**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT of 1934

**FORTHE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

**FORTHE TRANSITION PERIOD FROM             TO             **

**CommissionFile No: 000-51103**

**GFI GROUP INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**(State or other jurisdiction of  incorporation or organization) |   | **80-0006224**(I.R.S. Employer  Identification No.) |
|-----------------------------------------------------------------------------|--------|-----------------------------------------------------|

 

| **100 Wall Street, New York, NY**(Address of principal executive offices) |   | **10005**(Zip Code) |
|---------------------------------------------------------------------------|--------|---------------------|

 

| Registrant’s telephone number, including area  code: **(212) 968-4100** |
|-----------------------------------------------------------------------------------|

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. YES x  NO o

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act). YES o  NO x

Indicate by check markwhether 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 November 7, 2005was 27,708,950.

 

----

**Table of Contents**
| **Part I—Financial  Information** |
|---------------------------------------------|
| Item 1.                                     | Financial  Statements | 4 |
|                                        | Condensed  Consolidated Statements of Financial Condition as of September 30, 2005  (unaudited) and December 31, 2004 | 4 |
|                                        | Condensed  Consolidated Statements of Income for the three and nine months ended  September 30, 2005 (unaudited) and September 30, 2004 (unaudited) | 5 |
|                                        | Condensed  Consolidated Statements of Comprehensive Income for the three and nine months  ended September 30, 2005 (unaudited) and September 30, 2004  (unaudited) | 6 |
|                                        | Condensed  Consolidated Statements of Cash Flows for the nine months ended  September 30, 2005 (unaudited) and September 30, 2004 (unaudited) | 7 |
|                                        | Notes  to Condensed Consolidated Financial Statements | 8 |
| Item  2.                                    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 24 |
| Item  3.                                    | Quantitative  and Qualitative Disclosures About Market Risk | 42 |
| Item  4.                                    | Controls  and Procedures | 42 |
| **Part II—Other  Information**    |
| Item 1.                                     | Legal  Proceedings | 43 |
| Item  2.                                    | Unregistered  Sales of Equity Securities and Use of Proceeds | 43 |
| Item 6.                                     | Exhibits | 43 |

 

2

----

**Available Information**

Our Internet website address is *www.gfigroup.com*. Through our Internetwebsite, we make available, free of charge, documents we file or furnish withthe Securities and Exchange Commission (the “SEC”), as soon as reasonablypracticable after electronically filing them with, or furnishing them to, theSEC, including: our annual report on Form 10-K; our quarterlyreports on Form 10-Q; our current reports on Form 8-K;Forms 3, 4 and 5 filed on behalf of directors and executive officers; andamendments to those reports filed or furnished pursuant to Section 13(a) ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our proxymaterials for our stockholders’ meetings will also be available through ourInternet website. Recently we also made available on our Internet websitecertain historical supplementary financial information.

Information relating to corporate governance of theCompany is also available on our website, including information concerning ourdirectors, board committees, including committee charters, our Code of BusinessConduct and Ethics for all employees and for senior financial officers, ourCorporate Governance Guidelines and our compliance procedures for accountingand auditing matters.

Our Internet website and the information containedtherein or connected thereto are not intended to be incorporated into thisQuarterly Report on Form 10-Q.

3

----

**PART I—FINANCIAL INFORMATION**

**ITEM1.**                FINANCIALSTATEMENTS

**GFI GROUP INC. AND SUBSIDIARIESCONDENSED CONSOLIDATEDSTATEMENTS OF FINANCIAL CONDITION(In thousands except share and per share amounts)**

| ** **                                                                                                                                                                                                                                                                                              | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                              | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                              |       |                         |       |                        |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                                               |       |                         | $          | 126,375                     |       |   |   | $ | 105,161 |   |   |
| Deposits with clearing  organizations                                                                                                                                                                                                                                                                   |       |                         | 8,080      |                        |       |   | 8,833 |   |   |
| Accrued commissions  receivable, net of allowance for doubtful accounts                                                                                                                                                                                                                                 |       |                         | 82,953     |                        |       |   | 50,665 |   |   |
| Receivables from brokers,  dealers and clearing organizations                                                                                                                                                                                                                                           |       |                         | 396,310    |                        |       |   | 408,241 |   |   |
| Property, equipment and  leasehold improvements, net                                                                                                                                                                                                                                                    |       |                         | 25,105     |                        |       |   | 25,449 |   |   |
| Software inventory, net                                                                                                                                                                                                                                                                                 |       |                         | 4,562      |                        |       |   | 3,495 |   |   |
| Goodwill                                                                                                                                                                                                                                                                                                |       |                         | 26,639     |                        |       |   | 11,482 |   |   |
| Intangible assets, net                                                                                                                                                                                                                                                                                  |       |                         | 3,204      |                        |       |   | 1,439 |   |   |
| Other assets                                                                                                                                                                                                                                                                                            |       |                         | 34,119     |                        |       |   | 25,458 |   |   |
| TOTAL ASSETS                                                                                                                                                                                                                                                                                            |       |                         | $          | 707,347                     |       |   |   | $ | 640,223 |   |   |
| **LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED  STOCK AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                  |       |                         |       |                        |       |   |   |   |   |
| LIABILITIES                                                                                                                                                                                                                                                                                             |       |                         |       |                        |       |   |   |   |   |
| Accrued compensation                                                                                                                                                                                                                                                                                    |       |                         | $          | 71,059                      |       |   |   | $ | 64,097 |   |   |
| Accounts payable and  accrued expense                                                                                                                                                                                                                                                                   |       |                         | 22,184     |                        |       |   | 21,560 |   |   |
| Payables to brokers,  dealers and clearing organizations                                                                                                                                                                                                                                                |       |                         | 353,166    |                        |       |   | 376,065 |   |   |
| Notes payable, net                                                                                                                                                                                                                                                                                      |       |                         | 13,358     |                        |       |   | 49,591 |   |   |
| Loan note payable                                                                                                                                                                                                                                                                                       |       |                         | —     |                        |       |   | 9,250 |   |   |
| Income taxes payable                                                                                                                                                                                                                                                                                    |       |                         | 1,843      |                        |       |   | 10,336 |   |   |
| Other liabilities                                                                                                                                                                                                                                                                                       |       |                         | 30,749     |                        |       |   | 23,041 |   |   |
| Lease termination costs  payable to affiliate                                                                                                                                                                                                                                                           |       |                         | 176        |                        |       |   | 2,871 |   |   |
| Total Liabilities                                                                                                                                                                                                                                                                                       |       |                         | $          | 492,535                     |       |   |   | $ | 556,811 |   |   |
| Commitments and contingencies                                                                                                                                                                                                                                                                           |       |                         |       |                        |       |   |   |   |   |
| Series C redeemable  convertible preferred stock, $0.01 par value; none authorized and outstanding  at September 30, 2005; 35,373,704 shares authorized and 3,723,545 shares  outstanding at December 31, 2004 (liquidation value of $41.5 million at  December 31, 2004) |       |                         | —     |                        |       |   | 30,043 |   |   |
| STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                               |       |                         |       |                        |       |   |   |   |   |
| Convertible preferred  stock, $0.01 par value; none authorized and outstanding at September 30,  2005; (liquidation value of $29.6 million at December 31, 2004)                                                                                                                              |       |                         | —     |                        |       |   | 29,069 |   |   |
| Preferred Stock, $0.01  par value; 5,000,000 shares authorized and none outstanding at September 30,  2005; none authorized or outstanding at December 31, 2004                                                                                                                          |       |                         | —     |                        |       |   | — |   |   |
| Class A common  stock, $0.01 par value; none authorized and outstanding at September 30,  2005; 100,000,000 shares authorized and 5,893,846 outstanding at  December 31, 2004                                                                                                            |       |                         | —     |                        |       |   | 59 |   |   |
| Common stock, $0.01 par  value; 100,000,000 shares authorized and 27,556,814 shares outstanding at  September 30, 2005; 300,000,000 shares authorized and 10,155,809 shares  outstanding at December 31, 2004                                                                                 |       |                         | 276        |                        |       |   | 102 |   |   |
| Additional paid in  capital                                                                                                                                                                                                                                                                             |       |                         | 184,936    |                        |       |   | 35,162 |   |   |
| Retained earnings  (accumulated deficit)                                                                                                                                                                                                                                                                |       |                         | 33,371     |                        |       |   | (3,313 | ) |   |
| Accumulated other  comprehensive loss                                                                                                                                                                                                                                                                   |       |                         | (3,771     | )                           |       |   | (7,710 | ) |   |
| Total Stockholders’  Equity                                                                                                                                                                                                                                                                        |       |                         | 214,812    |                        |       |   | 53,369 |   |   |
| TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED  STOCK AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                |       |                         | $          | 707,347                     |       |   |   | $ | 640,223 |   |   |

 

See notes to condensed consolidated financial statements

4

----

**GFI GROUP INC. AND SUBSIDIARIESCONDENSED CONSOLIDATEDSTATEMENTS OF INCOME (UNAUDITED)(In thousands except share and per share amounts)**

| ** **                                    | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| REVENUES:                                     |       |                                                 |       |                                                |       |   |   |   |   |
| Brokerage  revenues:                          |       |                                                 |       |                                                |       |   |   |   |   |
| Agency commissions                            |       | $                                                    | 89,675     |                                                | $          | 69,705 |   | $ | 278,433 |   | $ | 188,673 |   |
| Principal transactions                        |       | 36,304                                               |       | 24,977                                              |       | 91,982 |   | 75,712 |   |
| Total brokerage revenues                      |       | 125,979                                              |       | 94,682                                              |       | 370,415 |   | 264,385 |   |
| Analytics and market data                     |       | 3,894                                                |       | 3,664                                               |       | 14,006 |   | 12,349 |   |
| Interest income                               |       | 1,236                                                |       | 356                                                 |       | 3,179 |   | 802 |   |
| Other (loss) income                           |       | (420                                                 | )          | 1,077                                               |       | 5,705 |   | 2,386 |   |
| Total revenues                                |       | 130,689                                              |       | 99,779                                              |       | 393,305 |   | 279,922 |   |
| EXPENSES:                                     |       |                                                 |       |                                                |       |   |   |   |   |
| Compensation and employee benefits            |       | 81,461                                               |       | 62,062                                              |       | 237,833 |   | 175,623 |   |
| Communications and quotes                     |       | 6,656                                                |       | 5,196                                               |       | 18,795 |   | 15,195 |   |
| Travel and promotion                          |       | 5,833                                                |       | 4,382                                               |       | 17,634 |   | 13,260 |   |
| Rent and occupancy                            |       | 4,662                                                |       | 2,861                                               |       | 12,003 |   | 8,190 |   |
| Depreciation and amortization                 |       | 3,434                                                |       | 3,411                                               |       | 11,126 |   | 9,796 |   |
| Professional fees                             |       | 2,797                                                |       | 2,848                                               |       | 8,193 |   | 6,792 |   |
| Clearing fees                                 |       | 3,480                                                |       | 2,743                                               |       | 9,825 |   | 6,193 |   |
| Interest expenses                             |       | 778                                                  |       | 838                                                 |       | 2,619 |   | 2,083 |   |
| Other expenses                                |       | 2,217                                                |       | 2,299                                               |       | 12,036 |   | 7,010 |   |
| Lease termination costs to affiliate          |       | —                                               |       | —                                              |       | (2,266 | ) | — |   |
| Total Expenses                                |       | 111,318                                              |       | 86,640                                              |       | 327,798 |   | 244,142 |   |
| INCOME BEFORE  PROVISION FOR INCOME TAXES     |       | 19,371                                               |       | 13,139                                              |       | 65,507 |   | 35,780 |   |
| PROVISION FOR  INCOME TAXES                   |       | 8,523                                                |       | 5,266                                               |       | 28,823 |   | 16,014 |   |
| NET INCOME                                    |       | $                                                    | 10,848     |                                                | $          | 7,873 |   | $ | 36,684 |   | $ | 19,766 |   |
| EARNINGS PER SHARE                            |       |                                                 |       |                                                |       |   |   |   |   |
| Basic                                         |       | $                                                    | 0.40       |                                                | $          | 0.35 |   | $ | 1.39 |   | $ | 0.87 |   |
| Diluted                                       |       | $                                                    | 0.39       |                                                | $          | 0.32 |   | $ | 1.34 |   | $ | 0.81 |   |
| WEIGHTED AVERAGE SHARES OUSTANDING  BASIC     |       |                                                 |       |                                                |       |   |   |   |   |
| Class A common stock                     |       | —                                               |       | 5,893,846                                           |       | 647,676 |   | 5,893,846 |   |
| Common stock                                  |       | 27,177,546                                           |       | 10,155,809                                          |       | 25,085,118 |   | 10,155,809 |   |
| WEIGHTED AVERAGE SHARES  OUTSTANDING  DILUTED |       | 28,105,318                                           |       | 24,367,224                                          |       | 27,373,647 |   | 24,296,574 |   |

 

See notes to condensed consolidated financial statements

5

----

**GFI GROUP INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF**

**COMPREHENSIVEINCOME (UNAUDITED)**

**(In thousands)**

| ** **                                                                   | ** ** | **Three Months Ended  September 30,**     | ** ** | **Nine Months Ended  September 30,**      | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** | **2005** | ** ** | **2004** | ** ** |
| NET INCOME                                                                   |       | $                                                        | 10,848     |                                                     |       | $ | 7,873 |   |   | $ | 36,684 |   | $ | 19,766 |   |
| OTHER COMPREHENSIVE  INCOME (LOSS):                                          |       |                                                     |       |                                                     |       |   |   |   |   |   |   |
| Unrealized gain/(loss) on foreign exchange  derivative contracts, net of tax |       | 862                                                      |       |                                                     | (632       | ) |   | 3,720 |   | (302 | ) |
| Foreign currency translation adjustment, net of tax                          |       | 402                                                      |       |                                                     | (142       | ) |   | 220 |   | (413 | ) |
| COMPREHENSIVE INCOME                                                         |       | $                                                        | 12,112     |                                                     |       | $ | 7,099 |   |   | $ | 40,624 |   | $ | 19,051 |   |

 

See notes to condensed consolidated financial statements

6

----

** **

 

**GFI GROUP INC. AND SUBSIDIARIESCONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)(In thousands)**

| ** **                                                                                   | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                        |       |                                                |       |   |   |
| Net income                                                                                   |       | $                                                   | 36,684     |   | $ | 19,766 |   |
| Adjustments to reconcile  net income to net cash provided by/(used in) operating activities: |       |                                                |       |   |   |
| Depreciation and  amortization                                                               |       | 11,126                                              |       | 9,796 |   |
| Amortization of  loan fees                                                                   |       | 317                                                 |       | 196 |   |
| Provision for  allowance for doubtful accounts                                               |       | 526                                                 |       | 153 |   |
| Deferred  compensation                                                                       |       | 2,473                                               |       | 116 |   |
| Provision  (benefit) from deferred taxes                                                     |       | 1,881                                               |       | (1,026 | ) |
| Loss on Fenics  purchase obligation                                                          |       | 2,030                                               |       | — |   |
| Unrealized gain on  fair value adjustment of foreign exchange derivative contracts           |       | (7,652                                              | )          | — |   |
| Lease termination  cost to affiliate                                                         |       | (2,266                                              | )          | — |   |
| (Increase) decrease in  operating assets:                                                    |       |                                                |       |   |   |
| Deposits with  clearing organizations                                                        |       | 752                                                 |       | (1,629 | ) |
| Accrued  commissions receivable                                                              |       | (33,202                                             | )          | (24,752 | ) |
| Receivables from  brokers, dealers and clearing organizations                                |       | 11,931                                              |       | (306,869 | ) |
| Software inventory                                                                           |       | (2,056                                              | )          | (1,043 | ) |
| Other assets                                                                                 |       | (11,868                                             | )          | (3,680 | ) |
| Increase (decrease) in  operating liabilities:                                               |       |                                                |       |   |   |
| Accrued  compensation                                                                        |       | 6,962                                               |       | 4,884 |   |
| Accounts payable  and accrued expenses                                                       |       | 93                                                  |       | (4,877 | ) |
| Payables to  brokers, dealers and clearing organizations                                     |       | (22,899                                             | )          | 296,723 |   |
| Income taxes  payable—current                                                           |       | (3,083                                              | )          | 2,511 |   |
| Other liabilities                                                                            |       | 18,561                                              |       | 6,057 |   |
| Cash paid to  affiliate for lease termination                                                |       | (352                                                | )          | — |   |
| Cash provided  by/(used in) operating activities                                             |       | 9,958                                               |       | (3,674 | ) |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                                       |       |                                                |       |   |   |
| Cash used for  acquisition of minority interest in Fenics                                    |       | (4,286                                              | )          | — |   |
| Cash used for the  acquisition of assets from Starsupply Petroleum                           |       | (15,150                                             | )          | — |   |
| Purchase of  property, equipment and leasehold improvements                                  |       | (8,895                                              | )          | (6,709 | ) |
| Proceeds from  foreign exchange derivative contracts                                         |       | 2,223                                               |       | — |   |
| Cash used in  investing activities                                                           |       | (26,108                                             | )          | (6,709 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                        |       |                                                |       |   |   |
| Repayment of notes  payable                                                                  |       | (54,500                                             | )          | — |   |
| Proceeds from  notes payable                                                                 |       | 18,000                                              |       | 7,500 |   |
| Repayment of loan  notes payable                                                             |       | (9,250                                              | )          | (712 | ) |
| Issuance of common  stock                                                                    |       | 73,651                                              |       | — |   |
| Proceeds from  exercise of stock options and warrant                                         |       | 9,243                                               |       | — |   |
| Cash provided by  financing activities                                                       |       | 37,144                                              |       | 6,788 |   |
| Effects of foreign  currency translation adjustment                                          |       | 220                                                 |       | (413 | ) |
| INCREASE/(DECREASE)  IN CASH AND CASH EQUIVALENTS                                            |       | 21,214                                              |       | (4,008 | ) |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                              |       | 105,161                                             |       | 87,299 |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                                    |       | $                                                   | 126,375    |   | $ | 83,291 |   |
| SUPPLEMENTAL DISCLOSURE:                                                                     |       |                                                |       |   |   |
| Interest paid                                                                                |       | $                                                   | 2,711      |   | $ | 2,198 |   |
| Income taxes paid,  net of refunds                                                           |       | $                                                   | 29,232     |   | $ | 15,528 |   |

 

See notes to condensed consolidated financial statements

7

----

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

**1.   ORGANIZATION AND BUSINESS**

The condensed consolidatedfinancial statements include the accounts of GFI Group Inc. and itssubsidiaries (collectively, the “Company”). The Company, through itssubsidiaries, provides brokerage services to institutional clients in marketsfor a range of credit, financial, equity and commodity instruments. The Companycomplements its brokerage services with decision-support services such asvalue-added data and analytics software products, which it licenses toparticipants in the financial services industry, including investment andcommercial banks, large corporations, insurance companies and large hedgefunds. The Company’s principal operating subsidiaries include:GFInet inc., GFI Securities LLC, GFI Brokers LLC, GFI Group LLC, GFISecurities Limited, GFI Brokers Limited, GFInet U.K. Limited, GFI (HK)Securities LLC, GFI Group Pte Ltd. and Fenics Limited and itssubsidiaries. As of September 30, 2005, the Company was majority owned byJersey Partners, Inc. (“JPI”).

**2.   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

***Basis ofPresentation******—The***Company’scondensed consolidated financial statements are prepared in accordance withaccounting principles generally accepted in the United States of America, whichrequire management to make estimates and assumptions that affect the reportedamounts of assets and liabilities, revenues and expenses, and the disclosure ofcontingencies in the condensed consolidated financial statements. Managementbelieves that the estimates utilized in the preparation of the condensedconsolidated financial statements are reasonable and prudent. Actual resultscould differ materially from these estimates.

All material intercompany transactions and balanceshave been eliminated.

The condensed consolidated financial statements shouldbe read in conjunction with the Company’s consolidated financial statements andnotes thereto included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2004 (the “2004 Form 10-K”).The condensed consolidated financial statements reflect all adjustments thatare, in the opinion of management, necessary for the fair statement of theresults for the interim period. The results of operations for interim periodsare not necessarily indicative of results for the entire year.

***Cash and CashEquivalents******—Cash*****and cash equivalents consist of cash and highly liquidinvestments with maturities, when purchased, of three months or less.

***Receivables fromand Payables to Brokers and Dealers***—Receivablesfrom and payables to brokers and dealers primarily represent securitiestransactions that have not settled as of their stated settlement dates. Thesetransactions relate primarily to the simultaneous purchase and sale ofsecurities by GFI Securities Limited and GFI Securities LLC to facilitateprincipal brokerage transactions. Securities transactions executed by GFISecurities LLC and cleared through a clearing broker on a fully-disclosed basisare presented net.

***Accrued CommissionsReceivable***—Accrued commissions receivable representsamounts due from brokers, dealers, banks and other financial and nonfinancialinstitutions for the execution of securities, commodities, foreign exchange andderivative brokerage transactions. Accrued commissions receivable are presentednet of allowance for doubtful accounts of approximately $3,324 and $2,879 as ofSeptember 30, 

8

----

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

2005 and December 31,2004, respectively. The allowance is based on management’s estimate and isreviewed on a periodic basis based on the aging of outstanding receivables andcounterparty exposure.

***BrokerageTransactions******—The***Companyprovides brokerage services to its clients in the form of either agency orprincipal transactions.

***Agency Commissions***—Inagency transactions, the Company charges commissions for executing transactionsbetween buyers and sellers. Agency commissions revenues and related expensesare recognized on a trade date basis.

***PrincipalTransactions***—Principal transaction revenue isprimarily derived from matched principal transactions. In matched principaltransactions, the Company simultaneously agrees to buy instruments from onecustomer and sell them to another customer. A very limited number of brokeragedesks are allowed to enter into unmatched principal transactions to facilitatea customer’s execution needs for transactions initiated by such customers.These unmatched positions are intended to be held short term and in liquidmarkets. The Company does not enter into unmatched principal transactions forpurposes of speculating on movements in the markets. The Company earns revenuefrom principal transactions on the spread between the buy and sell price of thesecurity that is brokered.

When the Company does hold securities positions, thesepositions are marked to market on a daily basis. Principal transactions revenuesand related expenses are recognized on a trade date basis.

***Analytics andMarket Data Revenue Recognition******—Analytics*** revenueconsists mostly of fees for licenses of analytical software products as well asmaintenance, installation, customer training and technical support of thoseproducts. Market data revenue primarily consists of subscription fees.Analytics revenue is recognized when all of the following criteria are met:persuasive evidence of an arrangement exists, delivery of the product has occurredand no significant implementation obligations remain, the fee is fixed anddeterminable, and collectibility is probable. Fees for future updates ofsoftware products are considered separate arrangements and related revenues arerecognized when the customer acknowledges participation in the update anddelivery occurs. Market data revenue is recognized over the term of thesubscription period.

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

***Goodwill andIntangible Assets***—In accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 142 *Goodwill and Intangible Assets* (“SFAS 142”), goodwilland intangible assets with indefinite lives are no longer amortized, butinstead are tested for impairment annually or more frequently if circumstancesindicate impairment may have occurred. The Company has selected January 1stas the date to perform the annual impairment test. Intangible assets withdefinite lives are amortized on a straight-line basis over their estimateduseful lives.

***DerivativeFinancial Instruments***—The Company uses foreignexchange derivative contracts to reduce the effects of fluctuations in certainreceivables and payables denominated in foreign currencies. Certain of theseforeign exchange derivative contracts are designated and qualify as foreigncurrency cash flow hedges under SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities*,as amended 

9

----

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

(“SFAS 133”). TheCompany reclassifies gains and losses on the designated foreign exchangederivative contracts included in accumulated other comprehensive loss intoearnings at the time the hedged transactions are recognized. The Companymeasures effectiveness by assessing the changes in the expected future cashflows of the hedged items. The ineffective portion of a hedge, if any, isincluded in other income. There is no portion of the derivative instruments’gains or losses that has been excluded from the assessment of effectiveness.

***Foreign CurrencyTranslation Adjustments and Transactions***—Assetsand liabilities of foreign subsidiaries having non-U.S. dollar functionalcurrencies are translated at period end rates of exchange, and revenue andexpenses are translated at the average rates of exchange over the period. Gainsor losses resulting from translating foreign currency financial statements arereflected as 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 net income as otherincome/(loss).

***Segment and GeographicInformation***—The Company’s only operating segmentconsists of its brokerage operations and its analytics and market dataoperations. This segment operates across domestic and international markets.Substantially all of the Company’s identifiable assets are in the United Statesand the United Kingdom.

***Share-BasedCompensation***—Our share-based compensationconsists of stock options and restricted stock units (“RSUs”). Effective January 1,2003, the Company adopted the fair value recognition provisions of SFAS No. 123,*Accounting for Stock-BasedCompensation* (“SFAS 123”), as amended by SFAS No. 148, *Accounting for Stock-Based Compensation—Transitionand Disclosure*, prospectively to all awards granted, modified, orsettled after January 1, 2003. Pursuant to this method, the Companyexpenses the grant-date fair value of options issued to employees on or after January 1,2003 over the related vesting period and the compensation expense related tomodifications of outstanding options is calculated as the difference betweenfair value of the existing and modified options on the date of modification.Prior to January 1, 2003, the Company used the intrinsic method asprescribed by Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees* (“APB25”), as permitted by SFAS 123. For RSUs, the fair value at the date ofgrant is recorded as deferred compensation and is amortized to compensationexpense over the vesting period of the grants.

10

----

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

Thefollowing pro forma financial information shows the effect, net of tax, on netincome had the fair value method been applied for all periods presented.

| ** **                                                                               | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                               | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income—as  reported                                                             |       | $                                                    | 10,848     |                                                | $          | 7,873 |   | $ | 36,684 |   | $ | 19,766 |   |
| Add:                                                                                     |       |                                                 |       |                                                |       |   |   |   |   |
| Effect of stock-based  employee compensation included in reported net income, net of tax |       | 390                                                  |       | 7                                                   |       | 1,407 |   | 28 |   |
| Deduct:                                                                                  |       |                                                 |       |                                                |       |   |   |   |   |
| Total stock-based  employee compensation determined under fair value method, net of tax  |       | (390                                                 | )          | (60                                                 | )          | (1,536 | ) | (207 | ) |
| Net income—pro  forma                                                               |       | $                                                    | 10,848     |                                                | $          | 7,820 |   | $ | 36,555 |   | $ | 19,587 |   |
| Basic earnings  per share—as reported                                               |       | $                                                    | 0.40       |                                                | $          | 0.35 |   | $ | 1.39 |   | $ | 0.87 |   |
| Basic earnings  per share—pro forma                                                 |       | $                                                    | 0.40       |                                                | $          | 0.34 |   | $ | 1.39 |   | $ | 0.86 |   |
| Diluted earnings  per share—as reported                                             |       | $                                                    | 0.39       |                                                | $          | 0.32 |   | $ | 1.34 |   | $ | 0.81 |   |
| Diluted earnings per  share—pro forma                                               |       | $                                                    | 0.39       |                                                | $          | 0.32 |   | $ | 1.34 |   | $ | 0.81 |   |

 

***Recent Accounting Pronouncement***—InMarch 2005, the SEC staff issued Staff Accounting Bulletin No. 107 (“SABNo. 107”) to provide guidance on SFAS No. 123(R), *Share-Based Payment* (“SFAS No. 123(R)”),which is a revision of SFAS No. 123. SAB No. 107 provides the staff’sview regarding the valuation of share-based payment arrangements forpublic companies. In particular, this SAB provides guidance related to share-basedpayment transactions with non-employees, the transition from nonpublic topublic entity status, valuation methods (including assumptions such as expectedvolatility and expected term), the accounting for certain redeemable financialinstruments issued under share-based payment arrangements, theclassification of compensation expense, non-GAAP financial measures, first timeadoption of SFAS No. 123(R), the modification of employee share optionsprior to the adoption of SFAS No. 123(R) and disclosure in Management’sDiscussion and Analysis subsequent to the adoption of SFAS No. 123(R). SABNo. 107 became effective March 29, 2005. In April 2005, the SECmodified the effective date of SFAS No. 123(R) to be as of the firstreporting period of the first fiscal year beginning after June 15, 2005.The SEC’s modification of the effective date did not change the accountingrequired by SFAS No. 123(R). The impact of SFAS No. 123(R) andSAB No. 107 on the Company’s consolidated financial statements iscurrently being evaluated and is not anticipated to be material.

11

----

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

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

| ** **                                                     | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Receivables from  brokers, dealers and clearing organizations: |       |                         |       |                        |       |   |   |   |   |
| Contract value of fails to deliver                             |       |                         | $          | 379,575                     |       |   |   | $ | 376,452 |   |   |
| Balance receivable from clearing organizations                 |       |                         | 16,735     |                        |       |   | 31,789 |   |   |
| Total                                                          |       |                         | $          | 396,310                     |       |   |   | $ | 408,241 |   |   |
| Payables to  brokers, dealers and clearing organizations:      |       |                         |       |                        |       |   |   |   |   |
| Contract value of fails to receive                             |       |                         | $          | 329,056                     |       |   |   | $ | 357,349 |   |   |
| Balance payable to clearing organizations                      |       |                         | 11,031     |                        |       |   | 11,643 |   |   |
| Payable to financial institutions                              |       |                         | 13,079     |                        |       |   | 7,073 |   |   |
| Total                                                          |       |                         | $          | 353,166                     |       |   |   | $ | 376,065 |   |   |

 

Substantially all openfail to deliver and fail to receive transactions at September 30, 2005 andDecember 31, 2004 have subsequently settled on the contracted terms.

**4.   ACQUISITIONSAND RELATED GOODWILL AND INTANGIBLE ASSETS**

In March 2005, the Company made an offer topurchase for $8.37 per share all of the ordinary shares in Fenics Limited thatwere not owned by the Company for a total purchase price of $4,454. In April 2005,the Company legally became the sole shareholder of Fenics Limited. During thesecond and third quarters of 2005, Fenics minority shareholders were paid for505,869 shares tendered to the Company, or approximately 95% of the outstandingminority shares. The remaining minority shares will be paid for when they aretendered to the Company. The acquisition of the Fenics minority shares resultedin an increase in goodwill of $1,378 during the second and third quarters of2005.

On September 15, 2005, the Company completed theacquisition of substantially all of the assets and certain liabilities ofStarsupply Petroleum LLC (“Starsupply”). The results of Starsupply’s operationshave been included in the condensed consolidated financial statements sincethat date.

12

----

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

TheStarsupply acquisition was accounted for as a purchase business combination. Assetsacquired were recorded at their fair value as of September 15, 2005. Thepurchase price was $15,303 in cash including $178 of direct transaction costsrelated to the acquisition, consisting primarily of legal and otherprofessional fees. Management determined the fair value of the identifiable intangibleassets acquired based upon an independent valuation model. The purchase price wasallocated as follows:

| ** **                                       | ** ** | ** ** | ** ** | **Useful Life**       | ** ** |
|--------------------------------------------------|------------|------------|------------|----------------------------|------------|
| *Assets:*                                        |       |       |       |                       |       |
| Property, plant and equipment                    |       | $          | 292        |                       | —     |   |
| Intangible assets  subject to amortization— |       |       |       |                       |       |
| Trade name                                       |       | 380        |       | 1 Year                     |       |
| Customer relationships                           |       | 1,440      |       | 6  Years                   |       |
| Covenants not to compete                         |       | 550        |       | 3.5  Months – 5 Years |       |
| Goodwill                                         |       | 13,779     |       | —                     |       |
| Total assets  acquired                           |       | $          | 16,441     |                       |       |   |
| *Liabilities:*                                   |       |       |       |                       |       |
| Accured liabilities                              |       | $          | 378        |                       | —     |   |
| Above market employment contracts                |       | 760        |       | 2  Years                   |       |
| Total liabilities  assumed                       |       | 1,138      |       |                       |       |
| Net Assets  Acquired                             |       | $          | 15,303     |                       |       |   |

 

Goodwill represents the excess of the purchase priceallocation over the fair value of tangible and identifiable intangible netassets acquired. Goodwill amounts are not amortized, but rather are tested forimpairment annually. In the event that the Company determines that the value ofgoodwill has become impaired, it will incur an accounting charge for the amountof impairment during the fiscal quarter in which such determination is made.

Changesin the carrying amount of the Company’s goodwill and intangible assets for thenine months ended September 30, 2005 were as follows:

| Goodwill:                                  |   |   |   |
|--------------------------------------------|--------|--------|--------|
| Balance as of December 31, 2004       |   | $      | 11,482 |   |
| Goodwill acquired during the year          |   | 15,157 |   |
| Balance as of September 30, 2005      |   | $      | 26,639 |   |
| Intangible Assets:                         |   |   |   |
| Balance as of December 31, 2004       |   | $      | 1,439  |   |
| Intangible assets acquired during the year |   | 2,370  |   |
| Amortization expense for the year          |   | (605   | )      |
| Balance as of  September 30, 2005     |   | $      | 3,204  |   |

 

13

----

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

**5.   NOTES PAYABLE**

The Company hadoutstanding borrowings under its credit facility agreement with Bank of AmericaN.A. and certain other lenders dated August 23, 2004 (the “Credit Facility”)as of September 30, 2005 and December 31, 2004 as follows:

| ** **                     | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Loans Available                |       |                         | $          | 80,000                      | (1)        |   |   | $ | 80,000 | (1) |   |
| Loans Outstanding              |       |                         | $          | 14,000                      |       |   |   | $ | 50,500 |   |   |
| Letters of Credit  Outstanding |       |                         | $          | 6,500                       |       |   |   | $ | 6,500 |   |   |

----

(1)          Amounts availableinclude up to $30,000 for letters of credit.

These borrowings boreinterest at rates ranging from 4.2% to 6.5%. At September 30, 2005 and December 31,2004, notes payable were recorded net of unamortized loan fees of $642 and$909, respectively.

14

----

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

**6.   EARNINGS PER SHARE**

Basicand diluted earnings per share for the three and nine months ended September 30,2005 and 2004 were as follows:

| ** **                                                                                  | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Basic  earnings per share**                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| Net income  applicable to stockholders                                                      |       | $                                                    | 10,848     |                                                | $          | 7,873 |   | $ | 36,684 |   | $ | 19,766 |   |
| Income allocated  to participating preferred stockholders                                   |       | —                                               |       | (2,329                                              | )          | (903 | ) | (5,849 | ) |
| Income available  to common stockholders                                                    |       | $                                                    | 10,848     |                                                | $          | 5,544 |   | $ | 35,781 |   | $ | 13,917 |   |
| Weighted average  common shares outstanding:                                                |       |                                                 |       |                                                |       |   |   |   |   |
| Class A common stock                                                                   |       | —                                               |       | 5,893,846                                           |       | 647,676 |   | 5,893,846 |   |
| Common stock                                                                                |       | 27,177,546                                           |       | 10,155,809                                          |       | 25,085,118 |   | 10,155,809 |   |
| Weighted average common shares outstanding                                             |       | 27,177,546                                           |       | 16,049,655                                          |       | 25,732,794 |   | 16,049,655 |   |
| Basic earnings  per share—Class A common stock and common Stock                   |       | $                                                    | 0.40       |                                                | $          | 0.35 |   | $ | 1.39 |   | $ | 0.87 |   |
| **Diluted  earnings per share**                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| Net income  applicable to stockholders                                                      |       | $                                                    | 10,848     |                                                | $          | 7,873 |   | $ | 36,684 |   | $ | 19,766 |   |
| Weighted average  common shares outstanding                                            |       | 27,177,546                                           |       | 16,049,655                                          |       | 25,732,794 |   | 16,049,655 |   |
| Effect of  dilutive shares:                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Options, warrant, and restricted stock units                                           |       | 927,772                                              |       | 224,214                                             |       | 899,690 |   | 153,564 |   |
| Convertible preferred shares                                                                |       | —                                               |       | 3,021,034                                           |       | 331,982 |   | 3,021,034 |   |
| Redeemable convertible preferred shares                                                     |       | —                                               |       | 3,723,545                                           |       | 409,181 |   | 3,723,545 |   |
| Effect of  contingently issuable shares subject to Series C purchase price  adjustment |       | —                                               |       | 1,348,776                                           |       | — |   | 1,348,776 |   |
| Weighted average shares outstanding and common stock  equivalents                           |       | 28,105,318                                           |       | 24,367,224                                          |       | 27,373,647 |   | 24,296,574 |   |
| Diluted earnings per  share                                                                 |       | $                                                    | 0.39       |                                                | $          | 0.32 |   | $ | 1.34 |   | $ | 0.81 |   |

 

For the three and nine months ended September 30,2005, outstanding options to purchase 0 and 32,967 shares, respectively, wereexcluded from the computation of diluted earnings per share because theireffect would be anti-dilutive and outstanding options to purchase 298,157 and274,770 shares for the three and nine months ended September 30, 2004,respectively, were excluded from the computation of diluted earnings per sharebecause their effect would be anti-dilutive. Further, 109,690 and 119,952 RSUswere also excluded from the computation of diluted earnings per share for thethree and nine months ended September 30, 2005, respectively, becausetheir effect would be anti-dilutive.

15

----

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

Options to purchase1,182,288 and 1,151,594 shares under the GFI Group Inc. 2002 Stock OptionPlan (the “GFI Group 2002 Plan”) were outstanding for the three and nine monthsended September 30, 2004, respectively, and were excluded from thecomputation of diluted earnings per share because the exercisability of theoptions was contingent upon the completion of an initial public offering (“IPO”).This contingency was met in January 2005, therefore, options issued underthis plan were included in subsequent periods in diluted earnings per share tothe extent they were dilutive.

**7.   SHARE-BASEDCOMPENSATION**

In addition to vesting requirements, theexercisability of options issued under the GFI Group 2002 Plan was contingentupon the Company completing its IPO, which occurred in January 2005. Foroptions issued or modified on or after January 1, 2003 under the GFI Group2002 Plan, compensation expense measured on the date of grant or modificationwas recorded upon the IPO in January 2005, to the extent these optionswere vested, with the remaining compensation charge to be recorded over theremaining vesting period. For the three and nine months ended September 30,2005, compensation expense of $140 and $1,189, respectively, was recognized inconnection with these options. In addition, for the three and nine months endedSeptember 30, 2005, compensation expense of $0 and $64, respectively, wasrecognized related to certain options issued under the GFInet inc. 2000Stock Option Plan (the “GFInet 2000 Plan”) that were modified in 2004.

Thefollowing is a summary of stock option transactions under all plans:

| ** **                           | ** ** | **GFI Group 2002 Plan** | ** ** | **GFInet 2000 Plan**             | ** ** |
|--------------------------------------|------------|----------------------------------------|------------|--------------------------------------------|------------|
| ** **                           | ** ** | **Options**                            | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| Outstanding  December 31, 2004  |       | 1,248,191                              |       |                                       | 13.55      |   |   | 1,457,282 |   |   | $ | 11.71 |   |   |
| Exercised                            |       | (129,599                               | )          |                                       | 12.52      |   |   | (570,497 | ) |   | 11.29 |   |   |
| Terminated                           |       | (22,052                                | )          |                                       | 14.40      |   |   | (12,261 | ) |   | 17.15 |   |   |
| Outstanding  September 30, 2005 |       | 1,096,540                              |       |                                       | 13.66      |   |   | 874,524 |   |   | 11.91 |   |   |

 

Thefollowing table summarizes information about the GFI Group 2002 Plan options asof September 30, 2005:

| ** **              | ** ** | **Stock Options Outstanding** | ** ** | ** **                                       | ** ** | **Stock Options Exercisable**                                     | ** ** |
|-------------------------|------------|-----------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| **Exercise Price** | ** ** | ** **                              | ** ** | **Options    Outstanding  ** | ** ** | **Weighted  Average  Remaining    Life (Years)  ** | ** ** | **  Weighted    Average  Exercise  Price** | ** ** | **Number   Exercisable ** | ** ** | **  Weighted    Average  Exercise  Price** | ** ** |
| $11.88                  |            |                                    |       | 882,986                                          |       |                                                                        |       | 8.48 |   |   |   | $ | 11.88 |   |   |   | 617,253 |   |   |   | $ | 11.88 |   |   |
| 21.00                   |            |                                    |       | 213,554                                          |       |                                                                        |       | 8.77 |   |   |   | 21.00 |   |   |   | 26,470 |   |   |   | 21.00 |   |   |
|                         |            |                                         |            |                                                  |            |                                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

16

----

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

Thefollowing table summarizes information about the GFInet 2000 Plan options as ofSeptember 30, 2005:

| ** **              | ** ** | **Stock Options Outstanding** | ** ** | ** **               | ** ** | **Stock Options Exercisable**             | ** ** |
|-------------------------|------------|-----------------------------------------|------------|--------------------------|------------|-----------------------------------------------------|------------|
| **Exercise Price** | ** ** | ** **                              | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Remaining  Life (Years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number   Exercisable ** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $  9.50       |       |                                    | 592,726    |                     |       |                                                | 4.57       |   |   |   | $ | 9.50 |   |   |   | 592,726 |   |   |   | $ | 9.50 |   |   |
|   11.88       |       |                                    | 80,554     |                     |       |                                                | 6.92       |   |   |   | 11.88 |   |   |   | 80,554 |   |   |   | 11.88 |   |   |
|   14.25       |       |                                    | 26,995     |                     |       |                                                | 5.25       |   |   |   | 14.25 |   |   |   | 26,995 |   |   |   | 14.25 |   |   |
|   19.00       |       |                                    | 146,780    |                     |       |                                                | 5.37       |   |   |   | 19.00 |   |   |   | 146,780 |   |   |   | 19.00 |   |   |
|   23.75       |       |                                    | 27,469     |                     |       |                                                | 4.87       |   |   |   | 23.75 |   |   |   | 27,469 |   |   |   | 23.75 |   |   |
|                         |            |                                         |            |                          |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

For the three and ninemonths ended September 30, 2005, the Company granted 110,504 and 367,374RSUs, respectively, under the GFI Group 2004 Equity Incentive Plan (“GFI Group2004 Plan”) with a grant date fair value per RSU in the range of $21.00 to$41.17. The RSUs will be forfeited if a participant leaves the Company forreasons other than retirement, disability or death prior to the vesting dates.The RSUs vest over periods ranging from eight months to three years and will beconverted into an equal number of unrestricted shares of common stock uponvesting. For the three and nine months ended September 30, 2005,compensation expense of $620 and $1,204, respectively, was recognized inconnection with the grant of the RSUs.

**8.   COMMITMENTS AND CONTINGENCIES**

*Operating leases—**The* Company hasnon-cancelable operating leases for office space that expire on various datesthrough 2015. At September 30, 2005, the future minimum rental commitmentsunder such leases are as follows:

| 2006       |   | $      | 4,073  |   |
|------------|--------|--------|--------|--------|
| 2007       |   | 3,285  |   |
| 2008       |   | 4,691  |   |
| 2009       |   | 5,599  |   |
| 2010       |   | 5,984  |   |
| Thereafter |   | 23,538 |   |
| Total      |   | $      | 47,170 |   |

 

The preceding table reflects a significant increase inthe Company’s future minimum rental commitments since December 31, 2004. Amajority of the increase in the future minimum rental commitments is related toa ten-year lease that the Company entered into in April 2005 for premiseswhich will serve as its current primary U.K. office space. The total minimumrental commitments under this lease totaled $22,273, with $1,803 due within oneto three years, $5,733 due within three to five years and $14,737 due in morethan five years.

17

----

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

Many of the Company’s leases for office space containescalation clauses that require payment of additional rent to the extent of anyincreases in certain operating and other costs. Rent expense under the leasesfor the three and nine months ended September 30, 2005 and 2004 was$2,057, $5,643, $1,078 and $3,182, respectively.

*PurchaseObligations—**The* Company has various unconditionalpurchase obligations for quote system subscriptions from a number ofinformation service providers used in the normal course of business. As of September 30,2005, the Company had total purchase commitments for quote system subscriptionsof approximately $8,670, with $6,585 due within the next twelve months and$2,085 due between one to two years. Additionally, the Company has purchasecommitments for capital expenditures related to its U.K. primary lease ofapproximately £2,383 (approximately $4,199), all of which are due within thenext twelve months.

*Contingencies—**In* the normal courseof business, the Company and certain subsidiaries included in the consolidatedfinancial statements have been named as defendants in various lawsuits andproceedings and have been involved in certain regulatory examinations.Additional actions, investigations or proceedings may be brought from time totime in the future. We are subject to the possibility of losses from thesevarious contingencies. Considerable judgment is necessary to estimate theprobability and amount of any loss from such contingencies. An accrual is madewhen it is probable that a liability has been incurred or an asset has beenimpaired and the amount of loss can be reasonably estimated. The Companyaccrues a liability for the estimated costs of adjudication or settlement ofasserted and unasserted claims existing as of the end of the reporting period.

The Company has recorded reserves for certaincontingencies to which we may have exposure, such as reserves for certainincome tax and litigation contingencies and contingencies related to theemployer portion of National Insurance Contributions in the U.K.

The Company is subject to regular examinations byvarious tax authorities in jurisdictions in which the Company has significantbusiness operations. The Company regularly assesses the likelihood ofadditional assessments in each of the tax jurisdictions resulting from theseexaminations. Tax reserves have been established, which the Company believes tobe adequate in relation to the potential for additional assessments. Onceestablished, reserves are adjusted as information becomes available or when anevent occurs requiring a change to the reserve. The resolution of any taxmatters could have a material impact on the Company’s effective tax rate.

It is not presently possible to determine the Company’sultimate exposure to these matters and there is no assurance that theresolution of these matters will not significantly exceed the reserves accruedby the Company. It is the opinion of the Company’s management that the ultimateresolution of these matters, while not likely to have a material adverse effecton the consolidated financial condition of the Company, could be material tothe Company’s operating results for any particular period.

*Risksand Uncertainties—**The*Company primarily generates itsrevenues by executing and facilitating transactions for its customers. Revenuesfor these services are transaction based. As a result, the Company’s revenuescould vary based upon the transaction volume of securities, commodities,foreign exchange and derivative markets.

18

----

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

*Guarantees—**The* Company, throughits subsidiaries, is a member of certain exchanges and clearinghouses. Membersof these exchanges and clearing houses are generally required to guaranteecertain obligations pursuant to the terms of the respective membershipagreements. Additionally, if a member becomes unable to satisfy its obligationsto the clearinghouse, other members may be required to meet shortfalls. Tomitigate these performance risks, the exchanges and clearinghouses oftenrequire members to post collateral as well as meet certain minimum financialstandards. The Company’s maximum potential liability under these arrangementscannot be quantified. However, management believes that the potential for theCompany to be required to make payments under these arrangements is unlikely.Accordingly, no contingent liability is recorded in the Condensed ConsolidatedStatements of Financial Condition for these arrangements.

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

Our financial instrumentswith off-balance sheet risk are described in “Note 18—FinancialInstruments with Off-Balance Sheet Risk” contained in the 2004 Form 10-K.There have been no material changes to our off-balance sheet risk during thenine months ended September 30, 2005.

**10.   FINANCIAL INSTRUMENTS**

We are exposed to market risk associated withmovements in foreign currency exchange rates. There have been no material changesto our risk management policy as described in “Note 19—FinancialInstruments” contained in the 2004 Form 10-K.

For the three and nine months ended September 30,2005 and 2004, there was no hedge ineffectiveness. For the three and ninemonths ended September 30, 2005 and 2004, unrealized gains (losses) beforetax totaling $1,329, $5,578, ($1,083) and ($517), respectively, were recordedas other comprehensive income (loss). There has been no discontinuance of cashflow hedges that would require a reclassification of gains into earnings forthe three and nine months ended September 30, 2005. Management does notanticipate any events or transactions that would result in the reclassificationinto earnings of gains and losses that are reported in accumulated othercomprehensive income due to hedge discontinuance.

TheCompany’s derivatives are summarized below showing the fair value of therelated assets and liabilities that are included in other assets or otherliabilities in the Condensed Consolidated Statements of Financial Condition asof September 30, 2005 and December 31, 2004 as follows:

| **Assets/(Liabilities)**               | ** ** | ** ** | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|----------------------------------------|------------|------------|------------|----------------------------------|------------|---------------------------------|------------|
| Foreign exchange  derivative contracts |       |       | $          | 583                              |       |                            |       | $ | (10,812 | ) |   |
| Fenics purchase  obligation            |       |       | (144       | )                                |       |                            | (1,022     | ) |   |

 

The fair value of the foreign exchange derivativecontracts was estimated based on quoted market prices of comparableinstruments. The fair value of the Fenics purchase obligation was estimatedusing an exchange option model that included assumptions of management’sestimate of the fair value of the common stock of the Company and the commonstock of Fenics, volatility, correlation and the expected life of theobligation.

19

----

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

Included in otherliabilities in the Condensed Consolidated Statement of Financial Condition asof September 30, 2005 were $2,293 of multi-coupon bonds held by theCompany and recorded at current market value.

**11.   REGULATORY REQUIREMENTS**

GFI Securities LLC is a registered broker-dealerwith the SEC and the National Association of Securities Dealers, Inc. GFISecurities LLC is also a registered introducing broker with the NationalFutures Association and the Commodity Futures Trading Commission. Accordingly,GFI Securities LLC is subject to the net capital rules under the ExchangeAct and the Commodity Exchange Act. Under these rules, GFI Securities LLC isrequired to maintain Minimum Net Capital, as defined, of not less than thegreater of $250 or 2% of aggregate debits, as defined.

GFISecurities LLC had Net Capital and Excess Net Capital as follows at September 30,2005:

| Net Capital          |   | $   | 38,133 |   |
|----------------------|--------|-----|--------|--------|
| Minimum Net  Capital |   | 250 |   |
| Excess Net Capital   |   | $   | 37,883 |   |

 

GFIBrokers Limited and GFI Securities Limited are subject to the capitalrequirements of the Financial Services Authority in the United Kingdom. Underthese requirements, GFI Brokers Limited and GFI Securities Limited had MinimumNet Capital, as defined, and Excess Net Capital as follows at September 30,2005:

| ** **                    | ** ** | **GFI Brokers Limited** | ** ** | **GFI Securities Limited** | ** ** |
|-------------------------------|------------|-----------------------------------|------------|--------------------------------------|------------|
| Net Capital                   |       |                              | $          | 14,528                               |       |   |   | $ | 23,394 |   |   |
| Minimum Net  Capital required |       |                              | 8,498      |                                 |       |   | 10,592 |   |   |
| Excess Net Capital            |       |                              | $          | 6,030                                |       |   |   | $ | 12,802 |   |   |

 

GFI(HK) Securities LLC is subject to the capital requirements of the Securitiesand Futures Commission in Hong Kong. Under these requirements, GFI (HK)Securities LLC had Minimum Net Capital, as defined, and Excess Net Capital asfollows at September 30, 2005:

| Net Capital          |   | $   | 1,279  |   |
|----------------------|--------|-----|--------|--------|
| Minimum Net  Capital |   | 387 |   |
| Excess Net Capital   |   | $   | 892    |   |

 

GFI Group Pte Ltd. is subject to the compliancerequirements of the Monetary Authority of Singapore, which require that GFIGroup Pte Ltd. maintain stockholders’ equity of 3,000 Singapore dollars,measured annually. At December 31, 2004, GFI Group Pte Ltd. hadstockholders’ equity of 3,796 Singapore dollars (or approximately $2,326),which exceeded the minimum requirement by approximately 796 Singapore dollars(or approximately $487).

20

----

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

GFI Securities Limited’s Japanese branch is requiredto maintain “brought-in” capital, as defined, of 50,000 Japanese Yen as part ofits licensing requirement, in accordance with the foreign securities firms’ law. Additionally, GFI Securities Limited issubject to the Japan Securites Dealers Association’s (“JSDA”) financialrequirement that revenue plus “brought-in” capital exceed a ratio of 140.0% ofrelevant expenditure. At September 30, 2005, GFI Securities Limited metthe licensing requirement by maintaining “brought-in” capital of 50,000Japanese Yen (approximately $440) as part of the foreign securities firms’ law.Additionally, GFI Securities Limited’s revenue plus “brought-in” capital ratiowas 1,473.0%, which exceeded the JSDA’s financial requirement by approximately1,333.0%.

These regulatory rules mayrestrict the Company’s ability to withdraw capital from its regulatedsubsidiaries. The Company’s regulated subsidiaries were in compliance with allregulatory capital requirements as of September 30, 2005.

**12. GEOGRAPHIC INFORMATION**

The Company offers its products and services globallyfrom offices in the United States, the United Kingdom and the Asia-Pacificregion.

Informationregarding revenue for the three and nine months ended September 30, 2005and 2004, and information regarding long-lived assets (defined as property,equipment, leasehold improvements and software inventory) in geographic areasas of September 30, 2005 and December 31, 2004 is as follows:

| ** **     | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **     | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues:      |       |                                                 |       |                                                |       |   |   |   |   |
| United States  |       | $                                                    | 66,733     |                                                | $          | 44,855 |   | $ | 196,662 |   | $ | 121,698 |   |
| United Kingdom |       | 53,758                                               |       | 49,191                                              |       | 166,626 |   | 141,151 |   |
| Asia-Pacific   |       | 10,198                                               |       | 5,733                                               |       | 30,017 |   | 17,073 |   |
| Total          |       | $                                                    | 130,689    |                                                | $          | 99,779 |   | $ | 393,305 |   | $ | 279,922 |   |

 

| ** **                      | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Long-lived  Assets, as defined: |       |                             |       |                            |       |   |   |   |   |
| United States                   |       |                             | $          | 23,078                          |       |   |   | $ | 24,686 |   |   |
| United Kingdom                  |       |                             | 5,133      |                            |       |   | 3,304 |   |   |
| Asia-Pacific                    |       |                             | 1,456      |                            |       |   | 954 |   |   |
| Total                           |       |                             | $          | 29,667                          |       |   |   | $ | 28,944 |   |   |

 

Revenues are attributed togeographic areas based on the location of the relevant legal entities.

21

----

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

**13.   OtherComprehensive Income (Loss)**

| ** **                                                           | ** ** | **Three Months Ended  September 30**      | ** ** | **Nine Months Ended  September 30**       | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                           | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** |
| **Unrealized gain (loss) on  foreign exchange derivative contracts** |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Current Period  Change:                                              |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Before Tax Amount                                                    |       |                                                     | $          | 1,329                                                    |       |   |   | $ | (1,083 | ) |   |   | $ | 5,578 |   |   |   | $ | (517 | ) |   |
| Tax (Expense) Benefit                                                |       |                                                     | (467       | )                                                        |       |   | 451 |   |   |   | (1,858 | ) |   |   | 215 |   |   |
| After Tax Amount                                                     |       |                                                     | $          | 862                                                      |       |   |   | $ | (632 | ) |   |   | $ | 3,720 |   |   |   | $ | (302 | ) |   |
| **Foreign  currency translation adjustment**                         |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Before Tax Amount                                                    |       |                                                     | $          | 717                                                      |       |   |   | $ | (243 | ) |   |   | $ | 383 |   |   |   | $ | (708 | ) |   |
| Tax (Expense) Benefit                                                |       |                                                     | (315       | )                                                        |       |   | 101 |   |   |   | (163 | ) |   |   | 295 |   |   |
| After Tax Amount                                                     |       |                                                     | $          | 402                                                      |       |   |   | $ | (142 | ) |   |   | $ | 220 |   |   |   | $ | (413 | ) |   |

 

**14.   RELATED PARTY TRANSACTIONS**

**OfficeLease Termination with an Affiliate**

The Company, through itssubsidiary GFI Holdings Ltd., previously leased its primary U.K. officespace under a lease agreement with a wholly owned subsidiary of JPI, which wasdue to expire in 2016. In December 2004, the Company and this affiliateentered into a Lease Termination Agreement whereby both parties agreed toterminate this lease effective September 2005 and to make certaintermination and other payments upon such termination. The Company accrued£1,500 (approximately $2,871) for the estimated cost to terminate the lease. InApril 2005, the Company and the affiliate amended the Lease TerminationAgreement. The amendment accelerated the termination of the lease to April 2005and required the Company to pay a termination charge of £200 (approximately$381). In addition, GFI Holdings Ltd. executed a new sublease withthe subsidiary of JPI for an eighteen-month term with rent of £500(approximately $895) per annum plus related costs, such as utilities, realestate taxes and service charges. As a result of the amendment, in the secondquarter of 2005, the Company reduced its lease termination liability byapproximately £1,200 (or $2,266). In addition, the Company anticipates that itwill cease using these premises by December 31, 2005 and will accrueapproximately £458 (approximately $734) for the remaining rent plus any relatedcharges on the lease at that time.

**15.   SUBSEQUENT EVENTS**

In October and November 2005, the Companyexecuted employment agreements with new employees that provide for the Companyto pay an aggregate of $12,220 of sign-on bonuses and provide an aggregate of$1,252 in forgivable loans. The bonuses and loans will generally be paid orprovided in the fourth quarter of 2005 or first quarter of 2006.

In October 2005, the Company granted 213,458 RSUsunder the GFI Group 2004 Plan with a grant date fair value per RSU in the rangeof $37.75 to $44.96. These RSUs vest over three years and convert into an equalnumber of unrestricted shares of common stock upon vesting.

22

----

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**
| To the Board of Directors and Stockholders of |
|-----------------------------------------------|
| GFI Group Inc.                                |
| New York, New York                            |

 

We have reviewed the accompanying condensedconsolidated statement of financial condition of GFI Group Inc. andsubsidiaries (the “Company”) as of September 30, 2005, and the relatedcondensed consolidated statements of income and comprehensive income for thethree-month and nine-month periods ended September 30, 2005 and 2004, andof cash flows for the nine-month periods ended September 30, 2005 and 2004.These interim financial statements are the responsibility of the Company’smanagement.

We conducted our reviews in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Areview of interim financial information consists principally of applyinganalytical procedures and making inquiries of persons responsible for financialand accounting matters. It is substantially less in scope than an auditconducted in accordance with the standards of the Public Company AccountingOversight Board (United States), the objective of which is the expression of anopinion regarding the financial statements taken as a whole. Accordingly, we donot express such an opinion.

Based on our reviews, we are not aware of any materialmodifications that should be made to such condensed consolidated interimfinancial statements for them to be in conformity with accounting principlesgenerally accepted in the United States of America.

Wehave previously audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated statement offinancial condition of GFI Group Inc. and subsidiaries as of December 31,2004, and the related consolidated statements of income, comprehensive income,stockholders’ equity, and cash flows for the year then ended (not presentedherein); and in our report dated March 30, 2005, we expressed anunqualified opinion on those consolidated financial statements. In our opinion,the information set forth in the accompanying condensed consolidated statementof financial condition as of December 31, 2004 is fairly stated, in allmaterial respects, in relation to the consolidated statement of financialcondition from which it has been derived.

| /s/ DELOITTE  & TOUCHE LLP |   |
|--------------------------------|--------|
| New York, New York             |   |
| November 14, 2005         |   |

 

23

----

**ITEM 2.     MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Forward-Looking Statements**

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

·       expansionand growth of our operations generally or of specific products or services;

·       ourability to attract and retain key personnel, including highly qualifiedbrokerage personnel;

·       ourentrance into new brokerage markets or investments in establishing newbrokerage desks;

·       competitionfrom current and new competitors;

·       futureresults of operations and financial condition;

·       thesuccess of our business strategies;

·       economic,political and market factors affecting trading volumes, securities prices, ordemand for the Company’s brokerage services;

·       financialdifficulties experienced by the Company’s customers or key participants in themarkets in which the Company focuses its brokerage services;

·       risksassociated with potential acquisitions by us of businesses or technologies;

·       ourability to manage our international operations;

·       uncertaintiesassociated with currency fluctuations;

·       ourfailure to protect or enforce our intellectual property rights;

·       ourability to keep up with rapid technological change;

·       changesin laws and regulations governing our business and operations or permissibleactivities and our ability to comply with such laws and regulations;

·       uncertaintiesrelating to litigation; and

·       changesin the availability of capital.

The foregoing risks anduncertainties, as well as those risks discussed under this Management’sDiscussion and Analysis of Financial Condition and Results of Operations and “Item3—Quantitative and Qualitative Disclosures About Market Risk” and elsewhere inthis Quarterly Report, may cause actual results to differ materially from theforward-looking statements. Additionally, our 2004 Form 10-Kcontains various factors under the heading “Item 1—Business: Risk Factors” andelsewhere that could cause actual results to differ materially from expected orhistoric results. The information included herein is given as of the filingdate of this Form 10-Q with the SEC and future events orcircumstances could differ significantly from these forward-lookingstatements. The Company does not undertake to publicly update or revise anyforward-looking statements, whether as a result of new information,future events or otherwise.

24

----

**Business Overview**

We founded our business in 1987. The Company wasincorporated under the laws of the State of Delaware in 2001 to be a holdingcompany for its subsidiaries. On January 31, 2005, we completed an IPO ofour common stock, selling 3,947,369 shares of common stock at $21.00 per share.Our proceeds from the IPO after deducting underwriters’ discounts and expenseswere $73.7 million.

The Company, through its subsidiaries, is a leadinginter-dealer broker specializing in over-the-counter derivatives productsand related securities. We provide brokerage services and data and analyticsproducts to institutional clients in markets for a range of credit, financial,equity and commodity instruments. We function as an intermediary on behalf ofour brokerage clients by matching their trading needs with counterpartieshaving reciprocal interests. We focus on the more complex, and often lessliquid, markets for sophisticated financial instruments, primarily derivatives,that offer an opportunity for strong growth and higher commissions pertransaction than the markets for more standardized financial instruments.

We offer a hybrid brokerage approach to our clients,combining a range of telephonic and electronic trade execution services,depending on the needs of the individual markets. We complement our hybridbrokerage capabilities with decision support services, such as value-addeddata and analytics products. We earn revenues for our brokerage services andcharge fees for certain of our data and analytics products.

The Company operates in one reportable segment, whichconsists of its brokerage operation and its analytics and market dataoperations. Within this segment, we offer our brokerage services in four broadproduct categories: credit, financial, equity and commodity.

On September 15, 2005, we completed the acquisitionof substantially all of the operating assets and certain liabilities ofStarsupply Petroleum LLC, a leading broker of oil products and relatedderivative and option contracts. The final purchase price was $15.3 million incash, including $0.2 million of direct transaction costs related to theacquisition, consisting primarily of legal and other professional fees.

We believe that our increased presence in the U.S. oilbrokerage market is timely because of current volatility and uncertainty inworld oil markets. It is also complementary to our existing commodity, energyand shipping brokerage services. We added nine energy-related desks fromStarsupply, including petroleum feedstocks, petroleum products, crude oil,petrochemicals, product derivatives, crude derivatives, crude and productoptions, fuel oil and gas liquids.

During the third quarter of 2005, the Company’srevenues grew by 31.0% and net income grew by 38.0% as compared to the thirdquarter of 2004. We continued to see success in adding brokerage personnel andnew products, while continuing to build and enhance our existing business. Wealso benefited during the third-quarter from the addition of the assets ofStarsupply, which we believe was timely in light of the activity in the energymarkets. The growth we experienced in the third-quarter 2005 compared to 2004resulted from increased brokerage revenues in all product categories andgeographic regions.

For a detailed descriptionof the Company’s business, including its operations and the associated risks,see the Company’s 2004 Form 10-K filed by the Company under theExchange Act.

**Business Environment**

The global business environment during the quarterended September 30, 2005 continued to be generally positive for ourbusiness, with satisfactory volume levels and modest volatility in globalcredit, equity and foreign exchange markets, and more pronounced volatility incertain global energy markets.

The Company’s business generally benefits from robusttrading volumes and volatility in the markets it serves. Trading volumes inmany of our markets are driven by the trading activity of our dealer customers 

25

----

that, in turn, ispartially responsive to the demand of their “buy-side” customers. During thethird-quarter of 2005, our brokerage revenue growth continued despite theseasonal slowness that regularly occurs during the summer months.

In the third-quarter of 2005, volatility in the creditmarkets decreased from the previous quarter and credit spreads narrowed by asmuch as 25% as reflected in the Dow Jones CDX North American Investment Grade,iTraxx Europe and North American Credit High Yield CDX Swap Spread indices. Thethird-quarter did not have volatility events of the magnitude experienced inthe previous quarter, which saw credit analyst downgrades in the auto, autosupplies and retail industries. The corporate bond market in Europe, however,rebounded from various second quarter downgrades and produced higher returnsthan those of government debt over the quarter, while U.S. bonds were mixed.

Global equity market volatility decreased in thethird-quarter as evidenced by the decline in the Chicago Board Options ExchangeSPX Volatility Index, as well as volume declines at the NYSE and NASDAQ. Corporateearnings gains in the quarter appeared to be partially offset by rising oilprices, rising short-term interest rates and the economic aftermath ofhurricanes in the Gulf of Mexico. Both the Dow Jones Industrial Index and theS&P 500 rose in the quarter. International stock markets outperformed theU.S. stock markets with the Dow Jones World Stock Index up 11.1% over thecourse of the third-quarter. The European markets rebounded from the July terroristbombing in London to post gains, while Asian markets also improved due, inpart, to the revaluation of the Chinese currency and positive economicindications from Japan.

Continued volatility in the global foreign exchangemarkets during the third-quarter was likely attributable to a number of factors.Hurricanes Katrina and Rita caused significant damage leading to uncertaintyregarding the direction of the US economy and short-term interest rates. TheFederal Reserve continued its program of rate increases over the quarterraising short-term rates twice to 3.75%. Inflationary pressure due to high energycosts also contributed to market uncertainty. The U.S. dollar weakened untilearly September, then rallied to return to the levels at the start of thequarter. The U.S. Dollar Index volatility increased substantially following theLondon terrorist attack at the outset of the quarter, then remained relativelycontained thereafter.

More pronounced energymarket volatility in the third-quarter of 2005 resulted from the combination ofsupply disruptions in the Gulf of Mexico caused by the recent hurricanes,continuing Middle-East tensions, and strong global demand. These factors droveenergy prices to record highs. Oil, natural gas and gold volumes on NYMEX wereall up versus the second quarter of 2005.

26

----

**Results of Operations**

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

| ** **                                | ** ** | **Three Months Ended   September 30,** | ** ** | **Nine Months Ended   September 30,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                | ** ** | **2005**                                                   | ** ** | **2004**                                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| REVENUES:                                 |       |                                                       |       |                                                      |       |   |   |   |   |
| Brokerage  revenues:                      |       |                                                       |       |                                                      |       |   |   |   |   |
| Agency commissions                        |       | $                                                          | 89,675     |                                                      | $          | 69,705 |   | $ | 278,433 |   | $ | 188,673 |   |
| Principal transactions                    |       | 36,304                                                     |       | 24,977                                                    |       | 91,982 |   | 75,712 |   |
| Total brokerage revenues                  |       | 125,979                                                    |       | 94,682                                                    |       | 370,415 |   | 264,385 |   |
| Analytics and market data                 |       | 3,894                                                      |       | 3,664                                                     |       | 14,006 |   | 12,349 |   |
| Interest income                           |       | 1,236                                                      |       | 356                                                       |       | 3,179 |   | 802 |   |
| Other (loss) income                       |       | (420                                                       | )          | 1,077                                                     |       | 5,705 |   | 2,386 |   |
| Total revenues                            |       | 130,689                                                    |       | 99,779                                                    |       | 393,305 |   | 279,922 |   |
| EXPENSES:                                 |       |                                                       |       |                                                      |       |   |   |   |   |
| Compensation and employee benefits        |       | 81,461                                                     |       | 62,062                                                    |       | 237,833 |   | 175,623 |   |
| Communications and quotes                 |       | 6,656                                                      |       | 5,196                                                     |       | 18,795 |   | 15,195 |   |
| Travel and promotion                      |       | 5,833                                                      |       | 4,382                                                     |       | 17,634 |   | 13,260 |   |
| Rent and occupancy                        |       | 4,662                                                      |       | 2,861                                                     |       | 12,003 |   | 8,190 |   |
| Depreciation and amortization             |       | 3,434                                                      |       | 3,411                                                     |       | 11,126 |   | 9,796 |   |
| Professional fees                         |       | 2,797                                                      |       | 2,848                                                     |       | 8,193 |   | 6,792 |   |
| Clearing fees                             |       | 3,480                                                      |       | 2,743                                                     |       | 9,825 |   | 6,193 |   |
| Interest expenses                         |       | 778                                                        |       | 838                                                       |       | 2,619 |   | 2,083 |   |
| Other expenses                            |       | 2,217                                                      |       | 2,299                                                     |       | 12,036 |   | 7,010 |   |
| Lease termination costs to affiliate      |       | —                                                     |       | —                                                    |       | (2,266 | ) | — |   |
| Total Expenses                            |       | 111,318                                                    |       | 86,640                                                    |       | 327,798 |   | 244,142 |   |
| INCOME BEFORE  PROVISION FOR INCOME TAXES |       | 19,371                                                     |       | 13,139                                                    |       | 65,507 |   | 35,780 |   |
| PROVISION FOR  INCOME TAXES               |       | 8,523                                                      |       | 5,266                                                     |       | 28,823 |   | 16,014 |   |
| NET INCOME                                |       | $                                                          | 10,848     |                                                      | $          | 7,873 |   | $ | 36,684 |   | $ | 19,766 |   |

 

27

----

Thefollowing table sets forth our condensed consolidated results of operations asa percentage of our total revenues for the periods indicated:

| ** **                                | ** ** | **Three Months Ended   September 30,** | ** ** | **Nine Months Ended   September 30,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                | ** ** | **    2005    **   | ** ** | **    2004    **  | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** |
| REVENUES:                                 |       |                                                       |       |                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Brokerage revenues:                       |       |                                                       |       |                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency commissions                        |       |                                                       | 68.6       | %                                                         |       |   | 69.9 | % |   |   | 70.8 | % |   |   | 67.4 | % |   |
| Principal transactions                    |       |                                                       | 27.8       |                                                      |       |   | 25.0 |   |   |   | 23.4 |   |   |   | 27.0 |   |   |
| Total brokerage revenues                  |       |                                                       | 96.4       |                                                      |       |   | 94.9 |   |   |   | 94.2 |   |   |   | 94.4 |   |   |
| Analytics and market data                 |       |                                                       | 3.0        |                                                      |       |   | 3.6 |   |   |   | 3.6 |   |   |   | 4.4 |   |   |
| Interest income                           |       |                                                       | 0.9        |                                                      |       |   | 0.4 |   |   |   | 0.8 |   |   |   | 0.3 |   |   |
| Other income                              |       |                                                       | (0.3       | )                                                         |       |   | 1.1 |   |   |   | 1.4 |   |   |   | 0.9 |   |   |
| Total revenues                            |       |                                                       | 100.0      | %                                                         |       |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |   |
| EXPENSES:                                 |       |                                                       |       |                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and employee benefits        |       |                                                       | 62.3       | %                                                         |       |   | 62.2 | % |   |   | 60.5 | % |   |   | 62.8 | % |   |
| Communications and quotes                 |       |                                                       | 5.1        |                                                      |       |   | 5.2 |   |   |   | 4.8 |   |   |   | 5.4 |   |   |
| Travel and promotion                      |       |                                                       | 4.5        |                                                      |       |   | 4.4 |   |   |   | 4.5 |   |   |   | 4.7 |   |   |
| Rent and occupancy                        |       |                                                       | 3.6        |                                                      |       |   | 2.9 |   |   |   | 3.0 |   |   |   | 2.9 |   |   |
| Depreciation and amortization             |       |                                                       | 2.6        |                                                      |       |   | 3.4 |   |   |   | 2.8 |   |   |   | 3.5 |   |   |
| Professional fees                         |       |                                                       | 2.1        |                                                      |       |   | 2.9 |   |   |   | 2.1 |   |   |   | 2.4 |   |   |
| Clearing fees                             |       |                                                       | 2.7        |                                                      |       |   | 2.7 |   |   |   | 2.5 |   |   |   | 2.2 |   |   |
| Interest expenses                         |       |                                                       | 0.6        |                                                      |       |   | 0.8 |   |   |   | 0.7 |   |   |   | 0.8 |   |   |
| Other expenses                            |       |                                                       | 1.7        |                                                      |       |   | 2.3 |   |   |   | 3.0 |   |   |   | 2.5 |   |   |
| Lease termination to affiliate            |       |                                                       | —     |                                                      |       |   | — |   |   |   | (0.6 | ) |   |   | — |   |   |
| Total Expenses                            |       |                                                       | 85.2       | %                                                         |       |   | 86.8 | % |   |   | 83.3 | % |   |   | 87.2 | % |   |
| INCOME BEFORE  PROVISION FOR INCOME TAXES |       |                                                       | 14.8       |                                                      |       |   | 13.2 |   |   |   | 16.7 |   |   |   | 12.8 |   |   |
| PROVISION FOR  INCOME TAXES               |       |                                                       | 6.5        |                                                      |       |   | 5.3 |   |   |   | 7.4 |   |   |   | 5.7 |   |   |
| NET INCOME                                |       |                                                       | 8.3        | %                                                         |       |   | 7.9 | % |   |   | 9.3 | % |   |   | 7.1 | % |   |

 

**ThreeMonths Ended September 30, 2005 Compared to the Three Months Ended September 30,2004**

Net income for the three months ended September 30,2005 was $10.9 million as compared to net income of $7.9 million for thethree months ended September 30, 2004, an increase of $3.0 million orapproximately 38.0%. Total revenues increased by $30.9 million, or 31.0%, to$130.7 million for the three months ended September 30, 2005 from$99.8 million for the same period in the prior year. Our increasedrevenues were primarily due to increased brokerage revenues across each of ourproduct categories. Additionally, broker productivity (defined as totalrevenues during the period divided by average monthly brokerage personnelheadcount for the period) increased by approximately 2.2% for the three monthsended September 30, 2005 from the same period in the prior year. Totalexpenses increased by $24.7 million, or 28.5%, to $111.3 million forthe three months ended September 30, 2005 from $86.6 million for thesame period in the prior year. Expenses increased primarily because ofincreased compensation expense, which was attributable to an increase in thenumber of brokerage personnel and an increase in performance-basedbonuses as a result of higher total brokerage revenues for the three monthsended September 30, 2005.

28

----

***Revenues***

*Brokerage Revenues*

Weoffer our brokerage services in four broad product categories: credit,financial, equity and commodity. The charts below detail our brokerage revenuesby product category in dollars and as a percentage of our total brokeragerevenues for the periods indicated.

| ** **                | ** ** | **Three Months Ended   September 30,** | ** ** |
|---------------------------|------------|------------------------------------------------------------|------------|
| ** **                | ** ** | **2005**                                                   | ** ** | **2004** | ** ** |
| **BROKERAGE REVENUES:**   |       |                                                       |       |   |   |
| Credit                    |       | $                                                          | 51,472     |   | $ | 42,315 |   |
| Financial                 |       | 30,804                                                     |       | 20,377 |   |
| Equity                    |       | 25,993                                                     |       | 18,656 |   |
| Commodity                 |       | 17,710                                                     |       | 13,334 |   |
| Total brokerage revenues  |       | $                                                          | 125,979    |   | $ | 94,682 |   |
| **BROKERAGE REVENUES:**   |       |                                                       |       |   |   |
| Credit                    |       | 40.8                                                       | %          | 44.7 | % |
| Financial                 |       | 24.5                                                       |       | 21.5 |   |
| Equity                    |       | 20.6                                                       |       | 19.7 |   |
| Commodity                 |       | 14.1                                                       |       | 14.1 |   |
| Total brokerage  revenues |       | 100.0                                                      | %          | 100.0 | % |

 

Total brokerage revenues increased by $31.3 million,or 33.1%, to $126.0 million for the three months ended September 30, 2005,as compared to $94.7 million for the three months ended September 30,2004. Agency commissions increased by $20.0 million, or 28.7%, to $89.7 millionfor the three months ended September 30, 2005 as compared to $69.7 millionfor the three months ended September 30, 2004. Principal transactionsincreased by $11.3 million, or 45.2%, to $36.3 million for the threemonths ended September 30, 2005 from $25.0 million for the threemonths ended September 30, 2004. Of the total increase in brokeragerevenues of $31.3 million, approximately $16.8 million wasattributable to our existing brokerage desks across all product areas.

The increase in credit product brokerage revenues of$9.2 million was due to a number of factors including robust tradingactivity in the credit markets due to the uncertain equity markets, continuedoverall growth in the credit derivatives market, the development of new creditproducts, and an increase in the number of credit product brokerage personnel. Ourexisting credit product desks contributed $6.4 million of the totalincrease in credit product brokerage revenues. The remaining increase of $2.8million was generated by the addition of sixteen new or restructured creditproduct desks since September 30, 2004. A “restructured” brokerage deskgenerally refers to a brokerage desk that has been created out of a part of anexisting desk in order to allow the brokers on that restructured desk to focuson one or more specific financial instruments or market sectors for which theexisting brokerage desk had previously provided brokerage services. Theincrease in total credit brokerage revenues was also partially attributable tothe increase in the number of credit product brokerage personnel, whichincreased by 35 to 199 at September 30, 2005, as compared to 164 at September 30,2004.

The increase in financial product brokerage revenuesof $10.4 million was primarily attributable to the combination ofincreased revenues from brokerage desks covering interest rate markets,increased trading volumes on both foreign exchange options and interest ratedesks due to the impact of hurricanes Katrina and Rita and an increase in thenumber of financial product brokerage personnel. The majority of the increasein our financial product brokerage revenues was generated from our existingfinancial product desks, which contributed $6.9 million of the increase infinancial product brokerage revenues. The remaining increase of$3.5 million in financial product brokerage revenues was attributable tothe addition 

29

----

of nine new or restructuredfinancial product desks since September 30, 2004. Another factor thatcontributed to the increase in the total financial product brokerage revenuesrelated to an increase in the number of financial product brokerage personnel,which increased by 82 to 210 at September 30, 2005, as compared to 128 at September 30,2004.

Of the total increase in equity product brokeragerevenues of $7.3 million, our existing equity product desks contributed$2.9 million of the increase in equity product brokerage revenues. Theremaining increase of $4.4 million in equity product brokerage revenues wasattributable to the addition of six new or restructured equity product deskssince September 30, 2004.  The totalincrease in equity product brokerage revenues was also partially attributableto our continuing success in marketing equities and equity derivativesexecution to hedge funds and the increase in the number of equity productbrokerage personnel, which increased by 9 to 126 at September 30, 2005, ascompared to 117 at September 30, 2004.

The increase in ourcommodity product brokerage revenues of $4.4 million was attributable tothe combination of investments in new or restructured desks, including revenueof $1.2 million from the nine new desks added as a result of the Starsupplyacquisition, an increase in the number of participants in the market, increasedvolatility in several energy markets and an increase in the number of commoditybrokerage personnel, which increased by 29 to 129 at September 30, 2005,as compared to 100 at September 30, 2004. Our new or restructuredcommodity product desks contributed $3.8 million of the increase incommodity product brokerage revenues. The remaining increase of$0.6 million was generated from our existing commodity product desks.

*Analytics andMarket Data*

Revenues from our analytics and market data productsincreased by $0.2 million, or 5.4%, to $3.9 million for the three monthsended September 30, 2005, as compared to $3.7 million for the threemonths ended September 30, 2004. The increase was primarily due to theincrease in sales of license subscriptions for analytical software for foreignexchange derivatives, energy products and other pricing data and training fees.

*Interest Income*

Interest income increasedby $0.8 million, or 200.0%, to $1.2 million for the three months endedSeptember 30, 2005 as compared to $0.4 million for the three months endedSeptember 30, 2004. The increase was mainly attributable to the higherlevel of average cash balances in the U.S. and the increase in interest incomeon clearing accounts related to our brokerage operations.

*Other Income (Loss)*

Other income (loss)decreased by $1.5 million, or 136.4%, to a loss of $0.4 million for the threemonths ended September 30, 2005 from income of $1.1 million for the threemonths ended September 30, 2004. Other loss for the three months endedSeptember 30, 2005 mainly consisted of net losses on foreign exchangederivative contracts and the transactional net losses based on foreign currencyfluctuations. Other income for the three months ended September 30, 2004primarily consisted of net gains on foreign exchange derivative contracts netof transactional net losses from foreign currency fluctuations.

30

----

***Expenses***

*Compensation andEmployee Benefits*

Compensation and employee benefits increased by $19.4million, or 31.2%, to $81.5 million for the three months ended September 30,2005 from $62.1 million for the three months ended September 30, 2004. Theincrease was primarily due to an increase in the number of brokerage personnelfrom 509 at September 30, 2004 to 664 at September 30, 2005 and anincrease in aggregate brokerage personnel performance bonuses of $9.7 millionover the same periods resulting in large part from our overall higher totalbrokerage revenues and the increase in personnel.

Total compensation andemployee benefits as a percentage of total revenues increased slightly to 62.3%at September 30, 2005 from 62.2% at September 30, 2004. Total compensationand employee benefits as a percentage of total revenues, excluding the effectof deferred compensation arrangements introduced in 2005, would have been 64.8%for the three months ended September 30, 2005.

*Communications andQuotes*

Communications and quotesincreased by $1.5 million, or 28.8%, to $6.7 million for the three months endedSeptember 30, 2005 from $5.2 million for the three months ended September 30,2004. The increase was primarily attributable to the increase in brokeragepersonnel, which increased by 155 to 664 at September 30, 2005 as comparedto 509 at September 30, 2004.

*Travel andPromotion*

Travel and promotionincreased by $1.4 million, or 31.8%, to $5.8 million for the three monthsended September 30, 2005 from $4.4 million for the three months ended September 30,2004. This expense, as a percentage of our total brokerage revenues for thethree months ended September 30, 2005 remained consistent at 4.6% ascompared to the same period from the prior year.

*Rent and Occupancy*

Rent and occupancyincreased by $1.8 million, or 62.1%, to $4.7 million for the three months endedSeptember 30, 2005 from $2.9 million for the three months ended September 30,2004. The increase was primarily due to the increase in rent expenses resultingfrom the lease of additional office space in the U.S. and U.K. and an increasein repairs and maintenance. See Note 8 to the Condensed ConsolidatedFinancial Statements for further discussion of the U.K. lease.

*Depreciation andAmortization*

Depreciation and amortizationremained consistent at $3.4 million for the three months ended September 30,2005 and September 30, 2004. A number of internally developed softwareprojects became fully depreciated in the latter part of 2004 and in early 2005.However, this decrease was offset by the increase in a number of similarinternally developed software projects that were completed and begandepreciating during 2005.

*Professional Fees*

Professional feesdecreased slightly by $0.1 million, or 3.4%, to $2.8 million for the threemonths ended September 30, 2005 from $2.9 million for the three monthsended September 30, 2004. Professional fees relating to audit, tax andother consulting services increased for the three months ended September 30,2005, which offset a decrease in external counsel fees.

31

----

*Clearing Fees*

Clearing fees increased by$0.8 million, or 29.6%, to $3.5 million for the three months ended September 30,2005 from $2.7 million for the three months ended September 30, 2004. Thisincrease was due to a higher volume in the number of principal transactionsexecuted during the three months ended September 30, 2005 as compared tothe same period in the prior year. Principal transactions are generally settledthrough third party clearing organizations that charge us a fee for theirservices. We also use the services of floor brokers on certain stock exchangesto assist in the execution of transactions. Fees paid to floor brokers in thesecircumstances are included in clearing fees.

*Interest Expense*

Interest expense remainedconsistent at $0.8 million for the three months ended September 30, 2005and September 30, 2004. Interest expense for the three months ended September 30,2005 was primarily related to increased interest charges on clearing accountsrelated to our brokerage operations and was offset by a decrease in interestexpense under our Credit Facility, as compared to the three months ended September 30,2004.

*Other Expenses*

Other expenses decreased by $0.1 million, or 4.3%, to$2.2 million for the three months ended September 30, 2005 from $2.3million for the three months ended September 30, 2004. The decrease wasprimarily attributable to an increase in the fair value of the Fenics purchaseobligation and an increase in other miscellaneous expenses for the three monthsended September 30, 2004 as compared to the same period in the currentyear that were partially offset by the reversal of a litigation reserve at September 30, 2004.

*Provision forIncome Taxes*

Our provision for incometaxes totaled $8.5 million for the three months ended September 30,2005 and $5.3 million for the three months ended September 30, 2004.Our effective tax rate was approximately 44.0% for the three months ended September 30,2005 as compared to 40.1% for the comparable period in 2004. The increase inthe effective tax rate was primarily due to an increase in taxes related toforeign operations and a reduction in business tax credits, which was partiallyoffset by an increase in tax-exempt interest and a decrease in state and localtaxes.

**NineMonths Ended September 30, 2005 Compared to the Nine Months Ended September 30,2004**

Net income for the ninemonths ended September 30, 2005 was $36.7 million as compared to netincome of $19.8 million for the nine months ended September 30, 2004, anincrease of $16.9 million or approximately 85.4%. Total revenues increased by$113.4 million, or 40.5%, to $393.3 million for the nine months ended September 30,2005 from $279.9 million for the same period from the prior year. Our increasedrevenues were primarily due to increased brokerage revenues across each of ourproduct categories. Additionally, broker productivity (defined as totalrevenues during the period divided by average monthly brokerage personnelheadcount for the period) increased by approximately 4.3% for the nine monthsended September 30, 2005 compared to the same period for 2004. Totalexpenses increased by $83.7 million, or 34.3%, to $327.8 million for the ninemonths ended September 30, 2005 from $244.1 million for the same periodfrom the prior year. Expenses increased primarily because of increasedcompensation expense, which was primarily attributable to an increase in thenumber of brokerage personnel and support staff and an increase in performance-basedbonuses as a result of higher total brokerage revenues for the nine monthsended September 30, 2005.

32

----

***Revenues***

*Brokerage Revenues*

Weoffer our brokerage services in four broad product categories: credit,financial, equity and commodity. The charts below detail our brokerage revenuesby product category in dollars and as a percentage of our total brokeragerevenues for the periods indicated.

| ** **                | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------|------------|-----------------------------------------------------|------------|
| ** **                | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| **BROKERAGE REVENUES:**   |       |                                                |       |   |   |
| Credit                    |       | $                                                   | 163,874    |   | $ | 116,785 |   |
| Financial                 |       | 86,924                                              |       | 59,839 |   |
| Equity                    |       | 68,864                                              |       | 49,720 |   |
| Commodity                 |       | 50,753                                              |       | 38,041 |   |
| Total brokerage revenues  |       | $                                                   | 370,415    |   | $ | 264,385 |   |
| **BROKERAGE REVENUES:**   |       |                                                |       |   |   |
| Credit                    |       | 44.2                                                | %          | 44.2 | % |
| Financial                 |       | 23.5                                                |       | 22.6 |   |
| Equity                    |       | 18.6                                                |       | 18.8 |   |
| Commodity                 |       | 13.7                                                |       | 14.4 |   |
| Total brokerage  revenues |       | 100.0                                               | %          | 100.0 | % |

 

Total brokerage revenues increased by $106.0 million,or 40.1%, to $370.4 million for the nine months ended September 30, 2005,as compared to $264.4 million for the nine months ended September 30,2004. Agency commissions increased by $89.7 million, or 47.5%, to $278.4million for the nine months ended September 30, 2005 as compared to $188.7million for the nine months ended September 30, 2004. Principaltransactions increased by $16.3 million, or 21.5%, to $92.0 million for thenine months ended September 30, 2005 from $75.7 million for the ninemonths ended September 30, 2004. Of the total increase in brokeragerevenues of $106.0 million, approximately $81.9 million was attributableto our existing brokerage desks across all product areas.

We believe the increase in credit product brokeragerevenues of $47.1 million was due to a number of factors, including growthin exotic credit default swaps, robust trading activity in the credit marketsdue to the uncertain equity markets, strong volatility in credit spreads in keycredit sectors, continued underlying growth in the credit derivatives market,the development of new credit products and an increase in the number of creditproduct brokerage personnel. Our existing credit product desks contributed $42.0million of the total increase in credit product brokerage revenues. Theremaining increase of $5.1 million was generated by the addition of seventeennew or restructured credit product desks since September 30, 2004. Theincrease in total credit revenues was also partially attributable to anincrease in the number of credit product brokerage personnel, which increasedby 35 to 199 at September 30, 2005, as compared to 164 at September 30,2004.

The increase in financial product brokerage revenues of$27.1 million was primarily attributable to a combination of increased revenuesfrom existing interest rate markets, a rebound in revenues from brokeragesdesks covering emerging markets, and an increase in the number of financialproduct brokerage personnel. The majority of the increase in our financialproduct brokerage revenues was generated from our existing financial productdesks, which contributed $22.0 million of the increase in financial productbrokerage revenues. The remaining increase of $5.1 million in financial productbrokerage revenues was attributable to the addition of nine new or restructuredfinancial product desks since September 30, 2004. Another factor thatcontributed to the increase in the total financial product 

33

----

brokerage revenues relatedto an increase in the number of financial product brokerage personnel, whichincreased by 82 to 210 at September 30, 2005, as compared to 128 at September 30,2004.

Of the total increase in equity product brokeragerevenues of $19.1 million, our existing equity product desks contributed$13.3 of the total increase in equity product brokerage revenues. The remainingincrease of $5.8 million was generated by the addition of six new orrestructured equity product desks since September 30, 2004. The totalincrease in equity product brokerage revenues was also partially attributableto increase in the number of equity product brokerage personnel, whichincreased by 9 to 126 at September 30, 2005, as compared to 117 at September 30,2004.

The increase in ourcommodity product brokerage revenues of $12.7 million was attributable to acombination of investments in new or restructured desks, including revenue of$1.2 million from the nine new desks added as a result of the Starsupplyacquisition, an increase in the number of participants in the market, increasedvolatility in several energy markets and an increase in the number of commodityproduct brokerage personnel. Our new or restructured commodity product deskscontributed $8.1 million of the increase in commodity product brokeragerevenues. The remaining increase of $4.6 million was generated from ourexisting commodity product desks. The increase in our total commodity productbrokerage revenues was also partially attributable to an increase in the numberof commodity product brokerage personnel, which increased by 29 to 129 at September 30,2005, as compared 100 at September 30, 2004.

*Analytics andMarket Data*

Revenues from ouranalytics and market data products increased by $1.7 million, or 13.8%, to $14.0million for the nine months ended September 30, 2005 as compared to $12.3million for the nine months ended September 30, 2004. The increase wasprimarily due to the increase in sales of license subscriptions for analyticalsoftware for foreign exchange derivatives and energy products and other pricingdata and training fees.

*Interest Income*

Interest income increasedby $2.4 million, or 300.0%, to $3.2 million for the nine months ended September 30,2005 as compared to $0.8 million for the nine months ended September 30,2004. The increase is mainly attributable to the higher level of average cashbalances resulting from the net proceeds raised from our IPO, cash resultingfrom operations and an increase in interest income on clearing accounts relatedto our brokerage operations.

*Other Income*

Other income increased by$3.3 million, or 137.5%, to $5.7 million for the nine months ended September 30,2005 from other income of $2.4 million for the nine months ended September 30,2004. The increase is primarily related to $7.6 million in gains from one ofour foreign exchange derivative contracts, offset by a loss of $5.4 millionreclassified from accumulated other comprehensive loss into earnings on aforeign exchange derivative contract that was de-designated as a hedge in March 2005and transactional net losses based on foreign currency fluctuations. Otherincome for the nine months ended September 30, 2004 mainly consisted oftransactional net gains based on foreign currency fluctuations.

***Expenses***

*Compensation andEmployee Benefits*

Compensation and employee benefits increased by $62.2million, or 35.4%, to $237.8 million for the nine months ended September 30,2005 from $175.6 million for the nine months ended September 30, 2004. Theincrease was primarily due to an increase in the number of brokerage personnelfrom 509 at 

34

----

September 30, 2004 to664 at September 30, 2005 and an increase in brokerage personnelperformance bonuses of $30.5 million resulting in large part from our overallhigher total brokerage revenues. In addition, the increase was partiallyattributable to a $6.3 million increase in the salaries and bonuses of supportstaff resulting primarily from an increase in the number of our support stafffrom 321 at September 30, 2004 to 362 at September 30, 2005.

Total compensation andemployee benefits as a percentage of total revenues decreased to 60.5% at September 30,2005 from 62.7% at September 30, 2004 primarily due to the increased useof deferred compensation arrangements. Total compensation and employee benefitsas a percentage of total revenues, excluding the effect of deferredcompensation arrangements introduced in 2005, would have been 62.7% for thenine months ended September 30, 2005.

*Communications andQuotes*

Communications and quotesincreased by $3.6 million, or 23.7%, to $18.8 million for the nine monthsended September 30, 2005 from $15.2 million from the nine monthsended September 30, 2004. The increase was primarily attributable to theincrease in brokerage personnel, which increased by 155 to 664 at September 30,2005 as compared to 509 at September 30, 2004.

*Travel andPromotion*

Travel and promotionincreased by $4.3 million, or 32.3%, to $17.6 million for the nine months endedSeptember 30, 2005 from $13.3 million for the nine months ended September 30,2004. This expense, as a percentage of our total brokerage revenues for thenine months ended September 30, 2005, decreased to 4.8% from 5.0% for thenine months ended September 30, 2004. The decrease was primarily due tothe Company’s efforts to lower costs and the increase in the Company’s totalbrokerage revenues.

*Rent and Occupancy*

Rent and occupancyincreased by $3.9 million, or 47.6%, to $12.1 million for the nine monthsended September 30, 2005 from $8.2 million for the nine months ended September 30,2004. The increase was primarily due to the increase in rent expenses resultingfrom the lease of additional office space in the U.S. and U.K. and increasedproperty insurance. See Note 8 to the Condensed Consolidated Financial Statementsfor further discussion of the U.K. lease.

*Depreciation andAmortization*

Depreciation andamortization increased by $1.3 million, or 13.3%, to $11.1 million for the ninemonths ended September 30, 2005 from $9.8 million for the nine monthsended September 30, 2004. The increase was attributable to the increase infixed assets and the accelerated depreciation of $1.1 million related tocertain long-lived assets to be abandoned as a result of the early terminationof the lease of our primary U.K. office premises.

*Professional Fees*

Professional feesincreased by $1.4 million, or 20.6%, to $8.2 million for the nine months ended September 30,2005 from $6.8 million for the nine months ended September 30, 2004. Theincrease was primarily due to the increase in audit, tax and legal fees.

*Clearing Fees*

Clearing fees increased by$3.6 million, or 58.1%, to $9.8 million for the nine months ended September 30,2005 from $6.2 million for the nine months ended September 30, 2004. Thisincrease was 

35

----

due to ahigher volume in the number of principal transactions executed during the ninemonths ended September 30, 2005, as compared to the same period in theprior year. Principal transactions are generally settled through third partyclearing organizations that charge us a fee for their services. We also use theservices of floor brokers on certain stock exchanges to assist in the executionof transactions. Fees paid to floor brokers in these circumstances are includedin clearing fees.

*Interest Expense*

Interest expense increasedby $0.6 million, or 30.0%, to $2.6 million for the nine months ended September 30,2005 from $2.0 million for the nine months ended September 30, 2004. Theincrease was primarily due to increased interest charges on clearing accountsrelated to our brokerage operations, offset by lower interest expense under ourCredit Facility.

*Other Expenses*

Other expenses increasedby $5.1 million, or 72.9%, to $12.1 million for the nine months ended September 30,2005 from $7.0 million for the nine months ended September 30, 2004. Theincrease was primarily attributable to a number of factors including a chargeof $3.2 million in connection with newly-hired brokerage personnel inSingapore to buy-out their employment contracts with their former employers andan increase in the fair value of the Fenics purchase obligations offset by adecrease in irrecoverable Value Added Tax relating to purchases incommunications and quotes in the U.K. and a decrease in other general officeand miscellaneous expenses.

*Lease TerminationCosts to Affiliate*

Lease termination costs toaffiliate represent the estimated lease termination costs in connection withthe termination of the lease for our former primary office in the U.K., whichwe lease from an affiliate. In April 2005, the Company and the affiliateexecuted an amendment to the Lease Termination Agreement entered into in December 2004.The amendment accelerated termination of the lease to April 2005 andrequired the Company to pay a termination charge. As a result of the amendment,in the second quarter of 2005, the Company reduced its lease terminationliability by approximately £1,200 (or $2,266). See Note 14 to theCondensed Consolidated Financial Statements for further discussion of the LeaseTermination Agreement.

*Provision forIncome Taxes*

Our provision for income taxes totaled$28.8 million for the nine months ended September 30, 2005 and$16.0 million for the nine months ended September 30, 2004. Oureffective tax rate was approximately 44.0% for the nine months ended September 30,2005 as compared to 44.8% for the comparable period in 2004. The reduction inthe effective tax rate was primarily due to a decrease in state and local taxesand non-deductible expenses, partially offset by an increase in taxes relatedto foreign operations.

36

----

**Quarterly Results of Operations**

Thefollowing table sets forth, by quarter, our unaudited statement of income datafor the period from January 1, 2004 to September 30, 2005. Results ofany period are not necessarily indicative of results for a full year.

| ** **                                | ** ** | **Quarter Ended**               | ** ** |
|-------------------------------------------|------------|--------------------------------------|------------|
| ** **                                | ** ** | **September 30,  2005**         | ** ** | **June 30,  2005** | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** | **September 30,  2004** | ** ** | **June 30,  2004** | ** ** | **March 30,  2004** | ** ** |
| ** **                                | ** ** | **(dollars in thousands)** | ** ** |
| **Revenues**                              |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Brokerage  revenues:                      |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency commissions                        |       |                                 | $          | 89,675 |   |   | $ | 99,279 |   |   | $ | 89,479 |   |   |   | $ | 73,366 |   |   |   | $ | 69,705 |   |   | $ | 60,589 |   |   | $ | 58,379 |   |   |
| Principal transactions                    |       |                                 | 36,304     |   |   | 29,074 |   |   | 26,604 |   |   |   | 25,627 |   |   |   | 24,977 |   |   | 26,978 |   |   | 23,757 |   |   |
| Total brokerage  revenues                 |       |                                 | 125,979    |   |   | 128,353 |   |   | 116,083 |   |   |   | 98,993 |   |   |   | 94,682 |   |   | 87,567 |   |   | 82,136 |   |   |
| Analytics and market  data                |       |                                 | 3,894      |   |   | 4,711 |   |   | 5,402 |   |   |   | 3,732 |   |   |   | 3,664 |   |   | 4,012 |   |   | 4,673 |   |   |
| Interest income                           |       |                                 | 1236       |   |   | 883 |   |   | 1,060 |   |   |   | 776 |   |   |   | 356 |   |   | 170 |   |   | 276 |   |   |
| Other income (loss)                       |       |                                 | (420       | ) |   | 6,376 |   |   | (251 | ) |   |   | 1,597 |   |   |   | 1,077 |   |   | 701 |   |   | 608 |   |   |
| Total revenues                            |       |                                 | 130,689    |   |   | 140,323 |   |   | 122,294 |   |   |   | 105,098 |   |   |   | 99,779 |   |   | 92,450 |   |   | 87,693 |   |   |
| **Expenses**                              |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and employee benefits        |       |                                 | 81,461     |   |   | 80,896 |   |   | 75,477 |   |   |   | 66,224 |   |   |   | 62,062 |   |   | 58,475 |   |   | 55,086 |   |   |
| Communications and quotes                 |       |                                 | 6,656      |   |   | 6,341 |   |   | 5,799 |   |   |   | 5,341 |   |   |   | 5,196 |   |   | 5,325 |   |   | 4,674 |   |   |
| Travel and promotion                      |       |                                 | 5,833      |   |   | 6,041 |   |   | 5,761 |   |   |   | 6,251 |   |   |   | 4,382 |   |   | 4,930 |   |   | 3,948 |   |   |
| Rent and occupancy                        |       |                                 | 4,662      |   |   | 3,913 |   |   | 3,428 |   |   |   | 2,479 |   |   |   | 2,861 |   |   | 2,756 |   |   | 2,573 |   |   |
| Depreciation and amortization             |       |                                 | 3,434      |   |   | 3,599 |   |   | 4,092 |   |   |   | 4,060 |   |   |   | 3,411 |   |   | 3,243 |   |   | 3,142 |   |   |
| Professional fees                         |       |                                 | 2,797      |   |   | 2,927 |   |   | 2,469 |   |   |   | 2,676 |   |   |   | 2,848 |   |   | 2,178 |   |   | 1,766 |   |   |
| Clearing fees                             |       |                                 | 3,480      |   |   | 2,974 |   |   | 3,371 |   |   |   | 3,623 |   |   |   | 2,743 |   |   | 2,385 |   |   | 1,065 |   |   |
| Interest expenses                         |       |                                 | 778        |   |   | 597 |   |   | 1,244 |   |   |   | 1,076 |   |   |   | 838 |   |   | 666 |   |   | 579 |   |   |
| Other expenses                            |       |                                 | 2,217      |   |   | 5,809 |   |   | 4,009 |   |   |   | 3,343 |   |   |   | 2,299 |   |   | 2,686 |   |   | 2,025 |   |   |
| Lease termination costs to affiliate |       |                                 | —     |   |   | (2,266 | ) |   | — |   |   |   | 2,651 |   |   |   | — |   |   | — |   |   | — |   |   |
| Total expenses                            |       |                                 | 111,318    |   |   | 110,831 |   |   | 105,650 |   |   |   | 97,724 |   |   |   | 86,640 |   |   | 82,644 |   |   | 74,858 |   |   |
| Income before provision for taxes    |       |                                 | 19,371     |   |   | 29,492 |   |   | 16,644 |   |   |   | 7,374 |   |   |   | 13,139 |   |   | 9,806 |   |   | 12,835 |   |   |
| Provision for income  taxes               |       |                                 | 8,523      |   |   | 12,810 |   |   | 7,490 |   |   |   | 4,017 |   |   |   | 5,266 |   |   | 4,716 |   |   | 6,032 |   |   |
| Net income                                |       |                                 | $          | 10,848 |   |   | 16,682 |   |   | $ | 9,154 |   |   |   | $ | 3,357 |   |   |   | $ | 7,873 |   |   | $ | 5,090 |   |   | $ | 6,803 |   |   |
|                                           |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

37

----

Thefollowing table sets forth our quarterly results of operations as a percentageof our total revenues for the indicated periods:

| ** **                                | ** ** | **Quarter Ended**       | ** ** |
|-------------------------------------------|------------|------------------------------|------------|
| ** **                                | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** | **September 30,  2004** | ** ** | **June 30,  2004** | ** ** | **March 30,  2004** | ** ** |
| **Revenues**                              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Brokerage  revenues:                      |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency commissions                        |       |                         | 68.6       | % |   |   | 70.8 | % |   |   | 73.2 | % |   |   | 69.8 | % |   |   | 69.9 | % |   |   | 65.5 | % |   |   | 66.6 | % |   |
| Principal transactions                    |       |                         | 27.8       |   |   |   | 20.7 |   |   |   | 21.8 |   |   |   | 24.4 |   |   |   | 25.0 |   |   |   | 29.2 |   |   |   | 27.1 |   |   |
| Total brokerage revenues                  |       |                         | 96.4       |   |   |   | 91.5 |   |   |   | 95.0 |   |   |   | 94.2 |   |   |   | 94.9 |   |   |   | 94.7 |   |   |   | 93.7 |   |   |
| Analytics and market  data                |       |                         | 3.0        |   |   |   | 3.4 |   |   |   | 4.4 |   |   |   | 3.6 |   |   |   | 3.6 |   |   |   | 4.3 |   |   |   | 5.3 |   |   |
| Interest income                           |       |                         | 0.9        |   |   |   | 0.6 |   |   |   | 0.8 |   |   |   | 0.7 |   |   |   | 0.4 |   |   |   | 0.2 |   |   |   | 0.3 |   |   |
| Other income (loss)                       |       |                         | (0.3       | ) |   |   | 4.5 |   |   |   | (0.2 | ) |   |   | 1.5 |   |   |   | 1.1 |   |   |   | 0.8 |   |   |   | 0.7 |   |   |
| Total revenues                            |       |                         | 100.0      | % |   |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |   |
| **Expenses**                              |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and employee benefits        |       |                         | 62.3       | % |   |   | 57.6 | % |   |   | 61.7 | % |   |   | 63.1 | % |   |   | 62.2 | % |   |   | 63.3 | % |   |   | 62.8 | % |   |
| Communications and quotes                 |       |                         | 5.1        |   |   |   | 4.6 |   |   |   | 4.8 |   |   |   | 5.1 |   |   |   | 5.2 |   |   |   | 5.8 |   |   |   | 5.3 |   |   |
| Travel and promotion                      |       |                         | 4.5        |   |   |   | 4.3 |   |   |   | 4.7 |   |   |   | 5.9 |   |   |   | 4.4 |   |   |   | 5.4 |   |   |   | 4.5 |   |   |
| Rent and occupancy                        |       |                         | 3.6        |   |   |   | 2.8 |   |   |   | 2.8 |   |   |   | 2.4 |   |   |   | 2.9 |   |   |   | 3.0 |   |   |   | 2.9 |   |   |
| Depreciation and amortization             |       |                         | 2.6        |   |   |   | 2.6 |   |   |   | 3.3 |   |   |   | 3.9 |   |   |   | 3.4 |   |   |   | 3.5 |   |   |   | 3.6 |   |   |
| Professional fees                         |       |                         | 2.1        |   |   |   | 2.1 |   |   |   | 2.0 |   |   |   | 2.5 |   |   |   | 2.9 |   |   |   | 2.4 |   |   |   | 2.0 |   |   |
| Clearing fees                             |       |                         | 2.7        |   |   |   | 2.1 |   |   |   | 2.8 |   |   |   | 3.4 |   |   |   | 2.7 |   |   |   | 2.6 |   |   |   | 1.2 |   |   |
| Interest expenses                         |       |                         | 0.6        |   |   |   | 0.4 |   |   |   | 1.0 |   |   |   | 1.0 |   |   |   | 0.8 |   |   |   | 0.7 |   |   |   | 0.7 |   |   |
| Other expenses                            |       |                         | 1.7        |   |   |   | 4.1 |   |   |   | 3.3 |   |   |   | 3.2 |   |   |   | 2.3 |   |   |   | 2.9 |   |   |   | 2.3 |   |   |
| Lease termination costs to affiliate |       |                         | —     |   |   |   | (1.6 | ) |   |   | — |   |   |   | 2.5 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Total expenses                            |       |                         | 85.2       | % |   |   | 79.0 | % |   |   | 86.4 | % |   |   | 93.0 | % |   |   | 86.8 | % |   |   | 89.6 | % |   |   | 85.3 | % |   |
| Income before provision for taxes    |       |                         | 14.8       |   |   |   | 21.0 |   |   |   | 13.6 |   |   |   | 7.0 |   |   |   | 13.2 |   |   |   | 10.4 |   |   |   | 14.7 |   |   |
| Provision for income  taxes               |       |                         | 6.5        |   |   |   | 9.1 |   |   |   | 6.1 |   |   |   | 3.8 |   |   |   | 5.3 |   |   |   | 5.1 |   |   |   | 6.9 |   |   |
| Net income                                |       |                         | 8.3        | % |   |   | 11.9 | % |   |   | 7.5 | % |   |   | 3.2 | % |   |   | 7.9 | % |   |   | 5.3 | % |   |   | 7.8 | % |   |

 

38

----

Thetable below details our brokerage revenues by product category in dollars andas a percentage of our total brokerage revenues for the indicated periods:

| ** **                | ** ** | **September 30,  2005** | ** ** | **June 30,       2005     ** | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** | **September 30,  2004** | ** ** | **June 30,  2004** | ** ** | **March 30,  2004** | ** ** |
|---------------------------|------------|------------------------------|------------|-------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|------------------------------|------------|-------------------------|------------|--------------------------|------------|
| **Brokerage  Revenues:**  |       |                         |       |                                                                                |       |                     |       |                        |       |                         |       |                    |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Credit                    |       |                         | $          | 51,472                                                                              |       |                     |       | $                           | 60,749     |                         |       |                    | $          | 51,653                   |       |   |   | $ | 36,304 |   |   |   | $ | 42,315 |   |   | $ | 37,247 |   |   | $ | 37,223 |   |   |
| Financial                 |       |                         | 30,804     |                                                                                |       |                     | 29,835     |                        |       |                         | 26,285     |                    |       |                     | 24,870     |   |   |   | 20,377 |   |   | 18,922 |   |   | 20,540 |   |   |
| Equity                    |       |                         | 25,993     |                                                                                |       |                     | 21,869     |                        |       |                         | 21,002     |                    |       |                     | 21,753     |   |   |   | 18,656 |   |   | 18,515 |   |   | 12,549 |   |   |
| Commodity                 |       |                         | 17,710     |                                                                                |       |                     | 15,900     |                        |       |                         | 17,143     |                    |       |                     | 16,066     |   |   |   | 13,334 |   |   | 12,883 |   |   | 11,824 |   |   |
| Total brokerage  revenues |       |                         | $          | 125,979                                                                             |       |                     |       | $                           | 128,353    |                         |       |                    | $          | 116,083                  |       |   |   | $ | 98,993 |   |   |   | $ | 94,682 |   |   | $ | 87,567 |   |   | $ | 82,136 |   |   |
| **Brokerage  Revenues:**  |       |                         |       |                                                                                |       |                     |       |                        |       |                         |       |                    |       |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Credit                    |       |                         | 40.8       | %                                                                                   |       |                     | 47.3       | %                           |       |                         | 44.5       | %                       |       |                     | 36.7       | % |   |   | 44.7 | % |   | 42.6 | % |   | 45.3 | % |   |
| Financial                 |       |                         | 24.5       |                                                                                |       |                     | 23.2       |                        |       |                         | 22.6       |                    |       |                     | 25.1       |   |   |   | 21.5 |   |   | 21.6 |   |   | 25.0 |   |   |
| Equity                    |       |                         | 20.6       |                                                                                |       |                     | 17.0       |                        |       |                         | 18.1       |                    |       |                     | 22.0       |   |   |   | 19.7 |   |   | 21.1 |   |   | 15.3 |   |   |
| Commodity                 |       |                         | 14.1       |                                                                                |       |                     | 12.4       |                        |       |                         | 14.8       |                    |       |                     | 16.2       |   |   |   | 14.1 |   |   | 14.7 |   |   | 14.4 |   |   |
| Total brokerage  revenues |       |                         | 100.0      | %                                                                                   |       |                     | 100.0      | %                           |       |                         | 100.0      | %                       |       |                     | 100.0      | % |   |   | 100.0 | % |   | 100.0 | % |   | 100.0 | % |   |

 

Thetable below details our brokerage revenues by geographic region in dollars andas a percentage of our total brokerage revenues for the indicated periods:

| ** **                | ** ** | **Three months ended**     | ** ** |
|---------------------------|------------|--------------------------------------|------------|
| ** **                | ** ** | **September 30,  2005**         | ** ** | **June 30,       2005     ** | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** | **September 30,  2004** | ** ** | **June 30,      2004    ** | ** ** | **March 30,  2004** | ** ** |
| ** **                | ** ** | **(dollars in thousands)** | ** ** |
| **Brokerage  Revenues:**  |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.                      |       |                                 | $          | 65,845 |   |   |   | $ | 63,234 |   |   |   | $ | 56,495 |   |   |   | $ | 49,590 |   |   |   | $ | 45,150 |   |   |   | $ | 41,054 |   |   |   | $ | 34,644 |   |   |
| U.K.                      |       |                                 | 49,574     |   |   |   | 54,895 |   |   |   | 52,096 |   |   |   | 44,330 |   |   |   | 44,025 |   |   |   | 41,625 |   |   |   | 42,437 |   |   |
| Asia-Pacific              |       |                                 | 10,560     |   |   |   | 10,224 |   |   |   | 7,492 |   |   |   | 5,073 |   |   |   | 5,507 |   |   |   | 4,888 |   |   |   | 5,055 |   |   |
| Total brokerage revenues  |       |                                 | $          | 125,979 |   |   |   | $ | 128,353 |   |   |   | $ | 116,083 |   |   |   | $ | 98,993 |   |   |   | $ | 94,682 |   |   |   | $ | 87,567 |   |   |   | $ | 82,136 |   |   |
| **Brokerage  Revenues:**  |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.                      |       |                                 | 52.2       | % |   |   | 49.2 | % |   |   | 48.6 | % |   |   | 50.1 | % |   |   | 47.7 | % |   |   | 46.9 | % |   |   | 42.1 | % |   |
| U.K.                      |       |                                 | 39.4       |   |   |   | 42.8 |   |   |   | 44.9 |   |   |   | 44.8 |   |   |   | 46.5 |   |   |   | 47.5 |   |   |   | 51.7 |   |   |
| Asia-Pacific              |       |                                 | 8.4        |   |   |   | 8.0 |   |   |   | 6.5 |   |   |   | 5.1 |   |   |   | 5.8 |   |   |   | 5.6 |   |   |   | 6.2 |   |   |
| Total brokerage  revenues |       |                                 | 100.0      | % |   |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |   |

 

**Liquidity and Capital Resources**

On January 31, 2005, we completed an IPO of ourcommon stock, selling 3,947,369 shares of common stock at $21.00 per share. Ourproceeds from the IPO after deducting underwriters’ discounts and expenses were$73.7 million.

At September 30, 2005, we had cash and cashequivalents of $126.4 million, an increase of $21.2 million as compared to$105.2 million at December 31, 2004. Cash provided by operating activitieswas $10.0 million and consisted of net income of $36.7 million adjusted for non-cashitems of $8.5 million and $35.2 million utilized for working capital. The$35.2 million utilized for working capital was primarily comprised of changesin net receivables to brokers, dealers and clearing organizations, accruedcommissions receivables and other assets, offset by increases in accruedcompensation and other liabilities. Cash used in investing activities of $26.1million reflected cash used for the acquisition of assets and certain 

39

----

liabilities of Starsupply,the acquisition of the minority interest in Fenics and purchases of property,equipment and leasehold improvements, offset by proceed received from foreignexchange derivative contracts. Cash provided by financing activities of $37.1million reflected net proceeds received from the IPO and the exercises of stockoptions and a warrant, offset by the repayment of the loan note payable to JPIin January 2005 and the net repayments of amounts under our CreditFacility.

Our liquidity and available cash resources are in partrestricted by the regulatory requirements of our operating subsidiariesincluding GFI Securities LLC, GFI Securities Limited, GFI Brokers Limited, GFI (HK)Securities LLC and GFI Group Pte Ltd. GFI Securities LLC is subject toregulatory capital requirements under the Securities Exchange Act of 1934 andthe Commodity Exchange Act. GFI Securities Limited and GFI Brokers Limitedare subject to the regulatory capital requirements of the Financial ServicesAuthority in the United Kingdom. GFI Securities Limited’s Japanese branch issubject to licensing and financial requirements by the Japan Securities DealersAssociation. GFI (HK) Securities LLC is subject to the regulatory capitalrequirements of the Securities and Futures Commission in Hong Kong. GFIGroup Pte Ltd. is subject to the regulatory compliance requirements of theMonetary Authority of Singapore. At September 30, 2005, GFI SecuritiesLLC, GFI Securities Limited, GFI Brokers Limited, GFI (HK) Securities LLC andGFI Group Pte Ltd. were in compliance with their respective regulatorycapital requirements. See Note 11 to our condensed consolidated financialstatements for a further discussion of these regulatory requirements.

We anticipate that we will experience an increase inour capital expenditures and lease commitments consistent with our anticipatedgrowth in operations, infrastructure and personnel. We currently anticipatethat we will continue to experience significant growth in our operating expensesfor the foreseeable future and that our operating expenses will be a materialuse of our cash resources.

We believe that, based oncurrent levels of operations and anticipated growth, our cash from operations,together with cash currently on hand or available under our Credit Facility,will be sufficient to fund our operations for at least the next twelve months.Poor financial results, unanticipated expenses, unanticipated acquisitions orunanticipated strategic investments could give rise to additional financingrequirements sooner than we expect. There can be no assurance that equity ordebt financing will be available when needed or, if available, that thefinancing will be on terms satisfactory to us and not dilutive to ourthen-current stockholders.

**ContractualObligations and Commitments**

Thefollowing table summarizes certain of our contractual obligations as of September 30,2005:

| ** **                   | ** ** | **Payments Due by Period** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|
| ** **                   | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| ** **                   | ** ** | **(dollars in thousands)**      | ** ** |
| **Contractual  Obligations** | ** ** | ** **                                | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |
| Operating  Leases(1)         |       | $                                         | 47,170     |   |   | $ | 4,073 | ** ** |   | $ | 7,976 |   | $ | 11,583 |   |   | $ | 23,538 | ** ** |   |
| Notes Payable(2)             |       | 14,000                                    |       |   | 14,000 | ** ** |   | — |   | — |   |   | — | ** ** |   |
| Purchase  Obligations(3)     |       | 12,869                                    |       |   | 10,784 | ** ** |   | 2,085 |   | — |   |   | — | ** ** |   |
| **Total**                    |       | $                                         | 74,039     |   |   | $ | 28,857 | ** ** |   | $ | 10,061 |   | $ | 11,583 |   |   | $ | 23,538 | ** ** |   |

----

(1)          Amounts listed underOperating Leases include a sublease agreement with an affiliate for an eighteen-monthterm with annual rent of £0.5 million (approximately $0.9 million).See Note 14 to our condensed consolidated financial statements for furtherdiscussion. Additionally, amounts listed under operating leases include thefuture minimum rental commitments relating to a ten-year lease that the Companyentered into for its current primary U.K. office space in April 2005. Thetotal minimum 

40

----

rental commitments underthis lease total $22,273, with $1,803 due within one to three years, $5,733 duewithin three to five years and $14,737 due in more than five years.

(2)          Amount listed underNotes Payable represents outstanding borrowings under our Credit Facility andvary from the notes payable reflected in our financial statements because ourfinancial statements reflect the total debt net of unamortized loan fees. SeeNote 5 to the Condensed Consolidated Financial Statements for furtherinformation.

(3)          Amountslisted under Purchase Obligations include agreements for quotes with variousinformation service providers. Additionally, it includes purchase commitmentsfor capital expenditures relating to our primary lease in the U.K.

**Off-Balance Sheet Arrangements**

The Company did not haveany off-balance sheet arrangements at September 30, 2005.

**CriticalAccounting Policies and Estimates**

We have disclosed inNote 2 to our condensed consolidated financial statements and under“Item 7—Management’s Discussion and Analysis of Financial Condition andResults of Operations” included in the 2004 Form 10-K thoseaccounting policies that we consider to be significant in determining itsresults of operations and financial condition. There have been no materialchanges in accounting principals utilized by the Company since the 2004Form 10-K. The accounting principles utilized by the Company inpreparing its condensed consolidated financial statements conform in allmaterial respects to generally accepted accounting principles in the UnitedStates of America.

**Recent Accounting Pronouncements**

In March 2005, theSEC staff issued SAB No. 107 to provide guidance on SFAS No. 123(R),Share-Based Payments, (SFAS No. 123(R)). SAB No. 107 providesthe staff’s view regarding the valuation of share-based paymentarrangements for public companies. In particular, this SAB provides guidancerelated to share-based payment transactions with non-employees, thetransition from non public to public entity status, valuation methods(including assumptions such as expected volatility and expected term), theaccounting for certain redeemable financial instruments issued under share-basedpayment arrangements, the classification of compensation expense, non-GAAPfinancial measures, first time adoption of SFAS No. 123(R), themodification of employee share options prior to the adoption of SFASNo. 123(R) and disclosure in Management’s Discussion and Analysissubsequent to the adoption of SFAS No. 123(R). SAB No. 107 becameeffective March 29, 2005. In April 2005, the SEC modified theeffective date of SFAS No. 123(R) to be as of the first reportingperiod of the first fiscal year beginning after June 15, 2005. The SEC’smodification of the effective date did not change the accounting required bySFAS No. 123(R). The impact of SFAS No. 123(R) and SABNo. 107 on the Company’s condensed consolidated financial statements iscurrently being evaluated.

41

----

**ITEM 3.**                QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our quantitative andqualitative disclosures about market risk are described in “Item 7—Management’sDiscussion and Analysis of Financial Condition and Results of Operations”contained in our 2004 Form 10-K. Except as described below in this Form 10-Q,there have been no material changes to those market risks during the ninemonths ended September 30, 2005.

**Foreign Currency Exposure Risk**

We are exposed to market risk associated with movementsin foreign currency exchange rates. There have been no material changes to ourrisk management policy as described in “Item 7A—Quantitative and QualitativeDisclosures about Market Risk” contained in our 2004 Form 10-K.

At September 30, 2005, we had an outstandingforeign exchange derivative contract to purchase and sell foreign currency withnotional amounts translated into U.S. Dollars of $90.1 million. At September 30,2005, if the Euro strengthened by 10% against the U.S. Dollar, it woulddecrease the fair value of this contract and, as a result, accumulated othercomprehensive income would decrease by approximately $4.6 million, net of tax.

While our internationalresults of operations, as measured in U.S. dollars, are subject to foreignexchange rate fluctuations, we do not consider the related risk to be materialto our results of operations. If the Euro and the British Pound strengthened by10% against the U.S. Dollar, the net impact to our net income would have been areduction of approximately $0.6 million.

**Interest Rate Risk**

We had $14.0 million invariable rate debt outstanding at September 30, 2005. These debtobligations are subject to fluctuations in interest rates, which impact theamount of interest we must pay. If variable interest rates were to increase by0.50% per annum, the annual impact to our net income would be immaterial.

**ITEM 4.**                CONTROLSAND PROCEDURES

As of the end of the period covered by this report,the Company’s management carried out an evaluation, under the supervision andwith the participation of our Chief Executive Officer and our Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosurecontrols and procedures. Based on the foregoing, our Chief Executive Officerand Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of the end of the period covered by this quarterlyreport in providing a reasonable level of assurance that information we arerequired to disclose in reports we file or furnish under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.

In addition, the Company’s management, including theCompany’s Chief Executive Officer and Chief Financial Officer, has evaluatedthe Company’s internal controls over financial reporting and determined thatthere have been no changes in our internal controls over financial reportingduring the third-quarter of 2005 that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

42

----

**PART II—OTHER INFORMATION**

**ITEM 1.**                LEGALPROCEEDINGS

In the normal course of business, we are and have beenparty to, or otherwise involved in, litigations, claims and arbitrations thatinvolve claims for substantial amounts. These proceedings have generallyinvolved either competitor claims in connection with new employee hires, orclaims from former employees in connection with the termination of theiremployment from us. We are also involved, from time to time, in examinations,investigations or proceedings by government agencies and self-regulatoryorganizations. There is also potential for client claims alleging theoccurrence of errors in the execution of brokerage transactions.

We believe proceedings ofthese types are common in the inter-dealer brokerage industry due to itshighly competitive nature. Although the ultimate outcome of these proceedingscannot be ascertained at this time, we believe that damages, if any, resultingfrom such proceedings will not, in the aggregate, have a material adverse effecton our financial condition, but may be material to our operating results forany particular period.

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

During the third-quarterof 2005, we used $3.2 million of the net proceeds from the IPO in connectionwith newly-hired brokerage personnel in Singapore to buy-out their employmentcontracts with their former employers and $4.0 million for capitalcontributions to certain subsidiaries in Asia to be used for investments in keypersonnel recruitment and for working capital purposes. As of September 30,2005, we had fully utilized our net proceeds from the IPO.

**ITEM 6.**                EXHIBITS

Exhibits:

| Exhibit No. | ** ** | ** **                                                                                                                               | **Description** |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|-----------------|
| 31.1             |       | Certification of Chief  Executive Officer.                                                                                               |
| 31.2             |       | Certification of  Chief Financial Officer.                                                                                               |
| 32.1             |       | Certification of  Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 (18 U.S.C. Section 1350). |
| 32.2             |       | Certification of Chief  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 (18 U.S.C. Section 1350). |

 

43

----

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

|        | GFI GROUP INC.          |
|--------|-------------------------|
|   | By:                     |
|   |                    | /s/ JAMES A. PEERS |
| Date:  | November 14,  2005 |   |   | Name: | James A. Peers |
|   |                    | Title: | *Chief Financial Officer  (principal financial and accounting officer)* |
|        |                         |  |  |  |  |

 

44

----

**Exhibit Index**
| Exhibit No. | ** **                                                                                                                                                                                                           | ** ** | **Description** |
|------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| (31.1)           | Certification of Chief  Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of  the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002 |
| (31.2)           | Certification of  Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of  the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002 |
| (32.1)           | Certification of  Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                   |
| (32.2)           | Certification of Chief  Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                   |

 

45

----