revenues. Cantor also entered into an administrative services agreement with TradeSpark pursuant to which it provides administrative services to TradeSpark at cost. The Company and Cantor each received representation rights on the management committee of TP Holdings in proportion to their ownership interests in TradeSpark. As general partner, TP Holdings has the sole power to make management decisions on behalf of TradeSpark.

In order to provide incentives to the EIPs to trade on the TradeSpark electronic marketplace, which would have resulted in commissions to the Company under the TradeSpark technology services agreement, in 2000 the Company issued 5,500,000 shares of its Series A preferred stock and 2,500,000 shares of its Series B preferred stock to EIP Holdings.The 5,500,000 shares of Series A preferred stock and 2,500,000 shares of Series B preferred stock which were owned by EIP Holdings were convertible into (i) an aggregate of 80,000 shares of Class A Common Stock at any time or (ii) warrants to purchase up to 8,000,000 shares of eSpeed's Class A Common Stock at $27.94 per share upon certain conditions, including the achievement of minimum trading thresholds. In 2000, the Company recognized an expense of $2,235,200, equal to the fair value of the 80,000 shares of Class A common stock issuable upon conversion of the preferred stock, if none of the contingent performance targets were met.

In mid-2002, several of the TradeSpark EIP investors began to change their focus from energy merchant trading to asset management and a traditional utility model, requiring an adjustment to the TradeSpark business model and a reduced focus on the TradeSpark investment by such energy partners.In the fourth quarter of 2002, the carrying value of the Company's investment in TradeSpark was written down by $950,000 to its net realizable value.

In the first quarter of 2004, the Company and Cantor purchased 100% of EIP Holdings, the holding company formed by the EIPs that owned 66.34% of TradeSpark and 66.67% of TP Holdings, TradeSpark's general partner. The Company and Cantor entered into this agreement in order to maximize the net realizable value of their investment in TradeSpark by eliminating the interests of the outside EIP investors and bringing the management of TradeSpark under their collective control. The purchase price of $2.4 million was paid through EIP Holdings Acquisition, LLC ("EIP Holdings Acquisition"), a Delaware limited liability company owned by the Company and Cantor. In connection with this purchase, the Company contributed to EIP Holdings Acquisition a 4.75% interest in TP Holdings and its entire 4.97% interest in TradeSpark. Cantor contributed its existing 28.19% interest in TradeSpark along with their 28.33% interest in TP Holdings. The Company retained a 0.25% interest in TP Holdings. The Company also contributed $360,000, or 15%, of the $2.4 million of the cash consideration. The Company serves as the Managing Member of EIP Holdings Acquisition and will receive 15%, and Cantor will receive 85%, of all profits and losses and liquidation value of EIP Holdings Acquisition. As the 99.75% owner of TP Holdings, TradeSpark's general partner, EIP Holdings Acquisition is consolidated by Cantor given Cantor's 85% interest in all profits and losses. EIP Holdings Acquisition, the Company and Cantor have each appointed one member to TP Holdings' three-member management committee. As a part of Cantor and eSpeed's acquisition of the remaining 66.67% interest in TradeSpark they did not already own, Cantor and eSpeed acquired all of the outstanding shares of eSpeed's Series A and Series B preferred stock. The Company received all right, title and interest in and to all these shares of the Company's Series A and Series B preferred stock owned by the EIPs directly or indirectly through their interest in EIP Holdings. These 5,500,000 shares of Series A preferred stock and 2,500,000 shares of Series B preferred stock were distributed to eSpeed by EIP Holdings Acquisition in March 2004 and retired by the Company's board of directors. eSpeed accounted for this transaction as a treasury stock acquisition, funded in part by its parent, Cantor, and a retirement of such stock, both at the amount of value ascribed to such shares in conjunction with the acquisition of the 66.67% interest in TradeSpark. Since the cost of acquisition of TradeSpark was less than the value of the net assets of TradeSpark (including the preferred stock), the excess was allocated as a reduction of the non-current assets pursuant to SFAS 141, resulting in no cost allocated to the preferred stock. The net effect of (a) the treasury stock acquisition and retirement and (b) the implied capital contribution from Cantor was to decrease preferred stock and increase additional paid in capital by $80,000, representing the par value of the 5,500,000 shares of Series A preferred stock and the 2,500,000 shares of Series B preferred stock, with no gain recognized.

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Currently, EIP Holdings Acquisition owns 99.5% of TradeSpark and 99.75% of TP Holdings. TP Holdings, which owns 0.5% of TradeSpark, is 99.75% owned by EIP Holdings Acquisition and 0.25% by eSpeed.The Company's percentage ownership interest in TradeSpark before and after this transaction, through both direct and indirect investments, was 5.0% and 15.0%, respectively.

The Company's net loss from its investment in TradeSpark, through both direct and indirect investments, totaled $33,992 for the nine months ended September 30, 2004. This amount included the Company's $110,462 share of the gain recognized for the negative goodwill recorded on the acquisition of EIP Holdings by EIP Holdings Acquisition. The Company's share of the net losses of TradeSpark was $151,953 for the same period in 2003. The carrying value of the Company's investment in TradeSpark, through both direct and indirect investments, totaled $730,751 and $404,743 at September 30, 2004 and December 31, 2003, respectively.

9.    Related Party Transactions

Cash and cash equivalents at September 30, 2004 and December 31, 2003 included $186.0 million and $173.2 million, respectively, of reverse repurchase agreements, which 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, 2004 and December 31, 2003 totaled $196.8 million and $175.0 million, respectively.

Investments in TradeSpark, both direct and indirect, and the limited partnership (the "LP") that invested in Freedom International Brokerage ("Freedom") are accounted for using the equity method (see Note 8, Investment in TradeSpark). The carrying value of such related party investments was $7.8 million and $7.6 million at September 30, 2004 and December 31, 2003, respectively. For the nine months ended September 30, 2004 and 2003, the Company's share of the net losses of the LP and TradeSpark were approximately $41,748 and $80,382, respectively.

Under the Amended and Restated Joint Services Agreement between the Company and Cantor and joint services agreements between the Company and TradeSpark, Freedom, Municipal Partners, LLC ("MPLLC") and CO2.com, LLC ("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

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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 nine months ended September 30, 2004 and 2003 totaling $9.6 million and $7.7 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 September 30, 2004 and December 31, 2003, receivables from TradeSpark, Freedom and MPLLC totaled approximately $0.8 million and $1.4 million, respectively, and are included in receivable from related parties in the consolidated statements of financial condition.

On September 11, 2001, the Company was entitled to property and casualty insurance coverage of up to $40.0 million under its Administrative Services Agreement with Cantor. Cantor received property and casualty insurance payments related to the September 11 Events totaling $45.0 million in 2001. As a result of the September 11 Events, the Company's 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 remitted from Cantor and, as such, has not recorded a net loss related to the destruction of its fixed assets.The basis for this allocation was the book value of the assets destroyed ($17.8 million) plus the difference of the cost of assets replaced through December 31, 2001, over the depreciated value of assets destroyed.

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. Under its Administrative Services Agreement with Cantor, the Company will be entitled to up to an additional $19.5 million of these proceeds as replacement assets are purchased in the future and surpass the initial payment of $20.5 million, depending on the ultimate replacement cost of the assets destroyed.The basis of this additional $19.5 million of proceeds is the property and casualty coverage of $40.0 million less the $20.5 million already received. A gain will 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.

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The Company estimates that it has replaced assets with an aggregate cost of approximately $13.8 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.

In December 2003 and early 2004, Cantor and one of its affiliates received grants from the WTC Business Recovery from Disproportionate Loss Program and the World Trade Center Job Creation and Retention Program. Both grant agreements contain certain recapture terms and contingencies, primarily in relation to establishing and maintaining premises and maintaining certain levels of employment in New York City in the future. In October 2004, our Audit Committee agreed to the allocation by Cantor of a $3.1 million share of the WTC Business Recovery from Disproportionate Loss Program grant.

10.    Earnings Per Share

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

				Three Months Ended September 30,
				2004				2003
				(In thousands, except per share amounts)
Net income for basic and diluted earnings per share				$	5,735			$	9,962
Shares of common stock and common stock equivalents
Weighted average shares used in basic computation:					54,398				55,291
Dilutive effect of:
Stock options					872				2,298
Business partner securities					19				141
Weighted average shares used in diluted computation					55,289				57,730
Earnings per share:
Basic				$	0.11			$	0.18
Diluted				$	0.10			$	0.17

				Nine Months Ended September 30,
				2004				2003
				(In thousands, except per share amounts)
Net income for basic and diluted earnings per share				$	25,471			$	27,539
Shares of common stock and common stock equivalents
Weighted average shares used in basic computation:					55,538				55,205
Dilutive effect of:
Stock options					1,466				1,853
Business partner securities					61				113
Weighted average shares used in diluted computation					57,065				57,171
Earnings per share:
Basic				$	0.46			$	0.50
Diluted				$	0.45			$	0.48

Effective April 1, 2003, the Company began recording income taxes (see Note 6, 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 nine month periods ended September 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

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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.

For the three and nine month periods ended September 30, 2004, approximately 15.8 million and 12.8 million securities, respectively, were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. For the three and nine month periods ended September 30, 2003, approximately 8.9 million and 10.6 million securities, respectively, were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

11.    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, 2004, eSpeed Government Securities, Inc.'s liquid capital of $118,802,889 was in excess of minimum requirements by $118,777,889. 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, 2004, eSpeed Securities, Inc. had net capital of $89,887,382, which was $89,882,382 in excess of its required net capital, and eSpeed Securities, Inc.'s net capital ratio was negligible as aggregate indebtedness totaled only $1.

As of September 30, 2004, the Company's regulated subsidiaries have no third party restrictions on their ability to transfer net assets to their parent company, eSpeed, Inc., except for the minimum liquid capital and net capital requirements for eSpeed Government Securities, Inc. and eSpeed Securities, Inc., which respectively were $25,000 and $5,000. Both of these amounts were deemed immaterial per the requirements of SEC Rule 5-04 of The Exchange Act of 1934.

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

12.    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.

13.    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

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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.

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 September 30,
(In thousands)				2004				2003
Transaction revenues:
Europe				$	6,942			$	7,324
Asia					471				436
Total Non-Americas					7,413				7,760
Americas					23,534				29,821
Total				$	30,947			$	37,581

				Nine months ended September 30,
(In thousands)				2004				2003
Transaction revenues:
Europe				$	23,013			$	21,214
Asia					1,498				1,638
Total Non-Americas					24,511				22,852
Americas					77,722				74,875
Total				$	102,233			$	97,727

				September 30,
(In thousands)				2004				2003
Average long-lived assets:
Europe				$	15,730			$	3,662
Asia					396				301
Total Non-Americas					16,126				3,963
Americas					29,165				23,337
Total				$	45,291			$	27,300

14.    Subsequent Event

In October 2004, the Company entered into a definitive agreement to acquire United Kingdom-based ITSEcco Holdings Limited and its subsidiaries ("ECCO"), a highly specialized software developer focused on the financial markets. Under terms of the agreement, we acquired ECCO for approximately $12.4 million in cash and $1.6 million in assumed liabilities. In addition, up to 357,944 shares of the Company's Class A common stock will be issued subject to compliance with the terms of the purchase agreement, including certain restrictive covenants.

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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.

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 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 September 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. In

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August 2004, Cantor announced the spin-off of its global inter-dealer voice brokerage business to create a new partnership, BGC Partners, L.P. ("BGC") in order to re-establish voice brokerage operations in the U.S., and expand its European and Asian operations. 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

The following discussion is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments which affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. Actual results may differ from our estimates as a result of the occurrence of future events or changes in conditions that affected our judgments or estimates.

We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Insurance coverage

We have insurance coverage for both property and casualty losses and for business interruption through our Administrative Services Agreement with Cantor.

On September 11, 2001, the Company was entitled to property and casualty insurance coverage of up to $40.0 million under its Administrative Services Agreement with Cantor. Cantor received property and casualty insurance payments related to the September 11 Events totaling $45.0 million in 2001. As a result of the September 11 Events, the Company's 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 remitted from Cantor and, as such, has not recorded a net loss related to the destruction of its fixed assets. The basis for this allocation was the book value of the assets destroyed ($17.8 million) plus the difference of the cost of assets replaced through December 31, 2001, over the depreciated value of assets destroyed.

During the year ended December 31, 2002, Cantor received $40.0 million of insurance proceeds pursuant to business interruption insurance coverage, of which $12.8 million was allocated to the Company. Such amount was received from Cantor and recognized as income in the Company's consolidated statement of operations. This allocation was based on an analysis prepared by an independent consultant.

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. Under its Administrative Services Agreement with Cantor, the Company will be entitled to up to an additional $19.5 million of these proceeds as replacement assets are purchased in the future and surpass the initial payment of $20.5 million, depending on the ultimate replacement cost of the assets destroyed. The basis of this additional $19.5 million of proceeds is the property and casualty coverage of $40.0 million less the $20.5 million already received. A gain will 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.

The Company estimates that it has replaced assets with an aggregate cost of approximately $13.8 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.

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Grants

In December 2003 and early 2004, Cantor and one of its affiliates received grants from the WTC Business Recovery from Disproportionate Loss Program and the World Trade Center Job Creation and Retention Program. Both grant agreements contain certain recapture terms and contingencies, primarily in relation to establishing and maintaining premises and maintaining certain levels of employment in New York City in the future. In October 2004, our Audit Committee agreed to the allocation by Cantor of a $3.1 million share of the WTC Business Recovery from Disproportionate Loss Program grant.

Related party transactions

As described above, we share revenues with Cantor, TradeSpark, Freedom, MPLLC and CO2e. In addition, we provide technology support services to Cantor, TradeSpark, Freedom, MPLLC and CO2e, and Cantor provides administrative services to us.

Since Cantor holds a controlling interest in us, and holds a significant interest in TradeSpark and Freedom, such transactions among and between us and Cantor, TradeSpark and Freedom are on a basis which might not be replicated if such services or revenue sharing arrangements were between, or among, unrelated parties.

We recognize Software Solutions fees from related parties based on the allocated portion of our costs of providing services to our related parties. Such allocation of costs requires us to make judgments as to the equitable distribution of such costs. In addition, we receive administrative services from Cantor, for which we pay a fee based on Cantor's good faith determination of an equitable allocation of the costs of providing such services. There is no assurance that we could realize such revenues, or obtain services at such costs, if we had to replicate such arrangements with unrelated parties.

Patents

Intangible assets consist of purchased patents, the costs to defend and enforce the Company's rights under patents and costs incurred in connection with the filing and registration of patents. Capitalized costs related to the filing of patents are generally amortized on a straight-line basis over a period not to exceed three years. The costs of acquired patents are amortized over a period not to exceed 17 years or the remaining life of the patent, whichever is shorter, using the straight-line method. The costs to defend and enforce the Company's rights under these patents consist primarily of external litigation costs related to the pursuit of patent infringement lawsuits by the Company, and consist of fees for outside attorneys, technology experts and litigation support services. These costs are capitalized when such costs serve to enhance the value of the related patent, and are amortized over the remaining life of such patent. Should it be determined that the capitalized costs no longer serve to enhance the value of the respective patent, such as a situation in which the Company's patent is held to be invalid, these capitalized costs would be expensed in the period in which such determination was made. We believe the inherent value of the patents exceeds their carrying value. However, if the rights afforded us under the patents are not enforced or the patents do not provide the competitive advantages that we anticipated at the time of purchase, we may have to write-down the patents, and such charges could be substantial.

As a result of its defense of one of its patents, the Company has recognized amounts received from the CBOT, CME and NYMEX as licensing fee revenue. The Company does not believe that any of the proceeds from the CBOT, CME and NYMEX settlements are indicative of a reimbursement for past patent infringement as no objective evidence exists which would indicate a value to be ascribed to past patent infringement. Instead, it has been determined that all of the proceeds represent licensing fees, which are amortized into income over the life of the Wagner patent. Had these amounts been determined to be reimbursements for past patent infringement, they would have been recognized as gains in the periods in which they were received.

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Capitalized software costs

We capitalize the direct costs of employees who are engaged in creating software for internal use. This treatment requires us to estimate the portion of the employees' efforts, which directly produce new software, including design, coding, installation and testing activities, or provide additional functionality to existing software.

In our judgment, these employee-related costs serve to create or enhance valuable software. Our current policy is to capitalize these costs and amortize them over their estimated economic useful life of three years on a straight-line basis. However, if the costs incurred to produce the software are ultimately deemed to exceed the benefit that the software provides, we may have to write-down the capitalized software costs, and such charges could be substantial.

Business partner securities

We enter into transactions with business partners in which we issue certain equity instruments whose value, in part, is dependent on the value of our publicly traded Class A common stock. Such business partner securities include options and warrants to purchase shares of our Class A common stock as well as convertible preferred shares. The preferred shares are convertible into shares of our Class A common stock.

The value of these business partner securities issued establishes either the basis of assets acquired in exchange for the instruments, or an expense, which is, or will be, recognized in conjunction with the issuance.

We utilize judgment in establishing the fair value of these business partner securities in the absence of a ready market for such instruments. Options and warrants are valued using an option pricing model which requires us to make assumptions as to future interest rates, price volatility of our Class A common stock, future dividends and the expected life of the option or warrant being valued. We believe that our assumptions used in the valuation of the instruments are reasonable. However, changes in the assumptions could result in differing valuations of the options, warrants or preferred shares that, in turn, would change the basis of assets acquired or expense recognized.

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 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, 2004 Compared to the Three Months Ended
September 30, 2003

Highlights

Diluted earnings per share for the three months ended September 30, 2004 and 2003 were $0.11 and $0.17, respectively. During the three months ended September 30, 2004, we recorded an income tax provision of $3.7 million, or approximately $0.07 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 $6.4 million, or approximately $0.11 per diluted share, corresponding to a 38.9% consolidated effective tax rate.

For the three months ended September 30, 2004, transaction revenues with related parties amounted to $30.9 million, a decrease of 18% as compared to transaction revenues with related parties

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of $37.6 million for the same period a year ago. Volumes transacted on our system per trading day decreased approximately 16%. For the three months ended September 30, 2004, 82% of our transaction revenues were generated from fully electronic transactions.

Revenues

				Three Months Ended September 30,
				2004				2003
(In thousands)
Transaction revenues with related parties
Fully electronic transactions				$	25,489			$	32,300
Voice-assisted brokerage transactions					5,233				5,153
Screen-assisted open outcry transactions					225				128
Total transaction revenues with related parties					30,947				37,581
Software Solutions fees from related parties					4,681				3,821
Software Solutions and licensing fees from unrelated parties					3,278				2,321
Interest income					865				547
Total revenues				$	39,771			$	44,270

Transaction revenues with related parties

For the three months ended September 30, 2004, we earned transaction revenues with related parties of $30.9 million, a decrease of 18% as compared to transaction revenues with related parties of $37.6 million for the three month period ended September 30, 2003. There were 64 trading days in the three-month periods ended September 30, 2004 and 2003. Transaction revenues per trading day decreased by $103 thousand, or 18%, from $587 thousand for the three months ended September 30, 2003 to $484 thousand for the three months ended September 30, 2004. Volumes transacted on our system decreased by $2,047 billion (approximately $2.1 trillion), or 16%, from $12,435 billion (approximately $12.4 trillion) for the three months ended September 30, 2003 to $10,388 billion (approximately $10.4 trillion) for the three months ended September 30, 2004. This decrease resulted primarily from a competitive pricing market environment. For the three months ended September 30, 2004, 82% of our transaction revenues were generated from fully electronic transactions as compared to 86% 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 September 30, 2004 were $4.7 million. This compares with Software Solutions fees from related parties for the three months ended September 30, 2003 of $3.8 million, an increase of 24%. 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 September 30, 2004 were $3.3 million as compared to Software Solutions and licensing fees from

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unrelated parties of $2.3 million for the same period a year ago, a 43% 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 September 30, 2004, the blended weighted average interest rate on the companies interest bearing assets, primarily consisting of overnight reverse repurchase agreements and US Government Securities money market funds, was 1.51% as compared to a 0.95% weighted average interest rate for the three months ended September 30, 2003. As a result of the increase in the average balances and interest rates between periods, we generated interest income of $865 thousand for the three months ended September 30, 2004 as compared to $547 thousand for the three months ended September 30, 2003, an increase of 58%.

Expenses

				Three Months Ended September 30,
				2004				2003
(In thousands)
Compensation and employee benefits				$	10,499			$	9,790
Occupancy and equipment
Amortization of software development costs					2,553				1,981
Other occupancy and equipment costs					6,322				6,210
Professional and consulting fees					1,663				953
Communications and client networks					1,684				1,715
Marketing					319				373
Administrative fees to related parties					3,435				2,579
Amortization of business partner and non-employee securities					136				648
Other					3,742				3,706
Total expenses				$	30,353			$	27,955

Compensation and employee benefits

At September 30, 2004, we had 376 employees, which was an increase from the 334 employees we had at September 30, 2003. For the three months ended September 30, 2004, our compensation costs were $10.5 million as compared to compensation costs of $9.8 million for the same period a year earlier. This $0.7 million increase, or 7%, in compensation costs resulted mainly from additional headcount. Compensation and employee benefits, as a percentage of revenue, were 26% and 22% for the three months ended September 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 of software development costs was $2.5 million for the three months ended September 30, 2004, an increase of $0.5 million, or 25%, as compared to amortization of software development costs of $2.0 million for the three months ended September 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

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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 $6.3 million for the three months ended September 30, 2004, a $0.1 million increase, or 2%, as compared to other occupancy and equipment costs of $6.2 million for the three months ended September 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.

Professional and consulting fees

Professional and consulting fees were $1.7 million for the three months ended September 30, 2004 compared with $1.0 million for the three months ended September 30, 2003, an increase of $0.7 million, or 70%. This increase was the result of additional legal expense and the costs associated with Sarbanes-Oxley compliance.

Communications and client networks

Communications costs were $1.7 million for the three-month periods ended September 30, 2004 and 2003. Cost controls resulted in reductions in communications rates, which were offset by higher usage charges, market data costs and maintenance charges.

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 $0.3 million for the three months ended September 30, 2004 versus $0.4 million for the three months ended September 30, 2003, a 25% decrease, as a result of lower advertising expenses.

Administrative fees to related parties

Administrative fees to related parties amounted to $3.4 million for the three months ended September 30, 2004, a 31% increase over the $2.6 million of such fees for the three months ended September 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. 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.

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Charges in relation to the amortization of such securities were approximately $0.1 million for the three months ended September 30, 2004 as compared to $0.6 million for the three months ended September 30, 2003. This $0.5 million decrease resulted primarily from the fact that the value of a warrant agreement became fully amortized at the end of the first quarter of 2004, and thus contributed no amortization to the third 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. We believe period-to-period comparisons are not meaningful, as these transactions do not recur on a regular basis. Note 7 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 $1.6 million for the three months ended September 30, 2004, insurance costs, travel and entertainment and promotional expenditures. For the three-month periods ended September 30, 2004 and 2003, other expenses were $3.7 million. Higher amortization of intangibles, travel and entertainment costs, recruitment fees and a decrease in foreign currency translation gains increased other expenses during the third quarter of 2004 which were offset by decreases in insurance and other miscellaneous expenses.

Income taxes

During the three months ended September 30, 2004, we recorded an income tax provision of $3.7 million corresponding to a 39.1% consolidated effective tax rate. During the same period a year earlier, we recorded an income tax provision of $6.4 million corresponding to a 38.9% 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 Nine Months Ended September 30, 2004 Compared to the Nine Months Ended
September 30, 2003

Highlights

Diluted earnings per share for the nine months ended September 30, 2004 and 2003 were $0.45 and $0.48, respectively. During the nine months ended September 30, 2004, we recorded an income tax provision of $16.4 million, or approximately $0.29 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 $11.7 million, or approximately $0.20 per diluted share, corresponding to a 29.7% consolidated effective tax rate. The consolidated effective tax rate for the nine months ended September 30, 2003 was lower due to the fact that prior to the second quarter of 2003, our income taxes were minimal as a result of our NOLs.

For the nine months ended September 30, 2004 transaction revenues with related parties amounted to $102.2 million, an increase of 5% as compared to transaction revenues with related parties of $97.7 million for the same period a year ago. Volumes transacted on our system per trading day increased approximately 4%. For the nine months ended September 30, 2004, 83% of our transaction revenues were generated from fully electronic transactions.

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Revenues

				Nine Months Ended September 30,
				2004				2003
(In thousands)
Transaction revenues with related parties
Fully electronic transactions				$	85,170			$	82,348
Voice-assisted brokerage transactions					16,449				14,959
Screen-assisted open outcry transactions					614				420
Total transaction revenues with related parties					102,233				97,727
Software Solutions fees from related parties					13,268				11,351
Software Solutions and licensing fees from unrelated parties					9,383				6,662
Interest income					2,370				1,652
Total revenues				$	127,254			$	117,392

Transaction revenues with related parties

For the nine months ended September 30, 2004, we earned transaction revenues with related parties of $102.2 million, an increase of 5% as compared to transaction revenues with related parties of $97.7 million for the nine month period ended September 30, 2003. There were 188 trading days in the nine month periods ended September 30, 2004 and 2003. Transaction revenues per trading day increased by $24 thousand, or 5%, from $520 thousand for the nine months ended September 30, 2003 to $544 thousand for the nine months ended September 30, 2004. Volumes transacted on our system increased by $1,129 billion (approximately $1.1 trillion), or 4%, from $32,248 billion (approximately $32.2 trillion) for the nine months ended September 30, 2003 to $33,377 billion (approximately $33.4 trillion) for the nine months ended September 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, partially offset by a competitive pricing market environment. For the nine months ended September 30, 2004, 83% of our transaction revenues were generated from fully electronic transactions as compared to 84% 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 nine months ended September 30, 2004 were $13.3 million. This compares with Software Solutions fees from related parties for the nine months ended September 30, 2003 of $11.4 million, an increase of 17%. 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, 2004 were $9.4 million as compared to Software Solutions and licensing fees from unrelated parties of $6.7 million for the same period a year ago, a 40% increase, due primarily to

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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 nine months ended September 30, 2004, the blended weighted average interest rate on the companies interest bearing assets, primarily consisting of overnight reverse repurchase agreements and US Government Securities money market funds, was 1.36% as compared to a 1.00% weighted average interest rate for the nine months ended September 30, 2003. As a result of the increase in the average balances and interest rates between periods, we generated interest income of $2.4 million for the nine months ended September 30, 2004 as compared to $1.7 million for the nine months ended September 30, 2003, an increase of 41%.

Expenses

				Nine Months Ended September 30,
				2004				2003
(In thousands)
Compensation and employee benefits				$	29,582			$	27,873
Occupancy and equipment
Amortization of software development costs					7,204				5,491
Other occupancy and equipment costs					18,622				17,448
Professional and consulting fees					3,461				2,927
Communications and client networks					4,892				5,024
Marketing					1,084				1,115
Administrative fees to related parties					9,604				7,747
Amortization of business partner and non-employee securities					722				1,715
Other					10,258				8,855
Total expenses				$	85,429			$	78,195

Compensation and employee benefits

At September 30, 2004, we had 376 employees, which was an increase from the 334 employees we had at September 30, 2003. For the nine months ended September 30, 2004, our compensation costs were $29.6 million as compared to compensation costs of $27.9 million for the same period a year earlier. This $1.7 million increase, or 6%, in compensation costs resulted mainly from additional headcount. Compensation and employee benefits, as a percentage of revenue, were 23% and 24% for the nine months ended September 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 of software development costs was $7.2 million for the nine months ended September 30, 2004, an increase of $1.7 million, or 31%, as compared to amortization of software development costs of $5.5 million for the nine months ended September 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

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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 $18.6 million for the nine months ended September 30, 2004, a $1.2 million increase, or 7%, as compared to other occupancy and equipment costs of $17.4 million for the nine months ended September 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 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 $3.5 million for the nine months ended September 30, 2004, a $0.6 million increase, or 21%, as compared to professional and consulting fees of $2.9 million for the nine months ended September 30, 2003, due to additional legal expense and costs associated with Sarbanes-Oxley compliance, partially offset by decreases in consulting costs.

Communications and client networks

Communication costs were $4.9 million for the nine months ended September 30, 2004 as compared to $5.0 million for the nine months ended September 30, 2003. Cost controls resulted in reductions in communications rates and usage charges, partially offset by increased market data costs and maintenance charges.

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 $1.1 million for the nine-month periods ended September 30, 2004 and 2003. Decreases in advertising and printing costs were offset by increased promotional and event expenses.

Administrative fees to related parties

Administrative fees to related parties amounted to $9.6 million for the nine months ended September 30, 2004, a 25% increase over the $7.7 million of such fees for the nine months ended September 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

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convertible preferred stock. In addition, we have granted stock options to certain non-employees. These securities do not require cash outlays. 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 $0.7 million for the nine months ended September 30, 2004 as compared to $1.7 million for the nine months ended September 30, 2003. This $1.0 million decrease resulted primarily from the fact that the 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 and third quarters 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 expense during the second quarter of 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 7 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 $4.5 million for the nine months ended September 30, 2004, insurance costs and travel, promotional and entertainment expenditures. For the nine months ended September 30, 2004, other expenses were $10.3 million, an increase of $1.4 million, or 16%, as compared to other expenses of $8.9 million for the nine months ended September 30, 2003. This increase was driven principally by increases in amortization of intangibles, travel and entertainment costs, recruitment fees and a decrease in foreign currency translation gains, and was partially offset by decreases in license and registration fees and other miscellaneous expenses.

Income taxes

During the nine months ended September 30, 2004, we recorded an income tax provision of $16.4 million corresponding to a 39.1% consolidated effective tax rate. For the same period a year earlier, we recorded an income tax provision of $11.7 million corresponding to a 29.7% consolidated effective tax rate. Our consolidated effective tax rate for the nine months ended September 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 September 30, 2004, we had cash and cash equivalents of $223.1 million, a decrease of $5.4 million as compared to December 31, 2003. During the nine months ended September 30, 2004, our operating activities provided cash of $51.2 million. We also used net cash of $29.7 million resulting from purchases of fixed assets, and the capitalization of software development costs and patent registration and defense costs. In addition, we used $29.8 million to repurchase shares of the Company's Class A common stock in the open market, and received proceeds of $1.8 million from exercises of employee stock options.

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

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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, 2004, we had repurchased 2,852,715 shares of our Class A common stock for a total of $31.8 million under our repurchase plans.In August 2004, our board of directors authorized the repurchase of up to an additional $100 million of our outstanding Class A common stock, of which $89.7 million was available for repurchases as of September 30, 2004. During the fourth quarter of 2004, we purchased an additional 230,100 shares for a total purchased price of $2.1 million, bringing the total number of treasury shares owned to 3,082,815 at a book value of $34.0 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 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 September 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 September 30, 2004, we had invested $186.0 million of our cash in securities purchased under reverse repurchase agreements, $97.3 million of which is fully collateralized by U.S. government securities and $88.7 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 September 30, 2004, we had invested $1.9 million in a money market fund held at overnight durations. This fund solely invests in short-term U.S. government fixed income securities.

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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, 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.

We are a global business, have operations in North America, Europe and Asia, and are therefore exposed to currency exchange rate fluctuations between the U.S. Dollar and the Canadian Dollar, British Pound Sterling, Euro, Hong Kong Dollar and Japanese Yen. Significant downward movements in the U.S. Dollar against currencies in which we pay expenses may have an adverse impact on our financial results if we do not have an equivalent amount of revenue denominated in the same currency. Management has presently decided not to engage in derivative financial instruments as a means of hedging this risk.

We estimate that a hypothetical 10% adverse change in foreign exchange rates would have resulted in a decrease in net income in our international operations of $0.9 million for the nine months ended September 30, 2004

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 1. Legal Proceedings

In July 2003, we 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 parties thereafter agreed to substitute the defendant OM AB Technology for defendant OM AB and dismiss claims against BrokerTec Global, L.L.C. By Order dated September 13, 2004, ICAP was dismissed as a defendant. The suit centers on BrokerTec's and Garban's alleged infringement of U.S. Patent No. 6,560,580 issued on May 6, 2003, which expires in 2016, with respect to which eSpeed is the exclusive licensee. The patent protects some of our proprietary systems and methods of electronic trading.

Among other things, we seek an order from the Court directing BrokerTec and Garban to cease use of our patented systems and methods in their competing electronic trading systems and for damages. The parties have completed discovery. Both sides moved for summary judgment on various claims and defenses. In a Memorandum Opinion dated October 25, 2004, the Court denied all of the motions for summary judgment, except that it granted BrokerTec's motion with respect to non-infringement by defendants under the doctrine of equivalents with respect to certain aspects of the claims.

ITEM 2.    Unregistered Sales of Equity Securities and Use of Proceeds

The following table details our share repurchase activity during the third quarter of 2004, including the total number of shares purchased, the average price paid per share, the number of shares repurchased as part of our publicly announced plans and the approximate dollar value that may yet be purchased under these plans.

Period				(a) Total Number of Shares Purchased				(b) Average Price Paid per Share				(c) Total Number of Shares Purchased as Part of Publicly Announced Plans				(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans
July 1 to July 31, 2004					1,600,176			$	12.18				1,600,176			$20.5 million
August 1 to August 31, 2004					605,384			$	9.73				605,384			$94.1 million
September 1 to September 30, 2004					460,756			$	9.50				460,756			$89.7 million

On September 10, 2001, the Company's board of directors authorized the repurchase of up to $40 million of outstanding Class A common stock. Under this plan, the Company repurchased 186,399 shares at a total cost of approximately $2.1 million, or $11.23 per share, as of March 31, 2003. In May 2003, the Company's board of directors again authorized the repurchase of up to $40 million of outstanding Class A common stock. In July 2004, the Company repurchased 1,600,176 shares under this plan at a total cost of approximately $19.5 million, or an average cost of $12.18 per share. On August 5, 2004, the Company's board of directors authorized the repurchase of up to $100 million of outstanding Class A common stock, to replace the remaining $20.5 million authorized from the prior plan. During August and September of 2004, the Company repurchased 1,066,140 shares at a total cost of approximately $10.3 million, or $9.63 per share. As of September 30, 2004 approximately $89.7 million from this plan was available for further share repurchases.

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

On October 20, 2004, 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, Kevin Foley, John H. Dalton, William J. Moran, Henry Morris and Albert M. Weis.

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

Name				For				Withheld
				(Number of Votes)
Howard W. Lutnick					256,485,056				10,189,183
Lee M. Amaitis					255,953,328				10,720,911
Kevin Foley					255,997,950				10,676,289
John H. Dalton					264,922,867				1,751,372
William J. Moran					263,623,038				3,051,201
Henry Morris					254,854,800				11,819,439
Albert M. Weis					262,918,070				3,756,169

ITEM 6.    Exhibits and Reports on Form 8-K

(a)	Exhibits.

Exhibit No.				Description
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

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 September 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:    November 8, 2004

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EXHIBIT INDEX

Exhibit No.				Description
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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