	5,884			3,480			18,159			9,825
Interest	1,124			778			4,648			2,619
Other expenses	3,098			2,217			10,497			12,036
Cost of long-term contract	—			—			5,180			—
Lease termination costs to affiliate	(93		)	—			(185		)	(2,266		)
Total Expenses	152,747			111,318			472,317			327,798
INCOME BEFORE PROVISION FOR INCOME TAXES	27,211			19,371			80,795			65,507
PROVISION FOR INCOME TAXES	10,621			8,523			33,126			28,823
NET INCOME	$	16,590		$	10,848		$	47,669		$	36,684

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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 September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
REVENUES:
Brokerage revenues:
Agency commissions		77.2	%		75.4	%		73.4	%		73.0	%
Principal transactions		19.2			21.0			21.2			21.2
Total brokerage revenues		96.4			96.4			94.6			94.2
Analytics and market data		2.8			3.0			2.6			3.6
Long-term contract revenue		0.0			—			1.1			—
Interest income		1.2			0.9			1.2			0.8
Other income (loss)		(0.4	)		(0.3	)		0.5			1.4
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
EXPENSES:
Compensation and employee benefits		62.5	%		62.3	%		62.0	%		60.5	%
Communications and quotes		5.4			5.1			4.8			4.8
Travel and promotion		3.9			4.5			4.2			4.5
Rent and occupancy		2.6			3.6			2.7			3.0
Depreciation and amortization		2.4			2.6			2.2			2.8
Professional fees		2.4			2.1			2.5			2.1
Clearing fees		3.3			2.7			3.3			2.5
Interest		0.6			0.6			0.8			0.7
Other expenses		1.7			1.7			1.9			3.0
Cost of long-term contract		0.0			0.0			0.9			0.0
Lease termination to affiliate		(0.1	)		0.0			0.0			(0.6	)
Total Expenses		84.7	%		85.2	%		85.3	%		83.3	%
INCOME BEFORE PROVISION FOR INCOME TAXES		15.3			14.8			14.7			16.7
PROVISION FOR INCOME TAXES		5.9			6.5			6.0			7.4
NET INCOME		9.4	%		8.3	%		8.7	%		9.3	%

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

Net income for the three months ended September 30, 2006 was $16.6 million as compared to net income of $10.8 million for the three months ended September 30, 2005, an increase of $5.8 million or approximately 53.7%. Total revenues increased by $49.3 million, or 37.7 %, to $180.0 million for the three months ended September 30, 2006 from $130.7 million for the same period from the prior year. Our increased revenues were primarily due to increased brokerage revenues across our credit, financial, equity and commodity product categories. Our total brokerage personnel headcount increased by 163 to a total of 827 employees at September 30, 2006 from 664 employees at September 30, 2005. Total expenses increased by $41.4 million, or 37.2%, to $152.7 million for the three months ended September 30, 2006 from $111.3 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 September 30,
	2006			2005
BROKERAGE REVENUES:
Credit	$	60,654		$	51,472
Financial	38,605			30,804
Equity	41,426			25,993
Commodity	32,754			17,710
Total brokerage revenues	$	173,439		$	125,979
BROKERAGE REVENUES:
Credit	35.0		%	40.8		%
Financial	22.2			24.5
Equity	23.9			20.6
Commodity	18.9			14.1
Total brokerage revenues	100.0		%	100.0		%

Total brokerage revenues increased by $47.4 million, or 37.6%, to $173.4 million for the three months ended September 30, 2006, as compared to $126.0 million for the three months ended September 30, 2005. Agency commissions increased by $40.3 million, or 40.9%, to $138.9 million for the three months ended September 30, 2006, as compared to $98.6 million for the three months ended September 30, 2005. Principal transactions increased by $7.1 million, or 25.9%, to $34.5 million for the three months ended September 30, 2006 from $27.4 million for the three months ended September 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 6.2% for the three months ended September 30, 2006, as compared to the same period from the prior year.

The increase in credit product brokerage revenues of $9.2 million in the third quarter of 2006 as compared with the third quarter of 2005 was due to a number of factors, including continued overall growth in the credit derivatives market, the development of new credit products and the further sectorization of credit products and the continuing rollout of CreditMatch, our credit derivatives trading platform, in Europe. Our existing credit product desks contributed $6.9 million of the total increase in the credit product brokerage revenues. The remaining $2.3 million increase was generated by the addition of eight new or restructured desks since September 30, 2005. Our investment in and development of credit products was highlighted by a credit product brokerage personnel increase of 28 to a total of 227 employees at September 30, 2006 from 199 employees at September 30, 2005.

The increase in financial product brokerage revenues of $7.8 million in the third quarter of 2006 as compared with the third quarter of 2005 was primarily attributable to the build up of our Asian operations and the development of new products, as well as the growth of existing emerging market products. Our existing financial product desks contributed $3.7 million of the total increase in financial product brokerage revenues. The remaining $4.1 million increase in financial product brokerage revenues was attributable to the addition of seventeen new or restructured financial product desks since September 30, 2005. This investment in and development of financial products was highlighted by a

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financial product brokerage personnel increase of 49 to a total of 259 employees at September 30, 2006 from 210 employees at September 30, 2005.

The increase in equity product brokerage revenues of $15.4 million in the third quarter of 2006 as compared with the third quarter of 2005 was primarily due to our new Paris office contributing $12.4 million in brokerage revenues in the quarter and investment in other equity products. New or restructured equity product desks, including desks in our Paris office, contributed $13.4 million of the total increase in equity product brokerage revenues. The remaining $2.0 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 45 to a total of 171 employees at September 30, 2006 from 126 employees at September 30, 2005.

The increase in commodity product brokerage revenues of $15.0 million in the third quarter of 2006 as compared with the third quarter of 2005 was primarily attributable to the addition of our Starsupply oil product brokerage business, which generated approximately $6.9 million in brokerage revenues in the third quarter of 2006, significant volatility in oil and natural gas markets and investment in new desks. In addition, our European brokerage business in electricity, coal, dry freight and gold markets continued to perform well. Our existing commodity desks, including the desks acquired from Starsupply, contributed $13.6 million of the total increase in commodity product brokerage revenue. The remaining $1.4 million in commodity product brokerage revenues was attributable our new or restructured commodity product desks. Our investment in and development of commodity products was highlighted by a commodity product brokerage personnel increase of 41 to a total of 170 employees at September 30, 2006 from 129 employees at September 30, 2005.

Analytics and Market Data

Revenues from our analytics and market data products increased by $1.0 million, or 25.6%, to $4.9 million for the three months ended September 30, 2006 as compared to $3.9 million for the three months ended September 30, 2005. The increase was primarily due to an increase in subscription fees associated with the licensing of analytical software, including Fenics Foreign Exchange and market data products.

Interest Income

Interest income increased by $1.0 million, or 83.3%, to $2.2 million for the three months ended September 30, 2006, as compared to $1.2 million for the three months ended September 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 (Loss)

Other income (loss) decreased by $0.2 million, or 50.0 %, to a loss of $0.6 million for the three months ended September 30, 2006 from a loss of $0.4 million for the three months ended September 30, 2005. Other income (loss) for the three months ended September 30, 2006 and 2005 mainly consisted of transactional gains (losses) based on foreign currency fluctuations and net gains (losses) on foreign exchange derivative contracts.

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Expenses

Compensation and Employee Benefits

Compensation and employee benefits increased by $31.0 million, or 38.0%, to $112.5 million for the three months ended September 30, 2006 from $81.5 million for the three months ended September 30, 2005. The increase was primarily due to an increase in the number of brokerage personnel from 664 employees at September 30, 2005 to 827 employees at September 30, 2006 and an increase in brokerage personnel performance bonuses of $14.6 million resulting in large part from our overall higher brokerage revenues.

Total compensation and employee benefits as a percentage of total revenues increased slightly to 62.5% at September 30, 2006 from 62.3% at September 30, 2005. Bonus expense represented 51.7% and 50.1% of total compensation and employee benefits expense for the three months ended September 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 5.1% and 4.6% of total compensation and employee benefits for the three months ended September 30, 2006 and 2005, respectively.

Communications and Quotes

Communications and quotes increased by $3.1 million, or 46.3%, to $9.8 million for the three months ended September 30, 2006 from $6.7 million from the three months ended September 30, 2005. The increase was primarily attributable to the increase in brokerage desks and brokerage personnel.

Travel and Promotion

Travel and promotion increased by $1.3 million, or 22.4%, to $7.1 million for the three months ended September 30, 2006 from $5.8 million for the three months ended September 30, 2005. This expense, as a percentage of our total brokerage revenues for the three months ended September 30, 2006 decreased to 4.1% from 4.6% for the same period from the prior year. This decrease was primarily due to our continuing efforts to lower these costs relative to our total brokerage revenues.

Rent and Occupancy

Rent and occupancy decreased slightly by $0.1 million, or 2.1%, to $4.6 million for the three months ended September 30, 2006 from $4.7 million for the three months ended September 30, 2005. The decrease was primarily due to the decrease in repairs and maintenance and moving costs, offset by the increase in 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 $0.9 million, or 26.5%, to $4.3 million for the three months ended September 30, 2006 from $3.4 million for the three months ended September 30, 2005. The increase was primarily due to the increase in capitalized property and equipment costs, including software development costs.

Professional Fees

Professional fees increased by $1.5 million, or 53.6% to $4.3 million for the three months ended September 30, 2006 from $2.8 million for the three months ended September 30, 2005. The increase was primarily due to an increase in professional fees related to our continuing initial preparation to satisfy the

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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.

Clearing Fees

Clearing fees increased by $2.4 million, or 68.6%, to $5.9 million for the three months ended September 30, 2006 from $3.5 million for the three months ended September 30, 2005. The increase was due to a higher volume of principal transactions executed during the three months ended September 30, 2006, as compared to the same period in the prior year. This increase was partially due to the commencement and rapid growth of our equities business in our Paris office, which was included in the results for the three months ended September 30, 2006. Clearing fees, as a percentage of our total revenues from principal transactions increased to 17.0% for the three months ended September 30, 2006 from 13.6% for the comparable period in the prior year. This increase was partially due to the high cost of clearing fees as a result of the higher number of trades executed in our Paris office. Excluding transactions from our Paris office, clearing fees, as a percentage of our total revenues from principal transactions was 15.5% and 13.6% for the three months ended September 30, 2006 and 2005, respectively. 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 $0.3 million, or 37.5%, to $1.1 million for the three months ended September 30, 2006 from $0.8 million for the three months ended September 30, 2005. The increase was primarily due to higher interest charges on clearing accounts related primarily to our equity and corporate bond brokerage operations and an increase in interest expense under our credit facility mainly due to the higher level of outstanding net borrowings during the third quarter of 2006 as compared to the comparable period in the prior year. We expect interest expense will increase in future periods due to borrowings under our 2006 Credit Agreement subsequent to quarter end. See Note 5 to the Condensed Consolidated Financial Statements for further discussion.

Other Expenses

Other expenses increased by $0.9 million, or 40.9%, to $3.1 million for the three months ended September 30, 2006 from $2.2 million for the three months ended September 30, 2005. The increase was primarily due to an increase in irrecoverable Value Added Tax related to increased purchases in communications and quotes in the U.K. and other general office expenses, which was partially offset by a decrease in miscellaneous expenses, such as office supplies and software equipment expenses.

Lease Termination Costs to Affiliate

Lease termination costs to affiliate represent the estimated lease termination costs we incurred in connection with premises that we had leased in the U.K. from an affiliate. 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 third quarter of 2006, we reduced our estimate for related termination charges by £0.1 million (or $0.1 million). See Note 14 to the Condensed Consolidated Financial Statements for further discussion.

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Provision for Income Taxes

Our provision for income taxes totaled $10.6 million for the three months ended September 30, 2006 and $8.5 million for the three months ended September 30, 2005. Our effective tax rate was approximately 39.0% for the three months ended September 30, 2006 as compared to 44.0% for the comparable period in 2005. The reduction in the effective tax rate was primarily due to a reduction in non-deductible expenses and a decrease in taxes related to foreign operations, which was partially offset by a reduction in business tax credits.

Nine Months Ended September 30, 2006 Compared to the Nine Months Ended September 30, 2005

Net income for the nine months ended September 30, 2006 was $47.7 million as compared to net income of $36.7 million for the nine months ended September 30, 2005, an increase of $11.0 million or approximately 30.0%. Total revenues increased by $159.8 million, or 40.6%, to $553.1 million for the nine months ended September 30, 2006 from $393.3 million compared to the same period from the prior year. Our increased revenues were partially due to the continued growth in our brokerage personnel headcount in each of our product categories and organic growth in existing businesses. In addition, our increased revenues were also attributable to the acquisition of companies or desks, or the opening of desks in developing product areas. Our total brokerage personnel headcount increased by 163 to 827 employees at September 30, 2006 from 664 employees at September 30, 2005. Total expenses increased by $144.5 million, or 44.1% to $472.3 million for the nine months ended September 30, 2006 from $327.8 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.

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.

	Nine Months Ended September 30,
	2006			2005
BROKERAGE REVENUES:
Credit	$	191,765		$	163,874
Financial	117,035			86,924
Equity	128,994			68,864
Commodity	85,541			50,753
Total brokerage revenues	$	523,335		$	370,415
BROKERAGE REVENUES:
Credit	36.6		%	44.2		%
Financial	22.4			23.5
Equity	24.6			18.6
Commodity	16.4			13.7
Total brokerage revenues	100.0		%	100.0		%

Total brokerage revenues increased by $152.9 million, or 41.3 %, to $523.3 million for the nine months ended September 30, 2006, as compared to $370.4 million for the nine months ended September 30, 2005. Agency commissions increased by $118.8 million, or 41.4%, to $406.0 million for the

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nine months ended September 30, 2006, as compared to $287.2 million for the nine months ended September 30, 2005. Principal transactions increased by $34.1 million, or 41.0%, to $117.3 million for the nine months ended September 30, 2006 from $83.2 million for the nine months ended September 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 6.2% for the nine months ended September 30, 2006 as compared to the same period from the prior year.

The increase in credit product brokerage revenues of $27.9 million in the nine months ended September 30, 2006 as compared to the same period in 2005 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 continuing rollout of CreditMatch in Europe. Our existing credit product desks contributed $24.0 million of the total increase in credit product brokerage revenues. The remaining $3.9 million increase was generated by the addition of eight new or restructured credit product desks since September 30, 2005. Our investment in and development of credit products was highlighted by a credit product brokerage personnel increase of 28 to a total of 227 employees at September 30, 2006 from 199 employees at September 30, 2005.

The increase in financial product brokerage revenues of $30.1 million in the nine months ended September 30, 2006 as compared to the same period in 2005 was primarily attributable to the build up of our Asian operations, global interest rate volatility resulting from economic growth and inflation concerns, and the development of new products and existing emerging market products. The increase in our financial product brokerage revenues was generated primarily from our existing financial product desks, which contributed $19.1 million of the increase in financial product brokerage revenues. The remaining $11.0 million increase in financial product brokerage revenues was attributable to the addition of eleven new or restructured financial product desks since September 30, 2005. Our investment in and development of financial products was highlighted by a financial product brokerage personnel increase of 49 to a total of 259 employees at September 30, 2006 from 210 employees at September 30, 2005.

The increase in equity product brokerage revenues of $60.1 million in the nine months ended September 30, 2006 as compared to the same period in 2005 was primarily attributable to our new Paris office, which contributed $35.7 million in brokerage revenues during the first nine months of 2006 and the development of other equity products and increased business from our hedge fund customers. Global equity markets experienced considerable volatility in the first nine 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 $38.2 million of the total increase in equity product brokerage revenues. The remaining $21.9 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 45 to total of 171 employees at September 30, 2006 from 126 employees at September 30, 2005.

The increase in commodity product brokerage revenues of $34.8 million in the nine months ended September 30, 2006 as compared to the same period in 2005 was primarily attributable to the addition of our Starsupply oil product brokerage business that generated approximately $20.3 million in brokerage revenues in the first nine months of 2006, considerable price volatility in certain commodity markets and our investment in new desks. Our existing commodity product desks, including the desks acquired from Starsupply, contributed $31.9 million of the increase in commodity product brokerage revenues. Our new or restructured commodity desks contributed $2.9 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 41 to a total of 170 employees at September 30, 2006 from 129 employees at September 30, 2005.

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Analytics and Market Data

Revenues from our analytics and market data products increased slightly by $0.4 million, or 2.9%, to $14.4 million for the nine months ended September 30, 2006 as compared to $14.0 million for the nine months ended September 30, 2005. The increase was primarily due to an increase in subscription fees associated with the licensing of analytical software, including Fenics Foreign Exchange and market data products.

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 $3.6 million, or 112.5%, to $6.8 million for the nine months ended September 30, 2006, as compared to $3.2 million for the nine months ended September 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 $3.0 million, or 52.6%, to $2.7 million for the nine months ended September 30, 2006 from an increase of $5.7 million for the nine months ended September 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. 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 nine months ended September 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 $105.3 million, or 44.3%, to $343.1 million for the nine months ended September 30, 2006 from $237.8 million for the nine months ended September 30, 2005. The increase was primarily due to an increase in the number of brokerage personnel from 664 at September 30, 2005 to 827 at September 30, 2006 and an increase in brokerage personnel performance bonuses of $60.1 million resulting in large part from our overall higher brokerage revenues.

Total compensation and employee benefits as a percentage of total revenues increased to 62.0% at September 30, 2006 from 60.5% from September 30, 2005. Bonus expense represented 53.4% and 49.7% of total compensation and employee benefits expense for the nine months ended September 30, 2006 and 2005, respectively. A significant portion of our bonus expense is subject to contractual guarantees that may

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require us to make bonus payments to brokers regardless of their performance in any particular period. Additionally, sign-on bonus expense represented 5.4% and 3.6% of total compensation and employee benefits for the nine months ended September 30, 2006 and 2005, respectively.

Communications and Quotes

Communications and quotes increased by $8.0 million, or 42.6%, to $26.8 million for the nine months ended September 30, 2006 from $18.8 million from the nine months ended September 30, 2005. The increase was primarily attributable to the increase in brokerage desks and brokerage personnel.

Travel and Promotion

Travel and promotion increased by $5.6 million, or 31.8%, to $23.2 million for the nine months ended September 30, 2006 from $17.6 million for the nine months ended September 30, 2005. This expense, as a percentage of our total brokerage revenues for the nine months ended September 30, 2006 decreased to 4.4% from 4.8% for the same period from the prior year. This decrease was primarily due to our continuing efforts to lower these costs relative to our total brokerage revenues.

Rent and Occupancy

Rent and occupancy increased by $3.0 million, or 25.0%, to $15.0 million for the nine months ended September 30, 2006 from $12.0 million for the nine months ended September 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, utilities and insurance.

Depreciation and Amortization

Depreciation and amortization increased by $1.1 million, or 9.9%, to $12.2 million for the nine months ended September 30, 2006 from $11.1 million for the nine months ended September 30, 2005. The increase was primarily due to the increase in capitalized property and equipment costs, including software development costs.

Professional Fees

Professional fees increased by $5.6 million, or 68.3%, to $13.8 million for the nine months ended September 30, 2006 from $8.2 million for the nine months ended September 30, 2005. The increase was primarily due to an increase in professional fees related to our continuing initial 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.

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Clearing Fees

Clearing fees increased by $8.4 million, or 85.7%, to $18.2 million for the nine months ended September 30, 2006 from $9.8 million for the nine months ended September 30, 2005. The increase was due to a higher volume of principal transactions executed during the nine months ended September 30, 2006 as compared to the same period in the prior year. This was partially due to the commencement and rapid growth of our equities business in our Paris office, which was included in the results for the nine months ended September 30, 2006. Clearing fees, as a percentage of our total revenues from principal transactions increased to 15.5% for the nine months ended September 30, 2006 from 12.4% for the comparable period in the prior year. This increase was partially due to the high cost of clearing fees as a result of the higher number of trades executed in our Paris office. Excluding transactions from our Paris office, clearing fees, as a percentage of our total revenues from principal transactions was 13.8% and 12.4% for the nine months ended September 30, 2006 and 2005, respectively. 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 $2.0 million, or 76.9%, to $4.6 million for the nine months ended September 30, 2006 from $2.6 million for the nine months ended September 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 mainly due to the lower level of outstanding net borrowings during the nine months ended September 30, 2006 as compared to the comparable period in the prior year. We expect interest expense will increase in future periods due to borrowings under our 2006 Credit Agreement subsequent to quarter end. See Note 5 to the Condensed Consolidated Financial Statements for further discussion.

Other Expenses

Other expenses decreased by $1.5 million, or 12.5%, to $10.5 million for the nine months ended September 30, 2006 from $12.0 million for the nine months ended September 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 nine months ended September 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.

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 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.

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Lease Termination Costs to Affiliate

Lease termination costs decreased by $2.1 million, or 91.3%, to a gain of $0.2 million for the nine months ended September 30, 2006 from a gain of $2.3 million for the nine months ended September 30, 2005. In April 2005, we and an affiliate executed an amendment to the lease termination agreement we had 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 and third quarters of 2006, we reduced our estimate for related termination changes by £0.1 million (or $0.2 million). See Note 14 to the Condensed Consolidated Financial Statements for further discussion.

Provision for Income Taxes

Our provision for income taxes totaled $33.1 million for the nine months ended September 30, 2006 and $28.8 million for the nine months ended September 30, 2005. Our effective tax rate was approximately 41.0% for the nine months ended September 30, 2006 as compared to 44.0% for the comparable period in 2005. The reduction in the effective tax rate was primarily due to a decrease in state and local income taxes, decreased taxes related to foreign operations and a reduction in non-deductible expenses.

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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 September 30, 2006. Results of any period are not necessarily indicative of results for a full year and may, in certain periods, be affected by seasonal fluctuations in our business.

	Quarter Ended
	September 30, 2006				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		$	138,961		$	130,134			$	136,910		$	104,335			$	98,559		$	100,718			$	87,971
Principal transactions		34,478			41,792				41,060			31,250				27,420			27,635				28,112
Total brokerage revenues		173,439			171,926				177,970			135,585				125,979			128,353				116,083
Analytics and market data		4,954			4,271				5,194			3,388				3,894			4,711				5,402
Long-term contract revenue		—			5,881				—			—				—			—				—
Interest income		2,150			2,395				2,233			1,458				1,236			883				1,060
Other income (loss)		(585		)	3,093				191			(145		)		(420		)	6,376				(251		)
Total revenues		179,958			187,566				185,588			140,286				130,689			140,323				122,294
Expenses
Compensation and employee benefits		112,543			113,701				116,845			89,511				81,461			80,896				75,477
Communications and quotes		9,799			9,303				7,653			7,064				6,656			6,341				5,799
Travel and promotion		7,069			8,549				7,531			7,017				5,833			6,041				5,761
Rent and occupancy		4,594			4,841				5,613			3,447				4,662			3,913				3,428
Depreciation and amortization		4,338			4,048				3,836			4,159				3,434			3,599				4,092
Professional fees		4,391			5,320				4,044			2,507				2,797			2,927				2,469
Clearing fees		5,884			6,798				5,477			3,858				3,480			2,974				3,371
Interest		1,124			1,772				1,752			1,016				778			597				1,244
Other expenses		3,098			3,843				3,556			1,855				2,217			5,809				4,009
Cost of long-term contract		—			5,180				—			—				—			—				—
Lease termination costs to affiliate		(93		)	(92		)		—			1,070				—			(2,266		)		—
Total expenses		152,747			163,263				156,307			121,504				111,318			110,831				105,650
Income before provision for taxes		27,211			24,303				29,281			18,782				19,371			29,492				16,644
Provision for income taxes		10,621			10,207				12,298			7,363				8,523			12,810				7,490
Net income		$	16,590		$	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
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2006			2006			2006			2005			2005			2005			2005
Revenues
Brokerage revenues:
Agency commissions		77.2	%		69.4	%		73.8	%		74.4	%		75.4	%		71.8	%		72.0	%
Principal transactions		19.2			22.3			22.1			22.3			21.0			19.7			23.0
Total brokerage revenues		96.4			91.7			95.9			96.7			96.4			91.5			95.0
Analytics and market data		2.8			2.3			2.8			2.4			3.0			3.4			4.4
Long-term contract revenue		—			3.1			—			—			—			—			—
Interest income		1.2			1.3			1.2			1.0			0.9			0.6			0.8
Other income (loss)		(0.4	)		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	%		100.0	%
Expenses
Compensation and employee benefits		62.5	%		60.6	%		63.0	%		63.8	%		62.3	%		57.6	%		61.7	%
Communications and quotes		5.4			5.0			4.1			5.0			5.1			4.6			4.8
Travel and promotion		3.9			4.6			4.1			5.0			4.5			4.3			4.7
Rent and occupancy		2.6			2.6			3.0			2.5			3.6			2.8			2.8
Depreciation and amortization		2.4			2.2			2.1			3.0			2.6			2.6			3.3
Professional fees		2.4			2.8			2.2			1.8			2.1			2.1			2.0
Clearing fees		3.3			3.6			3.0			2.8			2.7			2.1			2.8
Interest		0.6			0.9			0.9			0.7			0.6			0.4			1.0
Other expenses		1.7			2.0			1.9			1.3			1.7			4.1			3.3
Cost of long-term contract		—			2.8			—			—			—			—			—
Lease termination costs to affiliate		(0.1	)		—			—			0.8			—			(1.6	)		—
Total expenses		84.7	%		87.1	%		84.3	%		86.7	%		85.2	%		79.0	%		86.4	%
Income before provision for taxes		15.3			12.9			15.7			13.3			14.8			21.0			13.6
Provision for income taxes		5.9			5.4			6.6			5.2			6.5			9.1			6.1
Net income		9.4	%		7.5	%		9.1	%		8.1	%		8.3	%		11.9	%		7.5	%

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
	September 30, 2006				June 30, 2006			March 31, 2006				December 31, 2005				September 30, 2005				June 30, 2005			March 31, 2005
	(dollars in thousands)
Brokerage Revenues:
Credit		$	60,654		$	59,838			$	71,273			$	55,443			$	51,472		$	60,749			$	51,653
Financial		38,605			38,942				39,488				29,213				30,804			29,835				26,285
Equity		41,426			46,109				41,459				29,931				25,993			21,869				21,002
Commodity		32,754			27,037				25,750				20,998				17,710			15,900				17,143
Total brokerage revenues		$	173,439		$	171,926			$	177,970			$	135,585			$	125,979		$	128,353			$	116,083
Brokerage Revenues:
Credit		35.0		%	34.8		%		40.0		%		40.9		%		40.8		%	47.3		%		44.5		%
Financial		22.2			22.7				22.2				21.5				24.5			23.2				22.6
Equity		23.9			26.8				23.3				22.1				20.6			17.0				18.1
Commodity		18.9			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		%		100.0		%

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Liquidity and Capital Resources

Net cash provided by operations increased to $32.8 million for the nine months ended September 30, 2006, compared with $10.0 million for the nine months ended September 30, 2005. The improvement is primarily related to our increased net income, positively adjusted by certain non-cash items such as deferred compensation expense and net losses on foreign exchange derivative contracts and offset primarily by the negative impact of the non-cash item relating to deferred taxes.

Net cash used in investing activities for the nine months ended September 30, 2006 was $15.7 million compared to $26.1 million used in the nine months ended September 30, 2005. The decrease in cash used for investing activities was primarily due to the cash used for the Starsupply Petroleum acquisition in 2005, offset by an increase in capital expenditure that was primarily due to our continued investment in the development of software for internal use and an increase in the purchase of computer equipment and payments on foreign exchange derivative contracts.

Net cash provided by financing activities for the nine months ended September 30, 2006 was $0.5 million compared to $37.1 million generated for the nine months ended September 30, 2005. Cash provided by financing activities for the nine months ended September 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 nine 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.

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 subject to the regulated capital requirements of the Securities and Futures Commission in Hong Kong. GFI (HK) Brokers Ltd. is subject to regulatory compliance requirements under the Monetary Authority of Hong Kong. GFI Group PTE Ltd. is subject to the regulatory compliance requirements with the Monetary Authority of Singapore. At September 30, 2006, GFI Securities LLC, GFI Securities Limited, GFI Brokers Limited, GFI (HK) Securities LLC, GFI Brokers Ltd. and GFI Group PTE Ltd. were in compliance with their respective regulatory capital requirements. In addition to these regulatory capital requirements, our liquidity may be impacted by the amount of capital that we maintain in clearing accounts and with exchanges to support our principal transactions business. See Note 11 to our condensed consolidated financial statements for a further discussion of these regulatory requirements.

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 Agreement, will be sufficient to fund our operations for at least the next twelve months. In September 2006, we entered into an agreement that increased the maximum permitted borrowings under the 2006 Credit Agreement by $25.0 million to $160.0 million. Subsequent to September 30, 2006, we borrowed $86.0 million under the 2006 Credit Agreement to fund the acquisition of substantially all of the North American brokerage operations and assets of Amerex Energy. See Note 15 to the Condensed Consolidated Financial Statements for further discussion on the Amerex Energy Acquisition. Poor

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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 nine months ended September 30, 2006. Subsequent to September 30, 2006, we borrowed $86.0 million under the 2006 Credit Agreement to fund the acquisition of substantially all of the North American brokerage operations and assets of Amerex Energy.

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 September 30, 2006, we had total purchase commitments for quotes of approximately $13.5 million, with $11.1 million due within the next twelve months and $2.4 million due between one to two years.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements at September 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 (“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. The Company is currently evaluating the impact of adopting FIN 48 on its consolidated financial statements.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108 (“SAB No. 108”), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. The SEC Staff believes registrants should quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relative quantitative and qualitative factors are considered, is material. SAB 108 is effective for the first fiscal year ending after

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November 15, 2006. The Company is currently evaluating the impact of adopting SAB 108 on its consolidated financial statements and does not anticipate it will be material.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS 157 requires companies to disclose the fair value of its financial instruments according to a fair value hierarchy, as defined. Additionally, companies are required to provide enhanced disclosure for certain financial instruments within the hierarchy, including a reconciliation of the beginning and ending balances separately for each major category of assets and liabilities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 157 on its consolidated 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 nine months ended September 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 nine months ended September 30, 2006.

At September 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 $35.4 million. At September 30, 2006, the net fair value of these contracts was minimal. At September 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 $0.8 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 British Pound and the Euro strengthened by 10% against the U.S. Dollar, the net impact to our net income would have been a reduction of approximately $2.4 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 Form 10-Q 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.

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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 most recent fiscal quarter of 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

In the normal course of business, we are and have been party to, or otherwise involved in, litigations, claims and arbitrations that involve claims for substantial amounts. These proceedings have generally involved either competitor claims in connection with new employee hires, or claims from former employees in connection with the termination of their employment from us. 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.

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 our 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 September 30, 2006, we withheld shares of common stock to satisfy tax withholding obligations as follows:

Date	No. of Shares		Average Market Price
July		196		$	57.36
August		5,383		$	46.50
September		5,418		$	50.88

ITEM 6.EXHIBITS

Exhibits:

Exhibit No.	Description
10.1.1	Lender Joinder Agreement, dated September 21, 2006, to the Credit Agreement among GFI Group Inc., GFI Holdings Limited, Bank of Montreal and Bank of America, N.A.
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 the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 to be signed on its behalf by the undersigned, thereunto duly authorized, on the 13th day of November, 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
10.1.1	Lender Joinder Agreement, dated September 21, 2006, to the Credit Agreement among GFI Group Inc., GFI Holdings Limited, Bank of Montreal and Bank of America, N.A.
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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