UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission file number: 0-21324

NYFIX, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	06-1344888 (I.R.S. Employer Identification Number)
100 Wall Street New York, New York (Address of principal executive offices)	10005 (Zip code)

(646) 525-3000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer x Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of July 31, 2007, the registrant had 36,501,987 shares of common stock, $0.001 par value, outstanding.

Page 1

NYFIX, INC.

INDEX

PART I - FINANCIAL INFORMATION		Page
Item 1.	Unaudited Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006	4
	Condensed Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Loss for the six months ended June 30, 2007	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Submission of Matters to a Vote of Security Holders	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
	Signatures	37

Page 2

Part I - FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

NYFIX, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	June 30, 2007			December 31, 2006
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	85,210		$	105,888
Accounts receivable, less allowances of $256 and $316, respectively		17,948			13,744
Clearing broker assets		393,405			422,880
Prepaid expenses and other current assets		4,903			4,435
Total current assets		501,466			546,947
Property and equipment, net of accumulated depreciation and amortization of $35,588 and $32,813, respectively		17,095			14,808
Product enhancement costs, net of accumulated amortization of $17,764 and $16,139, respectively		6,070			5,900
Goodwill		58,173			58,193
Acquired intangible assets, net of accumulated amortization of $11,419 and $10,472, respectively		1,029			1,966
Other assets, net		1,545			1,514
Total assets	$	585,378		$	629,328
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	27,964		$	25,133
Clearing broker liabilities		391,031			422,429
Current portion of capital lease obligations		1,143			1,223
Current portion of long-term debt		193			188
Current portion of other long-term liabilities		955			1,235
Deferred revenue		4,150			4,212
Total current liabilities		425,436			454,420
Long-term portion of capital lease obligations		-			461
Long-term debt		7,427			7,412
Other long-term liabilities		3,339			3,662
Total liabilities		436,202			465,955
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; 5,000,000 shares authorized:
Series A, none issued		-			-
Series B Voting Convertible, 1,500,000 shares issued and outstanding; liquidation preference of $77,632 at June 30, 2007		62,092			62,092
Series C Non-Voting Convertible, none issued		-			-
Common stock, $0.001 par value; 100,000,000 and 60,000,000 shares authorized; 36,882,486 and 36,654,986 shares issued, respectively		252,825			256,835
Preferred stock dividend distributable, 526,327 common shares		3,426			-
Accumulated deficit		(155,665	)		(139,309	)
Treasury stock, 933,780 and 1,133,778 shares, respectively, at cost		(13,566	)		(16,224	)
Accumulated other comprehensive income (loss)		64			(21	)
Total stockholders' equity		149,176			163,373
Total liabilities and stockholders' equity	$	585,378		$	629,328

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 3

NYFIX, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Revenue:
Subscription and maintenance	$	16,471		$	15,739		$	33,745		$	31,386
Product sales and services		695			469			1,375			1,341
Transaction		13,592			6,744			23,368			13,947
Total revenue		30,758			22,952			58,488			46,674
Cost of revenue:
Subscription and maintenance		8,369			7,884			16,915			15,949
Product sales and services		206			499			593			996
Transaction		8,359			4,062			13,760			7,989
Total cost of revenue		16,934			12,445			31,268			24,934
Gross profit		13,824			10,507			27,220			21,740
Operating expense:
Selling, general and administrative		20,351			11,224			37,229			22,047
Restatement, SEC investigation and related expenses		1,392			3,688			4,985			7,742
Depreciation and amortization		378			269			660			638
Loss from operations		(8,297	)		(4,674	)		(15,654	)		(8,687	)
Interest expense		(126	)		(282	)		(262	)		(416	)
Investment income		1,097			181			2,324			313
Other income (expense), net		3			18			(12	)		18
Loss from continuing operations before income tax provision		(7,323	)		(4,757	)		(13,604	)		(8,772	)
Income tax provision		47			47			94			94
Loss from continuing operations		(7,370	)		(4,804	)		(13,698	)		(8,866	)
Loss from discontinued operations		-			(200	)		-			(392	)
Net loss		(7,370	)		(5,004	)		(13,698	)		(9,258	)
Accumulated preferred dividends		(1,709	)		-			(3,426	)		-
Loss applicable to common stockholders	$	(9,079	)	$	(5,004	)	$	(17,124	)	$	(9,258	)
Basic and diluted loss from continuing operations per common share (net of accumulated preferred dividends)	$	(0.25	)	$	(0.15	)	$	(0.48	)	$	(0.27	)
Basic and diluted loss from discontinued operations per common share		-			0.00			-			(0.01	)
Basic and diluted loss per common share	$	(0.25	)	$	(0.15	)	$	(0.48	)	$	(0.28	)
Basic and diluted weighted average common shares outstanding		35,901			32,596			35,833			32,596

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 4

NYFIX, Inc. and Subsidiaries

Condensed Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Loss (Unaudited)

For the Six Months Ended June 30, 2007

(in thousands, except share amounts)

	Series B
	Voting
	Convertible				Preferred														Accumulated
	preferred				stock			Common											other			Total
	stock issued				dividend			stock issued					Accumulated			Treasury			comprehensive			stockholders'
	Shares		Amount		distributable			Shares		Amount			deficit			stock			income (loss)			equity
Balance December 31, 2006		1,500,000	$	62,092	$	-			36,654,986	$	256,835		$	(139,309	)	$	(16,224	)	$	(21	)	$	163,373
Comprehensive loss:						-
Net loss		-		-		-			-		-			(13,698	)		-			-			(13,698	)
Foreign currency translation adjustment		-		-		-			-		-			-			-			85			85
Total comprehensive loss		-		-		-			-		-			-			-			-			(13,613	)
Issuance of treasury stock for stock options exercised (225,000 shares issued; 73,171 shares surrendered)		-		-		-			-		-			(2,658	)		2,658			-			-
Issuance of restricted shares from treasury stock pursuant to employment agreement (48,169 shares)		-		-		-			-		-			-			-			-			-
Declaration of preferred stock dividend		-		-		4,780			-		(4,780	)		-			-			-			-
Common shares issued in payment of preferred stock dividend		-		-		(1,354	)		227,500		1,354			-			-			-			-
Stock-based compensation expense		-		-		-			-		235			-			-			-			235
Modification of stock options		-		-		-			-		(819	)		-			-			-			(819	)
Balance June 30, 2007		1,500,000	$	62,092	$	3,426			36,882,486	$	252,825		$	(155,665	)	$	(13,566	)	$	64		$	149,176

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 5

NYFIX, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Six Months Ended June 30,
	2007			2006
Operating activities:
Net loss	$	(13,698	)	$	(9,258	)
Adjustments to reconcile net loss to net cash (used in) provided by continuing operating activities:
Loss from discontinued operations		-			392
Depreciation and amortization		5,382			5,707
Stock-based compensation expense		235			579
Amortization of debt discounts and premiums		20			10
Deferred income taxes		74			74
Recovery of doubtful accounts		-			(42	)
Other, net		1			(1	)
Changes in assets and liabilities:
Accounts receivable		(4,198	)		2,944
Prepaid expenses and other assets		(526	)		679
Clearing broker assets		29,475			(53,360	)
Deferred revenue		(62	)		(156	)
Accounts payable, accrued expenses and other liabilities		1,495			1,700
Clearing broker liabilities		(31,398	)		55,489
Net cash (used in) provided by continuing operating activities		(13,200	)		4,757
Net cash provided by discontinued operating activities		-			795
Net cash (used in) provided by operating activities		(13,200	)		5,552
Investing activities:
Capital expenditures for property and equipment		(5,057	)		(1,221	)
Capitalization of product enhancement costs		(1,795	)		(1,561	)
Tax benefit attributable to goodwill		20			20
Net cash used in continuing investing activities		(6,832	)		(2,762	)
Net cash used in discontinued investing activities		-			(472	)
Net cash used in investing activities		(6,832	)		(3,234	)
Financing activities:
Principal payments under capital lease obligations		(541	)		(339	)
Other, net		(184	)		(67	)
Net cash used in continuing financing activities		(725	)		(406	)
Effect of exchange rate changes on cash		79			147
Net (decrease) increase in cash and cash equivalents		(20,678	)		2,059
Cash and cash equivalents, beginning of period		105,888			21,066
Cash and cash equivalents, end of period		85,210			23,125
Less cash and cash equivalents of discontinued operations, end of period		-			193
Cash and cash equivalents of continuing operations, end of period	$	85,210		$	22,932

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 6

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Summary of Significant Accounting Policies

Nature of Operations

NYFIX, Inc. (together with its consolidated subsidiaries, “NYFIX” or the “Company”) provides trading workstations, middle office trade automation technologies and trade messaging services to domestic and international market participants. In addition, NYFIX’s registered broker-dealer subsidiaries also provide automated trade execution services to institutional counterparties and operate a matched-book stock borrow/stock loan business.

The Company has its headquarters and principal office on Wall Street in New York City, and has other offices in London’s Financial District, Hong Kong, Boston, MA, Stamford, CT and San Francisco, CA. The Company operates redundant data centers in the northeastern United States as well as data center hubs in London and Amsterdam.

Basis of Presentation of Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in the opinion of management, include all adjustments (consisting of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. The results for the interim periods are not necessarily indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (“2006 10-K”).

The accompanying unaudited condensed consolidated financial statements include the accounts of NYFIX, Inc. and its majority-owned and wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies during 2007, as compared to what was previously disclosed in the 2006 10-K.

2. Stock-Based Compensation

 The Company has stock option plans under which stock options have been granted to employees and non-employee members of the Board of Directors. These options are typically granted for a term not exceeding ten years and are forfeited, except in certain circumstances, in the event the employee or director terminates his or her employment or relationship with the Company. These options vest over periods specified at the time of grant, which generally range from less than one to five years. 

The fair value of options is estimated using the Black-Scholes option-pricing model which considers, among other factors, the expected life of the award and the expected volatility of the Company’s stock price. Although the Black-Scholes model meets the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment and Staff Accounting Bulletin No. 107, Share-Based Payment, the fair values generated by the model may not be indicative of the actual fair values of the Company’s awards, as it does not consider other factors important to those stock-based compensation awards, such as continued employment, periodic vesting requirements, and limited transferability.

Page 7

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

Stock Option Plans

A summary of activity under stock option plans for six months ended June 30, 2007, follows:

Options	Shares				Weighted average exercise price		Weighted average remaining contractual term (years)		Aggregate intrinsic value (000's)
Outstanding at beginning of the year		3,670,780		(1)	$	9.56
Exercised		(225,000	)		$	2.00
Cancelled		(650,703	)		$	9.44
Outstanding at end of the period		2,795,077		(2)	$	9.92		4.6	$	5,077
Exercisable at end of the period		2,774,743		(2)	$	9.95		4.5	$	5,046

(1) Includes 1,089,906 shares related to Pending Exercises not settled due to the Company not being current with its periodic reporting to the SEC (see Note 10). The weighted average exercise price for such shares approximates $3.95 per share.

(2) Includes 1,030,150 shares related to Pending Exercises not settled due to the Company not being current with its periodic reporting to the SEC. The weighted average exercise price for such shares approximates $4.82 per share.

Since the Company has not been current with its SEC reporting obligations until the filing of this report, it generally did not issue shares to employees and directors in connection with the exercise of stock options since July 2005. In February 2006, the Compensation Committee of the Board of Directors approved a policy whereby the Company will honor awards to former employees who have validly notified the Company in writing of their intent to exercise. As a result, the Company modified vested in-the-money awards to terminating employees, prior to their termination of employment, extending the normal 90 day post-termination exercise period until such time as the Company expected to be current with its SEC reporting obligations and the underlying shares are once again covered by an effective registration statement.

The Company did not grant stock options during the six months ended June 30, 2007 and 2006.

Restricted Stock

During March 2007, the Company issued 48,169 restricted shares of common stock from treasury to an officer in satisfaction of his employment agreement requiring issuance of shares with a fair market value of $300,000. The fair value of such shares of $300,000 is being charged to stock-based compensation expense pro rata over the requisite service period.

Stock-based Compensation Expense

Stock-based compensation expense during the three and six months ended June 30, 2007 was approximately $0.3 million and $0.4 million, respectively, which includes an aggregate of $0.2 million for both the three and six months ended June 30, 2007 of expense related to expired options to be cash settled and extending the normal 90 day post-termination exercise period. During the three and six months ended June 30, 2006 stock-based compensation expense was approximately $0.2 million and $0.6 million, respectively, which includes an aggregate of a nil amount and $0.1 million, respectively, of expense related to expired options to be cash settled and extending the normal 90 day post-termination exercise period. Stock-based compensation expense for the six months ended June 30, 2006 includes less than $0.1 million related to discontinued operations. At June 30, 2007, unrecognized compensation expense related to the nonvested portion of the restricted stock grant of $225,000 will be amortized through March 2008.

Page 8

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

3. Loss Per Share

The Company’s basic loss per common share is determined by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share is determined by dividing the net loss applicable to common stockholders, adjusted for the effect of dilutive securities, by the weighted average number of common shares and dilutive potential common shares.

The following table sets forth the computations of loss per common share and of the weighted average common shares outstanding:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2007			2006			2007			2006
Loss from continuing operations	$	(7,370	)	$	(4,804	)	$	(13,698	)	$	(8,866	)
Less: Accumulated preferred dividends		(1,709	)		-			(3,426	)		-
Loss from continuing operations applicable to common stockholders, basic and diluted		(9,079	)		(4,804	)		(17,124	)		(8,866	)
Loss from discontinued operations, basic and diluted		-			(200	)		-			(392	)
Loss applicable to common stockholders, basic and diluted	$	(9,079	)	$	(5,004	)	$	(17,124	)	$	(9,258	)
Basic and diluted loss from continuing operations per common share	$	(0.25	)	$	(0.15	)	$	(0.48	)	$	(0.27	)
Basic and diluted loss from discontinued operations per common share		-			0.00			-			(0.01	)
Basic and diluted loss per common share	$	(0.25	)	$	(0.15	)	$	(0.48	)	$	(0.28	)
Weighted average common shares outstanding(1):
Basic and diluted shares		35,901			32,596			35,833			32,596
Antidilutive securities:
Stock options, treasury stock method (2)		469			632			465			679
Convertible note (2)		1,327			1,304			1,327			1,304
Convertible preferred stock (2)		15,000			-			15,000			-

(1) Excludes nonvested restricted stock grants.

(2) The impact of stock options, the convertible note and the convertible preferred stock on earnings per share is antidilutive in a period of loss.

4. Other Balance Sheet Information

Accounts payable and accrued expenses consisted of the following at June 30, 2007 and December 31, 2006:

(in thousands)	June 30, 2007		December 31, 2006
Accounts payable	$	15,329	$	11,052
Compensation and related		6,600		6,276
Modification of stock-based awards		3,175		2,601
Sale of NYFIX Overseas working capital adjustment (Note 9)		-		1,318
Taxes, other than income and payroll taxes		639		834
Penalties on reporting delinquency (Note 11)		-		631
Other		2,221		2,421
Total accounts payable and accrued expenses	$	27,964	$	25,133

Page 9

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

5. Broker-Dealer Operations

Clearing Broker Assets and Liabilities

Clearing broker assets and liabilities consisted of the following at June 30, 2007 and December 31, 2006:

(in thousands)	June 30, 2007		December 31, 2006
Securities borrowed	$	384,270	$	421,435
Securities failed-to-deliver		5,795		-
Deposits with clearing firms		774		766
Receivables from clearing organizations		2,566		679
Total clearing broker assets	$	393,405	$	422,880
Securities loaned	$	385,766	$	422,414
Securities failed-to-receive		5,265		-
Payables to clearing organizations		-		15
Total clearing broker liabilities	$	391,031	$	422,429

Securities Lending

The Company receives collateral under securities borrowed transactions, which it is allowed by contract or custom to sell or repledge. As of June 30, 2007, securities borrowed with a fair value of $371.8 million were repledged for securities loaned. The gross amounts of interest earned on cash provided to counterparties as collateral for securities borrowed and interest incurred on cash received from counterparties as collateral for securities loaned and the resulting net amount included in transaction revenue for the three and six months ended June 30, 2007 and 2006, were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2007			2006			2007			2006
Interest earned	$	4,412		$	2,952		$	8,064		$	5,672
Interest incurred		(4,059	)		(2,604	)		(7,400	)		(4,955	)
Net	$	353		$	348		$	664		$	717

Regulatory Net Capital Requirements

U.S. registered broker-dealer subsidiaries - NYFIX Clearing Corporation (“NYFIX Clearing”), NYFIX Transaction Services, Inc. (“NYFIX Transaction”), and NYFIX Millennium, LLC (“NYFIX Millennium”) are subject to the SEC’s Uniform Net Capital Rule (15c3-1), which requires the maintenance of minimum regulatory net capital. NYFIX Clearing has elected to use the alternative method, as permitted by the rule, which requires the maintenance of minimum regulatory capital, as defined, equal to the greater of $250,000 or 2% of aggregate debit items arising from customer transactions, as defined. NYFIX Clearing’s membership in the Depository Trust & Clearing Corporation (the “DTCC”) requires it to maintain excess regulatory net capital of $10.0 million. NYFIX Transaction and NYFIX Millennium have elected to use the aggregate indebtedness standard, which requires that the ratio of aggregate indebtedness to regulatory net capital, both as defined, shall not exceed 15 to 1. The regulatory net capital ratios for NYFIX Transaction and NYFIX Millennium, at June 30, 2007, were 2.92 to 1 and 3.65 to 1, respectively.

Foreign registered subsidiaries - NYFIX International, Ltd. (“NYFIX International”) is an ISD Category B firm registered with the Financial Services Authority (“FSA”) in the U.K. NYFIX International is required to maintain financial resources generally equal to three months average expenditures, subject to a minimum of €125,000, plus a proportion of less liquid assets on hand.

Page 10

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

At June 30, 2007, the regulatory net capital/resources and excess amounts were as follows:

(in thousands)	Regulatory Net Capital /Resources		Excess Regulatory Net Capital /Resources
NYFIX Clearing	$	25,471	$	25,221
NYFIX Transaction		636		512
NYFIX Millennium		1,224		926
		27,331		26,659
NYFIX International		816		244
	$	28,147	$	26,903

6. Income Taxes

The income tax provision differs from the statutory U.S. federal income tax rate due primarily to a valuation allowance provided against net deferred tax assets. As described in the 2006 10-K, the Company maintains a valuation allowance in accordance with SFAS No. 109, Accounting for Income Taxes, on its net deferred tax assets. This allowance excludes the offsetting impact of the deferred tax liability for amortization of goodwill related to the acquisition of Renaissance Trading Technologies, LLC (“Renaissance”) due to the indefinite life of goodwill. Until the Company achieves and sustains an appropriate level of profitability, it plans to maintain a valuation allowance on its net deferred tax assets.

7. Total Comprehensive Loss

The components of total comprehensive loss, net of tax, were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2007			2006			2007			2006
Net loss	$	(7,370	)	$	(5,004	)	$	(13,698	)	$	(9,258	)
Foreign currency translation adjustment		84			355			85			413
Total comprehensive loss	$	(7,286	)	$	(4,649	)	$	(13,613	)	$	(8,845	)

8. Business Segment Information

In accordance with the requirements for interim period reporting under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”), the Company is reporting the external, intersegment and net revenues and the operating income of its operating segments. As of June 30, 2007, the Company was organized into three operating divisions through which senior management evaluates the Company’s business. These divisions, as described in more detail below, are organized around the products and services provided to customers and represent the Company’s reportable segments under SFAS 131.

FIX Division. The FIX Division provides software and consultative services to enable global financial institutions to utilize the industry established Financial Information Exchange Protocol for messaging, monitoring and processing transaction information. The FIX Division also provides messaging channels for institutions who are members of its trading community for order routing and other value-added services.

Order Management Systems (“OMS”) Division. The OMS Division provides software applications for the management of New York Stock Exchange (“NYSE”) and Nasdaq listed trading activities. These products enable customers to take advantage of the broad range of products and services offered by other divisions. The Company does not allocate to the OMS Division any introductory revenue for business generated by the FIX Division and the Transaction Services Division from OMS Division clients.

Page 11

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

Transaction Services Division. The Transaction Services Division is comprised of the three U.S. registered broker-dealer subsidiaries, NYFIX Millennium, NYFIX Transaction and NYFIX Clearing together with the execution business of NYFIX International in the U.K. NYFIX Millennium, an alternative trading system (“ATS”) registered under SEC Regulation ATS, provides anonymous matching and routing of U.S. equity securities. NYFIX Transaction provides direct electronic market access and algorithmic trading products. NYFIX Millennium and NYFIX Transaction also resell certain products and services offered by the FIX Division and the OMS Division. NYFIX Clearing clears trades on behalf of NYFIX Millennium and NYFIX Transaction and operates a matched-book stock borrow/stock loan business. In the second quarter of 2007 the Company’s Board of Directors approved a new initiative, Euro Millennium^TM, a multilateral trading facility for non-displayed liquidity in pan-European listed cash equities housed within NYFIX International. During the three and six months ended June 30, 2007 the Company incurred pre-operating start-up costs of $0.6 million related to this initiative. These start-up costs are included in Corporate & Other in the segment information reported below. The Company is targeting the commencement of Euro Millennium^TM operations during the first quarter of 2008.

The Company does not currently break out total assets by reportable segment as there is a high level of shared utilization between certain reportable segments.

The following table presents information by reportable segment for the three and six months ended June 30, 2007 and 2006:

(in thousands)	FIX Division		OMS Division			Transaction Services Division			Corporate & Other (1)			Total
Three Months Ended June 30, 2007
Revenue - external customers	$	13,656	$	2,431		$	14,671		$	-		$	30,758
Revenue (cost of revenues), net - intersegment		551		205			(756	)		-			-
Net revenue		14,207		2,636			13,915			-			30,758
Operating income (loss) (2)		422		(5,545	)		1,062			(4,236	)		(8,297	)
Three Months Ended June 30, 2006
Revenue - external customers	$	10,676	$	4,453		$	7,823		$	-		$	22,952
Revenue (cost of revenues), net - intersegment		561		289			(850	)		-			-
Net revenue		11,237		4,742			6,973			-			22,952
Operating income (loss) (2)		1,033		(2,461	)		(20	)		(3,226	)		(4,674	)
Six Months Ended June 30, 2007
Revenue - external customers	$	26,965	$	5,838		$	25,685		$	-		$	58,488
Revenue (cost of revenues), net - intersegment		1,121		443			(1,564	)		-			-
Net revenue		28,086		6,281			24,121			-			58,488
Operating income (loss) (2)		1,496		(9,979	)		2,629			(9,800	)		(15,654	)
Six Months Ended June 30, 2006
Revenue - external customers	$	21,311	$	9,333		$	16,030		$	-		$	46,674
Revenue (cost of revenues), net - intersegment		1,178		586			(1,764	)		-			-
Net revenue		22,489		9,919			14,266			-			46,674
Operating income (loss) (2)		2,897		(4,405	)		274			(7,453	)		(8,687	)

_______________

(1) Corporate & Other items include restatement, SEC investigation and related expenses, certain transitional costs and other corporate items which are not allocated to reportable segments and certain shared costs which were previously allocated to disposed operations.

(2) Operating income (loss) by segment reflects a significant amount of costs which are allocated by headcount, usage and other methods, depending on the nature of the cost.

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Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

9. Discontinued Operations

During the third quarter of 2006, the Company disposed of all of the issued and outstanding capital stock of NYFIX Overseas, a wholly-owned subsidiary which previously comprised the Company’s Order Book Management Systems (“OBMS”) Division to G.L. Trade S.A. (“GL”). Of the initial purchase price, $1.3 million was repaid to the buyer in April 2007 in settlement of a working capital adjustment. There is also an earn-out adjustment, under the terms of which the Company is eligible for additional earn-out payments based on future revenues of NYFIX Overseas through December 31, 2007. The maximum earn-out payment is $5.1 million, net of additional payments to the management team of NYFIX Overseas.

The Company has agreed to indemnify GL for certain claims made through December 31, 2007, as well as for losses arising out of or resulting from (1) any misrepresentation or breach of warranties; (2) any breach of a covenant or agreement made or to be performed by the Company under the Sale Agreement; (3) certain patent settlements; (4) the lack of recording stock-based compensation expense related to stock options granted to the employees of NYFIX Overseas by the Company; (5) specified taxes of NYFIX Overseas pre-closing that were not previously paid or adequately reserved for by NYFIX Overseas, and (6) any obligations relating to options to purchase shares of common stock of the Company held by employees of NYFIX Overseas.

For two years following the closing and subject to certain exceptions, the Company has agreed not to develop or market any product that is directly competitive with the OBMS product of NYFIX Overseas.

The disposition of NYFIX Overseas constitutes a discontinued operation and accordingly all financial statements presented reflect amounts relative to NYFIX Overseas, except for previously allocated overhead charges, as a discontinued operation.

Revenue related to NYFIX Overseas included in the loss from discontinued operations was $1.9 million and $3.6 million, respectively, for the three and six months ended June 30, 2006.

10. Commitments and Contingencies

Stock-based Compensation Related Matters

SEC Investigation

By letter dated October 28, 2004, the Division of Enforcement of the SEC informed the Company that it was conducting an informal investigation related to certain stock option grants. On February 25, 2005, the Company filed a current report on Form 8-K, which indicated that the Company believed that the matter was a formal inquiry. The Company is cooperating with the SEC with respect to this matter. The Company believes it is substantially complete with regard to producing all documents responsive to document requests and a subpoena. The SEC staff has taken testimony from current and/or former officers and/or directors, as well as from third parties, including the Company’s former independent registered public accounting firm.

Grand Jury Subpoena

In May 2006, the Company received a grand jury subpoena from the U.S. Attorney for the Southern District of New York.  The subpoena sought documents relating to the Company’s granting of stock options.  With the agreement of the Assistant U.S. Attorney, the Company is responding to the subpoena by producing the documents it produces to the staff of the Division of Enforcement of the SEC. The U.S. Attorney has also conducted interviews with at least one current employee and two former employees (one of whom is a former officer) and with at least one employee of the Company’s former independent registered public accounting firm.

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Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

Shareholder Derivative Actions

On or about June 1, 2006, the Company was served as a nominal defendant with a complaint (the “Ritchie Complaint”) in a shareholder derivative action titled Ritchie v. Castillo, et al. in the Superior Court for the State of Connecticut.  The Ritchie Complaint also names the Company’s former Chairman and Chief Executive Officer, another former Chief Executive Officer and director, the Company’s former Chief Information Officer, a former Chief Financial Officer, and six other current directors as defendants. The Ritchie Complaint asserts a claim for breach of fiduciary duty against all the individual defendants and a claim for unjust enrichment against four individual defendants based on claimed backdating of stock option grants to these individuals between 2000 and 2003.  On June 9, 2006, the Company was named as a nominal defendant in a shareholder derivative action titled McLaughlin v. Castillo, et al. in the same court and with the same substantive allegations as the Ritchie action. In September 2006, the Court consolidated the Ritchie and McLaughlin actions. In October 2006, plaintiffs filed a consolidated complaint (the “State Court Consolidated Complaint”). The State Court Consolidated Complaint contains nine counts (as opposed to the two counts previously alleged in each of two actions), including counts for an accounting of all stock options granted to the individual defendants, breach of fiduciary duty and unjust enrichment, insider trading, rescission and breach of contract. The State Court Consolidated Complaint adds seven additional defendants: three former directors (one of whom is deceased); two former Chief Financial Officers, the Company’s current General Counsel and former Secretary and the Company’s former Executive Vice President and President of NYFIX Millennium. The nine counts of the State Court Consolidated Complaint are based on claimed backdating of stock option grants to eleven individual defendants between 1997 and 2003.

On August 30, 2006, the Company was served as a nominal defendant with a complaint (the “Cattelona Complaint”) in a shareholder derivative action titled Cattelona v. Hansen, et al., in the United States District Court for the District of Connecticut.   The Cattelona Complaint also names the Company’s former Chairman and Chief Executive Officer, another former Chief Executive Officer and director, a former Chief Information Officer, a former Chief Financial Officer, and six other current directors as defendants. The Cattelona Complaint asserts counts against the individual defendants for violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, and Section 14(a) of the Exchange Act and Section 20(a) of the Exchange Act, and for breach of fiduciary duty, gross mismanagement and corporate waste. In addition, the Cattelona Complaint asserts a count against four of the individual defendants for unjust enrichment based on claimed backdating of stock option grants to the latter individuals between 1999 and 2002. 

On or about September 7, 2006, a complaint (the “Brock Complaint”) was filed in a shareholder derivative action titled Brock v. Hansen, et al., in the United States District Court for the District of Connecticut. The Brock Complaint names the Company as a nominal defendant, as well as the Company’s former Chairman and Chief Executive Officer, another former Chief Executive Officer and director, the Company’s former Chief Information Officer, a former Chief Financial Officer, and six other current directors as defendants. The Brock Complaint asserts a count for an accounting of all stock options granted to the individual defendants, and counts against all individual defendants for violation of Section 14(a) of the Exchange Act, breach of fiduciary duty, abuse of control, gross mismanagement, constructive fraud, corporate waste, unjust enrichment, and breach of contract. In addition, the Brock Complaint asserts counts against three individual defendants for rescission and for breach of contract for stock option grants made between 1997 and 2001.

On December 5, 2006, the U.S. District Court for the District of Connecticut consolidated the Brock and Cattelona actions. In December 2006, the plaintiffs filed a consolidated complaint (the “Federal Court Consolidated Complaint”). The Federal Court Consolidated Complaint contains twelve counts (as opposed to the eleven counts previously alleged in the Brock Complaint and the seven counts previously alleged in the Cattelona Complaint), including counts against all defendants for: violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; violations of Section 14(a) of the Exchange Act; for an accounting of all stock options granted to the individual defendants; breach of fiduciary duty and/or aiding and abetting; abuse of control; gross mismanagement; constructive fraud; corporate waste; and unjust enrichment. The Federal Court Consolidated Complaint also contains counts against six of the individual defendants for rescission and for breach of contract. The Federal Court Consolidated Complaint adds four additional defendants: two former directors, a former Chief Financial Officer and a former Executive Vice President of the Company and President of NYFIX Millennium. The twelve counts of the Federal Court Consolidated Complaint are based on claimed backdating of stock option grants to six individual defendants from 1997 to the filing of the Federal Court Consolidated Complaint. In June, 2007, plaintiffs filed a corrected amended consolidated complaint (the “Federal Court Amended Consolidated Complaint”). The Federal Court Amended Consolidated Complaint drops eight individual defendants (two current directors, two former directors, a former Chief Executive Officer and director, a former Chief Financial Officer, a former Chief Information Officer and a former Executive Vice President of the Company and President of NYFIX Millennium), two counts for rescission and breach of contract and the count for violation of Section 14(a) of the Exchange Act and adds a count under Section 20 of the Exchange Act. The ten counts of the Federal Court Amended Consolidated Complaint are based on claimed backdating of stock option grants and an allegedly false and misleading Form 10-K filed in June 2005.

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Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

In addition, certain shareholders have made formal inquiries regarding alleged violations of Section 16(b) of the Exchange Act based on the same facts alleged in the Ritchie and McLaughlin suits, to which the Company has responded that in no case did it appear that options were exercised within six months or less from the date of grant and that each option would qualify as an exempt transaction under applicable rules.

Related Tax Matters

In 2006 and 2007, the Company has had communications with the United States Internal Revenue Service (“IRS”) and the United Kingdom HM Revenue & Customs (“Inland Revenue”) relating to historical stock option grants and exercises. These communications involve employment tax returns and the amounts of reported employee compensation and related payroll tax withholdings, as well as deductions on corporate income tax returns. The Company has received document requests from the IRS relating to stock option grants and exercises in connection with the IRS examination of the Company’s corporate tax returns for the years 2001 and 2004 and of the Company’s employment tax returns for the years 2003 through 2005, respectively. Subsequent to the sale of NYFIX Overseas in August 2006, GL forwarded correspondence from the Inland Revenue relating to NYFIX Overseas’ potential liability for payroll tax withholdings on prior option exercises by certain former employees.

The Company has determined that it has exposure as former management did not properly withhold employee income and related payroll taxes related to historical stock option activity. As a result, the Company has recorded a liability of $1.0 million related to tax withholdings not made on the exercises of stock options previously classified as Incentive Stock Options (“ISOs”), exposures related to Section 409A of the U.S. Internal Revenue Code (“Section 409A”), and similar exposures related to withholdings and payroll taxes which may be due in the U.K. related to stock option exercises under Pay As You Earn, or PAYE, and National Insurance Contribution provisions (due to the Company’s indemnity obligations to GL). In 2006, the Company remedied the 409A exposure with respect to certain current and former directors and executive officers by increasing exercise prices of affected grants. In August 2007, the Company remedied the 409A exposure with respect to most current rank and file employees by unilaterally increasing exercise prices of affected grants. The Company intends to pay these employees in January 2008 an aggregate cash bonus of $0.3 million to offset the impact of the increase in these exercise prices. To remedy the 409A exposure of former employees holding Pending Exercises (defined below) the Company intends to pay $0.1 million representing the former employees 20% additional tax under 409A, related interest and an income tax gross-up.

Based upon the current information available and the liabilities recognized, the Company believes the resolution of these tax matters will not have a material adverse effect on its consolidated financial condition or results of operations. However, the ongoing discussions with the taxing authorities could result in new information and higher than anticipated exposures. The Company is continuing to cooperate with the taxing authorities to resolve these matters.

Pending Exercises

Since the Company has not been current with its SEC reporting obligations until the filing of this report, it generally did not issue shares to employees and directors in connection with the exercise of stock options since July 2005. In February 2006, the Compensation Committee of the Board of Directors approved a policy whereby the Company will honor awards to former employees who have validly notified the Company in writing of their intent to exercise.

The Company has cash exposure to these option holders equal to the difference between the fair market value of the Company’s common stock on the original exercise notification date and the fair market value of the Company’s common stock on the actual date of exercise if the price declines.

As of June 30, 2007, the Company had outstanding options covering 1,030,150 shares for which it had been notified of intents to exercise and which were not deemed probable of expiring before the Company could issue shares (“Pending Exercises”). The range of fair market values for the Company’s common stock on the dates of the corresponding notifications through June 30, 2007 was from $2.90 to $7.47, with a weighted average fair market value for such shares underlying options on their notification dates of $5.97. The Company estimated that its potential cash exposure as of June 30, 2007, due to declines in its stock price after such notifications, was less than $0.1 million, based on the fair market value of $7.40 at June 30, 2007. This cash exposure could, however, significantly increase if the fair market value of the Company’s stock declines once option holders are able to exercise and sell the underlying shares. The Company intends to offer to settle Pending Exercises in cash in an amount equal to the difference between the closing price of its stock on the date of notification and the exercise price of such options. The Company estimates its maximum cash exposure for net settlements of this nature at approximately $1.8 million.

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Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

During the six months ended June 30, 2007, the Company paid $0.4 million to cash settle 114,250 options which had reached their 10-year contractual life and expired. At June 30, 2007, liabilities for modified awards to be cash settled, related to expired options covering 21,375 shares, aggregated $0.1 million. The Company may have additional cash exposure in the future if it cannot settle expiring options with stock due to the Company again becoming non-current with its SEC periodic reporting obligations.

Internal Accounting Review and Restatements

The Company performed an extensive internal review of its historical stock-based compensation awards as well as an overall accounting review. The consolidated financial statements for the years ended December 31, 2004 and 2003 were re-audited by a newly engaged independent registered public accounting firm. The internal review was overseen by the Audit Committee of the Board of Directors and a special Subcommittee of the Audit Committee formed in connection with a restructuring of the Board and of management that commenced in September 2005.

As a result of this internal review, in its 2005 10-K, the Company restated its consolidated financial statements for prior periods and related financial statement disclosures to reflect adjustments necessary, reducing its previously reported results by a net amount of $42.1 million (the “2005 Restatement”). The items adjusted consisted of stock-based compensation, acquisitions and investments, revenue recognition, income taxes and treasury stock. The findings of the Company’s internal review of historical stock-based compensation awards included (i) grants to officers and directors which were made outside the terms of the stock option plans then in effect; (ii) modifications of grants to Peter Hansen, the Company’s founder, former Chief Executive Officer and Chairman, where evidence could not be located to demonstrate that the modifications were authorized by the Board or Compensation Committee; (iii) retroactive reinstatement of the employment status of Richard Castillo, the Company’s former Chief Financial Officer and Secretary, after he had discontinued providing employee services and the continued vesting of his outstanding awards, (iv) subsequent changing of vesting terms with retroactive documentation as of an earlier date; (v) grant schedules to the minutes of Board or Compensation Committee meetings which included awards that were not initiated until after the dates of these meetings; (vi) grant schedules to the minutes of Board or Compensation Committee meetings which included awards which were modified after the dates of such meetings to increase the number of options granted or to decrease the exercise price, but which were included on such schedules as if they had been granted in modified form on the dates of the Board or Compensation Committee meetings; (vii) options and warrants exercised by officers and directors with non-recourse notes where evidence could not be located to demonstrate that the issuance of such notes was approved by the Board or Compensation Committee; and (viii) other circumstances indicating the issuance of in-the-money grants. The modifications to Mr. Hansen’s grants noted in (ii) above resulted in the recording of a $25.0 million charge in March 2000, based on the incremental intrinsic value on the date assumed to be the modification date.

The restatement for stock-based compensation included in the Company’s 2005 10-K relied upon significant legal and other judgments. These judgments included determinations as to the validity of grants, measurement dates, and other matters, including reliance upon delegated authority with respect to awards issued directly by Mr. Hansen and not later ratified by the Board or Compensation Committee. Any and all of these determinations could be challenged. Additionally, new and possibly significant information may also be located which could lead to different determinations that may require different accounting treatment.

NYFIX Millennium SEC Inquiry

In connection with the restatement of the Company’s 1999 through 2002 consolidated financial statements relating to its accounting for the losses incurred by NYFIX Millennium filed in May 2004, the Division of Enforcement of the SEC informed the Company by letter dated July 14, 2004 that it was conducting an informal inquiry. On January 25, 2005, the Company filed a current report on Form 8-K, which indicated that the Company believed that the matter was a formal inquiry. The Company cooperated with the SEC, producing documents in response to document requests and subpoenas and making employees available for interviews and testimony. The SEC staff has taken testimony from current and/or former officers and/or directors, as well as from third parties, including the Company’s former independent registered public accounting firm. In March 2006, the Company announced that the SEC Enforcement Staff had advised that it is recommending that the SEC close its inquiry into this matter without any action being taken against the Company or any individual. As a result of the Staff’s recommendation, which is subject to a formal approval process within the SEC, the Company has not been required to produce any more documents or provide additional witnesses for testimony in connection with this inquiry.

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Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

Other

During the normal course of business, the Company becomes involved in various other routine legal proceedings, including issues pertaining to patent infringement, customer disputes and employee matters. The Company does not believe that the outcome of these matters will have a material adverse effect on its financial condition.

During the three and six months ended June 30, 2007, the Company incurred $1.4 million and $5.0 million, respectively, relating to the stock option investigation and subpoenas, a grand jury subpoena, related shareholder derivative litigation, related financial restatements and expenses to resolve related matters (including Pending Exercises and expiring stock options). During the three and six months ended June 30, 2006, these costs were $3.7 million and $7.7 million, respectively, which also included costs related to the SEC inquiry into former management’s accounting for NYFIX Millennium, related class action litigation and related financial restatement.These costs include outside counsels, contract attorneys and forensic accountants, other consultants and the cost of re-auditing previously issued financial statements following the resignation of the Company’s former independent registered public accounting firm. These costs do not include any portion of time that the Company’s employees have dedicated to these matters.The Company will likely continue to incur material amounts of expense associated with these matters until they are resolved.

Other than the amounts described above for employee-related taxes for stock options and Pending Exercises, the Company, in accordance with SFAS No. 5, Accounting for Contingencies, has not recorded any liability with respect to these matters as it is currently unable to predict the outcomes and reasonably estimate the amounts of loss, if any. With respect to the SEC investigation of stock option grants, the grand jury subpoena, the State Court Consolidated Complaint, and the Federal Court Consolidated Complaint associated with such matters and other related matters, the Company could be subject to penalties, fines or regulatory sanctions or claims by current and former officers, directors or employees for indemnification of costs or losses they may incur and such amounts, individually or collectively, could have a material impact on the Company’s financial condition. In addition, other actions may be brought against the Company related to the matters described above.

11. Stockholders’ Equity

Nasdaq Delisting Proceeding

As a result of the Company’s common stock being delisted, on November 1, 2005, from the Nasdaq National Market, the Company’s shares are currently traded in the Over-the-Counter (“OTC”) securities market with real-time quotes available on the Pink Sheets electronic quotation service using the symbol NYFX. Stockholders may find it more difficult to obtain accurate quotes and execute trades in the OTC market.

Preferred Stock

The Company is authorized to issue 5 million shares of preferred stock. The Company’s Board of Directors has designated 0.1 million shares as Series A Preferred Stock for issuance in connection with the Stockholders’ Rights Plan discussed below. In connection with the private placement of convertible preferred stock discussed below, 1.5 million shares were designated as Series B Voting Convertible Preferred Stock (the “Series B Preferred Stock”) and 0.5 million as Series C Non-Voting Convertible Preferred Stock.

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Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

Stockholders’ Rights Plan

On September 1, 1997, the Board of Directors declared a dividend of a preference share purchase right (a “Right”) for each outstanding share of common stock of the Company held by stockholders of record on September 19, 1997 (the “Rights Agreement”). The number of outstanding Rights was adjusted for the two stock splits of 1.5 to 1.0 occurring in 1999 and 2000. Each share of common stock issued by the Company after such record date has the same Right attached thereto. Each Right entitles the registered holder to purchase from the Company, at any time after a stockholder acquires 20% or more of the Company's outstanding common stock, as set forth in the Rights Agreement, shares of the Company's Series A Preferred Stock (“Preference Stock”). The purchase price is $40 per one one-hundredth of a share of Preference Stock, subject to adjustment as set forth in the Rights Agreement.

Each share of Preference Stock will be entitled to a minimum preferential quarterly dividend payment of $1 per share but will be entitled to an aggregate dividend of one hundred times the dividend declared per share of common stock. In the event of liquidation, the holders of the Preference Stock will be entitled to a minimum preferential liquidation payment of $100 per share but will be entitled to an aggregate payment of one hundred times the payment made per share of common stock. Each share of Preference Stock will have one hundred votes, voting together with the shares of common stock. In the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each share of Preference Stock will be entitled to receive one hundred times the amount received per share of common stock.

Because of the nature of the Preference Stock’s dividend, liquidation and voting rights, the value of one one-hundredth interest in a share of Preference Stock purchasable upon exchange of each Right should approximate the value of one share of common stock.

On September 4, 2006, the Rights Agreement was amended to exclude the acquisition by Warburg Pincus Private Equity IX, L.P. (“Warburg Pincus”) of the 1.5 million shares of Series B Preferred Stock issued on October 12, 2006 from triggering the exercise period for the Rights.

Registration Rights Agreements and Reporting Requirements

In addition to its obligation to obtain registration of additional shares of its common stock under the terms of a $7.5 million convertible note issued in December 2004, the Company is obligated to obtain registration of additional shares of its common stock under two separate registration rights agreements entered into coincidental to private placements of the Company’s equity securities and to become current with its SEC reporting obligations under the Exchange Act as described below. With this filing, the Company will become current with its SEC reporting obligations under the Exchange Act and is able to effect registration of additional shares of its common stock.

Private Placement of Common Stock

Pursuant to a registration rights agreement entered into in connection with the sale and issuance of 2,713,000 shares of its common stock in July 2006, the Company was obligated to use its best efforts to become current with its SEC reporting obligations under the Exchange Act by September 30, 2006. The Company failed to become current in such obligations by December 31, 2006, which resulted in the Company incurring a liability to the Buyers in the form of liquidated damages in the amount of 5% of the aggregate purchase price. In the fourth quarter of 2006, the Company recorded a charge of $631,000 (which was paid in April 2007) as a result of not meeting these filing requirements. In addition, the Company is obligated to cause a registration statement covering these shares to become effective within 45 days (if the SEC elects not to review such registration statement) or 120 days (if the SEC elects to review the registration statement) following the date that the Company cures the delinquency in its periodic reporting obligations (such 45- or 120-day deadline, as applicable, the “Effectiveness Deadline”). Failure of the registration statement to become effective by the Effectiveness Deadline would result in a liability of the Company to the buyers for liquidated damages in the amount of 2% of the purchase price for each 30-day period after the Effectiveness Deadline during which the registration statement fails to become effective. The Company’s total liability for liquidated damages in connection with both such deadlines (including the 5% charge recorded in the fourth quarter of 2006) is capped at 13% of the aggregate purchase price of $12.6 million. The registration rights agreement also contains customary indemnity and contribution provisions in favor of the investors and the Company. The Company is responsible for paying the costs associated with the registration statement.

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Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

Private Placement of Series B Preferred Stock

Pursuant to a registration rights agreement entered into in connection with the sale and issuance of 1.5 million shares of its Series B Preferred Stock, the Company is obligated to use reasonable business efforts to become current with its SEC reporting obligations under the Exchange Act and obtain authorization for its common stock to be relisted on a “Principal Market,” as defined in the registration rights agreement. Beginning on October 12, 2007, the first anniversary of the closing date, the buyer has the right to make a written request to the Company to register “Registrable Securities,” as defined in the registration rights agreement. “Registrable Securities” include shares of the Company’s common stock thatare issued upon conversion of the Series B Preferred Stock, issued as a dividend, and any other shares held or acquired by the buyer.

Common Stock and Treasury Stock

On February 27, 2007, the stockholders of the Company approved an amendment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 60,000,000 to 100,000,000 shares.

At December 31, 2006, the Company had outstanding 35,521,208 shares of common stock, with 1,133,778 held in treasury.

On January 25, 2007, the Board of Directors declared a dividend, payable that day, to holders of Series B Preferred Stock in payment of dividends accumulated through December 31, 2006; as a result, the Company issued 227,500 restricted shares of common stock, with a fair value of approximately $1,354,000 based on the market price of its common stock on that date. These accumulated dividends were reflected as a charge to loss applicable to common stockholders in calculating the basic and diluted loss per common share for the quarter and year ended December 31, 2006.

During the six months ended June 30, 2007, certain stock options on the pending notification list aggregating 225,000 shares, held by an accredited investor (and former executive officer), were exercised at $2.00 per share. The $450,000 aggregate exercise price of such shares was paid for with the delivery of 73,171 shares of common stock previously held by the former executive officer for more than six months. The receipt of these shares is reflected in treasury stock. The Company then issued 225,000 restricted shares of common stock from treasury, on that same day, with a fair market value of $6.15 per share on the exercise date. The excess of the average cost of these treasury shares over the exercise proceeds received of $2.7 million was charged to retained earnings.

During March 2007, the Company issued 48,169 restricted shares of common stock from treasury to an officer in satisfaction of his employment agreement requiring issuance of shares with a fair market value of $300,000. The fair value of such shares of $300,000 is being charged to stock-based compensation expense pro rata over the requisite service period. The excess of the average cost of these treasury shares over the fair value of such shares on the grant date will be charged to retained earnings at the conclusion of the requisite service period.

As a result of the foregoing activity, at June 30, 2007, the Company had outstanding 35,948,706 shares of common stock, with 933,780 held in treasury.

On June 19, 2007, the Board of Directors declared a dividend, payable July 2, 2007, to holders of Series B Preferred Stock in payment of dividends accumulated from January 1, 2007 through June 30, 2007; as a result, the Company issued 526,327 restricted shares of common stock, with a fair value of approximately $3,426,000 based on the market price of its common stock on the declaration date. These accumulated dividends were reflected as a charge to loss applicable to common stockholders in calculating the basic and diluted loss per common share for the six months ended June 30, 2007.

In July 2007, the Company issued 26,954 shares from treasury stock with an aggregate market price of $193,000 as final payment on the Renaissance acquisition related promissory notes.

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Part I Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act, which are intended to be covered by the safe harbors created thereby. Forward-looking statements are any statements other than statements of historical fact. In some cases, forward-looking statements are identified by words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” and similar expressions. This report on Form 10-Q may include forward-looking statements about future SEC filings, future restatements and related charges, future activities of new employees and the impact thereof on us. In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements include statements other than historical information or statements of current conditions and may relate to our future plans, operations and objectives and results, among other things, and may also include our belief regarding the effect of proposed transactions or various legal proceedings, as well as the impact of our ability to meet periodic filing deadlines, initiatives that may impact future business activities, and future disclosure practices. Actual future events, circumstances, performance and trends could materially differ from those set forth in these statements (including those discussed in Part II, Item 1A.Risk Factors) due to various factors, including but not limited to: general economic conditions; the impact of recording a sufficiently large impairment charge relating to our goodwill because we are not profitable; the effects of current, pending and future legislation; regulation and regulatory actions; our ability to achieve and maintain effective internal control over financial reporting in accordance with SEC rules promulgated under Section 404 of the Sarbanes-Oxley Act (“SOX 404”); the impact of accounting for stock-based compensation and ongoing regulatory investigations, including the possibility of new and significant information subsequently arising which could lead to different determinations and require different accounting treatment; actions and initiatives by both current and future competitors; the potential financial exposure related to cash settlements of certain stock option exercises and the possible sales of stock by employees exercising options; the risks related to our ability to market and develop our products and services; our success in obtaining, retaining and selling additional products and services to clients; the pricing of products and services; stock market activity; the ability of NYFIX Clearing to clear trades due to maximum limits imposed by the DTCC and the need for intra-day funding commitments from third parties; the ability of our Transaction Services Division to maintain third-party assistance to access exchanges and other important trading venues; our ability to comply with the SEC’s Uniform Net Capital Rule; the impact of our customers defaulting on their trading obligations; changes in technology; our ability to accommodate increased levels of trading activity and keep current with market data requirements; the availability of skilled technical associates; our ability to obtain necessary network equipment, technical support or other telecommunications services or being forced to pay higher prices for such equipment, support or services; and the impact of new acquisitions and divestitures; and other risks and uncertainties including those detailed in our SEC filings; as well as future decisions by us. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Factors that could cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those referred to in Part II, Item 1A. Risk Factors. Our business may have changed since the date hereof, and we undertake no obligation to update these forward-looking statements.

When we use the terms “NYFIX”, the “Company”, “we”, “us” and “our”, we mean NYFIX, Inc. and its consolidated subsidiaries.

The following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and notes thereto.

Overview

We are a pioneer in electronic trading solutions and we continue to transform trading through innovation.  The NYFIX Marketplace^TM is a global community of trading counterparties utilizing innovative services that optimize the business of trading, including trading workstations, middle office trade automation technologies and trade messaging services.  NYFIX Millennium provides the NYFIX Marketplace^TM with enhanced methods of accessing liquidity.  We also provide value-added informational and analytic services and powerful tools for measuring execution quality.  As a trusted business partner and service provider to investment managers, mutual fund, pension fund and hedge fund managers (the “Buy-Side”) and brokerage firms and banks (the “Sell-Side”), NYFIX enables ultra-low touch, low impact market access and end-to-end transaction processing. We refer to ourselves as a “trusted business partner” because our clients depend on our products and services for mission-critical business functions, including order management, order routing and trade execution. And since we act only as agent for our clients and never engage in proprietary trading for the firm’s account, we are viewed as a neutral intermediary and impartial by Buy-Side and Sell-Side alike.

We operate businesses that design, produce and sell technology based products and services to professional financial services organizations that are engaged in trading activities including traditional asset management (including the trading of those assets), proprietary trading, and/or the handling of client orders in the U.S. and international securities markets.

Many of our products and services utilize the FIX Protocol which is a messaging standard developed specifically for real-time electronic exchange of securities trading information.

We believe our innovative NYFIX products and services deliver value-added improvements in speed, quality of execution and cost efficiency by automating both the work flows at the user work station level and the interactive process of transmitting and executing orders between the Buy-Side institutional investors (e.g., hedge funds, investment advisers, mutual funds and pension funds) and the Sell-Side broker-dealers, and through exchanges (e.g., NYSE, American Stock Exchange (“AMEX”), the NASDAQ Stock Market (“Nasdaq”) and other exchanges), the OTC market, ATSs and electronic communication networks (“ECNs”).

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Business Model

Our revenue is comprised of subscription and maintenance, product sales and services and transaction revenue, as follows:

Subscription and maintenance consists of contracts that provide for the use of our systems and our messaging channels, together with managed services, with a term of generally one to three years.  Additional services, provided under schedules, or addenda to the contracts, are either co-terminus with the original contract or have provisions similar to the original contract.  Under the terms of the subscription contracts and addenda, clients are typically invoiced a flat periodic charge after initial installation. Subscription and maintenance also includes maintenance contracts for software under separate, renewable maintenance contracts. Software related maintenance contracts are generally for a term of one year. Revenue related to these contracts and addenda is recognized over the term of the contract, addendum, or service period, on a straight-line basis.  We include within our subscription and maintenance revenue charges for connectivity to the NYFIX trading community. These include the various costs of connecting clients which include telecommunications, installation and maintenance of routers, network management software, and staff, and other costs related to the management of connectivity. The connectivity charges are recognized as the services are provided.  

Product sales and services are primarily comprised of FIX software licenses and professional services fees. This revenue is recognized when the software has been shipped and accepted by the client and when other contractual obligations, including installation, if applicable, have been satisfied and collection of the resulting receivable is reasonably assured.

Transaction revenue primarily consists of per-share commissions charged to clients who send and receive a match and execution in our NYFIX Millennium ATS and clients to whom we provide execution and smart order routing technology, gateways to access markets and algorithmic trading ability in: (i) their own name, (ii) a third party name, or (iii) our name. Revenue for these services is generally invoiced monthly in arrears or is obtained through the clearing process within three days of the trade date, and is recognized on a trade date basis, in the period in which it is earned. Transaction revenue also includes the net interest spread on our matched book of securities borrowed/loaned.

Cost of revenue includes the following:

· Data center operating costs, including salaries, related to equipment, infrastructure and software supporting operations and the NYFIX Marketplace^TM;

· Managed connectivity costs, including telecommunication and other costs incurred on behalf of clients, and costs to maintain the data centers, including depreciation and amortization of assets utilized by the data centers, which are recognized as either a cost of subscription and maintenance or cost of transaction revenue, as appropriate;

· Amortization expense of acquired intangible assets and capitalized product enhancement costs relating to the applicable revenue category;

· Developer and quality assurance personnel labor for client and product support of software products;

· The cost of leased subscription and service bureau equipment, which is depreciated over the estimated useful life of the equipment. When inventory is leased on a subscription basis, the cost of the inventory is relieved and transferred to property and equipment. The depreciation expense related to this equipment is included in cost of subscription and maintenance revenue; and

· Execution and clearing costs to access various markets and exchanges and to process and settle transactions.

SEC Investigation and Related Contingencies

As described more fully in Note 10 to the Condensed Consolidated Financial Statements there is an ongoing SEC investigation of our historical stock option granting practices as well as a related grand jury subpoena and related shareholder derivative litigations and tax inquiries. In addition, in March 2007 we filed our 2005 10-K which included restatements of previously reported results related to stock-based compensation as well as acquisitions and investments, revenue recognition, income taxes and treasury stock. Our 2005 10-K includes detailed findings of the internal review of our historical stock-based awards.

We have determined that we have exposure as former management did not properly withhold employee income and related payroll taxes related to historical stock option activity. As a result, we have recorded a liability of $1.0 million related to tax withholdings not made on the exercises of stock options previously classified as Incentive Stock Options (“ISOs”), exposures related to Section 409A of the U.S. Internal Revenue Code (“Section 409A”), and similar exposures related to withholdings and payroll taxes which may be due in the U.K, related to stock option exercises under Pay As You Earn, or PAYE, and National Insurance Contribution provisions (due to our indemnity obligations to GL).

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Due to the fact that, until the filing of this report, we have not been current with our SEC reporting obligations, we have generally not issued shares to employees and directors in connection with the exercise of stock options since July 2005. In February 2006, the Compensation Committee of the Board of Directors approved a policy whereby we will honor awards to former employees who have validly notified us in writing of their intent to exercise. These awards will be honored once we have filed this report and we are once again current with our SEC reporting obligations and can settle awards under our registration statements. Certain former employees have notified us in writing of their intent to exercise; however, we have not honored such exercises at this time. We have cash exposure if our stock price drops after employees have notified us in writing of their intent to exercise.

As of June 30, 2007, Pending Exercises totaled 1,030,150 shares. The range of fair market values of our common stock on the dates of the corresponding notifications through June 30, 2007 was from $2.90 to $7.47, with a weighted average fair market value for such shares underlying options on their notification dates of $5.97. Our potential cash exposure as of June 30, 2007 for declines in our stock price after such notifications was estimated at less than $0.1 million, based on the fair market value of $7.40 at June 30, 2007. This cash exposure could, however, significantly increase if the fair market value of our stock declines once option holders are able to exercise and sell the underlying shares. We intend to offer to settle Pending Exercises in cash in an amount equal to the difference between the closing price of our stock on the date of notification and the exercise price of such options. We estimate our maximum cash exposure for net settlements of this nature at approximately $1.8 million.

During the six months ended June 30, 2007, we paid $0.4 million to cash settle options which had reached their 10-year contractual life and expired. At June 30, 2007, liabilities for modified awards to be cash settled, related to options covering 21,375 shares, aggregated $0.1 million. We have additional cash exposure in the future if we cannot settle expiring options with stock if we again become non-current with our SEC periodic reporting obligations.

During the three and six months ended June 30, 2007, we incurred $1.4 million and $5.0 million, respectively, relating to the stock option investigation and subpoenas, a grand jury subpoena, related shareholder derivative litigation, related financial restatements and expenses to resolve related matters (including Pending Exercises and expiring stock options). During the three and six months ended June 30, 2006, these costs were $3.7 million and $7.7 million, respectively, which also included costs related to the SEC inquiry into former management’s accounting for NYFIX Millennium, related class action litigation and related financial restatement. These costs include outside counsels, contract attorneys and forensic accountants, other consultants and the cost of re-auditing previously issued financial statements following the resignation of our former independent registered public accounting firm. These costs do not include any portion of time that our employees have dedicated to these matters.We will likely continue to incur material amounts of expense associated with these matters until they are resolved.

As described more fully in Note 10 to the Condensed Consolidated Financial Statements, other than the amounts for employee-related taxes for stock options and Pending Exercises, we, in accordance with SFAS No. 5, Accounting for Contingencies, have not recorded any liability with respect to these matters as we are currently unable to predict the outcomes and reasonably estimate the amounts of loss, if any. With respect to the SEC investigation of stock option grants, the grand jury subpoena, the State Court Consolidated Complaint, and the Federal Court Consolidated Complaint associated with such matters and other related matters, we could be subject to penalties, fines or regulatory sanctions or claims by current and former officers, directors or employees for indemnification of costs or losses they may incur and such amounts, individually or collectively, could have a material impact on the our financial condition. In addition, other actions may be brought against us related to the matters described above.

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Results of Operations for the Three and Six Month Periods Ended June 30, 2007 and 2006

The following table presents our consolidated results of operations for the periods indicated. These consolidated results of operations are not necessarily indicative of the consolidated results of operations that will be achieved in any future period.

	Three Months Ended June 30,										Six Months Ended June 30,
(in thousands, except percentages)	2007			% of revenue		2006			% of revenue		2007			% of revenue		2006			% of revenue
Revenue:
Subscription and maintenance	$	16,471			54%	$	15,739			69%	$	33,745			58%	$	31,386			67%
Product sales and services		695			2%		469			2%		1,375			2%		1,341			3%
Transaction		13,592			44%		6,744			29%		23,368			40%		13,947			30%
Total revenue		30,758			100%		22,952			100%		58,488			100%		46,674			100%
Cost of revenue:
Subscription and maintenance (1)		8,369			27%		7,884			34%		16,915			29%		15,949			34%
Product sales and services (1)		206			1 %		499			2%		593			1%		996			2%
Transaction (1)		8,359			27%		4,062			18%		13,760			24%		7,989			17%
Total cost of revenue		16,934			55%		12,445			54%		31,268			53%		24,934			53%
Gross profit		13,824			45%		10,507			46%		27,220			47%		21,740			47%
Operating expense:
Selling, general and administrative (1)		20,351			66%		11,224			49%		37,229			64%		22,047			47%
Restatement, SEC investigation and related expenses (1)		1,392			5%		3,688			16%		4,985			9%		7,742			17%
Depreciation and amortization		378			1%		269			1%		660			1%		638			1%
Loss from operations		(8,297	)		-27%		(4,674	)		-20%		(15,654	)		-27%		(8,687	)		-19%
Interest expense		(126	)		0%		(282	)		-1%		(262	)		0%		(416	)		-1%
Investment income		1,097			4%		181			1%		2,324			4%		313			1%
Other income (expense), net		3			0%		18			0%		(12	)		0%		18			0%
Loss from continuing operations before income tax provision		(7,323	)		-24%		(4,757	)		-21%		(13,604	)		-24%		(8,772	)		-19%
Income tax provision		47			0%		47			0%		94			0%		94			0%
Loss from continuing operations		(7,370	)		-24%		(4,804	)		-21%		(13,698	)		-23%		(8,866	)		-19%
Loss from discontinued operations (1)		-					(200	)				-					(392	)
Net loss		(7,370	)				(5,004	)				(13,698	)				(9,258	)
Accumulated preferred dividends		(1,709	)				-					(3,426	)				-
Loss applicable to common stockhoders	$	(9,079	)			$	(5,004	)			$	(17,124	)			$	(9,258	)

Percentage sub-totals may not add due to rounding.

(1) Stock-based compensation included in the respective line items above follows:

Cost of revenue:
Subscription and maintenance	$	1		$	15		$	11	$	58
Product sales and services		(1	)		(2	)		-		2
Transaction		1			3			1		6
Selling, general and administrative		125			216			223		479
Restatement, SEC investigation and related expenses (a)		210			(45	)		199		60
Loss from discontinued operations		-			34			-		34
	$	336		$	221		$	434	$	639

(a) Relates to expiring options to be cash settled and extending the normal 90 day post-termination exercise period.

Revenue

The following table presents the components of revenue for the periods indicated:

	Three Months Ended June 30,				Increase				Six Months Ended June 30,				Increase
(in thousands, except percentages)	2007		2006		$		%		2007		2006		$		%
Subscription and maintenance	$	16,471	$	15,739	$	732		5%	$	33,745	$	31,386	$	2,359		8%
Product sales and services		695		469		226		48%		1,375		1,341		34		3%
Transaction		13,592		6,744		6,848		102%		23,368		13,947		9,421		68%
Total revenue	$	30,758	$	22,952	$	7,806		34%	$	58,488	$	46,674	$	11,814		25%

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Subscription and Maintenance

The increase in subscription and maintenance revenue for the three months ended June 30, 2007 was primarily attributable to an increase in subscriptions (and related managed services) of messaging channels offered by our FIX Division. This growth was attributable to an increase in the number of Buy-Side to Sell-Side messaging channels, primarily for order routing, as we continued our efforts to increase the level of business with Buy-Side institutions. Subscriptions (and related managed services) of our OMS Division desktop and floor products decreased $2.1 million to $2.6 million for the three months ended June 30, 2007 compared to $4.7 million during the three months ended June 30, 2006, due primarily to the discontinuation (during the second quarter) of certain floor application products as well as cancellations from certain desktop clients. We experienced a number of operational outages for our OMS Division desktop products during the third quarter of fiscal 2007 due in part to market data capacity issues. These outages may have a negative impact on our operating results going forward, including additional cancellations from desktop clients. Recurring maintenance on licensed software was comparable between the three months ended June 30, 2007 and 2006 at $0.9 and $1.0 million, respectively.

The increase in subscription and maintenance revenue for the six months ended June 30, 2007 was primarily attributable to an increase in subscriptions (and related managed services) of messaging channels offered by our FIX Division. This growth was attributable to an increase in the number of Buy-Side to Sell-Side messaging channels, primarily for order routing, as we continued our efforts to increase the level of business with Buy-Side institutions. Subscriptions (and related managed services) of our OMS Division desktop and floor products decreased $3.6 million to $6.3 million for the six months ended June 30, 2007 compared to $9.9 million during the six months ended June 30, 2006, due primarily to the discontinuation (during the second quarter) of certain floor application products as well as cancellations from certain desktop clients. Recurring maintenance on licensed software decreased $0.2 million to $1.9 million for the six months ended June 30, 2007 compared to $2.1 million for the six months ended June 30, 2006.

Product Sales and Services

Product sales and services increased $0.2 million to $0.7 million during the three months ended June 30, 2007 compared to $0.5 million during the three months ended June 30, 2006 due primarily to an increase in sales of software licenses and related services by our FIX Division.

Product sales and services revenue for the six months ended June 30, 2007 was comparable to that for the six months ended June 30, 2007 and 2006 at $1.4 million and $1.3 million, respectively.

Transaction

The increase in transaction revenue for the three months ended June 30, 2007 was attributable to an increase in commissions on trade executions. Commissions increased $6.9 million to $13.2 million during the three months ended June 30, 2007 compared to $6.3 million during the three months ended June 30, 2006 due primarily to a $7.0 million increase in commissions from Sell-Side clients offset by a $0.1 million decrease in commissions from Buy-Side clients. The increase from Sell-Side clients was due to increased matched volumes in NYFIX Millennium, increased use of the NYFIX NEXAS^TM algorithmic trading products, an increase in commissions for direct market access services and, effective in June, the recording of billed NYSE linkage fees (see discussion in cost of revenue below), offset in part by a decline in billed specialist fees. The average daily matched volume in NYFIX Millennium during the three months ended June 30, 2007 was 54.4 million shares, a 155% increase over the average of 21.3 million shares during the three months ended June 30, 2006. This increase reflects the increased popularity of both dark pool matching venues for trading and algorithmic trading solutions sponsored by broker dealers. The additional anticipated cancellations from desktop OMS Division clients could impact future transaction revenues as many of these desktop clients use our execution services. Our securities lending business generated net interest spread on its matched book stock borrow/stock loan portfolio of $0.4 million during the three months ended June 30, 2007, compared to $0.3 million during the three months ended June 30, 2006.

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The increase in transaction revenue for the six months ended June 30, 2007 was attributable to an increase in commissions on trade executions. Commissions increased $9.5 million to $22.7 million during the six months ended June 30, 2007 compared to $13.1 million during the six months ended June 30, 2006 due primarily to a $10.8 million increase in commissions from Sell-Side clients offset by a $1.3 million decrease in commissions from Buy-Side clients. The increase from Sell-Side clients was due to increased matched volumes in NYFIX Millennium, increased use of the NYFIX NEXAS^TM algorithmic trading products, an increase in commissions for direct market access services and, effective in June, the recording of NYSE linkage fees, offset in part by a decline in billed specialist fees. The average daily matched volume in NYFIX Millennium during the six months ended June 30, 2007 was 47.9 million shares, a 138% increase over the average of 20.1 million shares during the six months ended June 30, 2006. The increased popularity of third-party algorithmic trading solutions with Buy-Side clients has had the effect of disintermediating our direct Buy-Side sales efforts, resulting in lower share volumes and commissions from these clients. In early 2007, the sales team was realigned around customer segments to better focus our efforts on direct Buy-Side sales. As a result, during the second quarter of 2007, substantial progress was made with Buy-Side clients. Our securities lending business generated comparable net interest spread on its matched book stock borrow/stock loan portfolio of $0.7 million during the six months ended June 30, 2007 and 2006.

Included in the NYFIX Millennium volume figures reported above are conditional orders executed against pass-through orders and other conditional orders, and third market trades crossed by clients and reported by NYFIX Millennium to Nasdaq.

Costs and Expenses

Cost of Revenue

The following table presents cost of revenue for the periods indicated:

	Three Months Ended June 30,				Increase (Decrease)					Six Months Ended June 30,				Increase (Decrease)
(in thousands, except percentages)	2007		2006		$			%		2007		2006		$			%
Subscription and maintenance	$	8,369	$	7,884	$	485			6%	$	16,915	$	15,949	$	966			6%
Product sales and services		206		499		(293	)		-59%		593		996		(403	)		-40%
Transaction		8,359		4,062		4,297			106%		13,760		7,989		5,771			72%
Total cost of revenue	$	16,934	$	12,445	$	4,489			36%	$	31,268	$	24,934	$	6,334			25%
Percent of total revenue		55%		54%							53%		53%

Subscription and Maintenance

The increase in subscription and maintenance cost of revenue for the three months ended June 30, 2007 was primarily attributable to an increase in fees paid of $0.1 million to third-party order management system providers to establish messaging channels with their clients, investments in our subscription-based products, including higher depreciation costs of $0.2 million and increased telecommunication costs of $0.1 million. As a percentage of related revenue, these costs increased to 51% for the three months ended June 30, 2007 as compared to 50% for the three months ended June 30, 2006.

The increase in subscription and maintenance cost of revenue for the six months ended June 30, 2007 was primarily attributable to an increase in fees paid of $0.3 million to third-party order management system providers to establish messaging channels with their clients, investments in our subscription-based products, including higher depreciation costs of $0.1 million, increased telecommunication costs of $0.1 million and various other cost increases. As a percentage of related revenue, these costs decreased to 50% for the six months ended June 30, 2007 as compared to 51% for the six months ended June 30, 2006.

Product Sales and Services

The decrease in product sales and services cost of revenue for the three months ended June 30, 2007 was attributable to lower amortization of capitalized enhancement costs of $0.1 million and lower intangible asset amortization of $0.2 million as a result of intangible assets becoming fully amortized during the three months ended June 30, 2007. Recently, such costs have been primarily fixed versus variable in nature. As a percentage of related revenue, these costs decreased to 30% for the three months ended June 30, 2007 compared to 106% for the respective period in 2006.

The decrease in product sales and services cost of revenue for the six months ended June 30, 2007 was attributable to lower amortization of capitalized enhancement costs of $0.2 million and lower intangible asset amortization of $0.2 million as a result of intangible assets becoming fully amortized during the three months ended June 30, 2007. Recently, such costs have been primarily fixed versus variable in nature. As a percentage of related revenue, these costs decreased to 43% for the six months ended June 30, 2007 compared to 74% for the respective period in 2006.

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Transaction

The increase in transaction cost of revenue for the three months ended June 30, 2007 primarily related to increased execution and clearing fees of $4.4 million, of which $2.1 million was associated with the growth in transaction volumes and $2.3 million related to outbound routed NYSE linkage fees. Upon the March 5, 2007 effective date of Regulation NMS for exchanges, we began to incur significant linkage fees from the NYSE to route orders to other market centers with improved prices. As a percentage of related revenue, transaction cost of revenue was 61% during the three months ended June 30, 2007, compared to 60% for the three months ended June 30, 2006. Due to difficulties we had in capturing the trade information for NYSE outbound routed orders on a real-time basis from March 5, 2007 through May 31, 2007, we were not able to timely notify our direct access clients of these pass-through charges. Due to these difficulties and the related contingency, we have not recorded any offsetting revenue from these clients related to these charges during this period since collectibility is currently not reasonably assured. The amount of linkage fee expense we recorded for April 2007 and May 2007, without any offsetting revenue amount recorded, totaled $1.6 million. The collectibility contingency for pass-through NYSE linkage fees was resolved on a going forward basis effective June 1, 2007.

The increase in transaction cost of revenue for the six months ended June 30, 2007 primarily related to increased execution and clearing fees of $5.8 million, of which $3.2 million was associated with the growth in transaction volumes and $2.6 million related to outbound routed NYSE linkage fees. The amount of linkage fee expense we recorded for March 5, 2007 through May 31, 2007, without any offsetting revenue amount recorded, totaled $1.9 million. As a percentage of related revenue, transaction cost of revenue was 59% during the six months ended June 30, 2007, compared to 57% for the six months ended June 30, 2006.

Selling, General and Administrative Expenses (SG&A)

The following table presents components of our selling, general and administrative expense for the periods indicated:

	Three Months Ended June 30,				Increase (Decrease)					Six Months Ended June 30,				Increase (Decrease)
(in thousands, except percentages)	2007		2006		$			%		2007		2006		$			%
Compensation and related	$	8,663	$	6,299	$	2,364			38%	$	16,501	$	12,456	$	4,045			32%
Occupancy and related		1,096		808		288			36%		1,906		1,575		331			21%
Marketing, travel and entertainment		1,366		808		558			69%		2,157		1,271		886			70%
Professional fees		3,923		1,469		2,454			167%		6,844		3,074		3,770			123%
Stock-based compensation		125		216		(91	)		-42%		223		479		(256	)		-53%
Transitional rebuilding and remediation		1,719		-		1,719			-		3,461		-		3,461			-
Transitional employment costs		852		272		580			213%		1,888		453		1,435			317%
Euro Millennium pre-operating start-up costs		644		-		644			-		644		-		644			-
General and other		1,963		1,352		611			45%		3,605		2,739		866			32%
Total SG&A	$	20,351	$	11,224	$	9,127			81%	$	37,229	$	22,047	$	15,182			69%
Percent of total revenue		66%		49%							64%		47%

Compensation and Related

The increase in the portion of recurring compensation and related costs included in SG&A for the three and six months ended June 30, 2007 was primarily due to the impact of salary increases, growth in headcount, as we continue to scale our organization for growth, increased incentive compensation associated with higher revenue levels and increased costs for employee benefits.

Occupancy and Related

The increase in occupancy and related costs for the three and six months ended June 30, 2007 is primarily due to office relocation costs incurred in moving our London office to its new location and increases in office operating expenses beginning in the second quarter of 2007.

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Marketing, Travel and Entertainment

The increase in marketing, travel and entertainment expenses for the three and six months ended June 30, 2007, primarily reflected our efforts to market our products including participation in industry trade shows and product promotion.

Professional Fees

The increase in professional fees incurred for the three and six months ended June 30, 2007, was primarily due to the use of consultants for organizational development, marketing, public relations and operational process improvements, as well as increases in SOX 404 compliance and legal fees. Consultants and outside legal counsels were also engaged to supplement day-to-day management activities while the restatements and related legal issues were being addressed by management. These costs do not include the time spent by outside consultants and advisors on the restatements and related legal issues as such costs have been separately categorized below.

Stock-based Compensation

The decrease in stock-based compensation for the three and six months ended June 30, 2007 was primarily attributable to the fact that we have not issued any stock options since the second quarter of 2005. 

Now that we are current with our SEC reporting obligations, we expect to resume issuing stock-based incentive awards to employees to assist in retention and to further promote alignment between the interests of employees and stockholders. Over the next several weeks, we expect our Board of Directors to approve a new equity incentive plan and immediately thereafter we expect to issue a significant amount of options and restricted stock awards. As a result of this anticipated issuance, we expect our future non-cash stock-based compensation expense to have a significant effect on our reported results.

Transitional Rebuilding and Remediation Costs

Transitional rebuilding and remediation costs reflect a Company-wide, Board approved effort, following the $75 million preferred stock investment by Warburg Pincus, to remediate deficiencies involving critical operational systems and processes, including technology infrastructure and management information systems. As a result of this effort, we expect to remediate our lab environment, data replication and back-up, network monitoring, application security and to have more timely and detailed internal and external financial reporting. These efforts are also addressing certain historical administrative issues such as our corporate legal structure and our compensation programs. These costs primarily consist of fees paid to outside consultants. During the three months and six months ended June 30, 2007, we incurred $1.7 million and $3.5 million, respectively of such costs. We expect to incur a total of approximately $6.0 million of these costs, mostly during fiscal 2007, however, a portion of this work and related costs may carry forward into early 2008.

Transitional Employment Costs

Transitional employment costs reflect our efforts to build critical teams, retain key employees, and remediate certain skill gaps. These transitional costs, primarily consisting of sign-on bonuses, retention bonuses and severance and other termination benefits are being expensed over the required service period. During the three and six months ended June 30, 2007, we incurred $0.9 million and $1.9 million of such costs, respectively. During the three and six months ended June 30, 2006, we incurred $0.3 million and $0.5 million of such costs, respectively. We expect to incur in excess of $3.0 million of such costs during fiscal 2007 and an additional $0.3 million during the first half of 2008.

Euro Millennium Pre-Operating Start-Up Costs

In the second quarter of 2007 our Board of Directors approved a new initiative, Euro Millennium^TM, a multilateral trading facility for non-displayed liquidity in pan-European listed cash equities. This initiative leverages our experience gained with NYFIX Millennium in the U.S. with our goal of global expansion during a time of rapid regulatory change. During the three and six months ended June 30, 2007 we incurred pre-operating start-up costs of $0.6 million related to this initiative. These pre-operating start-up costs include compensation and related costs, consulting, marketing and travel related costs. We expect to incur approximately $4.8 million of such start-up costs during fiscal 2007 and are targeting the commencement of operations during the first quarter of 2008.

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General and Other

The increase in general and other expenses for the three and six months ended June 30, 2007 primarily reflects an increase in recruiting fees, various municipal taxes and higher software maintenance costs. These increases were offset in part by decreases in costs for temporary administrative help and various other general expenses.

Other Operating Expenses

Other operating expenses consist of the following for the periods indicated:

	Three Months Ended June 30,				Increase (Decrease)			Six Months Ended June 30,				Increase (Decrease)
(in thousands)	2007		2006		$			2007		2006		$
Restatement, SEC investigation and related expenses	$	1,392	$	3,688	$	(2,296	)	$	4,985	$	7,742	$	(2,757	)
Depreciation and amortization		378		269		109			660		638		22

Restatement, SEC Investigation and Related Expenses

During the three and six months ended June 30, 2007 and 2006, we incurred costs relating to the stock option investigation and subpoenas, a grand jury subpoena related to our stock option grants, related shareholder derivative litigation, related financial restatements and expenses to resolve related matters (including Pending Exercises and expiring stock options), together with costs incurred in 2006 related to the NYFIX Millennium SEC inquiry, related class action litigation and related financial restatement. These costs include outside counsels, contract attorneys and forensic accountants, other consultants and the cost of re-auditing previously issued financial statements following the resignation of our former independent registered public accounting firm. These costs do not include any portion of time that our employees have dedicated to these matters.We will continue to incur expenses associated with these matters until they are resolved. The amount of such expenses will likely vary and may be material.

These costs decreased $2.3 million and $2.8 million for the three and six months ended June 30, 2007 compared to the three and six months ended June 30, 2006, respectively. With the completion of the 2005 Restatement in March 2007, we expect these costs to decline over the remainder of 2007 although we do expect to continue to incur costs related to the stock option investigation and litigations and other stock option related matters.

Depreciation and Amortization

The decline in the portion of depreciation and amortization not included in cost of revenue for the three and six months ended June 30, 2007 was due to an increase in the amount of general overhead assets that have become fully depreciated.

Non-Operating Income (Expense)

Non-operating income (expense) items are as follows for the periods indicated:

	Three Months Ended June 30,						Increase (Decrease)			Six Months Ended June 30,						Increase (Decrease)
(in thousands)	2007			2006			$			2007			2006			$
Interest expense	$	(126	)	$	(282	)	$	(156	)	$	(262	)	$	(416	)	$	(154	)
Investment income		1,097			181			916			2,324			313			2,011
Other income (expense), net		3			18			(15	)		(12	)		18			(30	)

Interest Expense

The decrease for the three and six months ended June 30, 2007 was primarily attributable to additional interest of $0.1 million that was incurred during the three and six months ended June 30, 2006, as a result of our failure to register the shares underlying the $7.5 million convertible note. Excluding this additional interest in 2006, interest expense was comparable for the three and six months ended June 30, 2007 and 2006, reflecting the interest on capital lease obligations and the $7.5 million convertible note.

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Investment Income

The increase in investment income for the three and six months ended June 30, 2007 reflected higher average cash balances invested during the period, primarily as a result of two private placements of equity securities during the last half of 2006.

Income Tax Provision

The income tax provisions for the three and six months ended June 30, 2007 and 2006 were solely attributable to the impact of deducting goodwill related to the Renaissance acquisition in our tax filings. All other tax effects during the three and six months ended June 30, 2007 and 2006 have been netted out in our deferred tax asset valuation reflecting our view that historical pre-tax book income and historical income for tax purposes are not sufficient to support a conclusion that the value of our net deferred tax assets are more likely than not to be realized. Until we achieve and sustain an appropriate level of profitability, we plan to maintain a valuation allowance on our net deferred tax assets.

Liquidity and Capital Resources

	As of
(in thousands)	June 30, 2007		December 31, 2006
Cash and cash equivalents	$	85,210	$	105,888

(in thousands)	Six Months Ended June 30, 2007
Net cash used in operating activities	$	(13,200	)
Net cash used in investing activities		(6,832	)
Net cash used in financing activities		(725	)
Effect of exchange rate changes on cash		79
Net decrease in cash and cash equivalents	$	(20,678	)

Liquidity

We derive our liquidity and capital resources primarily from our cash flows from operations, from issuances of stock and from long-term borrowings. At June 30, 2007, we had cash and cash equivalents of $85.2 million. We believe resources available at June 30, 2007 will be sufficient to finance our current investing, transitional rebuilding, remediation and other costs, Euro Millennium start-up costs, and operating needs as well as the net capital requirements of our broker-dealer subsidiaries. At June 30, 2007, $34.0 million of our total cash and cash equivalents were held in our broker-dealer subsidiaries to help meet their regulatory capital requirements.

Operating Activities

The following table sets forth our net loss adjusted for non-cash items, such as depreciation, amortization, deferred taxes, provision for doubtful accounts and stock-based compensation; and the effect on cash generated by operating activities of changes in working capital and other operating accounts between periods.

(in thousands)	Six Months Ended June 30, 2007
Net loss	$	(13,698	)
Non-cash items		5,712
Effect of changes in working capital and other operating accounts		(5,214	)
Net cash used in operating activities	$	(13,200	)

Changes in working capital and other operating accounts affected cash flows during the six months ended June 30, 2007 primarily as a result of changes in the levels of accounts receivable, net clearing broker assets and accounts payable and accrued expenses between periods. These changes resulted primarily from increasing levels of sales and the timing of cash posted for securities lending positions, offset in part by increasing levels of expenditures and from cash management efforts affecting the timing of payments.

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Broker-Dealer Operations

Clearing broker assets reflect amounts on hand to support our ability to self-clear the transactions of NYFIX Millennium and NYFIX Transaction, such as receivables from clearing organizations and deposits with clearing firms, as well as balances to support our matched-book stock borrow/stock loan business. Our matched-book balances include offsetting stock borrowed and stock loaned and offsetting securities failed-to-deliver and securities failed-to-receive. At June 30, 2007, the net balance for clearing broker assets and clearing broker liabilities was a net receivable of $2.4 million.

Securities borrowed and securities loaned are recorded at the amount of cash collateral provided for securities borrowed transactions and received for securities loaned transactions, plus accrued interest. We monitor the market value of securities borrowed and loaned on a daily basis with additional collateral obtained or refunded as necessary. At June 30, 2007, clearing broker assets include stock borrows of $384.3 million and clearing broker liabilities include stock loans of $385.8 million.

NYFIX Millennium, NYFIX Transaction and NYFIX Clearing are U.S. registered broker-dealers required to maintain levels of regulatory net capital under Rule 15c3-1. NYFIX Clearing’s DTCC membership, used to self-clear securities transactions, requires the maintenance of $10 million in excess regulatory net capital. NYFIX International is an ISD Category B firm registered with the FSA, required to maintain financial resources generally equal to three months average expenditures, subject to a minimum of €125,000, plus a proportion of less liquid assets on hand. At June 30, 2007, the aggregate regulatory net capital/resources of our regulated subsidiaries in the U.S. and U.K. were $28.1 million, which was $16.9 million in excess of our aggregate requirement of $11.2 million (including the $10 million excess required by DTCC).

Investing Activities

Investments in current technology to maintain our infrastructure and to enhance our products remain an important requirement for our available cash resources.

Net cash used in investing activities for the six months ended June 30, 2007 was $6.8 million. This consisted primarily of capital expenditures for property and equipment, principally for data center equipment and software, of $5.0 million and capitalized product enhancement costs of $1.8 million.

Financing Activities

Our financing activities primarily consist of long-term debt issued for acquisitions, capital lease obligations used for equipment purchases, long-term debt issued for working capital purposes, and issuance of capital stock for general corporate purposes and business development activities. At June 30, 2007, we had long-term debt and capital lease obligations outstanding aggregating $8.8 million (including current portions and the convertible note discussed below).

At June 30, 2007, we had outstanding a $7.5 million convertible note with an interest rate of 5%, due in December 2009. At June 30, 2007, the price at which the lender could convert the convertible note into shares of our common stock was $5.66 per share. The conversion price may be reduced if we issue shares of common stock at a price below the conversion price in effect, excluding stock option exercises, the settlement of obligations outstanding as of the date of the convertible note and other transactions previously approved by our Board of Directors.

At the option of the lender, we may issue to the lender up to an additional $2.5 million note under terms substantially similar to those described above.

Net cash used in financing activities for the six months ended June 30, 2007 was $0.7 million, consisting primarily of principal payments under capital lease obligations.

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Commitments and Contingencies

There are various lawsuits and claims pending against us as well as ongoing SEC and United States Attorney’s Office investigations into our accounting for stock option grants and an SEC investigation into our accounting for the losses incurred by NYFIX Millennium. We are currently unable to predict the outcomes and reasonably estimate the amounts of loss, if any, with respect to these matters. With respect to certain of these matters, we could be subject to penalties, fines or regulatory sanctions or claims by current and former officers, directors or employees for indemnification of costs or losses they may incur and such amounts, individually or collectively, could have a material impact on our financial condition. In addition, other actions may be brought against us related to these matters.

See Note 10 to the Condensed Consolidated Financial Statements for a description of our commitments and contingencies.

Seasonality and Inflation

We believe that our operations have not been significantly affected by seasonality or inflation.

Off-balance Sheet Arrangements

We have no material off-balance sheet arrangements other than those related to the contingent obligations under the $7.5 million convertible note as described above and under the terms of our Series B Preferred Stock as described in our 2006 10-K.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including our allowance for doubtful accounts, inventory valuation and obsolescence, long-lived tangible and intangible assets, income taxes, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In our 2006 10-K, we identified and disclosed critical accounting policies, which included revenue recognition, allowance for doubtful accounts, property and equipment, acquisitions and goodwill, product enhancement costs, long-lived assets, income taxes, contingencies and stock-based compensation. These critical accounting policies affect significant judgments and estimates used in the preparation of our financial statements. We reviewed our policies in conjunction with the preparation of this report and have determined that those critical policies remain and have not changed since December 31, 2006.

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Part I Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our exposure to market risk during the six months ended June 30, 2007, from those described in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, included in our 2006 10-K.

Part I Item 4. Controls and Procedures

Disclosure Controls and Procedures

In connection with the preparation of this report on Form 10-Q, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2007. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are controls and other procedures designed to provide reasonable assurance that the information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As disclosed in our 2006 10-K (filed in August 2007), management and our independent registered public accounting firm identified several material weaknesses regarding elements of our internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Material weaknesses in internal controls may also constitute deficiencies in our disclosure controls and procedures.

Based on an evaluation of the identified material weaknesses, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2007, we continued to have material weaknesses regarding elements of our internal control over financial reporting, and as a result, concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of June 30, 2007.

Interim Measures to Ensure the Accuracy of Financial Reporting

In response to the material weaknesses identified as a result of management’s assessment of internal control over financial reporting as disclosed in our 2005 and 2006 10-Ks, our management, with oversight from our Audit Committee, implemented measures to help ensure the accuracy of our financial reporting until such time as we are able to further improve our control environment and remedy our material weaknesses, including, among other things:

§ expansion of our period-end closing procedures,

§ enhanced monitoring and communications,

§ additional analyses and cross team reviews,

§ the dedication of significant internal resources,

§ the engagement of external consultants, and

§ additional top level management reviews of financial information and related disclosures.

As a result of these expanded and compensating procedures, we concluded that the consolidated financial statements included in this report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

The certifications of our principal executive officer and principal financial officer required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 are attached as exhibits to this report on Form 10-Q. The disclosures set forth in this Item 4 contain information concerning the evaluation of our disclosure controls and procedures and our internal control over financial reporting, referred to in the certifications. Those certifications should be read in conjunction with this Item 4 for a complete understanding of the matters covered by the certifications.

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Changes in Internal Control Over Financial Reporting

During 2006 and through the August 6, 2007 filing of our 2006 10-K (which included developments during the three months ended June 30, 2007), we initiated changes to address previously reported material weaknesses in internal control over financial reporting, as described therein, that have a material effect or are reasonably likely to have a material effect on our internal control over financial reporting.Our efforts, which spanned the January 1, 2006 through August 6, 2007 period and continued to the date of filing of this report as part of an ongoing process, have focused and continue to focus, on:

(i) Expanding our organizational capabilities to improve our control environment;

(ii) Implementing process changes to strengthen our internal control and monitoring activities; and

(iii) Implementing adequate information technology general controls.

Ongoing Remediation of Material Weaknesses -

While we believe our ongoing efforts have improved our internal control over financial reporting, we have not completed the redesign and/or programming of all necessary procedures and controls nor our documentation and testing of the processes. Accordingly, we will continue to perform the interim measures described above and monitor the effectiveness of our internal control over financial reporting in the areas impacted by the material weaknesses discussed above.

We continue to have extensive work remaining and management has increased the resources dedicated to our remediation program following completion of our internal accounting review in February 2007, and the resultant restatement of our financial results for prior periods.

We believe that these remedial actions have improved and that further planned actions will continue to improve our internal control over financial reporting, as well as our disclosure controls and procedures. However, we do not believe that all of these material weaknesses, including certain of those involving our IT infrastructure and related controls, will be fully remediated by December 31, 2007. We expect that we will need a period of time over which to demonstrate that these controls are functioning appropriately to conclude that we have adequately remediated the weaknesses. Accordingly, we expect to report that our internal control over financial reporting and our disclosure controls and procedures remain ineffective as of December 31, 2007.

Certain of the planned remediation efforts will require significant ongoing effort and investment. Our management, with the oversight of our Audit Committee, will continue to identify and take steps to remedy known material weaknesses as expeditiously as possible and enhance the overall design and capability of our control environment.

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PART II -- OTHER INFORMATION

Part II Item 1. Legal Proceedings

The information required by this Item with respect to legal proceedings set forth under “Commitments and Contingencies” in Note 10 to the Condensed Consolidated Financial Statements included in Part I, Item 1, Unaudited Financial Statements of this report on Form 10-Q is hereby incorporated by reference.

Part II Item 1A. Risk Factors

An investment in our securities involves a high degree of risk. The risks referred to in our 2006 10-K are not the only ones facing us. Additional risks not presently known to us, or that we currently deem immaterial, may also have a material adverse effect on us. If any of the risks referred to in our 2006 10-K actually occur, our financial condition, results of operations, cash flows or business could be harmed. In that case, the market price of our securities could decline, and you could lose part or all of your investment.

We are not presently aware of any material changes to the risk factors in our 2006 10-K. For more information regarding risk factors relating to us and our business, please refer to Item 1A, Risk Factors in our 2006 10-K.

Part II Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Uses of Common Stock

Certain transactions involving our common stock occurring during the second quarter of 2007 and through the date of this report were as follows:

§ On June 19, 2007, the Board of Directors declared a dividend payable July 2, 2007 to holders of Series B Preferred Stock in payment of dividends accumulated from January 1, 2007 through June 30, 2007; as a result, we issued 526,327 restricted shares of common stock in July 2007, with a fair value of approximately $3,426,000 based on the market price of our common stock on the declaration date. The issuance of the shares was effected in reliance on the exemption set forth in Section 4(2) of the Securities Act.

§ In July 2007, we issued 26,954 shares from treasury stock with a fair market value of $193,000 as final payment to certain holders of Renaissance promissory notes issued in connection with our acquisition of the remaining 82% of the membership units of Renaissance that we did not already own effective July 1, 2003. The issuance of the shares was effected in reliance on the exemption set forth in Section 3(a) (9) of the Securities Act. (Additional information regarding the Renaissance promissory notes may be found in Part II, Item 5 and Note 4 to the Consolidated Financial Statements in our 2005 10-K.)

Part II Item 3. Defaults Upon Senior Securities

There were no payment defaults on our outstanding indebtedness during the three months ended June 30, 2007; however, there have been defaults related to our other obligations to become current with our periodic SEC filings and to register certain securities. Please see Note 11 to the Condensed Consolidated Financial Statements included in this report for a more detailed description of these matters.

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Part II Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the three months ended June 30, 2007.

Part II Item 5. Other Information

(a) On May 15, 2007, the Board of Directors amended each of the Amended and Restated 1991 Incentive Stock Option Plan of NYFIX, Inc. (the “1991 Plan”), the Javelin Technologies, Inc. 1999 Stock Option/Stock Issuance Plan and the NYFIX, Inc. 2001 Stock Option Plan by approving Exhibit 10.1 to this report on Form 10-Q which included (1) extending them to apply to exercises of options granted under any such plan where the payment for and delivery of shares will be completed after December 31, 2006 and (2) modifying them to require that any exercise of options be completed no later than the earlier of (i) the last day of the 30-day period following the date the Company is current in filing its periodic reports with the SEC and its S-8 registration statement covering shares issuable under such options is again effective and (ii) the tenth anniversary of the grant date of such option, or, in the case of options issued under the 1991 Plan to an employee who terminated employment prior to the tenth anniversary of the grant date, 90 days after such termination of employment.

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Part II Item 6. Exhibits

a.) Exhibits

Exhibit No.	Description of Exhibit
*10.1	Amendment to the Amended and Restated 1991 Incentive and Nonqualified Stock Option Plan of the Registrant, the Javelin Technologies, Inc. 1999 Stock Option/Stock Issuance Plan and the NYFIX, Inc. 2001 Stock Option Plan.
*31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 * Filed herewith

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NYFIX, INC.
August 28, 2007		/s/ P. Howard Edelstein
		P. Howard Edelstein President and Chief Executive Officer

August 28, 2007	/s/ Steven R. Vigliotti
	Steven R. Vigliotti  Chief Financial Officer

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EXHIBIT INDEX

10.1	Amendment to the Amended and Restated 1991 Incentive and Nonqualified Stock Option Plan of the Registrant, the Javelin Technologies, Inc. 1999 Stock Option/Stock Issuance Plan and the NYFIX, Inc. 2001 Stock Option Plan.
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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