News Column

BGC PARTNERS, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 8, 2014

The following discussion of BGC Partners, Inc.'s financial condition and results of operations should be read together with BGC Partners, Inc.'s unaudited condensed consolidated financial statements and notes to those statements, as well as the cautionary statements relating to forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), included elsewhere in this report. When used herein, the terms "BGC Partners," "BGC," the "Company," "we," "us" and "our" refer to BGC Partners, Inc., including consolidated subsidiaries.



This discussion summarizes the significant factors affecting our results of operations and financial condition during the three months ended June 30, 2014 and 2013. This discussion is provided to increase the understanding of, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Report.

OVERVIEW AND BUSINESS ENVIRONMENT

We are a leading global brokerage company servicing the financial and real estate markets through our Financial Services and Real Estate Services businesses. Our Financial Services business specializes in the brokerage of a broad range of products, including fixed income securities, interest rate swaps, foreign exchange, equities, equity derivatives, credit derivatives, commodities, futures and structured products. Our Financial Services business also provides a wide range of services, including trade execution, broker-dealer services, clearing, processing, information, and other back-office services to a broad range of financial and non-financial institutions. Our integrated platform is designed to provide flexibility to customers with regard to price discovery, execution and processing of transactions, and enables them to use voice, hybrid, or in many markets, fully electronic brokerage services in connection with transactions executed either over-the-counter ("OTC") or through an exchange. Through our BGC Trader™ and BGC Market Data brands, we offer financial technology solutions, market data, and analytics related to select financial instruments and markets. We entered into the commercial real estate business in October 2011 with the acquisition of Newmark & Company Real Estate, Inc. ("Newmark"), a leading U.S. commercial real estate brokerage and advisory firm primarily serving corporate and institutional clients. Newmark was founded in 1929 in New York City. In 2000, Newmark embarked upon a national expansion and in 2006 entered into an agreement with London-based Knight Frank to operate jointly in the Americas as "Newmark Knight Frank." In the second quarter of 2012, we completed the acquisition of substantially all of the assets of Grubb & Ellis Company and its direct and indirect subsidiaries, which we refer to as "Grubb & Ellis." Grubb & Ellis was formed in 1958 and built a full-service national commercial real estate platform of property management, facilities management and brokerage services. We have completed the integration of Grubb & Ellis with Newmark Knight Frank to form the resulting brand, Newmark Grubb Knight Frank ( "NGKF"). NGKF is a full-service commercial real estate platform that comprises our Real Estate Services segment, offering commercial real estate tenants, owners, investors and developers a wide range of services, including leasing and corporate advisory, investment sales and financial services, consulting, project and development management, and property and facilities management. Our customers include many of the world's largest banks, broker-dealers, investment banks, trading firms, hedge funds, governments, corporations, property owners, real estate developers and investment firms. We have offices in dozens of major markets, including New York and London, as well as in Atlanta, Beijing, Boston, Charlotte, Chicago, Copenhagen, Dallas, Denver, Dubai, Hong Kong, Houston, Istanbul, Johannesburg, Los Angeles, Mexico City, Miami, Moscow, Nyon, Paris, Philadelphia, Rio de Janeiro, SÃo Paulo, Seoul, Singapore, Sydney, Tokyo, Toronto, Washington, D.C. and Zurich. We remain confident in our future growth prospects as we continue to increase the scale and depth of our real estate platform and continue to seek market driven opportunities to expand our business in numerous financial asset classes. NGKF showed solid growth during the quarter ended June 30, 2014 by continuing to build the NGKF brand by accretively acquiring businesses and hiring talent around the country. In our Real Estate Services business, on January 21, 2014, we announced our agreement to acquire Cornish & Carey Commercial, which is expected to close in August 2014. By adding the leading commercial real estate services company in the Bay Area and Silicon Valley, we will greatly broaden the scope and depth of services we can provide to clients in Northern California and across the U.S. In our Financial Services business, in May 2014 we acquired Remate Lince, a leading Mexican inter-dealer broker focusing on interest rate derivatives and fixed income, and in February 2014 we purchased the assets of HEAT Energy Group, which specializes in East Coast U.S. power brokerage. We also continued to make key hires around the world. We expect these additions to increase our earnings per share going forward. These investments underscore BGC's ongoing commitment to make accretive acquisitions and profitably hire. As of June 30, 2014, our cash position, which we define as cash and cash equivalents, marketable securities and unencumbered securities owned was approximately $644.2 million, the majority of which we are free to deploy to increase stockholder and bondholder value. We also expect to receive approximately $600 million in NASDAQ OMX stock. This gives us over a billion dollars of firepower to grow our profits. We expect to use these funds to increase shareholder value by making accretive acquisitions across Real Estate and Financial Services, repay debt, repurchase common shares and units, and maintain our regular common dividend for the foreseeable future. 42



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Furthermore, as a result of our ongoing efforts to lower expenses, excluding certain charges recorded in the quarter ended June 30, 2013, our non-compensation expenses for the quarter ended June 30, 2014 decreased approximately $17.2 million as compared to the second quarter of 2013. We expect to achieve our target of reducing overall expenses Company-wide by at least $100 million annualized by the end of 2014 as compared with the second half of 2012 run-rate. This comparison excludes the impact of any acquisitions or significant hires completed or closed in 2014.



NASDAQ OMX Transaction

On June 28, 2013, we completed the sale (the "NASDAQ OMX Transaction") of certain assets to The NASDAQ OMX Group, Inc. ("NASDAQ OMX"). The transaction occurred pursuant to a Purchase Agreement, dated as of April 1, 2013 (the "Purchase Agreement"). At the closing, NASDAQ OMX purchased certain assets and assumed certain liabilities from us and our affiliates, including the eSpeed brand name and various assets comprising the fully electronic portion of our benchmark on-the-run U.S. Treasury brokerage, market data and co-location service businesses (the "Purchased Assets" or "eSpeed"), for cash consideration of $750 million paid at closing, plus an earn-out of up to 14,883,705 shares of NASDAQ OMX common stock to be paid ratably in each of the fifteen years following the closing. The $750 million in cash paid at closing was subject to adjustment for certain pre-paid amounts and accrued costs and expenses, and the 14,883,705 shares of NASDAQ OMX common stock will be paid ratably in each of the fifteen years following the closing in which the consolidated gross revenue of NASDAQ OMX is equal to or greater than $25 million. On November 12, 2013, we received 992,247 shares of NASDAQ OMX common stock in accordance with the agreement. The contingent future issuances of NASDAQ OMX common stock are also subject to acceleration upon the occurrence of certain events, including the acquisition by any person of 50% or more of NASDAQ OMX's stock (including by merger), NASDAQ OMX ceasing to hold Purchased Assets representing 50% or more of the aggregate revenue attributable to the Purchased Assets as of the closing, and the sale of all or substantially all of NASDAQ OMX's assets, as well as to certain anti-dilution provisions. As a result of the sale of eSpeed, we only sold our on-the-run, benchmark 2-, 3-, 5-, 7-, 10-, and 30-year fully electronic trading platform for U.S. Treasury Notes and Bonds. Over time, we had built these six instruments into some of the deepest and most liquid markets in the world. For the three and six months ended June 30, 2013, eSpeed generated approximately $24.0 million and $48.4 million in revenues, respectively - of which approximately $22.9 million and $46.5 million were recorded in our Financial Services segment and the remainder in Corporate items. We retained all of our other voice, hybrid, and fully electronic trading, market data, and software businesses, including voice, hybrid and electronic brokerage of off-the-run U.S. Treasuries, as well as Treasury Bills, Treasury Swaps, Treasury Repos, Treasury Spreads, and Treasury Rolls. We also continue to offer voice brokerage for on-the-run U.S. Treasuries.



FINRA Arbitration

On July 9, 2014, the FINRA Arbitration panel issued its award in our dispute with the Tullett Subsidiaries. The Tullett Subsidiaries' claims for punitive damages, as well as their claims against executives of the Company and its subsidiaries, were denied in their entirety. Tullett Subsidiaries were found to have breached their contract with the people who sold them Chapdelaine Corporate Securities & Co. (many of whom now work for BGC) and were ordered to pay those individuals over $6 million in damages. The Tullett Subsidiaries were also found to have wrongly refused to pay compensation and expenses to one of their former employees who now works for BGC, who was awarded over $222,000. BGC Financial and BGC Capital Markets (described together in the award and in this paragraph as "BGC") were found solely liable for approximately $13 million in damages. Certain desk heads that moved to BGC were found liable for a total of approximately $20 million. BGC expects the awards against these desk heads will be paid for by BGC. The FINRA award will not have a material financial effect on BGC. We are pleased to put this arbitration behind us and remain focused on delivering outstanding services to our valued customers.



Financial Services:

The financial intermediary sector has been a competitive area that has grown over the past decade due to several factors. One factor is the increasing use of derivatives to manage risk or to take advantage of the anticipated direction of a market by allowing users to protect gains and/or guard against losses in the price of underlying assets without having to buy or sell the underlying assets. Derivatives are often used to mitigate the risks associated with interest rates, equity ownership, changes in the value of foreign currency, credit defaults by corporate and sovereign debtors and changes in the prices of commodity products. Over the past decade, demand from financial institutions, financial services intermediaries and large corporations has increased volumes in the wholesale derivatives market, thereby increasing the business opportunity for financial intermediaries. Another key factor in the growth of the financial intermediary sector over the past decade has been the increase in the number of new financial products. As market participants and their customers strive to mitigate risk, new types of equity and fixed income securities, futures, options and other financial instruments have been developed. These new securities and derivatives are not immediately ready for more liquid and standardized electronic markets, and generally increase the need for trading and require broker-assisted execution. Our Financial Services business continued to face challenging market conditions during the quarter. Many of our large bank customers reported double-digit declines in their revenues from fixed income, currency, and commodity trading. They attributed their results to a number of cyclical factors, including extreme monetary policies by several major central banks including the Federal 43



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Reserve, which continues to result in historically low levels of volatility across most financial markets, and structural issues such as the higher bank capital requirements under Basel III. Consequently, these factors contributed to lower OTC and listed product trading volumes across many asset classes and geographies. Regulators in the U.S. have finalized most of the new rules across a range of financial marketplaces, including OTC derivatives as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). Many of these rules became effective during 2013 with ongoing phase-ins anticipated over the course of 2014. Legislators and regulators in Europe and the Asia-Pacific region have crafted similar rules, some of which are expected to be first implemented in 2014. These OTC-related laws and proposed rules call for additional pre- and post-trade market transparency, heightened collateral and capital standards, the transacting of certain derivatives using authorized venues, central clearing of most standardized derivatives, specific business conduct standards and the delivery of transaction data to newly designated trade repositories for public dissemination. BGC Derivative Markets, a subsidiary of the Company, began operating as a Swap Execution Facility ("SEF") on October 2, 2013. After this date, all eligible derivatives traded by US Persons required SEF registration. Mandatory Dodd-Frank compliant execution on SEFs by Swap Dealers and Major Swap Participants commenced in February 2014 for a small number of products, with more products requiring SEF execution as 2014 progresses. The full Dodd-Frank rule set regarding execution, clearing and reporting requirements has been finalized more slowly than anticipated and has been effected by No Action letters, temporary relief, guidance and multiple interpretations. As a result, many of our largest customers have reduced their trading exposures until the rule consequences are completely known. Although SEF activity increased over the course of the second quarter of 2014, volumes to date are not indicative of what we expect this business to look like a year from now. We anticipate improved derivatives volumes once the regulatory landscape becomes clearer for our clients. In addition, BGC maintains its ownership stake in ELX, a CFTC approved designated contract market ("DCM"), which also includes several of the world's largest banks as equity holders. ELX began Dodd-Frank compliant swap trading in the fourth quarter of 2013, and we expect growing volumes as market participants explore the use of ELX as an alternative means to comply with Dodd-Frank regulations effective in 2014. We believe that our relative competitive position is strong in this new environment, and that we will gain market share in the U.S. This is because the new rules not only require OTC market execution venues to maintain robust front-end and back-office IT capabilities and to make large and ongoing technology investments, but also because recent revisions to the execution methodology rules will allow elements of voice brokerage to flourish. We are a leader in both the breadth and scale of our hybrid and fully electronic trading capability, and we expect to outperform our competitors in such an environment.



By the end of the quarter, we reduced our Financial Services front office headcount by 4% year-over-year primarily focusing on under-performing brokers. These reductions contributed to the decrease in our Financial Services revenues, but helped contribute to improved earnings margins. Over time we expect these targeted reductions in headcount to increase broker productivity.

Growth Drivers

As a wholesale intermediary, our business is driven primarily by overall industry volumes in the markets in which we broker, the size and productivity of our front-office headcount (including salespeople, brokers and other front-office professionals), regulatory issues and the percentage of our revenues related to fully electronic brokerage.

Below is a brief analysis of the market and industry volumes for some of our financial services products including our overall hybrid and fully electronic trading activities.



Overall Market Volumes and Volatility

Volume is driven by a number of items, including the level of issuance for financial instruments, the price volatility of financial instruments, macro-economic conditions, the creation and adoption of new products, the regulatory environment, and the introduction and adoption of new trading technologies. In general, increased price volatility increases the demand for hedging instruments, including many of the cash and derivative products that we broker. For example, hedge funds are increasingly making use of derivatives to protect positions and preserve the capital of their more risk-averse institutional clients, which now account for almost two-thirds of assets managed by the industry, according to a report from J.P. Morgan. Rates volumes in particular are influenced by market volatility, and such volatility has been dampened due to continued quantitative easing undertaken by the U.S. Federal Reserve and other major central banks. Quantitative easing entails the central banks buying government securities or other securities in the open market - particularly longer-dated instruments - in an effort to promote increased lending and liquidity and bring down long-term interest rates. When central banks hold these instruments, they tend not to trade or hedge - thus lowering rates volumes across cash and derivatives markets industry-wide. As of July 2, 2014, the U.S. Federal Reserve had approximately $3.7 trillion worth of long-dated U.S. Treasury and Federal Agency securities, compared with $1.7 trillion at the beginning of 2011 and zero prior to September 2008. Other major central banks have also greatly increased the amount of longer-dated debt on their balance sheets over the past three years. 44



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In addition, the G-20 central banks have agreed to implement the Basel III accord. Basel III was drafted with the intention of making banks more stable in the wake of the financial crisis. The accord, which will be phased in over the next few years, will force most large banks in G-20 nations to hold about three times as much Tier 1 capital as is required under the previous set of rules. The new capital rules make it more expensive for banks to hold non-sovereign debt assets on their balance sheet, and as a result, analysts say banks have reduced or will reduce their trading activity in corporate and asset-backed fixed income securities as well as in various other OTC cash and derivative instruments. We believe that this has reduced overall industry volumes in many of the products we trade, particularly in credit. During the three months ended June 30, 2014, industry volumes were mostly down year-over-year for most of the OTC and listed products we broker in rates, credit and foreign exchange. For example, according to the Securities Industry and Financial Markets Association ("SIFMA"), overall U.S. bond trading volumes decreased by approximately 20% year-over-year in the second quarter of 2014. This negatively impacted revenues industry-wide and in our Financial Services segment. In addition, our ongoing efforts to lower expenses and to improve the margins of this segment resulted in ongoing targeted reductions to our front-office headcount during the past twelve months, which lowered revenues compared with a year earlier, but are expected to improve broker productivity and our profitability over the long term. Below is a discussion of the volume and growth drivers of our various financial services brokerage product categories.



Rates Volumes and Volatility

Our rates business is influenced by a number of factors, including; global sovereign issuances, secondary trading and the hedging of these sovereign debt instruments. While the amount of global sovereign debt outstanding remains high by historical standards, the level of secondary trading and related hedging activity remains muted. For example, according to SIFMA, the average daily volume of U.S. Treasuries was down by over 16% as compared with a year earlier. Our rates revenues are not totally dependent on market volumes and therefore do not always fluctuate consistently with industry metrics. This is largely because our voice, hybrid, and fully electronic desks in rates often have volume discounts built into their price structure, which results in our rates revenues being less volatile than the overall industry volumes. Our revenues from Rates products - excluding eSpeed - were down by 14.7% in the quarter to $104.7 million. In comparison, Interest rate volumes were down by more than 20% combined at Eurex, ICE and Liffe and down 2% and at CME. Largely as a result of the eSpeed sale, our overall rates revenues declined by 24.3%. Overall, analysts and economists expect the absolute level of sovereign debt outstanding to remain at elevated levels for the foreseeable future as governments finance their future deficits and roll over their sizable existing debt. For example, the Organization for Economic Cooperation and Development ("OECD") - which includes almost all of the advanced and developed economies of the world - reported that general government debt as a percentage of GDP will be 73.1% for the entire OECD by 2015. This would represent a slight increase from 68.3% in 2012, but is nearly double the 39.1% figure in 2007. Meanwhile, economists expect that the effects of various forms of quantitative easing will continue to negatively impact financial markets, as economic growth remains weak in most OECD countries. As a result, we expect long-term tailwinds in our rates business from continuing high levels of government debt, but near-term headwinds due to the continued accommodative monetary policy of many major central banks.



Credit Volumes

The cash portion of our credit business is impacted by the level of global corporate bond issuance, while both the cash and credit derivatives sides of this business are impacted by sovereign and corporate issuance. Global credit derivative market turnover has declined due to uncertainty surrounding recently enacted rules for the clearing of credit derivatives in the U.S. In addition, corporate and asset-backed bond trading has declined for many of our large bank customers as they reduce their inventory of bonds in order to comply with Basel III and other international financial regulations. The net impact of these trends was reflected in the combined Federal Reserve average daily volumes for corporate and mortgaged-backed bonds - a reflection of the cash market - being down by approximately 20% year-over-year for the second quarter of 2014, and by total gross notional outstanding amount of credit derivatives as reported by SIFMA - a reflection of the inter-dealer derivatives market - being down by approximately 19% year-over-year. Our overall credit revenues declined by 12.5%, which was reflective of difficult volume trends in the credit markets globally.



Foreign Exchange Volumes and Volatility

Global foreign exchange ("FX") volumes decreased in the second quarter of 2014 as a result of continued regulatory issues, as well as tempered volatility which, as measured by the Deutsche Bank FX Volatility Index, or CVIX, was at or near its lowest level in its history for much of the quarter. Our fully electronic FX volumes increased 53.4%, while our overall FX revenues were down by 18.8%. In comparison, FX volumes decreased by around 40% at both EBS and CME. 45



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Equity-Related, Energy, and Commodities Volumes

Global equity markets were mixed during the quarter. For example, U.S. cash equity products and equity derivatives showed small decreased volumes year-over-year, while global cash equity products were generally up. According to the OCC, equity derivative average daily volumes were down 11% as compared to the second quarter 2013. Energy volumes were down 24% and 19% at ICE and CME, while and commodities volumes were down 8% and 2% year-over-year according to the CME and ICE. In comparison, our overall revenues from equities and other asset classes increased by 7.2% and we believe we continued to gain market share.



Hybrid and Fully Electronic Trading

Historically, technology-based product growth has led to higher margins and greater profits over time for exchanges and wholesale financial intermediaries alike, even if overall company revenues remain consistent. This is largely because fewer employees are needed to process the same volume of trades as trading becomes more automated. Over time, electronification of exchange-traded and OTC markets has also generally led to volumes increasing faster than commissions decline, and thus often to an overall increase in revenues. We have been a pioneer in creating and encouraging hybrid and fully electronic trading, and continually work with our customers to expand such trading across more asset classes and geographies. Outside of U.S. Treasuries and spot FX, the banks and broker-dealers that dominate the OTC markets had generally been hesitant in adopting electronically traded products. However, in recent years, hybrid and fully electronic inter-dealer OTC markets for products, including CDS indices, FX options, and most recently interest rate swaps, have been created as banks and dealers have become more open to electronically traded products and as firms like us have invested in the kinds of technology favored by our customers. Recently enacted and pending regulation in Asia, Europe and the U.S. regarding banking, capital markets, and OTC derivatives is likely to accelerate the spread of fully electronic trading and we expect to benefit from the new rules regarding OTC derivatives once they are finalized globally. Our understanding is that the rules that have been promulgated or are being discussed will continue to allow for trading through a variety of means, including voice, and we believe the net impact of these rules and the new bank capital requirements will encourage the growth of fully electronic trading for a number of products we broker. The combination of more market acceptance of hybrid and fully electronic trading and our competitive advantage in terms of technology and experience has contributed to our strong gains in electronically traded products. During the quarter, we continued to invest in hybrid and fully electronic technology broadly across our financial services product categories. Excluding eSpeed, Financial Services electronic trading, market data and software solutions revenue increased by 2.9% to $22.6 million or 8.3% of segment revenue for the quarter, compared with $21.9 million or 7.5% for the quarter ended June 30, 2013. The increase in these retained technology-based revenues for the quarter was due in part to growth from the brokerage of fully electronic Credit and Spot FX as well as higher market data revenues. We now offer electronically traded products on more than half of our Financial Services segment's approximately 200 desks. We expect the proportion of desks offering electronically traded products to continue to increase as we invest in technology to drive electronic trading over our platform. Over time, we expect the growth of our technology-based businesses to further improve this segment's profitability. Real Estate Services: On October 14, 2011, we completed the acquisition of Newmark. On April 13, 2012, we acquired substantially all of the assets of Grubb & Ellis Company and its direct and indirect subsidiaries (collectively "Grubb & Ellis"). Newmark, Grubb & Ellis and certain independently-owned partner offices of the two, operate as "Newmark Grubb Knight Frank" in the Americas, and are associated with London-based Knight Frank. Our discussion of financial results for "Newmark Grubb Knight Frank," "NGKF," or "Real Estate Services" reflects only those businesses owned by us and does not include the results for Knight Frank or for the independently-owned offices that use some variation of the NGKF name in their branding or marketing. Our Real Estate Services segment continued to show solid growth and generated approximately 35% of our revenues in the quarter ended June 30, 2014. Real Estate brokerage revenues grew by almost 4.6% year-over-year. NGKF's growth was primarily driven by its consulting businesses and continued improvements in overall broker productivity. While we benefited from positive industry trends, we believe that NGKF once again made strong market share gains. Our Real Estate management services and other revenues were down by 1.9%; and overall revenues improved by 2.8%. Our acquisition of Cornish & Carey Commercial is expected to close mid-August 2014. Cornish is the leading commercial real estate services company in the important Bay Area and Silicon Valley markets. The addition of Cornish & Carey, which has over 275 brokers and generated approximately $135 million in revenues in 2013, will lead to further gains for our Real Estate business over the remainder of 2014. The Bay Area is a top region for new business generation in the U.S. This acquisition will solidify our West Coast presence and further reinforce NGKF's position as a dominant industry force that offers clients the full range of commercial real estate services provided by best-in class brokers in multiple disciplines and geographies. In addition, NGKF's Global Healthcare Services team was recently awarded the contract to provide real estate services for Ascension, the largest not-for-profit health system in the United States. With 131 hospitals throughout 23 states and the District of Columbia, Ascension's portfolio comprises approximately 65 million square feet nationwide. Ascension is moving its real estate holdings to a more unified national organization structure, and chose NGKF in order to achieve efficiency, savings and improved quality of care, as well as to adjust to changes in the healthcare market. Our agreement covers Tenant Advisory, Landlord Advisory and Disposition, Lease Administration, Portfolio Optimization, and real estate cost reduction strategies and implementation. 46



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Growth Drivers

The key drivers of revenue growth for U.S. commercial real estate brokerage services companies include the overall health of the U.S. economy, including gross domestic product and employment trends in the U.S., which drives demand for various types of commercial leases and purchases; the institutional ownership of commercial real estate as an investible asset class; and the ability to attract and retain talent to our real estate services platform. In addition, in real estate sales, also known as real estate capital markets, growth is driven by the availability of credit to purchasers of and investors in commercial real estate. Economic Growth in the U.S. The U.S. economy is believed to have expanded by an annualized rate of 4% in the second quarter according to the U.S. Bureau of Economic Analysis's preliminary estimate, above the post-recession average of 2.2%. The Bureau of Labor Statistics reported that employers added a monthly average of 272,000 net new payroll jobs during the second quarter, significantly higher than the monthly average of 190,000 during the first quarter of 2014. Despite the return to pre-recession employment rates (6.1% in June 2014), the long-term unemployment and the declining labor force participation rate (near a 35-year low) remain disappointing for many economists, but these indicators are less important to commercial real estate than job creation. The 10-year Treasury yield ended the second quarter at 2.53% after rising from its low of 1.66% on May 1, 2013. Treasury yields have remained low by historical standards, despite the Federal Reserve's continued tapering of its quantitative easing program. This has been in large part due to tempered expectations surrounding the Federal Open Market Committee ("FOMC") willingness to raise the federal funds rate in the near-term. In December 2013, the "FOMC" announced that it is expected to reduce its monthly purchases by $10 billion at each of its 2014 FOMC meetings and has since reaffirmed its plans to wind down its quantitative easing program by October 2014. The FOMC has also affirmed that it would keep interest rates low "well past" the point when unemployment reaches the threshold rate of 6.5%, which it crossed during the second quarter. The combination of moderate economic growth and low interest rates that has been in place since the recession ended has been a powerful stimulus for commercial real estate, delivering steady absorption of excess space and strong investor demand for the yields available through both direct ownership of assets and publicly traded funds. Steady economic growth and low interest rates helped push vacancy rates down for the office, apartment, retail and industrial markets. The low level of new construction over the past few years has meant that tenants have been funneled into existing vacant space with the exception of apartments, where construction has propelled the market into a new expansion cycle. Asking rental rates posted moderate gains across all property types in 2013, propelled by demand for Class A assets in the top submarkets. The following trends drove the commercial real estate market thus far in 2014: • Technology, energy and healthcare powered demand for office space;



• Global trade, business capital spending and supply-chain optimization

created tenant and owner-user demand for warehouses and distribution

centers;



• The modest recovery in consumer spending was enough to create demand for

well-located retail space in the best trade areas; • Apartment rents benefited from the steady pace of job growth, and



underlying demographic trends towards urban living amongst younger adults;

and • Strong corporate earnings combined with increased leisure travel generated



demand for hotel room-nights.

Market Statistics

Following the financial crisis of 2007/2008, the U.S. commercial property market saw steep declines in activity in 2009. In 2010, the market began to recover, and by the end of 2011 there were signs that the recovery was gaining momentum - although still not at levels seen prior to the crisis. If the U.S. economy expands at the moderate pace envisioned by many economists in 2014, we would expect this to fuel the continued recovery in commercial real estate. Although overall industry metrics are not necessarily as correlated to our revenues in Real Estate Services as they are in Financial Services, they do provide some indication of the general direction of the business. According to Newmark Grubb Knight Frank Research, the overall vacancy rate for office properties in the nation's key markets ended the second quarter of 2014 at 14.7%, down from 15.3% a year earlier, marking the fourteenth consecutive quarter of tightening and the lowest level since the fourth quarter of 2008. Employment growth - the primary driver of demand for office leasing activity - accelerated during the quarter, which should provide continued momentum for the office market recovery. Rents for all property types in the U.S. continued to improve modestly. CoStar Group (a leading provider of information and analytic services) reported similar improvements in vacancy rates and rents for the national office, industrial, and retail markets. 47



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In terms of commercial real estate sales metrics, according to CoStar's Value-Weighted U.S. Composite Index, average prices were up 11.4% year-over-year through May 2014. In the second quarter, the dollar volume of significant property sales rose by 24% above the same period in 2013 according to Real Capital Analytics. In comparison, our Real Estate Services brokerage revenue increased by 4.6% year-over-year, primarily due to growth resulting from the acquisition of Grubb & Ellis in the second quarter of 2012 as well as our other recent acquisitions (Frederick Ross and Smith Mack) and organic growth.



REGULATORY ENVIRONMENT

See "Regulation" in Part I, Item 1 of our Annual Report on Form 10-K for information related to our regulatory environment.

LIQUIDITY

See "Liquidity and Capital Resources" herein for information related to our liquidity and capital resources.

HIRING AND ACQUISITIONS

A key driver of our revenue is front-office headcount. We believe that our strong technology platform and unique partnership structure have enabled us to use both acquisitions and recruiting to profitably increase our front-office staff at a faster rate than our largest competitors since our formation in 2004. We have invested significantly to capitalize on the current business environment through acquisitions, technology spending and the hiring of new brokers, salespeople and other front-office professionals. The business climate for these acquisitions has been competitive, and it is expected that these conditions will persist for the foreseeable future. We have been able to attract businesses and brokers, salespeople and other front-office professionals to our platform as we believe they recognize that we have the scale, technology, experience and expertise to succeed in the current business environment. As of June 30, 2014, primarily as a result of focusing on underperforming brokers, our front-office headcount was down by approximately 4% year-over-year to 2,398 brokers, salespeople and other front-office professionals. For the quarter ended June 30, 2014, average revenue generated per front-office employee decreased 8% from a year ago to approximately $154,000. The decrease in overall company revenue per front-office employee was primarily driven by a decrease in revenue per front-office employee in Financial Services, which decreased 13% year-over-year, partially offset Real Estate which increased 7% to $123,000. The laws and regulations passed or proposed on both sides of the Atlantic concerning OTC trading seem likely to favor increased use of technology by all market participants, and are likely to accelerate the adoption of both hybrid and fully electronic trading. We believe these developments will favor the larger inter-dealer brokers over smaller, non-public ones, as the smaller ones generally do not have the financial resources to invest the necessary amounts in technology. We believe this will lead to further consolidation in our industry, and thus further allow us to profitably grow our front-office headcount. Since 2012, our acquisitions have included Grubb & Ellis, Wolfe & Hurst, Smith Mack, Frederick Ross Company, Ginalfi Finance, Sterling International Brokers Limited, HEAT Energy Group and Remate. On April 13, 2012, we completed the acquisition of substantially all of the assets of Grubb & Ellis. The total consideration transferred for Grubb & Ellis was approximately $47.1 million. CF&Co acted as an advisor to us in connection with this transaction and received a fee of $1.0 million. We executed employment/service and partnership arrangements with hundreds of real estate professionals from the Grubb & Ellis bankruptcy estate and completed their transfer into entities that we own. During the year ended December 31, 2012, we completed other acquisitions for a total consideration of $24.2 million, including Wolfe & Hurst, Smith Mack, Frederick Ross Company and Ginalfi Finance. Wolfe & Hurst Bond Brokers, Inc. is a municipal bonds inter-dealer broker in North America. Smith Mack is an independent full service commercial real estate services firm operating in Philadelphia and surrounding regions. Frederick Ross Company is the oldest full-service commercial real estate firm in Denver, and partner of Newmark Grubb Knight Frank since 2010. Ginalfi Finance is an inter-dealer broker based in Paris specializing in the intermediation of money markets products, credit bonds, government bonds and swaps.



During the year ended December 31, 2013, we acquired the business and certain assets of Sterling International Brokers Limited, a London-based financial brokerage firm specializing in Pound Sterling and other major currency transactions.

In our Real Estate Services business, on January 21, 2014, we announced our agreement to acquire Cornish & Carey Commercial, and we expect this acquisition to close in mid-August 2014. By adding the leading commercial real estate services company in the Bay Area and Silicon Valley, NGKF will greatly broaden the scope and depth of services it can provide to clients in Northern California and across the U.S. In our Financial Services business, in May 2014 we completed the acquisition of Remate Lince, the leading Mexican inter-dealer broker focusing on interest rate derivatives and fixed income, and in February 2014 we purchased the assets of HEAT Energy Group, which specializes in East Coast U.S. power brokerage. We also continued to make key hires around the world. We expect these additions to increase to earnings per share going forward. These investments underscore BGC's ongoing commitment to make accretive acquisitions and profitably hire, and we are confident in our ability to utilize our capital to achieve strong revenue and earnings growth going forward. 48



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FINANCIAL HIGHLIGHTS

For the three months ended June 30, 2014, we had income from operations before income taxes of $14.9 million compared to $208.3 million, a decrease of $193.4 million from the year earlier period. Total revenues decreased approximately $775.6 million, or 65%, and total expenses decreased approximately $582.3 million, or 59.1%. For the six months ended June 30, 2014, we had income from operations before income taxes of $26.2 million compared to $221.9 million, a decrease of $195.7 million from the year earlier period. Total revenues for the six months ended June 30, 2014 decreased approximately $780.3 million, or 47.6%, and total expenses decreased approximately $584.5 million, or 41.3%. Total revenues were $417.6 million and $1,193.2 million for the three months ended June 30, 2014 and 2013, respectively. Total revenues were $857.9 million and $1,638.1 million for the six months ended June 30, 2014 and 2013, respectively.



Total revenues for the three and six months ended June 30, 2013 included a $723.1 million gain on divestiture related to the sale of eSpeed to NASDAQ OMX in June 2013. In addition, the first half of 2013 included $48.4 million of revenues from eSpeed.

Total compensation and employee benefits decreased by $525.0 million for the three months ended June 30, 2014 as compared to the year earlier period. During the three months ended June 30, 2013 we incurred non-cash non-dilutive compensation charges of $464.6 million related to the redemption/exchange of partnership units, issuance of restricted shares, and the reduction of compensation-related partnership loans. Non-compensation expenses were down by $57.2 million or 33% for the three months ended June 30, 2014 as compared to the year earlier period. This decrease in non-compensation expenses was primarily due to charges taken in the three months ended June 30, 2013 related to a commitment to make charitable contributions and costs associated with hiring brokers. Our ongoing cost reduction program also contributed to this decrease. Our Real Estate Services business had a strong quarter in the three months ended June 30, 2014. The ongoing review of the performance of our Real Estate brokers and salespeople along with selective key hires has resulted in a 7% increase in our average revenue per real estate broker year-over-year. While we benefited from positive industry trends, we believe that NGKF once again made strong market share gains. The three months ended June 30, 2014 continued to be a challenging period in the financial services industry. Even in this difficult environment, we believe that we are in a strong position to increase our profits by making additional investments across Real Estate and Financial Services. As part of our ongoing review of the performance of our Financial Services brokers, we reduced our front-office headcount by 4% year-over-year primarily focusing on under-performing brokers. While this contributed to a decrease in our Financial Services revenues, it also led to our improved margins. We believe our overall performance will improve as we continue to increase the percentage of Financial Services segment revenues generated from fully electronic trading, and extend our employment agreements through our Global Partnership Restructuring Program. We believe these initiatives will continue to improve our competitive position in the marketplace and improve employee retention. 49



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RESULTS OF OPERATIONS

The following table sets forth our unaudited condensed consolidated statements of operations data expressed as a percentage of total revenues for the periods indicated (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Percentage Percentage Percentage Percentage Actual of Total Actual of Total Actual of Total Actual of Total Results Revenues Results Revenues Results Revenues Results Revenues Revenues: Commissions $ 291,666 69.8 % $ 324,832 27.2 % $ 595,264 69.4 % $ 623,536 38.0 % Principal transactions 72,751 17.4 85,349 7.2 152,258 17.7 173,346 10.6 Total brokerage revenues 364,417 87.2 410,181 34.4 747,522 87.1 796,882 48.6 Real estate management services 38,835 9.3 39,823 3.3 78,661 9.1 79,161 4.8 Fees from related parties 7,967 1.9 12,242 1.0 14,999 1.7 25,390 1.6 Market data 1,492 0.4 3,643 0.3 3,126 0.4 7,768 0.5 Software solutions 703 0.2 2,530 0.2 1,404 0.2 5,096 0.3 Interest income 1,925 0.5 1,651 0.1 3,997 0.5 3,199 0.2 Other revenues 3,530 0.8 1,174 0.1 11,726 1.4 2,005 0.1 Gain on divestiture - - 723,147 60.7 - - 723,147 44.2 Losses on equity method investments (1,288 ) (0.3 ) (1,224 ) (0.1 ) (3,563 ) (0.4 ) (4,512 ) (0.3 ) Total revenues 417,581 100.0 1,193,167 100.0 857,872 100.0 1,638,136 100.0



Expenses:

Compensation and employee benefits 264,318 63.3 448,686 37.6 539,617 62.9 727,494 44.4 Allocation of net income and grant of exchangeability to limited partnership units and FPUs 22,402 5.4 363,077 30.4 53,725 6.3 381,099 23.3 Total compensation and employee benefits 286,720 68.7 811,763 68.0 593,342 69.2 1,108,593 67.7 Occupancy and equipment 35,701 8.5 37,340 3.1 76,622 8.9 76,567 4.7 Fees to related parties 2,133 0.5 2,286 0.2 3,940 0.5 5,129 0.3 Professional and consulting fees 10,156 2.4 11,367 1.0 21,245 2.5 26,308 1.6 Communications 21,312 5.1 22,755 1.9 41,770 4.9 47,096 2.9 Selling and promotion 18,255 4.4 23,239 1.9 36,280 4.2 43,554 2.7 Commissions and floor brokerage 5,575 1.3 6,397 0.5 9,781 1.1 12,168 0.7 Interest expense 9,230 2.2 9,989 0.8 18,565 2.2 19,689 1.2 Other expenses 13,584 3.3 59,780 5.0 30,166 3.5 77,084 4.7 Total expenses 402,666 96.4 984,916 82.5 831,711 97.0 1,416,188 86.5 Income from operations before income taxes 14,915 3.6 208,251 17.5 26,161 3.0 221,948 13.5 Provision for income taxes 3,600 0.9 78,711 6.6 4,344 0.5 81,806 5.0 Consolidated net income 11,315 2.7 129,540 10.9 21,817 2.5 140,142 8.5 Less: Net income attributable to noncontrolling interest in subsidiaries 3,714 0.9 95,074 8.0 6,208 0.7 98,678 6.0 Net income available to common stockholders $ 7,601 1.8 % $ 34,466 2.9 % $ 15,609 1.8 % $ 41,464 2.5 % 50



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Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

Revenues Brokerage Revenues Total brokerage revenues decreased $45.8 million for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. Commission revenues decreased by $33.2 million, or 10.2%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. Principal transactions revenues decreased by $12.6 million, or 14.8%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013.



Decreases in revenues in rates, credit and FX were partially offset by increase in real estate and equities and other asset classes brokerage revenues.

The decrease in rates revenues of $33.6 million, or 24.3%, was primarily due to the sale of the eSpeed business as well as lower global interest rate activity.

Real Estate brokerage revenues increased by $4.7 million, or 4.6%, for the three months ended June 30, 2014. The increase was primarily driven by growth in the leasing and consulting businesses, increased operating efficiencies resulting from the successful integration of acquisitions and continued improvements in broker productivity. Our fully electronic credit revenues increased by $1.6 million as compared to the three months ended June 30, 2013, however our overall credit revenues decreased by 12.5% to $58.9 million in the three months ended June 30, 2014. This decrease was mainly due to lower overall industry-wide inter-dealer activity in credit derivatives, investment-grade corporate bonds, mortgage bonds, and asset backed bonds. Our overall FX revenues were down by 18.8% to $49.3 million for the three months ended June 30, 2014. Our FX results reflected historically low global volatility and certain regulatory issues affecting many of our bank customers. However, BGC's performance for this asset class was better than the comparable FX volume declines of approximately 40% reported by both, CME and EBS. Our brokerage revenues from equities and other asset classes increased $2.9 million, or 7.2%, to $43.6 million for the three months ended June 30, 2014. This increase was primarily driven by strong gains in our energy and commodities businesses, partially offset by lower industry-wide equity derivative volumes in Europe and the U.S.



Real Estate Management Services

Real estate management services revenues decreased by $1.0 million, or 2.5%, to $38.8 million for the three months ended June 30, 2014.

Fees from Related Parties

Fees from related parties decreased by $4.3 million, or 34.9%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The decrease was primarily due to decreased revenues related to ELX (as a result of the sale of the eSpeed business) and lower technology service fees.



Market Data

Market data revenues decreased by $2.2 million, or 59.0%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. This decrease was primarily due to the sale of the eSpeed business in June 2013.



Software Solutions

Software solutions revenues decreased by $1.8 million, or 72.2%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013, primarily due to the sale of our Kleos Managed Services, Dedicated Network Access and Disaster Recovery businesses to NASDAQ OMX in June 2013. 51



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Interest Income

Interest income increased by $0.3 million or 16.6%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013.

Gain on Divestiture

The gain on divestiture related to the NASDAQ OMX transaction was $723.1 million recorded in the three months ended June 30, 2013.

Other Revenues

Other revenues increased by $2.4 million to $3.5 million for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. This increase was primarily driven by gains on Marketable Securities.



Losses on Equity Method Investments

Losses on equity method investments increased by $0.1 million, or 5.2%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. Losses on equity method investments represent our pro rata share of the net losses on investments over which we have significant influence but which we do not control. Expenses



Compensation and Employee Benefits

Compensation and employee benefits expense decreased by $184.4 million, or 41.1%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The main driver of this decrease was a $160.5 million charge taken in the three months ended June 30, 2013 related to charges taken to reduce compensation-related partnership loans in connection with our Global Partnership Restructuring Program. The decrease in brokerage revenues also contributed to the reduced level of compensation expense.



Allocation of Net Income and Grant of Exchangeability to Limited Partnership Units and FPUs

Allocation of net income and grant of exchangeability to limited partnership units and FPUs decreased by $340.7 million, or 93.8%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. This decrease was primarily driven by a $304.1 million charge related to the redemption/exchange of limited partnership units in the three months ended June 30, 2013 in connection with our Global Partnership Restructuring Program.



Occupancy and Equipment

Occupancy and equipment expense decreased by $1.6 million, or 4.4%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. This decrease was primarily due to lower depreciation expense in the three months ended June 30, 2014 related to the sale of eSpeed related hardware and leasehold improvement assets to NASDAQ OMX in June 2013. In addition, rent expense decreased as a result of our initiative to consolidate office space.



Fees to Related Parties

Fees to related parties decreased by $0.2 million for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. Fees to related parties are allocations paid to Cantor for administrative and support services.



Professional and Consulting Fees

Professional and consulting fees decreased by $1.2 million, or 10.7%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The decrease was primarily due to lower costs associated with legal matters as well as lower consulting costs.



Communications

Communications expense decreased by $1.4 million, or 6.3%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The main driver of this decrease was the result of our ongoing cost reduction program that rationalized and lowered the costs of certain market data terminals.



Selling and Promotion

Selling and promotion expense decreased by $5.0 million, or 21.4%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. As a percentage of total brokerage revenues, selling and promotion expenses were 5.0% compared to 5.7% in the year earlier period. 52



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Commissions and Floor Brokerage

Commissions and floor brokerage expense decreased by $0.8 million for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The decrease was primarily driven by reduced clearing and transfer costs due to the sale of the eSpeed business to NASDAQ OMX in June 2013.



Interest Expense

Interest expense decreased by $0.8 million, or 7.6%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The decrease was primarily related to our prepayment of collateralized debt during 2013.



Other Expenses

Other expenses decreased by $46.2 million, or 77.3%, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The decrease was primarily due to charges taken in the three months ended June 30, 2013 related to a commitment to make $25 million of charitable contributions and an increase in the costs of hiring additional brokers.



Provision for Income Taxes

Provision for income taxes decreased to $3.6 million for the three months ended June 30, 2014 as compared to $78.7 million for the three months ended June 30, 2013. This decrease was primarily driven by a decrease in U.S. taxable income in the three months ended June 30, 2014 as compared to the year earlier period. Income from operations before tax was significantly higher in the three months ended June 30, 2013 as it included the gain on divestiture related to the sale of eSpeed to NASDAQ OMX. Our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.



Net Income Attributable to Noncontrolling Interest in Subsidiaries

Net income attributable to noncontrolling interest in subsidiaries decreased by $91.4 million for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The decrease in net income attributable to noncontrolling interest in subsidiaries related to the decreased income in the three months ended June 30, 2014.



Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Revenues

Brokerage Revenues

Total brokerage revenues decreased by $49.4 million, or 6.2%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. Commission revenues decreased by $28.3 million, or 4.5%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. Principal transactions revenues decreased by $21.1 million, or 12.2%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013.



The decrease in brokerage revenues was primarily driven by decreases in the revenues for rates, FX and credit products, partially offset by higher revenues in Real Estate and equities and other asset classes.

The decrease in rates revenues of $64.9 million was primarily due to the sale of the eSpeed business and lower global interest rate activity.

Our fully electronic credit revenues increased by $4.3 million as compared to the six months ended June 30, 2013, however our overall credit revenues declined by 8.9% to $124.4 million in the six months ended June 30, 2014. This decrease was mainly due to lower overall industry-wide inter-dealer activity in credit derivatives, investment-grade corporate bonds, mortgage bonds and asset-backed bonds. Our FX revenues were down by 15.6% to $101.3 million for the six months ended June 30, 2014. This decrease was primarily driven by historically low global volatility and regulatory issues affecting many of our bank customers. Real Estate brokerage revenues increased by $40.7 million for the six months ended June 30, 2014. This increase was primarily driven by growth in the leasing and consulting businesses, increased operating efficiencies resulting from the successful integration of acquisitions and continued improvements in broker productivity.



Our brokerage revenues from equities and other asset classes increased $5.7 million, or 7.1%, to $86.4 million for the six months ended June 30, 2014. This increase was primarily driven by strong gains in our energy and commodities businesses, partially offset by lower industry-wide equity derivative volumes.

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Real Estate Management Services

Real estate management services revenues decreased by $0.5 million, or 0.6% for the six months ended June 30, 2014.

Fees from Related Parties

Fees from related parties decreased by $10.4 million, or 40.9%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The decrease was primarily due to decreased revenues related to ELX (as a result of the sale of the eSpeed business) and lower technology service fees.



Market Data

Market data revenues decreased by $4.6 million, or 59.8%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The decrease was primarily due to the sale of the eSpeed business in June 2013.

Software Solutions

Software solutions revenues decreased by $3.7 million, or 72.4%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, primarily due to the sale of our Kleos Managed Services, Dedicated Network Access and Disaster Recovery business to NASDAQ OMX in June 2013.



Interest Income

Interest income increased by $0.8 million, or 24.9%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013.

Other Revenues

Other revenues increased by $9.7 million to $11.7 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The increase was primarily due to a settlement related to litigation received during the six months ended June 30, 2014.



Gain on Divestiture

The gain on divestiture related to the NASDAQ OMX transaction was $723.1 million recorded in the six months ended June 30, 2013.

Losses on Equity Method Investments

Losses on equity method investments decreased by $0.9 million, or 21.0%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. Losses on equity method investments represent our pro rata share of the net losses on investments over which we have significant influence but do not control. Expenses



Compensation and Employee Benefits

Compensation and employee benefits expense decreased by $187.9 million, or 25.8%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The main driver of this decrease was a charge of $160.5 million taken during the six months ended June 30, 2013 related to the reduction of compensation-related partnership loans in connection with our Global Partnership Restructuring Program (see "Share Count Reduction and Modifications/Extensions of Employment Agreements" herein). In addition, a component of the decrease was the result of lower revenues during the six months ended June 30, 2014.



Allocations of Net Income and Grant of Exchangeability to Limited Partnership Units and FPUs

The Allocation of net income and grant of exchangeability to limited partnership units and FPUs decreased by $327.4 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. This decrease was primarily driven by a $304.1 million charge taken in the six months ended June 30, 2013 related to the redemption/exchange of limited partnership units in connection with our Global Partnership Restructuring Program.



Occupancy and Equipment

Occupancy and equipment expense was relatively flat at $76.6 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013.

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Fees to Related Parties

Fees to related parties decreased by $1.2 million, or 23.2%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. Fees to related parties are allocations paid to Cantor for administrative and support services.



Professional and Consulting Fees

Professional and consulting fees decreased by $5.1 million, or 19.2%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The decrease was primarily due to decreased costs associated with legal matters, as well as reduced costs for consulting as compared to the six months ended June 30, 2013. Communications



Communications expense decreased by $5.3 million, or 11.3%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. This decrease was primarily driven by our ongoing cost reduction program which rationalized and lowered the costs of certain market data terminals.

Selling and Promotion

Selling and promotion expense decreased by $7.3 million, or 16.7%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The decrease was primarily driven by the reduction in brokerage revenues as compared to the prior year period.



Commissions and Floor Brokerage

Commissions and floor brokerage expense decreased by $2.4 million, or 19.6%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, primarily due to reduced clearing and transfer costs due to the sale of the eSpeed business to NASDAQ OMX in June 2013.



Interest Expense

Interest expense decreased by $1.1 million, or 5.7%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The decrease was primarily related to our prepayment of collateralized debt during 2013.



Other Expenses

Other expenses decreased by $46.9 million, or 60.9%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. This decrease was primarily driven by charges taken during the six months ended June 30, 2013 related to a commitment to make charitable contributions and an increase in the cost of hiring additional brokers.



Provision for Income Taxes

Provision for income taxes decreased to $4.3 million for the six months ended June 30, 2014 as compared to $81.8 million for the six months ended June 30, 2013. This decrease was primarily driven by a decrease in taxable income in the six months ended June 30, 2014 as compared to the year earlier period as the 2013 period included the gain or divestiture related to sale of eSpeed. Our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.



Net Income Attributable to Noncontrolling Interest in Subsidiaries

Net income attributable to noncontrolling interest in subsidiaries decreased by $92.5 million, or 93.7%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. This decrease was due to lower income during the six months ended June 30, 2014 as the year earlier period included the gain on divestiture related to the sale of eSpeed.



Business Segment Financial Results

The business segments are determined based on the products and services provided and reflect the manner in which financial information is evaluated by management. We evaluate the performance and review the results of the segments based on each segment's "Income (loss) from operations before income taxes." Certain financial information for our segments is presented below. The amounts shown below for the Financial Services and Real Estate Services segments reflect the amounts that are used by management to allocate resources and assess performance, which is based on each segment's "Income (loss) from operations before income taxes." In addition to the two business segments, the tables below include a "Corporate Items" category. Corporate revenues include fees from related parties and interest income as well as gains that are not considered part of the Company's ordinary, ongoing business. Corporate expenses include non-cash compensation 55



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expenses (such as the grant of exchangeability to limited partnership units; redemption/exchange of partnership units, issuance of restricted shares and allocations of net income to founding/working partner units and limited partnership units) as well as unallocated expenses such as certain professional and consulting fees, executive compensation and interest expense, which are managed separately at the corporate level.



Three months ended June 30, 2014 (in thousands):

Financial Real Estate Corporate Services Services* Items Total Total revenues $ 262,112$ 147,039$ 8,430$ 417,581 Total expenses 221,630 142,340 38,696 402,666 Income (loss) from operations before income taxes $ 40,482$ 4,699$ (30,266 )$ 14,915



* For the three months ended June 30, 2014, the Real Estate Services segment

income (loss) from operations before income taxes excludes $2.2 million

related to the collection of receivables and associated expenses that were

recognized at fair value as part of acquisition accounting.

Three months ended June 30, 2013 (in thousands):

Financial Real Estate Corporate Services Services* Items** Total Total revenues $ 316,338$ 143,071$ 733,758$ 1,193,167 Total expenses 259,977 133,820 591,119 984,916 Income (loss) from operations before income taxes $ 56,361$ 9,251$ 142,639$ 208,251



* For the three months ended June 30, 2013, the Real Estate Services segment

income (loss) from operations before income taxes excludes $1.9 million

related to the collection of receivables and associated expenses that were

recognized at fair value as part of acquisition accounting.

** Corporate revenues for the three months ended June 30, 2013, included a

$723.1 million gain on divestiture due to the sale of eSpeed to NASDAQ OMX in

June 2013. Corporate expenses for the three months ended June 30, 2013, included charges of $464.6 million related to the Global Partnership Restructuring Program.



Segment Results for the Three Months Ended June 30, 2014 Compared to the Three Months Ended June 30, 2013

Revenues



• Revenues for Financial Services decreased approximately $54.2 million, or

17.1%, to $262.1 million for the three months ended June 30, 2014 from

$316.3 million for the three months ended June 30, 2013. The decrease in

revenues for our Financial Services segment was primarily due to a decline

in brokerage revenues in rates (primarily due to the sale of eSpeed in

June 2013), credit and FX, partially offset by an increase in equities and

other asset classes.



• Revenues for Real Estate Services increased approximately $4.0 million, or

2.8%, to $147.0 million for the three months ended June 30, 2014 from

$143.1 million for the three months ended June 30, 2013. The increase in

revenues for our Real Estate Services segment was primarily due to a

significant increase in broker productivity along with favorable industry

trends in sales and leasing for the U.S. commercial real estate market. Expenses • Total expenses for Financial Services decreased approximately $38.3



million, or 14.8%, to $221.6 million for the three months ended June 30,

2014 from $260.0 million for the three months ended June 30, 2013. The

decrease in expenses in our Financial Services segment was primarily due

to lower revenues along with our ongoing cost reduction program. • Total expenses for Real Estate Services increased approximately $8.5



million, or 6.4%, to $142.3 million for the three months ended June 30,

2014 from $133.8 million for the three months ended June 30, 2013. The

increase in expenses for our Real Estate Services segment was primarily

due to increased compensation associated with higher revenues.



Income (loss) from operations before income taxes

• Income (loss) from operations before income taxes for Financial Services

decreased approximately $15.9 million, or 28.2%, to $40.5 million for the

three months ended June 30, 2014 from $56.4 million for the three months

ended June 30, 2013. The decrease in income (loss) from operations before

income taxes for our Financial Services segment was primarily due to lower

revenues, as described above, partially offset by lower expenses.



• Income (loss) from operations before income taxes for Real Estate Services

decreased $4.6 million, to $4.7 million for the three months ended

June 30, 2014 from $9.3 million for the three months ended June 30, 2013.

The decrease in income (loss) from operations before income taxes for our

Real Estate Services segment was due to increased expenses, as described

above, partially offset by an increase in revenues. 56



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Six months ended June 30, 2014 (in thousands):

Financial Real Estate Corporate Services Services* Items Total Total revenues $ 546,618$ 296,151$ 15,103$ 857,872 Total expenses 449,695 277,012 105,004 831,711 Income (loss) from operations before income taxes $ 96,923$ 19,139$ (89,901 )$ 26,161



* For the six months ended June 30, 2014, the Real Estate Services segment

income (loss) from operations before income taxes excludes $2.9 million

related to the collection of receivables and associated expenses that were

recognized at fair value as part of acquisition accounting.

Six months ended June 30, 2013 (in thousands):

Financial Real Estate Corporate Services Services* Items** Total Total revenues $ 640,183$ 255,750$ 742,203$ 1,638,136 Total expenses 519,766 249,607 646,815 1,416,188 Income (loss) from operations before income taxes $ 120,417$ 6,143$ 95,388$ 221,948



* For the six months ended June 30, 2013, the Real Estate Services segment

income (loss) from operations before income taxes excludes $7.3 million

related to the collection of receivables and associated expenses that were

recognized at fair value as part of acquisition accounting.

** Corporate revenues for the six months ended June 30, 2013, included a $723.1

million gain on divestiture due to the sale of eSpeed to NASDAQ OMX in June

2013. Corporate expenses for the six months ended June 30, 2013, included

charges of $464.6 million related to the Global Partnership Restructuring

Program.

Segment Results for the Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013

Revenues



• Revenues for Financial Services decreased approximately $93.6 million, or

14.6%, to $546.6 million for the six months ended June 30, 2014 from

$640.2 million for the six months ended June 30, 2013. The decrease in

revenues for our Financial Services segment was primarily due to a decline

in brokerage revenues in Rates (primarily due to the sale of eSpeed in

June 2013), Credit and FX, partially offset by an increase in Equities and

Other Classes. • Revenues for Real Estate Services increased approximately $40.4 million,



or 15.8%, to $296.2 million for the six months ended June 30, 2014 from

$255.8 million for the six months ended June 30, 2013. The increase in

revenues for our Real Estate Services segment was primarily due to a

significant increase in broker productivity along with favorable industry

trends in sales and leasing for the U.S. commercial real estate market. Expenses • Total expenses for Financial Services decreased approximately $70.1 million, or 13.5%, to $449.7 million for the six months ended June 30, 2014 from $519.8 million for the six months ended June 30, 2013. • Total expenses for Real Estate Services increased approximately $27.4 million, or 11.0%, to $277.0 million for the six months ended June 30, 2014 from $249.6 million for the six months ended June 30, 2013. The



increase in expenses for our Real Estate Services segment was primarily

due to increased compensation associated with higher revenues.



Income (loss) from operations before income taxes

• Income (loss) from operations before income taxes for Financial Services

decreased approximately $23.5 million, or 19.5%, to $96.9 million for the

six months ended June 30, 2014 from $120.4 million for the six months

ended June 30, 2013. The decrease in income (loss) from operations before

income taxes for our Financial Services segment was primarily due to lower

revenues, driven by a decline in brokerage revenues in Rates (primarily

due to the sale of eSpeed in June 2013), partially offset by lower expenses.



• Income (loss) from operations before income taxes for Real Estate Services

increased $13.0 million, or 211.6%, to $19.1 million for the six months

ended June 30, 2014 from $6.1 million for the six months ended June 30,

2013. The increase in income (loss) from operations before income taxes

for our Real Estate Services segment was due to increased revenues, as

described above, partially offset by an increase in expenses, as also described above. 57



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QUARTERLY RESULTS OF OPERATIONS

The following table sets forth our unaudited quarterly results of operations for the indicated periods (in thousands). Results of any period are not necessarily indicative of results for a full year and may, in certain periods, be affected by seasonal fluctuations in our business. Certain reclassifications have been made to prior period amounts to conform to the current period's presentation. June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, 2014 (1) 2014 (1) 2013 (1) 2013 (1)(3) 2013 (2) 2013 2012 2012 Revenues: Commissions $ 291,666$ 303,598$ 295,415$ 283,293$ 324,832$ 298,704$ 293,350$ 302,874 Principal transactions 72,751 79,507 68,777 67,785 85,349 87,997 76,312 76,417 Real estate management services 38,835 39,826 43,745 40,447 39,823 39,338 41,141 39,672 Fees from related parties 7,967 7,032 7,667 8,071 12,242 13,148 14,016 13,102 Market data 1,492 1,634 1,191 1,178 3,643 4,125 4,182 4,166 Software solutions 703 701 661 444 2,530 2,566 2,541 2,485 Interest income 1,925 2,072 2,071 1,563 1,651 1,548 1,371 1,397 Other revenues 3,530 8,196 9,369 33,269 1,174 831 465 3,199 Gain on divestiture - - - - 723,147 - 52,471 - Losses on equity method investments (1,288 ) (2,275 ) (2,291 ) (2,705 ) (1,224 ) (3,288 ) (3,672 ) (2,995 ) Total revenues 417,581 440,291 426,605 433,345 1,193,167 444,969 482,177 440,317 Expenses: Compensation and employee benefits 264,318 275,299 269,444 258,462 448,686 278,808 277,077 264,637



Allocations of net income and grants of exchangeability to limited partnership units and FPUs

22,402 31,323 32,125 10,365 363,077 18,022 44,039 24,088 Total compensation and employee benefits 286,720 306,622 301,569 269,007 811,763 296,830 321,116 288,725 Occupancy and equipment 35,701 40,921 39,633 37,908 37,340 39,227 40,018 40,010 Fees to related parties 2,133 1,807 2,292 2,022 2,286 2,843 2,267 2,837 Professional and consulting fees 10,156 11,089 13,304 11,772 11,367 14,941 15,881 18,062 Communications 21,312 20,458 22,475 22,451 22,755 24,341 24,584 22,863 Selling and promotion 18,255 18,025 17,614 19,839 23,239 20,315 20,928 22,153 Commissions and floor brokerage 5,575 4,206 5,287 5,075 6,397 5,771 5,545 5,833 Interest expense 9,230 9,335 9,479 9,164 9,989 9,700 9,991 6,754 Other expenses 13,584 16,582 13,642 13,144 59,780 17,304 13,084 23,365 Total expenses 402,666 429,045 425,295 390,682 984,916 431,272 453,414 384,417 Income (loss) from operations before income taxes 14,915 11,246 1,310 42,663 208,251 13,697 28,763 (4,482 ) Provision (benefit) for income taxes 3,600 744 (315 ) 10,675 78,711 3,095 10,329 (1,338 ) Consolidated net income (loss) 11,315 10,502 1,625 31,988 129,540 10,602 18,434 (3,144 )



Less: Net income (loss) attributable to noncontrolling interest in subsidiaries

3,714 2,494 (2,509 ) 6,662 95,074 3,604 4,266 (1,111 )



Net income (loss) available to common stockholders $ 7,601 $

8,008 $ 4,134$ 25,326$ 34,466$ 6,998$ 14,168$ (2,033 )



(1) Periods after June 28, 2013 reflect the Company's divestiture of its

on-the-run, electronic benchmark U.S. Treasury platform to NASDAQ OMX on

June 28, 2013.

(2) Amounts include gains related to the Company's divestiture of its on-the-run,

electronic benchmark U.S. Treasury platform to NASDAQ OMX on June 28, 2013.

(3) Amounts include the gain related to the earn-out associated with the NASDAQ

OMX transaction.

Note: Certain prior period amounts have been reclassified to conform with the current presentation.

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The table below details our brokerage revenues by product category for the indicated periods (in thousands):

For the Three Months Ended June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, 2014 (1) 2014 (1) 2013 (1) 2013 (1) 2013 2013 2012 2012 Brokerage revenue by product): Rates $ 104,677$ 113,672$ 99,339$ 109,110$ 138,299$ 144,992$ 119,791$ 131,359 Real Estate 107,901 109,170 131,311 105,303 103,155 73,249 104,492 96,551 Credit 58,923 65,446 53,651 54,410 67,343 69,142 62,225 67,926 Foreign Exchange 49,279 52,066 44,687 47,393 60,692 59,348 47,130 48,910 Equities and Other Asset Classes 43,637 42,751 35,204 34,862 40,692 39,970 36,024 34,545 Total brokerage revenues $ 364,417$ 383,105$ 364,192$ 351,078$ 410,181$ 386,701$ 369,662$ 379,291 Brokerage revenue by product (percentage): Rates 28.7 % 29.7 % 27.3 % 31.1 % 33.7 % 37.5 % 32.4 % 34.6 % Real Estate 29.6 28.5 36.1 30.0 25.1 19.0 28.3 25.5 Credit 16.2 17.1 14.7 15.5 16.4 17.9 16.8 17.9 Foreign Exchange 13.5 13.6 12.3 13.5 14.8 15.3 12.7 12.9 Equities and Other Asset Classes 12.0 11.1 9.6 9.9 10.0 10.3 9.8 9.1 Total brokerage revenues 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Brokerage revenue by voice/hybrid and fully electronic: Voice/hybrid $ 344,053$ 361,939$ 347,889$ 334,864$ 374,397$ 349,854$ 339,155$ 346,251 Fully electronic 20,364 21,166 16,303 16,214 35,784 36,847 30,507 33,040 Total brokerage revenues $ 364,417$ 383,105$ 364,192$ 351,078$ 410,181$ 386,701$ 369,662$ 379,291 Brokerage revenue by voice/hybrid and fully electronic (percentage): Voice/hybrid 94.4 % 94.5 % 95.5 % 95.4 % 91.3 % 90.5 % 91.7 % 91.3 % Fully electronic 5.6 5.5 4.5 4.6 8.7 9.5 8.3 8.7 Total brokerage revenues 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %



(1) Periods after June 28, 2013 reflect the Company's divestiture of its

on-the-run, electronic benchmark U.S. Treasury platform to NASDAQ OMX on

June 28, 2013.

LIQUIDITY AND CAPITAL RESOURCES

Balance Sheet

Our balance sheet and business model are not capital intensive. We maintain minimal securities inventory; our assets consist largely of cash, collateralized and uncollateralized short-dated receivables and less liquid assets needed to support our business. Longer-term funding (equity and long-term debt) is held to support the less liquid assets and potential capital intensive opportunities. Total assets at June 30, 2014 were $2.5 billion, an increase of 17.9% as compared to December 31, 2013. The increase in total assets was driven primarily by increases in receivables from broker-dealers, clearing organizations, customers and related broker-dealers, goodwill and other assets. The increase in Receivables from broker-dealers, clearing organizations, customers and related broker-dealers related to increase fails and was offset by an increase in Payables to broker-dealers, clearing organizations, customers and related broker-dealers. We maintain a significant portion of our assets in cash, with our cash position (which we define as cash and cash equivalents, marketable securities and unencumbered securities owned held for liquidity purposes) at June 30, 2014 of $644.2 million. See "Cash Position Analysis" below for a further discussion of our cash position. As part of our cash management process, especially in light of the proceeds of the sale of eSpeed, we may enter into tri-party reverse repurchase agreements and other short term investments, some of which may be with Cantor. As of June 30, 2014, we had no reverse repurchase agreements outstanding with Cantor. Additionally, in August 2013, the Audit Committee authorized us to invest up to $350 million in an asset-backed commercial paper program for which certain Cantor entities serve as placement agent and referral agent. The program issues short-term notes to money market investors and is expected to be used from time to time as a liquidity management vehicle. The notes are backed by assets of highly rated banks. We are entitled to invest in the program so long as the program meets investment policy guidelines, including relating to ratings. Cantor will earn a spread between the rate it receives from the short-term note issuer and the rate it pays to us on any investments in this program. This spread will be no greater than the spread earned by Cantor for placement of any other commercial paper note in the program. As of June 30, 2014, we had $145 million invested in the program. 59



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Funding

Our funding base consists of longer-term capital (equity and notes payable), shorter-term liabilities and accruals that are a natural outgrowth of specific assets and/or our business model, such as matched fails and accrued compensation. We have limited need for short-term unsecured funding in our regulated entities for their brokerage business. Contingent liquidity needs are largely limited to potential cash collateral that may be needed to meet clearing bank, clearinghouse, and exchange margins and/or to fund fails. Capital expenditures tend to be cash neutral and approximately in line with depreciation. Current cash balances significantly exceed our unsecured letters of credit and our unsecured bank borrowings. We believe that cash in and available to our largest regulated entities, inclusive of financing provided by clearing banks, is adequate for potential cash demands of normal operations such as margin or fail financing. We expect our operating activities going forward to generate adequate cash flows to fund normal operations, including any dividends issued pursuant to our dividend policy. 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 and acquisition alternatives. As a result, we may need to raise additional funds to:



• increase the regulatory net capital necessary to support operations;

• support continued growth in our business; • effect acquisitions; • develop new or enhanced services and markets; and • respond to competitive pressures. Acquisitions and financial reporting obligations related thereto may impact our ability to access capital markets on a timely basis and may necessitate greater short-term borrowings in the interim. This may impact our credit rating or the interest rates on our debt. We may need to access short-term capital sources to meet business needs from time to time, including, but not limited to, conducting operations, hiring or retaining brokers, financing acquisitions, and providing liquidity, including in situations where we may not be able to access the capital markets in a timely manner when desired by us. Accordingly, we cannot guarantee that we will be able to obtain additional financing when needed on terms that are acceptable to us, if at all. On June 28, 2013, upon completion of the sale of eSpeed (see "NASDAQ OMX Transaction" herein), we received cash consideration of $750 million, subject to adjustment for certain pre-paid amounts and accrued costs and expenses, plus an earn-out of up to 14,883,705 shares of NASDAQ OMX common stock to be paid ratably in each of the fifteen years following the closing. As of June 30, 2014, our cash position, which we define as cash and cash equivalents, marketable securities and unencumbered securities owned, was approximately $644.2 million, the majority of which we are free to deploy to increase stockholder and bondholder value. We also expect to receive approximately $600 million in NASDAQ OMX stock. We believe that we are in a strong position to increase our profits by making additional investments across Real Estate and Financial Services. In addition, we expect to have sufficient funds to repay debt, repurchase common shares and units, and maintain our regular common dividend for the foreseeable future.



Notes Payable and Collateralized Borrowings

8.75% Convertible Notes

On April 1, 2010, BGC Holdings issued an aggregate of $150.0 million principal amount of the 8.75% Convertible Notes to Cantor. We used the proceeds of the 8.75% Convertible Notes to repay at maturity $150.0 million aggregate principal amount of Senior Notes. The 8.75% Convertible Notes are senior unsecured obligations and rank equally and ratably with all of our existing and future senior unsecured obligations. The 8.75% Convertible Notes bear an annual interest rate of 8.75% currently, which is payable semi-annually in arrears on April 15 and October 15 of each year. As of June 30, 2014, the 8.75% Convertible Notes were convertible, at the holder's option, at a conversion rate of 159.1550 shares of Class A common stock per $1,000 principal amount of notes, subject to adjustment in certain circumstances. The 8.75% Convertible Notes were convertible into approximately 23.9 million shares of Class A common stock as of June 30, 2014. The 8.75% Convertible Notes will mature on April 15, 2015, unless earlier repurchased, exchanged or converted. 4.50% Convertible Notes On July 29, 2011, we issued an aggregate of $160.0 million principal amount of 4.50% Convertible Notes. In connection with the offering of the 4.50% Convertible Notes, we entered into an Indenture, dated as of July 29, 2011, with U.S. Bank National Association, as trustee. The 4.50% Convertible Notes were offered and sold solely to qualified institutional buyers pursuant to Rule 144A under the Securities Act. 60



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The 4.50% Convertible Notes are our general senior unsecured obligations. The 4.50% Convertible Notes pay interest semi-annually at a rate of 4.50% per annum and were priced at par. As of June 30, 2014, the 4.50% Convertible Notes were convertible, at the holder's option, at a conversion rate of 101.6260 shares of Class A common stock per $1,000 principal amount of notes, subject to adjustment in certain circumstances. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our Class A common stock, or a combination thereof at our election. As of June 30, 2014, the 4.50% Convertible Notes were convertible into approximately 16.3 million shares of our Class A common stock. The 4.50% Convertible Notes will mature on July 15, 2016, unless earlier repurchased, exchanged or converted. The carrying value of the 4.50% Convertible Notes was approximately $150.2 million as of June 30, 2014. In connection with the offering of the 4.50% Convertible Notes, we entered into capped call transactions, which are expected to reduce the potential dilution of our Class A common stock upon any conversion of 4.50% Convertible Notes in the event that the market value per share of our Class A common stock, as measured under the terms of the capped call transactions, is greater than the strike price of the capped call transactions ($10.49 as of June 30, 2014, subject to adjustment in certain circumstances). The capped call transactions had an initial cap price equal to $12.30 per share (50% above the last reported sale price of our Class A common stock on the NASDAQ on July 25, 2011), and had a cap price equal to approximately $13.12 per share as of June 30, 2014. The net proceeds from this offering were approximately $144.2 million after deducting the initial purchasers' discounts and commissions, estimated offering expenses and the cost of the capped call transactions. We used the net proceeds from the offering for general corporate purposes, including financing acquisitions.



8.125% Senior Notes

On June 26, 2012, we issued an aggregate of $112.5 million principal amount of 8.125% Senior Notes due 2042. The 8.125% Senior Notes are our senior unsecured obligations. The 8.125% Senior Notes may be redeemed for cash, in whole or in part, on or after June 26, 2017, at our option, at any time and from time to time, until maturity at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued but unpaid interest on the principal amount being redeemed to, but not including, the redemption date. The 8.125% Senior Notes are listed on the New York Stock Exchange under the symbol "BGCA." We used the proceeds to repay short-term borrowings under our unsecured revolving credit facility and for general corporate purposes, including acquisitions. The initial carrying value of the 8.125% Senior Notes was $108.7 million, net of debt issuance costs of $3.8 million. CF&Co, an affiliate of us, served as one of the underwriters in this transaction and was paid an underwriting fee of approximately $0.2 million.



Collateralized Borrowings

On various dates beginning in 2009 and most recently in December 2012, we entered into secured loan arrangements under which we pledged certain fixed assets in exchange for loans. The secured loan arrangements had fixed rates between 2.62% and 8.09% per annum and were repayable in consecutive monthly installments with the final payments due in December 2016. During the year ended December 31, 2013, we prepaid $26.7 million related to secured loan arrangements and during the six months ended June 30, 2014, we prepaid the remaining balance. Therefore, there were no secured loan arrangement balances as of June 30, 2014. The outstanding balance of the secured loan arrangements was $1.6 million and as of December 31, 2013. The value of the fixed assets pledged was $1.5 million as of December 31, 2013. On various dates during the years ended December 31, 2010 and 2011, we sold certain furniture, equipment and software for $34.2 million, net of costs and concurrently entered into agreements to lease the property back. The principal and interest on the leases were repayable in equal monthly installments for terms of 36 months (software) and 48 months (furniture and equipment) with maturities through September 2014.



During the year ended December 31, 2013, we terminated the leases and prepaid the outstanding balance of $7.2 million.

Because the leases were terminated during 2013, we had no outstanding balance or fixed assets pledged related to the leases as of June 30, 2014 or December 31, 2013. We recorded interest expense of $0.4 million and $0.6 million for the three and six months ended June 30, 2013, respectively.



We may raise additional funds from time to time through equity or debt financing, including public and private sales of debt securities, to finance our business, operations and possible acquisitions.

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CREDIT RATINGS

Our public long-term credit ratings and associated outlook are as follows:

Rating Outlook Fitch Ratings Inc. BBB- Stable Standard & Poor's BBB- Stable Credit ratings and associated outlooks are influenced by a number of factors, including but not limited to: operating environment, earnings and profitability trends, the prudence of funding and liquidity management practices, balance sheet size/composition and resulting leverage, cash flow coverage of interest, composition and size of the capital base, available liquidity, outstanding borrowing levels and the firm's competitive position in the industry. A credit rating and/or the associated outlook can be revised upward or downward at any time by a rating agency if such rating agency decides that circumstances warrant such a change. Any reduction in our credit ratings and/or the associated outlook could adversely affect the availability of debt financing on terms acceptable to us, as well as the cost and other terms upon which we are able to obtain any such financing. In addition, credit ratings and associated outlooks may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions. In connection with certain agreements, we may be required to provide additional collateral in the event of a credit ratings downgrade. CASH POSITION ANALYSIS



Below is an analysis of the changes in our cash position for the six months ended June 30, 2014 and 2013. Our cash position is defined as cash and cash equivalents plus marketable securities and unencumbered securities held for liquidity purposes. The analysis below describes the key components of our earnings, dividends and distributions, investing and funding, security settlements and our working capital activities.

Our cash analysis starts with consolidated net income adjusted for certain non-cash items (e.g., grants of exchangeability) as presented on the cash flow statement. Dividends and distributions are payments made to our holders of common shares and limited partnership interests and are related to earnings from prior periods. This timing difference will impact our sources and uses of cash in a given period.



Our investing and funding activities represent a combination of our capital raising activities, including short-term borrowings and issuances under our controlled equity offerings (net), and our investments (e.g., acquisitions, forgivable loans to new brokers and capital expenditures - all net of depreciation and amortization).

Our securities settlement activities primarily represent deposits with clearing organizations. In addition, when advantageous, we may elect to facilitate the settlement of matched principal transactions by funding failed trades, which results in a temporary secured use of cash and is economically beneficial to us.



Other changes in working capital represent changes primarily in receivables and payables and accrued liabilities that impact our cash position.

The changes in our cash position during the six months ended June 30, 2014 and 2013 were as follows:


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