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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

** **

**FORM 10-Q**

** **

**(MarkOne)**

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

** **

**FORTHE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009**

** **

**OR**

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

 

**FOR THE TRANSITIONPERIOD FROM                TO                 **

** **

**CommissionFile No: 000-51103**

** **

**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**

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days. YES x NO o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was 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  x                     |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company o |
| (Do not check if a  smaller reporting company) |   |                              |

 

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

 

Thenumber of shares of registrant’s common stock outstanding on October 31,2009 was 118,433,177.

 

 

 

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**Tableof Contents**

 
| **Part I—Financial  Information** |                                                                                                                                                                                |
|---------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                        |                                                                                                                                                                                |   |
| Item 1.                                     | Financial  Statements                                                                                                                                                               | 4 |
|                                        | Condensed  Consolidated Statements of Financial Condition as of September 30, 2009  (unaudited) and December 31, 2008                                                     | 4 |
|                                        | Condensed  Consolidated Statements of Income for the three and nine months ended  September 30, 2009 (unaudited) and September 30, 2008 (unaudited)                       | 5 |
|                                        | Condensed  Consolidated Statements of Comprehensive Income (Loss) for the three and nine  months ended September 30, 2009 (unaudited) and September 30, 2008  (unaudited) | 6 |
|                                        | Condensed  Consolidated Statements of Cash Flows for the nine months ended  September 30, 2009 (unaudited) and September 30, 2008 (unaudited)                             | 7 |
|                                        | Notes to Condensed Consolidated Financial Statements  (unaudited)                                                                                                                   | 8 |
| Item 2.                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                         | 28 |
| Item 3.                                     | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                         | 50 |
| Item 4.                                     | Controls and  Procedures                                                                                                                                                            | 50 |
| **Part II—Other  Information**    | ** **                                                                                                                                                                          |
|                                        |                                                                                                                                                                                |   |
| Item 1.                                     | Legal Proceedings                                                                                                                                                                   | 51 |
| Item  1A.                                   | Risk Factors                                                                                                                                                                        | 51 |
| Item 2.                                     | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                                        | 52 |
| Item  6.                                    | Exhibits                                                                                                                                                                            | 52 |

 

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**AvailableInformation**

** **

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)**

 
| ** **                                                                                                                                                                          | ** ** | **September   30,  2009** | ** ** | **December 31,********2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                                                                                          | ** ** | **(Unaudited)**                | ** ** | ** **                        | ** ** |
| **ASSETS**                                                                                                                                                                          |       |                           |       |                              |       |
| Cash  and cash equivalents                                                                                                                                                          |       | $                              | 316,295    |                              | $          | 342,375 |   |
| Deposits  with clearing organizations                                                                                                                                               |       | 10,983                         |       | 8,492                             |       |
| Accrued  commissions receivable, net of allowance for doubtful accounts of $5,115 and  $3,854 at September 30, 2009 and December 31, 2008, respectively                   |       | 100,697                        |       | 111,923                           |       |
| Receivables  from brokers, dealers and clearing organizations                                                                                                                       |       | 403,204                        |       | 149,661                           |       |
| Property,  equipment and leasehold improvements, net of depreciation and amortization of  $103,567 and $87,924 at September 30, 2009 and December 31, 2008,  respectively |       | 67,696                         |       | 73,161                            |       |
| Goodwill                                                                                                                                                                            |       | 209,507                        |       | 209,507                           |       |
| Intangible  assets, net                                                                                                                                                             |       | 40,355                         |       | 44,439                            |       |
| Other  assets                                                                                                                                                                       |       | 154,246                        |       | 146,353                           |       |
| TOTAL  ASSETS                                                                                                                                                                       |       | $                              | 1,302,983  |                              | $          | 1,085,911 |   |
|                                                                                                                                                                                |       |                           |       |                              |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                       |       |                           |       |                              |       |
| LIABILITIES                                                                                                                                                                         |       |                           |       |                              |       |
| Accrued  compensation                                                                                                                                                               |       | $                              | 94,906     |                              | $          | 135,861 |   |
| Accounts  payable and accrued expenses                                                                                                                                              |       | 45,148                         |       | 51,497                            |       |
| Payables  to brokers, dealers and clearing organizations                                                                                                                            |       | 356,703                        |       | 104,840                           |       |
| Short-term  borrowings, net                                                                                                                                                         |       | 128,969                        |       | 164,328                           |       |
| Long-term  obligations, net                                                                                                                                                         |       | 59,588                         |       | 59,495                            |       |
| Other  liabilities                                                                                                                                                                  |       | 113,351                        |       | 92,927                            |       |
| Total  Liabilities                                                                                                                                                                  |       | $                              | 798,665    |                              | $          | 608,948 |   |
| Commitments  and contingencies                                                                                                                                                      |       |                           |       |                              |       |
|                                                                                                                                                                                |       |                           |       |                              |       |
| STOCKHOLDERS’  EQUITY                                                                                                                                                          |       |                           |       |                              |       |
| Preferred  stock, $0.01 par value; 5,000,000 shares authorized, none outstanding at  September 30, 2009 and December 31, 2008                                             |       | —                         |       | —                            |       |
| Common  stock, $0.01 par value; 400,000,000 shares authorized; 120,537,350 and  119,517,720 shares issued at September 30, 2009 and December 31,  2008, respectively      |       | 1,205                          |       | 1,195                             |       |
| Additional  paid in capital                                                                                                                                                         |       | 295,028                        |       | 279,656                           |       |
| Retained  earnings                                                                                                                                                                  |       | 232,420                        |       | 219,354                           |       |
| Treasury  stock, 2,112,158 and 996,236 common shares at cost, at September 30,  2009 and December 31, 2008, respectively                                                  |       | (21,447                        | )          | (18,476                           | )          |
| Accumulated  other comprehensive loss                                                                                                                                               |       | (2,888                         | )          | (4,766                            | )          |
| Total  Stockholders’ Equity                                                                                                                                                    |       | 504,318                        |       | 476,963                           |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                    |       | $                              | 1,302,983  |                              | $          | 1,085,911 |   |

 

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 September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                       | ** ** | **2009**                                                 | ** ** | **2008**                                                | ** ** | **2009** | ** ** | **2008** | ** ** |
| REVENUES:                                        |       |                                                     |       |                                                    |       |   |   |   |   |
| Brokerage  revenues:                             |       |                                                     |       |                                                    |       |   |   |   |   |
| Agency  commissions                              |       | $                                                        | 119,396    |                                                    | $          | 182,591 |   | $ | 366,283 |   | $ | 613,754 |   |
| Principal  transactions                          |       | 64,989                                                   |       | 43,771                                                  |       | 216,770 |   | 156,397 |   |
| Total brokerage  revenues                        |       | 184,385                                                  |       | 226,362                                                 |       | 583,053 |   | 770,151 |   |
| Software,  analytics and market data             |       | 13,627                                                   |       | 14,034                                                  |       | 39,698 |   | 38,450 |   |
| Interest income                                  |       | 172                                                      |       | 2,187                                                   |       | 895 |   | 6,948 |   |
| Other income  (loss)                             |       | (5,938                                                   | )          | 555                                                     |       | 9,501 |   | 3,718 |   |
| Total revenues                                   |       | 192,246                                                  |       | 243,138                                                 |       | 633,147 |   | 819,267 |   |
| EXPENSES:                                        |       |                                                     |       |                                                    |       |   |   |   |   |
| Compensation and  employee benefits              |       | 135,139                                                  |       | 176,462                                                 |       | 427,262 |   | 528,390 |   |
| Communications  and market data                  |       | 11,661                                                   |       | 12,640                                                  |       | 34,399 |   | 35,565 |   |
| Travel and  promotion                            |       | 8,280                                                    |       | 11,845                                                  |       | 24,310 |   | 36,859 |   |
| Rent and  occupancy                              |       | 6,008                                                    |       | 14,969                                                  |       | 16,455 |   | 28,342 |   |
| Depreciation and  amortization                   |       | 7,680                                                    |       | 7,192                                                   |       | 23,534 |   | 23,563 |   |
| Professional  fees                               |       | 4,508                                                    |       | 7,756                                                   |       | 13,728 |   | 20,119 |   |
| Clearing fees                                    |       | 7,153                                                    |       | 12,026                                                  |       | 23,366 |   | 33,714 |   |
| Interest                                         |       | 2,769                                                    |       | 3,508                                                   |       | 7,895 |   | 10,341 |   |
| Other expenses                                   |       | 4,632                                                    |       | 7,317                                                   |       | 13,407 |   | 19,045 |   |
| Total expenses                                   |       | 187,830                                                  |       | 253,715                                                 |       | 584,356 |   | 735,938 |   |
| INCOME (LOSS)  BEFORE PROVISION FOR INCOME TAXES |       | 4,416                                                    |       | (10,577                                                 | )          | 48,791 |   | 83,329 |   |
| PROVISION FOR  (BENEFIT FROM) INCOME TAXES       |       | 1,633                                                    |       | (3,861                                                  | )          | 18,052 |   | 30,415 |   |
| NET INCOME  (LOSS)                               |       | $                                                        | 2,783      |                                                    | $          | (6,716 | ) | $ | 30,739 |   | $ | 52,914 |   |
| EARNINGS (LOSS)  PER SHARE                       |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic                                            |       | $                                                        | 0.02       |                                                    | $          | (0.06 | ) | $ | 0.26 |   | $ | 0.45 |   |
| Diluted                                          |       | $                                                        | 0.02       |                                                    | $          | (0.06 | ) | $ | 0.25 |   | $ | 0.44 |   |
| WEIGHTED AVERAGE  SHARES OUTSTANDING             |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic                                            |       | 118,062,749                                              |       | 118,039,998                                             |       | 118,117,384 |   | 117,812,412 |   |
| Diluted                                          |       | 122,552,882                                              |       | 118,039,998                                             |       | 121,382,317 |   | 119,382,347 |   |

 

Seenotes to condensed consolidated financial statements

 

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**GFIGROUP INC. AND SUBSIDIARIES**

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

**(Inthousands)**

 
| ** **                                                           | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                           | ** ** | **2009**                                             | ** ** | **2008**                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| NET INCOME  (LOSS)                                                   |       | $                                                    | 2,783      |                                                | $          | (6,716 | ) | $ | 30,739 |   | $ | 52,914 |   |
| OTHER  COMPREHENSIVE INCOME (LOSS):                                  |       |                                                 |       |                                                |       |   |   |   |   |
| Foreign  currency translation adjustment, net of tax                 |       | 222                                                  |       | (1,953                                              | )          | 1,345 |   | (2,124 | ) |
| Unrealized  gain (loss) on available for sale securities, net of tax |       | 388                                                  |       | (1,068                                              | )          | 533 |   | (62 | ) |
| COMPREHENSIVE  INCOME (LOSS)                                         |       | $                                                    | 3,393      |                                                | $          | (9,737 | ) | $ | 32,617 |   | $ | 50,728 |   |

 

Seenotes to condensed consolidated financial statements

 

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**GFIGROUP INC. AND SUBSIDIARIES**

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

**(Inthousands)**

 
| ** **                                                                         | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2009**                                                | ** ** | **2008** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |       |                                                    |       |   |   |
| Net income                                                                         |       | $                                                       | 30,739     |   | $ | 52,914 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |       |                                                    |       |   |   |
| Depreciation and amortization                                                      |       | 23,534                                                  |       | 23,563 |   |
| Amortization of loan fees                                                          |       | 529                                                     |       | 308 |   |
| Provision for doubtful accounts                                                    |       | 2,992                                                   |       | 1,815 |   |
| Deferred compensation                                                              |       | 19,564                                                  |       | 20,108 |   |
| Provision for deferred taxes                                                       |       | 20,279                                                  |       | 13,115 |   |
| (Gains) losses on foreign exchange derivative contracts                            |       | (1,221                                                  | )          | (1,429 | ) |
| (Gains) losses from equity method investments                                      |       | (1,131                                                  | )          | 2,819 |   |
| Tax expense related to share-based compensation                                    |       | 1,150                                                   |       | 107 |   |
| Other non-cash charges, net                                                        |       | (580                                                    | )          | 236 |   |
| (Increase) decrease in operating assets:                                           |       |                                                    |       |   |   |
| Deposits with clearing organizations                                               |       | (2,491                                                  | )          | 152 |   |
| Accrued commissions receivable                                                     |       | 8,195                                                   |       | 22,034 |   |
| Receivables from brokers, dealers and clearing organizations                       |       | (253,543                                                | )          | (171,244 | ) |
| Other assets                                                                       |       | 9,698                                                   |       | (50,938 | ) |
| (Decrease) increase in operating liabilities:                                      |       |                                                    |       |   |   |
| Accrued compensation                                                               |       | (40,955                                                 | )          | (44,717 | ) |
| Accounts payable and accrued expenses                                              |       | (6,310                                                  | )          | 14,589 |   |
| Payables to brokers, dealers and clearing organizations                            |       | 251,864                                                 |       | 271,153 |   |
| Other liabilities                                                                  |       | (7,094                                                  | )          | 18,368 |   |
| Net cash provided by operating activities                                          |       | 55,219                                                  |       | 172,953 |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |       |                                                    |       |   |   |
| Net cash used for business acquisitions                                            |       | —                                                  |       | (149,614 | ) |
| Proceeds from (purchases of) other investments, net                                |       | 1,399                                                   |       | (3,620 | ) |
| Purchase of property, equipment and leasehold improvements                         |       | (10,263                                                 | )          | (33,244 | ) |
| Net payments on foreign exchange derivative contracts                              |       | (13,632                                                 | )          | (3,787 | ) |
| Net cash used in investing activities                                              |       | (22,496                                                 | )          | (190,265 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                              |       |                                                    |       |   |   |
| Repayment of short-term borrowings                                                 |       | (35,000                                                 | )          | (174,500 | ) |
| Proceeds from short-term borrowings                                                |       | —                                                  |       | 283,500 |   |
| Proceeds from issuance of long-term obligations                                    |       | —                                                  |       | 60,000 |   |
| Repurchases of common stock                                                        |       | (2,970                                                  | )          | (11,401 | ) |
| Cash dividends paid                                                                |       | (17,673                                                 | )          | (24,118 | ) |
| Payment of loan fees                                                               |       | (796                                                    | )          | (883 | ) |
| Proceeds from exercise of stock options                                            |       | 58                                                      |       | 573 |   |
| Cash paid for taxes on vested restricted stock units                               |       | (3,088                                                  | )          | (4,884 | ) |
| Tax (expense) related to share-based compensation                                  |       | (1,150                                                  | )          | (107 | ) |
| Net cash (used in)/provided by financing activities                                |       | (60,619                                                 | )          | 128,180 |   |
| Effects of exchange rate changes on cash and cash equivalents                      |       | 1,816                                                   |       | (2,124 | ) |
| (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS                                   |       | (26,080                                                 | )          | 108,744 |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                     |       | 342,375                                                 |       | 240,393 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                           |       | $                                                       | 316,295    |   | $ | 349,137 |   |
| SUPPLEMENTAL DISCLOSURE:                                                           |       |                                                    |       |   |   |
| Interest paid                                                                      |       | $                                                       | 8,338      |   | $ | 9,202 |   |
| Income taxes paid, net of refunds                                                  |       | $                                                       | 18,906     |   | $ | 36,955 |   |

 

Seenotes to condensed consolidated financial statements

 

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**GFIGROUP INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED)**

**(Inthousands except share and per share amounts)**

 

**1.     ORGANIZATION AND BUSINESS**

 

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, software systems and analytical products, which it licensesprimarily to companies in the financial services industry. The Company’sprincipal operating subsidiaries include: GFI Securities LLC, GFI Brokers LLC,GFI Group LLC, GFI Securities Limited, GFI Brokers Limited, GFI (HK) SecuritiesLLC, GFI (HK) Brokers Ltd., GFI Group PTE Ltd., GFI Korea Money BrokerageLimited, Amerex Brokers LLC, Fenics Limited (“Fenics”) and Trayport Limited (“Trayport”).As of September 30, 2009, Jersey Partners, Inc. (“JPI”) owns approximately43% of the Company’s outstanding shares of common stock. The Company’s chiefexecutive officer, Michael Gooch, is the controlling shareholder of JPI.

 

**2.     SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

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

 

All intercompanytransactions and balances have been eliminated.

 

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 31,2008 (the “2008 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 servicesto its clients in the form of either agency or principal transactions.

 

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

 

***Principal Transactions****—*  Principal transactions revenue isprimarily derived from matched principal transactions.  Principal transactions revenues and relatedexpenses are recognized on a trade date basis. The Company earns revenue from principal transactions on the spreadbetween the buy and sell price of the security that is brokered.  Inmatched principal transactions, the Company simultaneously agrees to buyinstruments from one customer and sell them to another customer. A limitednumber of brokerage desks are permitted to enter into unmatched principaltransactions in the ordinary course of business while brokering in illiquidmarkets and for the purpose of facilitating clients’ execution needs fortransactions initiated by such clients. These unmatched positions are intendedto be held short term.

 

However, from time to time, in the circumstances described above, or ifa transaction fails to settle on a timely basis or if a customer defaults onits obligations, the Company may hold securities positions overnight or untilsuch transaction is settled.  Thesepositions are marked to market on a daily basis.

 

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**GFIGROUP INC. AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**(Inthousands except share and per share amounts)**

 

***Software, Analyticsand Market Data****—*Software revenue consists primarily of fees charged for Trayport electronictrading software.  Software revenue isrecognized on a straight-line basis over the term of the subscription period,which ranges from one to five years.  Analytics revenue consists primarily offees for licenses of software products, including Fenics pricing tools.  Analytics revenue is recognized on astraight-line basis over the term of the subscription period, which isgenerally over three years.  Market datarevenue primarily consists of subscription fees and fees from customizedone-time sales. Market data subscription fees are recognized on a straight-linebasis over the term of the subscription period, which ranges from one to twoyears. Market data revenue from customized one-time sales is recognized upondelivery of the data.

 

TheCompany markets its software, analytics and market data through its directsales force and, in some cases, indirectly through resellers. In general, theCompany’s license agreements for its analytics and data products do not providefor a right of return.

 

***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 Accounting StandardsCodification (“ASC”) 350,*Intangibles -Goodwill and Other*(formerlyStatement of Financial Accounting Standards (“SFAS”) No. 142),goodwill and intangible assets with indefinite lives are no longer amortized,but instead are tested for impairment annually or more frequently if circumstancesindicating impairment may have occurred. In the event the Company determinesthat the 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 the annual impairmenttest. Intangible assets with definite lives are amortized on a straight-linebasis over their estimated useful lives.

 

***Fair Value of Financial Instruments****—* In accordance with ASC 820-10, *FairValue Measurements and Disclosures* (“ASC 820-10”) (formerly SFAS No. 157),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*(“ASC 740”) (formerly SFAS No. 109), the Company providesfor income taxes using the asset and liability method under which deferredincome taxes are recognized for the estimated future tax effects attributableto temporary differences and carry-forwards that result from events that havebeen recognized either in the financial statements or the income tax returns,but not both. The measurement of current and deferred income tax liabilitiesand assets is based on provisions of enacted tax laws. Valuation allowances arerecognized if, based on the weight of available evidence, it is more likelythan not that some portion of the deferred tax assets will not berealized.  Effective January 1,2007, the Company adopted Financial Accounting Standards Board (“FASB”)Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes*, *an interpretation of SFAS No. 109,*which is now a sub-topic within ASC 740.  It is the Company’s policy to provide foruncertain tax positions and the related interest and penalties based uponmanagement’s assessment of whether a tax benefit is more likely than not to besustained upon examination by tax authorities.

 

***Foreign Currency Translation Adjustmentsand Transactions****—*Assets andliabilities of foreign subsidiaries having non-U.S. dollar functionalcurrencies are translated at the period end rates of exchange, and revenue andexpenses are translated at the average rates of exchange for the period. Gainsor losses resulting from translating foreign currency financial statements arereflected in foreign currency translation adjustments and are reported as aseparate component of comprehensive income and included in accumulated othercomprehensive loss in stockholders’ equity. Gains or losses resulting fromforeign currency transactions are included in other income in the CondensedConsolidated Statements of Income***.***

 

***Share-Based Compensation****—****The***Company’sshare-based compensation consists of restricted stock units (“RSUs”) and stockoptions. The Company follows ASC No. 718, *Compensation— Stock Compensation* (“ASC 718”) (formerly SFAS 

 

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**(Inthousands except share and per share amounts)**

 

No. 123(R))to account for its stock-based compensation. ASC 718 revised the fairvalue-based method of accounting for share-based payment liabilities, forfeituresand modifications of stock-based awards and clarified guidance in severalareas, including measuring fair value, classifying an award as equity or as aliability and attributing compensation cost to service periods. Additionally,under ASC 718, actual tax benefits recognized in excess of tax benefitspreviously established upon grant are reported as a financing cash flow, asopposed to operating cash flows.   Inrecent periods, the only share-based compensation issued by the Company hasbeen RSUs.  The Company records the fairvalue of the RSUs at the date of grant as deferred compensation and amortizesit to compensation expense over the vesting period of the grants.

 

***Other Income—***Other income on the Company’s Condensed Consolidated Statements ofIncome primarily includes net realized/unrealized gain/loss from foreigncurrency derivative contracts, foreign currency remeasurement gains and losseson certain foreign currency denominated items and other investments.

 

***Recent Accounting Pronouncements***

 

In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in Consolidated FinancialStatements — an amendment of ARB No. 51*, which is now asub-topic within ASC 810-10 *Consolidation*(“ASC810-10”).  ASC 810-10 requires reportingentities to present noncontrolling (minority) interests as equity (as opposedto as a liability or mezzanine equity) and provides guidance on the accountingfor transactions between an entity and noncontrolling interests.  ASC 810-10 is effective for financialstatements issued for fiscal years beginning after December 15, 2008 andwas adopted by the Company on January 1, 2009.  The adoption of ASC 810-10 did not have amaterial impact on its consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 141(R),*Business Combinations (revised 2007)*,which is now a sub-topic within ASC 805 *Business Combinations*(“ASC805”).  ASC 805 requires theacquiring entity in a business combination to recognize the full fair value ofassets acquired and liabilities assumed in the transaction (whether a full orpartial acquisition); establishes the acquisition-date fair value as themeasurement objective for all assets acquired and liabilities assumed; requiresthe expensing of most transaction and restructuring costs; and requires theacquirer to disclose to investors and other users all of the information neededto evaluate and understand the nature and financial effect of the businesscombination.  ASC 805 applies to alltransactions or other events in which the Company obtains control of one ormore businesses, including those sometimes referred to as “true-mergers” or “mergersof equals” and combinations achieved without the transfer of consideration, forexample, by contract alone or through the lapse of minority veto rights.  ASC 805 was effective for financialstatements issued for fiscal years beginning after December 15, 2008 andwas adopted by the Company on January 1, 2009.  The adoption of ASC 805 did not have amaterial impact on its consolidated financial statements.

 

In February 2008, the FASB issued FASB Staff Position No. FAS157-2, which is now a sub-topic within ASC 820-10 *Fair ValueMeasurements and Disclosures*(“ASC 820-10”).  ASC 820-10 delayed the effective date of fairvalue measurements and disclosure requirements for all nonfinancial assets andliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis (at least annually) to fiscal yearsbeginning after November 15, 2008, and interim periods within those fiscalyears for items within the scope of ASC 820-10. The Company adopted ASC 820-10 for those nonfinancial assets andliabilities noted in FSP 157-2 on January 1, 2009.  The adoption of ASC 820-10 for nonfinancialassets and liabilities did not have a material impact on its consolidatedfinancial statements.

 

In March 2008, theFASB issued SFAS No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities, an amendment of FASBStatement No. 133*, which is now a sub-topic within ASC 815-10 *Derivatives and Hedging*(“ASC 815-10”).  ASC 815-10 amends and expands the disclosurerequirements of SFAS No. 133 and requires entities to provide enhancedqualitative disclosures about objectives and strategies for using derivatives,quantitative disclosures about fair values and amounts of gains and losses onderivative contracts, and disclosures about credit-risk related contingentfeatures in derivative agreements.  ASC815-10 was effective for fiscal years beginning after November 15, 2008 andwas adopted by the Company on January 1, 2009.  See Note 11 for disclosures on FinancialInstruments.

 

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**(Inthousands except share and per share amounts)**

 

InApril 2008, the FASB issued FSP 142-3, *Determining the UsefulLife of Intangible Assets*, which is now a sub-topic within ASC350-30 *Intangibles — Goodwill and Other* (“ASC350-30”). ASC 350-30 amends the factors to be considered in determining theuseful life of intangible assets. Its intent is to improve the consistencybetween the useful life of an intangible asset and the period of expected cashflows used to measure such asset’s fair value. ASC 350-30 was effective for fiscal years beginning after December 15,2008 and was adopted by the Company on January 1, 2009.  The adoption of ASC 350-30 did not have amaterial impact on its consolidated financial statements.

 

InJune 2008, the FASB issued FSP EITF 03-6-1, *DeterminingWhether Instruments Granted in Share-Based Payment Transactions AreParticipating Securities*, which is now a sub-topic within ASC 260-10*Earnings Per Share*(“ASC 260-10”).  ASC 260-10 addresses whether instrumentsgranted in share-based payment transactions are participating securities priorto vesting and, therefore, need to be included in computing earnings per shareunder the two-class method described in SFAS No. 128,  *Earnings Per Share*,which is now a sub-topic within ASC 260-10.  ASC 260-10 was effective forfiscal years beginning after December 15, 2008 and was adopted by theCompany on January 1, 2009. The adoption of ASC 260-10 did not have a material impact on its consolidated financial statements.

 

In April 2009, the FASB issued FSP FAS141(R)-1, *Accounting for Assets Acquired and LiabilitiesAssumed in a Business Combination That Arise from Contingencies*,which is now a sub-topic within ASC 805 *Business Combinations*(“ASC805”).  ASC 805 addresses thecriteria and disclosures for recognition of an acquired asset or liabilityassumed in a business combination that arises from a contingency.  ASC 805 was effective for fiscal yearsbeginning after December 15, 2008 and was adopted by the Company on January 1,2009.  The adoption of ASC 805 did nothave a material impact on its consolidated financial statements.

 

InApril 2009, the FASB issued FSP FAS 107-1 and APB 28-1, *Interim Disclosures about Fair Value of Financial Instruments*,which is now a sub-topic within ASC 825-10 *Financial Instruments*(“ASC825-10”).  ASC 825-10 requiresdisclosures about fair value of financial instruments for interim reportingperiods of publicly traded companies as well as in annual financialstatements.  These disclosures are alsorequired in summarized financial information at interim reporting periods.  ASC 825-10 was effective for interim reporting periodsending after June 15, 2009, with early adoption permitted for periodsending after March 15, 2009.  ASC825-10 was adopted by the Company on April 1, 2009.  See Note 11 for disclosures on FinancialInstruments.

 

InApril 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, *Recognition and Presentation of Other-Than-Temporary Impairments*,which is now a sub-topic within ASC 320-10 *Investments — Debt andEquity Securities* (ASC “320-10”). ASC 320-10 amends the other-than-temporary impairment guidance inU.S. generally accepted accounting principles for debt securities to make theguidance more operational and to improve the presentation and disclosure ofother-than-temporary impairments on debt and equity securities in the financialstatements.  ASC 320-10 was effective for interim and annual reportingperiods ending after June 15, 2009, with early adoption permitted forperiods ending after March 15, 2009. ASC 320-10 was adopted by the Company on April 1, 2009 and theadoption did not have a material impact on its consolidated financial statements.

 

InApril 2009, the FASB issued FSP FAS 157-4, *DeterminingFair Value When the Volume and Level of Activity for the Asset or LiabilityHave Significantly Decreased and Identifying Transactions That Are Not Orderly*,which is now a sub-topic within ASC 820-10 *Fair Value Measurementsand Disclosures* (“ASC 820-10”). ASC 820-10 provides additional guidance for estimating fair value, whenthe volume and level of activity for the asset or liability have significantlydecreased and also includes guidance on identifying circumstances that indicatea transaction is not orderly.  ASC 820-10 was effective for interim andannual reporting periods ending after June 15, 2009, and shall be appliedprospectively.  Early adoption ispermitted for periods ending after March 15, 2009.  ASC 820-10 was adopted by the Company on April 1,2009 and the adoption did not have a material impact on its consolidatedfinancial statements.

 

InMay 2009, the FASB issued SFAS No. 165, *SubsequentEvent*s, which is now a sub-topic within ASC 855-10 *Subsequent Events*(“ASC 855-10”).  ASC 855-10 provides guidance for accountingfor and disclosure of subsequent events 

 

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thatare not addressed in other applicable generally accepted accounting principles.  ASC 855-10 was effective for interim and annualreporting periods ending after June 15, 2009, and shall be appliedprospectively.   See Note 15 fordisclosures on Subsequent Events.

 

InJune 2009, the FASB issued SFAS No. 166, *Accountingfor Transfers of Financial Assets-an amendment of FASB Statement No. 140*(“SFAS166”).  SFAS 166 amends FASB Statement No. 140,which is now a sub-topic within ASC 860 *Transfers and Servicing*,to improve the information that a reporting entity provides in its financialstatements about a transfer of financial assets; the effects of a transfer onits financial position, financial performance, and cash flows; and a transferor’scontinuing involvement in transferred financial assets.  SFAS 166 is effective as of the beginning of the firstannual reporting period that begins after November 15, 2009, for interimperiods within the first annual reporting period and for interim and annualreporting periods thereafter.  TheCompany does not expect the adoption of SFAS 166 to have a material impact onits consolidated financial statements.

 

InJune 2009, the FASB issued SFAS No. 167, *Amendmentsto FASB Interpretation No. 46(R) *(“SFAS 167”).  SFAS 167 amends certain requirements of FASBInterpretation No. 46(R), *Consolidation of VariableInterest Entities*, which is now a sub-topic within ASC 810 *Consolidations*, to improve financial reporting byenterprises involved with variable interest entities and to provide morerelevant and reliable information to users of financial statements. SFAS 167requires an enterprise to perform an analysis to determine whether theenterprise’s variable interest or interests provide a controlling financialinterest in a variable interest entity. The determination is based on, among other things, the other entity’spurpose and design and the reporting entity’s ability to direct the activitiesof a variable interest entity that most significantly impact the entity’seconomic performance.  SFAS 167 is effective as of the beginningof the first annual reporting period that begins after November 15, 2009,for interim periods within the first annual reporting period and for interimand annual reporting periods thereafter. The Company does not expect the adoption of SFAS 167 to have a materialimpact on its consolidated financial statements.

 

InJune 2009, the FASB issued SFAS No. 168, *The FASBAccounting Standards CodificationTM and the Hierarchy of Generally AcceptedAccounting Principles*, which is now a sub-topic within ASC 105-10 *Generally Accepted Accounting Principles*(“ASC 105-10”).  ASC 105-10 establishes the codification asthe source of authoritative generally accepted accounting principles recognizedby the FASB to be applied by nongovernmental entities and all guidancecontained in the codification carries an equal level of authority.  ASC 105-10 is effective for interim and annualreporting periods ending after September 15, 2009.  References to generally accepted accountingprinciples contained in the Company’s consolidated financial statements havebeen updated to reflect the new codification references as required.

 

InAugust 2009, the FASB issued Accounting Standards Update No. 2009-5 (“ASU2009-5”) *Fair Value Measurements and Disclosures (Topic 820)Measuring Liabilities at Fair Value*. ASU 2009-5 provides clarification in circumstances in which a quotedprice in an active market for the identical liability is not available andprovides valuation techniques to be utilized by the reporting entity.  ASU 2009-5 is effective for the firstreporting period (including interim periods) beginning after issuance.  The Company does not expect the adoption ofASU 2009-5 to have a material impact on its consolidated financial statements.

 

InOctober 2009, the FASB issued Accounting Standards Update No. 2009-13(“ASU 2009-13”) *Revenue Recognition (Topic 605)Multiple-Deliverable Revenue Arrangements*.  ASU 2009-13 establishes the accounting andreporting guidance for arrangements with multiple-revenue generatingactivities.  ASU 2009-13 addresses how toseparate deliverables and how to measure and allocate arrangement considerationto one or more units of accounting and provides a selling price hierarchy fordetermining the selling price of a deliverable. ASU 2009-13 is effective for fiscal years beginning on or after June 15,2010.  Early adoption is permitted butmust be retrospectively applied to the beginning of the fiscal year ofadoption.  The Company is currentlyevaluating the impact of the adoption of ASU 2009-13 on its consolidatedfinancial statements.

 

InOctober 2009, the FASB issued Accounting Standards Update No. 2009-14(“ASU 2009-14”) *Software (Topic 985) Certain RevenueArrangements That Include Software Elements*.  ASU 2009-14 provides guidance on how toallocate arrangement consideration to deliverables in an arrangement thatincludes both tangible products and software. ASU 2009-14 also provides additional guidance on how to determine whichsoftware, if any, relating to the tangible product would be 

 

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excludedfrom software revenue recognition.  ASU2009-14 is effective for fiscal years beginning on or after June 15,2010.  Early adoption is permitted butmust be retrospectively applied to the beginning of the fiscal year ofadoption.  The Company is currentlyevaluating the impact of the adoption of ASU 2009-14 on its consolidatedfinancial statements.

 

**3.     RECEIVABLESFROM AND PAYABLES TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS**

 
| ** **                                                     | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|----------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Receivables from brokers, dealers and clearing  organizations: |       |                         |       |                        |       |
| Fails to deliver                                               |       | $                            | 369,378    |                        | $          | 105,732 |   |
| Receivable from clearing organizations                         |       | 33,826                       |       | 43,929                      |       |
| Total                                                          |       | $                            | 403,204    |                        | $          | 149,661 |   |
| Payables to brokers, dealers and clearing  organizations:      |       |                         |       |                        |       |
| Fails to receive                                               |       | $                            | 338,629    |                        | $          | 101,052 |   |
| Payable to financial institutions                              |       | 15,307                       |       | 3,447                       |       |
| Payable to clearing organizations                              |       | 2,767                        |       | 341                         |       |
| Total                                                          |       | $                            | 356,703    |                        | $          | 104,840 |   |

 

Substantially all fail todeliver and fail to receive balances at September 30, 2009 and December 31,2008 have subsequently settled at the contracted amounts.

 

**4.     GOODWILLAND INTANGIBLE ASSETS**

 

**On January 31, 2008, the Company completed theacquisition of Trayport, a leading provider of real-time electronic tradingsoftware for brokers, exchanges and traders in the commodities, fixed income,currencies and equities markets, for approximately ₤85,428 (orapproximately $169,780), including cash acquired of ₤7,622 (orapproximately $15,150) and incurred ₤1,387 (or approximately $2,745) ofdirect transaction costs related to the acquisition. Additionally, ₤2,524(or approximately $5,016) of the purchase price was paid in short-term loannotes, payable within one year.  At December 31,2008, these notes were paid in full. Included as part of the purchase price is ₤7,287 (or approximately$11,644) that was deposited into an escrow account with a third-party escrowagent as collateral for the indemnification obligations of certain of theformer Trayport shareholders.  Anyamounts remaining in the escrow account that are not subject to pending claimswill be distributed to the former Trayport shareholders.  The Company financed the transaction withproceeds of the private placement of its Senior Notes and amounts drawn underits Credit Agreement, as defined in Note 5. See Note 5 below for further discussion of the Senior Notes and the Company’sCredit Agreement.**

** **

**This acquisition was accounted for as a purchase businesscombination.  Assets acquired wererecorded at their fair value as of January 31, 2008.  The results of the acquired company have beenincluded in the consolidated financial statements since the acquisition.  Management determined the fair value of theidentifiable intangible assets acquired based upon an independent valuationmodel.  The purchase price allocation, aspresented below, was translated into U.S. dollars based on the foreign exchangerate on January 31, 2008:**

 

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**(Inthousands except share and per share amounts)**

 
| ** **                                  | ** ** | ** ** | ** ** | **Useful Life** | ** ** |
|---------------------------------------------|------------|------------|------------|----------------------|------------|
| *Assets:*                                   |       |       |       |                 |       |
| Cash                                        |       | $          | 15,150     |                 |       |   |
| Accounts  receivable                        |       | 8,704      |       |                 |       |
| Property  and equipment                     |       | 469        |       |                 |       |
| Software  inventory                         |       | 6,587      |       |                 |       |
| Intangible  assets subject to amortization- |       |       |       |                 |       |
| Trade  name                                 |       | 3,657      |       | 10 Years             |       |
| Customer  relationships                     |       | 33,243     |       | 15 Years             |       |
| Non  compete agreement                      |       | 839        |       | 4 Years              |       |
| Other  assets                               |       | 481        |       |                 |       |
| Goodwill                                    |       | 115,798    |       |                 |       |
| Total  assets acquired                      |       | $          | 184,928    |                 |       |   |
|                                        |       |       |       |                 |       |
| Total  liabilities assumed                  |       | 15,148     |       |                 |       |
|                                        |       |       |       |                 |       |
| Net  Assets Acquired                        |       | $          | 169,780    |                 |       |   |

 

Total intangible assetsacquired in the Trayport transaction that are subject to amortization totaled$37,739 and have a weighted-average useful life of approximately 14 years.

 

Changes in the carrying amount of the Company’s goodwill for the ninemonths ended September 30, 2009 were as follows:

 
| ** **                             | ** ** | **Americas  Brokerage** | ** ** | **EMEA  Brokerage** | ** ** | **Asia  Brokerage** | ** ** | **All Other** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-------------------------|------------|---------------------|------------|---------------------|------------|---------------|------------|-----------|------------|
| Balance  as of December 31, 2008  |       | $                       | 78,998     |                | $          | 1,818               |       | $             | —     |      | $          | 128,691 |   | $ | 209,507 |   |
| Goodwill  acquired during the period   |       | —                  |       | —              |       | —              |       | —        |       | —    |       |
| Balance  as of September 30, 2009 |       | $                       | 78,998     |                | $          | 1,818               |       | $             | —     |      | $          | 128,691 |   | $ | 209,507 |   |

 

Based on the results of its annual impairment tests that are requiredby ASC 350 (formerly SFAS 142), the Company determined that no impairment ofgoodwill existed as of January 1, 2009. ASC 350 prescribes a two step process for impairment testing wherebymanagement first compares the fair value of each reporting unit with recordedgoodwill to that reporting unit’s book value. If management determines, as a result of this first step, that the fairvalue of the reporting unit is less than its carrying value, a second step inthe impairment test process would require that the recorded goodwill at thatbusiness unit be written down to the value implied by the reporting unit’srecent valuation.   The Company willcontinue to evaluate goodwill on an annual basis as of the beginning of eachnew fiscal year, and whenever events and changes in circumstances indicate thatthere may be a potential impairment. Subsequent to January 1, 2009, no events or changes incircumstances occurred which would indicate any goodwill impairment.

 

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**(Inthousands except share and per share amounts)**

 

Intangible assets consisted of the following:

 
| ** **                     | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2009**               | ** ** | **2008**              | ** ** |
| Gross  intangible assets       |       |                   |       |                  |       |
| Customer  base/relationships   |       | $                      | 46,282     |                  | $          | 46,282 |   |
| Trade  name                    |       | 7,771                  |       | 7,771                 |       |
| Core  technology               |       | 3,230                  |       | 3,230                 |       |
| Covenants  not to compete      |       | 3,184                  |       | 3,184                 |       |
| Favorable  lease agreements    |       | 620                    |       | 620                   |       |
| Proprietary  knowledge         |       | 110                    |       | 110                   |       |
| Patent                         |       | 31                     |       | 31                    |       |
| Total  gross intangible assets |       | 61,228                 |       | 61,228                |       |
| Accumulated  amortization      |       | (20,873                | )          | (16,789               | )          |
| Net  intangible assets         |       | $                      | 40,355     |                  | $          | 44,439 |   |

 

Amortization expense forthe three months ended September 30, 2009 and 2008 was $1,356 and $1,376,respectively, and $4,084 and $3,907 for the nine months ended September 30,2009 and 2008, respectively.

 

At September 30,2009, expected amortization expense for the definite lived intangible assets isas follows:

 
| 2009  (remaining three months) |   | $     | 1,347  |   |
|--------------------------------|--------|-------|--------|--------|
| 2010                           |   | 5,381 |   |
| 2011                           |   | 5,175 |   |
| 2012                           |   | 4,015 |   |
| 2013                           |   | 2,679 |   |
| Total                          |   | $     | 18,597 |   |

** **

**5.     SHORT-TERMBORROWINGS AND LONG-TERM OBLIGATIONS**

 

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 the Senior Notes pursuant to generallyapplicable insurance regulations for U.S. insurance companies.  The premium interest will cease to accrue ifthe risk based capital factor attributed to the Senior Notes is subsequentlyreduced.  Interest is payablesemi-annually in arrears on the 30th of January and July.  The Company’s obligations under the SeniorNotes are secured by substantially all of the assets of the Company and certainassets of the Company’s subsidiaries.  AtSeptember 30, 2009, the Senior Notes were recorded net of deferredfinancing costs of $412.

 

The 2008 Note PurchaseAgreement includes operational and financial covenants with which the Companyis required to comply, including among others, maintenance of certain financialratios and restrictions on additional indebtedness, liens anddispositions.  The Company was in compliancewith all applicable covenants at September 30, 2009 and December 31,2008.

 

In April 2009, the Company amended the terms of its creditagreement with Bank of America, N.A. and certain other lenders (the “CreditAgreement”).  The Credit Agreement, asamended, reduced the maximum borrowings from $265,000 to $175,000, whichincludes up to $50,000 for letters of credit, and has an expiration date of February 24,2011.  Revolving loans may be either baserate loans or currency rate loans. Currency rate loans and the letters ofcredit bear interest at the annual rate of LIBOR plus the applicable margin ineffect for that interest period.  Baserate loans bear interest at a rate per annum equal to a base rate plus theapplicable margin in effect for that interest period. As long as no default hasoccurred under the Credit Agreement, the applicable margin for both the baserate and currency rate loans is based on a matrix that varies with a ratio ofoutstanding debt to EBITDA, as defined in the Credit Agreement.  At September 30, 2009, the applicablemargin was 2.5% and the one-month LIBOR was 0.2%. Amounts outstanding under theCredit Agreement are secured by substantially all the assets of the Company andcertain assets of the Company’s subsidiaries.  The Credit Agreement provides forthe Senior Notes to rank pari passu with the commitments under the CreditAgreement, in relation to the security provided.

 

The Company hadoutstanding borrowings under its Credit Agreement as of September 30, 2009and December 31, 2008 as follows:

 

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**(Inthousands except share and per share amounts)**

 
| ** **                     | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2009**               | ** ** | **2008**              | ** ** |
| Loans  Outstanding             |       | $                      | 130,000    |                  | $          | 165,000 |   |
| Letters  of Credit Outstanding |       | $                      | 7,172      |                  | $          | 7,172 |   |

 

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

 

The weighted averageinterest rate of the outstanding loans was 2.75% and 2.93% at September 30,2009 and December 31, 2008, respectively. At September 30, 2009 and December 31, 2008, short-termborrowings under the Credit Agreement were recorded net of unamortized loanfees of $1,031 and $672, respectively.

 

The Credit Agreementcontains certain financial and other covenants. The Company was in compliance with all applicable covenants at September 30,2009 and December 31, 2008, respectively.

 

In certain previousperiods’ financial statements, the Company referred to short-term borrowingsunder the Credit Agreement as Notes Payable on the Condensed ConsolidatedStatements of Financial Condition and Condensed Consolidated Statements of CashFlows.  To better distinguish obligationsdue under the Credit Agreement from long-term obligations due under the SeniorNotes, the Company now refers to borrowings under the Credit Agreement as “Short-termborrowings” in the Condensed Consolidated Statements of Financial Condition andCondensed Consolidated Statements of Cash Flows included in these financialstatements.

 

**6.     STOCKHOLDERS’EQUITY**

** **

On January 11,2008, at a special meeting of stockholders, the stockholders of the Companyapproved an amendment to the Company’s Second Amended and Restated Certificateof Incorporation to increase theamount of Authorized Common Stock from 100,000,000 shares to 400,000,000shares.

 

On March 31, 2008, the Company effected a four-for-one split ofthe Company’s common stock.  Accordingly,all historical share and per share data have been retroactively restated in theaccompanying condensed consolidated financial statements.  Additionally, the par value of the additionalshares resulting from the split were reclassified from additional paid incapital to common stock.

 

In August 2007, the Company’s Board of Directors authorized theCompany to implement a stock repurchase program to repurchase a limited numberof shares of the Company’s common stock. Under the repurchase plan, the Boardof Directors authorized the Company to repurchase shares of the Company’scommon stock on the open market in such amounts as determined by the Company’smanagement, provided, however, such amounts are not to exceed, during anycalendar year, the number of shares issued upon the exercise of stock optionsplus the number of shares underlying grants of RSUs that are granted or whichmanagement reasonably anticipates will be granted in such calendar year. During the three months ended September 30, 2009 and 2008, theCompany did not repurchase any shares of its common stock.  During the nine months ended September 30,2009, the Company repurchased 1,115,922 shares of its common stock on the openmarket at an average price of $2.63 per share and for a total cost of $2,970,including sales commissions.  During thenine months ended September 30, 2008, the Company repurchased 596,236shares of its common stock on the open market at an average price of $19.11 pershare and for a total cost of $11,401, including sales commissions.  These repurchased shares were recorded atcost as treasury stock in the Condensed Consolidated Statements of FinancialCondition.

 

On March 31, May 30 and August 28, 2009, the Companypaid a cash dividend of $0.05 per share, which, based upon the number of sharesoutstanding on the record date for such dividend, totaled $5,883, $5,891 and$5,899, respectively.  On March 31,2008, the Company paid a special cash dividendof $0.125 per share, which, based on the number of shares outstanding on therecord date for such dividend, totaled $14,693. On May 15, 2008, the Company paid a quarterly cash dividend of$0.03 per share, which based upon the number of shares outstanding on therecord date for such dividend, totaled $3,530. On August 29, 2008, the Company paid a quarterly cash dividend of$0.05 per share, which based upon the number of shares outstanding on therecord date for such dividend, totaled $5,895. The dividends were reflected as reductions of retained earnings in theCondensed Consolidated Statements of Financial Condition.

 

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**GFI GROUPINC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**(Inthousands except share and per share amounts)**

 

**7.     EARNINGS PER SHARE**

 

Basic and diluted earnings (loss) per share for the three and nine months ended September 30,2009 and 2008 were as follows:

 
| ** **                                                        | ** ** | **Three Months Ended******** September 30,** | ** ** | **Nine Months Ended******** September 30,** | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **2009**                                                         | ** ** | **2008**                                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Basic earnings (loss) per share**                               | ** ** | ** **                                                       | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  income (loss)                                                |       | $                                                                | 2,783      |                                                            | $          |  (6,716 | ) | $ | 30,739 |   | $ |  52,914 |   |
| Weighted  average common shares outstanding                       |       | 118,062,749                                                      |       | 118,039,998                                                     |       | 118,117,384 |   | 117,812,412 |   |
| Basic  earnings (loss) per share                                  |       | $                                                                | 0.02       |                                                            | $          |  (0.06 | ) | $ | 0.26 |   | $ |  0.45 |   |
|                                                              |       |                                                             |       |                                                            |       |   |   |   |   |
| **Diluted earnings (loss) per share**                             | ** ** | ** **                                                       | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  income (loss) applicable to stockholders                     |       | $                                                                | 2,783      |                                                            | $          |  (6,716 | ) | $ | 30,739 |   | $ |  52,914 |   |
| Weighted  average common shares outstanding                       |       | 118,062,749                                                      |       | 118,039,998                                                     |       | 118,117,384 |   | 117,812,412 |   |
| Effect  of dilutive shares:                                       |       |                                                             |       |                                                            |       |   |   |   |   |
| Options  and RSU’s                                           |       | 4,490,133                                                        |       | —                                                          |       | 3,264,933 |   | 1,569,935 |   |
| Weighted  average shares outstanding and common stock equivalents |       | 122,552,882                                                      |       | 118,039,998                                                     |       | 121,382,317 |   | 119,382,347 |   |
| Diluted  earnings (loss) per share                                |       | $                                                                | 0.02       |                                                            | $          |  (0.06 | ) | $ | 0.25 |   | $ |  0.44 |   |

 

Excludedfrom the computation of diluted earnings (loss) per share because their effectwould be anti-dilutive were the following: 1,086,671 RSUs for the three months ended September 30, 2009;2,661,471 RSUs for the three months ended September 30, 2008;  2,096,355 RSUs and 73,927 stock options forthe nine months ended September 30, 2009; and 1,374,002 RSUs for the ninemonths ended September 30, 2008.

 

Asa result of the net loss reported for the three months ended September 30,2008, common shares underlying options to purchase 431,992 shares of commonstock and 431,963 RSUs were excluded from the calculation of diluted loss pershare for that period.

 

**8.     SHARE-BASEDCOMPENSATION**

 

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

 

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 or consultants.The Company issues shares from authorized but unissued shares, which arereserved for issuance upon the vesting of RSUs granted pursuant to the 2008Equity Incentive Plan.  At the 2009Annual Meeting of Stockholders, which was held on June 11, 2009, thestockholders of the Company approved an amendment to the 2008 Equity IncentivePlan to (a) increase the number of shares available for grant as awardsunder the 2008 Plan by 6,650,000 shares and (b) increase the maximumnumber of shares that may be granted as awards subject to performance goalsunder the 2008 Plan to any person in any one year by 1,000,000 shares.  As of September 30, 2009, there were7,027,502 shares of common stock available for future grants of awards underthis plan, which amount, pursuant to the terms of the 2008 Equity IncentivePlan, may be increased by the number of shares subject to awards under the 2004Equity Incentive Plan that are ultimately not delivered to employees. The fairvalue of RSUs is based on the closing price of the Company’s common stock onthe date of grant and is recorded as deferred compensation and amortized tocompensation expense over the vesting period of the grants, which is generallythree years.

 

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**GFI GROUPINC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**(In thousands except share andper share amounts)**

 

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 nine months ended September 30, 2009:

 
| ** **                                   | ** ** | **RSUs**   | ** ** | **Weighted-  Average  Grant Date  Fair Value** | ** **  |
|----------------------------------------------|------------|------------|------------|----------------------------------------------------------|-------------|
| Outstanding December 31, 2008 |       | 3,961,310  |       | $                                                        |  12.95 |   |
| Granted                                      |       | 7,805,587  |       | 3.97                                                     |        |
| Vested                                       |       | (1,524,760 | )          | 14.26                                                    |        |
| Cancelled                                    |       | (157,523   | )          | 14.35                                                    |        |
| Outstanding  September 30, 2009         |       | 10,084,614 |       | $                                                        | 5.78        |   |

 

Theweighted average grant-date fair value of RSUs granted for the nine monthsended September 30, 2009 was $3.97 per unit, compared with $12.92 per unitfor the same period in the prior year. Total compensation expense andrelated income tax benefits recognized in relation to RSUs are as follows:

 
| ** **            | ** ** | **Three Months Ended******** September 30,** | ** ** | **Nine Months Ended******** September 30,** | ** ** |
|-----------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **            | ** ** | **2009**                                                         | ** ** | **2008**                                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| Compensation  expense |       | $                                                                | 7,324      |                                                            | $          | 7,284 |   | $ | 19,544 |   | $ | 20,312 |   |
| Income  tax benefits  |       | 2,710                                                            |       | 2,659                                                           |       | 7,231 |   | 7,414 |   |
|                       |            |                                                                  |            |                                                                 |            |  |  |  |  |  |  |  |  |

 

AtSeptember 30, 2009, total unrecognized compensation cost related to theRSUs prior to the consideration of expected forfeitures was approximately$46,567 and is expected to be recognized over a weighted-average period of 1.72years. The total fair value of RSUs vested during the nine months ended September 30,2009 and 2008 was $21,743 and $22,150, respectively.

 

Asof September 30, 2009, the Company had stock options outstanding under theGFI Group 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 stockoptions previously granted or modified, the fair value was estimated on thedate of grant or modification using the Black-Scholes option pricing model.

 

Thefollowing is a summary of stock option transactions during the nine monthsended September 30, 2009:

 
| ** **                           | ** ** | **GFI Group 2002 Plan** | ** ** | **GFInet 2000 Plan**             | ** ** |
|--------------------------------------|------------|----------------------------------------|------------|--------------------------------------------|------------|
| ** **                           | ** ** | **Options**                            | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| Outstanding  December 31, 2008  |       | 651,648                                |       | $                                          | 3.32       |   | 324,408 |   | $ | 3.17 |   |
| Exercised                            |       | (6,000                                 | )          | 5.25                                       |       | (10,836 | ) | 2.52 |   |
| Outstanding  September 30, 2009 |       | 645,648                                |       | $                                          | 3.30       |   | 313,572 |   | $ | 3.19 |   |

 

**9.     COMMITMENTSAND 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 

 

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**GFI GROUPINC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**(In thousands except share andper share amounts)**

 

September 30, 2009, theCompany had total purchase commitments for market data of approximately$17,867, with $14,480 due within the next twelve months and $3,387 due betweenone to three years.  Additionally, theCompany has purchase commitments for capital expenditures of $2,017, primarilyrelated to network implementations in the U.K, and $226 primarily related tohosting and software license agreements. Of these purchase commitments, capitalexpenditures of approximately $1,083 and fees for hosting and softwarelicensing agreements of approximately $186 are due within the next twelvemonths.

 

**Contingencies–*****In*the normal course of business, theCompany and certain subsidiaries included in the condensed consolidatedfinancial statements are, and have been in the past, named as defendants invarious lawsuits and proceedings and are, and have been in the past, involvedin certain regulatory examinations. Additional actions, investigations or proceedings may be brought fromtime to time in the future.  The Companyis subject to the possibility of losses from these various contingencies.Considerable judgment is necessary to estimate the probability and amount ofany loss from such contingencies.  Anaccrual is made when it is probable that a liability has been incurred or anasset has been impaired and the amount of loss can be reasonablyestimated.  The Company accrues aliability for the estimated costs of adjudication or settlement of asserted andunasserted claims existing 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 taxassessments that may result from these examinations in each of the taxjurisdictions.  A tax accrual has beenestablished, which the Company believes to be adequate in relation to thepotential for additional tax assessments. The imposition of additional tax assessments, penalties or fines by atax authority could have a material impact on the Company’s effective tax rate.

 

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

 

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.  GFI Securities LLC intends to vigorouslycontest any such disciplinary action which, if brought and/or settled, couldresult in a censure, fine or other sanction. Based on currently available information, the outcome of this matter isnot expected to have a material adverse impact on the Company’s financialposition.  However, the outcome of thismatter may be material to the Company’s results of operations or cash flows ina given period.  It is not presentlypossible to determine the Company’s ultimate exposure in this matter and thereis no assurance that the resolution of this matter will not significantlyexceed any reserves accrued by the Company.

 

***Risks and Uncertainties—***The Company primarily generates its revenuesby executing and facilitating transactions for third parties.  Revenues for these services are transactionbased.  As a result, the Company’srevenues could vary based upon 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 membership agreements, members aregenerally required to guarantee certain obligations.  To mitigate the performance risks of itsmembers, the exchanges and clearing houses may, from time to time, requiremembers to post collateral, as well as meet certain minimum financialstandards.  The Company’s maximumpotential liability under these arrangements cannot be quantified.  However, management believes that thepotential for the Company to be required to make payments under thesearrangements is not likely.  Accordingly,no contingent liability is recorded in the Condensed Consolidated Statements ofFinancial Condition for these arrangements.

 

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**GFI GROUPINC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**(In thousands except share andper share amounts)**

 

**10.     FINANCIALINSTRUMENTS 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’s2008 Form 10-K. There have been no material changes to the Company’soff-balance sheet risk during the nine months ended September 30, 2009.

 

**11.     FINANCIALINSTRUMENTS**

 

TheCompany is exposed to market risk associated with movements in foreign currencyexchange rates.  There have been nomaterial changes to the Company’s risk management policy as described in “Note 17—FinancialInstruments” of the Notes to the Consolidated Financial Statements contained inthe Company’s 2008 Form 10-K.

 

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. These receivablesand payables are short-term in nature and have subsequently substantially allsettled at the contracted amounts.  TheCompany’s marketable equity securities are recorded at fair value based ontheir quoted market price.  The Company’sinvestments accounted for under the cost and equity methods are in companiesthat are not publicly traded and for which no established market for theirsecurities exists.  The fair value ofthese investments is not estimated if there are no identified events or changesin circumstances that may have a significant adverse effect on the fair valueof the investment.  The Company’s debtobligations are carried at historical amounts. The fair value of the Company’s Senior Notes was estimated using marketrates of interest available to the Company for debt obligations of similartypes and was approximately $57.5 million at September 30, 2009.  The fair value of the Company’s short-termborrowings outstanding under the Credit Agreement approximated the carryingvalue at September 30, 2009 and December 31, 2008.

 

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 and municipal bonds which trade infrequently); and

 

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

 

*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 nine months ended September 30, 2009 and for theyear ended December 31, 2008, 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 September 30, 2009 and December 31,2008:**

 

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**GFI GROUPINC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**(In thousands except share andper share amounts)**

 

**The Company evaluates its marketable securities inaccordance with ASC 320-10, and has determined certain of its investments inmarketable securities should be classified as trading securities oravailable-for-sale securities and reported at fair value at September 30,2009 and December 31, 2008.  To theextent that the Company’s trading and available-for-sale marketable securitiesare based on quoted market prices, these securities were categorized as Level1.**

** **

**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, as well as  management’s own calculations and analyses,which are based upon period end forward and spot foreign exchange rates.  At September 30, 2009 and December 31,2008, the Company’s foreign exchange derivative contracts have been categorizedin Level 2 of the ASC 820-10 fair value hierarchy.**

** **

**The fair value of trading securities owned as a result of matchedprincipal transactions is estimated using recently executed transactions andmarket price quotations.  At September 30,2009 and December 31, 2008, the Company held corporate equities that werecategorized in Level 1 and corporate bonds that were categorized in Level 2 ofthe ASC 820-10 fair value hierarchy.**

** **

Financial Assets and Liabilities Measuredat Fair Value on a recurring basis as of September 30, 2009 and December 31,2008:

 
| ** **                             | ** ** | **Quoted Prices in**                          | ** ** | **Significant Other** | ** ** | ** **                              | ** ** |
|----------------------------------------|------------|---------------------------------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|
| ** **                             | ** ** | **Active Markets for  Identical Assets** | ** ** | **Observable  Inputs**     | ** ** | **Balance at  September 30,** | ** ** |
| ** **                             | ** ** | **(Level 1)**                                      | ** ** | **(Level 2)**         | ** ** | **2009**                                | ** ** |
| Included within  Other assets:         |       |                                                    |       |                       |       |                                    |       |
| Equity  securities                     |       | $                                                       | 5,030      |                       | $          | 167                                     |       | $ | 5,197 |   |
| Corporate bonds                        |       | —                                                  |       | 2,629                      |       | 2,629                                   |       |
| Foreign exchange  derivative contracts |       | —                                                  |       | 368                        |       | 368                                     |       |
|                                   |       |                                                    |       |                       |       |                                    |       |
| Included within  Other liabilities:    |       |                                                    |       |                       |       |                                    |       |
| Equity  securities                     |       | $                                                       | 7          |                       | $          | —                                  |       | $ | 7 |   |
| Foreign exchange  derivative contracts |       | —                                                  |       | 5,099                      |       | 5,099                                   |       |

** **
| ** **                             | ** ** | **Quoted Prices in**                          | ** ** | **Significant Other** | ** ** | ** **                             | ** ** |
|----------------------------------------|------------|---------------------------------------------------------|------------|----------------------------|------------|----------------------------------------|------------|
| ** **                             | ** ** | **Active Markets for  Identical Assets** | ** ** | **Observable  Inputs**     | ** ** | **Balance at  December 31,** | ** ** |
| ** **                             | ** ** | **(Level 1)**                                      | ** ** | **(Level 2)**         | ** ** | **2008**                               | ** ** |
| Included within  Other assets:         |       |                                                    |       |                       |       |                                   |       |
| Equity  securities                     |       | $                                                       | 5,440      |                       | $          | —                                 |       | $ | 5,440 |   |
| Corporate bonds                        |       | —                                                  |       | 1,576                      |       | 1,576                                  |       |
| Foreign exchange  derivative contracts |       | —                                                  |       | 102                        |       | 102                                    |       |
|                                   |       |                                                    |       |                       |       |                                   |       |
| Included within  Other liabilities:    |       |                                                    |       |                       |       |                                   |       |
| Equity  securities                     |       | $                                                       | 296        |                       | $          | —                                 |       | $ | 296 |   |
| Foreign exchange  derivative contracts |       | —                                                  |       | 19,687                     |       | 19,687                                 |       |

** **

**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 alsohedges a portion of its foreign currency exposures on anticipated foreigncurrency denominated revenues and expenses by 

 

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**GFI GROUPINC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**(In thousands except share andper share amounts)**

 

entering into forwardforeign exchange contracts.  For the ninemonths ended September 30, 2009 and the year ended December 31, 2008,none of these contracts were designated as foreign currency cash flow hedgesunder ASC 815-10*. *These contracts are recorded atfair value and all realized and unrealized gains and losses are included inother income in the Condensed Consolidated Statements of Income.  The Company does not hold or issue derivativefinancial instruments for trading or speculative purposes.

 

**Fair values of foreign exchange derivative contracts on agross basis as of September 30, 2009 are as follows:**

** **
| ** **                                                                | ** ** | **September 30,  2009**  | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------|------------|
| **Derivatives  not designated as hedging instruments under   ASC 815-10** | ** ** | **Balance  Sheet   Location** | ** ** | **Fair  Value** | ** ** | **Balance  Sheet   Location** | ** ** | **Fair  Value** | ** ** |
| ** **                                                                | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Forward Foreign  Exchange Contracts                                       |       | Other Assets                  |       | $ | 368 |   | Other Liabilities |   | 5,099 |   |
|                                                                           |            |                               |            |  |  |  |  |  |  |  |

 

**As of September 30, 2009, the Company had outstandingforward foreign exchange contracts with a combined notional value ofapproximately $154.0 million. Approximately $73.0 million of these forward foreign exchange contractsrepresents a hedge of euro-denominated balance sheet positions at September 30,2009.  The remaining contracts are hedgesof anticipated future cash flows.**

** **

**The following is a summary of the effect of foreignexchange derivative contracts on the Condensed Consolidated Statements ofIncome for the three and nine months ended September 30, 2009:**

** **
| ** **                                                   | ** ** | ** **                                        | ** ** | **Amount  of Gain or (Loss)   Recognized in Income on   Derivatives** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| **Derivatives not designated as  hedging instruments under** | ** ** | **Location of Gain (Loss)  Recognized in Income** | ** ** | **For the Three   Months Ended   September 30,**                 | ** ** | **For the Nine   Months Ended   September 30,** | ** ** |
| **ASC  815-10**                                              | ** ** | **on Derivatives**                                | ** ** | **2009**                                                              | ** ** | **2009** | ** ** |
| Forward Foreign  Exchange Contracts                          |       | Other income                                      |       | $                                                                     | (8,742     | ) | $ | 1,221 |   |
|                                                              |            |                                                   |            |                                                                       |            |  |  |  |  |

** **

**12.     REGULATORYREQUIREMENTS**

 

GFISecurities LLC is a registered broker-dealer with the SEC and the FinancialIndustry Regulatory Authority (FINRA). GFI Securities LLC is also a registered introducing broker with theNational Futures Association and the Commodity Futures Trading Commission.  Accordingly, GFI Securities LLC is subject tothe net 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 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 $387.

 

Thefollowing table sets forth information about the net capital that certain ofthe Company’s subsidiaries were required to maintain as of September 30,2009:

 

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**GFI GROUPINC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**(In thousands except share andper share amounts)**

 
| ** **                    | ** ** | **GFI Securities   LLC** | ** ** | **GFI Brokers   Limited** | ** ** | **GFI Securities   Limited** | ** ** | **GFI (HK)   Securities LLC** | ** ** |
|-------------------------------|------------|------------------------------------|------------|-------------------------------------|------------|----------------------------------------|------------|-----------------------------------------|------------|
| Net  Capital                  |       | $                                  | 37,428     |                                | $          | 106,549                                |       | $                                       | 53,490     |   | $ | 1,599 |   |
| Minimum  Net Capital required |       | 250                                |       | 16,186                              |       | 27,222                                 |       | 387                                     |       |
| Excess  Net Capital           |       | $                                  | 37,178     |                                | $          | 90,363                                 |       | $                                       | 26,268     |   | $ | 1,212 |   |

 

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 licensingrequirements, GFI Securities Limited’s Japanese branch is required to maintainminimum “brought-in” capital and stockholders’ equity of 50,000 Japanese Yeneach (approximately $557), as defined under the FIEL.  In addition, GFI Securities Limited’sJapanese branch is also subject to the net capital rule promulgated by theFIEL, which requires that net worth, including “brought-in” capital, exceed aratio of 120.0% of the risk equivalent amount including relevantexpenditure.  At September 30, 2009,GFI Securities Limited’s Japanese branch was in compliance with thesecapital requirements.

 

GFISecurities Limited’s Dubai branch is registered with the Dubai FinancialInternational Centre and is authorized by the Dubai Financial ServicesAuthority (“DFSA”) to provide financial service activities.  The branch is subject to the conduct ofbusiness rules of the DFSA and has been granted a waiver from prudentialregulation by the DFSA.

 

GFISecurities Limited’s Paris branch was established through the exercise of itspassport right to open a branch in a European Economic Area state. Theestablishment of the branch was approved by FSA and acknowledged by Banque deFrance in France. The branch is subject to the conduct of business rules ofthe Autorite Des Marches Financiers when dealing with resident customers ofFrance and is regulated, in part, by the FSA.

 

GFI SecuritiesLimited’s Dublin branch was established through the exercise of its passportright to open a branch within a European Economic Area state.  The establishment of the branch was approvedby FSA and acknowledged by the Irish Financial Services Regulatory Authority (“IFSRA”)in Ireland. The branch is subject to all of the conduct of business rules ofthe IFSRA and is regulated, in part, by the FSA.

 

GFISecurities Limited’s Tel Aviv branch is registered as a foreign corporation inIsrael and is conditionally exempt from the requirement to hold a SecuritiesLicense in accordance with the Israeli Securities law.  The branch is therefore not subject to anycapital requirements.

 

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

 

GFI(HK) Brokers Ltd. is registered with and 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$645).  At September 30, 2009, GFI(HK) Brokers Ltd. had stockholders’ equity of 11,554 Hong Kong dollars (orapproximately $1,490), which exceeded the minimum requirement by 6,554 HongKong dollars (or approximately $845).

 

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 $2,116),measured annually.

 

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**GFI GROUPINC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**(In thousands except share andper share amounts)**

 

****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 $4,250)****.****AtSeptember 30, 2009, ****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.  TheCompany’s regulated subsidiaries were in compliance with all minimum netcapital requirements as of September 30, 2009.

 

**13.     SEGMENTAND 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.   In prior periods, AsiaBrokerage was included within the All Other segment as it did not meet thequantitative threshold for separate disclosure under ASC 280-10 *Segment Reporting*(formerly SFAS No. 131).  However, as a result of the growthexperienced in Asia and the changes in the economic characteristics of theAmericas and the EMEA brokerage operations, for the year ended December 31,2008, the Company changed its reportable segments.  Prior period results have been adjusted toreflect these changes in the reporting structure.

 

Selected financialinformation for the Company’s reportable segments is presented below forperiods indicated:

 
| ** **                                           | ** ** | **Three Months Ended********September 30,** | ** ** | **Nine Months Ended********September 30,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                           | ** ** | **2009**                                                   | ** ** | **2008**                                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Revenue**                                          | ** ** | ** **                                                 | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Americas Brokerage                                   |       | $                                                          | 75,421     |                                                      | $          | 86,461 |   | $ | 254,416 |   | $ | 297,753 |   |
| EMEA Brokerage                                       |       | 93,411                                                     |       | 118,359                                                   |       | 282,622 |   | 398,227 |   |
| Asia Brokerage                                       |       | 15,991                                                     |       | 22,016                                                    |       | 47,414 |   | 75,434 |   |
| All Other                                            |       | 7,423                                                      |       | 16,302                                                    |       | 48,695 |   | 47,853 |   |
| Total Consolidated Revenue                           |       | $                                                          | 192,246    |                                                      | $          | 243,138 |   | $ | 633,147 |   | $ | 819,267 |   |
| ** **                                           | ** ** | ** **                                                 | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Interest Income:**                                 | ** ** | ** **                                                 | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Americas Brokerage                                   |       | $                                                          | —     |                                                      | $          | 7 |   | $ | — |   | $ | 18 |   |
| EMEA Brokerage                                       |       | —                                                     |       | 6                                                         |       | 1 |   | 19 |   |
| Asia Brokerage                                       |       | —                                                     |       | —                                                    |       | — |   | — |   |
| All Other                                            |       | 172                                                        |       | 2,174                                                     |       | 894 |   | 6,911 |   |
| Total Consolidated Interest Income                   |       | $                                                          | 172        |                                                      | $          | 2,187 |   | $ | 895 |   | $ | 6,948 |   |
| ** **                                           | ** ** | ** **                                                 | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Interest Expense:**                                | ** ** | ** **                                                 | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Americas Brokerage                                   |       | $                                                          | 13         |                                                      | $          | 45 |   | $ | 25 |   | $ | 66 |   |
| EMEA Brokerage                                       |       | 160                                                        |       | 463                                                       |       | 431 |   | 1,587 |   |
| Asia Brokerage                                       |       | 1                                                          |       | 1                                                         |       | 5 |   | 13 |   |
| All Other                                            |       | 2,595                                                      |       | 2,999                                                     |       | 7,434 |   | 8,675 |   |
| Total Consolidated Interest Expense                  |       | $                                                          | 2,769      |                                                      | $          | 3,508 |   | $ | 7,895 |   | $ | 10,341 |   |
|                                                 |       |                                                       |       |                                                      |       |   |   |   |   |
| **Depreciation and Amortization:**                   | ** ** | ** **                                                 | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Americas Brokerage                                   |       | $                                                          | —     |                                                      | $          | — |   | $ | — |   | $ | — |   |
| EMEA Brokerage                                       |       | —                                                     |       | —                                                    |       | — |   | — |   |
| Asia Brokerage                                       |       | —                                                     |       | —                                                    |       | — |   | — |   |
| All Other                                            |       | 7,680                                                      |       | 7,192                                                     |       | 23,534 |   | 23,563 |   |
| Total Consolidated Depreciation and Amortization     |       | $                                                          | 7,680      |                                                      | $          | 7,192 |   | $ | 23,534 |   | $ | 23,563 |   |
|                                                 |       |                                                       |       |                                                      |       |   |   |   |   |
| **Income (Loss) before Income Taxes:**               | ** ** | ** **                                                 | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Americas Brokerage                                   |       | $                                                          | 15,594     |                                                      | $          | 20,166 |   | $ | 57,230 |   | $ | 89,213 |   |
| EMEA Brokerage                                       |       | 29,959                                                     |       | 26,941                                                    |       | 91,654 |   | 121,439 |   |
| Asia Brokerage                                       |       | 1,768                                                      |       | 186                                                       |       | 1,656 |   | 14,963 |   |
| All Other                                            |       | (42,905                                                    | )          | (57,870                                                   | )          | (101,749 | ) | (142,286 | ) |
| Total Consolidated Income (Loss) before Income Taxes |       | $                                                          | 4,416      |                                                      | $          | (10,577 | ) | $ | 48,791 |   | $ | 83,329 |   |

 

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**GFI GROUPINC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**(In thousands except share andper share amounts)**

 

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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**GFI GROUPINC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**(Inthousands except share and per share amounts)**

 

Information regarding revenues for the three and ninemonths ended September 30, 2009 and 2008, respectively, and informationregarding long-lived assets (defined as property, equipment, leaseholdimprovements and software inventory) in geographic areas as of September 30,2009 and December 31, 2008, respectively, are as follows:

 
| ** **      | ** ** | **Three Months Ended******** September 30,** | ** ** | **Nine Months Ended******** September 30,** | ** ** |
|-----------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **      | ** ** | **2009**                                                         | ** ** | **2008**                                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| Revenues:       |       |                                                             |       |                                                            |       |   |   |   |   |
| United  States  |       | $                                                                | 75,388     |                                                            | $          | 75,652 |   | $ | 255,496 |   | $ | 286,410 |   |
| United  Kingdom |       | 77,890                                                           |       | 115,190                                                         |       | 262,026 |   | 367,219 |   |
| Other           |       | 38,968                                                           |       | 52,296                                                          |       | 115,625 |   | 165,638 |   |
| Total           |       | $                                                                | 192,246    |                                                            | $          | 243,138 |   | $ | 633,147 |   | $ | 819,267 |   |

 
| ** **                      | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|---------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Long-lived  Assets, as defined: |       |                         |       |                        |       |
| United  States                  |       | $                            | 58,778     |                        | $          | 61,648 |   |
| United  Kingdom                 |       | 15,346                       |       | 17,824                      |       |
| Other                           |       | 4,774                        |       | 5,709                       |       |
| Total                           |       | $                            | 78,898     |                        | $          | 85,181 |   |

 

Revenuesare attributed to geographic areas based on the location of the relevant legalentities.

 

**14.     OTHERCOMPREHENSIVE INCOME (LOSS)**

** **
| ** **                                                  | ** ** | **Three Months Ended********September 30,** | ** ** | **Nine Months Ended********September 30,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2009**                                                   | ** ** | **2008**                                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Unrealized gain (loss) on available for sale securities** | ** ** | ** **                                                 | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Before  Tax Amount                                          |       | $                                                          | 504        |                                                      | $          | (1,493 | ) | $ | 704 |   | $ | (68 | ) |
| Tax  Benefit                                                |       | (116                                                       | )          | 425                                                       |       | (171 | ) | 6 |   |
| After  Tax Amount                                           |       | $                                                          | 388        |                                                      | $          | (1,068 | ) | $ | 533 |   | $ | (62 | ) |
| **Foreign currency translation adjustment**                 | ** ** | ** **                                                 | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Before  Tax Amount                                          |       | $                                                          | 381        |                                                      | $          | (3,450 | ) | $ | 2,366 |   | $ | (3,755 | ) |
| Tax  Expense                                                |       | (159                                                       | )          | 1,497                                                     |       | (1,021 | ) | 1,631 |   |
| After  Tax Amount                                           |       | $                                                          | 222        |                                                      | $          | (1,953 | ) | $ | 1,345 |   | $ | (2,124 | ) |

 

**15.     SUBSEQUENTEVENTS**

 

In October 2009, the Board of Directors declareda quarterly cash dividend of $0.05 per share payable on November 27, 2009to shareholders of record on November 13, 2009.

 

Subsequent events have been evaluated for disclosurein the notes to the Condensed Consolidated Financial Statements through November 9,2009, the filing date of this Form 10-Q.

 

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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 September 30,2009, and the related condensed consolidated statements of income andcomprehensive income for the three-month and nine-month periods ended September 30,2009 and 2008, and the condensed consolidated statements of cash flows for thenine-month periods ended September 30, 2009 and 2008.  These interim financial statements are theresponsibility 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, 2008, 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 February 27, 2009, 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 31,2008 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 YorkNovember 9, 2009

 

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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 statementsinclude, without limitation, any statement that may predict, forecast, indicateor imply future results, performance or achievements, and may contain the words‘‘believe,’’ ‘‘anticipate,’’ ‘‘expect,’’ ‘‘estimate,’’ ‘‘intend,’’ ‘‘project,’’‘‘will be,’’ ‘‘will likely continue,’’ ‘‘will likely result,’’ or words orphrases of similar meaning. These forward-looking statements are based largelyon the expectations of management and are subject to a number of risks anduncertainties including, but not limited to, the following:

 
| · | the risks and other  factors described under the heading “Risk Factors” and elsewhere in our 2008  Form 10-K;                                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                         |
| · | economic, political and  market factors affecting trading volumes, securities prices or demand for our  brokerage services;                                  |
|   |                                                                                                                                                         |
| · | changes in laws and  regulations governing our business and operations or permissible activities  and our ability to comply with such laws and regulations;  |
|   |                                                                                                                                                         |
| · | financial difficulties  experienced by our customers or key participants in the markets in which we  focus our brokerage services;                           |
|   |                                                                                                                                                         |
| · | the growth of our  operations generally or of specific products or services;                                                                                 |
|   |                                                                                                                                                         |
| · | our ability to attract  and retain key personnel, including highly qualified brokerage personnel;                                                            |
|   |                                                                                                                                                         |
| · | our entrance into new  brokerage markets, including investments in establishing new brokerage desks;                                                         |
|   |                                                                                                                                                         |
| · | competition from  current and new competitors;                                                                                                               |
|   |                                                                                                                                                         |
| · | our ability to keep up  with rapid technological change and to continue to develop and support our  electronic brokerage systems in a cost effective manner; |
|   |                                                                                                                                                         |
| · | future results of  operations and financial condition;                                                                                                       |
|   |                                                                                                                                                         |
| · | the success of our  business strategies;                                                                                                                     |
|   |                                                                                                                                                         |
| · | risks associated with  potential acquisitions by us of businesses or technologies;                                                                           |
|   |                                                                                                                                                         |
| · | the maturity of key  markets and any resulting contraction of commissions;                                                                                   |
|   |                                                                                                                                                         |
| · | our ability to manage  our international operations;                                                                                                         |
|   |                                                                                                                                                         |
| · | uncertainties  associated with currency fluctuations;                                                                                                        |
|   |                                                                                                                                                         |
| · | our failure to protect  or enforce our intellectual property rights;                                                                                         |
|   |                                                                                                                                                         |
| · | uncertainties relating  to litigation; and                                                                                                                   |
|   |                                                                                                                                                         |
| · | changes in the  availability of capital.                                                                                                                     |

 

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The foregoing risks anduncertainties, as well as those risks discussed under the headings ‘‘Item2—Management’s Discussion and Analysis of Financial Condition and Results ofOperations’’ and ‘‘Item 3—Quantitative and Qualitative Disclosures About MarketRisk’’ and elsewhere in this Quarterly Report, may cause actual results todiffer materially from the forward-looking statements.  The information included herein is given asof the filing date of this Form 10-Q with the SEC and future events orcircumstances could differ significantly from these forward-lookingstatements.  The Company does notundertake to publicly update or revise any forward-looking statements, whetheras a result of new information, future events or otherwise.

 

**Business Environment**

 

As an inter-dealerbroker, our results of operations are impacted by a number of 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 our most recent fiscal quarter.  The factors outlined below are not exclusiveand additional factors may impact, or have different degrees of impact, on ourresults of operations in future periods.

 

*MarketVolatility*

 

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, extended periods ofextreme volatility may result in significant market dislocations that canresult in reduced trading volumes.

 

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 third quarter of 2009 many of the markets in which we operate experiencedlower volatility than the third quarter of 2008.  The third quarter of 2009 was marked by uneventfultrading activity, especially in August, and continued legislative debate in theU.S. and Europe over how to regulate and possibly limit trading activity incertain OTC markets, including certain credit and energy derivatives.  While the global recessionary environmentshowed signs of abating in the third quarter of 2009, we believe certaindealers and hedge funds committed less capital in certain markets andgeographical regions during the quarter than compared to the third quarter of2008, which resulted in generally lower trading activity in many of ourmarkets.

 

*Growthin Underlying Markets and New Product Offerings*

 

Our business hashistorically benefited from growth in OTC derivative and related cash marketsdue to either the expansion of existing markets, including increased notionalamounts outstanding 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 Mid-Year 2009 MarketSurvey in September 2009 detailing growth in global notional amountsoutstanding in various over-the-counter markets.  Notional amounts outstanding include newtransactions and those from previous periods. The ISDA statistics indicated that there was a decline in the notionaloutstanding for most derivative categories over the previous mid-year andyear-end results, including credit default swaps, which were down 43% year overyear and 19% sequentially from year-end 2008. Interest rate derivatives decreased 11% year over year but increased 3%sequentially, while equity derivatives declined 26% year over year and wererelatively flat sequentially.

 

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During the later stagesof the credit crisis, many OTC derivatives products experienced lower tradingvolumes as market participants deployed less trading capital due to investorredemptions and reduced borrowing capacity. This trend toward lower trading volumes began to abate during the thirdquarter of 2009, as evidenced by the reported transaction volumes of certainproducts traded on futures exchanges. For several years, exchange tradedderivatives have exhibited similar growth rates to those of the related OTCderivative markets. In the third quarter of 2009, the CME Group, Inc. (“CME”)reported a 2% increase in average daily volumes, of its CME ClearPort (OTC)clearing business and IntercontinentalExchange, Inc. (“ICE”) reported a13% increase in average daily commissions of its OTC energy productsbusinesses, each as compared to the third quarter of 2008.  CME, however, reported overall average dailyvolumes down 23% year over year, including a 27% decrease in interest rateaverage daily trading volumes and a 31% decrease in equity index average dailytrading volumes, while ICE reported that their revenues from OTC creditproducts (excluding credit derivative clearing revenues) were down 27%.

 

In addition, our business has historically benefitedfrom the introduction of newer products and our expansion into growing marketsand new geographical areas.  For example,in 2008 and 2009 we invested in our fixed income product brokerage capabilitiesas the markets shifted in favor of cash products following the credit crisis.

 

*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 third quarter of 2009.  In addition, in April of 2008, almosttwo dozen of our credit division personnel in New York defected to acompetitor, notwithstanding that many of them did so in breach of contractualobligations.  This event resulted inincreased competition, legal expenses and costs related to restaffing our NorthAmerican credit operations that continued into the third quarter of 2009.  The consolidation and personnel layoffs bydealers, hedge funds and other market participants during 2008 and the firsthalf of 2009 has also led to increased competition to provide brokerageservices to a smaller number of market participants in the near term.

 

During the third quarter of 2009, there was acontinuing effort to establish new regulations for the global OTC derivativesmarkets.  We believe that the legislativeand regulatory proposals for increased transparency, position limits andcollateral or capital requirements have caused uncertainty in these markets asmarket participants await any final regulations.  This increased uncertainty in the markets hasled investors and banks to commit less capital to many OTC markets.   Nevertheless, we are optimistic that theregulatory solutions that are likely to emerge, including centralized clearing,increased automation and electronic execution, will be generally beneficial tothe long-term health of the broader financial markets.  In furtherance of this, competing billsrecently passed by the US House Financial Services Committee and the US HouseAgriculture Committee require derivatives dealers and major swap participantsto centrally clear standardized derivatives and execute a broad range of swapsand security-based swaps through the medium of a regulated exchange or a swapexecution facility.  Under the currentlyproposed legislation, we believe GFI would qualify as a swap execution facilityand we believe that our expertise, technology and scale makes uswell-positioned to capture any newly created opportunities in these markets.

 

**Financial Overview**

 

As more fully discussed below, our results of operations are significantlyimpacted by our revenue growth and the amount of compensation and benefits weprovide to our employees.  The followingfactors had a significant impact on our revenues and employee costs during thethree month period ended September 30, 2009:

 

Our revenuesdecreased 20.9% from $243.1 million for the three months ended September 30,2008 to $192.2 million for the three months ended September 30, 2009. Themain factors contributing to a decrease in our revenues compared to the threemonths ended September 30, 2008 were:

 

·                  Dealer and hedge fund deleveragingleading to less capital being deployed in certain markets;

·                  Reduced trading volumes in certainstructured derivative and emerging markets in which we have a leading position;

·                  Uneventful trading activity as comparedto the third quarter of 2008, which was marked by extreme volatility due to thecredit crisis;

·                  The global recessionary environment,although showing recent signs of abating, has depressed share, index and assetvalues.  These depressed values havenegatively impacted our revenues, particularly in Europe, where certain productcommissions are based on notional values;

 

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·                  The strengthening of the U.S. Dollaradversely impacted our foreign currency revenues, particularly in Europe;

·                  Regulatory uncertainty as it relates tomarket structure and operations in OTC derivative markets; and

·                  Realized and unrealized loss of $6.4million on foreign currency transactions and foreign currency hedges.

 

Partiallyoffsetting this decrease were several factors benefiting our brokerage andother revenues, including:

 

·                  Substantial growth in our global cashfixed income business due, in large part, to our recent investments in thisarea;

·                  Growth in our Chile and Dubai brokerageoperations; and

·                  New brokerage desks for certain equity,financial and commodity products.

 

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 decreased from $176.5 million for the three months ended September 30,2008 to $135.1 million for the three months ended September 30, 2009.  The main factors contributing to the declinein employee compensation and benefits were a decrease in performance bonusesfor brokerage personnel, as well as the restructuring initiatives implementedsince the end of the third quarter of 2008.

 

Our compensation and employee benefits for allemployees have both a fixed and variable component.  Base salaries and benefit costs arerelatively fixed for all employees while bonuses constitute the variable portionof our compensation and employee benefits. Within this overall compensation and employee benefits, employment costsof our brokerage personnel are the primary 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 from $75.7 million for the three months ended September 30,2008 to $56.1 million for the three months ended September 30, 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 pay sign-on bonuses to certainnewly-hired brokers or for certain of our existing brokers who agree tolong-term employment agreements.  Sign-onbonuses may be paid in the form of cash, restricted stock units (“RSUs”) orforgivable loans and are typically amortized over the term of the relatedemployment agreement, which is generally two to four years.  These employment agreements typically containrepayment or forfeiture provisions for unvested RSUs or all or a portion of thesign-on bonus and forgivable loan should the employee voluntarily terminate hisor her employment or if the employee’s employment is terminated for causeduring the initial term of the agreement. Expenses relating to sign-on bonuses decreased from $14.5 million forthe three months ended September 30, 2008 to $11.3 million for the threemonths ended September 30, 2009. Sign-on bonus expense for the three months ended September 30, 2008included the write-off of certain unamortized sign-on bonuses, in connectionwith the front office restructuring initiative implemented in that quarter.

 

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**Resultsof Consolidated Operations**

 

Thefollowing table sets forth our condensed consolidated results of operations forthe periods indicated:

 
| ** **                                       | ** ** | **Three  Months Ended**     | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **September 30,**      | ** ** | **September 30,**          | ** ** |
| ** **                                       | ** ** | **2009**                    | ** ** | **2008**                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                       | ** ** | **(dollars  in thousands)** | ** ** |
| REVENUES:                                        |       |                        |       |                            |       |   |   |   |   |
| Brokerage  revenues:                             |       |                        |       |                            |       |   |   |   |   |
| Agency  commissions                              |       | $                           | 119,396    |                            | $          | 182,591 |   | $ | 366,283 |   | $ | 613,754 |   |
| Principal  transactions                          |       | 64,989                      |       | 43,771                          |       | 216,770 |   | 156,397 |   |
| Total  brokerage revenues                        |       | 184,385                     |       | 226,362                         |       | 583,053 |   | 770,151 |   |
| Software,  analytics and market data             |       | 13,627                      |       | 14,034                          |       | 39,698 |   | 38,450 |   |
| Interest  income                                 |       | 172                         |       | 2,187                           |       | 895 |   | 6,948 |   |
| Other  income (loss)                             |       | (5,938                      | )          | 555                             |       | 9,501 |   | 3,718 |   |
| Total  revenues                                  |       | 192,246                     |       | 243,138                         |       | 633,147 |   | 819,267 |   |
| EXPENSES:                                        |       |                        |       |                            |       |   |   |   |   |
| Compensation  and employee benefits              |       | 135,139                     |       | 176,462                         |       | 427,262 |   | 528,390 |   |
| Communications  and market data                  |       | 11,661                      |       | 12,640                          |       | 34,399 |   | 35,565 |   |
| Travel  and promotion                            |       | 8,280                       |       | 11,845                          |       | 24,310 |   | 36,859 |   |
| Rent  and occupancy                              |       | 6,008                       |       | 14,969                          |       | 16,455 |   | 28,342 |   |
| Depreciation  and amortization                   |       | 7,680                       |       | 7,192                           |       | 23,534 |   | 23,563 |   |
| Professional  fees                               |       | 4,508                       |       | 7,756                           |       | 13,728 |   | 20,119 |   |
| Clearing  fees                                   |       | 7,153                       |       | 12,026                          |       | 23,366 |   | 33,714 |   |
| Interest                                         |       | 2,769                       |       | 3,508                           |       | 7,895 |   | 10,341 |   |
| Other  expenses                                  |       | 4,632                       |       | 7,317                           |       | 13,407 |   | 19,045 |   |
| Total  expenses                                  |       | 187,830                     |       | 253,715                         |       | 584,356 |   | 735,938 |   |
| Income  (loss) before provision for income taxes |       | 4,416                       |       | (10,577                         | )          | 48,791 |   | 83,329 |   |
| Provision  for (benefit from) income taxes       |       | 1,633                       |       | (3,861                          | )          | 18,052 |   | 30,415 |   |
| Net  income (loss)                               |       | $                           | 2,783      |                            | $          | (6,716 | ) | $ | 30,739 |   | $ | 52,914 |   |

 

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Thefollowing table sets forth our condensed consolidated results of income as apercentage of our total revenues for the periods indicated:

 
| ** **                                       | ** ** | **Three Months Ended**     | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------|------------|----------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **September 30,**     | ** ** | **September 30,**          | ** ** |
| ** **                                       | ** ** | **2009**                   | ** ** | **2008**                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                       | ** ** | **(dollars in thousands)** | ** ** |
| REVENUES:                                        |       |                       |       |                            |       |   |   |   |   |
| Brokerage  revenues:                             |       |                       |       |                            |       |   |   |   |   |
| Agency  commissions                              |       | 62.1                       | %          | 75.1                            | %          | 57.9 | % | 74.9 | % |
| Principal  transactions                          |       | 33.8                       |       | 18.0                            |       | 34.2 |   | 19.1 |   |
| Total  brokerage revenues                        |       | 95.9                       |       | 93.1                            |       | 92.1 |   | 94.0 |   |
| Software,  analytics and market data             |       | 7.1                        |       | 5.8                             |       | 6.3 |   | 4.7 |   |
| Interest  income                                 |       | 0.1                        |       | 0.9                             |       | 0.1 |   | 0.8 |   |
| Other  (loss) income                             |       | (3.1                       | )          | 0.2                             |       | 1.5 |   | 0.5 |   |
| Total  revenues                                  |       | 100.0                      | %          | 100.0                           | %          | 100.0 | % | 100.0 | % |
| EXPENSES:                                        |       |                       |       |                            |       |   |   |   |   |
| Compensation  and employee benefits              |       | 70.3                       |       | 72.6                            |       | 67.5 |   | 64.5 |   |
| Communications  and market data                  |       | 6.1                        |       | 5.2                             |       | 5.4 |   | 4.3 |   |
| Travel  and promotion                            |       | 4.3                        |       | 4.9                             |       | 3.8 |   | 4.5 |   |
| Rent  and occupancy                              |       | 3.1                        |       | 6.2                             |       | 2.6 |   | 3.5 |   |
| Depreciation  and amortization                   |       | 4.0                        |       | 3.0                             |       | 3.7 |   | 2.9 |   |
| Professional  fees                               |       | 2.3                        |       | 3.2                             |       | 2.2 |   | 2.5 |   |
| Clearing  fees                                   |       | 3.7                        |       | 4.9                             |       | 3.7 |   | 4.1 |   |
| Interest                                         |       | 1.4                        |       | 1.4                             |       | 1.2 |   | 1.3 |   |
| Other  expenses                                  |       | 2.4                        |       | 3.0                             |       | 2.1 |   | 2.3 |   |
| Total  expenses                                  |       | 97.6                       | %          | 104.4                           | %          | 92.2 | % | 89.9 | % |
| Income  (loss) before provision for income taxes |       | 2.4                        |       | (4.4                            | )          | 7.8 |   | 10.1 |   |
| Provision  for (benefit from) income taxes       |       | 0.8                        |       | (1.6                            | )          | 3.0 |   | 3.7 |   |
| Net  income (loss)                               |       | 1.6                        | %          | (2.8                            | )%         | 4.8 | % | 6.4 | % |

 

**ThreeMonths Ended September 30, 2009 Compared to the Three Months Ended September 30,2008**

 

Net income for the threemonths ended September 30, 2009 was $2.8 million as compared to a net lossof $6.7 million for the three months ended September 30, 2008, anincrease of $9.5 million.  Total revenuesdecreased by $50.9 million, or 20.9%, to $192.2 million for the three monthsended September 30, 2009 from $243.1 million for the prior year.  Our decreased revenues were primarily due tolower brokerage revenues in our financial, equity and commodity productcategories. Total expenses decreased by $65.9 million, or 26.0%, to $187.8million for the three months ended September 30, 2009 from$253.7 million for the prior year. Expenses decreased primarily because of decreased compensation expensefor the quarter ended September 30, 2009, which was mostly attributable toa decrease in performance-based bonus expense as a result of lower brokeragerevenues.  We also incurred lower rentand occupancy expenses, clearing fees, travel and promotion costs andprofessional fees during the three months ended September 30, 2009 ascompared to the same period in 2008.

 

Thefollowing table sets forth the changes in revenues for the three months ended September 30,2009 as compared to the same period in 2008 (dollars in thousands, exceptpercentage data):

 

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| ** **               | ** ** | **For the Three Months Ended September 30,** | ** ** |
|--------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **               | ** ** | ** **                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Increase** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **2009**                                                                   | ** ** | **%*** | ** ** | **2008** | ** ** | **%*** | ** ** | **(Decrease)** | ** ** | **%**** | ** ** |
| **Revenues**             |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Brokerage revenues:      |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Credit                   |       | $                                                                          | 68,235     |   | 35.5 | % | $ | 60,029 |   | 24.7 | % | $ | 8,206 |   | 13.7 | % |
| Equity                   |       | 44,673                                                                     |       | 23.2 |   | 69,941 |   | 28.8 |   | (25,268 | ) | (36.1 | ) |
| Financial                |       | 33,166                                                                     |       | 17.3 |   | 45,542 |   | 18.7 |   | (12,376 | ) | (27.2 | ) |
| Commodity                |       | 38,311                                                                     |       | 19.9 |   | 50,850 |   | 20.9 |   | (12,539 | ) | (24.7 | ) |
| Total brokerage revenues |       | 184,385                                                                    |       | 95.9 |   | 226,362 |   | 93.1 |   | (41,977 | ) | (18.5 | ) |
| Other revenues           |       | 7,861                                                                      |       | 4.1 |   | 16,776 |   | 6.9 |   | (8,915 | ) | (53.1 | ) |
| Total Revenues           |       | $                                                                          | 192,246    |   | 100.0 | % | $ | 243,138 |   | 100.0 | % | $ | (50,892 | ) | (20.9 | )% |

 

----

*    Denotes % of total revenues.

**     Denotes % change in the three monthsended September 30, 2009 as compared to the three months ended September 30,2008.

 

·                  **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 for the three months ended September 30,2009.

 

·                  Broker productivity (defined as total brokeragerevenues during the period divided by average monthly brokerage personnelheadcount for the period) decreased by approximately 18.6% for the thirdquarter of 2009 compared to the comparable period in 2008.

 

·                  In the third quarter of 2008, our credit productbrokerage revenues included a $9.6 million charge related to the LehmanBrothers bankruptcy.  The lack of asimilar charge in the third quarter of 2009 was a significant reason for theincrease in our credit product brokerage revenues of $8.2 million in the thirdquarter of 2009 as compared to 2008. Additionally, growth in our cash fixed income product revenues in NorthAmerica and Europe offset a substantial decline in global credit derivativeproduct revenues compared to the third quarter of last year.  Regulatory uncertainty, increased competitionand the relatively lower volatility in the corporate debt markets compared tothe third quarter of 2008 all contributed to the comparatively lower creditderivatives revenues.  Our credit productbrokerage personnel headcount increased by 19 to 301 employees at September 30,2009 from 282 employees at September 30, 2008.

 

·                  The decrease in equity product brokerage revenues of$25.3 million in 2009 was primarily due to continued depressed share values inEurope and declines in trading volumes in the U.S. and Europe, as equity marketvolatility was lower in the third quarter of 2008, which was marked by thecredit crisis.  Our equity productbrokerage personnel headcount increased by 3 to 235 employees at September 30,2009 from 232 employees at September 30, 2008.

 

·                  The decrease in financial product brokerage revenuesof $12.4 million in 2009 was primarily attributable to dealers reducing theirtrading operations in emerging markets and Asia and the personnel restructuringthat we implemented in the second half of 2008 and a comparatively unfavorableinterest rate environment.  Our financialproduct headcount declined by 6 to 266 employees at September 30, 2009from 272 employees the previous year.

 

·                  The decrease in commodity product brokerage revenuesof $12.5 million in 2009 was primarily attributable to the continued weaknessin our dry freight business in Europe and Asia, which has yet to fully recoverfrom the significant drop in the Baltic Dry Freight Index in the fourth quarterof 2008.  The Baltic Dry Freight Index isused by traders to price forward freight agreements.  In addition, the global recessionaryenvironment and market participants’ focus on risk reduction also contributedto the decrease in commodity revenue as market participants traded more activelyin short-dated, exchange-traded products. Our commodity product brokerage personnel headcount decreased by 20 to276 employees at September 30, 2009 from 296 employees at September 30,2008.

 

·                  **Other Revenues**

 

Otherrevenues is comprised of the following:

 

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| ** **                                                               | ** ** | **For the Three   Months Ended  September 30,  2009** | ** ** | **For the Three   Months Ended  September 30,  2008** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
|                                                                     |       |                                                       |       |                                                       |       |
| Software, analytics and market data                                      |       | $                                                          | 13,627     |                                                       | $          | 14,034 |   |
| Remeasurement of foreign currency transactions and  balances             |       | 2,307                                                      |       | (11,385                                                    | )          |
| Net realized and unrealized (losses) gains from  foreign currency hedges |       | (8,742                                                     | )          | 11,289                                                     |       |
| Interest income                                                          |       | 172                                                        |       | 2,187                                                      |       |
| Other                                                                    |       | 497                                                        |       | 651                                                        |       |
| Total other revenues                                                     |       | $                                                          | 7,861      |                                                       | $          | 16,776 |   |

 

The$8.9 million decrease in other revenues in the three months ended September 30,2009 to $7.9 million from $16.8 million in the same period in 2008 wasprimarily related to a $20.0 million change in realized and unrealized losseson foreign currency derivative hedges. We recognized realized and unrealized losses on foreign currencyderivative hedges of $8.7 million in the three months ended September 30,2009, as compared to realized and unrealized gains on foreign currencyderivative hedges of $11.3 million in the comparable period in 2008.   This change was primarily due to theweakening of the British Pound Sterling relative to the U.S. Dollar and theEuro during the quarter.  The realizedand unrealized losses from foreign currency hedge contracts recognized in thethree months ended September 30, 2009 were offset by a $13.7 millionincrease in net realized and unrealized gains resulting from the remeasurementof foreign currency transactions and balances, from an $11.4 million loss inthe third quarter of 2008 to a $2.3 million gain in the same period in2009.  Foreign currency remeasurementgains and losses result from the remeasurement of asset and liability balancesthat are denominated in currencies other than the functional currency of thebusiness unit undertaking such transactions.

 

**Expenses**

 

The following table setsforth the changes in expenses for the three months ended September 30,2009 as compared to the same period in 2008 (dollars in thousands, exceptpercentage data):

 
| ** **                          | ** ** | **For the Three Months Ended** | ** ** | ** **   | ** ** | ** ** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|--------------|------------|------------|------------|
| ** **                          | ** ** | **September 30,**                             | ** ** | **Increase** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **2009**                                           | ** ** | **%***       | ** ** | **2008**   | ** ** | **%*** | ** ** | **(Decrease)** | ** ** | **%**** | ** ** |
| **Expenses**                        |       |                                               |       |         |       |       |       |   |   |   |   |   |   |
| Compensation  and employee benefits |       | $                                                  | 135,139    |         | 70.3       | %          | $          | 176,462 |   | 72.6 | % | $ | (41,323 | ) | (23.4 | )% |
| Communications  and market data     |       | 11,661                                             |       | 6.1          |       | 12,640     |       | 5.2 |   | (979 | ) | (7.7 | ) |
| Travel  and promotion               |       | 8,280                                              |       | 4.3          |       | 11,845     |       | 4.9 |   | (3,565 | ) | (30.1 | ) |
| Rent  and occupancy                 |       | 6,008                                              |       | 3.1          |       | 14,969     |       | 6.2 |   | (8,961 | ) | (59.9 | ) |
| Depreciation  and amortization      |       | 7,680                                              |       | 4.0          |       | 7,192      |       | 3.0 |   | 488 |   | 6.8 |   |
| Professional  fees                  |       | 4,508                                              |       | 2.3          |       | 7,756      |       | 3.2 |   | (3,248 | ) | (41.9 | ) |
| Clearing  fees                      |       | 7,153                                              |       | 3.7          |       | 12,026     |       | 4.9 |   | (4,873 | ) | (40.5 | ) |
| Interest                            |       | 2,769                                              |       | 1.4          |       | 3,508      |       | 1.4 |   | (739 | ) | (21.1 | ) |
| Other  expenses                     |       | 4,632                                              |       | 2.4          |       | 7,317      |       | 3.0 |   | (2,685 | ) | (36.7 | ) |
| **Total Expenses**                  |       | $                                                  | 187,830    |         | 97.6       | %          | $          | 253,715 |   | 104.4 | % | $ | (65,885 | ) | (26.0 | )% |

 

----

*    Denotes % of total revenues.

**     Denotes % change in the three months ended September 30,2009 as compared to the three months ended September 30, 2008.

 

·          **Compensationand Employee Benefits**

 

·                  Thedecrease in compensation and employee benefits expenses of $41.3 million in thethird quarter of 2009 was primarily attributable to a decrease in brokeragerevenues and corresponding performance bonuses as well as the restructuringinitiatives implemented since the third quarter of 2008.

 

·                  Total compensationand employee benefits as a percentage of total revenues decreased to 70.3% forthe three months ended September 30, 2009 as compared to 72.6% for thesame period in the prior year, which included $20.9 million in restructuringcosts and the write-off of deferred compensation expense.  The historically high compensation expense asa percentage of revenues for the three months ended September 

 

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30, 2009is due to lower broker productivity and higher fixed compensation costs as apercentage of revenues caused by the costs to restructure our product focus inthe face of changing market dynamics, lower revenues in certain historicallyhigher margin derivative markets, the amortization of previously paid sign-onbonuses and the continuing impact of the defection of almost two dozen of ourNew York credit division personnel to a competitor in April 2008. Theseunexpected departures led to increased hiring, retention and bonus compensationexpenses that continue to negatively impact our compensation structure.

 

·                  Bonus expense represented 46.1% and 50.2% of totalcompensation and employee benefits expense for the three months ended September 30,2009 and 2008, respectively.  A portionof our bonus expense is subject to contractual guarantees that may require us tomake bonus payments to brokers regardless of their performance in anyparticular period.  Additionally, sign-onbonus expense represented 9.0% and 8.4% of total compensation and employeebenefits for the three months ended September 30, 2009 and 2008, respectively.

 

·          **All Other Expenses**

 

·                  The $3.6 million decrease in travel and promotion wasprimarily attributable to lower broker entertainment expenses.  Travel and promotion, as a percentage of ourtotal brokerage revenues for the three months ended September 30, 2009,decreased to 4.5% from 5.2% for the same period from the prior year.

 

·                  The decrease in rent and occupancy of $9.0 million inthe three months ended September 30, 2009 relative to the same period ofthe prior year was primarily due to the $7.8 million in costs we incurred inthe third quarter of 2008 related to the abandonment of our offices at 100 WallStreet and our move to 55 Water Street in New York.  We completed our move to our current New Yorkheadquarters in September of 2008.

 

·                  The decrease in professional fees of $3.2 million inthe three months ended September 30, 2009 relative to the same period ofthe prior year was primarily due to a decrease in legal and professional costsincurred in relation to merger discussions in 2008 and a decrease in litigationexpenses.  The remaining decrease relatedto a decline in strategic and other consulting fees.

 

·                  The decrease in clearing fees of $4.9 million wasprimarily due to a change in product mix as our cash fixed income businessincreased relative to our cash equities business.   Clearing fees, as a percentage of our totalrevenues from principal transactions, decreased to 11.0% for the three monthsended September 30, 2009, from 27.5% for the previous year.  Principal transactions are generally settledthrough third party clearing organizations that charge us a fee for theirservices.  Clearing fees for cash fixedincome principal transactions tend to be lower than for cash equity principaltransactions.  We also use the servicesof stock exchanges and floor brokers to assist in the execution oftransactions.  Fees paid to floor brokersand execution fees paid to exchanges in these circumstances are included inclearing fees.  In addition, clearingfees also include fees incurred in certain equity transactions executed on anagency basis.

 

·                  The decrease in interest expense of $0.7 million wasprimarily due to lower prevailing interest rates on our Credit Agreement and adecrease in the average borrowings outstanding under our Credit Agreement inthe three months ended September 30, 2009 as compared to the same periodin 2008, as well as to lower interest expense incurred on balances withclearing organizations.

 

·                  The decrease in other expenses of $2.7 million wasprimarily due to the $3.1 million write-off of an investment in anunconsolidated affiliate during the three month period ended September 30,2008.  In addition, the year ago periodincluded higher fixed asset write-offs related to the move of our headquartersand third party license fees compared to the same period in 2009, partiallyoffset by an increase in net litigation settlements and awards, certainsoftware and systems charges and regulatory fees in the three months ended September 30,2009.

 

·                  Our effective tax rate was 37.0% for thethree months ended September 30, 2009 as compared to 36.5% for the sameperiod in 2008.  The increase in theeffective tax rate was primarily due to an increase in non-deductible expensescompared to global income.

 

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**NineMonths Ended September 30, 2009 Compared to the Nine Months Ended September 30,2008**

 

Net income for the ninemonths ended September 30, 2009 was $30.7 million as compared to netincome of $52.9 million for the nine months ended September 30, 2008, adecrease of $22.2 million or approximately 41.9%.  Total revenuesdecreased by $186.1 million, or 22.7%, to $633.1 million for the nine monthsended September 30, 2009 from $819.3 million for the previous year.  Our decreased revenues were primarily due todecreased brokerage revenues across all product categories.  Our total brokerage personnel headcountdecreased by 4 to a total of 1,078 employees at September 30, 2009 from1,082 employees at September 30, 2008. Total expenses decreased by $151.5million, or 20.6%, to $584.4 million for the nine months ended September 30,2009 from $735.9 million for the same period from the prior year.  Expenses decreased primarily because ofdecreased compensation expense for the nine months ended September 30,2009, which was attributable to a decrease in performance-based bonus expenseas a result of lower brokerage revenues, as well as due to lower travel andpromotion, rent and occupancy, clearing fees and other expenses.

 

The following table setsforth the changes in revenues for the nine months ended September 30, 2009as compared to the same period in 2008 (dollars in thousands, except percentagedata):

 
| ** **               | ** ** | **For the Nine Months Ended September 30,** | ** ** |
|--------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **               | ** ** | ** **                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Increase** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **2009**                                                                  | ** ** | **%*** | ** ** | **2008** | ** ** | **%*** | ** ** | **(Decrease)** | ** ** | **%**** | ** ** |
| **Revenues**             |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Brokerage revenues:      |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Credit                   |       | $                                                                         | 223,727    |   | 35.3 | % | $ | 246,999 |   | 30.1 | % | $ | (23,272 | ) | (9.4 | )% |
| Equity                   |       | 146,920                                                                   |       | 23.2 |   | 218,293 |   | 26.6 |   | (71,373 | ) | (32.7 | ) |
| Financial                |       | 97,662                                                                    |       | 15.4 |   | 143,884 |   | 17.6 |   | (46,222 | ) | (32.1 | ) |
| Commodity                |       | 114,744                                                                   |       | 18.1 |   | 160,975 |   | 19.6 |   | (46,231 | ) | (28.7 | ) |
| Total brokerage revenues |       | 583,053                                                                   |       | 92.1 |   | 770,151 |   | 94.0 |   | (187,098 | ) | (24.3 | ) |
| Other revenues           |       | 50,094                                                                    |       | 7.9 |   | 49,116 |   | 6.0 |   | 978 |   | 2.0 |   |
| Total Revenues           |       | $                                                                         | 633,147    |   | 100.0 | % | $ | 819,267 |   | 100.0 | % | $ | (186,120 | ) | (22.7 | )% |

 

----

*    Denotes % of total revenues.

**     Denotes % change in the nine months ended September 30,2009 as compared to the nine months ended September 30, 2008.

 

·                  **Brokerage Revenues** – We offer our brokerage services in fourbroad product categories: credit, equity, financial, and commodity.  Below is a discussion on our brokeragerevenues by product category for the nine months ended September 30, 2009.

 

·                  Broker productivity (defined as totalbrokerage revenues during the period divided by average monthly brokeragepersonnel headcount for the period) decreased by approximately 24.1% for thenine months ended September 30, 2009, as compared to the previous year.

 

·                  The decrease in credit product brokeragerevenues of $23.3 million for the nine months ended September 30, 2009 wasdue to a number of factors, including dealer and hedge fund deleveraging, thedefection of almost two dozen North American credit brokers to a competitor in April 2008and uncertainty about the changing market structure and the impact of proposedgovernment and regulatory actions in the U.S. and Europe.  Growth in our fixed income product revenuesin Europe and North America partially offset a substantial decline in globalcredit derivative product revenues compared to the previous year.  Our credit product brokerage personnelheadcount increased by 19 to 301 employees at September 30, 2009 from 282employees at September 30, 2008.

 

·                  The decrease in equity product brokeragerevenues of $71.4 million for the nine months ended September 30, 2009compared to the same period in 2008 was primarily due to depressed share valuesin Europe where our cash equity and equity derivative commissions are oftenbased on notional values, as well as less favorable foreign currencytranslation.  The equity markets alsoexperienced decreased volatility in the first nine months of 2009 as comparedto the previous year.  Our equity productbrokerage personnel headcount increased by 3 to 235 employees at September 30,2009 from 232 employees at September 30, 2008.

 

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·                  The decrease in financial productbrokerage revenues of $46.2 million for the nine months ended September 30,2009 compared to the same period in 2008 was primarily attributable to dealersscaling back trading operations in emerging markets and Asia during the secondhalf of 2008, the transfer of our global U.S. dollar interest rate swapbusiness to a third party in March of 2008, and the restructuring that weimplemented in the second half of 2008. Our financial product headcount declined by 6 to 266 employees at September 30,2009 from 272 employees from previous year.

 

·                  The decrease in commodity productbrokerage revenues of $46.2 million for the nine months ended September 30,2009 was primarily attributable to weakness in our dry freight business inEurope and Asia, which has yet to recover from the significant drop in theBaltic Dry Freight Index in the fourth quarter of 2008.  In addition, the global recessionaryenvironment and market participants’ focus on risk reduction also contributedto the decrease in commodity revenue as market participants traded moreactively in short-dated, exchange-traded products.  Our commodity product brokerage personnelheadcount decreased by 20 to 276 employees at September 30, 2009 from 296employees at September 30, 2008.

 

·                  **OtherRevenues**

 

Otherrevenues is comprised of the following:

 
| ** **                                                      | ** ** | **For the Nine   Months Ended  September 30,  2009** | ** ** | **For the Nine   Months Ended  September 30,  2008** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
|                                                            |       |                                                      |       |                                                      |       |
| Software, analytics and market data                             |       | $                                                         | 39,698     |                                                      | $          | 38,450 |   |
| Remeasurement of foreign currency transactions and  balances    |       | 5,220                                                     |       | (295                                                      | )          |
| Net realized and unrealized gains from foreign  currency hedges |       | 1,221                                                     |       | 1,429                                                     |       |
| Interest income                                                 |       | 895                                                       |       | 6,948                                                     |       |
| Other                                                           |       | 3,060                                                     |       | 2,584                                                     |       |
| Total other revenues                                            |       | $                                                         | 50,094     |                                                      | $          | 49,116 |   |

 

Theincrease in other revenues for the nine months ended September 30, 2009 to$50.1 million from $49.1 million for the same period in 2008 was primarilyrelated to a $5.5 million increase resulting from the remeasurement of foreigncurrency transactions and balances. Foreign currency remeasurement gains and losses result from theremeasurement of asset and liability balances that are denominated incurrencies other than the functional currency of the business unit undertakingsuch transactions.  This $5.5 millionincrease was primarily due to the strengthening of the Euro relative to theU.S. Dollar during the period.  We alsosaw a $1.2 million increase in software, analytics and market datarevenue.  Offsetting this was a $6.1million decrease in interest income resulting from lower interest rates earnedon cash balances.

 

***Expenses***

 

Thefollowing table sets forth the changes in expenses for the nine months ended September 30,2009 as compared to the same period in 2008 (dollars in thousands, exceptpercentage data):

 
| ** **                          | ** ** | **For the Nine Months Ended** | ** ** | ** **   | ** ** | ** ** | ** ** |
|-------------------------------------|------------|---------------------------------------------------|------------|--------------|------------|------------|------------|
| ** **                          | ** ** | **September 30,**                            | ** ** | **Increase** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **2009**                                          | ** ** | **%***       | ** ** | **2008**   | ** ** | **%*** | ** ** | **(Decrease)** | ** ** | **%**** | ** ** |
| **Expenses**                        |       |                                              |       |         |       |       |       |   |   |   |   |   |   |
| Compensation  and employee benefits |       | $                                                 | 427,262    |         | 67.5       | %          | $          | 528,390 |   | 64.5 | % | $ | (101,128 | ) | (19.1 | )% |
| Communications  and market data     |       | 34,399                                            |       | 5.4          |       | 35,565     |       | 4.3 |   | (1,166 | ) | (3.3 | ) |
| Travel  and promotion               |       | 24,310                                            |       | 3.8          |       | 36,859     |       | 4.5 |   | (12,549 | ) | (34.0 | ) |
| Rent  and occupancy                 |       | 16,455                                            |       | 2.6          |       | 28,342     |       | 3.5 |   | (11,887 | ) | (41.9 | ) |
| Depreciation  and amortization      |       | 23,534                                            |       | 3.7          |       | 23,563     |       | 2.9 |   | (29 | ) | (0.1 | ) |
| Professional  fees                  |       | 13,728                                            |       | 2.2          |       | 20,119     |       | 2.5 |   | (6,391 | ) | (31.8 | ) |
| Clearing  fees                      |       | 23,366                                            |       | 3.7          |       | 33,714     |       | 4.1 |   | (10,348 | ) | (30.7 | ) |
| Interest                            |       | 7,895                                             |       | 1.2          |       | 10,341     |       | 1.3 |   | (2,446 | ) | (23.7 | ) |
| Other  expenses                     |       | 13,407                                            |       | 2.1          |       | 19,045     |       | 2.3 |   | (5,638 | ) | (29.6 | ) |
| **Total Expenses**                  |       | $                                                 | 584,356    |         | 92.2       | %          | $          | 735,938 |   | 89.9 | % | $ | (151,582 | ) | (20.6 | )% |

 

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----

*    Denotes % of total revenues.

**     Denotes % change in the nine months ended September 30,2009 as compared to the nine months ended September 30, 2008.

 

·          **Compensationand Employee Benefits**

 

·                  The decrease in compensation and employee benefitsexpenses of $101.1 million in the first nine months of 2009 was primarilyattributable to a decrease in brokerage revenues and corresponding performancebonuses.

 

·                  Totalcompensation and employee benefits as a percentage of total revenues increasedto 67.5% for the nine months ended September 30, 2009 as compared to 64.5%for the same period in the prior year. Our significantly lower brokerproductivity, higher fixed compensation costs as a percentage of revenue, alongwith severance costs related to a back office restructuring in the firstquarter of 2009, all led to higher compensation expense as a percentage ofrevenue as compared to the same period in 2008. Included within compensation expense were $3.9 million in restructuringcosts and $20.9 million in restructuring costs and the write-off of deferredcompensation expense for the nine month periods ended September 30, 2009and 2008, respectively.  These historically,elevated compensation rates are due to the cost torestructure our product focus in the face of changing market dynamics, lowerrevenues in certain historically higher margin derivative markets, theamortization of previously paid sign-on bonuses and the continuing impact ofthe defection of almost two dozen of our New York credit division personnel toa competitor in April 2008.  Thedeparture of these employees resulted in an increase in our compensation andemployee benefits expense as a percentage of total revenues for the nine monthsended September 30, 2009 compared to the same period in 2008 as theunexpected departures led to increased hiring, retention and bonus compensationexpenses.

 

·                  Bonus expense represented 50.0% and 55.9% of totalcompensation and employee benefits expense for the nine months ended September 30,2009 and 2008, respectively.  A portionof our bonus expense is subject to contractual guarantees that may require usto make bonus payments to brokers regardless of their performance in anyparticular period.  Additionally, sign-onbonus expense represented 8.1% and 6.0% of total compensation and employeebenefits for the nine months ended September 30, 2009 and 2008, respectively.

 

·          **All Other Expenses**

 

·                  The decrease in travel and promotion was primarilyattributable to lower broker entertainment expenses.  Travel and promotion, as a percentage of ourtotal brokerage revenues for the nine months ended September 30, 2009,decreased to 4.2% from 4.8% for the same period from the prior year.

 

·                  The decrease in rent and occupancy of $11.9 millionwas primarily due to our relocation of our primary U.S. offices in 2008.  In the first nine months of 2008, we incurred$2.5 million in duplicate rent as we maintained both the 55 Water Street and100 Wall Street locations during the transition.  In addition to this duplicate rent, we alsoincurred $7.8 million in costs related the abandonment of our offices at 100Water Street and our move to 55 Water Street in the nine months ended September 30,2008.  We completed our move to ourcurrent New York headquarters in September of 2008.

 

·                  The decrease in professional fees of $6.4 million inthe nine months ended September 30, 2009 relative to the same period ofthe prior year was primarily due to a decrease in legal and professional costsincurred in relation to merger discussions in 2008 and a decrease in litigationexpenses.  The remaining decrease 

 

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related to a reduction instrategic and other consulting fees.

 

·                  The decrease in clearing fees of $10.3 million wasprimarily due to a change in product mix as our cash fixed income businessincreased relative to our cash equities business.  Clearing fees, as a percentage of our totalrevenues from principal transactions decreased to 10.8% for the nine monthsended September 30, 2009, from 21.6% for the same period from the prioryear.  This decrease was primarily due tothe change in product mix as our cash fixed income business increased relativeto our cash equities business.  Principaltransactions are generally settled through third party clearing organizationsthat charge us a fee for their services. Clearing fees for cash fixed income principal transactions tend to belower than for cash equity principal transactions.   We also use the services of stock exchangesand floor brokers, to assist in the execution of transactions.  Fees paid to floor brokers and execution feespaid to exchanges in these circumstances are included in clearing fees.  In addition, clearing fees also include feesincurred in certain equity transactions executed on an agency basis.

 

·                  The decrease in interest expense of $2.4 million inthe first nine months of 2009 compared to the same period in 2008 was primarilydue to lower prevailing interest rates on our Credit Agreement and a decreasein average borrowings outstanding under our Credit Agreement, as well as lowerinterest expense on balances maintained with clearing organizations.  These decreases were partially offset by anincrease in the applicable interest rate on our Senior Notes in July 2008.

 

·                  The decrease in other expenses of $5.6 million wasprimarily due to the $3.1 million write-off of an investment in anunconsolidated affiliate during the three month period ended September 30,2008.  In addition, there was a decreasein spending on office equipment and supplies, third party licensing fees, duesand subscriptions, a reduction in certain investment losses, and a decrease innet litigation settlements and awards compared to the same period in the prioryear, offset by an increase in restructuring costs related to a joint ventureand certain software and systems charges.

 

·                  Our effective tax rate was 37.0% for thenine months ended September 30, 2009 as compared to 36.5% for the sameperiod in the prior year. The increase in the effective tax rate was primarilydue to an increase in non-deductible expenses compared to net income for thenine months ended September 30, 2009 as compared to the same period in2008.

 

**Resultsof Segment Operations**

 

TheCompany has three operating segments: Americas Brokerage, Europe, Middle East andAfrica (“EMEA”) Brokerage and Asia Brokerage. Additionally, the Company presents its operating segments as fourreportable segments: Americas Brokerage, EMEA Brokerage, Asia Brokerage and AllOther.  The All Other segment capturescosts that are not directly assignable to one of the operating businesssegments, primarily consisting of the Company’s corporate business activitiesand its software, analytics and market data operations.   In prior periods, Asia Brokerage wasincluded within the All Other segment as it did not meet the quantitativethreshold for separate disclosure under ASC 280-10*SegmentReporting*.  However, as aresult of the growth experienced in Asia and the changes in the economiccharacteristics of the Americas and the EMEA brokerage operations, for the yearended December 31, 2008, the Company changed its reportable segments.  Prior period results have been adjusted toreflect the changes in the reporting structure.

 

The following tablessummarize our revenues, expenses and pre-tax income by segment:

 

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| ** **                   | ** ** | **Three Months Ended******** September 30,** | ** ** | **Nine Months Ended******** September 30,** | ** ** |
|------------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                   | ** ** | **2009**                                                         | ** ** | **2008**                                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Revenues:**                | ** ** | ** **                                                       | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Americas  Brokerage          |       | $                                                                | 75,421     |                                                            | $          | 86,461 |   | $ | 254,416 |   | $ | 297,753 |   |
| EMEA  Brokerage              |       | 93,411                                                           |       | 118,359                                                         |       | 282,622 |   | 398,227 |   |
| Asia  Brokerage              |       | 15,991                                                           |       | 22,016                                                          |       | 47,414 |   | 75,434 |   |
| All  Other                   |       | 7,423                                                            |       | 16,302                                                          |       | 48,695 |   | 47,853 |   |
| Total  Consolidated Revenue  |       | $                                                                | 192,246    |                                                            | $          | 243,138 |   | $ | 633,147 |   | $ | 819,267 |   |
| ** **                   | ** ** | ** **                                                       | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Expenses:**                | ** ** | ** **                                                       | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Americas  Brokerage          |       | $                                                                | 59,827     |                                                            | $          | 66,295 |   | $ | 197,186 |   | $ | 208,540 |   |
| EMEA  Brokerage              |       | 63,452                                                           |       | 91,418                                                          |       | 190,968 |   | 276,788 |   |
| Asia  Brokerage              |       | 14,223                                                           |       | 21,830                                                          |       | 45,758 |   | 60,471 |   |
| All  Other                   |       | 50,328                                                           |       | 74,172                                                          |       | 150,444 |   | 190,139 |   |
| Total  Consolidated Expenses |       | $                                                                | 187,830    |                                                            | $          | 253,715 |   | $ | 584,356 |   | $ | 735,938 |   |
| ** **                   | ** ** | ** **                                                       | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Pre-tax Income (Loss):**   | ** ** | ** **                                                       | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Americas  Brokerage          |       | $                                                                | 15,594     |                                                            | $          | 20,166 |   | $ | 57,230 |   | $ | 89,213 |   |
| EMEA  Brokerage              |       | 29,959                                                           |       | 26,941                                                          |       | 91,654 |   | 121,439 |   |
| Asia  Brokerage              |       | 1,768                                                            |       | 186                                                             |       | 1,656 |   | 14,963 |   |
| All  Other                   |       | (42,905                                                          | )          | (57,870                                                         | )          | (101,749 | ) | (142,286 | ) |
| Total  Pre-tax income (loss) |       | $                                                                | 4,416      |                                                            | $          | (10,577 | ) | $ | 48,791 |   | $ | 83,329 |   |

 

**SegmentResults for the Three Months Ended September 30, 2009 Compared to theThree Months Ended September 30, 2008**

 

·                  **Revenues**

 

·                  Revenues for Americas Brokerage decreased $11.0million, or 12.8%, to $75.4 million for the three months ended September 30,2009 from $86.4 million for the three months ended September 30, 2008. Revenuesfor EMEA Brokerage decreased $25.0 million, or 21.1%, to $93.4 million for thethree months ended September 30, 2009 from $118.4 million for the threemonths ended September 30, 2008. Revenues for Asia Brokerage decreased$6.0 million, or 27.4%, to $16.0 million for the three months ended September 30,2009 from $22.0 million for the three months ended September 30, 2008. Totalrevenues for our three brokerage segments decreased by $42.0 million, or 18.5%,to $184.8 million for the three months ended September 30, 2009 from$226.8 million for the three months ended September 30, 2008. The declinein revenues was primarily due to decreased brokerage revenues in three of ourfour brokerage product categories and in all geographical regions resultingfrom the factors described above under “Three Months Ended September 30,2009 Compared to Three Months Ended September 30, 2008”.

 

·                  Revenues for All Other primarily consisted of revenues generated fromsales of software, analytics and market data.  Total revenues from AllOther decreased by $8.9 million, or 54.5%, to $7.4 million for the three monthsended September 30, 2009 from $16.3 million for the three months ended September 30,2008.  This decrease was primarily related to net realized and unrealizedlosses of $6.3 million on foreign currency hedges and transactions in the threemonth period ending September 30, 2009. Additionally, interest incomedeclined $2.0 million resulting from lower interest rates on lower cashbalances.

 

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·                  **Expenses**

 

·                  Expenses for Americas Brokerage decreased $6.5million, or 9.8%, to $59.8 million for the three months ended September 30,2009 from $66.3 million for the three months ended September 30, 2008. Expensesfor EMEA Brokerage decreased $27.9 million, or 30.6%, to $63.5 million for thethree months ended September 30, 2009 from $91.4 million for the threemonths ended September 30, 2008. Expenses for Asia Brokerage decreased$7.6 million, or 34.8%, to $14.2 million for the three months ended September 30,2009 from $21.8 million for the three months ended September 30, 2008.Total expenses for our three brokerage segments decreased by $42.0 million, or23.4%, to $137.5 million for the three months ended September 30, 2009from $179.5 million for the three months ended September 30, 2008.  Thedecrease was primarily due to a decrease in compensation and employee benefits,travel and promotion and clearing fees, as well as the other factors describedabove under “Three Months Ended September 30, 2009 Compared to ThreeMonths Ended September 30, 2008”.

 

The Company recordscertain direct expenses other than compensation and employee benefits to theoperating segments; however, the Company does not allocate certain expenses toits operating segments that are managed separately at the corporate level. Theunallocated costs including rent and occupancy, depreciation and amortization,professional fees, interest and other expenses are included in the expenses forAll Other described below. Management does not believe that allocating thesecosts to our brokerage segments is optimal for evaluating the performance ofits brokerage segments.

 

·                  Total expenses for All Other decreased by $23.9million, or 32.1%, to $50.3 million for the three months ended September 30,2009 from $74.2 million for the three months ended September 30, 2008. Thedecrease was primarily due to a decrease in professional fees, rent andoccupancy, depreciation and amortization, interest and other expenses.

 

**SegmentResults for the Nine Months Ended September 30, 2009 Compared to the NineMonths Ended September 30, 2008**

 

·                  **Revenues**

 

·                  Revenues for Americas Brokerage decreased $43.4million, or 14.6%, to $254.4 million for the nine months ended September 30,2009 from $297.8 million for the nine months ended September 30, 2008. Revenuesfor EMEA Brokerage decreased $115.6 million, or 29.0%, to $282.6 million forthe nine months ended September 30, 2009 from $398.2 million for the ninemonths ended September 30, 2008. Revenues for Asia Brokerage decreased$28.0 million, or 37.1%, to $47.4 million for the nine months ended September 30,2009 from $75.4 million for the nine months ended September 30, 2008. Totalrevenues for our three brokerage segments decreased by $187.0 million, or24.2%, to $584.4 million for the nine months ended September 30, 2009 from$771.4 million for the nine months ended September 30, 2008. The declinein revenues was primarily due to decreased brokerage revenues in all productsand geographical regions resulting from the factors described above under “NineMonths Ended September 30, 2009 Compared to Nine Months Ended September 30,2008”.

 

·                  Revenues for All Other primarily consisted of revenuesgenerated from sales of software, analytics and market data.  Totalrevenues from All Other increased by $0.8 million to $48.7 million for the ninemonths ended September 30, 2009 from $47.9 million for the nine monthsended September 30, 2008.  This increase was primarily related to anincrease in net realized and unrealized gains of $5.3 million on foreigncurrency hedges and transactions and a $1.2 million increase in software,analytics and market data revenue. This increase was partially offset by a $6.1million decrease in interest income resulting from lower interest rates earnedon cash balances.

 

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·                  **Expenses**

 

·                  Expenses for Americas Brokerage decreased $11.4million to $197.1 million for the nine months ended September 30, 2009from $208.5 million for the nine months ended September 30, 2008. Expensesfor EMEA Brokerage decreased $85.8 million, or 31.0%, to $191.0 million for thenine months ended September 30, 2009 from $276.8 million for the ninemonths ended September 30, 2008. Expenses for Asia Brokerage decreased$14.7 million, or 24.3%, to $45.8 million for the nine months ended September 30,2009 from $60.5 million for the nine months ended September 30, 2008. Totalexpenses for our three brokerage segments decreased by $111.9 million, or20.5%, to $433.9 million for the nine months ended September 30, 2009 from$545.8 million for the nine months ended September 30, 2008.  Thedecrease was primarily due to a decrease in compensation and employee benefits,travel and promotion and clearing fees, as well as the other factors describedabove under “Nine Months Ended September 30, 2009 Compared to Nine MonthsEnded September 30, 2008”.

 

The Company recordscertain direct expenses other than compensation and employee benefits to theoperating segments; however, the Company does not allocate certain expenses toits operating segments that are managed separately at the corporate level. Theunallocated costs including rent and occupancy, depreciation and amortization,professional fees, interest and other expenses are included in the expenses forAll Other described below. Management does not believe that allocating thesecosts to our brokerage segments is optimal for evaluating the performance ofits brokerage segments.

 

·                  Total expenses for All Other decreased by $39.7million, or 20.9%, to $150.4 million for the nine months ended September 30,2009 from $190.1 million for the nine months ended September 30, 2008. Thedecrease was primarily due to a decrease in compensation and employee benefits,travel and promotion, rent and occupancy, depreciation and amortization,professional fees, interest and other expenses.

 

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**Quarterly Results of Operations**

 

The following table setsforth, by quarter, our unaudited statement of operations data for the periodfrom October 1, 2007 to September 30, 2009. Results of any period arenot necessarily indicative of results for a full year and may, in certainperiods, be affected by seasonal fluctuations in our business.

 
| ** **                                 | ** ** | **Quarter  Ended**           | ** ** |
|--------------------------------------------|------------|------------------------------|------------|
| ** **                                 | ** ** | **September 30,  2009** | ** ** | **June 30,********2009** | ** ** | **March 31,  2009** | ** ** | **December 31,********2008** | ** ** | **September 30,********2008** | ** ** | **June 30,********2008** | ** ** | **March 31,  2008** | ** ** | **December  31, 2007** | ** ** |
| ** **                                 | ** ** | **(dollars  in thousands)**  | ** ** |
|                                       |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Revenues**                               |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Brokerage  revenues:                       |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency  commissions                        |       | $                            | 119,396    |   | $ | 121,488 |   | $ | 125,399 |   | $ | 143,556 |   | $ | 182,591 |   | $ | 192,074 |   | $ | 239,089 |   | $ | 186,827 |   |
| Principal  transactions                    |       | 64,989                       |       | 79,566 |   | 72,215 |   | 50,272 |   | 43,771 |   | 53,532 |   | 59,094 |   | 51,366 |   |
| Total  brokerage revenues                  |       | 184,385                      |       | 201,054 |   | 197,614 |   | 193,828 |   | 226,362 |   | 245,606 |   | 298,183 |   | 238,193 |   |
| Software,  analytics and market data       |       | 13,627                       |       | 13,019 |   | 13,052 |   | 12,800 |   | 14,034 |   | 13,157 |   | 11,259 |   | 4,850 |   |
| Contract  revenue                          |       | —                       |       | 97 |   | 5 |   | 28 |   | — |   | 45 |   | 13 |   | — |   |
| Interest  income                           |       | 172                          |       | 226 |   | 497 |   | 1,669 |   | 2,187 |   | 2,078 |   | 2,683 |   | 2,726 |   |
| Other  income (loss)                       |       | (5,938                       | )          | 10,270 |   | 5,067 |   | (12,089 | ) | 555 |   | 643 |   | 2,462 |   | 1,590 |   |
| Total  revenues                            |       | 192,246                      |       | 224,666 |   | 216,235 |   | 196,236 |   | 243,138 |   | 261,529 |   | 314,600 |   | 247,359 |   |
| **Expenses**                               |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Compensation  and employee benefits        |       | 135,139                      |       | 146,575 |   | 145,548 |   | 137,583 |   | 176,462 |   | 158,730 |   | 193,198 |   | 151,020 |   |
| Communications  and market data            |       | 11,661                       |       | 11,240 |   | 11,498 |   | 12,245 |   | 12,640 |   | 11,744 |   | 11,181 |   | 11,538 |   |
| Travel  and promotion                      |       | 8,280                        |       | 8,550 |   | 7,480 |   | 8,897 |   | 11,845 |   | 13,291 |   | 11,723 |   | 13,057 |   |
| Rent  and occupancy                        |       | 6,008                        |       | 5,297 |   | 5,150 |   | 5,363 |   | 14,969 |   | 6,759 |   | 6,614 |   | 6,132 |   |
| Depreciation  and amortization             |       | 7,680                        |       | 8,015 |   | 7,839 |   | 7,827 |   | 7,192 |   | 8,449 |   | 7,922 |   | 6,992 |   |
| Professional  fees                         |       | 4,508                        |       | 4,129 |   | 5,091 |   | 6,081 |   | 7,756 |   | 7,351 |   | 5,012 |   | 5,539 |   |
| Clearing  fees                             |       | 7,153                        |       | 8,106 |   | 8,107 |   | 9,706 |   | 12,026 |   | 10,486 |   | 11,202 |   | 10,200 |   |
| Interest                                   |       | 2,769                        |       | 2,657 |   | 2,469 |   | 3,993 |   | 3,508 |   | 3,748 |   | 3,085 |   | 1,522 |   |
| Other  expenses                            |       | 4,632                        |       | 3,845 |   | 4,928 |   | 4,847 |   | 7,317 |   | 4,620 |   | 7,086 |   | 6,023 |   |
| Contract  costs                            |       | —                       |       | 2 |   | — |   | 46 |   | — |   | 16 |   | 6 |   | — |   |
| Total  expenses                            |       | 187,830                      |       | 198,416 |   | 198,110 |   | 196,588 |   | 253,715 |   | 225,194 |   | 257,029 |   | 212,023 |   |
| Income  (loss) before income taxes         |       | 4,416                        |       | 26,250 |   | 18,125 |   | (352 | ) | (10,577 | ) | 36,335 |   | 57,571 |   | 35,336 |   |
| Provision  for (benefit from) income taxes |       | 1,633                        |       | 9,894 |   | 6,525 |   | (544 | ) | (3,861 | ) | 12,687 |   | 21,589 |   | 10,128 |   |
| Net  income (loss)                         |       | $                            | 2,783      |   | $ | 16,356 |   | $ | 11,600 |   | $ | 192 |   | $ | (6,716 | ) | $ | 23,648 |   | $ | 35,982 |   | $ | 25,208 |   |

 

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The following table setsforth our quarterly results of operations as a percentage of our total revenuesfor the indicated periods:

 
| ** **                                 | ** ** | **Quarter  Ended**           | ** ** |
|--------------------------------------------|------------|------------------------------|------------|
| ** **                                 | ** ** | **September 30,  2009** | ** ** | **June 30,********2009** | ** ** | **March 31,  2009** | ** ** | **December 31,********2008** | ** ** | **September 30,********2008** | ** ** | **June 30,********2008** | ** ** | **March 31,  2008** | ** ** | **December  31, 2007** | ** ** |
|                                       |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Revenues**                               | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Brokerage  revenues:                       |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency  commissions                        |       | 62.1                         | %          | 54.1 | % | 58.0 | % | 73.2 | % | 75.1 | % | 73.4 | % | 76.0 | % | 75.5 | % |
| Principal  transactions                    |       | 33.8                         |       | 35.4 |   | 33.4 |   | 25.6 |   | 18.0 |   | 20.5 |   | 18.8 |   | 20.8 |   |
| Total  brokerage revenues                  |       | 95.9                         |       | 89.5 |   | 91.4 |   | 98.8 |   | 93.1 |   | 93.9 |   | 94.8 |   | 96.3 |   |
| Software,  analytics and market data       |       | 7.1                          |       | 5.8 |   | 6.0 |   | 6.5 |   | 5.8 |   | 5.0 |   | 3.6 |   | 2.0 |   |
| Contract  revenue                          |       | —                       |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Interest  income                           |       | 0.1                          |       | 0.1 |   | 0.2 |   | 0.9 |   | 0.9 |   | 0.8 |   | 0.9 |   | 1.1 |   |
| Other  income (loss)                       |       | (3.1                         | )          | 4.6 |   | 2.4 |   | (6.1 | ) | 0.2 |   | 0.3 |   | 0.8 |   | 0.6 |   |
| Total  revenues                            |       | 100.0                        | %          | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| **Expenses**                               |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Compensation  and employee benefits        |       | 70.3                         | %          | 65.2 | % | 67.3 | % | 70.1 | % | 72.6 | % | 60.7 | % | 61.4 | % | 61.1 | % |
| Communications  and market data            |       | 6.1                          |       | 5.0 |   | 5.3 |   | 6.2 |   | 5.2 |   | 4.5 |   | 3.6 |   | 4.7 |   |
| Travel  and promotion                      |       | 4.3                          |       | 3.8 |   | 3.5 |   | 4.5 |   | 4.9 |   | 5.1 |   | 3.7 |   | 5.3 |   |
| Rent  and occupancy                        |       | 3.1                          |       | 2.4 |   | 2.4 |   | 2.7 |   | 6.2 |   | 2.6 |   | 2.1 |   | 2.5 |   |
| Depreciation  and amortization             |       | 4.0                          |       | 3.6 |   | 3.6 |   | 4.0 |   | 3.0 |   | 3.2 |   | 2.5 |   | 2.8 |   |
| Professional  fees                         |       | 2.3                          |       | 1.8 |   | 2.4 |   | 3.1 |   | 3.2 |   | 2.8 |   | 1.6 |   | 2.2 |   |
| Clearing  fees                             |       | 3.7                          |       | 3.6 |   | 3.7 |   | 4.9 |   | 4.9 |   | 4.0 |   | 3.6 |   | 4.1 |   |
| Interest                                   |       | 1.4                          |       | 1.2 |   | 1.1 |   | 2.0 |   | 1.4 |   | 1.4 |   | 1.0 |   | 0.6 |   |
| Other  expenses                            |       | 2.4                          |       | 1.7 |   | 2.3 |   | 2.5 |   | 3.0 |   | 1.8 |   | 2.3 |   | 2.4 |   |
| Contract  costs                            |       | —                       |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total  expenses                            |       | 97.6                         | %          | 88.3 | % | 91.6 | % | 100.2 | % | 104.4 | % | 86.1 | % | 81.7 | % | 85.7 | % |
| Income  (loss) before income taxes         |       | 2.4                          |       | 11.7 |   | 8.4 |   | (0.2 | ) | (4.4 | ) | 13.9 |   | 18.3 |   | 14.3 |   |
| Provision  for (benefit from) income taxes |       | 0.8                          |       | 4.4 |   | 3.0 |   | (0.3 | ) | (1.6 | ) | 4.9 |   | 6.9 |   | 4.1 |   |
| Net  (loss) income                         |       | 1.6                          | %          | 7.3 | % | 5.4 | % | 0.1 | % | (2.8 | )% | 9.0 | % | 11.4 | % | 10.2 | % |

 

**Liquidityand Capital Resources**

 

Net cash provided byoperating activities was $55.2 million for the nine months ended September 30,2009, compared with $173.0 million provided by operating activities for thenine months ended September 30, 2008, a decrease of $117.8 million. Thisdecrease is, in part, attributable to the $22.2 million decline in our netincome to $30.7 million for the nine months ended September 30, 2009, from$52.9 million for the nine months ended September 30, 2008. Items whichreconcile net income to net cash provided by operating activities such asdepreciation, amortization of deferred compensation, unrealized foreigncurrency gains and losses, and other items increased by $4.5 million ascompared to the nine months ended September 30, 2008. Additionally,working capital employed in the business increased by $100.0 million for thenine months ended September 30, 2009 relative to the same period in 2008.  Theincrease in working capital used in the business is primarily related to a$101.6 million decrease in the change in net receivables from and payables tobrokers, dealers and clearing organizations, a $13.8 million increase in thechange in commissions receivable, a decrease in accrued compensation andaccounts payable and accrued expenses of $17.1 million, a net decrease in otherliabilities of $25.5 million offset by a $60.6 million decrease in the changein other assets.

 

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Netcash used in investing activities for the nine months ended September 30,2009 was $22.5 million compared to $190.3 million used in the nine months endedSeptember 30, 2008. The decrease in cash used for investing activities wasprimarily attributable to $149.5 million in net cash used for the acquisitionof substantially all of the outstanding shares of Trayport Ltd. in January 2008.See Note 4 to the Condensed Consolidated Financial Statements for furtherdetails of the Trayport acquisition. Additionally, the decrease in cash used ininvesting activities was due to a decrease in capital expenditures related tothe relocation of our corporate offices which we completed in September 2008.

 

Netcash used in financing activities for the nine months ended September 30,2009 was $60.6 million, compared to $128.2 million provided by financingactivities for the nine months ended September 30, 2008. The cash used infinancing activities in the nine months ended September 30, 2009 primarilyconsisted of repayments of borrowings of $35.0 million under our CreditAgreement, payments for cash dividends of $17.7 million and $3.0 million inrepurchases of our common stock. In April 2009, we amended our CreditAgreement to reduce the maximum permitted borrowings to $175.0 million,increase the applicable margin and amend certain definitions and financialcovenants. See Note 5 to the Condensed Consolidated Financial Statements forfurther discussion of our short-term borrowings and long-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. Thesesubsidiaries are subject to the regulatory capital and compliance requirementsdescribed in Note 12 to the Condensed Consolidated Financial Statements. At September 30,2009, all of our regulated subsidiaries were in compliance with theirrespective regulatory capital requirements. See Note 12 to the CondensedConsolidated Financial Statements for a further discussion of these regulatoryrequirements. In addition, our liquidity may be impacted by the amount ofcapital that we maintain in clearing accounts and with exchanges to support ourmatched principal brokerage 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. See Note 6 to our Condensed ConsolidatedFinancial Statements for further discussion 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. Poor financial results, unanticipatedexpenses, unanticipated acquisitions or unanticipated strategic investmentscould give rise to additional financing requirements sooner than we expect. Therecan be no assurance that equity or debt financing will be available when neededor, if available, that the financing will be on terms satisfactory to us andnot dilutive to our then-current stockholders.

 

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**ContractualObligations and Commitments**

** **

The following tablesummarizes certain of our contractual obligations as of September 30,2009:

 
| ** **                         | ** ** | **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                  |       | $                                         | 119,889    |   | $ | 12,946 |   | $ | 21,827 |   | $ | 17,587 |   | $ | 67,529 |   |
| Short-term  borrowings (1)         |       | 130,000                                   |       | 130,000 |   | — |   | — |   | — |   |
| Interest  on Long-term obligations |       | 17,157                                    |       | 4,902 |   | 9,804 |   | 2,451 |   | — |   |
| Long-term  obligations             |       | 60,000                                    |       | — |   | — |   | 60,000 |   | — |   |
| Purchase  obligations(2)           |       | 20,110                                    |       | 15,749 |   | 4,361 |   | — |   | — |   |
| **Total**                          |       | $                                         | 347,156    |   | $ | 163,597 |   | $ | 35,992 |   | $ | 80,038 |   | $ | 67,529 |   |

 

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(1)           Amounts listed under Short-termborrowings represent outstanding borrowings under our Credit Agreement and varyfrom the Short-term borrowings reflected in our financial statements becauseour financial statements reflect the total debt net of unamortized loan fees.   See Note 5 to the Condensed ConsolidatedFinancial Statements for further information.

 

(2)           Amounts listed under PurchaseObligations include agreements for market data with various information serviceproviders.  Additionally, such amountsinclude purchase commitments for capital expenditures for the implementation ofa redundant data and software application facility and other purchasecommitments for capital expenditures, hosting and software licensingagreements.  See Note 9 to our CondensedConsolidated Financial Statements for further discussion of these obligations.

 

Due to the uncertainty ofthe amounts to be ultimately paid as well as the timing of such payments, allASC 740-10 (formerly FIN 48) liabilities of approximately $7.2 million areexcluded from the Contractual Obligations and Commitments table.

 

**Off-BalanceSheet Arrangements**

** **

TheCompany did not have any off-balance sheet arrangements at September 30,2009.

 

**CriticalAccounting Policies 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 2008 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 2008 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 December 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in Consolidated Financial Statements — anamendment of ARB No. 51*, which is now a sub-topic within ASC810-10 *Consolidation*(“ASC 810-10”).  ASC 810-10 requires reporting entities topresent noncontrolling (minority) interests as equity (as opposed to as aliability or mezzanine equity) and provides guidance on the accounting fortransactions between an entity and noncontrolling interests.  ASC 810-10 is effective for financialstatements issued for fiscal years beginning after December 15, 2008 andwas adopted by the Company on January 1, 2009.  The adoption of ASC 810-10 did not have amaterial impact on our consolidated financial statements.

 

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In December 2007, the FASB issued SFAS No. 141(R), *Business Combinations (revised 2007)*, which is now asub-topic within ASC 805 *Business Combinations*(“ASC805”).  ASC 805 requires theacquiring entity in a business combination to recognize the full fair value ofassets acquired and liabilities assumed in the transaction (whether a full orpartial acquisition); establishes the acquisition-date fair value as themeasurement objective for all assets acquired and liabilities assumed; requiresthe expensing of most transaction and restructuring costs; and requires theacquirer to disclose to investors and other users all of the information neededto evaluate and understand the nature and financial effect of the businesscombination.  ASC 805 applies to alltransactions or other events in which the Company obtains control of one ormore businesses, including those sometimes referred to as “true-mergers” or “mergersof equals” and combinations achieved without the transfer of consideration, forexample, by contract alone or through the lapse of minority veto rights.  ASC 805 was effective for financialstatements issued for fiscal years beginning after December 15, 2008 andwas adopted by the Company on January 1, 2009.  The adoption of ASC 805 did not have amaterial impact on our consolidated financial statements.

 

In February 2008,the FASB issued FASB Staff Position No. FAS 157-2, which is now asub-topic within ASC 820-10 *Fair Value Measurementsand Disclosures*(“ASC 820-10”). ASC 820-10 delayed the effectivedate of fair value measurements and disclosures for all nonfinancial assets andliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis (at least annually) to fiscal yearsbeginning after November 15, 2008, and interim periods within those fiscalyears for items within the scope of ASC 820-10. The Company adopted ASC 820-10 for those nonfinancial assets andliabilities noted in FSP 157-2 on January 1, 2009.  The adoption of ASC 820-10 for nonfinancialassets and liabilities did not have a material impact on our consolidatedfinancial statements.

 

In March 2008, the FASB issued SFAS No. 161,*Disclosures about Derivative Instruments andHedging Activities, an amendment of FASB Statement No. 133*,which is now a sub-topic within ASC 815-10 *Derivativesand Hedging*(“ASC 815-10”). ASC 815-10 amends and expands the disclosure requirements of SFAS No. 133and requires entities to provide enhanced qualitative disclosures aboutobjectives and strategies for using derivatives, quantitative disclosures aboutfair values and amounts of gains and losses on derivative contracts, anddisclosures about credit-risk related contingent features in derivativeagreements.  ASC 815-10 was effective forfiscal years beginning after November 15, 2008 and was adopted by theCompany on January 1, 2009.  SeeNote 11 for disclosures on Derivative Financial Instruments.

 

In April 2008, theFASB issued FSP 142-3, *Determining the UsefulLife of Intangible Assets*, which is now a sub-topic within ASC350-30 *Intangibles — Goodwill and Other* (“ASC350-30”). ASC 350-30 amends the factors to be considered in determining theuseful life of intangible assets. Its intent is to improve the consistencybetween the useful life of an intangible asset and the period of expected cashflows used to measure such asset’s fair value. ASC 350-30 was effective forfiscal years beginning after December 15, 2008 and was adopted by theCompany on January 1, 2009. The adoption of ASC 350-30 did not have a materialimpact on our consolidated financial statements.

 

In June 2008, theFASB issued FSP EITF 03-6-1, *Determining WhetherInstruments Granted in Share-Based Payment Transactions Are ParticipatingSecurities*, which is now a sub-topic within ASC 260-10 *Earnings Per Share*(“ASC 260-10”).  ASC 260-10 addresses whether  instruments granted in share-basedpayment  transactions are participatingsecurities prior to vesting and, therefore, need to be included in computingearnings per share under the two-class method described in SFAS No. 128,  *Earnings Per Share*,which is now a sub-topic within ASC 260-10.  ASC 260-10 was effective forfiscal years beginning after December 15, 2008 and was adopted by theCompany on January 1, 2009. The adoption of ASC 260-10 did not have a material impact on our consolidated financial statements.

 

In April 2009, the FASB issued FSP FAS 141(R)-1, *Accounting for Assets Acquired and Liabilities Assumed in a BusinessCombination That Arise from Contingencies*, which is now a sub-topicwithin ASC 805 *Business Combinations*(ASC “805”).  ASC 805 addresses the criteria anddisclosures for recognition of an acquired asset or liability assumed in abusiness combination that arises from a contingency.  ASC 805 was effective for fiscal years beginningafter December 15, 2008 and was adopted by the Company on January 1,2009. The adoption of ASC 805 did not have a material impact on ourconsolidated financial statements.

 

InApril 2009, the FASB issued FSP FAS 107-1 and APB 28-1, *Interim Disclosures about Fair Value of Financial Instruments*,which is now a sub-topic within ASC 825-10 *Financial Instruments*(“ASC825-10”).  ASC 825-10 requiresdisclosures about fair value of financial instruments for interim reportingperiods of publicly traded companies as well as in annual financialstatements.  These disclosures are alsorequired in summarized financial information at interim reporting periods.  ASC 825-10 was effective for interim reporting periodsending after June 15, 2009, with early adoption permitted for periodsending after March 15, 2009.  ASC825-10 was adopted by the Company on April 1, 2009.  See Note 11 for disclosures on FinancialInstruments.

 

InApril 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, *Recognition and Presentation of Other-Than-*

 

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*TemporaryImpairments*, which is now a sub-topic included within ASC320-10 *Investments — Debt and Equity Securities*(“ASC 320-10”).  ASC 320-10 amendsthe other-than-temporary impairment guidance in U.S. generally acceptedaccounting principles for debt securities to make the guidance more operationaland to improve the presentation and disclosure of other-than-temporaryimpairments on debt and equity securities in the financial statements.  ASC 320-10 was effective for interim and annualreporting periods ending after June 15, 2009, with early adoptionpermitted for periods ending after March 15, 2009.  ASC 320-10 was adopted by the Company on April 1,2009 and the adoption did not have a material impact on our consolidatedfinancial statements.

 

InApril 2009, the FASB issued FSP FAS 157-4, *DeterminingFair Value When the Volume and Level of Activity for the Asset or LiabilityHave Significantly Decreased and Identifying Transactions That Are Not Orderly*,which is now a sub-topic within ASC 820-10 *Fair Value Measurementsand Disclosures* (“ASC 820-10”). ASC 820-10 provides additional guidance for estimating fair value, whenthe volume and level of activity for the asset or liability have significantlydecreased and also includes guidance on identifying circumstances that indicatea transaction is not orderly.  ASC 820-10 was effective for interim andannual reporting periods ending after June 15, 2009, and shall be appliedprospectively.  Early adoption ispermitted for periods ending after March 15, 2009.  ASC 820-10 was adopted by the Company on April 1,2009 and the adoption did not have a material impact on our consolidatedfinancial statements.

 

InMay 2009, the FASB issued SFAS No. 165, *SubsequentEvent*s, which is now a sub-topic within ASC 855-10 *Subsequent Events*(“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 effective for interim and annualreporting periods ending after June 15, 2009, and shall be appliedprospectively. See Note 15 for disclosures on Subsequent Events.

 

InJune 2009, the FASB issued SFAS No. 166, *Accountingfor Transfers of Financial Assets-an amendment of FASB Statement No. 140*(“SFAS166”).  SFAS 166 amends FASB Statement No. 140,which is now a sub-topic within ASC 860 *Transfers and Servicing*,to improve the information that a reporting entity provides in its financialstatements about a transfer of financial assets; the effects of a transfer onits financial position, financial performance, and cash flows; and a transferor’scontinuing involvement in transferred financial assets.  SFAS 166 is effective as of the beginning of the firstannual reporting period that begins after November 15, 2009, for interimperiods within the first annual reporting period and for interim and annualreporting periods thereafter.  TheCompany does not expect the adoption of SFAS 166 to have a material impact onour consolidated financial statements.

 

InJune 2009, the FASB issued SFAS No. 167, *Amendmentsto FASB Interpretation No. 46(R) *(“SFAS 167”).  SFAS 167 amends certain requirements of FASBInterpretation No. 46(R), *Consolidation of VariableInterest Entities*, which is now a sub-topic within ASC 810 *Consolidations*, to improve financial reporting byenterprises involved with variable interest entities and to provide morerelevant and reliable information to users of financial statements. SFAS 167requires an enterprise to perform an analysis to determine whether theenterprise’s variable interest or interests provide a controlling financialinterest in a variable interest entity. The determination is based on, among other things, the other entity’spurpose and design and the reporting entity’s ability to direct the activitiesof a variable interest entity that most significantly impact the entity’seconomic performance.  SFAS 167 is effective as of the beginningof the first annual reporting period that begins after November 15, 2009,for interim periods within the first annual reporting period and for interimand annual reporting periods thereafter. The Company does not expect the adoption of SFAS 167 to have a materialimpact on our consolidated financial statements.

 

InJune 2009, the FASB issued SFAS No. 168, *The FASBAccounting Standards CodificationTM and the Hierarchy of Generally Accepted AccountingPrinciples*, which is now a sub-topic within ASC 105-10 *Generally Accepted Accounting Principles*(“ASC 105-10”).  ASC 105-10 establishes the codification asthe source of authoritative generally accepted accounting principles recognizedby the FASB to be applied by nongovernmental entities and all guidancecontained in the codification carries an equal level of authority.  ASC 105-10 is effective for interim and annualreporting periods ending after September 15, 2009.  References to generally accepted accountingprinciples contained in the Company’s financial statements have been updated toreflect the new codification references as required.

 

InAugust 2009, the FASB issued Accounting Standards Update No. 2009-5 (“ASU2009-5”) *Fair Value Measurements and Disclosures (Topic 820)Measuring Liabilities at Fair Value*. ASU 2009-5 provides clarification in circumstances in 

 

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whicha quoted price in an active market for the identical liability is not availableand provides valuation techniques to be utilized by the reporting entity.  ASU 2009-5 is effective for the firstreporting period (including interim periods) beginning after issuance.  The Company does not expect the adoption ofASU 2009-5 to have a material impact on our consolidated financial statements.

 

InOctober 2009, the FASB issued Accounting Standards Update No. 2009-13(“ASU 2009-13”) *Revenue Recognition (Topic 605)Multiple-Deliverable Revenue Arrangements*.  ASU 2009-13 establishes the accounting andreporting guidance for arrangements with multiple-revenue generatingactivities.  ASU 2009-13 addresses how toseparate deliverables and how to measure and allocate arrangement considerationto one or more units of accounting and provides a selling price hierarchy fordetermining the selling price of a deliverable. ASU 2009-13 is effective for fiscal years beginning on or after June 15,2010.  Early adoption is permitted butmust be retrospectively applied to the beginning of the fiscal year ofadoption.  The Company is currentlyevaluating the impact of adoption of ASU 2009-13 on our consolidated financialstatements.

 

InOctober 2009, the FASB issued Accounting Standards Update No. 2009-14(“ASU 2009-14*”) Software (Topic 985) Certain RevenueArrangements That Include Software Elements*.  ASU 2009-14 provides guidance on how toallocate arrangement consideration to deliverables in an arrangement that includesboth tangible products and software.  ASU2009-14 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 iseffective for fiscal years beginning on or after June 15, 2010.  Early adoption is permitted but must beretrospectively applied to the beginning of the fiscal year of adoption.  The Company is currently evaluating theimpact of adoption of ASU 2009-14 on our consolidated financial statements.

 

**ITEM 3.**                             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 2008 Form 10-K.Except as described below in this Form 10-Q, there have been no materialchanges to those market risks during the nine months ended September 30,2009.

 

**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 nine months ended September 30, 2009.

 

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 by10% against the U.S. Dollar and the British Pound Sterling weakened by 10%against the U.S Dollar, the net impact to our net income would have been areduction of approximately $9.6 million.

 

**ITEM 4.**                             CONTROLS ANDPROCEDURES

** **

Asof the end of the period covered by this report, the Company’s managementcarried out an evaluation, under the supervision and with the participation ofour Chief Executive Officer and our Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures. Based on the foregoing, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures (asdefined in Rule 13a-15(e) of the Securities Exchange Act of 1934, asamended (the “Exchange Act”)) were effective as of the end of the periodcovered by this report.

 

Inaddition, the Company’s management, including the Company’s Chief ExecutiveOfficer and Chief Financial Officer, has evaluated the Company’s internalcontrols over financial reporting (as defined in Rule 13a-15(f) ofthe Exchange Act) and determined that there have been no changes in ourinternal controls over financial reporting during the most recent fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, our internal controls over financial reporting.

 

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**PART II—OTHER INFORMATION**

 

**ITEM 1.**                             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.

 

In April 2008,Donald P. Fewer, formerly the head of our North American credit divisionresigned. Following Mr. Fewer’s resignation, 22 of our credit brokeragestaff resigned and defected to a competitor, notwithstanding variouscontractual obligations and fiduciary duties. In connection with these actions,GFI Securities LLC has commenced an arbitration proceeding before the FinancialIndustry Regulatory Authority (“FINRA”) Dispute Resolution against twosubsidiaries of Compagnie Financiere Tradition and certain of the departingemployees asserting a number of claims, including tortious interference withcontract, breach of fiduciary duty, unfair competition, misappropriation ofconfidential and proprietary information and the violation of certain FINRA rules ofconduct and breach of contract. Certain former employees who are parties to theproceedings have also filed counterclaims against GFI Securities LLC and theCompany seeking monetary damages for, inter alia, the alleged breach of theiremployment agreements.  In the SupremeCourt of the State of New York, Mr. Fewer has filed a lawsuit alleging theCompany breached obligations to him, in which the Company has assertedcounterclaims based upon his breach of contract and fiduciary duties.  In connection with these various proceedings,the Company or its affiliates are seeking monetary damages in an amount to bedetermined in the course of such proceedings. The Company and its affiliates will vigorously defend itself against theclaims brought by these former employees.

 

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 has been cooperating with the Staff in this inquiryby responding to requests for documents, testimony and other information.  In January 2009, the Staff advised GFISecurities LLC that it has made a preliminary determination to recommenddisciplinary action in connection with allegedly improper communicationsbetween certain of GFI Securities LLC’s brokers and those at other interdealerbrokers, purportedly inconsistent with just and equitable principles of tradeand certain antifraud and supervisory requirements under FINRA rules andthe federal securities laws.  All but oneof these brokers who made the allegedly improper communications resigned in April 2008to become employed by affiliates of Compagnie Financiere Tradition, asdescribed above.  We intend to vigorouslycontest any such disciplinary action which, if brought and/or settled, couldresult in a censure, fine or other sanction.

 

Based on currentlyavailable information, the outcome of these matters are not expected to have amaterial adverse impact on the Company’s financial position.  However, the outcome of these matters may bematerial to the Company’s results of operations or cash flows in a givenperiod.  It is not presently possible todetermine the Company’s ultimate exposure to these matters and there is noassurance that the resolution of these matters will not significantly exceedany reserves accrued by the Company.

 

**ITEM 1A.**                    RISK FACTORS

** **

Therehave been no material changes in our risk factors from those disclosed in the2008 Form 10-K. For a discussion of the risk factors affecting theCompany, see “Risk Factors” in Part I, Item 1A of our 2008 Form 10-K.

 

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**ITEM 2.**                             UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The table below setsforth the information with respect to purchases made by the Company of itscommon stock during the three month period ended September 30, 2009.

 

**Issuer Purchases of Equity Securities**

 
| **Period**                    | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average Price  Paid Per  Share** | ** ** | **Total  Number of  Shares Purchased  As Part of Publicly  Announced Plans  or Programs** | ** ** | **Approximate  Number of Shares  that May Yet Be  Purchased Under  the Plans or  Programs** | ** ** |
|-------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| **July**                      |       |                                    |       |                                    |       |                                                                                                          |       |                                                                                                  |       |
| Stock  Repurchase Program (a) |       | —                                  |       | $                                       | —     |                                                                                                          | —     |                                                                                                  | 5,884,224  |   |
| Employee  Transactions (b)    |       | 60,467                                  |       | $                                       | 6.63       |                                                                                                          | N/A        |                                                                                                  | N/A        |   |
|                          |       |                                    |       |                                    |       |                                                                                                          |       |                                                                                                  |       |
| **August**                    |       |                                    |       |                                    |       |                                                                                                          |       |                                                                                                  |       |
| Stock  Repurchase Program (a) |       | —                                  |       | $                                       | —     |                                                                                                          | —     |                                                                                                  | 6,033,878  |   |
| Employee  Transactions (b)    |       | 72,829                                  |       | $                                       | 7.00       |                                                                                                          | N/A        |                                                                                                  | N/A        |   |
| ** **                    |       |                                    |       |                                    |       |                                                                                                          |       |                                                                                                  |       |
| **September**                 |       |                                    |       |                                    |       |                                                                                                          |       |                                                                                                  |       |
| Stock  Repurchase Program (a) |       | —                                  |       | $                                       | —     |                                                                                                          | —     |                                                                                                  | 6,706,501  |   |
| Employee  Transactions (b)    |       | 148,359                                 |       | $                                       | 7.33       |                                                                                                          | N/A        |                                                                                                  | N/A        |   |
|                          |       |                                    |       |                                    |       |                                                                                                          |       |                                                                                                  |       |
| **Total**                     |       |                                    |       |                                    |       |                                                                                                          |       |                                                                                                  |       |
| Stock  Repurchase Program (a) |       | —                                  |       | $                                       | —     |                                                                                                          | —     |                                                                                                  | 6,706,501  |   |
| Employee  Transactions (b)    |       | 281,655                                 |       | $                                       | 7.09       |                                                                                                          | 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 2004 and 2008 Equity IncentivePlans, we allow employees to elect to have us withhold shares of common stockto satisfy minimum statutory tax withholding obligations arising on thevesting and settlement of restricted stock units. When we withhold theseshares, we are required to remit to the appropriate taxing authorities themarket price of the shares withheld, which could be deemed a purchase of theshares of our common stock by us on the date of withholding.

 

**ITEM 6.**                             EXHIBITS

** **

Exhibits:

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                              |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| 15                   |       | Letter re: Unaudited  Interim Financial Information.                                                                                         |
| 31.1                 |       | Certification of  Principal Executive Officer.                                                                                               |
| 31.2                 |       | Certification of  Principal Financial Officer.                                                                                               |
| 32.1                 |       | Written Statement of  Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 (18 U.S.C. Section 1350). |
| 32.2                 |       | Written Statement of  Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 (18 U.S.C. Section 1350). |

 

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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 September 30,2009 to be signed on its behalf by the undersigned, thereunto duly authorized,on the 9th day of November, 2009.

 

 
|     |     | 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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