UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
  
 FORM
10-Q
 
 þ
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the quarterly period ended March 31, 2009
  or
   ̈
              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: 001-02292





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 has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files)
Yes o No o




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




Large
      accelerated Filer  ̈
              Accelerated
      filer  ý
              Non-accelerated
      filer   ̈
              Smaller
      reporting company  ̈




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).




Yes o No  x




There
were 38,709,688 shares of our common stock outstanding on May 6,
2009.


TABLE
OF CONTENTS





PagePART
      I - FINANCIAL INFORMATIONItem
      1.
                  Unaudited
      Financial StatementsCondensed
      Consolidated Balance Sheets as of  March 31, 2009 and December
      31, 2008
                  4Condensed
      Consolidated Statements of Operations for the Three Months Ended March 31,
      2009 and 2008
                  5Condensed
      Consolidated Statement of Changes in Stockholders’ Equity and
      Comprehensive Loss for the Three Months Ended March 31,
    2009
                  6Condensed
      Consolidated Statements of Cash Flows for the Three Months Ended March 31,
      2009 and 2008
                  7Notes
      to Condensed Consolidated Financial Statements
                  8Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  17Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  28Item
      4.
                  Controls
      and Procedures
                  28PART
      II - OTHER INFORMATIONItem
      1.
                  Legal
      Proceedings
                  29Item 1A.
                  Risk
      Factors
                  29Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  30Item
      3.
                  Defaults
      Upon Senior Securities
                  30Item
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  30Item
      5.
                  Other
      Information
                  30Item
      6.
                  Exhibits
                  31Signatures
                  32





Page
2




PRELIMINARY
NOTES




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




Forward
Looking Statements




This
quarterly report on Form 10-Q contains statements that constitute
“forward-looking statements” within the meaning of the safe harbor provisions of
The Private Securities Litigation Reform Act of 1995.  In some cases,
you can identify these statements by forward-looking words such as “may,”
“might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “predict,” “potential” or “continue,” and the negative of these
terms and other comparable terminology.  These forward-looking
statements, which are subject to known and unknown risks, uncertainties and
assumptions about us, may include projections of our future financial
performance based on our growth strategies and anticipated trends in our
business. These statements are only predictions based on our current
expectations and projections about future events.  There are important
factors that could cause our actual results, level of activity, performance or
achievements to differ materially from the results, level of activity,
performance or achievements expressed or implied by the forward-looking
statements.  In particular, you should consider the numerous risks and
uncertainties described under Part I Item 1A. - Risk Factors in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2008 (“2008 Form
10-K”).




These
risks and uncertainties are not exhaustive.  Other sections of the
2008 Form 10-K and of this report describe additional factors that could
adversely impact our business and financial performance. Moreover, we operate in
a very competitive and rapidly changing environment.  New risks and
uncertainties emerge from time to time, and it is not possible to predict all
risks and uncertainties, nor can we assess the impact of all factors on our
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements.




Although
we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, level of activity, performance
or achievements.  Moreover, neither we nor any other person assumes
responsibility for the accuracy or completeness of any of these forward-looking
statements.  You should not rely upon forward-looking statements as
guarantees of future events.  We disclaim any duty to update any of
these forward-looking statements after the filing of this report to conform our
prior statements to actual results or revised expectations and we do not intend
to do so, and these forward-looking statements should not be relied upon as
representing our views as of any date subsequent to the filing of this
report.




Forward-looking
statements include, but are not limited to, statements about:





·
            the
      impact of recording a significant impairment charge relating to goodwill
      due to the fact that we have not been
  profitable;


·
            the
      effects of current, pending and future
  legislation;


·
            the
      impact of regulation and regulatory
actions;


·
            our
      ability to achieve and maintain effective internal control over financial
      reporting in accordance with Securities and Exchange Commission (“SEC”)
      rules promulgated under Section 404 of the Sarbanes-Oxley Act of 2002 (the
      “Sarbanes-Oxley Act”);


·
            actions
      and initiatives by both current and future
  competitors;


·
            our
      business’ possible or assumed future results of operations and cash
      flows;


·
            our
      business’ competitive position;


·
            the
      impact of current market conditions, including consolidations and
      closures, on the financial stability of our
  clients;


·
            potential
      growth opportunities available to our
business;


·
            the
      likelihood of success and impact of
litigation;


·
            our
      expectation with respect to securities markets and general economic
      conditions; and


·
            our
      ability to keep up with rapid technological
  change.





We
expressly qualify in their entirety all forward-looking statements attributable
to us or any person acting on our behalf by the cautionary statements contained
or referred to in this section.





Page
3





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)





March 31,
                                    
                                    
                                    December 31,2009
                                    
                                    
                                    2008(Unaudited)
                                    
                                    
                                    (Audited)AssetsCurrent
      assets:Cash
      and cash equivalents
                                    
                                    $
                                    51,673
                                    
                                    
                                    $
                                    55,966Accounts
      receivable, less allowances of $1,300 and $1,142,
    respectively
                                    
                                    
                                    11,006
                                    
                                    
                                    
                                    14,120Clearing
      assets
                                    
                                    
                                    773,429
                                    
                                    
                                    
                                    400,638Prepaid
      expenses and other current assets
                                    
                                    
                                    3,652
                                    
                                    
                                    
                                    3,702Total
      current assets
                                    
                                    
                                    839,760
                                    
                                    
                                    
                                    474,426Property
      and equipment, net of accumulated depreciation and amortization of $30,468
      and $28,963, respectively
                                    
                                    
                                    19,586
                                    
                                    
                                    
                                    20,508Capitalized
      software costs, net of accumulated amortization of $18,405 and $17,710,
      respectively
                                    
                                    
                                    9,245
                                    
                                    
                                    
                                    8,701Goodwill
                                    
                                    
                                    47,158
                                    
                                    
                                    
                                    47,170Acquired
      intangible assets, net of accumulated amortization of $11,991 and $11,787,
      respectively
                                    
                                    
                                    7,186
                                    
                                    
                                    
                                    7,422Other
      assets, net
                                    
                                    
                                    539
                                    
                                    
                                    
                                    564Total
      assets
                                    
                                    $
                                    923,474
                                    
                                    
                                    $
                                    558,791Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts
      payable and accrued expenses
                                    
                                    $
                                    16,578
                                    
                                    
                                    $
                                    21,656Clearing
      liabilities
                                    
                                    
                                    770,876
                                    
                                    
                                    
                                    399,927Current
      portion of capital lease obligations
                                    
                                    
                                    1,329
                                    
                                    
                                    
                                    1,358Current
      portion of long-term debt
                                    
                                    
                                    9,978
                                    
                                    
                                    
                                    9,971Current
      portion of other long-term liabilities
                                    
                                    
                                    670
                                    
                                    
                                    
                                    1,014Deferred
      revenue
                                    
                                    
                                    5,612
                                    
                                    
                                    
                                    5,271Total
      current liabilities
                                    
                                    
                                    805,043
                                    
                                    
                                    
                                    439,197Long-term
      portion of capital lease obligations
                                    
                                    
                                    1,168
                                    
                                    
                                    
                                    1,469Other
      long-term liabilities
                                    
                                    
                                    940
                                    
                                    
                                    
                                    1,021Total
      liabilities
                                    
                                    
                                    807,151
                                    
                                    
                                    
                                    441,687Commitments
      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 March 31, 2009
                                    
                                    
                                    62,092
                                    
                                    
                                    
                                    62,092Series
      C Non-Voting Convertible,  none issued
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Common
      stock, $0.001 par value; 100,000,000 shares authorized; 39,621,113 and
      39,510,917 shares issued, respectively
                                    
                                    
                                    272,762
                                    
                                    
                                    
                                    271,319Accumulated
      deficit
                                    
                                    
                                    (202,212
                                    )
                                    
                                    
                                    (200,012
                                    )Treasury
      stock, 923,108 shares, at cost
                                    
                                    
                                    (12,600
                                    )
                                    
                                    
                                    (12,600
                                    )Accumulated
      other comprehensive loss
                                    
                                    
                                    (3,719
                                    )
                                    
                                    
                                    (3,695
                                    )Total
      stockholders' equity
                                    
                                    
                                    116,323
                                    
                                    
                                    
                                    117,104Total
      liabilities and stockholders' equity
                                    
                                    $
                                    923,474
                                    
                                    
                                    $
                                    558,791





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





Page
4





NYFIX,
Inc. and Subsidiaries


Condensed
Consolidated Statements of Operations (Unaudited)


(in
thousands, except per share amounts)





Three
      Months Ended
                      March
      31,2009
                    
                    
                    2008Revenue:Subscription
      and maintenance
                    
                    $
                    17,680
                    
                    
                    $
                    17,518Transaction
                    
                    
                    7,746
                    
                    
                    
                    13,268Product
      sales and services
                    
                    
                    486
                    
                    
                    
                    621Total
      revenue
                    
                    
                    25,912
                    
                    
                    
                    31,407Cost
      of revenue:Subscription
      and maintenance
                    
                    
                    7,151
                    
                    
                    
                    7,651Transaction
                    
                    
                    6,601
                    
                    
                    
                    6,412Product
      sales and services
                    
                    
                    40
                    
                    
                    
                    81Total
      cost of revenue
                    
                    
                    13,792
                    
                    
                    
                    14,144Gross
      profit
                    
                    
                    12,120
                    
                    
                    
                    17,263Operating
      expense:Selling,
      general and administrative
                    
                    
                    14,428
                    
                    
                    
                    20,396SEC
      investigation, restatement and other related expenses
                    
                    
                    (634
                    )
                    
                    
                    137Depreciation
      and amortization
                    
                    
                    416
                    
                    
                    
                    447Restructuring
      charge
                    
                    
                    -
                    
                    
                    
                    (158
                    )Loss
      from operations
                    
                    
                    (2,090
                    )
                    
                    
                    (3,559
                    )Interest
      expense
                    
                    
                    (199
                    )
                    
                    
                    (211
                    )Investment
      income
                    
                    
                    89
                    
                    
                    
                    546Loss
      before income tax provision
                    
                    
                    (2,200
                    )
                    
                    
                    (3,224
                    )Income
      tax provision
                    
                    
                    -
                    
                    
                    
                    128Net
      loss
                    
                    
                    (2,200
                    )
                    
                    
                    (3,352
                    )Accumulated
      preferred dividends
                    
                    
                    (291
                    )
                    
                    
                    (1,142
                    )Loss
      applicable to common stockholders
                    
                    $
                    (2,491
                    )
                    
                    $
                    (4,494
                    )Basic
      and diluted loss per common share
                    
                    $
                    (
      0.06
                    )
                    
                    $
                    (
      0.12
                    )Basic
      and diluted weighted average common shares outstanding
                    
                    
                    38,622
                    
                    
                    
                    37,312





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





Page
5





NYFIX,
Inc. and Subsidiaries


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


For
the Three Months Ended March 31, 2009


(in
thousands, except share amounts)





Series
      B Voting Convertible
                                                          preferred
      stock issued
                                                        
                                                        
                                                        Common
      stock issued
                                                        
                                                        
                                                        Accumulated
                                                        
                                                        
                                                        Treasury
                                                        
                                                        
                                                        Accumulated
                                                          other
                                                          comprehensive
                                                        
                                                        
                                                        Total
                                                          stockholders'Shares
                                                        
                                                        
                                                        Amount
                                                        
                                                        
                                                        Shares
                                                        
                                                        
                                                        Amount
                                                        
                                                        
                                                        deficit
                                                        
                                                        
                                                        stock
                                                        
                                                        
                                                        loss
                                                        
                                                        
                                                        equityBalance
      December 31, 2008
                                                        
                                                        
                                                        1,500,000
                                                        
                                                        
                                                        $
                                                        62,092
                                                        
                                                        
                                                        
                                                        39,510,917
                                                        
                                                        
                                                        $
                                                        271,319
                                                        
                                                        
                                                        $
                                                        (200,012
                                                        )
                                                        
                                                        $
                                                        (12,600
                                                        )
                                                        
                                                        $
                                                        (3,695
                                                        )
                                                        
                                                        $
                                                        117,104Comprehensive
      loss:Net
      loss
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (2,200
                                                        )
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (2,200
                                                        )Foreign
      currency translation adjustment
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (24
                                                        )
                                                        
                                                        
                                                        (24
                                                        )Total
      comprehensive loss
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (2,224
                                                        )Issuance
      of common stock for restricted stock units settled in
    shares
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        110,196
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -Stock-based
      compensation expense
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        1,443
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        1,443Balance
      March 31, 2009
                                                        
                                                        
                                                        1,500,000
                                                        
                                                        
                                                        $
                                                        62,092
                                                        
                                                        
                                                        
                                                        39,621,113
                                                        
                                                        
                                                        $
                                                        272,762
                                                        
                                                        
                                                        $
                                                        (202,212
                                                        )
                                                        
                                                        $
                                                        (12,600
                                                        )
                                                        
                                                        $
                                                        (3,719
                                                        )
                                                        
                                                        $
                                                        116,323





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





Page
6





NYFIX,
Inc. and Subsidiaries


Condensed
Consolidated Statements of Cash Flows (Unaudited)


(in
thousands)





Three Months Ended
                        March 31,2009
                      
                      
                      2008Operating
      activities:Net
      loss
                      
                      $
                      (2,200
                      )
                      
                      $
                      (3,352
                      )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                      
                      
                      2,603
                      
                      
                      
                      2,388Restructuring
      charge
                      
                      
                      -
                      
                      
                      
                      (158
                      )Stock-based
      compensation expense
                      
                      
                      1,443
                      
                      
                      
                      2,800Amortization
      of debt discounts and premiums
                      
                      
                      7
                      
                      
                      
                      21Deferred
      income taxes
                      
                      
                      -
                      
                      
                      
                      49Provision
      for doubtful accounts
                      
                      
                      359
                      
                      
                      
                      -Other,
      net
                      
                      
                      9
                      
                      
                      
                      -Changes
      in assets and liabilities:Accounts
      receivable
                      
                      
                      2,751
                      
                      
                      
                      (1,837
                      )Prepaid
      expenses and other assets
                      
                      
                      69
                      
                      
                      
                      1,069Clearing
      assets
                      
                      
                      (372,806
                      )
                      
                      
                      (245,312
                      )Deferred
      revenue
                      
                      
                      343
                      
                      
                      
                      (100
                      )Accounts
      payable, accrued expenses and other liabilities
                      
                      
                      (5,311
                      )
                      
                      
                      (6,273
                      )Clearing
      liabilities
                      
                      
                      370,954
                      
                      
                      
                      241,704Net
      cash used in operating activities
                      
                      
                      (1,779
                      )
                      
                      
                      (9,001
                      )Investing
      activities:Capital
      expenditures for property and equipment
                      
                      
                      (800
                      )
                      
                      
                      (2,544
                      )Capitalization
      of software costs
                      
                      
                      (1,243
                      )
                      
                      
                      (1,453
                      )Tax
      benefit attributable to goodwill
                      
                      
                      -
                      
                      
                      
                      79Payment
      for acquisition of minority interests
                      
                      
                      -
                      
                      
                      
                      (4,656
                      )Net
      cash used in investing activities
                      
                      
                      (2,043
                      )
                      
                      
                      (8,574
                      )Financing
      activities:Principal
      payments under capital lease obligations
                      
                      
                      (330
                      )
                      
                      
                      (317
                      )Purchases
      of treasury shares
                      
                      
                      -
                      
                      
                      
                      (71
                      )Other,
      net
                      
                      
                      (167
                      )
                      
                      
                      (65
                      )Net
      cash used in financing activities
                      
                      
                      (497
                      )
                      
                      
                      (453
                      )Effect
      of exchange rate changes on cash
                      
                      
                      26
                      
                      
                      
                      13Net
      decrease in cash and cash equivalents
                      
                      
                      (4,293
                      )
                      
                      
                      (18,015
                      )Cash
      and cash equivalents, beginning of period
                      
                      
                      55,966
                      
                      
                      
                      75,657Cash
      and cash equivalents, end of period
                      
                      $
                      51,673
                      
                      
                      $
                      57,642





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





Page
7


Notes
to Condensed Consolidated Financial Statements (Unaudited)
 
 1.       Summary
of Significant Accounting Policies
 
 Nature
of Operations
 
 NYFIX,
Inc., together with its consolidated subsidiaries, provides electronic trading
services including trade messaging services, trade messaging software and
trading workstations to domestic and international market
participants.  In addition, NYFIX’s registered broker-dealer
subsidiaries provide automated trade execution services to institutional
counterparties and operate a matched-book stock borrow/stock loan
business.
 
 The
Company’s headquarters and principal office is located at 100 Wall Street, New
York, NY.  The Company also has other offices in London, Hong Kong,
Tokyo, Boston, MA and Lyndhurst, NJ.  The Company operates redundant
data centers in the northeastern United States, as well as a data center hub in
London.
 
 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 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 U.S. 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 2008 Form 10-K.
 
 The
accompanying unaudited condensed consolidated financial statements include the
accounts of NYFIX, Inc. and its wholly-owned subsidiaries.  All
significant intercompany balances and transactions have been eliminated in
consolidation.
 
 Significant
Accounting Policies
 
 There
have been no material changes during 2009 in the Company’s significant
accounting policies to those  previously disclosed in the 2008 Form
10-K.
 
 2.   Equity
Incentive Plans
 
 The
Company has stock-based incentive plans under which time-based and
performance-based stock options and restricted stock units (“RSUs”) have been
granted to employees and non-employee members of the Board of Directors.
Generally, these options and RSUs vest over a period of four 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.  Stock options expire in ten years from the date of the
grant.
 
 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”) 123 (revised 2004), Share-Based Payment 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
8
  Notes
to Condensed Consolidated Financial Statements – continued
(Unaudited)
 
 Time-based
Stock Option Awards
 
 A summary
of activity under time-based stock option plans for the three months ended March
31, 2009, follows:
  Options
                                                                                                        
                                                                                                        Shares
                                                                                                        
                                                                                                        Weighted
                                                                                                          average
                                                                                                          exerciseprice
                                                                                                        
                                                                                                        Weighted
                                                                                                          average
                                                                                                          remaining
                                                                                                          contractual
                                                                                                          term(years)
                                                                                                        
                                                                                                        Aggregate
                                                                                                          intrinsic
                                                                                                          value
      (in
                                                                                                          thousands)Outstanding
      at beginning of the year
                                                                                                        
                                                                                                        
                                                                                                        8,834,714
                                                                                                        
                                                                                                        $
                                                                                                        5.42Granted
                                                                                                        
                                                                                                        
                                                                                                        42,000
                                                                                                        
                                                                                                        $
                                                                                                        1.00Exercised
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        $
                                                                                                        -Cancelled
                                                                                                        
                                                                                                        
                                                                                                        (263,620
                                                                                                        )
                                                                                                        $
                                                                                                        4.56Outstanding
      at end of the period
                                                                                                        
                                                                                                        
                                                                                                        8,613,094
                                                                                                        
                                                                                                        $
                                                                                                        5.42
                                                                                                        
                                                                                                        7.9
                                                                                                        
                                                                                                        $
                                                                                                        10Exercisable
      at end of the period
                                                                                                        
                                                                                                        
                                                                                                        4,743,261
                                                                                                        
                                                                                                        $
                                                                                                        6.39
                                                                                                        
                                                                                                        7.2
                                                                                                        
                                                                                                        $
                                                                                                        -
  Time-Based
RSUs
 
 A summary
of activity under time-based restricted stock units (“RSUs”) for the three
months ended March 31, 2009, follows:
  Restricted
      Stock Units
                                          
                                          Shares
                                          
                                          
                                          Weighted
                                            average
      grant
                                            date
      fair value
                                          
                                          Aggregate
                                            intrinsic
      value
                                            (in
      thousands)
                                            (1)Outstanding
      at beginning of the year
                                          
                                          
                                          652,472
                                          
                                          
                                          $
                                          4.23Granted
                                          
                                          
                                          14,500
                                          
                                          
                                          $
                                          0.74Settled
      with shares
                                          
                                          
                                          (110,196
                                          )
                                          
                                          $
                                          4.47
                                          
                                          $
                                          84Cancelled
                                          
                                          
                                          (22,292
                                          )
                                          
                                          $
                                          4.27Outstanding
      at end of the period
                                          
                                          
                                          534,484
                                          
                                          
                                          $
                                          4.11
 
 (1)
Represents the value of NYFIX stock on the date that the restricted stock units
vested.
 On grant
date the fair value for these vested awards was $493,000.
 
 Equity
Awards with Performance and Market Conditions
 
 Performance-based
stock options and performance-based RSUs are eligible to be earned (in amounts
ranging from 0% to 100% of the award) in equal pro rata installments over four
one-year performance periods based on the achievement of annual goals for
revenue and operating earnings before interest, taxes, depreciation and
amortization.  Any portion of performance-bases stock options and
performance-based RSUs not earned in years one through three is eligible to be
earned in year four based on the achievement of goals in year four. The annual
performance goals for 2009 were approved on March 30, 2009.
 
 During
the first quarter of 2009, the Company issued RSUs with a market condition. This
type of RSU is eligible to be earned if the closing price of the Company’s
common stock exceeds established price targets for a period of ten consecutive
business days and if the executive is employed by the Company one year from the
date of grant.  These RSUs may be earned in increments of 25% to 100%
if various price targets are met within a four year period. The Company used a
Monte Carlo simulation model to determine the fair value and derived service
period for these awards.
 
 Page
9
  Notes to Condensed Consolidated
Financial Statements – continued (Unaudited)
  A summary
of activity of the Company’s performance-based stock options for the three
months ended March 31, 2009, follows:
  Options
                                                                                      
                                                                                      Shares
                                                                                      
                                                                                      
                                                                                      Weighted
                                                                                        average
                                                                                        exerciseprice
                                                                                      
                                                                                      
                                                                                      Weighted
                                                                                        average
                                                                                        remaining
                                                                                        contractual
                                                                                        term
      (years)
                                                                                      
                                                                                      
                                                                                      Aggregate
                                                                                        intrinsic
                                                                                        value (in
                                                                                        thousands)Outstanding
      at beginning of the year
                                                                                      
                                                                                      
                                                                                      1,728,855
                                                                                      
                                                                                      
                                                                                      $
                                                                                      4.47Granted
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      -Exercised
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      -Cancelled
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      -Outstanding
      at end of the period
                                                                                      
                                                                                      
                                                                                      1,728,855
                                                                                      
                                                                                      
                                                                                      $
                                                                                      4.47
                                                                                      
                                                                                      
                                                                                      8.6
                                                                                      
                                                                                      
                                                                                      -Exercisable
      at end of the period
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      -
 
 A summary
of activity of the Company’s RSUs with performance and market conditions for the
three months ended March 31, 2009, follows:
  Restricted
      Stock Units
                                          
                                          Shares
                                          
                                          
                                          Weighted
                                            average
                                            grant
      date
                                            fair
      valueOutstanding
      at beginning of the year
                                          
                                          
                                          
                                          322,917
                                          
                                          
                                          $
                                          4.60Granted
                                          
                                          
                                          
                                          734,633
                                          
                                          
                                          $
                                          0.80Cancelled
                                          
                                          
                                          
                                          (12,500
                                          )
                                          
                                          $
                                          4.60Outstanding
      at end of the period
                                          
                                          
                                          
                                          1,045,050
                                          
                                          
                                          $
                                          1.93
 
 Stock-based
Compensation Expense
 
 Stock-based
compensation expense during the three months ended March 31, 2009 and 2008 was
approximately $1.4 million and $2.8 million, respectively.
 
 As of
March 31, 2009, there was $11.3 million of unrecognized compensation costs
related to outstanding awards. The Company expects to recognize these costs over
a weighted average period of 1.2 years.
 
 Page
10
  Notes to Condensed Consolidated
Financial Statements – continued (Unaudited)
  3.        Loss
Per Share Applicable to Common Stockholders
 
 The following table sets forth
the computations of loss per share amounts applicable to common stockholders for
the three months ended March 31, 2009 and 2008:
 
 Three
      Months Ended
                          March
      31,(in
      thousands, except per share amounts)
                        
                        2009
                        
                        
                        2008Net
      loss
                        
                        $
                        (2,200
                        )
                        
                        $
                        (3,352
                        )Less:
      Accumulated preferred dividends
                        
                        
                        (291
                        )
                        
                        
                        (1,142
                        )Loss
      applicable to common stockholders, basic and diluted
                        
                        $
                        (2,491
                        )
                        
                        $
                        (4,494
                        )Basic
      and diluted loss per common share
                        
                        $
                        (0.06
                        )
                        
                        $
                        (0.12
                        )Weighted
      average common shares outstanding (1):Basic
      and diluted shares
                        
                        
                        38,622
                        
                        
                        
                        37,312Potentially
      dilutive securities (2):Outstanding
      time-based stock options (3)
                        
                        
                        8,613
                        
                        
                        
                        9,351Outstanding
      time-based restricted stock units (3)
                        
                        
                        534
                        
                        
                        
                        770Warrants
      (3)
                        
                        
                        2,250
                        
                        
                        
                        2,250Convertible
      notes (3)
                        
                        
                        1,779
                        
                        
                        
                        1,773Convertible
      preferred stock (3)
                        
                        
                        15,000
                        
                        
                        
                        15,000
 (1)
Excludes nonvested restricted stock and restricted stock
units.
 (2)
Excludes grants with performance and market conditions as the necessary
conditions have not been satisfied.
 (3) The
impact of time-based stock options,  time-based restricted stock
units, warrants, the convertible notes and the convertible preferred stock on
earnings per share is antidilutive in a period of loss.
 
 4.     
  Other Balance Sheet Information
 
 Accounts
payable and accrued expenses consisted of the following at March 31, 2009 and
December 31, 2008:
 
 March 31,
                                
                                
                                December 31,(in
      thousands)
                                
                                2009
                                
                                
                                2008Accounts
      payable
                                
                                $
                                8,961
                                
                                
                                $
                                11,260Compensation
      and related
                                
                                
                                4,822
                                
                                
                                
                                7,737Taxes,
      other than income and payroll taxes
                                
                                
                                931
                                
                                
                                
                                815Other
                                
                                
                                1,864
                                
                                
                                
                                1,844Total
      accounts payable and accrued expenses
                                
                                $
                                16,578
                                
                                
                                $
                                21,656
 
 Page
11
  Notes
to Condensed Consolidated Financial Statements – continued
(Unaudited)
  5.     
  Broker-Dealer Operations
  Clearing
Assets and Liabilities
 
 Clearing
assets and liabilities consisted of the following at March 31, 2009 and December
31, 2008:
 
 March 31,
                        
                        
                        December 31,(in
      thousands)
                        
                        2009
                        
                        
                        2008Securities
      borrowed
                        
                        $
                        768,607
                        
                        
                        $
                        396,784Securities
      failed-to-deliver
                        
                        
                        1,320
                        
                        
                        
                        1,375Deposits
      with clearing organizations and others
                        
                        
                        1,479
                        
                        
                        
                        1,502Receivables
      from clearing organizations and firms
                        
                        
                        1,874
                        
                        
                        
                        977Other
                        
                        
                        149
                        
                        
                        
                        -Total
      clearing assets
                        
                        $
                        773,429
                        
                        
                        $
                        400,638Securities
      loaned
                        
                        $
                        768,540
                        
                        
                        $
                        397,269Securities
      failed-to-receive
                        
                        
                        1,404
                        
                        
                        
                        1,716Payables
      to clearing organizations and firms
                        
                        
                        932
                        
                        
                        
                        942Total
      clearing liabilities
                        
                        $
                        770,876
                        
                        
                        $
                        399,927
 
 Securities
Lending
 
 The
Company receives collateral under securities borrowed transactions, which it is
allowed by contract or custom to sell or repledge.  As of March 31,
2009, securities borrowed with a fair value of $748.5 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 months ended March 31, 2009 and 2008, were as follows:
 
 Three
      Months Ended
                        March
      31,(in
      thousands)
                      
                      2009
                      
                      
                      2008Interest
      earned
                      
                      $
                      993
                      
                      
                      $
                      2,918Interest
      incurred
                      
                      
                      (802
                      )
                      
                      
                      (2,653
                      )Net
                      
                      $
                      191
                      
                      
                      $
                      265
 
 Regulatory
Net Capital Requirements
 
 U.S. registered broker-dealer subsidiaries - NYFIX
Securities Corporation (“NYFIX Securities”) and NYFIX Millennium L.L.C. (“NYFIX
Millennium”) are subject to the SEC’s Uniform Net Capital Rule (15c3-1), which
requires the maintenance of minimum regulatory net capital. NYFIX Securities has
elected to use the alternative method, as permitted by the rule, which requires
the maintenance of minimum regulatory capital (as defined in the rule) equal to
the greater of $250,000 or 2% of aggregate debit items arising from customer
transactions (as defined in the rule). NYFIX Securities’ membership in the
Depository Trust & Clearing Corporation (the “DTCC”) requires it to maintain
excess regulatory net capital of $10.0 million. NYFIX Millennium has elected to
use the aggregate indebtedness standard method, which requires that the ratio of
aggregate indebtedness to regulatory net capital (both as defined in the rule)
shall not exceed 15 to 1.  The regulatory net capital ratio for NYFIX
Millennium at March 31, 2009 was 0.43 to 1.
 
 U.K. registered subsidiaries - NYFIX
International Ltd. (“NYFIX International”) and FIXCITY, Ltd. (“FIXCITY”) are
registered firms of the Financial Services Authority (“FSA”) in the U.K. 
NYFIX International and FIXCITY are required to maintain the greater of the base
capital resources requirement of €730,000 and €50,000, respectively, or the
variable capital resources requirement, which is made up of credit risk, market
risk and fixed overhead (equal to three months average expenditures)
requirements.
 
 At March
31, 2009, the aggregate regulatory net capital/resources of the Company’s
regulated subsidiaries in the U.S. and U.K. were $36.4 million, which was $23.2
million in excess of the Company’s aggregate requirement of $13.2 million
(including the $10 million excess required by DTCC).
 
 Page
12
 
 Notes to Condensed Consolidated
Financial Statements – continued (Unaudited)
  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 Company’s 2008 Form 10-K, the Company
maintains a valuation allowance in accordance with SFAS No. 109, Accounting for Income Taxes,
on its net deferred tax assets.  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
 
 The
components of total comprehensive loss were as follows:
  Three Months Ended
                        March 31,(in
      thousands)
                      
                      2009
                      
                      
                      2008Net
      loss
                      
                      $
                      (2,200
                      )
                      
                      $
                      (3,352
                      )Foreign
      currency translation adjustment
                      
                      
                      (24
                      )
                      
                      
                      17Total
      comprehensive loss
                      
                      $
                      (2,224
                      )
                      
                      $
                      (3,335
                      )
 
 8.   
    Business Segment Information
 
 In
accordance with SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"), the Company is reporting
certain information relating to its operating segments. The Company’s segments
are organized into three operating divisions through which the Company’s chief
operating decision makers manage 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 messaging channels for institutions that are members of its
trading community for order routing and other value-added
services.  The FIX Division also provides software and consultative
services to enable global financial institutions to utilize the industry
established Financial Information Exchange (FIX) Protocol for messaging,
monitoring and processing transaction information.  The operating
results of FIXCITY have been included in the FIX Division since April 4, 2008,
the date of acquisition.
 
 Transaction Services
Division. The Transaction Services Division is currently comprised of the
two U.S. registered broker-dealer subsidiaries, NYFIX Millennium and NYFIX
Securities, together with 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.  Effective January 1, 2009, the results of Euro
Millennium are reported within the Transaction Services Division as the Company
has determined that this initiative is no longer in its introductory phase based
on the recent growth in executed volumes.  During the three months
ended March 31, 2008, the Company incurred costs of $2.2 million related to this
initiative. These costs are included in Corporate & Other in the segment
information reported below.
 
 Order Management Systems
Division.  The OMS Division provides software applications for
the management of New York Stock Exchange (“NYSE”) and Nasdaq listed trading
activities.  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.  The 2008 operating loss for the OMS
Division includes severance related restructuring charges of $0.3 million
associated with discontinuing the Fusion OMS product as well as an additional
loss of $0.3 million associated with running the Fusion OMS business during the
wind-down phase.
 
 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.
 
 Page
13
  Notes to Condensed Consolidated
Financial Statements – continued (Unaudited)
  The
following table presents information by reportable segment for the three months
ended March 31, 2009 and 2008:
  (in thousands)
                                    
                                    FIXDivision
                                    
                                    
                                    Transaction
                                      Services
                                      Division (1)
                                    
                                    
                                    OMS
                                      Division
                                    
                                    
                                    Corporate
                                      & Other(2)
                                    
                                    
                                    TotalMarch 31, 2009Revenue
      - external customers
                                    
                                    $
                                    17,347
                                    
                                    
                                    $
                                    7,809
                                    
                                    
                                    $
                                    756
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    25,912Revenue
      (cost of revenues), net - intersegment
                                    
                                    
                                    (199
                                    )
                                    
                                    
                                    252
                                    
                                    
                                    
                                    (53
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Net
      revenue
                                    
                                    
                                    17,148
                                    
                                    
                                    
                                    8,061
                                    
                                    
                                    
                                    703
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    25,912Operating
      income (loss) (3)
                                    
                                    
                                    4,125
                                    
                                    
                                    
                                    (5,789
                                    )
                                    
                                    
                                    (1,121
                                    )
                                    
                                    
                                    695
                                    
                                    
                                    
                                    (2,090
                                    )March 31, 2008Revenue
      - external customers
                                    
                                    $
                                    15,375
                                    
                                    
                                    $
                                    14,370
                                    
                                    
                                    $
                                    1,662
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    31,407Revenue
      (cost of revenues), net - intersegment
                                    
                                    
                                    760
                                    
                                    
                                    
                                    (977
                                    )
                                    
                                    
                                    217
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Net
      revenue
                                    
                                    
                                    16,135
                                    
                                    
                                    
                                    13,393
                                    
                                    
                                    
                                    1,879
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    31,407Operating
      income (loss) (3)
                                    
                                    
                                    2,186
                                    
                                    
                                    
                                    (1,071
                                    )
                                    
                                    
                                    (2,689
                                    )
                                    
                                    
                                    (1,985
                                    )
                                    
                                    
                                    (3,559
                                    )
 (1)
Includes an operating loss for Euro Millennium for the three months ended March
31, 2009 of $1.9 million.
 (2)
Corporate & Other includes SEC investigation, restatement and other related
expenses/recoveries, corporate restructuring costs/reversals, Euro Millennium
costs, certain transitional costs and other corporate items which are not
allocated to reportable segments.
 (3)
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.     
 Commitments and Contingencies
 
 Stock-based
Compensation Related Matters
 
 SEC
Investigation
 
 The
Company is the subject of an SEC investigation dating to October
2004.  The investigation relates to the Company’s historical stock
option granting practices and related matters.  In March and April
2005, the SEC issued subpoenas to a current director and to former officers and
directors of the Company.  The SEC has taken testimony from one
current director, at least three former directors and at least one of the
Company’s former employees, as well as from third parties, including the
Company’s former independent registered public accounting firm.  The
SEC has also issued subpoenas to at least two current and former directors from
whom it has not asked for testimony.  The Company provided more than
800,000 pages of documents to the SEC in relation to this investigation during
the period from January 2006 to April 2007 and believes that it has completed
producing responsive documents.  The Company’s last communication with
the SEC regarding this investigation was in June 2007.  This matter is
still pending as of March 31, 2009.
 
 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 handling the case, the Company has responded to the
subpoena by producing the documents it produced 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.  The Company’s last
communication with the U.S. Attorney regarding this investigation was in July
2006.  This matter was still pending as of March 31,
2009.
 
 Shareholder
Derivative Actions
 
 In 2006,
the Company was named as a nominal defendant in several shareholder derivative
actions.  These were consolidated into two actions, one pending in
Connecticut Superior Court (the "Consolidated State Suit") and one currently on
appeal from the United States District Court for the District of Connecticut
(the "Consolidated Federal Suit").  One or both of these actions also
named as defendants a number of the Company’s former officers and directors,
including a former Chairman and Chief Executive Officer, another former Chief
Executive Officer and director, a former Chief Information Officer, two former
Chief Financial Officers, the Company’s former General Counsel and the former
Executive Vice President and President of NYFIX Millennium.  These
actions demand unspecified money damages, ask for an accounting and seek
rescission of allegedly misdated options based on, among other things, alleged
breaches of fiduciary duty, unjust enrichment and breach of
contract.
 
 Page
14
  Notes to Condensed Consolidated
Financial Statements – continued (Unaudited)
  On
February 25, 2009, the parties executed a global settlement agreement and filed
a motion for the Consolidated State Suit seeking court approval of the
settlement.  This agreement requires that the Company adopt certain
corporate governance practices and provides for a payment of $1.3 million in
legal fees to plaintiffs’ counsel that will be paid directly to plaintiffs’
counsel by the Company’s insurance carrier.  That motion received
preliminary approval on April 14, 2009, and is pending final
judgment.  There can be no assurance that the court will approve the
settlement.  If the court approves the settlement, the court’s
decision may be subject to appeal.
  Related
Tax Matters
 
 Subsequent
to the sale of NYFIX Overseas in August 2006, GL Trade S.A. (“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.
 
 As a
result of indemnification provisions agreed to by the Company in connection with
its sale of NYFIX Overseas to GL, the Company determined that it has exposure
due to the fact that 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
$1.7 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.  The Company’s ongoing indemnity obligation to GL,
however, relates solely to those representations and warranties covering tax
matters and employee benefits and terminates upon expiration of any applicable
statutory period of limitation.  The Company’s maximum liability under
this ongoing indemnity obligation is $4.5 million.
 
 Based
upon the current information available and the liabilities recognized, the
Company believes the resolution of this tax matter will not have a material
adverse effect on its consolidated financial condition or results of
operations.
 
 NYFIX
Millennium SEC Inquiry
 
 The
Company is the subject of a second SEC investigation dating to October
2004.  The investigation relates to the restatement of the Company’s
1999 through 2002 consolidated financial statements filed in May 2004 and
questions the Company’s accounting for the losses incurred by NYFIX
Millennium.  In March 2006, the Company announced that the SEC
Enforcement Staff had advised that it was recommending that the SEC close its
inquiry into this matter without any action being taken against the Company or
any individual.  The Staff’s recommendation is subject to a formal
approval process within the SEC.  Such formal approval is still
pending as of March 31, 2009.
 
 Other
 
 During
the normal course of business, the Company becomes involved in various routine
legal proceedings.  The Company believes that it is not presently a
party to any material litigation other than as described above, the outcome of
which could reasonably be expected to have a material adverse effect on its
consolidated financial statements.
 
 During
the three months ended March 31, 2008, the Company incurred $0.1 million
relating to the stock option investigation and subpoenas, the grand jury
subpoena, related shareholder derivative litigation and the pursuit of insurance
recoveries.  These costs included outside counsel and forensic
accountants.  These costs do not include any portion of time that the
Company’s employees dedicated to these matters. For the three months ended March
31, 2009, the Company recorded a net benefit related to these matters of $0.6
million, reflecting the receipt of insurance proceeds of $0.7 million for claims
submitted under the Company’s prior Director and Officers insurance policies to
recover these costs, partially offset by additional costs of $0.1
million.
 
 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 and the grand
jury subpoena, 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.
 
 Page
15
  Notes to Condensed Consolidated
Financial Statements – continued (Unaudited)
  10.    
 Stockholders’ Equity
 
 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 and 0.5 million as Series C Non-Voting
Convertible Preferred Stock.
 
 At March
31, 2009 and December 31, 2008, 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.
 
 Common
Stock and Treasury Stock
 
 At
December 31, 2008, the Company had outstanding 38,587,809 shares of common
stock, with 923,108 shares held in treasury.
 
 During
the first quarter of 2009, restricted stock units totaling 110,196 shares vested
and were settled in shares.
 
 As a
result of the foregoing activity, at March 31, 2009, the Company had outstanding
38,698,005 shares of common stock, with 923,108 held in treasury.
 
 11.   
  Subsequent Event
 
 Restructuring
Charge
 
 In April
2009, the Company ceased using a portion of the office space in its New York
headquarters, and agreed on terms for a sublease.  As a result, in the
second quarter of 2009 the Company will be recording a restructuring charge of
$0.7 million reflecting the fair value of the remaining rent payments for the
office space, net of expected sublease income, plus real estate commissions, and
write-offs of property and equipment.
 
 Page
16
  Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
 
 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.  The NYFIX Marketplace is a
global community of trading counterparties utilizing innovative services that
optimize the business of trading, including trade messaging services, trade
messaging software and trading workstations.  NYFIX Millennium provides the
NYFIX Marketplace with enhanced methods of accessing liquidity.  We
also provide value-added informational and analytic services and 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 low touch, low impact market access and transaction
processing.
 
 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.
 
 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 and the Sell-Side, and
through exchanges (e.g., NYSE, NYSE Amex, Nasdaq and other exchanges), the
over-the-counter market (“OTC”), alternate trading systems (“ATSs”) and
electronic communication networks (“ECNs”).
 
 Sources
of Revenue
 
 Our
revenues consist of subscription and maintenance fees, transaction fees, and
product sales and services revenues.  As a percentage of our total
revenues during the three months ended March 31, 2009, subscription and
maintenance revenues accounted for 68%, transaction revenue accounted for 30%,
and product sales and services revenue accounted for 2%.
 
 Our
subscription and maintenance revenues principally consist of revenues from
contracts that provide for the use of our systems and our messaging channels,
together with managed services.  Subscription and maintenance revenue
rates are fixed based on a contractual period of time.  Additional
services, provided under schedules, or addenda to the contracts, 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 and acceptance. Subscription and maintenance 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 amounts we charge for connectivity to the NYFIX Marketplace
Platform, including telecommunications, installation and maintenance of routers,
network management software, support staff, and other costs related to the
management of connectivity.  The connectivity charges are recognized
as the services are provided.
 
 Our
subscription and maintenance revenues are not directly affected by trading
volumes; however, trading volumes do affect the revenues of our clients and this
could affect their future purchases of our technology and
services.  Pricing pressures due to competition, failure to maintain
revenues with existing clients and to sign agreements with new clients because
of reductions in their technology spending, consolidation of brokerages and
hedge fund closures could affect our revenues and profitability.  Our
costs associated with supporting the subscription and maintenance agreements are
generally fixed and thus a loss of revenue would disproportionately impact
profitability.
 
 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.
 
 Page
17
 
 Because
commission revenues are earned on a per-transaction basis, such revenues
fluctuate from period to period depending on (i) the volume of securities
traded through our services in the U.S. and the U.K. and (ii) our
commission rates.  Commission revenues are primarily generated by
orders delivered to us from direct computer-to-computer links driven by our
clients’
routing technology, our FIXTrader order management system and other vendors’
products, as well as third party order routing networks and phone orders from
our customers.
 
 We
believe that the factors that most influence our transaction volumes are the
following:
 
 ·
              macro
      trends in the global equities markets that affect overall institutional
      equity trading activity;
 
 ·
              competitive
      pressure, including pricing, created by a proliferation of electronic
      execution competitors;
 
 ·
              potential
      changes in the U.S. market
structure;
 
 ·
              new
      regulatory requirements or a failure to comply with existing regulatory
      requirements;
 
 ·
              service
      quality and availability;
 
 ·
              consolidation
      of broker-dealers or a decline in the number of hedge funds;
      and
 
 ·
              increased
      client demands for bandwidth and speed, requiring reinvestment in hardware
      and software.
 
 Product
sales and services are primarily comprised of FIX software licenses and
professional services fees. This revenue is recognized when the software is
delivered 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.
 
 Cost
of Revenue
 
 Cost of
revenue includes the following:
 
 ·
              Data
      center operating costs, including salaries, related to equipment,
      infrastructure and software supporting operations and the NYFIX
      Marketplace;
 
 ·
              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;
 
 ·
              Fees
      paid to third-party technology providers to access and provide services to
      their client base;
 
 ·
              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;
      and
 
 ·
              Execution
      and clearing costs to access various markets and exchanges and to process
      and settle transactions.
 
 Recent
Developments
 
 Euro
Millennium
 
 Due to
the recent growth in matched volumes, we have determined that effective January
1, 2009, Euro Millennium is no longer in its introductory phase. Based on this
determination, the results for Euro Millennium are being presented as part of
the Transaction Services Division with specific costs included in transaction
cost of revenue and the various SG&A categories.
 
 In
consultation with the U.K. Financial Services Authority (FSA), we modified Euro
Millennium’s functionality to only match at the pre-determined reference point
of the mid-point between bid and offer. We expect to make further modifications
throughout 2009 to provide for matching at other pre-determined reference points
(e.g. bid and offer). These modifications are not expected to have a material
impact on Euro Millennium’s service or revenues.
 
 Millennium
HPX
 
 In March 2009, we upgraded the NYFIX
Millennium dark pool to our high performance technology architecture (HPX),
making Millennium a faster, more resilient, and higher throughput dark pool that
is well suited for latency sensitive order flow.
 
 Page
18
  Restructuring
Charge
 
 In April 2009, we ceased using a
portion of the office space in our New York headquarters, and agreed on terms
for a sublease.  As a result, in the second quarter of 2009 we will be
recording a restructuring charge of $0.7 million reflecting the fair value of
the remaining rent payments for the office space, net of expected sublease
income, plus real estate commissions, and write-offs of property and
equipment.  We expect our occupancy and related costs to decrease by
$0.4 million per year as result of this restructuring.
 
 Page
19
 
 Results
of Operations for the Three Month Periods Ended March 31, 2009 and
2008
 
 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 Ended March 31,(in
      thousands, except percentages)
                                                
                                                2009
                                                
                                                %
      of
                                                  revenue
                                                
                                                2008
                                                
                                                %
      of
                                                  revenueRevenue:Subscription
      and maintenance
                                                
                                                $
                                                17,680
                                                
                                                68%
                                                
                                                $
                                                17,518
                                                
                                                56%Transaction
                                                
                                                
                                                7,746
                                                
                                                30%
                                                
                                                
                                                13,268
                                                
                                                42%Product
      sales and services
                                                
                                                
                                                486
                                                
                                                2%
                                                
                                                
                                                621
                                                
                                                2%Total
      revenue
                                                
                                                
                                                25,912
                                                
                                                100%
                                                
                                                
                                                31,407
                                                
                                                100%Cost
      of revenue:Subscription
      and maintenance (1)
                                                
                                                
                                                7,151
                                                
                                                28%
                                                
                                                
                                                7,651
                                                
                                                24%Transaction
      (1)
                                                
                                                
                                                6,601
                                                
                                                25%
                                                
                                                
                                                6,412
                                                
                                                20%Product
      sales and services (1)
                                                
                                                
                                                40
                                                
                                                0%
                                                
                                                
                                                81
                                                
                                                0%Total
      cost of revenue
                                                
                                                
                                                13,792
                                                
                                                53%
                                                
                                                
                                                14,144
                                                
                                                45%Gross
      profit
                                                
                                                
                                                12,120
                                                
                                                47%
                                                
                                                
                                                17,263
                                                
                                                55%Operating
      expense:Selling,
      general and administrative (1)
                                                
                                                
                                                14,428
                                                
                                                56%
                                                
                                                
                                                20,396
                                                
                                                65%SEC
      investigation, restatement and other related expenses
                                                
                                                
                                                (634
                                                )
                                                -2%
                                                
                                                
                                                137
                                                
                                                0%Depreciation
      and amortization
                                                
                                                
                                                416
                                                
                                                2%
                                                
                                                
                                                447
                                                
                                                1%Restructuring
      charge
                                                
                                                
                                                -
                                                
                                                0%
                                                
                                                
                                                (158
                                                )
                                                -1%Loss
      from operations
                                                
                                                
                                                (2,090
                                                )
                                                -8%
                                                
                                                
                                                (3,559
                                                )
                                                -11%Interest
      expense
                                                
                                                
                                                (199
                                                )
                                                -1%
                                                
                                                
                                                (211
                                                )
                                                -1%Investment
      income
                                                
                                                
                                                89
                                                
                                                0%
                                                
                                                
                                                546
                                                
                                                2%Loss
      before income tax provision
                                                
                                                
                                                (2,200
                                                )
                                                -8%
                                                
                                                
                                                (3,224
                                                )
                                                -10%Income
      tax provision
                                                
                                                
                                                -
                                                
                                                0%
                                                
                                                
                                                128
                                                
                                                0%Net
      loss
                                                
                                                
                                                (2,200
                                                )
                                                -8%
                                                
                                                
                                                (3,352
                                                )
                                                -11%Accumulated
      preferred dividends
                                                
                                                
                                                (291
                                                )
                                                -1%
                                                
                                                
                                                (1,142
                                                )
                                                -4%Loss
      applicable to common stockholders
                                                
                                                $
                                                (2,491
                                                )
                                                -10%
                                                
                                                $
                                                (4,494
                                                )
                                                -14%Percentage
      sub-totals may not add due to rounding
                                                  (1)
      Stock-based compensation expense included in the respective line items
      above follows:Cost
      of revenue:Subscription
      and maintenance
                                                
                                                $
                                                93
                                                
                                                
                                                
                                                $
                                                130Transaction
                                                
                                                
                                                52
                                                
                                                
                                                
                                                
                                                53Product
      sales and services
                                                
                                                
                                                2
                                                
                                                
                                                
                                                
                                                3Selling,
      general and administrative
                                                
                                                
                                                1,296
                                                
                                                
                                                
                                                
                                                2,614$
                                                1,443
                                                
                                                
                                                
                                                $
                                                2,800




Page
20




Revenue




The
following table presents our components of revenue:





ThreeMonthsEnded
                            March31,
                          
                          
                          Increase(Decrease)(in
      thousands, except percentages)
                          
                          2009
                          
                          
                          2008
                          
                          
                          $
                          
                          
                          
                          %Subscription
      and maintenance
                          
                          $
                          17,680
                          
                          
                          $
                          17,518
                          
                          
                          $
                          162
                          
                          
                          
                          1%Transaction
                          
                          
                          7,746
                          
                          
                          
                          13,268
                          
                          
                          
                          (5,522
                          )
                          
                          
                          -42%Product
      sales and services
                          
                          
                          486
                          
                          
                          
                          621
                          
                          
                          
                          (135
                          )
                          
                          
                          -22%Total
      revenue
                          
                          $
                          25,912
                          
                          
                          $
                          31,407
                          
                          
                          $
                          (5,495
                          )
                          
                          
                          -17%




Subscription
and Maintenance




The
increase in subscription and maintenance revenue for the three months ended
March 31, 2009, as compared to the three months ended March 31, 2008, reflected
the offsetting effects of an increase in subscriptions (and related managed
services) of messaging channels offered by our FIX Division, the impact of the
FIXCITY acquisition, and a decrease in subscriptions (and related managed
services) of our OMS Division products.  The growth in messaging
channels offered by our FIX Division 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 of March 31, 2009, we had 9,795 billable order
routing channels in service, an increase of 13% over the 8,666 billable order
routing channels in service at March 31, 2008, and an increase of 2% over the
9,588 channels in service at December 31, 2008.  FIXCITY, which was
acquired in April 2008, contributed $0.5 million in subscription revenues during
the three months ended March 31, 2009.  The decline in subscriptions
(and related managed services) of our OMS Division products of $1.2 million, to
$0.7 million for the three months ended March 31, 2009 compared to $1.9 million
during the three months ended March 31, 2008, was due primarily to the
discontinuation of our Fusion OMS products, as well as cancellations from other
desktop clients. Recurring
maintenance on licensed software increased $0.2 million to $1.1 million for the
three months ended March 31, 2009 as compared to $0.9 million for the same
period in 2008.




Transaction




The
decrease in transaction revenue for the three months ended March 31, 2009 was
attributable to a decrease in commissions on trade executions. Commissions
decreased $5.4 million to $7.6 million during the three months ended March 31,
2009 compared to $13.0 million during three months ended March 31, 2008 due
primarily to a $4.3 million and a $1.1 million decrease in commissions from
Sell-Side and Buy-Side clients, respectively.  The decrease from
Sell-Side clients was due to a decrease in the use of the NIX algorithmic and
smart routing trading products, a decrease in matched volumes in NYFIX
Millennium and a decrease in direct market access service, offset in part by the
inclusion of $0.7 million of commission and settlement fee revenue from Euro
Millennium.  The decline in revenue
from our NIXalgorithmic and smart
routing trading products and from OTC direct market access was primarily
attributable to lower volumes from former Fusion OMS
clients.  Transaction revenue from former Fusion OMS clients decreased
by $2.2 millionduring the three months ended March 31, 2009 as compared
to the three months ended March 31, 2008.The average daily
matched volume in NYFIX Millennium during the three months ended March 31, 2009
was 33.1 million shares, a 33% decrease over the average of 49.4 million shares
matched during the three months ended March 31, 2008, due primarily to a
market-wide decrease in traditional buy-side institutional trading volumes that
access Millennium through sell-side algorithms.  The additional decline in
revenue from NYSE DOT direct market access services (including associated
pass-through charges) of $0.5 million was primarily attributable to our decision
to improve our margins by eliminating discounts for these services below cost
for clients who do not generate valuable pass-through matches in NYFIX
Millennium.




The
decrease from Buy-Side clients was due in part to the disintermediation of our
direct Buy-Side client base by third-party algorithmic trading solution
providers who offer enhanced technology solutions for certain
clients.  Our securities lending business generated net interest
spread on its matched book stock borrow/stock loan portfolio of $0.2 million
during the three months ended March 31, 2009 compared to $0.3 million during the
three months ended March 31, 2008.


Page
21




Product
Sales and Services




The
decrease in product sales and services for the three months ended March 31, 2009
compared to the same period in 2008 was primarily due to a decrease in
professional services revenue.  Professional services revenue
decreased $0.1 million to $0.1 million during the three months ended March 31,
2009 as compared to $0.2 million for the same period in
2008.  Software license fees for our FIX software products were
comparable at $0.4 million for the three months ended March 31, 2009 and
2008.




Costs
and Expenses




Cost
of Revenue




The
following table presents our cost of revenue:




Three Months Ended
                      March31,
                    
                    
                    Increase(Decrease)(in thousands, except
      percentages)
                    
                    2009
                    
                    
                    2008
                    
                    
                    $
                    
                    
                    
                    %Subscription
      and maintenance
                    
                    $
                    7,151
                    
                    
                    $
                    7,651
                    
                    
                    $
                    (500
                    )
                    
                    
                    -7%Transaction
                    
                    
                    6,601
                    
                    
                    
                    6,412
                    
                    
                    
                    189
                    
                    
                    
                    3%Product
      sales and services
                    
                    
                    40
                    
                    
                    
                    81
                    
                    
                    
                    (41
                    )
                    
                    
                    -51%Total
      cost of revenue
                    
                    $
                    13,792
                    
                    
                    $
                    14,144
                    
                    
                    $
                    (352
                    )
                    
                    
                    -2%Percent
      of total revenue
                    
                    
                    53%
                    
                    
                    
                    45%




Subscription
and Maintenance




The
decrease in subscription and maintenance cost of revenue for the three months
ended March 31, 2009 compared to the same period in 2008 was primarily
attributable to a decrease in telecommunication costs of $0.5 million and lower
market data fees of $0.1 million.  These decreases were slightly
offset by an increase in depreciation expense of $0.1 million.  As a
percentage of related revenue, these costs decreased to 40% for the three months
ended March 31, 2009 as compared to 44% for the three months ended March 31,
2008.




Transaction




The
increase in transaction cost of revenue for the three months ended March 31,
2009 was primarily attributable to the inclusion of $1.4 million of Euro
Millennium cost of revenue items and higher allocated labor costs in the U.S. of
$0.3 million associated with the transition to Millennium HPX, offset by a
decrease in execution and clearing costs in the U.S. of $1.5
million.  Included in the $1.4 million of Euro Millennium cost of
revenue items was $0.6 million of clearing costs. We expect Euro Millennium
clearing costs to decline in the second half of 2009 once we are functional with
our SIX X-Clear central counterparty (CCP) clearing solution. During the three
months ended March 31, 2008, transaction cost of revenue was reduced by a
clearing fee rebate received of $0.5 million.  As a percentage of
related revenue, these costs increased to 85% for the three months ended March
31, 2009, as compared to 48% for the three months ended March 31,
2008.




Product
Sales and Services




The
decrease in product sales and services cost of revenue for the three months
ended March 31, 2009 compared to the same period in 2008 was attributable to
lower amortization of capitalized software costs.  As a percentage of
related revenue these costs decreased to 8% for the three months ended March 31,
2009 as compared to 13% for the same period of 2008.


Page
22




Selling,
General and Administrative Expenses (SG&A)




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




ThreeMonthsEnded
                      March31,
                    
                    
                    Increase(Decrease)(in thousands, except
      percentages)
                    
                    2009
                    
                    
                    2008
                    
                    
                    $
                    
                    
                    
                    %Compensation
      and related
                    
                    $
                    8,094
                    
                    
                    $
                    8,932
                    
                    
                    $
                    (838
                    )
                    
                    
                    -9%Occupancy
      and related
                    
                    
                    1,035
                    
                    
                    
                    1,171
                    
                    
                    
                    (136
                    )
                    
                    
                    -12%Marketing,
      travel and entertainment
                    
                    
                    802
                    
                    
                    
                    1,215
                    
                    
                    
                    (413
                    )
                    
                    
                    -34%Professional
      fees (including consulting)
                    
                    
                    1,550
                    
                    
                    
                    2,389
                    
                    
                    
                    (839
                    )
                    
                    
                    -35%General
      and other
                    
                    
                    1,651
                    
                    
                    
                    1,597
                    
                    
                    
                    54
                    
                    
                    
                    3%Stock-based
      compensation
                    
                    
                    1,296
                    
                    
                    
                    2,614
                    
                    
                    
                    (1,318
                    )
                    
                    
                    -50%Transitional
      rebuilding and remediation
                    
                    
                    -
                    
                    
                    
                    148
                    
                    
                    
                    (148
                    )
                    
                    
                    -100%Transitional
      employment costs
                    
                    
                    -
                    
                    
                    
                    110
                    
                    
                    
                    (110
                    )
                    
                    
                    -100%Euro
      Millennium costs
                    
                    
                    -
                    
                    
                    
                    2,220
                    
                    
                    
                    (2,220
                    )
                    
                    
                    -100%Total
      SG&A
                    
                    $
                    14,428
                    
                    
                    $
                    20,396
                    
                    
                    $
                    (5,968
                    )
                    
                    
                    -29%Percent
      of total revenue
                    
                    
                    56%
                    
                    
                    
                    65%




Compensation
and Related




The
decrease in compensation and related costs included in SG&A for the three
months ended March 31, 2009 compared to the same
period in 2008was primarily due to costs reductions associated with the
discontinuation of the Fusion OMS product of $0.5 million and staff
reduction.  We made further staff reductions in the second quarter of
2009, which are expected to reduce annual compensation costs by more than $2
million. These decreases were offset in part by new compensation costs of $0.1
million associated with our FIXCITY subsidiary and $0.7 million related to the
inclusion of Euro Millennium costs in operations.




Occupancy
and Related




Occupancy
and related costs decreased $0.1 million for the three months ended March 31,
2009 compared to the same period in 2008 primarily due to a decrease in office
operating costs including utilities.  In April 2009, we ceased using a
portion of the office space in our New York headquarters and agreed on terms for
a sublease.  As a result, in the second quarter of 2009 we will be
recording a restructuring charge of $0.7 million reflecting the fair value of
the remaining rent payments for the office space, net of expected sublease
income, plus real estate commissions, and write-offs of property and
equipment.  We expect our occupancy and related costs to decrease by
$0.4 million per year as a result of this agreement.




Marketing,
Travel and Entertainment




The
decrease in marketing, travel and entertainment expenses for the three months
ended March 31, 2009 compared to the same period in 2008 was primarily due to a
decrease in general corporate travel.  Corporate travel related
expenses decreased $0.5 million to $0.3 million for the three months ended March
31, 2009 compared to $0.8 million for the same period in
2008.  Marketing costs increased slightly to $0.5 million in 2009
compared to $0.4 million in 2008 as a result of our product promotion
campaigns.




Professional
Fees (including consulting)




The
decrease in professional fees incurred for the three months ended March 31, 2009
compared to the same period in 2008 was primarily due to a decrease in
consulting costs.  Consulting costs decreased $1.1 million to $0.8
million for the three months ended March 31, 2009 compared to $1.9 million for
the same period in 2008.  Legal and accounting fees increased slightly
to $0.7 million for the three months ended March 31, 2009 as compared to $0.5
million in 2008 primarily due to legal costs incurred in connection with
ensuring ongoing compliance of Euro Millennium with FSA
regulations.




General
and Other




General
and other expenses were comparable at $1.7 million for the three months ended
March 31, 2009 as compared to $1.6 million for the same period of
2008.


Page
23




Stock-based
Compensation




Stock-based
compensation included in SG&A decreased during the three months ended March
31, 2009 compared to the same period in 2008 primarily due to the normalization
of the vesting periods related to stock options and restricted stock
units.  During the fourth quarter of 2007 significant share-based
awards were granted following the adoption of the 2007 Omnibus Equity
Compensation Plan.  Under the plan, awards normally vest over four
years.  However, the first vesting period for the initial awards was
approximately five months, resulting in greater than normal expense during the
fourth quarter of 2007 and first quarter of 2008.  Stock-compensation
expense (including the amount recorded in cost of revenue) is expected to be
approximately $1.5 million per quarter throughout 2009.  Stock-based
compensation amounts may vary, however, depending on the fair value of
performance awards when the applicable criteria are established, whether such
performance awards actually vest and whether additional awards are
granted.




Euro Millennium
Costs




During
the three months ended March 31, 2008, we incurred costs of $2.2 million related
to Euro Millennium. These costs include compensation and related costs,
consulting, marketing and travel related costs.  Due to the recent
growth in matched volumes and revenues, we determined that, effective January 1,
2009, Euro Millennium was no longer in its introductory phase and we now report
the results of this initiative within the Transaction Services Division, with
specific costs included in transaction cost of revenue and the various SG&A
categories detailed above.




Other
Operating Expenses




Other
operating expenses consist of the following:




ThreeMonthsEnded
                      March31,
                    
                    
                    Increase(Decrease)(in thousands, except
      percentages)
                    
                    2009
                    
                    
                    2008
                    
                    
                    $
                    
                    
                    
                    %SEC
      investigation, restatement and other related expenses
                    
                    $
                    (634
                    )
                    
                    $
                    137
                    
                    
                    $
                    (771
                    )
                    
                    
                    -563%Depreciation
      and amortization
                    
                    
                    416
                    
                    
                    
                    447
                    
                    
                    
                    (31
                    )
                    
                    
                    -7%Restructuring
      charge
                    
                    
                    -
                    
                    
                    
                    (158
                    )
                    
                    
                    158
                    
                    
                    
                    -100%




SEC
Investigation, Restatement and Other Related Expenses




Since
2005, we have 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, together with the NYFIX Millennium SEC inquiry,
related class action litigation and related financial restatement. These costs
include expenses for outside counsel, contract attorneys and forensic
accountants, other consultants and the cost of re-auditing previously issued
financial statements following the resignation of our prior independent
registered public accounting firm.  These costs do not include any
portion of time that our employees have dedicated to these matters.




In March
2009, we received $0.7 million reimbursement proceeds from one of our insurance
carriers under our previous Directors and Officers insurance policy for fees
incurred in defense of the SEC investigation into our historical stock option
activity as well as related litigation. These proceeds were in addition to the
$10.1 million received in 2008. The reimbursement proceeds are reflected as a
reduction to SEC investigation, restatement and other related expenses as the
amount recovered was previously expensed in this line item.




Depreciation
and Amortization




The
increase in the portion of depreciation and amortization included in SG&A
for the three months ended March 31, 2009 was due to increased general overhead
capital expenditures during 2008.




Restructuring
Charge




The
restructuring charge in the three months ended March 31, 2008 reflects
employment costs of $0.3 million related to discontinuance of our Fusion OMS
product in the fourth quarter of 2007 and the continuing transition of our
clients to other platforms, offset by a $0.5 million reversal of amounts
previously recorded as restructuring costs as a result of the termination of our
lease and corresponding sublease of office space previously occupied in
Stamford.




In April
2009, we ceased using a portion of the office space in our New York
headquarters, and agreed on terms for a sublease.  As a result, in the
second quarter of 2009 we will be recording a restructuring charge of $0.7
million reflecting the fair value of the remaining rent payments for the office
space, net of expected sublease income, plus real estate commissions, and
write-offs of property and equipment.


Page
24




Other
Income (Expense)




Other
income (expense) items are as follows:




ThreeMonthsEnded
              March31,
            
            
            Decrease(in
      thousands)
            
            2009
            
            
            2008
            
            
            $Interest
      expense
            
            $
            (199
            )
            
            $
            (211
            )
            
            $
            (12
            )Investment
      income
            
            
            89
            
            
            
            546
            
            
            
            (457
            )




Interest
Expense




Interest
expense was comparable for the three months ended March 31, 2009 and the same
period in 2008, representing interest on the two convertible notes totaling $10
million and capital lease obligations outstanding.




Investment
Income




The
decrease in investment income for the three months ended March 31, 2009 compared
to the same period in 2008 reflects lower average cash balances invested and
lower interest rates during the period.




Income
Tax Provision




The
income tax provision for the three months ended March 31, 2008 was solely
attributable to the impact of deducting goodwill related to the NYFIX Millennium
acquisition in our tax filings prior to the impairment of this asset in the
fourth quarter of 2008. All other tax effects during the three months ended
March 31, 2009 and 2008 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




We derive
our liquidity and capital resources primarily from operations, issuances of
stock and from long-term borrowings.  At March 31, 2009, we had cash
and cash equivalents of $51.7 million, a reduction from our balance at December
31, 2008, principally due to the payment of accrued balances, including
compensation.  We believe that resources available at March 31, 2009
will be sufficient to finance our current investing and operational needs, as
well as the net capital requirements of our broker-dealer subsidiaries for at
least the next twelve months, including with respect to repayment of our
convertible notes aggregating $10.0 million due on December 30,
2009.  In light of current credit market conditions, however, there
can be no assurance that, should we need to obtain additional financing for any
reason, such financing will be available to us on commercially acceptable terms
or at all.




At March
31, 2009, $39.0 million of our total cash and cash equivalents were held in our
U.S. and U.K. registered broker dealer subsidiaries.




AsofMarch 31,
                    
                    
                    December 31,(inthousands)
                    
                    2009
                    
                    
                    2008Cash
      and cash equivalents
                    
                    $
                    51,673
                    
                    
                    $
                    55,966




Three Months Ended March 31,(in thousands)
                    
                    2009
                    
                    
                    2008Net
      cash used in operating activities
                    
                    $
                    (1,779
                    )
                    
                    $
                    (9,001
                    )Net
      cash used in investing activities
                    
                    
                    (2,043
                    )
                    
                    
                    (8,574
                    )Net
      cash used in financing activities
                    
                    
                    (497
                    )
                    
                    
                    (453
                    )Effect
      of exchange rate changes on cash
                    
                    
                    26
                    
                    
                    
                    13Net
      decrease in cash and cash equivalents
                    
                    $
                    (4,293
                    )
                    
                    $
                    (18,015
                    )


Page
25




Operating
Activities




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




Three Months Ended March 31,(in thousands)
                    
                    2009
                    
                    
                    2008Net
      loss adjusted for non-cash items
                    
                    $
                    2,221
                    
                    
                    $
                    1,748Effect
      of changes in working capital and other operating accounts
                    
                    
                    (4,000
                    )
                    
                    
                    (10,749
                    )Net
      cash used in operating activities
                    
                    $
                    (1,779
                    )
                    
                    $
                    (9,001
                    )




Changes
in working capital and other operating accounts affected cash flows during the
periods primarily as a result of a decrease in the level of accounts payable and
accrued expenses between periods, primarily from the net effect of the payment
of accrued balances at December 31, 2008, including compensation, as well as
increases in net clearing assets.




Broker-Dealer
Operations




Clearing
assets reflect amounts on hand to support our ability to settle the transactions
of NYFIX Millennium, NYFIX Securities and NYFIX International, such as
receivables from clearing organizations and firms and deposits with clearing
organizations and 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 March 31,
2009, the net balance for clearing assets and clearing liabilities was a
receivable of $2.6 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 March 31, 2009, clearing assets
and liabilities include stock borrows and loans of $768.2 million.




NYFIX
Millennium and NYFIX Securities are U.S. registered broker-dealers required to
maintain levels of regulatory net capital under Rule 15c3-1 of the Exchange
Act.  NYFIX Securities’ DTCC membership, used to self-clear securities
transactions, requires it to maintain $10 million in excess of its required net
capital.  NYFIX International and FIXCITY are registered firms with
the FSA, required to maintain the greater of the base capital resources
requirement of €730,000 and €50,000, respectively, or the variable capital
resources requirement, which is made up of credit risk, market risk and fixed
overhead (equal to three months average expenditures)
requirements.  At March 31, 2009, the aggregate regulatory net
capital/resources of our regulated subsidiaries in the U.S. and U.K. were $36.4
million, $23.2 million in excess of our aggregate requirement of $13.2 million
(including the $10 million excess required by DTCC).




When Euro
Millennium initiated trading activities in March 2008, the minimum financial
resources requirement for NYFIX International increased to approximately
€730,000.  To satisfy this requirement, $1.5 million of subordinated
debt issued to NYFIX, Inc. by NYFIX International was converted into equity
capital in March 2008.  In addition, in March and October 2008 and
February 2009, we infused an additional $1.5 million, $1.5 million and $3.0
million, respectively, of equity capital into NYFIX International to provide
further regulatory capital resources to meet daily regulatory requirements and
to allow for further business expansion.




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 three months ended March 31, 2009 was $2.0
million.  This consisted of capital expenditures for property and
equipment, principally for data center equipment and software, of $0.8 million,
and capitalized software costs of $1.2 million.




Net cash
used in investing activities for the three months ended March 31, 2008 was $8.6
million.  This consisted of capital expenditures for property and
equipment, principally for data center equipment and software, of $2.5 million,
capitalized software costs of $1.5 million and $4.7 million in payments to the former
minority owners of NYFIX Millennium to acquire their
interests.


Page
26




Financing
Activities




Our
financing activities primarily consist of long-term debt issued for working
capital purposes, capital lease obligations used for datacenter equipment and
software purchases, and issuances of capital stock for general corporate
purposes and business development activities. At March 31, 2009, we had
short-term debt and capital lease obligations outstanding aggregating $12.5
million (including long term portions).




At March
31, 2009, we had outstanding two convertible notes aggregating $10.0 million
with substantially similar terms to the same lender.  The convertible
notes incur interest at a rate of 5% per year and are due in December
2009.  At March 31, 2009, the price at which the lender could convert
the convertible notes into shares of our common stock was $5.62 per
share.




Net cash
used in financing activities for the three months ended March 31, 2009 and 2008
was $0.5 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.




See Note
9 to the Condensed Consolidated Financial Statements included in this Quarterly
Report on Form 10-Q and Note 9 to our Consolidated Financial Statements in our
2008 Form 10-K 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, as defined under SEC rules, other
than those related to the contingent obligations under the convertible notes as
described above and under the terms of our Series B Preferred Stock as described
in our 2008 Form 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, 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 2008
10-K, we identified and disclosed critical accounting policies, which included
revenue recognition, allowance for doubtful accounts, property and equipment,
acquisitions and goodwill, capitalized software 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, 2008.


Page
27


Item
3. Quantitative and Qualitative Disclosures About Market Risk




There
have been no material changes in our exposure to market risk during the three
months ended March 31, 2009, from those described in Part II, Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, included in our
2008 Form 10-K.




Item
4. Controls and Procedures




Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures, as such term is defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as of March 31, 2009. Management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.  Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that these disclosure controls and
procedures were effective at the reasonable assurance level as of March 31,
2009.


Page
28





PART
II — OTHER INFORMATION




Item
1. Legal Proceedings




Except as
described below, there have been no material changes during the three months
ended March 31, 2009, with respect to the legal proceedings described in Part I,
Item 3, Legal Proceedings, included in our 2008 Form 10-K.




We are
named as a nominal defendant in Federal and state shareholder derivative actions
against us and several of our current and former officers and directors,
asserting, among other things, claims under the federal securities laws,
corporate waste, fraud and breach of fiduciary duty against all the individual
defendants based on claimed backdating of stock option grants to these
individuals between 1997 and 2003. In addition, certain stockholders made formal
inquiries regarding alleged violations of Section 16(b) of the Exchange Act
based on the same facts alleged in these actions.




On
February 25, 2009, we entered into a global settlement agreement relating to the
derivative litigation matters for historical stock option granting
practices.  The agreement requires that we adopt certain corporate
governance practices and provides for a payment of $1.3 million in legal fees to
plaintiffs’ counsel that will be paid directly by our insurance
carrier.  The motion received preliminary approval on April 14, 2009,
and is pending final judgment.  There can be no assurance that the
court will approve the settlement.  If the court approves the
settlement, the court’s decision may be subject to appeal.




Item
1A. Risk Factors




Except as
described below, there have been no material changes during the three months
ended March 31, 2009 with respect to the Risk Factors described in Part I, Item
1A, Risk Factors, included in our 2008 Form 10-K.




We
are the subject of several legal and administrative proceedings relating to our
granting of stock options to certain of our employees, officers and directors.
We are unable to predict the outcome of these proceedings and can give no
assurances that the outcome of these proceedings will not have a material impact
on us or that other proceedings will not be initiated.




We are
named as a nominal defendant in Federal and state shareholder derivative actions
against us and several of our current and former officers and directors,
asserting, among other things, claims under the federal securities laws,
corporate waste, fraud and breach of fiduciary duty against all the individual
defendants based on claimed backdating of stock option grants to these
individuals between 1997 and 2003. In addition, certain stockholders made formal
inquiries regarding alleged violations of Section 16(b) of the Exchange Act
based on the same facts alleged in these actions.




On
February 25, 2009, we entered into a global settlement agreement relating to the
derivative litigation matters for historical stock option granting
practices.  The agreement requires that we adopt certain corporate
governance practices and provides for a payment of $1.3 million in legal fees to
plaintiffs’ counsel that will be paid directly by our insurance
carrier.  The motion received preliminary approval on April 14, 2009,
and is pending final judgment.  There can be no assurance that the
court will approve the settlement.  If the court approves the
settlement, the court’s decision may be subject to appeal.




The
securities brokerage industry is subject to extensive government and other
regulation. If our U.S. or U.K. registered broker dealers fail to comply with
these regulations, they may be subject to disciplinary or other action by
regulatory organizations. Changes in such regulations could increase our
compliance costs.




The FSA,
along with other European regulators, is currently conducting an extensive
review of the impact that MiFID has had on European markets. In connection with
this review, the FSA has interpreted a particular provision of MiFID in a way
that will require modifications to Euro Millennium’s current functionality. Such
modifications will result in additional development costs for us.




Despite
the fact that we believe that we are currently operating Euro Millennium in a
manner that is fully compliant with MiFID, a position supported by external
legal counsel opinions obtained at the request of the FSA, in consultation with
the FSA, we modified Euro Millennium’s functionality to only match at the
pre-determined reference point of the mid-point between bid and offer. We expect
to make further modifications throughout 2009 to provide for matching at other
pre-determined reference points (e.g. bid and offer). These modifications are
not expected to have a material impact on Euro Millennium’s
service.


Page
29




Item
2. Unregistered Sales of Equity Securities and Use of Proceeds




Not
applicable.




Item
3. Defaults Upon Senior Securities




Not
applicable.




Item
4. Submission of Matters to a Vote of Security Holders




Not
applicable.




Item
5. Other Information




On May 7,
2009, in connection with Mr. Robert Moitoso’s recent promotion to executive
officer, we executed a second amendment to Mr. Moitoso’s Employment
Agreement dated January 3, 2007, to provide Mr. Moitoso the right to terminate
his employment for Good Reason in certain circumstances (as that term is
defined in the amended employment agreement filed hereto as Exhibit 10.1),
consistent with our other executive officers.


Page
30





Item
6.    Exhibits




a.)    Exhibits




Exhibit
                No.
              
              Description of Exhibit*10.1
              
              Second
      Amendment to the Employment Agreement between the Registrant and Mr.
      Robert Moitoso, dated May 7, 2009.*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
31





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.May 11, 2009
                    /s/ P. Howard EdelsteinP. Howard EdelsteinPresident and
                      Chief Executive Officer





May 11, 2009
                  /s/ Steven R. VigliottiSteven R. VigliottiChief Financial Officer


Page
32