Derivatives are increasingly being used by financial institutions, hedge funds and large corporations to manage risk or take advantage of the anticipated direction of a market by allowing holders to guard against gains or declines in the price of underlying assets without having to buy or sell such underlying assets. Common types of derivatives include futures, options and swaps. They derive their value based on the inherent value of the underlying asset. According to a survey of its members conducted in 2003 by the International Swaps and Derivatives Association, or ISDA, over 90% of the world's 500 largest companies use derivative instruments to manage and hedge their risks more effectively.

Derivatives are traded both over-the-counter and on exchanges. According to a recent report of the Bank for International Settlements, over-the-counter derivatives accounted for over 84% of the total outstanding global derivatives transactions in 2003 (as measured by notional amount).

ISDA also reported in a 2004 survey of its members that in the first six months of 2004, among the derivative instruments surveyed, credit derivatives were the fastest growing segment of the derivatives market, growing 44% for that six month period as compared to the prior six month period. The survey stated that at the end of the first half of 2004, notional amounts of credit derivatives grew to approximately $5.44 trillion from approximately $2.69 trillion for the same period in 2003. That increase represented period-over-period growth of over 102%. Research from the British Bankers Association estimates that the global market for credit derivatives as measured by notional amounts will grow to approximately $8.2 trillion by the end of 2006. Credit derivatives are currently traded entirely in over-the-counter transactions, either directly or through inter-dealer brokers and other financial institutions.

Within these markets, the Company focuses on the more complex, less liquid markets for sophisticated financial instruments, primarily over-the-counter derivatives. Over-the-counter derivatives are generally structured as forwards, swaps or options. A forward is an agreement between two parties to exchange an asset or cash flows at a specified future date at a price agreed on the trade date. The Company also supports and enhances its brokerage operations by offering several data and analytics products to the clients.

The Company provides brokerage services in a broad range of credit derivative and fixed income instruments. The most common credit derivative, a credit default swap, was developed by global banks during the early 1990s. A credit default swap is essentially like an insurance contract, in which the insured party pays a periodic premium until the contract expires or a credit event occurs. In return for this premium, the contract seller makes a payment to the buyer if there is a credit default or other specified credit event The credit default swap market has evolved in the last two years from trading simple single-entity credit default swaps to a range of customized product structures and index products, allowing investors greater flexibility in tailoring credit positions that correspond to their desired risk level.

The Company provides brokerage services in a range of financial instruments, including foreign exchange options, "exotic" options, which include non-standard options on baskets of foreign currencies, forward contracts and non-deliverable forward contracts, which are forward contracts that do not require physical delivery of the underlying asset, and interest rate swaps. For these products, the Company offers experienced telephone brokerage in its New York, London, Singapore and Sydney offices, augmented in select markets with the Company’s Trading System, a browser-based electronic trading platform. The Company also offers a straight-through-processing capability that automatically reports completed telephonic and electronic transactions directly to its clients' position-keeping systems and provides position updates.

Total revenues increased by $80.8 million, or 40.6%, to $279.9 million for the nine months ended September 30, 2004 from $199.1 million for the comparable period in 2003.

Total expenses increased by $67.5 million, or 38.2%, to $244.1 million for the nine months ended September 30, 2004 from $176.6 million for the comparable period in 2003.

Total brokerage revenues increased by $75.8 million, or 40.2%, to $264.4 million for the nine months ended September 30, 2004 from $188.6 million for the comparable period in 2003.