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Article by DailyStocks_admin    (03-24-08 08:37 AM)

GFI Group Inc. CEO Michael Gooch bought 12,497 shares on 3-18-2008 at 55.13

BUSINESS OVERVIEW

Our Business

Introduction

We are a leading global inter-dealer broker specializing in over-the-counter ("OTC") derivatives products and related securities. We founded our business in 1987 and were incorporated under the laws of the State of Delaware in 2001 to be a holding company for our subsidiaries. We provide brokerage services and data and analytics products to institutional clients in markets for a range of credit, financial, equity and commodity instruments. We function as an intermediary on behalf of our brokerage clients by matching their trading needs with counterparties having reciprocal interests. We focus primarily on the more complex, and often less commoditized, markets for sophisticated financial instruments, primarily OTC derivatives, that offer an opportunity for strong growth and higher commissions per transaction than the markets for more standardized financial instruments. We have been recognized by various industry publications as a leading provider of inter-dealer brokerage services for certain products in the credit, financial, equity and commodity markets on which we focus.

We offer our clients a hybrid brokerage approach, combining a range of telephonic and electronic trade execution services, depending on the needs of the individual markets. We complement our hybrid brokerage capabilities with decision support services, such as value-added data and analytics products, and post-transaction services, such as straight-through processing ("STP") and transaction confirmations. We earn revenues for our brokerage services and charge fees for certain of our data and analytics products.

At December 31, 2007, we employed 1,037 brokerage personnel (consisting of 880 brokers and 157 trainees and clerks) serving over 2,200 brokerage and data and analytics clients, including leading commercial and investment banks, corporations, insurance companies and hedge funds, through our principal offices in New York, London, Paris, Singapore, Seoul, Tokyo, Hong Kong, Sydney, Cape Town, Calgary, Sugar Land (TX) and Englewood (NJ).

Based on the nature of our operations in each geographic region, our products and services, production process, customers and regulatory environment, we concluded that we have three operating segments: North America Brokerage, Europe Brokerage and Asia Brokerage. Our brokerage operations provide brokerage services in four broad product categories: credit, financial, equity and commodity. We aggregated our operating segments into two reportable segments: Brokerage and "All Other". The Brokerage segment includes operations from North America and Europe. The All Other segment captures costs that are not directly assignable to one of the operating business segments, primarily consisting of our corporate business activities and operations from analytics and market data. In addition, the All Other segment includes our Asia-Pacific brokerage operations. See Note 19 to the Consolidated Financial Statements for further information on our revenues by segment and geographic region.

Our Industry

On most business days, trillions of dollars in securities, commodities, currencies and derivative instruments are traded around the world. These products range from standardized financial instruments, such as common equity securities and futures contracts, that are typically traded on exchanges, to more complex, less standardized instruments, such as OTC derivatives, that are typically traded between institutional dealers, which are primarily global investment and money center banks and hedge funds. Buyers and sellers of exchange-traded financial instruments benefit from the price transparency and enhanced liquidity provided by liquidity facilitators, such as market makers and specialists, who participate in those markets. Buyers and sellers of many OTC instruments, on the other hand, frequently rely on an inter-dealer broker to facilitate liquidity by gathering pricing information and identifying counterparties with reciprocal interests.

Market Evolution

We define a liquid financial market as one in which a financial instrument is easy to buy or sell quickly with minimal price disturbance. The liquidity of a market for a particular financial product or instrument depends on several factors, including: the presence of a number of market participants and facilitators of liquidity, the availability of pricing reference data, and the availability of standardized terms. Liquid markets are characterized by substantial price competition, efficient execution and high trading volume. While a market for an exchange-traded instrument is ordinarily liquid, some large OTC markets, such as the market for U.S. treasury securities, are also highly liquid. In such liquid, OTC markets, commissions are generally lower because there are often numerous, readily identifiable buyers and sellers causing the traditional telephonic brokerage services of inter-dealer brokers to be less essential and to command less of a premium.

Complex financial instruments that are traded OTC are often less commoditized and are traded primarily by more sophisticated institutional buyers and sellers. In these markets, an inter-dealer broker can provide greater value to the efficient execution of a trade by applying its market knowledge to locate a number of bids and offers so that buyers and sellers may find counterparties with which to trade, which can be especially helpful for large or non-standardized transactions. An inter-dealer broker ordinarily accomplishes this by contacting potential counterparties directly by telephone or electronic messaging and, in an increasing number of cases, market participants post prices and may execute transactions via proprietary trading technology provided by the inter-dealer broker. In addition, in a less liquid market with fewer participants, disclosure of the intention of a participant to buy or sell could disrupt the market and lead to poor pricing. By using an inter-dealer broker, the identities of the transaction parties are not disclosed in many transactions until the trade is consummated and, therefore, market participants better preserve their anonymity. For all these reasons, in a less commoditized market, an inter-dealer broker can offer important value to market participants.

As a market for a particular financial instrument develops and matures, more buyers and sellers enter the market, generally resulting in more transactions and more pricing information. In addition, the terms of such financial instruments tend to become more standardized, generally resulting in a more highly-liquid market. In this way, a relatively illiquid market for an instrument may evolve over a period of time into a more highly-liquid market. As this evolution occurs, the characteristics of trading, the preferred mode of execution and the size of commissions that inter-dealer brokers charge, may also change. In some cases, as the market matures, an inter-dealer broker may provide a client with an electronic screen or system that displays the most current pricing information. In addition, a market may have some characteristics of both more liquid and less liquid markets, which requires an inter-dealer broker to offer integrated telephonic and electronic brokering. We refer to this integrated service as hybrid brokerage. In some cases, hybrid brokerage involves coupling traditional telephonic brokerage-services with various electronic enhancements, such as electronic communications, price discovery tools and order entry. In other cases, hybrid brokerage involves full electronic execution supported by telephonic communication between the broker and their clients.

The Derivatives Market

Derivatives are increasingly being used by financial institutions, hedge funds and large corporations to manage risk or take advantage of an anticipated direction of a market by allowing holders to guard against gains or declines in the price of underlying financial assets, indices or other investments without having to buy or sell such underlying assets, indices or other investments. The underlying asset, index or other investment may be, among other things, a physical commodity, an interest rate, a stock, an index or a currency. Derivatives are commonly used to mitigate the risks associated with interest rate movements, equity ownership, changes in the value of foreign currency, credit defaults by large corporate and sovereign debtors and changes in the prices of commodity products. Common types of derivatives include futures, options and swaps. They derive their value based on the inherent value of the underlying asset.

Derivatives are traded both OTC and on exchanges. According to a recent report of the Bank for International Settlements, OTC derivatives accounted for over 84% of the total outstanding global derivatives transactions as of June 2007 (as measured by notional amount). The liquidity of markets for particular OTC derivative instruments varies from highly liquid, such as the market for Eurodollar interest rate derivatives, to illiquid, such as the market for certain customized credit derivatives which are structured to meet specific investor needs.

The International Swaps and Derivative Association, Inc. ("ISDA") also reported in a recent survey of its members that in the first half of 2007, among the derivative instruments surveyed, credit derivatives were the fastest growing segment of the derivatives market with notional amounts outstanding growing 32% over that six month period. The survey stated that at mid-year 2007, notional amounts outstanding of credit derivatives grew to approximately $45.5 trillion from approximately $26.0 trillion at mid-year 2006. This increase represented period-over-period growth of approximately 75.0%. Although several exchanges launched exchange-traded credit derivative products in 2007, credit derivatives are currently traded almost entirely in OTC transactions, either directly or through inter-dealer brokers and other financial institutions.

Furthermore, the number of different derivative instruments is growing as companies and financial institutions develop new and innovative derivative instruments to meet industry demands for sophisticated risk management and complex financial arbitrage. In its 2007 annual survey, Risk magazine identified 119 categories of derivatives, excluding commodity derivatives. Novel derivative instruments often have distinct terms and little or no trading history with which to estimate a price. Markets for new derivative instruments therefore require market intelligence and the services of highly skilled and well-informed brokers and reliable market data and pricing tools.

An example of more novel, OTC derivative instruments would be credit default swaps on leveraged loans ("Loan CDS"). These instruments allow investors to take or offset the risk of default on senior secured debt of non-investment grade companies. The advent of the Loan CDS market is an example of how the overall credit derivatives market is expanding to different areas of the credit spectrum. Another example of an innovative and complex OTC derivative instrument is carbon emissions options, which allow trading houses and other market participants to take or offset their exposure in the fast growing European market for carbon dioxide emissions allowances under the European Union Emissions Trading Scheme, or ETS. The ETS permits European-based companies that exceed individual carbon dioxide emissions targets to purchase emissions allowances from other companies that emit less than their emissions targets.

Our Market Opportunity

We believe the markets for financial instruments, especially the markets for derivative instruments, present us with the following opportunities to provide value to our clients:

Need for efficient execution in both liquid and less liquid markets. While the use of execution technology is becoming more common in the inter-dealer brokerage industry, only certain highly liquid and standardized financial instruments may be fully traded electronically in an efficient manner. More complex OTC products, such as derivatives, typically require telephonic brokerage to provide market intelligence to clients and to aid the execution process. We believe that inter-dealer brokers who provide a combination of telephonic and electronic brokerage services are better positioned to meet the particular needs of the markets in which they operate than competitors that cannot offer this combination of services.

Need for expertise in the development of new markets. In order to better support their clients' evolving investment and risk management strategies, our dealer clients create new products, including new derivative instruments. Dealers also modify their trading techniques in order to better support their clients' needs, such as by integrating the trading of derivative instruments with the trading of related underlying or correlated financial assets, indices or other investments. We believe the markets for these new products and trading techniques create an opportunity for those inter-dealer brokers who, through market knowledge and extensive client relationships, are able to identify these new product opportunities and to focus their brokerage services appropriately.

Need for market intelligence. Inter-dealer brokers that execute a higher volume of trades of a particular financial product and have access to more market participants are better positioned to provide valuable pricing information than brokers who less frequently serve that market. In less commoditized financial markets, including markets for novel and complex financial instruments, market leadership becomes more important because reliable pricing information is difficult to obtain. Market participants in these less liquid markets utilize the services of the leading inter-dealer brokers in order to gain access to the most bids and offers for a particular product. Similarly, inter-dealer brokers who have a leading market share can offer superior market data and analytics tools based on their access to the broadest selection of transaction and pricing information. For example, some market participants pursue trading strategies that combine credit default swaps with convertible bonds or equity derivatives of the securities of a single issuer or a basket of issuers. Inter-dealer brokers that have high volumes of bids and offers in the credit derivative markets and have access to technology which allows them to track such market data against activity in the bond and equity markets are well positioned to provide such market participants with analytical insight into correlated movements in related securities of a single issuer or related issuers or indexes.

Increasing industry consolidation. Historically, the inter-dealer brokerage industry consisted of a number of small and mid-sized private firms that used traditional telephonic brokerage methods to serve their clients and to compete against each other in various product categories. The industry has begun to consolidate in recent years, in part, due to the increasing importance of technology, including electronic execution, integrated trade processing and analytics and market data. Through acquisitions, larger inter-dealer brokers with access to capital have been better positioned to make the investments necessary to supply their clients with this technology. We believe that inter-dealer brokers with developed technology resources which enhance brokerage execution and pre-and post-trade analysis and processing are better able to consistently meet the execution needs of their clients and recruit and retain the most capable brokers. As a result of these trends, smaller inter-dealer brokers may find it harder to compete and several have been acquired by larger inter-dealer brokers with developed technological capabilities and better access to capital. We believe that the continued consolidation of the industry provides an opportunity for these larger inter-dealer brokers to strategically expand their businesses to better serve evolving client demands.

Our Competitive Strengths

We believe our principal competitive strengths are the following.

Strong Brand and Leading Position in Key Markets. We believe that over our twenty year history, we have successfully created value in our brand that our clients associate with high quality services in the markets on which we focus. Our leadership in these markets, such as the markets for certain credit and equity derivatives, foreign exchange options and commodity products, has been recognized by rankings in industry publications such as Risk magazine, FX Week and Energy Risk magazine. In an annual survey of dealers and brokers conducted by Risk magazine, we have been ranked as the leading broker in more categories of credit derivatives than any other inter-dealer broker over the last nine years. In its 2007 annual survey, Risk magazine also ranked us as a leading broker in credit default swaps and numerous currency and equity derivative markets. Energy Risk magazine also listed GFI as #1 Energy Broker in 2007. In addition, GFI's Fenics® FX option analysis product is a leading analytic tool in the foreign exchange markets, and our electronic trading platforms, Creditmatch® and GFI ForexMatch™, were also recognized for excellence by Financial News and FX Week, respectively.

We believe our leading positions in these markets provide us with greater access to market and pricing information, including a broad selection of proprietary market data that we are able to provide to our clients. In addition, we believe that our leading market share in key OTC markets, such as credit derivatives, and our ability to use technology to track such market data, enables us to provide market participants with better analytical insight into correlated movements in related securities of a single issuer, related issuers or indexes in the credit derivative, bond and equity markets. In addition, we believe that, because of these leading market positions and differentiated technological capabilities, we are better positioned, compared to many of our inter-dealer competitors, to serve the growing needs of clients who are pursuing sophisticated capital structure arbitrage strategies and correlation-based trading.

Ability to Identify and Develop High Growth, Less Commoditized Markets. We focus primarily on complex and innovative financial markets where liquidity is harder to achieve and, therefore, our services are more valuable to market participants. We believe these markets offer an opportunity for growth to inter-dealer brokers that move early to foster liquidity. We seek to anticipate the development and growth of markets for evolving, innovative financial products in which we believe we can garner a leading market position and enjoy higher commissions. For example, we entered the credit derivatives market in 1996 at a time when we believed the market showed promise but had only modest activity. According to the British Bankers' Association, the size of the global credit derivatives market was only $180 billion in 1997 (measured by notional amount outstanding). According to ISDA, notional amounts outstanding of credit derivatives have grown to $45.5 trillion at mid-year 2007, a compounded annual growth rate of over 79% for that nine and a half year period. We believe our familiarity with the needs of such rapidly growing markets and our experience with complex product structures allow us to better serve clients in high-growth, less liquid markets than many of our competitors.

Hybrid Brokerage Platforms. We seek to tailor our use of electronic trading and other technology to the transactional nuances of each specific market. While the more complex, less commoditized markets on which we focus often require significant amounts of personal and attentive service from our brokers, some of our other markets may benefit from the introduction of electronic brokerage platforms. Depending on the needs of the individual markets, we offer a hybrid approach to our clients that combines a range of electronic and telephonic trade execution services. For example, our clients may choose between utilizing our CreditMatch®, GFI ForexMatch™ or EnergyMatch® electronic trading platforms to trade a range of credit derivatives, foreign exchange options or emission allowances entirely on screen or executing the same transaction over the telephone through our brokers. We also believe we add value for clients who trade in complex financial markets by offering data and Fenics® analytics products for decision support. We seek to establish data communication and STP connections with our clients' settlement, risk management and compliance operations in order to better serve their needs and to strengthen our relationships with them. STP generally involves the use of technology to automate the processing of financial transactions, from execution to settlement, in order to minimize human error, reduce operational costs and time, and enhance transaction information and reporting. We believe our hybrid brokerage approach provides us with a competitive advantage over competitors who do not offer this technology.

On January 31, 2008, we acquired Trayport Limited ("Trayport"), a provider of electronic trading software and services to the commodities, fixed income, currencies and equities markets. Trayport's GlobalVision products have an industry leading position in supplying software to the European OTC energy markets including electric power, natural gas, coal, emissions and freight. Its technology accommodates electronic trading, information sharing and STP capabilities in commodity and financial instruments. The acquisition of Trayport, with its leading position in the European OTC energy markets and its trading and processing capabilities further enhances our hybrid brokerage model.

Quality Data and Analytics Products. We are one of the few inter-dealer brokers that offer a broad array of data and analytics products to participants in the complex financial markets in which we specialize. Our data products are derived from the trade data compiled from our brokerage services in our key markets. Our analytics products benefit from the reputation of the Fenics® brand for reliability, ease of use and independence from any large dealer. Our Fenics® tools are used, not only by our traditional brokerage clients, but also by their clients, such as national and regional financial institutions and large corporations worldwide. These products are designed to serve the needs of certain markets for reliable data and trusted analytics tools and are leveraged to enhance our brokerage revenues across market products. We believe that our ability to offer these products helps to support our leadership in our key markets.

Experienced Senior Management and Skilled Brokers and Technology Developers. We have a senior management team that is experienced in identifying and exploiting markets for evolving, innovative financial instruments. Our founder and chief executive officer, Michael Gooch, has over 20 years of experience in the derivatives markets and our president, Colin Heffron, has been with our Company since 1988 and, prior to becoming our president, was instrumental in developing a number of brokerage desks and leading the growth of our European operations. Reporting to them is an experienced management team that includes senior market specialists in each of our product categories. We also employed 880 skilled and specialized brokers at December 31, 2007, many of whom have extensive product and industry experience. Although the competition for brokers is intense, we have historically experienced relatively low broker turnover, and have been able to effectively hire new brokers and establish new brokerage desks in areas in which we seek to expand our operations. In addition, our in-house technology developers are experienced at developing electronic trading platforms and commercial quality software that are tailored to the needs of certain select markets in which we focus. Our brokers utilize this technology and market information to provide their clients with enhanced services. We believe that the combination of our experienced senior management, skilled brokers and technology developers gives us a competitive advantage in executing our business strategy.

Diverse Product and Service Offerings. We offer our products and services in a diverse array of financial markets and geographic regions. Historically, the markets on which we focus have volume and revenue cycles that are relatively distinct from each other and have generally not been correlated to the direction of broad equity indices. Further, our decision support products, including our market data and analytical tools, give us an opportunity to leverage and expand our client base, providing revenue sources beyond our traditional brokerage clients. We believe our diverse product and service offerings provide us with a competitive advantage over many of our competitors that may have more limited product and service offerings and, therefore, may be more susceptible to downturns in a particular market or geographic region.

Our Strategy

We intend to continue to grow our business and increase our profitability by being a leading provider of brokerage services and data and analytics to the markets on which we focus. We intend to employ the following strategies to achieve our goals.

Maintain and enhance our leading positions in key markets. We plan to continue leveraging the leading market share and brand recognition that we have developed for a range of derivative instruments and underlying securities in growing credit, financial, equity and commodity markets. We will continue deploying our specialized brokers in higher-margin, OTC markets, such as credit derivatives, and will seek to improve their productivity through technological innovation, such as state of the art electronic brokerage platforms. We intend to provide market participants with analytical insight into correlated movements in related securities of a single issuer or related issuers or indexes in the credit derivative, corporate bond and equity markets. We also intend to continue offering quality data and analytics products in certain select markets requiring reliable decision-support tools. Through these means, we seek to enhance our services in existing markets and deepen long-standing relationships with our global institutional clients.

Leverage Technology and infrastructure to gain market share and improve margins. We intend to continue to invest in the use and development of technology, including the development of proprietary electronic trading platforms, to further enhance broker productivity, increase customer and broker loyalty and improve our competitive position and market share. During 2007, we continued to see substantial growth in the use of our CreditMatch® electronic trading platform in Europe in both credit derivatives and cash bonds. In addition, we launched GFI ForexMatch™, a browser-based electronic platform for foreign exchange products. We have also recently introduced EnergyMatch® to our emissions business of our Amerex subsidiary. We believe that as the usage of these systems becomes more widespread, we will be able to increase broker productivity and market share. Moreover, where possible, we plan to continue to install STP connections with our clients' settlement, risk management and compliance operations, in order to better serve their needs and to provide us with additional opportunities to increase our revenue. At the same time, we continue to work on ways to improve our ability to leverage our operations, infrastructure and other support areas, such as our executive and finance departments, to create cost efficiencies and improve margins.

Continue to identify and develop new products and high-growth markets. We increased our number of brokerage personnel by 105 employees to 1,037 employees at December 31, 2007 from 932 employees at December 31, 2006. Many of these recent hires are for the less commoditized, newer high-growth markets in which we specialize or cover markets that are complementary to those markets. It is often our practice to establish new brokerage desks through the strategic redeployment of experienced brokers from established brokerage desks and through the selective hiring of new brokers or trainees. Individual brokerage desks are separately tracked and monitored in an effort to drive performance. We will continue to focus on identifying high growth markets where liquidity is more valuable, thereby yielding early-mover opportunities. We also intend to continue to expand our presence globally in markets where we believe there are opportunities to increase our revenues. As part of this effort, we commenced operations in Seoul, Cape Town and Calgary in 2007 and expect to begin operations in Israel, Ireland and Dubai in 2008.

Continue to pursue new customers and diverse revenue opportunities. We offer our products and services in a diverse range of financial markets and geographic regions and to hundreds of institutional customers. We believe this diversity will likely lessen the impact to us of a downturn in any particular market or geographic region. We will look to expand our customer base as an increasing number of sophisticated market participants, such as large hedge funds, look to participate in wholesale markets for the execution of derivative transactions. We also intend to continue managing our business with the goal of maintaining the diversity of our revenues. On a geographic basis, approximately 48% of our total revenues for the year ended December 31, 2007 were generated by our European operations, 42% was generated by our North American operations and 10% was generated by our operations in the Asia-Pacific region. Additionally, for the year ended December 31, 2007, no one customer accounted for more than approximately 6% of our total revenues from all products, services and regions, and our largest brokerage desk accounted for approximately 7% of total revenues.

Strategically expand our operations through business acquisitions. Historically, the inter-dealer brokerage industry was fragmented and concentrated mainly on specific country or regional specific marketplaces and discrete product sets, such as foreign exchange or energy products. Over time, however, the industry has experienced increasing consolidation as larger inter-dealer brokers have sought to enhance their global brokerage services and offset client commission pressure in maturing product categories by acquiring smaller competitors that specialized in specific product markets. In addition, some inter-dealer brokers have acquired technology focused companies which enhance brokerage execution and pre- and post- trade analysis and processing. We plan to continue to selectively seek opportunities to expand our use of technology and grow our business in new or existing product areas through the acquisition of complementary businesses.

In 2007, we acquired Century Chartering (UK) Limited, a small dry physical freight broker, and purchased a 33% interest in Brains Inc. Limited ("Brains"), a niche credit broker. We have an option to buy the remaining shares of Brains over a five year period. We also acquired a 9.25% percent stake in A.C.M. Shipping Limited, a London-based ship broker with which we have a joint venture in brokering wet freight derivatives. These three investments complemented our existing businesses and strengthened our positions in specific markets.

On January 31, 2008, we acquired Trayport, a provider of electronic trading software to brokers, exchanges and trading firms in the commodities, fixed income, currencies and equities markets, with particular strength in European OTC energy derivatives. This acquisition strengthened our electronic trading capabilities and bolsters our position in global energy derivatives.

Our Market Focus

Our brokerage operations focus on a wide variety of credit, financial, equity and commodity instruments around the world. Within these markets, we focus on the more complex, less commoditized markets for sophisticated financial instruments, primarily OTC derivatives. OTC derivatives are generally structured as forwards, swaps or options. A forward is an agreement between two parties to exchange assets or cash flows at a specified future date at a price agreed on the trade date. A swap is an agreement between two parties to exchange cash flows or other assets or liabilities at specified payment dates during the agreed-upon life of the contract. An option is an agreement that gives the buyer the right, but not the obligation, to buy or sell a specified amount of an underlying asset or security at an agreed upon price on, or until, the expiration of the contract. We also support and enhance our brokerage operations by providing electronic trading platforms and STP connections where applicable.

SHARE OWNERSHIP

(1)
Includes all shares of Common Stock beneficially owned by the entities affiliated with Jersey Partners as described in footnote (2) below. Mr. Gooch controls the voting and disposition of these shares through his ownership of approximately 70% of the outstanding common stock of Jersey Partners. Diane Gooch, Mr. Gooch's wife, and Gooch Investment Trust collectively beneficially own 24,110 shares of Common Stock as to which Mr. Gooch disclaims beneficial ownership.

(2)
Includes 12,581,390 shares of Common Stock held directly by Jersey Partners. Also includes 1,316 shares of Common Stock held by Magnetic Management LLC. Magnetic Management LLC is a wholly-owned subsidiary of Jersey Partners. Also includes 59,712 shares of Common Stock held by N-Two LLC, a subsidiary of Jersey Partners.

(3)
Does not include any of the shares of the Company owned by Jersey Partners. Mr. Heffron owns approximately 5% of the outstanding common stock of Jersey Partners.

(4)
Includes 48,685 shares of Common Stock issuable upon exercise of options that are exercisable within 60 days of October 31, 2007. In addition, Mr. Levi holds options to purchase 47,368 shares of our issued and outstanding Common Stock currently held by Jersey Partners and reflected in the number of shares beneficially owned by Jersey Partners in the table above. These options are currently exercisable.

(5)
Includes 78,675 shares of Common Stock issuable upon exercise of options that are exercisable within 60 days of October 31, 2007.

MANAGEMENT DISCUSSION FROM LATEST 10K

Business Environment

As an inter-dealer broker, our results of operations are impacted by a number of external market factors, including market volatility, organic growth of the derivative and other markets in which we provide our brokerage services, the particular mix of transactional activity in our various products and the competitive environment in which we operate. Outlined below are management's observations of these external market factors during the most recent fiscal period. The factors outlined below are not the only factors that have impacted our results of operations for the most recent fiscal period, and additional or other factors may impact, or have different degrees of impact, on our results of operations in future periods.

Market Volatility

As a general rule, our business benefits from volatility in the markets that we serve, as periods of increased volatility typically coincide with more robust trading by our clients and a higher volume of transactions. Market volatility is driven by a range of external factors, some of which are market specific and some of which are correlated to general macro-economic conditions. During 2007, the credit and equity markets experienced heightened volatility due to the substantial decline of the U.S. subprime mortgage market and U.S. housing markets, the prospects of a slowing U.S. economy and a reduction in the availability of credit in the later half of the year.

The bond market experienced significant volatility in 2007 as the subprime market turmoil caused the prices of many bonds and loans to plunge despite corporate defaults remaining low. The revaluing of debt securities led to many banks writing down substantial amounts of mortgage backed and collateralized debt in the second half of 2007. Credit spreads, which were at near historical lows at the beginning of 2007, widened during the year as investors became more cautious.

The global equity markets experienced considerable volatility throughout the year as demonstrated by historical price volatility on the Chicago Board Options Exchange SPX and Dow Jones Industrial Average ("DJIA") volatility indices. However, despite the credit market turmoil and the resulting global economic concerns, many global equity markets posted gains for the year. The DJIA advanced 6.4% for the year, while the Dow Jones World Index, excluding the U.S., advanced 12%. Equities performed particularly well in emerging markets in Asia and Latin America, while Europe saw mixed results. The resilient nature of the global equity markets were witnessed throughout 2007 as various credit events precipitated large drops in global equity markets, which were followed, in many cases, by significant stock price gains.

Interest rate and foreign exchange markets experienced moderate to heightened volatility during the year resulting from inflationary and economic uncertainty, as well as the divergence of world monetary policy. The commodity markets continued to be strong as emerging market demand, particularly from China, pushed up commodity prices to record or near-record levels in 2007, with crude oil futures on the New York Mercantile Exchange ending the year at $95.98 a barrel, up over 57% for the year

Growth in Underlying Markets and New Product Offerings

Our business has historically benefited from growth in the OTC derivatives markets due to either the expansion of existing markets, including increased notional amounts outstanding or increased transaction volumes, or the development of new products or classes of products. The level of growth in these markets is difficult to measure on a quarterly basis as there are only a few independent, objective measures of growth in outstanding notional amount of OTC derivatives, all of which are published retrospectively and do not measure transactional volumes. Therefore, to help gauge growth in any particular quarter, management also looks to the published results of large OTC derivatives dealers and certain futures exchanges as potential indicators of transactional activity in the related OTC derivative markets.

The ISDA released the results of a survey in the third quarter of 2007 on notional amounts outstanding in global OTC markets as of June 2007. The survey results showed that the OTC derivative markets continued to experience strong growth in notional amounts outstanding with credit derivatives growing 75% from $26.0 trillion in June 2006 to $45.5 trillion in June 2007. Notional amounts outstanding of interest rate and currency derivatives grew by 38% over the same period from $250.8 trillion to $347.1 trillion, while equity derivatives notional outstanding growth amounted to 57% from $6.4 trillion to $10.0 trillion.

For several years, exchange traded derivatives have exhibited generally similar growth rates to those of related OTC derivative markets. CME, the New York Mercantile Exchange, IntercontinentalExchange and International Securities Exchange all reported solid growth in transactional volumes during 2007. These exchanges offer trading in futures and other products in several categories, including financial, equity and commodity products. Nevertheless, because there is currently minimal or no exchange-based trading activity of credit futures, exchange-traded volumes are not necessarily an indicator of activity levels of credit products, our largest product segment.

In addition, newer products and our expansion into growing markets have also contributed to the growth in our brokerage revenues in 2007. Transactions in later generation credit products, such as index exotic, asset backed and loan credit derivatives, have been a driver of growth in the overall credit derivative market during the year. New products have also developed in certain wet and dry freight and property derivative markets in 2007, while the currency and interest rate derivative markets have grown, in part, due to the growth of emerging markets in Eastern Europe and Asia.

Competitive Environment

Another major external market factor affecting our business and results of operations is competition, which may take the form of competitive pressure on the commissions we charge for our brokerage services or competition for brokerage personnel with extensive experience in the specialized markets we serve. Competition for the services of productive brokers was intense throughout 2007, especially in the second half of the year, as other inter-dealer brokers sought to bolster their derivative brokerage capabilities by hiring, or attempting to hire several key brokerage personnel. As a result, compensation and employee benefits as a percentage of revenues will be under pressure, and may increase, in the short term.

Financial Overview

As more fully discussed below, our results of operations are significantly impacted by our revenue growth and the amount of compensation and benefits we provide to our employees. The following factors had a significant impact on our revenues and employee costs during the three year period ended December 31, 2007:

•
Our revenues have grown from $533.6 million for the year ended December 31, 2005 to $970.5 million for the year ended December 31, 2007. The main factors contributing to our revenue growth were:

•
the increase in our brokerage personnel (consisting of brokers, trainees and clerks) from 560 at January 1, 2005 to 1,037 at December 31, 2007;

•
a continued focus on, and investment in, growing and higher margin product areas;

•
overall volume growth in the markets in which we provide brokerage services;

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the introduction and continued development and expansion of our hybrid brokerage capabilities, including the successful introduction of CreditMatch® in Europe;

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the continued development, marketing and sale of our data and analytical products;

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the opening of new offices, including our Paris and Seoul offices; and

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the acquisitions of the North American operations of Starsupply Petroleum in September 2005 and Amerex Energy in October 2006.

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The most significant component of our cost structure is employee compensation and benefits, which includes salaries, sign-on bonuses, incentive compensation and related employee benefits and taxes. Our employee compensation and benefits have grown from $327.3 million for the year ended December 31, 2005 to $604.8 million for the year ended December 31, 2007. The main factors contributing to the growth in the amount of employee compensation and benefits were an increase in bonuses for brokerage personnel and sign-on bonuses for certain newly-hired brokers or for certain of our existing brokers who agree to long-term employment agreements.

Our compensation and employee benefits for all employees have both a fixed and variable component. Base salaries and benefit costs are primarily fixed for all employees while bonuses constitute the variable portion of our compensation and employee benefits. Within this overall compensation and employee benefits, employment costs of our brokerage personnel are the key component. Bonuses for brokerage personnel are primarily based on the operating results of their related brokerage desk as well as their individual performance. For many of our brokerage employees, their bonus constitutes a significant component of their overall compensation. Broker performance bonuses increased from $158.8 million for the year ended December 31, 2005 to $303.5 million for the year ended December 31, 2007. Additionally, a portion of our bonus expense is subject to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period.

Further, we grant sign-on bonuses for certain newly-hired brokers or for certain of our existing brokers who agree to long-term employment agreements. Sign-on bonuses increased from $14.3 million for the year ended December 31, 2005 to $25.3 million for the year ended December 31, 2007. These sign-on bonuses may be paid in the form of cash, RSUs or forgivable loans and are typically amortized over the term of the related employment agreement, which is generally two to four years. These employment agreements typically contain repayment or forfeiture provisions for unvested RSUs or all or a portion of the sign-on bonus and forgivable loan should the employee voluntarily terminate his or her employment or if the employee's employment is terminated for cause during the initial term of the agreement.

Results of Consolidated Operations

Year ended December 31, 2007 Compared to the Year Ended December 31, 2006

Net income for the year ended December 31, 2007 was $94.9 million as compared to net income of $61.1 million for the year ended December 31, 2006, an increase of $33.8 million or approximately 55.3%. Total revenues increased by $223.3 million, or 29.9%, to $970.5 million for the year ended December 31, 2007 from $747.2 million for the prior year. Our increased revenues were primarily due to increased brokerage revenues across each of our product categories. Total expenses increased by $174.4 million, or 27.0%, to $819.8 million for the year ended December 31, 2007 from $645.4 million for the prior year. Expenses increased primarily because of increased compensation expense for the year ended December 31, 2007, which was attributable to an increase in performance-based bonus expense as a result of higher revenues, as well as higher sign-on bonus expense.

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Brokerage Revenues —We offer our brokerage services in four broad product categories: credit, equity, financial and commodity. Below is a discussion on our brokerage revenues by product category.

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Broker productivity (defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period) increased by approximately 11.7% in 2007 compared to 2006.

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The increase in credit product brokerage revenues of $64.9 million in 2007 was due to a number of factors, including credit market volatility related to U.S. subprime mortgage market turmoil and inflationary and economic concerns, the continued overall growth in the credit derivatives market, the continued success in Europe of CreditMatch®, our credit derivatives and cash bond trading platform, and increased headcount. Our credit product brokerage personnel headcount increased by 41 to 273 employees at December 31, 2007 from 232 employees at December 31, 2006.

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The increase in equity product brokerage revenues of $65.6 million in 2007 was primarily due to equity market volatility related to U.S. subprime mortgage turmoil and inflationary and economic concerns, the continued growth of our Paris office, which specializes in cash equities and equity derivatives, strength in our equity derivatives business in the U.K. and Asia, strength in our cash equities business in the U.S. and increased headcount. Our equity product brokerage personnel headcount increased by 35 to 208 employees at December 31, 2007 from 173 employees at December 31, 2006.

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The increase in financial product brokerage revenues of $28.4 million in 2007 was primarily attributable to the growth in emerging market and interest rate derivatives in Asia and Europe and the continued global introduction of GFI ForexMatchâ„¢, our currency derivatives electronic trading platform, to our financial product brokerage businesses. In March 2007, we opened an office in Korea which contributed to the growth of our financial product brokerage businesses in Asia. Our financial product brokerage personnel headcount increased by 12 to 274 employees at December 31, 2007 from 262 employees at December 31, 2006.

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The increase in commodity product brokerage revenues of $69.4 million in 2007 was primarily attributable to the full year impact of the acquisition of our Amerex brokerage business in October 2006. In addition, growth in European dry physical freight and dry freight derivatives and U.K. and European electricity also contributed to the increase in overall commodity revenues. Our commodity product brokerage personnel headcount increased by 18 to 283 employees at December 31, 2007 from 265 employees at December 31, 2006.

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Other Revenues

The decrease in other revenues in 2007 to $33.1 million from $38.1 million in 2006 was primarily related to a decrease in contract revenue of $6.8 million, which was offset by an increase in analytics and market data revenues of $0.9 million. Contract revenue consists primarily of revenues recognized under a long-term contract pursuant to which we developed an online foreign exchange currency trading system and customized it for a customer. During the second quarter of 2006, the project was substantially completed and consequently, we recorded $5.9 million in contract revenues.

Expenses

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Compensation and Employee Benefits

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The increase in compensation and employee benefits expenses of $139.3 million in 2007 was primarily attributable to an increase in the number of brokerage personnel from 932 at December 31, 2006 to 1,037 at December 31, 2007 and an increase in brokerage personnel performance bonuses of $72.2 million. The increased performance bonuses were due, in large part, to our overall higher total brokerage revenues.

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Total compensation and employee benefits as a percentage of total revenues remained consistent at 62.3% for each of the years ended December 31, 2007 and 2006. Our compensation and employee benefits as a percentage of our revenue are relatively stable. However, certain of our competitors have been offering significant compensation packages to attract our brokers. As a result, compensation and employee benefits as a percentage of revenues will be under pressure, and may increase, in the short term. We believe that an increase in the use of our hybrid electronic technology brokerage systems and pressure on our competitors to rationalize the increase in their compensation expense should eventually lessen the effect of the competitive pressure on compensation expense.

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Bonus expense represented 53.3% and 52.0% of total compensation and employee benefits expense for the year ended December 31, 2007 and 2006, respectively. A portion of our bonus expense is subject to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period. Additionally, sign-on bonus expense represented 4.3% and 5.2% of total compensation and employee benefits for the years ended December 31, 2007 and 2006, respectively.

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All Other Expenses

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The increase in communications and market data was primarily attributable to the increase in brokerage personnel during 2007 in those areas, such as equities, that rely more heavily on market data systems.

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The increase in travel and promotion was primarily attributable to the increase in brokerage personnel during 2007. Travel and promotion, as a percentage of our total brokerage revenues for the year ended December 31, 2007, decreased slightly to 4.5% from 4.6% for the same period from the prior year.

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The increase in rent and occupancy was primarily due to an increase in rent expense relating to our new primary office space in New York and an increase in repairs and maintenance, which was offset by a decrease in insurance costs for our current leased facilities. We expect that rent and occupancy expense will continue to increase in the future as a result of new leases for office space, including the lease we entered into for our new office space in New York.

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The increase in depreciation and amortization was primarily due to the $2.9 million of accelerated depreciation related to certain long-lived assets to be abandoned at our current office space in New York and amortization expense of intangibles resulting from the acquisition of the Amerex brokerage business. We expect that depreciation and amortization will continue to increase in the future as a result of capital expenditures related to our new office space in New York, as well as our continued investment in software development.

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The increase in clearing fees was partially due to the growth of matched principal brokerage revenues from our Paris equities business. Clearing fees, as a percentage of our total revenues from principal transactions increased to 17.4% for the year ended December 31, 2007 from 16.2% from the same period from the prior year. This increase was partially due to the high cost of clearing fees as a result of the higher number and types of matched principal transactions executed in our Paris office. Principal transactions are generally settled through third party clearing organizations that charge us a fee for their services. We also use the services of stock exchanges and floor brokers, to assist in the execution of transactions. Fees paid to floor brokers and execution fees paid to exchanges in these circumstances are included in clearing fees. In addition, clearing fees also includes fees incurred in certain equity transaction executed on an agency basis.

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The increase in other expenses was due to an increase in irrecoverable Value Added Tax related to increased purchases for communications and market data in Europe and increased license fees to third-party software vendors. Additionally, in 2007, we recorded a termination fee of $1.7 million in connection with our decision to terminate a significant portion of our current office lease in New York. See Note 14 to the Consolidated Financial Statements for further discussion on the lease termination.

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The decrease in contract costs was due to the completion of a long-term contract in June 2006. See Other Revenues above for further discussion on the long-term contract.

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Our effective tax rate was 37.1% for the year ended December 31, 2007 as compared to 40.0% for the same period in the prior year. The reduction in the effective tax rate was primarily due to decreases in state and local taxes, as well as a decrease in taxes related to our foreign operations. The reduction in state and local taxes was due, in part, to lower state tax rates and the geographic mix of our earnings. In addition, in 2007, the tax rate was reduced due to the recognition of a $1.4 million previously unrecognized tax benefit due to the lapse in the relevant statute of limitations for the related tax return.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Three Months Ended September 30, 2007 Compared to the Three Months Ended September 30, 2006



Net income for the three months ended September 30, 2007 was $25.9 million as compared to net income of $16.6 million for the three months ended September 30, 2006, an increase of $9.3 million or approximately 56.0%. Total revenues increased by $74.7 million, or 41.5%, to $254.7 million for the three months ended September 30, 2007 from $180.0 million for the same period from the prior year. Our increased revenues were primarily due to increased brokerage revenues across all product categories, with the most significant dollar increases in credit and equity. This increase in our revenues reflected significant organic growth across credit, financial and equity product categories and significant growth across all geographic regions. Our total brokerage personnel headcount increased by 194 to a total of 1,021 employees at September 30, 2007 from 827 employees at September 30, 2006. Total expenses increased by $59.4 million, or 38.9%, to $212.1 million for the three months ended September 30, 2007 from $152.7 million for the same period from the prior year. Expenses increased primarily due to a higher number of brokerage personnel as compared with the corresponding period in 2006 and an increase in performance related brokerage bonuses resulting in large part from an increase in our brokerage revenues.

Revenues



Brokerage Revenues



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

Total brokerage revenues increased by $71.4 million, or 41.2%, to $244.9 million for the three months ended September 30, 2007, as compared to $173.4 million for the three months ended September 30, 2006. Agency commissions increased by $59.5 million, or 42.8%, to $198.4 million for the three months ended September 30, 2007, as compared to $138.9 million for the three months ended September 30, 2006. Principal transactions increased by $11.9 million, or 34.5%, to $46.4 million for the three months ended September 30, 2007 from $34.5 million for the three months ended September 30, 2006. Broker productivity (defined as total brokerage revenues during the period divided by average monthly brokerage personnel headcount for the period) increased by approximately 16.7% for the three months ended September 30, 2007, as compared to the same period from the prior year.



The increase in credit product brokerage revenues of $27.2 million in the third quarter of 2007 as compared with the same period in 2006 was due to a number of factors, including credit market volatility related to subprime mortgage market concerns, increased headcount and the continued overall growth of the credit derivatives market, the development of new credit products and the continued success in Europe of CreditMatch®, our credit derivatives and investment grade bond trading platform. Our credit product brokerage personnel increased by 48 to a total of 275 employees at September 30, 2007, up from 227 employees at September 30, 2006.



The increase in financial product brokerage revenues of $10.7 million in the third quarter of 2007 as compared with the third quarter of 2006 was primarily attributable to growth in emerging market interest rate and currency derivatives in Europe and Asia and the continued introduction of ForexMatchâ„¢, our foreign exchange trading platform. Our financial product brokerage personnel increased by 12 to a total of 271 employees at September 30, 2007, up from 259 employees at September 30, 2006.



The increase in equity product brokerage revenues of $17.7 million in the third quarter of 2007 as compared with the same period in 2006 was primarily due to the continued growth of our Paris office, which specializes in cash equities and equity derivatives, as well as our equity derivatives business in the U.K. and the U.S., and our cash equities business in the U.S. Market volatility caused by mortgage market concerns also contributed to the increase in equity product brokerage revenues. Our equity product brokerage personnel increased by 30 to a total of 201 employees at September 30, 2007, up from 171 employees at September 30, 2006.

The increase in commodity product brokerage revenues of $15.8 million in the third quarter of 2007 as compared with the third quarter of 2006 was primarily attributable to the addition of our Amerex brokerage business. In addition, growth in European dry physical freight and dry freight derivatives also contributed to the increase in overall commodity revenues. Our commodity product brokerage personnel increased by 105 to a total of 275 employees at September 30, 2007, up from 170 employees at September 30, 2006.



Analytics and Market Data



Revenues from our analytics and market data products remained consistent at $4.9 million for each of the three month periods ended September 30, 2007 and 2006. Revenues from analytics and market data for the three months ended September 30, 2007 primarily consisted of revenue generated from subscription fees.



Interest Income



Interest income increased by $0.4 million, or 18.2%, to $2.6 million for the three months ended September 30, 2007, as compared to $2.2 million for the three months ended September 30, 2006. The increase was mainly attributable to the increase in interest income attributable to the higher level of cash balances in the U.S. which was partially offset by a decrease in interest income due to lower balances on the clearing accounts.



Other Income (Loss)



Other income increased by $3.0 million, or 513.0 %, to $2.4 million for the three months ended September 30, 2007 from a loss of $0.6 million for the three months ended September 30, 2006. Other income (loss) for the three months ended September 30, 2007 and 2006 mainly consisted of transactional gains (losses) based on foreign currency fluctuations and net gains (losses) on foreign exchange derivative contracts.



Expenses



Compensation and Employee Benefits



Compensation and employee benefits increased by $46.3 million, or 41.2%, to $158.8 million for the three months ended September 30, 2007 from $112.5 million for the three months ended September 30, 2006. The increase was primarily due to an increase in the number of brokerage personnel from 827 employees at September 30, 2006 to 1,021 employees at September 30, 2007 and an increase in brokerage personnel performance bonuses of $28.1 million resulting in large part from the increase in our brokerage revenues.



Total compensation and employee benefits as a percentage of total revenues decreased slightly to 62.4 % at September 30, 2007 from 62.5% at September 30, 2006. Bonus expense represented 56.2 % and 51.7% of total compensation and employee benefits expense for the three months ended September 30, 2007 and 2006, respectively. A portion of our bonus expense is subject to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period. Additionally, sign-on bonus expense, which includes the amortization of sign-on bonuses initially made in prior periods, represented 4.0% and 5.1% of total compensation and employee benefits for the three months ended September 30, 2007 and 2006, respectively.



Our compensation and employee benefits as a percentage of our revenues are relatively stable. However, certain of our competitors are offering significant compensation packages to attract our brokers. As a result, compensation and employee benefits as a percentage of revenues will be under pressure, and may increase in the short term. We believe that an increase in the use of our hybrid electronic brokerage systems and pressure on our competitors to rationalize the increase in their compensation expense should eventually lessen the effect of the competitive pressure on compensation expense.



Communications and Market Data



Communications and market data increased by $1.5 million, or 15.3%, to $11.3 million for the three months ended September 30, 2007 from $9.8 million from the three months ended September 30, 2006. The increase was primarily attributable to the increase of brokerage personnel in those areas, such as equities, that rely more heavily on market data systems.



Travel and Promotion



Travel and promotion increased by $2.8 million, or 39.4%, to $9.9 million for the three months ended September 30, 2007 from $7.1 million for the three months ended September 30, 2006. This expense, as a percentage of our total brokerage revenues remained consistent at 4.1% for the three months ended September 30, 2007 and 2006.



Rent and Occupancy



Rent and occupancy increased by $1.8 million, or 39.1%, to $6.4 million for the three months ended September 30, 2007 from $4.6 million for the three months ended September 30, 2006. The increase was primarily due to the increase in rent expense relating to the Company’s new primary office lease in New York, as well as an increase in repairs and maintenance expense from our current leased facilities. We expect rent and occupancy will continue to increase in the future as a result of new leases for office space, including the new lease in New York. See Note 9 to the Condensed Consolidated Financial Statements for further discussion of the U.S. lease.



Depreciation and Amortization



Depreciation and amortization increased by $2.4 million, or 55.8%, to $6.7 million for the three months ended September 30, 2007 from $4.3 million for the three months ended September 30, 2006. The increase was primarily due to the $1.1 million of accelerated depreciation related to certain long-lived assets to be abandoned at our current office space in New York and amortization expense of intangibles resulting from the acquisition of the Amerex brokerage business. See Note 9 to the Condensed Consolidated Financial Statements for further discussion of the U.S. lease.



Professional Fees



Professional fees increased by $0.2 million, or 4.7% to $4.5 million for the three months ended September 30, 2007 from $4.3 million for the three months ended September 30, 2006. The increase was partially due to an increase in legal, audit and tax fees, which was partially offset by a decrease in professional fees related to our compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.



Clearing Fees



Clearing fees increased by $2.2 million, or 37.3%, to $8.1 million for the three months ended September 30, 2007 from $5.9 million for the three months ended September 30, 2006. This increase was partially due to the growth of brokerage revenues from our Paris equities business. Clearing fees, as a percentage of our total revenues from principal transactions increased slightly to 17.4% for the three months ended September 30, 2007 from 17.0% for the comparable period in the prior year. Principal transactions are generally settled through third party clearing organizations that charge us a fee for their services. We also use the services of stock exchanges and floor brokers to assist in the execution of transactions. Fees paid to floor brokers and execution fees paid to exchanges in these circumstances are included in clearing fees. In addition, clearing fees also includes fees incurred in certain equity transaction executed on an agency basis.



Interest Expense



Interest expense increased by $0.6 million, or 54.5%, to $1.7 million for the three months ended September 30, 2007 from $1.1 million for the three months ended September 30, 2006. The increase was mainly attributable to the increase in interest expense under our credit facility due to the higher level of outstanding borrowings during the three months ended September 30, 2007, which was partially offset by a decrease in interest expense on our clearing accounts for the three months ended September 30, 2007 compared to the same period from the prior year. Included in interest expense for the three months ended September 30, 2007 is $0.8 million of interest on outstanding borrowings incurred to purchase the Amerex brokerage business in October 2006.



Other Expenses



Other expenses increased by $1.5 million, or 48.4%, to $4.6 million for the three months ended September 30, 2007 from $3.1 million for the three months ended September 30, 2006. The increase was primarily due to an increase in irrecoverable Value Added Tax related to increased purchases in communications and market data in Europe, an increase in expense related to license fees to third-party software vendors and a charge in connection with newly hired brokerage personnel to buy-out their employment contracts from their former employers.



Provision for Income Taxes



Our provision for income taxes totaled $16.7 million for the three months ended September 30, 2007 compared to $10.6 million for the three months ended September 30, 2006. Our effective tax rate remained consistent at 39% for the three months ended September 30, 2007 and 2006. A decrease in state and local income taxes was offset by an increase in taxes related to foreign operations. The reduction in state and local taxes was due, in part, to lower state tax rates and the geographic mix of our earnings.



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