Gfi (GFIG) 10-Q 2007 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 October 31, 2007 was 29,410,253.

Table of Contents

Part I—Financial Information		4
Item 1.	Financial Statements	4
	Condensed Consolidated Statements of Financial Condition as of September 30, 2007 (unaudited) and December 31, 2006	4
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2007 (unaudited) and September 30, 2006 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2007 (unaudited) and September 30, 2006 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 (unaudited) and September 30, 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	40
Item 4.	Controls and Procedures	41
Part II—Other Information		41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	42

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.

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PART I—FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

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

	September 30, 2007			December 31, 2006
	(Unaudited)
ASSETS
Cash and cash equivalents	$	208,867		$	181,484
Deposits with clearing organizations	8,369			7,973
Accrued commissions receivable, net of allowance for doubtful accounts of $4,778 and $3,547 at September 30, 2007 and December 31, 2006, respectively	174,054			120,731
Receivables from brokers, dealers and clearing organizations	602,437			174,693
Property, equipment and leasehold improvements, net of depreciation and amortization of $74,807 and $61,742 at September 30, 2007 and December 31, 2006, respectively	47,150			41,396
Goodwill	93,709			91,891
Intangible assets, net	12,656			14,833
Other assets	69,432			66,608
TOTAL ASSETS	$	1,216,674		$	699,609
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Accrued compensation	$	133,068		$	128,047
Accounts payable and accrued expense	36,580			31,336
Payables to brokers, dealers and clearing organizations	491,986			84,995
Notes payable, net	58,535			90,253
Other liabilities	76,461			34,509
Total Liabilities	$	796,630		$	369,140
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred Stock, $0.01 par value; 5,000,000 shares authorized and none outstanding at September 30, 2007 and December 31, 2006	—			—
Common stock, $0.01 par value; 100,000,000 shares authorized; 29,452,220 and 28,698,505 shares issued at September 30, 2007 and December 31, 2006, respectively	295			287
Additional paid in capital	255,911			224,442
Retained earnings	171,076			105,868
Treasury stock, 100,000 common shares at cost	(7,076		)	—
Accumulated other comprehensive loss	(162		)	(128		)
Total Stockholders’ Equity	420,044			330,469
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,216,674		$	699,609

See notes to condensed consolidated financial statements

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007		2006			2007		2006
REVENUES:
Brokerage revenues:
Agency commissions	$	198,405	$	138,961		$	562,396	$	406,005
Principal transactions	46,467		34,478			136,888		117,330
Total brokerage revenues	244,872		173,439			699,284		523,335
Analytics and market data	4,855		4,954			14,672		14,419
Contract revenue	11		—			215		5,881
Interest income	2,589		2,150			6,988		6,778
Other income (loss)	2,416		(585		)	2,023		2,699
Total Revenues	254,743		179,958			723,182		553,112
EXPENSES:
Compensation and employee benefits	158,845		112,543			453,827		343,089
Communications and market data	11,329		9,799			33,084		26,755
Travel and promotion	9,929		7,069			28,935		23,149
Rent and occupancy	6,439		4,594			17,529		15,048
Depreciation and amortization	6,747		4,338			17,694		12,222
Professional fees	4,459		4,391			12,360		13,755
Clearing fees	8,063		5,884			22,532		18,159
Interest	1,703		1,124			5,554		4,648
Other expenses	4,574		3,098			16,132		10,497
Contract costs	6		—			133		5,180
Lease termination costs to affiliate	—		(93		)	—		(185		)
Total Expenses	212,094		152,747			607,780		472,317
INCOME BEFORE PROVISION FOR INCOME TAXES	42,649		27,211			115,402		80,795
PROVISION FOR INCOME TAXES	16,746		10,621			45,752		33,126
NET INCOME	$	25,903	$	16,590		69,650		47,669
EARNINGS PER SHARE
Basic	$	0.88	$	0.58		$	2.40	$	1.69
Diluted	$	0.87	$	0.57		$	2.34	$	1.64
WEIGHTED AVERAGE SHARES OUSTANDING
Basic	29,335,229		28,441,089			29,071,716		28,248,634
Diluted	29,903,696		29,221,795			29,731,643		29,104,286

See notes to condensed consolidated financial statements

5

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
NET INCOME	$	25,903		$	16,590		$	69,650		$	47,669
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain on foreign exchange derivative contracts, net of tax	—			1,374			—			861
Foreign currency translation adjustment, net of tax	(76		)	(8		)	(34		)	146
COMPREHENSIVE INCOME	$	25,827		$	17,956		$	69,616		$	48,676

See notes to condensed consolidated financial statements

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

	Nine Months Ended September 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	69,650		$	47,669
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	17,694			12,222
Amortization of loan fees	168			181
Provision for allowance for doubtful accounts	2,502			381
Loss on disposal of fixed assets	—			122
Deferred compensation	14,944			8,199
(Benefit from) provision for deferred taxes	1,163			(3,315		)
Loss on foreign exchange for notes payable	—			865
Loss on foreign exchange derivative contracts	6,541			1,952
Lease termination cost to affiliate	—			(185		)
Tax benefit related to share-based compensation	(14,471		)	(9,965		)
(Increase) decrease in operating assets:
Deposits with clearing organizations	(396		)	(18		)
Accrued commissions receivable	(55,261		)	(33,372		)
Receivables from brokers, dealers and clearing organizations	(427,744		)	(109,571		)
Other assets	(2,710		)	(6,911		)
Increase (decrease) in operating liabilities:
Accrued compensation	5,021			15,826
Accounts payable and accrued expenses	5,183			2,381
Payables to brokers, dealers and clearing organizations	406,991			75,858
Other liabilities	45,511			30,909
Cash paid to affiliate for lease termination	—			(467		)
Cash provided by operating activities	74,786			32,761
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for business acquisitions	(2,754		)	(116		)
Purchase of property, equipment and leasehold improvements	(18,954		)	(15,265		)
Payments on foreign exchange derivative contracts	(5,187		)	(352		)
Cash used in investing activities	(26,895		)	(15,733		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable	(61,186		)	(52,000		)
Proceeds from notes payable	29,300			38,000
Repurchases of common stock	(7,076		)	—
Payment of loan fees	—			(612		)
Proceeds from exercise of stock options	7,874			7,057
Cash paid for taxes on vested restricted stock units	(3,857		)	(1,866		)
Tax benefit related to share-based compensation	14,471			9,965
Cash (used in)/provided by financing activities	(20,474		)	544
Effects of foreign currency translation adjustment	(34		)	146
INCREASE IN CASH AND CASH EQUIVALENTS	27,383			17,718
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	181,484			144,148
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	208,867		$	161,866
SUPPLEMENTAL DISLCOSURE:
Interest paid	$	5,393		$	4,444
Income taxes paid, net of refunds	$	30,259		$	13,684

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 September 30, 2007, Jersey Partners, Inc. (“JPI”) owns approximately 43% of the Company’s outstanding shares of common stock.  The Company’s chief executive officer, Michael Gooch, is the controlling shareholder of JPI.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

All 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.

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

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

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Principal Transactions—Principal transactions 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 primarily of fees for licenses of Fencis software products either as a one-time up-front perpetual licensing charge or on a subscription basis, which is generally over two years.  Perpetual licensing agreements also give customers the option to participate in future upgrades of the product for a fee.  Market data revenue primarily consists of subscription fees and fees from customized one-time sales. The Company recognizes the licensing revenues from perpetual license agreements 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. Subscription fees are recognized on a straight-line basis over the term of the subscription period, which is generally two years. Market data revenue from customized one-time sales is recognized upon delivery of the data.

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

Goodwill and Intangible Assets—Goodwill represents the excess of the purchase price allocation over the fair value of tangible and identifiable intangible net assets acquired. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Intangible Assets, goodwill and intangible assets with indefinite lives are no longer amortized, but instead are tested for impairment annually or more frequently if circumstances 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 1^st as the date to perform the annual impairment test. Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives.

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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 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 and nine months ended September 30, 2007, the Company had no foreign exchange derivative contracts that were designated as foreign currency cash flow hedges. The Company records these contracts at fair value and all realized and unrealized gains and losses are included in other income in the Condensed Consolidated Statement of Income.

Foreign Currency Translation Adjustments and Transactions—Assets and liabilities of foreign subsidiaries having non-U.S. dollar functional currencies are translated at the period end rates of exchange, and revenue and expenses are translated at the average rates of exchange for the period. Gains or losses resulting from translating foreign currency financial statements are reflected in foreign currency translation adjustments and are reported as a separate component of comprehensive income and included in accumulated other comprehensive loss in stockholders’ equity. Gains or losses resulting from foreign currency transactions are included in net income as other income.

Segment and Geographic Information—The Company’s only reportable 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 the United States and the United Kingdom.

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.   In recent periods, the only share-based compensation issued by the Company has been RSUs.  The Company records the fair value of the RSUs at the date of grant as deferred compensation and amortizes it to compensation expense over the vesting period of the grants.

Recent Accounting Pronouncements

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

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(net of the federal benefit on state tax positions) 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 the Company may request but not compel the trustee to use the 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.The Company recognizes interest and penalties related to income tax matters in interest expense and other expense, respectively. As of September 30, 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 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.

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

	September 30, 2007		December 31, 2006
Receivables from brokers, dealers and clearing organizations:
Contract value of fails to deliver	$	532,396	$	80,837
Balance receivable from clearing organizations	70,041		93,856
Total	$	602,437	$	174,693
Payables to brokers, dealers and clearing organizations:
Contract value of fails to receive	$	478,452	$	72,394
Payable to financial institutions	12,998		12,035
Balance payable to clearing organizations	536		566
Total	$	491,986	$	84,995

4.GOODWILL AND INTANGIBLE ASSET

Changes in the carrying amount of the Company’s goodwill for the nine months ended September 30, 2007 were as follows:

Balance as of December 31, 2006	$	91,891
Goodwill acquired during the period	1,818
Balance as of September 30, 2007	$	93,709

The goodwill acquired during the period was related to an acquisition completed during the first quarter of 2007.

The Company had the following intangible assets as of September 30, 2007 and December 31, 2006:

	September 30, 2007			December 31, 2006
Gross intangible assets
Customer base/relationships	$	13,038		$	12,690
Trade name	4,114			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	23,491			23,010
Accumulated amortization	(10,835		)	(8,177		)
Net intangible assets	$	12,656		$	14,833

Amortization was $817 and $245 for the three months ended September 30, 2007 and 2006, respectively and $2,658 and $867 for the nine months ended September 30, 2007 and 2006, respectively.  At September 30, 2007 expected amortization expense for the definite lived intangible assets is as follows:

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2007 (remaining three months)	$	674
2008	2,698
2009	2,639
2010	2,590
2011	2,383
Total	$	10,984

5.NOTES PAYABLE

The Company had outstanding borrowings under its 2006 Credit Agreement as of September 30, 2007 and December 31, 2006 as follows:

	September 30, 2007		December 31, 2006
Loan Available (1)	$	160,000	$	160,000
Loans Outstanding	$	59,300	$	91,186
Letters of Credit Outstanding	$	7,172	$	6,500

(1)Amounts available include up to $50,000 for letters of credit as of September 30, 2007 and December 31, 2006, respectively.

The weighted average interest rate of the outstanding loans was 6.02% and 5.86% at September 30, 2007 and December 31, 2006, respectively.  At September 30, 2007 and December 31, 2006, notes payable were recorded net of unamortized loan fees of $765 and $933, respectively.

6.TREASURY STOCK

In August 2007, the Company’s Board of Directors (the “Board) authorized the Company to implement a stock repurchase program to repurchase a limited number of shares of the Company’s common stock. Under the repurchase plan, the Board authorized the Company to repurchase shares of the Company’s common stock on the open market in an amount not to exceed, during any calendar year, the number of shares issued upon the exercise of stock options plus the number of shares underlying grants of RSUs that are granted or which management reasonably anticipates will be granted in such calendar year.  As of September 30, 2007, pursuant to this authorization, the Company could purchase up to 1,117,650 additional shares during the remainder of 2007 subject to certain covenant limitations under the 2006 Credit Agreement.

During the third quarter of 2007, the Company repurchased 100,000 shares of common stock on the open market at an average price of $70.73 per share and a total cost of $7,076, including sales commissions.

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These repurchased shares were recorded, at cost, as treasury stock in the Condensed Consolidated Statements of Financial Condition.

7.EARNINGS PER SHARE

Basic and diluted earnings per share for the three months and nine months ended September 30, 2007 and 2006 were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Basic earnings per share
Net income	$	25,903	$	16,590	$	69,650	$	47,669
Weighted average common shares outstanding	29,335,229		28,441,089		29,071,716		28,248,634
Basic earnings per share	$	0.88	$	0.58	$	2.40	$	1.69
Diluted earnings per share
Net income applicable to stockholders	$	25,903	$	16,590	$	69,650	$	47,669
Weighted average common shares outstanding	29,335,229		28,441,089		29,071,716		28,248,634
Effect of dilutive shares:
Options and RSUs	568,467		780,706		659,927		855,652
Weighted average shares outstanding and common stock equivalents	29,903,696		29,221,795		29,731,643		29,104,286
Diluted earnings per share	$	0.87	$	0.57	$	2.34	$	1.64

For the three months ended September 30, 2007 and 2006, respectively, 210,697 and 167,208 RSUs, and for the nine months ended September 30, 2007 and 2006, respectively, 204,940 and 130,674 RSUs, were excluded from the computation of diluted earnings per share because their effect would be anti-dilutive.

8.SHARE-BASED COMPENSATION

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

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

The following is a summary of RSU transactions under the 2004 Equity Incentive Plan during the nine months ended September 30, 2007:

	RSUs		Weighted-Average Grant Date Fair Value
Outstanding December 31, 2006	872,853		$	45.63
Granted	624,375		70.95
Vested	(254,837	)	43.43
Cancelled	(79,762	)	47.62
Outstanding September 30, 2007	1,162,629		$	59.57

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The weighted average grant-date fair value of RSUs granted for the nine months ended September 30, 2007 was $70.95 per unit, compared with $54.81 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 September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Compensation expense	$	5,358	$	2,817	$	14,864	$	7,951
Income tax benefits	2,095		1,813		5,674		3,029

At September 30, 2007, total unrecognized compensation cost related to the RSUs prior to the consideration of expected forfeitures was approximately $58,295 and is expected to be recognized over a weighted-average period of 1.96 years. The total fair value of RSUs vested during the nine months ended September 30, 2007 and 2006 was $11,069 and $4,192, respectively.

As of September 30, 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 nine months ended September 30, 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	(396,233	)	13.91		(205,686	)	11.48
Terminated	(13,158	)	21.00		—		—
Outstanding September 30, 2007	212,270		$	13.22	117,348		$	13.28

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9.COMMITMENTS AND CONTINGENCIES

Operating leases – The Company has non-cancellable operating leases for office space that expire on various dates through 2027.  At September 30, 2007, the future minimum rental commitments under such leases are as follows:

2007 (remaining three months)	$	1,460
2008	12,682
2009	10,390
2010	10,808
2011	10,962
Thereafter	94,143
Total	$	140,445

The preceding table reflects a significant increase in the Company’s future minimum rental commitments since December 31, 2006.  The increase in the future minimum rental commitments is related to a twenty year lease that the Company entered into in June 2007 for premises which will serve as its primary U.S. office space.  At September 30, 2007, the total minimum rental commitments under this lease totaled $93,775, with $5,754 due within one to three years, $8,070 due within three to five years and $79,951 due in more than five years.  See below for further discussion regarding the new U.S. lease and related lease termination for the leased premises that the Company is currently occupying.

In June 2007, the Company decided to vacate its current leased office space in New York in order to move to a new facility in the first half of 2008. The Company signed a new lease for 88,747 square feet in New York for the period from June 2007 through December 2027.

In addition, in June 2007, the Company accelerated the termination of certain leases to June 2008 in accordance with the provisions of the lease agreement that will require the Company to pay a termination charge of $1,684.  As required by FASB 146, Accounting for Costs Associated with Exit or Disposal Activities, the Company recorded this liability at fair value, or $1,591, which will be accreted up to the termination charge of $1,684 over the next four quarters.  The termination charge of $1,684 is included in the future minimum rental commitments above.  The Company also accelerated the depreciable lives of certain assets to be abandoned at its current office space to their estimated useful lives.  Total accelerated depreciation relating to the fixed assets to be abandoned is $4,899 (or approximately $2,940 net of tax), of which $1,507 (or approximately $904 net of tax) was recorded during the nine months ended September 30, 2007 and $1,130 (or approximately $678 net of tax) will be recorded each quarter until June 30, 2008.  Subsequent to September 30, 2007, the Company determined that additional furniture and fixtures at its current office space will be abandoned and accelerated the depreciable lives to their estimated useful lives.  Total accelerated depreciation related to these fixed assets to be abandoned is $703 (or approximately $422 net of tax), of which $234 (or approximately $141 net of tax) will be recorded each quarter until June 30, 2008.

Purchase Obligations—The Company has various unconditional purchase obligations. Certain of these obligations include the purchase of market data from a number of information service providers during the normal course of business. As of September 30, 2007, the Company had total purchase commitments for market data services of approximately $15,586, with $13,065 due within the next twelve months and $2,521 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-outs in the U.S. and Europe of $2,890.  A majority of these purchase commitments are due within the next twelve months.

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Contingencies—In the normal course of business, the Company and certain subsidiaries included in the condensed consolidated financial statements are, and have been in the past, named as defendants in various lawsuits and proceedings and are, and have been in the past, involved in certain regulatory examinations. Additional actions, investigations or proceedings may be brought from time to time in the future. The Company is subject to the possibility of losses from these various contingencies. Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. The Company accrues a liability for the estimated costs of adjudication or settlement of asserted and unasserted claims existing as of the reporting period.

The Company is subject to regular examinations by various tax authorities in jurisdictions in which the Company has significant business operations. The Company regularly assesses the likelihood of additional tax assessments that may result from these examinations in each of the tax jurisdictions. 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.

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.

10.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 nine months ended September 30, 2007.

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11.FINANCIAL INSTRUMENTS

The Company is exposed to market risk associated with movements in foreign currency exchange rates. There have been no material changes to our risk management policy as described in “Note 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 and nine months ended September 30, 2007, the Company had no foreign exchange derivative contracts that were designated as foreign currency cash flow hedges.  During 2006, certain of the Company’s foreign exchange derivative contracts were designated and qualified as foreign currency cash flow hedges under SFAS No. 133.  For the three and nine months ended September 30, 2006, there was no hedge ineffectiveness. Unrealized gains before tax of $1,963 and $1,230 for the three and nine months ended September 30, 2006, respectively, were recorded as other comprehensive income.

The Company’s derivatives are summarized below, showing the fair value of the related assets and liabilities that are included in other assets or other liabilities in the Condensed Consolidated Statements of Financial Condition as of September 30, 2007 and December 31, 2006 as follows:

Asset/(Liabilities)	September 30, 2007			December 31, 2006
Foreign exchange derivative contracts:
Assets	$	631		$	649
Liabilities	(1,475		)	(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.

Included in other liabilities in the Condensed Consolidated Statements of Financial Condition as of September 30, 2007 were $10,817 of liabilities consisting primarily of Brazil government bonds held by the Company and recorded at current market value.  These liabilities settled on October 1, 2007.

12.REGULATORY REQUIREMENTS

GFI Securities LLC is a registered broker-dealer with the SEC and the Financial Industry Regulatory Authority. GFI Securities LLC is also a registered introducing broker with the National Futures Association and the Commodity Futures Trading Commission. Accordingly, GFI Securities LLC is subject to the net capital rules under the Exchange Act and the Commodity Exchange Act. Under these rules, GFI Securities LLC is required to maintain minimum Net Capital, as defined, of not less than the greater of $250 or 2% of aggregate debits, as defined. GFI Brokers Limited and GFI Securities Limited are subject to the capital requirements of the Financial Services Authority in the United Kingdom (“FSA”). GFI (HK) Securities LLC is subject to the capital requirements of the Securities and Futures Commission in Hong Kong, which require that GFI (HK) Securities LLC maintain minimum capital, as defined, of approximately $386.

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The following table sets forth the minimum net capital, as defined, that certain of the Company’s subsidiaries were required to maintain as of September 30, 2007:

	GFI Securities LLC			GFI Brokers Limited			GFI Securities Limited		GFI (HK) Securities LLC
Net Capital	$		60,339	$	38,342		$	42,434	$	567
Minimum Net Capital required	250			11,037			18,120		386
Excess Net Capital	$	60,089		$		27,305	$	24,314	$	181

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 $439). In addition, GFI Securities Limited is required to maintain a capital base of 1,000,000 Japanese Yen (approximately $8,696). 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 September 30, 2007, GFI Securities Limited and its Japanese branch were in compliance with these capital requirements.

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 $644). At September 30, 2007, GFI (HK) Brokers Ltd. had stockholders’ equity of 10,082 Hong Kong dollars (or approximately $1,298), which exceeded the minimum requirement by 5,082 Hong Kong dollars (or approximately $654).

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 September 30, 2007, GFI Korea Money Brokerage Limited met the minimum requirement for paid-in-capital of 5,000,000 Korean Won (or approximately $5,462).

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These regulatory rules may restrict the Company’s ability to withdraw capital from its regulated subsidiaries. The Company’s regulated subsidiaries were in compliance with all minimum net capital requirements as of September 30, 2007.

13.GEOGRAPHIC INFORMATION

The Company offers its products and services in United States, Europe and the Asia-Pacific regions.  At September 30, 2007, the United Kingdom is the only individual foreign country that accounts for more than 10% of total revenues and long-lived assets.

Information regarding revenues for the three and nine months ended September 30, 2007 and 2006, respectively, and information regarding long-lived assets (defined as property, equipment, leasehold improvements and software inventory) in geographic areas as of September 30, 2007 and December 31, 2006, respectively, are as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007		2006
Revenues:
United States	$		103,211	$	76,469	$	312,652	$	246,918
United Kingdom	103,317			86,757		280,966		221,916
Other	48,215			16,732		129,564		84,278
Total	$	254,743		$	179,958	$	723,182	$	553,112

	September 30, 2007		December 31, 2006
Long-lived Assets, as defined:
United States	$	35,569	$	32,158
United Kingdom	12,473		11,953
Other	4,876		3,055
Total	$	52,918	$	47,166

Revenues and long-lived assets are attributed to geographic areas based on the location of the relevant legal entities or branches.

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14.OTHER COMPREHENSIVE INCOME (LOSS)

	Three Months Ended September 30,									Nine Months Ended September 30,
	2007						2006			2007			2006
Unrealized gain (loss) on foreign exchange derivative contracts
Current Period Change:
Before Tax Amount	$				—		$	1,963		$	—		$	1,230
Tax Expense	—						(589		)	—			(369		)
After Tax Amount	$			—			$	1,374		$	—		$	861
Foreign currency translation adjustment
Before Tax Amount	$		(178			)	$	(81	)	$	(104	)	$	197
Tax Benefit (Expense)	102						73			70			(51		)
After Tax Amount	$	(76				)	$	(8	)	(34		)	146

The Company reclassified the following out of other comprehensive income into other income for the three and nine months ended September 30, 2006:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2006		2006
Gross loss	$	710	$	3,401
Net of tax	497		2,381

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

GFI Group Inc.

New York, New York

We have reviewed the accompanying condensed consolidated statement of financial condition of GFI Group Inc. and subsidiaries (the “Company”) as of September 30, 2007, and the related condensed consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2007 and 2006, and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 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

November 8, 2007

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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 contraction of commissions;

•our ability to manage our international operations;

•uncertainties associated with currency fluctuations;

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

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

•uncertainties relating to litigation; and

•changes in the availability of capital.

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

Business Environment

As an inter-dealer broker, our results of operations are impacted by a number of external market factors including market volatility, organic growth of the derivative and other markets in which we provide

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our brokerage services, the particular mix of transactional activity in our various products and the competitive environment in which we operate.  Outlined below are management’s observations of these external market factors during the most recent fiscal period. The factors outlined below are not the only factors that have impacted our results of operations for the most recent fiscal period, and additional or other factors may impact, or have different degrees of impact, on our results of operations in future periods.

Market Volatility

As a general rule, our business benefits from volatility in the markets that we serve, as periods of increased volatility typically coincide with more robust trading by our clients and a higher volume of transactions.  Market volatility is driven by a range of external factors, some of which are market specific and some of which are correlated to general macro-economic conditions.  During the third quarter of 2007, the credit and equity markets experienced general heightened volatility as subprime mortgage and housing market concerns spread to the broader credit and equity markets.  In addition, the Federal Reserve and other central banks injected cash into the global financial system towards the end of the quarter and the Federal Reserve lowered its short-term lending rate a larger than expected 50 basis points.  Interest rate, foreign exchange and commodity markets experienced moderate volatility during the quarter, resulting from inflationary and economic uncertainty and record high oil prices.

Growth in Underlying Markets and New Product Offerings

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

The International Swaps and Derivatives Association released figures in the third quarter of 2007 on notional amounts outstanding in global OTC markets for Mid-Year 2007.  The figures continued to show strong growth in the OTC derivative markets, with credit derivatives growing 75% from $26.0 trillion in June 2006 to $45.5 trillion in June 2007.  Notional amounts outstanding of interest rate and currency derivatives grew by 38% over the same period from $250.8 trillion to $347.1 trillion, while notional amounts of equity derivatives grew by 57% from $6.4 trillion to $10.0 trillion.

Exchange traded derivatives have for several years exhibited generally similar growth rates to those of related OTC derivative markets.  CME Group Inc., the New York Mercantile Exchange and IntercontinentalExchange and International Securities Exchange all reported double digit growth in transactional volumes during the third quarter versus the same period in 2006.  These exchanges offer trading in futures and other products in several categories, including financial, equity and commodity products.  Nevertheless, because there is currently little or no exchange-based trading activity in credit futures, exchange-traded volumes are not an indicator of activity levels of credit products, our largest product segment.

In addition, transactions in second generation credit products, such as loan credit derivatives, have recently been experiencing growth and have been a driver of growth in the overall credit

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derivative market.  New products have also recently been developed for certain wet and dry freight and property derivatives.

Competitive Environment

Another major external market factor affecting our business and results of operations is competition, which may take the form of competitive pressure on the commissions we charge for our brokerage services or competition for brokerage personnel with experience in the specialized markets we serve.  Competition for the services of productive brokers has been intense in recent quarters and during any given period it can become even more competitive.  Management believes that this increased competition for brokerage personnel continued during the third quarter as other inter-dealer brokers sought to bolster their derivative brokerage capabilities.  As a result, compensation and employee benefits as a percentage of revenues will be under pressure, and may increase, in the short term.

Results of Operations

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007		2006			2007		2006
REVENUES:
Brokerage revenues:
Agency commissions	$	198,405	$	138,961		$	562,396	$	406,005
Principal transactions	46,467		34,478			136,888		117,330
Total brokerage revenues	244,872		173,439			699,284		523,335
Analytics and market data	4,855		4,954			14,672		14,419
Contract revenue	11		—			215		5,881
Interest income	2,589		2,150			6,988		6,778
Other income (loss)	2,416		(585		)	2,023		2,699
Total revenues	254,743		179,958			723,182		553,112
EXPENSES:
Compensation and employee benefits	158,845		112,543			453,827		343,089
Communications and market data	11,329		9,799			33,084		26,755
Travel and promotion	9,929		7,069			28,935		23,149
Rent and occupancy	6,439		4,594			17,529		15,048
Depreciation and amortization	6,747		4,338			17,694		12,222
Professional fees	4,459		4,391			12,360		13,755
Clearing fees	8,063		5,884			22,532		18,159
Interest	1,703		1,124			5,554		4,648
Other expenses	4,574		3,098			16,132		10,497
Contract costs	6		—			133		5,180
Lease termination costs to affiliate	—		(93		)	—		(185		)
Total Expenses	212,094		152,747			607,780		472,317
INCOME BEFORE PROVISION FOR INCOME TAXES	42,649		27,211			115,402		80,795
PROVISION FOR INCOME TAXES	16,746		10,621			45,752		33,126
NET INCOME	$	25,903	$	16,590		$	69,650	$	47,669

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
REVENUES:
Brokerage revenues:
Agency commissions	77.9	%	77.2	%	77.8	%	73.4	%
Principal transactions	18.2		19.2		18.9		21.2
Total brokerage revenues	96.1		96.4		96.7		94.6
Analytics and market data	1.9		2.8		2.0		2.6
Contract revenue	0.0		0.0		0.0		1.1
Interest income	1.0		1.2		1.1		1.2
Other income (loss)	0.9		(0.4	)	0.3		0.5
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%
EXPENSES:
Compensation and employee benefits	62.4	%	62.5	%	62.8	%	62.0	%
Communications and market data	4.4		5.4		4.6		4.8
Travel and promotion	3.9		3.9		4.0		4.2
Rent and occupancy	2.5		2.6		2.4		2.7
Depreciation and amortization	2.6		2.4		2.4		2.2
Professional fees	1.8		2.4		1.7		2.5
Clearing fees	3.2		3.3		3.1		3.3
Interest	0.7		0.6		0.8		0.8
Other expenses	1.8		1.7		2.2		1.9
Contract costs	0.0		0.0		0.0		0.9
Lease termination to affiliate	0.0		(0.1	)	0.0		0.0
Total Expenses	83.3	%	84.7	%	84.0	%	85.3	%
INCOME BEFORE PROVISION FOR INCOME TAXES	16.7		15.3		16.0		14.7
PROVISION FOR INCOME TAXES	6.6		5.9		6.3		6.0
NET INCOME	10.2	%	9.4	%	9.6	%	8.7	%

Three Months Ended September 30, 2007 Compared to the Three Months Ended September 30, 2006

Net income for the three months ended September 30, 2007 was $25.9 million as compared to net income of $16.6 million for the three months ended September 30, 2006, an increase of $9.3 million or approximately 56.0%.  Total revenues increased by $74.7 million, or 41.5%, to $254.7 million for the three months ended September 30, 2007 from $180.0 million for the same period from the prior year. Our increased revenues were primarily due to increased brokerage revenues across all product categories, with the most significant dollar increases in credit and equity. This increase in our revenues reflected significant organic growth across credit, financial and equity product categories and significant growth across all geographic regions.  Our total brokerage personnel headcount increased by 194 to a total of 1,021 employees at September 30, 2007 from 827 employees at September 30, 2006. Total expenses increased by $59.4 million, or 38.9%, to $212.1 million for the three months ended September 30, 2007 from $152.7 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 an increase in performance related brokerage bonuses resulting in large part from an increase in our brokerage revenues.

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Revenues

Brokerage Revenues

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

	Three Months Ended September 30,
	2007			2006
BROKERAGE REVENUES:
Credit	$	87,845		$	60,654
Financial	49,298			38,605
Equity	59,155			41,426
Commodity	48,574			32,754
Total brokerage revenues	$	244,872		$	173,439
BROKERAGE REVENUES:
Credit	35.9		%	35.0		%
Financial	20.1			22.2
Equity	24.2			23.9
Commodity	19.8			18.9
Total brokerage revenues	100.0		%	100.0		%

Total brokerage revenues increased by $71.4 million, or 41.2%, to $244.9 million for the three months ended September 30, 2007, as compared to $173.4 million for the three months ended September 30, 2006. Agency commissions increased by $59.5 million, or 42.8%, to $198.4 million for the three months ended September 30, 2007, as compared to $138.9 million for the three months ended September 30, 2006. Principal transactions increased by $11.9 million, or 34.5%, to $46.4 million for the three months ended September 30, 2007 from $34.5 million for the three months ended September 30, 2006. Broker productivity (defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period) increased by approximately 16.7% for the three months ended September 30, 2007, as compared to the same period from the prior year.

The increase in credit product brokerage revenues of $27.2 million in the third quarter of 2007 as compared with the same period in 2006 was due to a number of factors, including credit market volatility related to subprime mortgage market concerns, increased headcount and the continued overall growth of the credit derivatives market, the development of new credit products and the continued success in Europe of CreditMatch®, our credit derivatives and investment grade bond trading platform.  Our credit product brokerage personnel increased by 48 to a total of 275 employees at September 30, 2007, up from 227 employees at September 30, 2006.

The increase in financial product brokerage revenues of $10.7 million in the third quarter of 2007 as compared with the third quarter of 2006 was primarily attributable to growth in emerging market interest rate and currency derivatives in Europe and Asia and the continued introduction of ForexMatch™, our foreign exchange trading platform.  Our financial product brokerage personnel increased by 12 to a total of 271 employees at September 30, 2007, up from 259 employees at September 30, 2006.

The increase in equity product brokerage revenues of $17.7 million in the third quarter of 2007 as compared with the same period in 2006 was primarily due to the continued growth of our Paris office, which specializes in cash equities and equity derivatives, as well as our equity derivatives business in the U.K. and the U.S., and our cash equities business in the U.S.  Market volatility caused by mortgage market concerns also contributed to the increase in equity product brokerage revenues.  Our equity product brokerage personnel increased by 30 to a total of 201 employees at September 30, 2007, up from 171 employees at September 30, 2006.

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The increase in commodity product brokerage revenues of $15.8 million in the third quarter of 2007 as compared with the third quarter of 2006 was primarily attributable to the addition of our Amerex brokerage business. In addition, growth in European dry physical freight and dry freight derivatives also contributed to the increase in overall commodity revenues. Our commodity product brokerage personnel increased by 105 to a total of 275 employees at September 30, 2007, up from 170 employees at September 30, 2006.

Analytics and Market Data

Revenues from our analytics and market data products remained consistent at $4.9 million for each of the three month periods ended September 30, 2007 and 2006. Revenues from analytics and market data for the three months ended September 30, 2007 primarily consisted of revenue generated from subscription fees.

Interest Income

Interest income increased by $0.4 million, or 18.2%, to $2.6 million for the three months ended September 30, 2007, as compared to $2.2 million for the three months ended September 30, 2006. The increase was mainly attributable to the increase in interest income attributable to the higher level of cash balances in the U.S. which was partially offset by a decrease in interest income due to lower balances on the clearing accounts.

Other Income (Loss)

Other income increased by $3.0 million, or 513.0 %, to $2.4 million for the three months ended September 30, 2007 from a loss of $0.6 million for the three months ended September 30, 2006. Other income (loss) for the three months ended September 30, 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 $46.3 million, or 41.2%, to $158.8 million for the three months ended September 30, 2007 from $112.5 million for the three months ended September 30, 2006. The increase was primarily due to an increase in the number of brokerage personnel from 827 employees at September 30, 2006 to 1,021 employees at September 30, 2007 and an increase in brokerage personnel performance bonuses of $28.1 million resulting in large part from the increase in our brokerage revenues.

Total compensation and employee benefits as a percentage of total revenues decreased slightly to 62.4 % at September 30, 2007 from 62.5% at September 30, 2006. Bonus expense represented 56.2 % and 51.7% of total compensation and employee benefits expense for the three months ended September 30, 2007 and 2006, respectively. A portion of our bonus expense is subject to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period. Additionally, sign-on bonus expense, which includes the amortization of sign-on bonuses initially made in prior periods, represented 4.0% and 5.1% of total compensation and employee benefits for the three months ended September 30, 2007 and 2006, respectively.

Our compensation and employee benefits as a percentage of our revenues are relatively stable.  However, certain of our competitors are offering significant compensation packages to attract our brokers.  As a result, compensation and employee benefits as a percentage of revenues will be under pressure, and may increase in the short term.   We believe that an increase in the use of our hybrid electronic brokerage systems and pressure on our competitors to rationalize the increase in their compensation expense should eventually lessen the effect of the competitive pressure on compensation expense.

Communications and Market Data

Communications and market data increased by $1.5 million, or 15.3%, to $11.3 million for the three months ended September 30, 2007 from $9.8 million from the three months ended September 30, 2006. The increase was

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primarily attributable to the increase of brokerage personnel in those areas, such as equities, that rely more heavily on market data systems.

Travel and Promotion

Travel and promotion increased by $2.8 million, or 39.4%, to $9.9 million for the three months ended September 30, 2007 from $7.1 million for the three months ended September 30, 2006. This expense, as a percentage of our total brokerage revenues remained consistent at 4.1% for the three months ended September 30, 2007 and 2006.

Rent and Occupancy

Rent and occupancy increased by $1.8 million, or 39.1%, to $6.4 million for the three months ended September 30, 2007 from $4.6 million for the three months ended September 30, 2006.  The increase was primarily due to the increase in rent expense relating to the Company’s new primary office lease in New York, as well as an increase in repairs and maintenance expense from our current leased facilities.  We expect rent and occupancy will continue to increase in the future as a result of new leases for office space, including the new lease in New York.  See Note 9 to the Condensed Consolidated Financial Statements for further discussion of the U.S. lease.

Depreciation and Amortization

Depreciation and amortization increased by $2.4 million, or 55.8%, to $6.7 million for the three months ended September 30, 2007 from $4.3 million for the three months ended September 30, 2006. The increase was primarily due to the $1.1 million of accelerated depreciation related to certain long-lived assets to be abandoned at our current office space in New York and amortization expense of intangibles resulting from the acquisition of the Amerex brokerage business.  See Note 9 to the Condensed Consolidated Financial Statements for further discussion of the U.S. lease.

Professional Fees

Professional fees increased by $0.2 million, or 4.7% to $4.5 million for the three months ended September 30, 2007 from $4.3 million for the three months ended September 30, 2006. The increase was partially due to an increase in legal, audit and tax fees, which was partially offset by 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 $2.2 million, or 37.3%, to $8.1 million for the three months ended September 30, 2007 from $5.9 million for the three months ended September 30, 2006. This increase was partially due to the growth of brokerage revenues from our Paris equities business.  Clearing fees, as a percentage of our total revenues from principal transactions increased slightly to 17.4% for the three months ended September 30, 2007 from 17.0% for the comparable period in the prior year.  Principal transactions are generally settled through third party clearing organizations that charge us a fee for their services. We also use the services of stock exchanges and floor brokers to assist in the execution of transactions. Fees paid to floor brokers and execution fees paid to exchanges in these circumstances are included in clearing fees.   In addition, clearing fees also includes fees incurred in certain equity transaction executed on an agency basis.

Interest Expense

Interest expense increased by $0.6 million, or 54.5%, to $1.7 million for the three months ended September 30, 2007 from $1.1 million for the three months ended September 30, 2006.  The increase was mainly attributable to the increase in interest expense under our credit facility due to the higher level of outstanding borrowings during the three months ended September 30, 2007, which was partially offset by a decrease in interest expense on our clearing accounts for the three months ended September 30, 2007 compared to the same period from the

29

prior year.  Included in interest expense for the three months ended September 30, 2007 is $0.8 million of interest on outstanding borrowings incurred to purchase the Amerex brokerage business in October 2006.

Other Expenses

Other expenses increased by $1.5 million, or 48.4%, to $4.6 million for the three months ended September 30, 2007 from $3.1 million for the three months ended September 30, 2006.  The increase was primarily due to an increase in irrecoverable Value Added Tax related to increased purchases in communications and market data in Europe, an increase in expense related to license fees to third-party software vendors and a charge in connection with newly hired brokerage personnel to buy-out their employment contracts from their former employers.

Provision for Income Taxes

Our provision for income taxes totaled $16.7 million for the three months ended September 30, 2007 compared to $10.6 million for the three months ended September 30, 2006. Our effective tax rate remained consistent at 39% for the three months ended September 30, 2007 and 2006. A decrease in state and local income taxes was offset by an increase in taxes related to foreign operations.  The reduction in state and local taxes was due, in part, to lower state tax rates and the geographic mix of our earnings.

Nine Months Ended September 30, 2007 Compared to the Nine Months Ended September 30, 2006

Net income for the nine months ended September 30, 2007 was $69.7 million as compared to net income of $47.7 million for the nine months ended September 30, 2006, an increase of $22.0 million or approximately 46.1%.  Total revenues increased by $170.1 million, or 30.8% to $723.2 million for the nine months ended September 30, 2007 from $553.1 million for the same period from the prior year. Our increased revenues were primarily due to increased brokerage revenues across all product categories, with the most significant dollar increases in credit and commodities. Commodities revenues include revenues from the Amerex Energy operation which we acquired in October 2006.  This increase in our revenues included significant organic growth across all product categories and geographic regions.  Our total brokerage personnel headcount increased by 194 to a total of 1,021 employees at September 30, 2007 from 827 employees at September 30, 2006. Total expenses increased by $135.5 million, or 28.7%, to $607.8 million for the nine months ended September 30, 2007 from $472.3 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 an increase in performance related brokerage bonuses resulting in large part from an increase in our brokerage revenues.

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Revenues

Brokerage Revenues

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

	Nine Months Ended September 30,
	2007			2006
BROKERAGE REVENUES:
Credit	$	245,092		$	191,765
Financial	140,164			117,035
Equity	168,822			128,994
Commodity	145,206			85,541
Total brokerage revenues	$	699,284		$	523,335
BROKERAGE REVENUES:
Credit	35.1		%	36.6		%
Financial	20.0			22.4
Equity	24.1			24.6
Commodity	20.8			16.4
Total brokerage revenues	100.0		%	100.0		%

Total brokerage revenues increased by $175.9 million, or 33.6%, to $699.2 million for the nine months ended September 30, 2007, as compared to $523.3 million for the nine months ended September 30, 2006. Agency commissions increased by $156.4 million, or 38.5%, to $562.4 million for the nine months ended September 30, 2007, as compared to $406.0 million for the nine months ended September 30, 2006. Principal transactions increased by $19.6 million, or 16.7%, to $136.9 million for the nine months ended September 30, 2007 from $117.3 million for the nine months ended September 30, 2006. Broker productivity (defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period) increased by approximately 10.2% for the nine months ended September 30, 2007, as compared to the same period from the prior year.

The increase in credit product brokerage revenues of $53.3 million for the nine months ended September 30, 2007 as compared with the same period of 2006 was due to a number of factors, including credit and equity market volatility related to subprime mortgage market and global economic concerns, increased headcount and the continued overall growth in the credit derivatives market, the development of new credit products and the continued success in Europe of CreditMatch®.  Our credit product brokerage personnel increased by 48 to a total of 275 employees at September 30, 2007, up from 227 employees at September 30, 2006.

The increase in financial product brokerage revenues of $23.1 million for the nine months ended September 30, 2007 as compared with the same period of 2006 was primarily attributable to growth in emerging market interest rate and currency derivatives in Europe and Asia.  Our financial product brokerage personnel increased by 12 to a total of 271 employees at September 30, 2007, up from 259 employees at September 30, 2006.

The increase in equity product brokerage revenues of $39.8 million for the nine months ended September 30, 2007 as compared with the same period of 2006 was primarily due the growth of our Paris office, which specializes in cash equities and equity derivatives, as well as the growth of our global equity derivatives and U.S. cash equities businesses.  Our equity product brokerage personnel increased by 30 to 201 employees at September 30, 2007, up from 171 employees at September 30, 2006

The increase in commodity product brokerage revenues of $59.7 million for the nine months ended September 30, 2007 as compared with the same period in 2006 was primarily attributable to the addition of our Amerex brokerage business.   In addition, significant growth in European energy products, including dry freight

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derivatives, dry physical freight, electricity and emissions, contributed to the increase in commodity and brokerage revenues over the first nine months of 2007.  Our commodity product brokerage personnel increased by 105 to a total of 275 employees at September 30, 2007, up from 170 employees at September 30, 2006.

Analytics and Market Data

Revenues from our analytics and market data products increased by $0.3 million, or 2.1%, to $14.7 million for the nine months ended September 30, 2007 as compared to $14.4 million for the nine months ended September 30, 2006. The increase was primarily due to an increase in subscription and maintenance fees, which was partially offset by a decrease in update fees associated with the licensing of analytical software.

Contract Revenue

For the nine months ended September 30, 2006, contract revenue consisted primarily of revenues recognized upon completion of a long-term contract pursuant to which we developed an online foreign exchange currency trading system and customized it for a customer.   For the nine months ended September 30, 2007, contract revenue represents additional work provided to the customer on a time and material basis.

Interest Income

Interest income increased by $0.2 million, or 2.9%, to $7.0 million for the nine months ended September 30, 2007, as compared to $6.8 million for the nine months ended September 30, 2006. The increase was mainly attributable to the increase in interest income from the higher level of cash balances, which was offset by the decrease in interest income due to lower balance on the clearing accounts.

Other Income (Loss)

Other income (loss) decreased by $0.7 million, or 25.9%, to $2.0 million for the nine months ended September 30, 2007 from income of $2.7 million for the nine months ended September 30, 2006. Other income (loss) for the nine months ended September 30, 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 $110.7 million, or 32.3%, to $453.8 million for the nine months ended September 30, 2007 from $343.1 million for the nine months ended September 30, 2006. The increase was primarily due to an increase in the number of brokerage personnel from 827 employees at September 30, 2006 to 1,021 employees at September 30, 2007 and an increase in brokerage personnel performance bonuses of $52.9 million resulting in large part from the increase in our brokerage revenues.

Total compensation and employee benefits as a percentage of total revenues increased to 62.8% at September 30, 2007 from 62.0% at September 30, 2006. Bonus expense represented 53.6% and 53.4% of total compensation and employee benefits expense for the nine months ended September 30, 2007 and 2006, respectively. A portion of our bonus expense is subject to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period. Additionally, sign-on bonus expense, which includes the amortization of sign-on bonuses initially made in prior periods, represented 4.1% and 5.4% of total compensation and employee benefits for the nine months ended September 30, 2007 and 2006, respectively.

Our compensation and employee benefits are relatively stable as a percentage of our revenues.  However, certain of our competitors are offering significant compensation packages to attract our brokers.  As a result, compensation and employee benefits as a percentage of revenues will be under pressure, and may increase, in the short term.   We believe that an increase in the use of our hybrid electronic brokerage systems and pressure on

32

our competitors to rationalize the increase in their compensation expense should eventually lessen the effect of the competitive pressure on compensation expense.

Communications and Market Data

Communications and market data increased by $6.3 million, or 23.5%, to $33.1 million for the nine months ended September 30, 2007 from $26.8 million from the nine months ended September 30, 2006. The increase was primarily attributable to the increase in 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 $5.7 million, or 24.6%, to $28.9 million for the nine months ended September 30, 2007 from $23.2 million for the nine months ended September 30, 2006. This expense, as a percentage of our total brokerage revenues for the nine months ended September 30, 2007 decreased to 4.1% from 4.4% for the same period from the prior year. This decrease was primarily due to our continuing efforts to lower these costs relative to our total brokerage revenues.

Rent and Occupancy

Rent and occupancy increased by $2.5 million, or 16.7%, to $17.5 million for the nine months ended September 30, 2007 from $15.0 million for the nine months ended September 30, 2006.  The increase was primarily due to the increase in repairs and maintenance and an increase in rent expense relating to our new primary office space in the U.S., which was offset by a decrease in insurance, from our current leased facilities.  We expect the rent and occupancy will continue to increase in the future as a result of new leases for office space, including the new lease in New York.  See Note 9 to the Condensed Consolidated Financial Statements for further discussion of the U.S. lease.

Depreciation and Amortization

Depreciation and amortization increased by $5.5 million, 45.1%, to $17.7 million for the nine months ended September 30, 2007 from $12.2 million for the nine months ended September 30, 2006. The increase was primarily due to the $1.5 million of accelerated depreciation related to certain long-lived assets to be abandoned at our current offie space in New York and amortization expense of intangibles resulting from the acquisition of the Amerex brokerage business.  See Note 9 to the Condensed Consolidated Financial Statements for further discussion of the U.S. lease.

Professional Fees

Professional fees decreased by $1.4 million, or 10.1% to $12.4 million for the nine months ended September 30, 2007 from $13.8 million for the nine months ended September 30, 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, which was partially offset by an increase in legal and audit fees.

Clearing Fees

Clearing fees increased by $4.3 million, or 23.6%, to $22.5 million for the nine months ended September 30, 2007 from $18.2 million for the nine months ended September 30, 2006. This increase was partially due to the growth of brokerage revenues from our Paris equities business.  Clearing fees, as a percentage of our total revenues from principal transactions increased to 16.5% for the nine months ended September 30, 2007 from 15.5% for the comparable period in the prior year.   This increase was partially due to the high cost of clearing fees as a result of the higher number and types of transactions executed in our Paris office.  Principal transactions are generally settled through third party clearing organizations that charge us a fee for their services. We also use the services of stock exchanges and floor brokers, to assist in the execution of transactions. Fees paid to floor

33

brokers and execution fees paid to exchanges in these circumstances are included in clearing fees.   In addition, clearing fees also includes fees incurred in certain equity transaction executed on an agency basis.

Interest Expense

Interest expense increased by $1.0 million, or 21.7%, to $5.6 million for the nine months ended September 30, 2007 from $4.6 million for the nine months ended September 30, 2006.  The increase was mainly attributable to the increase in interest expense under our credit facility due to the higher level of outstanding borrowings during the nine months ended September 30, 2007, which was partially offset by a decrease in interest expense on our clearing accounts for the nine months ended September 30, 2007 compared to the same period from the prior year.  Included in interest expense for the nine months ended September 30, 2007 is $2.5 million of interest on outstanding borrowings incurred to purchase the Amerex brokerage business in October 2006.

Other Expenses

Other expenses increased by $5.6 million, or 53.3%, to $16.1 million for the nine months ended September 30, 2007 from $10.5 million for the nine months ended September 30, 2006. Included in other expenses for the nine months ended September 30, 2007 is a $1.7 million termination fee that will be incurred due to our decision to terminate our primary office lease in New York.  See Note 9 to the Condensed Consolidated Financial Statements for further discussion on the lease termination.  The remaining increase was primarily due to an increase in irrecoverable Value Added Tax related to increased purchases for communications and market data in Europe and license fees to third-party software vendors.

Contract Costs

For the nine months ended September 30, 2006, contract costs consisted primarily of costs incurred upon completion of a long-term contract pursuant to which we developed an online foreign exchange currency trading system and customized it for a customer.   For the nine months ended September 30, 2007, contract costs represent additional costs incurred from the additional work provided to the customer on a time and material basis.

Provision for Income Taxes

Our provision for income taxes totaled $45.8 million for the nine months ended September 30, 2007 compared to $33.1 million for the nine months ended September 30, 2006. Our effective tax rate was approximately 40% for the nine months ended September 30, 2007 as compared to 41% 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 an increase in business tax credits.  The reduction in state, local and foreign taxes was due, in part, to lower state tax rates and the geographic mix of our earnings.

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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 October 1, 2005 to September 30, 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.

	September 30, 2007		June 30, 2007			March 31, 2007			December 31, 2006			September 30, 2006			June 30, 2006			March 31, 2006		December 31, 2005
	(In thousands)
Revenues
Brokerage revenues:
Agency commissions	$	198,405	$	179,466		$	184,525		$	151,890		$	138,961		$	130,134		$	136,910	$	104,335
Principal transactions	46,467		42,044			48,377			33,890			34,478			41,792			41,060		31,250
Total brokerage revenues	244,872		221,510			232,902			185,780			173,439			171,926			177,970		135,585
Analytics and market data	4,855		4,491			5,326			4,232			4,954			4,271			5,194		3,388
Contract revenue	11		204			——			1,092			—			5,881			—		—
Interest income	2,589		2,297			2,102			2,366			2,150			2,395			2,233		1,458
Other income (loss)	2,416		(380		)	(13		)	601			(585		)	3,093			191		(145		)
Total revenues	254,743		228,122			240,317			194,071			179,958			187,566			185,588		140,286
Expenses
Compensation and employee benefits	158,845		143,474			151,508			122,465			112,543			113,701			116,845		89,511
Communications and market data	11,329		11,299			10,456			10,545			9,799			9,303			7,653		7,064
Travel and promotion	9,929		10,170			8,836			9,242			7,069			8,549			7,531		7,017
Rent and occupancy	6,439		5,529			5,561			5,511			4,594			4,841			5,613		3,447
Depreciation and amortization	6,747		5,720			5,227			6,799			4,338			4,048			3,836		4,159
Professional fees	4,459		4,332			3,569			5,397			4,391			5,320			4,044		2,507
Clearing fees	8,063		6,940			7,529			6,312			5,884			6,798			5,477		3,858
Interest	1,703		2,002			1,849			2,170			1,124			1,772			1,752		1,016
Other expenses	4,574		6,909			4,649			4,046			3,098			3,843			3,556		1,855
Contract costs	6		127			—			639			—			5,180			—		—
Lease termination costs to affiliate	—		—			—			(57		)	(93		)	(92		)	—		1,070
Total expenses	212,094		196,502			199,184			173,069			152,747			163,263			156,307		121,504
Income before provision for taxes	42,649		31,620			41,133			21,002			27,211			24,303			29,281		18,782
Provision for income taxes	16,746		12,553			16,453			7,593			10,621			10,207			12,298		7,363
Net income	$	25,903	$	19,067		$	24,680		$	13,409		$	16,590		$	14,096		$	16,983	$	11,419

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

	September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,		December 31,
	2007		2007		2007		2006		2006		2006		2006		2005
Revenues
Brokerage revenues:
Agency commissions	77.9	%	78.7	%	76.8	%	78.2	%	77.2	%	69.4	%	73.8	%	74.4	%
Principal transactions	18.2		18.4		20.1		17.5		19.2		22.3		22.1		22.3
Total brokerage revenues	96.1		97.1		96.9		95.7		96.4		91.7		95.9		96.7
Analytics and market data	1.9		2.0		2.2		2.2		2.8		2.3		2.8		2.4
Contract revenue	0.0		0.1		—		0.6		—		3.1		—		—
Interest income	1.0		1.0		0.9		1.2		1.2		1.3		1.2		1.0
Other income (loss)	0.9		(0.2	)	—		0.3		(0.4	)	1.6		0.1		(0.1	)
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Expenses
Compensation and employee benefits	62.4	%	62.9	%	63.0	%	62.5	%	62.5	%	60.6	%	63.0	%	63.8	%
Communications and market data	4.4		5.0		4.4		5.4		5.4		5.0		4.1		5.0
Travel and promotion	3.9		4.5		3.7		4.8		3.9		4.6		4.1		5.0
Rent and occupancy	2.5		2.4		2.3		2.8		2.6		2.6		3.0		2.5
Depreciation and amortization	2.6		2.5		2.2		3.5		2.4		2.2		2.1		3.0
Professional fees	1.8		1.9		1.5		2.8		2.4		2.8		2.2		1.8
Clearing fees	3.2		3.0		3.1		3.3		3.3		3.6		3.0		2.8
Interest	0.7		0.9		0.8		1.1		0.6		0.9		0.9		0.7
Other expenses	1.8		3.1		1.9		2.1		1.7		2.0		1.9		1.3
Contract costs	—		0.1		—		0.3		—		2.8		—		—
Lease termination costs to affiliate	—		—		—		—		(0.1	)	—		—		0.8
Total expenses	83.3	%	86.1	%		%	89.2	%	84.7	%	87.1	%	84.3	%	86.7	%
Income before provision for taxes	16.7		13.9		17.1		10.8		15.3		12.9		15.7		13.3
Provision for income taxes	6.6		5.5		6.8		3.9		5.9		5.4		6.6		5.2
Net income	10.2	%	8.4	%	10.3	%	6.9	%	9.4	%	7.5	%	9.1	%	8.1	%

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.

	September 30, 2007			June 30, 2007			March 31, 2007			December 31, 2006			September 30, 2006			June 30, 2006			March 31, 2006			December 31, 2005
	(in thousands)
Brokerage Revenues:
Credit	$	87,845		$	72,436		$	84,811		$	61,032		$	60,654		$	59,838		$	71,273		$	55,443
Financial	49,298			45,865			45,001			39,232			38,605			38,942			39,488			29,213
Equity	59,155			53,284			56,383			44,940			41,426			46,109			41,459			29,931
Commodity	48,574			49,925			46,707			40,576			32,754			27,037			25,750			20,998
Total brokerage revenues	$	244,872		$	221,510		$	232,902		$	185,780		$	173,439		$	171,926		$	177,970		$	135,585
Brokerage Revenues:
Credit	35.9		%	32.7		%	36.4		%	32.9		%	35.0		%	34.8		%	40.0		%	40.9		%
Financial	20.1			20.7			19.3			21.1			22.2			22.7			22.2			21.5
Equity	24.2			24.1			24.2			24.2			23.9			26.8			23.3			22.1
Commodity	19.8			22.5			20.1			21.8			18.9			15.7			14.5			15.5
Total brokerage revenues	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%

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Liquidity and Capital Resources

Net cash provided by operations increased to $74.8 million for the nine months ended September 30, 2007, compared with $32.8 million used for operations for the nine months ended September 30, 2006. The improvement is primarily related to our increased net income and the increase in certain non-cash items such as deferred compensation expense and the provision for deferred taxes.  Additionally, the increase is partially due to the improvement in certain working capital items such as other liabilities and the net receivable/payables to brokers, dealers and clearing organizations, which was partially offset by an increase in accrued commissions receivable.  The increase in accrued commissions receivable balance is related to an increase in agency commission revenue, which increased by approximately 39% for the nine months ended September 30, 2007 as compared to the same period in the prior year.  In addition, there was no change in the average number of days to collect receivables over the same period from the prior year.

Net cash used in investing activities for the nine months ended September 30, 2007 was $26.9 million compared to $15.7 million used in the nine months ended September 30, 2006. The increase in cash used for investing activities was primarily due to an increase in payments on foreign exchange derivative contracts and cash used for the acquisition of Century Chartering (U.K.) Limited.  Additionally, the increase in cash used in investing activities was due to increased capital expenditure resulting from an increase in the purchase of computer equipment, leasehold improvements, communication equipment and our continued investment in the development of trading systems and other software for internal use.

Net cash used in financing activities for the nine months ended September 30, 2007 was $20.5 million compared to $0.5 million provided by for the nine months ended September 30, 2006. The increase in cash used for financing activities was due to cash used for repurchases of common stock and higher net repayments under our 2006 Credit Agreement, which was offset by an increase in cash received from stock options exercises and tax benefits related to share-based compensation.

Our liquidity and available cash resources are in part restricted by the regulatory requirements of our operating subsidiaries, including GFI Securities LLC, GFI Securities Limited, GFI Brokers Limited, GFI (HK) Securities LLC, GFI (HK) Brokers Ltd., GFI Group Pte Ltd and GFI Korea Money Brokerage Limited. GFI Securities LLC is subject to regulatory capital requirements under the Exchange Act and the Commodity Exchange Act. GFI Securities Limited and GFI Brokers Limited are subject to the regulated capital requirements of the FSA. GFI (HK) Securities LLC is subject to the regulated capital requirements of the Securities and Futures Commission in Hong Kong. GFI (HK) Brokers Ltd. is subject to regulatory compliance requirements under the Monetary Authority of Hong Kong. GFI Group PTE Ltd. is subject to the regulatory compliance requirements with the Monetary Authority of Singapore. GFI Korea Money Brokerage Limited is subject to the regulated capital requirements of the Ministry of Finance and Economy of South Korea. At September 30, 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 12 to our Condensed Consolidated Financial Statements for a further discussion of these regulatory requirements.

In June 2007, we signed a new lease which will serve as our primary U.S. office space.  The new office space is in its early stages of build out.  We anticipate that the aggregate cost of the build out of the new office space and relocation costs will be approximately $30.0 million of which $1.3 million was paid through September 30, 2007.  In addition, as of September 30, 2007, we had purchase commitments related to this build out of approximately $2.7 million which is expected to be paid during the fourth quarter of 2007 and is included in our Contractual Obligations and Commitments below.  Further, subsequent to the quarter-end, we have committed an additional $14.9 million, which is expected to be paid over the next year.

It is our expectation that from time to time we may purchase additional shares of our common stock on the open market in accordance with a stock repurchase program authorized by the Board.  See Note 6 to our Condensed Consolidated Financial Statements for further discussion of the stock repurchase program.

We believe that, based on current levels of operations and anticipated growth, our cash from operations, together with cash currently available and the available borrowings under our 2006 Credit Agreement, will be

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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.

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Contractual Obligations and Commitments

The following table summarizes certain of our contractual obligations as of September 30, 2007:

			Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in thousands)
Contractual Obligations
Operating Leases(1)	$	140,444	$	8,847	$	21,331	$	21,057	$	89,209
Notes Payable (2)	59,300		59,300		—		—		—
Purchase Obligations(3)	18,476		15,955		2,521		—		—
Total	$	218,220	$	84,102	$	23,852	$	21,057	$	89,209

(1)Amounts listed under Operating Leases include the future minimum rental commitments relating to a twenty-year lease that the Company entered into for its current primary U.S. office space in June 2007. At September 30, 2007, the total minimum rental commitments under this lease total $93,775, with $5,754 due within one to three years, $8,070 due within three to five years and $79,951 due in more than five years.  Additionally, amounts listed under Operating Leases include $1,684 to be paid in June 2008 to terminate certain leases for office space in New York.  See Note 9 to our Condensed Consolidated Financial Statements for further discussion.

(2)Amount listed under Notes Payable represents outstanding borrowings under our Credit Facility and vary from the notes payable reflected in our financial statements because our financial statements reflect the total debt net of unamortized loan fees.   See Note 5 to the Condensed Consolidated Financial Statements for further information.

(3)Amounts listed under Purchase Obligations include agreements for quotes with various information service providers. Additionally, it includes purchase commitments of $2,890 for capital expenditures relating to the purchase of certain software in Europe and office build-outs in the U.S. and Europe.  See Note 9 to our Condensed Consolidated Financial Statements for further discussion.

As disclosed in Note 2 of the Condensed Consolidated Financial Statements, we have unrecognized tax benefits of approximately $7.7 million (net of the federal benefit on state issues) after recognizing the impact of the adoption of FIN 48.  Due to the uncertainty of the amounts to be ultimately paid as well as the timing of such payments, all FIN 48 liabilities which have not been paid have been excluded from the Contractual Obligations and Commitments table.

Off-Balance Sheet Arrangements

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

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Financial Statements conform in all material respects to generally accepted accounting principles in the United States of America.

Recent Accounting Pronouncements

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 tax positions) were approximately $7.7 million, 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 were deductible by us in prior years.  A portion of the compensation payment is held by a trustee and we may request but not compel the trustee to use the money to offset the cost to us 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. We recognize interest and penalties related to income tax matters in interest expense and other expense respectively. As of June 30, 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 currently 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 nine months ended September 30, 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 nine months ended September 30, 2007.

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While our international results of operations, as measured in U.S. dollars, are subject to foreign exchange rate fluctuations, we do not consider the related risk to be material to our results of operations. If the Euro strengthened by 10% against the U.S. Dollar and the U.S. Dollar strengthened by 10% against the British Pound, the net impact to our net income would have been a reduction of approximately $1.6 million.

ITEM 4.CONTROLS AND PROCEDURES

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

In addition, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) and determined that there have been no changes in our internal controls over financial reporting during the most recent fiscal quarter of 2007 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

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

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

ITEM 1A.RISK FACTORS

There have been no material changes in our risk factors from those disclosed in the 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

The table below sets forth the information with respect to purchases made by the Company of its common stock during the quarterly period ended September 30, 2007.

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Issuer Purchases of Equity Securities

(dollars in millions, except per share amounts)

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs (C)	Approximate  Number of Shares that May Yet Be Purchased Under the Plans or Programs
July
Stock Repurchase Program (a)	N/A	N/A		N/A	906,709
Employee Transactions (b)	4,556	$	74.52	N/A	N/A
August
Stock Repurchase Program (a)	100,000	$	70.73	100,000	960,977
Employee Transactions (b)	5,550	$	74.00	N/A	N/A
September
Stock Repurchase Program (a)	N/A	N/A		N/A	1,117,650
Employee Transactions (b)	21,871	$	84.62	N/A	N/A
Total
Stock Repurchase Program (a)	100,000	$	70.76	100,000	1,117,650
Employee Transactions (b)	31,977	$	81.34	N/A	N/A

(a)  In August 2007, the Board authorized the Company to implement a stock repurchase program to repurchase a limited number of shares of the Company’s common stock on the open market. Under the repurchase plan, the Board authorized the Company to repurchase shares of common shares on the open market in an amount not to exceed, during any calendar year, the number of shares issued upon the exercise of stock options plus the number of shares underlying grants of RSUs that are granted or which management reasonably anticipates will be granted in such calendar year.  Any repurchases are also subject to compliance with certain covenants under the 2006 Credit Agreement.

(b)  Under our 2004 Equity Incentive Plan, we allow employees to elect to have us withhold shares of common stock to satisfy minimum statutory tax withholding obligations arising on the vesting and settlement of restricted stock units. When we withhold these shares, we are required to remit to the appropriate taxing authorities the market price of the shares withheld, which could be deemed a purchase of the shares of common stock by us on the date of withholding. During the quarter ended September 30, 2007, we withheld shares of common stock to satisfy tax withholding obligations.

ITEM 6.EXHIBITS

Exhibits:

Exhibit No.	Description
15	Letter re: Unaudited Interim Financial Information
31.1	Certification of Principal Executive Officer.
31.2	Certification of Principal Financial Officer.
32.1	Written Statement of Chief Executive Officer Pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2	Written Statement of Chief Financial Officer Pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 to be signed on its behalf by the undersigned, thereunto duly authorized, on the 8th day of November, 2007

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

43

Exhibit Index

Exhibit No.	Description
15	Letter re: Unaudited Interim Financial Information
31.1	Certification of Principal Executive Officer.
31.2	Certification of Principal Financial Officer.
32.1	Written Statement of Chief Executive Officer Pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2	Written Statement of Chief Financial Officer Pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

44