**Tableof Contents**

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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

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**FORM 10-Q**

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**(MarkOne)**

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

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**FORTHE QUARTERLY PERIOD ENDED MARCH 31, 2010**

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**OR**

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

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**FOR THE TRANSITIONPERIOD FROM           TO           **

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**CommissionFile No: 000-51103**

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**GFI GROUP INC.**

(Exact name of registrant as specified in itscharter)

 
| **Delaware**                              | **80-0006224**      |
|-------------------------------------------|---------------------|
| (State or other  jurisdiction of          | (I.R.S. Employer    |
| incorporation or  organization)           | Identification No.) |
| ** **                                | ** **          |
| **55  Water Street, New York, NY**        | **10041**           |
| (Address of principal  executive offices) | (Zip Code)          |

 

Registrant’s telephonenumber, including area code: **(212) 968-4100**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(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 markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).    YES o     NO o

 

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

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). YES o   NO x

 

The number of shares ofregistrant’s common stock outstanding on April 30, 2010 was 119,606,373.

 

 

 

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**Table of Contents**

 
| **Part I—Financial Information** |                                                                                                                                                       |
|--------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                       |                                                                                                                                                       |   |
| Item 1.                                    | Financial Statements                                                                                                                                       | 4 |
|                                       | Condensed Consolidated Statements of Financial  Condition as of March 31, 2010 (unaudited) and December 31, 2009                                 | 4 |
|                                       | Condensed Consolidated Statements of Income for the  three months ended March 31, 2010 (unaudited) and March 31, 2009  (unaudited)               | 5 |
|                                       | Condensed Consolidated Statements of Comprehensive  Income for the three months ended March 31, 2010 (unaudited) and  March 31, 2009 (unaudited) | 6 |
|                                       | Condensed Consolidated Statements of Cash Flows for  the three months ended March 31, 2010 (unaudited) and March 31,  2009 (unaudited)           | 7 |
|                                       | Notes to Condensed Consolidated Financial Statements  (unaudited)                                                                                          | 8 |
| Item 2.                                    | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                                                | 25 |
| Item 3.                                    | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                | 40 |
| Item 4.                                    | Controls and  Procedures                                                                                                                                   | 40 |
| ** **                                 | ** **                                                                                                                                                 |
| **Part II—Other  Information**   |                                                                                                                                                       |
|                                       |                                                                                                                                                       |   |
| Item 1.                                    | Legal Proceedings                                                                                                                                          | 41 |
| Item  1A.                                  | Risk  Factors                                                                                                                                              | 41 |
| Item 2.                                    | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                               | 41 |
| Item  6.                                   | Exhibits                                                                                                                                                   | 42 |

 

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**AvailableInformation**

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OurInternet website address is *www.gfigroup.com*.Through our Internet website, we make available, free of charge, the followingreports as soon as reasonably practicable after electronically filing themwith, or furnishing them to, the Securities and Exchange Commission (the “SEC”):our annual reports on Form 10-K; our proxy statements for our annual andspecial stockholder meetings; our quarterly reports on Form 10-Q; ourcurrent reports on Form 8-K; Forms 3, 4 and 5 filed on behalf ofdirectors and executive officers; and amendments to those reports filed orfurnished pursuant to Section 13(a) of the Securities Exchange Act of1934, as amended (the ‘‘Exchange Act’’).

 

Informationrelating to the corporate governance of the Company is also available on ourwebsite, including information concerning our directors, board committees,including committee charters, our code of business conduct and ethics for allemployees and for senior financial officers and our compliance procedures foraccounting and auditing matters.  Inaddition, the Investor Relations page of our website includes certainsupplemental financial information that we make available from time to time.

 

OurInternet website and the information contained therein or connected thereto arenot incorporated into this Quarterly Report on Form 10-Q.

 

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**PART I—FINANCIALINFORMATION**

 

**ITEM1.**                    FINANCIALSTATEMENTS

** **

**GFI GROUP INC. ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATEDSTATEMENTS OF FINANCIAL CONDITION**

**(In thousands, exceptshare and per share amounts)**

 
| ** **                                                                                                                                                                       | ** ** | **March   31,********2010** | ** ** | **December 31,********2009** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                                                                                       | ** ** | **(Unaudited)**                  | ** ** | ** **                        | ** ** |
| **ASSETS**                                                                                                                                                                       |       |                             |       |                              |       |
| Cash  and cash equivalents                                                                                                                                                       |       | $                                | 310,426    |                              | $          | 342,379 |   |
| Deposits  with clearing organizations                                                                                                                                            |       | 13,043                           |       | 11,065                            |       |
| Commissions  receivable, net of allowance for doubtful accounts of $2,658 and $4,099 at  March 31, 2010 and December 31, 2009, respectively                            |       | 98,643                           |       | 87,354                            |       |
| Receivables  from brokers, dealers and clearing organizations                                                                                                                    |       | 214,926                          |       | 87,737                            |       |
| Property,  equipment and leasehold improvements, net of depreciation and amortization of  $114,500 and $108,902 at March 31, 2010 and December 31, 2009,  respectively |       | 63,767                           |       | 65,334                            |       |
| Goodwill                                                                                                                                                                         |       | 210,758                          |       | 210,758                           |       |
| Intangible  assets, net                                                                                                                                                          |       | 38,726                           |       | 40,123                            |       |
| Other  assets                                                                                                                                                                    |       | 121,116                          |       | 107,344                           |       |
| TOTAL  ASSETS                                                                                                                                                                    |       | $                                | 1,071,405  |                              | $          | 952,094 |   |
|                                                                                                                                                                             |       |                             |       |                              |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                    |       |                             |       |                              |       |
| LIABILITIES                                                                                                                                                                      |       |                             |       |                              |       |
| Accrued  compensation                                                                                                                                                            |       | $                                | 66,057     |                              | $          | 106,286 |   |
| Accounts  payable and accrued expenses                                                                                                                                           |       | 42,503                           |       | 48,845                            |       |
| Payables  to brokers, dealers and clearing organizations                                                                                                                         |       | 184,855                          |       | 68,131                            |       |
| Short-term  borrowings, net                                                                                                                                                      |       | 114,250                          |       | 114,069                           |       |
| Long-term  obligations, net                                                                                                                                                      |       | 59,650                           |       | 59,619                            |       |
| Other  liabilities                                                                                                                                                               |       | 108,709                          |       | 71,042                            |       |
| Total  Liabilities                                                                                                                                                               |       | $                                | 576,024    |                              | $          | 467,992 |   |
| Commitments  and contingencies                                                                                                                                                   |       |                             |       |                              |       |
|                                                                                                                                                                             |       |                             |       |                              |       |
| STOCKHOLDERS’  EQUITY                                                                                                                                                       |       |                             |       |                              |       |
| Preferred  stock, $0.01 par value; 5,000,000 shares authorized, none outstanding at  March 31, 2010 and December 31, 2009                                              |       | —                           |       | —                            |       |
| Common  stock, $0.01 par value; 400,000,000 shares authorized; 122,308,874 and  120,860,100 shares issued at March 31, 2010 and December 31, 2009,  respectively       |       | 1,223                            |       | 1,209                             |       |
| Additional  paid in capital                                                                                                                                                      |       | 301,002                          |       | 296,430                           |       |
| Retained  earnings                                                                                                                                                               |       | 219,507                          |       | 212,059                           |       |
| Treasury  stock, 2,433,527 common shares at cost, at March 31, 2010 and  December 31, 2009                                                                             |       | (22,901                          | )          | (22,901                           | )          |
| Accumulated  other comprehensive loss                                                                                                                                            |       | (3,450                           | )          | (2,695                            | )          |
| Total  Stockholders’ Equity                                                                                                                                                 |       | 495,381                          |       | 484,102                           |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                 |       | $                                | 1,071,405  |                              | $          | 952,094 |   |

 

Seenotes to condensed consolidated financial statements

 

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**GFI GROUP INC. ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME (UNAUDITED)**

**(In thousands, exceptshare and per share amounts)**

 
| ** **                                | ** ** | **Three  Months Ended March 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                | ** ** | **2010**                                    | ** ** | **2009** | ** ** |
| REVENUES:                                 |       |                                        |       |   |   |
| Brokerage  revenues:                      |       |                                        |       |   |   |
| Agency  commissions                       |       | $                                           | 143,830    |   | $ | 125,399 |   |
| Principal  transactions                   |       | 60,296                                      |       | 72,215 |   |
| Total  brokerage revenues                 |       | 204,126                                     |       | 197,614 |   |
| Software,  analytics and market data      |       | 14,900                                      |       | 13,052 |   |
| Interest  income                          |       | 240                                         |       | 497 |   |
| Other  income                             |       | 1,509                                       |       | 5,072 |   |
| Total  revenues                           |       | 220,775                                     |       | 216,235 |   |
| EXPENSES:                                 |       |                                        |       |   |   |
| Compensation  and employee benefits       |       | 144,663                                     |       | 145,548 |   |
| Communications  and market data           |       | 11,886                                      |       | 11,498 |   |
| Travel  and promotion                     |       | 8,893                                       |       | 7,480 |   |
| Rent  and occupancy(1)                    |       | 5,431                                       |       | 4,734 |   |
| Depreciation  and amortization            |       | 8,184                                       |       | 7,839 |   |
| Professional  fees                        |       | 6,597                                       |       | 5,091 |   |
| Clearing  fees                            |       | 7,424                                       |       | 8,107 |   |
| Interest                                  |       | 2,575                                       |       | 2,469 |   |
| Other  expenses(1)                        |       | 5,008                                       |       | 5,344 |   |
| Total  expenses                           |       | 200,661                                     |       | 198,110 |   |
| INCOME  BEFORE PROVISION FOR INCOME TAXES |       | 20,114                                      |       | 18,125 |   |
| PROVISION  FOR INCOME TAXES               |       | 6,738                                       |       | 6,525 |   |
| NET  INCOME                               |       | $                                           | 13,376     |   | $ | 11,600 |   |
| EARNINGS  PER SHARE                       |       |                                        |       |   |   |
| Basic                                     |       | $                                           | 0.11       |   | $ | 0.10 |   |
| Diluted                                   |       | $                                           | 0.11       |   | $ | 0.10 |   |
| WEIGHTED  AVERAGE SHARES OUSTANDING       |       |                                        |       |   |   |
| Basic                                     |       | 118,606,954                                 |       | 118,364,233 |   |
| Diluted                                   |       | 122,861,743                                 |       | 120,400,536 |   |

 

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(1) As adjusted —see Note 2

 

Seenotes to condensed consolidated financial statements

 

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**GFIGROUP INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVEINCOME (UNAUDITED)**

**(Inthousands)**

 
| ** **                                                           | ** ** | **Three  Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                           | ** ** | **2010**                                    | ** ** | **2009** | ** ** |
| NET  INCOME                                                          |       | $                                           | 13,376     |   | $ | 11,600 |   |
| OTHER  COMPREHENSIVE INCOME (LOSS):                                  |       |                                        |       |   |   |
| Foreign  currency translation adjustment, net of tax                 |       | (412                                        | )          | (467 | ) |
| Unrealized  (loss) gain on available-for-sale securities, net of tax |       | (341                                        | )          | (402 | ) |
| COMPREHENSIVE  INCOME                                                |       | $                                           | 12,623     |   | $ | 10,731 |   |

 

Seenotes to condensed consolidated financial statements

 

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**GFIGROUP INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)**

**(Inthousands)**

 
| ** **                                                                     | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                          |       |                                                 |       |   |   |
| Net income                                                                     |       | $                                                    | 13,376     |   | $ | 11,600 |   |
| Adjustments to reconcile net income to net cash used in operating  activities: |       |                                                 |       |   |   |
| Depreciation and amortization                                                  |       | 8,129                                                |       | 7,839 |   |
| Amortization of loan fees                                                      |       | 231                                                  |       | 137 |   |
| Provision for doubtful accounts                                                |       | 83                                                   |       | 1,760 |   |
| Deferred compensation                                                          |       | 6,784                                                |       | 5,752 |   |
| Provision for (benefit from) deferred taxes                                    |       | 340                                                  |       | 5,909 |   |
| (Gains) losses on foreign exchange derivative contracts                        |       | (3,079                                               | )          | (8,667 | ) |
| (Gains) losses from equity method investments                                  |       | (103                                                 | )          | (670 | ) |
| Tax expense (benefit) related to share-based compensation                      |       | 348                                                  |       | 1,371 |   |
| Other non-cash charges, net                                                    |       | (23                                                  | )          | (56 | ) |
| (Increase) decrease in operating assets:                                       |       |                                                 |       |   |   |
| Deposits with clearing organizations                                           |       | (1,978                                               | )          | 156 |   |
| Commissions receivable                                                         |       | (11,372                                              | )          | (1,599 | ) |
| Receivables from brokers, dealers and clearing organizations                   |       | (127,189                                             | )          | (87,045 | ) |
| Other assets                                                                   |       | (9,035                                               | )          | 3,926 |   |
| (Decrease) increase in operating liabilities:                                  |       |                                                 |       |   |   |
| Accrued compensation                                                           |       | (40,230                                              | )          | (41,304 | ) |
| Accounts payable and accrued expenses                                          |       | (6,343                                               | )          | 1,079 |   |
| Payables to brokers, dealers and clearing organizations                        |       | 116,724                                              |       | 86,368 |   |
| Other liabilities                                                              |       | 39,412                                               |       | 13,096 |   |
| Cash used in operating activities                                              |       | (13,925                                              | )          | (348 | ) |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                          |       |                                                 |       |   |   |
| Proceeds from notes receivable                                                 |       | 1,000                                                |       | — |   |
| Proceeds from other investments                                                |       | —                                               |       | 1,982 |   |
| Purchases of other investments                                                 |       | (8,338                                               | )          | (211 | ) |
| Purchase of property, equipment and leasehold improvements                     |       | (3,859                                               | )          | (4,525 | ) |
| Net payments on foreign exchange derivative contracts                          |       | 3,736                                                |       | (2,613 | ) |
| Cash used in investing activities                                              |       | (7,461                                               | )          | (5,367 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                          |       |                                                 |       |   |   |
| Repayment of short-term borrowings                                             |       | —                                               |       | (4,000 | ) |
| Repurchases of common stock                                                    |       | —                                               |       | (2,582 | ) |
| Cash dividends paid                                                            |       | (5,928                                               | )          | (5,883 | ) |
| Payment of loan fees                                                           |       | —                                               |       | (47 | ) |
| Proceeds from exercise of stock options                                        |       | 471                                                  |       | — |   |
| Cash paid for taxes on vested restricted stock units                           |       | (4,632                                               | )          | (777 | ) |
| Tax (expense) benefit related to share-based compensation                      |       | (348                                                 | )          | (1,371 | ) |
| Cash used in financing activities                                              |       | (10,437                                              | )          | (14,660 | ) |
| Effects of exchange rate changes on cash and cash equivalents                  |       | (130                                                 | )          | (892 | ) |
| DECREASE IN CASH AND CASH EQUIVALENTS                                          |       | (31,953                                              | )          | (21,267 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                 |       | 342,379                                              |       | 342,375 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                       |       | $                                                    | 310,426    |   | $ | 321,108 |   |
|                                                                           |       |                                                 |       |   |   |
| SUPPLEMENTAL DISCLOSURE:                                                       |       |                                                 |       |   |   |
| Interest paid                                                                  |       | $                                                    | 3,556      |   | $ | 3,763 |   |
| Income taxes paid, net of refunds                                              |       | $                                                    | (1,023     | ) | $ | 2,841 |   |

 

Non-Cash Investing Activity:

 

Duringthe three months ended March 31, 2010, the Company recorded $2,286 withinOther assets with respect to the issuance of restricted shares in connectionwith the investment as described in Note 5.

 

Seenotes to condensed consolidated financial statements

 

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

 

**1.     ORGANIZATION ANDBUSINESS**

 

Thecondensed consolidated financial statements include the accounts of GFIGroup Inc. and its subsidiaries (collectively the “Company”). The Company,through its subsidiaries, provides brokerage services, trading system softwareand market data and analytical software products to institutional clients inmarkets for a range of credit, financial, equity and commodity instruments. TheCompany complements its brokerage capabilities with value-added services, suchas market data and software systems and products for decision support, which itlicenses primarily to companies in the financial services industry. The Company’sprincipal operating subsidiaries include: GFI Securities LLC, GFIBrokers LLC, GFI Group LLC, GFI Securities Limited, GFI BrokersLimited, GFI (HK) Securities LLC, GFI (HK) Brokers Ltd., GFI GroupPte. Ltd., GFI Korea Money Brokerage Limited, Amerex Brokers LLC,Fenics Limited (“Fenics”) and Trayport Limited (“Trayport”). As of March 31,2010, Jersey Partners, Inc. (“JPI”) owns approximately 43% of the Company’soutstanding shares of common stock. The Company’s chief executive officer,Michael Gooch, is the controlling shareholder of JPI.

 

**2.     SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

 

***Basis of Presentation****—*The Company’s condensed consolidatedfinancial statements (unaudited) are prepared in accordance with accountingprinciples generally accepted in the United States of America, which requiremanagement to make estimates and assumptions that affect the reported amounts ofassets and liabilities, revenues and expenses, and the disclosure ofcontingencies in the consolidated financial statements. Management believesthat the estimates utilized in the preparation of the consolidated financialstatements are reasonable and prudent. Actual results could differ materiallyfrom these estimates.

 

All intercompanytransactions and balances have been eliminated.

 

Certainamounts totaling $416 related to insurance expense were previously presented inthe “Rent and occupancy” line item in the Condensed Consolidated Statements ofIncome for the three months ended March 31, 2009 but should have beenpresented in “Other expenses” in the Condensed Consolidated Statements ofIncome for this period. This amount has been properly reclassified to “Otherexpenses” for this period.

 

Thecondensed consolidated financial statements should be read in conjunction withthe Company’s consolidated financial statements and notes thereto included inthe Company’s Annual Report on Form 10-K for the fiscal year ended December 31,2009 (the “2009 Form 10-K”). The condensed consolidated financialstatements reflect all adjustments that are, in the opinion of management,necessary for the fair statement of the results for the interim period. Theresults of operations for interim periods are not necessarily indicative ofresults for the entire year.

 

***Brokerage Transactions—***The Company provides brokerage services to its clientsby executing transactions on either an agency or principal transaction basis.

 

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

 

*Principal Transactions—*Principal transactions revenue is primarily derivedfrom matched principal and principal trading transactions. Principaltransactions revenues and related expenses are recognized on a trade datebasis. The Company earns revenue from principal transactions on the spreadbetween the buy and sell price of the security that is brokered. In matchedprincipal transactions, the Company simultaneously agrees to buy instrumentsfrom one customer and sell them to another customer.

 

In the normalcourse of its matched principal and principal trading businesses, the Companyholds securities positions overnight. These positions are marked to market on adaily basis.

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

***Software, Analyticsand Market Data Revenue Recognition***—Softwarerevenue consists primarily of fees charged for Trayport electronic tradingsoftware, which are typically billed on a subscription basis and is recognizedratably over the term of the subscription period, which ranges from one to fiveyears. Analytics revenue consists primarily of software license fees for Fenicspricing tools which are typically billed on a subscription basis, and isrecognized ratably over the term of the subscription period, which is generallythree years. Market data revenue primarily consists of subscription fees andfees from customized one-time sales. Market data subscription fees arerecognized on a straight-line basis over the term of the subscription period,which ranges from one to two years. Market data revenue from customizedone-time sales is recognized upon delivery of the data.

 

The Companymarkets its software, analytics and market data products through its directsales force and, in some cases, indirectly through resellers. In general, 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 ASC 350, *Intangibles Goodwill and Other* (formerly Statement ofFinancial Accounting Standards (“SFAS”) No. 142, *Goodwill and Intangible Assets*), goodwilland intangible assets with indefinite lives are no longer amortized, butinstead are tested for impairment annually or more frequently if circumstancesindicate impairment may have occurred. In the event the Company determines thatthe value of goodwill has become impaired, it will incur a charge for theamount of impairment during the fiscal quarter in which such determination ismade. The Company has selected January 1st as the date to perform theannual impairment test. Intangible assets with definite lives are amortized ona straight-line basis over their estimated useful lives.

 

***Fair Value of Financial Instruments****—* In accordance with ASC 820-10, *FairValue Measurements and Disclosures* (“ASC 820-10”) (formerly SFASNo.157, *Fair Value Measurements*),the Company estimates fair values of financial instruments using relevantmarket information and other assumptions. Fair value estimates involve uncertainties and matters of significantjudgment in interpreting market data and accordingly, changes in assumptions orin market conditions could adversely affect the estimates.  The Company also discloses the fair value ofits financial instruments in accordance with the fair value hierarchy as setforth by ASC 820-10.

 

In addition, the Company uses foreign exchange derivativecontracts to reduce the effects of fluctuations in certain receivables andpayables denominated in foreign currencies. Derivative contracts that are notdesignated as foreign currency cash flow hedges are recorded at fair value andall realized and unrealized gains and losses are included in Other income inthe Condensed Consolidated Statements of Income.

 

***Income Taxes—*** In accordance with ASC 740, *Income Taxes*(formerly SFAS No. 109, *Accounting for IncomeTaxes*), the Company provides for income taxes using the asset andliability method under which deferred income taxes are recognized for theestimated future tax effects attributable to temporary differences andcarry-forwards that result from events that have been recognized either in thefinancial statements or the income tax returns, but not both. The measurementof current and deferred income tax liabilities and assets is based onprovisions of enacted tax laws. Valuation allowances are recognized if, basedon the weight of available evidence, it is more likely than not that someportion of the deferred tax assets will not be realized. Effective January 1,2007, the Company adopted ASC 740-10 (formerly Financial Accounting StandardsBoard Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes, an interpretation of SFAS No. 109)*. It is theCompany’s policy to provide for uncertain tax positions and the relatedinterest and penalties based upon management’s assessment of whether a taxbenefit is more likely than not to be sustained upon examination by taxauthorities.

 

***Foreign Currency Translation Adjustmentsand Transactions****—*Assets and liabilities of foreign subsidiaries havingnon-U.S. dollar functional currencies are translated at the period end rates ofexchange, and revenue and expenses are translated at the average rates ofexchange for the period. Gains or losses resulting from translating foreign currencyfinancial statements are reflected in foreign currency translation adjustmentsand are reported as a separate component of comprehensive income and includedin accumulated other comprehensive loss in stockholders’ equity. Gains orlosses resulting from foreign currency transactions are included in Otherincome in the Condensed Consolidated Statements of Income.  Net gains resulting from remeasurement offoreign currency transactions and balances for the three months ended March 31,2010 and 2009 were $2,294 and $5,226, respectively, and are included in Otherincome.

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

***Share-Based Compensation****—****The***Company’sshare-based compensation consists of stock options and restricted stock units (“RSUs”).The Company follows ASC 718, *Compensation-StockCompensation* (“ASC 718”) (formerly SFAS No. 123(R), *Share-Based Payment*), to account for itsstock-based compensation. ASC 718 revised the fair value-based method ofaccounting for share-based payment liabilities, forfeitures and modificationsof stock-based awards and clarified guidance in several areas, includingmeasuring fair value, classifying an award as equity or as a liability andattributing compensation cost to service periods. Additionally, under ASC 718,actual tax benefits recognized in excess of tax benefits previously establishedupon grant are reported as a financing cash flow, as opposed to operating cashflows.  In recent periods, the onlyshare-based compensation 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.

 

***Other Income—***Included within Other income on the Company’s Condensed ConsolidatedStatements of Income are revaluations of foreign currency derivative contracts,realized and unrealized transaction gains and losses on certain foreigncurrency transactions and balances and gains and losses on certain investments.

 

***Recent Accounting Pronouncements***

 

In May 2009,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 165, *Subsequent Event*s, which is now asub-topic within ASC 855-10 *SubsequentEvents* (“ASC 855-10”). ASC 855-10 provides guidance for accountingfor and disclosure of subsequent events that are not addressed in otherapplicable generally accepted accounting principles. ASC 855-10 was effectivefor interim and annual reporting periods ending after June 15, 2009, andhas been applied prospectively by the Company. In February 2010, the FASBamended ASC 855-10 through the issuance of Accounting Standards Update No. 2010-09(“ASU 2010-09”), *Amendments to CertainRecognition and Disclosure Requirements*. ASU 2010-09 removed therequirement for an SEC filer to disclose a date in both the issued and revisedfinancial statements and was effective upon issuance. See Note 16 fordisclosures on Subsequent Events.

 

In October 2009,the FASB issued Accounting Standards Update No. 2009-13 (“ASU 2009-13”) *Revenue Recognition (Topic 605) Multiple-DeliverableRevenue Arrangements*. ASU 2009-13 establishes the accounting andreporting guidance for arrangements with multiple-revenue generatingactivities. ASU 2009-13 addresses how to separate deliverables and how tomeasure and allocate arrangement consideration to one or more units ofaccounting and provides a selling price hierarchy for determining the sellingprice of a deliverable. ASU 2009-13 is effective for fiscal years beginning onor after June 15, 2010. Early adoption is permitted but must beretrospectively applied to the beginning of the fiscal year of adoption. TheCompany does not expect the impact of the adoption of ASU 2009-13 to have amaterial impact on its consolidated financial statements.

 

In October 2009,the FASB issued Accounting Standards Update No. 2009-14 (“ASU 2009-14”) *Software (Topic 985) Certain Revenue ArrangementsThat Include Software Elements*. ASU 2009-14 provides guidance on howto allocate arrangement consideration to deliverables in an arrangement thatincludes both tangible products and software. ASU 2009-14 also providesadditional guidance on how to determine which software, if any, relating to thetangible product would be excluded from software revenue recognition. ASU2009-14 is effective for fiscal years beginning on or after June 15, 2010.Early adoption is permitted but must be retrospectively applied to thebeginning of the fiscal year of adoption. The Company does not expect theadoption of ASU 2009-14 to have a material impact on its consolidated financialstatements.

 

In January 2010,the FASB issued Accounting Standards Update No. 2010-06 (“ASU 2010-06”) *Fair Value Measurements and Disclosures (Topic 820)Improving Disclosures about Fair Value Measurements.* ASU 2010-06provides amendments to Subtopic 820-10 that require new disclosures includingthe amounts of and reasons for transfers in and out of Levels 1 and 2 fairvalue measurements and reporting activity in the reconciliation of Level 3fair value measurements on a gross basis. ASU 2010-06 provides amendmentsthat clarify existing disclosures regarding the level of disaggregation forproviding fair value measurement disclosures for each class of assets andliabilities. In addition, it clarifies existing disclosures about inputs andvaluation techniques used to measure fair value for both recurring andnonrecurring fair value measurements that are required for either Level 2or Level 3. ASU 2010-06 was effective for interim and annual reportingperiods ending after December 15, 2009 except for the disclosures aboutthe roll forward of activity in Level 3 fair value measurements, which areeffective for fiscal years beginning after December 31, 2010 and forinterim periods within those fiscal years. The adoption of ASU 2010-06 did nothave a material impact on the Company’s consolidated financial statements andthe adoption of ASU 2010-06 with respect to disclosures of the roll forward ofactivity in Level 3 fair value measurements is not expected to have amaterial impact on the Company’s consolidated financial statements.

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

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

 

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

 
| ** **                                                                 | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Receivables from brokers, dealers and clearing  organizations:             |       |                     |       |                        |       |
| Contract value of fails to deliver                                         |       | $                        | 194,776    |                        | $          | 65,651 |   |
| Balance receivable from clearing organizations and  financial institutions |       | 20,150                   |       | 22,086                      |       |
| Total                                                                      |       | $                        | 214,926    |                        | $          | 87,737 |   |
| Payables to brokers, dealers and clearing  organizations:                  |       |                     |       |                        |       |
| Contract value of fails to receive                                         |       | $                        | 176,932    |                        | $          | 67,554 |   |
| Balance payable to clearing organizations                                  |       | 7,737                    |       | —                      |       |
| Payable to financial institutions                                          |       | 186                      |       | 577                         |       |
| Total                                                                      |       | $                        | 184,855    |                        | $          | 68,131 |   |

 

Substantially all fail todeliver and fail to receive balances at March 31, 2010 and December 31,2009 have subsequently settled at the contracted amounts.

 

**4.    GOODWILL AND INTANGIBLE ASSETS**

 

On November 1, 2009,the Company completed the acquisition of certain assets of a retail energybrokerage and consulting business for contingent consideration with anestimated present value of $2,400. The purchase price will be paid out of thefuture collections of accounts receivable of the business over the next fouryears and such contingent payment has been recorded as a liability within otherliabilities. This contingent liability will be remeasured to fair value at eachreporting date until the liability is settled and the change in fair value willbe recognized in earnings. This acquisition was accounted for as a purchasebusiness combination. Assets acquired were recorded at fair value at November 1,2009 and the results of the acquired company have been included within theconsolidated financial statements since the acquisition. The purchase price wasallocated among intangible assets as follows: customer relationships of $1,010with an estimated useful life of 6 years, non compete agreement of $139with an estimated useful life of 4 years and goodwill of $1,251. Theweighted average amortization for the intangible assets is 5.8 years.

 

Changes in the carrying amount of the Company’s goodwill for the threemonths ended March 31, 2010 were as follows:

 
| ** **                            | ** ** | **Americas  Brokerage** | ** ** | **EMEA  Brokerage** | ** ** | **All  Other** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|-------------------------|------------|---------------------|------------|----------------|------------|-----------|------------|
| Balance  as of December 31, 2009 |       | $                       | 80,249     |                | $          | 1,818          |       | $         | 128,691    |   | $ | 210,758 |   |
| Goodwill  acquired during the period  |       | —                  |       | —              |       | —         |       | —    |       |
| Balance  as of March 31, 2010    |       | $                       | 80,249     |                | $          | 1,818          |       | $         | 128,691    |   | $ | 210,758 |   |

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

Based on the results of the annual impairment tests that are requiredby ASC 350, the Company determined that no impairment of goodwill existed as ofJanuary 1, 2010. ASC 350 prescribes a two step process for impairmenttesting whereby management first compares the fair value of each reporting unitwith recorded goodwill to that reporting unit’s book value.  If management determines, as a result of thisfirst step, that the fair value of the reporting unit is less than its carryingvalue, a second step in the impairment test process would require that therecorded goodwill at that business unit be written down to the value implied bythe reporting unit’s recent valuation. The Company will continue to evaluategoodwill on an annual basis as of the beginning of each new fiscal year, andwhenever events and changes in circumstances indicate that there may be apotential impairment.  Subsequent to January 1,2010, no events or changes in circumstances occurred which would indicate anygoodwill impairment.

 

Intangible assets consisted of the following:

 
| ** **                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| Gross  intangible assets       |       |               |       |                  |       |
| Customer  base/relationships   |       | $                  | 47,292     |                  | $          | 47,292 |   |
| Trade  name                    |       | 7,771              |       | 7,771                 |       |
| Core  technology               |       | 3,230              |       | 3,230                 |       |
| Covenants  not to compete      |       | 3,323              |       | 3,323                 |       |
| Favorable  lease agreements    |       | 620                |       | 620                   |       |
| Proprietary  knowledge         |       | 110                |       | 110                   |       |
| Patent                         |       | 31                 |       | 31                    |       |
| Total  gross intangible assets |       | 62,377             |       | 62,377                |       |
| Accumulated  amortization      |       | (23,651            | )          | (22,254               | )          |
| Net  intangible assets         |       | $                  | 38,726     |                  | $          | 40,123 |   |

 

Amortization expense forthe three months ended March 31, 2010 and 2009 was $1,397 and $1,373,respectively.

 

At March 31, 2010,expected amortization expense for the definite lived intangible assets is asfollows:

 
| 2010  (remaining nine months) |   | $     | 4,187  |   |
|-------------------------------|--------|-------|--------|--------|
| 2011                          |   | 5,378 |   |
| 2012                          |   | 4,218 |   |
| 2013                          |   | 2,876 |   |
| 2014                          |   | 2,792 |   |
| Total                         |   | $     | 19,451 |   |

** **

**5.    OTHER ASSETS**

 

On February 28,2010, the Company completed an acquisition of 40% of the outstanding membershipinterests of an independent brokerage firm with a proprietary trading platform.The aggregate purchase price was comprised of $8,000 in cash and 414,938 sharesof restricted stock. $6,000 of the cash portion of the purchase price wasretained by the target for working capital. This investment is included withinOther assets and accounted for under the equity method. Additionally, theCompany has committed to purchase the remaining membership interests inincrements of 20% over the next 3 years, subject to customary closingconditions. The purchase price for the remaining membership interests will bepaid in cash and established by a formula based on the target’s future resultsof operations. Included in Other assets at December 31, 2009 was a notereceivable from the target in the amount of $1,000 which was forgiven by theCompany and credited against the purchase price described above at closing.

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

**6.    SHORT-TERM BORROWINGS AND LONG-TERMOBLIGATIONS**

 

In January 2008,pursuant to a note purchase agreement with certain institutional investors (the“2008 Note Purchase Agreement”), the Company issued $60,000 in aggregateprincipal amount of senior secured notes due in January 2013 (the “SeniorNotes”) in a private placement.  TheSenior Notes currently bear interest at 8.17%, including a premium of 100 basispoints due to a change in the risk based capital factor attributed to theSenior Notes by one of the purchasers of these securities pursuant to generallyapplicable insurance regulations for U.S. insurance companies. The premiuminterest will cease to accrue if the risk based capital factor attributed tothe Senior Notes is subsequently reduced. Interest is payable semi-annually in arrears on the 30th of January andJuly.  The Company’s obligations underthe Senior Notes are secured by substantially all of the assets of the Companyand certain assets of the Company’s subsidiaries.  The 2008 Note Purchase Agreement includesoperational covenants with which the Company is required to comply, including amongothers, maintenance of certain financial ratios and restrictions on additionalindebtedness, liens and dispositions.  AtMarch 31, 2010, the Senior Notes were recorded net of deferred financingcosts of $350 and the Company was in compliance with all applicable covenantsat March 31, 2010 and December 31, 2009.

 

The Companymaintains a credit agreement with Bank of America, N.A. and certain otherlenders (as amended, the “Credit Agreement”). The Credit Agreement provides formaximum borrowings of $175,000, which includes up to $50,000 for letters ofcredit, and has an expiration date of February 24, 2011.  Revolving loans may be either base rate loansor currency rate loans. Currency rate loans and the letters of credit bearinterest at the annual rate of LIBOR plus the applicable margin in effect forthat interest period. Base rate loans bear interest at a rate per annum equalto a base rate plus the applicable margin in effect for that interest period.As long as no default has occurred under the Credit Agreement, the applicablemargin for both the base rate and currency rate loans is based on a matrix thatvaries with a ratio of outstanding debt to EBITDA, as defined in the CreditAgreement. At March 31, 2010, the applicable margin was 2.5% and the one-monthLIBOR was 0.2%. Amounts outstanding under the Credit Agreement are secured bysubstantially all the assets of the Company and certain assets of the Company’ssubsidiaries. The Credit Agreement provides for the Senior Notes to rank paripassu with the commitments under the Credit Agreement, in relation to thesecurity provided.

 

The Company hadoutstanding borrowings under its Credit Agreement as of March 31, 2010 andDecember 31, 2009 as follows:

 
| ** **                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| Loan  Available (1)            |       | $                  | 175,000    |                  | $          | 175,000 |   |
| Loans  Outstanding             |       | $                  | 115,000    |                  | $          | 115,000 |   |
| Letters  of Credit Outstanding |       | $                  | 7,172      |                  | $          | 7,172 |   |

 

----

(1)                                  Amounts available include up to $50,000for letters of credit as of March 31, 2010 and December 31, 2009.

 

The Company’s commitmentsfor outstanding letters of credit relate to potential collateral requirementsassociated with our matched principal business. Since commitments associated with these outstanding letters of creditmay expire unused, the amounts shown above do not necessarily reflect actualfuture cash funding requirements.

 

The weighted averageinterest rate of the outstanding loans was 2.73% at March 31, 2010 and December 31,2009.  At March 31, 2010 and December 31,2009, short-term borrowings under the Credit Agreement were recorded net ofunamortized loan fees of $750 and $931, respectively.

 

The Credit Agreementcontains certain financial and other covenants. The Company was in compliancewith all applicable covenants at March 31, 2010 and December 31,2009, respectively.

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

**7.    STOCKHOLDERS’ EQUITY**

** **

In August 2007,the Company’s Board of Directors authorized the Company to implement a stockrepurchase program to repurchase a limited number of shares of the Company’scommon stock. Under the repurchase plan, the Board of Directors authorized theCompany to repurchase shares of the Company’s common stock on the open marketin such amounts as determined by the Company’s management, provided, however,such amounts are not to exceed, during any calendar year, the number of sharesissued upon the exercise of stock options plus the number of shares underlyinggrants of RSUs that are granted or which management reasonably anticipates willbe granted in such calendar year.  During the three months ended March 31,2010, the Company did not repurchase any shares of its common stock.  During the three months ended March 31,2009, the Company repurchased 1,006,622 shares of its common stock on the openmarket at an average price of $2.54 per share and for a total cost of $2,582,including sales commissions. These repurchased shares were recorded at cost astreasury stock in the Condensed Consolidated Statements of Financial Condition.

 

On March 29, 2010 and March 31, 2009, the Company paid a cashdividend of $0.05 per share, which, based upon the number of shares outstandingon the record date for such dividend, totaled $5,928 and $5,883,respectively.  The dividends werereflected as reductions of retained earnings in the Condensed ConsolidatedStatements of Financial Condition.

 

**8.   EARNINGS PER SHARE**

 

Basic and diluted earnings per share for the three months ended March 31,2010 and 2009 were as follows:

 
| ** **                                                        | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                        | ** ** | **March 31,**               | ** ** |
| ** **                                                        | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| **Basic  earnings per share**                                     | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                        |       | $                                | 13,376     |   | $ | 11,600 |   |
| Weighted average common  shares outstanding                       |       | 118,606,954                      |       | 118,364,233 |   |
| Basic earnings per  share                                         |       | $                                | 0.11       |   | $ | 0.10 |   |
| ** **                                                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Diluted  earnings per share**                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income applicable  to stockholders                            |       | $                                | 13,376     |   | $ | 11,600 |   |
| Weighted average common  shares outstanding                       |       | 118,606,954                      |       | 118,364,233 |   |
| Effect of dilutive  shares:                                       |       |                             |       |   |   |
| Options, RSUs and  Restricted stock                               |       | 4,254,790                        |       | 2,036,303 |   |
| Weighted average shares  outstanding and common stock equivalents |       | 122,861,744                      |       | 120,400,536 |   |
| Diluted earnings per  share                                       |       | $                                | 0.11       |   | $ | 0.10 |   |

 

Excludedfrom the computation of diluted earnings per share because their effect wouldbe anti-dilutive were the following: 1,944,074 RSUs and 14,836 stock options for the three months ended March 31,2010 and 3,386,812 RSUs and 208,820 stock options for the three months ended March 31,2009.

 

**9.   SHARE-BASED COMPENSATION**

 

The Company issues RSUs to its employeesunder the GFI Group Inc. 2008 Equity Incentive Plan, which was approved by theCompany’s stockholders on June 11, 2008, and amended by the Company’sstockholders on June 11, 2009 (as amended, the “2008 Equity Incentive Plan”).  Prior to June 11, 2008, the Companyissued RSUs under the GFI Group Inc. 2004 Equity Incentive Plan (the “2004Equity Incentive Plan”).

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

The 2008 Equity Incentive Plan permits the grant of non-qualified stockoptions, stock appreciation rights, shares of restricted stock, restrictedstock units and performance units to employees, non-employee directors orconsultants. The Company issues shares from authorized but unissued shares,which are reserved for issuance upon the vesting of RSUs granted pursuant tothe 2008 Equity Incentive Plan.  As of March 31,2010, there were 2,946,241 shares of our common stock available for futuregrants of awards under this plan, which amount, pursuant to the terms of the2008 Equity Incentive Plan, may be increased for the number of shares subjectto awards under the 2004 Equity Incentive Plan that are ultimately notdelivered to employees. The fair value of RSUs is based on the closing price ofthe Company’s common stock on the date of grant and is recorded as deferredcompensation and amortized to compensation expense over the vesting period ofthe grants, which is generally three years.

 

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

 

The following is a summary of RSUtransactions under both the 2008 Equity Incentive Plan and the 2004 EquityIncentive Plan during the three months ended March 31, 2010:

 
| ** **                                   | ** ** | **RSUs**   | ** ** | **Weighted-  Average  Grant Date  Fair Value** | ** ** |
|----------------------------------------------|------------|------------|------------|----------------------------------------------------------|------------|
| Outstanding December 31, 2009 |       | 10,208,185 |       | $                                                        |  5.57 |   |
| Granted                                      |       | 4,799,284  |       | 5.64                                                     |       |
| Vested                                       |       | (2,103,661 | )          | 6.11                                                     |       |
| Cancelled                                    |       | (99,953    | )          | 5.23                                                     |       |
| Outstanding  March 31, 2010             |       | 12,803,855 |       | $                                                        | 5.51       |   |

 

Theweighted average grant-date fair value of RSUs granted for the three monthsended March 31, 2010 was $5.64 per unit, compared with $3.13 per unit forthe same period in the prior year. Total compensation expense and relatedincome tax benefits recognized in relation to RSUs are as follows:

 
| ** **            | ** ** | **Three Months Ended********March 31,** | ** ** |
|-----------------------|------------|--------------------------------------------------------|------------|
| ** **            | ** ** | **2010**                                               | ** ** | **2009** | ** ** |
| Compensation  expense |       | $                                                      | 6,766      |   | $ | 5,752 |   |
| Income  tax benefits  |       | $                                                      | 2,267      |   | $ | 2,071 |   |

 

AtMarch 31, 2010, total unrecognized compensation cost related to the RSUsprior to the consideration of expected forfeitures was approximately $62,243and is expected to be recognized over a weighted-average period of 2.12 years.The total fair value of RSUs vested during the three months ended March 31,2010 and 2009 was $12,853 and $9,880, respectively.

 

Asof March 31, 2010, the Company had stock options outstanding under the GFIGroup Inc. 2002 Stock Option Plan (the “GFI Group 2002 Plan”) and the GFInetinc. 2000 Stock Option Plan (the “GFInet 2000 Plan”). No additional grants willbe made under these plans. For stock options previously granted or modified,the fair value was estimated on the date of grant or modification using theBlack-Scholes option pricing model.

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

Thefollowing is a summary of stock option transactions during the three monthsended March 31, 2010:

 
| ** **                          | ** ** | **GFI Group 2002 Plan** | ** ** | **GFInet 2000 Plan**             | ** ** |
|-------------------------------------|------------|----------------------------------------|------------|--------------------------------------------|------------|
| ** **                          | ** ** | **Options**                            | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| Outstanding  December 31, 2009 |       | 641,436                                |       | $                                          | 3.31       |   | 313,572 |   | $ | 3.19 |   |
| Exercised                           |       | (30,420                                | )          | 2.97                                       |       | (159,132 | ) | 2.42 |   |
| Outstanding  March 31, 2010    |       | 611,016                                |       | $                                          | 3.33       |   | 154,440 |   | $ | 3.98 |   |

 

Duringthe three months ended March 31, 2009, there were no exercises orcancellations under the GFI Group 2002 Plan or the GFInet 2000 Plan.

 

**10.    COMMITMENTS AND CONTINGENCIES**

 

**PurchaseObligations—**The Company has various unconditional purchaseobligations. These obligations are for the purchase of market data from anumber of information service providers during the normal course of business.As of March 31, 2010, the Company had total purchase commitments formarket data of approximately $22,647 with $16,444 due within the next twelvemonths and $6,203 due between one to three years. Additionally, the Company haspurchase commitments for capital expenditures of $1,626, primarily related tonetwork implementations in the U.K, and $899 for hosting and software licenseagreements. Of these purchase commitments, capital expenditures ofapproximately $1,354 and fees for hosting and software licensing agreements ofapproximately $447 are due within the next twelve months.

 

**Contingencies—*****In*the normal course of business, theCompany and certain subsidiaries included in the consolidated financialstatements are, and have been in the past, named as defendants in variouslawsuits and proceedings and are, and have been in the past, involved incertain regulatory examinations. Additional actions, investigations orproceedings 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 estimate the probability and amount ofany loss from such contingencies. An accrual is made when it is probable that aliability has been incurred or an asset has been impaired and the amount ofloss can be reasonably estimated. The Company accrues a liability for theestimated costs of adjudication or settlement of asserted and unasserted claimsexisting as of the reporting period.

 

The Company is subject toregular examinations by various tax authorities in jurisdictions in which theCompany has significant business operations. The Company regularly assesses the likelihood of additional tax assessmentsthat may result from these examinations in each of the tax jurisdictions.  A tax accrual has been established, which theCompany believes to be adequate in relation to the potential for additional taxassessments.  Once established, theaccrual may be adjusted based on new information or events.  The imposition of additional tax assessments,penalties or fines by a tax authority could have a material impact on theCompany’s effective tax rate.

 

Additionally, the Companyhas recorded reserves for certain contingencies to which it may have exposure,such as reserves for contingencies related to the employer portion of NationalInsurance Contributions in the U.K.

 

The staff of theMarket Regulation Department of FINRA (the “Staff”) has been conducting aninquiry into the activities of interdealer brokerage firms in connection withthe determination of the commission rates paid to them by certain dealers forbrokering transactions in credit default swaps. GFI Securities LLC hasbeen cooperating with the Staff in this inquiry by responding to requests fordocuments, testimony and other information. In January 2009, the Staffadvised GFI Securities LLC that it has made a preliminary determination torecommend disciplinary action in connection with allegedly impropercommunications between certain of GFI Securities LLC’s brokers and thoseat other interdealer brokers, purportedly inconsistent with just and equitableprinciples of trade and certain antifraud and supervisory requirements underFINRA rules and the federal securities laws. All but one of these brokerswho made the allegedly improper communications resigned in April 2008 tobecome employed by affiliates of Compagnie Financiere Tradition. GFISecurities LLC intends to vigorously contest any such disciplinary actionwhich, if brought and/or settled, could result in a censure, fine or othersanction.

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

Based on currentlyavailable information, the outcome of the Company’s outstanding matters are notexpected to have a material adverse impact on the Company’s financial position.However, the outcome of any such matters may be material to the Company’s resultsof operations or cash flows in a given period. It is not presently possible todetermine the Company’s ultimate exposure to these matters and there is noassurance that the resolution of the Company’s outstanding matters will notsignificantly exceed any reserves accrued by the Company.

 

***Risks and Uncertainties—***The Company primarily generates its revenuesby executing and facilitating transactions for third parties. Revenues forthese services are transaction based. As a result, the Company’s revenues varybased upon, among other things, the volume of transactions in varioussecurities, commodities, foreign exchange and derivative markets in which theCompany provides services.

 

***Guarantees—****The*Company, through its subsidiaries, is amember of certain exchanges and clearing houses. Under the membershipagreements, members are generally required to guarantee certainobligations.  To mitigate the performancerisks of its members, the exchanges and clearing houses may, from time to time,require members to post collateral, as well as meet certain minimum financialstandards. The Company’s maximum potential liability under these arrangementscannot be quantified. However, management believes that the potential for theCompany to be required to make payments under these arrangements is not likely.Accordingly, no contingent liability is recorded in the Condensed ConsolidatedStatements of Financial Condition for these arrangements.

 

**11.   FINANCIAL INSTRUMENTS WITH MARKET AND CREDIT RISKS**

 

Disclosureregarding the Company’s financial instruments with off-balance sheet risk isdescribed in “Note 16—Financial Instruments with Market and Credit Risks”of the Notes to the Consolidated Financial Statements contained in the Company’s2009 Form 10-K.  There have been nomaterial changes to our off-balance sheet risk during the three months ended March 31,2010.

 

**12.    FINANCIAL INSTRUMENTS**

 

Substantially all of the Company’s assets and liabilities are carriedat fair value or contracted amounts that approximate fair value.  Assets and liabilities that are recorded atcontracted amounts approximating fair value consist primarily of receivablesfrom and payables to brokers, dealers and clearing organizations. Thesereceivables and payables are short-term in nature, and following March 31,2010, substantially all receivables and payables have settled at the contractedamounts.  The Company’s marketable equitysecurities are recorded at fair value based on their quoted market price.  The Company’s investments accounted for underthe cost and equity methods are in companies that are not publicly traded andfor which no established market for their securities exists.  The fair value of these investments is notestimated if there are no identified events or changes in circumstances thatmay have a significant adverse effect on the fair value of the investment.  The Company’s debt obligations are carried athistorical amounts.  The fair value ofthe Company’s Senior Notes was estimated using market rates of interestavailable to the Company for debt obligations of similar types and wasapproximately $63,638 at March 31, 2010. The fair value of the Company’s short-term borrowings outstanding underthe Credit Agreement approximated the carrying value at March 31, 2010 andDecember 31, 2009.

 

TheCompany’s financial assets and liabilities recorded at fair value have beencategorized based upon a fair value hierarchy in accordance with ASC820-10.  In accordance with ASC 820-10,the Company has categorized its financial assets and liabilities, based on thepriority of the inputs to the valuation technique, into a three-level fairvalue hierarchy as set forth below.

 

*Level 1 —* Financialassets and liabilities whose values are based on unadjusted quoted prices foridentifiable assets or liabilities in an active market that the company has theability to access at the measurement date (examples include activeexchange-traded equity securities, listed derivatives, and most U.S. Governmentand agency securities).

 

*Level 2 —* Financialassets and liabilities whose values are based on quoted prices in markets wheretrading occurs infrequently or whose values are based on quoted prices ofinstruments with similar attributes in active markets.  Level 2 inputs include the following:

 

·                  Quotedprices for identifiable or similar assets or liabilities in non-active markets(examples include corporate 

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

andmunicipal bonds which trade infrequently);

 

·                  Inputs otherthan quoted prices that are observable for substantially the full term of theasset or liability (examples include interest rate and currency swaps), and

 

*Level 3* — Financialassets and liabilities whose values are based on prices or valuation techniquesthat require inputs that are both unobservable and significant to the overallfair value measurement.  These inputsreflect management’s own assumptions about the assumptions a market participantwould use in pricing the asset or liability. As of and for the three months ended March 31, 2010 and for theyear ended December 31, 2009, the Company did not have any Level 3financial assets or liabilities.

 

***Valuation Techniques***

** **

**The Company uses the following valuation techniques invaluing the financial instruments at March 31, 2010 and December 31,2009:**

** **

**The Company has determined certain of its investments inmarketable securities should be classified as trading securities oravailable-for-sale securities and reported at fair value at March 31, 2010and December 31, 2009.  To theextent that the values of the Company’s trading and available-for-salemarketable securities are based on quoted market prices in active markets,these securities were categorized as Level 1.**

** **

**Fair value of the Company’s foreign exchange derivativecontracts is based on the indicative prices obtained from the banks that arecounter-parties to these foreign exchange derivative contracts and management’sown calculations and analyses.  At March 31,2010 and December 31, 2009, the Company’s foreign exchange derivativecontracts have been categorized in Level 2.**

** **

**The fair value of trading securities owned as a result ofmatched principal transactions and principal trading business is estimatedusing either (i) recently executed transactions and market pricequotations, which trading securities are primarily categorized as Level 1, or (ii) amodified Black Scholes model using observable market inputs, which tradingsecurities are categorized as Level 2.**

** **

Financial Assets and Liabilities Measuredat Fair Value on a recurring basis as of March 31, 2010:

 
| ** **                             | ** ** | **Quoted  Prices in Active Markets for Identical Assets********(Level  1)** | ** ** | **Significant  Other Observable Inputs********(Level  2)** | ** ** | **Balance  at******** March 31,********2010** | ** ** |
|----------------------------------------|------------|-----------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Assets:                                |       |                                                                        |       |                                                       |       |                                                    |       |
| Equity  securities                     |       | $                                                                           | 4,354      |                                                       | $          | 154                                                     |       | $ | 4,508 |   |
| Corporate  bonds                       |       | —                                                                      |       | 2,083                                                      |       | 2,083                                                   |       |
| Foreign  government bonds              |       | 2,038                                                                       |       | —                                                     |       | 2,038                                                   |       |
| Foreign  exchange derivative contracts |       | —                                                                      |       | 347                                                        |       | 347                                                     |       |
| Commodity  derivative contracts        |       | 178                                                                         |       | 69                                                         |       | 247                                                     |       |
| Liabilities:                           |       |                                                                        |       |                                                       |       |                                                    |       |
| Equity  securities                     |       | $                                                                           | 38         |                                                       | $          | —                                                  |       | $ | 38 |   |
| Foreign  exchange derivative contracts |       | —                                                                      |       | 990                                                        |       | 990                                                     |       |
| Commodity  derivative contracts        |       | 164                                                                         |       | —                                                     |       | 164                                                     |       |

 

**The Company’s financial instruments at fair value areincluded within Other assets and Other liabilities with the exception of longand short futures contracts of $178 and $164, which are included withinReceivables from and Payables to brokers, dealers and clearing organizations,respectively.**

** **

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

Financial Assets and Liabilities Measured at Fair Value on a recurringbasis as of December 31, 2009:

 
| ** **                             | ** ** | **Quoted Prices in**   | ** ** | **Significant Other** | ** ** | ** **            | ** ** |
|----------------------------------------|------------|----------------------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **Active Markets for** | ** ** | **Observable**             | ** ** | **Balance at**   | ** ** |
| ** **                             | ** ** | **Identical Assets**        | ** ** | **Inputs**                 | ** ** | **December 31,** | ** ** |
| ** **                             | ** ** | **(Level 1)**               | ** ** | **(Level 2)**         | ** ** | **2009**              | ** ** |
| Included within Other assets:          |       |                             |       |                       |       |                  |       |
| Equity securities                      |       | $                                | 5,110      |                       | $          | 154                   |       | $ | 5,264 |   |
| Corporate bonds                        |       | —                           |       | 3,152                      |       | 3,152                 |       |
| Foreign exchange  derivative contracts |       | —                           |       | 818                        |       | 818                   |       |
|                                   |       |                             |       |                       |       |                  |       |
| Included within  Other liabilities:    |       |                             |       |                       |       |                  |       |
| Foreign exchange  derivative contracts |       | $                                | —     |                       | $          | 804                   |       | $ | 804 |   |

** **

***DerivativeFinancial Instruments***

** **

The Company uses foreign exchange derivativecontracts, including forward contracts and foreign currency swaps, to reducethe effects of fluctuations in certain assets and liabilities denominated inforeign currencies. The Company also hedges a portion of its foreign currencyexposures on anticipated foreign currency denominated revenues and expenses byentering into forward foreign exchange contracts.  For the three months ended March 31,2010 and year ended December 31, 2009, none of these contracts weredesignated as foreign currency cash flow hedges under ASC 815-10, *Derivatives and Hedging* (“ASC 815-10”) (formerly SFAS No. 133,*Accounting for Derivative Instruments and HedgingActivities*, as amended). Contracts that are not designated as foreigncurrency cash flow hedges are recorded at fair value and all realized andunrealized gains and losses are included in other income in the CondensedConsolidated Statements of Income.

 

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

** **

**The Company monitors market risk exposure from its matchedprincipal business and principal trading business by regularly monitoring itsconcentration of market risk to financial instruments, countries orcounterparties and regularly monitoring trades that have not settled withinprescribed settlement periods or volume thresholds.  Additionally, market risks are monitored andmitigated by the use of the Company’s proprietary, electronic risk monitoringsystem, which provides daily credit reports in each of the Company’s geographicregions that analyze credit concentration and facilitates the regularmonitoring of transactions against key risk indicators.**

** **

**For certain derivative contracts, the Company has enteredinto agreements with counterparties that allow for netting.  The Company reports these derivativecontracts on a net-by-counterparty basis when management believes that a legaland enforceable right of offset exists under these agreements.**

** **

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

Fair values of derivative contracts included withinthe Condensed Consolidated Statements of Financial Condition as ofMarch 31, 2010 and December 31, 2009 are as follows:

 
| ** **                                                              | ** ** | **March 31, 2010**         | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                              | ** ** | **Derivative Assets** | ** ** | **Derivative Liabilities** | ** ** |
| **Derivatives  not designated as hedging instruments under ASC 815-10** |       |                       |       |   |   |
| Foreign Exchange  Contracts (1)                                         |       | $                          | 7,833      |   | $ | 8,468 |   |
| Commodity  Contracts (2)                                                |       | $                          | 374        |   | $ | 291 |   |

 

----

(1)     Included within Other assets and Otherliabilities.

(2)     Included within Receivables from brokers,dealers and clearing organizations, Other assets, Payables to brokers, dealersand clearing organizations and Other liabilities.

 

**As of March 31, 2010, the Company had outstandingforward foreign exchange contracts with a combined notional value of$83,756.  Approximately $54,036 of theseforward foreign exchange contracts represents a hedge of euro-denominatedbalance sheet positions at March 31, 2010. The remaining contracts are hedges of anticipated future cash flows. Inaddition, the Company had outstanding long and short foreign exchange spot andoptions contracts of approximately $947,368 and approximately $947,368,respectively.**

** **

**As of March 31, 2010, the Company had outstanding longand short futures and forwards commodity contracts with notional values ofapproximately $68,181 and approximately $68,227, respectively.**

 
| ** **                                                              | ** ** | **December 31, 2009**      | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                              | ** ** | **Derivative Assets** | ** ** | **Derivative Liabilities** | ** ** |
| **Derivatives  not designated as hedging instruments under ASC 815-10** |       |                       |       |   |   |
| Foreign Exchange  Contracts (1)                                         |       | $                          | 818        |   | $ | 804 |   |
|                                                                         |            |                            |            |  |  |  |  |

 

----

(1)     Included within Other assets and Otherliabilities.

 

**As of December 31, 2009, the Company had outstandingforward foreign exchange contracts with a combined notional value ofapproximately $126,251.  Approximately$64,422 of these forward foreign exchange contracts represents a hedge ofeuro-denominated balance sheet positions at December 31, 2009.  The remaining contracts are hedges ofanticipated future cash flows.**

** **

**The following is a summary of the effect of derivativecontracts on the Condensed Consolidated Statements of Income for the threemonths ended March 31, 2010 and 2009:**

** **
| ** **                                                              | ** ** | ** **                   | ** ** | **Amount  of Gain or (Loss)**   | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                              | ** ** | ** **                   | ** ** | **Recognized  in Income on**    | ** ** |
| ** **                                                              | ** ** | **Location  of Gain (Loss)** | ** ** | **Derivatives**                 | ** ** |
| ** **                                                              | ** ** | **Recognized  in Income**    | ** ** | **For  the Three Months Ended** | ** ** |
| ** **                                                              | ** ** | **on  Derivatives**          | ** ** | **2010**                        | ** ** | **2009** | ** ** |
| **Derivatives  not designated as hedging instruments under ASC 815-10** |       |                         |       |                            |       |   |   |   |   |
| Foreign Exchange  Contracts                                             |       | (1)                          |       | $                               | 3,181      |   | $ | 8,667 |   |
| Commodity  Contracts                                                    |       | Principal transactions       |       | 1,140                           |       | — |   |

 

----

(1) For the threemonths ended March 31, 2010, approximately $3,079 of gains on foreignexchange derivative contracts were included within Other income andapproximately $102 of gains on foreign currency options were included withinPrincipal transactions.  For the threemonths ended March 31, 2009, the entire gain was related to foreignexchange derivative contracts and was included within Other income.

 

**13.    REGULATORY REQUIREMENTS**

 

GFISecurities LLC is a registered broker-dealer with the SEC and the FinancialIndustry Regulatory Authority (FINRA). GFI Securities LLC is also a registeredintroducing broker with the National Futures Association and the CommodityFutures Trading Commission. Accordingly, GFI Securities LLC is subject to thenet capital rules under the Exchange Act and the Commodity ExchangeAct.  Under these rules, GFI SecuritiesLLC is required to maintain minimum Net Capital, as defined, of not less thanthe greater of $250 or 2% of aggregate debits, as defined.

 

GFIBrokers Limited and GFI Securities Limited are subject to the capitalrequirements of the Financial Services 

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

Authority in the United Kingdom (“FSA”).

 

GFI(HK) Securities LLC is subject to the capital requirements of the Securitiesand Futures Commission in Hong Kong (the “SFC”), which require that GFI (HK)Securities LLC maintain minimum capital, as defined, of approximately $386.

 

Thefollowing table sets forth information about the minimum net capital thatcertain of the Company’s subsidiaries were required to maintain as of March 31,2010:

 
| ** **                    | ** ** | **GFI Securities  LLC** | ** ** | **GFI Brokers  Limited** | ** ** | **GFI Securities  Limited** | ** ** | **GFI (HK)  Securities LLC** | ** ** |
|-------------------------------|------------|------------------------------|------------|-------------------------------|------------|----------------------------------|------------|----------------------------------------|------------|
| Net  Capital                  |       | $                            | 27,340     |                          | $          | 106,549                          |       | $                                      | 59,058     |   | $ | 2,896 |   |
| Minimum  Net Capital required |       | 250                          |       | 35,070                        |       | 27,247                           |       | 386                                    |       |
| Excess  Net Capital           |       | $                            | 27,090     |                          | $          | 71,479                           |       | $                                      | 31,811     |   | $ | 2,510 |   |

 

Inaddition to the minimum net capital requirements outlined above, certain of theCompany’s subsidiaries are subject to additional regulatory requirements.

 

GFISecurities Limited’s Japanese branch is subject to certain licensingrequirements established by the Financial Instruments and Exchange Law (the “FIEL”)in Japan. As part of the licensing requirements, GFI Securities Limited’sJapanese branch is required to maintain minimum “brought-in” capital andstockholders’ equity of 50,000 Japanese Yen each (approximately $535), asdefined under the FIEL.  In addition, GFISecurities Limited’s Japanese branch is also subject to the net capital rule promulgatedby the FIEL, which requires that net worth, including “brought-in” capital,exceed a ratio of 120.0% of the risk equivalent amount including relevantexpenditure.  At March 31, 2010,GFI Securities Limited’s Japanese branch was in compliance with thesecapital requirements.

 

GFI(HK) Brokers Ltd. is registered with and regulated by the Hong Kong MonetaryAuthority. As part of this registration, GFI (HK) Brokers Ltd. is required tomaintain stockholders’ equity of 5,000 Hong Kong dollars (or approximately$644). At March 31, 2010, GFI (HK) Brokers Ltd. had stockholders’ equityof 20,227 Hong Kong dollars (or approximately $2,605), which exceeded theminimum requirement by 15,227 Hong Kong dollars (or approximately $1,961).

 

GFI Group Pte. Ltd. issubject to the compliance requirements of the Monetary Authority of Singapore (“MAS”),which requires that GFI Group Pte. Ltd., among other things, maintainstockholders’ equity of 3,000 Singapore dollars (or approximately $2,144),measured annually.   At December 31, 2009, GFI Group Pte. Ltd.exceeded the minimum requirement by approximately 14,464 Singapore dollars (orapproximately $10,295).

 

****GFI KoreaMoney Brokerage Limited is licensed****and****regulated by the Ministry of Finance and Economy to engage in foreignexchange brokerage business, and is subject to certain regulatory requirementsunder the Foreign Exchange Transaction Act and regulations thereunder.  Asa licensed foreign exchange brokerage company, GFI Korea Money BrokerageLimited is required to maintain minimum paid-in capital of 5,000,000 Korean Won****(or approximately $4,419)****.****AtMarch 31, 2010, ****GFI Korea Money Brokerage Limited**** met theminimum requirement for paid-in-capital of 5,000,000 Korean Won.

 

Theseregulatory rules may restrict the Company’s ability to withdraw capitalfrom its regulated subsidiaries. The Company’s regulated subsidiaries were incompliance with all minimum net capital requirements as of March 31, 2010.

 

**14.    SEGMENT AND GEOGRAPHIC INFORMATION**

 

TheCompany has three operating segments: Americas Brokerage, Europe, Middle Eastand Africa (“EMEA”) Brokerage and Asia Brokerage.  Additionally, the Company presents itsoperating segments as four reportable segments: Americas Brokerage, EMEABrokerage, Asia Brokerage and All Other. The All Other segment captures costs that are not directly assignable toone of the operating business segments, primarily consisting of the Company’scorporate business activities and operations from software, analytics andmarket data.

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

Selectedfinancial information for the Company’s reportable segments is presented belowfor periods indicated:

 

| ** **                                                 | ** ** | **Three  months ended March 31,** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                 | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| ** **                                                 | ** ** | **(dollars  in thousands)**            | ** ** |
| **Revenues:**                                              |       |                                   |       |   |   |
| Americas Brokerage                                         |       | $                                      | 77,836     |   | $ | 89,912 |   |
| EMEA Brokerage                                             |       | 107,882                                |       | 93,307 |   |
| Asia Brokerage                                             |       | 18,848                                 |       | 14,783 |   |
| All Other                                                  |       | 16,209                                 |       | 18,233 |   |
| Total Consolidated Revenues                                |       | $                                      | 220,775    |   | $ | 216,235 |   |
| ** **                                                 |       |                                   |       |   |   |
| **Interest Revenue:**                                      |       |                                   |       |   |   |
| Americas Brokerage                                         |       | $                                      | —     |   | $ | — |   |
| EMEA Brokerage                                             |       | —                                 |       | — |   |
| Asia Brokerage                                             |       | —                                 |       | — |   |
| All Other                                                  |       | 240                                    |       | 497 |   |
| Total Consolidated Interest Revenues                       |       | $                                      | 240        |   | $ | 497 |   |
| ** **                                                 |       |                                   |       |   |   |
| **Interest Expense:**                                      |       |                                   |       |   |   |
| Americas Brokerage                                         |       | $                                      | —     |   | $ | 9 |   |
| EMEA Brokerage                                             |       | 103                                    |       | 166 |   |
| Asia Brokerage                                             |       | 16                                     |       | 2 |   |
| All Other                                                  |       | 2,456                                  |       | 2,292 |   |
| Total Consolidated Interest Expense                        |       | $                                      | 2,575      |   | $ | 2,469 |   |
| ** **                                                 |       |                                   |       |   |   |
| **Depreciation and Amortization:**                         |       |                                   |       |   |   |
| Americas Brokerage                                         |       | $                                      | —     |   | $ | — |   |
| EMEA Brokerage                                             |       | —                                 |       | — |   |
| Asia Brokerage                                             |       | —                                 |       | — |   |
| All Other                                                  |       | 8,184                                  |       | 7,839 |   |
| Total Consolidated Depreciation and Amortization           |       | $                                      | 8,184      |   | $ | 7,839 |   |
| ** **                                                 |       |                                   |       |   |   |
| **Income before Provision for  Income Taxes:**             |       |                                   |       |   |   |
| Americas Brokerage                                         |       | $                                      | 18,117     |   | $ | 21,122 |   |
| EMEA Brokerage                                             |       | 37,051                                 |       | 30,113 |   |
| Asia Brokerage                                             |       | 4,299                                  |       | (1,886 | ) |
| All Other                                                  |       | (39,353                                | )          | (31,224 | ) |
| Total Consolidated Income before Provision forIncome taxes |       | $                                      | 20,114     |   | $ | 18,125 |   |

 

In addition, with the exception of goodwill, theCompany does not identify or allocate assets by operating segment, nor does itschief operating decision maker evaluate operating segments using discrete assetinformation.  See Note 4 for goodwill byreportable segment.

 

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**GFIGROUP INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)(In thousands except share and per share amounts)**

 

Geographic information regarding revenues for thethree months ended March 31, 2010 and 2009, respectively, and informationregarding long-lived assets (defined as property, equipment, leasehold improvementsand software inventory) in each geographic area as of March 31, 2010 and December 31,2009, respectively, are as follows:

 
| ** **      | ** ** | **Three Months Ended********March 31,** | ** ** |
|-----------------|------------|--------------------------------------------------------|------------|
| ** **      | ** ** | **2010**                                               | ** ** | **2009** | ** ** |
| Revenues:       | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| United  States  |       | $                                                      | 77,653     |   | $ | 90,541 |   |
| United  Kingdom |       | 101,722                                                |       | 87,389 |   |
| Other           |       | 41,400                                                 |       | 38,305 |   |
| Total           |       | $                                                      | 220,775    |   | $ | 216,235 |   |

 
| ** **                      | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Long-lived  Assets, as defined: |       |                     |       |                        |       |
| United  States                  |       | $                        | 55,080     |                        | $          | 56,348 |   |
| United  Kingdom                 |       | 13,607                   |       | 14,139                      |       |
| Other                           |       | 3,985                    |       | 4,489                       |       |
| Total                           |       | $                        | 72,672     |                        | $          | 74,976 |   |

 

Revenuesare attributed to geographic areas based on the location of the Company’srelevant subsidiary.

 

**15.    OTHERCOMPREHENSIVE INCOME (LOSS)**

** **
| ** **                                                   | ** ** | **Three Months Ended********March 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2010**                                               | ** ** | **2009** | ** ** |
| **Unrealized  (loss) gain on available-for-sale securities** | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Before Tax  Amount                                           |       | $                                                      | (474       | ) | $ | (559 | ) |
| Tax Benefit                                                  |       | 133                                                    |       | 157 |   |
| After Tax Amount                                             |       | $                                                      | (341       | ) | $ | (402 | ) |
| **Foreign  currency translation adjustment**                 | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Before Tax  Amount                                           |       | $                                                      | (708       | ) | $ | (822 | ) |
| Tax Benefit                                                  |       | 296                                                    |       | 355 |   |
| After Tax Amount                                             |       | $                                                      | (412       | ) | $ | (467 | ) |

 

**16.    SUBSEQUENT EVENTS**

 

In April 2010, theBoard of Directors declared a quarterly cash dividend of $0.05 per sharepayable on May 28, 2010 to shareholders of record on May 14, 2010.

 

Subsequent events havebeen evaluated for recording and disclosure in the notes to the CondensedConsolidated Financial Statements through the filing date of this Form 10Q.

 

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**REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board of Directorsand Stockholders of

GFI Group Inc.

New York, New York

 

Wehave reviewed the accompanying condensed consolidated statement of financialcondition of GFI Group Inc. and subsidiaries (the “Company”) as of March 31,2010, and the related condensed consolidated statements of income,comprehensive income and cash flows for the three-month periods ended March 31,2010 and 2009.  These interim financialstatements are the responsibility of the Company’s management.

 

Weconducted our reviews in accordance with the standards of the Public CompanyAccounting Oversight Board (United States).  A review of interim financialinformation consists principally of applying analytical procedures and makinginquiries of persons responsible for financial and accounting matters.  Itis substantially 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 anopinion.

 

Basedon our reviews, we are not aware of any material modifications that should bemade to such condensed consolidated interim financial statements for them to bein conformity with accounting principles generally accepted in the UnitedStates of America.

 

Wehave previously audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated statement offinancial condition of the Company as of December 31, 2009, and therelated consolidated statements of income, comprehensive income, cash flows andchanges in stockholders’ equity for the year then ended (not presented herein);and in our report dated March 15, 2010, we expressed an unqualifiedopinion on those consolidated financial statements.  In our opinion, the information set forth inthe accompanying condensed consolidated statement of financial condition as of December 31,2009 is fairly stated, in all material respects, in relation to theconsolidated statement of financial condition from which it has been derived.

 

/s/ Deloitte & Touche LLP

 

New York, New YorkMay 10, 2010

 

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| **ITEM  2.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|--------------|-------------------------------------------------------------------------------------------------|

** **

ThisQuarterly Report 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, the following:

 

·                  the risks and other factors describedunder the heading “Risk Factors” and elsewhere in our 2009 Form 10-K;

 

·                  our ability to attract and retain keypersonnel, including highly qualified brokerage personnel;

 

·                  our entrance into new brokerage markets, includinginvestments in establishing new brokerage desks;

 

·                  competition from current and new competitors;

 

·                  risks associated with our matched principal andprincipal trading business, including risks arising from specific brokeragetransactions, or series of brokerage transactions, such as credit risk andmarket risk;

 

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

 

·                  our ability to keep up with rapid technological changeand to continue to develop and support our electronic                                               brokerage systems in a cost-effectivemanner;

 

·                  future results of operations and financial condition;

 

·                  the success of our business strategies;

 

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

 

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

 

·                  risks associated with potential acquisitions by us ofbusinesses or technologies;

 

·                  the maturing of key markets and any resultingcontraction in commissions;

 

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

 

·                  uncertainties associated with currency fluctuations;

 

·                  our failure to protect or enforce our intellectualproperty rights;

 

·                  uncertainties relating to litigation;

 

·                  liquidity and clearing capital requirements and theimpact of the recent conditions in the world economy and the financial marketsin which we provide our services on the availability and terms of additional orfuture capital, and

 

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·                  the effectiveness of our risk management policies andprocedures.

 

Theforegoing risks and uncertainties, as well as those risks discussed under theheadings ‘‘Item 2—Management’s Discussion and Analysis of Financial Conditionand Results of Operations’’ and ‘‘Item 3—Quantitative and QualitativeDisclosures About Market Risk’’ and elsewhere in this Quarterly Report, maycause actual results to differ materially from the forward-looking statements.The information included herein is given as of the filing date of this Form 10-Qwith the SEC and future events or circumstances could differ significantly fromthese forward-looking statements. The Company does not undertake to publiclyupdate or revise any forward-looking statements, whether as a result of new information,future events or otherwise.

 

**Business Environment**

 

As a wholesale broker,our results of operations are impacted by a number of external market factors,including market volatility, the organic growth or contraction of thederivative and cash markets in which we provide our brokerage services, theparticular mix of transactional activity in our various products, thecompetitive and regulatory environment in which we operate and the financialcondition of the dealers, hedge funds and other market participants to whom weprovide our services.  Outlined below are management’s observations ofthese external market factors during the most recent fiscal period. The factorsoutlined below are not the only factors that have impacted our results of operationsfor the most recent fiscal period, and additional or other factors may impact,or have different degrees of impact, on our results of operations in futureperiods.

 

*MarketVolatility and General Business Environment*

 

As a general rule, ourbusiness typically benefits from volatility in the markets that we serve, asperiods of increased volatility often coincide with more robust trading by ourclients and a higher volume of transactions.  However, periods of extremevolatility may result in significant market dislocations that can also leadcertain clients to reduce their trading activity.

 

Market volatility isdriven by a range of external factors, some of which are market specific andsome of which are correlated to general macro-economic conditions.  Duringthe first quarter of 2010, many of the markets in which we operate experiencedlower volatility than in the first quarter of 2009, although there wasincreased volatility later in the first quarter due to sovereign debt concerns. Despite the lower volatility, theoverall business environment was better than the first quarter of 2009 as manyof the markets in which we provide our services stabilized, the credit andequity markets continued to rebound from the global recession during thequarter and many areas of the global economy, and the financial sector inparticular, continued to improve. The combination of these and other factorsled to brokerage revenues being up slightly year-over-year.

 

*Growthin Underlying Markets and New Product Offerings*

 

Our business hashistorically benefited from growth in the OTC derivatives markets due to eitherthe expansion of existing markets, including increased notional amountsoutstanding or increased transaction volumes, or the development of newproducts 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 growth in any particular quarter,management also looks to the published results of large OTC derivatives dealersand certain futures exchanges as potential indicators of transactional activityin the related OTC derivative markets.

 

The International Swapsand Derivatives Association (“ISDA”) released its Year-End 2009 MarketSurvey in April 2010 detailing growth in global notional amountsoutstanding in various over-the-counter markets.  Notional amounts outstanding included newtransactions and those from previous periods. The ISDA statistics indicated that there was a decline in the notionalamounts outstanding for many derivative categories over the previous year-endand mid-year results, including credit default swaps, which were down 21% yearover year and 3% sequentially, and equity derivatives, which were down 23% yearover year and sequentially.  ISDAattributed the declines in credit default swaps to the industry’s steady progressin such areas as electronic processing, portfolio compression andcollateralized portfolio reconciliation. Interest rate derivatives grew 6.0% year over year and 3% sequentially.  ISDA noted that the level of interest ratederivatives outstanding reflected the industry’s focus on reducing the amountsof their swap portfolios, even as new trading activity remained solid.

 

Many OTC derivativesproducts trended toward lower trading volumes in 2009 as market participantsdeployed less trading capital due to investor redemptions and reduced borrowingcapacity.  Evidence of this trend wasseen in the reduced 

 

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transaction volumes of certain products traded on futuresexchanges.  However, as the economy andmarkets continued to recover, the year-over-year comparisons have returned togrowth in many cases.  In the firstquarter of 2010, the CME Group, Inc. (“CME”), reported 12% and 6%increases in average daily volumes, overall and in energy (including CMEClearPort), respectively. IntercontinentalExchange, Inc. (“ICE”) reported a 28% increase infutures average daily volumes and a 27% increase in OTC energy average dailycommissions year over year.  Revenuesfrom ICE’s credit default swap (CDS) trade execution, processing and clearingwere up 9% from the first quarter of 2009.

 

In addition, newer products and our expansion intogrowing markets and new geographical areas have historically contributed to thegrowth in our brokerage revenues. For example, we have also recently investedin new businesses in commodity products such as ethanol, soft and agriculturalcommodities in the U.S. and natural gas and iron ore in the U.K.  Additionally, we have expanded into LatinAmerica and the Middle East in the past several years which has contributed toour growth year over year.

 

*Competitiveand Regulatory Environment*

 

Another major external market factor affecting ourbusiness and results of operations is competition, which may take the form ofcompetitive pressure on the commissions we charge for our brokerage services orcompetition for brokerage personnel with extensive experience in thespecialized markets we serve. Competition for the services of productivebrokers remained intense in the first quarter of 2010.  The consolidation and personnel layoffs bydealers, hedge funds and other market participants during the last few yearshas also led to increased competition to provide brokerage services to asmaller number of market participants in the near term.  However, there were indications in the firstquarter of 2010 that trading activity by our customers had increased over priorperiods, including activity relating to certain derivative markets.

 

During the first quarterof 2010, there was a continuing effort to establish new regulations for theglobal OTC derivatives markets. We believe that the legislative and regulatoryproposals for increased transparency, position limits and collateral or capitalrequirements have caused uncertainty in these markets as market participantsawait any final regulations. This increased uncertainty in the markets has ledinvestors and banks to commit less capital to many OTC markets. Nevertheless,we are optimistic that the regulatory solutions that are likely to emerge,including centralized clearing, increased transparency, automation andelectronic execution, will be generally beneficial to the long-term health ofthe broader financial markets. The proposed legislation in the U.S. wouldrequire certain OTC derivatives to be executed through a registered exchange or“swap execution facility.” We believe that we will be able to qualify as a swapexecution facility and we believe that our expertise, technology and scalepositions us well to capture any newly created opportunities in these markets.

 

**Financial Overview**

 

As more fully discussed below, our results of operations aresignificantly impacted by our revenue growth and the amount of compensation andbenefits we provide to our employees. The following factors had a significant impact on our revenues andemployee costs during the three month period ended March 31, 2010:

 

Our revenues haveincreased 2.1% to $220.8 million for the three months ended March 31,2010 from $216.2 million for the three months ended March 31, 2009. Themain factors contributing to our revenue increase were:

 

·                  The stabilization of many of the keymarkets in which we provide our brokerage services, as well as improved globaleconomic and market conditions in emerging markets and Asia;

·                  Increased trading activity in certain ofthe financial product and commodity product markets in which we have a leadingmarket share resulted in increased revenues year over year;

·                  Higher share, index and commodity valuespositively affected our equities and commodities revenues in Europe;

·                  Increased electronic trading activity inEurope and the U.S. on our hybrid brokerage platforms;

·                  Strong performance of our Trayportsubsidiary; and

·                  New brokerage desks and new brokers hiredacross all product categories.

 

Partiallyoffsetting this increase were several factors adversely affecting our brokerageand other revenues, including:

 

·                  Narrow credit spreads and decreasedequity volatility and trading volumes in the U.S.;

·                  Increased competition in certain cashfixed income markets in the U.S.;

 

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·                  A decrease in realized and unrealizedgains of $5.6 million on foreign currency hedges in the first quarter of 2010compared to the same period in 2009; and

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

 

The most significant component of our coststructure is employee compensation and benefits, which includes salaries,sign-on bonuses, incentive compensation and related employee benefits andtaxes.  Our employee compensation andbenefits expense remained relatively consistent at $144.7 million for the threemonths ended March 31, 2010 from $145.5 million for the three months endedMarch 31, 2009.

 

Our compensation and employee benefits for allemployees have both a fixed and variable component.  Base salaries and benefit costs are primarilyfixed for all employees while bonuses constitute the variable portion of ourcompensation and employee benefits. Within this overall compensation and employee benefits, employment costsof our brokerage personnel are the key component.  Bonuses for brokerage personnel are primarilybased on the operating results of their related brokerage desk as well as theirindividual performance.  For many of ourbrokerage employees, their bonus constitutes a significant component of theiroverall compensation.  Broker performancebonuses decreased to $64.4 million for the three months ended March 31,2010 from $66.7 million for the three months ended March 31, 2009.  A portion of our bonus expense is subject tocontractual guarantees that may require us to make bonus payments to brokersregardless of their performance in any particular period.

 

Further, we grant sign-on bonuses for certainnewly-hired brokers or for certain of our existing brokers who agree to long-termemployment agreements.  Expenses relatingto sign-on bonuses decreased to $7.2 million for the three months ended March 31,2010 from $10.7 million for the three months ended March 31, 2009,primarily as the result of the $25.5 million charge taken in the fourth quarterof 2009 related to the renegotiation of certain employee contracts.  These sign-on bonuses may be paid in the formof cash, restricted stock units (“RSUs”) or forgivable loans and are typicallyamortized over the term of the related employment agreement, which is generallytwo to four years.  These employmentagreements typically contain repayment or forfeiture provisions for unvestedRSUs or all or a portion of the sign-on bonus and forgivable loan should theemployee voluntarily terminate his or her employment or if the employee’semployment is terminated for cause during the initial term of the agreement.

 

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**Resultsof Consolidated Operations**

 

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

 
| ** **                                | ** ** | **Three Months Ended**     | ** ** |
|-------------------------------------------|------------|----------------------------|------------|
| ** **                                | ** ** | **March 31,**         | ** ** |
| ** **                                | ** ** | **2010**                   | ** ** | **2009** | ** ** |
| ** **                                | ** ** | **(dollars in thousands)** | ** ** |
| **REVENUES:**                             | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Brokerage  revenues:                      |       |                       |       |   |   |
| Agency  commissions                       |       | $                          | 143,830    |   | $ | 125,399 |   |
| Principal  transactions                   |       | 60,296                     |       | 72,215 |   |
| Total  brokerage revenues                 |       | 204,126                    |       | 197,614 |   |
| Software,  analytics and market data      |       | 14,900                     |       | 13,052 |   |
| Interest  income                          |       | 240                        |       | 497 |   |
| Other  income                             |       | 1,509                      |       | 5,072 |   |
| Total  revenues                           |       | 220,775                    |       | 216,235 |   |
| **EXPENSES:**                             | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Compensation  and employee benefits       |       | 144,663                    |       | 145,548 |   |
| Communications  and market data           |       | 11,886                     |       | 11,498 |   |
| Travel  and promotion                     |       | 8,893                      |       | 7,480 |   |
| Rent  and occupancy                       |       | 5,431                      |       | 4,734 |   |
| Depreciation  and amortization            |       | 8,184                      |       | 7,839 |   |
| Professional  fees                        |       | 6,597                      |       | 5,091 |   |
| Clearing  fees                            |       | 7,424                      |       | 8,107 |   |
| Interest                                  |       | 2,575                      |       | 2,469 |   |
| Other  expenses                           |       | 5,008                      |       | 5,344 |   |
| Total  expenses                           |       | 200,661                    |       | 198,110 |   |
| Income  before provision for income taxes |       | 20,114                     |       | 18,125 |   |
| Provision  for income taxes               |       | 6,738                      |       | 6,525 |   |
| Net  income                               |       | $                          | 13,376     |   | $ | 11,600 |   |

 

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The following table sets forth our condensed consolidatedresults of income as a percentage of our total revenues for the periodsindicated:

 
| ** **                                | ** ** | **Three Months Ended**     | ** ** |
|-------------------------------------------|------------|----------------------------|------------|
| ** **                                | ** ** | **March 31,**         | ** ** |
| ** **                                | ** ** | **2010**                   | ** ** | **2009** | ** ** |
| ** **                                | ** ** | **(dollars in thousands)** | ** ** |
| **REVENUES:**                             | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Brokerage  revenues:                      |       |                       |       |   |   |
| Agency  commissions                       |       | 65.1                       | %          | 58.0 | % |
| Principal  transactions                   |       | 27.3                       |       | 33.4 |   |
| Total  brokerage revenues                 |       | 92.4                       | %          | 91.4 | % |
| Software,  analytics and market data      |       | 6.7                        |       | 6.0 |   |
| Interest  income                          |       | 0.1                        |       | 0.2 |   |
| Other  income                             |       | 0.8                        |       | 2.4 |   |
| Total  revenues                           |       | 100.0                      | %          | 100.0 | % |
| **EXPENSES:**                             | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Compensation  and employee benefits       |       | 65.5                       |       | 67.3 |   |
| Communications  and market data           |       | 5.4                        |       | 5.3 |   |
| Travel  and promotion                     |       | 4.0                        |       | 3.5 |   |
| Rent  and occupancy                       |       | 2.5                        |       | 2.2 |   |
| Depreciation  and amortization            |       | 3.7                        |       | 3.6 |   |
| Professional  fees                        |       | 3.0                        |       | 2.4 |   |
| Clearing  fees                            |       | 3.4                        |       | 3.7 |   |
| Interest                                  |       | 1.2                        |       | 1.1 |   |
| Other  expenses                           |       | 2.3                        |       | 2.5 |   |
| Total  expenses                           |       | 91.0                       | %          | 91.6 | % |
| Income  before provision for income taxes |       | 9.0                        | %          | 8.4 | % |
| Provision  for income taxes               |       | 3.1                        |       | 3.0 |   |
| Net  income                               |       | 5.9                        | %          | 5.4 | % |

 

**ThreeMonths Ended March 31, 2010 Compared to the Three Months Ended March 31,2009**

 

Net income for the threemonths ended March 31, 2010 was $13.4 million as compared to netincome of $11.6 million for the three months ended March 31, 2009, anincrease of $1.8 million or approximately 15.3%. Total revenues increased by$4.6 million, or 2.1%, to $220.8 million for the three months ended March 31,2010 from $216.2 million for the prior year. Our increased revenues wereprimarily due to the reasons set forth above under “Financial Overview”.  We also benefited from foreign exchange ratesin the first quarter of 2010 to the extent we earned revenues denominated inEuros and the British Pound as these currencies were stronger, on average,relative to the U.S. Dollar than in the first quarter of 2009.  Additionally, we experienced strong growth inour software and analytics product offerings. Partially offsetting this growth was weakness in the U.S. in equitiesand cash fixed income. Total expenses increased by $2.6 million, or 1.3%, to$200.7 million for the three months ended March 31, 2010 from$198.1 million for the prior year. Expenses increased primarily because ofhigher professional fees and travel and promotion expenses.

 

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The following table sets forth the changes in revenuesfor the three months ended March 31, 2010 as compared to the same periodin 2009 (dollars in thousands, except percentage data):

 
| ** **               | ** ** | **For the Three Months Ended March 31,** | ** ** |
|--------------------------|------------|------------------------------------------------------------------------|------------|
| ** **               | ** ** | ** **                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Increase** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **2010**                                                               | ** ** | **%*** | ** ** | **2009** | ** ** | **%*** | ** ** | **(Decrease)** | ** ** | **%**** | ** ** |
| **Revenues**             |       |                                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Brokerage revenues:      |       |                                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Credit                   |       | $                                                                      | 71,484     |   | 32.4 | % | $ | 74,404 |   | 34.4 | % | $ | (2,920 | ) | (3.9 | )% |
| Equity                   |       | 47,566                                                                 |       | 21.5 |   | 53,394 |   | 24.7 |   | (5,828 | ) | (10.9 | ) |
| Financial                |       | 38,110                                                                 |       | 17.2 |   | 31,091 |   | 14.4 |   | 7,019 |   | 22.6 |   |
| Commodity                |       | 46,966                                                                 |       | 21.3 |   | 38,725 |   | 17.9 |   | 8,241 |   | 21.3 |   |
| Total brokerage revenues |       | 204,126                                                                |       | 92.4 |   | 197,614 |   | 91.4 |   | 6,512 |   | 3.3 |   |
| Other revenues           |       | 16,649                                                                 |       | 7.6 |   | 18,621 |   | 8.6 |   | (1,972 | ) | (10.6 | ) |
| Total Revenues           |       | $                                                                      | 220,775    |   | 100.0 | % | $ | 216,235 |   | 100.0 | % | $ | 4,540 |   | 2.1 | % |

 

----

*            Denotes % of total revenues

**     Denotes % change in the three monthsended March 31, 2010 as compared to the three months ended March 31,2009

 

·                  **Brokerage Revenues** — We offer ourbrokerage services in four broad product categories: credit, equity, financialand commodity.  Below is a discussion onour brokerage revenues by product category.

 

·                  Broker productivity (defined as total brokerage revenuesduring the period divided by average monthly brokerage personnel headcount forthe period) in the first quarter of 2010 was level with that of the comparableperiod in 2009.

 

·                  The decrease in credit product brokerage revenues of$2.9 million in 2010 was due to a decline in U.S. cash fixed income revenuespartially offset by significant growth in credit derivative revenues.  Narrow credit spreads and increasedcompetition adversely affected our U.S. cash fixed income business, while ourcredit derivative revenues increased in the U.S. and Europe due to an improvedbusiness environment, increased electronic trading on our CreditMatch® platformand heightened volatility from sovereign debt concerns.  Our credit product brokerage personnelheadcount increased by 29 to 304 employees at March 31, 2010 from 275employees at March 31, 2009.

 

·                  The decrease in equity product brokerage revenues of$5.8 million in 2010 was primarily due to lower revenues in the U.S., which wasimpacted by lower volatility and trading volumes.  This decrease was partially offset bystronger revenues in Europe aided by higher share and index values as comparedto the first quarter of 2009.  Our equityproduct brokerage personnel headcount increased by 13 to 246 employees at March 31,2010 from 233 employees at March 31, 2009.

 

·                  The increase in financial product brokerage revenuesof $7.0 million in 2010 was primarily attributable to improved economicconditions and growth in emerging markets and Asia.  Our emerging market foreign exchange andinterest rate derivative products exhibited strong growth year-over-year.  Our financial product headcount increased by9 to 257 employees at March 31, 2010 from 248 employees the previous year.

 

·                  The increase in commodity product brokerage revenuesof $8.2 million in 2010 was primarily attributable to improved economicconditions reflected in higher commodity prices and increased demand forcertain commodity products including shipping, electricity and naturalgas.  We also benefited from new hires inour energy and commodities product area in the U.S. and Europe. Our commodityproduct brokerage personnel headcount increased by 1 to 284 employees at March 31,2010 from 283 employees at March 31, 2009.

 

·                  **Other Revenues**

 

Otherrevenues is comprised of the following:

 
| ** **                                                      | ** ** | **For the Three  Months Ended  March 31,  2010** | ** ** | **For the Three  Months Ended  March 31,  2009** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
|                                                            |       |                                                  |       |                                                  |       |
| Software, analytics and market data                             |       | $                                                     | 14,900     |                                                  | $          | 13,052 |   |
| Remeasurement of foreign currency transactions and  balances    |       | (2,294                                                | )          | (5,226                                                | )          |
| Net realized and unrealized gains from foreign  currency hedges |       | 3,079                                                 |       | 8,667                                                 |       |
| Interest income                                                 |       | 240                                                   |       | 497                                                   |       |
| Other                                                           |       | 724                                                   |       | 1,631                                                 |       |
| Total other revenues                                            |       | $                                                     | 16,649     |                                                  | $          | 18,621 |   |

 

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The$2.0 million net decrease in other revenues in the first quarter of 2010 to$16.6 million from $18.6 million in the same period in 2009 was largely relatedto a $5.6 million decrease in net realized and unrealized gains on foreigncurrency hedges, which decreased to $3.1 million in the first quarter of 2010from $8.7 million in the year earlier period. These hedges of foreign currency assets and current and anticipatedforeign currency revenues partially offset a $2.9 million decrease in theremeasurement of the underlying foreign currency balances, as well as the valueof anticipated future euro revenues. Also contributing to the decrease in Other Income in the quarter was a$0.7 million gain that occurred in the first quarter of 2009 related to theexchange of our investment in The Clearing Corporation for an investment in aholding company of ICE Trust.  Our software,analytics and market data revenues grew by $1.8 million, partially offsettingthe decreases discussed above.

 

**Expenses**

 

The following table setsforth the changes in expenses for the three months ended March 31, 2010 ascompared to the same period in 2009 (dollars in thousands, except percentagedata):

 
| ** **                          | ** ** | **For the Three Month Ended** | ** ** | ** **   | ** ** | ** ** | ** ** |
|-------------------------------------|------------|---------------------------------------------------|------------|--------------|------------|------------|------------|
| ** **                          | ** ** | **March 31,**                                | ** ** | **Increase** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **2010**                                          | ** ** | **%***       | ** ** | **2009**   | ** ** | **%*** | ** ** | **(Decrease)** | ** ** | **%**** | ** ** |
| **Expenses**                        |       |                                              |       |         |       |       |       |   |   |   |   |   |   |
| Compensation  and employee benefits |       | $                                                 | 144,663    |         | 65.5       | %          | $          | 145,548 |   | 67.3 | % | $ | (885 | ) | (0.6 | )% |
| Communications  and market data     |       | 11,886                                            |       | 5.4          |       | 11,498     |       | 5.3 |   | 388 |   | 3.4 |   |
| Travel  and promotion               |       | 8,893                                             |       | 4.0          |       | 7,480      |       | 3.5 |   | 1,413 |   | 18.9 |   |
| Rent  and occupancy                 |       | 5,431                                             |       | 2.5          |       | 4,734      |       | 2.2 |   | 697 |   | 14.7 |   |
| Depreciation  and amortization      |       | 8,184                                             |       | 3.7          |       | 7,839      |       | 3.6 |   | 345 |   | 4.4 |   |
| Professional  fees                  |       | 6,597                                             |       | 3.0          |       | 5,091      |       | 2.4 |   | 1,506 |   | 29.6 |   |
| Clearing  fees                      |       | 7,424                                             |       | 3.4          |       | 8,107      |       | 3.7 |   | (683 | ) | (8.4 | ) |
| Interest                            |       | 2,575                                             |       | 1.2          |       | 2,469      |       | 1.1 |   | 106 |   | 4.3 |   |
| Other  expenses                     |       | 5,008                                             |       | 2.3          |       | 5,344      |       | 2.5 |   | (336 | ) | (6.3 | ) |
| **Total Expenses**                  |       | $                                                 | 200,661    |         | 91.0       | %          | $          | 198,110 |   | 91.6 | % | $ | 2,551 |   | 1.3 | % |

 

----

*            Denotes % of total revenues

**     Denotes % change in the three months ended March 31,2010 as compared to the three months ended March 31, 2009

 

·                  **Compensationand Employee Benefits**

 

·                  The decrease in compensation and employee benefitsexpenses of $0.9 million in the first quarter of 2010 was primarilyattributable to lower broker performance bonus and sign-on bonus expense due toour restructuring efforts in 2009, offset partially by higher broker salaries,payroll taxes and benefits from increased broker headcount.

 

·                  Total compensation and employee benefits as apercentage of total revenues decreased to 65.5% for the three months ended March 31,2010 as compared to 67.3% for the same period in the prior year. The lowercompensation rate was largely the result of a $25.5 million charge related tothe renegotiation of certain employee contracts in the fourth quarter of 2009,lowering the amortization of sign-on bonus expense in future periods.Additionally, the first quarter of 2009 included a $3.8 million front and backoffice restructuring charge.

 

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·                  Bonus expense represented 49.5% and 50.8% of totalcompensation and employee benefits expense for the three months ended March 31,2010 and 2009, respectively. A portion of our bonus expense is subject tocontractual guarantees that may require us to make bonus payments to brokersregardless of their performance in any particular period. Additionally, sign-onbonus expense represented 5.8% and 7.6% of total compensation and employeebenefits for the three months ended March 31, 2010 and 2009, respectively.This decrease in sign-on bonus expense was primarily due to the renegotiationof certain employment agreements in the fourth quarter of 2009 and theresulting $25.5 million charge.

 

·                  **All Other Expenses**

 

·                  The increase in travel and promotion was primarilyattributable to increased broker headcount, increased competition and theimproved financial condition of many of our customers.  Travel and promotion, as a percentage of ourtotal brokerage revenues for the three months ended March 31, 2010,increased to 4.4% from 3.8% for the same period from the prior year.

 

·                  The increase in rent and occupancy of $0.7 million wasprimarily due to an increase in rent and related costs due to our headcount andgeographical expansion.

 

·                  The decrease in clearing fees was primarily due to thedecline in our cash equities and cash fixed income volumes in the U.S.  Clearing fees, as a percentage of our totalrevenues from principal transactions increased to 12.3% for the three monthsended March 31, 2010, from 11.2% for the same period from the prioryear.  This increase was primarily due tothe change in product mix as our cash fixed income business decreased relativeto our cash equities business.  Principaltransactions are generally settled through third party clearing organizationsthat charge us a fee for their services. We also use the services of stock exchanges and floor brokers, to assistin the execution of transactions.  Feespaid to floor brokers and execution fees paid to exchanges in thesecircumstances are included in clearing fees. In addition, clearing fees also includes fees incurred in certain equitytransaction executed on an agency basis.

 

·                  The increase in professional fees of $1.5 million wasprimarily due to increased legal fees relating to litigation and corporatetransactions, as well as consulting and professional fees related to strategicprojects.

 

·                  Our effective tax rate was 33.5% for thethree months ended March 31, 2010 as compared to 36.0% for the same periodin the prior year. The reduction in the effective tax rate was primarily due toa shift in the geographic mix of our earnings in favor of jurisdictions withlower tax rates, resulting in a lower aggregate effective tax rate.

 

**Resultsof Segment Operations**

 

TheCompany has three operating segments: Americas Brokerage, Europe, Middle Eastand Africa (“EMEA”) Brokerage and Asia Brokerage.  Additionally, the Company presents itsoperating segments as four reportable segments: Americas Brokerage, EMEABrokerage, Asia Brokerage and All Other. The All Other segment captures costs that are not directly assignable toone of the operating business segments, primarily consisting of the Company’scorporate business activities and its software, analytics and market dataoperations.

 

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Thefollowing tables summarize our revenues, expenses and pre-tax income bysegment:

 
| ** **                            | ** ** | **Three  months ended March 31,** | ** ** |
|---------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| ** **                            | ** ** | **(dollars  in thousands)**            | ** ** |
| **Revenues:**                         |       |                                   |       |   |   |
| Americas  Brokerage                   |       | $                                      | 77,836     |   | $ | 89,912 |   |
| EMEA  Brokerage                       |       | 107,882                                |       | 93,307 |   |
| Asia  Brokerage                       |       | 18,848                                 |       | 14,783 |   |
| All  Other                            |       | 16,209                                 |       | 18,233 |   |
| Total  Consolidated Revenues          |       | $                                      | 220,775    |   | $ | 216,235 |   |
| ** **                            |       |                                   |       |   |   |
| **Expenses:**                         |       |                                   |       |   |   |
| Americas  Brokerage                   |       | $                                      | 59,719     |   | $ | 68,790 |   |
| EMEA  Brokerage                       |       | 70,831                                 |       | 63,194 |   |
| Asia  Brokerage                       |       | 14,549                                 |       | 16,669 |   |
| All  Other                            |       | 55,562                                 |       | 49,457 |   |
| Total  Consolidated Interest Revenues |       | $                                      | 200,661    |   | $ | 198,110 |   |
| ** **                            |       |                                   |       |   |   |
| **Pre-tax Income/(Loss):**            |       |                                   |       |   |   |
| Americas  Brokerage                   |       | $                                      | 18,117     |   | $ | 21,122 |   |
| EMEA  Brokerage                       |       | 37,051                                 |       | 30,113 |   |
| Asia  Brokerage                       |       | 4,299                                  |       | (1,886 | ) |
| All  Other                            |       | (39,353                                | )          | (31,224 | ) |
| Total  Pre-tax Income                 |       | $                                      | 20,114     |   | $ | 18,125 |   |

 

**Segment Results for the Three MonthsEnded March 31, 2010 Compared to the Three Months Ended March 31,2009**

 

·                  **Revenues**

 

·                  Revenues for Americas Brokerage decreased$12.1 million, or 13.4%, to $77.8 million for the three months ended March 31,2010 from $89.9 million for the three months ended March 31, 2009.  Revenues for EMEA Brokerage increased $14.6million, or 15.6%, to $107.9 million for the three months ended March 31,2010 from $93.3 million for the three months ended March 31, 2009.Revenues for Asia Brokerage increased $4.1 million, or 27.5%, to $18.9 millionfor the three months ended March 31, 2010 from $14.8 million for the threemonths ended March 31, 2009.  Totalrevenues for our three brokerage segments increased by $6.6 million, or 3.3%,to $204.6 million for the three months ended March 31, 2010 from $198.0million for the three months ended March 31, 2009. The increase inrevenues was primarily due to increased brokerage revenues in financial andcommodity product categories partially offset by decreases in equity and creditproduct categories resulting from the factors described above under “ThreeMonths Ended March 31, 2010 Compared to Three Months Ended March 31,2009”.

 

·                  Revenues for All Other primarily consisted of revenues generated fromsales of software, analytics and market data.  Total revenues from AllOther decreased by $2.0 million, or 11.1%, to $16.2 million for the threemonths ended March 31, 2010 from $18.2 million for the three months ended March 31,2009.  This decrease was primarily related to $5.6 million decrease in netrealized and unrealized gains on foreign currency hedges, which decreased to$3.1 million in the first quarter of 2010 from $8.7 million in the year earlierperiod.  These hedges of foreign currencyassets and current and anticipated foreign currency revenues partially offset a$2.9 million decrease in the remeasurement of the underlying foreign currencybalances, as well as the value of anticipated future euro revenues.  Also contributing to the decrease in thequarter was a $0.7 million gain that occurred in first quarter of 2009 relatedto our investment in The Clearing Corporation. We experienced a $1.8 millionincrease in software, analytics and market data revenues, partially offsettingthe decreases discussed above.

 

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·                  **Expenses**

 

·                  Expenses for Americas Brokerage decreased$9.1 million, or 13.2%, to $59.7 million for the three months ended March 31,2010 from $68.8 million for the three months ended March 31, 2009.  Expenses for EMEA Brokerage increased $7.6million, or 12.1%, to $70.8 million for the three months ended March 31,2010 from $63.2 million for the three months ended March 31, 2009.  Expenses for Asia Brokerage decreased $2.1million, or 12.7%, to $14.6 million for the three months ended March 31,2010 from $16.7 million for the three months ended March 31, 2009. Totalexpenses for our three brokerage segments decreased by $3.6 million, or 2.4%,to $145.1 million for the three months ended March 31, 2010 from $148.7million for the three months ended March 31, 2009.  The decrease was primarily due to a decreasein compensation and employee benefits, clearing fees and other expenses,partially offset by increase in communications and market data and travel andpromotion expenses as well as other factors described above under “Three MonthsEnded March 31, 2010 Compared to Three Months Ended March 31, 2009”.

 

The Company records certain direct expenses other than compensation andemployee benefits to the operating segments; however, the Company does notallocate certain expenses to its operating segments that are managed separatelyat the corporate level.  The unallocatedcosts including rent and occupancy, depreciation and amortization, professionalfees, interest and other expenses are included in the expenses for All Otherdescribed below.  Management does notbelieve that allocating these costs to our brokerage segments is optimal forevaluating the performance of its brokerage segments.

 

·                  Total expenses for All Other increased by$6.1 million, or 12.3%, to $55.6 million for the three months ended March 31,2010 from $49.5 million for the three months ended March 31, 2009.  The increase was primarily due to an increasein compensation and employee benefits, travel and promotion and professionalfees.

 

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**QuarterlyResults of Operations**

** **

The following tablesets forth, by quarter, our unaudited statement of operations data for theperiod from April 1, 2008 to March 31, 2010. Results of any periodare not necessarily indicative of results for a full year and may, in certainperiods, be affected by seasonal fluctuations in our business.

 
| ** **                                 | ** ** | **Quarter  Ended**          | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|
| ** **                                 | ** ** | **March 31,**          | ** ** | **December 31,** | ** ** | **September 30,** | ** ** | **June 30,** | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **September** | ** ** | **June 30,** | ** ** |
| ** **                                 | ** ** | **2010**                    | ** ** | **2009** | ** ** | **2009** | ** ** | **2009** | ** ** | **2009** | ** ** | **2008** | ** ** | **30,  2008** | ** ** | **2008** | ** ** |
| ** **                                 | ** ** | **(dollars  in thousands)** | ** ** |
|                                       |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Revenues**                               |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Brokerage  revenues:                       |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency  commissions                        |       | $                           | 143,830    |   | $ | 115,043 |   | $ | 119,396 |   | $ | 121,488 |   | $ | 125,399 |   | $ | 143,556 |   | $ | 182,591 |   | $ | 192,074 |   |
| Principal  transactions                    |       | 60,296                      |       | 53,608 |   | 64,989 |   | 79,566 |   | 72,215 |   | 50,272 |   | 43,771 |   | 53,532 |   |
| Total brokerage  revenues                  |       | 204,126                     |       | 168,651 |   | 184,385 |   | 201,054 |   | 197,614 |   | 193,828 |   | 226,362 |   | 245,606 |   |
|                                       |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Software,  analytics and market data       |       | 14,900                      |       | 14,649 |   | 13,627 |   | 13,019 |   | 13,052 |   | 12,800 |   | 14,034 |   | 13,157 |   |
| Interest income                            |       | 240                         |       | 148 |   | 172 |   | 226 |   | 497 |   | 1,669 |   | 2,187 |   | 2,078 |   |
| Other income  (loss) (1)                   |       | 1,509                       |       | 2,112 |   | (5,938 | ) | 10,367 |   | 5,072 |   | (12,061 | ) | 555 |   | 688 |   |
| Total revenues                             |       | 220,775                     |       | 185,560 |   | 192,246 |   | 224,666 |   | 216,235 |   | 196,236 |   | 243,138 |   | 261,529 |   |
| **Expenses**                               |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and  employee benefits        |       | 144,663                     |       | 156,053 |   | 135,139 |   | 146,575 |   | 145,548 |   | 137,583 |   | 176,462 |   | 158,730 |   |
| Communications  and market data            |       | 11,886                      |       | 11,864 |   | 11,661 |   | 11,240 |   | 11,498 |   | 12,245 |   | 12,640 |   | 11,744 |   |
| Travel and  promotion                      |       | 8,893                       |       | 9,509 |   | 8,280 |   | 8,550 |   | 7,480 |   | 8,897 |   | 11,845 |   | 13,291 |   |
| Rent and  occupancy (2)                    |       | 5,431                       |       | 5,343 |   | 5,470 |   | 4,778 |   | 4,734 |   | 4,811 |   | 14,399 |   | 6,176 |   |
| Depreciation and  amortization             |       | 8,184                       |       | 7,959 |   | 7,680 |   | 8,015 |   | 7,839 |   | 7,827 |   | 7,192 |   | 8,449 |   |
| Professional fees                          |       | 6,597                       |       | 4,674 |   | 4,508 |   | 4,129 |   | 5,091 |   | 6,081 |   | 7,756 |   | 7,351 |   |
| Clearing fees                              |       | 7,424                       |       | 6,988 |   | 7,153 |   | 8,106 |   | 8,107 |   | 9,706 |   | 12,026 |   | 10,486 |   |
| Interest                                   |       | 2,575                       |       | 2,645 |   | 2,769 |   | 2,657 |   | 2,469 |   | 3,993 |   | 3,508 |   | 3,748 |   |
| Other expenses  (1), (2)                   |       | 5,008                       |       | 6,046 |   | 5,170 |   | 4,366 |   | 5,344 |   | 5,445 |   | 7,887 |   | 5,219 |   |
| Total expenses                             |       | 200,661                     |       | 211,081 |   | 187,830 |   | 198,416 |   | 198,110 |   | 196,588 |   | 253,715 |   | 225,194 |   |
|                                       |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  before income taxes         |       | 20,114                      |       | (25,521 | ) | 4,416 |   | 26,250 |   | 18,125 |   | (352 | ) | (10,577 | ) | 36,335 |   |
| Provision for  (benefit from) income taxes |       | 6,738                       |       | (11,070 | ) | 1,633 |   | 9,894 |   | 6,525 |   | (544 | ) | (3,861 | ) | 12,687 |   |
| Net income (loss)                          |       | $                           | 13,376     |   | $ | (14,451 | ) | $ | 2,783 |   | $ | 16,356 |   | $ | 11,600 |   | $ | 192 |   | $ | (6,716 | ) | $ | 23,648 |   |

 

----

(1) Certain software development contract revenues were previouslypresented in a line item called “Contract revenue” and have been combined into “Otherincome (loss)” to conform with the presentation for the three and twelve monthperiods ended December 31, 2009. Certain expenses related to these software development contracts werepresented as “Contract costs” in the consolidated statements of income and havebeen combined into “Other expenses” to conform with the presentation for thethree and twelve month periods ended December 31, 2009.  The amounts that were combined for therespective revenue and costs for each period presented above were as follows:

 

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| ** **       | ** ** | **September 30,**     | ** ** | **June 30,** | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|------------------|------------|----------------------------|------------|-------------------|------------|--------------------|------------|-----------------------|------------|------------------------|------------|-------------------|------------|
| ** **       | ** ** | **2009**                   | ** ** | **2009**          | ** ** | **2009**           | ** ** | **2008**              | ** ** | **2008**               | ** ** | **2008**          | ** ** |
|             |       | **(dollars in thousands)** |       |
| Contract Revenue |       | $                          | —     |              | $          | 97                 |       | $                     | 5          |                   | $          | 28                |       | $ | — |   | $ | 45 |   |
| Contract Costs   |       | $                          | —     |              | $          | 2                  |       | $                     | —     |                   | $          | 46                |       | $ | — |   | $ | 16 |   |

 

(2) Certain amountstotaling $538, $519 and $416 related to insurance expense were previously presentedin the “Rent and occupancy” line item in the consolidated statements of incomefor the three month periods ended September 30, June 30 and March 31,2009, respectively, but should have been presented in “Other expenses” in theconsolidated statements of income for those periods.  These amounts have been properly reclassifiedto “Other expenses” for those periods. Certain amounts totaling $552, $570, and $583 for the three monthperiods ended December 31, September 30, June 30, 2008,respectively, were also reclassified to conform to current year presentation.

 

The followingtable sets forth our quarterly results of operations as a percentage of ourtotal revenues for the indicated periods:

 
| ** **                                 | ** ** | **Quarter  Ended**       | ** ** |
|--------------------------------------------|------------|--------------------------|------------|
| ** **                                 | ** ** | **March 31,  2010** | ** ** | **December 31,********2009** | ** ** | **September 30,********2009** | ** ** | **June 30,********2009** | ** ** | **March 31,  2009** | ** ** | **December 31,    2008** | ** ** | **September  30, 2008** | ** ** | **June 30,********2008** | ** ** |
|                                       |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Revenues**                               |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Brokerage  revenues:                       |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency  commissions                        |       | 65.1                     | %          | 62.0 | % | 62.1 | % | 54.1 | % | 58.0 | % | 73.2 | % | 75.1 | % | 73.4 | % |
| Principal  transactions                    |       | 27.3                     |       | 28.9 |   | 33.8 |   | 35.4 |   | 33.4 |   | 25.6 |   | 18.0 |   | 20.5 |   |
| Total  brokerage revenues                  |       | 92.4                     |       | 90.9 |   | 95.9 |   | 89.5 |   | 91.4 |   | 98.8 |   | 93.1 |   | 93.9 |   |
| Software,  analytics and market data       |       | 6.7                      |       | 7.9 |   | 7.1 |   | 5.8 |   | 6.0 |   | 6.5 |   | 5.8 |   | 5.0 |   |
| Interest  income                           |       | 0.1                      |       | 0.1 |   | 0.1 |   | 0.1 |   | 0.2 |   | 0.9 |   | 0.9 |   | 0.8 |   |
| Other  income (loss)                       |       | 0.8                      |       | 1.1 |   | (3.1 | ) | 4.6 |   | 2.4 |   | (6.1 | ) | 0.2 |   | 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        |       | 65.5                     | %          | 84.1 | % | 70.3 | % | 65.2 | % | 67.3 | % | 70.1 | % | 72.6 | % | 60.7 | % |
| Communications  and market data            |       | 5.4                      |       | 6.4 |   | 6.1 |   | 5.0 |   | 5.3 |   | 6.2 |   | 5.2 |   | 4.5 |   |
| Travel  and promotion                      |       | 4.0                      |       | 5.1 |   | 4.3 |   | 3.8 |   | 3.5 |   | 4.5 |   | 4.9 |   | 5.1 |   |
| Rent  and occupancy                        |       | 2.5                      |       | 2.9 |   | 2.8 |   | 2.1 |   | 2.2 |   | 2.5 |   | 5.9 |   | 2.4 |   |
| Depreciation  and amortization             |       | 3.7                      |       | 4.3 |   | 4.0 |   | 3.6 |   | 3.6 |   | 4.0 |   | 3.0 |   | 3.2 |   |
| Professional  fees                         |       | 3.0                      |       | 2.5 |   | 2.3 |   | 1.8 |   | 2.4 |   | 3.1 |   | 3.2 |   | 2.8 |   |
| Clearing  fees                             |       | 3.4                      |       | 3.8 |   | 3.7 |   | 3.6 |   | 3.7 |   | 4.9 |   | 4.9 |   | 4.0 |   |
| Interest                                   |       | 1.2                      |       | 1.4 |   | 1.4 |   | 1.2 |   | 1.1 |   | 2.0 |   | 1.4 |   | 1.4 |   |
| Other  expenses                            |       | 2.3                      |       | 3.3 |   | 2.7 |   | 2.0 |   | 2.5 |   | 2.8 |   | 3.2 |   | 2.0 |   |
| Total  expenses                            |       | 91.0                     | %          | 113.8 | % | 97.6 | % | 88.3 | % | 91.6 | % | 100.2 | % | 104.4 | % | 86.1 | % |
| Income  (loss) before income taxes         |       | 9.0                      |       | (13.8 | ) | 2.4 |   | 11.7 |   | 8.4 |   | (0.2 | ) | (4.4 | ) | 13.9 |   |
| Provision  for (benefit from) income taxes |       | 3.1                      |       | (6.0 | ) | 0.8 |   | 4.4 |   | 3.0 |   | (0.3 | ) | (1.6 | ) | 4.9 |   |
| Net  (loss) income                         |       | 5.9                      | %          | (7.8 | )% | 1.6 | % | 7.3 | % | 5.4 | % | 0.1 | % | (2.8 | )% | 9.0 | % |

 

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**Liquidity and CapitalResources**

** **

Net cash used in operating activities was $13.9 million for the threemonths ended March 31, 2010, compared with $0.3 million used in operatingactivities for the three months ended March 31, 2009, an increase of $13.6million.  This increase is, in largepart, attributable to an increase in working capital employed in the businessof $14.7 million for the three months ended March 31, 2010 relative to thesame period in 2009.  The increase inworking capital is primarily related to a $9.8 million decrease in the changein net receivables from brokers, dealers and clearing organizations, a decreasein the change in accrued compensation and accounts payable of $6.3 million, anincrease of $9.8 million in the change in commissions receivable, an increasein the change in other assets of $13.0 million, and was offset by a $26.3million increase in the change in other liabilities.  Offsetting the additional working capitaldeployed in the business was an increase of $1.8 million in our net income,from $11.6 million for the three months ended March 31, 2009 to $13.4million in the current quarter.  Itemswhich reconcile net income to net cash used in operating activities such asdepreciation, amortization of deferred compensation, unrealized foreigncurrency gains and losses, and other items decreased by $0.7 million ascompared to the three months ended March 31, 2009.

 

Net cash used in investing activities forthe three months ended March 31, 2010 was $7.5 million compared to $5.4million used in the three months ended March 31, 2009. The increase incash used for investing activities was primarily attributable to an increase inpurchases of certain investments, offset by a decrease in payments related toforeign exchange derivative hedge contracts and for capital expenditures.

 

Netcash used in financing activities for the three months ended March 31,2010 was $10.4 million, compared to $14.7 million used in financing activitiesfor the three months ended March 31, 2009. The decrease in cash used in financing activities as compared to thethree months ended March 31, 2009 primarily related to a reduction of $4.0million in repayments of borrowings under our Credit Agreement and a reductionof $2.6 million in repurchases of common stock, offset by a $3.9 millionincrease in cash paid for taxes on the vesting of RSUs.  See Note 6 to the Condensed ConsolidatedFinancial Statements for further discussion of our short-term borrowings andlong-term obligations.

 

Ourliquidity and available cash resources are in part restricted by the regulatoryrequirements of our operating subsidiaries, including GFI Securities LLC, GFISecurities Limited, GFI Brokers Limited, GFI (HK) Securities LLC, GFI (HK)Brokers Ltd., GFI Group Pte. Ltd. and GFI Korea Money Brokerage Limited. GFISecurities LLC is subject to regulatory capital requirements under the ExchangeAct and the Commodity Exchange Act. These subsidiaries are subject to theregulatory capital and compliance requirements described in Note 13 to theCondensed Consolidated Financial Statements. At March 31, 2010, all of our regulated subsidiaries were incompliance with their respective regulatory capital requirements.  See Note 13 to the Condensed ConsolidatedFinancial Statements for a further discussion of these regulatoryrequirements.  In addition, our liquiditymay be impacted by the amount of capital that we maintain in clearing accountsand with exchanges to support our principal transactions business.

 

Itis our expectation that from time to time we may purchase additional shares ofour common stock on the open market in accordance with a stock repurchaseprogram authorized by the Board.  SeeNote 7 to our Condensed Consolidated Financial Statements for furtherdiscussion of the stock repurchase program.

 

Webelieve that, based on current levels of operations and anticipated growth, ourcash from operations, together with cash currently available and the availableborrowings under our Credit Agreement, will be sufficient to fund ouroperations for at least the next twelve months. Our Credit Agreement expires on February 24, 2011 and we are in theprocess of evaluating our options to either renew the existing agreement,replace it with a new credit agreement or to seek alternative sources ofcapital.  Poor financial results,unanticipated expenses, unanticipated acquisitions or unanticipated strategicinvestments could give rise to additional financing requirements sooner than weexpect. There can be no assurance that equity or debt financing will beavailable when needed or, if available, that the financing will be on termssatisfactory to us and not dilutive to our then-current stockholders.

 

**ContractualObligations and Commitments**

** **

The following table summarizes certain of ourcontractual obligations as of March 31, 2010:

 
| ** **                         | ** ** | **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                   |       | $                                         | 114,602    |   | $ | 13,062 |   | $ | 21,267 |   | $ | 16,472 |   | $ | 63,801 |   |
| Short-term  borrowings (1)         |       | 115,000                                   |       | 115,000 |   | — |   | — |   | — |   |
| Interest on  Long-term obligations |       | 14,706                                    |       | 4,902 |   | 9,804 |   | — |   | — |   |
| Long-term  obligations             |       | 60,000                                    |       | — |   | 60,000 |   | — |   | — |   |
| Purchase  obligations(2)           |       | 25,172                                    |       | 18,245 |   | 6,914 |   | 13 |   | — |   |
| **Total**                          |       | $                                         | 329,480    |   | $ | 151,209 |   | $ | 97,985 |   | $ | 16,485 |   | $ | 63,801 |   |

 

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(1)           Amountslisted under Short-term borrowings represent outstanding borrowings under ourCredit Agreement and vary from the Short-term borrowings reflected in ourfinancial statements because our financial statements reflect the total debtnet of unamortized loan fees.   See Note6 to the Condensed Consolidated Financial Statements for further information.

 

(2)           Amountslisted under Purchase Obligations include agreements for quotes with variousinformation service providers. Additionally, such amounts include purchasecommitments for capital expenditures for the implementation of a redundant dataand software application facility and other purchase commitments for capitalexpenditures, hosting and software licensing agreements.  See Note 10 to our Condensed ConsolidatedFinancial Statements for further discussion of these obligations.

 

We have unrecognized taxbenefits of approximately $8.7 million determined in accordance with ASC 740-10(formerly Financial Accounting Standards Board Interpretation No. 48, *Uncertainty in Income Taxes, an interpretation of SFAS No. 109*).  Due to the uncertainty of the amounts to beultimately paid as well as the timing of such payments, all such liabilitieswhich have not been paid are excluded from the Contractual Obligations andCommitments table.

 

**Off-Balance SheetArrangements**

** **

Wedid not have any off-balance sheet arrangements at March 31, 2010.

 

**Critical AccountingPolicies and Estimates**

** **

Wehave disclosed in Note 2 to our Condensed Consolidated FinancialStatements and in “Item 7—Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” included in our 2009 Form 10-Kthose accounting policies that we consider to be significant in determining ourresults of operations and financial condition. There have been no materialchanges to those policies that we consider to be significant since our 2009 Form 10-K.The accounting principles utilized by us in preparing our CondensedConsolidated Financial Statements conform in all material respects to generallyaccepted accounting principles in the United States of America.

 

***Recent Accounting Pronouncements***

 

In May 2009,the FASB issued SFAS No. 165, *SubsequentEvent*s, which is now a sub-topic within ASC 855-10 *Subsequent Events* (“ASC 855-10”). ASC855-10 provides guidance for accounting for and disclosure of subsequent eventsthat are not addressed in other applicable generally accepted accountingprinciples. ASC 855-10 was effective for interim and annual reporting periodsending after June 15, 2009, and has been applied prospectively by us. In February 2010,the FASB amended ASC 855-10 through the issuance of Accounting Standards UpdateNo. 2010-09 (“ASU 2010-09”), *Amendmentsto Certain Recognition and Disclosure Requirements*. ASU 2010-09 removedthe requirement for an SEC filer to disclose a date in both the issued andrevised financial statements and was effective upon issuance. See Note 16for disclosures on Subsequent Events.

 

In October 2009,the FASB issued Accounting Standards Update No. 2009-13 (“ASU 2009-13”) *Revenue Recognition (Topic 605) Multiple-DeliverableRevenue Arrangements*. ASU 2009-13 establishes the accounting andreporting guidance for arrangements with multiple-revenue generatingactivities. ASU 2009-13 addresses how to separate deliverables and how tomeasure and allocate arrangement consideration to one or more units ofaccounting and provides a selling price hierarchy for determining the sellingprice of a deliverable. ASU 2009-13 is effective for fiscal years beginning onor after June 15, 2010. Early adoption is permitted but must beretrospectively applied to the beginning of the fiscal year of adoption. We donot expect the impact of the adoption of ASU 2009-13 to have a material impacton its consolidated financial statements.

 

In October 2009,the FASB issued Accounting Standards Update No. 2009-14 (“ASU 2009-14”) *Software (Topic 985) Certain Revenue ArrangementsThat Include Software Elements*. ASU 2009-14 provides guidance on howto allocate arrangement consideration to deliverables in an arrangement thatincludes both tangible products and software. ASU 2009-14

 

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also provides additional guidance on how to determine which software,if any, relating to the tangible product would be excluded from softwarerevenue recognition. ASU 2009-14 is effective for fiscal years beginning on orafter June 15, 2010. Early adoption is permitted but must beretrospectively applied to the beginning of the fiscal year of adoption. We donot expect the adoption of ASU 2009-14 to have a material impact on itsconsolidated financial statements.

 

In January 2010,the FASB issued Accounting Standards Update No. 2010-06 (“ASU 2010-06”) *Fair Value Measurements and Disclosures (Topic 820)Improving Disclosures about Fair Value Measurements.* ASU 2010-06provides amendments to Subtopic 820-10 that require new disclosures includingthe amounts of and reasons for transfers in and out of Levels 1 and 2 fairvalue measurements and reporting activity in the reconciliation of Level 3fair value measurements on a gross basis. ASU 2010-06 provides amendmentsthat clarify existing disclosures regarding the level of disaggregation forproviding fair value measurement disclosures for each class of assets andliabilities. In addition, it clarifies existing disclosures about inputs andvaluation techniques used to measure fair value for both recurring andnonrecurring fair value measurements that are required for either Level 2or Level 3. ASU 2010-06 was effective for interim and annual reportingperiods ending after December 15, 2009 except for the disclosures aboutthe roll forward of activity in Level 3 fair value measurements, which areeffective for fiscal years beginning after December 31, 2010 and forinterim periods within those fiscal years. The adoption of ASU 2010-06 did nothave a material impact on our consolidated financial statements and theadoption of ASU 2010-06 with respect to disclosures of the roll forward ofactivity in Level 3 fair value measurements is not expected to have amaterial impact on our consolidated financial statements.

 

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

** **

Ourquantitative and qualitative disclosures about market risk are described in “Item 7—Management’sDiscussion and Analysis of Financial Condition and Results of Operations” and “Item 7A—Quantitativeand Qualitative Disclosures about Market Risk” contained in the 2009 Form 10-K.Except as described below in this Form 10-Q, there have been no materialchanges to those market risks during the three months ended March 31,2010.

 

**Foreign CurrencyExposure Risk**

** **

Weare exposed to market risk associated with movements in foreign currencyexchange rates. There have been no material changes to our risk managementpolicy during the three months ended March 31, 2010.

 

Whileour international results of operations, as measured in U.S. Dollars, aresubject to foreign exchange rate fluctuations, we do not consider the relatedrisk to be material to our results of operations.  If the Euro strengthened against the U.S.Dollar by 10% and the British Pound Sterling weakened by 10% against the U.S.Dollar, the net impact to our net income would be a reduction of approximately$3.8 million as of March 31, 2010.

 

**ITEM4.**                    CONTROLS ANDPROCEDURES

** **

Asof the end of the period covered by this report, our management carried out anevaluation, under the supervision and with the participation of our ChiefExecutive Officer and our Chief Financial Officer, of the effectiveness ofthe design and operation of our disclosure controls and procedures. Based onthe foregoing, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures (as defined in Rule 13a-15(e) ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)) wereeffective as of the end of the period covered by this report.

 

Inaddition, our management, including our Chief Executive Officer andChief Financial Officer, has evaluated our internal controls overfinancial reporting (as defined in Rule 13a-15(f) of the ExchangeAct) and determined that there have been no changes in our internal controlsover financial reporting during the most recent fiscal quarter that havematerially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting.

 

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**PART II—OTHERINFORMATION**

** **

**ITEM1.**                    LEGALPROCEEDINGS

** **

In the normal course ofbusiness, we are and have been party to, or otherwise involved in, litigations,claims and arbitrations that involve claims for substantial amounts. Theseproceedings have generally involved either proceedings against our competitorsin connection with employee hires, or claims from former employees inconnection with the termination of their employment from us. There is alsopotential for client claims alleging the occurrence of errors in the executionof brokerage transactions. We are also currently and will, in the future, beinvolved in examinations, investigations or proceedings by government agenciesand self-regulatory organizations. These examinations or investigations couldresult in substantial fines or administrative proceedings that could result incensure, the issuance of cease and desist orders, the suspension or expulsionof a broker-dealer and its affiliated persons, officers or employees or othersimilar consequences.

 

The staff of the Market Regulation Department of FINRA (the “Staff”)has been conducting an inquiry into the activities of interdealer brokeragefirms in connection with the determination of the commission rates paid to themby certain dealers for brokering transactions in credit default swaps.  GFI Securities LLC has been cooperating withthe Staff in this inquiry by responding to requests for documents, testimonyand other information.  In January 2009,the Staff advised GFI Securities LLC that it has made a preliminarydetermination to recommend disciplinary action in connection with allegedlyimproper communications between certain of GFI Securities LLC’s brokers andthose at other interdealer brokers, purportedly inconsistent with just andequitable principles of trade and certain antifraud and supervisoryrequirements under FINRA rules and the federal securities laws.  All but one of these brokers who made theallegedly improper communications resigned in April 2008 to becomeemployed by affiliates of Compagnie Financiere Tradition.  We intend to vigorously contest any suchdisciplinary action which, if brought and/or settled, could result in acensure, fine or other sanction.

 

Based on currentlyavailable information, the outcome of the Company’s outstanding matters are notexpected to have a material adverse impact on the Company’s financialposition.  However, the outcome of anysuch matters may be material to the Company’s results of operations or cashflows in a given period.  It is notpresently possible to determine the Company’s ultimate exposure to thesematters and there is no assurance that the resolution of the Company’soutstanding matters will not significantly exceed any reserves accrued by theCompany.

 

**ITEM1A.**           RISK FACTORS

** **

Therehave been no material changes in our risk factors from those disclosed in the2009 Form 10-K. For a discussion of the risk factors affecting theCompany, see “Risk Factors” in Part I, Item 1A of our 2009 Form 10-K.

 

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

** **

The table below sets forth the information withrespect to purchases made by the Company of its common stock during thequarterly period ended March 31, 2010.

 

**Issuer Purchasesof Equity Securities**

 
| **Period**                    | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average Price  Paid Per  Share** | ** ** | **Total Number of  Shares Purchased  As Part of Publicly  Announced Plans  or Programs (C)** | ** ** | **Approximate  Number of Shares  that May Yet Be  Purchased Under  the Plans or  Programs** | ** ** |
|-------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| **January**                   |       |                                    |       |                                    |       |                                                                                                             |       |                                                                                                  |       |
| Stock Repurchase  Program (a) |       | —                                  |       | $                                       | —     |                                                                                                             | —     |                                                                                                  | 579,660    |   |
| Employee  Transactions (b)    |       | 84,486                                  |       | $                                       | 5.10       |                                                                                                             | N/A        |                                                                                                  | N/A        |   |
|                          |       |                                    |       |                                    |       |                                                                                                             |       |                                                                                                  |       |
| **February**                  |       |                                    |       |                                    |       |                                                                                                             |       |                                                                                                  |       |
| Stock Repurchase  Program (a) |       | —                                  |       | $                                       | —     |                                                                                                             | —     |                                                                                                  | 1,271,339  |   |
| Employee  Transactions (b)    |       | 66,088                                  |       | $                                       | 4.81       |                                                                                                             | N/A        |                                                                                                  | N/A        |   |
| ** **                    |       |                                    |       |                                    |       |                                                                                                             |       |                                                                                                  |       |
| **March**                     |       |                                    |       |                                    |       |                                                                                                             |       |                                                                                                  |       |
| Stock Repurchase  Program (a) |       | —                                  |       | $                                       | —     |                                                                                                             | —     |                                                                                                  | 4,988,836  |   |
| Employee  Transactions (b)    |       | 666,862                                 |       | $                                       | 5.88       |                                                                                                             | N/A        |                                                                                                  | N/A        |   |
|                          |       |                                    |       |                                    |       |                                                                                                             |       |                                                                                                  |       |
| **Total**                     |       |                                    |       |                                    |       |                                                                                                             |       |                                                                                                  |       |
| Stock Repurchase  Program (a) |       | —                                  |       | $                                       | —     |                                                                                                             | —     |                                                                                                  | 4,988,836  |   |
| Employee  Transactions (b)    |       | 817,436                                 |       | $                                       | 5.71       |                                                                                                             | N/A        |                                                                                                  | N/A        |   |

 

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(a) In August 2007, the Board ofDirectors authorized the Company to implement a stock repurchase program torepurchase a limited number of sharesof the Company’s common stock on the open market. Under the repurchase plan,the Board of Directors authorized the Company to repurchase shares of theCompany’s common stock on the open market in such amounts as determined by theCompany’s management, provided, however, such amounts are not to exceed, duringany calendar year, the number of shares issued upon the exercise of stockoptions plus the number of shares underlying grants of RSUs that are granted orwhich management reasonably anticipates will be granted in such calendar year.Any repurchases are also subject to compliance with certain covenants andlimits under the Company’s Credit Agreement.

 

(b)  Under our 2008 Equity Incentive Plan, weallow employees to elect to have us withhold shares of common stock to satisfyminimum statutory tax withholding obligations arising on the vesting andsettlement of restricted stock units. When we withhold these shares, we arerequired to remit to the appropriate taxing authorities the market price of theshares withheld, which could be deemed a purchase of the shares of our commonstock by us on the date of withholding.

 

**ITEM6.**                    EXHIBITS

** **

Exhibits:

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                              |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                 |       | Fifth Amendment to Credit Agreement, dated as of  April 12, 2010.                                                                       |
| 15                   |       | Letter re: Unaudited Interim Financial Information.                                                                                          |
| 31.1                 |       | Certification of Principal Executive Officer.                                                                                                |
| 31.2                 |       | Certification of Principal Financial Officer.                                                                                                |
| 32.1                 |       | Written Statement of Chief Executive Officer  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.  Section 1350). |
| 32.2                 |       | Written Statement of Chief Financial Officer  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.  Section 1350). |

 

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**SIGNATURES**

** **

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this Quarterly Report on Form 10-Q for the quarter ended March 31,2010 to be signed on its behalf by the undersigned, thereunto duly authorized,on the 10th day of May, 2010.

 
|     |     | 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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