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. The NYFIX Marketplace is a global community of trading counterparties utilizing innovative services that optimize the business of trading, including trade messaging services, trade messaging software and trading workstations. NYFIX Millennium provides the NYFIX Marketplace with enhanced methods of accessing liquidity. We also provide value-added informational and analytic services and 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 low touch, low impact market access and transaction processing.

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 and the Sell-Side, and through exchanges (e.g., NYSE, NYSE Amex, Nasdaq and other exchanges), the over-the-counter market ("OTC"), alternate trading systems ("ATSs") and electronic communication networks ("ECNs").

Sources of Revenue

Our revenues consist of subscription and maintenance fees, transaction fees, and product sales and services revenues. As a percentage of our total revenues during the three months ended March 31, 2009, subscription and maintenance revenues accounted for 68%, transaction revenue accounted for 30%, and product sales and services revenue accounted for 2%.

Our subscription and maintenance revenues principally consist of revenues from contracts that provide for the use of our systems and our messaging channels, together with managed services. Subscription and maintenance revenue rates are fixed based on a contractual period of time. Additional services, provided under schedules, or addenda to the contracts, 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 and acceptance. 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 amounts we charge for connectivity to the NYFIX Marketplace Platform, including telecommunications, installation and maintenance of routers, network management software, support staff, and other costs related to the management of connectivity. The connectivity charges are recognized as the services are provided.

Our subscription and maintenance revenues are not directly affected by trading volumes; however, trading volumes do affect the revenues of our clients and this could affect their future purchases of our technology and services. Pricing pressures due to competition, failure to maintain revenues with existing clients and to sign agreements with new clients because of reductions in their technology spending, consolidation of brokerages and hedge fund closures could affect our revenues and profitability. Our costs associated with supporting the subscription and maintenance agreements are generally fixed and thus a loss of revenue would disproportionately impact profitability.

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.

Because commission revenues are earned on a per-transaction basis, such revenues fluctuate from period to period depending on (i) the volume of securities traded through our services in the U.S. and the U.K. and (ii) our commission rates. Commission revenues are primarily generated by orders delivered to us from direct computer-to-computer links driven by our clients' routing technology, our FIXTrader order management system and other vendors' products, as well as third party order routing networks and phone orders from our customers.

We believe that the factors that most influence our transaction volumes are the following:

· macro trends in the global equities markets that affect overall institutional equity trading activity;

· competitive pressure, including pricing, created by a proliferation of electronic execution competitors;

· potential changes in the U.S. market structure;

· new regulatory requirements or a failure to comply with existing regulatory requirements;

· service quality and availability;

· consolidation of broker-dealers or a decline in the number of hedge funds; and

· increased client demands for bandwidth and speed, requiring reinvestment in hardware and software.

Product sales and services are primarily comprised of FIX software licenses and professional services fees. This revenue is recognized when the software is delivered 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.

Cost of Revenue

Cost of revenue includes the following:

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

· 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;

· Fees paid to third-party technology providers to access and provide services to their client base;

· Amortization expense of acquired intangible assets and capitalized software 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; and

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

Recent Developments

Euro Millennium

Due to the recent growth in matched volumes, we have determined that effective January 1, 2009, Euro Millennium is no longer in its introductory phase. Based on this determination, the results for Euro Millennium are being presented as part of the Transaction Services Division with specific costs included in transaction cost of revenue and the various SG&A categories.

In consultation with the U.K. Financial Services Authority (FSA), we modified Euro Millennium's functionality to only match at the pre-determined reference point of the mid-point between bid and offer. We expect to make further modifications throughout 2009 to provide for matching at other pre-determined reference points (e.g. bid and offer). These modifications are not expected to have a material impact on Euro Millennium's service or revenues.

Millennium HPX

In March 2009, we upgraded the NYFIX Millennium dark pool to our high performance technology architecture (HPX), making Millennium a faster, more resilient, and higher throughput dark pool that is well suited for latency sensitive order flow.

Restructuring Charge

In April 2009, we ceased using a portion of the office space in our New York headquarters, and agreed on terms for a sublease. As a result, in the second quarter of 2009 we will be recording a restructuring charge of $0.7 million reflecting the fair value of the remaining rent payments for the office space, net of expected sublease income, plus real estate commissions, and write-offs of property and equipment. We expect our occupancy and related costs to decrease by $0.4 million per year as result of this restructuring.

Results of Operations for the Three Month Periods Ended March 31, 2009 and 2008

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 March 31,
                                                                                     % of                                 % of
(in thousands, except percentages)                                2009             revenue             2008             revenue
Revenue:
Subscription and maintenance                                 $        17,680         68%          $        17,518         56%
Transaction                                                            7,746         30%                   13,268         42%
Product sales and services                                               486          2%                      621          2%
Total revenue                                                         25,912         100%                  31,407         100%
Cost of revenue:
Subscription and maintenance (1)                                       7,151         28%                    7,651         24%
Transaction (1)                                                        6,601         25%                    6,412         20%
Product sales and services (1)                                            40          0%                       81          0%
Total cost of revenue                                                 13,792         53%                   14,144         45%
Gross profit                                                          12,120         47%                   17,263         55%
Operating expense:
Selling, general and administrative (1)                               14,428         56%                   20,396         65%
SEC investigation, restatement and other related expenses               (634 )       -2%                      137          0%
Depreciation and amortization                                            416          2%                      447          1%
Restructuring charge                                                       -          0%                     (158 )       -1%
Loss from operations                                                  (2,090 )       -8%                   (3,559 )       -11%
Interest expense                                                        (199 )       -1%                     (211 )       -1%
Investment income                                                         89          0%                      546          2%
Loss before income tax provision                                      (2,200 )       -8%                   (3,224 )       -10%
Income tax provision                                                       -          0%                      128          0%
Net loss                                                              (2,200 )       -8%                   (3,352 )       -11%
Accumulated preferred dividends                                         (291 )       -1%                   (1,142 )       -4%
Loss applicable to common stockholders                       $        (2,491 )       -10%         $        (4,494 )       -14%

Percentage sub-totals may not add due to rounding
(1) Stock-based compensation expense included in the respective line items above follows:
Cost of revenue:

Subscription and maintenance                                 $            93                      $           130
Transaction                                                               52                                   53
Product sales and services                                                 2                                    3
Selling, general and administrative                                    1,296                                2,614
                                                             $         1,443                      $         2,800

Revenue

The following table presents our components of revenue:

                                       Three Months Ended
                                            March 31,              Increase (Decrease)
(in thousands, except percentages)      2009          2008            $               %
Subscription and maintenance         $   17,680     $ 17,518     $        162         1%
Transaction                               7,746       13,268           (5,522 )      -42%
Product sales and services                  486          621             (135 )      -22%
Total revenue                        $   25,912     $ 31,407     $     (5,495 )      -17%

Subscription and Maintenance

The increase in subscription and maintenance revenue for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008, reflected the offsetting effects of an increase in subscriptions (and related managed services) of messaging channels offered by our FIX Division, the impact of the FIXCITY acquisition, and a decrease in subscriptions (and related managed services) of our OMS Division products. The growth in messaging channels offered by our FIX Division 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. As of March 31, 2009, we had 9,795 billable order routing channels in service, an increase of 13% over the 8,666 billable order routing channels in service at March 31, 2008, and an increase of 2% over the 9,588 channels in service at December 31, 2008. FIXCITY, which was acquired in April 2008, contributed $0.5 million in subscription revenues during the three months ended March 31, 2009. The decline in subscriptions (and related managed services) of our OMS Division products of $1.2 million, to $0.7 million for the three months ended March 31, 2009 compared to $1.9 million during the three months ended March 31, 2008, was due primarily to the discontinuation of our Fusion OMS products, as well as cancellations from other desktop clients. Recurring maintenance on licensed software increased $0.2 million to $1.1 million for the three months ended March 31, 2009 as compared to $0.9 million for the same period in 2008.

Transaction

The decrease in transaction revenue for the three months ended March 31, 2009 was attributable to a decrease in commissions on trade executions. Commissions decreased $5.4 million to $7.6 million during the three months ended March 31, 2009 compared to $13.0 million during three months ended March 31, 2008 due primarily to a $4.3 million and a $1.1 million decrease in commissions from Sell-Side and Buy-Side clients, respectively. The decrease from Sell-Side clients was due to a decrease in the use of the NIX algorithmic and smart routing trading products, a decrease in matched volumes in NYFIX Millennium and a decrease in direct market access service, offset in part by the inclusion of $0.7 million of commission and settlement fee revenue from Euro Millennium. The decline in revenue from our NIX algorithmic and smart routing trading products and from OTC direct market access was primarily attributable to lower volumes from former Fusion OMS clients. Transaction revenue from former Fusion OMS clients decreased by $2.2 million during the three months ended March 31, 2009 as compared to the three months ended March 31, 2008. The average daily matched volume in NYFIX Millennium during the three months ended March 31, 2009 was 33.1 million shares, a 33% decrease over the average of 49.4 million shares matched during the three months ended March 31, 2008, due primarily to a market-wide decrease in traditional buy-side institutional trading volumes that access Millennium through sell-side algorithms. The additional decline in revenue from NYSE DOT direct market access services (including associated pass-through charges) of $0.5 million was primarily attributable to our decision to improve our margins by eliminating discounts for these services below cost for clients who do not generate valuable pass-through matches in NYFIX Millennium.

The decrease from Buy-Side clients was due in part to the disintermediation of our direct Buy-Side client base by third-party algorithmic trading solution providers who offer enhanced technology solutions for certain clients. Our securities lending business generated net interest spread on its matched book stock borrow/stock loan portfolio of $0.2 million during the three months ended March 31, 2009 compared to $0.3 million during the three months ended March 31, 2008.

Product Sales and Services

The decrease in product sales and services for the three months ended March 31, 2009 compared to the same period in 2008 was primarily due to a decrease in professional services revenue. Professional services revenue decreased $0.1 million to $0.1 million during the three months ended March 31, 2009 as compared to $0.2 million for the same period in 2008. Software license fees for our FIX software products were comparable at $0.4 million for the three months ended March 31, 2009 and 2008.

Costs and Expenses

Cost of Revenue

The following table presents our cost of revenue:

                                       Three Months Ended
                                            March 31,              Increase (Decrease)
(in thousands, except percentages)      2009          2008           $                %
Subscription and maintenance         $    7,151     $  7,651     $     (500 )        -7%
Transaction                               6,601        6,412            189           3%
Product sales and services                   40           81            (41 )        -51%
Total cost of revenue                $   13,792     $ 14,144     $     (352 )        -2%

Percent of total revenue                  53%          45%

Subscription and Maintenance

The decrease in subscription and maintenance cost of revenue for the three months ended March 31, 2009 compared to the same period in 2008 was primarily attributable to a decrease in telecommunication costs of $0.5 million and lower market data fees of $0.1 million. These decreases were slightly offset by an increase in depreciation expense of $0.1 million. As a percentage of related revenue, these costs decreased to 40% for the three months ended March 31, 2009 as compared to 44% for the three months ended March 31, 2008.

Transaction

The increase in transaction cost of revenue for the three months ended March 31, 2009 was primarily attributable to the inclusion of $1.4 million of Euro Millennium cost of revenue items and higher allocated labor costs in the U.S. of $0.3 million associated with the transition to Millennium HPX, offset by a decrease in execution and clearing costs in the U.S. of $1.5 million. Included in the $1.4 million of Euro Millennium cost of revenue items was $0.6 million of clearing costs. We expect Euro Millennium clearing costs to decline in the second half of 2009 once we are functional with our SIX X-Clear central counterparty (CCP) clearing solution. During the three months ended March 31, 2008, transaction cost of revenue was reduced by a clearing fee rebate received of $0.5 million. As a percentage of related revenue, these costs increased to 85% for the three months ended March 31, 2009, as compared to 48% for the three months ended March 31, 2008.

Product Sales and Services

The decrease in product sales and services cost of revenue for the three months ended March 31, 2009 compared to the same period in 2008 was attributable to lower amortization of capitalized software costs. As a percentage of related revenue these costs decreased to 8% for the three months ended March 31, 2009 as compared to 13% for the same period of 2008.

Selling, General and Administrative Expenses (SG&A)

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

                                              Three Months Ended
                                                  March 31,                Increase (Decrease)
(in thousands, except percentages)            2009          2008             $                %
Compensation and related                   $    8,094     $   8,932     $      (838 )        -9%
Occupancy and related                           1,035         1,171            (136 )       -12%
Marketing, travel and entertainment               802         1,215            (413 )       -34%
Professional fees (including consulting)        1,550         2,389            (839 )       -35%
General and other                               1,651         1,597              54          3%
Stock-based compensation                        1,296         2,614          (1,318 )       -50%
Transitional rebuilding and remediation             -           148            (148 )       -100%
Transitional employment costs                       -           110            (110 )       -100%
Euro Millennium costs                               -         2,220          (2,220 )       -100%
Total SG&A                                 $   14,428     $  20,396     $    (5,968 )       -29%

Percent of total revenue                        56%           65%

Compensation and Related

The decrease in compensation and related costs included in SG&A for the three months ended March 31, 2009 compared to the same period in 2008 was primarily due to costs reductions associated with the discontinuation of the Fusion OMS product of $0.5 million and staff reduction. We made further staff reductions in the second quarter of 2009, which are expected to reduce annual compensation costs by more than $2 million. These decreases were offset in part by new compensation costs of $0.1 million associated with our FIXCITY subsidiary and $0.7 million related to the inclusion of Euro Millennium costs in operations.

Occupancy and Related

Occupancy and related costs decreased $0.1 million for the three months ended March 31, 2009 compared to the same period in 2008 primarily due to a decrease in office operating costs including utilities. In April 2009, we ceased using a portion of the office space in our New York headquarters and agreed on terms for a sublease. As a result, in the second quarter of 2009 we will be recording a restructuring charge of $0.7 million reflecting the fair value of the remaining rent payments for the office space, net of expected sublease income, plus real estate commissions, and write-offs of property and equipment. We expect our occupancy and related costs to decrease by $0.4 million per year as a result of this agreement.

Marketing, Travel and Entertainment

The decrease in marketing, travel and entertainment expenses for the three months ended March 31, 2009 compared to the same period in 2008 was primarily due to a decrease in general corporate travel. Corporate travel related expenses decreased $0.5 million to $0.3 million for the three months ended March 31, 2009 compared to $0.8 million for the same period in 2008. Marketing costs increased slightly to $0.5 million in 2009 compared to $0.4 million in 2008 as a result of our product promotion campaigns.

Professional Fees (including consulting)

The decrease in professional fees incurred for the three months ended March 31, 2009 compared to the same period in 2008 was primarily due to a decrease in consulting costs. Consulting costs decreased $1.1 million to $0.8 million for the three months ended March 31, 2009 compared to $1.9 million for the same period in 2008. Legal and accounting fees increased slightly to $0.7 million for the three months ended March 31, 2009 as compared to $0.5 million in 2008 primarily due to legal costs incurred in connection with ensuring ongoing compliance of Euro Millennium with FSA regulations.

General and Other

General and other expenses were comparable at $1.7 million for the three months ended March 31, 2009 as compared to $1.6 million for the same period of 2008.

Stock-based Compensation

Stock-based compensation included in SG&A decreased during the three months ended March 31, 2009 compared to the same period in 2008 primarily due to the normalization of the vesting periods related to stock options and restricted stock units. During the fourth quarter of 2007 significant share-based awards were granted following the adoption of the 2007 Omnibus Equity Compensation Plan. Under the plan, awards normally vest over four years. However, the first vesting period for the initial awards was approximately five months, resulting in greater than normal expense during the fourth quarter of 2007 and first quarter of 2008. Stock-compensation expense (including the amount recorded in cost of revenue) is expected to be approximately $1.5 million per quarter throughout 2009. Stock-based compensation amounts may vary, however, depending on the fair value of performance awards when the applicable criteria are established, whether such performance awards actually vest and whether additional awards are granted.

Euro Millennium Costs

During the three months ended March 31, 2008, we incurred costs of $2.2 million related to Euro Millennium. These costs include compensation and related costs, consulting, marketing and travel related costs. Due to the recent growth in matched volumes and revenues, we determined that, effective January 1, 2009, Euro Millennium was no longer in its introductory phase and we now report the . . .