responsible for providing electronic brokerage services, and Cantor, BGC, Freedom and CO2e.com, LLC provide 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, for fully electronic transactions in U.S. Treasuries, the Company receives 65% of the transaction revenues and Cantor, BGC or Freedom receives 35% of the transaction revenues. For a four-year period beginning on July 1, 2006, the 65%/35% revenue share between the Company and Freedom is paid on net transaction revenues, which are calculated after deduction of all electronic business-related broker commission payments (up to a 45% broker payout). With respect to other fully electronic transactions, the following provisions are applicable.

With respect to foreign exchange transactions, the 65%/35% revenue share between eSpeed and Cantor shall be paid after the payment of any revenue share amount to certain participants on the FX platform and after payment of fees relating to fulfillment services provided by Cantor. Such fulfillment fees shall be shared 65%/35% in the event that the average cost of such services exceeds the average costs associated with clearing and settling cash transactions in U.S. Treasuries.

The Company has agreed to divide revenue with Cantor with respect to European Government Bonds (‘‘EGBs’’) traded electronically as follows: (i) the first $1.5 million of gross revenues from EGBs traded electronically shall be shared 65% to eSpeed and 35% to Cantor, (ii) from July 1, 2005 through June 30, 2009, net revenues for EGBs derived from gross revenues in excess of $1.5 million shall be shared 50% to eSpeed and 50% to Cantor, and (iii) after June 30, 2009, net revenues from EGBs derived from gross revenues in excess of $1.5 million shall then be shared 65% to eSpeed and 35% to Cantor. Net revenues shall be calculated after deduction of all electronic business-related broker payouts, commissions and other related compensation expenses, which payouts, commissions and compensation expenses shall not exceed 50% of EGB electronic revenues.

The Company has agreed to divide revenue between the Company and Cantor with respect to all products other than benchmark U.S. treasury securities, spot foreign exchange or EGBs which become electronically traded in the future as follows: the Company may receive no less than 50% of the net revenues for such products for a period of four years from the date a customer enters an order on the Company’s eSpeed system for such products, or four years from the date of the amendment in the case of products which are currently voice-assisted for BGC customers. At the end of such four-year period, the revenue share shall revert to a payment to eSpeed of 65% of the net revenues for such products. Net revenues shall be calculated after deduction of all electronic business-related broker payouts, commissions and other related compensation expenses, which payouts, commissions and compensation expenses shall not exceed 50% of such electronic revenues.

With respect to the equity order routing business conducted for Cantor, eSpeed 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 also be treated 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.

The Company and CO2e.com, LLC each receive 50% of the fully electronic revenues. With respect to (i) certain network access facilities services agreements and (ii) other circumstances in which Cantor refers network access facility services business to the Company, 60% of net revenues from such business will be paid to Cantor, and 40% of such revenues will be paid to the Company. 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. With respect to private labeling of the eSpeed system to Cantor Parties, the net revenue between eSpeed and Cantor with respect to such privately labeled businesses shall be shared 50% to eSpeed and 50% to Cantor for a period of four years from the date such customer begins trading. Thereafter, net revenues shall be shared 65% to the Company and 35% to Cantor. Net revenues shall be calculated after deduction of all electronic business-related broker payouts, commissions and other related compensation expenses, which payouts, commissions and compensation expenses shall not exceed 50% of such electronic revenues.

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The Company is authorized to pay directly to BGC or Cantor voice brokers up to 10% of gross revenues on increased electronic trading on the Company’s eSpeed system by customers of such brokers in certain products. These payments are intended to provide incentive to voice brokers to encourage additional electronic trading on the Company’s eSpeed system by their customers and are solely in the discretion of the Company’s management.

In December 2005, the Company entered into an agreement with BGC to provide the technology and support for the first integrated voice and electronic U.S. Dollar repurchase agreement trading platform for the primary dealer community. The Company and BGC will split gross revenues generated by the new platform 50%/50% after a deduction of total broker compensation associated with the extra commission paid to BGC brokers up to a cap of 50% of gross revenues.

Effective October 1, 2005, the Company amended its arrangement with Cantor with respect to Cantor's Gaming Businesses (as defined in the JSA) to allow the Cantor Parties to provide their own Gaming Development Services. With that, former eSpeed technical personnel who had been primarily engaged in providing Gaming Development Services for Cantor's Gaming Businesses were hired directly by Cantor. Consequently, the payment provisions in the JSA were amended to provide the Company a 12.5% share of the Gaming Transaction Revenues. In exchange for such revenue share, the Company will provide to Cantor all Gaming-related Ancillary IT Services consistent with the Ancillary IT Services as is currently provided by eSpeed, and all reasonable replacement Ancillary IT services. Further, Cantor will reimburse eSpeed for 100% of all direct costs expended by eSpeed for additional items requested by Cantor which are solely dedicated to Cantor's Gaming Businesses. As a result, all previous spending obligations by the Company for Cantor's Gaming Businesses were also terminated. eSpeed shall also provide to Cantor access to its business and property, including property, technology, software, and hardware, in order to engage in development with respect to the Gaming Businesses.

In general, for voice-assisted brokerage transactions, the Company receives 7% of the transaction revenues, in the case of BGC transactions, and 35% of the transaction revenues, in the case of Freedom transactions. For CO2e.com, LLC, the Company receives 20% of the transaction revenues.  For screen-assisted open outcry brokerage transactions, the Company receives 2.5% of the transaction revenues in the case of BGC transactions, and for CO2e.com, LLC, the Company receives 20% of the transaction revenues.

Under various services agreements, the Company has agreed to provide Cantor, BGC, Freedom, and CO2e.com, LLC 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, BGC, and Freedom 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.com, LLC and to Cantor with respect to their Gaming Businesses at no additional cost other than the revenue sharing arrangement set forth above. Also, in connection with Cantor’s Gaming Businesses, the Company has agreed to provide additional items such as hardware, machinery, personnel, communications lines and similar dedicated items to Cantor at its request in exchange for payment by Cantor of all of the direct costs for such items.

Under the terms of the JSA, the Company and Cantor have agreed to certain arrangements, including commission structures, pursuant to which Cantor and its affiliates participate in certain eSpeed marketplaces by posting quotations for their accounts and by acting as principal on trades. Such activity is intended, among other things, to assist these parties in managing their proprietary positions, and to facilitate transactions, add liquidity, increase commissions and attract additional order flow to the eSpeed system and revenue to both eSpeed and Cantor and its affiliates.

Amounts due to or from related parties pursuant to the transactions described above are non-interest bearing. Receivables from Freedom totaled approximately $1.1 million and $1.0 million at

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September 30, 2006 and December 31, 2005, respectively. All amounts due from related parties are included in the caption ‘‘Receivables from related parties’’ in the accompanying Condensed Consolidated Statements of Financial Condition.

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. The Administrative Services Agreement renews 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 three months ended September 30, 2006 and 2005 totaling $2.6 million and $3.2 million, respectively. The Company incurred administrative fees for such services during the nine months ended September 30, 2006 and 2005 totaling $9.7 million and $10.5 million, respectively.

The services provided under both the JSA and the Administrative Services Agreement are related party services 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.

On September 25, 2006, the Services Agreement with MPLLC was terminated in connection with the settlement of litigation.

Other Transactions

At September 30, 2006, the Company had $97.0 million of reverse repurchase agreements with Cantor (see Note 9, Reverse Repurchase Agreements, for more information regarding these arrangements).

In February 2006, a subsidiary of Cantor acquired all of the assets of Horizon. Immediately prior to the closing of the acquisition, the Company entered into the Horizon License. In consideration for the Horizon License and support services to be provided under the Horizon License, the Company issued to Horizon a warrant, which warrant was not transferred to Cantor (see Note 5, Other Intangible Assets, for more information regarding this transaction).

In July 2006, the Company and Cantor entered into an agreement whereby the Company will provide to Cantor new features for the Ecco product and Cantor will pay the Company for the cost of those new features. Additionally, the Company is authorized to enter into an agreement with Cantor to provide a commission for third-party sales by a Cantor salesperson as if the salesperson was a salesperson of the Company.

eSpeed’s parent, Cantor, granted certain eSpeed employees, including Paul Saltzman, the Company's Chief Operating Officer, awards of partnership units in Cantor with a notional value of $0.5 million. Such partnership units entitle the employee to participate in quarterly distributions of income by Cantor and receive post-termination payments equal to the notional value of the award in four equal installments on the first, second, third and fourth anniversaries of the employee’s termination provided that the employee has not engaged in any competitive activity with the Company or its affiliates prior to the date each payment is due. Mr. Saltzman's entitlement to such post-termination payments vests in six equal annual installments beginning July 1, 2007, provided that as of each such anniversary date Mr. Saltzman is still employed by the Company or one of its affiliates and has not breached this agreement. The other partnership units were fully vested on date of grant. See Note 11, Stock-Based Compensation, for information regarding the accounting for these partnership units.

On August 10, 2006, the Company entered into a Sponsored Research Agreement with a researcher and a U.S. university in which the Company agreed to pay $100,000 per year for five years in exchange for research and certain patent rights. In October 2006, the Company agreed with Cantor and BGC that they would pay 75% of all payments made by the Company in connection with the Sponsored Research Agreement, and that to the extent, if any, that eSpeed makes any charitable contributions to the university, Cantor and BGC will make a proportional charitable contribution. In exchange for this agreement, the Company will retain nonexclusive license to all patents and patent

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applications resulting from the Sponsored Research Agreement within the field of fully electronic financial services, BGC will have a license to the patents and patent applications in all financial services fields other than fully electronic, and Cantor will have patent rights to all other patents and patent applications. The Company further agreed that, in the event that the Company or Cantor grants a license to such technology in the field of fully-electronic financial services, the Company and Cantor will each receive 50% of all revenue from any such license.

11.    Stock-Based Compensation

The Company has adopted the eSpeed, Inc. 1999 Long-Term Incentive Plan, (the ‘‘LT Plan’’), which provides for awards in the form of 1) either incentive stock options or non-qualified stock options; 2) stock appreciation rights; 3) restricted or deferred stock; 4) dividend equivalents; 5) bonus shares and awards in lieu of obligations to pay cash compensation and 6) other awards, the value of which is based in whole or in part upon the value of the Company’s Class A common stock. The total number of shares of stock that may be subject to outstanding awards, determined immediately after the grant of any award, shall not exceed the greater of 18.5 million shares, or such number that equals 30% of the total number of shares of all classes of the Company's common stock outstanding at the effective time of such grant. The maximum term of the options which have been granted is 10 years from the date of grant. The Compensation Committee of the Board of Directors administers the LT Plan and is generally empowered to determine award recipients, and the terms and conditions of those awards. Awards may be granted to directors, officers, employees, consultants and service providers of the Company and its affiliates.

Restricted Stock Units

A summary of the activity associated with restricted stock units is as follows:

			Restricted Stock Units						Weighted Average Grant Date Fair Value
Balance at December 31, 2005					323,589					$	8.99
Granted					8,139						8.60
Exercised					(92,704	)					9.81
Forfeited					(17,250	)					7.82
Balance at September 30, 2006					221,774					$	8.72

The restricted stock units issued in conjunction with the Company’s 2004 acquisition of Ecco will vest ratably over 2006 and 2007. The remaining restricted stock units generally vest one year from date of grant. As of September 30, 2006, there was approximately $0.5 million of total unrecognized compensation cost related to unvested restricted stock units granted under the Company’s stock award plans. Total compensation expense related to restricted stock units before associated income taxes was approximately $0.5 million and $1.5 million for the three and nine months ended September 30, 2005, respectively. Total compensation expense related to restricted stock units before associated income taxes was approximately $0.3 million and $1.2 million for the three and nine months ended September 30, 2006, respectively.

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Stock Options

A summary of the activity associated with stock options is as follows:

			Stock Options						Weighted Average Exercise Price						Weighted Average Remaining Contractual Term (Years)						Aggregate Intrinsic Value
Balance at December 31, 2005					14,683,185					$	15.20						—						—
Granted					250,000						8.42						—						—
Exercised					(82,672	)					5.10						—						—
Forfeited					(345,328	)					15.14						—						—
Balance at September 30, 2006					14,505,185						15.15						5.88					$	10,298,525
Options exercisable at September 30, 2006					14,118,585					$	15.34						5.78					$	9,953,156

The weighted average grant date fair value of options granted in the nine months ended September 30, 2006 and 2005 was $4.68 and $4.42, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s Class A common stock for the 3.2 million options that were in-the-money at September 30, 2006. During the nine months ended September 30, 2006 and 2005, the aggregate intrinsic value of options exercised was $0.3 million and $0.3 million, respectively, determined as of the date of option exercise. The exercise prices for these options equaled the closing price of the Company’s Class A common stock on the date of grant of each option. The options generally vest ratably and on a quarterly basis over four years from the grant date. At September 30, 2006, there was approximately $1.4 million of total unrecognized compensation expense related to unvested stock options granted under the Company’s stock option plans. That expense is expected to be recognized over a weighted-average period of two years. Total compensation expense related to employee stock options before associated income taxes was approximately $0.1 million and $0.2 million for the three and nine months ended September 30, 2006, respectively. There was no compensation expense related to employee stock options for the three or nine months ended September 30, 2005.

The fair value of each stock option award granted is estimated as of the date of grant using a Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatilities are estimated using historical volatility of the Company’s Class A common stock over a preceding period commensurate with the expected term of the options. The expected term of options represents the period of time that options granted are expected to be outstanding. For options granted subsequent to the adoption of SFAS 123R, the expected term of options granted is derived from the simplified method allowed by Staff Accounting Bulletin No. 107 because the Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term. The risk-free rate for the expected term of the options is based on the U.S. Treasury zero-coupon yield curve in effect at the time of grant. The expected dividend yield was assumed to be zero in the option pricing formula since the Company does not pay dividends and has no current plans to do so in the future. In addition, the Company uses historical data, including historical forfeitures and employee turnover rates, to estimate expected forfeiture rates. The estimated forfeiture rate used for the nine months ended September 30, 2006 was immaterial. Groups of award recipients that have different exercise behavior are considered separately for valuation purposes.

			Nine Months Ended September 30,
			2006						2005
Risk-free interest rates					4.76	%					3.86	%
Expected lives (in years)					6.06						4.11
Dividend yield					N/A						N/A
Expected volatility					52.5	%					58.6	%
Weighted-average grant date fair value				$	4.68					$	4.42

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Partnership Units

eSpeed’s parent, Cantor, has granted certain eSpeed employees including Paul Saltzman, the Company’s Chief Operating Officer, awards of partnership units in Cantor with a notional value of $0.5 million. Such partnership units entitle the employee to participate in quarterly distributions of income by Cantor and receive post-termination payments equal to the notional value of the award in four equal installments on the first, second, third and fourth anniversaries of the employee’s termination provided that the employee has not engaged in any competitive activity with the Company or its affiliates prior to the date each payment is due.  Mr. Saltzman's entitlement to such post-termination payments vests in six equal annual installments beginning July 1, 2007, provided that as of each such anniversary date Mr. Saltzman is still employed by the Company or one of its affiliates and has not breached this agreement. The other partnership units in Cantor were fully vested on date of grant. The partnership unit awards are accounted for as liability awards under SFAS 123R. The fair value of the liability awards at September 30, 2006 was approximately $0.2 million. For the awards that are not fully vested at grant date, the Company will recognize non-cash compensation expense for the fair value of the awards as the awards are amortized over the stated vesting periods. For the awards that are fully vested on the date of grant, the Company will recognize non-cash compensation expense at grant date for the fair value of the awards. The liability incurred by Cantor for such awards will be re-measured at the end of every reporting period, and accordingly, any changes in the fair value of such liability will be recorded by the Company as a non-cash compensation expense. In addition, the quarterly distributions on such units will be included in the Company’s compensation expense as a non-cash charge. For the three and nine months ended September 30, 2006, the Company recognized a non-cash charge of $0.2 million related to the partnership units in Cantor. None of the costs of the various benefits provided under the partnership units in Cantor has been or will be paid by eSpeed; however, eSpeed has recorded a non-cash charge included in the accompanying Condensed Consolidated Statements of Income under the caption ‘‘Compensation and employee benefits’’ for the amounts that have been or will be paid to the employees by Cantor, with an offsetting amount credited to additional paid-in capital reflecting amounts deemed contributed by Cantor.

Business Partner Warrants

Horizon:    In February 2006, a subsidiary of Cantor acquired all of the assets of Horizon. Immediately prior to the closing of the acquisition, the Company entered into the Horizon License. In consideration for the Horizon License and support services to be provided under the Horizon License, the Company issued to Horizon a warrant to acquire 312,937 shares of Class A common stock of the Company, which warrant was not transferred to Cantor. The warrant has a five-year term and is immediately exercisable at an exercise price equal to $8.87 (see Note 5, Other Intangible Assets, for more information regarding this transaction).

UBS:    In connection with an agreement among the Company, certain Cantor entities and certain UBS entities, the Company previously issued to UBS Americas Inc., successor by merger to UBS USA Inc. (‘‘UBS’’), a warrant to purchase 300,000 shares of its Class A common stock. The warrant has a term of 10 years from August 21, 2002 and has an exercise price equal to $8.75, the market value of the underlying Class A common stock on the date of issuance. The warrant is fully vested and non-forfeitable, and is exercisable nine years and six months after issuance, subject to acceleration upon the satisfaction by UBS of certain commitment conditions. On August 21, 2002, the Company recorded additional paid-in capital and unamortized expense of business partner securities of $2.2 million, representing the fair value of the warrant.

UBS failed to comply with the commitment condition for the period August 1, 2002 to July 31, 2003. Commencing September 18, 2003, the UBS Agreement was renegotiated to facilitate UBS’s ability to meet the commitment condition going forward, and to provide for a revised acceleration schedule (the ‘‘Revised Agreement’’). The Revised Agreement provides for acceleration of the exerciseability of the warrants with respect to 125,000 shares of the Company’s Class A common stock on October 1, 2003, of which warrants to purchase 75,000 shares were exercised by UBS in October 2003, and acceleration of the remaining 175,000 warrants in seven equal tranches of 25,000 shares each quarter, commencing

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with the quarter ending January 31, 2004, subject to the satisfaction by UBS of the revised commitment conditions set forth in the Revised Agreement. The Company has notified UBS that it failed to comply with the commitment conditions for each of the seven quarters commencing November 1, 2003 and ending July 31, 2005 and that it is not entitled to acceleration of any of the 175,000 warrants.

Deutsche Bank:    In connection with an agreement with Deutsche Bank, AG (‘‘Deutsche Bank’’), the Company previously sold shares of Series C Redeemable Convertible Preferred Stock (‘‘Series C Preferred’’) to Deutsche Bank. On July 30th of each year of the five-year agreement in which Deutsche Bank fulfills its liquidity and market making obligations for specified products, one-fifth of such Series C Preferred would have automatically converted into warrants to purchase shares of the Company's Class A common stock.

Deutsche Bank was deemed to have fulfilled its obligations under the agreement for the 12 months ended July 31, 2002 and, accordingly, a warrant to purchase 150,000 shares of the Company’s Class A common stock was issued by the Company. The Company informed Deutsche Bank that it was not in compliance with the agreement for the twelve months ended July 31, 2003 and that a warrant would not be issued for such period. As a result, the Company reversed the amortization expense recorded since August 2002 for such warrant.

Based on certain communications and the failure of Deutsche Bank to comply with the agreement since March 28, 2003, the Company further notified Deutsche Bank that it believes it has terminated its right to receive warrants under the agreement for the remaining commitment periods. The 450 shares of Series C Preferred with respect to each of the 12-month periods ended July 31, 2003, 2004 and 2005 are redeemable by the Company for 4,500 shares of Class A common stock.

Freedom:    In connection with the Company’s investment in Freedom discussed in Note 8, Investments, the Company issued fully vested, non-forfeitable warrants to purchase 400,000 shares of its Class A common stock at an exercise price per share of $22.43 to provide incentives over the three-year period ending April 2004 to the other Freedom owner participants to migrate to the Company’s fully electronic platform. The Company recorded additional paid-in capital and unamortized expense of business partner securities of approximately $3.6 million in 2001, representing the fair value of the warrants. The warrants were fully amortized during 2004. The warrants expired during the second quarter of 2006.

Total compensation expense related to business partner warrants before associated income taxes was $0 and $50,000 for the three months ended September 30, 2006 and 2005, respectively. Total compensation expense related to business partner warrants before associated income taxes was $19,000 and $310,000 for the nine months ended September 30, 2006 and 2005, respectively.

12.    Capitalization

The rights of holders of shares of Class A and Class B common stock are substantially identical, except that holders of Class B common stock are entitled to 10 votes per share, while holders of Class A common stock are entitled to one vote per share. Additionally, each share of Class B common stock is convertible at any time, at the option of the holder, into one share of Class A common stock. Cantor holds 99.8% of the Company’s outstanding Class B common stock. The remaining 0.2% of the Company’s Class B common stock is owned by CF Group Management, Inc., the managing general partner of Cantor.

During the nine months ended September 30, 2006 and 2005, the Company issued approximately 83,000 and 85,000 shares, respectively, of Class A common stock related to the exercise of employee stock options. During the nine months ended September 30, 2006 and 2005, the Company issued approximately 93,000 and 0 shares, respectively, of Class A common stock related to the vesting of restricted stock units.

During the nine months ended September 30, 2006, the Company repurchased no shares of the Company’s Class A common stock. During the nine months ended September 30, 2005, the Company repurchased approximately 3.5 million shares of its Class A common stock for a total of $28.9 million,

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including approximately 0.3 million shares repurchased from partners of Cantor and approximately 0.9 million shares repurchased from the Cantor Relief Fund, which were repurchased at fair market value on the date of purchase. The Company has $58.7 million remaining from its $100 million buyback authorization.

During the nine months ended September 30, 2006, Cantor converted 1.6 million shares of the Company’s Class B common stock to the Company’s Class A common stock. Of the shares of the Company’s Class A common stock that were received upon conversion, approximately 1.4 million shares were donated to the Cantor Fitzgerald Relief Fund.

As part of the Horizon License transaction (see Note 5, Other Intangible Assets, for more information regarding this transaction), the Company distributed to Cantor a deemed dividend of $1.5 million during the nine months ended September 30, 2006.

13.    Earnings Per Share

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

			Three Months Ended September 30,
			2006						2005
			(in thousands, except per share data)
Net (loss) income				$	(504	)				$	1,873
Shares of common stock and common stock equivalents:
Weighted average shares used in basic computation					50,176						50,998
Diluted effects of:
Stock options					—						558
Restricted stock units					—						141
Business partner securities					—						—
Weighted average shares used in diluted computation					50,176						51,697
(Loss) earnings per share:
Basic				$	(0.01	)				$	0.04
Diluted				$	(0.01	)				$	0.04

For the three months ended September 30, 2006 and 2005, approximately 16.7 million and 17.2 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 months ended September 30, 2006, the securities were anti-dilutive due to the Company’s net loss position. For the three months ended September 30, 2005, the securities were anti-dilutive because the exercise price exceeded the average share price for the period.

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			Nine Months Ended September 30,
			2006						2005
			(in thousands, except per share data)
Net income				$	1,140					$	1,754
Shares of common stock and common stock equivalents:
Weighted average shares used in basic computation					50,243						51,805
Diluted effects of:
Stock options					864						629
Restricted stock grants					99						152
Business partner securities					—						—
Weighted average shares used in diluted computation					51,206						52,586
Earnings per share:
Basic				$	0.02					$	0.03
Diluted				$	0.02					$	0.03

For the nine months ended September 30, 2006, and 2005, approximately 15.8 million and 17.6 million securities, respectively, were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive because the exercise price exceeded the average share price for the period.

14.    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, 2006, eSpeed Government Securities, Inc.'s liquid capital of $95,865,104 was in excess of minimum requirements by $95,840,104. Additionally, the Company's subsidiary, eSpeed Securities, Inc., is subject to SEC broker-dealer regulation under Rule 17a-3 under 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, 2006, eSpeed Securities, Inc. had net capital of $ 47,839,531, which was $47,674,006 in excess of its required net capital, and eSpeed Securities, Inc.'s net capital ratio was .02 to 1.

As of September 30, 2006, the Company’s regulated subsidiaries have no third-party restrictions on their ability to transfer net assets to their parent company, eSpeed, 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 $165,525. Both of these amounts were deemed immaterial per the requirements of SEC Rule 5-04 of Regulation S-X.

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

15.    Segment and Geographic Information

Segment and product information:    The Company currently operates its business in one segment, that of operating interactive electronic marketplaces for the trading of financial products, licensing software, and providing technology support services to Cantor and other related and unrelated parties. Revenues from these products comprise the majority of the Company's revenues.

Geographic information:    The Company operates in the Americas (primarily in the U.S.), 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 at the dates and for the periods indicated.

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Transaction revenues by geographic area are as follows:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2006						2005						2006						2005
			(in thousands)
Transaction revenues:
Europe				$	7,019					$	6,327					$	21,570					$	21,036
Asia					651						326						2,297						1,543
Total Non-Americas					7,670						6,653						23,867						22,579
Americas					16,605						19,591						51,199						56,654
Total				$	24,275					$	26,244					$	75,066					$	79,233

Assets by geographic area are as follows:

			September 30, 2006						December 31, 2005
			(in thousands)
Total assets:
Europe				$	30,248					$	29,715
Asia					1,181						1,336
Total Non-Americas					31,429						31,051
Americas					262,727						249,883
Total				$	294,156					$	280,934

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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 (the ‘‘Exchange Act’’). 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 outcome and timing of certain events may differ significantly from the expectations discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, our relationship with Cantor and its affiliates, the costs and expenses of developing, maintaining and protecting our intellectual property, including judgments or settlements paid or received and their related costs, the possibility of future losses and negative cash flow from operations, the effect of overall market conditions, including trading volume and volatility, our pricing strategy and that of our competitors, our ability to develop new products and services, to enter new markets, to secure and maintain market share, to enter into marketing and strategic alliances, and other transactions, including acquisitions, reorganizations, partnering opportunities, and joint ventures, to hire new personnel, to expand the use of our technology, for both integrated hybrid voice-assisted and fully electronic trading, to induce clients to use our marketplaces and services and to effectively manage any growth we achieve. We believe that all forward-looking statements are based upon reasonable assumptions when made. However, we caution that it is impossible to predict actual results or events and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update these statements in light of subsequent events or developments. Actual results and events may differ materially from anticipated results or events discussed in forward-looking statements. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2005 and the Condensed Consolidated Financial Statements as of September 30, 2006 and 2005 and for the three and nine months then ended, including the accompanying Notes thereto, included in Part I, Item 1 of this Form 10-Q, which provide additional information regarding our financial position, results of operations and cash flows.

EXECUTIVE SUMMARY

We are a leader in developing and deploying electronic marketplaces and related trading technology that offers traders access to the most efficient, innovative and neutral financial markets in the world. We provide an array of financial technology products which assist clients in managing market risk. We operate multiple buyer, multiple seller real-time electronic marketplaces for the global capital markets, including the world's largest government bond markets, the world's largest foreign exchange markets, and other financial marketplaces, which may be accessed through fully electronic transactions for some products or through an integrated hybrid voice-assisted network accessed by voice brokers. Our suite of marketplace tools provides end-to-end transaction solutions for the purchase and sale of financial products over our global private network or via the Internet. Our neutral platform, reliable network, straight-through processing and proven solutions make us a trusted source for fully electronic and integrated hybrid voice-assisted trading at the world's largest fixed income and foreign exchange trading firms, major exchanges and leading equities trading firms in the world.

Transaction Revenues

Our fully electronic transaction revenues are predominately a result of the trading of U.S. Treasury securities. We consider the trading of U.S. Treasury securities to be both a foundation for our Company and an area for growth. The Company experienced growth in its market position during the first nine months of 2006. Although our market position improved, our fully electronic revenue per transaction decreased for the nine months ended September 30, 2006 as compared with the comparable period in 2005 as customers with fixed fee pricing contracts continue to increase their

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trading volumes. With computer-assisted trading being the primary factor, we expect U.S. Treasury volumes to double from 2005 levels by 2008 as traders utilize computers to augment and implement their trading strategies. We believe that we remain well positioned for the expected growth in the overall U.S. Treasury market.

Our integrated hybrid model provides us a significant long-term pipeline opportunity, both in terms of fully electronic transaction volume and for increased revenues across product offerings. The lifecycle of our integrated hybrid model is the expected maturity of certain marketplaces from telephones to computer-assisted trading to fully electronic marketplaces. BGC’s continued growth and expansion continues to result in revenue growth across our integrated hybrid voice-assisted and screen-assisted businesses.

We remain committed to new products such as foreign exchange, futures and repurchase agreements, and during the first nine months of 2006 we continued to develop and foster these products.

With regard to foreign exchange, we offer a unique trading platform that provides FX spot traders what we believe is a better way to trade. We continue to invest and make strategic adjustments to our FX platform. We have a unique futures platform where certain kinds of trading in U.S. Government securities and futures can be executed simultaneously. We expect this will allow us to capture more of a trader’s government bonds trades by satisfying futures trading needs on the same platform. We are progressing with the development of a cash-futures platform for spot FX, and continue to pursue a strategy to increase distribution of our front-end products, further driving the volumes traded through eSpeed.

In April 2006, BGC launched the first integrated voice and electronic U.S. Dollar repurchase agreement trading platform for the primary dealer community. We are providing the trading platform’s technology and support, for which we earn a share of BGC's revenues.

Operations

We remain a leading innovator in the provision of financial technology. We devote significant energy to the development of new and proprietary methods and technologies that we expect to incorporate in new products and product enhancements in the fourth quarter of 2006 and beyond. We target our innovation to create new opportunities for our clients to gain trading advantage and increase trading profits and to meet new client needs and provide tailored solutions that are generated by the rapid pace of change in their businesses. We believe that such continued delivery of new technologies that add value to our clients will create for us additional trading volume, new revenue opportunities and barriers against competition.

We expect expenses to increase in the fourth quarter of 2006 as compared with the fourth quarter of 2005, as we continue to devote significant resources to the innovation and development of technology and to further the evolution of our significant long-term pipeline opportunity through potential transactions, joint ventures or other investments or arrangements to enhance the provision of fully electronic and integrated hybrid voice-assisted marketplaces and related software solutions.

Additionally, our Wagner Patent expires during the middle of the first quarter of 2007. This will reduce our license fee related revenues and expenses in future periods. While we may face some uncertainty regarding our future license fee related revenues as a result of the expiration of the Wagner patent, we have a broad intellectual property patent portfolio that we believe is highly valuable.

Critical Accounting Policies and Estimates

During the nine months ended September 30, 2006, there were no changes in our policies regarding the use of estimates and other critical accounting policies. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ found in our Annual Report on Form 10-K for the year ended December 31, 2005, for additional information relating to our use of estimates and other critical accounting policies.

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Results of Operations

Revenues for the Three Months Ended September 30, 2006 Compared with the Three Months Ended September 30, 2005

			Three Months Ended September 30, 2006						Percentage of Total Revenues						Three Months Ended September 30, 2005						Percentage of Total Revenues
			(in thousands)
Transaction revenues
Fully electronic transactions with related parties				$	14,598						38.3	%				$	18,933						48.9	%
Fully electronic transactions with unrelated parties					2,154						5.7	%					—						—
Total fully electronic transaction revenues					16,752						44.0	%					18,933						48.9	%
Voice-assisted brokerage transactions with related parties					6,125						16.1	%					6,190						16.0	%
Screen-assisted open outcry transactions with related parties					1,398						3.7	%					1,121						2.9	%
Total transaction revenues					24,275						63.8	%					26,244						67.8	%
Software Solutions fees from related parties					7,417						19.5	%					6,099						15.7	%
Software Solutions and licensing fees
from unrelated parties					3,914						10.3	%					3,770						9.7	%
Gain on sale of investments					—						—						1,015						2.6	%
Interest income					2,470						6.4	%					1,644						4.2	%
Total revenues				$	38,076						100.0	%				$	38,772						100.0	%

Total transaction revenues

Total transaction revenues for the three months ended September 30, 2006 were $24.3 million compared with $26.2 million during the three months ended September 30, 2005. There were 63 and 64 trading days in the three-month periods ended September 30, 2006 and 2005, respectively. Total transaction revenues per trading day decreased by approximately $25,000, or 6.1%, to $385,000 from $410,000 for the three months ended September 30, 2006 and 2005, respectively. During the three months ended September 30, 2006, total fully electronic transactions and voice-assisted transactions contributed 69.0% and 25.2% of our total transaction revenues, respectively, compared with 72.1% and 23.6%, respectively, for the comparable period in 2005.

Fully electronic transaction revenues with related parties for the three months ended September 30, 2006 of $14.6 million decreased from $18.9 million during the comparable period in 2005. This $4.3 million decrease was the result of our customers’ transition to fixed fee pricing from a variable fee commission model, and customers with fixed fee pricing contracts increasing their trading volumes. In addition, U.S. Treasury volumes for the three months ended September 30, 2006 decreased 6.9%, or $2,383 billion ($2.4 trillion), to $32,171 billion ($32.2 trillion) from $34,554 billion ($34.6 trillion) in the three months ended September 30, 2005. Fully electronic transaction revenues with unrelated parties relate to transactions that are neither cleared nor transacted by Cantor. For the three months ended September 30, 2006, fully electronic transaction revenues with unrelated parties were $2.2 million, which primarily included certain Wagner Patent transactions. The Wagner Patent expires during the first quarter of 2007.

Voice-assisted brokerage transaction revenues with related parties for the three months ended September 30, 2006 were flat compared to the comparable period in 2005.

Screen-assisted open outcry transaction revenues with related parties for the three months ended September 30, 2006 were $1.4 million, an increase from $1.1 million during the comparable period in 2005. The increase was primarily due to BGC’s investment and expansion in the voice brokerage business.

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Software Solutions fees from related parties

Software Solutions fees from related parties for the three months ended September 30, 2006, were $7.4 million compared with $6.1 million during the comparable period in 2005. This increase resulted from an increase in demand for our support services from Cantor and the continued growth of BGC.

Software Solutions and licensing fees from unrelated parties

Software Solutions and licensing fees from unrelated parties for the three months ended September 30, 2006, were flat compared to the comparable period in 2005. During the three months ended September 30, 2006 and 2005, we recorded revenues of approximately $2.5 million associated with the Wagner Patent. The Wagner Patent expires during the first quarter of 2007.

Interest income

During the three months ended September 30, 2006, the blended weighted average interest rate that we earned on overnight reverse repurchase agreements and money market Treasury funds was 5.51% compared with 3.52% during the comparable period in 2005. As a result of the increase in the weighted average interest rate between periods, we generated interest income of $2.5 million for the three months ended September 30, 2006, compared with $1.6 million for the comparable period in 2005.

Expenses for the Three Months Ended September 30, 2006 Compared with the Three Months Ended September 30, 2005

			Three Months Ended September 30, 2006						Percentage of Total Expenses						Three Months Ended September 30, 2005						Percentage of Total Expensess
			(in thousands)
Compensation and employee benefits				$	13,616						35.0	%				$	13,048						36.2	%
Amortization of software development costs and other intangibles					5,738						14.8	%					5,206						14.4	%
Other occupancy and equipment					8,130						20.9	%					7,712						21.4	%
Professional and consulting fees					2,639						6.8	%					2,018						5.6	%
Communications and client networks					2,088						5.3	%					1,931						5.4	%
Marketing					145						0.4	%					390						1.1	%
Administrative fees to related parties					2,616						6.7	%					3,216						8.9	%
Amortization of business partner and
non-employee securities					—						—						50						0.1	%
Acquisition-related costs					2,026						5.2	%					—						—
Other expenses					1,888						4.9	%					2,491						6.9	%
Total operating expenses				$	38,886						100.0	%				$	36,062						100.0	%

Compensation and employee benefits

Compensation costs for the three months ended September 30, 2006 were $13.6 million compared with $13.0 million during the comparable period in 2005. The $0.6 million, or 4.4%, increase in compensation costs resulted primarily from increased salary, bonus, and stock-based compensation expense. 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.

Amortization of software development costs and other intangibles

In accordance with the provisions of Statement of Position 98-1, ‘‘Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,’’ we capitalize qualifying computer

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software costs incurred during the application development stage and amortize them over their estimated useful life of three years on a straight-line basis.

Amortization of software development costs and other intangibles was $5.7 million for the three months ended September 30, 2006, an increase of $0.5 million, or 10.2%, compared with $5.2 million during the comparable period in 2005. This increase was related to increased investment in software development activities during the prior 12 months and the associated increase in the amortization of the software development. During the three months ended September 30, 2006 and 2005, we recorded Wagner Patent and defense costs amortization of approximately $1.2 million. With the Wagner Patent expiring during the first quarter of 2007, our Wagner Patent and defense costs will be fully amortized.

Other occupancy and equipment

Other occupancy and equipment costs were $8.1 million for the three months ended September 30, 2006, a $0.4 million, or 5.4%, increase, compared with $7.7 million for the comparable period in 2005. The increase was primarily attributable to $0.7 million of additional depreciation expense associated with IT equipment purchases during the prior 12 months and related IT maintenance expense, partially offset by reduced rent expense of $0.3 million as we have substantially completed the relocation of both our NY and London offices.

Professional and consulting fees

Professional and consulting fees were $2.6 million for the three months ended September 30, 2006 compared with $2.0 million for the comparable period in 2005, an increase of 30.8%, primarily the result of legal expenses incurred in connection with litigation defense costs as well as increased consulting expenses.

Communications and client networks

Communications and client networks costs were $2.1 million for the three months ended September 30, 2006 compared with $1.9 million for the comparable period in 2005, an increase of 8.1%. The increase was primarily due to upgraded communication costs incurred at our new Midwest data center that was established in the second half of 2005.

Communications and client networks 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 may increase in the near future as we continue to connect additional customers to our network.

Administrative fees to related parties

Under an Administrative Services Agreement, Cantor provides various administrative services to us, including accounting, tax, legal, human resources and facilities management, for which we reimburse Cantor for the direct and indirect costs of providing such services.

Administrative fees to related parties amounted to $2.6 million for the three months ended September 30, 2006, a decrease of $0.6 million, compared with $3.2 million for the comparable period in 2005. The decrease was due to not utilizing as much of Cantor’s administrative services during the 2006 period. Administrative fees to related parties are dependent upon both the costs incurred by Cantor and the amount of Cantor’s administrative services that is utilized by us.

Acquisition-related costs

During the three months ended September 30, 2006, we recorded $2.0 million of acquisition-related costs with respect to a potential acquisition that we have determined not to pursue further at this time. These costs primarily included legal, advisory and other related expenses.

Other expenses

Other expenses consist primarily of insurance costs, travel, promotional and entertainment expenditures. For the three months ended September 30, 2006, other expenses were $1.9 million, a

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decrease of approximately $0.6 million, or 24.2%, compared with other expenses of $2.5 million for the comparable period in 2005. The decrease was principally due to a settlement and collection of a fully reserved receivable of $0.7 million.

Income taxes

During the three months ended September 30, 2006, we recorded an income tax benefit of $0.3 million compared with an income tax expense of $0.8 million during the three months ended September 30, 2005. Our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.

Revenues for the Nine Months Ended September 30, 2006 Compared with the Nine Months Ended September 30, 2005

			Nine Months Ended September 30, 2006						Percentage of Total Revenues						Nine Months Ended September 30, 2005						Percentage of Total Revenues
			(in thousands)
Transaction revenues
Fully electronic transactions with related parties				$	45,983						38.5	%				$	58,174						50.5	%
Fully electronic transactions with unrelated parties					4,793						4.0	%					—						—
Total fully electronic transaction revenues					50,776						42.5	%					58,174						50.5	%
Voice-assisted brokerage transactions with related parties					20,028						16.7	%					19,128						16.6	%
Screen-assisted open outcry transactions with related parties					4,262						3.6	%					1,931						1.7	%
Total transaction revenues					75,066						62.8	%					79,233						68.8	%
Software Solutions fees from related parties					22,805						19.1	%					18,860						16.4	%
Software Solutions and licensing fees from unrelated parties					11,285						9.4	%					11,712						10.2	%
Gain on sale of investments					—						—						1,015						0.9	%
Insurance recovery from related parties					3,500						2.9	%					—						—
Interest income					6,925						5.8	%					4,311						3.7	%
Total revenues				$	119,581						100.0	%				$	115,131						100.0	%

Total transaction revenues

Total transaction revenues for the nine months ended September 30, 2006 were $75.1 million compared with $79.2 million during the nine months ended September 30, 2005. There were 188 and 189 trading days in the nine-month periods ended September 30, 2006 and 2005, respectively. Total transaction revenues per trading day decreased by $20,000, or 4.8%, to $399,000 from $419,000 for the nine months ended September 30, 2006 and 2005, respectively. During the nine months ended September 30, 2006, total fully electronic transactions and voice-assisted transactions contributed 67.6% and 26.7% of our total transaction revenues, respectively, compared with 73.4% and 24.1%, respectively, for the comparable period in 2005.

Fully electronic transaction revenues with related parties for the nine months ended September 30, 2006 of $46.0 million decreased from $58.2 million during the comparable period in 2005. This $12.2 million decrease was primarily the result of our customers’ transition to fixed fee pricing from a variable fee commission model, and customers with fixed fee pricing contracts increasing their trading volumes. In addition, U.S. Treasury volumes for the nine months ended September 30, 2006 decreased 4.9%, or $5,204 billon ($5.2 trillion), to $100,669 billion ($100.7 trillion), from $105,873 billion ($105.9 trillion) in the nine months ended September 30, 2005. Fully electronic transaction revenues with unrelated parties relate to transactions that are neither cleared nor

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transacted by Cantor. For the nine months ended September 30, 2006, fully electronic transaction revenues with unrelated parties were $4.8 million, which primarily included certain Wagner Patent transactions. The Wagner Patent expires during the first quarter of 2007.

Voice-assisted brokerage transaction revenues with related parties for the nine months ended September 30, 2006 were $20.0 million, an increase of 4.7% from $19.1 million during the comparable period in 2005. The increase was primarily due to BGC’s investment and expansion in the voice brokerage business and BGC’s acquisition of Maxcor during the second quarter of 2005.

Screen-assisted open outcry transaction revenues with related parties for the nine months ended September 30, 2006 were $4.3 million, a substantial increase from $1.9 million during the comparable period in 2005. The increase was primarily due to BGC’s investment and expansion in the voice brokerage business and BGC’s acquisition of Maxcor and ETC Pollak.

Software Solutions fees from related parties

Software Solutions fees from related parties for the nine months ended September 30, 2006 were $22.8 million compared with $18.9 million during the comparable period in 2005. This increase resulted from an increase in demand for our support services from Cantor and the growth of BGC.

Software Solutions and licensing fees from unrelated parties

Software Solutions and licensing fees from unrelated parties for the nine months ended September 30, 2006 were $11.3 million compared with $11.7 million in 2005, a 3.6% decrease, primarily as a result of lower revenues from Ecco licenses. During the nine months ended September 30, 2006 and 2005, we recorded license fee revenues of approximately $7.5 million associated with the Wagner Patent. The Wagner Patent expires during the first quarter of 2007.

Insurance Recovery from related parties

For the nine months ended September 30, 2006, insurance recoveries from related parties of $3.5 million were recorded that related to fixed asset replacements of fixed assets destroyed in the September 11 Events (see Note 3, September 11 Events, of the accompanying Notes to Condensed Consolidated Financial Statements for further discussion).

Interest income

During the nine months ended September 30, 2006, the blended weighted average interest rate that we earned on overnight reverse repurchase agreements and money market Treasury funds was 4.94% compared with 3.05% during the comparable period in 2005. As a result of the increase in the weighted average interest rate between periods and an approximately $399,000 settlement of a tax-related matter, we generated interest income of $6.9 million for the nine months ended September 30, 2006 compared with $4.3 million for the comparable period in 2005.

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Expenses for the Nine Months Ended September 30, 2006 Compared with the Nine Months Ended September 30, 2005

			Nine Months Ended September 30, 2006						Percentage of Total Expenses						Nine Months Ended September 30, 2005						Percentage of Total Expenses
			(in thousands)
Compensation and employee benefits				$	39,846						33.8	%				$	38,989						34.5	%
Amortization of software development costs and other intangibles					18,255						15.5	%					14,376						12.8	%
Other occupancy and equipment					28,409						24.1	%					22,657						20.1	%
Professional and consulting fees					6,774						5.8	%					7,088						6.3	%
Communications and client networks					6,115						5.2	%					5,569						4.9	%
Marketing					742						0.6	%					1,252						1.1	%
Administrative fees to related parties					9,713						8.3	%					10,515						9.3	%
Amortization of business partner and
non-employee securities					19						0.0	%					310						0.3	%
Acquisition-related costs					2,026						1.7	%					4,124						3.7	%
Other expenses					5,848						5.0	%					7,845						7.0	%
Total operating expenses				$	117,747						100.0	%				$	112,725						100.0	%

Compensation and employee benefits

Compensation costs for the nine months ended September 30, 2006 were $39.8 million compared with $39.0 million during the comparable period in 2005. The $0.8 million, or 2.2%, increase in compensation costs resulted primarily from increased salaries and stock-based compensation expense partially offset by a payroll tax refund related to prior years. 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.

Amortization of software development costs and other intangibles

Amortization of software development costs and other intangibles was $18.3 million for the nine months ended September 30, 2006, an increase of $3.9 million, or 27.0%, compared with $14.4 million during the comparable period in 2005. This increase was related to accelerated amortization of $1.2 million (see Note 4, Fixed Assets, of the accompanying Notes to Condensed Consolidated Financial Statements, for more detail regarding this charge), increased investment in software development activities during the prior 12 months and the associated increase in the amortization of the software development. During the nine months ended September 30, 2006 and 2005, we recorded Wagner Patent and defense costs amortization of approximately $3.6 million. With the Wagner Patent expiring during the first quarter of 2007, our Wagner Patent and defense costs will be fully amortized.

Other occupancy and equipment

Other occupancy and equipment costs were $28.4 million for the nine months ended September 30, 2006, a $5.7 million, or 25.4%, increase compared with $22.7 million for the comparable period in 2005. The increase was primarily attributable to $3.9 million related to the relocation of our London offices, and $1.8 million related to increased depreciation expense as result of IT equipment purchases during the prior 12 months and related IT maintenance expenses.

Professional and consulting fees

Professional and consulting fees were $6.8 million for the nine months ended September 30, 2006 compared with $7.1 million for the comparable period in 2005, a decrease of 4.4%, primarily the result of lower legal expenses incurred in connection with patent litigation defense costs, partially offset by increased consulting expenses.

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Communications and client networks

Communications and client networks costs were $6.1 million for the nine months ended September 30, 2006 compared with $5.6 million for the comparable period in 2005, an increase of 9.8%. The increase was primarily due to upgraded communication costs incurred at our new Midwest data center that was established in the second half of 2005.

Administrative fees to related parties

Administrative fees to related parties amounted to $9.7 million for the nine months ended September 30, 2006, a decrease of $0.8 million compared with $10.5 million for the comparable period in 2005. The decrease was due to not utilizing as much of Cantor’s administrative services during the nine months ended September 30, 2006 as compared with the nine months ended September 30, 2005. Administrative fees to related parties are dependent upon both the costs incurred by Cantor and the amount of Cantor’s administrative services that is utilized by us.

Acquisition-related costs

During the nine months ended September 30, 2006, we recorded $2.0 million of acquisition-related costs with respect to a potential acquisition that we have determined not to pursue further at this time. During the comparable period in 2005, we recorded $4.1 million of acquisition-related costs. These costs primarily included legal, advisory and other related expenses.

Other expenses

Other expenses consist primarily of insurance costs, travel, promotional and entertainment expenditures. For the nine months ended September 30, 2006, other expenses were $5.8 million, a decrease of approximately $2.0 million, or 25.5%, compared with other expenses of $7.8 million for the comparable period in 2005. The decrease was principally due to lower travel and entertainment related expenses and a settlement and collection of a fully reserved receivable of $0.7 million.

Income taxes

During the nine months ended September 30, 2006 and 2005, we recorded income tax provisions of $0.7 million. Our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.

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Market Summary

The following table provides certain volume and transaction count information on the eSpeed system for the periods indicated:

			Quarterly Market Activity for the Three Months Ended
			September 30, 2005						December 31, 2005						March 31, 2006						June 30, 2006						September 30, 2006
Volume (in billions)
Fully Electronic Volume – Excluding New Products				$	8,014					$	7,500					$	8,957					$	10,235					$	9,381
Fully Electronic Volume – New Products					376						539						524						744						1,179
Total Fully Electronic Volume					8,390						8,039						9,481						10,979						10,560
Voice – Assisted Volume					8,576						7,608						8,093						8,618						8,217
Screen – Assisted Volume					3,941						4,155						5,295						5,583						5,898
Total Volume				$	20,907					$	19,802					$	22,869					$	25,180					$	24,675
Transaction Count (in billions)
Fully Electronic Transactions – Excluding New Products					1,642,579						1,640,167						1,971,347						2,035,458						1,687,779
Fully Electronic Transactions – New Products					115,483						111,801						131,700						138,421						140,539
Total Fully Electronic Transactions					1,758,062						1,751,968						2,103,047						2,173,879						1,828,318
Voice – Assisted Transactions					224,291						193,742						228,124						202,600						183,646
Screen – Assisted Transactions					46,203						46,242						70,698						68,768						66,451
Total Transactions					2,028,556						1,991,952						2,401,869						2,445,247						2,078,415
eSpeed Equities Direct Access (Number of Shares Traded In Millions)					154						147						203						171						212
Trading Days					64						61						62						63						63
U.S. Primary Dealer Treasury Volume (in billions)
U.S. Treasury Volume				$	34,554					$	32,820					$	34,810					$	33,688					$	32,171
Average Daily U.S. Treasury Volume				$	540					$	538					$	561					$	535					$	511

Reported volumes and transaction counts include transactions by Cantor and its affiliates that participate in certain of our marketplaces by posting quotations for their accounts and by acting as principal on trades. While the principal participation may vary widely from product to product and may be significant for any given product or period, in no case does the principal participation by Cantor and its affiliates exceed 10% of any of the reported volume or transaction counts, except as otherwise noted. Such activity is intended, among other things, to assist these affiliates in managing their proprietary positions, and to facilitate transactions, add liquidity, increase commissions and attract additional order flow to the eSpeed system and revenue to both us and Cantor and its affiliates.

Fully electronic volume on our system, excluding new products, was $9.4 trillion for the third quarter of 2006, up 17.1 percent from $8.0 trillion in the third quarter of 2005. Our combined voice-assisted and screen-assisted volume for the third quarter of 2006 was $14.1 trillion, an increase of 12.8 percent from $12.5 trillion in the third quarter of 2005.

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Fully electronic volume on our system for new products, which we define as foreign exchange, interest rate swaps, futures and repos, was $1.2 trillion for the third quarter of 2006, up 213.6 percent against the $376 billion reported in the third quarter of 2005.

Liquidity and Capital Resources

Our principal source of liquidity is our operating cash flow. This cash-generating capability is one of our fundamental strengths and provides us with substantial financial flexibility in meeting operating, investing and financing needs. At September 30, 2006, we had cash and cash equivalents of $191.1 million, an increase of $12.7 million compared with $178.4 million at December 31, 2005.

Operating Activities

During the nine months ended September 30, 2006, our operating activities provided cash of $30.1 million compared with $25.7 million during the comparable period in 2005. For the nine months ended September 30, 2006 as compared with the nine months ended September 30, 2005, net income decreased approximately $0.6 million. The $3.5 million insurance recovery included in net income for the nine months ended September 30, 2006 is presented as part of investing activities in the Statement of Cash Flows as the proceeds will be used to purchase fixed assets. For the nine months ended September 30, 2006, as compared with the nine months ended September 30, 2005, depreciation and amortization expense increased due to an increase in the underlying fixed asset base. The change in other assets for the nine months ended September 30, 2006, as compared with the nine months ended September 30, 2005, was $5.1 million primarily due to increased receivables related to the licensing of the Wagner Patent which were prepaid in the prior year and increased prepaid computer expenses. The change in accounts payable and accrued expenses for the nine months ended September 30, 2006, as compared with the nine months ended September 30, 2005, was primarily due to deferred income recognized in 2005 and the timing of payments made to vendors in 2006. The change in receivables from related parties for the nine months ended September 30, 2006, as compared with the nine months ended September 30, 2005, was primarily due to the timing of payments.

Our operating cash flows consist of transaction revenues 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 JSA, remits the amount owed to us. In addition, we have entered into similar services agreements with BGC, Freedom and CO2e.com, LLC. Under the Administrative Services Agreement, the JSA and the services agreements with Cantor, BGC, Freedom, and CO2e.com, LLC, any net receivable or payable is settled monthly.

Investing Activities

During the nine months ended September 30, 2006, we used cash in investing activities of $17.9 million compared with $22.6 million during the comparable period in 2005. The decrease was due to the receipt of $3.5 million in insurance proceeds related to the replacement of fixed assets lost in the September 11 Events (see Note 3, September 11 Events, of the accompanying Notes to Condensed Consolidated Financial Statements for more information regarding the September 11 Events), decreased purchases of fixed assets and lower capitalized software development costs and patent defense costs during the nine months ended September 30, 2006 as compared with the nine months ended September 30, 2005.

Financing Activities

During the nine months ended September 30, 2006, our financing activities provided cash of $0.5 million compared with cash used in financing activities of $28.5 million in the comparable period in 2005. During the nine months ended September 30, 2006, we made no Class A common stock

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repurchases under our repurchase plan approved by our Board of Directors. During the nine months ended September 30, 2005, we repurchased approximately 3.5 million shares of our Class A common stock for a total of $28.9 million under our repurchase plan. Our Board of Directors has authorized the repurchase of up to an additional $100 million of our outstanding Class A common stock, of which $58.7 million remained available for repurchase as of September 30, 2006.

We anticipate, based on management’s experience and current industry trends, that our existing cash resources will be sufficient to meet our anticipated working capital and 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, acquisitions, strategic alliances and joint ventures potentially involving all types and combinations of equity, debt, acquisition, recapitalization and reorganization alternatives. As a result, we may need to raise additional funds to:

•	increase the regulatory net capital necessary to support our operations;

•	support more rapid growth in our business;

•	develop new or enhanced services and products;

•	respond to competitive pressures;

•	acquire complementary technologies and businesses; and

•	respond to unanticipated requirements.

We cannot assure you that we will be able to obtain additional financing when needed on terms that are acceptable, if at all. 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

As of September 30, 2006, there have been no material changes to our aggregate contractual obligations, as detailed in our Annual Report on Form 10-K for the year ended December 31, 2005.

Off-Balance Sheet Arrangements

As of September 30, 2006, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Recent Accounting Pronouncements

SFAS No. 123R:    Effective January 1, 2006, we adopted SFAS 123R using the modified prospective method.

SFAS No. 155:    In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments – an Amendment of FASB Statements No. 133 and 140 (‘‘SFAS 155’’). SFAS 155 allows financial instruments that contain an embedded derivative and that otherwise would require bifurcation to be accounted for as a whole on a fair value basis, at the holders’ election. SFAS 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. This Statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. We do not expect that the adoption of SFAS 155 will have a material impact on our consolidated financial condition, results of operations or cash flows.

SFAS No. 156:    In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets – an Amendment of FASB Statement No. 140 (‘‘SFAS 156’’). SFAS 156 provides guidance on the accounting for servicing assets and liabilities when an entity undertakes an obligation to service a financial asset by entering into a servicing contract. This Statement is effective for all transactions in fiscal years beginning after September 15, 2006. We do not expect that the adoption of SFAS 156 will have a material impact on our consolidated financial condition, results of operations or cash flows.

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FIN 48:    In June 2006, the FASB issued interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (‘‘FIN 48’’). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We do not expect that the adoption of FIN 48 will have a material impact on our consolidated financial condition, results of operations or cash flows.

SAB No. 108:    In September 2006, the Securities and Exchange Commission (‘‘SEC’’) staff issued Staff Accounting Bulletin No. 108 (‘‘SAB 108’’). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006, and early application is encouraged.

SFAS No. 157:    In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (‘‘SFAS 157’’). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting this Statement.

ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk

At September 30, 2006, we had invested $97.0 million of our cash in securities purchased under reverse repurchase agreements with related parties, $83.9 million of which is fully collateralized by U.S. government securities and $13.1 million of which is fully collateralized by eligible equity securities, both of which are held in third-party custodial accounts. These reverse repurchase agreements have a next day maturity and, as such, are highly liquid.

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 of our international operations of $0.6 million for the nine months ended September 30, 2006.

ITEM 4.    Controls and Procedures

Disclosure Controls and Procedures

Management of the Company, including the Chief Executive Officer (‘‘CEO’’) and Vice President, Global Controller and Interim Chief Accounting Officer, functioning as the principal financial officer for purposes of this report (‘‘CAO’’), has evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the periods covered by this report on Form 10-Q. The term ‘‘disclosure controls and procedures’’ means controls and other procedures established by the Company that are designed to ensure that information required to be disclosed by the Company in

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the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its CEO and CAO, as appropriate, to allow timely decisions regarding required disclosure.

Based upon their evaluation of the Company's disclosure controls and procedures, the CEO and the CAO concluded that the disclosure controls were effective as of the end of the periods covered by this report on Form 10-Q to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the CEO and CAO, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.

The Company, including its CEO and CAO, does not expect that the Company's internal controls and procedures will prevent or detect all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Changes in Internal Control over Financial Reporting

There were no changes in the Company's internal control over financial reporting during the third quarter of 2006 that have materially affected, or are 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

By Summons and Complaint, dated October 30, 2002, the Company commenced an action in New York State Supreme Court against Municipal Partners LLC (‘‘MPLLC’’) seeking, among other things, damages as a result of MPLLC’s breach of a License and Services Agreement, under which MPLLC failed to pay the Company for ancillary information technology services and products provided to the Company, and failed to pay eSpeed a percentage of certain revenues derived by MPLLC from electronic trading. On November 19, 2002, MPLLC answered the Complaint. On April 1, 2004, MPLLC filed an amended Answer and Counterclaim. On May 25, 2004, the Company filed its reply to MPLLC’s Counterclaim. As of September 25, 2006, a settlement agreement was entered into resolving this and related matters, the Services Agreement with Municipal Partners was terminated, and a stipulation of discontinuance signed by both sides has been filed with the court, ending this matter.

In June 2003, the Company 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 suit centers on BrokerTec's and Garban's alleged infringement of the 580 Patent issued on May 6, 2003, which expires in 2016, with respect to which the Company is the exclusive licensee. The 580 Patent covers a system and methods for auction-based trading of specialized items such as fixed income instruments. In a pre-trial ruling on February 7, 2005, the Court ruled that the BrokerTec ETN did not infringe the Company’s 580 Patent. On February 22, 2005, the jury found that the Garban GTN did infringe the Company’s 580 Patent, but that there was a deficiency in the application which led to the 580 Patent, finding that the Company ‘‘failed to provide adequate written description of each and every element recited’’ in certain claims of the 580 Patent. Both parties requested attorneys' fees from the other party, which may be awarded by the Court in exceptional cases. By Memorandum Order, dated December 5, 2005, the Court denied the Company’s Motion for Judgment as a Matter of Law, or, in the Alternative, for a New Trial, and also denied BrokerTec's Motion for Judgment as a Matter of Law on Invalidity and Non-Infringement. In Post-Trial Findings of Fact and Conclusions of Law dated February 22, 2006, the Court found that the 580 Patent was unenforceable due to inequitable conduct, but denied the defendants’ request for an award of attorneys’ fees. Final judgment was entered on April 3, 2006. BrokerTec did not appeal the Court’s denial of attorneys’ fees. By notice dated April 27, 2006, the Company appealed to the U.S. Court of Appeals for the Federal Circuit. Briefing of the appeal was completed on October 20, 2006. Oral arguments are to be scheduled.

In August 2004, Trading Technologies International, Inc. (‘‘TT’’) commenced an action in the United States District Court, Northern District of Illinois, Eastern Division, against the Company. In its complaint, TT alleged that the Company infringed and continues to infringe U.S. Patent No. 6,766,304, which issued on July 20, 2004, and U.S. Patent 6,772,132, which issued on August 3, 2004. TT also filed a motion for preliminary injunction seeking to preclude the Company from making, selling and offering to sell a product that allegedly infringes such patents. A hearing on TT's motion for preliminary injunction was held on December 2, 2004. On February 9, 2005, the Court denied TT's motion for a preliminary injunction. The Court determined that the Company had not raised a substantial question concerning the validity or infringement of the patents, but that TT had not proved that it would suffer irreparable harm absent an injunction. On March 16, 2005, TT filed an amended Complaint against the Company and added infringement allegations against Ecco and ITSEcco. On April 6, 2005, the Company and Ecco answered the Complaint in which the Company denied the infringement allegations. At the same time, the Company and Ecco filed a Counterclaim seeking a declaration that the patents in suit are invalid, the Company does not make, use or sell any product that infringes any claims of the patents in suit, and the patents in suit are unenforceable because of inequitable conduct before the U.S. Patent and Trademark Office during the prosecution of the patents. On April 18, 2005, ITSEcco filed a motion to dismiss TT's complaint against it for lack of personal jurisdiction. TT agreed to dismiss ITSEcco from the lawsuit, but added eSpeed International and EccoWare LLC as defendants in a Second Amended Complaint. On January 5, 2006, the

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Company answered TT's Second Amended Complaint in which the Company denied the infringement allegations. At the same time, the Company filed an Amended Counterclaim seeking a declaration that the patents in suit are invalid, the Company does not make, use or sell any product that infringes any claims of the patents in suit, the patents in suit are unenforceable because of inequitable conduct before the U.S. Patent and Trademark Office during the prosecution of the patents, and the patents are unenforceable due to TT's patent misuse. Discovery is ongoing, and the Court consolidated for certain discovery and Markman hearing purposes the Company’s case with other patent infringement cases brought by TT against other defendants. A Markman hearing was held on August 16-18, 2006. On October 31, 2006 the Court issued a ruling on claim construction, which provides the meanings of the various terms in dispute in the asserted patents. In that ruling, the Court found that the Company correctly defined several of the patents' key terms. The Court's ruling supports the Company's consistent position that eSpeed and ECCO's products fall outside the scope of Trading Technologies' patents. However, the litigation is ongoing, and as with all litigation, the outcome is uncertain. Consequently, if TT ultimately prevails, the Company may be required to pay TT damages and/or certain costs and expenses, and the Company may be forced to modify or withdraw certain products from the market. The trial date is set for March 17, 2007. Both parties requested attorneys' fees from the other party, which may be awarded by the Court in exceptional cases. The Company is unable to estimate a possible loss or range of losses in connection with this matter.

ITEM 6.	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 Vice President, Global Controller and Interim Chief Accounting 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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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, 2006 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/ Frank V. Saracino
			Frank V. Saracino Vice President, Global Controller and Interim Chief Accounting Officer

Date: November 9, 2006

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