Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help you understand MF Global Ltd. and its consolidated subsidiaries. Our MD&A should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes, included elsewhere in this Quarterly Report on Form 10-Q.

Business Overview

We are a leading intermediary offering customized solutions in the global cash and derivatives markets. We provide execution and clearing services for exchange-traded and over-the-counter, or OTC, derivative products, as well as for certain products in the cash market. We provide our clients with access to many of the largest and fastest growing markets and products throughout the world. Our clients include institutions, hedge funds and other asset managers, as well as professional traders and private clients. We act as an intermediary principally for five types of products: fixed income, commodities, foreign exchange, equities and interest rate products, and support a retail products group. We have offices in Bermuda, Chicago, Dubai, Geneva, Hong Kong, London, Mumbai, New York, Paris, Singapore, Sydney, Taipei, Tokyo, and Toronto among others. Our business model is global and product-driven, which allows us to centrally manage our resources while offering clients an expansive array of products across a broad range of markets and geographies. We operate and manage our business as a single operating segment. We do not manage our business by services or product lines, market types, geographic regions, client segments or any other exclusive category.

As a result of global market conditions and consistent with trading activity on major exchanges, the total volume of exchange-traded futures and options we executed and/or cleared decreased 21.1% from 501.4 million contracts in the three months ended September 30, 2008 to 395.8 million contracts in the three months ended September 30, 2009. The total volume of exchange-traded futures and options we executed and/or cleared decreased 20.9% from 1,044.0 million contracts in the six months ended September 30, 2008 to 825.5 million contracts in the six months ended September 30, 2009. This decline is in contrast to overall growth in our transaction volumes that we had experienced in prior years related to increased volatility in many of the markets in which we operate. For a discussion of the manner in which we calculate our volumes, see "-Factors Affecting our Results-Trading Volumes and Volatility". Furthermore, in light of the efforts of the US government and the US Federal Reserve to stimulate the national economy, interest rates have decreased dramatically over the past year, which contributed to the decrease in our interest income from $272.3 million and $618.1 million in the three and six months ended September 30, 2008 to $100.8 million and $213.0 million in the three and six months ended September 30, 2009, respectively.

We derive revenues from four main sources: commissions from agency execution; commissions from clearing services; markups from principal transactions, primarily consisting of client trades executed on a matched-principal basis; and net interest income on (i) cash balances in our clients' accounts, most of which are maintained by our clearing clients to meet margin requirements as well as
(ii) interest related to our fixed income and principal transactions activities.

In July 2007, we completed an initial public offering of our common shares, after certain reorganization, separation and recapitalization transactions conducted with Man Group, plc, ("Man Group", and such transactions collectively, including the initial public offering "the IPO").

Significant Business Developments

Two-Year Term Facility

On July 18, 2008, we entered into a credit agreement with several banks that provided for a two-year, $300.0 million unsecured term loan facility (the "Two-Year Term Facility"), which enabled us to prepay loans under our bridge facility that were otherwise due and payable on December 12, 2008. On April 16, 2009, we paid the outstanding balance of $240.0 million on the Two-Year Term Facility ahead of its maturity date of July 16, 2010 thus terminating all remaining obligations under the Two-Year Term Facility. In connection with the early repayment of the Two-Year Term Facility, we recorded a loss on extinguishment of debt of $9.7 million related to the accelerated amortization of debt issuance costs. See Note 8 to our unaudited consolidated financial statements for further details.

Factors Affecting Our Results

Our business environment directly affects our results of operations. Our results of operations have been and will continue to be affected by many factors, including economic, political and market conditions, broad trends in the brokerage and finance industry, changes in the level of trading activity in the broader marketplace, price levels and price volatility in the derivatives, interest rate, equity, foreign exchange and commodity markets, legislative and regulatory changes and competition, among other factors. Specifically, our business has been impacted by turmoil in global markets during fiscal 2009 and the first half of fiscal 2010. Financial markets have experienced elevated levels of volatility due to concerns about the outlook for global growth and inflation. In addition, the global equity markets have experienced significant declines in the first quarter of fiscal 2010 compared to appreciation in the second quarter of fiscal 2010, mortgage and corporate credit spreads have widened and during our first quarter of fiscal 2010, the U.S. dollar appreciated against the Euro and British pound offset by depreciation of the British Pound during the second quarter. All of these factors have contributed to our results for the periods presented. Our revenues are substantially dependent on the volume of client transactions we execute and clear, the volatility in the principal markets in which we operate, as well as prevailing interest rates, each of which are described below.

Trading Volumes and Volatility

Our trading volumes are particularly dependent on our clients' demand for exchange-traded and OTC derivative products, which relate to interest rates, equities, foreign exchange and commodities. Demand for these products is driven by a number of factors, including the degree of volatility of the market prices of the underlying assets-that is, the extent to which and how rapidly those prices change during a given period. Higher price volatility increases the need for some clients to manage price risk and creates opportunities for speculative trading for others. While higher price volatility does not necessarily lead to increases in trading volumes, changes in the absolute price levels of financial assets or commodities can have a significant impact on trading volumes. The total volume of exchange-traded futures and options transactions we executed and/or cleared decreased 21.1% from 501.4 million contracts in the three months ended September 30, 2008 to 395.8 million contracts in the three months ended September 30, 2009 and decreased 20.9% from 1,044.0 million contracts in the six months ended September 30, 2008 to 825.5 million contracts in the six months ended September 30, 2009. In recent periods of high volatility, we experienced a decrease in professional trader volumes as these customers tend to reduce trading during periods of significant volatility; as volatility decreased somewhat during our first half of fiscal 2010; professional trader volume has begun to recover. In addition, during times of significant economic and political disruptions, clients may seek to manage their exposure to, or speculate on, market volatility. However, as was seen during fiscal 2009, extreme volatility and widespread uncertainty can impact a client's ability to take on or maintain positions, which has the effect of decreasing volumes.

All volume statistics presented herein for fiscal 2010 and 2009 include exchange-traded futures and options contract volumes as derived from our reporting systems, excluding intercompany volumes. We are continuing to enhance our reporting systems in order to improve the analysis of operating data generated by our business.

Interest

Our net interest income, calculated as interest income less interest expense, is directly affected by the spread between short-term interest rates we pay our clients on their account balances and the short-term interest rates we earn from cash balances we hold as well as the duration of the portfolio of client balances invested. Client balances can be impacted by a variety of exogenous factors, including changes in margin requirements at exchanges, market volatility, declining asset values, such as has been experienced in the energy markets, as well as changes in the composition of margin. Clients, for example, may elect to deposit securities, rather than cash, as margin, which will result in a reduction in our client balances because the securities deposited as margin are not carried on our balance sheet. As a result of these exogenous factors, client balances fluctuate, often significantly, from day to day and may not be indicative of future business.

Our net interest income is also directly affected by principal transactions, such as fixed income, securities lending and interest rate collateralized transactions. While spreads on these transactions have remained within a relatively constant range over time, they can widen or narrow when interest rate trends change, as was seen in the compression of spreads experienced during the first half of fiscal 2010 as compared to the end of fiscal 2009. Accordingly, we carefully monitor and seek to economically hedge our risk exposure as appropriate. In addition, a smaller portion of our interest income relates to client balances on which we do not pay interest and thus is directly affected by the absolute level of short-term interest rates. As a result, our net interest income is impacted by the level and volatility of interest rates, as well as the duration of the portfolio of client balances invested. Any fair value adjustments to the investments in which client balances are invested are not included in interest but presented in Principal transactions, although they

form part of the return on client balances. Included within interest income is the interest we earn on our excess cash. Our interest on borrowings is also affected by changes in interest rates, which could increase or decrease the interest expense on our variable rate debt.

Results of Operations

Basis of Presentation

Management believes that our unaudited consolidated financial statements include normally recurring adjustments and accruals necessary for a fair presentation of the unaudited consolidated balance sheets, statements of operations, cash flows, changes in equity and comprehensive income for the periods presented. Certain prior year amounts have been reclassified to conform to current year presentation.

We operate and manage our business on an integrated basis as a single operating segment. We derive our revenues principally from execution and clearing services we provide to our clients, including interest income related to providing these services. While we provide these services to a diverse client base across multiple products, markets and geographic regions, we do not manage our business, allocate resources or review our operating results based on the type of client, product or trading market or the geographic region in which these services are provided. For information related to our geographic regions, see Note 14 to our unaudited consolidated financial statements.

On April 1, 2009, we adopted two new accounting standards each of which is effective for our fiscal year ending March 31, 2010 and interim periods within such fiscal year. These standards require retrospective application and resulted in an adjustment to prior period financial statements. The first standard discusses accounting for noncontrolling interests in consolidated financial statements and resulted in a $12.8 million increase to total equity for the year ended March 31, 2009 due to adoption. The second standard discusses accounting for convertible debt instruments that may be settled in cash upon conversion including partial cash settlement and resulted in a $0.2 million decrease to Net income attributable to MF Global Ltd. for the three and six months ended September 30, 2008, $1.0 million decrease to total assets, $7.0 million decrease to total liabilities and a $6.0 million increase to total equity for the year ended March 31, 2009 due to adoption.

Six Months ended September 30, 2009 Compared to the Six Months ended
September 30, 2008



                                                         Six months ended September 30,
(Amounts in millions except share data)            2009                 2008             % Change
Revenues
Execution only commissions                     $       158.9        $       226.0           (29.7 )
Cleared commissions                                    522.3                744.9           (29.9 )
Principal transactions                                  85.9                132.4           (35.1 )
Interest income                                        213.0                618.1           (65.5 )
Other                                                   23.0                 26.0           (11.5 )

Total revenues                                       1,003.2              1,747.3           (42.6 )

Interest and transaction-based expenses:
Interest expense                                        71.2                410.5           (82.7 )
Execution and clearing fees                            288.4                453.7           (36.4 )
Sales commissions                                      120.0                135.6           (11.5 )

Total interest and transaction-based
expenses                                               479.6                999.8           (52.0 )

Revenues, net of interest and
transaction-based expenses                             523.6                747.5           (30.0 )


Expenses
Employee compensation and benefits
(excluding non-recurring IPO awards)                   337.1                425.2           (20.7 )
Employee compensation related to
non-recurring IPO awards                                18.0                 35.0           (48.6 )
Communications and technology                           55.8                 63.9           (12.7 )
Occupancy and equipment costs                           19.5                 21.5            (9.3 )
Depreciation and amortization                           27.9                 28.2            (1.1 )
Professional fees                                       37.4                 50.1           (25.3 )
General and other                                       59.7                 47.3            26.2
IPO-related costs                                        0.9                 10.7           (91.6 )
Impairment of goodwill                                   1.2                   -            100.0

Total other expenses                                   557.4                681.9           (18.3 )

Gains on exchange seats and shares                      11.2                 15.1           (25.8 )
Loss on extinguishment of debt                           9.7                   -            100.0
Interest on borrowings                                  20.5                 36.2           (43.4 )

(Loss)/income before provision for income
taxes                                                  (52.8 )               44.6          (218.4 )
(Benefit)/provision for income taxes                   (19.4 )               17.9          (208.4 )
Equity in income/(loss) of unconsolidated
companies (net of tax)                                   0.9                 (1.6 )         156.3

Net (loss)/income                                      (32.4 )               25.0          (229.6 )
Net income attributable to noncontrolling
interest                                                 1.0                  1.2           (16.7 )

Net (loss)/income attributable to MF
Global Ltd.                                            (33.5 )               23.8          (240.8 )


(Loss)/ earnings per share:
Basic                                          $       (0.40 )      $        0.14
Diluted                                        $       (0.40 )      $        0.14
Weighted average number of common shares
outstanding:
Basic                                            123,087,787          120,279,627
Diluted                                          123,087,787          120,279,627

Three Months ended September 30, 2009 Compared to the Three Months ended
September 30, 2008



                                                        Three months ended September 30,
(Amounts in millions except share data)            2009                 2008             % Change
Revenues
Execution only commissions                     $        79.6        $       107.0           (25.6 )
Cleared commissions                                    262.8                370.7           (29.1 )
Principal transactions                                  40.2                 69.2           (41.9 )
Interest income                                        100.8                272.3           (63.0 )
Other                                                    9.4                 14.3           (34.3 )

Total revenues                                         492.8                833.5           (40.9 )

Interest and transaction-based expenses:
Interest expense                                        35.1                171.7           (79.6 )
Execution and clearing fees                            146.3                221.0           (33.8 )
Sales commissions                                       59.5                 67.9           (12.4 )

Total interest and transaction-based
expenses                                               240.8                460.6           (47.7 )

Revenues, net of interest and
transaction-based expenses                             252.0                372.9           (32.4 )


Expenses
Employee compensation and benefits
(excluding non-recurring IPO awards)                   164.4                214.6           (23.4 )
Employee compensation related to
non-recurring
IPO awards                                               9.2                 17.2           (46.5 )
Communications and technology                           28.7                 31.5            (8.9 )
Occupancy and equipment costs                            9.8                 11.2           (12.5 )
Depreciation and amortization                           14.2                 14.0             1.4
Professional fees                                       17.4                 19.0            (8.4 )
General and other                                       21.4                 31.8           (32.7 )
IPO-related costs                                         -                   5.3          (100.0 )
Impairment of goodwill                                   0.6                   -            100.0

Total other expenses                                   265.7                344.6           (22.9 )

Gains on exchange seats and shares                      10.6                 15.8           (32.9 )
Interest on borrowings                                  10.0                 22.0           (54.5 )

(Loss)/income before provision for income
taxes                                                  (13.0 )               22.0          (159.1 )
(Benefit)/provision for income taxes                    (5.0 )               11.2          (144.6 )
Equity in income/(loss) of unconsolidated
companies (net of tax)                                   0.3                 (0.8 )         137.5

Net (loss)/income                                       (7.7 )               10.1          (176.2 )
Net income attributable to noncontrolling
interest                                                 0.6                  0.7           (14.3 )

Net (loss)/income attributable to MF
Global Ltd.                                    $        (8.3 )      $         9.4          (188.3 )


(Loss)/ earnings per share:
Basic                                          $       (0.13 )      $        0.03
Diluted                                        $       (0.13 )      $        0.03
Weighted average number of common shares
outstanding:
Basic                                            123,254,930          120,503,557
Diluted                                          123,254,930          120,503,557

Overview Year to Date Results

Revenues, net of interest and transaction-based expenses, decreased $223.9 million, or 30.0%, to $523.6 million for the six months ended September 30, 2009 from $747.5 million for the six months ended September 30, 2008. The decrease was primarily due to a 20.9% decrease in our total volumes of executed and/or cleared exchange-traded futures and option transactions from 1,044.0 million contracts for the six months ended September 30, 2008 to 825.5 million contracts for the six months ended September 30, 2009. The decrease of 218.5 million contracts in our total volumes of executed and/or cleared exchange-traded futures and option transactions was spread across many of our primary products, markets and geographic regions. The decrease in revenues, net of interest and transaction based expenses, was also due in part to lower net interest generated from client funds due to declining interest rates and the narrowing of short-term credit spreads. See "-Supplementary Data" for further details.

Our other expenses, which refer to our expenses other than interest and transaction-based expenses, decreased $124.5 million, or 18.3%, to $557.4 million for the six months ended September 30, 2009 from $681.9 million for the six months ended September 30, 2008. The decrease was primarily due to a reduction of $88.1 million in employee compensation and benefits (excluding non-recurring IPO awards) which correlates with decreased net revenues, a reduction of $12.7 million in professional fees comprised of audit fees, legal fees and other consulting fees, a reduction of $17.0 million in stock-based compensation expense on our equity awards issued in connection with our IPO, a reduction of $8.1 million in communications and technology costs and a reduction of $9.8 million related to lower IPO-related costs. These reductions for the six months ended September 30, 2009 were offset by $16.0 million in foreign exchange translation losses arising during the six months ended September 30, 2009. In contrast, we recorded foreign exchange gains of $7.1 million for the six months ended September 30, 2008.

Loss before provision for income taxes was $52.8 million for the six months ended September 30, 2009 compared to income of $44.6 million for the six months ended September 30, 2008. This loss was primarily due to decreased revenues, net of interest and transaction-based expenses, the $9.7 million loss on extinguishment of debt that we incurred in relation to the repayment of the Two-Year Term Facility and a decrease of $3.9 million in gains on exchange seats and shares. The loss was partially offset by the decrease in other expenses mentioned above and a decrease of $15.7 million in interest on borrowings.

We recorded a net loss of $33.5 million for the six months ended September 30, 2009 compared to net income of $23.8 million for the six months ended September 30, 2008. Net loss is impacted by the items discussed above, plus a decreased effective tax rate resulting from a greater percentage of profits being generated in lower-tax jurisdictions partially offset by the effects of non-deductible expenses and a lower vesting date fair value on equity compensation awards granted at IPO. The tax rate on ongoing operations increased for the six months ended September 30, 2009 compared to the six months ended September 30, 2008, which resulted in increased tax benefits.

Overview Quarterly Results

Revenues, net of interest and transaction-based expenses, decreased $120.9 million, or 32.4%, to $252.0 million for the three months ended September 30, 2009 from $372.9 million for the three months ended September 30, 2008. The decrease was primarily due to a 21.1% decrease in our total volumes of executed and/or cleared exchange-traded futures and option transactions from 501.4 million contracts for the three months ended September 30, 2008 to 395.8 million contracts for the three months ended September 30, 2009. The decrease of 105.6 million contracts in our total volumes of executed and/or cleared exchange-traded futures and option transactions was spread across many of our primary products, markets and geographic regions. The decrease in revenues, net of interest and transaction based expenses, was also due in part to lower net interest generated from client funds due to declining interest rates and the narrowing of short-term credit spreads. See "-Supplementary Data" for further details.

Our other expenses, which refer to our expenses other than interest and transaction-based expenses, decreased $78.9 million, or 22.9%, to $265.7 million for the three months ended September 30, 2009 from $344.6 million for the three months ended September 30, 2008. The decrease was primarily due to a reduction of $50.2 million in employee compensation and benefits (excluding non-recurring IPO awards) which correlates with decreased net revenues, a reduction of $8.0 million in stock-based compensation expense on our equity awards issued in connection with our IPO, a reduction of $2.8 million in communication and technology costs, a reduction of $5.3 million related to lower IPO-related costs and a reduction of $10.4 million in general and other expenses.

Loss before provision for income taxes was $13.0 million for the three months ended September 30, 2009 compared to income of $22.0 million for the three months ended September 30, 2008. This loss was primarily due to decreased revenues, net of interest and transaction-based expenses and a decrease of $5.2 million in gains on exchange seats and shares which was partially offset by the decrease in other expenses mentioned above as well as a decrease of $12.0 million in interest on borrowings.

We recorded a net loss of $8.3 million for the three months ended September 30, 2009 compared to net income of $9.4 million for the three months ended September 30, 2008. Net loss is impacted by the items discussed above, plus a decreased effective tax rate resulting from a greater percentage of profits being generated in lower -tax jurisdictions partially offset by a lower vesting date fair value on equity compensation awards granted at IPO. The tax rate on ongoing operations increased for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, which resulted in increased tax benefits.

Revenues

Execution-only Commissions

Year to Date Results

Execution-only commissions decreased $67.1 million, or 29.7%, to $158.9 million . . .