Gfi (GFIG) 10-Q 2011 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, 2011

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.)
55 Water Street, New York, NY	10041
(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES x     NO o

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

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

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, 2011 was 119,336,435.

Table of Contents

Part I—Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Statements of Financial Condition as of September 30, 2011 and December 31, 2010
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and September 30, 2010
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2011 and September 30, 2010
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and September 30, 2010
	Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
Part II—Other Information
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.	Exhibits

2

Available Information

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

In addition, you may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E., Room 1580, Washington D.C. 20549. You also may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains our reports, proxy and information statements, and other information regarding the Company that we file electronically with the SEC at http://www.sec.gov.

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

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

3

PART I—FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

GFI GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)

(In thousands, except share and per share amounts)

	September 30,2011			December 31,2010
Assets
Cash and cash equivalents	$	252,505		$	313,875
Cash segregated under federal and other regulations	10,013			24,927
Deposits with clearing organizations	29,338			26,845
Commissions receivable, net of allowance for doubtful accounts of $1,546 and $1,591 at September 30, 2011 and December 31, 2010, respectively	120,548			103,010
Receivables from brokers, dealers and clearing organizations	1,082,040			243,811
Property, equipment and leasehold improvements, net of accumulated depreciation and amortization of $146,072 and $130,479 at September 30, 2011 and December 31, 2010, respectively	61,630			60,612
Goodwill	266,655			268,288
Intangible assets, net	61,031			66,816
Other assets	214,390			162,840
TOTAL ASSETS	$	2,098,150		$	1,271,024
Liabilities and stockholders’ equity
LIABILITIES
Accrued compensation	$	100,640		$	112,535
Accounts payable and accrued expenses	62,977			64,672
Payables to brokers, dealers and clearing organizations	737,164			172,418
Payables to clearing services customers	324,862			125,968
Short-term borrowings, net	—			132,703
Long-term obligations, net	250,000			59,743
Other liabilities	143,366			111,163
Total Liabilities	$	1,619,009		$	779,202
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; 5,000,000 shares authorized, none outstanding at September 30, 2011 and December 31, 2010	—			—
Common stock, $0.01 par value; 400,000,000 shares authorized; 131,188,195 and 128,703,324 shares issued at September 30, 2011 and December 31, 2010, respectively	1,312			1,287
Additional paid in capital	361,519			350,230
Retained earnings	183,718			183,016
Treasury stock, 12,009,746 and 6,577,833 shares of common stock at cost, at September 30, 2011 and December 31, 2010, respectively	(65,418		)	(43,433		)
Accumulated other comprehensive loss	(3,632		)	(389		)
Total Stockholders’ Equity	477,499			490,711
Non-controlling interests	1,642			1,111
Total Equity	479,141			491,822
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,098,150		$	1,271,024

See notes to condensed consolidated financial statements.

4

GFI GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share amounts)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2011		2010			2011		2010
Revenues
Agency commissions	$	151,446	$	125,011		$	435,442	$	406,465
Principal transactions	61,711		49,677			186,673		166,499
Total brokerage revenues	213,157		174,688			622,115		572,964
Clearing services revenues	31,872		21,553			87,222		21,553
Interest income from clearing services	606		232			1,618		232
Equity in net earnings of unconsolidated businesses(1)	4,260		1,875			9,943		1,886
Software, analytics and market data	18,837		14,905			54,328		44,324
Other income (loss)(1)	7,230		(3,263		)	5,917		(595		)
Total revenues	275,962		209,990			781,143		640,364
Interest and transaction-based expenses
Transaction fees on clearing services	30,388		20,729			84,209		20,729
Transaction fees on brokerage services	6,673		5,887			19,357		20,865
Interest expense from clearing services	439		138			1,382		138
Total interest and transaction-based expenses	37,500		26,754			104,948		41,732
Revenues, net of interest and transaction-based expenses	238,462		183,236			676,195		598,632
Expenses
Compensation and employee benefits	159,980		133,345			466,300		419,117
Communications and market data	15,187		13,788			45,364		36,369
Travel and promotion	9,723		8,665			30,124		26,899
Rent and occupancy	6,322		5,867			18,183		16,553
Depreciation and amortization	9,990		8,851			29,665		24,879
Professional fees	6,866		7,055			19,641		19,899
Interest on borrowings	12,035		3,066			18,247		8,371
Other expenses(1)	9,353		5,984			21,559		15,437
Total other expenses	229,456		186,621			649,083		567,524
Income (loss) before provision for (benefit from) income taxes	9,006		(3,385		)	27,112		31,108
Provision for (benefit from) income taxes	2,884		(1,050		)	7,592		9,643
Net income (loss) before attribution to non-controlling shareholders	6,122		(2,335		)	19,520		21,465
Less: Net income attributable to non-controlling interests	57		151			558		151
GFI’s net income (loss)	$	6,065	$	(2,486	)	$	18,962	$	21,314
Earnings (loss) per share available to common shareholders
Basic	$	0.05	$	(0.02	)	$	0.16	$	0.18
Diluted	$	0.05	$	(0.02	)	$	0.15	$	0.17
Weighted average shares outstanding
Basic	117,717,234		121,943,158			119,187,808		120,059,960
Diluted	125,420,736		121,943,158			127,052,814		124,665,379
Dividends declared per share of common stock	$	0.05	$	0.05		$	0.15	$	0.15

(1)As adjusted — see Note 2

See Note 2 for discussion of change in presentation made in 2010

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						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net income (loss) before attribution to non-controlling shareholders	$	6,122		$	(2,335	)	$	19,520		$	21,465
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax(1)	(4,125		)	3,872			(2,246		)	3,051
Unrealized (loss) gain on available-for-sale securities, net of tax(2)	(742		)	153			(997		)	(127		)
Comprehensive income	1,255			1,690			16,277			24,389
Net income attributable to non-controlling interests	57			151			558			151
Other comprehensive (loss) income attributable to non-controlling interests	—			—			(129		)	—
GFI’s comprehensive income	$	1,198		$	1,539		$	15,848		$	24,238

(1)Amounts are net of (benefit from) provision for income taxes of $(2,957) and $2,884 for the three months ended September 30, 2011 and 2010, respectively. Amounts are net of (benefit from) provision for income taxes of $(1,678) and $2,297 for the nine months ended September 30, 2011 and 2010, respectively.

(2)Amounts are net of (benefit from) provision for income taxes of $(275) and $59 for the three months ended September 30, 2011 and 2010, respectively. Amounts are net of (benefit from) income taxes of $(373) and $(50) for the nine months ended September 30, 2011 and 2010, respectively.

See notes to condensed consolidated financial statements.

6

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

(In thousands)

	Nine Months Ended September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before attribution to non-controlling shareholders	$	19,520		$	21,465
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	29,665			24,879
Amortization of loan fees	1,162			701
Provision for doubtful accounts	5			(276		)
Share-based compensation	23,186			20,189
(Benefit from) provision for deferred taxes	(11,895		)	(9,886		)
Losses (gains) on foreign exchange derivative contracts, net	3,154			(2,659		)
Gains from equity method investments, net	(2,958		)	(181		)
Tax (benefit) expense related to share-based compensation	(425		)	1,679
Other non-cash charges, net	5,038			(35		)
Decrease (increase) in operating assets:
Cash segregated under federal and other regulations	14,914			(4,045		)
Deposits with clearing organizations	(2,493		)	(11,110		)
Commissions receivable	(17,486		)	(5,402		)
Receivables from brokers, dealers and clearing organizations	(838,229		)	(219,206		)
Other assets	(16,529		)	(20,410		)
(Decrease) increase in operating liabilities:
Accrued compensation	(11,895		)	(14,659		)
Accounts payable and accrued expenses	(1,695		)	(15,000		)
Payables to brokers, dealers and clearing organizations	564,746			188,690
Payables to clearing services customers	198,909			48,584
Other liabilities	24,582			31,304
Cash (used in) provided by operating activities	(18,724		)	34,622
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired, and purchases of intangible and other assets	(3,300		)	(12,508		)
Issuance of notes receivable	(2,953		)	(800		)
Proceeds from notes receivable	882			1,000
Proceeds from other investments	1,062			789
Purchases of other investments	(6,875		)	(19,985		)
Purchase of property, equipment and leasehold improvements	(17,840		)	(11,790		)
Proceeds on foreign exchange derivative contracts	4,081			11,597
Payments on foreign exchange derivative contracts	(10,255		)	(6,427		)
Cash used in investing activities	(35,198		)	(38,124		)

Continued on next page.

7

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

(In thousands)

	Nine Months Ended September 30,
	2011			2010
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings	55,000			40,000
Repayment of short-term borrowings	(190,000		)	(25,000		)
Proceeds from long-term obligations	250,000			—
Repayment of long-term obligations	(60,000		)	—
Purchases of treasury stock	(25,868		)	(11,630		)
Cash dividends paid	(18,260		)	(17,972		)
Payment of loan fees	(8,832		)	(449		)
Proceeds from exercise of stock options	73			511
Cash paid for taxes on vested restricted stock units	(8,577		)	(6,317		)
Payment of contingent consideration liabilities	(1,486		)	—
Tax benefit (expense) related to share-based compensation	425			(1,679		)
Cash used in financing activities	(7,525		)	(22,536		)
Effects of exchange rate changes on cash and cash equivalents	77			1,685
DECREASE IN CASH AND CASH EQUIVALENTS	(61,370		)	(24,353		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	313,875			342,379
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	252,505		$	318,026
SUPPLEMENTAL DISCLOSURE:
Interest paid	$	15,261		$	9,260
Income taxes paid, net of refunds	$	11,073		$	13,546
Non-Cash Investing and Financing Activities:

During the nine months ended September 30, 2010, in connection with the business combinations described in Note 4, the Company recorded $27,314 within Other liabilities and recorded the following items within Stockholders’ Equity: $20,088 related to the issuance of 3,492,095 shares of the Company’s common stock and $7,620 related to 1,339,158 contingently issuable shares of the Company’s common stock.  Additionally, during the nine months ended September 30, 2010 the Company recorded $2,286 with respect to the issuance of 414,938 shares of the Company’s common stock in connection with the investment described in Note 5.

See notes to condensed consolidated financial statements.

8

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, “GFI” or the “Company”). The Company, through its subsidiaries, provides brokerage services, clearing services, trading system software and market data and analytical software products to institutional clients in markets for a range of fixed income, financial, equity and commodity instruments. The Company complements its brokerage capabilities with value-added services, such as market data and software systems and products for decision support, which it licenses primarily to companies in the financial services industry. The Company’s principal operating subsidiaries include: GFI Securities LLC, GFI Brokers LLC, GFI Group LLC, GFI Securities Limited, GFI Brokers Limited, GFI (HK) Securities LLC, GFI (HK) Brokers Ltd., GFI Group Pte. Ltd., GFI Korea Money Brokerage Limited, Amerex Brokers LLC, Fenics Limited (“Fenics”), Trayport Limited (“Trayport”), and The Kyte Group Limited and Kyte Capital Management Limited (collectively “Kyte”). As of September 30, 2011, Jersey Partners, Inc. (“JPI”) owned approximately 42% 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 (unaudited) are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingencies in the condensed consolidated financial statements. Certain estimates and assumptions relate to the accounting for acquired goodwill and intangible assets, fair value measurements, compensation accruals, tax liabilities and the potential outcome of litigation matters. Management believes that the estimates utilized in the preparation of the condensed consolidated financial statements are reasonable and prudent. Actual results could differ materially from these estimates.

All intercompany transactions and balances have been eliminated.

When the Company acquired Kyte on July 1, 2010, it determined that a certain investment in an unconsolidated affiliate should be accounted for under the cost method. During the second quarter of 2011, the Company concluded that this investment should have been accounted for under the equity method since the acquisition date. During the nine months ending September 30, 2011, the Company recorded $1,490 of pre-tax income, representing the Company’s cumulative share of equity in earnings of the investment from the third quarter of 2010 through the first quarter of 2011. Additionally, during the second quarter of 2011, the Company recorded an adjustment of $2,925 to its purchase price allocation for Kyte related to all pre-acquisition earnings in this investee not previously recognized by Kyte. The Company adjusted residual goodwill accordingly. See Note 4 for discussion of the adjustment to goodwill.

During the second quarter of 2011, the Company changed the name of its income statement line item “Equity in earnings (losses) of unconsolidated brokerage businesses” to “Equity in net earnings (losses) of unconsolidated businesses” in order to better describe the results included in this line item to financial statement users. In addition, certain amounts related to equity in net earnings (losses) of unconsolidated businesses totaling $(1,448) for the nine months ended September 30, 2011 and $243 and $254 for the three and nine months ended September 30, 2010, respectively, were previously presented in the “Other expenses” line item in the Condensed Consolidated Statements of Operations. In order to enhance transparency in the presentation of the Condensed Consolidated Statements of Operations and to provide a clearer picture of the financial performance of the Company’s equity method investees, these amounts have been reclassified to the “Equity in net earnings (losses) of unconsolidated businesses” line item.

Interest income on short-term investments for the three and nine months ended September 30, 2010 totaling $682 and $999, respectively, was previously presented in a line item called “Interest income” but has been combined with “Other income (loss)” to conform with the current year’s presentation.

9

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

In the fourth quarter of 2010, the Company changed its presentation of certain revenues and expenses in the Condensed Consolidated Statements of Operations, and adjusted the prior periods accordingly. In order to enhance transparency in the presentation of the Condensed Consolidated Statements of Operations and to provide a clearer picture of the financial performance of the Company’s operations, the Company adjusted its presentation of certain revenues and expenses as follows:

·Revenues that were previously presented as “Interest income” have been presented as “Interest income from clearing services” and “Other income (loss)” to present the portion of income that relates to clearing services separate from interest income earned on short-term investments. Interest income earned on short-term investments is included in “Other income (loss).”

·Expenses have been presented in the following two components: (1) Interest and transaction-based expenses and (2) Other expenses, in order to present the subtotal “Revenues, net of interest and transaction-based expenses” on the Condensed Consolidated Statements of Operations. “Revenues, net of interest and transaction-based expenses” represent revenues, net of direct, incremental costs incurred to obtain those revenues. Expenses that were previously reported as “Clearing fees” have been presented as “Transaction fees on clearing services” and “Transaction fees on brokerage services” in order to more clearly present the nature of the expense in relation to the Company’s revenues. These accounts are included within “Interest and transaction-based expenses” as they are directly attributable to the Company’s clearing and brokerage revenues.

·Expenses that were previously reported as “Interest expenses” have been presented as “Interest expense from clearing services” and “Interest on borrowings.” Interest expenses from clearing services are included within “Interest and transaction-based expenses” as they are directly attributable to the Company’s interest expense earned on customer deposits. Interest on borrowings are included within “Total other expenses” as they relate to the Company’s borrowings, not revenues.

The Company does not believe the adjustments made above are material to our condensed consolidated financial statements for these periods.

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, 2010 (the “2010 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.

Consolidation Policies—The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and subsidiaries that are treated as such and other entities in which the Company has a controlling financial interest. For consolidated subsidiaries that are less than wholly-owned, the equity interests that are not owned by the Company are referred to as non-controlling interests. The portion of net income attributable to non-controlling interests for such subsidiaries is presented as Net income attributable to non-controlling interests on the Condensed Consolidated Statements of Operations, and the portion of the shareholders’ equity of such subsidiaries is presented as Non-controlling interests in the Condensed Consolidated Statements of Financial Condition.

Variable Interest Entities—The Company determines whether the Company holds any interests in entities deemed to be a variable interest entity (“VIE”). A VIE is an entity that either (i) has equity investors that lack certain essential characteristics of a controlling financial interest or (ii) does not have sufficient equity to finance its activities without additional subordinated financial support from other parties. If an entity has either of these characteristics, it is considered a VIE and must be consolidated by its primary beneficiary. The primary beneficiary is the party that has both (i) the power to direct the activities of the VIE that most significantly impact the economic performance of the entity and (ii) the obligation to absorb losses of the entity that could be potentially significant to the VIE or the right to receive benefits from the entity that could be potentially significant. As of September 30, 2011, the Company holds variable interests in certain VIEs. One of these VIEs is consolidated as it is determined that the Company is the primary beneficiary. The remaining VIEs are not consolidated as it is determined that the Company is not the primary beneficiary. See Note 13 for disclosures on Variable Interest Entities.

10

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

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

Cash Segregated Under Federal and Other Regulations—The Company holds cash that belongs to customers as support for their trading activities. As a result, certain of the Company’s subsidiaries are required to segregate or set aside such cash to satisfy regulations designed to protect customer assets.

Deposits with Clearing Organizations—Deposits with clearing organizations consist of deposits of cash and cash equivalents or short-term investments, recorded at fair value, at various clearing companies and organizations that perform clearing and custodial functions for the Company.

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. The goodwill associated with each business combination is allocated to the related reporting units, which are determined based on how the Company’s businesses are managed and how they are reviewed by the Company’s chief operating decision maker. Other intangible assets are recorded at their fair value upon completion of a business combination or certain other transactions.

In accordance with Accounting Standards Codification (“ASC”) 350 Intangibles—Goodwill and Other (“ASC 350”), goodwill and other indefinite lived intangible assets are not amortized, but instead are periodically tested for impairment. The Company reviews goodwill and other indefinite lived intangible assets for impairment on an annual basis during the fourth quarter of each fiscal year or whenever an event occurs or circumstances change that could reduce the fair value of a reporting unit below its carrying amount. ASC 350 prescribes a two step process for goodwill impairment testing whereby management first compares the fair value of each reporting unit with recorded goodwill to that reporting unit’s book value. If management determines, as a result of this first step, that the fair value of the reporting unit is less than its carrying value, a second step in the impairment test process would require that the recorded goodwill at that reporting unit be written down to the value implied by the reporting unit’s recent valuation and the estimated fair value of the assets and liabilities.

The primary valuation methods used to estimate the fair value of its reporting units are the income and market approach.  In applying the income approach, projected cash flows available for distribution and the terminal value are discounted to present value to derive an indication of fair value of the business enterprise. The market approach compares the reporting unit to selected reasonably similar publicly-traded companies. Trading and transaction comparables are used as general indicators to assess the general reasonableness of the estimated fair values.

Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives.

The Company’s accounting policy was to conduct the annual goodwill impairment test as of January 1. Effective in the fourth quarter of 2010, the Company elected to change its accounting policy to begin conducting the annual goodwill impairment test on November 1. The change in the goodwill impairment test date is preferable as it provides the Company with additional time to complete the required testing and evaluate the results prior to the year-end closing and reporting activities when resources are more constrained. The change in accounting principle did not accelerate, delay, avoid, or cause a goodwill impairment charge. As it was impracticable to objectively determine projected cash flows and related valuation estimates as of each November 1 for periods prior to November 1, 2010, the Company has prospectively applied the change in the annual goodwill impairment testing date from November 1, 2010.

Prepaid Bonuses and Forgivable Employee Loans—Prepaid bonuses and forgivable loans to employees are stated at historical value net of amortization when the agreement between the Company and the employee provides for the return of proportionate amounts of the bonus or loan outstanding if employment is terminated in certain circumstances prior to the end of the term of the agreement. Amortization is calculated using the straight-line method over the term of the contract, which is generally two to four years, and is recorded in compensation and employee benefits. The Company generally expects to recover the unamortized portion of prepaid bonuses and forgivable loans when employees voluntarily terminate their employment or if their employment is terminated for cause prior to the end of the term of the agreement. The prepaid bonuses and forgivable loans are included in Other assets in the Condensed Consolidated Statements of Financial Condition.

11

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

Investments—When the Company does not have a controlling financial interest in an entity but can exert significant influence over the entity’s operating and financial policies, the investment is accounted for under the equity method of accounting in accordance with ASC 323-10, Investments—Equity Method and Joint Ventures (“ASC 323-10”). Significant influence generally exists when the Company owns 20% to 50% of the entity’s common stock or in-substance common stock. The Company initially records the investment at cost and adjusts the carrying amount each period to recognize its share of the earnings and losses of the investee based on the percentage of ownership. At September 30, 2011 and December 31, 2010, the Company had equity method investments with a carrying value of $38,339 and $30,057, respectively. Investments for which the Company does not have the ability to exert significant influence over operating and financial policies are generally accounted for using the cost method of accounting in accordance with ASC 325-10, Investments — Other (“ASC 325-10”). At September 30, 2011 and December 31, 2010, the Company had cost method investments of $3,645 and $3,116, respectively. The Company monitors its equity and cost method investments for indicators of impairment each reporting period.

During the three months ended March 31, 2011, the Company recorded a $1,863 loss related to the accounting impact of an increased ownership stake in an equity method investment previously accounted for under the cost method. This loss was also reflected in the Company’s results for the nine months ended September 30, 2011.

During the three and nine months ended September 30, 2011, the Company recorded a $2,255 write-down related to an equity method investment that was determined to be other-than-temporarily impaired in accordance with ASC 323-10. The value of the Company’s ownership interest in the entity was evaluated in light of the impact of recent and projected operating results of the investee. The decline in current and projected cash flows resulted in the value of the Company’s ownership interest being less than the carrying amount of its investment. This write-down has been reflected in Other expenses.

The Company accounts for its marketable equity securities in accordance with ASC 320-10, Investments—Debt and Equity Securities. Investments designated as available-for-sale are recorded at fair value with unrealized gains or losses reported as a separate component of other comprehensive income, net of tax. The fair value of the Company’s available-for-sale securities was $3,573 and $4,925 as of September 30, 2011 and December 31, 2010, respectively.

All of the Company’s investments are included in Other assets in the Condensed Consolidated Statements of Financial Condition.

Fair Value of Financial Instruments—In accordance with ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), the Company estimates fair values of financial instruments using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment in interpreting market data and, accordingly, changes in assumptions or in market conditions could adversely affect the estimates.  The Company also discloses the fair value of its financial instruments in accordance with the fair value hierarchy as set forth by ASC 820-10.

Trading securities are reported at fair value, with gains and losses resulting from changes in fair value recognized in Other income (loss).

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. Derivative contracts are recorded at fair value and all realized and unrealized gains and losses are included in Other income (loss) in the Condensed Consolidated Statements of Operations.

Payables to Clearing Services Customers—Payables to clearing services customers include amounts due on cash and margin transactions, including futures contracts transacted on behalf of customers.

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.

12

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

Principal Transactions—Principal transactions revenue is primarily derived from matched principal and principal trading transactions. Principal transactions revenues and related expenses are recognized on a trade date basis. The Company earns revenue from principal transactions on the spread between the buy and sell price of the security that is brokered. In matched principal transactions, the Company simultaneously agrees to buy instruments from one customer and sell them to another customer.

In the normal course of its matched principal and principal trading businesses, the Company holds securities positions overnight. These positions are marked to market on a daily basis.

Clearing Services Revenues—The Company charges fees to customers for clearing services provided for cash and derivative transactions. Clearing services revenues are recorded on a trade date basis as customer transactions occur and are presented net of any customer negotiated rebates.

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

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

Other Income (Loss)—Included within Other income (loss) on the Company’s Condensed Consolidated Statements of Operations are revaluations of foreign currency derivative contracts, realized and unrealized transaction gains and losses on certain foreign currency denominated items and gains and losses on certain investments and interest income earned on short-term investments.

Compensation and Employee Benefits—The Company’s compensation and employee benefits have both a fixed and variable component. Base salaries and benefit costs are primarily fixed for all employees while bonuses constitute the variable portion of compensation and employee benefits. The Company may pay certain performance bonuses in restricted stock units (“RSUs”). The Company also may grant sign-on and retention bonuses for certain newly-hired or existing employees who agree to long-term employment agreements. These sign-on and retention bonuses are typically amortized using the straight-line method over the term of the respective agreements.

Share-Based Compensation—The Company’s share-based compensation consists of stock options and RSUs. The Company accounts for share-based compensation in accordance with ASC 718 Compensation-Stock Compensation (“ASC 718”). This accounting guidance requires measurement of compensation expense for equity-based awards at fair value and recognition of compensation expense over the service period, net of estimated forfeitures. In all periods presented, the only share-based compensation issued by the Company has been RSUs. The Company determines the fair value of RSUs based on the number of units granted and the grant date fair value of the Company’s common stock, measured as of the closing price on the date of grant.

13

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

Income Taxes—In accordance with ASC 740, Income Taxes, the Company provides for income taxes using the asset and liability method under which deferred income taxes are recognized for the estimated future tax effects attributable to temporary differences and carry-forwards that result from events that have been recognized either in the financial statements or the income tax returns, but not both. The measurement of current and deferred income tax liabilities and assets is based on provisions of enacted tax laws. Valuation allowances are recognized if, based on the weight of available evidence, it is more likely than not that some portion of the deferred tax assets will not be realized. It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.

Treasury Stock—The Company accounts for Treasury stock using the cost method. Treasury stock held by the Company may be reissued with respect to vested RSUs in qualified jurisdictions. The Company’s policy is to account for these shares as a reduction of Treasury stock on a first-in, first-out basis.

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. Net gains (losses) resulting from remeasurement of foreign currency transactions and balances were $(2,735) and $3,392, respectively, for the three months ended September 30, 2011 and 2010, and $1,311 and $(5,944), respectively, for the nine months ended September 30, 2011 and 2010, and are included in “Other income (loss).”

Recent Accounting Pronouncements—In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2009-13 (“ASU 2009-13”) Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements. ASU 2009-13 establishes the accounting and reporting guidance for arrangements with multiple-revenue generating activities. ASU 2009-13 addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting and provides a selling price hierarchy for determining the selling price of a deliverable. ASU 2009-13 was effective for fiscal years beginning on or after June 15, 2010. The adoption of ASU 2009-13 did not have a material impact on the Company’s condensed consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update No. 2009-14 (“ASU 2009-14”) Software (Topic 985) Certain Revenue Arrangements That Include Software Elements. ASU 2009-14 provides guidance on how to allocate arrangement consideration to deliverables in an arrangement that includes both tangible products and software. ASU 2009-14 also provides additional guidance on how to determine which software, if any, relating to the tangible product would be excluded from software revenue recognition. ASU 2009-14 was effective for fiscal years beginning on or after June 15, 2010. The adoption of ASU 2009-14 did not have a material impact on the Company’s condensed consolidated financial statements.

In July 2010, the FASB issued Accounting Standards Update No. 2010-20 (“ASU 2010-20”) Receivables (Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The main objective of ASU 2010-20 is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. ASU 2010-20 requires disclosure of additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. This ASU is effective for all public companies for interim and annual reporting periods ending on or after December 15, 2010, except for disclosures relating to loan modifications, which were subsequently extended to interim and annual filings after June 15, 2011. The adoption of ASU 2010-20 did not have a material impact on the Company’s condensed consolidated financial statements.

14

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

In May 2011, the FASB issued Accounting Standards Update No. 2011-04 (“ASU 2011-04”) Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 amends current guidance to result in common fair value measurement and disclosures between accounting principles generally accepted in the United States and International Financial Reporting Standards. The amendments result in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. The amendments in ASU 2011-04 are effective for interim and annual periods beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-04 to have a material impact on the Company’s condensed consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05 (“ASU 2011-05”) Comprehensive Income (Topic 220) Presentation of Comprehensive Income. The main objective of ASU 2011-05 is to improve the comparability, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income (“OCI”) by eliminating the option to present components of OCI as part of the statement of changes in stockholders’ equity. The amendments in this standard requires entities to report the components of comprehensive income in either in (1) a single continuous statement of comprehensive income or (2) two separate but consecutive statements. The amendments in this standard do not change the items that must be reported in OCI. The amendments in ASU 2011-05 are effective for interim and annual periods beginning after December 15, 2011 and are to be applied retrospectively. The Company does not expect the adoption of ASU 2011-05 to have a material impact on the Company’s condensed consolidated financial statements.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08 (“ASU 2011-08”) “Intangibles — Goodwill and Other (Topic 350).” ASU 2011-08 amends current guidance to allow entities to first assess qualitative factors to determine whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. After assessing qualitative factors, if an entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, no further testing is necessary.  If an entity determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value, then the traditional two-step goodwill impairment test must be performed.  The amendments in ASU 2011-08 are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company does not expect the adoption of ASU 2011-08 to have a material impact on the Company’s condensed consolidated financial statements.

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

Amounts receivable from and payable to brokers, dealers and clearing organizations consisted of the following:

	September 30,2011		December 31, 2010
Receivables from brokers, dealers and clearing organizations:
Contract value of fails to deliver	$	737,122	$	138,534
Receivable from clearing organizations and financial institutions	344,918		105,277
Total	$	1,082,040	$	243,811
Payables to brokers, dealers and clearing organizations:
Contract value of fails to receive	$	538,031	$	156,989
Payable to clearing organizations and financial institutions	192,185		797
Net pending trades	6,948		14,632
Total	$	737,164	$	172,418

Substantially all fail to deliver and fail to receive balances at September 30, 2011 and December 31, 2010 have subsequently settled at the contracted amounts.

15

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

In addition to the balances above, the Company had Payables to clearing services customers of $324,862 and $125,968 at September 30, 2011 and December 31, 2010, respectively.  These amounts represent cash payable to the Company’s clearing customers, which are held at the Company’s third party General Clearing Members and are included within Receivables from brokers, dealers and clearing organizations.

4.    GOODWILL AND INTANGIBLE ASSETS

On May 27, 2010, the Company completed the acquisition of a mortgage-backed security brokerage business for consideration of $5,095. The purchase price was comprised of 681,433 shares of the Company’s common stock with a fair value of $4,095 and contingent consideration estimated at $1,000, which was previously recorded as a liability within Other liabilities. This contingent liability was remeasured to fair value at each reporting date until the liability was settled in the current quarter. During the second quarter of 2011, the targets for this contingent consideration were achieved, which resulted in a payment of $1,000. This acquisition was accounted for as a business combination under the acquisition method. Assets acquired were recorded at fair value and the results of the acquired company have been included within the condensed consolidated financial statements since the acquisition. The purchase price was allocated among tangible and intangible assets as follows: fixed assets of $15, customer relationships of $1,700 with an estimated useful life of 6 years, non-compete agreements of $340 with an estimated useful life of 3.3 years and goodwill of $3,040. The weighted average amortization for the intangible assets is 5.6 years.

On July 1, 2010, the Company acquired a 70% equity ownership interest in each of The Kyte Group Limited and Kyte Capital Management Limited (collectively “Kyte”). The Company will acquire the residual 30% equity interest in Kyte for an additional cash payment to be made in or about the third quarter of 2013 in an amount to be determined pursuant to a formula based on Kyte’s post-acquisition earnings. Kyte has been included in the condensed consolidated financial statements as a wholly-owned subsidiary since the acquisition date, with a liability recorded for the future payment to be made in 2013. Included as part of the purchase price is £5,000 that was deposited into an escrow account with a third-party escrow agent and 1,339,158 contingently issuable shares of the Company’s common stock, all of which will be delivered to the selling shareholders of Kyte upon the satisfaction of certain conditions related to one of Kyte’s investments in a third party.

Kyte, which is a member of leading exchanges, including NYSE Euronext, NYSE LIFFE and Eurex, provides clearing, brokerage, settlement and back-office services to proprietary traders, brokers, market makers and hedge funds. Kyte provides capital to select start-up trading groups, small hedge funds, market-makers and individual traders. As part of the purchase agreement, over the period from initial acquisition to when the Company will acquire the residual 30% equity interest in Kyte, the Company agreed to make up to £20,000 available to Kyte Capital Management Limited for investments in new trading entities subject to certain approvals. The Company acquired Kyte because of its expertise in listed derivative markets, its risk management platforms and its unique clearing, broking and investment services business model. The cash portion of the purchase price of the transaction was financed from the Company’s internal cash resources. The purchase price consisted of the following:

Fair value of consideration transferred:
Cash paid at closing	$	33,996
Cash paid for surplus working capital	7,050
Common stock issued at closing (2,810,662 shares)	15,993
Contingently issuable shares (1,339,158 shares)	7,620
Estimated future purchase commitment	19,264
Total	$	83,923

The fair value of the 4,149,820 common shares issued and issuable was determined based on the closing market price of the Company’s common shares on July 1, 2010, the closing date of the acquisition.

16

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

The future purchase commitment requires the Company to pay an additional cash payment based on the performance of Kyte during the three year period ending June 30, 2013. The Company elected the fair value option for this purchase commitment as of the date of acquisition and determined the fair value using the income approach. Subsequent changes in the fair value of the future purchase commitment are recorded in Other income (loss) in the Condensed Consolidated Statements of Operations. The fair value of the future purchase commitment at the acquisition date was $19,264 which has been recorded as a liability within Other liabilities. In applying the income approach, the Company assumed a 17.7% discount rate and used forecasted financial information for Kyte for the remaining three year period ending June 30, 2013. As of September 30, 2011 and December 31, 2010, the amount accrued in the condensed consolidated financial statements increased to $22,203 and $19,604, respectively, due to an increase in the net present value of the liability due to the passage of time and foreign currency translation, offset by differences between actual results and initial forecasts and changes to the forecasted financial information for Kyte for the remaining period ending June 30, 2013.

This acquisition was accounted for as a business combination under the acquisition method. Assets acquired and liabilities assumed were recorded at their fair values as of July 1, 2010. Management determined the fair value of the identifiable intangible assets acquired based upon an independent valuation performed by a third-party specialist. The purchase price allocation, as presented below, was translated into U.S. dollars based on the foreign exchange rate on July 1, 2010:

			Useful Life
Assets:
Cash and cash equivalents	$	21,488
Cash segregated under federal and other regulations	8,086
Deposits with clearing organizations	16,734
Commissions receivable	19,035
Receivables from brokers, dealers and clearing organizations	94,849
Intangible assets subject to amortization:
Customer relationships	14,485		6 Years
Trade name	1,020		10 Years
Internally developed software	3,170		3 Years
Non-compete agreements	211		5 Years
Goodwill (1)(2)	39,736
Other assets (1)(2)	21,152
Total assets acquired	239,966
Liabilities and non-controlling interests:
Accounts payable and accrued expenses	24,925
Payables to clearing services customers	116,623
Other liabilities (3)	13,758
Non-controlling interests	737
Total liabilities and non-controlling interests assumed	156,043
Net assets acquired	$	83,923

(1)During the fourth quarter of 2010, the Company recorded an adjustment to its purchase price allocation for Kyte in the amount of $4,928 in Other assets for a receivable related to one of Kyte’s investments in a third party. The Company recognized this adjustment based on new information which supported the collectability of the receivable with the third party. The Company adjusted residual goodwill accordingly.

(2)During the second quarter of 2011, the Company recorded adjustments to its purchase price allocation for Kyte in the net amount of $1,546 in Other assets. This adjustment included a $2,925 decrease to goodwill related to all pre-acquisition earnings in an unconsolidated affiliate not previously recognized by Kyte that should have been accounted for under the equity method since the acquisition date, offset by a $1,379 increase to goodwill related to final tax adjustments for the Kyte acquisition. The Company adjusted residual goodwill accordingly.

17

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

(3)During the fourth quarter of 2010, the Company reclassified $1,219 from “Intangible assets, net” to “Other liabilities” in the Consolidated Statements of Financial Condition. These amounts related to the fair value of contractual obligations that were deemed unfavorable and therefore recognized and valued as such as of the date of the acquisition as part of the Company’s purchase price allocation.

Total intangible assets acquired in the Kyte transaction that are subject to amortization totaled $18,886 and have a weighted-average useful life of approximately 6 years.

All of the goodwill acquired was assigned to our Clearing and Backed Trading segment. None of the goodwill is expected to be deductible for income tax purposes.

On November 1, 2010, the Company purchased the remaining 67% of the shares of an over-the-counter brokerage business in the U.K. The business has been included in the condensed consolidated financial statements as a wholly-owned subsidiary since the acquisition date. The business primarily engages in executing bond trades on a matched principal basis. The allocation of the purchase price to the net assets as of November 1, 2010 consisted of the following:

Cash paid at closing	$	11,229
Common stock issued at closing (2,343,758 shares)	7,938
Cash paid as additional consideration to selling shareholders	1,076
Total fair value of consideration transferred	$	20,243
Total fair value of previous equity interest	$	7,677
Total fair value	$	27,920

The cash paid at closing and as additional consideration was financed from the Company’s internal cash resources.

The fair value of the 2,343,758 common shares issued was determined using the closing market price of the Company’s common shares on November 1, 2010 and applying a discount to that price due to certain restrictions on the shares issued over a 2.5 and 5 year period from the date of acquisition. The Company utilized a third party valuation firm to assist management in the determination of an appropriate discount rate based on the results of various quantitative methods under the assumption that there is a discount in the value of a company’s stock that is and is not marketable. These methods are commonly used valuation practices.

This acquisition was accounted for as a business combination achieved in stages under the acquisition method. Prior to the acquisition date, the Company accounted for its 33% interest in the business as an equity-method investment. The acquisition date fair value of the previous equity interest was $7,677 and is included in the measurement of the total fair value of the business.

18

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

The following table summarizes the assets acquired and liabilities assumed at their acquisition date fair values. Management determined the fair value of the identifiable intangible assets acquired based upon an independent valuation performed by a third-party specialist. The purchase price allocation, as presented below, was translated into U.S. dollars based on the foreign exchange rate on November 1, 2010:

			Useful Life
Assets:
Cash and cash equivalents	$	3,800
Deposits with clearing organizations	1,792
Receivables from brokers, dealers and clearing organizations	2,377
Intangible assets subject to amortization:
Customer relationships	13,474		6 Years
Trade name	160		5 Years
Goodwill	12,419
Other assets	312
Total assets acquired	34,334
Liabilities:
Accounts payable and accrued expenses	1,555
Deferred tax liabilities	3,691
Other liabilities	1,168
Total liabilities assumed	6,414
Net assets acquired	$	27,920

Total intangible assets acquired in the transaction that are subject to amortization totaled $13,634 and have a weighted-average useful life of approximately 6 years.

All of the goodwill acquired was assigned to the EMEA Brokerage segment. None of the goodwill is expected to be deductible for income tax purposes.

Goodwill activity for the nine months ended September 30, 2011 is as follows:

	December 31, 2010		Goodwill acquired		Adjustments (1)			Foreign currency translation			September 30, 2011
Goodwill
Americas Brokerage	$	83,289	$	—	$	—		$	—		$	83,289
EMEA Brokerage	13,895		—		—			(11		)	13,884
Asia Brokerage	—		—		—			—			—
Clearing and Backed Trading	42,413		—		(1,546		)	(76		)	40,791
All Other	128,691		—		—			—			128,691
	$	268,288	$	—	$	(1,546	)	$	(87	)	$	266,655

(1)During the second quarter of 2011, the Company recorded adjustments to its purchase price allocation for Kyte in the net amount of $1,546.

19

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

Goodwill is required to be tested for impairment at least annually and more frequently when indicators of impairment exist. All of the Company’s goodwill is allocated to its reporting units and the goodwill impairment tests are performed at the reporting unit level. As discussed in Note 2, during the fourth quarter of 2010, the Company changed the testing date for its annual goodwill impairment tests from January 1 to November 1. As a result, the Company performed goodwill impairment tests as of January 1, 2010 and November 1, 2010, and concluded there was no impairment of the carrying value of the goodwill. The Company will continue to evaluate goodwill on an annual basis as of November 1, and whenever events and changes in circumstances indicate that there may be a potential impairment. Subsequent to November 1, 2010, no events or changes in circumstances occurred which would indicate any goodwill impairment.

Intangible assets consisted of the following:

	September 30, 2011						December 31, 2010
			Accumulated						Accumulated
			amortization						amortization
			and foreign		Net				and foreign		Net
			currency		carrying		Gross		currency		carrying
	Gross amount		translation		value		amount		translation		value
Amortized intangible assets:
Customer relationships	$	77,151	$	25,248	$	51,903	$	76,951	$	18,165	$	58,786
Trade names	8,951		5,591		3,360		8,951		4,866		4,085
Core technology	6,400		4,502		1,898		6,400		3,686		2,714
Non-compete agreements	3,874		3,365		509		3,874		3,048		826
Favorable lease agreements	620		400		220		620		340		280
Patents	3,131		100		3,031		31		16		15
Unamortized intangible assets:
Proprietary knowledge	110		—		110		110		—		110
Total	$	100,237	$	39,206	$	61,031	$	96,937	$	30,121	$	66,816

In July 2011, the Company completed an asset purchase of certain patents from a third party for consideration in the amount of $3,100.  The patents have a weighted-average useful life of approximately 6 years.

Amortization expense for the three months ended September 30, 2011 and 2010 was $3,130  and $2,114, respectively. Amortization expense for the nine months ended September 30, 2011 and 2010 was $9,235 and $4,941, respectively.

At September 30, 2011, expected amortization expense for the definite lived intangible assets is as follows:

2011 (remaining three months)	$	2,935
2012	11,124
2013	9,139
2014	8,411
2015	8,316
Thereafter	20,996
Total	$	60,921

5.    OTHER ASSETS

On February 28, 2010, the Company purchased a 40% interest in the outstanding membership interests of an independent brokerage firm with a proprietary trading platform. The aggregate purchase price was comprised of $10,000 in cash and 414,938 shares of the Company’s common stock. The target retained $8,000 of the cash portion of the purchase for working capital. This investment is included within Other assets and accounted for under the equity method. Additionally, the Company committed to purchase the remaining membership interests in increments of 20% by the third quarter of 2013, subject to customary closing conditions. The purchase price for the remaining membership interests will be paid in cash and established by a formula based on the target’s future results of operations.

20

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

On August 1, 2010, the Company purchased a 33% interest in the outstanding membership interests of an independent CFTC-registered Futures Commission Merchant for $11,000 in cash. The firm is also a Foreign Exchange Dealer Member of the National Futures Association and provides direct market access in certain foreign exchange markets. This investment has been accounted for under the equity method.

6.    SHORT-TERM BORROWINGS AND LONG-TERM OBLIGATIONS

The Company had outstanding Long-term obligations as of September 30, 2011 and December 31, 2010 as follows:

	Maturity Date	September 30,2011		December 31, 2010
Long-term obligations:
8.375% Senior Notes	July 2018	$	250,000	$	—
7.17% Senior Notes	January 2013	—		59,743
Total Long-term obligations		$	250,000	$	59,743

8.375% Senior Notes

In July 2011, the Company issued $250,000 in aggregate principal amount of 8.375% Senior Notes (the “8.375% Senior Notes”) due 2018 in a private offering (the “Offering”) to qualified institutional buyers pursuant to Rule 144A and to certain persons in offshore transactions pursuant to Regulation S, each under the Securities Act of 1933, as amended.  The notes were priced to investors at 100% of their principal amount, and mature in July 2018. Interest on these notes accrues at a rate of 8.375% per annum and is payable, commencing in January 2012, semi-annually in arrears on the 19th of January and July. Transaction costs of approximately $8,907 related to the 8.375% Senior Notes will be deferred and amortized over the term of the notes.  At September 30, 2011, unamortized deferred financing fees related to the 8.375% Senior Notes of $8,648 were recorded within Other assets and the Company was in compliance with all applicable covenants.

7.17% Senior Notes

In January 2008, pursuant to a note purchase agreement with certain institutional investors (the “2008 Note Purchase Agreement”), the Company issued $60,000 in aggregate principal amount of senior secured notes due in January 2013 (the “7.17% Senior Notes”) in a private placement. In July 2011, the Company used $67,797 of the net proceeds of the Offering to redeem all of its existing 7.17% Senior Notes due 2013, including all accrued and unpaid interest thereunder, and to pay all premiums and transaction expenses associated therewith. Interest on the 7.17% Senior Notes accrued at a rate of 7.17% per annum and was payable semi-annually in arrears on the 30th of January and July. The Company’s obligations under the 7.17% Senior Notes were secured by substantially all of the assets of the Company and certain assets of the Company’s subsidiaries. The 2008 Note Purchase Agreement includes covenants with which the Company was required to comply, including among others, maintenance of certain financial ratios and restrictions on additional indebtedness, liens and dispositions. At December 31, 2010, the 7.17% Senior Notes were recorded net of unamortized deferred financing fees of $257 and the Company was in compliance with all applicable covenants.

Credit Agreement

In December 2010, the Company entered into a second amended and restated credit agreement (as amended and restated, the “Credit Agreement”) with Bank of America, N.A. and certain other lenders. The Credit Agreement matures on December 20, 2013 and provides for maximum borrowings of up to $129,500, which includes up to $50,000 for letters of credit. Revolving loans may be either base rate loans or Eurocurrency rate loans. Eurocurrency rate loans bear interest at the annualized rate of one-month LIBOR plus the application margin, letter of credit fees per annum are equal to the applicable margin times the outstanding amount drawn under such letter of credit and base rate loans bear interest at a rate per annum equal to a prime rate plus the applicable margin in effect for that interest period. As long as no default has occurred under the Credit Agreement, the applicable margin for both the base rate and Eurocurrency rate loans is based on a matrix that varies with a ratio of outstanding debt to EBITDA, as defined in the Credit Agreement.

21

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

In July 2011, the Company used $135,319 of the net proceeds from the Offering on the 8.375% Senior Notes to repay all then outstanding amounts, including accrued and unpaid interest, under the Credit Agreement.

As a result of the Offering, the available borrowing capacity under the Credit Agreement decreased from $200,000 to approximately $129,500.  Pursuant to the terms of the Credit Agreement, following the redemption of the 7.17% Senior Notes, the lenders released all of the security supporting the Credit Agreement and the Company is no longer required to secure amounts outstanding under the Credit Agreement with substantially all the assets of the Company and certain assets of the Company’s subsidiaries.

The Company had outstanding borrowings under its Credit Agreement as of September 30, 2011 and December 31, 2010 as follows:

	September 30,2011		December 31, 2010
Loans Available (1)	$	129,500	$	200,000
Loans Outstanding	$	—	$	135,000

(1)Amounts available include up to $50,000 for letters of credit as of September 30, 2011 and December 31, 2010.

The Company’s commitments for outstanding letters of credit relate to potential collateral requirements associated with its matched principal business. Since commitments associated with these outstanding letters of credit may expire unused, the amounts shown above do not necessarily reflect actual future cash funding requirements.

The weighted average interest rate of the outstanding loans was 3.06% at December 31, 2010. At September 30, 2011 and December 31, 2010, unamortized deferred financing fees related to the Credit Agreement were $1,956 and $2,297, respectively.

The Credit Agreement contains certain financial and other covenants. The Company was in compliance with all applicable covenants at September 30, 2011 and December 31, 2010.

7.    STOCKHOLDERS’ EQUITY

In August 2007, the Company’s Board of Directors 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 of Directors authorized the Company to repurchase shares of the Company’s common stock on the open market in such amounts as determined by the Company’s management provided that such amounts do not exceed, during any calendar year, the number of shares issued upon exercise of stock options plus the number of shares underlying grants of RSUs that are granted during such calendar year, or which management reasonably anticipates will be granted in such calendar year. During the three months ended September 30, 2011, the Company repurchased 3,207,433 shares of its common stock on the open market at an average price of $4.40 per share for a total cost of $14,215, including sales commissions. During the nine months ended September 30, 2011, the Company repurchased 5,650,000 shares of its common stock on the open market at an average price of $4.55 per share for a total cost of $25,868, including sales commissions. During the three months ended September 30, 2010, the Company repurchased 1,053,240 shares of its common stock on the open market at an average price of $5.33 per share for a total cost of $5,650, including sales commissions. During the nine months ended September 30, 2010, the Company repurchased 2,028,240 shares of its common stock on the open market at an average price of $5.70 per share for a total cost of $11,630, including sales commissions. The repurchased shares were recorded at cost as treasury stock in the Condensed Consolidated Statements of Financial Condition.

22

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

On each of March 31, May 31, and August 31, 2011, the Company paid a cash dividend of $0.05 per share, which, based upon the number of shares outstanding on the record date for such dividends, totaled $6,100, $6,205 and $5,955, respectively. On each of March 29, May 28, and August 31, 2010, the Company paid a cash dividend of $0.05 per share, which, based upon the number of shares outstanding on the record date for such dividends, totaled $5,928, $5,956 and $6,088, respectively. The dividends were reflected as reductions of retained earnings in the Condensed Consolidated Statements of Financial Condition.

8.    EARNINGS PER SHARE

Basic and diluted earnings per share for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2011		2010			2011		2010
Basic earnings per share
GFI’s net income	$	6,065	$	(2,486	)	$	18,962	$	21,314
Weighted average common shares outstanding	117,717,234		121,943,158			119,187,808		120,059,960
Basic earnings per share	$	0.05	$	(0.02	)	$	0.16	$	0.18
Diluted earnings per share
GFI’s net income	$	6,065	$	(2,486	)	$	18,962	$	21,314
Weighted average common shares outstanding	117,717,234		121,943,158			119,187,808		120,059,960
Effect of dilutive options, RSUs, restricted stock, and other contingently issuable shares	7,703,502		—			7,865,006		4,605,419
Weighted average shares outstanding and common stock equivalents	125,420,736		121,943,158			127,052,814		124,665,379
Diluted earnings per share	$	0.05	$	(0.02	)	$	0.15	$	0.17

Excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were the following: (i) 2,323,669 RSUs and 96,424 stock options for the three months ended September 30, 2011, (ii) 1,767,927 RSUs and 109,156 stock options for the three months ended September 30, 2010, (iii) 2,974,954 RSUs and 103,248 stock options for the nine months ended September 30, 2011 and (iv) 1,586,140 RSUs and 41,676 stock options for the nine months ended September 30, 2010.

As a result of the net loss for the three months ended September 30, 2010, common shares underlying options to purchase 183,162 shares of common stock and 3,454,053 RSUs, along with 1,754,096 shares that are contingently issuable, were excluded from the computation of diluted loss per share for that period.

9.    SHARE-BASED COMPENSATION

The Company issues RSUs to its employees under the GFI Group Inc. 2008 Equity Incentive Plan, which was approved by the Company’s stockholders on June 11, 2008 (as amended, the “2008 Equity Incentive Plan”). The 2008 Equity Incentive Plan was subsequently amended at each of the Company’s annual stockholders meetings since the Plan was initially approved in order to increase the number of shares of common stock available for grant under the Plan. Prior to June 11, 2008, the Company issued RSUs under the GFI Group Inc. 2004 Equity Incentive Plan (the “2004 Equity Incentive Plan”).

23

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

The 2008 Equity Incentive Plan permits the grant of non-qualified stock options, stock appreciation rights, shares of restricted stock, restricted stock units and performance units to employees, non-employee directors or consultants. The Company issues shares from authorized but unissued shares, which are reserved for issuance upon the vesting of RSUs granted pursuant to the 2008 Equity Incentive Plan. As of September 30, 2011, there were 9,428,706 shares of common stock available for future grants of awards under this plan, which amount, pursuant to the terms of the 2008 Equity Incentive Plan, may be increased for the number of shares subject to awards under the 2004 Equity Incentive Plan that are ultimately not delivered to employees. The fair value of RSUs is based on the closing price of the Company’s common stock on the date of grant and is recorded as compensation expense over the service period, net of estimated forfeitures.

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

The following is a summary of RSU transactions under both the 2008 Equity Incentive Plan and the 2004 Equity Incentive Plan during the nine months ended September 30, 2011:

	RSUs		Weighted- Average Grant Date Fair Value
Outstanding December 31, 2010	14,545,137		$	5.14
Granted	8,725,270		4.78
Vested	(4,358,955	)	5.45
Cancelled	(232,130	)	5.43
Outstanding September 30, 2011	18,679,322		$	4.89

The weighted average grant-date fair value of RSUs granted for the nine months ended September 30, 2011 was $4.78 per unit, compared with $5.60 per unit for the same period in the prior year. Total share-based 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,
	2011		2010		2011		2010
Share-based compensation expense	$	7,777	$	6,894	$	23,186	$	20,189
Income tax benefits	$	2,489	$	2,138	$	6,495	$	6,259

At September 30, 2011, total unrecognized compensation cost related to the RSUs prior to the consideration of expected forfeitures was approximately $72,938 and is expected to be recognized over a weighted-average period of 2.13 years. The total fair value of RSUs vested during the nine months ended September 30, 2011 and 2010 was $23,756 and $20,675, respectively.

As of September 30, 2011, 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, 2011:

	GFI Group 2002 Plan				GFInet 2000 Plan
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding December 31, 2010	606,804		$	3.33	96,248		$	3.95
Exercised	(4,212	)	2.97		(23,252	)	2.59
Expired	—		—		(52,152	)	4.85
Outstanding September 30, 2011	602,592		$	3.33	20,844		$	3.20

24

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

During the nine months ended September 30, 2010, there were 30,420 stock options exercised under the GFI Group 2002 Plan and 171,656 stock options exercised under the GFInet 2000 Plan.

10.    COMMITMENTS AND CONTINGENCIES

Purchase Obligations—The Company has various unconditional purchase obligations. These obligations are for the purchase of market data from a number of information service providers during the normal course of business. As of September 30, 2011, the Company had total purchase commitments for market data of approximately $22,335 with $17,750 due within the next twelve months and $4,585 due between one to three years. Additionally, the Company has purchase commitments for capital expenditures of $3,063, primarily related to network implementations in the U.S. and U.K., and $1,324 for hosting and software license agreements. Of these purchase commitments, capital expenditures of approximately $830 and fees for hosting and software license agreements of approximately $759 are due within the next twelve months.

In connection with the acquisition of 40% of the outstanding membership interests of an independent brokerage firm, the Company has committed to purchase the remaining membership interests in increments of 20% by the third quarter of 2013, subject to customary closing conditions. The purchase price for the remaining membership interests will be paid in cash and established by a formula based on the target’s future results of operations. See Note 5 to the Condensed Consolidated Financial Statements for further information.

In connection with the acquisition of 70% of the equity ownership interests in Kyte, the Company agreed to purchase the residual 30% equity interest in Kyte for an additional cash payment in an amount to be determined pursuant to a formula based on Kyte’s earnings, such payment to be made following June 30, 2013. See Note 4 to the Condensed Consolidated Financial Statements for further information.

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 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.

25

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

The staff (the “Staff”) of the Market Regulation Department of the Financial Industry Regulatory Authority Inc. (“FINRA”) has been conducting an inquiry into the activities of interdealer brokerage firms in connection with the determination of the commission rates paid to them in 2005 and 2006 by certain dealers for brokering transactions in credit default swaps. In October 2010, the Staff commenced a disciplinary proceeding by filing a complaint against GFI Securities LLC and four of its former employees in connection with allegedly improper communications between certain of these former employees and those at other interdealer brokerage firms, purportedly inconsistent with just and equitable principles of trade and certain antifraud and supervisory requirements under FINRA rules and the federal securities laws. All of the former employees of GFI Securities LLC who were named in the complaint resigned in April 2008 to become employed by affiliates of Compagnie Financiere Tradition. None of the Company’s current employees were named in the complaint. GFI Securities LLC intends to vigorously contest this disciplinary action which could result in a censure, fine or other sanction.

Based on currently available information, the outcome of the Company’s outstanding matters are not expected to have a material impact on the Company’s financial position. However, the outcome of any such matters may be material to the Company’s results of operations or cash flows in a given period. It is not presently possible to determine the Company’s ultimate exposure to these matters and there is no assurance that the resolution of the Company’s outstanding matters will not significantly exceed any reserves accrued by the Company.

Risks and Uncertainties—The Company primarily generates its revenues by executing and facilitating transactions for third parties. Revenues for these services are transaction based. As a result, the Company’s revenues vary based upon, among other things, the volume of transactions in various securities, commodities, foreign exchange and derivative markets in which the Company provides services.

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

11.    MARKET AND CREDIT RISKS

Disclosure regarding the Company’s financial instruments with off-balance sheet risk is described in “Note 15—Market and Credit Risks” of the Notes to the Consolidated Financial Statements contained in the Company’s 2010 Form 10-K. There have been no material changes to our off-balance sheet risk during the nine months ended September 30, 2011.

12.    FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments—Substantially all of the Company’s assets and liabilities are carried at fair value or contracted amounts that approximate fair value. Assets and liabilities that are recorded at contracted amounts approximating fair value consist primarily of receivables from and payables to brokers, dealers and clearing organizations and payables to clearing services customers. These receivables and payables to brokers, dealers and clearing organizations are short-term in nature, and following September 30, 2011, substantially all have settled at the contracted amounts.  The Company’s marketable equity securities are recorded at fair value based on their quoted market price. The Company’s investments that are accounted for under the cost and equity methods are investments in companies that are not publicly traded and for which no established market for their securities exists.  The fair value of these investments is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.  The Company’s debt obligations are carried at historical amounts.  The fair value of the Company’s 8.375% Senior Notes was estimated using market rates of interest available to the Company for debt obligations of similar types and was approximately $246,225 at September 30, 2011. The fair value of the Company’s short term borrowings outstanding under the Credit Agreement approximated the carrying value at December 31, 2010.

26

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

The Company’s financial assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with ASC 820-10.  In accordance with ASC 820-10, the Company has categorized its financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.

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

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

·Quoted prices for identifiable or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds which trade infrequently); and

·Inputs other than quoted prices that are observable for substantially the full term of the asset or liability (examples include interest rate and currency swaps).

Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Valuation Techniques

The Company used the following valuation techniques in valuing the financial instruments at September 30, 2011 and December 31, 2010:

The Company has determined that certain of its investments in marketable securities should be classified as trading securities or available-for-sale securities and reported at fair value at September 30, 2011 and December 31, 2010.  To the extent that the values of the Company’s trading and available-for-sale marketable securities are based on quoted market prices in active markets, these securities were categorized as Level 1.

Fair value of the Company’s over-the-counter foreign exchange derivative contracts is based on the indicative prices obtained from the banks that are counter parties to these foreign exchange derivative contracts, as well as management’s own calculations and analyses, which are based upon period end forward and spot foreign exchange rates. At September 30, 2011 and December 31, 2010, the Company’s foreign exchange derivative contracts have been categorized as Level 2 of the ASC 820-10 fair value hierarchy.

The fair value of trading securities owned as a result of matched principal transactions and principal trading business is estimated using either (i) recently executed transactions and market price quotations in active markets, which trading securities are primarily categorized as Level 1, or (ii) a modified Black Scholes model using observable market inputs, which trading securities are categorized as Level 2.

The fair value of the Company’s future purchase commitment and contingent consideration liabilities reflect inputs that are both unobservable and significant to the overall fair value measurement of these liabilities. These liabilities are categorized as Level 3.

In the nine months ended September 30, 2011, the Company did not have any transfers amongst Level 1, Level 2 and Level 3.

27

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and Liabilities measured at fair value on a recurring basis as of September 30, 2011:

	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Balance at September 30, 2011
Assets
Deposits with clearing organizations:
U.S. Treasury securities	$	500		$	—		$	—	$	500
Other assets: Financial instruments owned:
Equity securities	$	20,886		$	160		$	—	$	21,046
Derivative contracts:
Foreign exchange derivative contracts	$	—		$	278,932		$	—	$	278,932
Fixed income derivative contracts	2,666			—			—		2,666
Equity derivative contracts	2,282			—			—		2,282
Netting (1)	(4,948		)	(276,837		)	—		(281,785		)
Total derivative contracts	$	—		$	2,095		$	—	$	2,095
Total financial instruments owned	$	20,886		$	2,255		$	—	$	23,141
Other assets: Investments:
Equity security, available-for-sale	$	3,573		$	—		$	—	$	3,573
Liabilities
Other liabilities: Financial instruments sold, not yet purchased:
Equity securities	$	13,367		$	—		$	—	$	13,367
Derivative contracts:
Foreign exchange derivative contracts	$	29		$	279,248		$	—	$	279,277
Fixed income derivative contracts	3,709			—			—		3,709
Equity derivative contracts	1,919			—			—		1,919
Netting (1)	(4,948		)	(276,837		)	—		(281,785		)
Total derivative contracts	$	709		$	2,411		$	—	$	3,120
Total financial instruments sold, not yet purchased	$	14,076		$	2,411		$	—	$	16,487
Other liabilities: Future purchase commitment and contingent consideration liabilities	$	—		$	—		$	23,529	$	23,529

(1)Represents the impact of netting on a net-by-counterparty basis.

Excluded from the table above is variation margin on long and short derivative contracts related to exchange traded futures and options on futures in the amount of $1,024 and $251 which are included within Receivables from brokers, dealers and clearing organizations and Payables to brokers, dealers and clearing organizations, respectively.

28

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

Assets and Liabilities measured at fair value on a recurring basis as of December 31, 2010:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Balance at December 31, 2010
Assets
Deposits with clearing organizations:
U.S. Treasury securities	$	500	$	—		$	—	$	500
Other assets: Financial instruments owned:
Equity securities	$	549	$	161		$	—	$	710
Derivative contracts:
Foreign exchange derivative contracts	$	—	$	76,057		$	—	$	76,057
Fixed income derivative contracts	89		—			—		89
Equity derivative contracts	3,849		—			—		3,849
Netting (1)	—		(74,934		)	—		(74,934		)
Total derivative contracts	$	3,938	$	1,123		$	—	$	5,061
Total financial instruments owned	$	4,487	$	1,284		$	—	$	5,771
Other assets: Investments:
Equity securities, available-for-sale	$	4,925	$	—		$	—	$	4,925
Liabilities
Other liabilities: Financial instruments sold, not yet purchased:
Derivative contracts:
Foreign exchange derivative contracts	$	—	$	79,368		$	—	$	79,368
Fixed income derivative contracts	87		—			—		87
Equity derivative contracts	2,286		—			—		2,286
Netting (1)	—		(74,908		)	—		(74,908		)
Total derivative contracts	$	2,373	$	4,460		$	—	$	6,833
Total financial instruments sold, not yet purchased	$	2,373	$	4,460		$	—	$	6,833
Other liabilities: Future purchase commitment and contingent consideration liabilities	$	—	$	—		$	22,415	$	22,415

(1)Represents the impact of netting on a net-by-counterparty basis.

Excluded from the table above is variation margin on long and short derivative contracts related to exchange traded futures and options in the amount of $18 and $206 which are included within Receivables from brokers, dealers and clearing organizations and Payables to brokers, dealers and clearing organizations, respectively.

29

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

Changes in Level 3 Assets and Liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Liabilities
Beginning balance	$	23,225		$	—		$	22,415		$	—
Transfers into Level 3	—			—			—			—
Transfers out of Level 3	—			—			—			—
Total realized and unrealized (gains) losses
Included in earnings (or change in net assets)	1,175			809			2,738			809
Included in other comprehensive (income) loss	(678		)	691			(138		)	691
Purchases, issuances, sales, and settlements
Purchases	—			22,664			—			22,664
Issuances	—			—			—			—
Sales	—			—			—			—
Settlements	(193		)	(410		)	(1,486		)	(410		)
Ending balance	$	23,529		$	23,754		$	23,529		$	23,754
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized (gains) losses relating to liabilities still held at the reporting date	$	1,175		$	809		$	2,738		$	809

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

The Company has cost and equity method investments which are monitored for indicators of impairment each reporting period. If the Company determines that an other-than-temporary impairment has occurred, the investment will be written down to its estimated fair value. In the third quarter ended September 30, 2011, in accordance with the provisions of ASC 323-10, the Company determined that an equity method investment was other-than-temporarily impaired and it was written down to its estimated fair value. The Company primarily utilized the income approach by assuming an estimated discount rate and forecasted financial information to determine its estimated fair value. The Company measured this equity method investment at fair value on a non-recurring basis and it is not included in the tables above.

The following table presents the balance of the equity method investment at September 30, 2011 that has been measured at fair value on a non-recurring basis, using the process described above, and the impairment charges recorded during the three and nine months ended September 30, 2011:

	Balance at September 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses for the Three and Nine Months Ended September 30, 2011
Other Assets: Investments (1)	$	6,734	$	—	$	—	$	6,734	$	(2,255	)

(1)Impairment losses are recorded within Other expenses in the condensed consolidated statements of income for the three and nine months ended September 30, 2011.

There were no liabilities measured at fair value on a non-recurring basis at September 30, 2011. There were no assets or liabilities measured at fair value on a non-recurring basis at December 31, 2010.

30

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

Derivative Financial Instruments—The Company uses foreign exchange derivative contracts, including forward contracts and foreign currency swaps, to reduce the effects of fluctuations in certain assets and liabilities denominated in foreign currencies. The Company also hedges a portion of its foreign currency exposures on anticipated foreign currency denominated revenues and expenses by entering into forward foreign exchange contracts.  As of September 30, 2011 and December 31, 2010, none of these contracts were designated as foreign currency cash flow hedges under ASC 815-10, Derivatives and Hedging (“ASC 815-10”).

The Company provides brokerage services to its customers for exchange-traded and over-the-counter derivative products, which include futures, forwards and options contracts.  The Company may enter into principal transactions for exchange-traded and over-the-counter derivative products to facilitate customer trading activities or to engage in principal trading for the Company’s own account.

The Company monitors market risk exposure from its matched principal business and principal trading business by regularly monitoring its concentration of market risk to financial instruments, countries or counterparties and regularly monitoring trades that have not settled within prescribed settlement periods or volume thresholds.  Additionally, market risks are monitored by the Company’s proprietary electronic risk monitoring system, which provides daily credit reports in each of the Company’s geographic regions that show credit concentration and facilitate the regular monitoring of transactions against key risk indicators.

For certain derivative contracts, the Company has entered into master netting agreements and collateral arrangements with counterparties.  These agreements provide the Company with the ability to offset a counterparty’s rights and obligations, request additional collateral when necessary or liquidate the collateral in the event of counterparty default. The Company reports these derivative contracts on a net-by-counterparty basis when management believes that a legal and enforceable right of offset exists under these agreements.

Fair values of derivative contracts on a gross and net basis as of September 30, 2011 and December 31, 2010 are as follows:

	September 30, 2011						December 31, 2010
Derivatives not designated as hedging instruments under ASC 815-10	Derivative Assets (1)			Derivative Liabilities (2)			Derivative Assets (1)			Derivative Liabilities (2)
Foreign exchange derivative contracts	$	278,956		$	279,301		$	76,057		$	79,368
Commodity derivative contracts	16,438			16,696			3,955			4,143
Fixed income derivative contracts	5,084			5,091			89			87
Equity derivative contracts	2,735			2,376			3,849			2,286
Total fair value of derivative contracts	$	303,213		$	303,464		$	83,950		$	85,884
Collateral and Counterparty netting	(300,094		)	(300,094		)	(78,871		)	(78,845		)
Total fair value	$	3,119		$	3,370		$	5,079		$	7,039

(1)Reflects futures and options on futures contracts within Receivables from brokers, dealers and clearing organizations and options and forwards contracts within Other assets.

(2)Reflects futures and options on futures contracts  within Payables to brokers, dealers and clearing organizations and options and forwards contracts within Other liabilities.

In addition to the Company’s outstanding forward foreign exchange contracts, the following table includes the outstanding long and short notional amounts on a gross basis of derivative financial instruments as of September 30, 2011 and December 31, 2010:

	September 30, 2011				December 31, 2010
	Long		Short		Long		Short
Foreign exchange derivative contracts	$	9,975,162	$	9,840,087	$	5,832,208	$	5,681,923
Commodity derivative contracts	52,831		52,732		501,953		803,357
Fixed income derivative contracts	2,094,625		2,011,591		18,346		18,399
Equity derivative contracts	21,587		33,015		40,040		92,840

31

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

The following is a summary of the effect of derivative contracts on the Condensed Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010:

	Location of Gain (Loss)	Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives not designated as hedging instruments under ASC 815-10	Recognized in Income on Derivatives	For the Three Months Ended September 30, 2011		For the Three Months Ended September 30, 2010
Foreign exchange derivative contracts	(1)	$	8,776	$	(5,913	)
Commodity derivative contracts	Principal transactions	4,244		1,707
Fixed income derivative contracts	Principal transactions	2,649		1,127
Equity derivative contracts	Principal transactions	750		445

(1)For the three months ended September 30, 2011, approximately $7,205 of gains were included within Other income (loss) and approximately $1,571 of gains were included within Principal transactions.  For the three months ended September 30, 2010, approximately $8,170 of losses were included within Other income (loss) and approximately $2,257 of gains were included within Principal transactions.

The following is a summary of the effect of derivative contracts on the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2011 and 2010:

	Location of Gain (Loss)	Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives not designated as hedging instruments under ASC 815-10	Recognized in Income on Derivatives	For the Nine Months Ended September 30, 2011		For the Nine Months Ended September 30, 2010
Foreign exchange derivative contracts	(1)	$	345	$	6,485
Commodity derivative contracts	Principal transactions	10,191		5,547
Fixed income derivative contracts	Principal transactions	8,736		1,127
Equity derivative contracts	Principal transactions	4,532		445

(1)For the nine months ended September 30, 2011, approximately $3,154 of losses were included within Other income (loss) and approximately $3,499 of gains were included within Principal transactions.  For the nine months ended September 30, 2010, approximately $2,653 of gains were included within Other income (loss) and approximately $3,832 of gains were included within Principal transactions.

13. VARIABLE INTEREST ENTITIES

Consolidated Variable Interest Entities

In December 2010, Kyte entered into an investment with a limited liability partnership (“LLP”), which is focused on developing a proprietary trading business.  The LLP is a VIE, and effective January 1, 2011, it was determined that the Company is the primary beneficiary of the LLP because Kyte is the provider of the majority of the LLP’s start-up capital and has the power to direct the activities of the VIE that most significantly impact the economic performance of the entity.

32

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

Non-consolidated Variable Interest Entities

The Company holds interests in certain variable interest entities (“VIEs”) which it does not consolidate as it determined that the Company is not the primary beneficiary. The Company’s involvement with such entities is in the form of direct equity interests and secured loans. The entities include an independent brokerage firm with a proprietary trading platform, trading entities in which the Company has provided initial capital to fund trading activities and a commodity pool operator. As of September 30, 2011 and December 31, 2010, assets recognized in the Condensed Consolidated Statements of Financial Condition related to the Company’s interests in these non-consolidated VIEs were $13,255 and $15,247, respectively, and are reflected in Other assets. The Company has not recorded any liabilities with respect to VIEs not consolidated. The Company’s maximum exposure to loss relating to non-consolidated VIEs as of September 30, 2011 and December 31, 2010 was $15,315 and $18,047, respectively. The maximum exposure to loss represents assets recognized by the Company relating to non-consolidated entities and notes receivable on loans made to VIEs in which the Company holds a variable interest.

14.    REGULATORY REQUIREMENTS

GFI Securities LLC is a registered broker-dealer with the SEC and FINRA. GFI Securities LLC is also a registered introducing broker with the National Futures Association and the Commodity Futures Trading Commission. Accordingly, GFI Securities LLC is subject to the net capital rules under the Exchange Act and the Commodity Exchange Act. Under these rules, GFI Securities LLC is required to maintain minimum Net Capital, as defined by applicable regulations, of not less than the greater of $250 or 2% of aggregate debits, as defined by applicable regulations.

GFI Brokers Limited, GFI Securities Limited, The Kyte Group Limited and Kyte Broking Limited are subject to the capital requirements of the Financial Services Authority in the United Kingdom (“FSA”). In addition, GFI Securities Limited and The Kyte Group Limited are subject to the FSA consolidated capital requirements.

GFI (HK) Securities LLC is subject to the capital requirements of the Securities and Futures Commission in Hong Kong (the “SFC”).

The following table sets forth information about the minimum regulatory capital that certain of the Company’s subsidiaries were required to maintain as of September 30, 2011:

	GFI Securities LLC		GFI Brokers Limited		GFI Securities Limited		The Kyte Group Limited		Kyte Broking Limited		GFI (HK) Securities LLC
Regulatory capital	$	14,304	$	47,427	$	72,713	$	9,423	$	5,821	$	1,244
Minimum regulatory capital required	250		25,793		35,078		8,167		2,827		386
Excess regulatory capital	$	14,054	$	21,634	$	37,635	$	1,256	$	2,994	$	858

GFI Securities Limited’s Japanese branch is subject to certain licensing requirements established by the Financial Instruments and Exchange Law (the “FIEL”) in Japan. As part of the licensing requirements, GFI Securities Limited’s Japanese branch is required to maintain minimum “brought-in” capital and stockholders’ equity of 50,000 Japanese Yen each (or approximately $649). GFI Securities Limited’s Japanese branch is also subject to the FIEL’s net capital rule. At September 30, 2011, GFI Securities Limited’s Japanese branch was in compliance with these capital requirements.

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 $643).  At September 30, 2011, GFI (HK) Brokers Ltd. had stockholders’ equity of 36,619 Hong Kong dollars (or approximately $4,706), which exceeded the minimum requirement by 31,619 Hong Kong dollars (or approximately $4,063).

GFI Group Pte. Ltd. is subject to the compliance requirements of the Monetary Authority of Singapore, which requires that GFI Group Pte. Ltd., among other things, maintain stockholders’ equity of 3,000 Singapore dollars (or approximately $2,324). At September 30, 2011, GFI Group Pte. Ltd. exceeded the minimum requirement by approximately 26,467 Singapore dollars (or approximately $20,501).

33

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

GFI Korea Money Brokerage Limited is licensed and regulated by the Ministry of Finance and Economy to engage in foreign exchange brokerage business, and is subject to certain regulatory requirements under the Foreign Exchange Transaction Act. 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 (or approximately $4,216). At September 30, 2011, GFI Korea Money Brokerage Limited exceeded the minimum requirement for paid-in-capital by approximately 7,121,325 Korean Won (or approximately $6,005).

These regulatory rules may restrict the Company’s ability to withdraw capital from its regulated subsidiaries. In addition to the requirements set forth above, certain of our other subsidiaries are subject to minimum net capital, minimum stockholders’ equity or similar requirements of the jurisdictions in which they operate. The Company believes it is in compliance with all of these requirements at September 30, 2011 and December 31, 2010 with the exception of The Kyte Group Limited’s U.K. consolidated group capital requirement which had fallen below the required minimum amount on December 31, 2010. Subsequent to December 31, 2010, the Company has re-organized its investments in certain Kyte entities and has provided additional capital to the regulated group to comply with applicable group capital requirements.

15.    SEGMENT AND GEOGRAPHIC INFORMATION

As a result of the acquisition of Kyte on July 1, 2010, the Company now operates a new segment which was initially disclosed as “Clearing, Execution and Trading” for the Company’s quarterly report on Form 10-Q for the period ended September 30, 2010. During the fourth quarter of 2010, the Company changed the name of this operating segment to “Clearing and Backed Trading” in order to better describe the material operations of this segment, which is to provide clearing, risk management and settlement services and, in some instances, capital to start-up trading groups, small hedge funds, market-makers and individual traders. Management describes the investments in these trading entities as “Backed Trading.” In this operating segment, the Company also provides certain execution and back-office services. The Company believes the presentation of these operations as a stand-alone segment best reflects the economic realities of these operations, as well as how the Company is managed and the manner in which the Company’s performance is evaluated by the Company’s chief operating decision makers. As of July 1, 2010, in accordance with ASC 280-10, Segment Reporting (“ASC 280-10”), the Company determined that it has four operating segments: (i) Americas Brokerage, (ii) Europe, Middle East and Africa (“EMEA”) Brokerage,  (iii) Asia Brokerage, and (iv) Clearing and Backed Trading. The Company’s brokerage operations provide brokerage services in four broad product categories: fixed income, financial, equity and commodity. Additionally, in accordance with the criteria set forth in ASC 280-10, the Company presents its operating segments as five reportable segments: the four operating segments described above and “All Other”. The All Other segment captures costs that are not directly assignable to one of the operating segments, primarily consisting of the Company’s corporate business activities and operations from software, analytics and market data.

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

	Three Months Ended September 30, 2011
	Americas Brokerage		EMEA Brokerage		Asia Brokerage		Clearing and Backed Trading		All Other			Total
Total revenues	$	83,805	$	103,653	$	22,946	$	43,712	$	21,846		$	275,962
Revenues, net of interest and transaction-based expenses	80,300		100,373		22,924		12,723		22,142			238,462
Income (loss) before income taxes	23,783		27,745		5,343		1,229		(49,094		)	9,006

	Three Months Ended September 30, 2010
	Americas Brokerage		EMEA Brokerage		Asia Brokerage		Clearing and Backed Trading			All Other			Total
Total revenues	$	71,546	$	83,833	$	18,067	$	26,668		$	9,876		$	209,990
Revenues, net of interest and transaction-based expenses	67,940		81,429		18,052		5,572			10,243			183,236
Income (loss) before income taxes	16,804		22,617		3,500		(1,988		)	(44,318		)	(3,385		)

34

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

	Nine Months Ended September 30, 2011
	Americas Brokerage		EMEA Brokerage		Asia Brokerage		Clearing and Backed Trading		All Other			Total
Total revenues	$	237,386	$	304,985	$	67,392	$	123,492	$	47,888		$	781,143
Revenues, net of interest and transaction-based expenses	226,578		296,107		67,337		37,399		48,774			676,195
Income (loss) before income taxes	64,713		83,704		16,228		4,559		(142,092		)	27,112

	Nine Months Ended September 30, 2010
	Americas Brokerage		EMEA Brokerage		Asia Brokerage		Clearing and Backed Trading			All Other			Total
Total revenues	$	222,277	$	293,180	$	57,120	$	26,668		$	41,119		$	640,364
Revenues, net of interest and transaction-based expenses	209,811		283,986		57,072		5,572			42,191			598,632
Income (loss) before income taxes	50,234		92,445		12,321		(1,988		)	(121,904		)	31,108

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

Geographic information regarding revenues for the three and nine months ended September 30, 2011 and 2010, respectively, and information regarding long-lived assets defined as property, equipment, leasehold improvements and software inventory (included within Other assets) in each geographic area as of September 30, 2011 and December 31, 2010, respectively, are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Revenues:
United States	$	80,801	$	71,082	$	228,882	$	219,284
United Kingdom	131,494		94,959		382,885		285,160
Other	63,667		43,949		169,376		135,920
Total	$	275,962	$	209,990	$	781,143	$	640,364

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Revenues, net of interest and transaction-based expenses:
United States	$	78,661	$	68,908	$	222,212	$	210,418
United Kingdom	99,036		72,270		292,787		258,232
Other	60,765		42,058		161,196		129,982
Total	$	238,462	$	183,236	$	676,195	$	598,632

35

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

	September 30, 2011		December 31, 2010
Long-lived Assets, as defined:
United States	$	51,776	$	52,649
United Kingdom	11,602		14,132
Other	5,244		4,493
Total	$	68,622	$	71,274

Revenues are attributed to geographic areas based on the location of the Company’s relevant subsidiary.

16.    SUBSEQUENT EVENTS

In October 2011, the Board of Directors declared a quarterly cash dividend of $0.05 per share payable on November 30, 2011 to shareholders of record on November 15, 2011.

Subsequent events have been evaluated for recording and disclosure in the notes to the Condensed Consolidated Financial Statements through the filing date of this Form 10-Q.

36

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, 2011, the related condensed consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2011 and 2010, and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2011 and 2010.  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 the Company as of December 31, 2010, and the related consolidated statements of income, comprehensive income, cash flows and changes in stockholders’ equity for the year then ended (not presented herein); and in our report dated March 16, 2011, 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, 2010 is fairly stated, in all material respects, in relation to the consolidated statement of financial condition from which it has been derived.

/s/ Deloitte & Touche LLP

New York, New York
November 9, 2011

37

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 this Form 10-Q and in our 2010 Form 10-K;

·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;

·risks associated with our matched principal and principal trading businesses, including risks arising from specific brokerage transactions, or series of brokerage transactions, such as credit risk, market risk or the risk of fraud or unauthorized trading;

·the extensive regulation of the Company’s business, changes in laws and regulations governing our business and operations or permissible activities and our ability to comply with such laws and regulations;

·our ability to obtain and maintain regulatory approval to conduct our business in light of certain proposed changes in laws and regulations in the U.S. and Europe and increased operational costs related to compliance with such changes in laws and regulations;

·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;

·economic, political and market factors affecting trading volumes, securities prices, or demand for our brokerage services, including recent conditions in the world economy and financial markets in which we provide our services;

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

·           ��      our ability to assess and integrate acquisitions of businesses or technologies;

·the maturing of key markets and any resulting contraction in commissions;

·risks associated with the expansion and growth of our operations generally or of specific products or services, including, in particular, our ability to manage our international operations;

·uncertainties associated with currency fluctuations;

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

·uncertainties relating to litigation;

·liquidity and clearing capital requirements and the impact of the conditions in the world economy and the financial markets in which we provide our services on the availability and terms of additional or future capital;

38

·our ability to identify and remediate any material weakness in our internal controls that could affect our ability to prepare financial statements and reports in a timely manner;

·the effectiveness of our risk management policies and procedures and the impact of unexpected market moves and similar events;

·future results of operations and financial condition; and

·the success of our business strategies.

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,’’ ‘‘Item 3—Quantitative and Qualitative Disclosures About Market Risk’’ and “Part II, Item 1A Risk Factors” and elsewhere in this Form 10-Q, 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 Securities Exchange Commission (the “SEC”) and future events or circumstances could differ significantly from these forward-looking statements. We do 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 a leading provider of wholesale brokerage services, clearing services and electronic execution and trading support products for global financial markets, our results of operations are impacted by a number of external market factors, including market volatility and transactional volumes, the organic growth or contraction of the derivative and cash markets in which we provide our brokerage services, the particular mix of transactional activity in our various products, the competitive and regulatory environment in the various jurisdictions and markets in which we operate and the financial condition of the dealers, hedge funds, traders and other market participants to whom we provide our services. 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 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 typically benefits from volatility in the markets that we serve, as periods of increased volatility often coincide with more robust trading by our clients and a higher volume of transactions. However, periods of extreme volatility may result in significant market dislocations that can also lead clients to reduce their trading activity.

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 2011, the markets in which we operate generally experienced higher volatility compared to the same period of 2010 due, in large part, to the U.S. debt downgrade, the continuing sovereign debt concerns in Europe and generally weak economic data. The combination of these and other factors resulted in significantly higher brokerage revenues across all regions and product categories in the third quarter of 2011 compared to the same quarter last year.

Growth or Decline in Underlying Markets

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

39

Futures exchanges, in many cases, reported strong revenue performance in the third quarter of 2011 compared to the prior year period. The CME Group, Inc. reported a 27% increase in average daily volumes in its future products while IntercontinentalExchange, Inc. (“ICE”) reported a 23% increase in its futures products and a 13% increase in the average daily commissions from its OTC energy products.  Revenues from ICE’s credit default swap trade execution, processing and clearing businesses were up 7% compared to the third quarter of 2010.  However, the CME reported a 9% decrease in CME Clearport (OTC) average daily volumes.

According to the Bank for International Settlements, the size of the global derivative markets has recently moderated after years of rapid growth (as measured by outstanding notional amount).  As of December 31, 2010, the latest period reported, the compound annual growth rates in OTC and exchange-traded notional amounts outstanding over the two year period ended December 31, 2010 were 0.2% and 8.5%, respectively, compared to compound annual growth rates of 24.9% and 9.5%, respectively, over the five years ended December 31, 2008.  The disparity between the recent growth in the amount of outstanding exchange-traded derivatives versus the lower growth in the amount of outstanding OTC derivatives highlights the recent shift in market preference towards standardized, cleared or shorter-dated products that typically trade on an exchange.  We also believe the lower growth in notional amounts outstanding of OTC derivatives can be attributed, in part, to the regulatory uncertainty and the industry’s effort to net derivative exposure, especially in credit derivatives, through netting arrangements and the advent of central clearing for certain derivatives.

Competitive and Regulatory 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 and technology development personnel with extensive experience in the specialized markets we serve. Competition for the services of productive brokers remained intense in the third quarter of 2011, although such competition may have lessened slightly from prior periods. The consolidation and personnel layoffs by dealers, hedge funds and other market participants over the last few years has led to increased competition to provide brokerage services to a smaller number of market participants in the near term.

In addition, we believe the continuing global regulatory overhaul of many of the markets in which we provide our services has led to uncertainty that continued into the third quarter of 2011. Regulators and legislators in the U.S. and abroad have proposed and, in some instances, already adopted, a slate of regulatory changes that call for, among other things, central clearing of certain derivatives, greater transparency and reporting of derivatives transactions, mandatory trading of certain derivatives transactions on regulated exchanges or swap execution facilities and the required or increased use of electronic trading system technologies.  We believe that the new and proposed regulation has not eliminated the uncertainty that has persisted in many OTC derivatives markets since the financial crisis.

We are optimistic that unfolding regulatory reform, including requirements for enhanced regulatory transparency, central clearing and efficient execution will benefit and eventually grow the global derivatives markets. We remain confident that our business will qualify in the U.S. as a Swap Execution Facility, and in Europe as an Organized Trading Facility. Over the past year, we believe that several of our hybrid electronic trading platforms built upon their past successes and became more engrained in customer work-flows, which will enable us to more readily adjust to the new financial regulations.

Financial Overview

The following factors had a significant impact on our revenues and employee costs during the three month period ended September 30, 2011:

Our total revenues increased 31.4% to $276.0 million for the three months ended September 30, 2011 from $210.0 million for the three months ended September 30, 2010. The main factors contributing to this increase in our revenues, including a $38.5 million increase in our brokerage revenues, were:

·Increased  market volatility due to the U.S. debt downgrade and continued sovereign debt concerns in Europe which led to increased trading activity, particularly in the equity and credit markets;

·Increased trading activity in certain emerging market financial products in which we have a leading market share;

·Contributions from new brokerage desks and new brokers hired;

·Increased electronic trading activity on our hybrid electronic trading platforms, including for several financial and fixed income products in the U.S. and South America;

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·An increase in clearing services revenues at our Kyte subsidiary due, in large part, to increase trading volumes; and

·The continued strong performance of our Trayport subsidiary, which led to an increase in our software, analytics and market data revenue.

Partially offsetting these factors were negative factors that affected our brokerage and other revenues, including:

·Global economic concerns and competitive pressures in certain commodity markets; and

·Regulatory and governmental uncertainty as it relates to market structure and operations in OTC derivative markets.

The most significant component of our cost structure is employee compensation and benefits, which includes salaries, sign-on and retention bonuses, incentive compensation and related employee benefits and taxes. Our employee compensation and benefits expense increased 20.0% to $160.0 million for the three months ended September 30, 2011 from $133.3 million for the three months ended September 30, 2010.

Our compensation and employee benefits for all employees have both a fixed and variable component. Base salaries and benefit costs are primarily fixed for all employees while bonuses constitute the variable portion of our compensation and employee benefits. Within overall compensation and employee benefits, the employment cost of our brokerage personnel is the key component. Bonuses for brokerage personnel are primarily based on individual performance and/or the operating results of their related brokerage desk. Additionally, a portion of our bonus expense is subject to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period. For many of our brokerage employees, their bonuses constitute a significant component of their overall compensation. Broker performance bonuses increased to $67.6 million for the three months ended September 30, 2011 from $53.4 million for the three months ended September 30, 2010.

Further, we may pay sign-on bonuses to certain newly-hired brokers and retention bonuses to certain of our existing brokers who agree to long-term employment agreements. These bonuses may be paid in the form of cash or restricted stock units (“RSUs”) and are typically expensed over the term of the related employment agreement for cash bonuses and the related service period for RSUs, which is generally two to four years. These employment agreements typically contain repayment of all or a portion of the cash payment and forfeiture provisions for unvested RSUs should the employee voluntarily terminate his or her employment or if the employee’s employment is terminated for cause during the initial term of the agreement. Expense recognized related to bonuses given to brokerage personnel increased to $8.1 million for the three months ended September 30, 2011 from $6.9 million for the three months ended September 30, 2010.

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Results of Consolidated Operations

The following table sets forth our condensed consolidated results of operations for the periods indicated. Beginning in the fourth quarter ended December 31, 2010, we included the subtotal “Revenues, net of interest and transaction-based expenses,” or net revenues, which is defined as total revenues less certain direct incremental costs associated with those revenues. Beginning in the second quarter ended June 30, 2011, we changed the name of the income statement line item “Equity in earnings of unconsolidated brokerage businesses” to “Equity in net earnings of unconsolidated businesses”.  Additionally, we have reclassified amounts previously presented in the “Other expenses” line item into “Equity in net earnings of unconsolidated businesses.” These changes have been applied to all periods presented. See Note 2 to our Condensed Consolidated Financial Statements in Part I-Item 1 for further discussion.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2011		2010			2011		2010
Revenues
Agency commissions	$	151,446	$	125,011		$	435,442	$	406,465
Principal transactions	61,711		49,677			186,673		166,499
Total brokerage revenues	213,157		174,688			622,115		572,964
Clearing services revenues	31,872		21,553			87,222		21,553
Interest income from clearing services	606		232			1,618		232
Equity in net earnings of unconsolidated businesses	4,260		1,875			9,943		1,886
Software, analytics and market data	18,837		14,905			54,328		44,324
Other income (loss)	7,230		(3,263		)	5,917		(595		)
Total revenues	275,962		209,990			781,143		640,364
Interest and transaction-based expenses
Transaction fees on clearing services	30,388		20,729			84,209		20,729
Transaction fees on brokerage services	6,673		5,887			19,357		20,865
Interest expense from clearing services	439		138			1,382		138
Total interest and transaction-based expenses	37,500		26,754			104,948		41,732
Revenues, net of interest and transaction-based expenses	238,462		183,236			676,195		598,632
Expenses
Compensation and employee benefits	159,980		133,345			466,300		419,117
Communications and market data	15,187		13,788			45,364		36,369
Travel and promotion	9,723		8,665			30,124		26,899
Rent and occupancy	6,322		5,867			18,183		16,553
Depreciation and amortization	9,990		8,851			29,665		24,879
Professional fees	6,866		7,055			19,641		19,899
Interest on borrowings	12,035		3,066			18,247		8,371
Other expenses	9,353		5,984			21,559		15,437
Total other expenses	229,456		186,621			649,083		567,524
Income (loss) before provision for (benefit from) income taxes	9,006		(3,385		)	27,112		31,108
Provision for (benefit from) income taxes	2,884		(1,050		)	7,592		9,643
Net income (loss) before attribution to non-controlling shareholders	6,122		(2,335		)	19,520		21,465
Less: Net income attributable to non-controlling interests	57		151			558		151
GFI’s net income (loss)	$	6,065	$	(2,486	)	$	18,962	$	21,314

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The following table sets forth our condensed consolidated results of operations as a percentage of our revenues, net of interest and transaction-based expenses, for the periods indicated:

	Three Months Ended September 30,				Nine Months EndedSeptember 30,
	2011		2010		2011		2010
Revenues
Agency commissions	63.5	%	68.2	%	64.4	%	67.9	%
Principal transactions	25.9		27.1		27.6		27.8
Total brokerage revenues	89.4		95.3		92.0		95.7
Clearing services revenues	13.4		11.8		12.9		3.6
Interest income from clearing services	0.3		0.1		0.2		0.1
Equity in net earnings of unconsolidated businesses	1.8		1.0		1.5		0.3
Software, analytics and market data	7.8		8.1		8.0		7.4
Other income (loss)	3.0		(1.7	)	0.9		(0.1	)
Total revenues	115.7		114.6		115.5		107.0
Interest and transaction-based expenses
Transaction fees on clearing services	12.7		11.3		12.4		3.5
Transaction fees on brokerage services	2.8		3.2		2.9		3.5
Interest expense from clearing services	0.2		0.1		0.2		0.0
Total interest and transaction-based expenses	15.7		14.6		15.5		7.0
Revenues, net of interest and transaction-based expenses	100.0	%	100.0	%	100.0	%	100.0	%
Expenses
Compensation and employee benefits	67.1		72.8		69.0		70.0
Communications and market data	6.4		7.5		6.7		6.1
Travel and promotion	4.1		4.7		4.4		4.5
Rent and occupancy	2.7		3.2		2.7		2.8
Depreciation and amortization	4.2		4.8		4.4		4.1
Professional fees	2.9		3.8		2.9		3.3
Interest on borrowings	5.0		1.7		2.7		1.4
Other expenses	3.9		3.3		3.2		2.6
Total other expenses	96.3	%	101.8	%	96.0	%	94.8	%
Income (loss) before provision for (benefit from) income taxes	3.7		(1.8	)	4.0		5.2
Provision for (benefit from) income taxes	1.2		(0.5	)	1.1		1.6
Net income (loss) before attribution to non-controlling shareholders	2.5		(1.3	)	2.9		3.6
Less: Net income attributable to non-controlling interests	0.0		0.1		0.1		0.0
GFI’s net income (loss)	2.5	%	(1.4	)%	2.8	%	3.6	%

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Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010

Net Income

GFI’s net income for the three months ended September 30, 2011 was $6.1 million as compared to a net loss of $2.5 million for the three months ended September 30, 2010, an increase of $8.6 million. Total revenues increased by $66.0 million, or 31.4%, to $276.0 million for the three months ended September 30, 2011 from $210.0 million for the same period in the prior year. The increase in total revenues for the three months ended September 30, 2011 was primarily due to volatile and active trading markets across all products in which we operate, strength in emerging market financial products and investments in new desks and brokerage personnel, all of which collectively helped drive a $38.5 million increase in brokerage revenues.  Active trading markets also contributed to a $10.3 increase in clearing services revenues.  Further contributing to the increase in total revenues was an increase of $3.9 million in software, analytics and market data revenues due largely to the strong performance of our Trayport subsidiaries and an increase of $10.5 million in other income (loss) primarily due to net realized and unrealized gains from foreign currency hedges in the amount of $15.4 million, partially offset by a net loss on the remeasurement of foreign currency transactions and balances in the amount of $6.1 million.

Total interest and transaction-based expenses increased by $10.7 million, to $37.5 million for the three months ended September 30, 2011 from $26.8 million for the three months ended September 30, 2010. The increase is primarily related to a $9.7 million increase in transaction fees related to clearing services provided by our Kyte operations, which benefited from active trading conditions during the quarter.  Kyte incurs exchange, clearing and execution costs in order to provide clearing services to its customers. Total expenses other than interest and transaction-based expenses increased by $42.9 million, or 23.0% to $229.5 million for the three months ended September 30, 2011 from $186.6 million for the three months ended September 30, 2010.  The increase in total other expenses is largely attributable to increased compensation expense, which resulted from higher performance bonuses as a result of higher brokerage revenues, as well as an increase in the headcount of our brokerage personnel and in our back office departments.  The increase in total other expenses is also attributable to $6.0 million in bond redemption costs associated with the July 2011 redemption of the entire $60.0 million principal amount of our senior secured notes which were due in 2013 and $2.3 million related to the write-down of an investment in an unconsolidated affiliate.

Revenues

The following table sets forth the changes in revenues for the three months ended September 30, 2011 as compared to the same period in 2010 (dollars in thousands, except percentage data):

	For the Three Months Ended September 30,
	2011		%*		2010		%*		Increase		%**
Revenues
Brokerage revenues:
Fixed income	$	62,585	26.3	%	$	52,975	28.9	%	$	9,610	18.1	%
Equity	45,785		19.2		37,172		20.2		8,613		23.2
Financial	52,571		22.0		39,731		21.7		12,840		32.3
Commodity	52,216		21.9		44,810		24.5		7,406		16.5
Total brokerage revenues	213,157		89.4		174,688		95.3		38,469		22.0
Clearing services revenues	31,872		13.4		21,553		11.8		10,319		47.9
Other revenues	30,933		12.9		13,749		7.5		17,184		125.0
Total revenues	275,962		115.7		209,990		114.6		65,972		31.4
Total interest and transaction-based expenses	37,500		15.7		26,754		14.6		10,746		40.2
Revenues, net of interest and transaction-based expenses	$	238,462	100.0	%	$	183,236	100.0	%	$	55,226	30.1	%

*Denotes % of revenues, net of interest and transaction-based expenses

**Denotes % change of dollar amount of revenue for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010

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Brokerage Revenues—We offer our brokerage services in four broad product categories: fixed income, equity, financial, and commodity. Below is a discussion of our brokerage revenues by product category for the three months ended September 30, 2011 as compared to the same period in 2010.

·Broker productivity (defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period) across all product categories increased by approximately 13% for the three months ended September 30, 2011, as compared to the same period from the prior year.

·Fixed income product brokerage revenues increased $9.6 million, or 18.1%, in 2011 from the prior year third quarter. Revenues from derivative fixed income products increased approximately 18.5% from the third quarter of 2010, due, in part, to volatile and active market conditions and the strong performance of our CreditMatch® trading platform. Also contributing to the increase was an increase in principal transaction revenues from fixed income derivative products related to our Kyte subsidiary. Cash fixed income revenues were up 17.8% aided by volatile and active markets and revenues from a company we acquired in the fourth quarter of 2010. Our fixed income product brokerage personnel headcount increased by 36 to 360 employees at September 30, 2011 from 324 employees at September 30, 2010.

·The increase in equity product brokerage revenues of $8.6 million, or 23.2%, for the three months ended September 30, 2011 compared to the same period in 2010 was primarily attributable to higher cash equity and equity derivative revenues in Europe and the U.S. due to relatively volatile and active markets.  The increase in equity product brokerage revenues occurred despite a decline in equity product brokerage personnel headcount, which decreased by 4 to 240 employees at September 30, 2011, from 244 employees at September 30, 2010.

·The increase in financial product brokerage revenues of $12.8 million, or 32.3%, for the three months ended September 30, 2011 compared to the same period in 2010 was due, in large part, to increased revenues from our emerging markets brokerage businesses in Latin America and Asia, as well as increased usage of GFI’s ForexMatch® electronic trading platform. Our financial product headcount increased by 48 to 337 employees at September 30, 2011 from 289 employees at September 30, 2010.

·The increase in commodity product brokerage revenues of $7.4 million, or 16.5%, for the three months ended September 30, 2011 compared to the same period in 2010 was primarily attributable to higher revenues from existing energy and commodity desks, as well as revenues from new desks, partially offset by lower revenues from our oil and freight product desks.  Our commodity product brokerage personnel headcount increased by 26 to 321 employees at September 30, 2011 from 295 employees at September 30, 2010.

Clearing Services Revenue

·Clearing services revenues increased by $10.3 million, or 47.9%, for the third quarter of 2011 compared to the same period in 2010, primarily attributable to market volatility which increased trading and clearing volumes in our Kyte subsidiary’s clearing business.

Other Revenues

·Other revenues were comprised of the following (dollars in thousands):

	For the Three Months Ended September 30,
	2011			2010
Software, analytics and market data	$	18,837		$	14,905
Equity in net earnings of unconsolidated businesses	4,260			1,875
Remeasurement of foreign currency transactions and balances	(2,735		)	3,392
Net realized and unrealized gains (losses) from foreign currency hedges	7,204			(8,170		)
Interest income on short-term investments	389			682
Interest income from clearing services	606			232
Other	2,372			833
Total other revenues	$	30,933		$	13,749

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·Other revenues increased by $17.2 million in the third quarter of 2011 to $30.9 million from $13.7 million in the same period in 2010. This increase was largely related to (i) a net increase of $15.4 million in net realized and unrealized gains related to hedges of certain non-U.S dollar assets, as well as hedges of current and anticipated revenues denominated in foreign currencies, (ii) an increase in our software, analytics and market data revenues of $3.9 million, which was primarily attributable to an increase in software revenues at our Trayport subsidiary and (iii) a net increase of $2.4 million in net earnings of unconsolidated businesses which was primarily related to the strong performance of certain Kyte backed traders and brokerage operations accounted for under the equity method. Partially offsetting this increase is a net decrease of $6.1 million related to the remeasurement of foreign currency transactions and balances. The foreign currency remeasurement gains and losses result from the remeasurement of asset and liability balances that are denominated in currencies other than the functional currency of the business unit involved in such transactions.

Interest and Transaction-Based Expenses

·Beginning with the three and twelve month periods ended December 31, 2010, we reported the subtotal “Revenues, net of interest and transaction-based expenses” which includes certain direct incremental costs associated with brokerage and clearing services revenue. We believe this presentation provides a clearer picture of the financial performance of the businesses we operate.  A subset of these expenses were previously presented within our total expenses category as clearing fees and related to our non-Kyte cash equity and cash fixed income brokerage businesses.

·Transaction fees on clearing services increased by $9.7 million, or 46.9%, to $30.4 million for the three months ended September 30, 2011 from $20.7 million in the same period in 2010 due to increased trading and clearing volumes in Kyte’s clearing business.  These costs are entirely related to the clearing operations of Kyte.  Kyte uses the services of third parties who act as General Clearing Members of clearing houses in order to clear cash and derivative products for its customers.  Kyte charges a fee to its customers for clearing, settlement and other services against which customer negotiated rebates may be applied.  Kyte also incurs exchange, clearing and execution costs on behalf of its clients, which are mostly a pass-through cost to our clients and are therefore included in both revenues and expenses. The margin on clearing services revenues increased to 4.7% for the three months ended September 30, 2011 as compared to 3.8% for the three months ended September 30, 2010.

·The increase in transaction fees on brokerage services of $0.8 million, or 13.4%, in 2011 as compared to 2010 was primarily due to the increase in the amount of business conducted by our cash equities and cash fixed income brokerage businesses. Transaction fees on brokerage services as a percentage of our total revenues from principal transactions decreased to 10.8% for 2011 as compared to 11.9% in 2010. Principal transactions are generally settled through third party clearing organizations that charge us a fee for their services. Transaction fees for cash fixed income principal transactions tend to be lower than for cash equity principal transactions. 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, transaction fees also include fees incurred in certain equity transactions executed on an agency basis.

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Expenses

The following table sets forth the changes in expenses for the three months ended September 30, 2011 as compared to the same period in 2010 (dollars in thousands, except percentage data):

	For the Three Months Ended September 30,
	2011		%*		2010		%*		Increase			%**
Expenses
Compensation and employee benefits	$	159,980	67.1	%	$	133,345	72.8	%	$	26,635		20.0	%
Communications and market data	15,187		6.4		13,788		7.5		1,399			10.1
Travel and promotion	9,723		4.1		8,665		4.7		1,058			12.2
Rent and occupancy	6,322		2.7		5,867		3.2		455			7.8
Depreciation and amortization	9,990		4.2		8,851		4.8		1,139			12.9
Professional fees	6,866		2.9		7,055		3.8		(189		)	(2.7	)
Interest on borrowings	12,035		5.0		3,066		1.7		8,969			292.5
Other expenses	9,353		3.9		5,984		3.3		3,369			56.3
Total other expenses	$	229,456	96.3	%	$	186,621	101.8	%	$	42,835		23.0	%

*Denotes % of revenues, net of interest and transaction-based expenses

**Denotes % change of dollar amount of expense for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010

Compensation and Employee Benefits

·The increase in compensation and employee benefits expenses of $26.6 million in the third quarter of 2011 was largely attributable to higher broker performance bonus due to higher brokerage revenues, as well as higher broker salary, sign-on and retention bonus expenses related to an increase in broker headcount. The increase is also due, in part, to our increased headcount for back office support.

·Total compensation and employee benefits as a percentage of revenues, net of interest and transaction-based expenses decreased to 67.1% for the three months ended September 30, 2011 compared to 72.8% for the same period in 2010. The lower compensation ratio is primarily due to higher revenues across all brokerage and other product areas and increased broker productivity. Higher revenues, though partially offset by higher performance bonuses, tend to lower our overall compensation ratio as they offset the salaries of back office staff.

·Performance bonus expense represented 46.7% and 44.1% of total compensation and employee benefits expense for the three months ended September 30, 2011 and 2010, 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 and retention bonus amortization, which includes the amortization of cash sign-on and retention bonuses initially paid in prior periods, represented 5.8% and 6.2% of total compensation and employee benefits expense for the three months ended September 30, 2011 and 2010, respectively.

All Other Expenses

·The increase in communications and market data of $1.4 million in the third quarter of 2011 was due in large part to an increase in broker headcount during the third quarter 2011 compared to the same period in 2010.

·The increase in travel and promotion of $1.1 million was primarily attributable to increased broker headcount year-over-year.  Travel and promotion, as a percentage of revenues, net of interest and transaction—based expenses for the three months ended September 30, 2011, decreased to 4.1% from 4.7% for the same period from the prior year.

·The increase in depreciation and amortization of $1.1 million was due, in part, to the amortization expense of intangible assets acquired in the fourth quarter of 2010.

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·The increase in interest on borrowings of $9.0 million is due, in part, to $6.0 million in bond redemption costs associated with the July 2011 redemption of the entire $60.0 million principal amount of our senior secured notes which were due in 2013.  Due to the July issuance of $250.0 million senior notes due 2018, we also had greater borrowings outstanding, as well as a higher interest rate, during the quarter compared to the same period in 2010.  We estimate that the impact of the July issuance of $250.0 million of senior notes due 2018, net against the redemption of the $60.0 million principal amount of our senior secured notes which were due in 2013 and the repayment of all outstanding amounts under our second amended and restated credit agreement (as amended and restated, the “Credit Agreement”) with Bank of American, N.A. and certain other lenders, will increase our pre-tax interest on borrowings by $1.1 million per month.

·Other expenses increased $3.4 million in the three months ended September 30, 2011 from the same period in the prior year which was due, in large part, to a $2.3 million write-down of an investment in an unconsolidated affiliate.

·Our effective tax rate was 32.0% for the three months ended September 30, 2011 as compared to 31.0% for the same period in the prior year. The increase in the effective tax rate was primarily due to a shift in the geographic mix of our earnings in favor of jurisdictions with higher tax rates, as well as additional tax to increase our estimated tax expense for the nine months ended September 30, 2011 to our effective year-to-date tax rate of 28.0%.

Nine Months Ended September 30, 2011 Compared to the Nine Months Ended September 30, 2010

Net Income

GFI’s net income for the nine months ended September 30, 2011 was $19.0 million as compared to $21.3 million for the nine months ended September 30, 2010, a decrease of $2.3 million, or 10.8%. Total revenues increased by $140.7 million, or 22.0%, to $781.1 million for the nine months ended September 30, 2011 from $640.4 million for the same period in the prior year.  The increase in total revenues for the nine months ended September 30, 2011 was due, in part, to the addition of Kyte, which we acquired on July 1, 2010.  For the nine months ended September 30, 2011, as compared to the same period in 2010, Kyte’s operations contributed an increase of $65.7 million to our clearing services revenue, $12.4 million in brokerage revenues and $12.0 million in net equity in earnings of unconsolidated businesses.  These increases were due to organic growth at Kyte, as well as the timing of the acquisition in 2010. The increase in revenues included a $49.2 million increase in brokerage revenues, which was due, in part, to active trading markets across all products in which we operate and our strength in emerging market financial products. Software, analytics and market data revenues increased by $10.0 million, which was due, in large part, to the strong performance of our Trayport subsidiary.

Total interest and transaction-based expenses increased by $63.3 million, to $105.0 million for the nine months ended September 30, 2011 from $41.7 million for the nine months ended September 30, 2010. The increase is primarily related to the clearing services business operated by Kyte and the timing of the acquisition in 2010. Kyte incurs exchange, clearing and execution costs in order to provide clearing services to its customers. Total expenses other than interest and transaction-based expenses increased by $81.6 million, or 14.4% to $649.1 million for the nine months ended September 30, 2011 from $567.5 million for the nine months ended September 30, 2010.  The increase in total other expenses is largely attributable to (i) increased compensation expense, which resulted from higher performance bonuses as a result of higher brokerage revenues, as well as an increase in headcount for our brokerage personnel and in our back office departments, (ii) $6.0 million in costs associated with the July 2011 redemption of the entire $60.0 million principal amount of our senior secured notes which were due in 2013 and $2.3 million related to the write-down of an investment in an unconsolidated affiliate and (iii) an increase in compensation and employee benefits, communications and market data, and depreciation and amortization related to the July 1, 2010 acquisition of Kyte.

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Revenues

The following table sets forth the changes in revenues for the nine months ended September 30, 2011 as compared to the same period in 2010 (dollars in thousands, except percentage data):

	For the Nine Months Ended  September 30,
	2011		%*		2010		%*		Increase		%**
Revenues
Brokerage revenues:
Fixed income	$	187,276	27.7	%	$	185,269	31.0	%	$	2,007	1.1	%
Equity	138,147		20.4		131,325		21.9		6,822		5.2
Financial	150,673		22.3		116,964		19.5		33,709		28.8
Commodity	146,019		21.6		139,406		23.3		6,613		4.7
Total brokerage revenues	622,115		92.0		572,964		95.7		49,151		8.6
Clearing services revenues	87,222		12.9		21,553		3.6		65,669		304.7
Other revenues	71,806		10.6		45,847		7.7		25,959		56.6
Total revenues	781,143		115.5		640,364		107.0		140,779		22.0
Total interest and transaction-based expenses	104,948		15.5		41,732		7.0		63,216		151.5
Revenues, net of interest and transaction-based expenses	$	676,195	100.0	%	$	598,632	100.0	%	$	77,563	13.0	%

*Denotes % of revenues, net of interest and transaction-based expenses

**Denotes % change of dollar amount of revenue for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010

Brokerage Revenues—We offer our brokerage services in four broad product categories: fixed income, equity, financial, and commodity. Below is a discussion of our brokerage revenues by product category for the nine months ended September 30, 2011 as compared to the same period in 2010:

·Broker productivity (defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period) across all product categories was consistent for the nine months ended September 30, 2011, as compared to the same period for the prior year.

·Fixed income product brokerage revenues increased $2.0 million, or 1.1%, in the nine months ended September 30, 2011 compared to the same period for the prior year. Revenues from cash fixed income products were up 4.6% due, in large part, to volatile market conditions, an acquisition of a bond broker made in the fourth quarter of 2010 and revenues from Kyte. Slightly offsetting this increase was a decrease in revenues from fixed income derivative products of approximately 2.4% due, in large part, to lower volumes in Europe. Our fixed income product brokerage personnel headcount increased by 36 to 360 employees at September 30, 2011 from 324 employees at September 30, 2010.

·The increase in equity product brokerage revenues of $6.8 million, or 5.2%, in 2011 as compared with 2010 was attributable to increased equity revenues in Europe and Asia due, in large part, to revenues from Kyte for which there was not a fully comparable period in 2010. The increase was slightly offset by lower cash and derivative equity revenues in the U.S. Our equity product brokerage personnel headcount decreased by 4 to 240 employees at September 30, 2011 from 244 employees at September 30, 2010.

·The increase in financial product brokerage revenues of $33.7 million, or 28.8%, in 2011 was primarily attributable to improved market conditions and significant trading in emerging markets in Latin America, Eastern Europe and Asia, as well as increased usage of GFI’s ForexMatch® electronic trading platform.  Our financial product headcount increased by 48 to 337 employees at September 30, 2011 from 289 employees at September 30, 2010.

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·The increase in commodity product brokerage revenues of $6.6 million, or 4.7%, in 2011 was primarily attributable to higher revenues from our existing and new desks, partially offset by lower revenues from oil and freight desks. Our commodity product brokerage personnel headcount increased by 26 to 321 employees at September 30, 2011 from 295 employees at September 30, 2010.

Clearing Services Revenue

·Clearing services revenues increased by $65.7 million, in the nine months ended September 30, 2011 to $87.2 million from $21.6 million in the same period in 2010.  These revenues are entirely related to the operations of Kyte, which we acquired on July 1, 2010, and which are therefore only partially reflected in the nine months ended September 30, 2011.  Kyte uses the services of third parties who act as General Clearing Members of clearing houses in order to clear cash and derivative products for its customers. Kyte charges a fee to its customers for clearing, settlement and other services against which customer negotiated rebates may be applied. Kyte also incurs exchange, clearing and execution costs on behalf of its clients, which are fully reimbursed and are therefore included in both revenues and expenses.

Other Revenues

·Other revenues were comprised of the following (dollars in thousands):

	For the Nine Months Ended September 30,
	2011			2010
Software, analytics and market data	$	54,328		$	44,324
Equity in net earnings of unconsolidated businesses	9,943			1,886
Remeasurement of foreign currency transactions and balances	1,311			(5,944		)
Net realized and unrealized (losses) gains from foreign currency hedges	(3,154		)	2,653
Interest income on short-term investments	1,157			999
Interest income from clearing services	1,618			232
Other	6,603			1,697
Total other revenues	$	71,806		$	45,847

·Other revenues increased by $26.0 million in the first nine months of 2011 to $71.8 million from $45.8 million in the same period in 2010. This increase was largely related to (i) an increase in our software, analytics and market data revenues of $10.0 million, which was primarily attributable to an increase in software revenues at our Trayport subsidiary, (ii) an increase of $8.1 million equity in net earnings of unconsolidated businesses, which was primarily related to equity method investments in certain Kyte backed traders and brokerage operations acquired on July 1, 2010,  (iii) a net increase of $7.3 million related to the remeasurement of foreign currency transactions and balances and (iv) a net increase of $4.9 million in Other, which was primarily related to certain other Kyte operations for which there was not a fully comparable period in 2010. The foreign currency remeasurement gains and losses result from the remeasurement of asset and liability balances that are denominated in currencies other than the functional currency of the business unit involved in such transactions. Offsetting this increase is a net decrease of $5.8 million in net realized and unrealized losses related to hedges of certain non-U.S. dollar assets, as well as hedges of current and anticipated revenues denominated in foreign currencies.

Interest and Transaction-Based Expenses

·Beginning with the three and twelve month periods ended December 31, 2010, we reported the subtotal “Revenues, net of interest and transaction-based expenses” which includes certain direct incremental costs associated with brokerage and clearing services revenue. We believe this presentation provides a clearer picture of the financial performance of the business we operate. A subset of these expenses were previously presented within our total expenses category as clearing fees and related to our non-Kyte cash equity and cash fixed income brokerage businesses.

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·Transaction fees on clearing services increased by $63.5 million to $84.2 million in the nine months ended September 30, 2011, from $20.7 million in the same period in 2010. These costs are entirely related to the clearing operations of Kyte, which we acquired on July 1, 2010, and therefore, the comparative 2010 period only includes three-months of results.

·Transaction fees on brokerage services decreased by $1.5 million to $19.4 million in the nine months ended September 30, 2011 from $20.9 million, or 7.2%, in 2011 as compared to 2010. Transaction fees on brokerage services as a percentage of our total revenues from principal transactions decreased to 10.4% for 2011, from 12.5% in 2010, as our cash equities business increased relative to our cash fixed income business.  Principal transactions are generally settled through third party clearing organizations that charge us a fee for their services. Transaction fees for cash fixed income principal transactions tend to be lower than for cash equity principal transactions.  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, transaction fees also include fees incurred in certain equity transactions executed on an agency basis.

Expenses

The following table sets forth the changes in expenses for the nine months ended September 30, 2011 as compared to the same period in 2010 (dollars in thousands, except percentage data):

	For the Nine Months Ended September 30,
	2011		%*		2010		%*		Increase			%**
Expenses
Compensation and employee benefits	$	466,300	69.0	%	$	419,117	70.0	%	$	47,183		11.3	%
Communications and market data	45,364		6.7		36,369		6.1		8,995			24.7
Travel and promotion	30,124		4.4		26,899		4.5		3,225			12.0
Rent and occupancy	18,183		2.7		16,553		2.8		1,630			9.8
Depreciation and amortization	29,665		4.4		24,879		4.1		4,786			19.2
Professional fees	19,641		2.9		19,899		3.3		(258		)	(1.3	)
Interest on borrowings	18,247		2.7		8,371		1.4		9,876			118.0
Other expenses	21,559		3.2		15,437		2.6		6,122			39.7
Total other expenses	$	649,083	96.0	%	$	567,524	94.8	%	$	81,559		14.4	%

*Denotes % of revenues, net of interest and transaction-based expenses

**Denotes % change of dollar amount of expense for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010

Compensation and Employee Benefits

·The increase in compensation and employee benefits expenses of $47.2 million in the first nine months of 2011 was due, in large part, to (i) higher broker performance bonus due to higher brokerage revenues, (ii) higher broker salary, sign-on and retention bonus expenses due to an increase in broker headcount and (iii) higher compensation expense related to Kyte, which we acquired on July 1, 2010 and which is therefore only partially reflected in the nine months ended September 30, 2010. The increase is also due, in part, to our increased headcount for back office support.

·Total compensation and employee benefits as a percentage of revenues, net of interest and transaction-based expenses, decreased to 69.0% for the nine months ended September 30, 2011 compared to 70.0% for the same period in the prior year. The lower compensation rate is primarily due to higher revenues offsetting the costs of our brokerage, technology and other back office staff.

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·Performance bonus expense represented 46.3% and 46.9% of total compensation and employee benefits expense for the nine months ended September 30, 2011 and 2010, 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 and retention bonus amortization, which includes the amortization of cash sign-on and retention bonuses initially paid in prior periods, represented 6.1% and 6.7% of total compensation and employee benefits expense for the nine months ended September 30, 2011 and 2010, respectively.

All Other Expenses

·The increase in communications and market data of $9.0 million in the first nine months of 2011 was due, in part, to a $6.4 million increase of such expense related to Kyte, which we acquired July 1, 2010 and which is only partially reflected in the nine months ended September 30, 2010, as well as our increased brokerage headcount and upgrades of existing systems.

·The increase in travel and promotion of $3.2 million was primarily attributable to increased broker headcount. Travel and promotion, as a percentage of revenues, net of interest and transaction—based expenses for the nine months ended September 30, 2011, remained consistent at 4.4% compared with 4.5% for the same period in the prior year.

·The increase in depreciation and amortization of $4.8 million was primarily due to our Kyte acquisition on July 1, 2010.

·The increase in interest on borrowings of $9.9 million is due, in large part, to $6.0 million in bond redemption costs associated with the July 2011 redemption of the entire $60.0 million principal amount of our senior secured notes which were due in 2013.  Due to the July 2011 issuance of $250.0 million senior notes due 2018, we also had greater borrowings outstanding, as well as a higher interest rate, during the nine months ended September 30, 2011. We estimate that the impact of the July issuance of $250.0 million of senior notes due 2018, net against the redemption of the $60.0 million principal amount of our senior secured notes which were due in 2013 and the repayment of all outstanding amounts under our Credit Agreement with Bank of American, N.A. and certain other lenders, will increase our pre-tax interest on borrowings by $1.1 million per month.

·Other expenses increased $6.1 million in the nine months ended September 30, 2011 from the same period in the prior year, which was due, in large part, to a $2.3 million write-down of an investment in an unconsolidated affiliate, as well as variances in value added tax from our European operations and legal settlements.

·Our effective tax rate was 28.0% for the nine months ended September 30, 2011 as compared to 31.0% for the same period in the prior year. The reduction in the effective tax rate was primarily due to a shift in the geographic mix of our earnings in favor of jurisdictions with lower tax rates.

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Segment Results for the Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010

The following tables summarize our Total revenues, Revenues, net of interest and transaction-based expenses, Other expenses and Income (loss) before income taxes by segment (dollars in thousands):

	Three Months Ended September 30, 2011
	Americas Brokerage		EMEA Brokerage		Asia Brokerage		Clearing and Backed Trading		All Other			Total
Total revenues	$	83,805	$	103,653	$	22,946	$	43,712	$	21,846		$	275,962
Revenues, net of interest and transaction-based expenses	80,300		100,373		22,924		12,723		22,142			238,462
Other expenses	56,517		72,628		17,581		11,494		71,236			229,456
Income (loss) before income taxes	23,783		27,745		5,343		1,229		(49,094		)	9,006

	Three Months Ended September 30, 2010
	Americas Brokerage		EMEA Brokerage		Asia Brokerage		Clearing and Backed Trading			All Other			Total
Total revenues	$	71,546	$	83,833	$	18,067	$	26,668		$	9,876		$	209,990
Revenues, net of interest and transaction-based expenses	67,940		81,429		18,052		5,572			10,243			183,236
Other expenses	51,136		58,812		14,552		7,560			54,561			186,621
Income (loss) before income taxes	16,804		22,617		3,500		(1,988		)	(44,318		)	(3,385		)

·Total revenues for Americas Brokerage increased $12.2 million, or 17.0%, to $83.8 million for the three months ended September 30, 2011 from $71.6 million for the three months ended September 30, 2010. Total revenues for EMEA Brokerage increased $19.9 million, or 23.7%, to $103.7 million for the three months ended September 30, 2011 from $83.8 million for the three months ended September 30, 2010. Total revenues for Asia Brokerage increased $4.9 million, or 27.1%, to $23.0 million for the three months ended September 30, 2011 from $18.1 million for the three months ended September 30, 2010.  Total revenues for our three brokerage segments increased by $37.0 million, or 21.3%, to $210.5 million for the three months ended September 30, 2011 from $173.5 million for the three months ended September 30, 2010. The increase in total revenues for our brokerage segments was due to increases in brokerage revenues across all product areas in which we operate resulting from the factors described above under “Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010.”

·Total revenues for Clearing and Backed Trading increased $17.0 million, or 63.7%, to $43.7 million for the three months ended September 30, 2011 from $26.7 million for the same period in 2010. The increase is due, in large part, to an increase of $10.3 million in clearing services revenues and $1.8 million in brokerage revenues, primarily attributable to market volatility which increased trading and clearing volumes in Kyte’s clearing business. The increase is also due to an increase of $2.9 million in equity in net earnings of unconsolidated businesses, related to the strong performance of certain Kyte investments in backed traders and brokerage teams.

·Total revenues from All Other increased by $11.9 million to $21.8 million for the three months ended September 30, 2011 from $9.9 million for the three months ended September 30, 2010.  This increase is due, in large part, to an increase of $15.4 million in net realized and unrealized gains from foreign currency hedges and $3.8 million in software, analytics and market data, primarily attributable to an increase in software revenues at our Trayport subsidiary. Partially offsetting this increase is a net decrease of $6.1 million related to the remeasurement of foreign currency balances and transactions.

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Total interest and transaction-based expenses

·Total interest and transaction-based fees for our three brokerage segments increased by $0.8 million, or 13.3%, to $6.8 million for the three months ended September 30, 2011 from $6.0 million for the three months ended September 30, 2010. The increase was related to the increase in transaction fees paid for brokerage services by our EMEA brokerage segment, which increased by $0.9 million, or 36.4%, due to the amount of business conducted by our cash equities brokerage business. Total interest and transaction-based fees for our Clearing and Backed Trading segment increased $9.9 million, or 46.9%, to $31.0 million for the three months ended September 30, 2011 from $21.1 million for the same period in the prior year, primarily due to a $9.7 million increase in transaction fees on clearing services due to increased trading and clearing volumes in Kyte’s clearing business.

Other Expenses

·Other expenses for Americas Brokerage increased $5.4 million, or 10.6%, to $56.5 million for the three months ended September 30, 2011 from $51.1 million for the three months ended September 30, 2010.  Other expenses for EMEA Brokerage increased $13.8 million, or 23.5%, to $72.6 million for the three months ended September 30, 2011 from $58.8 million for the three months ended September 30, 2010.  Other expenses for Asia Brokerage increased $3.0 million, or 20.5%, to $17.6 million for the three months ended September 30, 2011 from $14.6 million for the three months ended September 30, 2010. Total Other expenses for our three brokerage segments increased by $22.2 million, or 17.8%, to $146.7 million for the three months ended September 30, 2011 from $124.5 million for the three months ended September 30, 2010. The increase in Total Other expenses was primarily due a $20.3 million increase in compensation and employee benefits, largely attributable to higher broker performance revenues due to higher brokerage revenues and to higher broker salary, sign-on and retention bonus expenses due to an increase in broker headcount. The increase is also due to other factors described above under “Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010.”

·We record certain direct expenses, including compensation and employee benefits, to the operating segments; however, we do not allocate certain expenses that are managed separately at the corporate level to our operating segments.  The unallocated costs, including rent and occupancy, depreciation and amortization, professional fees, interest and other expenses, are included in the expenses for our All Other segment described below. Management does not believe that allocating these costs to our brokerage segments is optimal for evaluating the performance of its brokerage segments.

·Other expenses for Clearing and Backed Trading increased $3.9 million, or 51.3%, to $11.5 million for the three months ended September 30, 2011 from $7.6 million for the three months ended September 30, 2010. The increase is due, in large part, to an increase in headcount, as well as an increase in compensation and employee benefits expense due to an increase in the performance of the segment.

·Other expenses for All Other increased by $16.6 million, or 30.4%, to $71.2 million for the three months ended September 30, 2011 from $54.6 million for the three months ended September 30, 2010.  The increase was primarily due to an increase of $8.7 million in interest on borrowings due, an increase of $4.1 million in compensation and employee benefits and a $3.5 million increase in other expenses.  These factors are discussed above under “Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010.”

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Segment Results for the Nine Months Ended September 30, 2011 Compared to the Nine Months Ended September 30, 2010

The following tables summarize our Total revenues, Revenues, net of interest and transaction-based expenses, Other expenses and Income (loss) before income taxes by segment (dollars in thousands):

	Nine Months Ended September 30, 2011
	Americas Brokerage		EMEA Brokerage		Asia Brokerage		Clearing and Backed Trading		All Other			Total
Total revenues	$	237,386	$	304,985	$	67,392	$	123,492	$	47,888		$	781,143
Revenues, net of interest and transaction-based expenses	226,578		296,107		67,337		37,399		48,774			676,195
Other expenses	161,865		212,403		51,109		32,840		190,866			649,083
Income (loss) before income taxes	64,713		83,704		16,228		4,559		(142,092		)	27,112

	Nine Months Ended September 30, 2010
	Americas Brokerage		EMEA Brokerage		Asia Brokerage		Clearing and Backed Trading			All Other			Total
Total revenues	$	222,277	$	293,180	$	57,120	$	26,668		$	41,119		$	640,364
Revenues, net of interest and transaction-based expenses	209,811		283,986		57,072		5,572			42,191			598,632
Other expenses	159,577		191,541		44,751		7,560			164,095			567,524
Income (loss) before income taxes	50,234		92,445		12,321		(1,988		)	(121,904		)	31,108

Total Revenues

·Total revenues for Americas Brokerage increased $15.1 million, or 6.8%, to $237.4 million for the nine months ended September 30, 2011 from $222.3 million for the nine months ended September 30, 2010. Total revenues for EMEA Brokerage increased $11.8 million, or 4.0%, to $305.0 million for the nine months ended September 30, 2011 from $293.2 million for the nine months ended September 30, 2010. Total revenues for Asia Brokerage increased $10.3 million, or 18.0%, to $67.4 million for the nine months ended September 30, 2011 from $57.1 million for the nine months ended September 30, 2010.  Total revenues for our three brokerage segments increased by $37.2 million, or 6.5%, to $609.8 million for the nine months ended September 30, 2011 from $572.6 million for the nine months ended September 30, 2010. The increase in total revenues for our brokerage segments was primarily due to increases in brokerage revenues across all product categories, resulting from the factors described above under “Nine Months Ended September 30, 2011 Compared to the Nine Months Ended September 30, 2010.”

·Total revenues for Clearing and Backed Trading increased $96.8 million to $123.5 million for the nine months ended September 30, 2011 from $26.7 million for the same period in 2010. These revenues are entirely related to our Kyte operations, which we acquired on July 1, 2010. Accordingly, the nine month period ended September 30, 2011 is not directly comparable to the nine month period ended September 30, 2010. Total revenues for Clearing and Backed Trading for the nine months ended September 30, 2011 consist primarily of clearing services revenues of $87.2 million, brokerage revenues from principal transactions of $14.0 million, equity in earnings of unconsolidated businesses of $13.9 million, and other income of $6.8 million.

·Total revenues from All Other increased by $6.8 million, or 16.5%, to $47.9 million for the nine months ended September 30, 2011 from $41.1 million for the nine months ended September 30, 2010.  This increase was primarily related to a $9.9 million increase in software, analytics and market data primarily attributable to an increase in software revenues at our Trayport subsidiary, partially offset by a $4.0 million decrease in equity in net losses of unconsolidated businesses.

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Total interest and transaction-based expenses

·Total interest and transaction-based fees for our three brokerage segments decreased by $2.0 million, or 9.1%, to $19.7 million for the nine months ended September 30, 2011 from $21.7 million for the nine months ended September 30, 2010. The decrease was related to the decrease in transaction fees paid for brokerage services by our Americas and EMEA brokerage segments, which decreased by $1.7 million, or 13.3%, and $0.3 million, or 3.4%, respectively. Total interest and transaction-based fees for our Clearing and Backed Trading segment increased by $65.0 million to $86.1 million for the nine months ended September 30, 2011 from $21.1 million for the same period in the prior year. All of these expenses were incurred by Kyte following the acquisition on July 1, 2010 and are primarily due to transaction fees related to clearing services of $63.5 million.

Other Expenses

·Other expenses for Americas Brokerage increased $2.3 million, or 1.4%, to $161.9 million for the nine months ended September 30, 2011 from $159.6 million for the nine months ended September 30, 2010.  Other expenses for EMEA Brokerage increased $20.9 million, or 10.9%, to $212.4 million for the nine months ended September 30, 2011 from $191.5 million for the nine months ended September 30, 2010.  Other expenses for Asia Brokerage increased $6.3 million, or 14.1%, to $51.1 million for the nine months ended September 30, 2011 from $44.8 million for the nine months ended September 30, 2010. Total Other expenses for our three brokerage segments increased by $29.5 million, or 7.5%, to $425.4 million for the nine months ended September 30, 2011 from $395.9 million for the nine months ended September 30, 2010. The increase was due to an increase in compensation and employee benefits, communications and market data, travel and promotion and interest on borrowings expenses, as well as the other factors described above under “Nine Months Ended September 30, 2011 Compared to the Nine Months Ended September 30, 2010.”

·We record certain direct expenses, including compensation and employee benefits, to the operating segments; however, we do not allocate certain expenses that are managed separately at the corporate level to our operating segments.  The unallocated costs including rent and occupancy, depreciation and amortization, professional fees, interest and other expenses are included in the expenses for our All Other segment described below.  Management does not believe that allocating these costs to our brokerage segments is optimal for evaluating the performance of its brokerage segments.

·Other expenses for Clearing and Backed Trading increased $25.3 million to $32.9 million for the nine months ended September 30, 2011 from $7.6 million for the nine months ended September 30, 2010. These expenses are entirely related to the operations of Kyte, which we acquired on July 1, 2010. Accordingly, the nine month period ended September 30, 2011 is not directly comparable to the nine month period ended September 30, 2010. Total expenses for Clearing and Backed Trading for the nine months ended September 30, 2011 are due, in large part, to compensation and benefits expense of $15.0 million, communications and market data expense of $8.2 million and depreciation and amortization of $4.0 million.

·Other expenses for All Other increased by $26.8 million, or 16.3%, to $190.9 million for the nine months ended September 30, 2011 from $164.1 million for the nine months ended September 30, 2010.  The increase was due, in large part, to an $11.5 million increase in compensation and employee benefits, a $8.1 million increase in interest on borrowings and a $5.9 million increase in other expenses.  These factors are discussed above under “Nine Months Ended September 30, 2011 Compared to the Nine Months Ended September 30, 2010.”

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Quarterly Results of Operations (Unaudited)

The following table sets forth, by quarter, our unaudited statement of operations data for the period from October 1, 2009 to September 30, 2011. 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. In the fourth quarter of 2010, we changed our presentation of certain revenues and expenses in the Statements of Operations, including the adjustment of prior periods. See Note 2 to our Condensed Consolidated Financial Statements in Part I — Item 1 for further discussion.

	Quarter Ended
	September 30,2011		June 30, 2011			March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010		December 31, 2009
	(dollars in thousands)
Revenues
Agency commissions	$	151,446	$	136,513		$	147,483		$	127,774		$	125,011		$	137,624		$	143,830	$	115,043
Principal transactions	61,711		54,475			70,487			49,064			49,677			56,526			60,296		53,608
Total brokerage revenues	213,157		190,988			217,970			176,838			174,688			194,150			204,126		168,651
Clearing services revenues	31,872		27,680			27,670			20,325			21,553			—			—		—
Interest income from clearing services	606		670			342			439			232			—			—		—
Equity in net earnings (losses) of unconsolidated businesses (1)	4,260		4,757			926			2,088			1,875			(92		)	103		7
Software, analytics and market data	18,837		18,403			17,088			16,313			14,905			14,519			14,900		14,649
Other income (loss) (2)	7,230		1,233			(2,546		)	6,235			(3,263		)	919			1,749		2,260
Total revenues	275,962		243,731			261,450			222,238			209,990			209,496			220,878		185,567
Interest and transaction-based expenses
Transaction fees on clearing services	30,388		26,752			27,069			19,189			20,729			—			—		—
Transaction fees on brokerage services	6,673		6,079			6,605			6,348			5,887			7,554			7,424		6,988
Interest expense from clearing services	439		617			326			289			138			—			—		—
Total interest and transaction-based expenses	37,500		33,448			34,000			25,826			26,754			7,554			7,424		6,988
Revenues, net of interest and transaction-based expenses	238,462		210,283			227,450			196,412			183,236			201,942			213,454		178,579
Expenses
Compensation and employee benefits	159,980		146,839			159,481			139,131			133,345			141,109			144,663		156,053
Communications and market data	15,187		15,106			15,071			13,210			13,788			10,695			11,886		11,864
Travel and promotion	9,723		10,198			10,203			10,618			8,665			9,341			8,893		9,509
Rent and occupancy	6,322		5,988			5,873			5,860			5,867			5,255			5,431		5,343
Depreciation and amortization	9,990		9,801			9,874			9,552			8,851			7,844			8,184		7,959
Professional fees	6,866		5,672			7,103			6,050			7,055			6,247			6,597		4,674
Interest on borrowings	12,035		3,276			2,936			2,692			3,066			2,730			2,575		2,645
Other expenses (1)	9,353		5,573			6,633			8,604			5, 984			4,342			5,111		6,053
Total other expenses	229,456		202,453			217,174			195,717			186,621			187,563			193,340		204,100
Income (loss) before provision for (benefit from) income taxes	9,006		7,830			10,276			695			(3,385		)	14,379			20,114		(25,521		)
Provision for (benefit from) income taxes	2,884		2,036			2,672			(3,759		)	(1,050		)	3,955			6,738		(11,070		)
Net income (loss) before attribution to non-controlling shareholders	6,122		5,794			7,604			4,454			(2,335		)	10,424			13,376		(14,451		)
Less: Net income (loss) attributable to non-controlling interests	57		(357		)	858			153			151			—			—		—
GFI’s net income (loss)	$	6,065	$	6,151		$	6,746		$	4,301		$	(2,486	)	$	10,424		$	13,376	$	(14,451	)

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The following table sets forth our quarterly results of operations as a percentage of our Revenues, net of interest and transaction-based expenses, for the indicated periods:

	Quarter Ended
	September 30,2011		June 30, 2011		March 31, 2011		December 31, 2010		September 30, 2010		June 30, 2010		March 31, 2010		December 31, 2009
Revenues
Agency commissions	63.5	%	64.9	%	64.8	%	65.1	%	68.2	%	68.1	%	67.4	%	64.4	%
Principal transactions	25.9		25.9		31.0		25.0		27.1		28.0		28.2		30.0
Total brokerage revenues	89.4		90.8		95.8		90.1		95.3		96.1		95.6		94.4
Clearing services revenues	13.4		13.2		12.2		10.4		11.8		—		—		—
Interest income from clearing services	0.3		0.3		0.1		0.2		0.1		—		—		—
Equity in net earnings (losses) of unconsolidated businesses (1)	1.8		2.3		0.4		1.0		1.0		(0.1	)	0.1		0.0
Software, analytics and market data	7.8		8.7		7.5		8.3		8.1		7.2		7.0		8.2
Other income (loss) (2)	3.0		0.6		(1.1	)	3.2		(1.7	)	0.5		0.8		1.3
Total revenues	115.7		115.9		114.9		113.2		114.6		103.7		103.5		103.9
Interest and transaction-based expenses
Transaction fees on clearing services	12.7		12.7		11.9		9.8		11.3		—		—		—
Transaction fees on brokerage services	2.8		2.9		2.9		3.2		3.2		3.7		3.5		3.9
Interest expense from clearing services	0.2		0.3		0.1		0.2		0.1		—		—		—
Total interest and transaction-based expenses	15.7		15.9		14.9		13.2		14.6		3.7		3.5		3.9
Revenues, net of interest and transaction based expenses	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Expenses
Compensation and employee benefits	67.1		69.8		70.1		70.9		72.8		69.9		67.8		87.4
Communications and market data	6.4		7.2		6.6		6.7		7.5		5.3		5.6		6.6
Travel and promotion	4.1		4.8		4.5		5.4		4.7		4.6		4.2		5.3
Rent and occupancy	2.7		2.8		2.6		3.0		3.2		2.6		2.5		3.0
Depreciation and amortization	4.2		4.7		4.4		4.9		4.8		3.9		3.8		4.5
Professional fees	2.9		2.7		3.1		3.1		3.8		3.1		3.1		2.6
Interest on borrowings	5.0		1.6		1.3		1.4		1.7		1.4		1.2		1.5
Other expenses (1)	3.9		2.7		2.9		4.2		3.3		2.1		2.4		3.4
Total other expenses	96.3		96.3	%	95.5	%	99.6	%	101.8	%	92.9	%	90.6	%	114.3	%
Income (loss) before provision for (benefit from) income taxes	3.7		3.7		4.5		0.4		(1.8	)	7.1		9.4		(14.3	)
Provision for (benefit from) income taxes	1.2		1.0		1.2		(1.9	)	(0.5	)	2.0		3.1		(6.2	)
Net income (loss) before attribution to non-controlling shareholders	2.5		2.7		3.3		2.3		(1.3	)	5.1		6.3		(8.1	)
Less: Net income (loss) attributable to non-controlling interests	0.0		(0.2	)	0.4		0.1		0.1		—		—		—
GFI’s net income (loss)	2.5	%	2.9	%	2.9	%	2.2	%	(1.4	)%	5.1	%	6.3	%	(8.1	)%

(1)Certain amounts related to equity in net earnings (losses) of unconsolidated businesses totaling $(1,448), $235, $243, $(92), $103, $7 for the three months ended March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010, March 31, 2010, and December 31, 2009, respectively, were previously presented in the “Other expenses” line item in the Condensed Consolidated Statements of Operations. In order to enhance transparency in the presentation of the Condensed Consolidated Statements of Operations and to provide a clearer picture of the financial performance of our equity method investees, these amounts have been reclassified to the “Equity in net earnings (losses) of unconsolidated businesses” line item.

(2)Interest income on short-term investments was previously presented in a line item called “Interest income” and has been combined into “Other income (loss)” to conform with the presentation for the three month period ended December 31, 2010. The amounts that were combined for interest income for each period presented above were as follows:

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	September 30, 2010		June 30, 2010		March 31, 2010		December 31, 2009
	(dollars in thousands)
Interest income	$	682	$	77	$	240	$	148

Liquidity and Capital Resources

Net cash used in operating activities was $18.7 million for the nine months ended September 30, 2011, as compared to $34.6 million in cash provided by operating activities for the nine months ended September 30, 2010, a decrease of $53.3 million. This decrease was due in part to a $2.0 million decrease in net income before attribution to non-controlling shareholders, from $21.5 million for the nine months ended September 30, 2010 to $19.5 million for the nine months ended September 30, 2011. The decrease is also attributable to a $63.9 million increase in working capital employed in the business for the nine months ended September 30, 2011 relative to the same period in 2010. The increase in working capital employed in the business was primarily due to a $243.0 million increase related to changes in net receivables from brokers, dealers and clearing organizations, a $12.1 million increase related to changes in commissions receivable and a $6.7 million increase in working capital related to movement in other liabilities balances.  These increases in working capital requirements were offset by a $177.9 million net decrease in working capital deployed in the business, including a decrease in each of segregated cash, deposits with clearing organizations and payables to clearing services customers as well as a $16.1 million decrease in working capital related to accrued compensation and accounts payable.  Changes in working capital are often related to the timing of settlement of matched principal trades.  While our net exposure to these trades is minimal (since we simultaneously agree to buy instruments from one customer and sell them to another customer), there is sometimes a slight lag in the settlement of these offsetting trades that results in us maintaining a receivable or payable position for a short period of time, typically overnight. Substantially all fail to deliver and fail to receive balances at September 30, 2011 have subsequently settled at the contracted amounts.

Offsetting the decrease in net income and additional working capital employed in the business was a $12.5 million net change in items which reconcile net income to net cash used in operating activities, such as depreciation and amortization, share-based compensation expense and net unrealized foreign currency losses, as compared to the nine months ended September 30, 2010.

Net cash used in investing activities for the nine months ended September 30, 2011 was $35.2 million compared to $38.1 million used in the nine months ended September 30, 2010. The decrease in cash used for investing activities was primarily related to a net decrease of $13.1 million in purchases of cost and equity method investments and a $9.2 million decrease in cash used in business acquisitions, net of cash acquired and purchases of intangible and other assets. These decreases were slightly offset by an increase of $11.3 million in net payments due to the settlement of foreign exchange derivative hedge contracts and an increase in purchases of property, equipment and leasehold improvements of $6.1 million.

Net cash used in financing activities for the nine months ended September 30, 2011 was $7.5 million, as compared to $22.5 million in cash used in financing activities for the nine months ended September 30, 2010. This decrease was due, in large part, to proceeds of $250.0 million aggregate principal related to the issuance of 8.375% senior notes, net of $8.8 million in debt issuance costs. This decrease was offset by the use of $195.0 million of the net proceeds from the offering to repay (i) all outstanding amounts under our second amended and restated credit agreement (as amended and restated, the “Credit Agreement”) with Bank of American, N.A. and certain other lenders and (ii) all aggregate principal amounts outstanding of our senior secured notes due in January 2013, a decrease in net borrowings of $15.0 million under our Credit Agreement for the nine months ended September 30, 2011 relative to the same period in 2010, net increases of $14.2 million in purchases of treasury stock and $2.3 million in cash paid for taxes on the vesting of RSUs. See Note 6 to the Condensed Consolidated Financial Statements for further discussion of our short-term borrowings and long-term obligations.

Our liquidity and available cash resources are in part restricted by the regulatory requirements of certain of our material operating subsidiaries, including GFI Securities LLC, GFI Securities Limited, GFI Brokers Limited, The Kyte Group Limited, Kyte Broking Limited, GFI (HK) Securities LLC, GFI (HK) Brokers Ltd, GFI Group PTE Ltd and GFI Korea Money Brokerage Limited. These operating subsidiaries are subject to minimum capital requirements and/or licensing and financial requirements imposed by their respective market regulators that are intended to ensure general financial soundness and liquidity based on certain minimum capital, licensing and financial requirements. U.S. and U.K. regulations prohibit a registered broker-dealer from repaying borrowings of its parent or affiliates, paying cash dividends, making loans to its parent or affiliates or otherwise entering into transactions that result in a significant reduction in its regulatory net capital position without prior notification or approval from its principal regulator.

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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 7 to our Condensed Consolidated Financial Statements for further discussion of the stock repurchase program.

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

As a result of the issuance of the 8.375% senior notes, the available borrowing capacity under the Credit Agreement decreased from $200.0 million to $129.5 million. Pursuant to the terms of the Credit Agreement, following the redemption of the senior secured notes due January 2013, we are no longer required to secure amounts outstanding under the Credit Agreement with substantially all of our assets and certain assets of our subsidiaries.

Contractual Obligations and Commitments

The following table summarizes certain of our contractual obligations as of September 30, 2011:

	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	$	107,066	$	13,804	$	23,061	$	13,118	$	57,083
Interest on Long-term obligations	146,563		20,938		41,875		41,875		41,875
Long-term obligations	250,000		—		—		—		250,000
Purchase obligations (1)	26,722		19,339		6,396		987		—
Total	$	530,351	$	54,081	$	71,332	$	55,980	$	348,958

(1)Amounts listed under Purchase Obligations include agreements for quotes with various information service providers. Additionally, such amounts include purchase commitments for capital expenditures for the implementation of a redundant data and software application facility and other purchase commitments for capital expenditures, hosting and software licensing agreements. See Note 10 to our Condensed Consolidated Financial Statements for further discussion of these obligations.

We have recognized tax liabilities in respect of uncertain tax positions (net of the federal benefit on state positions) of approximately $8.8 million, including interest of $0.1 million. Due to the uncertainty of the amounts to be ultimately paid as well as the timing of such payments, all liabilities for uncertain tax positions which have not been paid are excluded from the Contractual Obligations and Commitments table.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements at September 30, 2011.

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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 2010 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 2010 Form 10-K. The accounting principles utilized by us in preparing our Condensed Consolidated Financial Statements conform in all material respects to generally accepted accounting principles in the United States of America.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2009-13 (“ASU 2009-13”) Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements. ASU 2009-13 establishes the accounting and reporting guidance for arrangements with multiple-revenue generating activities. ASU 2009-13 addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting and provides a selling price hierarchy for determining the selling price of a deliverable. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010. Early adoption is permitted but must be retrospectively applied to the beginning of the fiscal year of adoption. The adoption of ASU 2009-13 did not have a material impact on our condensed consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update No. 2009-14 (“ASU 2009-14”) Software (Topic 985) Certain Revenue Arrangements That Include Software Elements. ASU 2009-14 provides guidance on how to allocate arrangement consideration to deliverables in an arrangement that includes both tangible products and software. ASU 2009-14 also provides additional guidance on how to determine which software, if any, relating to the tangible product would be excluded from software revenue recognition. ASU 2009-14 is effective for fiscal years beginning on or after June 15, 2010. Early adoption is permitted but must be retrospectively applied to the beginning of the fiscal year of adoption. The adoption of ASU 2009-13 did not have a material impact on our condensed consolidated financial statements.

In July 2010, the FASB issued Accounting Standards Update No. 2010-20 (“ASU 2010-20”) Receivables (Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The main objective of ASU 2010-20 is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. ASU 2010-20 requires disclosure of additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. This ASU is effective for all public companies for interim and annual reporting periods ending on or after December 15, 2010, except for disclosures relating to loan modifications, which were subsequently extended to interim and annual filings after June 15, 2011. The adoption of ASU 2010-20 did not have a material impact on our condensed consolidated financial statements.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04 (“ASU 2011-04”) Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 amends current guidance to result in common fair value measurement and disclosures between accounting principles generally accepted in the United States and International Financial Reporting Standards. The amendments result in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. The amendments in ASU 2011-04 are effective for interim and annual periods beginning after December 15, 2011. We do not expect the adoption of ASU 2011-04 to have a material impact on our condensed consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05 (“ASU 2011-05”) Comprehensive Income (Topic 220) Presentation of Comprehensive Income. The main objective of ASU 2011-05 is to improve the comparability, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income (“OCI”) by eliminating the option to present components of OCI as part of the statement of changes in stockholders’ equity. The amendments in this standard requires entities to report the components of comprehensive income in either in (1) a single continuous statement of comprehensive income or (2) two separate but consecutive statements. The amendments in this standard do not change the items that must be reported in OCI. The amendments in ASU 2011-05 are effective for interim and annual periods beginning after December 15, 2011 and are to be applied retrospectively. We do not expect the adoption of ASU 2011-05 to have a material impact on our condensed consolidated financial statements.

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In September 2011, the FASB issued Accounting Standards Update No. 2011-08 (“ASU 2011-08”) “Intangibles — Goodwill and Other (Topic 350).” ASU 2011-08 amends current guidance to allow entities to first assess qualitative factors to determine whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. After assessing qualitative factors, if an entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, no further testing is necessary.  If an entity determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value, then the traditional two-step goodwill impairment test must be performed.  The amendments in ASU 2011-08 are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. We do not expect the adoption of ASU 2011-08 to have a material impact on our condensed consolidated financial statements.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our quantitative and qualitative disclosures about market risk are described in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 7A—Quantitative and Qualitative Disclosures about Market Risk” contained in the 2010 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, 2011.

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, 2011.

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 against the U.S. Dollar by 10% and the British Pound Sterling weakened by 10% against the U.S. Dollar, the net impact to our net income would be a reduction of approximately $5.3 million as of September 30, 2011.

ITEM 4.CONTROLS AND PROCEDURES

As of the end of the period covered by this report, our 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 report.

In addition, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our 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 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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��

PART II—OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

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

The staff (the “Staff”) of the Market Regulation Department of the Financial Industry Regulatory Authority Inc. (“FINRA”) has been conducting an inquiry into the activities of interdealer brokerage firms in connection with the determination of the commission rates paid to them in 2005 and 2006 by certain dealers for brokering transactions in credit default swaps. In October 2010, the Staff commenced a disciplinary proceeding by filing a complaint against GFI Securities LLC and four of its former employees in connection with allegedly improper communications between certain of these former employees and those at other interdealer brokerage firms, purportedly inconsistent with just and equitable principles of trade and certain antifraud and supervisory requirements under FINRA rules and the federal securities laws. All of the former employees of GFI Securities LLC who were named in the complaint resigned in April 2008 to become employed by affiliates of Compagnie Financiere Tradition. None of the Company’s current employees were named in the complaint. GFI Securities LLC intends to vigorously contest this disciplinary action which could result in a censure, fine or other sanction.

Based on currently available information, the outcome of the Company’s outstanding matters are not expected to have a material impact on the Company’s financial position. However, the outcome of any such matters may be material to the Company’s results of operations or cash flows in a given period. It is not presently possible to determine the Company’s ultimate exposure to these matters and there is no assurance that the resolution of the Company’s outstanding matters will not significantly exceed any reserves accrued by the Company.

ITEM 1A.RISK FACTORS

There have been no material changes in our risk factors from those disclosed in the 2010 Form 10-K. For a discussion of the risk factors affecting the Company, see “Risk Factors” in Part I, Item 1A of our 2010 Form 10-K.

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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, 2011.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs	Approximate Number of Shares that May Yet Be Purchased Under the Plans or Programs (c)
July
Stock Repurchase Program (a)	765,185	$	4.54	765,185	9,330,833
Employee Transactions (b)	74,460	$	4.54	N/A	N/A
August
Stock Repurchase Program (a)	2,442,248	$	4.36	2,442,248	6,888,585
Employee Transactions (b)	59,056	$	4.37	N/A	N/A
September
Stock Repurchase Program (a)	—	$	—	—	6,888,585
Employee Transactions (b)	141,452	$	4.02	N/A	N/A
Total
Stock Repurchase Program (a)	3,207,433	$	4.40	3,207,433	6,888,585
Employee Transactions (b)	274,968	$	4.24	N/A	N/A

(a) In August 2007, the Board of Directors 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 of Directors authorized the Company to repurchase shares of the Company’s common stock on the open market in such amounts as determined by the Company’s management, provided, however, such amounts are not to exceed, during any calendar year, the number of shares issued upon the exercise of stock options plus the number of shares underlying grants of RSUs that are granted or which management reasonably anticipates will be granted in such calendar year. Any repurchases are also subject to compliance with certain covenants and limits under the Company’s Credit Agreement.

(b)  Under our 2008 Equity Incentive Plan, we allow employees to elect to have us withhold shares of common stock to satisfy minimum statutory tax withholding obligations arising on the vesting and settlement of restricted stock units. When we withhold these shares, we are required to remit to the appropriate taxing authorities the market price of the shares withheld, which could be deemed a purchase of the shares of our common stock by us on the date of withholding.

(c)  Amounts disclosed in this column include (i) the number of RSUs granted for the nine months ended September 30, 2011 and (ii) an estimate of the number of RSUs management reasonably anticipates will be granted during the fourth quarter of 2011, calculated using a dollar value divided by the Company’s closing stock price on September 30, 2011. Subtracted from this amount is the number of shares repurchased by the Company on the open market for the current calendar year through September 30, 2011.

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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 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2	Written Statement of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

(*) Furnished with this Quarterly Report on Form 10-Q and included in Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Financial Condition as of September 30, 2011 and December 31, 2010, (ii) the Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2011 and 2010, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2011 and 2010,  (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. As provided in Rule 406T of Regulation S-T, this information is “furnished” and not “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 unless GFI Group, Inc. specifically incorporates it by reference.

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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, 2011 to be signed on its behalf by the undersigned, thereunto duly authorized, on the 9th day of November, 2011.

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

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