**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACTOF 1934

**FORTHE QUARTERLY PERIOD ENDED JUNE 30, 2007**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACTOF 1934

**FORTHE TRANSITION PERIOD FROM                TO**

**CommissionFile No: 000-51103**

**GFI GROUP INC.**

(Exact name of registrantas specified in its charter)
| **Delaware**                                                                 |   | **80-0006224**       |
|------------------------------------------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of                                             |   | (I.R.S. Employer     |
| incorporation or  organization)                                              |   | Identification  No.) |
|                                                                         |   |                 |
| **100  Wall Street, New York, NY**                                           |   | **10005**            |
| (Address of  principal executive offices)                                    |   | (Zip Code)           |
|                                                                         |   |                 |
| Registrant’s  telephone number, including area code: **(212) 968-4100** |

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirements for thepast 90 days.    YES x   NO o

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

Large acceleratedfiler x             Acceleratedfiler o             Non-acceleratedfiler o

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

Thenumber of shares of registrant’s common stock outstanding on July 31, 2007 was29,277,732.

 

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**Table of Contents**
| **Part I—Financial  Information** |
|---------------------------------------------|
| Item 1.                                     |   | Financial  Statements |   |   |
|                                        |   | Condensed Consolidated Statements of Financial  Condition as of June 30, 2007 (unaudited) and December 31, 2006 |   |   4 |
|                                        |   | Condensed Consolidated Statements of Income for the  three and six months ended June 30, 2007 (unaudited) and June 30, 2006  (unaudited) |   |   5 |
|                                        |   | Condensed Consolidated Statements of Comprehensive  Income for the three and six months ended June 30, 2007 (unaudited) and June  30, 2006 (unaudited) |   |   6 |
|                                        |   | Condensed Consolidated Statements of Cash Flows for  the six months ended June 30, 2007 (unaudited) and June 30, 2006 (unaudited) |   |   7 |
|                                        |   | Notes to Condensed Consolidated Financial Statements  (unaudited) |   |   8 |
| Item 2.                                     |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |   | 22 |
| Item 3.                                     |   | Quantitative and Qualitative Disclosures About Market  Risk |   | 38 |
| Item 4.                                     |   | Controls and Procedures |   | 39 |
| **Part II—Other  Information**    |
| Item  1.                                    |   | Legal  Proceedings |   | 39 |
| Item 1A.                                    |   | Risk Factors |   | 39 |
| Item 2.                                     |   | Unregistered Sales of Equity Securities and Use of  Proceeds |   | 40 |
| Item 4.                                     |   | Submission of Matters to a Vote of Security Holders |   | 40 |
| Item 6.                                     |   | Exhibits |   | 40 |

 

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**AvailableInformation**

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

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

Our Internet website and the information containedtherein or connected thereto are not incorporated into this Quarterly Report onForm 10-Q.

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**PART I—FINANCIALINFORMATION**

**ITEM1.**                    FINANCIALSTATEMENTS

**GFIGROUP INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**

**(Inthousands, except share and per share amounts)**
| ** **                                                                                                                                                                        | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                        | ** ** | **(Unaudited)**         | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                        | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Cash and cash  equivalents                                                                                                                                                        |       | $                       | 187,436    |                        | $          | 181,484 |   |
| Deposits with  clearing organizations                                                                                                                                             |       | 8,106                   |       | 7,973                       |       |
| Accrued  commissions receivable, net of allowance for doubtful accounts of $4,078 and  $3,547 at June 30, 2007 and December 31, 2006, respectively                                |       | 158,195                 |       | 120,731                     |       |
| Receivables from  brokers, dealers and clearing organizations                                                                                                                     |       | 408,332                 |       | 174,693                     |       |
| Property,  equipment and leasehold improvements, net of depreciation and amortization of  $69,447 and $61,742 at June 30, 2007 and December 31, 2006, respectively                |       | 45,962                  |       | 41,396                      |       |
| Goodwill                                                                                                                                                                          |       | 93,709                  |       | 91,891                      |       |
| Intangible  assets, net                                                                                                                                                           |       | 13,473                  |       | 14,833                      |       |
| Other assets                                                                                                                                                                      |       | 69,678                  |       | 66,608                      |       |
| TOTAL ASSETS                                                                                                                                                                      |       | $                       | 984,891    |                        | $          | 699,609 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                    | ** ** | ** **              | ** ** | ** **                  | ** ** |
| LIABILITIES                                                                                                                                                                       |       |                    |       |                        |       |
| Accrued  compensation                                                                                                                                                             |       | $                       | 149,442    |                        | $          | 128,047 |   |
| Accounts payable  and accrued expense                                                                                                                                             |       | 36,609                  |       | 31,336                      |       |
| Payables to  brokers, dealers and clearing organizations                                                                                                                          |       | 317,981                 |       | 84,995                      |       |
| Notes payable,  net                                                                                                                                                               |       | 49,179                  |       | 90,253                      |       |
| Other  liabilities                                                                                                                                                                |       | 38,539                  |       | 34,509                      |       |
| Total Liabilities                                                                                                                                                                 |       | $                       | 591,750    |                        | $          | 369,140 |   |
| Commitments and  contingencies                                                                                                                                                    |       |                    |       |                        |       |
| STOCKHOLDERS’ EQUITY                                                                                                                                                         |       |                    |       |                        |       |
| Preferred Stock,  $0.01 par value; 5,000,000 shares authorized and none outstanding at June 30,  2007 and December 31, 2006                                                  |       | —                  |       | —                      |       |
| Common stock,  $0.01 par value; 100,000,000 shares authorized; 29,261,495 and  28,698,505 shares outstanding at June 30, 2007 and December 31,  2006, respectively |       | 293                     |       | 287                         |       |
| Additional paid  in capital                                                                                                                                                       |       | 247,761                 |       | 224,442                     |       |
| Retained  earnings                                                                                                                                                                |       | 145,173                 |       | 105,868                     |       |
| Accumulated  other comprehensive loss                                                                                                                                             |       | (86                     | )          | (128                        | )          |
| Total  Stockholders’ Equity                                                                                                                                                  |       | 393,141                 |       | 330,469                     |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                   |       | $                       | 984,891    |                        | $          | 699,609 |   |

 

See notes to condensed consolidated financialstatements

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**GFIGROUP INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)**

**(Inthousands, except share and per share amounts)**
| ** **                               | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| REVENUES:                                |       |                                                |       |                                              |       |   |   |   |   |
| Brokerage revenues:                      |       |                                                |       |                                              |       |   |   |   |   |
| Agency commissions                       |       | $                                                   | 179,466    |                                              | $          | 130,134 |   | $ | 363,991 |   | $ | 267,044 |   |
| Principal transactions                   |       | 42,044                                              |       | 41,792                                            |       | 90,421 |   | 82,852 |   |
| Total brokerage revenues                 |       | 221,510                                             |       | 171,926                                           |       | 454,412 |   | 349,896 |   |
| Analytics and market data                |       | 4,491                                               |       | 4,271                                             |       | 9,817 |   | 9,465 |   |
| Contract revenue                         |       | 204                                                 |       | 5,881                                             |       | 204 |   | 5,881 |   |
| Interest income                          |       | 2,297                                               |       | 2,395                                             |       | 4,399 |   | 4,628 |   |
| Other income (loss)                      |       | (380                                                | )          | 3,093                                             |       | (393 | ) | 3,284 |   |
| Total Revenues                           |       | 228,122                                             |       | 187,566                                           |       | 468,439 |   | 373,154 |   |
| EXPENSES:                                |       |                                                |       |                                              |       |   |   |   |   |
| Compensation and employee benefits       |       | 143,474                                             |       | 113,701                                           |       | 294,982 |   | 230,546 |   |
| Communications and market data           |       | 11,299                                              |       | 9,303                                             |       | 21,755 |   | 16,956 |   |
| Travel and promotion                     |       | 10,170                                              |       | 8,549                                             |       | 19,006 |   | 16,080 |   |
| Rent and occupancy                       |       | 5,529                                               |       | 4,841                                             |       | 11,090 |   | 10,454 |   |
| Depreciation and amortization            |       | 5,720                                               |       | 4,048                                             |       | 10,947 |   | 7,884 |   |
| Professional fees                        |       | 4,332                                               |       | 5,320                                             |       | 7,901 |   | 9,364 |   |
| Clearing fees                            |       | 6,940                                               |       | 6,798                                             |       | 14,469 |   | 12,275 |   |
| Interest                                 |       | 2,002                                               |       | 1,772                                             |       | 3,851 |   | 3,524 |   |
| Other expenses                           |       | 6,909                                               |       | 3,843                                             |       | 11,558 |   | 7,399 |   |
| Contract costs                           |       | 127                                                 |       | 5,180                                             |       | 127 |   | 5,180 |   |
| Lease termination costs to affiliate     |       | —                                              |       | (92                                               | )          | — |   | (92 | ) |
| Total Expenses                           |       | 196,502                                             |       | 163,263                                           |       | 395,686 |   | 319,570 |   |
| INCOME BEFORE PROVISION FOR INCOME TAXES |       | 31,620                                              |       | 24,303                                            |       | 72,753 |   | 53,584 |   |
| PROVISION FOR INCOME TAXES               |       | 12,553                                              |       | 10,207                                            |       | 29,006 |   | 22,505 |   |
| NET INCOME                               |       | $                                                   | 19,067     |                                              | $          | 14,096 |   | $ | 43,747 |   | $ | 31,079 |   |
| EARNINGS PER SHARE                       |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                    |       | $                                                   | 0.66       |                                              | $          | 0.50 |   | $ | 1.51 |   | $ | 1.10 |   |
| Diluted                                  |       | $                                                   | 0.64       |                                              | $          | 0.48 |   | $ | 1.48 |   | $ | 1.07 |   |
| WEIGHTED AVERAGE SHARES OUSTANDING:      |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                    |       | 29,079,616                                          |       | 28,258,827                                        |       | 28,937,775 |   | 28,150,812 |   |
| Diluted                                  |       | 29,759,130                                          |       | 29,130,663                                        |       | 29,644,189 |   | 29,044,558 |   |

 

See notes to condensed consolidated financialstatements

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**GFI GROUP INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)(In thousands)**
| ** **                                                            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                            | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| NET INCOME                                                            |       | $                                               | 19,067     |                                          | $          | 14,096 |   | $ | 43,747 |   | $ | 31,079 |   |
| OTHER COMPREHENSIVE  INCOME (LOSS):                                   |       |                                            |       |                                          |       |   |   |   |   |
| Unrealized loss  on foreign exchange derivative contracts, net of tax |       | —                                          |       | (120                                          | )          | — |   | (514 | ) |
| Foreign currency  translation adjustment, net of tax                  |       | 78                                              |       | 92                                            |       | 42 |   | 155 |   |
| COMPREHENSIVE INCOME                                                  |       | $                                               | 19,145     |                                          | $          | 14,068 |   | $ | 43,789 |   | $ | 30,720 |   |

 

See notes to condensed consolidated financialstatements

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**GFI GROUP INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(In thousands)**
| ** **                                                                                   | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                       |       |                                              |       |   |   |
| Net income                                                                                   |       | $                                                 | 43,747     |   | $ | 31,079 |   |
| Adjustments to  reconcile net income to net cash provided by/(used in) operating activities: |       |                                              |       |   |   |
| Depreciation and  amortization                                                               |       | 10,947                                            |       | 7,884 |   |
| Amortization of  loan fees                                                                   |       | 112                                               |       | 128 |   |
| Provision for  allowance for doubtful accounts                                               |       | 1,245                                             |       | 433 |   |
| Deferred  compensation                                                                       |       | 9,560                                             |       | 5,322 |   |
| (Benefit from)  provision for deferred taxes                                                 |       | 445                                               |       | (1,944 | ) |
| Loss on foreign  exchange for notes payable                                                  |       | —                                            |       | 2,763 |   |
| Loss (gain) on  foreign exchange derivative contracts                                        |       | 1,776                                             |       | (92 | ) |
| Increase in  operating assets:                                                               |       |                                              |       |   |   |
| Deposits with  clearing organizations                                                        |       | (133                                              | )          | (90 | ) |
| Accrued  commissions receivable                                                              |       | (38,144                                           | )          | (29,419 | ) |
| Receivables from  brokers, dealers and clearing organizations                                |       | (233,639                                          | )          | (161,459 | ) |
| Other assets                                                                                 |       | (2,677                                            | )          | (4,371 | ) |
| Increase  (decrease) in operating liabilities:                                               |       |                                              |       |   |   |
| Accrued  compensation                                                                        |       | 21,395                                            |       | 30,149 |   |
| Accounts payable  and accrued expenses                                                       |       | 5,211                                             |       | 5,247 |   |
| Payables to  brokers, dealers and clearing organizations                                     |       | 232,986                                           |       | 115,921 |   |
| Other  liabilities                                                                           |       | (4,338                                            | )          | (1,918 | ) |
| Cash paid to  affiliate for lease termination                                                |       | —                                            |       | (462 | ) |
| Cash provided  by/(used in) operating activities                                             |       | 48,493                                            |       | (829 | ) |
|                                                                                         |       |                                              |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                       |       |                                              |       |   |   |
| Net cash used  for business acquisitions                                                     |       | (2,754                                            | )          | (117 | ) |
| Purchase of  property, equipment and leasehold improvements                                  |       | (12,444                                           | )          | (10,267 | ) |
| Payments on  foreign exchange derivative contracts                                           |       | (1,223                                            | )          | (3,045 | ) |
| Cash used in  investing activities                                                           |       | (16,421                                           | )          | (13,429 | ) |
|                                                                                         |       |                                              |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                       |       |                                              |       |   |   |
| Repayment of  notes payable                                                                  |       | (56,186                                           | )          | (40,000 | ) |
| Proceeds from  notes payable                                                                 |       | 15,000                                            |       | 25,000 |   |
| Payment of loan  fees                                                                        |       | —                                            |       | (575 | ) |
| Proceeds from  exercise of stock options                                                     |       | 6,269                                             |       | 4,841 |   |
| Cash paid for  taxes on vested restricted stock units                                        |       | (1,978                                            | )          | (1,632 | ) |
| Tax benefit  related to share-based compensation                                             |       | 10,733                                            |       | 7,435 |   |
| Bank overdraft                                                                               |       | —                                            |       | 6,389 |   |
| Cash (used  in)/provided by financing activities                                             |       | (26,162                                           | )          | 1,458 |   |
| Effects of  foreign currency translation adjustment                                          |       | 42                                                |       | 155 |   |
| INCREASE (DECREASE) IN  CASH AND CASH EQUIVALENTS                                            |       | 5,952                                             |       | (12,645 | ) |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                              |       | 181,484                                           |       | 144,148 |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                                    |       | $                                                 | 187,436    |   | $ | 131,503 |   |
|                                                                                         |       |                                              |       |   |   |
| SUPPLEMENTAL  DISLCOSURE:                                                                    |       |                                              |       |   |   |
| Interest paid                                                                                |       | $                                                 | 3,778      |   | $ | 3,559 |   |
| Income taxes paid, net of refunds                                                            |       | $                                                 | 21,836     |   | $ | 5,909 |   |

 

See notes to condensed consolidated financialstatements

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**GFI GROUP INC. ANDSUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands except share and per share amounts)**

**1.  ORGANIZATION AND BUSINESS**

The condensed consolidated financial statementsinclude the accounts of GFI Group Inc. and its subsidiaries (collectivelythe “Company”). The Company, through its sole wholly-owned subsidiary GFInetInc. (“GFInet”), provides brokerage services, market data and analyticssoftware products to institutional clients in markets for a range of credit,financial, equity and commodity instruments. The Company complements itsbrokerage capabilities with value-added services, such as data and analyticsproducts for decision support, which it licenses to the financial servicesindustry and other corporations. The Company’s principal operating subsidiariesinclude: GFI Securities LLC, GFI Brokers LLC, GFI Group LLC, GFI SecuritiesLimited, GFI Brokers Limited, GFI (HK) Securities LLC, GFI (HK) Brokers Ltd.,GFI Group PTE Ltd., Amerex Brokers LLC, GFI Korea Money Brokerage Limited andFenics Limited and subsidiaries (“Fenics”). As of June 30, 2007, JerseyPartners, Inc. (“JPI”)  ownsapproximately 43% of the Company’s outstanding shares of common stock.  The Company’s chief executive officer, MichaelGooch, is the controlling shareholder of JPI.

**2.****   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

***Basis of Presentation****—*The Company’s condensed consolidatedfinancial statements are prepared in accordance with accounting principlesgenerally accepted in the United States of America, which require management tomake estimates and assumptions that affect the reported amounts of assets andliabilities, revenues and expenses, and the disclosure of contingencies in theconsolidated financial statements. Management believes that the estimatesutilized in the preparation of the consolidated financial statements arereasonable and prudent. Actual results could differ materially from theseestimates.

All material intercompany transactions and balanceshave been eliminated.

The condensed consolidated financial statements shouldbe read in conjunction with the Company’s consolidated financial statements andnotes thereto included in the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2006 (the “2006 Form 10-K”).The condensed consolidated financial statements reflect all adjustments thatare, in the opinion of management, necessary for the fair statement of theresults for the interim period. The results of operations for interim periodsare not necessarily indicative of results for the entire year.

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

***Agency Commissions****—*In agency transactions, the Companycharges commissions for executing transactions between buyers and sellers.Agency commissions revenues and related expenses are recognized on a trade datebasis.

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***Principal Transactions****—*Principal transactions revenue isprimarily derived from matched principal transactions. In matched principaltransactions, the Company simultaneously agrees to buy instruments from onecustomer and sell them to another customer. A limited number of brokerage desksare allowed to enter into unmatched principal transactions in the ordinarycourse of business for the purpose of facilitating clients’ execution needs fortransactions initiated by such clients, adding liquidity to a market orattracting additional order flow. These unmatched positions are intended to beheld short term. The Company earns revenue from principal transactions on thespread between the buy and sell price of the security that is brokered.

Additionally, from time to time, under thecircumstances described above, if a transaction fails to settle on a timelybasis or if a customer defaults on its obligations, the Company may holdsecurities positions overnight. These positions are marked to market on a dailybasis. Principal transactions revenues and related expenses are recognized on atrade date basis.

***Analytics and Market Data****—*Analytics revenue consists mostly of feesfor licenses of software products as well as maintenance, installation,customer training and technical support of those products. Market data revenueprimarily consists of subscription fees and fees from customized one-timesales. Analytics revenue is recognized when all of the following criteria aremet: persuasive evidence of an arrangement exists, delivery of the product hasoccurred and no significant implementation obligations remain, the fee is fixedand determinable, and collectibility is probable. Fees for future updates ofsoftware products are considered separate arrangements and related revenues arerecognized when the customer acknowledges participation in the update anddelivery occurs. Market data revenue from subscription fees is recognized overthe term of the subscription period, which is generally two years. Market datarevenue from customized one-time sales is recognized upon delivery of the data.

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

***Goodwill and Intangible Assets****—*Goodwill represents the excess of thepurchase price allocation over the fair value of tangible and identifiableintangible net assets acquired. In accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 142,*Goodwill and Intangible Assets*, goodwill and intangible assets withindefinite lives are no longer amortized, but instead are tested for impairmentannually or more frequently if circumstances indicate impairment may haveoccurred. In the event the Company determines that the value of goodwill hasbecome impaired, it will incur a charge for the amount of impairment during thefiscal quarter in which such determination is made. The Company has selectedJanuary 1st as the date to perform the annual impairmenttest. Intangible assets with definite lives are amortized on a straight-line basisover their estimated useful lives.

***Derivative Financial Instruments****—*The Company uses foreign exchangederivative contracts to reduce the effects of fluctuations in certainreceivables and payables denominated in foreign currencies. During 2006, certainof these contracts were designated and qualified as foreign currency cash flowhedges under

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SFAS No. 133,*Accounting for Derivative Instruments and HedgingActivities*, as amended (“SFAS 133”). The Company reclassifiedgains and losses on the foreign exchange derivative contracts included inaccumulated other comprehensive loss into earnings at the time the hedgedtransactions were recognized. The Company measured effectiveness by assessingthe changes in the expected future cash flows of the hedged items. Theineffective portion of the hedges, if any, was included in other income. Therewas no portion of the derivative instruments’ gains or losses excluded from theassessment of effectiveness. As of and for the three and six months ended June30, 2007, the Company had no foreign exchange derivative contracts that weredesignated as foreign currency cash flow hedges. The Company records thesecontracts at fair value and all realized and unrealized gains and losses areincluded in other income in the Condensed Consolidated Statement of Income.

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

***Segment and Geographic Information****—*The Company’s only operating segmentconsists of its brokerage and analytic and market data operations. This segmentoperates across domestic and international markets. Substantially all of theCompany’s identifiable assets are in North America and Europe.

***Share-Based Compensation****—****The***Company’sshare-based compensation consists of stock options and restricted stock units(the “RSUs”). The Company adopted SFAS No. 123(R), *Share-Based Payment*(“SFAS 123(R)”) duringthe first quarter of 2006, using the modified prospective approach.SFAS 123(R) revised the fair value-based method of accounting forshare-based payment liabilities, forfeitures and modifications of stock-basedawards and clarified guidance in several areas, including measuring fair value,classifying an award as equity or as a liability and attributing compensationcost to service periods. Additionally, under SFAS 123(R), actual tax benefitsrecognized in excess of tax benefits previously established upon grant arereported as a financing cash flow, as opposed to operating cash flows.   In recent periods, the only share-basedcompensation issued by the Company has been RSUs.  The Company records the fair value of theRSUs at the date of grant as deferred compensation and amortizes it tocompensation expense over the vesting period of the grants.

***Recent AccountingPronouncements***

Effective January 1,2007, the Company adopted Financial Accounting Standards Board InterpretationNo. 48, *Accounting for Uncertainty in Income Taxes*(“FIN 48”), *an interpretation of SFAS No. 109*.  Upon adoption, the Company recognized a $4,442increase to the accrual for uncertain tax positions. This increase wasaccounted for as an adjustment to the beginning balance of retained earnings onthe Condensed Consolidated Statement of Financial Condition. After recognizingthe impact of the adoption of FIN 48, the total unrecognized tax benefits (netof the federal benefit on state issues) were approximately $7,727, all of whichcould affect the effective income tax rate in any future periods.

In a foreignjurisdiction, the Company is in discussion with tax authorities regardingwhether certain compensation expenses were deductible by the Company in prioryears.  A portion of the compensationpayment

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is held by a trustee andthe Company may request but not compel the trustee to use the money to offsetthe cost to the Company of the potential tax liability, if any, arising fromthe disallowance of the deduction.

The Company is subject toU.S. federal income tax, foreign income tax as well as state income tax in thestates in which we have significant business operations.  The Company has substantially concluded allU.S. federal income tax matters for years through 2004, state and local tax mattersthrough 2000 and foreign income tax matters through 2002.The Company recognizesinterest and penalties related to income tax matters in interest expense andother expense, respectively. As of June 30, 2007, there were no materialchanges to the accrual for uncertain tax positions.

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements* (“SFAS 157”).  SFAS 157 defines fair value, establishes aframework for measuring fair value and requires enhanced disclosures about fairvalue measurements.  SFAS 157 requirescompanies to disclose the fair value of its financial instruments according toa fair value hierarchy, as defined. Additionally, companies are required to provide enhanced disclosure forcertain financial instruments within the hierarchy, including a reconciliationof the beginning and ending balances separately for each major category ofassets and liabilities.  SFAS No. 157 iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007.  The Company iscurrently evaluating the impact of adopting SFAS No. 157 on its consolidatedfinancial statements.

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

**3.   RECEIVABLESFROM AND PAYABLES TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS**
| ** **                                                     | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Receivables from  brokers, dealers and clearing organizations: |       |                    |       |                        |       |
| Contract value of fails to deliver                             |       | $                       | 360,644    |                        | $          | 80,837 |   |
| Balance receivable from clearing organizations                 |       | 47,688                  |       | 93,856                      |       |
| Total                                                          |       | $                       | 408,332    |                        | $          | 174,693 |   |
|                                                           |       |                    |       |                        |       |
| Payables to  brokers, dealers and clearing organizations:      |       |                    |       |                        |       |
| Contract value of fails to receive                             |       | $                       | 296,930    |                        | $          | 72,394 |   |
| Payable to financial institutions                              |       | 11,966                  |       | 12,035                      |       |
| Balance payable to clearing organizations                      |       | 9,085                   |       | 566                         |       |
| Total                                                          |       | $                       | 317,981    |                        | $          | 84,995 |   |

 

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**4.   GOODWILL AND INTANGIBLE ASSET**

**Changes in the carrying amount of the Company’s goodwillfor the six months ended June 30, 2007 were as follows:**

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

 

**Asdisclosed in the Company’s Form 10-Q for the three-month period ended March 31,2007, on March 23, 2007, the Company acquired all of the outstanding shares ofCentury Chartering (UK) resulting in goodwill of $1,794 being recorded. Duringthe second quarter of 2007, goodwill increased by $24 due to additional directtransaction costs incurred related to this acquisition.**

The Company hadthe following intangible assets as of June 30, 2007 and December 31, 2006:
| ** **                     | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Gross intangible  assets       |       |                        |       |                            |       |
| Customer base/relationships    |       | $                           | 13,038     |                            | $          | 12,690 |   |
| Trade name                     |       | 4,114                       |       | 4,070                           |       |
| Core technology                |       | 3,230                       |       | 3,230                           |       |
| Covenants not to compete       |       | 2,345                       |       | 2,256                           |       |
| Favorable lease agreements     |       | 620                         |       | 620                             |       |
| Propriety knowledge            |       | 110                         |       | 110                             |       |
| Patent                         |       | 34                          |       | 34                              |       |
| Total gross  intangible assets |       | 23,491                      |       | 23,010                          |       |
| Accumulated amortization       |       | (10,018                     | )          | (8,177                          | )          |
| Net intangible assets          |       | $                           | 13,473     |                            | $          | 14,833 |   |

 

Amortization was $817 and $261 for the three monthsended June 30, 2007 and 2006, respectively and $1,841 and $622 for the sixmonths ended June 30, 2007 and 2006.

At June 30, 2007expected amortization expense for the definite lived intangible assets is asfollows:
| 2007 (remaining  six months) |   | $     | 1,491  |   |
|------------------------------|--------|-------|--------|--------|
| 2008                         |   | 2,698 |   |
| 2009                         |   | 2,639 |   |
| 2010                         |   | 2,590 |   |
| 2011                         |   | 2,383 |   |
| Total                        |   | $     | 11,801 |   |

 

**5.   NOTESPAYABLE**

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

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| ** **                     | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Loan  Available(1)             |       | $                       | 160,000    |                        | $          | 160,000 |   |
| Loans  Outstanding             |       | $                       | 50,000     |                        | $          | 91,186 |   |
| Letters of Credit  Outstanding |       | $                       | 7,172      |                        | $          | 6,500 |   |

----

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

The weighted average interest rate of the outstandingloans was 6.32% and 5.86% at June 30, 2007 and December 31, 2006,respectively.  At June 30, 2007 andDecember 31, 2006, notes payable were recorded net of unamortized loan feesof  $821 and $933, respectively.

**6.   EARNINGSPER SHARE**

Basic and dilutedearnings per share for the three months ended June 30, 2007 and 2006 were asfollows:
| ** **                                                        | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                        | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Basic  earnings per share**                                     | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                        |       | $                                               | 19,067     |                                          | $          | 14,096 |   | $ | 43,747 |   | $ | 31,079 |   |
| Weighted average  common shares outstanding                       |       | 29,079,616                                      |       | 28,258,827                                    |       | 28,937,775 |   | 28,150,812 |   |
| Basic earnings  per share                                         |       | $                                               | 0.66       |                                          | $          | 0.50 |   | $ | 1.51 |   | $ | 1.10 |   |
| **Diluted  earnings per share**                                   | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income  applicable to stockholders                            |       | $                                               | 19,067     |                                          | $          | 14,096 |   | $ | 43,747 |   | $ | 31,079 |   |
| Weighted average  common shares outstanding                       |       | 29,079,616                                      |       | 28,258,827                                    |       | 28,937,775 |   | 28,150,812 |   |
| Effect of  dilutive shares:                                       |       |                                            |       |                                          |       |   |   |   |   |
| Options and warrant                                               |       | 679,514                                         |       | 871,836                                       |       | 706,414 |   | 893,746 |   |
| Weighted average shares outstanding and common stock  equivalents |       | 29,759,130                                      |       | 29,130,663                                    |       | 29,644,189 |   | 29,044,558 |   |
| Diluted earnings per  share                                       |       | $                                               | 0.64       |                                          | $          | 0.48 |   | $ | 1.48 |   | $ | 1.07 |   |

 

For the three months ended June 30, 2007 and 2006,respectively, 126,277 and 17,197 RSUs, and for the six months ended June 30,2007 and 2006, respectively, 202,013 and 112,105 RSUs, were excluded from thecomputation of diluted earnings per share because their effect would beanti-dilutive.

**7.   SHARE-BASEDCOMPENSATION**

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

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

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The following is asummary of RSU transactions under the 2004 Equity Incentive Plan during the sixmonths ended June 30, 2007:
| ** **                          | ** ** | **RSUs**  | ** ** | **Weighted-  Average  Grant Date  Fair Value** | ** ** |
|-------------------------------------|------------|-----------|------------|----------------------------------------------------------|------------|
| Outstanding  December 31, 2006 |       | 872,853   |       | $                                                        | 45.63      |   |
| Granted                             |       | 413,678   |       | 67.93                                                    |       |
| Vested                              |       | (160,004  | )          | 39.25                                                    |       |
| Cancelled                           |       | (40,625   | )          | 47.19                                                    |       |
| Outstanding June 30, 2007           |       | 1,085,902 |       | $                                                        | 55.01      |   |

 

The weightedaverage grant-date fair value of RSUs granted for the six months ended June 30,2007 was $67.93 per unit, compared with $54.31 per unit for the same period inthe prior year. Total compensation expense and related income tax benefitsrecognized in relation to RSUs are as follows:
| ** **           | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **           | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Compensation expense |       | $                                               | 5,468      |                                          | $          | 3,271 |   | $ | 9,507 |   | $ | 5,134 |   |
| Income tax benefits  |       | 2,129                                           |       | 516                                           |       | 3,579 |   | 1,216 |   |
|                      |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |

 

At June 30, 2007, total unrecognized compensation costrelated to the RSUs prior to the consideration of expected forfeitures wasapproximately $48,049 and is expected to be recognized over a weighted-averageperiod of 2.06 years. The total fair value of RSUs vested during the six monthsended June 30, 2007 and 2006 was $6,280 and $3,087, respectively.

As of June 30, 2007, the Company had stock optionsoutstanding under the GFI Group Inc. 2002 Stock Option Plan (the “GFI Group2002 Plan”) and the GFInet inc. 2000 Stock Option Plan (the “GFInet 2000 Plan”).No additional grants will be made under these plans. For stock optionspreviously granted or modified, the fair value was estimated on the date ofgrant or modification using the Black-Scholes option pricing model.

The following is asummary of stock option transactions during the six months ended June 30, 2007:
| ** **                          | ** ** | **GFI Group 2002 Plan** | ** ** | **GFInet 2000 Plan**             | ** ** |
|-------------------------------------|------------|----------------------------------------|------------|--------------------------------------------|------------|
| ** **                          | ** ** | **Options**                            | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| Outstanding  December 31, 2006 |       | 621,661                                |       | $                                          | 13.83      |   | 323,034 |   | $ | 12.13 |   |
| Exercised                           |       | (297,807                               | )          | 14.09                                      |       | (176,243 | ) | 11.76 |   |
| Terminated                          |       | (13,158                                | )          | 21.00                                      |       | — |   | — |   |
| Outstanding June 30, 2007           |       | 310,696                                |       | $                                          | 13.27      |   | 146,791 |   | $ | 12.58 |   |

 

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**8.   COMMITMENTSAND CONTINGENCIES**

***Operating leases***—TheCompany has non-cancellable operating leases for office space that expire onvarious dates through 2027.  At June 30,2007, the future minimum rental commitments under such leases are as follows:
| 2007 (remaining  six months) |   | $      | 3,118   |   |
|------------------------------|--------|--------|---------|--------|
| 2008                         |   | 12,514 |    |
| 2009                         |   | 10,254 |    |
| 2010                         |   | 10,671 |    |
| 2011                         |   | 10,859 |    |
| Thereafter                   |   | 93,958 |    |
| Total                        |   | $      | 141,374 |   |

 

**Thepreceding table reflects a significant increase in the Company’s future minimumrental commitments since December 31, 2006. The increase in the future minimum rental commitments is related to atwenty year lease that the Company entered into in June 2007 for premises whichwill serve as its primary U.S. office space. The total minimum rental commitments under this lease totaled $94,045,with $6,024 due within one to three years, $8,070 due within three to fiveyears and $79,951 due in more than five years. See below for further discussion regarding the new U.S. lease andrelated lease termination on the leased premises that the Company is currentlyoccupying.**

**InJune 2007, the Company decided to vacate its current leased office space in NewYork in order to move to a new facility in the first half of 2008. The Companysigned a new lease for 88,747 square feet in New York for the period from June2007 through December 2027.**

**Inaddition, in June 2007, the Company accelerated the termination of certainleases to June 2008 in accordance with the provisions of the lease agreementthat will require the Company to pay a termination charge of $1,684.  As required by FASB 146, *Accountingfor Costs Associated with Exit or Disposal Activities*, the Companyrecorded this liability at fair value, or $1,591, which will be accreted up tothe termination charge of $1,684 over the next four quarters,.  The Company also accelerated the depreciablelives of certain assets to be abandoned at its current office space to theirestimated useful lives.  Totalaccelerated depreciation relating to the fixed assets to be abandoned is $4,899(or approximately $2,940 net of tax), of which $377 (or approximately $226 netof tax) was recorded during the three months ended June 30, 2007 and $1,130 (orapproximately $678 net of tax) will be recorded each quarter until June 30,2008.**

*PurchaseObligations**—The*Company has variousunconditional purchase obligations. Certain of these obligations include thepurchase of market data from a number of information service providers duringthe normal course of business. As of June 30, 2007, the Company had totalpurchase commitments for market data services of approximately $16,762, with$14,038 due within the next twelve months and $2,724 due between one to twoyears. In addition, the Company has purchase commitments for capitalexpenditures related to the purchase of certain software and office build-outin the U.S. and Europe of $802.  Amajority of these purchase commitments are due within the next twelve months.

*Contingencies**—In*the normal courseof business, the Company and certain subsidiaries included in the condensedconsolidated financial statements are, and have been in the past, named asdefendants in various lawsuits and proceedings and are, and have been in thepast, involved in certain regulatory examinations. Additional actions, investigationsor proceedings may be brought from time to time in the future. The Company issubject to the possibility of losses from these various contingencies.Considerable judgment is necessary to

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estimate the probabilityand amount of any loss from such contingencies. An accrual is made when it isprobable that a liability has been incurred or an asset has been impaired andthe amount of loss can be reasonably estimated. The Company accrues a liabilityfor the estimated costs of adjudication or settlement of asserted andunasserted claims existing as of the reporting period.

The Company is subject to regular examinations byvarious tax authorities in jurisdictions in which the Company has significantbusiness operations. The Company regularly assesses the likelihood ofadditional tax assessments that may result from these examinations in each ofthe tax jurisdictions. A tax accrual has been established, which the Companycurrently believes to be adequate in relation to the potential for additionaltax assessments. Once established, the accrual may be adjusted based on newinformation or events. The imposition of additional tax assessments, penaltiesor fines by a tax authority could have a material impact on the Company’seffective tax rate.

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

It is not presently possible to determine the Company’sultimate exposure to these matters and there is no assurance that theresolution of these matters will not significantly exceed the reserves accruedby the Company. It is the opinion of the Company’s management, afterconsultation with counsel, that the ultimate resolution of these matters, whilenot likely to have a material adverse effect on the consolidated financialcondition of the Company, could be material to the Company’s operating resultsfor any particular period.

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

*Guarantees**—The*Company, throughits subsidiaries, is a member of certain exchanges and clearinghouses. Underthe membership agreements, members are generally required to guarantee certainobligations. Additionally, if a member becomes unable to satisfy itsobligations to the clearinghouse, other members may be required to meetshortfalls. To mitigate these performance risks, the exchanges andclearinghouses often require members to post collateral, as well as meetcertain minimum financial standards. The Company’s maximum potential liabilityunder these arrangements cannot be quantified. However, management believesthat the potential for the Company to be required to make payments under thesearrangements is unlikely. Accordingly, no contingent liability is recorded inthe Condensed Consolidated Statements of Financial Condition for thesearrangements.

**9.   FINANCIALINSTRUMENTS WITH OFF-BALANCE SHEET RISK**

Disclosure regarding the Company’s financialinstruments with off-balance sheet risk is described in “Note 17—FinancialInstruments with Off-Balance Sheet Risk” of the Notes to the ConsolidatedFinancial Statements contained in the Company’s 2006 Form 10-K.There have been no material changes to our off-balance sheet risk during thesix months ended June 30, 2007.

**10.   FINANCIALINSTRUMENTS**

The Company is exposed to market risk associated withmovements in foreign currency exchange rates. There have been no materialchanges to our risk management policy as described in “Note 18—Financial

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Instruments” of the Notesto the Consolidated Financial Statements contained in the Company’s 2006Form 10-K.

As of and for the three months and six months endedJune 30, 2007, the Company had no foreign exchange derivative contracts thatwere designated as foreign currency cash flow hedges.  During 2006, certain of the Company’s foreignexchange derivative contracts were designed and qualified as foreign currencycash flow hedges under SFAS No. 133.  Forthe three and six months ended June 30, 2006, there was no hedge ineffectiveness. Unrealized losses before tax of($172) and ($734) for the three and six months ended June 30, 2006,respectively, were recorded as other comprehensive income (loss).

The Company’sderivatives are summarized below, showing the fair value of the related assetsand liabilities that are included in other assets or other liabilities in theCondensed Consolidated Statements of Financial Condition as of June 30, 2007and December 31, 2006 as follows:
| **Asset/(Liabilities)**                 | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Foreign exchange  derivative contracts: |       |                    |       |                        |       |
| Assets                                  |       | $                       | 148        |                        | $          | 649 |   |
| Liabilities                             |       | (191                    | )          | (139                        | )          |
| Fenics purchase  obligation             |       | (53                     | )          | (53                         | )          |
|                                         |            |                         |            |                             |            |  |  |

 

The fair values of the Company’s foreign exchangederivative contracts were estimated based on quoted market prices of comparableinstruments. The fair value of the Fenics purchase obligation was estimatedusing an exchange option model that included assumptions of management’sestimate of the fair value of the common stock of the Company and the commonstock of Fenics, as well as assumptions regarding the volatility, correlationand the expected life of the obligation.

Included in other assets in the Condensed ConsolidatedStatements of Financial Condition as of June 30, 2007 were $2,214 of assets inEuroclear and $766 in U.S. corporate stocks held by the Company and recorded atcurrent market value.

**11.   REGULATORYREQUIREMENTS**

GFI Securities LLC is a registered broker-dealerwith the SEC and the National Association of Securities Dealers, Inc. GFISecurities LLC is also a registered introducing broker with the NationalFutures Association and the Commodity Futures Trading Commission. Accordingly,GFI Securities LLC is subject to the net capital rules under the ExchangeAct and the Commodity Exchange Act. Under these rules, GFI Securities LLC isrequired to maintain minimum Net Capital, as defined, of not less than thegreater of $250 or 2% of aggregate debits, as defined. GFI Brokers Limited andGFI Securities Limited are subject to the capital requirements of the FinancialServices Authority in the United Kingdom (“FSA”). GFI (HK) Securities LLC issubject to the capital requirements of the Securities and Futures Commission inHong Kong, which require that GFI (HK) Securities LLC maintain minimum capital,as defined, of approximately $384.

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The followingtable sets forth the minimum net capital, as defined, that certain of theCompany’s subsidiaries were required to maintain as of June 30, 2007:
| ** **                    | ** ** | **GFI Securities  LLC** | ** ** | **GFI Brokers  Limited** | ** ** | **GFI Securities  Limited** | ** ** | **GFI (HK)  Securities LLC** | ** ** |
|-------------------------------|------------|------------------------------|------------|-------------------------------|------------|----------------------------------|------------|----------------------------------------|------------|
| Net Capital                   |       | $                            | 43,412     |                          | $          | 36,122                           |       | $                                      | 31,110     |   | $ | 1,390 |   |
| Minimum Net  Capital required |       | 250                          |       | 10,935                        |       | 16,621                           |       | 384                                    |       |
| Excess Net Capital            |       | $                            | 43,162     |                          | $          | 25,187                           |       | $                                      | 14,489     |   | $ | 1,006 |   |

 

In addition to the minimum net capital requirementsoutlined above, certain of the Company’s subsidiaries are subject to additionalregulatory requirements.

GFI Group PTE Ltd is subject to the compliancerequirements of the Monetary Authority of Singapore (“MAS”), which require thatGFI Group PTE Ltd, among other things, maintain stockholders’ equity of 3,000Singapore dollars, measured annually. At December 31, 2006, the requiredmeasurement date, GFI Group PTE Ltd. had stockholders’ equity of 4,071Singapore dollars (or approximately $2,651), which exceeded the minimumrequirement by approximately 1,071 Singapore dollars (or approximately $697).

GFI Securities Limited’s Japanese branch is subject tocertain licensing requirements established by the Foreign Securities Firms Law(the “FSFL”) in Japan. As part of the licensing requirements, GFI SecuritiesLimited’s Japanese branch is required to maintain “brought-in” capital, asdefined under the FSFL, of 50,000 Japanese Yen (approximately $405). Inaddition, GFI Securities Limited is required to maintain a capital base of1,000,000 Japanese Yen (approximately $8,097). GFI Securities Limited’sJapanese branch is also subject to the net capital rule promulgated by theFSFL, which requires that net worth, including “brought-in” capital, exceed aratio of 120.0% of relevant expenditure. At June 30, 2007, GFI SecuritiesLimited and its Japanese branch were in compliance with these capitalrequirements.

GFI Securities Limited’s Paris branch was establishedthrough the exercise of its passport right to open a branch in a EuropeanEconomic Area state. The establishment of the branch was approved by FSA andacknowledged by Banque de France in France. The branch will be subject to theconduct of business rules of the Autorite Des Marches Financiers whendealing with resident customers of France and will be regulated, in part, bythe FSA.

GFI Brokers Limited’s Sydney branch is registered as aforeign corporation in Australia and is conditionally exempt from therequirement to hold an Australian financial services license under theAustralian Securities and Investments Commission Corporations Act of 2001 inrespect of the financial services it provides in Australia. This exemptionapplies to foreign companies regulated by the FSA in accordance with U.K.regulatory standards.

GFI (HK) Brokers Ltd. is registered with and regulatedby the Hong Kong Monetary Authority. As part of this registration, GFI (HK)Brokers Ltd. is required to maintain stockholders’ equity of 5,000 Hong Kongdollars (or approximately $640). At June 30, 2007, GFI (HK) Brokers Ltd. hadstockholders’ equity of 11,668 Hong Kong dollars (or approximately $1,492),which exceeded the minimum requirement by 6,668 Hong Kong dollars (or approximately$852).

****GFI Korea Money Brokerage Limitedis licensed and regulated by the Ministry of Finance and Economy to engage inforeign exchange brokerage business, and is subject to certain regulatoryrequirements under the Foreign Exchange Transaction Act and regulationsthereunder.  As a licensed foreign exchange brokerage company, GFI KoreaMoney Brokerage Limited is required to maintain minimum paid-in capital of5,000,000 Korean Won.****At June 30, 2007, ****GFI Korea Money BrokerageLimited**** met the minimum requirement forpaid-in-capital of 5,000,000 Korean Won (or approximately $5,336).

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These regulatory rules may restrict the Company’sability to withdraw capital from its regulated subsidiaries. The Company’sregulated subsidiaries were in compliance with all minimum net capitalrequirements as of June 30, 2007.

**12.   GEOGRAPHICINFORMATION**

The Company offers its products and services in NorthAmerica, Europe and the Asia-Pacific regions.

Informationregarding revenues for the three and six months ended June 30, 2007 and 2006,respectively, and information regarding long-lived assets (defined as property,equipment, leasehold improvements and software inventory) in geographic areasas of June 30, 2007 and December 31, 2006, respectively, are as follows:
| ** **    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **    | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues:     |       |                                            |       |                                          |       |   |   |   |   |
| North America |       | $                                               | 100,062    |                                          | $          | 88,243 |   | $ | 209,441 |   | $ | 172,859 |   |
| Europe        |       | 106,047                                         |       | 84,735                                        |       | 216,517 |   | 171,590 |   |
| Asia-Pacific  |       | 22,013                                          |       | 14,588                                        |       | 42,481 |   | 28,705 |   |
| Total         |       | $                                               | 228,122    |                                          | $          | 187,566 |   | $ | 468,439 |   | $ | 373,154 |   |

 
| ** **                      | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Long-lived  Assets, as defined: |       |                    |       |                        |       |
| North America                   |       | $                       | 34,397     |                        | $          | 32,158 |   |
| Europe                          |       | 14,369                  |       | 12,753                      |       |
| Asia-Pacific                    |       | 2,900                   |       | 2,255                       |       |
| Total                           |       | $                       | 51,666     |                        | $          | 47,166 |   |

 

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

**13.   OTHERCOMPREHENSIVE INCOME (LOSS)**
| ** **                                                           | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                           | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Unrealized  gain (loss) on foreign exchange derivative contracts** | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Before Tax Amount                                                    |       | $                                               | —     |                                          | $          | (172 | ) | $ | — |   | $ | (734 | ) |
| Tax Benefit                                                          |       | —                                          |       | 52                                            |       | — |   | 220 |   |
| After Tax Amount                                                     |       | $                                               | —     |                                          | $          | 120 | ) | $ | — |   | $ | (514 | ) |
| **Foreign  currency translation adjustment**                         | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Before Tax Amount                                                    |       | $                                               | 139        |                                          | $          | 166 |   | $ | 74 |   | $ | 279 |   |
| Tax Expense                                                          |       | (61                                             | )          | (74                                           | )          | (32 | ) | (124 | ) |
| After Tax Amount                                                     |       | $                                               | 78         |                                          | $          | 92 |   | $ | 42 |   | $ | 155 |   |

 

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The Companyreclassified the following out of other comprehensive income into other incomefor the three and six months ended June 30, 2006:
| ** ** | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** ** | ** ** | **2006**                                            | ** ** | **2006**                                          | ** ** |
| Gross loss |       | $                                                   | 1,192      |                                              | $     | 2,691 |   |
| Net of tax |       | 834                                                 |       | 1,884                                             |       |
|            |            |                                                     |            |                                                   |            |  |  |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directorsand Stockholders ofGFI Group Inc.New York, New York

We have reviewedthe accompanying condensed consolidated statement of financial condition of GFIGroup Inc. and subsidiaries (the “Company”) as of June 30, 2007, and therelated condensed consolidated statements of income and comprehensive incomefor the three-month and six-month periods ended June 30, 2007 and 2006, and thecondensed consolidated statements of cash flows for the six-month periods endedJune 30, 2007 and 2006. These interim financial statements are theresponsibility of the Company’s management.

We conducted ourreviews in accordance with the standards of the Public Company AccountingOversight Board (United States).  Areview of interim financial information consists principally of applyinganalytical procedures and making inquiries of persons responsible for financialand accounting matters.  It issubstantially less in scope than an audit conducted in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theobjective of which is the expression of an opinion regarding the financialstatements taken as a whole. Accordingly, we do not express such an opinion.

Based on ourreviews, we are not aware of any material modifications that should be made tosuch condensed consolidated interim financial statements for them to be inconformity with accounting principles generally accepted in the United Statesof America.

We have previouslyaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated statement of financialcondition of GFI Group Inc. and subsidiaries as of December 31, 2006, and therelated consolidated statements of income, comprehensive income, stockholders’equity, and cash flows for the year then ended (not presented herein); and inour report dated February 28, 2007, we expressed an unqualified opinion onthose consolidated financial statements.  In our opinion, the information set forth inthe accompanying condensed consolidated statement of financial condition as ofDecember 31, 2006 is fairly stated, in all material respects, in relation tothe consolidated statement of financial condition from which it has beenderived.

 

/s/ Deloitte & ToucheNew York, New YorkAugust 8, 2007

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**ITEM2.**                    MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This QuarterlyReport on Form 10-Q (this “Form 10-Q”) contains ‘‘forward-lookingstatements’’ within the meaning of the Private Securities Litigation Reform Actof 1995. Forward-looking statements include, without limitation, any statementthat may predict, forecast, indicate or imply future results, performance orachievements, and may contain the words ‘‘believe,’’ ‘‘anticipate,’’ ‘‘expect,’’‘‘estimate,’’ ‘‘intend,’’ ‘‘project,’’ ‘‘will be,’’ ‘‘will likely continue,’’ ‘‘willlikely result,’’ or words or phrases of similar meaning. These forward-lookingstatements are based largely on the expectations of management and are subjectto a number of risks and uncertainties including, but not limited to, thefollowing:

·       the risks and other factorsdescribed under the heading “Risk Factors” and elsewhere in our 2006Form 10-K;

·       expansion and growth of ouroperations generally or of specific products or services;

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

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

·       competition from currentand new competitors;

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

·       future results of operationsand financial condition;

·       the success of our businessstrategies;

·       economic, political andmarket factors affecting trading volumes, securities prices or demand for ourbrokerage services;

·       financial difficultiesexperienced by our customers or key participants in the markets in which wefocuses our brokerage services;

·       risks associated withpotential acquisitions by us of businesses or technologies;

·       the maturity of key marketsand any resulting contraction of commissions;

·       our ability to manage ourinternational operations;

·       uncertainties associatedwith currency fluctuations;

·       our failure to protect orenforce our intellectual property rights;

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

·       uncertainties relating tolitigation; and

·       changes in the availabilityof capital.

The foregoing risks and uncertainties, as well asthose risks discussed under the headings ‘‘Item 2—Management’s Discussion andAnalysis of Financial Condition and Results of Operations’’ and ‘‘Item3—Quantitative and Qualitative Disclosures About Market Risk’’ and elsewhere inthis Quarterly Report, may cause actual results to differ materially from theforward-looking statements. The information included herein is given as of thefiling date of this Form 10-Q with the SEC and future events orcircumstances could differ significantly from these forward-looking statements.The Company does not undertake to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise.

**BusinessEnvironment**

As an inter-dealerbroker, our results of operations are impacted by a number of external marketfactors including market volatility, organic growth of the derivative and othermarkets in which we provide our

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brokerage services, theparticular mix of transactional activity in our various products and thecompetitive environment in which we operate. Outlined below are management’s observations of these external marketfactors during the most recent fiscal period. The factors outlined below arenot the only factors that have impacted our results of operations for the mostrecent fiscal period, and additional or other factors may impact, or havedifferent degrees of impact, on our results of operations in future periods.

*MarketVolatility*

As a general rule,our business benefits from volatility in the markets that we serve, as periodsof increased volatility typically coincide with more robust trading by ourclients and a higher volume of transactions. Market volatility is driven by a range of external factors, some ofwhich are market specific and some of which are correlated to general macro-economicconditions.  During the second quarter of2007, the credit and equity markets experienced general heightened volatilityas the quarter progressed  due tosubprime mortgage market concerns, which were highlighted by the near-collapseof two hedge funds heavily invested in the subprime market.  Despite the pronounced volatility later inthe quarter, the majority of global equity markets were up for the quarter ledby emerging markets.  Interest rate,foreign exchange and commodity markets experienced moderate volatility duringthe quarter, resulting from inflationary and economic uncertainty andnear-record high oil prices.

*Growth inUnderlying Markets and New Product Offerings*

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

Both the Bank ofInternational Settlements (“BIS”) and the International Swaps and DerivativesAssociation (“ISDA”) released figures in the second quarter of 2007 on notionalamounts outstanding in global OTC markets. BIS reported notional amounts outstanding for OTC derivatives of $415.2trillion at year-end 2006, up 39% from the prior year.   Credit default swaps were the fastestgrowing OTC category with a 107% growth rate year over year followed byinterest rate derivatives with 38% growth, equities with 29% growth and foreignexchange and commodities with 28% growth. ISDA reported similar growth rates, including for credit default swaps,which grew over 100% to $34.4 trillion at year-end 2006.

Exchange tradedderivatives have for several years exhibited generally similar growth rates to thoseof related OTC derivative markets.  TheChicago Mercantile Exchange,  ChicagoBoard of Trade, New York Mercantile Exchange and IntercontinentalExchange andInternational Securities Exchange all reported solid double digit growth intransactional volumes during the second quarter versus the same period in2006.  These exchanges offer trading infutures and other products in several categories, including financial, equityand commodity products.  Nevertheless,because there is currently little or no exchange-based trading activity incredit futures, exchange-traded volumes are not an indicator of activity levelsof credit products, our largest product segment.

In addition, transactions in second generation creditproducts, such as asset backed and loan credit derivatives, have recently beenexperiencing growth and have been a driver of growth in the overall creditderivative market.  New products havealso developed for certain wet and dry freight and property derivatives.

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*CompetitiveEnvironment*

Anothermajor external market factor affecting our business and results of operationsis competition, which may take the form of competitive pressure on thecommissions we charge for our brokerage services or competition for brokeragepersonnel with extensive experience in the specialized markets we serve.  Competition for the services of productivebrokers has been intense in recent quarters and during any given period it canbecome even more fierce.  Managementbelieves that this increased competition for brokerage personnel continuedduring the second quarter as other inter-dealer brokers sought to bolster theirderivative brokerage capabilities.  As aresult, compensation and employee benefits as a percentage of revenues will beunder pressure, and may increase, in the short term.

**Results ofOperations**

The followingtable sets forth our condensed consolidated results of operations for theperiods indicated:
| ** **                                | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| REVENUES:                                 |       |                                            |       |                                          |       |   |   |   |   |
| Brokerage  revenues:                      |       |                                            |       |                                          |       |   |   |   |   |
| Agency commissions                        |       | $                                               | 179,466    |                                          | $          | 130,134 |   | $ | 363,991 |   | $ | 267,044 |   |
| Principal transactions                    |       | 42,044                                          |       | 41,792                                        |       | 90,421 |   | 82,852 |   |
| Total brokerage revenues                  |       | 221,510                                         |       | 171,926                                       |       | 454,412 |   | 349,896 |   |
| Analytics and market data                 |       | 4,491                                           |       | 4,271                                         |       | 9,817 |   | 9,465 |   |
| Contract revenue                          |       | 204                                             |       | 5,881                                         |       | 204 |   | 5,881 |   |
| Interest income                           |       | 2,297                                           |       | 2,395                                         |       | 4,399 |   | 4,628 |   |
| Other income (loss)                       |       | (380                                            | )          | 3,093                                         |       | (393 | ) | 3,284 |   |
| Total revenues                            |       | 228,122                                         |       | 187,566                                       |       | 468,439 |   | 373,154 |   |
| EXPENSES:                                 |       |                                            |       |                                          |       |   |   |   |   |
| Compensation and employee benefits        |       | 143,474                                         |       | 113,701                                       |       | 294,982 |   | 230,546 |   |
| Communications and market data            |       | 11,299                                          |       | 9,303                                         |       | 21,755 |   | 16,956 |   |
| Travel and promotion                      |       | 10,170                                          |       | 8,549                                         |       | 19,006 |   | 16,080 |   |
| Rent and occupancy                        |       | 5,529                                           |       | 4,841                                         |       | 11,090 |   | 10,454 |   |
| Depreciation and amortization             |       | 5,720                                           |       | 4,048                                         |       | 10,947 |   | 7,884 |   |
| Professional fees                         |       | 4,332                                           |       | 5,320                                         |       | 7,901 |   | 9,364 |   |
| Clearing fees                             |       | 6,940                                           |       | 6,798                                         |       | 14,469 |   | 12,275 |   |
| Interest                                  |       | 2,002                                           |       | 1,772                                         |       | 3,851 |   | 3,524 |   |
| Other expenses                            |       | 6,909                                           |       | 3,843                                         |       | 11,558 |   | 7,399 |   |
| Contract costs                            |       | 127                                             |       | 5,180                                         |       | 127 |   | 5,180 |   |
| Lease termination costs to affiliate      |       | —                                          |       | (92                                           | )          | — |   | (92 | ) |
| Total Expenses                            |       | 196,502                                         |       | 163,263                                       |       | 395,686 |   | 319,570 |   |
| INCOME BEFORE  PROVISION FOR INCOME TAXES |       | 31,620                                          |       | 24,303                                        |       | 72,753 |   | 53,584 |   |
| PROVISION FOR  INCOME TAXES               |       | 12,553                                          |       | 10,207                                        |       | 29,006 |   | 22,505 |   |
| NET INCOME                                |       | $                                               | 19,067     |                                          | $          | 14,096 |   | $ | 43,747 |   | $ | 31,079 |   |

 

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The followingtable sets forth our condensed consolidated results of operations as apercentage of our total revenues for the periods indicated:
| ** **                                | ** ** | **Three Months Ended  June 30** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                       | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| REVENUES:                                 |       |                                           |       |                                          |       |   |   |   |   |
| Brokerage revenues:                       |       |                                           |       |                                          |       |   |   |   |   |
| Agency commissions                        |       | 78.7                                           | %          | 69.4                                          | %          | 77.7 | % | 71.6 | % |
| Principal transactions                    |       | 18.4                                           |       | 22.3                                          |       | 19.3 |   | 22.2 |   |
| Total brokerage revenues                  |       | 97.1                                           |       | 91.7                                          |       | 97.0 |   | 93.8 |   |
| Analytics and market data                 |       | 2.0                                            |       | 2.3                                           |       | 2.1 |   | 2.5 |   |
| Contract revenue                          |       | 0.1                                            |       | 3.1                                           |       | - |   | 1.6 |   |
| Interest income                           |       | 1.0                                            |       | 1.3                                           |       | 1.0 |   | 1.2 |   |
| Other income (loss)                       |       | (0.2                                           | )          | 1.6                                           |       | (0.1 | ) | 0.9 |   |
| Total revenues                            |       | 100.0                                          | %          | 100.0                                         | %          | 100.0 | % | 100.0 | % |
| EXPENSES:                                 |       |                                           |       |                                          |       |   |   |   |   |
| Compensation and employee benefits        |       | 62.9                                           | %          | 60.6                                          | %          | 63.0 | % | 61.8 | % |
| Communications and market data            |       | 5.0                                            |       | 5.0                                           |       | 4.6 |   | 4.5 |   |
| Travel and promotion                      |       | 4.5                                            |       | 4.6                                           |       | 4.1 |   | 4.3 |   |
| Rent and occupancy                        |       | 2.4                                            |       | 2.6                                           |       | 2.4 |   | 2.8 |   |
| Depreciation and amortization             |       | 2.5                                            |       | 2.2                                           |       | 2.3 |   | 2.1 |   |
| Professional fees                         |       | 1.9                                            |       | 2.8                                           |       | 1.7 |   | 2.5 |   |
| Clearing fees                             |       | 3.0                                            |       | 3.6                                           |       | 3.1 |   | 3.3 |   |
| Interest                                  |       | 0.9                                            |       | 0.9                                           |       | 0.8 |   | 0.9 |   |
| Other expenses                            |       | 3.0                                            |       | 2.0                                           |       | 2.5 |   | 2.0 |   |
| Contract costs                            |       | 0.1                                            |       | 2.8                                           |       | - |   | 1.4 |   |
| Total Expenses                            |       | 86.1                                           | %          | 87.1                                          | %          | 84.5 | % | 85.6 | % |
| INCOME BEFORE  PROVISION FOR INCOME TAXES |       | 13.9                                           |       | 12.9                                          |       | 15.5 |   | 14.4 |   |
| PROVISION FOR  INCOME TAXES               |       | 5.5                                            |       | 5.4                                           |       | 6.2 |   | 6.0 |   |
| NET INCOME                                |       | 8.4                                            | %          | 7.5                                           | %          | 9.3 | % | 8.4 | % |

 

**Three Months EndedJune 30, 2007 Compared to the Three Months Ended June 30, 2006**

Net income for the three months ended June 30, 2007was $19.1 million as compared to net income of $14.1 million for the threemonths ended June 30, 2006, an increase of $5.0 million or approximately35.5%.  Total revenues increased by $40.5million, or 21.6%, to $228.1 million for the three months ended June 30, 2007from $187.6 million for the same period from the prior year. Our increasedrevenues were primarily due to increased brokerage revenues across all productcategories, with the most significant dollar increases in commodities andcredit. Commodities revenues include revenues from the Amerex Energy operationswhich we acquired in October 2006.  Thisincrease in our revenues reflected significant organic growth across allproduct categories and significant growth across all geographic regions.  Our total brokerage personnel headcountincreased by 180 to a total of 1,008 employees at June 30, 2007 from 828employees at June 30, 2006. Total expenses increased by $33.2 million, or20.3%, to $196.5 million for the three months ended June 30, 2007 from$163.3 million for the same period from the prior year. Expenses increasedprimarily due to a higher number of brokerage personnel as compared with thecorresponding period in 2006 and an increase in performance related brokeragebonuses resulting in large part from an increase in our brokerage revenues.

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***Revenues***

*Brokerage Revenues*

We offer ourbrokerage services in four broad product categories: credit, financial, equityand commodity. The charts below detail our brokerage revenues by productcategory in dollars and as a percentage of our total brokerage revenues for theperiods indicated.
| ** **                | ** ** | **Three Months Ended  June 30,** | ** ** |
|---------------------------|------------|-------------------------------------------------|------------|
| ** **                | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
| **BROKERAGE  REVENUES:**  | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Credit                    |       | $                                               | 72,436     |   | $ | 59,838 |   |
| Financial                 |       | 45,865                                          |       | 38,942 |   |
| Equity                    |       | 53,284                                          |       | 46,109 |   |
| Commodity                 |       | 49,925                                          |       | 27,037 |   |
| Total brokerage revenues  |       | $                                               | 221,510    |   | $ | 171,926 |   |
| **BROKERAGE  REVENUES:**  | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Credit                    |       | 32.7                                            | %          | 34.8 | % |
| Financial                 |       | 20.7                                            |       | 22.7 |   |
| Equity                    |       | 24.1                                            |       | 26.8 |   |
| Commodity                 |       | 22.5                                            |       | 15.7 |   |
| Total brokerage  revenues |       | 100.0                                           | %          | 100.0 | % |

 

Total brokerage revenues increased by $49.6 million,or 28.9%, to $221.5 million for the three months ended June 30, 2007, ascompared to $171.9 million for the three months ended June 30, 2006. Agencycommissions increased by $49.4 million, or 38.0%, to $179.5 million for thethree months ended June 30, 2007, as compared to $130.1 million for the threemonths ended June 30, 2006. Principal transactions increased by $0.2 million,or 0.5%, to $42.0 million for the three months ended June 30, 2007 from $41.8million for the three months ended June 30, 2006. Broker productivity (definedas total brokerage revenues during the period divided by average monthlybrokerage personnel headcount for the period) increased by approximately 7.5% forthe three months ended June 30, 2007, as compared to the same period from theprior year.

The increase in credit product brokerage revenues of $12.6million in the second quarter of 2007 as compared with the same period in 2006was due to a number of factors, including credit market volatility related tosubprime mortgage market concerns, continued overall growth in the creditderivatives market, the development of new credit products and the continuedsuccess in Europe of CreditMatch®, our credit derivatives and investment gradebond trading platform.  Our creditproduct brokerage personnel increased by 35 to a total of 259 employees at June30, 2007, up from 224 employees at June 30, 2006.

The increase in financial product brokerage revenuesof $6.9 million in the second quarter of 2007 as compared with the secondquarter of 2006 was primarily attributable to growth in emerging marketinterest rate and currency derivatives in Europe and Asia and the continuedintroduction of ForexMatchTM, our foreign exchange trading platform.  Our financial product brokerage personnel increasedby 17 to a total of 274 employees at June 30, 2007, up from 257 employees atJune 30, 2006.

The increase in equity product brokerage revenues of $7.2million in the second quarter of 2007 as compared with the same period in 2006was primarily due to the continued growth of our Paris office, whichspecializes in cash equities and equity derivatives, as well as our equityderivatives business in the U.K. and Asia. Market volatility caused by mortgage market concerns also contributed tothe increase in equity product brokerage revenues.  Our equity product brokerage personnelincreased by 33 to a total of 204 employees at June 30, 2007, up from 171employees at June 30, 2006.

The increase in commodity product brokerage revenuesof $22.9 million in the second quarter of 2007 as compared with the secondquarter of 2006 was primarily attributable to the addition of our Amerexbrokerage

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business. In addition,growth in European energy products, particularly dry freight derivatives anddry physical freight, also contributed to the increase in overall commodityrevenues. Our commodity product brokerage personnel increased by 95 to a totalof 272 employees at June 30, 2007, up from 177 employees at June 30, 2006.

*Analytics andMarket Data*

Revenues from our analytics and market data productsincreased by $0.2 million, or 4.7%, to $4.5 million for the three months endedJune 30, 2007 as compared to $4.3 million for the three months ended June 30,2006. The increase was primarily due to an increase in subscription and maintenancefees, which was offset by a decrease in update fees associated with thelicensing of analytical software.

*Contract Revenue*

Contract revenue decreased by $5.7 million, or 96.6%,to $0.2 million for the three months ended June 30, 2007 as compared to $5.9million for the three months ended June 30, 2006.  Contract revenue consists primarily ofrevenues recognized under a long-term contract pursuant to which we developedan online foreign exchange currency trading system and customized it for a customer.  During the second quarter of 2006, theproject was substantially completed and consequently, we recorded $5.9 millionin contract revenue.  Additionally, in2007, contract revenue represents additional work provided to the customer on atime and materials basis.

*Interest Income*

Interest income decreased by $0.1 million, or 4.2%, to$2.3 million for the three months ended June 30, 2007, as compared to $2.4 millionfor the three months ended June 30, 2006. The decrease was mainly attributableto the decrease in interest income due to lower balances on the clearingaccounts, which was partially offset by an increase in interest incomeattributable to the higher level of cash balances in the U.S.

*Other Income(Loss)*

Other income (loss) decreased by $3.5 million, or1.13%, to a loss of $0.4 million for the three months ended June 30, 2007 fromincome of $3.1 million for the three months ended June 30, 2006. Other income(loss) for the three months ended June 30, 2007 and 2006 mainly consisted oftransactional gains (losses) based on foreign currency fluctuations and netgains (losses) on foreign exchange derivative contracts.

***Expenses***

*Compensation andEmployee Benefits*

Compensation and employee benefits increased by $29.8million, or 26.2%, to $143.5 million for the three months ended June 30, 2007from $113.7 million for the three months ended June 30, 2006. The increase wasprimarily due to an increase in the number of brokerage personnel from 828employees at June 30, 2006 to 1,008 employees at June 30, 2007and an increase in brokerage personnelperformance bonuses of $11.0 million resulting in large part from the increasein our brokerage revenues.

Total compensation and employee benefits as apercentage of total revenues increased to 62.9% at June 30, 2007 from 60.6% at June30, 2006. Bonus expense represented 51.3% of total compensation and employeebenefits expense for the three months ended June 30, 2007 and 2006. A portionof our bonus expense is subject to contractual guarantees that may require us tomake bonus payments to brokers regardless of their performance in anyparticular period. Additionally, sign-on bonus expense, which includes theamortization of sign-on bonuses initially made in prior periods, represented4.1% and 6.3% of total compensation and employee benefits for the three monthsended June 30, 2007 and 2006, respectively.

Our compensation and employee benefits are relativelystable.  However, certain of ourcompetitors are offering significant compensation packages to attract our brokers.  As a result, compensation and employeebenefits as a percentage of revenues will be under pressure, and may increasein the short term.  We believe that anincrease in the use of our hybrid electronic brokerage systems and pressure onour competitors to rationalize

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the increase in theircompensation expense will eventually lessen the effect of the competitivepressure on compensation expense.  

*Communications andMarket Data*

Communications and market data increased by $2.0million, or 21.5%, to $11.3 million for the three months ended June 30, 2007from $9.3 million from the three months ended June 30, 2006. The increase wasprimarily attributable to the increase of brokerage personnel in those areas,such as equities, that rely more heavily on market data systems.

*Travel andPromotion*

Travel and promotion increased by $1.7 million, or20.0%, to $10.2 million for the three months ended June 30, 2007 from$8.5 million for the three months ended June 30, 2006. This expense, as apercentage of our total brokerage revenues for the three months ended June 30,2007 decreased to 4.6% from 4.9% for the same period from the prior year. Thisdecrease was primarily due to our continuing efforts to lower these costsrelative to our total brokerage revenues.

*Rent and Occupancy*

Rent and occupancy increased by $0.7 million, or14.6%, to $5.5 million for the three months ended June 30, 2007 from $4.8million for the three months ended June 30, 2006.  The increase was primarily due to the increasein rent and repairs and maintenance, which offset the decrease in utilities andinsurance, from our current leased facilities. In June 2007, we entered into a twenty-year lease for our new primaryoffice space in the U.S.  Consequently,we expect the rent and occupancy will continue to increase in the future.  See Note 8 to the Condensed ConsolidatedFinancial Statements for further discussion of the U.S. lease. 

*Depreciation andAmortization*

Depreciation and amortization increased by $1.7million, or 42.5%, to $5.7 million for the three months ended June 30, 2007from $4.0 million for the three months ended June 30, 2006. The increase wasprimarily due to the increase in capitalized equipment costs, leaseholdimprovement, communications equipment and amortization expense of intangiblesresulting from the acquisition of the Amerex brokerage business.  Included in depreciation and amortizationexpense for the three months ended June 30, 2007 is $0.4 million of accelerateddepreciation related to certain long-lived assets to be abandoned as a resultof the early termination of certain of our leases in New York.  Total accelerated depreciation relating tothe fixed assets to be abandoned is $4.9 million, of which $0.4 million wasrecorded during the three months ended June 30, 2007 and $1.1 million will berecorded each quarter until June 30, 2008. See Note 8 to the Condensed Consolidated Financial Statements forfurther discussion of the U.S. lease. 

*Professional Fees*

Professional fees decreased by $1.0 million, or 18.9%to $4.3 million for the three months ended June 30, 2007 from $5.3 million forthe three months ended June 30, 2006. The decrease was primarily due to adecrease in professional fees related to our compliance with the requirementsof Section 404 of the Sarbanes-Oxley Act of 2002, which was partially offset byan increase in legal fees.

*Clearing Fees*

Clearing fees increased slightly by $0.1 million, or 1.5%,to $6.9 million for the three months ended June 30, 2007 from $6.8 million forthe three months ended June 30, 2006. This increase was partially due to thegrowth of brokerage revenues from our Paris equities business.  Clearingfees, as a percentage of our total revenues from principal transactions remainedconsistent at approximately 16.0% for the three months ended June 30, 2007 and2006.  Principal transactions aregenerally settled through third party clearing organizations that charge us afee for their services. We also use the services of stock exchanges and floorbrokers to assist in

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the execution of transactions.Fees paid to floor brokers and execution fees paid to exchanges in thesecircumstances are included in clearing fees.

*Interest Expense*

Interest expense increased slightly by $0.2 million,or 11.1%, to $2.0 million for the three months ended June 30, 2007 from $1.8million for the three months ended June 30, 2006.  The increase was mainly attributable to the increasein interest expense under our credit facility due to the higher level ofoutstanding borrowings during the three months ended June 30, 2007, which wasoffset by a decrease in interest expense on our clearing accounts for the threemonths ended June 30, 2007 compared to the same period from the prioryear.  Included in interest expense forthe three months ended June 30, 2007 is $0.8 million of interest on outstandingborrowings incurred to purchase the Amerex brokerage business in October 2006.

*Other Expenses*

Other expenses increased by $3.1 million, or 81.6%, to$6.9 million for the three months ended June 30, 2007 from $3.8 million for thethree months ended June 30, 2006. Included in other expenses for the three months ended June 30, 2007 is a$1.6 million termination fee that will be incurred due to our decision toterminate our primary office lease in New York. See Note 8 to the Condensed Consolidated Financial Statements forfurther discussion on the lease termination. The remaining increase was primarily due to an increase in irrecoverableValue Added Tax related to increased purchases for communications and marketdata in Europe and license fees tothird-party software vendors.

*Contract Costs*

Contract costs represent expenses incurred during thesecond quarter of 2007 from the additional work provided to a customer on atime and material basis.  See ContractRevenue above for further discussion.  

*Provision forIncome Taxes*

Our provision for income taxes totaled$12.6 million for the three months ended June 30, 2007 compared to $10.2million for the three months ended June 30, 2006. Our effective tax rate wasapproximately 40% for the three months ended June 30, 2007 as compared to 42%for the comparable period in 2006. The reduction in the effective tax rate wasprimarily due to a decrease in state and local income taxes and taxes relatedto foreign operations as well as an increase in business tax credits.    The reduction in state, local and foreigntaxes was due, in part, to lower state tax rates and the geographic mix of ourearnings. 

 

**Six Months EndedJune 30, 2007 Compared to the Six Months Ended June 30, 2006**

Net income for the six months ended June 30, 2007 was$43.7 million as compared to net income of $31.1 million for the six monthsended June 30, 2006, an increase of $12.6 million or approximately 40.5%.  Total revenues increased by $95.2 million, or25.5%, to $468.4 million for the six months ended June 30, 2007 from $373.2million for the same period from the prior year. Our increased revenues wereprimarily due to increased brokerage revenues across all product categories,with the most significant dollar increases in commodities, credit and equity. Commoditiesrevenues include revenues from the Amerex Energy operation which we acquired inOctober 2006.  This increase in ourrevenues included significant organic growth across all product categories andgeographic regions.  Our total brokeragepersonnel headcount increased by 180 to a total of 1,008 employees at June 30,2007 from 828 employees at June 30, 2006. Total expenses increased by $76.1 million,or 23.8%, to $395.7 million for the six months ended June 30, 2007 from $319.6 millionfor the same period from the prior year. Expenses increased primarily due to ahigher number of brokerage personnel as compared with the corresponding periodin 2006 and the resulting increase in performance related brokerage bonuses.

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***Revenues***

*Brokerage Revenues*

We offer ourbrokerage services in four broad product categories: credit, financial, equityand commodity. The charts below detail our brokerage revenues by productcategory in dollars and as a percentage of our total brokerage revenues for theperiods indicated.
| ** **                | ** ** | **Six months Ended  June 30,** | ** ** |
|---------------------------|------------|-----------------------------------------------|------------|
| ** **                | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| **BROKERAGE REVENUES:**   | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Credit                    |       | $                                             | 157,247    |   | $ | 131,111 |   |
| Financial                 |       | 90,866                                        |       | 78,430 |   |
| Equity                    |       | 109,667                                       |       | 87,568 |   |
| Commodity                 |       | 96,632                                        |       | 52,787 |   |
| Total brokerage  revenues |       | $                                             | 454,412    |   | $ | 349,896 |   |
| **BROKERAGE REVENUES:**   | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Credit                    |       | 34.6                                          | %          | 37.5 | % |
| Financial                 |       | 20.0                                          |       | 22.4 |   |
| Equity                    |       | 24.1                                          |       | 25.0 |   |
| Commodity                 |       | 21.3                                          |       | 15.1 |   |
| Total brokerage  revenues |       | 100.0                                         | %          | 100.0 | % |

 

Total brokerage revenues increased by $104.5 million,or 29.9%, to $454.4 million for the six months ended June 30, 2007, ascompared to $349.9 million for the six months ended June 30, 2006. Agencycommissions increased by $97.0 million, or 36.3%, to $364.0 million for the sixmonths ended June 30, 2007, as compared to $267.0 million for the six monthsended June 30, 2006. Principal transactions increased by $7.5 million, or 9.0%,to $90.4 million for the six months ended June 30, 2007 from $82.9 million forthe six months ended June 30, 2006. Broker productivity (defined as total brokeragerevenues during the period divided by average monthly brokerage personnelheadcount for the period) increased by approximately 7.1% for the six monthsended June 30, 2007, as compared to the same period from the prior year.

The increase in credit product brokerage revenues of$26.1 million in the first half of 2007 as compared with the same period of2006 was due to a number of factors, including credit and equity marketvolatility related to subprime mortgage market and global economic concerns, increasedheadcount and the continued overall growth in the credit derivatives market,the development of new credit products and the continued success in Europe ofCreditMatch®.  Our credit productbrokerage personnel increased by 35 to a total of 259 employees at June 30,2007, up from 224 employees at June 30, 2006.

The increase in financial product brokerage revenuesof $12.5 million in the first half of 2007 as compared with the first half of2006 was primarily attributable to growth in emerging market interest rate andcurrency derivatives in Europe and Asia. Our financial product brokerage personnel increased by 17 to a total of274 employees at June 30, 2007, up from 257 employees at June 30, 2006.

The increase in equity product brokerage revenues of$22.1 million in the first half of 2007 as compared with the first half of 2006was primarily due the growth of our Paris office, which specializes in cashequities and equity derivatives, as well as our equity derivatives business inthe U.K. and Asia.  Our equity productbrokerage personnel increased by 33 to 204 employees at June 30, 2007, up from171 employees at June 30, 2006

The increase in commodity product brokerage revenuesof $43.8 million in the first half of 2007 as compared with the same period in2006 was primarily attributable to the addition of our Amerex brokeragebusiness.   In addition, significantgrowth in European energy products, including electricity, coal, dry freightand emissions, contributed to the increase in commodity and brokerage revenuesover the first six months of 2007.

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Our commodity productbrokerage personnel increased by 95 to a total of 272 employees at June 30,2007, up from 177 employees at June 30, 2006.

*Analytics andMarket Data*

Revenues from our analytics and market data productsincreased by $0.3 million, or 3.2%, to $9.8 million for the six months endedJune 30, 2007 as compared to $9.5 million for the six months ended June 30,2006. The increase was primarily due to an increase in subscription andmaintenance fees, which was offset by a decrease in update fees associated withthe licensing of analytical software .

*Interest Income*

Interest income decreased by $0.2 million, or 4.3%, to$4.4 million for the six months ended June 30, 2007, as compared to $4.6million for the six months ended June 30, 2006. The decrease was mainlyattributable to the decrease in interest income due to lower balance on theclearing accounts, which was partially offset by an increase in interest incomeattributable to the higher level of cash balances in the U.S.

*Other Income(Loss)*

Other income (loss) decreased by $3.7 million, or112.1%, to a loss of $0.4 million for the six months ended June 30, 2007 fromincome of $3.3 million for the six months ended June 30, 2006. Other income(loss) for the six months ended June 30, 2007 and 2006 mainly consisted oftransactional gains (losses) based on foreign currency fluctuations and netgains (losses) on foreign exchange derivative contracts.

***Expenses***

*Compensation andEmployee Benefits*

Compensation and employee benefits increased by $64.5million, or 28.0%, to $295.0 million for the six months ended June 30, 2007from $230.5 million for the six months ended June 30, 2006. The increase wasprimarily due to an increase in the number of brokerage personnel from 828employees at June 30, 2006 to 1,008 employees at June 30, 2007 and an increasein brokerage personnel performance bonuses of $24.8 million resulting in largepart from the increase in our brokerage revenues.

Total compensation and employee benefits as apercentage of total revenues increased to 63.0% at June 30, 2007 from 61.8% atJune 30, 2006. Bonus expense represented 52.3% and 54.2% of total compensationand employee benefits expense for the six months ended June 30, 2007 and 2006,respectively. A portion of our bonus expense is subject to contractualguarantees that may require us to make bonus payments to brokers regardless oftheir performance in any particular period. Additionally, sign-on bonusexpense, which includes the amortization of sign-on bonuses initially made inprior periods, represented 4.2% and 5.6% of total compensation and employeebenefits for the six months ended June 30, 2007 and 2006, respectively.

Our compensation and employee benefits are relativelystable.  However, certain of ourcompetitors are offering significant compensation packages to attract ourbrokers.  As a result, compensation andemployee benefits as a percentage of revenues will be under pressure, and mayincrease, in the short term.   We believethat an increase in the use of our hybrid electronic brokerage systems and  pressure on our competitors to rationalizethe increase in their compensation expense will eventually lessen the effect ofthe competitive pressure on compensation expense.

*Communications andMarket Data*

Communications and market data increased by $4.8million, or 28.2%, to $21.8 million for the six months ended June 30, 2007 from$17.0 million from the six months ended June 30, 2006. The increase wasprimarily attributable to the increase in brokerage personnel including inthose areas, such as equities, that rely more heavily on market data systems.

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*Travel andPromotion*

Travel and promotion increased by $2.9 million, or18.0%, to $19.0 million for the six months ended June 30, 2007 from$16.1 million for the six months ended June 30, 2006. This expense, as apercentage of our total brokerage revenues for the six months ended June 30,2007 decreased to 4.2% from 4.6% for the same period from the prior year. Thisdecrease was primarily due to our continuing efforts to lower these costsrelative to our total brokerage revenues.

*Rent and Occupancy*

Rent and occupancy increased by $0.7 million, or 6.7%,to $11.1 million for the six months ended June 30, 2007 from $10.4 million forthe six months ended June 30, 2006.  Theincrease was primarily due to an increase in repairs and maintenance, which wasoffset by a decrease in insurance, from our current leased facilities.  In June 2007, we entered into a twenty-yearlease for its primary office space in the U.S. Consequently, we expect the rent and occupancy will continue to increasein the future.  See Note 8 to theCondensed Consolidated Financial Statements for further discussion of our new U.S.lease.

*Depreciation andAmortization*

Depreciation and amortization increased by $3.0million, or 38.0%, to $10.9 million for the six months ended June 30, 2007 from$7.9 million for the six months ended June 30, 2006. The increase was primarilydue to the increase in capitalized equipment costs, leasehold improvement,communications equipment and amortization expense of intangibles resulting fromthe acquisition of the Amerex brokerage business.  Included in depreciation and amortizationexpense for the three months ended June 30, 2007 is $0.4 million of accelerateddepreciation related to certain long-lived assets to be abandoned as a resultof the early termination of certain of our leases in New York.  Total accelerated depreciation relating tothe fixed assets to be abandoned is $4.9 million, of which $0.4 million wasrecorded during the three months ended June 30, 2007 and $1.1 million will berecorded each quarter until June 30, 2008. See Note 8 to the Condensed Consolidated Financial Statements for furtherdiscussion of our new U.S. lease.

*Professional Fees*

Professional fees decreased by $1.5 million, or 16.0%to $7.9 million for the six months ended June 30, 2007 from $9.4 million forthe six months ended June 30, 2006. The decrease was primarily due to adecrease in professional fees related to our compliance with the requirementsof Section 404 of the Sarbanes-Oxley Act of 2002, which was partially offset byan increase in legal fees.

*Clearing Fees*

Clearing fees increased by $2.2 million, or 17.9%, to$14.5 million for the six months ended June 30, 2007 from $12.3 million for thesix months ended June 30, 2006. This increase was partially due to the growthof brokerage revenues from our Paris equities business.  Clearing fees, as a percentage of our totalrevenues from principal transactions increased to 16.0% for the six monthsended June 30, 2007 from 14.8% for the comparable period in the prioryear.  This increase was partially due tothe high cost of clearing fees as a result of the higher number and types oftransactions executed in our Paris office. Excluding transactions from our Paris office, clearing fees, as apercentage of our total revenues from principal transactions was 13.7% and12.7% for the six months ended June 30, 2007 and 2006, respectively.  Principal transactions are generally settledthrough third party clearing organizations that charge us a fee for theirservices. We also use the services of stock exchanges and floor brokers, toassist in the execution of transactions. Fees paid to floor brokers andexecution fees paid to exchanges in these circumstances are included inclearing fees.

*Interest Expense*

Interest expense increased slightly by $0.4 million,or 11.4%, to $3.9 million for the six months ended June 30, 2007 from $3.5million for the six months ended June 30, 2006. The increase was mainly attributable to the

32

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increase in interestexpense under our credit facility due to the higher level of outstandingborrowings during the six months ended June 30, 2007, which was offset by adecrease in interest expense on our clearing accounts for the six months endedJune 30, 2007 compared to the same period from the prior year.  Included in interest expense for the sixmonths ended June 30, 2007 is $1.7 million of interest on outstandingborrowings incurred to purchase the Amerex brokerage business in October 2006.

*Other Expenses*

Other expenses increased by $4.2 million, or 56.8%, to$11.6 million for the six months ended June 30, 2007 from $7.4 million for thesix months ended June 30, 2006. Included in other expenses for the six monthsended June 30, 2007 is a $1.6 million termination fee that will be incurred dueto our decision to terminate our primary office lease in New York.  See Note 8 to the Condensed ConsolidatedFinancial Statements for further discussion on the lease termination.  The remaining increase was primarily due toan increase in irrecoverable Value Added Tax related to increased purchases forcommunications and market data in Europe andlicense fees to third-party software vendors.

*Contract Costs*

Contract costs represent expenses incurred during thesecond quarter of 2007 from the additional work provided to a customer on atime and material basis.  See ContractRevenue above for further discussion.

*Provision forIncome Taxes*

Our provision for income taxes totaled $29.0 millionfor the six months ended June 30, 2007 compared to $22.5 million for the sixmonths ended June 30, 2006. Our effective tax rate was approximately 40% forthe six months ended June 30, 2007 as compared to 42% for the comparable periodin 2006. The reduction in the effective tax rate was primarily due to adecrease in state and local income taxes and taxes related to foreignoperations as well as an increase in business tax credits.  The reduction in state, local and foreigntaxes was due, in part, to lower state tax rates and the geographic mix of ourearnings.

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**Quarterly Results of Operations**

The followingtable sets forth, by quarter, our unaudited statement of income data for theperiod from July 1, 2005 to June 30, 2007. Results of any period are notnecessarily indicative of results for a full year and may, in certain periods,be affected by seasonal fluctuations in our business.
| ** **                           | ** ** | **June 30,  2007** | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** | **September 30,  2006** | ** ** | **June 30,  2006** | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** | **September 30,  2005** | ** ** |
|--------------------------------------|------------|-------------------------|------------|--------------------------|------------|-----------------------------|------------|------------------------------|------------|-------------------------|------------|--------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                           | ** ** | ** **              | ** ** | ** **               | ** ** | **(In thousands)**     | ** ** | ** **                   | ** ** | ** **              | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                   | ** ** |
| **Revenues**                         | ** ** | ** **              | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                   | ** ** | ** **              | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                   | ** ** |
| Brokerage  revenues:                 |       |                    |       |                     |       |                        |       |                         |       |                    |       |                     |       |                        |       |                         |       |
| Agency commissions                   |       | $                       | 179,466    |                     | $          | 184,525                     |       | $                            | 151,890    |                    | $          | 138,961                  |       | $                           | 130,134    |                         | $          | 136,910 |   | $ | 104,335 |   | $ | 98,559 |   |
| Principal transactions               |       | 42,044                  |       | 48,377                   |       | 33,890                      |       | 34,478                       |       | 41,792                  |       | 41,060                   |       | 31,250                      |       | 27,420                       |       |
| Total brokerage revenues             |       | 221,510                 |       | 232,902                  |       | 185,780                     |       | 173,439                      |       | 171,926                 |       | 177,970                  |       | 135,585                     |       | 125,979                      |       |
| Analytics and market data            |       | 4,491                   |       | 5,326                    |       | 4,232                       |       | 4,954                        |       | 4,271                   |       | 5,194                    |       | 3,388                       |       | 3,894                        |       |
| Contract revenue                     |       | 204                     |       | —                   |       | 1,092                       |       | —                       |       | 5,881                   |       | —                   |       | —                      |       | —                       |       |
| Interest income                      |       | 2,297                   |       | 2,102                    |       | 2,366                       |       | 2,150                        |       | 2,395                   |       | 2,233                    |       | 1,458                       |       | 1,236                        |       |
| Other income (loss)                  |       | (380                    | )          | (13                      | )          | 601                         |       | (585                         | )          | 3,093                   |       | 191                      |       | (145                        | )          | (420                         | )          |
| Total revenues                       |       | 228,122                 |       | 240,317                  |       | 194,071                     |       | 179,958                      |       | 187,566                 |       | 185,588                  |       | 140,286                     |       | 130,689                      |       |
| **Expenses**                         | ** ** | ** **              | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                   | ** ** | ** **              | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                   | ** ** |
| Compensation and employee benefits   |       | 143,474                 |       | 151,508                  |       | 122,465                     |       | 112,543                      |       | 113,701                 |       | 116,845                  |       | 89,511                      |       | 81,461                       |       |
| Communications and market data       |       | 11,299                  |       | 10,456                   |       | 10,545                      |       | 9,799                        |       | 9,303                   |       | 7,653                    |       | 7,064                       |       | 6,656                        |       |
| Travel and promotion                 |       | 10,170                  |       | 8,836                    |       | 9,242                       |       | 7,069                        |       | 8,549                   |       | 7,531                    |       | 7,017                       |       | 5,833                        |       |
| Rent and occupancy                   |       | 5,529                   |       | 5,561                    |       | 5,511                       |       | 4,594                        |       | 4,841                   |       | 5,613                    |       | 3,447                       |       | 4,662                        |       |
| Depreciation and amortization        |       | 5,720                   |       | 5,227                    |       | 6,799                       |       | 4,338                        |       | 4,048                   |       | 3,836                    |       | 4,159                       |       | 3,434                        |       |
| Professional fees                    |       | 4,332                   |       | 3,569                    |       | 5,397                       |       | 4,391                        |       | 5,320                   |       | 4,044                    |       | 2,507                       |       | 2,797                        |       |
| Clearing fees                        |       | 6,940                   |       | 7,529                    |       | 6,312                       |       | 5,884                        |       | 6,798                   |       | 5,477                    |       | 3,858                       |       | 3,480                        |       |
| Interest                             |       | 2,002                   |       | 1,849                    |       | 2,170                       |       | 1,124                        |       | 1,772                   |       | 1,752                    |       | 1,016                       |       | 778                          |       |
| Other expenses                       |       | 6,909                   |       | 4,649                    |       | 4,046                       |       | 3,098                        |       | 3,843                   |       | 3,556                    |       | 1,855                       |       | 2,217                        |       |
| Contract costs                       |       | 127                     |       | —                   |       | 639                         |       | —                       |       | 5,180                   |       | —                   |       | —                      |       | —                       |       |
| Lease termination costs to affiliate |       | —                  |       | —                   |       | (57                         | )          | (93                          | )          | (92                     | )          | —                   |       | 1,070                       |       | —                       |       |
| Total expenses                       |       | 196,502                 |       | 199,184                  |       | 173,069                     |       | 152,747                      |       | 163,263                 |       | 156,307                  |       | 121,504                     |       | 111,318                      |       |
| Income before  provision for taxes   |       | 31,620                  |       | 41,133                   |       | 21,002                      |       | 27,211                       |       | 24,303                  |       | 29,281                   |       | 18,782                      |       | 19,371                       |       |
| Provision for  income taxes          |       | 12,553                  |       | 16,453                   |       | 7,593                       |       | 10,621                       |       | 10,207                  |       | 12,298                   |       | 7,363                       |       | 8,523                        |       |
| Net income                           |       | $                       | 19,067     |                     | $          | 24,680                      |       | $                            | 13,409     |                    | $          | 16,590                   |       | $                           | 14,096     |                         | $          | 16,983 |   | $ | 11,419 |   | $ | 10,848 |   |

 

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The followingtable sets forth our quarterly results of operations as a percentage of ourtotal revenues for the indicated periods:
| ** **                              | ** ** | **June 30,** | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **September 30,** | ** ** | **June 30,** | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|-----------------------------------------|------------|-------------------|------------|--------------------|------------|-----------------------|------------|------------------------|------------|-------------------|------------|--------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                              | ** ** | **2007**          | ** ** | **2007**           | ** ** | **2006**              | ** ** | **2006**               | ** ** | **2006**          | ** ** | **2006**           | ** ** | **2005**              | ** ** | **2005**               | ** ** |
| **Revenues**                            | ** ** | ** **        | ** ** | ** **         | ** ** | ** **            | ** ** | ** **             | ** ** | ** **        | ** ** | ** **         | ** ** | ** **            | ** ** | ** **             | ** ** |
| Brokerage revenues:                     |       |              |       |               |       |                  |       |                   |       |              |       |               |       |                  |       |                   |       |
| Agency  commissions                     |       | 78.7              | %          | 76.8               | %          | 78.2                  | %          | 77.2                   | %          | 69.4              | %          | 73.8               | %          | 74.4                  | %          | 75.4                   | %          |
| Principal  transactions                 |       | 18.4              |       | 20.1               |       | 17.5                  |       | 19.2                   |       | 22.3              |       | 22.1               |       | 22.3                  |       | 21.0                   |       |
| Total brokerage  revenues               |       | 97.1              |       | 96.9               |       | 95.7                  |       | 96.4                   |       | 91.7              |       | 95.9               |       | 96.7                  |       | 96.4                   |       |
| Analytics and  market data              |       | 2.0               |       | 2.2                |       | 2.2                   |       | 2.8                    |       | 2.3               |       | 2.8                |       | 2.4                   |       | 3.0                    |       |
| Contract revenue                        |       | 0.1               |       | 0.0                |       | 0.6                   |       | —                 |       | 3.1               |       | —             |       | —                |       | —                 |       |
| Interest income                         |       | 1.0               |       | 0.9                |       | 1.2                   |       | 1.2                    |       | 1.3               |       | 1.2                |       | 1.0                   |       | 0.9                    |       |
| Other income (loss)                     |       | (0.2              | )          | 0.0                |       | 0.3                   |       | (0.4                   | )          | 1.6               |       | 0.1                |       | (0.1                  | )          | (0.3                   | )          |
| Total revenues                          |       | 100.0             | %          | 100.0              | %          | 100.0                 | %          | 100.0                  | %          | 100.0             | %          | 100.0              | %          | 100.0                 | %          | 100.0                  | %          |
| **Expenses**                            | ** ** | ** **        | ** ** | ** **         | ** ** | ** **            | ** ** | ** **             | ** ** | ** **        | ** ** | ** **         | ** ** | ** **            | ** ** | ** **             | ** ** |
|                                    |       |              |       |               |       |                  |       |                   |       |              |       |               |       |                  |       |                   |       |
| Compensation and  employee benefits     |       | 62.9              | %          | 63.0               | %          | 63.1                  | %          | 62.5                   | %          | 60.6              | %          | 63.0               | %          | 63.8                  | %          | 62.3                   | %          |
| Communications  and market data         |       | 5.0               |       | 4.4                |       | 5.4                   |       | 5.4                    |       | 5.0               |       | 4.1                |       | 5.0                   |       | 5.1                    |       |
| Travel and  promotion                   |       | 4.5               |       | 3.7                |       | 4.8                   |       | 3.9                    |       | 4.6               |       | 4.1                |       | 5.0                   |       | 4.5                    |       |
| Rent and  occupancy                     |       | 2.4               |       | 2.3                |       | 2.8                   |       | 2.6                    |       | 2.6               |       | 3.0                |       | 2.5                   |       | 3.6                    |       |
| Depreciation and  amortization          |       | 2.5               |       | 2.2                |       | 3.5                   |       | 2.4                    |       | 2.2               |       | 2.1                |       | 3.0                   |       | 2.6                    |       |
| Professional fees                       |       | 1.9               |       | 1.5                |       | 2.8                   |       | 2.4                    |       | 2.8               |       | 2.2                |       | 1.8                   |       | 2.1                    |       |
| Clearing fees                           |       | 3.0               |       | 3.1                |       | 3.3                   |       | 3.3                    |       | 3.6               |       | 3.0                |       | 2.8                   |       | 2.7                    |       |
| Interest                                |       | 0.9               |       | 0.8                |       | 1.1                   |       | 0.6                    |       | 0.9               |       | 0.9                |       | 0.7                   |       | 0.6                    |       |
| Other expenses                          |       | 3.0               |       | 1.9                |       | 2.1                   |       | 1.7                    |       | 2.0               |       | 1.9                |       | 1.3                   |       | 1.7                    |       |
| Contract costs                          |       | 0.1               |       | —             |       | 0.3                   |       | —                 |       | 2.8               |       | —             |       | —                |       | —                 |       |
|                                    |       |              |       |               |       |                  |       |                   |       |              |       |               |       |                  |       |                   |       |
| Lease termination  costs to affiliate   |       | —            |       | —             |       | —                |       | (0.1                   | )          | —            |       | —             |       | 0.8                   |       | —                 |       |
| Total expenses                          |       | 86.1              | %          | 82.9               | %          | 89.2                  | %          | 84.7                   | %          | 87.1              | %          | 84.3               | %          | 86.7                  | %          | 85.2                   | %          |
|                                    |       |              |       |               |       |                  |       |                   |       |              |       |               |       |                  |       |                   |       |
|  Income before provision for taxes |       | 13.9              |       | 17.1               |       | 10.8                  |       | 15.3                   |       | 12.9              |       | 15.7               |       | 13.3                  |       | 14.8                   |       |
| Provision for income  taxes             |       | 5.5               |       | 6.8                |       | 3.9                   |       | 5.9                    |       | 5.4               |       | 6.6                |       | 5.2                   |       | 6.5                    |       |
| Net income                              |       | 8.4               | %          | 10.3               | %          | 6.9                   | %          | 9.4                    | %          | 7.5               | %          | 9.1                | %          | 8.1                   | %          | 8.3                    | %          |

 

The tables belowdetail our brokerage revenues by product category in dollars and as apercentage of our total brokerage revenues for the indicated periods.
| ** **                | ** ** | **June 30,  2007** | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** | **September 30,  2006** | ** ** | **June 30,  2006** | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** | **September 30,  2005** | ** ** |
|---------------------------|------------|-------------------------|------------|--------------------------|------------|-----------------------------|------------|------------------------------|------------|-------------------------|------------|--------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                | ** ** | ** **              | ** ** | ** **               | ** ** | **(in thousands)**     | ** ** | ** **                   | ** ** | ** **              | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                   | ** ** |
| **Brokerage  Revenues:**  | ** ** | ** **              | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                   | ** ** | ** **              | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                   | ** ** |
| Credit                    |       | $                       | 72,436     |                     | $          | 84,811                      |       | $                            | 61,032     |                    | $          | 60,654                   |       | $                           | 59,838     |                         | $          | 71,273 |   | $ | 55,443 |   | $ | 51,472 |   |
| Financial                 |       | 45,865                  |       | 45,001                   |       | 39,232                      |       | 38,605                       |       | 38,942                  |       | 39,488                   |       | 29,213                      |       | 30,804                       |       |
| Equity                    |       | 53,284                  |       | 56,383                   |       | 44,940                      |       | 41,426                       |       | 46,109                  |       | 41,459                   |       | 29,931                      |       | 25,993                       |       |
| Commodity                 |       | 49,925                  |       | 46,707                   |       | 40,576                      |       | 32,754                       |       | 27,037                  |       | 25,750                   |       | 20,998                      |       | 17,710                       |       |
| Total brokerage revenues  |       | $                       | 221,510    |                     | $          | 232,902                     |       | $                            | 185,780    |                    | $          | 173,439                  |       | $                           | 171,926    |                         | $          | 177,970 |   | $ | 135,585 |   | $ | 125,979 |   |
| **Brokerage  Revenues:**  | ** ** | ** **              | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                   | ** ** | ** **              | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                   | ** ** |
| Credit                    |       | 32.7                    | %          | 36.4                     | %          | 32.9                        | %          | 35.0                         | %          | 34.8                    | %          | 40.0                     | %          | 40.9                        | %          | 40.8                         | %          |
| Financial                 |       | 20.7                    |       | 19.3                     |       | 21.1                        |       | 22.2                         |       | 22.7                    |       | 22.2                     |       | 21.5                        |       | 24.5                         |       |
| Equity                    |       | 24.1                    |       | 24.2                     |       | 24.2                        |       | 23.9                         |       | 26.8                    |       | 23.3                     |       | 22.1                        |       | 20.6                         |       |
| Commodity                 |       | 22.5                    |       | 20.1                     |       | 21.8                        |       | 18.9                         |       | 15.7                    |       | 14.5                     |       | 15.5                        |       | 14.1                         |       |
| Total brokerage  revenues |       | 100.0                   | %          | 100.0                    | %          | 100.0                       | %          | 100.0                        | %          | 100.0                   | %          | 100.0                    | %          | 100.0                       | %          | 100.0                        | %          |

 

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**Liquidity andCapital Resources**

Net cash provided by operations increased to $48.5million for the six months ended June 30, 2007, compared with $0.8 million usedfor operations for the six months ended June 30, 2006. The improvement isprimarily related to our increased net income, the increase in certain non-cashitems such as deferred compensation expense and the provision for deferredtaxes and the improvement in certain working capital items such as otherliabilities and the net receivable/payables to brokers, dealers and clearingorganizations.

Net cash used in investing activities for the sixmonths ended June 30, 2007 was $16.4 million compared to $13.4 million used inthe six months ended June 30, 2006. The increase in cash used for investingactivities was partially due to the cash used for the acquisition of CenturyChartering (U.K.) Limited.  Additionally,the increase in cash used in investing activities was due to higher capitalexpenditure resulting from our continued investment in the development oftrading systems and other software for internal use and an increase in thepurchase of computer equipment.

Net cash used in financing activities for the sixmonths ended June 30, 2007 was $26.2 million compared to $1.5 million net cash providedby financing activities for the six months ended June 30, 2006. The increase incash used for financing activities was due to higher net repayments under our2006 Credit Agreement, which was offset by higher cash received from stockoptions exercises and tax benefits related to share-based compensation.

Our liquidity and available cash resources are in partrestricted by the regulatory requirements of our operating subsidiaries,including GFI Securities LLC, GFI Securities Limited, GFI Brokers Limited,GFI (HK) Securities LLC, GFI (HK) Brokers Ltd., GFI Group Pte Ltd and GFIKorea Money Brokerage Limited. GFI Securities LLC is subject to regulatorycapital requirements under the Exchange Act and the Commodity Exchange Act. GFISecurities Limited and GFI Brokers Limited are subject to the regulatedcapital requirements of the FSA. GFI (HK) Securities LLC is subject to theregulated capital requirements of the Securities and Futures Commission inHong Kong. GFI (HK) Brokers Ltd. is subject to regulatory compliancerequirements under the Monetary Authority of Hong Kong. GFI Group PTE Ltd. issubject to the regulatory compliance requirements with the Monetary Authorityof Singapore. GFI Korea Money Brokerage Limited is subject to the regulatedcapital requirements of the Ministry of Finance and Economy of South Korea. AtJune 30, 2007, all of our regulated subsidiaries were in compliance with theirrespective regulatory capital requirements. In addition to these regulatorycapital requirements, our liquidity may be impacted by the amount of capitalthat we maintain in clearing accounts and with exchanges to support ourprincipal transactions business. See Note 11 to our Condensed ConsolidatedFinancial Statements for a further discussion of these regulatory requirements.

We currently have no material commitments for capitalexpenditures.  However, in June 2007, wesigned a new lease which will serve as our primary U.S. office space.  The new office space is in its early stagesof build out.  We anticipate that theaggregate cost of the build out of the new office space and relocation costswill be approximately $30.0 million.

We believe that, based on current levels of operationsand anticipated growth, our cash from operations, together with cash currentlyavailable and the available borrowings under our 2006 Credit Agreement, will besufficient to fund our operations for at least the next twelve months.  Poor financial results, unanticipatedexpenses, unanticipated acquisitions or unanticipated strategic investmentscould give rise to additional financing requirements sooner than we expect.There can be no assurance that equity or debt financing will be available whenneeded or, if available, that the financing will be on terms satisfactory to usand not dilutive to our then-current stockholders.

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**ContractualObligations and Commitments**

The following table summarizes certain of our contractualobligations as of June 30, 2007:

 
| ** **                   | ** ** | **Payments Due by Period** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|
| ** **                   | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| ** **                   | ** ** | **(in thousands)**                   | ** ** |
| **Contractual  Obligations** |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating  Leases(1)         |       | $                                         | 143,058    |   | $ | 11,954 |   | $ | 20,946 |   | $ | 21,105 |   | $ | 89,053 |   |
| Notes Payable  (2)           |       | 50,000                                    |       | 50,000 |   | — |   | — |   | — |   |
| Purchase  Obligations(3)     |       | 17,564                                    |       | 14,840 |   | 2,724 |   | — |   | — |   |
| **Total**                    |       | $                                         | 210,622    |   | $ | 76,794 |   | $ | 23,670 |   | $ | 21,105 |   | $ | 89,053 |   |

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(1)           Amountslisted under Operating Leases include the future minimum rental commitmentsrelating to a twenty-year lease that the Company entered into for its newprimary U.S. office space in June 2007. The total minimum rental commitmentsunder this lease total $94,045, with $6,024 due within one to three years,$8,070 due within three to five years and $79,951 due in more than five years.  Additionally, amounts listed under OperatingLeases include $1,684 to be paid in June 2008 to terminate certain leases for existingoffice space in New York.  SeeNote 8 to our Condensed Consolidated Financial Statements for furtherdiscussion.

(2)           Amountlisted under Notes Payable represents outstanding borrowings under our 2006 CreditFacility and vary from the notes payable reflected in our financial statementsbecause our financial statements reflect the total debt net of unamortized loanfees.   See Note 5 to the CondensedConsolidated Financial Statements for further information.

(3)           Amountslisted under Purchase Obligations include agreements for quotes with variousinformation service providers. Additionally, it includes purchase commitmentsof $802 for capital expenditures relating to the purchase of certain softwarein Europe and office build-out in the U.S. and Europe.  See Note 8 to our Condensed ConsolidatedFinancial Statements for further discussion.

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

**Off-Balance SheetArrangements**

The Company did not have any off-balance sheetarrangements at June 30, 2007.

**CriticalAccounting Policies and Estimates**

We have disclosed in Note 2 to our condensedconsolidated financial statements and in “Item 7—Management’s Discussionand Analysis of Financial Condition and Results of Operations” included in our2006 Form 10-K those accounting policies that we consider to besignificant in determining our results of operations and financial condition.There have been no material changes to those policies that we consider to besignificant since our 2006 Form 10-K. The accounting principlesutilized by us in preparing our Condensed Consolidated Financial Statementsconform in all material respects to generally accepted accounting principles inthe United States of America.

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**Recent AccountingPronouncements**

Effective January 1, 2007, we adopted FinancialAccounting Standards Board Interpretation No. 48, Accounting for Uncertainty inIncome Taxes (“FIN 48”) an interpretation of SFAS 109.  Upon adoption, we recognized a $4.4 millionincrease to the accrual for uncertain tax positions. This increase wasaccounted for as an adjustment to the beginning balance of retained earnings onthe Condensed Consolidated Statement of Financial Condition. After recognizingthe impact of the adoption of FIN 48, the total unrecognized tax benefits (netof the federal benefit on state issues) were approximately $7.7 million, all ofwhich could affect the effective income tax rate in any future periods.

In a foreign jurisdiction, we are in discussion withtax authorities regarding whether certain compensation expenses were deductibleby us in prior years.  A portion of thecompensation payment is held by a trustee and we may request but not compel thetrustee to use the money to offset the cost to us of the potential taxliability, if any, arising from the disallowance of the deduction.

We are subject to U.S. federal income tax, foreignincome tax as well as state income tax in the states in which we havesignificant business operations.  We havesubstantially concluded all U.S. federal income tax matters for years through2004, state and local tax matters through 2000 and foreign income tax mattersthrough 2002. We recognize interest and penalties related to income tax mattersin interest expense and other expense respectively. As of June 30, 2007, therehave been no material changes to the accrual for uncertain tax positions.

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements* (“SFAS 157”).  SFAS 157 defines fair value, establishes aframework for measuring fair value and requires enhanced disclosures about fairvalue measurements.  SFAS 157 requirescompanies to disclose the fair value of its financial instruments according toa fair value hierarchy, as defined. Additionally, companies are required to provide enhanced disclosure forcertain financial instruments within the hierarchy, including a reconciliationof the beginning and ending balances separately for each major category ofassets and liabilities.  SFAS No. 157 iseffective for financial statements for fiscal years beginning after November15, 2007.  We are currently evaluatingthe impact of adopting SFAS No. 157 on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets and Financial Liabilities —Including an Amendment of FASB Statement No. 115 (“SFAS 159”)*.  SFAS No. 159 provides a “Fair Value Option”under which a company may irrevocably elect fair value as the initial andsubsequent measurement attribute for certain financial assets and liabilities.This Fair Value Option will be available on a contract-by-contract basis withchanges in fair value recognized in earnings as those changes occur. SFAS No.159 is effective for financial statements for fiscal years beginning after November15, 2007.  We are currently evaluatingthe impact of adopting SFAS No. 159 on our consolidated financial statements.

**ITEM3.**                    QUANTITATIVEAND QUALITATIVE DISLCOSURES ABOUT MARKET RISK

Our quantitative and qualitative disclosures aboutmarket risk are described in “Item 7—Management’s Discussion and Analysisof Financial Condition and Results of Operations” and “Item 7A—Quantitativeand Qualitative Disclosures about Market Risk” contained in the 2006Form 10-K. Except as described below in this Form 10-Q,there have been no material changes to those market risks during the six monthsended June 30, 2007.

**Foreign CurrencyExposure Risk**

We are exposed to market riskassociated with movements in foreign currency exchange rates. There havebeen no material changes to our risk management policy during the six monthsended June 30, 2007.

While our international results of operations, asmeasured in U.S. dollars, are subject to foreign exchange rate fluctuations, wedo not consider the related risk to be material to our results of operations.If the British

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Pound and the Eurostrengthened by 10% against the U.S. Dollar, the net impact to our net incomewould have been a reduction of approximately $2.8 million.

**ITEM4.**                    CONTROLSAND PROCEDURES

As of the end of the period covered by this report,the Company’s management carried out an evaluation, under the supervision andwith the participation of our Chief Executive Officer and ourChief Financial Officer, of the effectiveness of the design and operationof our disclosure controls and procedures. Based on the foregoing, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective as of the end of the period covered bythis Form 10-Q in providing a reasonable level of assurance thatinformation we are required to disclose in reports we file or furnish under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms, and is accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.

In addition, the Company’s management, including theCompany’s Chief Executive Officer and Chief Financial Officer, hasevaluated the Company’s internal controls over financial reporting anddetermined that there have been no changes in our internal controls overfinancial reporting during the most recent fiscal quarter of 2007 that havematerially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting.

**PART II—OTHERINFORMATION**

**ITEM1.**                    LEGALPROCEEDINGS

In the normal course of business, we are and have beenparty to, or otherwise involved in, litigations, claims and arbitrations thatinvolve claims for substantial amounts. These proceedings have generallyinvolved either competitor claims in connection with new employee hires, orclaims from former employees in connection with the termination of theiremployment from us. We believe proceedings of these types are common in theinter-dealer brokerage industry due to its highly competitive nature. There isalso potential for client claims alleging the occurrence of errors in theexecution of brokerage transactions. We are also currently and will, in thefuture, be involved, in examinations, investigations or proceedings bygovernment agencies and self-regulatory organizations. These examinations orinvestigations could result in substantial fines or administrative proceedingsthat could result in censure, the issuance of cease and desist orders, thesuspension or expulsion of a broker dealer and its affiliated persons, officersor employees or other similar consequences.

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

**ITEM1A.**           RISKFACTORS

There have been no material changes in our riskfactors from those disclosed in the 2006 Form 10-K. See “RiskFactors” in Part I, Item 1A of our 2006 Form 10-K.

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**ITEM2.**                    UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Under our 2004Equity Incentive Plan, we allow employees to elect to have us withhold sharesof common stock to satisfy minimum statutory tax withholding obligationsarising on the vesting and settlement of restricted stock units. When wewithhold these shares, we are required to remit to the appropriate taxingauthorities the market price of the shares withheld, which could be deemed apurchase of the shares of common stock by us on the date of withholding. Duringthe quarter ended June 30, 2007, we withheld shares of common stock to satisfytax withholding obligations as follows:
| **Date** | ** ** | **No. of Shares** | ** ** | **Average Market Price** | ** ** |
|----------|------------|-----------------------------|------------|------------------------------------|------------|
| April    |       | 557                         |       | $                                  | 69.25      |   |
| May      |       | 11,065                      |       | $                                  | 73.10      |   |
| June     |       | 5,500                       |       | $                                  | 72.52      |   |

 

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

At the 2007 AnnualMeeting of Stockholders, which was held on June 13, 2007 (the “Annual Meeting”),the stockholders of the Company elected two directors to serve until the 2010Annual Meeting of Stockholders or until successors are duly elected andqualified.

The affirmative vote of aplurality of the votes cast by holders of shares of common stock was requiredto elect the directors.

The following table setsforth the number of votes cast for and withheld with respect to each nominee.
| **Nominee**   | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|---------------|------------|------------|------------|--------------|------------|
| Colin Heffron |       | 26,427,901 |       | 364,607      |       |
| John Ward     |       | 26,140,790 |       | 651,718      |       |

 

The following is a listof the Company’s directors whose term of office continued after the 2007 AnnualMeeting:

Michael A. GoochMarisa CassoniGeoffrey KalishJohn MacDonald

**ITEM6.**                    EXHIBITS

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

 

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this Quarterly Report on Form 10-Q for the quarter ended June30, 2007 to be signed on its behalf by the undersigned, thereunto dulyauthorized, on the 9th day of August, 2007
|        | GFI GROUP INC. |
|--------|---------------------|
|   |                |
|   |                |
|   | By:                 | /s/ JAMES  A. PEERS |
|   | Name:               | James A. Peers |
|   | Title:              | *Chief Financial Officer* |
|   | * *            | *(principal financial and accounting officer)* |

 

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

 

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