6.    Related Party Transactions

Cash and cash equivalents at September 30, 2003 and December 31, 2002 included $150.1 million and $186.7 million, respectively, of reverse repurchase agreements with related parties. All of the Company's reverse repurchase agreements are transacted on an overnight basis with Cantor. Under the terms of these agreements, the securities collateralizing the reverse repurchase agreements are held under a custodial arrangement with a third party bank and are not permitted to be resold or repledged. The fair value of such collateral at September 30, 2003 and December 31, 2002 totaled $156.4 million and $189.6 million, respectively.

Investments in TradeSpark, L.P. ("Tradespark") and the limited partnership (the "LP") that invested in Freedom International Brokerage ("Freedom") are accounted for using the equity method. The carrying value of such related party investments was $7.6 million and $7.7 million at September 30, 2003 and December 31, 2002, respectively, and is included in investments in the condensed consolidated statements of financial condition. For the nine months ended September 30, 2003, the Company's share of the net losses of the LP and TradeSpark was approximately $80,000 in the aggregate.

Under the Joint Services Agreement between the Company and Cantor and joint services agreements between the Company and TradeSpark, Freedom, Municipal Partners, LLC ("MPLLC") and CO2e, the Company owns and operates the electronic trading system and is responsible for providing electronic brokerage services, and Cantor, TradeSpark, Freedom, MPLLC or CO2e provides voice-assisted brokerage services, fulfillment services, such as clearance and settlement, and related services, such as credit risk management services, oversight of client suitability and regulatory compliance, sales positioning of products and other services customary to marketplace intermediary operations. In general, if a transaction is fully electronic, the Company receives 65% of the aggregate transaction revenues and TradeSpark or Freedom receives 35% of the transaction revenues. If TradeSpark or Freedom provides voice-assisted brokerage services with respect to a transaction, the Company receives 35% of the revenues and TradeSpark or Freedom receives 65% of the revenues. The Company and MPLLC each receive 50% of the fully electronic revenues related to municipal bonds. The Company's agreement with CO2e provides that it receives 50% of CO2e's fully electronic revenues and 15% of CO2e's voice-assisted and open outcry revenues until December 2003, and 20% of voice-assisted and open outcry revenues thereafter. In addition, the Company receives 25% of the net revenues from Cantor's gaming businesses.

Under those services agreements, the Company has agreed to provide Cantor, TradeSpark, Freedom, MPLLC and CO2e technology support services, including systems administration, internal network support, support and procurement for desktops of end-user equipment, operations and disaster recovery services, voice and data communications, support and development of systems for clearance and settlement services, systems support for brokers, electronic applications systems and network support, and provision and/or implementation of existing electronic applications systems, including improvements and upgrades thereto, and use of the related intellectual property rights. In general, the Company charges Cantor, TradeSpark, Freedom and MPLLC the actual direct and indirect costs, including overhead, of providing such services and receives payment on a monthly basis. These services are provided to CO2e at no additional cost other than the revenue sharing arrangement set forth above. In exchange for a 25% share of the net revenues from Cantor's gaming businesses, the Company is obligated to spend and does not get reimbursed for the first $750,000 each quarter of the costs of providing support and development services for such gaming businesses.

Under an Administrative Services Agreement, Cantor provides various administrative services to the Company, including accounting, tax, legal and facilities management. The Company is required to reimburse Cantor for the cost of providing such services. The costs represent the direct and indirect costs of providing such services and are determined based upon the time incurred by the individual performing such services. Management believes that this allocation methodology is reasonable. The Administrative Services Agreement has a three-year term, which will renew automatically for successive one-year terms unless cancelled upon six months' prior notice by either the Company or Cantor. The Company incurred administrative fees for such services during the nine-month periods ended September 30, 2003 and 2002 totaling $7.7 million and $6.6 million, respectively. The services provided under both the Amended and Restated Joint Services Agreement and the Administrative Services Agreement are not the result of

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arm's-length negotiations because Cantor controls the Company. As a result, the amounts charged for services under these agreements may be higher or lower than amounts that would be charged by third parties if the Company did not obtain such services from Cantor.

As a result of the terrorist attacks of September 11, 2001, the Company's offices in the World Trade Center were destroyed and the Company lost 180 of our employees, including many members of senior management (the "September 11 Events"). During the nine months ended September 30, 2003, CFLP received $21,045,000 of insurance proceeds in settlement for property damage related to the September 11 Events. Under the Administrative Services Agreement, eSpeed is entitled to up to approximately $20,000,000 of such amount as replacement assets are purchased in the future. Starting in the fourth quarter of 2003, the Company expects to incur significant costs in relation to the replacement of fixed assets lost on September 11, 2001 when they build their permanent infrastructure and move into their new headquarters in 2004.

Amounts due to or from related parties pursuant to the transactions described above are non-interest bearing. As of September 30, 2003, receivables from Tradespark, Freedom and MPLLC amounted to approximately $0.5 million in the aggregate, and are included in receivable from related parties in the condensed consolidated statement of financial condition.

7.    Earnings Per Share

The following is a reconciliation of the basic and diluted earnings per share computations:

				Three Months Ended September 30,
				2003				2002
				(In thousands, except per share data)
Net income for basic and diluted earnings per share				$	9,962			$	7,665
Shares of common stock and common stock equivalents:
Weighted average shares used in basic computation					55,291				54,980
Dilutive effect of:
Stock options					2,298				1,507
Business partner securities					141				12
Weighted average shares used in diluted computation					57,730				56,499
Earnings per share:
Basic				$	0.18			$	0.14
Diluted				$	0.17			$	0.14

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				Nine Months Ended September 30,
				2003				2002
				(In thousands, except per share data)
Net income for basic and diluted earnings per share				$	27,539			$	33,213
Shares of common stock and common stock equivalents:
Weighted average shares used in basic computation					55,205				54,979
Dilutive effect of:
Stock options					1,853				1,664
Business partner securities					113				40
Weighted average shares used in diluted computation					57,171				56,683
Earnings per share:
Basic				$	0.50			$	0.60
Diluted				$	0.48			$	0.59

Effective April 1, 2003, the Company started recording income taxes (see Note 4, Income Taxes). During the 2002 periods, income taxes were minimal due to the benefit of net operating loss carryforwards. As a result, in applying the treasury stock method for the three and nine-month periods ended September 30, 2003, the assumed proceeds of stock option exercises were computed as the sum of (i) the amount the employees paid on exercise and (ii) the amount of tax benefits associated with employee stock options exercised that were credited to additional paid-in capital. Prior to April 1, 2003, the Company excluded such tax benefits in assumed proceeds of stock option exercises, thereby increasing the dilutive effect of securities accordingly.

At September 30, 2003 and 2002, approximately 15.0 million and 14.1 million securities, respectively, were not included in the computation of diluted earnings per share because their effect would have been antidilutive.

8.    Stock Based Compensation

Pursuant to guidelines contained in APB Opinion No. 25, Accounting for Stock Issued to Employees, and as permitted by Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock Based Compensation ("SFAS 123"), the Company records no expense for stock options issued to employees as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table represents the effect had the Company accounted for the options in its stock-based compensation plan based on the fair value of awards at grant date in a manner consistent with the methodology of SFAS 123.

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				Three Months Ended September 30,
				2003				2002
				(In thousands, except per share data)
Net income, as reported				$	9,962			$	7,665
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards granted, net of $1,576 and $0 of taxes for the three months ended September 30, 2003 and 2002, respectively					(2,471	)			(4,266	)
Net income, pro forma				$	7,491			$	3,399
Earnings per share:
Basic – as reported				$	0.18			$	0.14
Basic – pro forma				$	0.14			$	0.06
Diluted – as reported				$	0.17			$	0.14
Diluted – pro forma				$	0.13			$	0.06

				Nine Months Ended September 30,
				2003				2002
				(In thousands, except per share data)
Net income, as reported				$	27,539			$	33,213
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards granted, net of $3,575 and $0 of taxes for the nine months ended September 30, 2003 and 2002, respectively					(8,446	)			(12,615	)
Net income, pro forma				$	19,093			$	20,598
Earnings per share:
Basic – as reported				$	0.50			$	0.60
Basic – pro forma				$	0.35			$	0.37
Diluted – as reported				$	0.48			$	0.59
Diluted – pro forma				$	0.33			$	0.36

Effective April 1, 2003, the Company started recording income taxes (see Note 4, Income Taxes). During the 2002 periods, income taxes were minimal due to the benefit of net operating loss carryforwards. The Company applied these effective tax rates in computing the above pro forma information for the respective periods.

9.    Regulatory Capital Requirements

Through its subsidiary, eSpeed Government Securities, Inc., the Company is subject to SEC broker-dealer regulation under Section 15C of the Securities Exchange Act of 1934, which requires the maintenance of minimum liquid capital, as defined. At September 30, 2003, eSpeed Government Securities, Inc.'s liquid capital of $64,490,917 was in excess of minimum requirements by $64,465,917.

Additionally, the Company's subsidiary, eSpeed Securities, Inc., is subject to SEC broker-dealer regulation under Rule 17a-3 of the Securities Exchange Act of 1934, which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At September 30, 2003, eSpeed Securities, Inc. had net capital of $94,056,972, which was $91,863,110 in excess of its required net capital, and eSpeed Securities, Inc.'s net capital ratio was .35 to 1.

The regulatory requirements referred to above may restrict the Company's ability to withdraw capital from its regulated subsidiaries.

10.    Commitments and Contingencies

There have been no significant changes in commitments and contingencies from the matters described in the notes to the Company's consolidated financial statements for the year ended December 31, 2002.

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11.    Segment and Geographic Data

Segment information:    The Company currently operates its business in one segment, that of operating interactive electronic business-to-business marketplaces for the trading of financial and non-financial products, licensing software, and providing technology support services to Cantor and other related and unrelated parties.

Product information:    The Company currently markets its services through the following products: core products, including an integrated network engaged in electronic trading in government securities in multiple marketplaces over the eSpeed^® system; new product rollouts, including introduction of products in non-equity capital markets; products enhancement software, which enables clients to engage in enhanced electronic trading of core products and future product rollouts; and eSpeed Software Solutions^SM, which allows customers to use the Company's intellectual property and trading expertise to build electronic marketplaces and exchanges, develop customized trading interfaces and enable real-time auctions and debt issuance. Revenues from core products comprise the majority of the Company's revenues.

Geographic information:    The Company operates in the Americas (primarily in the United States of America), Europe and Asia. Revenue attribution for purposes of preparing geographic data is principally based upon the marketplace where the financial product is traded, which, as a result of regulatory jurisdiction constraints in most circumstances, is also representative of the location of the client generating the transaction resulting in commissionable revenue. The information that follows, in management's judgment, provides a reasonable representation of the activities of each region as of and for the periods indicated.

				Three Months Ended September 30,
(In thousands)				2003				2002
Transaction revenues:
Europe				$	7,324			$	6,841
Asia					436				695
Total Non-Americas					7,760				7,536
Americas					29,821				19,907
Total				$	37,581			$	27,443

				Nine Months Ended September 30,
(In thousands)				2003				2002
Transaction revenues:
Europe				$	21,214			$	18,402
Asia					1,638				2,037
Total Non-Americas					22,852				20,439
Americas					74,875				58,783
Total				$	97,727			$	79,222

				September 30,
(In thousands)				2003				2002
Average long-lived assets:
Europe				$	3,662			$	5,754
Asia					301				390
Total Non-Americas					3,963				6,144
Americas					23,337				17,065
Total				$	27,300			$	23,209

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ITEM 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The information in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as "may," "will," "should," "estimates," "predicts," "potential," "continue," "strategy," "believes," "anticipates," "plans," "expects," "intends" and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, the effect of the September 11 Events on our operations, including in particular the loss of hundreds of eSpeed, Cantor and TradeSpark employees, our limited operating history, the possibility of future losses and negative cash flow from operations, the effect of market conditions, including volume and volatility, and the current global recession on our business, our ability to enter into marketing and strategic alliances, to hire new personnel, to expand the use of our electronic system, to induce clients to use our marketplaces and services and to effectively manage any growth we achieve, and other factors that are discussed under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2002. The following discussion is qualified in its entirety by, and should be read in conjunction with, the more detailed information set forth in our financial statements and the notes thereto appearing elsewhere in this report.

Overview

We were incorporated on June 3, 1999 as a Delaware corporation. Prior to our initial public offering, we were a wholly-owned subsidiary of, and we conducted our operations as a division of, Cantor Fitzgerald Securities, which in turn is a 99.5%-owned subsidiary of Cantor Fitzgerald, L.P. (collectively with its affiliates, "Cantor"). We commenced operations as a division of Cantor on March 10, 1999, the date the first fully electronic transaction using our eSpeed^® system was executed. Cantor has been developing systems to promote fully electronic marketplaces since the early 1990s. Since January 1996, Cantor has used our eSpeed^® system internally to conduct electronic trading.

Concurrent with our initial public offering in December 1999, Cantor contributed to us, and we acquired from Cantor, certain of our assets. These assets primarily consist of proprietary software, network distribution systems, technologies and other related contractual rights that comprise our eSpeed^® system.

We operate interactive electronic marketplaces and license customized real-time software solutions to our clients. In general, we receive transaction fees based on a percentage of the face value of products traded through our system. Products may be traded on a fully electronic basis, electronically through a voice broker, or via open outcry with prices displayed on data screens. We receive different fees for these different system utilizations. Additionally, we receive revenues from licensing software and providing technology support.

We continue to pursue our strategy to expand our client base and expand the number and types of products that our clients can trade electronically on our system. Other than Cantor, no client of ours accounted for more than 10% of our revenues from our date of inception through September 30, 2003.

As a result of the terrorist attacks of September 11, 2001, our offices in the World Trade Center were destroyed and we lost 180 of our employees, including many members of our senior management (the "September 11 Events"). The loss of these assets and employees and the need to relocate our surviving employees have negatively impacted our business.

Critical Accounting Policies

In addition to previously disclosed critical accounting policies (see "Critical Accounting Policies" in our Annual Report on Form 10-K for the year ended December 31, 2002), management has determined that the following accounting estimate met the related standards:

Income Taxes

SFAS No. 109, Accounting for Income Taxes, establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of

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taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact our financial position or results of operations.

Results of Operations

For the Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002

Highlights

Diluted earnings per share for the three months ended September 30, 2003 and 2002 were $0.17 and $0.14, respectively. During the three months ended September 30, 2003, we recorded an income tax provision of $6.4 million, or approximately $0.11 per diluted share, corresponding to a 38.9% consolidated effective tax rate. For the same period a year earlier, income taxes were minimal due to the benefit of our net operating loss carryforwards.

For the three months ended September 30, 2003, transaction revenues with related parties amounted to $37.6 million, an increase of 37% as compared to transaction revenues with related parties of $27.4 million for the same period a year ago. Volumes transacted on our system per trading day increased approximately 28%. For the three months ended September 30, 2003, 86% of our transaction revenues were generated from fully electronic transactions.

Revenues

				Three Months Ended September 30,
(In thousands)				2003				2002
Transaction revenues with related parties
Fully electronic transactions				$	32,300			$	22,783
Voice-assisted brokerage transactions					5,153				4,649
Screen-assisted open outcry transactions					128				11
Total transaction revenues with related parties					37,581				27,443
Software Solutions fees from related parties					3,821				3,423
Software Solutions and licensing fees from unrelated parties					2,321				1,333
Interest income					547				780
Total revenues				$	44,270			$	32,979

Transaction revenues with related parties

For the three months ended September 30, 2003, we earned transaction revenues with related parties of $37.6 million, an increase of 37% as compared to transaction revenues with related parties of $27.4 million for the three months ended September 30, 2002. There were 64 trading days in both the three-month period ended September 30, 2003 and the same period a year ago. Transaction revenues per trading day increased by $158,000, or 37%, from $429,000 for the three months ended September 30, 2002 to $587,000 for the three months ended September 30, 2003. Total volumes transacted on our system increased by $2,752 billion (approximately $2.7 trillion), or 28%, from $9,683 billion (approximately 9.7 trillion) for the three months ended September 30, 2002 to $12,435 billion (approximately $12.4 trillion) for the three months ended September 30, 2003. Per trading day, volumes transacted on our system increased 28%. This increase resulted primarily from favorable market conditions in the United States of America, where market fluctuations drove increases in our product volumes and transactions counts, as well as continued adoption of our new software enhancements. For the three months ended September 30, 2003, 86% of our transaction revenues were generated from fully electronic transactions as compared to 83% for the same period a year ago.

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Our revenues are currently highly dependent on transaction volume in the global financial product markets. Accordingly, among other things, equity market volatility, economic and political conditions in the United States of America and elsewhere in the world, concerns over inflation, institutional and consumer confidence levels, the availability of cash for investment by mutual funds and other wholesale and retail investors, fluctuating interest and exchange rates and legislative and regulatory changes and currency values may have an impact on our volume of transactions. In addition, a significant amount of our revenues is currently received in connection with our relationship with Cantor. Consequently, our revenues have been negatively affected by the effect of the September 11 Events on Cantor and may continue to be negatively affected in the future if Cantor's business continues to suffer due to the September 11 Events or otherwise.

Software Solutions fees from related parties

Software Solutions fees from related parties for the three months ended September 30, 2003 were $3.8 million. This compares with Software Solutions fees from related parties for the three months ended September 30, 2002 of $3.4 million, an increase of 12%. This increase resulted from an increase in demand for our support services from Cantor.

Software Solutions and licensing fees from unrelated parties

Certain of our clients provide online access to their customers through use of our electronic trading platform for which we receive fees. Such fees are deferred and recognized as revenues ratably over the term of the licensing agreement. We also receive software solutions fees from unrelated parties by charging our clients for additional connections to our system to help protect them from possible business interruptions.

Software Solutions and licensing fees from unrelated parties for the three months ended September 30, 2003 were $2.3 million as compared to Software Solutions and licensing fees from unrelated parties of $1.3 million for the three months ended September 30, 2002, a 77% increase, due primarily to licensing fees earned from IntercontinentalExchange for use of the Wagner Patent and licensing fees earned as part of the Wagner Patent Settlement Agreement.

Interest income

For the three months ended September 30, 2003, the blended weighted average interest rate on overnight reverse repurchase agreements and tax-free municipal bonds was 0.95% as compared to a 1.6% weighted average interest rate on overnight reverse repurchase agreements for the three months ended September 30, 2002. As a result of the decrease in the average interest rate, partially offset by an increase in average balances between periods, we generated interest income of $547,000 for the three months ended September 30, 2003 as compared to $780,000 for the three months ended September 30, 2002, a decrease of 30%.

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Expenses

				Three Months Ended September 30,
(In thousands)				2003				2002
Compensation and employee benefits				$	9,790			$	9,113
Occupancy and equipment					8,191				6,338
Professional and consulting fees					953				1,149
Communications and client networks					1,715				1,465
Marketing					373				1,281
Administrative fees to related parties					2,579				2,292
Amortization of business partner and non-employee securities					648				541
Other					3,706				3,012
Total expenses				$	27,955			$	25,191

Compensation and employee benefits

At September 30, 2003, we had 334 employees, which was an increase from the 317 employees we had at September 30, 2002. However, prior to the September 11 Events, we had 492 employees. For the three months ended September 30, 2003, our compensation costs were $9.8 million as compared to compensation costs of $9.1 million for the three months ended September 30, 2002. This $0.7 million increase, or 8%, resulted mainly from the additional headcount, partially offset by an increase in the percentage of time spent by certain employees on software application development. The costs associated with such development are capitalized and amortized over the associated application's estimated useful life of three years.

Substantially all of our employees are full-time employees located predominately in the New York metropolitan area and in London. Compensation costs include salaries, bonuses, payroll taxes and costs of employer-provided benefits for our employees. We expect that our future compensation costs will increase depending, in part, upon a variety of factors, including our incremental revenue growth.

Occupancy and equipment

Occupancy and equipment costs were $8.2 million for the three months ended September 30, 2003, a $1.9 million increase, or 30%, as compared to occupancy and equipment costs of $6.3 million for the three months ended September 30, 2002. The increase was primarily caused by the build-out of our temporary corporate headquarters in New York City, where we moved in the second quarter of 2002.

Occupancy expenditures primarily consist of the rent and facilities costs of our offices in the New York metropolitan area and our offices in London and Tokyo. We moved into our temporary corporate headquarters in New York City during the second quarter of 2002. The lease for our temporary headquarters will expire in February 2004, and, at this time, management is evaluating various location alternatives. Starting in the fourth quarter of 2003, we expect to incur significant costs in relation to the replacement of fixed assets lost as a result of the September 11 Events when we build our permanent infrastructure and move into our new headquarters. We are entitled to up to approximately $20.0 million of insurance proceeds in settlement for property damage as replacement assets are purchased in the future.

Professional and consulting fees

Professional and consulting fees were $1.0 million for the three months ended September 30, 2003 as compared to $1.1 million for the three months ended September 30, 2002, a decrease of 9%, primarily due to decreased reliance on consultants.

Communications and client networks

Communications costs were $1.7 million for the three months ended September 30, 2003 as compared to $1.5 million for the three months ended September 30, 2002, a $0.2 million or 13% increase. Cost controls

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resulted in reductions in communications rates and usage charges, which were offset by additional client network charges as we processed increased volumes of transactions and continued to add new clients.

Communications costs include the costs of local and wide area network infrastructure, the cost of establishing the network linking clients to us, data and telephone lines, data and telephone usage, and other related costs. We anticipate expenditures for communications and client networks will continue to increase in the near future as we continue to connect additional customers to our network.

Marketing

We incurred marketing expenses of $0.4 million for the three months ended September 30, 2003 as compared to marketing expenses during the three months ended September 30, 2002 of $1.3 million, a decrease of 69%, resulting from a planned reduction in marketing costs. Marketing expenses in the third quarter of 2002 were higher primarily as the result of the development of a major advertising campaign.

Administrative fees to related parties

Cantor provides various administrative services to us, including accounting, tax, legal and facilities management, for which we reimburse Cantor for the direct and indirect costs of providing such services. Administrative fees to related parties amounted to $2.6 million for the three months ended September 30, 2003, a 13% increase over the $2.3 million of such fees for the three months ended September 30, 2002.

Administrative fees to related parties are dependent upon both the costs incurred by Cantor and the portion of Cantor's administrative services that are utilized by us. Administrative fees to related parties are, therefore, partially correlated to our business growth. We do not expect a significant change in the level of future administrative fees to related parties in the fourth quarter of 2003.

Amortization of business partner and non-employee securities

We enter into strategic alliances with other industry participants in order to expand our business and to enter into new marketplaces. As part of these strategic alliances, we have issued warrants and convertible preferred stock. In addition, we have granted stock options to certain non-employees. These securities do not require cash outlays and do not represent a use of our assets. The expense related to these issuances is based on the value of the securities being issued and the structure of the transaction. Generally, this expense is amortized over the term of the related agreement.

Charges in relation to the amortization of such securities were approximately $0.6 million for the three months ended September 30, 2003 as compared to $0.5 million for the three months ended September 30, 2002. This $0.1 million increase resulted primarily from a full quarter of amortization in the 2003 period on warrants that were issued under an agreement executed with a business partner in August 2002. We believe period-to-period comparisons are not meaningful, as these transactions do not recur on a regular basis. Note 5 of our condensed consolidated financial statements in this Report on Form 10-Q contains further details regarding the amortization of business partner and non-employee securities.

Other expenses

Other expenses consist primarily of amortization of intangible assets, business-related insurance expense, recruitment fees, travel, and promotional and entertainment expenditures. For the three months ended September 30, 2003, other expenses were $3.7 million, an increase of 23% as compared to other expenses of $3.0 million for the three months ended September 30, 2002, principally due to increases in business-related insurance costs and an increase in the amortization of intangible assets as we continue to devote significant resources to the establishment, perfection and protection of our intellectual property portfolio. Other expenses are expected to increase primarily due to an increase in the amortization of capitalized fees associated with the establishment, perfection and defense of our patents.

Income Taxes

During the three months ended September 30, 2003, we recorded an income tax provision of $6.4 million corresponding to a 38.9% consolidated effective tax rate. During the same period a year earlier, income

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taxes were minimal due to the benefit of our net operating loss carryforwards. Our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.

Results of Operations

For the Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002

Highlights

Diluted earnings per share decreased $0.11 from $0.59 to $0.48. During the nine months ended September 30, 2002, we recognized a $12.8 million gain, or approximately $0.23 per diluted share, relating to business interruption insurance proceeds following the September 11 Events. During the nine months ended September 30, 2003, we recorded an income tax provision of $11.7 million, or approximately $0.20 per diluted share, corresponding to a 39.4% consolidated effective tax rate adjusted to reflect certain benefit from net operating loss carryforwards. For the same period a year earlier, income taxes were minimal due to the benefit of our net operating loss carryforwards.

For the nine months ended September 30, 2003, transaction revenues with related parties amounted to $97.7 million, an increase of 23% as compared to transaction revenues with related parties of $79.2 million for the same period a year ago. Volumes transacted on our system per trading day increased 25%. For the nine months ended September 30, 2003, 84% of our transaction revenues were generated from fully electronic transactions.

Revenues

				Nine Months Ended September 30,
(In thousands)				2003				2002
Transaction revenues with related parties
Fully electronic transactions				$	82,348			$	65,609
Voice-assisted brokerage transactions					14,959				13,479
Screen-assisted open outcry transactions					420				134
Total transaction revenues with related parties					97,727				79,222
Software Solutions fees from related parties					11,351				9,747
Software Solutions and licensing fees from unrelated parties					6,662				2,437
Business interruption insurance proceeds from parent					—				12,833
Interest income					1,652				2,222
Total revenues				$	117,392			$	106,461

Transaction revenues with related parties

For the nine months ended September 30, 2003, we earned transaction revenues with related parties of $97.7 million, an increase of 23% as compared to transaction revenues with related parties of $79.2 million for the nine months ended September 30, 2002. There were 188 trading days in both the nine-month period ended September 30, 2003 and the same period a year ago. Transaction revenues per trading day increased by $99,000, or 24%, from $421,000 for the nine months ended September 30, 2002 to $520,000 for the nine months ended September 30, 2003. Volumes transacted on our system increased by $6,483 billion (approximately $6.5 trillion), or 25%, from $25,765 billion (approximately $25.8 trillion) for the nine months ended September 30, 2002 to $32,248 billion (approximately $32.2 trillion) for the nine months ended September 30, 2003. This increase resulted primarily from favorable market conditions in the United States of America and in Europe, where market fluctuations drove increases in our product volumes and transactions counts, as well as continued adoption of our new software enhancements. For the nine months ended September 30, 2003, 84% of our transaction revenues were generated from fully electronic transactions as compared to 83% for the same period a year ago.

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Software Solutions fees from related parties

Software Solutions fees from related parties for the nine months ended September 30, 2003 were $11.4 million. This compares with Software Solutions fees from related parties for the nine months ended September 30, 2002 of $9.7 million, an increase of 18%. This increase resulted from an increase in demand for our support services from Cantor.

Software Solutions and licensing fees from unrelated parties

Software Solutions and licensing fees from unrelated parties for the nine months ended September 30, 2003 were $6.7 million as compared to Software Solutions and licensing fees from unrelated parties of $2.4 million for the nine months ended September 30, 2002, a three-fold increase, due primarily to licensing fees earned from IntercontinentalExchange for use of the Wagner Patent and licensing fees earned as part of the Wagner Patent Settlement Agreement.

Business interruption insurance proceeds from parent

During the nine months ended September 30, 2002, we recognized $12.8 million as our portion of the $40.0 million business interruption insurance recovery received by Cantor following the September 11 Events. Such amount was received in August 2002. There was no such revenue in the 2003 period.

Interest income

For the nine months ended September 30, 2003, the blended weighted average interest rate on overnight reverse repurchase agreements and tax-free municipal bonds was 1.0% as compared to a 1.6% weighted average interest rate on overnight reverse repurchase agreements for the nine months ended September 30, 2002. As a result of the decrease in the average interest rate, partially offset by an increase in average balances between periods, we generated interest income of $1.7 million for the three months ended September 30, 2003 as compared to $2.2 million for the three months ended September 30, 2002, a decrease of 23%.

Expenses

				Nine Months Ended September 30,
(In thousands)				2003				2002
Compensation and employee benefits				$	27,873			$	27,748
Occupancy and equipment					22,939				18,048
Professional and consulting fees					2,927				4,264
Communications and client networks					5,024				4,516
Marketing					1,115				4,515
Administrative fees to related parties					7,747				6,579
Amortization of business partner and non-employee securities					1,715				1,354
Other					8,855				5,873
Total expenses				$	78,195			$	72,897

Compensation and employee benefits

At September 30, 2003, we had 334 employees, which was an increase from the 317 employees we had at September 30, 2002. However, prior to the September 11 Events, we had 492 employees. For the nine months ended September 30, 2003, our compensation costs were $27.9 million as compared to compensation costs of $27.7 million for the six months ended September 30, 2002. This $0.2 million decrease, or 1%, in compensation costs resulted mainly from the additional headcount, more than offset by an increase in the percentage of time spent by certain employees on software application development. The costs associated with such development are capitalized and amortized over the associated application's estimated useful life of three years.

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Occupancy and equipment

Occupancy and equipment costs were $22.9 million for the nine months ended September 30, 2003, a $4.9 million increase, or 27%, as compared to occupancy and equipment costs of $18.0 million for the nine months ended September 30, 2002. The increase was primarily caused by the occupancy and build-out of our temporary corporate headquarters in New York City, where we moved in the second quarter of 2002.

Professional and consulting fees

Professional and consulting fees were $2.9 million for the nine months ended September 30, 2003 as compared to $4.3 million for the nine months ended September 30, 2002, a decrease of 33%, primarily due to a decrease in legal and contract employee personnel costs.

Communications and client networks

Communications costs were $5.0 million for the nine months ended September 30, 2003 as compared to $4.5 million for the nine months ended September 30, 2002, a $0.5 million or 11% increase. Cost controls resulted in reductions in communications rates and usage charges, which were more than offset by additional client networks charges as we processed increased volumes of transactions and continued to add new clients.

Marketing

We incurred marketing expenses of $1.1 million for the nine months ended September 30, 2003 as compared to marketing expenses during the nine months ended September 30, 2002 of $4.5 million, a $3.4 million decrease, resulting from a planned reduction in marketing costs. Marketing expenses in the first nine months of 2002 were higher primarily as the result of the development of a major advertising campaign.

Administrative fees to related parties

Administrative fees to related parties amounted to $7.7 million for the nine months ended September 30, 2003, a 17% increase over the $6.6 million of such fees for the nine months ended September 30, 2002.

Administrative fees to related parties are dependent upon both the costs incurred by Cantor and the portion of Cantor's administrative services that are utilized by us. Administrative fees to related parties are therefore partially correlated to our business growth.

Amortization of business partner and non-employee securities

Charges in relation to the amortization of such securities were $1.7 million for the nine months ended September 30, 2003, an increase of 21% as compared to charges of $1.4 million for the nine months ended September 30, 2002. This increase resulted primarily from the amortization of the value of warrants issued under an agreement executed with a business partner in August 2002, offset by the termination of another warrant agreement in July 2003, for which amortization was recorded in the 2002 period. We believe period-to-period comparisons are not meaningful, as these transactions do not recur on a regular basis. Note 5 of our condensed consolidated financial statements in this Report on Form 10-Q contains further details regarding the amortization of business partner and non-employee securities.

Other expenses

For the nine months ended September 30, 2003, other expenses were $8.9 million, an increase of 51% as compared to other expenses of $5.9 million for the six months ended September 30, 2002, principally due to increases in business-related insurance costs and an increase in the amortization of intangible assets as we continue to devote significant resources to the establishment, perfection and protection of our intellectual property portfolio.

Income Taxes

During the nine months ended September 30, 2003, we recorded an income tax provision of $11.7 million corresponding to a 39.4% effective tax rate adjusted to reflect our recognition of the benefit from net

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operating loss carryforwards in the first quarter of 2003. During the same period a year earlier, income taxes were minimal due to the benefit of our net operating loss carryforwards. Our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.

Liquidity and Capital Resources

At September 30, 2003, we had cash and cash equivalents of $217.0 million, an increase of $29.0 million as compared to December 31, 2002. During the nine months ended September 30, 2003, we provided cash of $43.8 million from our operating activities, consisting of net income of $27.5 million and working capital management of $16.3 million. We also used net cash of $15.0 million resulting from purchases of fixed assets and intangible assets, capitalization of software development costs, patent registration and defense costs, partially offset by proceeds from fixed asset sales. In addition, we used $1.9 million to repurchase shares of our Class A common stock and realized $6.1 million from exercises of employee stock options, $4.1 million of which was receivable at September 30, 2003 and was received in the subsequent month.

Our operating cash flows consist of transaction revenues with related parties and Software Solutions fees from related and unrelated parties, various fees paid to or costs reimbursed to Cantor, other costs paid directly by us and interest income. In its capacity as a fulfillment service provider, Cantor processes and settles transactions and, as such, collects and pays the funds necessary to clear transactions with the counterparty. In doing so, Cantor receives our portion of the transaction fee and, in accordance with the Joint Services Agreement, remits the amount owed to us. In addition, we have entered into similar services agreements with TradeSpark, Freedom, MPLLC and CO2e. Under the Administrative Services Agreement, the Amended and Restated Joint Services Agreement and the services agreements with TradeSpark, Freedom, MPLLC and CO2e, any net receivable or payable is settled at the discretion of the parties.

As of September 30, 2003, we had repurchased 186,399 shares of our Class A common stock for a total of $2.1 million under our repurchase plan. Our Board of Directors has authorized the repurchase of up to an additional $40.0 million of our outstanding Class A common stock.

We anticipate that we will experience an increase in our capital expenditures and lease commitments consistent with our anticipated growth in operations, infrastructure, personnel and our anticipated move into new headquarters. Our property and casualty insurance coverage may mitigate our capital expenditures for the near term. We currently anticipate that we will continue to experience growth in our operating expenses for the foreseeable future and that our operating expenses will be a material use of our cash resources.

Under the current operating structure, our cash flows from operations and our existing cash resources should be sufficient to fund our current working capital and current capital expenditure requirements for at least the next 12 months. However, we believe that there are a significant number of capital intensive opportunities for us to maximize our growth and strategic position, including, among other things, strategic alliances and joint ventures potentially involving all types and combinations of equity, debt, acquisition, recapitalization and reorganization alternatives. We are continually considering such options, including the possibility of additional repurchases of our Class A common stock, and their effect on our liquidity and capital resources.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (the "FASB") issued Interpretation No. 46, Consolidation of Variable Interest Entities. Interpretation No. 46 requires the identification of variable interest entities and the assessment of interests in a variable interest entity to decide whether to consolidate that entity. Variable interest entities are identified by reviewing our equity investments at risk, our ability to make decisions about an entity's activities and the obligation to absorb an entity's losses or right to receive expected residual results. In October 2003, the FASB clarified and modified certain of the provisions of Interpretation No. 46. The proposed clarifications and modifications would apply in financial statements for the first period ending after December 15, 2003. We do not expect the adoption of Interpretation No. 46 on December 31, 2003 to have a material effect on our results of operations, financial position or cash flows.

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In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which establishes standards on the classification and measurement of financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective for the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 on July 1, 2003 did not have a material effect on our results of operations, financial position or cash flows.

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ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk

At September 30, 2003, we had invested $150.1 million of our cash in securities purchased under reverse repurchase agreements, which are fully collateralized by U.S. Government securities held in a custodial account at JP Morgan Chase. These reverse repurchase agreements have an overnight maturity and, as such, are highly liquid. Additionally, at September 30, 2003, we had invested $50.0 million in a tax-free municipal bond fund held at one-week durations. This fund solely invests in the highest rated short-term municipal fixed income products.

We generally do not use derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions. Accordingly, we believe that we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments. Our policy is to invest our cash in a manner that provides us with the appropriate level of liquidity.

ITEM 4.    Controls and Procedures

(a)    Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as of the end of the period covered by this report were designed and were functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b)    Change in Internal Control over Financial Reporting

No change in the Company's internal control over financial reporting occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. — OTHER INFORMATION

ITEM 1.    Legal Proceedings

On June 30, 2003, we, together with Cantor Fitzgerald, L.P. and CFPH, L.L.C., filed a patent infringement suit against BrokerTec USA, LLC, BrokerTec Global, LLC, its parent ICAP, PLC, Garban, LLC, its technology provider OM Technology and its parent company, OM AB (collectively, "BrokerTec") in the United States District Court for the District of Delaware (the "Court"). The suit centers on BrokerTec's infringement of U.S. Patent No. 6,560,580 issued on May 6, 2003, which expires in December 2016, with respect to which we are the exclusive licensee. The patent protects some of our proprietary systems and methods of electronic trading. The parties have asked the Court, among other things, to preliminarily enjoin BrokerTec from continuing its infringement during the pendency of the lawsuit, for a permanent injunction and for damages. The parties are engaged in discovery. A preliminary injunction hearing was held on October 30, 2003. The parties are to submit to the Court findings of fact and conclusions of law on the preliminary injunction issue by December 4, 2003 and will thereafter await the Court's decision. A trial on the merits is scheduled for February 2005.

ITEM 2.    Changes in Securities and Use of Proceeds

The effective date of our registration statement (Registration No. 333-87475) filed on Form S-1 relating to our initial public offering of Class A common stock was December 9, 1999. In our initial public offering, we sold 7,000,000 shares of Class A common stock at a price of $22.00 per share and Cantor Fitzgerald

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Securities, the selling stockholder, sold 3,350,000 shares of Class A common stock at a price of $22.00 per share. Our initial public offering was managed on behalf of the underwriters by Warburg Dillon Read LLC, Hambrecht & Quist, Thomas Weisel Partners LLC and Cantor Fitzgerald & Co. The offering commenced on December 10, 1999 and closed on December 15, 1999. Proceeds to us from our initial public offering, after deduction of the underwriting discounts and commissions of approximately $10.0 million and offering costs of $4.4 million, totaled approximately $139.6 million. Of the $139.6 million raised, approximately $8.9 million has been used to fund investments in various entities, approximately $73.8 million has been used to acquire fixed assets and to pay for the development of capitalized software, approximately $26.3 million has been used to purchase intangible assets and pay for the defense of patents, $2.1 million has been used to repurchase shares of Class A common stock, and approximately $2.0 million has been used for other working capital purposes. The remaining $26.5 million has been invested in reverse repurchase agreements.

Of the amount of proceeds spent through September 30, 2003, approximately $34.9 million has been paid to Cantor under the Administrative Services Agreement between Cantor and us.

ITEM 4.    Submission of Matters to a Vote of Security Holders

On October 22, 2003, we held our annual meeting of stockholders. At the meeting, the following directors were elected by the stockholders to hold office until the next annual meeting of stockholders or until their successors have been duly elected and qualified: Howard W. Lutnick, Lee M. Amaitis, Joseph C. Noviello, Stephen M. Merkel, John H. Dalton, William J. Moran, Albert M. Weis, and Henry Morris.

The votes with respect to the election of directors were cast in the following manner:

NAME				FOR				WITHHELD
				(Number of Votes)
Howard W. Lutnick					268,830,061				10,867,921
Lee M. Amaitis					267,734,369				11,963,613
Joseph C. Noviello					269,782,476				9,915,506
Stephen M. Merkel					267,668,436				12,029,546
John H. Dalton					277,280,145				2,417,837
William J. Moran					277,280,145				2,417,837
Albert M. Weis					277,280,145				2,417,837
Henry Morris					277,940,406				1,757,576

At the meeting, stockholders approved our 2003 Incentive Bonus Compensation Plan and votes were cast in the following manner:

				Number of Votes
For					273,993,156
Against					1,433,108
Abstain					93,324
Broker non-votes					4,178,394

At the meeting, stockholders approved our Amended and Restated 1999 Long-Term Incentive Plan and votes were cast in the following manner:

				Number of Votes
For					260,119,137
Against					15,309,459
Abstain					90,992
Broker non-votes					4,178,394

ITEM 5.    Other Information

Our Audit Committee approved all of the non-audit services performed by Deloitte & Touche LLP, our independent auditors, during the period covered by this Report on Form 10-Q.

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ITEM 6.    Exhibits and Reports on Form 8-K

(a)    Exhibits.

Exhibit No.				Description
10.27				Amended and Restated Warrant Agreement, dated as of October 23, 2003, between eSpeed, Inc. and UBS USA Inc.
10.28				eSpeed 2003 Incentive Bonus Compensation Plan, dated as of October 22, 2003
10.29				Amended and Restated eSpeed, Inc. 1999 Long Term Incentive Plan, dated as of October 22, 2003
31.1				Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2				Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32				Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)    Reports on Form 8-K.

We filed a Current Report on Form 8-K on August 12, 2003 under Item 7. "Financial Statements and Exhibits" and "Item 12. Results of Operations and Financial Condition" of Form 8-K, in which we announced our preliminary operating statistics for the quarter ended June 30, 2003.

We filed a Current Report on Form 8-K on November 13, 2003 under Item 7. "Financial Statements and Exhibits" and "Item 12. Results of Operations and Financial Condition" of Form 8-K, in which we announced our preliminary operating statistics for the quarter ended September 30, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

eSpeed, Inc. (Registrant)

/s/ Howard W. Lutnick

Howard W. Lutnick Chairman, Chief Executive Officer and President

/s/ Jeffrey M. Chertoff

Jeffrey M. Chertoff Senior Vice President and Chief Financial Officer

Date: November 13, 2003

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EXHIBIT INDEX

Exhibit No.				Description
	10.27			Amended and Restated Warrant Agreement, dated as of October 23, 2003, between eSpeed, Inc. and UBS USA Inc.
	10.28			eSpeed 2003 Incentive Bonus Compensation Plan, dated as of October 22, 2003
	10.29			Amended and Restated eSpeed, Inc. 1999 Long Term Incentive Plan, dated as of October 22, 2003
	31.1			Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2			Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32			Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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