The following is a discussion of certain of our significant accounting policies (see Note 2 to the Consolidated Financial Statements for the fiscal year ended December 31, 2003 in the 2003 Form 10-K) that we consider to be of particular importance because they require difficult, complex or subjective judgments on matters that are often inherently uncertain.

Securities positions are carried at fair values generally based on quoted market prices. From time to time quoted market prices are not available for certain municipal or other securities positions. For such securities, we, with the assistance of independent pricing services, determine fair values by analyzing securities with similar characteristics that have quoted market prices. Consideration is given to the size of our individual positions relative to the overall market activity in such positions when determining the impact our sale would have on fair values. The assumptions used in valuing our securities positions may be incorrect and the actual value realized upon disposition could be different from the current carrying value.

Included in accounts payable and accrued liabilities are reserves for certain contingencies to which we may have exposure, such as the employer portion of National Insurance Contributions in the U.K., interest and claims on securities settlement disputes, such as the NTL matter, and reserves for certain income tax contingencies. The determination of the amounts of these reserves requires significant judgment on our part. We consider many factors in determining the amount of these reserves, such as legal precedent and case law and historic experience. The assumptions used in determining the estimates of reserves may be incorrect and the actual costs of resolution of these items could be greater or less than the reserve amounts.

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

Commission income represents revenues generated on brokerage transactions conducted on an agency (including name give-up) or matched riskless principal basis. For the three months ended June 30, 2004, these revenues decreased $621,266 to $47,511,109, compared to $48,132,375 for the comparable period in 2003, reflecting a decrease in New York, offset by increases in London and Switzerland. In New York, the decrease primarily reflected a reduction in riskless principal transactions from our restructured institutional corporate bond sales and trading operations. The increases in London and Switzerland primarily reflected growth in the inter-dealer brokerage and the institutional businesses started in 2003 and exchange rate movements.

Interest income for the three months ended June 30, 2004 increased $2,332,545 to $3,007,644, compared to $675,099 for the three months ended June 30, 2003, primarily reflecting increased financing income earned on reverse repurchase agreements in connection with the institutional securities financing operations we started in 2003 and coupon and financing income associated with securities positions taken by our restructured institutional corporate bond sales and trading operations.

Principal transactions represent the net gains or losses generated from securities transactions involving the assumption of market risk for a period of time. For the three months ended June 30, 2004, these activities resulted in a gain of $980,985, compared to a gain of $3,824,419 for the three months ended June 30, 2003. This change primarily reflected a reduction in gains from our restructured institutional corporate bond sales and trading group and the effect of an $800,000 gain recorded in the prior period on NTL shares determined to no longer constitute a hedge.

As discussed in Note 5 to the Consolidated Financial Statements included in this report, the $800,000 gain recorded during the three months ended June 30, 2003 on the sale NTL shares offset in part a $5.9 million loss recorded during the first quarter of 2003. The $5.9 million loss reflected the contingency that all of MFI's NTL when-issued trades, other than permanently adjusted settlements by mutual agreement, should have settled on an unadjusted basis. In March 2004, the New York State Supreme Court granted a summary judgment motion made by MFI and issued a decision stating that all NTL when-issued trades among the parties before the Court should be settled on an adjusted and uniform basis. Following this decision, MFI in March 2004 reached a permanent settlement of this dispute with its one NTL counterparty who had brought a claim before NASD, resulting in the reversal of $625,000 of the loss recorded by MFI during 2003. As a result of this settlement, MFI's dispute with its remaining NTL counterparties is now fully centralized in only one forum (New York State Supreme Court).

In July 2004, MFI obtained a judgment from the Court entitling MFI to collect a total of $3.6 million (inclusive of interest) from those counterparties that received and retained unadjusted deliveries of NTL shares from MFI. The judgment, which is still subject to collection, implements an order of the Court, entered earlier in July, that gave effect to the Court's March 2004 summary judgment decision. The judgment, together with a $2.9 million accrual MFI has remaining on its books to cover damages potentially payable in the event that the Court's decision is reversed, means that MFI may be able to record up to a $6.5 million pre-tax gain in the future if the current outcome is upheld. However, four of MFI's counterparties have already filed notices of appeal and, accordingly, MFI only intends to record gains from the judgment, and to reverse portions of the accrual, if and to the extent it achieves permanent resolutions, whether by mutual consent, completion of the appeals process or otherwise, with any one or more of its remaining counterparties. Moreover, it is likely that the costs associated with the appellate process and any such other resolutions are likely to offset a portion of this $6.5 million amount.

Other items for the three months ended June 30, 2004 resulted in a loss of $256,833, as compared to a loss of $157,199 for the three months ended June 30, 2003. This increased loss resulted from the expiration of an information licensing agreement in the second half of 2003, which generated $125,000 of licensing income during the three months ended June 30, 2003, offset by an increase in other gains. The losses for the three months ended June 30, 2004 and 2003 on our 57.25% interest in the Tokyo Venture were comparable at $294,966 and $300,114, respectively.

For the three months ended June 30, 2004, interest expense on securities indebtedness increased $2,505,479 to $2,765,527, compared to $260,048 for the three months ended June 30, 2003, primarily as a result of interest expense incurred on repurchase agreements in connection with our institutional securities financing operations and coupon and financing expense on securities positions taken by our restructured institutional corporate bond sales and trading operations.

Compensation and related costs for the three months ended June 30, 2004 increased $1,424,810 to $33,689,372, compared to $32,264,562 for the three months ended June 30, 2003, primarily as a result of increased brokerage staff in connection with expansion efforts in New York, including in our restructured institutional corporate bond sales and trading operations, increased revenues in London and Switzerland from the growth of various departments started in 2003 (resulting in higher incentive-based compensation) and the effects of translating strengthened foreign currency balances to U.S. dollars.

Communication costs for the three months ended June 30, 2004 increased $449,473 to $3,501,069, compared to $3,051,596 for the three months ended June 30, 2003, primarily as a result of the currency effects of translating strengthened British pound sterling amounts to U.S. dollars and the effect of a $250,000 reduction during the prior period to communication accruals in London that were no longer considered necessary.

Travel and entertainment costs for the three months ended June 30, 2004 increased $316,936 to $2,674,013, compared to $2,357,077 for the three months ended June 30, 2003, reflective in part of our various business expansion efforts.

Occupancy and equipment rental represent expenses incurred in connection with our office premises, including base rent and related escalations, maintenance, electricity and real estate taxes, as well as rental costs for equipment under operating leases. For the three months ended June 30, 2004 and 2003, these costs were comparable at $1,820,313 and $1,810,596, respectively.

All the revenue generated on our Charity Days by our New York, Stamford, Mexico, London and Switzerland offices are donated to designated charities. All participating brokerage employees waive any entitlement to commissions from such revenues. The proceeds of $1,042,864 raised on our April 19, 2004 Charity Day are designated for The Euro Brokers Relief Fund, Inc. and the firm's Maxcor Foundation, which is designating four recipients: Marine Corps-Law Enforcement Foundation, Inc., Columbia University, College of Physicians & Surgeons, Duke University's Fuqua/Coach K Center for Leadership & Ethics and The Royal Marsden Hospital in London. Our May 12, 2003 Charity Day raised a total of $982,300 which was contributed to The Euro Brokers Relief Fund, Inc. and various charities supported by the Maxcor Foundation.

Clearing and execution fees are fees paid to clearing organizations for transaction settlements and credit enhancements and to other broker-dealers (including ECNs) for providing access to various markets and exchanges for

executing transactions. For the three months ended June 30, 2004, these costs increased $64,523 to $1,016,676, compared to $952,153 for the three months ended June 30, 2003, primarily as a result of the increase in transaction volumes from our institutional sales and trading businesses.

Depreciation and amortization expense consists principally of depreciation of communication and computer equipment and automobiles under capitalized leases and amortization of leasehold improvements and software. For the three months ended June 30, 2004 and 2003, these costs were comparable at $815,434 and $814,411, respectively.

Other interest expense represents interest costs incurred on non-securities related indebtedness, such as revolving credit facilities and capitalized lease obligations. For the three months ended June 30, 2004, these costs decreased $164,608 to $31,417, compared to $196,025 for the three months ended June 30, 2003, primarily due to decreased borrowings under our revolving credit facility with the Bank of New York ("BONY") and decreased capitalized lease obligations.

General, administrative and other expenses include such expenses as corporate insurance, office supplies and expenses, professional fees, food costs and dues to various industry associations. For the three months ended June 30, 2004, these expenses increased $16,532 to $2,077,360, as compared to $2,060,828 for the three months ended June 30, 2003, reflecting the net effects of a decrease of $230,000 in legal fees related to the NTL when-issued trade disputes ($70,000 in the current period compared to $300,000 in the prior period), the effects of adjustments made in the prior period to increase our reserve in the U.K. for the employer portion of National Insurance Contributions by $465,000 and to reduce expenses for the recovery of consumption taxes previously paid of $160,000, and increases in various general and administrative costs such as corporate insurance, securities licensing fees and office expenses.

Provision for income taxes for the three months ended June 30, 2004 decreased $2,378,480 to $802,544, compared to $3,181,024 for the three months ended June 30, 2003, primarily as a result of a decrease in pre-tax income.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

For the six months ended June 30, 2004, commission income increased $6,279,681 to $95,561,410, compared to $89,281,729 for the comparable period in 2003, primarily reflecting increases in London and Switzerland, offset by a decrease in New York. The increases in London and Switzerland primarily reflected growth in the inter-dealer brokerage and institutional businesses started in 2003 and exchange rate movements. The decrease in New York was primarily the result of a decrease in riskless principal transactions from our restructured institutional corporate bond sales and trading operations.

Interest income for the six months ended June 30, 2004 increased $3,619,796 to $4,934,612, compared to $1,314,816 for the six months ended June 30, 2003, primarily reflecting increased financing income earned on reverse repurchase agreements in connection with the institutional securities financing operations

we started in 2003 and coupon and financing income associated with securities positions taken by our restructured institutional corporate bond sales and trading operations.

For the six months ended June 30, 2004, principal transactions resulted in a gain of $4,481,495, compared to a loss of $257,332 for the six months ended June 30, 2003. This change primarily reflected the effect of a net loss of $5.1 million recorded by MFI during the prior period on the disputed settlement of its NTL when-issued equity trades, the reversal of $625,000 of this loss during the current period, and a $1.5 million gain recorded during the current period from the resolution of contingencies associated with the settlement of certain principal transactions in the aftermath of the September 11th attacks. Offsetting these improvements to principal transactions was a reduction in gains from our restructured institutional corporate bond sales and trading group.

Other items for the six months ended June 30, 2004 resulted in a loss of $632,449, as compared to a loss of $476,677 for the six months ended June 30, 2003. This increased loss resulted from the expiration of an information licensing agreement in the second half of 2003, which generated $250,000 of licensing income during the six months ended June 30, 2003, offset by an increase in other gains and a narrowing of the loss incurred by the Tokyo Venture. For the six months ended June 30, 2004, we recorded a loss of $613,528 on our 57.25% interest in this venture, as compared to a loss of $829,462 for the six months ended June 30, 2003.

For the six months ended June 30, 2004, interest expense on securities indebtedness increased $4,155,657 to $4,460,806, compared to $305,149 for the six months ended June 30, 2003, primarily as a result of interest expense incurred on repurchase agreements in connection with our institutional securities financing operations and coupon and financing expense on securities positions taken by our restructured institutional corporate bond sales and trading operations.

Compensation and related costs for the six months ended June 30, 2004 increased $5,592,664 to $67,664,377, compared to $62,071,713 for the six months ended June 30, 2003, primarily as a result of increased brokerage staff in connection with expansion efforts in New York, including in our restructured corporate bond and trading operations, increased revenues in London and Switzerland from the growth of various departments started in 2003 (resulting in higher incentive-based compensation) and the effects of translating strengthened foreign currency balances to U.S. dollars.

Communication costs for the six months ended June 30, 2004 increased $695,911 to $6,874,494, compared to $6,178,583 for the six months ended June 30, 2003, primarily as a result of the currency effects of translating strengthened British pound sterling amounts to U.S. dollars and the effect of a $250,000 reduction during the prior period to communication accruals in London that were no longer considered necessary.

Travel and entertainment costs for six months ended June 30, 2004 increased $1,180,022 to $5,448,996, compared to $4,268,974 for the six months ended June 30, 2003, reflective in part of our various business expansion efforts.

Occupancy and equipment rental for the six months ended June 30, 2004 increased $1,359,312 to $4,392,232, compared to $3,032,920 for the six months ended June 30, 2003, primarily due to an increase of $673,000 to an accrual in London for excess office space (arising from a terminated sublet) designated for sublease. This adjustment was based upon a reassessment of the length of time it will take to generate sublease income on this space. Also contributing to the increase in these costs were increased costs for office space in London effective the second quarter of 2003 and a full period of rental costs on equipment in New York that we started leasing in late March 2003.

All the revenue generated on our Charity Days by our New York, Stamford, Mexico, London and Switzerland offices are donated to designated charities. All participating brokerage employees waive any entitlement to commissions from such revenues. The proceeds of $1,042,864 raised on our April 19, 2004 Charity Day are designated for The Euro Brokers Relief Fund, Inc. and the firm's Maxcor Foundation, which is designating four recipients: Marine Corps-Law Enforcement Foundation, Inc., Columbia University, College of Physicians & Surgeons, Duke University's Fuqua/Coach K Center for Leadership & Ethics and The Royal Marsden Hospital in London. Our May 12, 2003 Charity Day raised a total of $982,300 which contributed to The Euro Brokers Relief Fund, Inc. and various charities supported by the Maxcor Foundation.

Clearing and execution fees for the six months ended June 30, 2004 increased $207,406 to $2,029,030, compared to $1,821,624 for the six months ended June 30, 2003, primarily as a result of the increase in transaction volumes from our institutional sales and trading businesses.

For the six months ended June 30, 2004, depreciation and amortization increased $44,431 to $1,624,577, compared to $1,580,146 for the six months ended June 30, 2003, reflecting the net effect of an increase in New York from a full period of depreciation and amortization of furniture and leasehold improvements purchased for our new headquarters which we have occupied since March 2003, and a reduction in London from assets which have been fully depreciated.

Other interest expense for the six months ended June 30, 2004 decreased $147,833 to $84,666, compared to $232,499 for the comparable period in 2003, primarily due to decreased borrowings under our revolving credit facility with BONY and decreased capitalized lease obligations.

For the six months ended June 30, 2004, general, administrative and other expenses increased $238,610 to $3,982,164, as compared to $3,743,554 for the six months ended June 30, 2003, reflecting the net effects of a decrease of $312,000 in legal fees related to the NTL when-issued trade disputes ($188,000 in the current period compared to $500,000 in the prior period), the effects of adjustments in the prior period to increase our reserve in the U.K. for the employer portion of National Insurance Contributions by $465,000 and to reduce expenses for the recovery of consumption taxes previously paid of $160,000, and increases in various general and administrative costs such as corporate insurance, securities licensing fees and office expenses.

Provision for income taxes for the six months ended June 30, 2004 increased $1,028,001 to $3,129,106, compared to $2,101,105 for the six months ended June 30, 2003, primarily as a result of an increase in pre-tax income.

For the six months ended June 30, 2003, minority interest in consolidated subsidiaries resulted in a reduction of the net income from such subsidiaries of $175,985. The lack of minority interest in the current period is the result of the Company's purchase of the minority interest in EBL in February 2003.

During the six months ended June 30, 2003, we recorded an extraordinary gain of $2,957,547 as the result of our February 2003 discounted purchase of the 50% minority shareholding held in EBL. We purchased this interest, pursuant to the terms of an EBL shareholders agreement that we enforced in a U.K. court proceeding, as a result of the failure of the minority shareholder to provide certain requested funding to EBL in late 2000. The discounted purchase price, calculated under the agreement as 70% of the book value attributable to this shareholding as of December 31, 2000, resulted in an extraordinary gain of $2,957,547. The gain reflected the excess of $5,570,703, the amount recorded for the 50% interest in EBL as of the February 2003 purchase date, over the purchase price of $2,613,156.

A substantial portion of our assets, similar to other brokerage firms, is liquid, consisting of cash, cash equivalents and assets readily convertible into cash, such as receivables from broker-dealers and customers and securities owned.

Cash and cash equivalents at June 30, 2004 reflect a reduction from the level at December 31, 2003, principally due to the increased use of cash resources for securities positions (including repurchase and reverse repurchase agreements) in connection with our institutional sales and trading operations and our institutional securities financing operations.

U.S. Treasury and federal agency securities purchased under agreements to resell (reverse repurchase agreements) and U.S. Treasury and federal agency securities sold under agreements to repurchase (repurchase agreements) are collateralized financings on which we seek to earn an interest spread. The balances recorded on these transactions, reflected on the Consolidated Statements of Financial Condition respectively as "securities purchased under agreements to resell" and "securities sold under agreements to repurchase," are the contracted amounts, plus accrued interest. The reduction in these balances from those at December 31, 2003 reflect the increased customer demand for financing that occurs at a calendar year end. We monitor the fair value of the securities purchased and sold under these agreements and obtain additional collateral or return excess collateral where appropriate.

Securities owned and securities sold, not yet purchased reflect securities positions taken in connection with sales and trading operations and in our firm investment account. Securities positions taken by our sales and trading businesses are often for the purpose of facilitating anticipated customer needs and are typically hedged with offsetting positions of a similar nature. Securities owned are financed either from cash resources, by short-term bank loans from our clearing bank, by repurchase agreements or by margin borrowings (if available) from broker-dealers that clear certain of these transactions on

our behalf. We are able to make delivery on securities sold, not yet purchased by borrowing such securities either from clearing firms that clear certain of these transactions on our behalf or through reverse repurchase agreements.

In the ordinary course of settling our U.S. Treasury and federal agency securities transactions (including repurchase and reverse repurchase agreements) we have securities failed-to-deliver and failed-to-receive obligations. These fails are generally resolved shortly afterwards through proper receipt/delivery.

As reflected on the Consolidated Statements of Financial Condition, and as detailed in the table below, we had net assets relating to securities positions (including repurchase and reverse repurchase agreements) of $15.4 million at June 30, 2004, an increase of $8.3 million as compared to net assets relating to securities positions of $7.1 million at December 31, 2003.

<CAPTION>
                                                              (in millions)
                                                    June 30, 2004     December 31, 2003
                                                    -------------     -----------------
<S>                                                 <C>                <C>
Securities purchased under agreements to resell     $       400.4      $     1,446.7
Securities failed-to-deliver                                 23.4               90.7
Securities owned                                             80.8                6.7
Short-term bank loan                               (          0.9)
Securities sold under agreements to repurchase     (        379.0)    (      1,470.5)
Payable to broker-dealers and customers            (         13.4)
Securities failed-to-receive                       (         15.8)    (         66.5)
Securities sold, not yet purchased                 (         80.1)
                                                    -------------      -------------
   Net assets relating to securities positions      $        15.4      $         7.1
                                                    =============      =============

MFI is a member of the GSD-FICC for the purpose of clearing transactions in U.S. Treasury and federal agency securities and repurchase agreements collateralized by such instruments. Pursuant to such membership, MFI is required to maintain excess regulatory net capital of $10 million and a minimum net worth (including subordinated borrowing) of $25 million. In addition, MFI is required to maintain a clearing deposit with GSD-FICC, based upon the level and nature of its trading activity (with a minimum deposit of $5 million), as well as certain minimum collateral deposits with its clearing brokers. The aforementioned deposits have been reflected as deposits with clearing organizations on the Consolidated Statements of Financial Condition.

EBL is a Type D registered firm of the FSA in the U.K., required to maintain a financial resources requirement generally equal to six weeks average expenditures plus the amount of less liquid assets on hand (a $6.3 million requirement at June 30, 2004).

At June 30, 2004, we had $5 million outstanding under a three-year revolving credit facility entered into by Euro Brokers Inc. ("EBI"), a U.S. subsidiary, with BONY in March 2003. This facility, as amended in November 2003, provides for borrowings of up to $10 million and is secured by EBI's receivables and the stock issued by EBI to its direct parent. The agreement with BONY contains certain covenants which require EBI separately, and MFGI on a consolidated

basis, to maintain certain financial ratios and conditions. Borrowings under this facility bear interest at a variable rate based upon two types of borrowing options, (1) an "alternate base rate" option which incurs interest at the Prime Rate plus a margin or (2) a Eurodollar option which incurs interest at rates quoted in the London interbank market plus a margin. Commitment fees of .35% per annum are charged on the unused portion of this facility.

As of June 30, 2004, we had authorization remaining for the repurchase of up to 528,225 shares of our common stock under our existing share repurchase program authorized by our Board of Directors in July 2001. The program originally authorized the repurchase of up to 709,082 shares (10% of the then-outstanding shares), was initially expanded in the immediate aftermath of the September 11th attacks to authorize the repurchase of up to 1,200,000 shares, and was further expanded in April 2003 by an additional 700,000 shares, for a total of 1,900,000 shares. In July 2004, our Board authorized a further expansion of the program by an additional 500,000 shares, for a total of 2,400,000 shares. As has been the case with prior repurchase program authorizations, purchases are to be made from time to time as market and business conditions warrant, and accordingly, there is no guarantee as to the timing or number of shares to be repurchased.

In July 2004, our Board of Directors declared a common stock cash dividend of $.0625 per share for our fiscal second quarter. The dividend is payable on . . .