**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**









**FORM** **10-Q**









**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      the quarterly period ended September 30, 2007**




or




**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the transition period from** _________
      to _________







**Commission
      file number: 0-21324**







**NYFIX,
      INC.**


**(Exact
      name of registrant as specified in its charter)**





**Delaware**
              **(State
                or other jurisdiction of**
              **incorporation
                or organization****)**
            **06-1344888**
              **(I.R.S.
                Employer**
              **Identification
                Number)****100
                Wall Street**
              **New
                York, New York**
              **(Address
                of principal executive offices)**
            **10005**
              **(Zip
                code)**


**(646)
      525-3000**


**(** **Registrant’s
      telephone number, including area code)** ****







Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o





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




Large
                accelerated filero
            Accelerated
                filerx
            Non-accelerated
                filer o




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





As
      of
      October 31, 2007, the registrant had 36,612,682 shares of common stock, $0.001
      par value, outstanding.







Page
          1


**NYFIX,
      INC.**




**INDEX**





**Page****PART
              I - FINANCIAL INFORMATION****Item
                1.**
            **Unaudited
                Financial Statements**Condensed
                Consolidated Balance Sheets as of September 30, 2007 and December
                31,
                2006
            
            3Condensed
                Consolidated Statements of Operations for the three and nine months
                ended
                September 30, 2007 and 2006
            
            4Condensed
                Consolidated Statement of Changes in Stockholders’ Equity and
                Comprehensive Income (Loss) for the nine months ended September 30,
                2007
            
            5Condensed
                Consolidated Statements of Cash Flows for the nine months ended September
                30, 2007 and 2006
            
            6Notes
                to Condensed Consolidated Financial Statements
            
            7**Item
                2.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**
            
            21**Item
                3.**
            **Quantitative
                and Qualitative Disclosures About Market Risk**
            
            32**Item
                4.**
            **Controls
                and Procedures**
            
            32**PART
              II - OTHER INFORMATION****Item
                1.**
            **Legal
                Proceedings**
            
            35**Item
                1A.**
            **Risk
                Factors**
            
            35**Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of Proceeds**
            
            35**Item
                3.**
            **Defaults
                Upon Senior Securities**
            
            35**Item
                4.**
            **Submission
                of Matters to a Vote of Security Holders**
            
            36**Item
                5.**
            **Other
                Information**
            
            36**Item
                6.**
            **Exhibits**
            
            37**Signatures**
            
            39




Page
          2


**Part
      I - FINANCIAL INFORMATION**





**Item
      1. Unaudited Financial Statements**




**NYFIX,
        Inc. and Subsidiaries**
 **Condensed
        Consolidated Balance Sheets**
 **(in
        thousands, except share and per share amounts)**
  **September
                  30,**
              
              **December
                  31,****2007**
              
              **2006****(Unaudited)**
              
              **(Audited)****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              76,770
              
              $
              105,888Accounts
                  receivable, less allowances of $256 and $316, respectively
              
              
              19,115
              
              
              13,744Clearing
                  broker assets
              
              
              437,295
              
              
              422,880Prepaid
                  expenses and other current assets
              
              
              6,034
              
              
              4,435Total
                  current assets
              
              
              539,214
              
              
              546,947Property
                  and equipment, net of accumulated depreciation and amortization
                  of $37,097
                  and $32,813, respectively
              
              
              18,939
              
              
              14,808Capitalized
                  software costs, net of accumulated amortization of $18,478 and
                  $16,139,
                  respectively
              
              
              6,507
              
              
              5,900Goodwill
              
              
              58,162
              
              
              58,193Acquired
                  intangible assets, net of accumulated amortization of $11,541 and
                  $10,472,
                  respectively
              
              
              915
              
              
              1,966Other
                  assets, net
              
              
              1,574
              
              
              1,514Total
                  assets
              
              $
              625,311
              
              $
              629,328**Liabilities
                  and Stockholders' Equity**Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              28,091
              
              $
              25,133Clearing
                  broker liabilities
              
              
              436,219
              
              
              422,429Current
                  portion of capital lease obligations
              
              
              849
              
              
              1,223Current
                  portion of long-term debt
              
              
              -
              
              
              188Current
                  portion of other long-term liabilities
              
              
              1,622
              
              
              1,235Deferred
                  revenue
              
              
              4,216
              
              
              4,212Total
                  current liabilities
              
              
              470,997
              
              
              454,420Long-term
                  portion of capital lease obligations
              
              
              -
              
              
              461Long-term
                  debt
              
              
              7,434
              
              
              7,412Other
                  long-term liabilities
              
              
              3,146
              
              
              3,662Total
                  liabilities
              
              
              481,577
              
              
              465,955Commitments
                  and contingenciesStockholders'
                  equity:Preferred
                  stock, $1.00 par value; 5,000,000 shares authorized:Series
                  A, none issued
              
              
              -
              
              
              -Series
                  B Voting Convertible, 1,500,000 shares issued and outstanding;
                  liquidation
                  preference of $76,313 at September 30, 2007
              
              
              62,092
              
              
              62,092Series
                  C Non-Voting Convertible, none issued
              
              
              -
              
              
              -Common
                  stock, $0.001 par value; 100,000,000 and 60,000,000 shares authorized;
                  37,519,988 and 36,654,986 shares issued, respectively
              
              
              258,003
              
              
              256,835Accumulated
                  deficit
              
              
              (163,276
              )
              
              (139,309
              )Treasury
                  stock, 906,826 and 1,133,778 shares, respectively, at cost
              
              
              (13,194
              )
              
              (16,224
              )Accumulated
                  other comprehensive income (loss)
              
              
              109
              
              
              (21
              )Total
                  stockholders' equity
              
              
              143,734
              
              
              163,373Total
                  liabilities and stockholders' equity
              
              $
              625,311
              
              $
              629,328




The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.




Page
          3


**NYFIX,
        Inc. and Subsidiaries**


**Condensed
        Consolidated Statements of Operations (Unaudited)**
 **(in
        thousands, except per share amounts)**


**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Revenue:**Subscription
                and maintenance
            
            $
            16,556
            
            $
            16,739
            
            $
            50,301
            
            $
            48,125Product
                sales and services
            
            
            618
            
            
            799
            
            
            1,993
            
            
            2,140Transaction
            
            
            15,389
            
            
            7,702
            
            
            38,757
            
            
            21,649Total
                revenue
            
            
            32,563
            
            
            25,240
            
            
            91,051
            
            
            71,914**Cost
                of revenue:**Subscription
                and maintenance
            
            
            8,796
            
            
            8,232
            
            
            25,711
            
            
            24,181Product
                sales and services
            
            
            143
            
            
            369
            
            
            736
            
            
            1,365Transaction
            
            
            8,869
            
            
            3,763
            
            
            22,629
            
            
            11,752Total
                cost of revenue
            
            
            17,808
            
            
            12,364
            
            
            49,076
            
            
            37,298**Gross
                profit**
            
            
            14,755
            
            
            12,876
            
            
            41,975
            
            
            34,616**Operating
                expense:**Selling,
                general and administrative
            
            
            21,995
            
            
            12,528
            
            
            59,224
            
            
            34,575Restatement,
                SEC investigation and related expenses
            
            
            612
            
            
            1,928
            
            
            5,597
            
            
            9,670Depreciation
                and amortization
            
            
            379
            
            
            280
            
            
            1,039
            
            
            918Restructuring
                charge
            
            
            -
            
            
            2,056
            
            
            -
            
            
            2,056Loss
                from operations
            
            
            (8,231
            )
            
            (3,916
            )
            
            (23,885
            )
            
            (12,603
            )Interest
                expense
            
            
            (137
            )
            
            (219
            )
            
            (399
            )
            
            (635
            )Investment
                income
            
            
            975
            
            
            402
            
            
            3,299
            
            
            715Other
                income (expense), net
            
            
            8
            
            
            (3
            )
            
            (4
            )
            
            15Loss
                from continuing operations before income tax provision
            
            
            (7,385
            )
            
            (3,736
            )
            
            (20,989
            )
            
            (12,508
            )Income
                tax provision
            
            
            47
            
            
            47
            
            
            141
            
            
            141Loss
                from continuing operations
            
            
            (7,432
            )
            
            (3,783
            )
            
            (21,130
            )
            
            (12,649
            )Income
                from discontinued operations, including gain on saleof
                $4,035
            
            
            -
            
            
            4,038
            
            
            -
            
            
            3,646Net
                (loss) income
            
            
            (7,432
            )
            
            255
            
            
            (21,130
            )
            
            (9,003
            )Accumulated
                preferred dividends
            
            
            (1,260
            )
            
            -
            
            
            (4,686
            )
            
            -(Loss)
                income applicable to common stockholders
            
            $
            (8,692
            )
            $
            255
            
            $
            (25,816
            )
            $
            (9,003
            )Basic
                and diluted loss from continuing operations per commonshare
                (net of accumulated preferred dividends)
            
            $
            (0.24
            )
            $
            (0.11
            )
            $
            (0.71
            )
            $
            (0.38
            )Basic
                and diluted income from discontinued operationsper
                common share
            
            
            -
            
            
            0.12
            
            
            -
            
            
            0.11Basic
                and diluted (loss) income per common share
            
            $
            (0.24
            )
            $
            0.01
            
            $
            (0.71
            )
            $
            (0.27
            )Basic
                and diluted weighted average common shares outstanding
            
            
            36,860
            
            
            35,380
            
            
            36,146
            
            
            33,534





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.




Page
          4


**NYFIX,
      Inc. and Subsidiaries**


**Condensed
        Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive
        Income (Loss) (Unaudited)**


**For
      the Nine Months Ended September 30, 2007**


**(in
      thousands, except share amounts)**





**Series
                B**
            
            **Preferred**
            
            
            
            
            
            
            
            
            
            **Accumulated****Voting
                Convertible**
            
            **stock**
            
            
            
            
            
            
            
            
            
            **other**
            
            **Total****preferred
                stock issued**
            
            **dividend**
            
            **Common
                stock issued**
            
            **Accumulated**
            
            **Treasury**
            
            **comprehensive**
            
            **stockholders'****Shares**
            
            **Amount**
            
            **distributable**
            
            **Shares**
            
            **Amount**
            
            **deficit**
            
            **stock**
            
            **income
                (loss)**
            
            **equity**Balance
                December 31, 2006
            
            
            1,500,000
            
            $
            62,092
            
            $
            -
            
            
            36,654,986
            
            $
            256,835
            
            $
            (139,309
            )
            $
            (16,224
            )
            $
            (21
            )
            $
            163,373Comprehensive
                loss:
            
            
            
            
            
            
            
            
            -Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (21,130
            )
            
            -
            
            
            -
            
            
            (21,130
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            130
            
            
            130Total
                comprehensive loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (21,000
            )Issuance
                of common stock for stockoptions
                exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            111,175
            
            
            396
            
            
            -
            
            
            -
            
            
            -
            
            
            396Issuance
                of treasury stock for stockoptions
                exercised (225,000 shares issued;73,171
                shares surrendered)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,658
            )
            
            2,658
            
            
            -
            
            
            -Issuance
                of treasury stock for debtrepayment
                (26,954 shares)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (179
            )
            
            372
            
            
            -
            
            
            193Issuance
                of restricted shares fromtreasury
                stock pursuant to employmentagreement
                (48,169 shares)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Declaration
                of preferred stock dividend
            
            
            -
            
            
            -
            
            
            4,780
            
            
            -
            
            
            (4,780
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Common
                shares issued in payment ofpreferred
                stock dividend
            
            
            -
            
            
            -
            
            
            (4,780
            )
            
            753,827
            
            
            4,780
            
            
            -
            
            
            -
            
            
            -
            
            
            -Contingent
                conversion price adjustmentrelated
                to convertible note
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            11
            
            
            -
            
            
            -
            
            
            -
            
            
            11Stock-based
                compensation expense
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            260
            
            
            -
            
            
            -
            
            
            -
            
            
            260Modification
                of stock options
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            501
            
            
            -
            
            
            -
            
            
            -
            
            
            501Balance
                September 30, 2007
            
            
            1,500,000
            
            $
            62,092
            
            $
            -
            
            
            37,519,988
            
            $
            258,003
            
            $
            (163,276
            )
            $
            (13,194
            )
            $
            109
            
            $
            143,734





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.




Page
          5


**NYFIX,
        Inc. and Subsidiaries**


**Condensed
        Consolidated Statements of Cash Flows (Unaudited)**
 **(in
        thousands)**
  **Nine
                  Months EndedSeptember 30,****2007**
              
              **2006**Operating
                  activities:Net
                  loss
              
              $
              (21,130
              )
              $
              (9,003
              )Adjustments
                  to reconcile net loss to net cash (used in) provided by continuing
                  operating activities:Income
                  from discontinued operations
              
              
              -
              
              
              (3,646
              )Depreciation
                  and amortization
              
              
              7,735
              
              
              8,495Restructuring
                  charge
              
              
              -
              
              
              2,056Stock-based
                  compensation expense
              
              
              260
              
              
              732Amortization
                  of debt discounts and premiums
              
              
              38
              
              
              10Deferred
                  income taxes
              
              
              110
              
              
              110Provision
                  for doubtful accounts
              
              
              90
              
              
              3Other,
                  net
              
              
              1
              
              
              (1
              )Changes
                  in assets and liabilities:Accounts
                  receivable
              
              
              (5,451
              )
              
              757Clearing
                  broker assets
              
              
              (14,415
              )
              
              (44,358
              )Prepaid
                  expenses and other assets
              
              
              (1,410
              )
              
              (174
              )Accounts
                  payable, accrued expenses and other liabilities
              
              
              4,768
              
              
              4,361Clearing
                  broker liabilities
              
              
              13,790
              
              
              44,807Deferred
                  revenue
              
              
              4
              
              
              (200
              )Net
                  cash (used in) provided by continuing operating activities
              
              
              (15,610
              )
              
              3,949Net
                  cash provided by discontinued operating activities
              
              
              -
              
              
              791Net
                  cash (used in) provided by operating activities
              
              
              (15,610
              )
              
              4,740Investing
                  activities:Proceeds
                  from sale of (working capital adjustment related to) discontinued
                  operations, net of cash disposed
              
              
              (1,318
              )
              
              8,764Net
                  sales of short-term investments
              
              
              -
              
              
              500Capital
                  expenditures for property and equipment
              
              
              (8,398
              )
              
              (3,346
              )Capitalization
                  of software development costs
              
              
              (2,945
              )
              
              (2,024
              )Tax
                  benefit attributable to goodwill
              
              
              31
              
              
              31Net
                  cash (used in) provided by continuing investing activities
              
              
              (12,630
              )
              
              3,925Net
                  cash used in discontinued investing activities
              
              
              -
              
              
              (598
              )Net
                  cash (used in) provided by investing activities
              
              
              (12,630
              )
              
              3,327Financing
                  activities:Repayment
                  of long-term debt
              
              
              -
              
              
              (2
              )Principal
                  payments under capital lease obligations
              
              
              (835
              )
              
              (513
              )Repayment
                  of notes issued for purchase of common stock
              
              
              -
              
              
              71Proceeds
                  from issuance of common stock, net of issuance costs
              
              
              111
              
              
              12,540Other,
                  net
              
              
              (277
              )
              
              (504
              )Net
                  cash (used in) provided by continuing financing activities
              
              
              (1,001
              )
              
              11,592Effect
                  of exchange rate changes on cash
              
              
              123
              
              
              147Net
                  (decrease) increase in cash and cash equivalents
              
              
              (29,118
              )
              
              19,806Cash
                  and cash equivalents, beginning of period
              
              
              105,888
              
              
              21,066Cash
                  and cash equivalents, end of period
              
              $
              76,770
              
              $
              40,872





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.




Page
          6


**Notes
        to Condensed Consolidated Financial Statements (Unaudited)**




**1.**
              **Summary
                  of Significant Accounting Policies**




*Nature
      of Operations*




NYFIX,
      Inc. (together with its consolidated subsidiaries, “NYFIX” or the “Company”) provides
      trading workstations, middle office trade automation technologies and trade
      messaging services to domestic and international market participants. In
      addition, NYFIX’s registered broker-dealer subsidiaries also provide automated
      trade execution services to institutional counterparties and operate a
      matched-book stock borrow/stock loan business.




The
      Company has its headquarters and principal office on Wall Street in New York
      City, and has other offices in London’s Financial District, Hong Kong, Boston,
      MA, Stamford, CT and San Francisco, CA. The Company operates redundant data
      centers in the northeastern United States as well as data center hubs in London
      and Amsterdam.




*Basis
      of Presentation of Interim Financial Statements*




The
      accompanying unaudited condensed consolidated financial statements were prepared
      by the Company pursuant to the rules and regulations of the Securities and
      Exchange Commission (the “SEC”) and, in the opinion of management, include all
      adjustments (consisting of normal recurring accruals and adjustments necessary
      for adoption of new accounting standards) necessary to present fairly the
      results of the interim periods shown. Certain information and footnote
      disclosures normally included in financial statements prepared in accordance
      with generally accepted accounting principles (“GAAP”) have been condensed or
      omitted pursuant to such SEC rules and regulations. Management believes that
      the
      disclosures made are adequate to make the information presented not misleading.
      The results for the interim periods are not necessarily indicative of results
      for the full year. The financial statements contained herein should be read
      in
      conjunction with the consolidated financial statements and notes thereto
      included in the Company’s Annual Report on Form 10-K for the year ended December
      31, 2006 (“2006 10-K”).




The
      accompanying unaudited condensed consolidated financial statements include
      the
      accounts of NYFIX, Inc. and its majority-owned and wholly-owned subsidiaries.
      All significant intercompany balances and transactions have been eliminated
      in
      consolidation.




*Significant
      Accounting Policies*




There
      have been no material changes in the Company’s significant accounting policies
      during 2007, as compared to what was previously disclosed in the 2006
      10-K.




**2.**
              **Stock-Based
                  Compensation**




The
      Company has stock option plans under which stock options have been granted
      to
      employees and non-employee members of the Board of Directors. These options
      are
      typically granted for a term not exceeding ten years and are forfeited, except
      in certain circumstances, in the event the employee or director terminates
      his
      or her employment or relationship with the Company. These options vest over
      periods specified at the time of grant, which generally range from less than
      one
      to five years .




The
      fair
      value of options is estimated using the Black-Scholes option-pricing model
      which
      considers, among other factors, the expected life of the award and the expected
      volatility of the Company’s stock price. Although the Black-Scholes model meets
      the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 123
      (revised 2004), *Share-Based
      Payment* (“SFAS
      123R”) and Staff
      Accounting Bulletin  No. 107, *Share-Based
      Payment* ,
      the
      fair values generated by the model may not be indicative of the actual fair
      values of the Company’s awards, as it does not consider other factors important
      to those stock-based compensation awards, such as continued employment, periodic
      vesting requirements and limited transferability.




Page
          7


Notes
      to Condensed Consolidated Financial
      Statements - continued (Unaudited)







*Stock
      Option Plans*




A
      summary
      of activity under stock option plans for nine months ended September 30, 2007,
      follows:


**Options**
              
              **Shares**
              
              
              **Weighted
                  averageexercise price**
              
              **Weighted
                  average remaining contractual term (years)**
              
              **Aggregateintrinsic
                  value(000's)**Outstanding
                  at beginning of the year
              
              
              3,670,780
              
              (1)
              $
              9.56Exercised
              
              
              (336,175
              )
              (2)
              $
              2.48Cancelled
              
              
              (1,608,761
              )
              (3)
              $
              8.71Outstanding
                  at end of the period
              
              
              1,725,844
              
              (4)
              $
              11.73
              
              
              4.3
              
              $
              498Exercisable
                  at end of the period
              
              
              1,707,511
              
              (4)
              $
              11.79
              
              
              4.3
              
              $
              498




(1)
                Includes
                    1,089,906 shares related to Pending Exercises not settled due
                    to the
                    Company not being current with its periodic reporting to the
                    SEC (see Note
                    10). The weighted average exercise price for such shares approximates
                    $3.95 per share.


(2)
              Reflects
                  shares from former employees with Pending Exercises (see*Pending
                  Exercises*below).


(3)
              Includes
                  686,421 shares related to Pending Exercises that were cash settled
                  (see*Pending
                  Exercises*below).


(4)
              Includes
                  150,267 shares related to Pending Exercises not yet settled (see*Pending
                  Exercises*below). The weighted average exercise price for such shares approximates
                  $3.52 per share.




*Pending
      Exercises*




During
      the period July 2005 through August 2007, the Company generally did not issue
      shares to employees and directors in connection with the exercise of stock
      options. In February 2006, the Compensation Committee of the Board of Directors
      approved a policy whereby the Company would honor awards to former employees
      who
      had validly notified the Company in writing of their intent to exercise during
      this period prior to becoming current with its SEC reporting obligations in
      August 2007 (“Pending Exercises”). As a result, the Company modified vested
      in-the-money awards to terminating employees, prior to their termination of
      employment, extending the normal 90 day post-termination exercise period until
      such time as the Company became current with its SEC reporting obligations
      and
      the underlying shares were once again covered by an effective registration
      statement.




On
      August
      28, 2007, the Company offered former employees holding 910,883 of these awards
      three alternatives related to their Pending Exercises: 1) cash settle the awards
      based on the value of its stock on the initial request date, 2) exercise the
      options within 30 days or, 3) allow the options to lapse. Former employees
      holding 686,421 of the awards accepted the Company’s cash settlement offer.
      Payments aggregating approximately $1.2 million were made in October 2007 to
      satisfy this obligation. Former employees holding 111,175 awards exercised
      their
      options while former employees holding 113,287 awards allowed their awards
      to
      lapse. The remaining 150,267 Pending Exercises are held by former overseas
      employees who have other option related issues that the Company is seeking
      to
      resolve concurrently. On September 27, 2007, these awards were extended for
      an
      additional six months. If the Company were to cash settle these options, the
      potential cash exposure would be $0.4 million.




During
      the nine months ended September 30, 2007, the Company paid $0.5 million to
      cash
      settle 136,750 options which had reached their 10-year contractual life and
      expired .
      At September 30, 2007, liabilities outstanding for modified awards to be cash
      settled, related to expired options covering 21,375 shares, aggregated $0.1
      million.




*Section
      409A*




The
      Company had previously determined that it had exposure related to Section 409A
      of the U.S. Internal Revenue Code (“Section 409A”) and has taken action to
      remedy its exposure. In this regard, in 2006 the Company remedied the Section
      409A exposure with respect to certain current and former directors and executive
      officers by increasing exercise prices of affected grants. In August 2007,
      the
      Company remedied the Section 409A exposure with respect to substantially all
      current rank and file employees by unilaterally increasing exercise prices
      of
      affected grants covering 139,289 shares. The weighted average exercise price
      for
      these shares was increased by approximately $0.98 per share. Because the
      modifications increased the exercise prices of the related options, no
      compensation expense was recorded under SFAS 123R as the fair values of those
      awards declined. The Company intends to pay these employees in January 2008
      an
      aggregate cash amount of $0.1 million to offset the impact of the increase
      in
      these exercise prices. To remedy the Section 409A exposure of former employees
      holding Pending Exercises the Company intends to pay less than $0.1 million
      representing the former employees’ 20% additional tax on stock option gains as
      called for under Section 409A, including related interest and an income tax
      gross-up.




Page
          8


**Notes
      to Condensed Consolidated Financial Statements - continued
      (Unaudited)**






The
      Company did not grant stock options during the nine months ended September
      30,
      2007 and 2006. See Note 12 for a description of awards granted in October 2007.




*Restricted
      Stock*




During
      March 2007, the Company issued 48,169 restricted shares of common stock from
      treasury to an officer in satisfaction of his employment agreement requiring
      issuance of shares with a fair market value of $300,000 .
      The
      fair value of such shares of $300,000 is being charged to stock-based
      compensation expense pro rata over the requisite service period.




*Stock-based
      Compensation Expense*




Stock-based
      compensation expense during the three and nine months ended September 30, 2007
      was approximately $(0.3) million and $0.1 million, respectively, which included
      an aggregate of $(0.3) million and $(0.1) million for the three and nine months
      ended September 30, 2007, respectively, of expense related to expired options
      to
      be cash settled and other modification charges relating to extending the normal
      90 day post-termination exercise period (included in restatement, SEC
      investigation and related expenses). During the three and nine months ended
      September 30, 2006, stock-based compensation expense was approximately $0.2
      million and $0.8 million, respectively, which includes an aggregate of a nil
      amount and $0.1 million, respectively, of expense related to expired options
      to
      be cash settled and to extending the normal 90 day post-termination exercise
      period. Discontinued operations for the nine months ended September 30, 2006
      includes stock-based compensation expense of less than $0.1 million. At
      September 30, 2007, unrecognized compensation expense related to the nonvested
      portion of the restricted stock grant was $150,000, which will be amortized
      through March 2008.




**3.**
            **(Loss)
                Income Per Share**




The
      Company’s basic (loss) income per common share is determined by dividing the
      (loss) income applicable to common stockholders by the weighted average number
      of common shares outstanding during the period. Diluted (loss) income per common
      share is determined by dividing the (loss) income applicable to common
      stockholders, adjusted for the effect of dilutive securities, by the weighted
      average number of common shares and dilutive potential common shares.


Page
            9
 **Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**




The
      following table sets forth the computations of (loss) income per common share
      and of the weighted average common shares outstanding:


**Three
                  Months EndedSeptember 30,**
              
              **Nine
                  Months EndedSeptember 30,**(in
                  thousands, except per share amounts)
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006**Loss
                  from continuing operations
              
              $
              (7,432
              )
              $
              (3,783
              )
              $
              (21,130
              )
              $
              (12,649
              )Less:
                  Accumulated preferred dividends
              
              
              (1,260
              )
              
              -
              
              
              (4,686
              )
              
              -Loss
                  from continuing operations applicable to common stockholders, basic
                  and
                  diluted
              
              
              (8,692
              )
              
              (3,783
              )
              
              (25,816
              )
              
              (12,649
              )Income
                  from discontinued operations, basic and diluted
              
              
              -
              
              
              4,038
              
              
              -
              
              
              3,646(Loss)
                  income applicable to common stockholders, basic and
                  diluted
              
              $
              (8,692
              )
              $
              255
              
              $
              (25,816
              )
              $
              (9,003
              )Basic
                  and diluted loss from continuing operations per common
                  share
              
              $
              (0.24
              )
              $
              (0.11
              )
              $
              (0.71
              )
              $
              (0.38
              )Basic
                  and diluted income from discontinued operations per common
                  share
              
              
              -
              
              
              0.12
              
              
              -
              
              
              0.11Basic
                  and diluted (loss) income per common share
              
              $
              (0.24
              )
              $
              0.01
              
              $
              (0.71
              )
              $
              (0.27
              )Weighted
                  average common shares outstanding (1):Basic
                  and diluted shares
              
              
              36,860
              
              
              35,380
              
              
              36,146
              
              
              33,534Potentially
                  dilutive securities:Outstanding
                  stock options (2)
              
              
              1,726
              
              
              4,421
              
              
              1,726
              
              
              4,421Outstanding
                  nonvested restricted stock grants (2)
              
              
              48
              
              
              -
              
              
              48
              
              
              -Warrants
                  (2)
              
              
              2,250
              
              
              -
              
              
              2,250
              
              
              -Convertible
                  note (2)
              
              
              1,327
              
              
              1,325
              
              
              1,327
              
              
              1,325Convertible
                  preferred stock (2)
              
              
              15,000
              
              
              -
              
              
              15,000
              
              
              -





(1)
              Excludes
                  nonvested restricted stock
                  grants.


(2)
              The
                  impact of stock options, restricted stock grants, warrants, the
                  convertible note and the convertible preferred stock on earnings
                  per share
                  is antidilutive in a period of loss from continuing operations.
                  Excludes
                  securities related to matters discussed in Note 12 - Subsequent
                  Events.




**4.**
            **Other
                Balance Sheet Information**




Accounts
      payable and accrued expenses consisted of the following at September 30, 2007
      and December 31, 2006:


**September
                  30,**
              
              **December
                  31,**(in
                  thousands)
              
              **2007**
              
              **2006**Accounts
                  payable
              
              $
              15,066
              
              $
              11,052Compensation
                  and related
              
              
              8,285
              
              
              6,276Modification
                  of stock-based awards
              
              
              1,471
              
              
              2,601Sale
                  of NYFIX Overseas working capital adjustment (Note 9)
              
              
              -
              
              
              1,318Taxes,
                  other than income and payroll taxes
              
              
              854
              
              
              834Penalties
                  on reporting delinquency (Note 11)
              
              
              -
              
              
              631Other
              
              
              2,415
              
              
              2,421Total
                  accounts payable and accrued expenses
              
              $
              28,091
              
              $
              25,133


Page
            10
 **Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**




**5.**
            **Broker-Dealer
                Operations**




*Clearing
      Broker Assets and Liabilities*




Clearing
      broker assets and liabilities consisted of the following at September 30, 2007
      and December 31, 2006:


**September
                  30,**
              
              **December
                  31,**(in
                  thousands)
              
              **2007**
              
              **2006**Securities
                  borrowed
              
              $
              434,447
              
              $
              421,435Securities
                  failed-to-deliver
              
              
              1,321
              
              
              -Deposits
                  with clearing firms
              
              
              778
              
              
              766Receivables
                  from clearing organizations
              
              
              749
              
              
              679Total
                  clearing broker assets
              
              $
              437,295
              
              $
              422,880Securities
                  loaned
              
              $
              434,357
              
              $
              422,414Securities
                  failed-to-receive
              
              
              1,849
              
              
              -Payables
                  to clearing organizations
              
              
              13
              
              
              15Total
                  clearing broker liabilities
              
              $
              436,219
              
              $
              422,429




*Securities
      Lending*




The
      Company receives collateral under securities borrowed transactions, which it
      is
      allowed by contract or custom to sell or repledge. As of September 30, 2007,
      securities borrowed with a fair value of $421.6 million were repledged for
      securities loaned. The gross amounts of interest earned on cash provided to
      counterparties as collateral for securities borrowed and interest incurred
      on
      cash received from counterparties as collateral for securities loaned and the
      resulting net amount included in transaction revenue for the three and nine
      months ended September 30, 2007 and 2006, were as follows:




**Three
                  Months Ended**September
                  30,****
              
              **Nine Months
                  Ended**September
                  30,****(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006**Interest
                  earned
              
              $
              2,854
              
              $
              4,551
              
              $
              10,918
              
              $
              10,223Interest
                  incurred
              
              
              (2,513
              )
              
              (4,182
              )
              
              (9,913
              )
              
              (9,137
              )Net
              
              $
              341
              
              $
              369
              
              $
              1,005
              
              $
              1,086




*Regulatory
      Net Capital Requirements*




*U.S.
      registered broker-dealer subsidiaries* - NYFIX Clearing Corporation (“NYFIX Clearing”), NYFIX Transaction
      Services, Inc. (“NYFIX
      Transaction”), and NYFIX Millennium, LLC (“NYFIX Millennium”) are subject to the
      SEC’s Uniform Net Capital Rule (15c3-1), which requires the maintenance of
      minimum regulatory net capital. NYFIX Clearing has elected to use the
      alternative method, as permitted by the rule, which requires the maintenance
      of
      minimum regulatory capital, as defined, equal to the greater of $250,000 or
      2%
      of aggregate debit items arising from customer transactions, as defined. NYFIX
      Clearing’s membership in the Depository Trust & Clearing Corporation (the
“DTCC”) requires it to maintain excess regulatory net capital of $10.0 million.
      NYFIX Transaction and NYFIX Millennium have elected to use the aggregate
      indebtedness standard, which requires that the ratio of aggregate indebtedness
      to regulatory net capital, both as defined, shall not exceed 15 to 1. The
      regulatory net capital ratios for NYFIX Transaction and NYFIX Millennium, at
      September 30, 2007, were 2.37 to 1 and 1.25 to 1, respectively.




On
      September 30, 2007, at the close of the day, NYFIX Transaction was merged
      into NYFIX Clearing Corporation, with the surviving corporation being renamed NYFIX
      Securities Corporation (“NYFIX Securities”).




*Foreign
      registered subsidiaries* - NYFIX International, Ltd. (“NYFIX International”) is an ISD Category B firm
      registered with the Financial Services Authority (“FSA”) in the U.K. NYFIX
      International is required to maintain financial resources generally equal to
      three months average expenditures, subject to a minimum of €125,000, plus a
      proportion of less liquid assets on hand. As a result of a regulatory change,
      effective November 1, 2007 NYFIX International’s financial resource requirement
      has increased to €730,000. Additional funding of $1.5 million, in the form of a
      subordinated loan, was made to NYFIX International effective November 1, 2007.


Page
            11
 **Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**




At
      September 30, 2007, the regulatory net capital/resources and excess amounts
      were
      as follows:


(in
                  thousands)
              
              **Regulatory
                  Net Capital /Resources**
              
              **Excess
                  Regulatory Net Capital /Resources**NYFIX
                  Clearing
              
              $
              25,707
              
              $
              25,457NYFIX
                  Transaction
              
              
              1,092
              
              
              919NYFIX
                  Millennium
              
              
              3,256
              
              
              2,98530,055
              
              
              29,361NYFIX
                  International
              
              
              675
              
              
              175$
              30,730
              
              $
              29,536




**6.**
            **Income
                Taxes**




The
      income tax provision differs from the statutory U.S. federal income tax rate
      due
      primarily to a valuation allowance provided against net deferred tax assets.
      As
      described in the 2006 10-K, the Company maintains a valuation allowance in
      accordance with SFAS No. 109, *Accounting
      for Income Taxes,* on
      its
      net deferred tax assets. This allowance excludes the offsetting impact of the
      deferred tax liability for amortization of goodwill related to the acquisition
      of Renaissance Trading Technologies, LLC (“Renaissance”) due to the indefinite
      life of goodwill. See Note 12 for a description of the subsequent write-off
      of
      the Renaissance goodwill and related deferred tax liability. Until the Company
      achieves and sustains an appropriate level of profitability, it plans to
      maintain a valuation allowance on its net deferred tax assets.




**7.**
            **Total
                Comprehensive (Loss)
                Income**




The
      components of total comprehensive (loss) income, net of tax, were as
      follows:


**Three
                  Months Ended**
                **September
                  30,**
              
              **Nine
                  Months Ended**
                **September
                  30,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006**Net
                  (loss) income
              
              $
              (7,432
              )
              $
              255
              
              $
              (21,130
              )
              $
              (9,003
              )Foreign
                  currency translation adjustment
              
              
              45
              
              
              108
              
              
              130
              
              
              521Total
                  comprehensive (loss) income
              
              $
              (7,387
              )
              $
              363
              
              $
              (21,000
              )
              $
              (8,482
              )




**8.**
            **Business
                Segment Information**




In
      accordance with the requirements for interim period reporting under SFAS No.
      131, *Disclosures
      about Segments of an Enterprise and Related Information* (“SFAS
      131”), the Company is reporting the external, intersegment and net revenues and
      the operating income of its operating segments. As of September 30, 2007, the
      Company was organized into three operating divisions through which senior
      management evaluates the Company’s business. These divisions, as described in
      more detail below, are organized around the products and services provided
      to
      customers and represent the Company’s reportable segments under SFAS 131.




*FIX
      Division* .
      The FIX
      Division provides software and consultative services to enable global financial
      institutions to utilize the industry established Financial Information Exchange
      Protocol for messaging, monitoring and processing transaction information.
      The
      FIX Division also provides messaging channels for institutions that are members
      of its trading community for order routing and other value-added services.




*Order
      Management Systems (“OMS”) Division* .
      The OMS
      Division provides software applications for the management of New York Stock
      Exchange (“NYSE”) and Nasdaq listed trading activities. As described more fully
      in Note 12, the Fusion OMS business, which is included in the OMS Division
      results detailed below, was discontinued in October 2007. These products enable
      customers to take advantage of the broad range of products and services offered
      by other divisions. The Company does not allocate to the OMS Division any
      introductory revenue for business generated by the FIX Division and the
      Transaction Services Division from OMS Division clients.




*Transaction
      Services Division* .
      The
      Transaction Services Division is currently comprised of the two (formerly three)
      U.S. registered broker-dealer subsidiaries, NYFIX Millennium and NYFIX
      Securities (see Note 5 for a discussion of the merger of NYFIX Transaction
      into
      NYFIX Clearing into what is now renamed NYFIX Securities), together with the
      execution business of NYFIX International in the U.K. NYFIX Millennium, an
      alternative trading system (“ATS”) registered under SEC Regulation ATS, provides
      anonymous matching and routing of U.S. equity securities. NYFIX Securities
      provides direct electronic market access and algorithmic trading products,
      operates a matched-book stock borrow/stock loan business and clears trades
      on
      behalf of itself and NYFIX Millennium. NYFIX Millennium and NYFIX Securities
      also resell certain products and services offered by the FIX Division and the
      OMS Division. In the second quarter of 2007 the Company’s Board of Directors
      approved a new initiative, Euro Millennium TM ,
      a
      multilateral trading facility for non-displayed liquidity in pan-European listed
      cash equities housed within NYFIX International. During the three and nine
      months ended September 30, 2007 the Company incurred pre-operating start-up
      costs of $1.3 million and $2.0 million, respectively, related to this
      initiative. These start-up costs are included in Corporate & Other in the
      segment information reported below. The Company is targeting the commencement
      of
      Euro Millennium TM operations during the first quarter of 2008.


Page
            12
 **Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**




The
      Company does not currently break out total assets by reportable segment as
      there
      is a high level of shared utilization between certain reportable segments.




The
      following table presents information by reportable segment for the three and
      nine months ended September 30, 2007 and 2006:


(in
                  thousands)
              
              **FIX
                  Division**
              
              **OMSDivision**
              
              **TransactionServicesDivision**
              
              **Corporate
                  &Other (1)**
              
              **Total****Three
                  Months Ended September 30, 2007**Revenue
                  - external customers
              
              $
              14,186
              
              $
              1,829
              
              $
              16,548
              
              $
              -
              
              $
              32,563Revenue
                  (cost of revenues), net - intersegment
              
              
              678
              
              
              210
              
              
              (888
              )
              
              -
              
              
              -Net
                  revenue
              
              
              14,864
              
              
              2,039
              
              
              15,660
              
              
              -
              
              
              32,563Operating
                  income (loss) (2)
              
              
              712
              
              
              (5,587
              )
              
              960
              
              
              (4,316
              )
              
              (8,231
              )**Three
                  Months Ended September 30, 2006**Revenue
                  - external customers
              
              $
              12,002
              
              $
              4,330
              
              $
              8,908
              
              $
              -
              
              $
              25,240Revenue
                  (cost of revenues), net - intersegment
              
              
              577
              
              
              264
              
              
              (841
              )
              
              -
              
              
              -Net
                  revenue
              
              
              12,579
              
              
              4,594
              
              
              8,067
              
              
              -
              
              
              25,240Operating
                  income (loss) (2)
              
              
              1,779
              
              
              (2,326
              )
              
              1,165
              
              
              (4,534
              )
              
              (3,916
              )**Nine
                  Months Ended September 30, 2007**Revenue
                  - external customers
              
              $
              41,151
              
              $
              7,667
              
              $
              42,233
              
              $
              -
              
              $
              91,051Revenue
                  (cost of revenues), net - intersegment
              
              
              1,799
              
              
              653
              
              
              (2,452
              )
              
              -
              
              
              -Net
                  revenue
              
              
              42,950
              
              
              8,320
              
              
              39,781
              
              
              -
              
              
              91,051Operating
                  income (loss) (2)
              
              
              2,208
              
              
              (15,566
              )
              
              3,589
              
              
              (14,116
              )
              
              (23,885
              )**Nine
                  Months Ended September 30, 2006**Revenue
                  - external customers
              
              $
              33,313
              
              $
              13,662
              
              $
              24,939
              
              $
              -
              
              $
              71,914Revenue
                  (cost of revenues), net - intersegment
              
              
              1,755
              
              
              850
              
              
              (2,605
              )
              
              -
              
              
              -Net
                  revenue
              
              
              35,068
              
              
              14,512
              
              
              22,334
              
              
              -
              
              
              71,914Operating
                  income (loss) (2)
              
              
              4,676
              
              
              (6,731
              )
              
              1,439
              
              
              (11,987
              )
              
              (12,603
              )







(1)
              Corporate
                  & Other items include restatement, SEC investigation and related
                  expenses, corporate restructuring costs, Euro Millennium start-up
                  costs,
                  certain transitional costs and other corporate items which are
                  not
                  allocated to reportable segments and certain shared costs which
                  were
                  previously allocated to disposed
                  operations.


(2)
              Operating
                  income (loss) by segment reflects a significant amount of costs
                  which are
                  allocated by headcount, usage and other methods, depending on the
                  nature
                  of the cost.




**9.**
            **Discontinued
                Operations**




During
      the third quarter of 2006, the Company disposed of all of the issued and
      outstanding capital stock of NYFIX Overseas, a wholly-owned subsidiary which
      previously comprised the Company’s Order Book Management Systems (“OBMS”)
      Division to G.L. Trade S.A. (“GL”). Of the initial purchase price, $1.3 million
      was repaid to the buyer in April 2007 in settlement of a working capital
      adjustment. There is also an earn-out adjustment, under the terms of which
      the
      Company is eligible for additional earn-out payments based on future revenues
      of
      NYFIX Overseas through December 31, 2007. The maximum earn-out payment is $5.1
      million, net of additional payments to the management team of NYFIX
      Overseas.




The
      Company has agreed to indemnify GL for certain claims made through December
      31,
      2007, as well as for losses arising out of or resulting from (1) any
      misrepresentation or breach of warranties; (2) any breach of a covenant or
      agreement made or to be performed by the Company under the Sale Agreement;
      (3)
      certain patent settlements; (4) the lack of recording stock-based compensation
      expense related to stock options granted to the employees of NYFIX Overseas
      by
      the Company; (5) specified taxes of NYFIX Overseas pre-closing that were not
      previously paid or adequately reserved for by NYFIX Overseas, and (6) any
      obligations relating to options to purchase shares of common stock of the
      Company held by employees of NYFIX Overseas.


Page
            13
 **Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**




For
      two
      years following the closing and subject to certain exceptions, the Company
      has
      agreed not to develop or market any product that is directly competitive with
      the OBMS product of NYFIX Overseas.




The
      disposition of NYFIX Overseas constitutes a discontinued operation and
      accordingly all financial statements presented reflect amounts relative to
      NYFIX
      Overseas, except for previously allocated overhead charges, as a discontinued
      operation.




Revenue
      related to NYFIX Overseas included in the income from discontinued operations
      was $1.4 million and $5.0 million, respectively, for the three and nine months
      ended September 30, 2006. Income (loss) from operations before income taxes,
      excluding the gain on sale of $4.0 million, was $0.0 million and $(0.4) million,
      respectively, for the three and nine months ended September 30,
      2006.




**10.**
            **Commitments
                and Contingencies**




*Stock-based
      Compensation Related Matters*




*SEC
      Investigation*




By
      letter
      dated October 28, 2004, the Division of Enforcement of the SEC informed the
      Company that it was conducting an informal investigation related to certain
      stock option grants. On February 25, 2005, the Company filed a current report
      on
      Form 8-K, which indicated that the Company believed that the matter was a formal
      inquiry. The Company is cooperating with the SEC with respect to this matter.
      The Company believes it is substantially complete with regard to producing
      all
      documents responsive to document requests and a subpoena. The SEC staff has
      taken testimony from current and/or former officers and/or directors, as well
      as
      from third parties, including the Company’s former independent registered public
      accounting firm.




*Grand
      Jury Subpoena*




In
      May
      2006, the Company received a grand jury subpoena from the U.S. Attorney for
      the
      Southern District of New York.  The subpoena sought documents relating to
      the Company’s granting of stock options.  With the agreement of the
      Assistant U.S. Attorney, the Company is responding to the subpoena by producing
      the documents it produces to the staff of the Division of Enforcement of the
      SEC. The U.S. Attorney has also conducted interviews with at least one current
      employee and two former employees (one of whom is a former officer) and with
      at
      least one employee of the Company’s former independent registered public
      accounting firm.




*Shareholder
      Derivative Actions*




On
      or
      about June 1, 2006, the Company was served as a nominal defendant with a
      complaint (the “Ritchie Complaint”) in a shareholder derivative action titled Ritchie
      v. Castillo, et al .
      in the
      Superior Court for the State of Connecticut.  The Ritchie Complaint also
      names the Company’s former Chairman and Chief Executive Officer, another former
      Chief Executive Officer and director, the Company’s former Chief Information
      Officer, a former Chief Financial Officer, and six other current directors
      as
      defendants. The Ritchie Complaint asserts a claim for breach of fiduciary duty
      against all the individual defendants and a claim for unjust enrichment against
      four individual defendants based on claimed backdating of stock option grants
      to
      these individuals between 2000 and 2003.  On June 9, 2006, the Company was
      named as a nominal defendant in a shareholder derivative action titled McLaughlin
      v. Castillo, et al .
      in the
      same court and with the same substantive allegations as the Ritchie action.
      In
      September 2006, the Court consolidated the Ritchie and McLaughlin actions.
      In
      October 2006, plaintiffs filed a consolidated complaint (the “State Court
      Consolidated Complaint”). The State Court Consolidated Complaint contains nine
      counts (as opposed to the two counts previously alleged in each of two actions),
      including counts for an accounting of all stock options granted to the
      individual defendants, breach of fiduciary duty and unjust enrichment, insider
      trading, rescission and breach of contract. The State Court Consolidated
      Complaint adds seven additional defendants: three former directors (one of
      whom
      is deceased); two former Chief Financial Officers, the Company’s current General
      Counsel and former Secretary and the Company’s former Executive Vice President
      and President of NYFIX Millennium. The nine counts of the State Court
      Consolidated Complaint are based on claimed backdating of stock option grants
      to
      eleven individual defendants between 1997 and 2003.


Page
            14
 **Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**




On
      August
      30, 2006, the Company was served as a nominal defendant with a complaint (the
      “Cattelona Complaint”) in a shareholder derivative action titled Cattelona
      v. Hansen, et al .,
      in the
      United States District Court for the District of Connecticut.   The
      Cattelona Complaint also names the Company’s former Chairman and Chief Executive
      Officer, another former Chief Executive Officer and director, a former Chief
      Information Officer, a former Chief Financial Officer, and six other current
      directors as defendants. The Cattelona Complaint asserts counts against the
      individual defendants for violation of Section 10(b) of the Securities Exchange
      Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, and
      Section 14(a) of the Exchange Act and Section 20(a) of the Exchange Act, and
      for
      breach of fiduciary duty, gross mismanagement and corporate waste. In addition,
      the Cattelona Complaint asserts a count against four of the individual
      defendants for unjust enrichment based on claimed backdating of stock option
      grants to the latter individuals between 1999 and 2002.




On
      or
      about September 7, 2006, a complaint (the “Brock Complaint”) was filed in a
      shareholder derivative action titled Brock
      v. Hansen, et al .,
      in the
      United States District Court for the District of Connecticut. The Brock
      Complaint names the Company as a nominal defendant, as well as the Company’s
      former Chairman and Chief Executive Officer, another former Chief Executive
      Officer and director, the Company’s former Chief Information Officer, a former
      Chief Financial Officer, and six other current directors as defendants. The
      Brock Complaint asserts a count for an accounting of all stock options granted
      to the individual defendants, and counts against all individual defendants
      for
      violation of Section 14(a) of the Exchange Act, breach of fiduciary duty, abuse
      of control, gross mismanagement, constructive fraud, corporate waste, unjust
      enrichment, and breach of contract. In addition, the Brock Complaint asserts
      counts against three individual defendants for rescission and for breach of
      contract for stock option grants made between 1997 and 2001.




On
      December 5, 2006, the U.S. District Court for the District of Connecticut
      consolidated the Brock and Cattelona actions. In December 2006, the plaintiffs
      filed a consolidated complaint (the “Federal Court Consolidated Complaint”). The
      Federal Court Consolidated Complaint contains twelve counts (as opposed to
      the
      eleven counts previously alleged in the Brock Complaint and the seven counts
      previously alleged in the Cattelona Complaint), including counts against all
      defendants for: violations of Section 10(b) of the Exchange Act and Rule 10b-5
      thereunder; violations of Section 14(a) of the Exchange Act; an accounting
      of
      all stock options granted to the individual defendants; breach of fiduciary
      duty
      and/or aiding and abetting; abuse of control; gross mismanagement; constructive
      fraud; corporate waste; and unjust enrichment. The Federal Court Consolidated
      Complaint also contains counts against six of the individual defendants for
      rescission and for breach of contract. The Federal Court Consolidated Complaint
      adds four additional defendants: two former directors, a former Chief Financial
      Officer and a former Executive Vice President of the Company and President
      of
      NYFIX Millennium. The twelve counts of the Federal Court Consolidated Complaint
      are based on claimed backdating of stock option grants to six individual
      defendants from 1997 to the filing of the Federal Court Consolidated Complaint.
      In June 2007, plaintiffs filed a corrected amended consolidated complaint (the
      “Federal Court Amended Consolidated Complaint”). The Federal Court Amended
      Consolidated Complaint drops eight individual defendants (two current directors,
      two former directors, a former Chief Executive Officer and director, a former
      Chief Financial Officer, a former Chief Information Officer and a former
      Executive Vice President of the Company and President of NYFIX Millennium),
      two
      counts for rescission and breach of contract and the count for violation of
      Section 14(a) of the Exchange Act and adds a count under Section 20 of the
      Exchange Act. The ten counts of the Federal Court Amended Consolidated Complaint
      are based on claimed backdating of stock option grants and an allegedly false
      and misleading Form 10-K filed in June 2005.




In
      addition, certain shareholders have made formal inquiries regarding alleged
      violations of Section 16(b) of the Exchange Act based on the same facts alleged
      in the Ritchie and McLaughlin suits, to
      which the Company has responded that in no case did it appear that options
      were
      exercised within six months or less from the date of grant and that each option
      would qualify as an exempt transaction under applicable rules.




*Related
      Tax Matters*




In
      2006
      and 2007, the Company has had communications with the United States Internal
      Revenue Service (“IRS”) and the United Kingdom HM Revenue & Customs (“Inland
      Revenue”) relating to historical stock option grants and exercises. These
      communications involve employment tax returns and the amounts of reported
      employee compensation and related payroll tax withholdings, as well as
      deductions on corporate income tax returns. The Company has received document
      requests from the IRS relating to stock option grants and exercises in
      connection with the IRS examination of the Company’s corporate tax returns for
      the years 2001 and 2004 and of the Company’s employment tax returns for the
      years 2003 through 2005, respectively. Subsequent to the sale of NYFIX Overseas
      in August 2006, GL forwarded correspondence from the Inland Revenue relating
      to
      NYFIX Overseas’ potential liability for payroll tax withholdings on prior option
      exercises by certain former employees .




The
      Company has determined that it has exposure as former management did not
      properly withhold employee income and related payroll taxes related to
      historical stock option activity. As a result, the Company has recorded a
      liability of $0.8 million related to potential tax withholdings not made upon
      the exercises of stock options in the United States previously classified as
      Incentive Stock Options (“ISOs”) and similar exposures related to potential
      withholdings and payroll taxes which may be due in the U.K. related to stock
      option exercises under Pay As You Earn, or PAYE, and National Insurance
      Contribution provisions (due to the Company’s indemnity obligations to GL).


Page
            15
 **Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**




Based
      upon the current information available and the liabilities recognized, the
      Company believes the resolution of these tax matters will not have a material
      adverse effect on its consolidated financial condition or results of operations.
      However, the ongoing discussions with the taxing authorities could result in
      new
      information and higher than anticipated exposures. The Company is continuing
      to
      cooperate with the taxing authorities to resolve these matters.




*Internal
      Accounting Review and Restatements*




The
      Company performed an extensive internal review of its historical stock-based
      compensation awards as well as an overall accounting review. The consolidated
      financial statements for the years ended December 31, 2004 and 2003 were
      re-audited by a newly engaged independent registered public accounting firm.
      The
      internal review was overseen by the Audit Committee of the Board of Directors
      and a special Subcommittee of the Audit Committee formed in connection with
      a
      restructuring of the Board and of management that commenced in September 2005.




As
      a
      result of this internal review, in its 2005 10-K, the Company restated its
      consolidated financial statements for prior periods and related financial
      statement disclosures to reflect adjustments necessary, reducing its previously
      reported results by a net amount of $42.1 million (the
      “2005 Restatement”) .
      The
      items adjusted consisted of stock-based compensation, acquisitions and
      investments, revenue recognition, income taxes and treasury stock. The findings
      of the Company’s internal review of historical stock-based compensation awards
      included (i) grants to officers and directors which were made outside the terms
      of the stock option plans then in effect; (ii) modifications of grants to Peter
      Hansen, the Company’s founder, former Chief Executive Officer and Chairman,
      where evidence could not be located to demonstrate that the modifications were
      authorized by the Board or Compensation Committee; (iii) retroactive
      reinstatement of the employment status of Richard Castillo, the Company’s former
      Chief Financial Officer and Secretary, after he had discontinued providing
      employee services and the continued vesting of his outstanding awards, (iv)
      subsequent changing of vesting terms with retroactive documentation as of an
      earlier date; (v) grant schedules to the minutes of Board or Compensation
      Committee meetings which included awards that were not initiated until after
      the
      dates of these meetings; (vi) grant schedules to the minutes of Board or
      Compensation Committee meetings which included awards which were modified after
      the dates of such meetings to increase the number of options granted or to
      decrease the exercise price, but which were included on such schedules as if
      they had been granted in modified form on the dates of the Board or Compensation
      Committee meetings; (vii) options and warrants exercised by officers and
      directors with non-recourse notes where evidence could not be located to
      demonstrate that the issuance of such notes was approved by the Board or
      Compensation Committee; and (viii) other circumstances indicating the issuance
      of in-the-money grants. The modifications to Mr. Hansen’s grants noted in (ii)
      above resulted in the recording of a $25.0 million charge in March 2000, based
      on the incremental intrinsic value on the date assumed to be the modification
      date.




The
      restatement for stock-based compensation included in the Company’s 2005 10-K
      relied upon significant legal and other judgments. These judgments included
      determinations as to the validity of grants, measurement dates, and other
      matters, including reliance upon delegated authority with respect to awards
      issued directly by Mr. Hansen and not later ratified by the Board or
      Compensation Committee. Any and all of these determinations could be challenged.
      Additionally, new and possibly significant information may also be located
      which
      could lead to different determinations that may require different accounting
      treatment.




*NYFIX
      Millennium SEC Inquiry*




In
      connection with the restatement of the Company’s 1999 through 2002 consolidated
      financial statements relating to its accounting for the losses incurred by
      NYFIX
      Millennium filed in May 2004, the Division of Enforcement of the SEC informed
      the Company by letter dated July 14, 2004 that it was conducting an informal
      inquiry. On January 25, 2005, the Company filed a current report on Form 8-K,
      which indicated that the Company believed that the matter was a formal inquiry.
      The Company cooperated with the SEC, producing documents in response to document
      requests and subpoenas and making employees available for interviews and
      testimony. The SEC staff has taken testimony from current and/or former officers
      and/or directors, as well as from third parties, including the Company’s former
      independent registered public accounting firm. In March 2006, the Company
      announced that the SEC Enforcement Staff had advised that it is recommending
      that the SEC close its inquiry into this matter without any action being taken
      against the Company or any individual. As a result of the Staff’s
      recommendation, which is subject to a formal approval process within the SEC,
      the Company has not been required to produce any more documents or provide
      additional witnesses for testimony in connection with this inquiry.




*Other*




During
      the normal course of business, the Company becomes involved in various other
      routine legal proceedings, including issues pertaining to patent infringement,
      customer disputes and employee matters. The Company does not believe that the
      outcome of these matters will have a material adverse effect on its financial
      condition.


Page
            16
 **Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**




During
      the three and nine months ended September 30, 2007, the Company incurred $0.6
      million and $5.6 million, respectively, relating to the stock option
      investigation and subpoenas, a grand jury subpoena, related shareholder
      derivative litigation, related financial restatements and expenses to resolve
      related matters (including Pending Exercises and expired options - see Note
      2).
      During the three and nine months ended September 30, 2006, these costs were
      $1.9
      million and $9.7 million, respectively, which also included costs related to
      the
      SEC inquiry into former management’s accounting for NYFIX Millennium, related
      class action litigation and related financial restatement.  These
      costs include outside counsels, contract attorneys and forensic accountants,
      other consultants and the cost of re-auditing previously issued financial
      statements following the resignation of the Company’s former independent
      registered public accounting firm. These costs do not include any portion of
      time that the Company’s employees have dedicated to these matters.  The
      Company will continue to incur expenses associated with these matters until
      they
      are resolved. The amount of such expenses will likely vary and may be
      material.




Other
      than the amount described above for employee-related taxes for stock options,
      the Company, in accordance with SFAS No. 5, *Accounting
      for Contingencies* ,
      has not
      recorded any liability with respect to these matters as it is currently unable
      to predict the outcomes and reasonably estimate the amounts of loss, if any.
      With respect to the SEC investigation of stock option grants, the grand jury
      subpoena, the State Court Consolidated Complaint, and the Federal Court
      Consolidated Complaint associated with such matters and other related matters,
      the Company could be subject to penalties, fines or regulatory sanctions or
      claims by current and former officers, directors or employees for
      indemnification of costs or losses they may incur and such amounts, individually
      or collectively, could have a material impact on the Company’s financial
      condition. In addition, other actions may be brought against the Company related
      to the matters described above.




**11.**
            **Stockholders’
                Equity**




*Nasdaq
      Delisting Proceeding*




As
      a
      result of the Company’s common stock being delisted, on November 1, 2005, from
      the Nasdaq National Market, the Company’s shares are currently traded in the
      Over-the-Counter (“OTC”) securities market with real-time quotes available on
      the Pink Sheets electronic quotation service using the symbol NYFX. Stockholders
      may find it more difficult to obtain accurate quotes and execute trades in
      the
      OTC market.




*Preferred
      Stock*




The
      Company is authorized to issue 5 million shares of preferred stock. In
      connection with the private placement of convertible preferred stock discussed
      below, 1.5 million shares were designated as Series B Voting Convertible
      Preferred Stock (the “Series B Preferred Stock”) and 0.5 million as Series C
      Non-Voting Convertible Preferred Stock.





At
      September 30, 2007 and December 31, 2006, the Company had outstanding 1.5
      million shares of Series B Preferred Stock. Dividends on the Series B Preferred
      Stock are payable semiannually in shares of the Company’s common stock. The
      number of shares issuable in payment of dividends is determined at an annual
      rate of 7% of the $75 million purchase price (or $50 per share), divided by
      the
      conversion price then in effect (currently $5.00). Dividends on the Series
      B
      Preferred Stock are cumulative and all accumulated but unpaid dividends on
      the
      Series B Preferred Stock must be paid before any cash dividends may be paid
      to
      holders of common stock.




*Stockholders’
      Rights Plan*




On
      September 19, 2007, the Stockholders’ Rights Plan that was declared effective on
      September 1, 1997 expired. Prior to expiration, there was a preference share
      purchase right (a “Right”) for each outstanding share of common stock of the
      Company held by stockholders. Each Right entitled the registered holder to
      purchase from the Company, at any time after a stockholder acquires 20% or
      more
      of the Company's outstanding common stock, as set forth in the Rights Agreement,
      shares of the Company's Series A Preferred Stock. The purchase price was $40
      per
      one one-hundredth of a share of Preference Stock. The Board of Directors will
      continue to evaluate whether a new stockholders’ rights plan should be put in
      place.




*Registration
      Rights Agreements and Reporting Requirements*




In
      addition to its obligation to obtain registration of additional shares of its
      common stock under the terms of a $7.5 million convertible note issued in
      December 2004, the Company was obligated to obtain registration of additional
      shares of its common stock under two separate registration rights agreements
      entered into in connection with private placements of the Company’s equity
      securities and to become current with its SEC reporting obligations under the
      Exchange Act as described below. The Company filed a Notice of Effectiveness
      on
      October 11, 2007, covering registration of additional shares of its common
      stock
      relative to its obligations under the terms of a $7.5 million convertible note,
      together with an additional $2.5 million convertible note issued in October
      2007
      (see Note 12), and under the terms of the private placement of common stock
      as
      described below.


Page
            17
 **Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**




*Private
      Placement of Common Stock*




Pursuant
      to a registration rights agreement entered into in connection with the sale
      and
      issuance of 2,713,000 shares of its common stock in July 2006, the Company
      was
      obligated to use its best efforts to become current with its SEC reporting
      obligations under the Exchange Act by September 30, 2006. The Company failed
      to
      become current in such obligations by December 31, 2006, which resulted in
      the Company incurring a liability to the Buyers in the form of liquidated
      damages in the amount of 5% of the aggregate purchase price. In the fourth
      quarter of 2006, the Company recorded a charge of $631,000 (which was paid
      in
      April 2007) as a result of not meeting these filing requirements. The Company
      filed a Notice of Effectiveness on October 11, 2007, covering registration
      of
      additional shares of its common stock issued in this private placement.




*Private
      Placement of Series B Preferred Stock*




Pursuant
      to a registration rights agreement entered into in connection with the sale
      and
      issuance of 1.5 million shares of its Series B Preferred Stock, the Company
      is
      obligated to use reasonable business efforts to become current with its SEC
      reporting obligations under the Exchange Act and obtain authorization for its
      common stock to be relisted on a “Principal Market,” as defined in the
      registration rights agreement. Beginning on October 12, 2007, the first
      anniversary of the closing date, the buyer has the right to make a written
      request to the Company to register “Registrable Securities,” as defined in the
      registration rights agreement. “Registrable Securities” include shares of the
      Company’s common stock that  are
      issued upon conversion of the Series B Preferred Stock, issued as a dividend,
      and any other shares held or acquired by the buyer.




*Common
      Stock and Treasury Stock*




On
      February 27, 2007, the stockholders of the Company approved an amendment to
      the
      Company’s Restated Certificate of Incorporation to increase the number of
      authorized shares of common stock from 60,000,000 to 100,000,000
      shares.




At
      December 31, 2006, the Company had outstanding 35,521,208 shares of common
      stock, with 1,133,778 held in treasury.




On
      January 25, 2007, the Board of Directors declared a dividend, payable that
      day,
      to holders of Series B Preferred Stock in payment of dividends accumulated
      through December 31, 2006; as a result, the Company issued 227,500 restricted
      shares of common stock, with a fair value of approximately $1,354,000 based
      on
      the market price of its common stock on that date. These accumulated dividends
      were reflected as a charge to loss applicable to common stockholders in
      calculating the basic and diluted loss per common share for the quarter and
      year
      ended December 31, 2006.




During
      the nine months ended September 30, 2007, certain stock options on the pending
      notification list aggregating 336,175 shares were exercised. Included in this
      amount were options covering 225,000 shares held by an accredited investor
      (and
      former executive officer), which were exercised at $2.00 per share. The $450,000
      aggregate exercise price of such shares was paid for with the delivery of 73,171
      shares of common stock previously held by the former executive officer for
      more
      than six months. The receipt of these shares is reflected in treasury stock.
      The
      Company then issued 225,000 restricted shares of common stock from treasury,
      on
      that same day, with a fair market value of $6.15 per share on the exercise
      date.
      The excess of the average cost of these treasury shares over the exercise
      proceeds received of $2.7 million was charged to retained earnings.




During
      March 2007, the Company issued 48,169 restricted shares of common stock from
      treasury to an officer in satisfaction of his employment agreement requiring
      issuance of shares with a fair market value of $300,000 .
      The
      fair value of such shares of $300,000 is being charged to stock-based
      compensation expense pro rata over the requisite service period. The excess
      of
      the average cost of these treasury shares over the fair value of such shares
      on
      the grant date will be charged to retained earnings at the conclusion of the
      requisite service period.




On
      June
      19, 2007, the Board of Directors declared a dividend, payable July 2, 2007,
      to
      holders of Series B Preferred Stock in payment of dividends accumulated from
      January 1, 2007 through June 30, 2007; as a result, the Company issued 526,327
      restricted shares of common stock, with a fair value of approximately $3,426,000
      based on the market price of its common stock on the declaration date. These
      accumulated dividends were reflected as a charge to loss applicable to common
      stockholders in calculating the basic and diluted loss per common share for
      the
      nine months ended September 30, 2007.




In
      July
      2007, the Company issued 26,954 shares from treasury stock with an aggregate
      market price of $193,000 as final payment on the Renaissance acquisition related
      promissory notes.




As
      a
      result of the foregoing activity, at September 30, 2007, the Company had
      outstanding 36,613,162 shares of common stock, with 906,826 held in
      treasury.


Page
            18
 **Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**




**12.**
            **Subsequent
                Events**




*Equity
      Compensation Plan and Grant Awards*




On
      October 2, 2007, the Board of Directors adopted the NYFIX, Inc. 2007 Omnibus
      Equity Compensation Plan (the “2007 Plan”), which provides for stock-based
      awards to employees (including foreign employees), certain consultants and
      non-employee directors. The 2007 Plan permits awards covering a total of
      9,450,000 shares (plus unused shares under prior plans) and restricts subsequent
      awards under the 2001 Stock Option Plan (the “2001 Plan”), and the Javelin
      Technologies, Inc. 1999 Stock Option/Stock Issuance Plan, effective upon
      stockholder approval of the 2007 Plan. The 2007 Plan limits the number of shares
      that may be issued under incentive stock options to 5,000,000 shares and limits
      the number of shares that may be issued to any one individual during a
      consecutive 12-month period to awards in respect of 5,000,000
      shares.




In
      October 2007, grants were made to the Company’s employees and its Chairman of
      stock options and restricted stock units aggregating 9,726,930 shares under
      the
      2007 Plan and the 2001 Plan, as follows:





·
            752,570
                fully vested stock options out of the 2001
                Plan




·
            1,505,486
                time-based stock options out of the 2001
                Plan




·
            94,792
                fully-vested stock options out of the 2007
                Plan




·
            4,637,977
                time-based stock options out of the 2007
                Plan




·
            1,428,855
                performance-based stock options out of the 2007
                Plan




·
            957,250
                time-based restricted stock units out of the 2007
                Plan




·
            350,000
                performance-based restricted stock units out of the 2007 Plan




The
      weighted average exercise price for stock options granted was $4.59, with such
      prices equal to the last reported sale price of the Company’s common stock on
      the respective dates of grant. The vesting of time-based awards noted above
      ranges from immediate to September 2011. The performance-based stock options
      and
      the performance-based restricted stock units granted under the 2007 Plan will
      be
      eligible to be earned in equal pro rata installments from 0% up to 100% for
      the
      performance period 2007 through 2010 (2008 through 2010 for performance-based
      stock options) based on the achievement of annual revenue and operating EBITDA
      goals. For 2007, these goals are weighted 75% revenue and 25% operating EBITDA.
      At this point in time, the full attainment of these 2007 goals has a high degree
      of difficulty and will require strong financial performance by the Company
      through the remainder of the year. Any performance-based stock options and
      restricted stock units that are not earned for 2007 through 2009 performance
      will carry forward and may be earned based on cumulative catch-up criteria
      established for 2010 (which may be different than those used for the annual
      2010
      tranche). The annual goals for 2008 through 2010 will not be approved until
      the
      beginning of each year. The cumulative catch-up criteria have not presently
      been
      set, but will be set prior to March 2010. Restricted stock units that are earned
      in 2008 based on 2007 performance will vest and be paid in March 2009; options
      and restricted stock units earned in 2009 based on 2008 performance will vest
      and be paid in March 2010; options and restricted stock units earned in 2010
      based on 2009 performance will vest and be paid in March 2011; and options
      and
      restricted stock units earned in 2011 based on 2010 performance will vest and
      be
      paid in March 2011.




Awards
      granted to the Company’s senior officers and its Chairman during October 2007
      covered 6,610,280 shares. Of this amount, awards covering 4,352,224 shares
      are
      under the 2007 Plan and are contingent on stockholder approval of the 2007
      Plan.
      Since stockholder approval of the 2001 Plan has already been obtained, awards
      made to senior officers thereunder do not have a similar contingency. Awards
      to
      persons other than the senior officers of the Company under the 2007 Plan are
      not subject to stockholder approval of the 2007 Plan and will be effective
      even
      if stockholder approval of the Plan is not obtained.




For
      accounting purposes, the grant date for performance-based awards which are
      contingent on stockholder approval is not deemed to have occurred until the
      later of the date of stockholder approval or the date the performance criteria
      is established. The accounting grant date for all other awards contingent on
      stockholder approval is not deemed to have occurred until the date of
      stockholder approval. The fair value of the option awards granted is estimated
      using the Black-Scholes option-pricing model as described in Note 2. The fair
      value of granted stock option awards which have actual/expected accounting
      grant
      dates in 2007 range from a high of $2.97 per share to a low of $2.55 per share,
      with a weighted average fair value of $2.93 per share. These values exclude
      performance grants for which the criteria has not yet been established (those
      portions applicable to 2008, 2009 and 2010) and, for those grants contingent
      on
      stockholder approval, which is expected in the fourth quarter of 2007, the
      fair
      values have been estimated based on the price of the Company’s stock on the date
      of approval by the Board of Directors or Compensation Committee.


Page
            19
 **Notes
        to Condensed Consolidated Financial Statements - continued
        (Unaudited)**




*Convertible
      Note*




During
      October 2007, the Company issued through a private placement to a lender a
      $2.5
      million Convertible Promissory Note with an interest rate of 5% per annum due
      on
      December 30, 2009 (the “Note”). The Note was issued upon the election by the
      lender of an additional investment option under the $7.5 million Convertible
      Promissory Note purchase agreement between the lender and the Company dated
      December 30, 2004. At the option of the lender, the Note is convertible into
      the
      Company’s common stock at $5.65 per share, subject to adjustment. At the
      Company’s option, the Note is convertible into its common stock according to a
      formula based on the market price of the common stock during the term of the
      Note, which requires among other things for the Company’s common stock to exceed
      150% of the price at which the lender can convert the Note. If the Company
      converts the Note prior to December 30, 2007, there is an additional make whole
      interest payment in either cash or its common stock at the Company’s discretion.
      The Company may elect to make semi-annual interest payments by issuing its
      common stock in lieu of cash. If the Company issues its common stock to convert
      the Note or make interest payments, the conversion of cash to stock is to be
      based on 95% of the preceding ten day average closing price of its common stock.
      The Note is subordinated to all of the Company’s existing and future
      indebtedness.




*Strategic
      Agreement to Exit Fusion OMS Line of Business*




During
      October 2007, the Company entered into a strategic agreement with Citigroup’s
      Lava Trading (“Lava”) to offer NYFIX Fusion OMS clients a transition arrangement
      to the Lava ColorPalette® OMS. The decision to discontinue the Fusion OMS
      product enables the Company to devote more time and resources to clients of
      its
      FIXTrader® desktop OMS solution and of its FIX and Transaction Services
      Divisions. In connection with exiting the Fusion OMS business, the Company
      expects to record a fourth quarter charge between $7.6 million and $8.0 million,
      net of tax effects. This charge primarily reflects non-cash impairment charges
      for goodwill and intangible assets, originally recorded as part of the Company’s
      full acquisition of Renaissance in 2003, and for capitalized software
      development, and also includes certain employment costs. As part of this charge,
      the Company also expects to eliminate the deferred tax liability related to
      the
      Renaissance goodwill. The Company expects the transition to be substantially
      complete by the end of the first quarter of 2008.




*Redemption
      of NYFIX Millennium Membership Interests*




On
      October 31, 2007, the Company acquired the remaining 20% interest in NYFIX
      Millennium which it did not already own to create a structure which provides
      for
      additional investment and global expansion. This was accomplished through a
      merger pursuant to an Agreement and Plan of Merger dated as of October 31,
      2007
      (the “Plan of Merger”) between NYFIX Millennium and NMMS, LLC, an indirect
      wholly-owned subsidiary formed to accomplish the merger. Pursuant to the Plan
      of
      Merger, the membership interests of the former minority members of NYFIX
      Millennium have been converted into a right to receive an aggregate of $8.0
      million. The Company has included 100% of the operating results of NYFIX
      Millennium since inception in its consolidated financial statements. Since
      the
      Company does not have any value recorded for this minority interest, the entire
      purchase amount will be recorded through acquired intangible assets and
      goodwill.




Page
          20


**Part
      I**  **Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**




This
      report on Form 10-Q contains “forward-looking statements” within the meaning of
      Section 27A of the Securities Act, and Section 21E of the Exchange Act, which
      are intended to be covered by the safe harbors created thereby. Forward-looking
      statements are any statements other than statements of historical fact. In
      some
      cases, forward-looking statements are identified by words such as “believes,”
“anticipates,” “expects,” “intends,” “plans,” “will,” “may,” and similar
      expressions. This report on Form 10-Q may include forward-looking statements
      about future SEC filings, future restatements and related charges, future
      activities of new employees and the impact thereof on us. In addition, any
      statements that refer to our plans, expectations, strategies or other
      characterizations of future events or circumstances are forward-looking
      statements. Forward-looking statements include statements other than historical
      information or statements of current conditions and may relate to our future
      plans, operations and objectives and results, among other things, and may also
      include our belief regarding the effect of proposed transactions or various
      legal proceedings, as well as the impact of our ability to meet periodic filing
      deadlines, initiatives that may impact future business activities, and future
      disclosure practices. Actual future events, circumstances, performance and
      trends could materially differ from those set forth in these statements
      (including those discussed in Part II, Item 1A.Risk Factors) due to various
      factors, including but not limited to: general economic conditions; the impact
      of recording a sufficiently large impairment charge relating to our goodwill;
      the effects of current, pending and future legislation; regulation and
      regulatory actions; our ability to achieve and maintain effective internal
      control over financial reporting in accordance with SEC rules promulgated under
      Section 404 of the Sarbanes-Oxley Act (“SOX 404”); the impact of accounting for
      stock-based compensation and ongoing regulatory investigations, including the
      possibility of new and significant information subsequently arising which could
      lead to different determinations and require different accounting treatment;
      actions and initiatives by both current and future competitors; the risks
      related to our ability to market and develop our products and services; our
      success in obtaining, retaining and selling additional products and services
      to
      clients; the pricing of products and services; stock market activity; the
      ability of NYFIX Securities to clear trades due to maximum limits imposed by
      the
      DTCC and the need for intra-day funding commitments from third parties; the
      ability of NYFIX Securities to maintain third-party assistance to access
      exchanges and other important trading venues; our ability to comply with the
      SEC’s Uniform Net Capital Rule; the impact of our customers defaulting on their
      trading obligations; changes in technology; our ability to accommodate increased
      levels of trading activity and keep current with market data requirements;
      the
      availability of skilled technical associates; our ability to obtain necessary
      network equipment, technical support or other telecommunications services or
      being forced to pay higher prices for such equipment, support or services;
      and
      the impact of new acquisitions and divestitures; and other risks and
      uncertainties including those detailed in our SEC filings; as well as future
      decisions by us. Our actual results could differ materially from those discussed
      in, or implied by, these forward-looking statements. Factors that could cause
      actual results or conditions to differ from those anticipated by these and
      other
      forward-looking statements include those referred to in Part II, Item 1A. Risk
      Factors. In addition, the forward-looking statements included in this report
      represent our views as of November 9, 2007. We anticipate that subsequent events
      and developments will cause our views to change. However, while we may elect
      to
      update these forward-looking statements at some point in the future, we
      specifically disclaim any obligation to do so. These forward-looking statements
      should not be relied upon as representing our views as of any date subsequent
      to
      November 9, 2007.




When
      we
      use the terms “NYFIX”, the “Company”, “we”, “us” and “our”, we mean NYFIX, Inc.
      and its consolidated subsidiaries.




The
      following discussion should be read together with the accompanying Condensed
      Consolidated Financial Statements and notes thereto.




**Overview**




We
      are a
      pioneer in electronic trading solutions and we continue to transform trading
      through innovation.  The NYFIX Marketplace TM is a
      global community of trading counterparties utilizing innovative services that
      optimize the business of trading, including trading workstations, middle office
      trade automation technologies and trade messaging services.  NYFIX
      Millennium provides the NYFIX Marketplace TM with
      enhanced methods of accessing liquidity.  We also provide value-added
      informational and analytic services and powerful tools for measuring execution
      quality.  As a trusted
      business partner and service provider to
      investment managers, mutual fund, pension fund and hedge fund managers (the
      “Buy-Side”) and brokerage firms and banks (the “Sell-Side”), NYFIX enables
      ultra-low touch, low impact market access and end-to-end transaction processing.
      We refer to ourselves as a “trusted business partner” because our clients depend
      on our products and services for mission-critical business functions, including
      order management, order routing and trade execution. And since we act only
      as
      agent for our clients and never engage in proprietary trading for the firm’s
      account, we are viewed as a neutral intermediary and impartial by Buy-Side
      and
      Sell-Side alike.




We
      operate businesses that design, produce and sell technology based products
      and
      services to professional financial services organizations that are engaged
      in
      trading activities including traditional asset management (including the trading
      of those assets), proprietary trading, and/or the handling of client orders
      in
      the U.S. and international securities markets.




Page
          21


Many
      of
      our products and services utilize the FIX Protocol which is a messaging standard
      developed specifically for real-time electronic exchange of securities trading
      information.




We
      believe our innovative NYFIX products and services deliver value-added
      improvements in speed, quality of execution and cost efficiency by automating
      both the work flows at the user work station level and the interactive process
      of transmitting and executing orders between the Buy-Side institutional
      investors (e.g., hedge funds, investment advisers, mutual funds and pension
      funds) and the Sell-Side broker-dealers, and through exchanges (e.g., NYSE,
      American Stock Exchange (“AMEX”), the NASDAQ Stock Market (“Nasdaq”) and other
      exchanges), the OTC market, ATSs and electronic communication networks (“ECNs”).




**Business
      Model**




Our
      revenue is comprised of subscription and maintenance, product sales and services
      and transaction revenue, as follows:




Subscription
      and maintenance consists of contracts that provide for the use of our systems
      and our messaging channels, together with managed services, with a term of
      generally one to three years.  Additional services, provided under
      schedules, or addenda to the contracts, are either co-terminus with the original
      contract or have provisions similar to the original contract.  Under the
      terms of the subscription contracts and addenda, clients are typically invoiced
      a flat periodic charge after initial installation. Subscription
      and m aintenance
      also includes maintenance contracts for software under separate, renewable
      maintenance contracts. Software related maintenance contracts are generally
      for
      a term of one year. Revenue
      related to these contracts and addenda is recognized over the term of the
      contract, addendum, or service period, on a straight-line basis.  We
      include within our subscription and maintenance revenue charges for connectivity
      to the NYFIX trading community. These include the various costs of connecting
      clients, which include telecommunications, installation and maintenance of
      routers, network management software, and staff, and other costs related to
      the
      management of connectivity. The connectivity charges are recognized as the
      services are provided.




Product
      sales and services are primarily comprised of FIX software licenses and
      professional services fees. This revenue is recognized when the software has
      been shipped and accepted by the client and when other contractual obligations,
      including installation, if applicable, have been satisfied and collection of
      the
      resulting receivable is reasonably assured.




Transaction
      revenue primarily consists of per-share commissions charged to clients who
      send
      and receive a match and execution in our NYFIX Millennium ATS and clients to
      whom we provide execution and smart order routing technology, gateways to access
      markets and algorithmic trading ability in: (i) their own name, (ii) a third
      party name, or (iii) our name. Revenue for these services is generally invoiced
      monthly in arrears or is obtained through the clearing process within three
      days
      of the trade date, and is recognized on a trade date basis, in the period in
      which it is earned. Transaction revenue also includes the net interest spread
      on
      our matched book of securities borrowed/loaned.




Cost
      of
      revenue includes the following:




·
            Data
                center operating costs, including salaries, related to equipment,
                infrastructure and software supporting operations and the NYFIX
                MarketplaceTM;




·
            Managed
                connectivity costs, including telecommunication and other costs incurred
                on behalf of clients, and costs to maintain the data centers, including
                depreciation and amortization of assets utilized by the data centers,
                which are recognized as either a cost of subscription and maintenance
                or
                cost of transaction revenue, as appropriate;




·
            Amortization
                expense of acquired intangible assets and capitalized software costs
                relating to the applicable revenue
                category;




·
            Developer
                and quality assurance personnel labor for client and product support
                of
                software products;




·
            The
                cost of leased subscription and service bureau equipment, which is
                depreciated over the estimated useful life of the equipment. When
                inventory is leased on a subscription basis, the cost of the inventory
                is
                relieved and transferred to property and equipment. The depreciation
                expense related to this equipment is included in cost of subscription
                and
                maintenance revenue; and




·
            Execution
                and clearing costs to access various markets and exchanges and to
                process
                and settle transactions.




**SEC
      Investigation and Related Contingencies**




As
      described more fully in Note 10 to the Condensed Consolidated Financial
      Statements, there is an ongoing SEC investigation of our historical stock option
      granting practices as well as a related grand jury subpoena and related
      shareholder derivative litigations and tax inquiries. In addition, in March
      2007, we filed our 2005 10-K which included restatements of previously reported
      results related to stock-based compensation as well as acquisitions and
      investments, revenue recognition, income taxes and treasury stock. Our 2005
      10-K
      includes detailed findings of the internal review of our historical stock-based
      awards.




Page
          22


We
      have determined that we have exposure as former management did not properly
      withhold employee income and related payroll taxes related to historical stock
      option activity. As a result, we have recorded a liability of $0.8 million
      related to tax withholdings not made on the exercises of stock options
      previously classified as Incentive Stock Options (“ISOs”), and similar exposures
      related to withholdings and payroll taxes which may be due in the U.K, related
      to stock option exercises under Pay As You Earn, or PAYE, and National Insurance
      Contribution provisions (due to our indemnity obligations to GL).




During
      the three and nine months ended September 30, 2007, we incurred costs of $0.6
      million and $5.6 million, respectively, relating to the stock option
      investigation and subpoenas, a grand jury subpoena, related shareholder
      derivative litigation, related financial restatements and expenses to resolve
      related matters (including Pending Exercises and expiring stock options). During
      the three and nine months ended September 30, 2006, these costs were $1.9
      million and $9.7 million, respectively, which also included costs related to
      the
      SEC inquiry into former management’s accounting for NYFIX Millennium, related
      class action litigation and related financial restatement. These costs include
      outside counsels, contract attorneys and forensic accountants, other consultants
      and the cost of re-auditing previously issued financial statements following
      the
      resignation of our former independent registered public accounting firm. These
      costs do not include any portion of time that our employees have dedicated
      to
      these matters.  We
      will
      continue to incur expenses associated with these matters until they are
      resolved. The amount of such expenses will likely vary and may be
      material.




As
      described more fully in Note 10 to the Condensed Consolidated Financial
      Statements, other than the amount for employee-related taxes for stock options,
      we, in accordance with SFAS No. 5, *Accounting
      for Contingencies* ,
      have
      not recorded any liability with respect to these matters as we are currently
      unable to predict the outcomes and reasonably estimate the amounts of loss,
      if
      any. With respect to the SEC investigation of stock option grants, the grand
      jury subpoena, the State Court Consolidated Complaint, and the Federal Court
      Consolidated Complaint associated with such matters and other related matters,
      we could be subject to penalties, fines or regulatory sanctions or claims by
      current and former officers, directors or employees for indemnification of
      costs
      or losses they may incur and such amounts, individually or collectively, could
      have a material impact on the our financial condition. In addition, other
      actions may be brought against us related to the matters described above.




Page
          23


**Results
      of Operations for the Three and Nine Month Periods Ended September 30, 2007
      and
      2006**




The
      following table presents our consolidated results of operations for the periods
      indicated. These consolidated results of operations are not necessarily
      indicative of the consolidated results of operations that will be achieved
      in
      any future period.


**Three
                  Months EndedSeptember 30,**
              
              **Nine
                  Months EndedSeptember 30,**(in
                  thousands, except percentages)
              
              **2007**
              
              **%
                  ofrevenue**
              
              **2006**
              
              **%
                  ofrevenue**
              
              **2007**
              
              **%
                  ofrevenue**
              
              **2006**
              
              **%
                  ofrevenue****Revenue:**Subscription
                  and maintenance
              
              $
              16,556
              
              
              51%
              
              $
              16,739
              
              
              66%
              
              $
              50,301
              
              
              55%
              
              $
              48,125
              
              
              67%Product
                  sales and services
              
              
              618
              
              
              2%
              
              
              799
              
              
              3%
              
              
              1,993
              
              
              2%
              
              
              2,140
              
              
              3%Transaction
              
              
              15,389
              
              
              47%
              
              
              7,702
              
              
              31%
              
              
              38,757
              
              
              42%
              
              
              21,649
              
              
              30%Total
                  revenue
              
              
              32,563
              
              
              100%
              
              
              25,240
              
              
              100%
              
              
              91,051
              
              
              100%
              
              
              71,914
              
              
              100%**Cost
                  of revenue:**Subscription
                  and maintenance (1)
              
              
              8,796
              
              
              27%
              
              
              8,232
              
              
              33%
              
              
              25,711
              
              
              28%
              
              
              24,181
              
              
              34%Product
                  sales and services (1)
              
              
              143
              
              
              0%
              
              
              369
              
              
              1%
              
              
              736
              
              
              1%
              
              
              1,365
              
              
              2%Transaction
                  (1)
              
              
              8,869
              
              
              27%
              
              
              3,763
              
              
              15%
              
              
              22,629
              
              
              25%
              
              
              11,752
              
              
              16%Total
                  cost of revenue
              
              
              17,808
              
              
              55%
              
              
              12,364
              
              
              49%
              
              
              49,076
              
              
              54%
              
              
              37,298
              
              
              52%**Gross
                  profit**
              
              
              14,755
              
              
              45%
              
              
              12,876
              
              
              51%
              
              
              41,975
              
              
              46%
              
              
              34,616
              
              
              48%**Operating
                  expense:**Selling,
                  general and administrative (1)
              
              
              21,995
              
              
              68%
              
              
              12,528
              
              
              50%
              
              
              59,224
              
              
              65%
              
              
              34,575
              
              
              48%Restatement,
                  SEC investigation and related expenses (1)
              
              
              612
              
              
              2%
              
              
              1,928
              
              
              8%
              
              
              5,597
              
              
              6%
              
              
              9,670
              
              
              13%Depreciation
                  and amortization
              
              
              379
              
              
              1%
              
              
              280
              
              
              1%
              
              
              1,039
              
              
              1%
              
              
              918
              
              
              1%Restructuring
                  charge
              
              
              -
              
              
              0%
              
              
              2,056
              
              
              8%
              
              
              -
              
              
              0%
              
              
              2,056
              
              
              3%Loss
                  from operations
              
              
              (8,231
              )
              
              -25%
              
              
              (3,916
              )
              
              -16%
              
              
              (23,885
              )
              
              -26%
              
              
              (12,603
              )
              
              -18%Interest
                  expense
              
              
              (137
              )
              
              0%
              
              
              (219
              )
              
              -1%
              
              
              (399
              )
              
              0%
              
              
              (635
              )
              
              -1%Investment
                  income
              
              
              975
              
              
              3%
              
              
              402
              
              
              2%
              
              
              3,299
              
              
              4%
              
              
              715
              
              
              1%Other
                  income (expense), net
              
              
              8
              
              
              0%
              
              
              (3
              )
              
              0%
              
              
              (4
              )
              
              0%
              
              
              15
              
              
              0%Loss
                  from continuing operations before income tax provision
              
              
              (7,385
              )
              
              -23%
              
              
              (3,736
              )
              
              -15%
              
              
              (20,989
              )
              
              -24%
              
              
              (12,508
              )
              
              -17%Income
                  tax provision
              
              
              47
              
              
              0%
              
              
              47
              
              
              0%
              
              
              141
              
              
              0%
              
              
              141
              
              
              0%Loss
                  from continuing operations
              
              
              (7,432
              )
              
              -23%
              
              
              (3,783
              )
              
              -15%
              
              
              (21,130
              )
              
              -23%
              
              
              (12,649
              )
              
              -18%Income
                  from discontinued operations (1)
              
              
              -
              
              
              
              
              
              4,038
              
              
              
              
              
              -
              
              
              
              
              
              3,646Net
                  (loss) income
              
              
              (7,432
              )
              
              
              
              
              255
              
              
              
              
              
              (21,130
              )
              
              
              
              
              (9,003
              )Accumulated
                  preferred dividends
              
              
              (1,260
              )
              
              
              
              
              -
              
              
              
              
              
              (4,686
              )
              
              
              
              
              -(Loss)
                  income applicable to common stockholders
              
              $
              (8,692
              )
              
              
              
              $
              255
              
              
              
              
              $
              (25,816
              )
              
              
              
              $
              (9,003
              )
  
 Percentage
          sub-totals may not add due to rounding.
 (1)
                Stock-based
                    compensation included in the respective line items above
                    follows:
 Cost
                  of revenue:Subscription
                  and maintenance
              
              $
              -
              
              
              
              
              $
              17
              
              
              
              
              $
              11
              
              
              
              
              $
              75Product
                  sales and services
              
              
              -
              
              
              
              
              
              1
              
              
              
              
              
              -
              
              
              
              
              
              3Transaction
              
              
              -
              
              
              
              
              
              3
              
              
              
              
              
              1
              
              
              
              
              
              9Selling,
                  general and administrative
              
              
              25
              
              
              
              
              
              148
              
              
              
              
              
              248
              
              
              
              
              
              627Restatement,
                  SEC investigation and related expenses (a)
              
              
              (317
              )
              
              
              
              
              16
              
              
              
              
              
              (118
              )
              
              
              
              
              76Income
                  from discontinued operations
              
              
              -
              
              
              
              
              
              (16
              )
              
              
              
              
              -
              
              
              
              
              
              18$
              (292
              )
              
              
              
              $
              169
              
              
              
              
              $
              142
              
              
              
              
              $
              808




(a)
              Relates
                  to expiring options to be cash settled and extending the normal
                  90 day
                  post-termination exercise
                  period.




Page
          24


**Revenue**




The
      following table presents the components of revenue for the periods indicated:


**Three
                  Months EndedSeptember 30,**
              
              **Increase(Decrease)**
              
              **Nine
                  Months EndedSeptember 30,**
              
              **Increase(Decrease)**(in
                  thousands, except percentages)
              
              **2007**
              
              **2006**
              
              **$**
              
              **%**
              
              **2007**
              
              **2006**
              
              **$**
              
              **%**Subscription
                  and maintenance
              
              $
              16,556
              
              $
              16,739
              
              $
              (183
              )
              
              -1%
              
              $
              50,301
              
              $
              48,125
              
              $
              2,176
              
              
              5%Product
                  sales and services
              
              
              618
              
              
              799
              
              
              (181
              )
              
              -23%
              
              
              1,993
              
              
              2,140
              
              
              (147
              )
              
              -7%Transaction
              
              
              15,389
              
              
              7,702
              
              
              7,687
              
              
              100%
              
              
              38,757
              
              
              21,649
              
              
              17,108
              
              
              79%Total
                  revenue
              
              $
              32,563
              
              $
              25,240
              
              $
              7,323
              
              
              29%
              
              $
              91,051
              
              $
              71,914
              
              $
              19,137
              
              
              27%




*Subscription
      and Maintenance*




The
      decrease in subscription and maintenance revenue for the three months ended
      September 30, 2007 was primarily attributable to a decrease in subscriptions
      (and related managed services) of our OMS Division desktop and floor products
      of
      $2.6 million to $2.0 million for the three months ended September 30, 2007
      compared to $4.6 million during the three months ended September 30, 2006,
      due
      primarily to the discontinuation (during the second quarter of 2007) of certain
      floor application products as well as cancellations from certain desktop
      clients. As a result of the strategic arrangement we entered into with Lava
      in October 2007 to offer NYFIX Fusion OMS customers a transition arrangement
      to
      the Lava ColorPalette® OMS (see Note 12 to the Condensed Consolidated Financial
      Statements for a description of one-time impairment charges), we expect our
      OMS
      revenues to decline in the fourth quarter and in 2008. The decision to
      discontinue the Fusion OMS product enables us to devote more time and resources
      to clients of our FIXTrader® desktop OMS solution and of our FIX and Transaction
      Services Divisions. We do not expect the exiting of Fusion to have a material
      impact on our operating results as we expect to reduce related operating costs.
      Full-year 2007 Fusion OMS revenues are expected to approximate $3.0 million.
      This decrease was substantially offset by an increase in subscriptions (and
      related managed services) of messaging channels offered by our FIX Division.
      This growth was attributable to an increase in the number of Buy-Side to
      Sell-Side messaging channels, primarily for order routing, as we continued
      our
      efforts to increase the level of business with Buy-Side institutions. As
      previously disclosed, we have recently exceeded 7,500 billable order routing
      messaging channels. As of September 30, 2007, we have 7,781 billable order
      routing messaging channels in service, an increase of 4% and 14%, respectively,
      over the 7,484 and 6,796 billable order routing channels in service at June
      30,
      2007 and December 31, 2006, respectively. Recurring maintenance on licensed
      software was comparable between the three months ended September 30, 2007 and
      2006 at $1.0 million, respectively.




The
      increase in subscription and maintenance revenue for the nine months ended
      September 30, 2007 was primarily attributable to an increase in subscriptions
      (and related managed services) of messaging channels offered by our FIX
      Division. This growth was attributable to an increase in the number of Buy-Side
      to Sell-Side messaging channels, primarily for order routing, as we continued
      our efforts to increase the level of business with Buy-Side institutions.
      Subscriptions (and related managed services) of our OMS Division desktop and
      floor products decreased $6.2 million to $8.3 million for the nine months ended
      September 30, 2007 compared to $14.5 million during the nine months ended
      September 30, 2006, due primarily to the discontinuation (during the second
      quarter of 2007) of certain floor application products as well as cancellations
      from certain desktop clients. Recurring maintenance on licensed software
      decreased $0.3 million to $2.8 million for the nine months ended September
      30,
      2007 compared to $3.1 million for the nine months ended September 30, 2006.




*Product
      Sales and Services*




The
      decrease in product sales and services for the three and nine months ended
      September 30, 2007 was due primarily to a decrease in sales of software licenses
      and related services by our FIX Division.




*Transaction*




The
      increase in transaction revenue for the three months ended September 30, 2007
      was attributable to an increase in commissions (including related billed
      pass-through amounts) on trade executions. Commissions increased $7.8 million
      to
      $15.1 million during the three months ended September 30, 2007 compared to
      $7.3
      million during the three months ended September 30, 2006 due to a $6.3 million
      increase in commissions from Sell-Side clients and a $1.5 million increase
      in
      commissions from Buy-Side clients. The increase from Sell-Side clients was
      due
      to increased matched volumes in NYFIX Millennium, increased use of the NYFIX
      NEXAS TM algorithmic
      trading products (including smart order routing), an increase in commissions
      for
      direct market access services (“DMA”) and an increase in pass-through fees of
      $1.6 million. The increase in pass-through fees reflected an increase related
      to
      NYSE linkage fees, offset by a decrease related to exchange specialist fees.
      The
      average daily matched volume in NYFIX Millennium during the three months ended
      September 30, 2007 was 49.1 million shares, a 77% increase over the average
      of
      27.7 million shares during the three months ended September 30, 2006, although
      this volume was down 10% from the 54.4 million shares averaged during the three
      months ended June 30, 2007. The increase over the third quarter of 2006 reflects
      the increased popularity of both dark pool matching venues for trading and
      algorithmic trading solutions sponsored by broker dealers. The decline from
      the
      second quarter 2007 reflects in part increased competition and the impact of
      operational issues experienced during the current quarter. The strategic
      arrangement with Lava described above could impact future transaction revenues
      as many of the Fusion OMS clients use our execution services, however, we
      believe this strategic arrangement provides us with an opportunity to continue
      to market these services to the Fusion OMS clients as well as to other Lava
      ColorPalette® clients. The growth in commissions from Buy-Side clients was
      attributable in part to the re-alignment of our sales team around customer
      segments, which has enabled us to better focus on our direct Buy-Side sales
      efforts. Buy-Side commissions were also up $1.4 million from the second quarter
      of 2007. Our securities lending business generated net interest spread on its
      matched book stock borrow/stock loan portfolio of $0.3 million during the three
      months ended September 30, 2007, compared to $0.4 million during the three
      months ended September 30, 2006.




Page
          25


The
      increase in transaction revenue for the nine months ended September 30, 2007
      was
      attributable to an increase in commissions (including related billed
      pass-through amounts) on trade executions. Commissions increased $17.3 million
      to $37.8 million during the nine months ended September 30, 2007 compared to
      $20.5 million during the nine months ended September 30, 2006 due primarily
      to a
      $17.0 million increase in commissions from Sell-Side clients and a $0.3 million
      increase in commissions from Buy-Side clients. The increase from Sell-Side
      clients was due to increased matched volumes in NYFIX Millennium, increased
      use
      of the NYFIX NEXAS TM algorithmic
      trading products, an increase in commissions for DMA and an increase in
      pass-through fees of $1.6 million. The increase in pass-through fees reflected
      an increase related to NYSE linkage fees offset by a decrease related to
      exchange specialist fees. The average daily matched volume in NYFIX Millennium
      during the nine months ended September 30, 2007 was 48.1 million shares, a
      113%
      increase over the average of 22.6 million shares during the nine months ended
      September 30, 2006. Our securities lending business generated comparable net
      interest spread on its matched book stock borrow/stock loan portfolio of $1.0
      million during the nine months ended September 30, 2007, compared to $1.1
      million during the nine months ended September 30, 2006.




Included
      in the NYFIX Millennium volume figures reported above are conditional orders
      executed against pass-through orders and other conditional orders, and third
      market trades crossed by clients and reported by NYFIX Millennium to
      Nasdaq.




**Costs
      and Expenses**




*Cost
      of Revenue*




The
      following table presents cost of revenue for the periods indicated:


**Three
                  Months EndedSeptember 30,**
              
              **Increase(Decrease)**
              
              **Nine
                  Months EndedSeptember 30,**
              
              **Increase(Decrease)**(in
                  thousands, except percentages)
              
              **2007**
              
              **2006**
              
              **$**
              
              **%**
              
              **2007**
              
              **2006**
              
              **$**
              
              **%**Subscription
                  and maintenance
              
              $
              8,796
              
              $
              8,232
              
              $
              564
              
              
              7%
              
              $
              25,711
              
              $
              24,181
              
              $
              1,530
              
              
              6%Product
                  sales and services
              
              
              143
              
              
              369
              
              
              (226
              )
              
              -61%
              
              
              736
              
              
              1,365
              
              
              (629
              )
              
              -46%Transaction
              
              
              8,869
              
              
              3,763
              
              
              5,106
              
              
              136%
              
              
              22,629
              
              
              11,752
              
              
              10,877
              
              
              93%Total
                  cost of revenue
              
              $
              17,808
              
              $
              12,364
              
              $
              5,444
              
              
              44%
              
              $
              49,076
              
              $
              37,298
              
              $
              11,778
              
              
              32%Percent
                  of total revenue
              
              
              55%
              
              
              49%
              
              
              
              
              
              
              
              
              54%
              
              
              52%




*Subscription
      and Maintenance*




The
      increase in subscription and maintenance cost of revenue for the three months
      ended September 30, 2007 was primarily attributable to an increase in fees
      paid
      of $0.3 million to third-party order management system providers to establish
      messaging channels with their clients, investments in our subscription-based
      products, including higher depreciation costs of $0.1 million, increased market
      data expense of $0.2 million and increased telecommunication costs of $0.2
      million partially offset by lower amortization of capitalized software costs
      of
      $0.4 million. As a percentage of related revenue, these costs increased to
      53%
      for the three months ended September 30, 2007 as compared to 49% for the three
      months ended September 30, 2006, reflecting the impact of certain fixed costs
      to
      maintain our OMS products as those revenues decline.




The
      increase in subscription and maintenance cost of revenue for the nine months
      ended September 30, 2007 was primarily attributable to an increase in fees
      paid
      of $0.7 million to third-party order management system providers to establish
      messaging channels with their clients, investments in our subscription-based
      products, including higher depreciation costs of $0.2 million, increased
      telecommunication costs of $0.3 million, increased market data expense of $0.3
      million, partially offset by decreased amortization of capitalized software
      costs of $0.3 million. As a percentage of related revenue, these costs increased
      slightly to 51% for the nine months ended September 30, 2007 as compared to
      50%
      for the nine months ended September 30, 2006, reflecting the impact of certain
      fixed costs to maintain our OMS products as those revenues decline.




Page
          26


*Product
      Sales and Services*




The
      decrease in product sales and services cost of revenue for the three months
      ended September 30, 2007 was attributable to lower intangible asset amortization
      of $0.3 million as a result of certain intangible assets becoming fully
      amortized during the first half of 2007, partially offset by increases in
      various other costs. As a percentage of related revenue, these costs decreased
      to 23% for the three months ended September 30, 2007 compared to 46% for the
      respective period in 2006.




The
      decrease in product sales and services cost of revenue for the nine months
      ended
      September 30, 2007 was attributable to lower
      intangible asset amortization of $0.5 million as a result of certain intangible
      assets becoming fully amortized during
      the first half of 2007 and lower amortization of capitalized software costs
      of
      $0.1 million. As a percentage of related revenue, these costs decreased to
      37%
      for the nine months ended September 30, 2007 compared to 64% for the respective
      period in 2006.




*Transaction*




The
      increase in transaction cost of revenue for the three months ended September
      30,
      2007 primarily related to increased execution and clearing fees of $4.8 million,
      of which $1.6 million related to pass-through costs, reflecting an increase
      related to NYSE linkage fees offset by a decrease related to exchange specialist
      fees. Upon the March 5, 2007 effective date of Regulation NMS for exchanges,
      we
      began to incur significant linkage fees from the NYSE to route orders to other
      market centers with improved prices. As a percentage of related revenue,
      transaction cost of revenue was 58% during the three months ended September
      30,
      2007, compared to 49% for the three months ended September 30, 2006. In addition
      to pass-through items, certain of the transaction revenue items that increased
      during the current quarter, including DMA and algorithms, have a higher level
      of
      associated execution costs, resulting in a lower growth of gross profit on
      transactions than revenue (66% vs. 100%).




The
      increase in transaction cost of revenue for the nine months ended September
      30,
      2007 primarily related to increased execution and clearing fees of $10.6
      million, of which $3.6 million related to pass-through costs, reflecting an
      increase related to NYSE linkage fees offset by a decrease related to exchange
      specialist fees. Due to difficulties we had in capturing the trade information
      for NYSE outbound routed orders on a real time basis from March 5, 2007 through
      May 31, 2007, we were not able to timely notify our DMA clients of the pass
      through NYSE linkage fees. We did not record any offsetting revenue from these
      clients related to $1.9 million of these charges during this period since
      collectibility was not reasonably assured. As a percentage of related revenue,
      transaction cost of revenue was 58% during the nine months ended September
      30,
      2007, compared to 54% for the nine months ended September 30, 2006, reflecting
      in part the impact of NYSE linkage fees that were not passed
      through.




*Selling,
      General and Administrative Expenses (SG&A)*




The following table presents components of our selling, general and
      administrative expense
      for the periods indicated :


**Three
                  Months EndedSeptember 30,**
              
              **Increase(Decrease)**
              
              **Nine
                  Months EndedSeptember 30,**
              
              **Increase(Decrease)**(in
                  thousands, except percentages)
              
              **2007**
              
              **2006**
              
              **$**
              
              **%**
              
              **2007**
              
              **2006**
              
              **$**
              
              **%**Compensation
                  and related
              
              $
              9,112
              
              $
              6,974
              
              $
              2,138
              
              
              31%
              
              $
              25,612
              
              $
              19,431
              
              $
              6,181
              
              
              32%Occupancy
                  and related
              
              
              1,159
              
              
              748
              
              
              411
              
              
              55%
              
              
              3,065
              
              
              2,323
              
              
              742
              
              
              32%Marketing,
                  travel and entertainment
              
              
              1,337
              
              
              743
              
              
              594
              
              
              80%
              
              
              3,494
              
              
              2,014
              
              
              1,480
              
              
              73%Professional
                  fees
              
              
              3,924
              
              
              1,779
              
              
              2,145
              
              
              121%
              
              
              10,768
              
              
              4,852
              
              
              5,916
              
              
              122%Stock-based
                  compensation
              
              
              24
              
              
              148
              
              
              (124
              )
              
              -84%
              
              
              247
              
              
              627
              
              
              (380
              )
              
              -61%Transitional
                  rebuilding and remediation
              
              
              1,950
              
              
              -
              
              
              1,950
              
              
              -
              
              
              5,411
              
              
              -
              
              
              5,411
              
              
              -Transitional
                  employment costs
              
              
              595
              
              
              701
              
              
              (106
              )
              
              -15%
              
              
              2,483
              
              
              1,153
              
              
              1,330
              
              
              115%Euro
                  Millennium pre-operating start-up costs
              
              
              1,348
              
              
              -
              
              
              1,348
              
              
              -
              
              
              1,992
              
              
              -
              
              
              1,992
              
              
              -General
                  and other
              
              
              2,546
              
              
              1,435
              
              
              1,111
              
              
              77%
              
              
              6,152
              
              
              4,175
              
              
              1,977
              
              
              47%Total
                  SG&A
              
              $
              21,995
              
              $
              12,528
              
              $
              9,467
              
              
              76%
              
              $
              59,224
              
              $
              34,575
              
              $
              24,649
              
              
              71%Percent
                  of total revenue
              
              
              68%
              
              
              50%
              
              
              
              
              
              
              
              
              65%
              
              
              48%




*Compensation
      and Related*




The
      increase in the portion of recurring compensation and related costs included
      in
      SG&A for the three and nine months ended September 30, 2007 was primarily
      due to the impact of salary increases, growth in headcount, as we continue
      to
      scale our organization for growth, increased incentive compensation associated
      with higher revenue levels and increased costs for employee benefits.




Page
          27


*Occupancy
      and Related*




The
      increase in occupancy and related costs for the three months ended September
      30,
      2007 is primarily due to additional rent expense associated with the expansion
      of office space in both our New York City and London locations and increases
      in
      office operating expenses.




The
      increase in occupancy and related costs for the nine months ended September
      30,
      2007 is primarily due to additional rent expense associated with the expansion
      of office space in both our New York City and London locations, office
      relocation costs incurred during the second quarter to move our London office
      to
      its new location and increases in office operating expenses.




*Marketing,
      Travel and Entertainment*




The
      increase in marketing, travel and entertainment expenses for the three and
      nine
      months ended September 30, 2007, primarily reflected our efforts to market
      our
      products including participation in industry trade shows and product promotion
      and increases in employee travel related costs to support our European expansion
      efforts.




*Professional
      Fees*




The
      increase in professional fees incurred for the three and nine months ended
      September 30, 2007, was primarily due to the use of consultants for
      organizational development, marketing, public relations and operational process
      improvements, as well as increases in SOX 404 compliance and legal fees.
      Consultants and outside legal counsels were also engaged to supplement
      day-to-day management activities while the restatements and related legal issues
      were being addressed by management. These costs do not include the time spent
      by
      outside consultants and advisors on the restatements and related legal issues
      as
      such costs have been separately categorized below.




*Stock-based
      Compensation*




The
      decrease in stock-based compensation expense for the three and nine months
      ended
      September 30, 2007 was primarily attributable to the fact that we have not
      issued any stock options since the second quarter of 2005.




In
      October 2007, grants were made to our employees and Chairman of stock options
      and restricted stock units covering 9,726,930 shares under the 2007 Plan and
      the
      2001 Plan. Stock-based compensation expense for these awards for the fourth
      quarter of 2007 is expected to be between $5.0 million and $6.0 million. As
      a
      result of this issuance and anticipated future issuances, we expect our future
      stock-based compensation expense to have a significant effect on our reported
      results.




*Transitional
      Rebuilding and Remediation Costs*




Transitional
      rebuilding and remediation costs reflect a Company-wide, Board approved effort,
      following the $75 million preferred stock investment by Warburg Pincus, to
      remediate deficiencies involving critical operational systems and processes,
      including technology infrastructure and management information systems. As
      a
      result of this effort, we expect to remediate our lab environment, data
      replication and back-up, network monitoring, application security and to have
      more timely and detailed internal and external financial reporting. These
      efforts are also addressing certain historical administrative issues such as
      reorganizing certain subsidiaries and initiating new compensation programs
      which
      were rolled out in October. These costs primarily consist of fees paid to
      outside consultants. During the three months and nine months ended September
      30,
      2007, we incurred $2.0 million and $5.4 million, respectively, of such costs.
      We
      expect to incur a total of approximately $6.8 million of these costs, mostly
      during fiscal 2007, however, a portion of this work and related costs may carry
      forward into early 2008.




*Transitional
      Employment Costs*




Transitional
      employment costs reflect our efforts to build critical teams, retain key
      employees, and remediate certain skill gaps. These transitional costs, primarily
      consisting of sign-on bonuses, retention bonuses and severance and other
      termination benefits are being expensed over the required service period. During
      the three and nine months ended September 30, 2007, we incurred $0.6 million
      and
      $2.5 million of such costs, respectively. During the three and nine months
      ended
      September 30, 2006, we incurred $0.7 million and $1.2 million of such costs,
      respectively. We expect to incur in excess of $3.5 million of such costs during
      fiscal 2007 and an additional $0.3 million during the first half of
      2008.




*Euro
      Millennium Pre-Operating Start-Up Costs*




In
      the
      second quarter of 2007, our Board of Directors approved a new initiative, Euro
      Millennium TM ,
      a
      multilateral trading facility for non-displayed liquidity in pan-European listed
      cash equities. This initiative leverages our experience gained with NYFIX
      Millennium in the U.S. with our goal of global expansion during a time of rapid
      regulatory change. During the three and nine months ended September 30, 2007
      we
      incurred pre-operating start-up costs of $1.3 million and $2.0 million,
      respectively, related to this initiative. These pre-operating start-up costs
      include compensation and related costs, consulting, marketing and travel related
      costs. We expect to incur approximately $4.7 million of such pre-operating
      start-up costs during fiscal 2007 and $2.3 million in 2008, with a target of
      the
      later part of the first quarter of 2008 to commence operations.




Page
          28


*General
      and Other*




The
      increase in general and other expenses for the three and nine months ended
      September 30, 2007 primarily reflects an increase in recruiting fees, various
      municipal taxes and higher software maintenance costs. These increases were
      offset in part by decreases in costs for temporary administrative help and
      various other general expenses.




*Other
      Operating Expenses*




Other
      operating expenses consist of the following for the periods
      indicated:


**Three
                  Months EndedSeptember 30,**
              
              **Increase(Decrease)**
              
              **Nine
                  Months EndedSeptember 30,**
              
              **Increase(Decrease)**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **$**
              
              **2007**
              
              **2006**
              
              **$**Restatement,
                  SEC investigation and related expenses
              
              $
              612
              
              $
              1,928
              
              $
              (1,316
              )
              $
              5,597
              
              $
              9,670
              
              $
              (4,073
              )Depreciation
                  and amortization
              
              
              379
              
              
              280
              
              
              99
              
              
              1,039
              
              
              918
              
              
              121Restructuring
                  charge
              
              
              -
              
              
              2,056
              
              
              (2,056
              )
              
              -
              
              
              2,056
              
              
              (2,056
              )




*Restatement,
      SEC Investigation and Related Expenses*




During
      the three and nine months ended September 30, 2007 and 2006, we incurred costs
      relating to the stock option investigation and subpoenas, a grand jury subpoena
      related to our stock option grants, related shareholder derivative litigation,
      related financial restatements and expenses to resolve related matters
      (including Pending Exercises and expiring stock options), together with costs
      incurred in 2006 related to the NYFIX Millennium SEC inquiry, related class
      action litigation and related financial restatement. These costs include outside
      counsels, contract attorneys and forensic accountants, other consultants and
      the
      cost of re-auditing previously issued financial statements following the
      resignation of our former independent registered public accounting firm. These
      costs do not include any portion of time that our employees have dedicated
      to
      these matters.  We
      will
      continue to incur expenses associated with these matters until they are
      resolved. The amount of such expenses will likely vary and may be
      material.




These
      costs decreased $1.3 million and $4.1 million for the three and nine months
      ended September 30, 2007 compared to the three and nine months ended September
      30, 2006, respectively. With the completion of the 2005 Restatement in March
      2007, we expect these costs to decline over the remainder of 2007, although
      we
      do expect to continue to incur costs related to the stock option investigation
      and litigations and other stock option related matters.




*Depreciation
      and Amortization*




The
      increase in the portion of depreciation and amortization not included in cost
      of
      revenue for the three and nine months ended September 30, 2007 was due to
      increased general overhead capital expenditures as a result of our transitional
      remediation program.




*Restructuring
      Charge*




In
      the
      second half of 2006, we relocated our corporate headquarters from Stamford,
      Connecticut to New York City, signed an agreement to sublet the office space
      previously occupied in Stamford, and reached an agreement to lease additional
      space at our New York City office at 100 Wall Street. We recorded a charge
      to
      operations of $2.1 million in September 2006, which consisted primarily of
      the
      fair value of the remaining rent payments (net of sub-lease income), plus real
      estate commissions, leasehold improvements for the sub-tenant, employment costs,
      moving costs and write-offs of property and equipment.




**Non-Operating
      Income (Expense)**




Non-operating
      income (expense) items are as follows for the periods indicated:


**Three
                  Months EndedSeptember 30,**
              
              **Increase(Decrease)**
              
              **Nine
                  Months EndedSeptember 30,**
              
              **Increase(Decrease)**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **$**
              
              **2007**
              
              **2006**
              
              **$**Interest
                  expense
              
              $
              (137
              )
              $
              (219
              )
              $
              (82
              )
              $
              (399
              )
              $
              (635
              )
              $
              (236
              )Investment
                  income
              
              
              975
              
              
              402
              
              
              573
              
              
              3,299
              
              
              715
              
              
              2,584Other
                  income (expense), net
              
              
              8
              
              
              (3
              )
              
              11
              
              
              (4
              )
              
              15
              
              
              (19
              )




*Interest* *Expense* **




The
      decrease for the three and nine months ended September 30, 2007 was primarily
      attributable to additional interest of $0.1 million and $0.2 million that was
      incurred during the three and nine months ended September 30, 2006,
      respectively, as a result of our failure to register the shares underlying
      the
      $7.5 million convertible note. Excluding this additional interest in 2006,
      interest expense was comparable for the three and nine months ended September
      30, 2007 and 2006, reflecting the interest on capital lease obligations and
      the
      $7.5 million convertible note.




Page
          29


*Investment* *Income*




The
      increase in investment income for the three and nine months ended September
      30,
      2007 reflected higher average cash balances invested during the period,
      primarily as a result of two private placements of equity securities during
      the
      last half of 2006.




**Income
      Tax Provision**




The
      income tax provisions for the three and nine months ended September 30, 2007
      and
      2006 were solely attributable to the impact of deducting goodwill related to
      the
      Renaissance acquisition in our tax filings. As discussed in Note 12 to the
      Condensed Consolidated Financial Statements, as a result of the strategic
      agreement with Lava to transition our Fusion OMS clients to the Lava
      ColorPalette® OMS, we will be writing down the Renaissance goodwill and the
      related deferred tax liability in the fourth quarter. All other tax effects
      during the three and nine months ended September 30, 2007 and 2006 have been
      netted out in our deferred tax asset valuation reflecting our view that
      historical pre-tax book income and historical income for tax purposes are not
      sufficient to support a conclusion that the value of our net deferred tax assets
      are more likely than not to be realized. Until we achieve and sustain an
      appropriate level of profitability, we plan to maintain a valuation allowance
      on
      our net deferred tax assets.




**Liquidity
      and Capital Resources**


**As
                  of****September
                  30,**
              
              **December
                  31,**(in
                  thousands)
              
              **2007**
              
              **2006**Cash
                  and cash equivalents
              
              $
              76,770
              
              $
              105,888




(in
                  thousands)
              
              **Nine
                  Months Ended September 30, 2007**Net
                  cash used in operating activities
              
              $
              (15,610
              )Net
                  cash used in investing activities
              
              
              (12,630
              )Net
                  cash used in financing activities
              
              
              (1,001
              )Effect
                  of exchange rate changes on cash
              
              
              123Net
                  decrease in cash and cash equivalents
              
              $
              (29,118
              )




*Liquidity*




We
      derive
      our liquidity and capital resources primarily from issuances of stock and from
      long-term borrowings. At September 30, 2007, we had cash and cash equivalents
      of
      $76.8 million. We believe resources available at September 30, 2007 will be
      sufficient to finance our current investing, transitional rebuilding,
      remediation and other costs, Euro Millennium start-up costs, and operating
      needs
      as well as the net capital requirements of our broker-dealer subsidiaries for
      the next twelve months. We may need to raise additional outside funding for
      strategic acquisitions and such sources may dilute existing stockholders. At
      September 30, 2007, $39.0 million of our total cash and cash equivalents were
      held in our broker-dealer subsidiaries as regulatory capital.




*Operating
      Activities*




The
      following table sets forth our net loss adjusted for non-cash items, such as
      depreciation, amortization, deferred taxes, provision for doubtful accounts
      and
      stock-based compensation; and the effect on cash generated by operating
      activities of changes in working capital and other operating accounts between
      periods.


(in
                  thousands)
              
              **Nine
                  Months Ended September 30, 2007**Net
                  loss
              
              $
              (21,130
              )Non-cash
                  items
              
              
              8,234Effect
                  of changes in working capital and other operating accounts
              
              
              (2,714
              )Net
                  cash used in operating activities
              
              $
              (15,610
              )




Changes
      in working capital and other operating accounts affected cash flows during
      the
      nine months ended September 30, 2007 primarily as a result of changes in the
      levels of accounts receivable, net clearing broker assets and accounts payable
      and accrued expenses between periods. These changes resulted primarily from
      increasing levels of sales and the timing of cash posted for securities lending
      positions, offset in part by increasing levels of expenditures and from cash
      management efforts affecting the timing of payments.




Page
          30


*Broker-Dealer
      Operations*




Clearing
      broker assets reflect amounts on hand to support our ability to self-clear
      the
      transactions of NYFIX Millennium and NYFIX Securities (formerly NYFIX
      Transaction and NYFIX Clearing combined), such as receivables from clearing
      organizations and deposits with clearing firms, as well as balances to support
      our matched-book stock borrow/stock loan business. Our matched-book balances
      include offsetting stock borrowed and stock loaned and offsetting securities
      failed-to-deliver and securities failed-to-receive. At September 30, 2007,
      the
      net balance for clearing broker assets and clearing broker liabilities was
      a net
      receivable of $1.1 million.




Securities
      borrowed and securities loaned are recorded at the amount of cash collateral
      provided for securities borrowed transactions and received for securities loaned
      transactions, plus accrued interest. We monitor the market value of securities
      borrowed and loaned on a daily basis with additional collateral obtained or
      refunded as necessary. At September 30, 2007, clearing broker assets include
      stock borrows of $434.4 million and clearing broker liabilities include stock
      loans of $434.4 million.




NYFIX
      Millennium and NYFIX Securities are U.S. registered broker-dealers required
      to
      maintain levels of regulatory net capital under Rule 15c3-1. NYFIX Securities’
DTCC membership, used to self-clear securities transactions, requires the
      maintenance of $10 million in excess regulatory net capital. NYFIX International
      is an ISD Category B firm registered with the FSA, required to maintain
      financial resources generally equal to three months average expenditures,
      subject to a minimum of €125,000, plus a proportion of less liquid assets on
      hand. As a result of a regulatory change, effective November 1, 2007 NYFIX
      International’s financial resource requirement has increased to €730,000.
      Additional funding of $1.5 million, in the form of a subordinated loan, was
      made
      to NYFIX International effective November 1, 2007.  At
      September 30, 2007, the aggregate regulatory net capital/resources of our
      regulated subsidiaries in the U.S. and U.K. were $30.7 million, which was $19.5
      million in excess of our aggregate requirement of $11.2 million (including
      the
      $10 million excess required by DTCC).




*Investing
      Activities*




Investments
      in current technology to maintain our infrastructure and to enhance our products
      remain an important requirement for our available cash resources.




Net
      cash
      used in investing activities for the nine months ended September 30, 2007 was
      $12.6 million. This consisted primarily of capital expenditures for property
      and
      equipment, principally for data center equipment and software, of $8.4 million,
      capitalized software development costs of $2.9 million and $1.3 million paid
      to
      GL in settlement of working capital adjustments resulting from their purchase
      of
      NYFIX Overseas. As more fully described in Note 12 to the Condensed Consolidated
      Financial Statements, the former members of NYFIX Millennium have a right to
      receive $8.0 million for the redemption of their minority interests. We expect
      to settle this amount during the fourth quarter of 2007.




*Financing
      Activities*




Our
      financing activities primarily consist of long-term debt issued for
      acquisitions, capital lease obligations used for equipment purchases, long-term
      debt issued for working capital purposes, and
      issuance of capital stock for general corporate purposes and business
      development activities. At
      September 30, 2007, we had long-term debt and capital lease obligations
      outstanding aggregating $8.3 million (including current portions and the
      convertible note discussed below).




At
      September 30, 2007, we had outstanding a $7.5 million convertible note with
      an
      interest rate of 5%, due in December 2009. At September 30, 2007, the price
      at
      which the lender could convert the convertible note into shares of our common
      stock was $5.65 per share. The conversion price may be reduced if we issue
      shares of common stock at a price below the conversion price in effect,
      excluding stock option exercises, the settlement of obligations outstanding
      as
      of the date of the convertible note and other transactions previously approved
      by our Board of Directors.




During
      October 2007, we issued to the lender an additional $2.5 million note under
      terms substantially similar to those described above.




Net
      cash
      used in financing activities for the nine months ended September 30, 2007 was
      $1.0 million, consisting primarily of principal payments under capital lease
      obligations.




**Commitments
      and Contingencies**




There
      are
      various lawsuits and claims pending against us as well as ongoing SEC and United
      States Attorney’s Office investigations into our accounting for stock option
      grants and an SEC investigation into our accounting for the losses incurred
      by
      NYFIX Millennium. We are currently unable to predict the outcomes and reasonably
      estimate the amounts of loss, if any, with respect to these matters. With
      respect to certain of these matters, we could be subject to penalties, fines
      or
      regulatory sanctions or claims by current and former officers, directors or
      employees for indemnification of costs or losses they may incur and such
      amounts, individually or collectively, could have a material impact on our
      financial condition. In addition, other actions may be brought against us
      related to these matters.




Page
          31


See
      Note
      10 to the Condensed Consolidated Financial Statements for a description of
      our
      commitments and contingencies.




**Seasonality
      and Inflation**




We
      believe that our operations have not been significantly affected by seasonality
      or inflation.




**Off-balance
      Sheet Arrangements**




We
      have
      no material off-balance sheet arrangements other than those related to the
      contingent obligations under the $7.5 million convertible note as described
      above and under the terms of our Series B Preferred Stock as described in our
      2006 10-K.




**Critical
      Accounting Policies and Estimates**




The
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with GAAP. The preparation of these financial statements requires
      us
      to make estimates and judgments that affect the reported amounts of assets,
      liabilities, revenues, and expenses and related disclosures of contingent assets
      and liabilities. On an on-going basis, we evaluate our estimates, including
      our
      allowance for doubtful accounts, inventory valuation and obsolescence,
      long-lived tangible and intangible assets, income taxes, and contingencies
      and
      litigation. We base our estimates on historical experience and on various other
      assumptions that are believed to be reasonable under the circumstances, the
      results of which form the basis for making judgments about the carrying values
      of assets and liabilities that are not readily apparent from other sources.
      Actual results may differ from these estimates under different assumptions
      or
      conditions. In our 2006 10-K, we identified and disclosed critical accounting
      policies, which included revenue recognition, allowance for doubtful accounts,
      property and equipment, acquisitions and goodwill, product enhancement costs,
      long-lived assets, income taxes, contingencies and stock-based compensation.
      These critical accounting policies affect significant judgments and estimates
      used in the preparation of our financial statements. We reviewed our policies
      in
      conjunction with the preparation of this report and have determined that those
      critical policies remain and have not changed since December 31, 2006.




**Part
      I Item 3. Quantitative and Qualitative Disclosures About Market
      Risk**




There
      have been no material changes in our exposure to market risk during the nine
      months ended September 30, 2007, from those described in Part II, Item 7A,
      Quantitative and Qualitative Disclosures About Market Risk, included in our
      2006
      10-K.




**Part
      I Item 4. Controls and Procedures**




***Disclosure
      Controls and Procedures***




In
      connection with the preparation of this report on Form 10-Q, our management,
      with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out
      an
      evaluation of the effectiveness of the design and operation of our disclosure
      controls and procedures as of September 30, 2007. Disclosure controls and
      procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
      Act, are controls and other procedures designed to ensure that the information
      we are required to disclose in the reports we file or submit under the Exchange
      Act is recorded, processed, summarized and reported within the time periods
      specified in the SEC’s rules and forms, and that such information is accumulated
      and communicated to our management, including our Chief Executive Officer and
      Chief Financial Officer, as appropriate to allow timely decisions regarding
      required disclosure.




As
      disclosed in our 2006 10-K (filed in August 2007), management and our
      independent registered public accounting firm identified several material
      weaknesses regarding elements of our internal control over financial reporting. A
      material weakness is a deficiency, or combination of deficiencies, in internal
      control over financial reporting, such that there is a reasonable possibility
      that a material misstatement of the annual or interim financial statements
      will
      not be prevented or detected on a timely basis. Material weaknesses in internal
      controls may also constitute deficiencies in our disclosure controls and
      procedures.




Page
          32


Based
      on
      an evaluation of the identified material weaknesses, our
      Chief Executive Officer and Chief Financial Officer concluded that, as of
      September 30, 2007, we continued to have material weaknesses regarding elements
      of our internal control over financial reporting, and as a result, concluded
      that our disclosure controls and procedures were not effective at the reasonable
      assurance level as of September 30, 2007.




***Interim
      Measures to Ensure the Accuracy of Financial
      Reporting***




In
      response to the material weaknesses identified as a result of management’s
      assessment of internal control over financial reporting as disclosed in our
      2005
      and 2006 10-Ks, our management, with oversight from our Audit Committee,
      implemented measures to help ensure the accuracy of our financial reporting
      until such time as we are able to further improve our control environment and
      remedy our material weaknesses, including, among other things:




§
            expansion
                of our period-end closing
                procedures,




§
            enhanced
                monitoring and communications,




§
            additional
                analyses and cross team reviews,




§
            the
                dedication of significant internal
                resources,




§
            the
                engagement of external consultants,
                and




§
            additional
                top level management reviews of financial information and related
                disclosures.




As
      a
      result of these expanded and compensating procedures, we concluded that the
      consolidated financial statements included in this report on Form 10-Q present
      fairly, in all material respects, our financial position, results of operations
      and cash flows for the periods presented in conformity with GAAP.




The
      certifications of our principal executive officer and principal financial
      officer required in accordance with Section 302 of the Sarbanes-Oxley Act of
      2002 are attached as exhibits to this report on Form 10-Q. The disclosures
      set
      forth in this Item 4 contain information concerning the evaluation of our
      disclosure controls and procedures and our internal control over financial
      reporting referred to in the certifications. Those certifications should be
      read
      in conjunction with this Item 4 for a complete understanding of the matters
      covered by the certifications.




***Changes
      in Internal Control Over Financial Reporting***




Since
      the beginning of 2006 we have been developing and implementing plans to
      eliminate material weaknesses and significant deficiencies. Our 2006 10-K noted
      that a number of the material weaknesses identified in our 2005 10-K had been
      remediated. Although we have not fully tested and declared the material
      weaknesses disclosed in our 2006 10-K as fully remediated, we did make
      significant progress during the three months ended September 30, 2007 to improve
      our internal controls including the following:




(i)
            we
                expanded our capabilities from an organizational perspective by appointing
                an interim SOX 404 Director to provide day-to-day oversight of the
                ongoing
                remediation program and to develop an internal audit function and
                we
                formed a SOX 404 Operating and Remediation Committee to monitor and
                accelerate remediation efforts;




(ii)
            we
                improved controls related to revenue recognition by implementing
                a monthly
                rollforward of our billed messaging
                channels;




(iii)
            we
                improved controls related to accounting for income taxes by rebuilding
                tax
                basis fixed asset records and developing a new automated tax-basis
                sub-ledger system;




(iv)
            we
                implemented a new third-party administrator system for the accounting
                and
                disclosure of stock-based compensation awards;
                and




(v)
            we
                initiated several changes to our information technology (“IT”) related
                controls over application change management, access and security
                controls
                and monitoring, including the:




·
            development
                of new security policies and processes that require unique terminal
                service IDs for access to financial
                systems;




·
            ongoing
                validation of all personnel requiring access to IT financial systems
                through a comprehensive recertification
                process;




·
            ongoing
                implementation of a new access control policy and process for provisioning
                and deprovisioning new hires and terminated employees and consultants;
                and




·
            implementation
                of new policies and procedures for personnel who require access to
                our
                production data centers.




As
      a
      result of these and continuing efforts, we expect to declare a number of
      material weaknesses and significant deficiencies fully remediated during the
      fourth quarter of 2007.




Page
          33


Ongoing
      Remediation of Material Weaknesses




We
      will continue to have extensive work remaining beyond 2007 related to certain
      of
      our previously reported material weaknesses and accordingly management has
      continued to dedicate resources to our remediation program. We believe that
      these remedial actions have improved and that further planned actions will
      continue to improve our internal control over financial reporting, as well
      as
      our disclosure controls and procedures. However, we do not believe that all
      of
      the previously disclosed material weaknesses will be fully remediated by
      December 31, 2007. Accordingly, we will continue to perform the interim
      measures described above and monitor the effectiveness of our internal control
      over financial reporting in the areas impacted by the material weaknesses
      discussed above.




As
      we complete the remaining work, we expect that we will need a period of time
      over which to demonstrate that these controls are functioning appropriately
      to
      conclude that we have adequately remediated the weaknesses. Accordingly, we
      expect to report that our internal control over financial reporting and our
      disclosure controls and procedures remain ineffective as of December 31,
      2007.




As
      described above, certain of the planned remediation efforts will require
      significant ongoing effort and investment. Our management, with the oversight
      of
      our Audit Committee, will continue to identify and take steps to remedy known
      material weaknesses as expeditiously as possible and enhance the overall design
      and capability of our control environment.




Page
          34


**PART
      II -- OTHER INFORMATION**





**Part
      II Item 1. Legal Proceedings**




In
      April 2005, a former employee filed a verified complaint with the New York
      State
      Division of Human Rights, alleging discrimination on the basis of race/color,
      age and opposition to unlawful discriminatory practices.  In June 2005, we
      filed a position paper with the New York State Division of Human Rights, denying
      the complainant’s charges in their entirety and requesting that the Division
      render a determination of “No Probable Cause.”  On December 21, 2006, the
      Regional Director of the New York State Division of Human Rights made a
      determination that there was probable cause to support the allegations of the
      complaint. In August 2007, we and the former employee entered into a
      Confidential Stipulation of Settlement and General Release by which the former
      employee agreed to a discontinuance with prejudice of the charges in the above
      complaint and we agreed to pay him $75,000 in full and final satisfaction of
      any
      and all claims that he had or may have had. We made the payment in September
      2007.




In
      January 2006, a former NYFIX employee filed a state court action in the New
      York
      Supreme Court for New York County titled Iovino v. NYFIX, Inc., alleging that
      he
      was discriminated against on the basis of his sexual orientation.  He is
      claiming $50 million in damages.  In April 2006, we answered the complaint,
      denying the allegations. In September 2007, the parties agreed to settle the
      matter for $150,000, of which our insurer will reimburse us $70,000. We made
      the
      payment in September 2007.




The
      other information required by this Item with respect to legal proceedings set
      forth under “Commitments and Contingencies” in Note 10 to the Condensed
      Consolidated Financial Statements included in Part I, Item 1, Unaudited
      Financial Statements of this report on Form 10-Q is hereby incorporated by
      reference.




**Part
      II Item 1A. Risk Factors**




An
      investment in our securities involves a high degree of risk. The risks referred
      to in our 2006 10-K are not the only ones facing us. Additional risks not
      presently known to us, or that we currently deem immaterial, may also have
      a
      material adverse effect on us. If any of the risks referred to in our 2006
      10-K
      actually occur, our financial condition, results of operations, cash flows
      or
      business could be harmed. In that case, the market price of our securities
      could
      decline, and you could lose part or all of your investment.




We
      are
      not presently aware of any material changes to the risk factors in our 2006
      10-K. For more information regarding risk factors relating to us and our
      business, please refer to Item 1A, Risk Factors in our 2006
      10-K.




**Part
      II Item 2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**




*Uses
      of Common Stock*




Certain
      transactions involving our common stock occurring during the third quarter
      of
      2007 and through the date of this report were as follows:




§
            On
                June 19, 2007, the Board of Directors declared a dividend payable
                July 2,
                2007 to holders of Series B Preferred Stock in payment of dividends
                accumulated from January 1, 2007 through June 30, 2007; as a result,
                we
                issued 526,327 restricted shares of common stock in July 2007, with
                a fair
                value of approximately $3,426,000 based on the market price of our
                common
                stock on the declaration date. The issuance of the shares was effected
                in
                reliance on the exemption set forth in Section 4(2) of the Securities
                Act.




§
            In
                July 2007, we issued 26,954 shares from treasury stock with a fair
                market
                value of $193,000 as final payment to certain holders of Renaissance
                promissory notes issued in connection with our acquisition of the
                remaining 82% of the membership units of Renaissance that we did
                not
                already own effective July 1, 2003. The issuance of the shares was
                effected in reliance on the exemption set forth in Section 3(a) (9)
                of the
                Securities Act. (Additional information regarding the Renaissance
                promissory notes may be found in Part II, Item 5 and Note 4 to the
                Consolidated Financial Statements in our 2005
                10-K.)





**Part
      II Item 3. Defaults Upon Senior Securities**




There
      were no payment defaults on our outstanding indebtedness during the three months
      ended September 30, 2007; however, there have been defaults related to our
      other
      obligations to become current with our periodic SEC filings and to register
      certain securities. Please see Note 11 to the Condensed Consolidated Financial
      Statements included in this report for a more detailed description of these
      matters.




Page
          35


**Part
      II Item 4. Submission of Matters to a Vote of Security Holders**





No
      matters were submitted to a vote of security holders during the three months
      ended September 30, 2007.




**Part
      II Item 5. Other Information**




None





Page
          36


**Part
      II Item 6.****Exhibits**




a.)Exhibits






**Exhibit****No.**
            **Description
                of Exhibit**10.1
            2007
                Omnibus Equity Compensation Plan, incorporated herein by reference
                from
                Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 filed
                October 2, 2007 (File Number 333-146446).10.2
            Form
                of Non-Qualified Stock Option Agreement, incorporated herein by reference
                from Exhibit 4.3 to the Registrant’s Registration Statement on Form S-8
                filed October 2, 2007 (File Number 333-146446).10.3
            Convertible
                Promissory Note, dated October 1, 2007, by and between the Registrant
                and
                Whitebox Convertible Arbitrage Partners L.P. incorporated herein
                by
                reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K
                filed on October 5, 2007 (File Number 000-21324).10.4
            2007
                Annual Incentive Plan, incorporated herein by reference from Exhibit
                10.1
                to the Registrant’s Current Report on Form 8-K filed on October 9, 2007
                (File Number 000-21324).10.5
            2007
                Plan Non-Qualified Stock Option Agreement (Time-based Vesting) between
                the
                Registrant and P. Howard Edelstein,incorporated herein by reference from Exhibit 10.3 to the Registrant’s
                Current Report on Form 8-K filed on October 9, 2007 (File Number
                000-21324).10.6
            2007
                Plan Non-Qualified Stock Option Agreement (Performance-based Vesting)
                between the Registrant and P. Howard Edelstein,incorporated herein by reference from Exhibit 10.4 to the Registrant’s
                Current Report on Form 8-K filed on October 9, 2007 (File Number
                000-21324).10.7
            2007
                Plan Restricted Stock Unit Agreement (Time-based Vesting) between
                the
                Registrant and P. Howard Edelstein,incorporated herein by reference from Exhibit 10.5 to the Registrant’s
                Current Report on Form 8-K filed on October 9, 2007 (File Number
                000-21324).10.8
            2001
                Plan Non-Qualified Stock Option Agreement (Time-based Vesting) between
                the
                Registrant and P. Howard Edelstein,incorporated herein by reference from Exhibit 10.6 to the Registrant’s
                Current Report on Form 8-K filed on October 9, 2007 (File Number
                000-21324).10.9
            2001
                Plan Non-Qualified Stock Option Agreement (Fully Vested) between
                the
                Registrant and P. Howard Edelstein,incorporated herein by reference from Exhibit 10.7 to the Registrant’s
                Current Report on Form 8-K filed on October 9, 2007 (File Number
                000-21324).10.10
            Amendment
                to the Employment Agreement between the Registrant and P. Howard
                Edelstein,incorporated herein by reference from Exhibit 10.8 to the Registrant’s
                Current Report on Form 8-K filed on October 9, 2007 (File Number
                000-21324).10.11
            2007
                Plan Non-Qualified Stock Option Agreement (Time-based Vesting) between
                the
                Registrant and Steven R. Vigliotti,incorporated herein by reference from Exhibit 10.9 to the Registrant’s
                Current Report on Form 8-K filed on October 9, 2007 (File Number
                000-21324).




Page
          37


10.12
            2007
                Plan Non-Qualified Stock Option Agreement (Performance-based Vesting)
                between the Registrant and Steven R. Vigliotti,incorporated herein by reference from Exhibit 10.10 to the Registrant’s
                Current Report on Form 8-K filed on October 9, 2007 (File Number
                000-21324).10.13
            2001
                Plan Non-Qualified Stock Option Agreement (Time-based Vesting) between
                the
                Registrant and Steven R. Vigliotti,incorporated herein by reference from Exhibit 10.11 to the Registrant’s
                Current Report on Form 8-K filed on October 9, 2007 (File Number
                000-21324).10.14
            2007
                Plan Non-Qualified Stock Option Agreement (Time-based Vesting) between
                the
                Registrant and Brian Bellardo,incorporated herein by reference from Exhibit 10.12 to the Registrant’s
                Current Report on Form 8-K filed on October 9, 2007 (File Number
                000-21324).10.15
            2007
                Plan Restricted Stock Unit Agreement (Time-based Vesting) between
                the
                Registrant and Brian Bellardo,incorporated herein by reference from Exhibit 10.5 to the Registrant’s
                Current Report on Form 8-K filed on October 9, 2007 (File Number
                000-21324).10.16
            Form
                of Restricted Stock Unit Agreement (Performance-based Vesting),incorporated
                herein by reference from Exhibit 10.15 to the Registrant’s Current Report
                on Form 8-K filed on October 9, 2007 (File Number
                000-21324).10.17
            Form
                of Restricted Stock Unit Agreement (Time-based Vesting),incorporated
                herein by reference from Exhibit 10.16 to the Registrant’s Current Report
                on Form 8-K filed on October 9, 2007 (File Number
                000-21324).*31.1
            Certification
                of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.*31.2
            Certification
                of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.*32.1
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.*32.2
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




*  Filed
      herewith




Page
          38


**Signatures**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




NYFIX, INC.November
                9, 2007
            
            /s/ P.
              Howard
              EdelsteinP.
              Howard EdelsteinPresident
                andChief Executive
                Officer


November
                  9, 2007
              
              /s/ Steven
                R.
                VigliottiSteven
                R. VigliottiChief
                    Financial Officer
  Page
            39


**EXHIBIT
      INDEX**





31.1
            Certification
                of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.31.2
            Certification
                of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.32.1
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




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