Gfi (GFIG) 10-Q 2007 Q1 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 MARCH 31, 2007

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 x Accelerated filer o Non-accelerated filer o

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

The number of shares of registrant’s common stock outstanding on April 30, 2007 was 28,927,639.

Table of Contents

Part I—Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Statements of Financial Condition as of March 31, 2007 (unaudited) and December 31, 2006	4
	Condensed Consolidated Statements of Income for the three months ended March 31, 2007 (unaudited) and March 31, 2006 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2007 (unaudited) and March 31, 2006 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 (unaudited) and March 2006 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35
Part II—Other Information
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	37

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)

	March 31, 2007				December 31, 2006
	(Unaudited)
ASSETS
Cash and cash equivalents		$	168,543			$	181,484
Deposits with clearing organizations		8,047				7,973
Accrued commissions receivable, net of allowance for doubtful accounts		159,907				120,731
Receivables from brokers, dealers and clearing organizations		328,570				174,693
Property, equipment and leasehold improvements, net		43,826				41,396
Software inventory, net		5,605				5,770
Goodwill		93,685				91,891
Intangible assets, net		14,289				14,833
Other assets		56,706				60,838
TOTAL ASSETS		$	879,178			$	699,609
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Accrued compensation		$	106,264			$	128,047
Accounts payable and accrued expense		30,725				31,336
Payables to brokers, dealers and clearing organizations		243,434				84,995
Notes payable, net		75,430				90,253
Other liabilities		65,667				34,509
Total Liabilities		$	521,520			$	369,140
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred Stock, $0.01 par value; 5,000,000 shares authorized and none outstanding at March 31, 2007 and December 31, 2006		—				—
Common stock, $0.01 par value; 100,000,000 shares authorized; 28,886,376 and 28,698,505 shares outstanding at March 31, 2007 and December 31, 2006, respectively		289				287
Additional paid in capital		231,427				224,442
Retained earnings		126,106				105,868
Accumulated other comprehensive loss		(164		)		(128		)
Total Stockholders’ Equity		357,658				330,469
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		879,178				699,609

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 March 31,
	2007			2006
REVENUES:
Brokerage revenues:
Agency commissions	$	184,525		$	136,910
Principal transactions	48,377			41,060
Total brokerage revenues	232,902			177,970
Analytics and market data	5,326			5,194
Interest income	2,102			2,233
Other income (loss)	(13		)	191
Total Revenues	240,317			185,588
EXPENSES:
Compensation and employee benefits	151,508			116,845
Communications and market data	10,456			7,653
Travel and promotion	8,836			7,531
Rent and occupancy	5,561			5,613
Depreciation and amortization	5,227			3,836
Professional fees	3,569			4,044
Clearing fees	7,529			5,477
Interest	1,849			1,752
Other expenses	4,649			3,556
Total Expenses	199,184			156,307
INCOME BEFORE PROVISION FOR INCOME TAXES	41,133			29,281
PROVISION FOR INCOME TAXES	16,453			12,298
NET INCOME	24,680			$	16,983
EARNINGS PER SHARE
Basic	$	0.86		$	0.61
Diluted	0.84			$	0.59
WEIGHTED AVERAGE SHARES OUSTANDING:
Basic	28,794,199			28,041,598
Diluted	29,527,813			28,957,497

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 March 31,
	2007			2006
NET INCOME	$	24,680		$	16,983
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain on foreign exchange derivative contracts, net of tax	—			(393		)
Foreign currency translation adjustment, net of tax	(36		)	62
COMPREHENSIVE INCOME	$	24,644		$	16,652

See notes to condensed consolidated financial statements

6

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

	Three Months Ended March 31,
	2007				2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	24,680			$	16,983
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,227				3,836
Amortization of loan fees		56				74
Provision for allowance for doubtful accounts		638				324
Deferred compensation		4,064				1,943
(Benefit from) provision for deferred taxes		410				(1,012		)
Loss on foreign exchange for notes payable		121				296
Loss on foreign exchange derivative contracts		870				1,911
(Increase) decrease in operating assets:
Deposits with clearing organizations		(73		)		(21		)
Accrued commissions receivable		(39,215		)		(22,659		)
Receivables from brokers, dealers and clearing organizations		(153,877		)		(207,978		)
Software inventory		(472		)		(813		)
Other assets		4,402				(2,375		)
Increase (decrease) in operating liabilities:
Accrued compensation		(21,783		)		(2,205		)
Accounts payable and accrued expenses		(674		)		3,750
Payables to brokers, dealers and clearing organizations		158,439				191,890
Other liabilities		24,979				6,445
Cash provided by/(used in) operating activities		7,792				(9,611		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used for business acquisitions		(2,756		)		(87		)
Purchase of property, equipment and leasehold improvements		(5,980		)		(5,051		)
Payments on foreign exchange derivative contracts		(626		)		(529		)
Cash used in investing activities		(9,362		)		(5,667		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable		(30,000		)		(23,000		)
Proceeds from notes payable		15,000				17,000
Payment of loan fees		—				(507		)
Proceeds from exercise of stock options		1,953				2,756
Cash paid for taxes on vested restricted stock units		(1,267		)		(455		)
Tax benefit related to share-based compensation		2,979				3,721
Cash used by financing activities		(11,335		)		(485		)
Effects of foreign currency translation adjustment		(36		)		62
DECREASE IN CASH AND CASH EQUIVALENTS		(12,941		)		(15,701		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		181,484				144,148
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	168,543			$	128,447
SUPPLEMENTAL DISLCOSURE:
Interest paid		2,021				1,690
Income taxes paid, net of refunds		5,761				2,133

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 (HK) Brokers Ltd., GFI Group PTE Ltd., Amerex Brokers LLC, GFI Korea Money Brokerage Limited and Fenics Limited and subsidiaries (“Fenics”). As of March 31, 2007, Jersey Partners, Inc. owns 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 consolidated financial statements. Management believes that the estimates utilized in the preparation of the consolidated financial statements are reasonable and prudent. Actual results could differ materially from these estimates.

All 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, 2006 (the “2006 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.

Accrued Commissions Receivable—Accrued commissions receivable represents amounts due from brokers, dealers, banks and other financial and nonfinancial institutions for the execution of brokerage transactions. Accrued commissions receivable are presented net of allowance for doubtful accounts of approximately $4,191 and $3,547 as of March 31, 2007 and December 31, 2006, respectively. The allowance is based on management’s estimate and is reviewed on a periodic basis based on the aging of outstanding receivables and counterparty exposure.

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

8

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

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

Principal Transactions—Principal 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 limited number of brokerage desks are allowed to enter into unmatched principal transactions in the ordinary course of business for the purpose of facilitating clients’ execution needs for transactions initiated by such clients, adding liquidity to a market or attracting additional order flow. 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—Analytics revenue consists mostly of fees for licenses of 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.

Property, Equipment and Leasehold Improvements—Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method generally over three to seven years. Property and equipment are depreciated over their estimated useful lives. Leasehold improvements are amortized over the shorter of the remaining term of the respective lease to which they relate or the remaining useful life of the leasehold improvement. Internal and external costs incurred in developing or obtaining computer software for internal use are capitalized in accordance with Statement of Position (“SOP”) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and are amortized on a straight-line basis over the estimated useful life of the software, generally three years. General and administrative costs related to developing or obtaining such software are expensed as incurred. Property, equipment and leasehold improvements are presented net of accumulated depreciation and amortization of $65,303 and $61,742 at March 31, 2007 and December 31, 2006, respectively.

9

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

Goodwill and Intangible Assets—Goodwill represents the excess of the purchase price allocation over the fair value of tangible and identifiable intangible net assets acquired. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142 Goodwill and Intangible Assets (“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. In the event the Company determines that the value of goodwill has become impaired, it will incur a charge for the amount of impairment during the fiscal quarter in which such determination is made. The Company has selected January 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. During 2006, certain of these contracts were designated and qualified as foreign currency cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS No. 133”). The Company reclassified gains and losses on the foreign exchange derivative contracts included in accumulated other comprehensive loss into earnings at the time the hedged transactions were recognized. The Company measured effectiveness by assessing the changes in the expected future cash flows of the hedged items. The ineffective portion of the hedges, if any, was included in other income. There was no portion of the derivative instruments’ gains or losses excluded from the assessment of effectiveness. As of and for the three months ended March 31, 2007, the Company had no foreign exchange derivative contracts that were designated as foreign currency cash flow hedges. For foreign exchange derivative contracts that do not qualify for hedge accounting under SFAS No. 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.

Income Taxes—In accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS 109”), the Company provides for income taxes using the asset and liability method under which deferred income taxes are recognized for the estimated future tax effects attributable to temporary differences and carry-forwards that result from events that have been recognized either in the financial statements or the income tax returns, but not both. The measurement of current and deferred income tax liabilities and assets is based on provisions of enacted tax laws. Valuation allowances are recognized if, based on the weight of available evidence, it is more likely than not that some portion of the deferred tax assets will not be realized.

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 analytic and market data operations. This segment operates across domestic and international markets. Substantially all of the Company’s identifiable assets are in North America and Europe.

10

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

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 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. 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.

Recent Accounting Pronouncements

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), an interpretation of SFAS No. 109. Upon adoption, the Company recognized a $4,442 increase to the accrual for uncertain tax positions. This increase was accounted for as an adjustment to the beginning balance of retained earnings on the Condensed Consolidated Statement of Financial Condition. After recognizing the impact of the adoption of FIN 48, the total unrecognized tax benefits (net of the federal benefit on state issues) were approximately $7,727, all of which could affect the effective income tax rate in any future periods. In a foreign jurisdiction, the Company is in discussion with tax authorities regarding whether certain compensation expenses were deductible by the Company in prior years. A portion of the compensation payment is held by a trustee and it is the Company’s intent to use this money to offset the cost to the Company of the potential tax liability, if any, arising from the disallowance of the deduction.

The Company is subject to U.S. federal income tax, foreign income tax as well as state income tax in the states in which we have significant business operations. The Company has substantially concluded all U.S. federal income tax matters for years through 2004, state and local tax matters through 2000 and foreign income tax matters through 2002 with all relevant tax authorities. The Company recognizes interest and penalties related to income tax matters in interest expense and other expense, respectively. As of March 31, 2007, there were no material changes to the accrual for uncertain tax positions.

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

11

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

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 No. 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 No. 157 on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 (“SFAS 159”). SFAS No. 159 provides a “Fair Value Option” under which a company may irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. This Fair Value Option will be available on a contract-by-contract basis with changes in fair value recognized in earnings as those changes occur. SFAS No. 159 is effective for financial statements for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No. 159 on its consolidated financial statements.

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

	March 31, 2007		December 31, 2006
Receivables from brokers, dealers and clearing organizations:
Contract value of fails to deliver	$	276,138		$	80,837
Balance receivable from clearing organizations	52,432			93,856
Total	$	328,570		$	174,693
Payables to brokers, dealers and clearing organizations:
Contract value of fails to receive	$	223,504		$	72,394
Payable to financial institutions	18,804			12,035
Balance payable to clearing organizations	1,526			566
Total	$	243,434		$	84,995

12

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

4.GOODWILL AND INTANGIBLE ASSET

During the first quarter of 2007, the Company completed the annual goodwill impairment test that is required by SFAS 142. The results of the testing did not indicate any goodwill impairment.

Changes in the carrying amount of the Company’s goodwill for the three months ended March 31, 2007 were as follows:

Balance as of December 31, 2006	$	91,891
Goodwill acquired during the period	1,794
Balance as of March 31, 2007	$	93,685

Intangible assets consisted of the following:

	March 31, 2007				December 31, 2006
Gross intangible assets
Customer base/relationships		$	13,038			$	12,690
Trade name		4,113				4,070
Core technology		3,230				3,230
Covenants not to compete		2,345				2,256
Favorable lease agreements		620				620
Propriety knowledge		110				110
Patent		34				34
Total gross intangible assets		23,490				23,010
Accumulated amortization		(9,201		)		(8,177		)
Net intangible assets		$	14,289			$	14,833

Amortization was $1,024 and $361 for the three months ended March 31, 2007 and 2006, respectively.

At March 31, 2007 expected amortization expense for the definite lived intangible assets is as follows:

2007 (remaining nine months)	$	2,308
2008	2,698
2009	2,639
2010	2,590
2011	2,383
Total	$	12,618

On March 23, 2007, the Company completed the acquisition of all of the outstanding shares of Century Chartering (UK) Limited for approximately £2,306 (or approximately $4,517), including cash acquired of $1,762 and $21 of direct transaction costs related to the acquisition. Included as part of the purchase price is £1,000 (or approximately $1,960) that was deposited into an escrow account with a third-party escrow agent and £145 (or approximately $283) to be paid to the sellers, which amounts represent, in the aggregate, the net asset value of the acquired entity. The escrowed amount, as well as the additional purchase price, will be paid to the sellers upon final determination of the net asset value of the acquired entity. The final

13

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

determination of the net asset value may result in additional adjustments to the purchase price in the second quarter. The Company does not expect these additional adjustments to be material to the consolidated financial statements. This acquisition was accounted for as a purchase business combination. Assets acquired were recorded at their fair value as of March 23, 2007. The results of the acquired company have been included in the consolidated financial statements since acquisition. Management determined the fair value of the identifiable intangible assets acquired based upon an independent valuation model. The purchase price was allocated as follows:

			Useful Life
Assets:
Cash	$	1,762
Intangible assets subject to amortization-
Trademark and trade name	44			2 Years
Customer relationships	349			6 Years
Covenants not to compete	89			2 Years
Other assets	798
Goodwill	1,794
Total assets acquired	$	4,836
Liabilities:
Accounts payable and accrued expense	255
Other liabilities	64
Total liabilities assumed	319
Net Assets Acquired	$	4,517

5.NOTES PAYABLE

The Company had outstanding borrowings under its 2006 Credit Agreement as of March 31, 2007 and December 31, 2006 as follows:

	March 31, 2007		December 31, 2006
Loan Available(1)	$	160,000		$	160,000
Loans Outstanding	$	76,307		$	91,186
Letters of Credit Outstanding	$	6,500		$	6,500

(1)Amounts available include up to $50,000 for letters of credit as of March 31, 2007 and December 31, 2006, respectively.

The outstanding loans bore interest rates ranging from 4.86% to 6.32% at March 31, 2007 and from 4.42% to 6.11% at December 31, 2006. The weighted average interest rate of the outstanding loans at March 31, 2007 was 6.07%. At March 31, 2007 and December 31, 2006, notes payable were recorded net of unamortized loan fees of $877 and $933, repectively.

14

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

6.EARNINGS PER SHARE

Basic and diluted earnings per share for the three months ended March 31, 2007 and 2006 were as follows:

	Three Months Ended March 31
	2007		2006
Basic earnings per share
Net income	$	24,680	$	16,983
Weighted average common shares outstanding	28,794,199		28,041,598
Basic earnings per share	$	0.86	$	0.61
Diluted earnings per share
Net income applicable to stockholders	$	24,680	$	16,983
Weighted average common shares outstanding	28,794,199		28,041,598
Effect of dilutive shares:
Options and RSUs	733,614		915,899
Weighted average shares outstanding and common stock equivalents	29,527,813		28,957,497
Diluted earnings per share	$	0.84	$	0.59

No outstanding options to purchase shares were excluded from the computation of diluted earnings per share for the three months ended March 31, 2007 and 2006 because their effect would be anti-dilutive. In addition, 278,591 and 208,067 RSUs for the three months ended March 31, 2007 and 2006, respectively, were excluded from the computation of diluted earnings per share because their effect would be anti-dilutive.

7.SHARE-BASED COMPENSATION

The Company issues RSUs to its employees under the GFI Group Inc. 2004 Equity Incentive Plan (the “2004 Equity Incentive Plan”).

The following is a summary of RSU transactions under the 2004 Equity Incentive Plan during the three months ended March 31, 2007:

	RSUs		Weighted- Average Grant Date Fair Value
Outstanding December 31, 2006	872,853			$	45.63
Granted	278,757			66.98
Vested	(116,379	)		41.49
Cancelled	(11,561	)		27.67
Outstanding March 31, 2007	1,023,670			$	52.12

15

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

The weighted average grant-date fair value of RSUs granted for the three months ended March 31, 2007 was $66.98 per unit, compared with $54.32 per unit for the same period in the prior year. Total compensation expense and related income tax benefits recognized in relation to RSUs are as follows:

	Three Months Ended March 31,
	2007			2006
Compensation expense		$	4,039		$	1,863
Income tax benefits		1,450			700

At March 31, 2007, total unrecognized compensation cost related to the RSUs prior to the consideration of expected forfeitures was approximately $46,578 and is expected to be recognized over a weighted-average period of 2.17 years. The total fair value of RSUs vested during the three months ended March 31, 2007 and 2006 was $4,829 and $1,023, respectively.

As of March 31, 2007, the Company had stock options outstanding under the GFI Group Inc. 2002 Stock Option Plan (the “GFI Group 2002 Plan”) and the GFInet inc. 2000 Stock Option Plan (the “GFInet 2000 Plan”). No additional grants will be made under these plans. For stock options previously granted or modified, the fair value was estimated on the date of grant or modification using the Black-Scholes option pricing model.

The following is a summary of stock option transactions during the three months ended March 31, 2007:

	GFI Group 2002 Plan					GFInet 2000 Plan
	Options		Weighted Average Exercise Price			Options		Weighted Average Exercise Price
Outstanding December 31, 2006	621,661			$	13.83	323,034			$	12.13
Exercised	(92,170	)		15.73		(33,438	)		15.06
Terminated	(13,158	)		21.00		—			—
Outstanding March 31, 2007	516,333			$	13.30	289,596			$	11.80

8.COMMITMENTS AND CONTINGENCIES

Purchase Obligations—The Company has various unconditional purchase obligations. Certain of these obligations include the purchase of market data from a number of information service providers during the normal course of business. As of March 31, 2007, the Company had total purchase commitments for market data services of approximately $13,401, with $11, 458 due within the next twelve months and $1,943 due between one to two years. In addition, the Company has purchase commitments for capital expenditures related to the purchase of certain software and office build-out in Europe of $1,251. All of these purchase commitments are due within the next twelve months.

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

16

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

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

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

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

It is not presently possible to determine the Company’s ultimate exposure to these matters and there is no assurance that the resolution of these matters will not significantly exceed the reserves accrued by the Company. It is the opinion of the Company’s management, after consultation with counsel, that the ultimate resolution of these matters, while not likely to have a material adverse effect on the consolidated financial condition of the Company, could be material to the Company’s operating results for any particular period.

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

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

9.FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

Disclosure regarding the Company’s financial instruments with off-balance sheet risk is described in “Note 17—Financial Instruments with Off-Balance Sheet Risk” of the Notes to the Consolidated Financial Statements contained in the Company’s 2006 Form 10-K. There have been no material changes to our off-balance sheet risk during the three months ended March 31, 2007.

17

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

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 18—Financial Instruments” of the Notes to the Consolidated Financial Statements contained in the Company’s 2006 Form 10-K.

As of and for the three months ended March 31, 2007, the Company had no foreign exchange derivative contracts that were designated as foreign currency cash flow hedges. For the three months ended March 31, 2006 there was no hedge ineffectiveness. Unrealized losses before tax of $562 for the three months ended March 31, 2006, were recorded as other comprehensive income (loss).

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 March 31, 2007 and December 31, 2006 as follows:

Asset/(Liabilities)	March 31, 2007				December 31, 2006
Foreign exchange derivative contracts:
Assets		$	280			$	649
Liabilities		(14		)		(139		)
Fenics purchase obligation		(53		)		(53		)

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.

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 $384.

18

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

The following table sets forth the minimum capital, as defined, that certain of the Company’s subsidiaries must be maintained as of March 31, 2007:

	GFI Securities LLC			GFI Brokers  Limited			GFI Securities Limited			GFI (HK) Securities LLC
Net Capital		$	34,036		$	40,188		$	22,614		$	1,683
Minimum Net Capital required		250			10,626			16,050			384
Excess Net Capital		$	33,786		$	29,562		$	6,564		$	1,299

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, 2006, the required measurement date, GFI Group PTE Ltd. had stockholders’ equity of 4,071 Singapore dollars (or approximately $2,651), which exceeded the minimum requirement by approximately 1,071 Singapore dollars (or approximately $697).

GFI Securities Limited’s Japanese branch is subject to certain licensing requirements established by the Foreign Securities Firms Law (the “FSFL”) in Japan. 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 $423). In addition, GFI Securities Limited is required to maintain a capital base of 1,000,000 Japanese Yen (approximately $8,464). GFI Securities Limited’s 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 March 31, 2007, 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.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. is registered with and regulated by the Hong Kong Monetary Authority. As part of this registration, GFI (HK) Brokers Ltd. is required to maintain stockholders’ equity of 5,000 Hong Kong dollars (or approximately $640). At March 31, 2007, GFI (HK) Brokers Ltd. had stockholders’ equity of 5,554 Hong Kong dollars (or approximately $711), which exceeded the minimum requirement by 554 Hong Kong dollars (or approximately $71).

19

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

GFI Korea Money Brokerage Limited is licensed and regulated by the Ministry of Finance and Economy to engage in foreign exchange brokerage business, and is subject to certain regulatory requirements under the Foreign Exchange Transaction Act and regulations thereunder. As a licensed foreign exchange brokerage company, GFI Korea Money Brokerage Limited is required to maintain minimum paid-in capital of 5,000,000 Korean won. At March 31, 2007, GFI Korea Money Brokerage Limited had paid-in capital of 5,000,000 Korean won (or approximately $5,336).

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 March 31, 2007.

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 months ended March 31, 2007 and 2006, respectively, and information regarding long-lived assets (defined as property, equipment, leasehold improvements and software inventory) in geographic areas as of March 31, 2007 and December 31, 2006, respectively, are as follows:

	Three Months Ended March 31,
	2007		2006
Revenues:
North America	$	109,378	$	84,617
Europe	110,470		86,855
Asia-Pacific	20,469		14,116
Total	$	240,317	$	185,588

	March 31, 2007			December 31, 2006
Long-lived Assets, as defined:
North America		$	33,546		$	32,158
Europe		13,201			12,753
Asia-Pacific		2,684			2,255
Total		$	49,431		$	47,166

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

20

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

13.OTHER COMPREHENSIVE INCOME (LOSS)

		Three Months Ended March 31,
		2007				2006
Unrealized gain (loss) on foreign exchange derivative contracts
Current Period Change:
Before Tax Amount			—				$	(562	)
Tax (Expense) Benefit			—				169
After Tax Amount			—				$	(393	)
Foreign currency translation adjustment
Before Tax Amount			$	(65	)		$	112
Tax (Expense) Benefit			29				(50		)
After Tax Amount	��		$	(36	)		$	62

The Company reclassified the following out of other comprehensive income into other income for the three months ended March 31, 2006:

	Three Months Ended
	March 31,
	2006
Gross loss		$	1,499
Net of tax		1,050

14.SUBSEQUENT EVENT

On April 26, 2007, the Company agreed to acquire the assets of the retail energy procurement and consulting business of GSE Consulting L.P., an affiliate of Gulf States Energy, a privately-held, full service energy commodities firm. The transaction is expected to close in the second quarter of 2007, subject to standard closing conditions.

21

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have reviewed the accompanying condensed consolidated statement of financial condition of GFI Group Inc. and subsidiaries (the “Company”) as of March 31, 2007, and the related condensed consolidated statements of income, comprehensive income and cash flows for the three-month periods ended March 31, 2007 and 2006. 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, 2006, 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 February 28, 2007, 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, 2006 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

New York, New York

May 9, 2007

22

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 2006 Form 10-K;

·expansion and growth of our operations generally or of specific products or services;

·our ability to attract and retain key personnel, including highly qualified brokerage personnel;

·our entrance into new brokerage markets including investments in establishing new brokerage desks;

·competition from current and new competitors;

·our ability to keep up with rapid technological change and to continue to develop and support our electronic brokerage systems in a cost effective manner.

·future results of operations and financial condition;

·the success of our business strategies;

·economic, political and market factors affecting trading volumes, securities prices or demand for our brokerage services;

·financial difficulties experienced by our customers or key participants in the markets in which we focuses our brokerage services;

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

·the maturity of key markets and any resulting contracting in commissions;

·our ability to manage our international operations;

·uncertainties associated with currency fluctuations;

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

·changes in laws and regulations governing our business and operations or permissible activities and our ability to comply with such laws and regulations;

·uncertainties relating to litigation; and

·changes in the availability of capital.

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

23

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 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 indicators of likely trading volume levels. We also monitor market-specific developments in each of our markets. Trading volume in many of our inter-dealer markets is driven by the trading activity of our dealer clients that, in turn, are responsive to the trading activity and demand of their “buy-side” clients. Those “buy-side” clients include smaller banks, insurance companies and financial institutions, investment funds, trading firms and, increasingly, hedge funds.

During the first quarter of 2007, the global business environment was generally positive for our business, with satisfactory trading volume levels and instances of more pronounced volatility in all of our product categories. Some external factors contributing to volatility in the markets included global economic and inflationary concerns, divergent global monetary policy, concerns regarding the subprime mortgage market in the U.S. and geopolitical issues in the Middle East.

Credit

The credit markets experienced substantial volatility in the first quarter due to concerns regarding the U.S. subprime lending market, as well as a global sell-off of more risky bond and emerging market investments in February. Volatility in the global credit markets was highlighted by price movement on the Dow Jones (DJ) CDX North American Investment Grade, DJ CDX North American High Yield and iTraxx Europe indices in the first quarter 2007 as compared with the first quarter of 2006 and the fourth quarter of 2006.

The investment grade bond market experienced growth in the quarter with the Lehman Brothers Aggregate Bond Index up 1.5% from the start of the year, as compared with a 0.65% loss in the first quarter of 2006. Investment grade corporate bond issuance in the quarter increased 13% to $272.4 billion versus the first quarter of 2006. Additionally, credit spreads widened in the quarter for lower grade and junk bonds, indicating reduced investor appetite for risk. The widening of credit spreads and the uncertainty in the direction of U.S. interest rates all contributed to volatility which was positive for our credit business.

Financial

The financial markets were active in the quarter with economic, inflationary and monetary policy concerns leading investors to rebalance their portfolios and hedge currency exposure. The U.S. dollar generally weakened in the quarter, depreciating versus the Euro, the British Pound Sterling, the Japanese Yen and certain emerging market currencies. Short-term interest rates remained unchanged in the U.S., while European interest rates continued to increase. This divergent monetary policy, global inflationary concerns and uncertainties in the future direction of U.S. interest rates all led to volatility in relative currency prices. In addition, emerging market economies in Latin America, Eastern Europe and Asia have continued, in many cases, to experience growth that has outpaced that of the U.S. This growth has, in some cases, led to the strengthening of various local currencies versus the U.S. dollar. The uncertainties regarding economic, inflationary and monetary policy direction were all beneficial to our financial business.

24

Equity

Equity markets experienced considerable volatility in the first quarter with global markets experiencing a large sell-off in February in the face of a slowing U.S. economy and a deteriorating U.S. subprime mortgage market. The global equity markets experienced a recovery in March and the Dow Jones World Stock Index, excluding the U.S., advanced 2.5% in the quarter, beating the Dow Jones Industrial Average, which declined 0.9%. Latin American and other emerging market stocks were volatile in the quarter due to the temporary investor flight from these riskier assets. The Morgan Stanley Emerging Market Index was up 1.0% for the quarter. The Chicago Board Options Exchange’s Standard and Poor’s 500 Volatility Index indicated a higher volatility level for the first quarter of 2007 compared to the first quarter of 2006, as well as compared to the fourth quarter of 2006. This high level of volatility in the first quarter was beneficial to our equity business.

Commodity

Oil and petroleum markets experienced volatility in the quarter following diplomatic tensions between Iran and Britain, raising supply concerns. Crude oil, natural gas and heating oil prices decreased in the beginning of the quarter as mild winter weather in the northeastern U.S. resulted in higher inventories. These inventories were reduced as cold weather returned late in the quarter, resulting in rising prices. Crude oil prices ended the quarter at $65.87 per barrel, up 7.9% for the quarter. Emerging markets, especially China, continued to demand increasing levels of commodities to supply their growing economies. The New York Mercantile Exchange and Intercontinental Exchange both reported significant volume growth in energy futures volume for the first quarter of 2007 versus the first quarter of 2006. The volatility in the oil and petroleum markets during the quarter were beneficial to our commodities business.

Results of Operations

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

	Three Months Ended March 31,
	2007			2006
REVENUES:
Brokerage revenues:
Agency commissions	$	184,525		$	136,910
Principal transactions	48,377			41,060
Total brokerage revenues	232,902			177,970
Analytics and market data	5,326			5,194
Interest income	2,102			2,233
Other income (loss)	(13		)	191
Total revenues	240,317			185,588
EXPENSES:
Compensation and employee benefits	151,508			116,845
Communications and market data	10,456			7,653
Travel and promotion	8,836			7,531
Rent and occupancy	5,561			5,613
Depreciation and amortization	5,227			3,836
Professional fees	3,569			4,044
Clearing fees	7,529			5,477
Interest	1,849			1,752
Other expenses	4,649			3,556
Total Expenses	199,184			156,307
INCOME BEFORE PROVISION FOR INCOME TAXES	41,133			29,281
PROVISION FOR INCOME TAXES	16,453			12,298
NET INCOME	$	24,680		$	16,983

25

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 March 31,
	2007			2006
REVENUES:
Brokerage revenues:
Agency commissions		76.8	%		73.8	%
Principal transactions		20.1			22.1
Total brokerage revenues		96.9			95.9
Analytics and market data		2.2			2.8
Interest income		0.9			1.2
Other income (loss)		0.0			0.1
Total revenues		100.0	%		100.0	%
EXPENSES:
Compensation and employee benefits		63.0	%		63.0	%
Communications and market data		4.4			4.1
Travel and promotion		3.7			4.1
Rent and occupancy		2.3			3.0
Depreciation and amortization		2.2			2.1
Professional fees		1.5			2.2
Clearing fees		3.1			3.0
Interest		0.8			0.9
Other expenses		1.9			1.9
Total Expenses		82.9	%		84.3	%
INCOME BEFORE PROVISION FOR INCOME TAXES		17.1			15.7
PROVISION FOR INCOME TAXES		6.8			6.6
NET INCOME		10.3	%		9.1	%

Three Months Ended March 31, 2007 Compared to the Three Months Ended March 31, 2006

Net income for the three months ended March 31, 2007 was $24.7 million as compared to net income of $17.0 million for the three months ended March 31, 2006, an increase of $7.7 million or approximately 45.3%. Total revenues increased by $54.7 million, or 29.5%, to $240.3 million for the three months ended March 31, 2007 from $185.6 million for the same period from the prior year. Our increased revenues were primarily due to increased brokerage revenues across our credit, equity and commodity product categories. Our total brokerage personnel headcount increased by 182 to a total of 990 employees at March 31, 2007 from 808 employees at March 31, 2006. Total expenses increased by $42.9 million, or 27.4%, to $199.2 million for the three months ended March 31, 2007 from $156.3 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 2006 and the resulting increase in performance related brokerage bonuses.

26

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 March 31,
	2007			2006
BROKERAGE REVENUES:
Credit	$	84,811		$	71,273
Financial	45,001			39,488
Equity	56,383			41,459
Commodity	46,707			25,750
Total brokerage revenues	$	232,902		$	177,970
BROKERAGE REVENUES:
Credit	36.4		%	40.0		%
Financial	19.3			22.2
Equity	24.2			23.3
Commodity	20.1			14.5
Total brokerage revenues	100.0		%	100.0		%

Total brokerage revenues increased by $54.9 million, or 30.8%, to $232.9 million for the three months ended March 31, 2007, as compared to $178.0 million for the three months ended March 31, 2006. Agency commissions increased by $47.6 million, or 34.8%, to $184.5 million for the three months ended March 31, 2007, as compared to $136.9 million for the three months ended March 31, 2006. Principal transactions increased by $7.3 million, or 17.8%, to $48.4 million for the three months ended March 31, 2007 from $41.1 million for the three months ended March 31, 2006. Broker productivity (defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period) increased by approximately 6.7% for the three months ended March 31, 2007, as compared to the same period from the prior year.

The increase in credit product brokerage revenues of $13.5 million, or 19%, in the first quarter of 2007 as compared with the first quarter of 2006 was due to a number of factors, including credit market volatility related to U.S. subprime mortgage market concerns and the global equity market sell-off and recovery in the quarter, continued overall growth in the credit derivatives market, the development of new credit products and the continued success of CreditMatch®, our credit derivatives trading platform, in Europe. Our existing credit product desks contributed $8.6 million of the total increase in the credit product brokerage revenues. The remaining $4.9 million increase was generated by the addition of ten new or restructured desks since March 31, 2006. Our credit product brokerage personnel increased by 35 to a total of 256 employees at March 31, 2007 from 221 employees at March 31, 2006.

The increase in financial product brokerage revenues of $5.5 million, or 14%, in the first quarter of 2007 as compared with the first quarter of 2006 was primarily attributable to the continued build up of our Asian operations, increased volatility and trading activity in emerging market products in Europe and new desks started in 2005 and 2006 in Europe. Our existing financial product desks contributed $2.5 million of the total increase in financial product brokerage revenues. The remaining $3.0 million increase in financial product brokerage revenues was attributable to the addition of eight new or restructured financial product desks since March 31, 2006. Our financial product brokerage personnel increased by 29 to a total of 277 employees at March 31, 2007 from 248 employees at March 31, 2006.

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The increase in equity product brokerage revenues of $14.9 million, or 36%, in the first quarter of 2007 as compared with the first quarter of 2006 was primarily due to the growth of our Paris office, which specializes in cash equities and equity derivatives, increased revenues from our cash equities business in North America and equity derivative brokerage business in the U.K.and Asia. Our existing equity product brokerage desks contributed $11.9 million of the total increase in equity product brokerage revenues, including an increase of $8.4 million from the Paris office. The remaining $3.0 million increase in equity product brokerage revenues was attributable to the addition of seven new or restructured equity product desks since March 31, 2006. Our equity product brokerage personnel increased by 23 to 190 employees at March 31, 2007 from 167 employees at March 31, 2006.

The increase in commodity product brokerage revenues of $20.9 million, or 81%, in the first quarter of 2007 as compared with the first quarter of 2006 was primarily attributable to the addition of our Amerex brokerage business, which generated approximately $15.9 million in brokerage revenues in the first quarter of 2007. In addition, significant volatility in oil and petroleum markets and growth in European energy products, including electricity, coal, dry freight and emissions, contributed to the increase in commodity and brokerage revenues in the quarter. Our commodity product brokerage personnel increased by 96 to a total of 268 employees at March 31, 2007 from 172 employees at March 31, 2006.

Analytics and Market Data

Revenues from our analytics and market data products increased by $0.1 million, or 1.9%, to $5.3 million for the three months ended March 31, 2007 as compared to $5.2 million for the three months ended March 31, 2006. The increase was primarily due to an increase in update fees associated with the licensing of analytical software.

Interest Income

Interest income decreased by $0.1 million, or 4.5%, to $2.1 million for the three months ended March 31, 2007, as compared to $2.2 million for the three months ended March 31, 2006. The decrease was mainly attributable to the decrease in interest income on clearing accounts, which was partially offset by an increase in interest income attributable to the higher level of cash balances in the U.S.

Other Income (Loss)

Other income (loss) decreased by $0.2 million, or 100.0 %, to a loss of $0.01 million for the three months ended March 31, 2007 from income of $0.2 million for the three months ended March 31, 2006. Other income (loss) for the three months ended March 31, 2007 and 2006 mainly consisted of transactional 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 $34.7 million, or 29.7%, to $151.5 million for the three months ended March 31, 2007 from $116.8 million for the three months ended March 31, 2006. The increase was primarily due to an increase in the number of brokerage personnel from 808 employees at March 31, 2006 to 990 employees at March 31, 2007 and an increase in brokerage personnel performance bonuses of $13.8 million resulting in large part from the increase in our brokerage revenues.

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Total compensation and employee benefits as a percentage of total revenues decreased slightly to 62.9% at March 31, 2007 from 63.0% at March 31, 2006. Bonus expense represented 53.3% and 57.0% of total compensation and employee benefits expense for the three months ended March 31, 2007 and 2006, 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 4.2% and 4.9% of total compensation and employee benefits for the three months ended March 31, 2007 and 2006, respectively.

Communications and Market Data

Communications and market data increased by $2.8 million, or 36.4%, to $10.5 million for the three months ended March 31, 2007 from $7.7 million from the three months ended March 31, 2006. The increase was primarily attributable to the increase in brokerage desks and brokerage personnel including in those areas, such as equities, that rely more heavily on market data systems.

Travel and Promotion

Travel and promotion increased by $1.3 million, or 17.3%, to $8.8 million for the three months ended March 31, 2007 from $7.5 million for the three months ended March 31, 2006. This expense, as a percentage of our total brokerage revenues for the three months ended March 31, 2007 decreased to 3.7% from 4.1% 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 remained relatively flat at $5.6 million for the three months ended March 31, 2007 compared to the three months ended March 31, 2006.

Depreciation and Amortization

Depreciation and amortization increased by $1.4 million, or 36.8%, to $5.2 million for the three months ended March 31, 2007 from $3.8 million for the three months ended March 31, 2006. The increase was primarily due to the increase in capitalized equipment costs, including software inventory and amortization expense of intangibles resulting from the acquisition of the Amerex brokerage business.

Professional Fees

Professional fees decreased by $0.4 million, or 10.0% to $3.6 million for the three months ended March 31, 2007 from $4.0 million for the three months ended March 31, 2006. The decrease was primarily due to a decrease in professional fees related to our compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

Clearing Fees

Clearing fees increased by $2.0 million, or 36.4%, to $7.5 million for the three months ended March 31, 2007 from $5.5 million for the three months ended March 31, 2006. The increase was due to a higher volume of principal transactions executed during the three months ended March 31, 2007, as compared to the same period in the prior year. This increase was partially due to the growth of brokerage revenues from our Paris equities business to $18.8 million for the three months ended March 31, 2007 from $10.4 million for the same period in the prior year. Clearing fees, as a percentage of our total revenues from principal transactions increased to 15.6% for the three months ended March 31, 2007 from 13.3% for the comparable period in the prior year. This increase was partially due to the higher cost of clearing fees as a result of the higher number and types of transactions executed in our Paris office. Excluding transactions from our Paris office, clearing fees, as a percentage of our total revenues from principal

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transactions was 13.0% and 11.3% for the three months ended March 31, 2007 and 2006, 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. Further, execution fees paid to exchanges are included in clearing fees.

Interest Expense

Interest expense remained relatively flat at $1.8 million for the three months ended March 31, 2007 compared to the three months ended March 31, 2006. This was a result of an increase in interest expense under our credit facility due to the higher level of outstanding borrowings during the three months ended March 31, 2007, that was offset by a decrease in interest charges on our clearing accounts for the three months ended March 31, 2007 compared to the same period last year. Included in interest expense for the three months ended March 31, 2007 is $0.9 million of interest on outstanding borrowings incurred to purchase the Amerex brokerage business in October 2006.

Other Expenses

Other expenses increased by $1.0 million, or 27.8%, to $4.6 million for the three months ended March 31, 2007 from $3.6 million for the three months ended March 31, 2006. The increase was primarily due to an increase in irrecoverable Value Added Tax related to increased purchases in communications and market data in the U.K. as well as an increase in expenses related to promotional items and license fees to third-party software vendors.

Provision for Income Taxes

Our provision for income taxes totaled $16.5 million for the three months ended March 31, 2007 compared to $12.3 million for the three months ended March 31, 2006. Our effective tax rate was approximately 40% for the three months ended March 31, 2007 as compared to 42% for the comparable period in 2006. The reduction in the effective tax rate was primarily due to a decrease in state and local income taxes and taxes related to foreign operations as well as an increase in business tax credits.

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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 April 1, 2005 to March 31, 2007. 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.

	March 31, 2007			December 31, 2006			September 30, 2006			June 30, 2006		March 31, 2006		December 31, 2005			September 30, 2005			June 30, 2005
Revenues
Brokerage revenues:
Agency commissions		$ 184,525			$ 151,890			$ 138,961		$ 130,134			$ 136,910		$ 104,335			$ 98,559		$ 100,718
Principal transactions		48,377			33,890			34,478		41,792			41,060		31,250			27,420		27,635
Total brokerage revenues		232,902			185,780			173,439		171,926			177,970		135,585			125,979		128,353
Analytics and market data		5,326			4,232			4,954		4,271			5,194		3,388			3,894		4,711
Long-term contract revenue		—			1,092			—		5,881			—		—			—		—
Interest income		2,102			2,366			2,150		2,395			2,233		1,458			1,236		883
Other income (loss)		(13	)		601			(585	)	3,093			191		(145	)		(420	)	6,376
Total revenues		240,317			194,071			179,958		187,566			185,588		140,286			130,689		140,323
Expenses
Compensation and employee benefits		151,508			122,465			112,543		113,701			116,845		89,511			81,461		80,896
Communications and market data		10,456			10,545			9,799		9,303			7,653		7,064			6,656		6,341
Travel and promotion		8,836			9,242			7,069		8,549			7,531		7,017			5,833		6,041
Rent and occupancy		5,561			5,511			4,594		4,841			5,613		3,447			4,662		3,913
Depreciation and amortization		5,227			6,799			4,338		4,048			3,836		4,159			3,434		3,599
Professional fees		3,569			5,397			4,391		5,320			4,044		2,507			2,797		2,927
Clearing fees		7,529			6,312			5,884		6,798			5,477		3,858			3,480		2,974
Interest		1,849			2,170			1,124		1,772			1,752		1,016			778		597
Other expenses		4,649			4,046			3,098		3,843			3,556		1,855			2,217		5,809
Cost of long-term contract					639			—		5,180			—		—			—		—
Lease termination costs to affiliate		—			(57	)		(93	)	(92	)		—		1,070			—		(2,266	)
Total expenses		199,184			173,069			152,747		163,263			156,307		121,504			111,318		110,831
Income before provision for taxes		41,133			21,002			27,211		24,303			29,281		18,782			19,371		29,492
Provision for income taxes		16,453			7,593			10,621		10,207			12,298		7,363			8,523		12,810
Net income		$ 24,680			$ 13,409			$ 16,590		$ 14,096			$ 16,983		$ 11,419			$ 10,848		$ 16,682

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

	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,
	2007			2006			2006			2006			2006			2005			2005			2005
Revenues
Brokerage revenues:
Agency commissions		76.8	%		78.2	%		77.2	%		69.4	%		73.8	%		74.4	%		75.4	%		71.8	%
Principal transactions		20.1			17.5			19.2			22.3			22.1			22.3			21.0			19.7
Total brokerage revenues		96.9			95.7			96.4			91.7			95.9			96.7			96.4			91.5
Analytics and market data		2.2			2.2			2.8			2.3			2.8			2.4			3.0			3.4
Long-term contract revenue		0.0			0.6			—			3.1			—			—			—			—
Interest income		0.9			1.2			1.2			1.3			1.2			1.0			0.9			0.6
Other income (loss)		0.0			0.3			(0.4	)		1.6			0.1			(0.1	)		(0.3	)		4.5
Total revenues		100.0			100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Expenses
Compensation and employee benefits		63.0	%		63.1	%		62.5	%		60.6	%		63.0	%		63.8	%		62.3	%		57.6	%
Communications and market data		4.4			5.4			5.4			5.0			4.1			5.0			5.1			4.6
Travel and promotion		3.7			4.8			3.9			4.6			4.1			5.0			4.5			4.3
Rent and occupancy		2.3			2.8			2.6			2.6			3.0			2.5			3.6			2.8
Depreciation and amortization		2.2			3.5			2.4			2.2			2.1			3.0			2.6			2.6
Professional fees		1.5			2.8			2.4			2.8			2.2			1.8			2.1			2.1
Clearing fees		3.1			3.3			3.3			3.6			3.0			2.8			2.7			2.1
Interest		0.8			1.1			0.6			0.9			0.9			0.7			0.6			0.4
Other expenses		1.9			2.1			1.7			2.0			1.9			1.3			1.7			4.1
Cost of long-term contract		—			0.3			—			2.8			—			—			—			—
Lease termination costs to affiliate		—			—			(0.1	)		—			—			0.8			—			(1.6	)
Total expenses		82.9	%		89.2	%		84.7	%		87.1	%		84.3	%		86.7	%		85.2	%		79.0	%
Income before provision for taxes		17.1			10.8			15.3			12.9			15.7			13.3			14.8			21.0
Provision for income taxes		6.8			3.9			5.9			5.4			6.6			5.2			6.5			9.1
Net income		10.3	%		6.9	%		9.4	%		7.5	%		9.1	%		8.1	%		8.3	%		11.9	%

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

	March 31, 2007			December 31, 2006			September 30, 2006			June 30, 2006		March 31, 2006			December 31, 2005			September 30, 2005			June 30, 2005
Brokerage Revenues:
Credit		$ 84,811			$ 61,032			$ 60,654		$ 59,838			$ 71,273			$ 55,443			$ 51,472		$ 60,749
Financial		45,001			39,232			38,605		38,942			39,488			29,213			30,804		29,835
Equity		56,383			44,940			41,426		46,109			41,459			29,931			25,993		21,869
Commodity		46,707			40,576			32,754		27,037			25,750			20,998			17,710		15,900
Total brokerage revenues		$ 232,902			$ 185,780			$ 173,439		$ 171,926			$ 177,970			$ 135,585			$ 125,979		$ 128,353
Brokerage Revenues:
Credit		36.4	%		32.9	%		35.0	%	34.8	%		40.0	%		40.9	%		40.8	%	47.3	%
Financial		19.3			21.1			22.2		22.7			22.2			21.5			24.5		23.2
Equity		24.2			24.2			23.9		26.8			23.3			22.1			20.6		17.0
Commodity		20.1			21.8			18.9		15.7			14.5			15.5			14.1		12.4
Total brokerage revenues		100.0	%		100.0	%		100.0	%	100.0	%		100.0	%		100.0	%		100.0	%	100.0	%

Liquidity and Capital Resources

Net cash provided by operations increased to $7.8 million for the three months ended March 31, 2007, compared with $9.6 million used for operations for the three months ended March 31, 2006. The improvement is primarily related to our increased net income, the increase in certain non-cash items such as deferred compensation expense and the benefit from deferred taxes and the improvement in certain working capital items such as other liabilities and the net receivable/payables to brokers, dealers and clearing organizations.

Net cash used in investing activities for the three months ended March 31, 2007 was $9.4 million compared to $5.7 million used in the three months ended March 31, 2006. The increase in cash used for investing activities was primarily due to the cash used for the acquisition of Century Chartering (U.K.) Limited. See Note 4 to the condensed consolidated financial statements for further information.

Net cash used by financing activities for the three months ended March 31, 2007 was $11.3 million compared to $0.5 million used for the three months ended March 31, 2006. The increase in cash used for financing activities is due to higher net repayments under our 2006 Credit Agreement, lower cash received from stock options exercises and higher taxes paid on vested restricted stock units.

Our liquidity and available cash resources are in part restricted by the regulatory requirements of our operating subsidiaries, including GFI Securities LLC, GFI Securities Limited, GFI Brokers Limited, GFI (HK) Securities LLC, GFI (HK) Brokers Ltd., GFI Group Pte Ltd and GFI Korea Money Brokerage Limited. GFI Securities LLC is subject to regulatory capital requirements under the Exchange Act and the Commodity Exchange Act. GFI Securities Limited and GFI Brokers Limited are subject to the regulated capital requirements of the FSA. GFI (HK) Securities LLC is subject to the regulated capital requirements of the Securities and Futures Commission in Hong Kong. GFI (HK) Brokers Ltd. is subject to regulatory compliance requirements under the Monetary Authority of Hong Kong. GFI Group PTE Ltd. is subject to the regulatory compliance requirements with the Monetary Authority of Singapore. GFI Korea Money Brokerage Limited is subject to the regulated capital requirements of the Ministry of Finance and Economy of South Korea. At March 31, 2007, all of our regulated subsidiaries were in compliance with their respective regulatory capital requirements. In addition to these regulatory capital requirements, our liquidity may be impacted by the amount of capital that we maintain in clearing accounts and with exchanges to support our principal transactions business. See Note 11 to our condensed consolidated financial statements for a further discussion of these regulatory requirements.

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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. Poor financial results, unanticipated expenses, unanticipated acquisitions or unanticipated strategic investments could give rise to additional financing requirements sooner than we expect. There can be no assurance that equity or debt financing will be available when needed or, if available, that the financing will be on terms satisfactory to us and not dilutive to our then-current stockholders.

Contractual Obligations and Commitments

Our contractual obligations and off-balance sheet entities are described in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our 2006 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 three months ended March 31, 2007. Subsequent to December 31, 2006, our net repayments were $15.0 million under the 2006 Credit Agreement.

We have various unconditional purchase obligations. Certain of these obligations are for the purchase of market data from a number of information service providers during the normal course of business. As of March 31, 2007, we had total purchase commitments for market data services of approximately $13.4 million, with $11.5 million due within the next twelve months and $1.9 million due between one to two years. In addition, we have purchase commitments for capital expenditures related to our European offices of $1.3 million, all of which are due within the next twelve months.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements at March 31, 2007.

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 2006 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 2006 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

Effective January 1, 2007, we adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) an interpretation of SFAS 109. Upon adoption, we recognized a $4.4 million increase to the accrual for uncertain tax positions. This increase was accounted for as an adjustment to the beginning balance of retained earnings on the Condensed Consolidated Statement of Financial Condition. After recognizing the impact of the adoption of FIN 48, the total unrecognized tax benefits (net of the federal benefit on state issues) were approximately $7.7 million of, all of which could affect the effective income tax rate in any future periods. In a foreign jurisdiction, we are in discussion with tax authorities regarding whether certain compensation expenses

33

were deductible by the Company in prior years. A portion of the compensation payment is held by a trustee and it is the Company’s intent to use this money to offset the cost to the Company of the potential tax liability, if any, arising from the disallowance of the deduction.

We are subject to U.S. federal income tax, foreign income tax as well as state income tax in the states in which we have significant business operations. We have substantially concluded all U.S. federal income tax matters for years through 2004, state and local tax matters through 2000 and foreign income tax matters through 2002 with all relevant tax authorities. We recognize interest and penalties related to income tax matters in interest expense and other expense respectively. As of March 31, 2007, there have been no material changes to the accrual for uncertain tax positions.

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 No. 157 is effective for financial statements for fiscal years beginning after November 15, 2007. We are currentyly evaluating the impact of adopting SFAS No. 157 on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 (“SFAS 159”). SFAS No. 159 provides a “Fair Value Option” under which a company may irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. This Fair Value Option will be available on a contract-by-contract basis with changes in fair value recognized in earnings as those changes occur. SFAS No. 159 is effective for financial statements for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting SFAS No. 159 on our 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 2006 Form 10-K. Except as described below in this Form 10-Q, there have been no material changes to those market risks during the three months ended March 31, 2007.

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 three months ended March 31, 2007.

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 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 $5.9 million.

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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.

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 2007 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

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

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 2006 Form 10-K. See “Risk Factors” in Part I, Item 1A of our 2006 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 March 31, 2007, we withheld shares of common stock to satisfy tax withholding obligations as follows:

Date	No. of Shares		Average Market Price
January		21,511		$	63.47
February		1,508		$	61.55
March		8,192		$	67.97

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ITEM 6.EXHIBITS

Exhibits:

Exhibit No.	Description
10.16	Employment Agreement, dated March 26, 2007 between GFI Group Inc. and Scott Pintoff
10.17	Employment Agreement, dated March 26, 2007 between GFI Group Inc. and J. Christopher Giancarlo
10.18	Employment Agreement, dated April 30, 2007 between GFI Group Inc. and Colin Heffron (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 2, 2007, File No. 000-51103)
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 March 31, 2007 to be signed on its behalf by the undersigned, thereunto duly authorized, on the 10th day of May, 2007.

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
10.16	Employment Agreement, dated March 26, 2007 between GFI Group Inc. and Scott Pintoff
10.17	Employment Agreement, dated March 26, 2007 between GFI Group Inc. and J. Christopher Giancarlo
10.18	Employment Agreement, dated April 30, 2007 between GFI Group Inc. and Colin Heffron (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 2, 2007, File No. 000-51103)
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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