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. With respect to the eSpeed equity order routing business conducted for Cantor, the Company and Cantor each receive 50% of the revenues, after deduction of specified marketing, sales and other costs and fees. In addition, any eSpeed equity order routing business that is not conducted for Cantor will be treated generally as a fully electronic transaction, and the Company will receive 65% of the revenues of any such business and Cantor will receive 35% of such revenues.

In February 2003, we agreed with Cantor that with respect to (i) certain network access facilities services agreements and (ii) other circumstances in which Cantor refers network access facility services business to us, 60% of net revenues from such business would be paid to Cantor and 40% of such revenues would be paid to us. This revenue sharing arrangement will be made after deduction of all sales commissions, marketing, helpdesk, clearing and direct third-party costs, including circuits and maintenance.

Under an Administrative Services Agreement, Cantor provides various administrative services to the Company, including accounting, tax, legal, human resources 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 six months ended June 30, 2004 and 2003 totaling $6.2 million and $5.2 million, respectively. The services provided under both the Amended and Restated Joint Services Agreement and the Administrative Services Agreement are not the result of 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.

Amounts due to or from related parties pursuant to the transactions described above are non-interest bearing. As of June 30, 2004 and December 31, 2003, receivables from TradeSpark, Freedom and MPLLC totaled approximately $1.0 million and $1.4 million, respectively, and are included in receivable from related parties in the consolidated statements of financial condition.

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On September 11, 2001, the Company had property and casualty insurance coverage in the amount of $40.0 million. As a result of the September 11 Events, fixed assets with a book value of approximately $17.8 million were destroyed. The Company has recovered these losses through $20.5 million of property insurance proceeds and, as such, has not recorded a net loss related to the destruction of its fixed assets.

During the year ended December 31, 2003, Cantor received an additional $21.0 million of insurance proceeds in settlement for property damage related to the September 11 Events. The Company will be entitled to up to $19.5 million of these proceeds as replacement assets are purchased in the future, depending on the ultimate replacement value of the assets destroyed. A gain may be recorded based on the amount allocated to the Company. However, the Company cannot currently estimate the amount or timing of any such gain, and accordingly, no gains on replacement of fixed assets have been recorded during the period.

As of June 30, 2004, the Company estimates that it had replaced assets with an aggregate value of approximately $13.0 million. The Company expects to incur significant costs in relation to the replacement of fixed assets lost on September 11, 2001 when it builds its permanent infrastructure and moves into its new headquarters.

9.    Earnings Per Share

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

				Three Months Ended June 30,
				2004				2003
				(In thousands, except per share amounts)
Net income for basic and diluted earnings per share				$	9,041			$	8,102
Shares of common stock and common stock equivalents
Weighted average shares used in basic computation:					56,153				55,056
Dilutive effect of:
Stock options					1,731				1,319
Business partner securities					74				72
Weighted average shares used in diluted computation					57,958				56,447
Earnings per share:
Basic				$	0.16			$	0.15
Diluted				$	0.16			$	0.14

				Six Months Ended June 30,
				2004				2003
				(In thousands, except per share amounts)
Net income for basic and diluted earnings per share				$	19,736			$	17,577
Shares of common stock and common stock equivalents
Weighted average shares used in basic computation:					56,114				55,076
Dilutive effect of:
Stock options					1,963				1,655
Business partner securities					84				88
Weighted average shares used in diluted computation					58,161				56,819
Earnings per share:
Basic				$	0.35			$	0.32
Diluted				$	0.34			$	0.31

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Effective April 1, 2003, the Company began recording income taxes (see Note 5, Income Taxes). During the three months ended March 31, 2003, 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 six month periods ended June 30, 2004 and 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 June 30, 2004 and 2003, approximately 9.6 million and 10.7 million securities, respectively, were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

10.    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 June 30, 2004, eSpeed Government Securities, Inc.'s liquid capital of $110,181,249 was in excess of minimum requirements by $110,156,249.

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 June 30, 2004, eSpeed Securities, Inc. had net capital of $94,624,134, which was $94,619,134 in excess of its required net capital, and eSpeed Securities, Inc.'s net capital ratio was negligible as aggregate indebtedness totaled only $777.

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

11.    Commitments and Contingencies

On July 26, 2004, Cantor Fitzgerald and the Company announced that we will establish our new global headquarters at 110 E 59^th Street in New York's midtown Manhattan. Under the Administrative Services Agreement, eSpeed is obligated to Cantor for its pro rata portion (based on square footage used) of rental payments during the 15 year term of the lease for the new headquarters. An evaluation of the effect of this new lease on the Company's schedule of significant contractual obligations, as disclosed in the Form 10-K for the year ended December 31, 2003, is currently being conducted.

Other than the above, 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, 2003.

12.    Segment and Geographic Data

Segment information:    The Company currently operates its business in one segment, that of operating interactive electronic 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 SolutionsSM, 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.

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Geographic information:    The Company operates in the Americas (primarily in the United States), 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 June 30th,
(In thousands)				2004				2003
Transaction revenues:
Europe				$	7,263			$	6,854
Asia					490				594
Total Non-Americas					7,753				7,448
Americas					26,749				24,978
Total				$	34,502			$	32,426

				Six months ended June 30th,
(In thousands)				2004				2003
Transaction revenues:
Europe				$	16,071			$	13,890
Asia					1,027				1,202
Total Non-Americas					17,098				15,092
Americas					54,188				45,054
Total				$	71,286			$	60,146

				June 30,
(In thousands)				2004				2003
Average long-lived assets:
Europe				$	14,938			$	3,053
Asia					402				318
Total Non-Americas					15,340				3,371
Americas					27,485				21,925
Total				$	42,825			$	25,296

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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, 2003. 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 99.75%-owned subsidiary of Cantor Fitzgerald, L.P. 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 consisted of proprietary software, network distribution systems, technologies and other related contractual rights that comprise our eSpeed^® system.

As of June 30, 2004, we had retained earnings of $6.5 million. This amount primarily resulted from net income generated during the six months ended June 30, 2004, and the years ended December 31, 2003 and 2002, almost entirely offset by expenditures on our technology and infrastructure incurred in building our revenue base and from non-cash charges incurred in connection with the issuance of business partner securities.

We expect that we will continue to generate net income. However, in light of the rapidly changing nature of our business and the impact of the September 11 Events, we believe that period-to-period comparisons of our previously reported operating results will not necessarily be meaningful and should not be relied upon as an indication of future performance.

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 have pursued an aggressive strategy to convert certain of Cantor's financial marketplace products to our eSpeed^® system and, with the assistance of Cantor, to continue to create new markets and convert new clients to our eSpeed^® system. The process of converting these marketplaces includes

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modifying existing trading systems to allow for transactions to be entered directly from a client location, signing an agreement with the client, installing the hardware and software at the client location and establishing communication lines between us and the client. Other than Cantor, no client of ours accounted for more than 10% of our transaction revenues from our date of inception through June 30, 2004. As a result of the September 11 Events and the resulting loss of voice brokers, Cantor's U.S. operations were reduced, including the trading by it of certain U.S. financial products. Cantor also sold the assets of its municipal bond business in the first quarter of 2002 after that business ceased operations on September 11, 2001, but acquired a special interest in MPLLC, the entity that acquired the assets. In addition, Cantor's business product development activity continues to be reduced due to the September 11 Events. If Cantor determines not to re-enter its affected businesses, exits additional businesses or does not continue to develop new products or enter into new businesses, we will likely be adversely affected.

Critical Accounting Policies

For a discussion of the Company's critical accounting policies, see "Critical Accounting Policies" in our Annual Report on Form 10-K.

Results of Operations

For the Three Months Ended June 30, 2004 Compared to the Three Months Ended June 30, 2003

Highlights

Diluted earnings per share for the three months ended June 30, 2004 and 2003 were $0.16 and $0.14, respectively. During the three months ended June 30, 2004, we recorded an income tax provision of $5.8 million, or approximately $0.10 per diluted share, corresponding to a 39.1% consolidated effective tax rate. For the same period a year earlier, we recorded an income tax provision of $5.4 million, or approximately $0.10 per diluted share, corresponding to a 40.0% consolidated effective tax rate.

For the three months ended June 30, 2004, transaction revenues with related parties amounted to $34.5 million, an increase of 6% as compared to transaction revenues with related parties of $32.4 million for the same period a year ago. Volumes transacted on our system per trading day increased approximately 8%. For the three months ended June 30, 2004, 84% of our transaction revenues were generated from fully electronic transactions.

Revenues

				Three Months Ended June 30,
				2004				2003
(In thousands)
Transaction revenues with related parties
Fully electronic transactions				$	29,154			$	27,538
Voice-assisted brokerage transactions					5,190				4,645
Screen-assisted open outcry transactions					158				243
Total transaction revenues with related parties					34,502				32,426
Software Solutions fees from related parties					4,475				3,881
Software Solutions and licensing fees from unrelated parties					3,107				2,209
Interest income					761				563
Total revenues				$	42,845			$	39,079

Transaction revenues with related parties

For the three months ended June 30, 2004, we earned transaction revenues with related parties of $34.5 million, an increase of 6% as compared to transaction revenues with related parties of $32.4 million for the three month period ended June 30, 2003. There were 62 and 63 trading days in the

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three-month periods ended June 30, 2004 and 2003, respectively. Transaction revenues per trading day increased by $42 thousand, or 8%, from $515 thousand for the three months ended June 30, 2003 to $556 thousand for the three months ended June 30, 2004. Volumes transacted on our system increased by $618 billion (approximately $0.6 trillion), or 6%, from $10,443 billion (approximately $10.4 trillion) for the three months ended June 30, 2003 to $11,061 billion (approximately $11.1 trillion) for the three months ended June 30, 2004. This increase resulted primarily from favorable market conditions in the United States 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 three months ended June 30, 2004, 84% of our transaction revenues were generated from fully electronic transactions as compared to 85% for the same period in 2003.

Our revenues are 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 June 30, 2004 were $4.5 million. This compares with Software Solutions fees from related parties for the three months ended June 30, 2003 of $3.9 million, an increase of 15%. 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 three months ended June 30, 2004 were $3.1 million as compared to Software Solutions and licensing fees from unrelated parties of $2.2 million for the same period a year ago, a 41% increase, due primarily to licensing fees earned as part of the Wagner Patent settlement agreement with NYMEX. We anticipate that as we license our software and patents to additional market participants, our revenues from Software Solutions and licensing fees from unrelated parties will continue to grow.

Interest income

For the three months ended June 30, 2004, the blended weighted average interest rate on overnight reverse repurchase agreements and US Government Securities money market funds was 1.12% as compared to a 1.04% weighted average interest rate on overnight reverse repurchase agreements for the three months ended June 30, 2003. As a result of the increase in the average balances and interest rates between periods, we generated interest income of $761 thousand for the three months ended June 30, 2004 as compared to $563 thousand for the three months ended June 30, 2003, an increase of 35%.

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Expenses

				Three Months Ended June 30,
				2004				2003
(In thousands)
Compensation and employee benefits				$	9,768			$	9,239
Occupancy and equipment:
Amortization of software development costs					2,396				1,832
Other occupancy and equipment costs					6,073				5,739
Professional and consulting fees					865				863
Communications and client networks					1,595				1,714
Marketing					379				408
Administrative fees to related parties					3,212				2,590
Amortization of business partner and non-employee securities					142				362
Other					3,569				2,830
Total expense				$	27,999			$	25,577

Compensation and employee benefits

At June 30, 2004, we had 357 employees, which was an increase from the 332 employees we had at June 30, 2003. For the three months ended June 30, 2004, our compensation costs were $9.8 million as compared to compensation costs of $9.2 million for the same period a year earlier. This $0.6 million increase, or 7%, in compensation costs resulted mainly from additional headcount. Compensation and employee benefits, as a percentage of revenue, were 23% and 24% for the six months ended June 30, 2004 and 2003, respectively. With a significant portion of employee compensation being discretionary and performance-based, compensation can vary from quarter to quarter.

Substantially all of our employees are full-time employees located predominately in the New York metropolitan area and 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.

Amortization of software development costs

Amortization and software development costs were $2.4 million for the three months ended June 30, 2004, an increase of $0.6 million, or 33%, as compared to amortization and software development costs of $1.8 million for the three months ended June 30, 2003. The increase was related to increased investment in software development activities.

In accordance with the provisions of Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," the Company capitalizes qualifying computer software costs incurred during the application development stage, and amortizes them over their estimated useful life of three years on a straight-line basis.

Other occupancy and equipment costs

Other occupancy and equipment costs were $6.1 million for the three months ended June 30, 2004, a $0.4 million increase, or 7%, as compared to other occupancy and equipment costs of $5.7 million for the three months ended June 30, 2003. The increase was primarily caused by the occupancy and build-out of our temporary corporate headquarters in New York City.

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. During the third quarter of 2004, the Company announced that it will establish its new global headquarters at 110 E 59^th Street in New York's midtown Manhattan, with the relocation of employees to begin in the first quarter of 2005. We believe that other occupancy and equipment costs will increase in the future as we begin to occupy our new global headquarters and as we replace equipment lost in the September 11 Events.

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However, we expect a portion of these capital expenditures to be covered by our insurance proceeds from our property and casualty insurance coverage.

Professional and consulting fees

Professional and consulting fees were $0.9 million for the three months ended June 30, 2004 and 2003, respectively. Increases in legal and accounting fees were offset by decreases in consulting fees.

Communications and client networks

Communications costs were $1.6 million for the three months ended June 30, 2004, a $0.1 million decrease, or 6%, as compared to communication costs of $1.7 million for the three months ended June 30, 2003. Cost controls resulted in reductions in communications rates and usage charges, which were somewhat offset by additional client networks charges as we processed increased volumes of transactions and continued to add new clients.

Communication costs include the costs of local and wide area network infrastructure, the cost of establishing the client 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 increase in the near future as we continue to connect additional customers to our network.

Marketing

Marketing expenses were $0.4 million for the three months ended June 30, 2004 and 2003, respectively. Increases in advertising expenses were offset by decreases in printing and website costs.

Administrative fees to related parties

Administrative fees to related parties amounted to $3.2 million for the three months ended June 30, 2004, a 23% increase over the $2.6 million of such fees for the three months ended June 30, 2003.

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

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 $0.1 million for the three months ended June 30, 2004 as compared to $0.4 million for the three months ended June 30, 2003. This $0.3 million decrease resulted primarily from the fact that value of a warrant agreement became fully amortized at the end of the first quarter of 2004, and thus contributed no amortization to the second quarter of 2004. The amendment of another warrant agreement that had the effect of extending the term over which the related warrant value is amortized further contributed to this decrease. These decreases were offset in part by a reversal of amortization taken in three months ended June 30, 2003 on warrants issued to a business partner who was determined not to have fulfilled its obligations under the related agreement. We believe period-to-period comparisons are not meaningful, as these transactions do not recur on a regular basis. Note 6 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, which totaled $1.4 million for the three months ended June 30, 2004, insurance costs and travel, promotional and entertainment expenditures. For the three months ended June 30, 2004, other expenses were $3.6 million, an increase

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of $0.8 million, or 29%, as compared to other expenses of $2.8 million for the three months ended June 30, 2004, principally due to increases in travel and entertainment costs and recruitment fees, as well as a decrease in foreign currency translation gains.

Income taxes

During the three months ended June 30, 2004, we recorded an income tax provision of $5.8 million corresponding to a 39.1% consolidated effective tax rate. During the same period a year earlier, we recorded an income tax provision $5.4 million corresponding to a 40.0% consolidated effective tax rate. 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 Six Months Ended June 30, 2004 Compared to the Six Months Ended June 30, 2003

Highlights

Diluted earnings per share for the six months ended June 30, 2004 and 2003 were $0.34 and $0.31, respectively. During the six months ended June 30, 2004, we recorded an income tax provision of $12.7 million, or approximately $0.22 per diluted share, corresponding to a 39.1% consolidated effective tax rate. For the same period a year earlier, we recorded an income tax provision of $5.3 million, or approximately $0.09 per diluted share, corresponding to a 23.1% consolidated effective tax rate. The consolidated effective tax rate for the six months ended June 30, 2003 was lower due to the fact that prior to the second quarter of 2003, our income taxes were minimal as the result of our NOLs.

For the six months ended June 30, 2004 transaction revenues with related parties amounted to $71.3 million, an increase of 19% as compared to transaction revenues with related parties of $60.1 million for the same period a year ago. Volumes transacted on our system per trading day increased approximately 16%. For the six months ended June 30, 2004, 84% of our transaction revenues were generated from fully electronic transactions.

Revenues

				Six Months Ended June 30,
				2004				2003
(In thousands)
Transaction revenues with related parties
Fully electronic transactions				$	59,681			$	50,048
Voice-assisted brokerage transactions					11,216				9,806
Screen-assisted open outcry transactions					389				292
Total transaction revenues with related parties					71,286				60,146
Software Solutions fees from related parties					8,587				7,530
Software Solutions and licensing fees from unrelated parties					6,105				4,341
Interest income					1,505				1,105
Total revenues				$	87,483			$	73,122

Transaction revenues with related parties

For the six months ended June 30, 2004, we earned transaction revenues with related parties of $71.3 million, an increase of 19% as compared to transaction revenues with related parties of $60.1 million for the six month period ended June 30, 2003. There were 124 trading days in the six-month periods ended June 30, 2004 and 2003. Transaction revenues per trading day increased by $90 thousand, or 19%, from $485 thousand for the six months ended June 30, 2003 to $575 thousand for the six months ended June 30, 2004. Volumes transacted on our system increased by $3,177 billion (approximately

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$3.2 trillion), or 16%, from $19,812 billion (approximately $19.8 trillion) for the six months ended June 30, 2003 to $22,989 billion (approximately $23.0 trillion) for the six months ended June 30, 2004. This increase resulted primarily from favorable market conditions in the United States 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 six months ended June 30, 2004, 84% of our transaction revenues were generated from fully electronic transactions as compared to 83% for the same period in 2003.

Our revenues are 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 six months ended June 30, 2004 were $8.6 million. This compares with Software Solutions fees from related parties for the six months ended June 30, 2003 of $7.5 million, an increase of 15%. 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 six months ended June 30, 2004 were $6.1 million as compared to Software Solutions and licensing fees from unrelated parties of $4.3 million for the same period a year ago, a 42% increase, due primarily to licensing fees earned as part of the Wagner Patent settlement agreement with NYMEX. We anticipate that as we license our software and patents to additional market participants, our revenues from Software Solutions and licensing fees from unrelated parties will continue to grow.

Interest income

For the six months ended June 30, 2004, the blended weighted average interest rate on overnight reverse repurchase agreements, tax free municipal bonds and US Government Securities money market funds was 1.15% as compared to a 1.04% weighted average interest rate on overnight reverse repurchase agreements for the six months ended June 30, 2003. As a result of the increase in the average balances and interest rates between periods, we generated interest income of $1.5 million for the six months ended June 30, 2004 as compared to $1.1 million for the six months ended June 30, 2003, an increase of 36%.

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Expenses

				Six Months Ended June 30,
				2004				2003
(In thousands)
Compensation and employee benefits				$	19,083			$	18,083
Occupancy and equipment:
Amortization of software development costs					4,651				3,510
Other occupancy and equipment costs					12,300				11,238
Professional and consulting fees					1,798				1,974
Communications and client networks					3,208				3,309
Marketing					765				742
Administrative fees to related parties					6,169				5,168
Amortization of business partner and non-employee securities					586				1,067
Other					6,516				5,149
Total expense				$	55,076			$	50,240

Compensation and employee benefits

At June 30, 2004, we had 357 employees, which was an increase from the 332 employees we had at June 30, 2003. For the six months ended June 30, 2004, our compensation costs were $19.1 million as compared to compensation costs of $18.1 million for the same period a year earlier. This $1.0 million increase, or 6%, in compensation costs resulted mainly from additional headcount. Compensation and employee benefits, as a percentage of revenue, were 22% and 25% for the six months ended June 30, 2004 and 2003, respectively. With a significant portion of employee compensation being discretionary and performance-based, compensation can vary from quarter to quarter.

Substantially all of our employees are full-time employees located predominately in the New York metropolitan area and 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.

Amortization of software development costs

Amortization and software development costs were $4.7 million for the six months ended June 30, 2004, an increase of $1.2 million, or 34%, as compared to amortization and software development costs of $3.5 million for the six months ended June 30, 2003. The increase was related to increased investment in software development activities.

In accordance with the provisions of Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," the Company capitalizes qualifying computer software costs incurred during the application development stage, and amortizes them over their estimated useful life of three years on a straight-line basis.

Other occupancy and equipment costs

Other occupancy and equipment costs were $12.3 million for the six months ended June 30, 2004, a $1.1 million increase, or 10%, as compared to other occupancy and equipment costs of $11.2 million for the six months ended June 30, 2003. The increase was primarily caused by the occupancy and build-out of our temporary corporate headquarters in New York City.

Other 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. During the third quarter of 2004, the Company announced that it will establish its new global headquarters at 110 E 59^th Street in New York's midtown Manhattan, with the relocation of employees to begin in the first quarter of 2005. We believe that other occupancy and equipment costs will increase in the future as we begin to

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occupy our new global headquarters and as we replace equipment lost in the September 11 Events. However, we expect a portion of these capital expenditures to be covered by our insurance proceeds from our property and casualty insurance coverage.

Professional and consulting fees

Professional and consulting fees were $1.8 million for the six months ended June 30, 2004, a $0.2 million decrease, or 10%, as compared to professional and consulting fees of $2.0 million for the six months ended June 30, 2003. Increases in accounting and tax fees were more than offset by decreases in consulting costs.

Communications and client networks

Communication costs were $3.2 million for the six months ended June 30^, 2004 as compared to $3.3 million for the six months ended June 30, 2003. Cost controls resulted in reductions in communications rates and usage charges, which were somewhat offset by additional client networks charges as we processed increased volumes of transactions and continued to add new clients.

Communication costs include the costs of local and wide area network infrastructure, the cost of establishing the client 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 increase in the near future as we continue to connect additional customers to our network.

Marketing

Marketing expenses were $0.8 million for the six months ended June 30, 2004, a $0.1 million increase, or 14%, as compared to marketing expenses of $0.7 million for the six months ended June 30, 2003. Increases in advertising expenses were offset partially by decreases in printing and website costs.

Administrative fees to related parties

Administrative fees to related parties amounted to $6.2 million for the six months ended June 30, 2004, a 19% increase over the $5.2 million of such fees for the six months ended June 30, 2003.

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

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 six months ended June 30, 2004 as compared to $1.1 million for the six months ended June 30, 2003. This $0.5 million decrease resulted primarily from the fact that value of a warrant agreement became fully amortized at the end of the first quarter of 2004, and thus contributed no amortization to the second quarter of 2004. The amendment of another warrant agreement that had the effect of extending the term over which the related warrant value is amortized further contributed to this decrease. These decreases were offset in part by a reversal of amortization taken in six months ended June 30, 2003 on warrants issued to a business partner who was determined not to have fulfilled its obligations under the related agreement. We believe period-to-period comparisons are not meaningful, as these transactions do not recur on a regular basis. Note 6 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, which totaled $2.9 million for the six months ended June 30, 2004, insurance costs and travel, promotional and entertainment

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expenditures. For the six months ended June 30, 2004, other expenses were $6.5 million, an increase of $1.4 million, or 27%, as compared to other expenses of $5.1 million for the six months ended June 30, 2004, principally due to increases in amortization of intangibles, travel and entertainment costs and recruitment fees, as well as a decrease in foreign currency translation gains.

Income taxes

During the six months ended June 30, 2004, we recorded an income tax provision of $12.7 million corresponding to a 39.1% consolidated effective tax rate. For the same period a year earlier, we recorded an income tax provision of $5.3 million corresponding to a 23.2% consolidated effective tax rate. The consolidated effective tax rate for the six months ended June 30, 2003 was lower due to the fact that prior to the second quarter of 2003, our income taxes were minimal as the result of our NOLs. 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 June 30, 2004, we had cash and cash equivalents of $239.6 million, an increase of $11.1 million as compared to December 31, 2003. During the six months ended June 30, 2004, our operating activities provided cash of $29.3 million. We also used net cash of $20.9 million resulting from purchases of fixed assets, and the capitalization of software development costs and patent registration and defense costs. In addition, we realized $2.7 million from exercises of employee stock options, $0.1 million of which was receivable at June 30, 2004 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 June 30, 2004, 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. During the third quarter of 2004, we purchased an additional 1,600,176 shares for a total purchased price of $19.5 million, bringing the total number of treasury shares owned to 1,786,575 at a book value of $21.6 million.

We anticipate that we will experience an increase in our capital expenditures and lease commitments consistent with our anticipated growth in operations, infrastructure and personnel with our anticipated move into new headquarters. Our property and casualty insurance coverage may mitigate our capital expenditures for the near term. During the year ended December 31, 2003, Cantor received an additional $21.0 million of insurance proceeds in settlement for property damage related to the September 11 Events. We will be entitled to up to $19.5 million of these proceeds as replacement assets are purchased in the future, depending on the ultimate replacement value of the assets destroyed. 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

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options, including the possibility of additional repurchases of our Class A common stock, and their effect on our liquidity and capital resources.

Aggregate Contractual Obligations

On July 26, 2004, Cantor Fitzgerald and the Company announced that we will establish our new global headquarters at 110 E 59^th Street in New York's midtown Manhattan. Under the Administrative Services Agreement, eSpeed is obligated to Cantor for its pro rata portion (based on square footage used) of rental payments during the 15 year term of the lease for the new headquarters. An evaluation of the effect of this new lease on the Company's schedule of contractual obligations, as disclosed in the Form 10-K for the year ended December 31, 2003, is currently being conducted.

Other than the item described above, there have been no significant changes to our significant contractual obligations, as detailed in our Annual Report on Form 10-K for the year ended December 31, 2003.

Off-Balance Sheet Arrangements

As of June 30, 2004, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk

At June 30, 2004, we had invested $205.5 million of our cash in securities purchased under reverse repurchase agreements, $81.7 million of which is fully collateralized by U.S. government securities and $123.8 million of which is fully collateralized by eligible equity securities, both of which are held in a third party custodial account. These reverse repurchase agreements have an overnight maturity and, as such, are highly liquid. Additionally, at June 30, 2004, we had invested $7.8 million in a money market fund held at overnight durations. This fund solely invests in short-term U.S. government fixed income securities.

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 an 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 Interim 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 Interim 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.

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PART II. - OTHER INFORMATION

ITEM 2.    Changes in Securities and Use of Proceeds and Issuer Purchases of Equity Securities

There have been no repurchases or sales of our equity securities by us during the three months ended June 30, 2004.

ITEM 6.    Exhibits and Reports on Form 8-K

(a)	Exhibits.

Exhibit No.				Description
10.31				Employment Agreement, dated as of April 23, 2004 between eSpeed, Inc. and Kevin Foley
10.32				Employment Agreement, dated as of April 29, 2004 between eSpeed, Inc. and Paul Saltzman
31.1				Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2				Certification by the Interim 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.

	(i)	On April 26, 2004, we filed a report on Form 8-K under Item 5. "Other Events and Required FD Disclosure" with respect to the appointment of Kevin Foley as President, and the promotion of Lee Amaitis to Vice Chairman, of the Registrant.

	(ii)	On May 3, 2004, we filed a report on Form 8-K under Item 7. "Financial Statements and Exhibits" and Item 12. "Results of Operations and Financials Condition" of Form 8-K, in which we announced our preliminary operating statistics for the quarter ended March 31, 2004.

	(iii)	On May 5, 2004, we filed a report on Form 8-K under Item 5. "Other Events and Required FD Disclosure" with respect to the appointment of Paul Saltzman as Chief Operating Officer of the Registrant.

	(iv)	On May 10, 2004 we filed a report on Form 8-K under Item 5. "Other Events and Required FD Disclosure" with respect to the resignation of Jeff Chertoff and the appointment of Jay Ryan as Interim Chief Financial Officer of the Registrant.

	(v)	On June 2, 2004 we filed a report on Form 8-K under Item 5. "Other Events and Required FD Disclosure" with respect to the promotion of Joseph Noviello to Executive Vice President, Chief Product Architect of the Registrant, and the promotion of James Johnson to Senior Vice President, Chief Information Officer, of the Registrants.

	(vi)	On July 1, 2004 we filed a report on Form 8-K under Item 7. "Financial Statements and Exhibits" and Item 12. "Results of Operations and Financials Condition" of Form 8-K, in which we updated our outlook for the quarter ended June 30, 2004.

	(vii)	On August 5, 2004 we filed a report on Form 8-K under Item 7. "Financial Statements and Exhibits" and Item 12. "Results of Operations and Financials Condition" of Form 8-K, in which we announced our preliminary operating statistics for the quarter ended June 30, 2004.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 10-Q for the quarter ended June 30, 2004 to be signed on its behalf by the undersigned thereunto duly authorized.

				eSpeed, Inc. (Registrant)
				/s/ Howard W. Lutnick
				Howard W. Lutnick Chairman of the Board and Chief Executive Officer
				/s/ Jay Ryan
				Jay Ryan Senior Vice President and Interim Chief Financial Officer

Date:    August 6, 2004

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EXHIBIT INDEX

Exhibit No.				Description
10.31				Employment Agreement, dated as of April 23, 2004 between eSpeed, Inc. and Kevin Foley
10.32				Employment Agreement, dated as of April 29, 2004 between eSpeed, Inc. and Paul Saltzman
31.1				Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2				Certification by the Interim 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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