Edgar Filing: MF Global Holdings Ltd.

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the QUARTERLY PERIOD ended December 31, 2010

¨	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 001-33590

MF GLOBAL HOLDINGS LTD.

(Exact name of registrant as specified in its charter)


Delaware		98-0551260
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

717 Fifth Avenue New York, NY		10022
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 589-6200

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

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

The number of common stock outstanding of the registrant as of December 31, 2010, was 163,386,012.

MF GLOBAL HOLDINGS LTD.

INDEX TO FORM 10-Q


	PART I.—FINANCIAL INFORMATION
Item 1.	Unaudited Consolidated Financial Statements and Supplementary Data	2
	Unaudited Consolidated Statements of Operations	2
	Unaudited Consolidated Balance Sheets	3
	Unaudited Consolidated Statements of Cash Flows	4
	Unaudited Consolidated Statement of Changes in Equity	6
	Unaudited Consolidated Statements of Comprehensive Income	7
	Notes to the Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	83
Item 4.	Controls and Procedures	88

	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	88
Item 1A.	Risk Factors	92
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93
Item 3.	Defaults Upon Senior Securities	93
Item 4.	(Removed and Reserved)	93
Item 5.	Other Information	93
Item 6.	Exhibits	94

PART I.—FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements and Supplementary Data

MF GLOBAL HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share and share amounts)


	Three months ended December 31,						Nine months ended December 31,
	2010			2009			2010			2009
Revenues
Commissions	$	344,803		$	357,199		$	1,049,276		$	1,038,454
Principal transactions		40,889			33,213			152,384			124,181
Interest income		141,753			106,240			383,923			302,141
Other		8,767			8,733			31,446			31,745

Total revenues		536,212			505,385			1,617,029			1,496,521
Interest and transaction-based expenses:
Interest expense		65,234			35,368			165,806			94,528
Execution and clearing fees		161,125			156,969			491,294			445,361
Sales commissions		63,094			62,044			183,396			182,068

Total interest and transaction-based expenses		289,453			254,381			840,496			721,957
Revenues, net of interest and transaction-based expenses		246,759			251,004			776,533			774,564

Expenses
Employee compensation and benefits (excluding non-recurring IPO awards)		142,346			150,460			437,217			485,428
Employee compensation related to non-recurring IPO awards		—			7,086			12,436			25,099
Communications and technology		32,937			31,352			98,745			87,173
Occupancy and equipment costs		13,728			9,884			36,006			29,351
Depreciation and amortization		11,327			13,482			32,941			41,341
Professional fees		20,820			19,587			52,194			58,614
General and other		22,169			21,980			60,917			82,158
IPO-related costs		—			—			—			894
Restructuring charges		—			—			12,792			—
Impairment of intangible assets and goodwill		1,323			1,165			2,869			2,325

Total other expenses		244,650			254,996			746,117			812,383
Gain on exchange seats and shares		422			1,680			2,063			12,924
Loss on extinguishment of debt		—			—			2,737			9,682
Interest on borrowings		11,527			9,903			31,104			30,415

Loss before provision for income taxes		(8,996	)		(12,215	)		(1,362	)		(64,992	)
(Benefit)/provision for income taxes		(4,544	)		2,249			32,920			(17,154	)
Equity in income of unconsolidated companies (net of tax)		558			330			1,762			1,260

Net loss		(3,894	)		(14,134	)		(32,520	)		(46,578	)
Net income attributable to noncontrolling interest (net of tax)		815			484			2,122			1,525

Net loss attributable to MF Global Holdings Ltd.	$	(4,709	)	$	(14,618	)	$	(34,642	)	$	(48,103	)

Dividends declared on preferred stock		5,005			7,678			19,441			23,034
Deemed dividend resulting from exchange offer		—			—			48,792			—

Net loss applicable to common shareholders	$	(9,714	)	$	(22,296	)	$	(102,875	)	$	(71,137	)

Loss per share (see Note 14):
Basic	$	(0.06	)	$	(0.18	)	$	(0.68	)	$	(0.58	)
Diluted	$	(0.06	)	$	(0.18	)	$	(0.68	)	$	(0.58	)
Weighted average number of shares of common stock outstanding:
Basic		163,268,035			123,272,712			151,379,516			123,149,652
Diluted		163,268,035			123,272,712			151,379,516			123,149,652

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

MF GLOBAL HOLDINGS LTD.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except per share and share amounts)


	December 31, 2010			March 31, 2010
Assets
Cash and cash equivalents	$	836,338		$	826,227
Restricted cash and segregated securities		10,787,626			9,693,927
Securities purchased under agreements to resell (including $13,069,746 and $14,825,760 at fair value, respectively)		10,341,051			22,125,430
Securities borrowed (including $0 and $1,004,017 at fair value, respectively)		2,836,378			3,918,553
Securities received as collateral		90,653			52,185
Securities owned (including $11,588,144 and $8,357,551 pledged, respectively)		12,826,938			10,320,139
Receivables:
Brokers, dealers and clearing organizations		3,756,889			3,317,789
Customers (net of allowances of $19,117 and $31,371 respectively)		467,283			292,110
Other		66,277			44,418
Memberships in exchanges, at cost (fair value of $17,605 and $19,285, respectively)		5,857			6,262
Furniture, equipment and leasehold improvements, net		118,416			72,961
Intangible assets, net		61,656			73,359
Other assets		261,773			222,720

TOTAL ASSETS	$	42,457,135		$	50,966,080

Liabilities and Equity
Short-term borrowings, including current portion of long-term borrowings	$	532,311		$	142,867
Securities sold under agreements to repurchase (including $8,233,520 and $9,281,426 at fair value, respectively)		18,632,833			29,079,743
Securities loaned		1,269,820			989,191
Obligation to return securities borrowed		90,653			52,185
Securities sold, not yet purchased, at fair value		6,340,706			4,401,449
Payables:
Brokers, dealers and clearing organizations		581,002			2,240,731
Customers		13,095,384			11,997,852
Accrued expenses and other liabilities		211,562			197,074
Long-term borrowings		191,387			499,389

TOTAL LIABILITIES		40,945,658			49,600,481

Commitments and contingencies (Note 10)
Preferred stock, $1.00 par value per share; 200,000,000 shares authorized;
1,500,000 Series A Convertible, issued and outstanding, cumulative		96,167			96,167
403,550 and 1,500,000 Series B Convertible, issued and outstanding, non-cumulative, respectively		34,446			128,035

EQUITY
Common stock, $1.00 par value per share; 1,000,000,000 shares authorized, 163,307,234 and 121,698,729 shares issued and outstanding, respectively		163,307			121,699
Treasury stock		—			(219	)
Receivable from shareholder		—			(29,779	)
Additional paid-in capital		1,557,981			1,367,948
Accumulated deficit		(363,108	)		(328,466	)
Accumulated other comprehensive income/(loss) (net of tax)		4,262			(5,752	)
Noncontrolling interest		18,422			15,966

TOTAL EQUITY		1,380,864			1,141,397

TOTAL LIABILITIES AND EQUITY	$	42,457,135		$	50,966,080

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

MF GLOBAL HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


	Nine months ended December 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(32,520	)	$	(46,578	)
Less: Net income attributable to noncontrolling interest, net of tax		2,122			1,525

Net loss attributable to MF Global Holdings Ltd.		(34,642	)		(48,103	)
Adjustments to reconcile net loss to net cash (used in)/provided by operating activities:
Gains on sale of exchanges seats and shares		(1,098	)		(576	)
Depreciation and amortization		32,941			41,341
Stock-based compensation expense		42,557			52,139
Bad debt expense		(294	)		(1,139	)
Deferred income taxes		(33,176	)		3,420
Equity in income of unconsolidated affiliates		(1,762	)		(1,260	)
Dividend received from unconsolidated affiliates		1,459			2,106
Income attributable to noncontrolling interest, net of tax		2,122			1,525
(Gain)/loss on extinguishment of debt		(2,821	)		9,682
Amortization of debt issuance costs		6,027			5,909
Impairment of goodwill and intangible assets		2,869			2,325
(Increase)/decrease in operating assets:
Restricted cash and segregated securities		(1,068,159	)		114,095
Securities purchased under agreements to resell		11,784,379			(6,122,002	)
Securities borrowed		1,082,184			395,413
Securities owned		(2,505,583	)		(8,471,804	)
Receivables:
Brokers, dealers and clearing organizations		(412,923	)		(2,835,216	)
Customers		(175,087	)		(10,035	)
Other		(21,763	)		4,506
Other assets		(2,450	)		(34,235	)
(Decrease)/increase in operating liabilities:
Securities sold under agreements to repurchase		(10,447,004	)		17,043,071
Securities loaned		279,679			(5,270,453	)
Securities sold, not yet purchased, at fair value		1,939,255			2,171,372
Payables:
Brokers, dealers and clearing organizations		(1,660,135	)		3,325,964
Customers		1,045,765			341,136
Accrued expenses and other liabilities		7,848			(123,206	)

Net cash (used in)/provided by operating activities		(139,812	)		595,975

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

MF GLOBAL HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(Unaudited)

(Dollars in thousands)


	Nine months ended December 31,
	2010			2009
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions		(4,851	)		(2,326	)
Proceeds from sale of memberships in exchanges		1,437			612
Purchase of furniture, equipment and leasehold improvements		(61,931	)		(24,096	)

Net cash used in investing activities		(65,345	)		(25,810	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from other short-term borrowings, net		89,433			2,700
Issuance of common stock		184,000			—
Repayment of liquidity facility		—			(200,000	)
Repayment of two-year term facility		—			(240,000	)
Repayment of convertible notes		(4,482	)		—
Payment of debt issuance costs		(6,818	)		(791	)
Payment of common stock issuance costs		(9,690	)		—
Proceeds from Man Group		29,779			—
Payment to Man Group for tax indemnification		(751	)		—
Payment related to exchange of preferred securities		(2,153	)		—
Payment of dividends on preferred stock		(19,441	)		(23,034	)
Payment of deemed dividend resulting from exchange offer		(48,792	)		—

Net cash provided by/(used in) financing activities		211,085			(461,125	)

Effect of exchange rates on cash and cash equivalents		4,183			6,110

Increase in cash and cash equivalents		10,111			115,150
Cash and cash equivalents at beginning of year		826,227			639,183

Cash and cash equivalents at end of period	$	836,338		$	754,333

SUPPLEMENTAL NON-CASH FLOW INFORMATION
Securities received as collateral		90,653			21,126
Obligation to return securities borrowed		(90,653	)		(21,126	)

In July 2010, the Company completed its offer to exchange shares of Common Stock and a cash premium for any and all of its outstanding Convertible Notes and Series B Preferred Stock. In the exchange offer, $9,337 in principal amount of the Convertible Notes and 1,096,450 shares of Series B Preferred Stock were validly tendered. The Company issued, in the aggregate, 893,486 shares of its Common Stock to the tendering holders of the Convertible Notes and 10,492,366 shares of Common Stock to the tendering holders of the shares of Series B Preferred Stock.

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

MF GLOBAL HOLDINGS LTD.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

(Dollars in thousands)


	Common Stock		Treasury Stock			Receivable from Shareholder			Additional paid-in capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss)/ Income			Noncontrolling interest		Total Equity
Equity at March 31, 2010	$	121,699	$	(219	)	$	(29,779	)	$	1,367,948		$	(328,466	)	$	(5,752	)	$	15,966	$	1,141,397
Stock-based compensation										44,885											44,885
Net loss attributable to MF Global Holdings Ltd.													(34,642	)							(34,642	)
Net income attributable to noncontrolling interest																			2,122		2,122
Foreign currency translation																10,014			334		10,348
Stock issued in connection with employee stock plans		4,308		219						(17,641	)										(13,114	)
Public stock issuance		25,915								148,395											174,310
Tax indemnification to Man Group										(1,941	)										(1,941	)
Dividend distributions										(19,441	)										(19,441	)
Deemed dividend resulting from exchange offer										(48,792	)										(48,792	)
Exchange of convertible notes and preferred B shares		11,385								84,568											95,953
Settlement of shareholder receivable							29,779														29,779

Equity at December 31, 2010	$	163,307	$	—		$	—		$	1,557,981		$	(363,108	)	$	4,262		$	18,422	$	1,380,864

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

MF GLOBAL HOLDINGS LTD.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)


	Three months ended December 31,						Nine months ended December 31,
	2010			2009			2010			2009
Net loss	$	(3,894	)	$	(14,134	)	$	(32,520	)	$	(46,578	)
Foreign currency translation adjustment		4,392			5,175			10,348			19,851

Comprehensive income/(loss)	$	498		$	(8,959	)	$	(22,172	)	$	(26,727	)
Comprehensive income attributable to noncontrolling interest		1,083			920			2,456			2,553

Comprehensive loss attributable to MF Global Holdings Ltd.	$	(585	)	$	(9,879	)	$	(24,628	)	$	(29,280	)

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

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

Note 1: Organization and Basis of Presentation

MF Global Holdings Ltd. (together with its subsidiaries, the “Company”) is a leading broker of commodities and listed derivatives. Building on a history that extends more than 225 years, the Company delivers trading and hedging solutions as a broker-dealer across all major markets for futures and options, commodities, fixed income, equities and foreign exchange. The Company helps its clients discover and capitalize on market opportunities by providing actionable insight, market expertise and deep liquidity. The Company also provides access to more than 70 exchanges around the world and is a leader by volume on many of the largest derivatives exchanges. The Company is operated and managed on an integrated basis as a single operating segment, with a presence in the United States (“U.S.”), the United Kingdom (“U.K.”), France, Singapore, Australia, Hong Kong, Canada, India and Japan, among others.

The Company’s principal subsidiaries operate as registered futures commission merchants and as broker-dealers or the local equivalents and maintain futures, options, and securities accounts for customers. The Company’s subsidiaries are members of various commodities, futures, and securities exchanges in North America, Europe, and the Asia Pacific region and accordingly are subject to local regulatory requirements including those of the U.S. Commodity Futures Trading Commission (“CFTC”), the U.S. Securities and Exchange Commission (“SEC”), and the U.K. Financial Services Authority (“FSA”), among others.

The unaudited consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the consolidated accounts of MF Global Holdings Ltd. and its subsidiaries. Management believes that these unaudited consolidated financial statements include all normally recurring adjustments and accruals necessary for a fair statement of the unaudited consolidated statements of operations, balance sheets, cash flows, changes in equity and comprehensive income for the periods presented. Certain prior year amounts have been reclassified to conform to current period presentation.

In the first quarter of fiscal 2011, the Company reclassified certain amounts in the statements of operations to better present its business transactions and explain its financial results. Specifically, expenses incurred related to temporary staff and contractors have been reclassified out of Employee compensation and benefits (excluding non-recurring IPO awards) and into Professional fees. Tuition and training costs have also been reclassified out of Employee compensation and benefits (excluding non-recurring IPO awards) and into General and other. In addition, all dividends earned or paid in equity trading strategies previously classified within Interest income and Interest expense have been reclassified into Principal transactions. For the three and nine months ended December 31, 2009 the reclassification made for dividends was $56,338 and $51,263, respectively. These consolidated changes have been voluntarily reclassified by the Company and do not reflect an error or misstatement. The Company does not believe that these adjustments are quantitatively or qualitatively material.

All material intercompany balances and transactions between the Company’s entities have been eliminated in consolidation. Transactions prior to September 30, 2009 between the Company and Man Group plc and its affiliates are herein referred to as “related party” transactions. The Company refers to Man Group plc and its subsidiaries as “Man Group”.

Note 2: Summary of Significant Accounting Policies

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

revenues and expenses during the reported period. Actual results could differ from those estimates. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for a full year.

Restricted cash and securities segregated under federal and other regulations

Certain subsidiaries are obligated by rules mandated by their primary regulators, including the SEC and CFTC in the U.S. and the FSA in the U.K., to segregate or set aside cash or qualified securities to satisfy regulations, promulgated to protect customer assets. Also included within Restricted cash and segregated securities are term cash deposits of $54,204 and $61,148 as of December 31 and March 31, 2010, respectively, which are held as margin for the issuance of bank guarantees to satisfy local exchange requirements for day-to-day clearing. In addition, many of the subsidiaries are members of clearing organizations at which cash or securities are deposited as required to conduct day-to-day clearance activities. At December 31 and March 31, 2010, the Company was in compliance with its segregation requirements.

Securities purchased under agreements to resell and securities sold under agreements to repurchase

Transactions involving purchases of securities under agreements to resell (“resale agreements”) or sales of securities under agreements to repurchase (“repurchase agreements”) are generally treated as collateralized financing transactions. Certain of the Company’s resale and repurchase agreements are recorded at their contractual amounts plus accrued interest. The resulting interest income and expense for these arrangements are generally included in Interest income and Interest expense in the unaudited consolidated statements of operations.

The Company also enters into securities financing transactions that mature on the same date as the underlying collateral. The Company accounts for these transactions in accordance with the accounting standard for transfers and servicing. Such transactions are treated as a sale of financial assets and a forward repurchase commitment, or conversely as a purchase of financial assets and a forward resale commitment. The forward repurchase and resale commitments are accounted for as derivatives under the accounting standard for derivatives and hedging.

Certain of the Company’s resale and repurchase agreements are carried at fair value as a result of the Company’s fair value election. The Company elected the fair value option for those resale and repurchase agreements that were entered into on or after April 1, 2009, and that do not settle overnight or do not have an open settlement date or that are not accounted for as purchase or sale agreements. The Company has elected the fair value option for these instruments to more accurately reflect market and economic events in its earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. Changes in the fair value of these transactions are recorded in Principal transactions in the unaudited consolidated statement of operations.

Resale and repurchase transactions are presented on a net-by-counterparty basis when the requirements of the Accounting Standards Codification (“ASC”) are satisfied.

It is the general policy of the Company to take possession of securities with a market value equal to or in excess of the principal amount loaned plus the accrued interest thereon in order to collateralize resale agreements. Similarly, the Company is generally required to provide securities to counterparties to collateralize

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

repurchase agreements. The Company’s agreements with counterparties generally contain contractual provisions allowing for additional collateral to be obtained, or excess collateral returned. The collateral is marked to market daily and the Company may require counterparties to deposit additional collateral or return collateral pledged, when deemed appropriate.

Collateral

The Company enters into collateralized financing transactions and matched book positions principally through the use of repurchase agreements and securities lending agreements. In these transactions, the Company receives cash or securities in exchange for other securities, including U.S. and European government, government sponsored entity and federal agency obligations, corporate debt and other debt obligations, and equities. The Company records assets it has pledged as collateral in collateralized borrowings and other arrangements on the unaudited consolidated balance sheets when the Company is the debtor as defined in accordance with the accounting standard for transfers and servicing of financial assets.

The Company obtains securities as collateral principally through the use of resale agreements, securities borrowing agreements, customer margin loans and other collateralized financing activities to facilitate its matched book arrangements, inventory positions, customer needs and settlement requirements. In many cases, the Company is permitted to sell or repledge securities held as collateral. These securities may be used to collateralize repurchase agreements, to enter into securities lending agreements or to cover short positions. As of December 31 and March 31, 2010, the fair value of securities received as collateral by the Company, excluding collateral received under resale agreements, that it was permitted to sell or repledge was $9,972,586 and $9,523,608, respectively. The Company sold or repledged securities aggregating $12,073,990 and $5,860,051, respectively. Counterparties have the right to sell or repledge these securities. See Note 3 for a description of the collateral received and pledged in connection with agreements to resell or repurchase securities.

Furniture, equipment and leasehold improvements

Furniture and equipment are stated at cost, net of accumulated depreciation. Furniture and equipment are depreciated over their estimated useful lives of 3 to 5 years on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the lesser of the economic useful life of the improvement or the term of the related leases, which range from 2 to 10 years. The Company capitalizes the costs of software developed for internal use in accordance with ASC 350. The software developed or obtained for internal use is amortized over its estimated useful life of 1 to 5 years on a straight-line basis. A summary of furniture, equipment, and leasehold improvements is as follows:


	December 31, 2010		March 31, 2010
Leasehold improvements	$	74,355	$	56,969
Equipment		81,304		77,627
Furniture and fixtures		36,314		37,538
Computer software		63,055		39,135

Total cost		255,028		211,268
Less: accumulated depreciation and amortization		136,612		138,306

Cost, net of accumulated depreciation and amortization	$	118,416	$	72,961

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

Equity

The Company has 1,000,000,000 shares authorized at $1.00 par value per share (“Common Stock”). On June 8, 2010, the Company completed its public offering and sale of 25,915,492 shares of Common Stock, pursuant to an underwriting agreement, dated June 2, 2010. The agreement provided for the sale of 22,535,211 shares of Common Stock to the underwriters at a price of $6.745 per share. In addition, the Company granted the underwriters a 30—day option to purchase up to an additional 3,380,281 shares of Common Stock at a price of $6.745 per share, which was exercised in full on June 3, 2010. The price to the public was $7.10 per share of Common Stock. Net of underwriting discount and other costs, the Company received $174,310 as proceeds. At December 31 and March 31, 2010, the Company has 163,307,234 and 121,698,729 shares of Common Stock issued and outstanding, respectively.

At December 31 and March 31, 2010, noncontrolling interests recorded in the unaudited consolidated balance sheets were $18,422 and $15,966, respectively.

Restructuring

In May 2010, the Company commenced a strategic assessment of its cost base, including reviews of its compensation structure and non-compensation expenses. As a result of this evaluation, the Company reduced its workforce by approximately 12%. During the three and nine months ended December 31, 2010, the Company recorded restructuring charges of $0 and $12,792, as a result of these plans. The charges during the nine months ended December 31, 2010 include $11,686 for severance and other employee compensation costs and $1,106 for occupancy and equipment costs related to office closures. The employee terminations occurred mainly in North America and Europe. As of December 31, 2010, the Company had paid $12,279 and has a remaining accrual of $513, substantially all of which will be paid out within one year.

Principal transactions

Principal transactions include revenues from both matched principal brokerage activities and proprietary transactions. Revenues from matched principal brokerage activities are recorded on the trade date. For these activities, commission is not separately billed to customers; instead a commission equivalent is included in transaction revenues following execution of the transaction on behalf of customers. Principal transactions also includes unrealized gains or losses on equity swaps and contracts for differences (“CFDs”) together with the unrealized gains and losses on the related matching equity hedges that are entered into on a matched-principal basis. Additionally, the Company records in Principal transactions the total return of equity swaps entered into as part of a matched equity hedge and the gains on repurchase and resale agreements accounted for as sales transactions. Principal transactions also include dividends earned or paid in equity trading strategies. On a gross basis, dividends earned and paid included in principal transactions for the three months ended December 31, 2010 were $2,096 and $4,374, respectively, and $15,802 and $72,140, respectively, for the three months ended December 31, 2009. On a gross basis, dividends earned and paid included in principal transactions for the nine months ended December 31, 2010 were $388,064 and $179,011, respectively, and $32,926 and $84,189 respectively, for the nine months ended December 31, 2009.

Proprietary transactions are recorded on the trade date. Profits and losses arising from all securities and commodities transactions entered into for the account and risk of the Company are recorded on a trade date basis, including to a lesser extent from derivatives transactions executed for the Company’s own account to hedge foreign currency exposure. The Company does not separately amortize purchase premiums and discounts associated with proprietary securities transactions, as these are a component of the recorded fair value. Changes

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

in the fair value of such securities are recorded as unrealized gains and losses within Principal transactions in the unaudited consolidated statements of operations. Contractual interest expense earned and incurred on these transactions is included in Interest income and Interest expense in the unaudited consolidated statements of operations.

Interest

Interest is recognized on an accrual basis and includes amounts receivable on certain customer funds, company funds, debt instruments such as agency securities and collateralized financing arrangements. Interest income related to resale agreements, securities borrowed and other collateralized financing arrangements are recognized over the life of the transaction. Interest income and expense for resale and repurchase agreement transactions are presented net in the unaudited consolidated statements of operations pursuant to accounting guidelines.

Consolidation

The Company’s policy is to consolidate all entities of which it owns more than 50% unless it does not have control. Investments in entities in which the Company generally owns greater than 20% but less than 50%, or exercises significant influence, but not control, are accounted for using the equity method of accounting. As of December 31 and March 31, 2010, the Company owned 70.2% of MF Global Sify Securities India Private Limited, 75.0% of MF Global Financial Services India Private Limited, 73.2% of MF Global Futures Trust Co. Ltd. and had a 19.5% equity investment in Polaris MF Global Futures Co., Ltd.

During 2010, the Company launched the MF Global Multi-Strategy Futures Trust Fund (the “Fund”) which is sponsored by one of the Company’s affiliates in Taiwan. While the Company has no direct investment in the Fund, it is responsible for selecting the commodity trading advisors to manage the Fund and providing certain clearing and execution services. The Fund is structured under Taiwanese regulations for a futures trust fund, and due to this structure, the Company has consolidated the Fund under the guidance of ASC 810, Consolidation. At December 31, 2010, the Fund’s total assets of $40,408 were included in Other assets and the Fund’s total liabilities and equity of $40,408 were included in Accrued expenses and other liabilities within the Company’s unaudited consolidated balance sheet.

Recently issued accounting pronouncements

In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-20, Receivables—Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU No. 2010-20”). ASU No. 2010-20 will require a company to provide more information about the credit quality of its financing receivables in the disclosures to the financial statements, including aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on both how a company develops its allowance for credit losses and how it manages its credit exposure. ASU No. 2010-20 is effective for interim and annual reporting periods after December 15, 2010. The Company adopted ASU No. 2010-20 in the third quarter of fiscal 2011 and enhanced disclosure to the notes to the unaudited consolidated financial statements.

In February 2010, the FASB issued ASU No. 2010-10, Consolidation—Amendments for Certain Investment Funds (“ASU No. 2010-10”). ASU No. 2010-10 indefinitely defers the effective date of the updated variable-interest entity (“VIE”) accounting guidance for certain investment funds. To qualify for the deferral, the

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

investment fund needs to meet certain attributes of an investment company, does not have explicit or implicit obligations to fund losses of the entity and is not a securitization entity, an asset-backed financing entity, or an entity formerly considered a qualifying special-purpose entity. The Company adopted ASU No. 2010-10 in the first quarter of fiscal 2011 with no impact to its unaudited consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (“ASU No. 2010-06”). The guidance in ASU No. 2010-06 provides amendments to ASC 820 that requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. In addition, with regards to Level 3 assets, ASU No. 2010-06 now requires that a reporting entity should present separately information about purchases, sales, issuances and settlements on a gross basis in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). The Company adopted the new disclosures and clarifications of existing disclosures in the fourth quarter of fiscal 2010. The Company will adopt the disclosures about purchases, sales, issuances, and settlements in the roll-forward of activity in Level 3 fair value measurements in the first quarter of fiscal 2012.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) which was codified and superseded by ASU 2009-17 (“ASU No. 2009-17”) in December 2009. ASU No. 2009-17 requires an enterprise to determine the primary beneficiary (or “consolidator”) of a VIE based on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. ASU No. 2009-17 changes the consideration of kick-out rights in determining if an entity is a VIE which may cause certain additional entities to now be considered VIEs. On January 27, 2010, the FASB agreed to finalize ASU No. 2010-10 to indefinitely defer consolidation requirements for a reporting enterprise’s interest in certain entities and for certain money market mutual funds under ASU No. 2009-17. The ASU also amended guidance that addresses whether fee arrangements represent a variable interest for all decision-makers and service-providers. The Company adopted ASU No. 2009-17 in the first quarter of fiscal 2011 with no material impact to its unaudited consolidated financial statements.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 which was codified and superseded by ASU No. 2009-16 (“ASU No. 2009-16”) in December 2009. ASU No. 2009-16 aims to improve the visibility of off-balance sheet vehicles currently exempt from consolidation and addresses practical issues involving the accounting for transfers of financial assets as sales or secured borrowings. ASU No. 2009-16 also introduces the concept of a “participating interest”, which will limit the circumstances where the transfer of a portion of a financial asset will qualify as a sale, assuming all other derecognition criteria are met. Furthermore, ASU No. 2009-16 clarifies and amends the derecognition criteria for determining whether a transfer qualifies for sale accounting. ASU No. 2009-16 is effective as of the beginning of an entity’s first annual reporting period beginning after November 15, 2009. The Company adopted ASU No. 2009-16 in the first quarter of fiscal year 2011 with no material impact to its unaudited consolidated financial statements.

Note 3: Collateralized Financing Transactions

The Company’s policy is to take possession of securities purchased under resale agreements, which consist largely of securities issued by the U.S. government, government sponsored entities and federal agencies. The Company retains the right to repledge collateral received in collateralized financing transactions. As of December 31, 2010, the market value of collateral received under resale agreements, including resale agreements accounted for as sales transactions, was $59,862,369, of which $3,152,153 was deposited as margin with clearing

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

organizations. As of March 31, 2010, the market value of collateral received under resale agreements was $68,958,618, of which $199,599 was deposited as margin with clearing organizations. The collateral is valued daily and the Company may require counterparties to deposit additional collateral or return collateral pledged, as appropriate. As of December 31 and March 31, 2010, the market value of collateral pledged under repurchase agreements, including resale agreements accounted for as sales transactions, was $68,758,835 and $75,606,222, respectively. As of December 31 and March 31, 2010, there were no amounts at risk under repurchase agreements or resale agreements with a counterparty greater than 10% of Equity.

Resale and repurchase transactions are presented on a net-by-counterparty basis when certain requirements related to the offsetting of amounts related to certain repurchase and resale agreements are satisfied. As of December 31 and March 31, 2010, the Company had securities purchased under agreements to resell of $10,341,051 and $22,125,430, respectively, which includes the impact of netting for resale agreements classified within segregated securities. Segregated securities are presented on a gross basis in the unaudited consolidated balance sheets. The Company also enters into securities financing transactions that mature on the same date as the underlying collateral. The Company accounts for these transactions in accordance with the accounting standard for transfers and servicing and recognizes a gain or loss on the sale/purchase of the collateral assets, and records a forward commitment. The Company derecognizes the collateral assets as sold when the transactions are accounted for as sales, and recognizes the collateral assets as purchased when the transactions are accounted for as purchases. In these transactions, the Company has exposure to the risk of default of the issuer of the underlying collateral assets, such as U.S. government securities or European sovereign debt. At December 31, 2010, securities purchased under agreements to resell and securities sold under agreements to repurchase of $0 and $7,569,399, respectively, at contract value, were derecognized. At March 31, 2010, this consisted of securities purchased under agreements to resell and securities sold under agreements to repurchase of $1,199,842 and $5,702,980, respectively, at contract value.

At December 31, 2010, certain of the Company’s resale and repurchase agreements are carried at fair value as a result of the Company’s fair value election. The Company elected the fair value option for those resale and repurchase agreements that were entered into on or after April 1, 2009, and that do not settle overnight or do not have an open settlement date or that are not accounted for as purchase and sale agreements (i.e. repo-to-maturity transactions). The Company has elected the fair value option for these instruments to more accurately reflect market and economic events in its earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. At December 31, 2010, the fair value of these resale and repurchase agreements was $13,069,746 and $8,233,520, respectively. At March 31, 2010, the fair value of these resale and repurchase agreements was $14,825,760 and $9,281,426, respectively. Changes in the fair value of these transactions are recorded in Principal transactions in the unaudited consolidated statement of operations. During the three months ended December 31, 2010, the amount of gains and losses related to resale and repurchase agreements carried at fair value was $8,140 of losses and $6,274 of gains, respectively. During the nine months ended December 31, 2010, the amount of losses related to resale and repurchase agreements carried at fair value was $1,383 and $2,739, respectively. During the three months ended December 31, 2009, the amount of losses related to resale and repurchase agreements carried at fair value was $5,798 and $3,791, respectively. During the nine months ended December 31, 2009, the amount of gains and losses related to resale and repurchase agreements carried at fair value was $6,285 of gains and $2,778 of losses, respectively.

The Company has not specifically elected the fair value option for certain resale and repurchase agreements that are settled on an overnight or demand basis as these are carried at contract value, which approximates fair value.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

The carrying values of the securities sold under repurchase transactions, including accrued interest, by maturity date are:


	December 31, 2010
	Demand		Overnight		Less than 30 days		30 to 90 days		After 90 days		Total
Security type
U.S. government	$	1,525,093		8,297,473		1,066,414		700,787		521,362		12,111,129
U.S. corporations		295,868		94,817		696,184		96,910		249,202		1,432,981
Foreign governments		169,371		722,501		3,443,185		283,216		119,027		4,737,300
Foreign corporations		16,685		—		334,738		—		—		351,423

Total	$	2,007,017	$	9,114,791	$	5,540,521	$	1,080,913	$	889,591	$	18,632,833


	March 31, 2010
	Demand		Overnight		Less than 30 days		30 to 90 days		After 90 days		Total
Security type
U.S. government	$	1,334,376	$	15,649,717	$	815,274	$	637,552	$	1,239,413	$	19,676,332
U.S. corporations		93,216		43,086		—		—		—		136,302
Foreign governments		103,141		3,242,366		4,878,894		105,521		897,943		9,227,865
Foreign corporations		39,244		—		—		—		—		39,244

Total	$	1,569,977	$	18,935,169	$	5,694,168	$	743,073	$	2,137,356	$	29,079,743

Securities borrowed and securities loaned transactions are accounted for as collateralized financing transactions. These transactions facilitate the settlement process and may require the Company to deposit cash or other collateral with the lender.

The Company elected to record at fair value securities borrowed and securities loaned transactions that are entered into on or after July 1, 2009 that have a specific termination date beyond the business day following the trade date. At December 31, there were no securities borrowed transactions carried at fair value because they are all on a demand or overnight basis. At March 31, 2010, the fair value of these securities borrowed agreements was $1,004,017. Changes in the fair value of these transactions are recorded in Principal transactions in the unaudited consolidated statement of operations. During the three and nine months ended December 31, 2010, the net amount of gains and losses related to securities borrowed agreements carried at fair value was $0. During the three and nine months ended December 31, 2009, the amount of gains related to securities borrowed agreements carried at fair value was $18. At December 31 and March 31, 2010, there were no securities loaned transactions carried at fair value. For transactions not elected for fair value measurement, the amount of cash collateral advanced or received is recorded on the unaudited consolidated balance sheets.

In its collateralized financing transactions, the Company monitors the market value of collateral received on a daily basis and also calls for collateral on a daily basis. Generally, resale transactions are collateralized with investment grade securities including U.S. Treasury and agency securities, European sovereign debt, and mortgage backed securities, while securities borrowed are collateralized with U.S. Treasury and agency securities, equities, and investment grade corporate bonds. The Company’s credit counterparties in resale transactions are central clearers, banks and broker-dealers. In securities borrowed transactions, credit

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

counterparties can also include insurance companies and pension funds. Credit risk can arise when the collateral value falls below the value of the receivables and counterparties fail to provide additional collateral. As of December 31 and March 31, 2010, no provision has been recorded against resale agreements or securities borrowed transactions, as amounts were deemed collectible.

Note 4: Securities Owned and Securities Sold, Not Yet Purchased and Segregated Securities

Securities Owned and Securities Sold, Not Yet Purchased

Securities owned and securities sold, not yet purchased include securities carried at fair value as well as certain marketable securities classified as held-to-maturity securities. Securities owned and securities sold, not yet purchased, which are held at fair value, consist of the following:


	December 31, 2010				March 31, 2010
	Securities Owned		Securities Sold, Not Yet Purchased		Securities Owned		Securities Sold, Not Yet Purchased
U.S. government securities and federal agency obligations	$	5,114,669	$	5,569,109	$	3,903,235	$	3,493,000
Corporate debt securities		341,907		357,597		207,165		162,586
Foreign government bonds		1,456,200		173,642		1,117,693		543,359
Equities		493,662		188,465		418,586		201,558
Shares held due to demutualization of exchanges		14,733		—		14,034		—
Other		43,616		51,893		12,810		946

Total	$	7,464,787	$	6,340,706	$	5,673,523	$	4,401,449

As of December 31 and March 31, 2010, there were no securities owned by the Company and deposited as margin with clearing organizations.

Segregated Securities

At December 31 and March 31, 2010, the Company had segregated securities of $9,085,798 and $7,587,632, respectively, within Restricted cash and segregated securities. These amounts include securities purchased under agreements to resell that are subject to the segregation requirements of the CFTC and totaled $6,065,760 and $4,280,140 at December 31 and March 31, 2010, respectively, of which $854,364 and $1,115,806 are at fair value as a result of the Company’s fair value election, at December 31 and March 31, 2010, respectively.

Held-to-Maturity Securities

The Company has purchased certain securities for investment purposes and has the positive intent and ability to hold these securities to maturity. The Company has classified these securities as held-to-maturity securities and reported them on an amortized cost basis within Securities owned and Restricted cash and segregated securities on the unaudited consolidated balance sheets. During the three and nine months ended December 31, 2010 the Company recognized other-than-temporary impairment of $500 and $1,561 related to debt securities issued by the U.S. government due to being purchased at a premium and the securities being called prior to maturity. The Company will not recover the amortized cost of these particular securities prior to their known call date. No impairment charge was recorded for the year ended March 31, 2010.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

The following table summarizes the carrying value, fair value and unrealized gains and losses, for the held-to-maturity securities, none of which have been in an unrealized loss position greater than 12 months, at December 31 and March 31, 2010:


	December 31, 2010
	Securities Owned
	Carrying Value		Fair Value		Gross Unrealized Gain		Gross Unrealized Loss
Corporate debt securities	$	894,183	$	893,600	$	3,327	$	(3,910	)
Debt securities issued by the U.S. government and federal agencies		4,467,968		4,423,853		105		(44,220	)

Total	$	5,362,151	$	5,317,453	$	3,432	$	(48,130	)


	December 31, 2010
	Segregated Securities
	Carrying Value		Fair Value		Gross Unrealized Gain		Gross Unrealized Loss
Corporate debt securities	$	637,526	$	636,761	$	235	$	(1,000	)
Debt securities issued by the U.S. government and federal agencies		1,967,237		1,955,925		1,001		(12,313	)

Total	$	2,604,763	$	2,592,686	$	1,236	$	(13,313	)


	March 31, 2010
	Securities Owned
	Carrying Value		Fair Value		Gross Unrealized Gain		Gross Unrealized Loss
Corporate debt securities	$	10,100	$	10,262	$	162	$	—
Debt securities issued by the U.S. government and federal agencies		4,636,516		4,634,731		731		(2,516	)

Total	$	4,646,616	$	4,644,993	$	893	$	(2,516	)


	March 31, 2010
	Segregated Securities
	Carrying Value		Fair Value		Gross Unrealized Gain		Gross Unrealized Loss
Corporate debt securities	$	71,139	$	72,028	$	889	$	—
Debt securities issued by the U.S. government and federal agencies		2,888,574		2,891,805		3,679		(448	)

Total	$	2,959,713	$	2,963,833	$	4,568	$	(448	)

Note 5: Fair Value Measurements and Derivative Activity

Fair Value

The Company has a framework for measuring fair value and a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company has applied this framework to all financial instruments that are required to be reported at fair value.

The Company considers the impact of counterparty credit risk in the valuation of its assets and its own credit spreads when measuring the fair value of liabilities, including OTC derivative contracts.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

Securities owned, Securities sold, not yet purchased, certain Securities purchased under agreements to resell, certain Securities Sold under agreements to repurchase, certain Securities borrowed, certain Other assets and derivative transactions are carried at fair value. The following is a description of the valuation techniques the Company applies to the major categories of assets and liabilities that are measured at fair value on a recurring basis.

•

U.S. Treasury securities are marked from composites of end-of-day quoted prices. Accordingly, these securities are generally categorized in Level 1 of the fair value hierarchy.

•

The fair value of foreign government obligations is determined using quoted market prices or executable broker or dealer quotes, where observable. These securities are marked at mid-market prices based on a composite of observable bids and offers and are generally categorized in Level 1 of the fair value hierarchy.

•

Equities include mostly exchange-traded corporate equity securities and are valued based on quoted market prices. Accordingly, these securities are categorized in Level 1 of the fair value hierarchy.

•

Exchange-traded or listed derivative contracts the Company carries are actively traded and valued based on the quoted market prices. Accordingly, they are categorized in Level 1 of the fair value hierarchy.

•

U.S. Agency debentures are generally valued based on the composites of end-of-day trade prices or executable broker or dealer quotes, if applicable. Otherwise, they are priced from independent pricing sources. U.S. agency debentures are generally categorized in Level 2 of the fair value hierarchy.

•

Mortgage-backed securities primarily consist of U.S. government mortgage pass-throughs, liquid private-label residential mortgage-backed securities and collateralized mortgage obligations. They are generally priced from independent pricing sources and categorized in Level 2 of the fair value hierarchy.

•

Corporate debt securities consist primarily of U.S. corporate bonds. The fair value of corporate bonds is estimated using recently executed transactions or market quoted prices, where observable. Independent pricing sources are also used for valuation. Corporate bonds are generally categorized in Level 2 of the fair value hierarchy.

•

Most of the Company’s OTC derivative contracts are traded in liquid markets and include forward, swap and option contracts related to commodity prices, equity prices, foreign currencies and interest rates. The Company values these contracts based on pricing models which require a variety of pricing inputs. The pricing models used by the Company are industry-standard models for the types of derivative contracts and model selection does not require significant judgment. Pricing inputs are normally observable and they include contractual terms, market prices, yield curves, credit curves and volatility measures. Accordingly, these OTC derivative contracts are categorized in Level 2 of the fair value hierarchy.

•

Certain resale and repurchase agreements and securities borrowed and loaned are carried at fair value under the fair value option. These transactions are generally valued based on inputs with reasonable price transparency and are therefore generally categorized in Level 2 of the fair value hierarchy.

•

Shares held due to demutualization of exchanges are priced based on the latest market data available, typically the most recent bids or transactions completed. In certain cases, shares held due to demutualization of exchanges are priced using models with inputs that are observable at valuation. When model input prices are observable these securities are categorized as Level 2. When there is limited trading for these instruments, these securities are categorized as Level 3 of the fair value hierarchy.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

The following tables summarize the Company’s financial assets and liabilities as of December 31 and March 31, 2010, by level within the fair value hierarchy.


	Level 1		Level 2		Level 3		Impact of Netting and Collateral (1)			Total as of December 31, 2010
Assets
Securities owned
U.S. government securities and federal agency obligations	$	3,487,401	$	761,533	$	—	$	—		$	4,248,934
U.S. government agency mortgage backed securities		—		1,281,011		—		—			1,281,011
Private label mortgage backed securities		—		1,582		—		—			1,582
Corporate debt securities		—		340,325		—		—			340,325
Foreign government bonds		1,456,200		—		—		—			1,456,200
Equities		493,662		—		—		—			493,662
Shares held due to demutualization of exchanges		—		815		13,918		—			14,733
Other		43,616		—		—		—			43,616

Total securities owned ⁽⁴⁾	$	5,480,879	$	2,385,266	$	13,918	$	—		$	7,880,063

Derivative Assets
Futures transactions	$	4,343,496	$	—	$	—	$	(3,058,986	)	$	1,284,510
Foreign currency and other derivative transactions		41,377		1,063,148		—		(1,037,805	)		66,720

Total derivative assets ⁽²⁾		4,384,873		1,063,148		—		(4,096,791	)		1,351,230

Securities purchased under agreements to resell ^(5) (6)		—		31,292,482		—		(17,368,372	)		13,924,110

Total assets at fair value	$	9,865,752	$	34,740,896	$	13,918	$	(21,465,163	)	$	23,155,403

Liabilities
Securities sold, not yet purchased
U.S. government securities and federal agency obligations	$	4,286,917	$	55,677	$	—	$	—		$	4,342,594
U.S. government agency mortgage backed securities		—		1,226,515		—		—			1,226,515
Private label mortgage backed securities		—		18		—		—			18
Corporate debt securities		—		357,579		—		—			357,579
Foreign government bonds		173,642		—		—		—			173,642
Equities		188,465		—		—		—			188,465
Other		51,893		—		—		—			51,893

Total securities sold, not yet purchased	$	4,700,917	$	1,639,789	$	—	$	—		$	6,340,706

Derivative liabilities
Futures transactions	$	4,327,367	$	—	$	—	$	(753,536	)	$	3,573,831
Foreign currency and other derivative transactions		30,676		1,026,574		—		(372,321	)		684,929

Total derivative liabilities ⁽³⁾		4,358,043		1,026,574		—		(1,125,857	)		4,258,760

Securities sold under agreements to repurchase ⁽⁵⁾		—		25,601,892		—		(17,368,372	)		8,233,520

Total liabilities at fair value	$	9,058,960	$	28,268,255	$	—	$	(18,494,229	)	$	18,832,986

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

(1)	Represents cash collateral and the impact of netting across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.

(2)

Reflects derivative assets within Receivables from customers and Receivables from brokers, dealers and clearing organizations. Excludes $2,872,942 within Receivables from customers and Receivables from brokers, dealers and clearing organizations which is accounted for at other than fair value. Excludes $43,616 which is recorded in Securities owned.

(3)

Reflects derivative liabilities within Payables to customers and Payables to brokers, dealers and clearing organizations. Excludes $9,417,626 within Payables to customers and Payables to brokers, dealers and clearing organizations which is accounted for at other than fair value. Excludes $51,891 which is recorded in Securities sold, not yet purchased.

(4)	Includes $415,276 of Securities owned which are held in segregation. These securities have been classified within Restricted cash and segregated securities in the Consolidated Balance Sheet.

(5)	Excludes Securities purchased under agreements to resell and Securities sold under agreements to repurchase, which are held at contract value.

(6)	Includes $854,364 of Securities purchased under agreements to resell which are held in segregation. These securities have been classified within Restricted cash and segregated securities.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)


	Level 1		Level 2		Level 3		Impact of Netting and Collateral ⁽¹⁾			Total as of March 31, 2010
Assets
Securities owned
U.S. government securities and federal agency obligations	$	2,195,306	$	1,647,723		—		—		$	3,843,029
U.S. government agency mortgage backed securities		—		407,985		—		—			407,985
Private label mortgage backed securities		—		1,584		—		—			1,584
Asset backed securities		—		448		—		—			448
Corporate debt securities		—		205,133		—		—			205,133
Foreign government bonds		1,117,693		—		—		—			1,117,693
Equities		418,586		—		—		—			418,586
Shares held due to demutualization of exchanges		—		—		14,034		—			14,034
Other		1,110		11,700		—		—			12,810

Total securities owned ⁽⁴⁾	$	3,732,695	$	2,274,573	$	14,034	$	—		$	6,021,302

Derivative Assets
Futures transactions	$	3,549,003	$	—	$	—	$	(1,925,278	)	$	1,623,725
Foreign currency and other derivative transactions		61,972		1,057,190		—		(1,036,079	)		83,083

Total derivative assets ⁽²⁾		3,610,975		1,057,190		—		(2,961,357	)		1,706,808

Securities borrowed ⁽⁵⁾ ⁽⁷⁾		—		1,008,534		—		—			1,008,534
Securities purchased under agreements to resell ⁽⁵⁾ ⁽⁶⁾		—		40,955,248		—		(25,013,682	)		15,941,566

Total assets at fair value	$	7,343,670	$	45,295,545	$	14,034	$	(27,975,039	)	$	24,678,210

Liabilities
U.S. government securities and federal agency obligations	$	2,017,197	$	1,105,240	$	—	$	—		$	3,122,437
U.S. government agency mortgage backed securities		—		370,563		—		—			370,563
Corporate debt securities		—		162,586		—		—			162,586
Foreign government bonds		543,359		—		—		—			543,359
Equities		201,558		—		—		—			201,558
Other		946		—		—		—			946

Total securities sold, not yet purchased	$	2,763,060	$	1,638,389	$	—	$	—		$	4,401,449

Derivative liabilities
Futures transactions	$	3,556,612	$	—	$	—	$	566,804		$	4,123,416
Foreign currency and other derivative transactions		63,908		1,055,513		—		(451,090	)		668,331

Total derivative liabilities ⁽³⁾		3,620,520		1,055,513		—		115,714			4,791,747

Securities sold under agreements to repurchase ⁽⁵⁾		—		34,295,108		—		(25,013,682	)		9,281,426

Total liabilities at fair value	$	6,383,580	$	36,989,010	$	—	$	(24,897,968	)	$	18,474,622

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

(1)	Represents cash collateral and the impact of netting across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.

(2)

Reflects derivative assets within Receivables from customers and Receivables from brokers, dealers and clearing organizations. Excludes $1,898,574 within Receivables from customers and Receivables from brokers, dealers and clearing organizations which is accounted for at other than fair value and $4,517 of interest receivable in securities borrowed. Excludes $3,506 which is recorded in Securities owned.

(3)

Reflects derivative liabilities within Payables to customers and Payables to brokers, dealers and clearing organizations. Excludes $9,446,836 within Payables to customers and Payables to brokers, dealers and clearing organizations which is accounted for at other than fair value. Excludes $946 which is recorded in Securities sold, not yet purchased.

(4)	Includes $347,779 of Securities owned which are held in segregation. These securities have been classified within Restricted cash and segregated securities in the Consolidated Balance Sheet.

(5)	Excludes Securities borrowed, Securities purchased under agreements to resell and Securities sold under agreements to repurchase, which are held at contract value.

(6)	Includes $1,115,806 of Securities purchased under agreements to resell which are held in segregation. These securities have been classified within Restricted cash and segregated securities.

(7)	Includes $4,517 of interest receivable which is recorded in Receivables from brokers, dealers and clearing organizations.

Changes in unrealized gains and losses relating to assets or liabilities, measured at fair value, still held at the end of the period, are reported in Principal transactions revenues in the unaudited consolidated statements of operations. The risks or volatility associated with the transactions that make up this amount are often offset or reduced by certain hedging strategies associated with products within a different level in the fair value hierarchy (either Level 1 or Level 2). The Company often enters into positions with one counterparty which are generally offset with opposite transactions with other counterparties. These hedging transactions and the associated underlying financial instruments are often classified in different levels in the fair value hierarchy.

For the three and nine months ended December 31, 2010, the Company did not have significant transfers in or out of Level 1 and Level 2 in the fair value hierarchy.

The table below provides a reconciliation of the beginning and ending balances for the major classes of assets and liabilities measured at fair value using significant unobservable inputs (Level 3). The table reflects gains and losses during the periods for all financial assets and liabilities categorized as Level 3 as of the three and nine months ended December 31, 2010 and 2009. The net unrealized losses reflected in Level 3 should be considered in the context of the factors discussed below.

•

A derivative contract with Level 1 and/or Level 2 inputs is classified as a Level 3 financial instrument in its entirety if it has at least one significant Level 3 input.

•

If there is one significant Level 3 input, the entire gain or loss from adjusting only observable inputs (i.e., Level 1 and Level 2) is still classified as Level 3.

•

Gains or losses that have been reported in Level 3 resulting from changes in Level 1 or Level 2 inputs are frequently offset by gains or losses attributable to instruments classified in Level 1 or Level 2 or by cash instruments reported in Level 3 of the fair value hierarchy.

•

There were no transfers in or out of Level 3 for the three and nine months ended December 31, 2010.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)


	Three months ended December 31,						Nine months ended December 31,
	2010			2009			2010			2009
Beginning balance	$	14,089		$	25,279		$	14,034		$	14,367
Total realized and unrealized gains		(171	)		(4,936	)		4,572			6,074
Purchases, sales and settlements, net		—			—			(4,683	)		59
Transfers out of Level 3		—			—			—			(170	)
Foreign currency translation		—			21			(5	)		34

Balance, end of period	$	13,918		$	20,364		$	13,918		$	20,364

The balance at December 31, 2010 and 2009 respectively is comprised of shares held due to the demutualization of exchanges. Total realized and unrealized gains or losses represent the total gains and losses recorded for the Level 3 assets and liabilities and are reported in Gain on exchange seats and shares and in Other revenues in the unaudited consolidated statements of operations. Net unrealized gains/(losses) relating to instruments held at December 31, 2010 for the three and nine months ended was a loss of $171 and a gain of $71, respectively. Net unrealized gains/(losses) relating to instruments held at December 31, 2009 for the three and nine months ended was a loss of $4,936 and a gain of $6,074, respectively. Changes in the fair value hierarchy for a specific financial asset or financial liability may result in transfers in the hierarchy level.

The fair value of long-term borrowings at December 31 and March 31, 2010 was $234,796 and $531,800, respectively. The fair value of long-term debt was determined by reference to the December 31, 2010 market values of comparably rated debt instruments.

Derivative Activity

The Company provides trade execution and clearing services for exchange-traded and over-the-counter derivative products. In connection with these trading services, the Company may use derivative instruments to facilitate client transactions or to build inventory for future client demand. The Company also enters into derivative transactions for its own account including to offset the Company’s exposure to counterparty transactions, changes in foreign currency, interest rate risks and to manage its liquid corporate assets. In accordance with the accounting standard for derivatives and hedging, the Company currently does not apply hedge accounting to its derivative activities.

The Company recognizes all of its derivative contracts as either assets or liabilities in the unaudited consolidated balance sheets at fair value, which are reflected net of cash paid or received pursuant to credit support arrangements with counterparties and reported on a net-by-counterparty basis under legally enforceable netting agreements. These derivative assets and liabilities are included in Receivables from and Payables to customers, Receivables from and Payables to broker dealers and clearing organizations, Securities owned and Securities sold, not yet purchased. Changes in the fair value of all derivative instruments are recognized in Principal transactions in the unaudited consolidated statements of operations.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

The following table summarizes the fair value of the Company’s derivative contracts by major type on a gross basis as of December 31 and March 31, 2010.


	December 31, 2010
	Derivative Assets ⁽¹⁾									Derivative Liabilities⁽²⁾									Number of Contracts ⁽³⁾
	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total			Number of Contracts ⁽³⁾
	(in thousands, except number of contracts)
Derivative contracts
Interest rate	$	1,944		18,258		—		20,202		$	1,522		13,489		—		15,011			37,738
Foreign exchange rate		42,488		457,980		—		500,468			30,966		446,330		—		477,296			2,578,669
Equity		40,999		118,030		—		159,029			32,236		106,743		—		138,979			1,158,137,576
Commodity		4,343,058		468,228		—		4,811,286			4,345,211		458,447		—		4,803,658			711,269
Other		—		652		—		652			—		1,564		—		1,564			1,338

Total fair value of derivative contracts							$	5,491,637								$	5,436,508

Impact of netting and collateral								(4,096,791	)								(1,125,857	)

Total fair value							$	1,394,846								$	4,310,651


	March 31, 2010
	Derivative Assets ⁽¹⁾									Derivative Liabilities⁽²⁾								Number of Contracts ⁽³⁾
	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total		Number of Contracts ⁽³⁾
	(in thousands, except number of contracts)
Derivative contracts
Interest rate	$	1,135		4,345		—		5,480		$	545		8,915		—		9,460		30,542
Foreign exchange rate		61,008		407,503		—		468,511			61,220		386,916		—		448,136		5,394,601
Equity		6,081		74,463		—		80,544			6,201		69,651		—		75,852		1,002,329,264
Commodity		3,543,858		573,278		—		4,117,136			3,553,501		590,030		—		4,143,531		848,042


Total fair value of derivative contracts							$	4,671,671								$	4,676,979

Impact of netting and collateral								(2,961,357	)								115,714


Total fair value							$	1,710,314								$	4,792,693

(1)	Reflects derivative assets within Securities owned, Receivables from customers and Receivables from brokers, dealers and clearing organizations. Excludes non-derivatives included in Securities owned and Receivables from customers and Receivables from brokers, dealers and clearing organizations.

(2)

Reflects derivative liabilities within Securities sold, not yet purchased, Payables to customers and Payables to brokers, dealers and clearing organizations. Excludes non-derivative Securities sold, not yet purchased and Payables to customers and Payables to brokers, dealers and clearing organizations which are accounted for at other than fair value.

(3)

Contract equivalent is determined using industry standards and equivalent contracts in the futures market. OTC contract equivalents are determined by dividing OTC notionals by associated contract notionals. For minor currencies for which no futures contracts are traded, contract equivalents are determined to be equal to the USD notional divided by $1,000, which is consistent with other minor currency futures contracts.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

The Company’s volumes of exchange traded futures and options executed and/or cleared, where the unrealized gain or loss is settled daily, and there is no receivable or payable associated with the contract, was 424,033,549 and 1,372,988,571 contracts for the three and nine months ended December 31, 2010, respectively, and 422,292,170 and 1,244,766,996 contracts for the three and nine months ended December 31, 2009, respectively. These contracts are primarily cleared through commodity clearing corporations.

The table below summarizes the gains or losses relating to the Company’s trading activities as reported in Principal transactions in the unaudited consolidated statements of operations for the three and nine months ended December 31, 2010 and 2009.


	Three months Ended December 31,				Nine months Ended December 31,
Type of Instrument	2010		2009		2010		2009
Fixed Income/ Interest rate	$	11,740	$	1,829	$	22,487	$	20,169
Foreign exchange		10,132		13,886		35,070		45,687
Equity		107		755		33,298		8,864
Commodity		16,581		14,727		55,864		42,571
Other		2,329		2,016		5,665		6,890

Total	$	40,889	$	33,213	$	152,384	$	124,181

Certain of the Company’s derivative trading agreements contain provisions requiring the Company to post collateral according to the Company’s long-term credit ratings. These terms are pursuant to bilateral agreements with certain counterparties, and could require immediate payment or ongoing overnight collateralization on derivative instruments in net liability positions. As of December 31, 2010, the aggregate fair value of derivative agreements, with credit-risk-related contingent features that were in a net liability position was $9,051, for which the Company has posted collateral of $56,862 in accordance with trading agreements. If the Company’s long term credit rating had a one-notch or two-notch reduction, as of December 31, 2010, the amount of additional collateral that could be called by counterparties for these derivative agreements would be approximately $702. As of March 31, 2010, the aggregate fair value of derivative agreements with credit-risk-related contingent features that were in a net liability position was $23,413, for which the Company has posted collateral of $29,861 in accordance with arrangements. If the Company’s long term credit rating had a one-notch or two-notch reduction as of March 31, 2010, the amount of additional collateral that could be called by counterparties for these derivative agreements would be approximately $3,162.

Note 6: Receivables from and Payables to Brokers, Dealers and Clearing Organizations

Receivables from and payables to brokers, dealers and clearing organizations consist of the following:


	December 31, 2010				March 31, 2010
	Receivables		Payables		Receivables		Payables
Securities failed to deliver/receive	$	126,177	$	114,698	$	418,994	$	403,959
Due from/to clearing brokers		1,122,058		4,064		1,056,664		2,699
Due from/to clearing organizations		935,049		48,729		1,100,520		58,364
Fees and commissions		841		53,352		934		55,289
Unsettled trades		1,415,114		339,482		593,417		1,669,777
Other		157,650		20,677		147,260		50,643

Total	$	3,756,889	$	581,002	$	3,317,789	$	2,240,731

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

Note 7: Receivables from and Payables to Customers

Receivables from customers, net of allowances, and payables to customers are as follows:


	December 31, 2010				March 31, 2010
	Receivables from customers		Payables to customers		Receivables from customers		Payables to customers
Futures transactions	$	337,629		12,064,729	$	202,652		10,905,593
Foreign currency and other OTC derivative transactions		39,730		643,452		31,808		638,254
Securities transactions		46,306		379,386		43,329		445,303
Other		43,618		7,817		14,321		8,702

Total	$	467,283	$	13,095,384	$	292,110	$	11,997,852

Note 8: Goodwill and Intangible Assets

On November 1, 2010 the Company acquired Washington Research Group (“WRG”), a Washington, D.C.-based, policy-focused investment research firm that provides leading institutional equity investors with insights and analysis on the impact of government policy on investment opportunities. The Company does not consider this acquisition to be material to its operations. The Company recognized $304 and $2,027 of goodwill and intangible assets related to customer relationships, respectively, as part of this acquisition. The $304 of goodwill associated with this acquisition was subsequently written off as the result of the analysis described below.

There were no acquisitions during the three and nine months ended December 31, 2009.

During the three and nine months ended December 31, 2010, earn-out payments of $772 and $2,318 were made relating to a prior acquisition, which were accounted for as additional purchase consideration. As of December 31, 2010, the Company had one remaining arrangement that could result in contingent, or “earn-out”, payments. These payments are based on earnings in future years, subject to maximum and minimum amounts. If the minimum earn-out is not reached at the end of 5 years (to fiscal 2012), the Company’s obligation to pay the earn-out can extend for up to 10 years (to fiscal 2017), subject to a remaining maximum of approximately $67,000.

Goodwill represents the excess of the purchase price of a business combination over the fair value of the net assets acquired. Goodwill is not amortized and the Company’s single reporting unit is tested at least annually for impairment or when there is an interim triggering event. An assessment of goodwill for potential impairment is performed in two steps. Step 1 of the analysis is used to identify the impairment and involves determining and comparing the fair value of the Company with its carrying value, or equity. If the fair value of the Company exceeds its carrying value, goodwill is not impaired. Step 2 of the analysis compares the fair value of the Company to the aggregated fair values of its individual assets, liabilities and identified intangibles, to calculate the amount of impairment, if any.

In performing Step 1 of the analysis, the Company compared its net book value to its estimated fair value. In determining the estimated fair value, the Company performed a discounted cash flow analysis using management’s current business plans, which factored in current market conditions including contract and product volumes and pricing, as the basis for expected future cash flows for the first five years and a 1% growth rate for the cash flows thereafter. Management used a weighted average cost of capital (“WACC”) of 11.49% as its

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

discount rate in this analysis. The WACC was derived from market participant data and estimates of the fair value and yield of the Company’s debt, preferred stock, and equity as of the testing date. The WACC represents the yield of the Company’s financial instruments as currently stated. A discounted cash flow model involves the subjective selection and interpretation of data inputs and, given market conditions at December 31, 2010, there was a very limited amount of observable market data inputs available when determining the model.

Based on the results of Step 1 of the analysis, the Company determined its goodwill was impaired, as the fair value derived from the discounted cash flow model was less than the Company’s book value at December 31, 2010. Based on the results of Step 2 of the analysis, the Company determined that its market capitalization and the computed fair value from Step 1 of the analysis was less than the estimated fair value of the Company’s balance sheet and therefore recorded a charge of $1,076 and $2,622 in the three and nine months ended December 31, 2010, respectively, and $1,165 and $2,325 in the three and nine months ended December 31, 2009, respectively, to write-off the entire amount of the Company’s goodwill. As discussed, the Company has an earn-out arrangement that could result in additional goodwill being recorded in future periods. The Company will continue to assess its goodwill annually or whenever events or changes in circumstances indicate that an interim assessment is necessary.

The summary of the Company’s goodwill is as follows:


Balance as of March 31, 2010	$	—
Additions		2,622
Impairment		(2,622	)

Balance as of December 31, 2010	$	—

Intangible assets, subject to amortization as of December 31 and March 31, 2010 are as follows:


	December 31, 2010			March 31, 2010
Customer relationships
Gross carrying amount	$	261,970		$	259,943
Accumulated amortization		(203,970	)		(193,157	)

Net carrying amount		58,000			66,786

Technology assets
Gross carrying amount		32,114			32,114
Accumulated amortization		(29,829	)		(27,101	)

Net carrying amount		2,285			5,013

Trade names
Gross carrying amount		2,934			2,934
Accumulated amortization		(1,563	)		(1,374	)

Net carrying amount		1,371			1,560

Total	$	61,656		$	73,359

Intangible assets are assets obtained in a business combination for customer relationships, technology assets, and trade names. Intangible assets are reviewed at least annually for impairment or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

As a result of the impairment analysis performed during the three months ended December 31, 2010, the Company recorded an impairment charge of approximately $247 related to customer relationships from its 2007 acquisition of BrokerOne Pty. Ltd. There was no impairment charge related to intangible assets during the three and nine months ended December 31, 2009.

During the three and nine months ended December 31, 2010, the total impairment charges of intangible assets and goodwill were approximately $1,323 and $2,869, respectively. During the three and nine months ended December 31, 2009, the total impairment charges were approximately $1,165 and $2,325, respectively. These charges were recorded in Impairment of intangible assets and goodwill in the Company’s unaudited consolidated statement of operations.

The amortization included in Depreciation and amortization for the three and nine months ended December 31, 2010 was $4,299 and $15,136, respectively. The estimated amortization expense to be recorded for the remainder of fiscal 2011 is approximately $3,393. The estimated amortization expense for the remaining intangible assets for the next five fiscal years, starting fiscal 2012, is approximately $13,574, $13,011, $11,050, $7,544 and $4,993, respectively.

Note 9: Borrowings

Short term borrowings consist of the following:


	December 31, 2010		March 31, 2010
Other short-term borrowings	$	517,500	$	142,500
Bank overdrafts		14,811		367

Total	$	532,311	$	142,867

Long-term borrowings consist of:


	December 31, 2010		March 31, 2010
9.00% Convertible Notes due 2038	$	191,387	$	199,389
Other long-term borrowings		—		300,000

Total	$	191,387	$	499,389

Liquidity Facility

At March 31, 2010, the Company had a $1,500,000 unsecured committed revolving credit facility maturing June 15, 2012 (the “liquidity facility”) with a syndicate of banks.

On June 29, 2010, the liquidity facility was amended (the “Amendment”) (i) to permit the Company, in addition to certain of its subsidiaries, to borrow funds under the liquidity facility and (ii) to extend the lending commitments of certain of the lenders by two years, from June 15, 2012 (the “Old Maturity Date”) to June 15, 2014 (the “Extended Maturity Date”). Aggregate commitments under the amended liquidity facility are $1,200,875, all of which is available to the Company for borrowing until the Old Maturity Date (at which time, $511,250 will cease to be available for borrowing), and $689,625 is available for borrowing until the Extended

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

Maturity Date. On June 15, 2012, outstanding borrowings subject to the Old Maturity Date (currently equal to $220,316) will become due. Under the terms of the amended liquidity facility, the Company may borrow under the available loan commitment subject to the Extended Maturity Date to repay the outstanding balance on the Old Maturity Date and also for general corporate purposes.

With respect to commitments and loans maturing on the Old Maturity Date (and at the current rating level and utilization), the Company pays a facility fee of 10 basis points per annum and LIBOR plus 1.90% per annum on the outstanding borrowing. The liquidity facility is subject to a ratings-based pricing grid. In the event credit ratings are downgraded, the highest rate on the grid would bring the facility fee to 12.5 basis points per annum and the rate on the outstanding borrowing to LIBOR plus 2.375% per annum.

With respect to commitments and loans maturing on the Extended Maturity Date (and at the current rating level and utilization), the Company pays a facility fee of 40 basis points per annum and LIBOR plus 2.35% per annum on the outstanding borrowing. In the event credit ratings are downgraded, the highest rate on the grid would bring the facility fee to 75 basis points per annum and the rate on the outstanding borrowing to LIBOR plus 2.75% per annum.

On borrowings in excess of $500,000 related to the total liquidity facility, the Company will only pay a facility fee of 10 basis points per annum and LIBOR plus 0.40% per annum with respect to commitments and loans maturing on the Old Maturity Date. With respect to commitments and loans maturing on the Extended Maturity Date, pricing is unchanged on amounts in excess of $500,000 of the total liquidity facility.

In all cases, borrowings are subject to the terms and conditions set forth in the liquidity facility which contains financial and other customary covenants. The amended liquidity facility includes a covenant requiring the Company to maintain a minimum Consolidated Tangible Net Worth of not less than the sum of (i) 75% of the pro forma Consolidated Tangible Net Worth as of March 31, 2010 after giving effect to the offering by the Company of equity interests on June 2, 2010, including exercise of the underwriters’ option to purchase additional shares, and the consummation in whole or in part of the offer to exchange of the Company dated June 1, 2010 plus (ii) 50% of the net cash proceeds of any offering by the Company of equity interests consummated after the second amendment effective date plus (iii) 25% of cumulative net income for each completed fiscal year of the Company after the second amendment effective date for which consolidated net income is positive. The amended liquidity facility also requires the Company to limit its Consolidated Capitalization Ratio to be no greater than 40% prior to March 31, 2011; 37.5% on or after March 31, 2011 and before March 31, 2012; and 35% on or after March 31, 2012. Furthermore, commencing on March 31, 2012, the amended liquidity facility also require the Company to limit its Consolidated Leverage Ratio as at the last day of any period of four fiscal quarters to be no greater than 3 to 1. Under the amended liquidity facility, the Company has agreed that it will not use proceeds of any borrowing under the liquidity facility to redeem, repurchase or otherwise retire any Convertible Notes. Furthermore, beginning March 31, 2012, the Company will not permit at any time prior to July 1, 2013, cash and cash equivalents to be less than the entire outstanding amount of the Convertible Notes.

The amended liquidity facility continues to provide that if (i) the Company fails to pay any amount when due under the facility, (ii) or to comply with its other requirements mentioned above, (iii) fails to pay any amount when due on other material debt (defined as $50,000 or more in principal) (iv) or other material debt is accelerated in whole or in part by the lenders, (v) or upon certain events of liquidation or bankruptcy, an event of default will occur under the facility. Upon an event of default, all outstanding borrowings, together with all accrued interest, fees and other obligations, under the facility will become due and the Company will not be

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

permitted to make any further borrowings under the facility. In December 2010, for purposes of prudent liquidity management, the Company borrowed $75,000 from the liquidity facility, which was subsequently repaid in January 2011. As of December 31 and March 31, 2010, $517,500 and $442,500 was outstanding under the liquidity facility with the remainder available to the Company. The Company has classified the $517,500 of outstanding loans at December 31, 2010 under the liquidity facility as short term debt. In connection with the Amendment, the Company paid a one-time fee to participating lenders of $6,818 recorded in Other assets which will be amortized over the life of the facility.

At December 31, 2010, the Company was in compliance with its covenants under the liquidity facility.

Convertible Senior Notes

The Company has outstanding $195,663 aggregate principal amount of 9.00% Convertible Senior Notes due 2038 (the “Convertible Notes”). The Convertible Notes bear interest at a rate of 9.00% per year, payable semi-annually in arrears on June 15 and December 15 of each year. The Convertible Notes mature on June 20, 2038. Holders may convert the Convertible Notes at their option at any time prior to the maturity date. Upon conversion, the Company will pay or deliver, as the case may be, cash, common stock or a combination thereof at the Company’s election. The initial conversion rate for the Convertible Notes is 95.6938 shares of common stock per $1 principal amount of Convertible Notes, equivalent to an initial conversion price of approximately $10.45 per share of common stock. The conversion rate will be subject to adjustment in certain events. The Company may redeem the Convertible Notes, in whole or in part, for cash at any time on or after July 1, 2013 at a price equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest. Holders may require the Company to repurchase all or a portion of their Convertible Notes for cash on July 1, 2013, July 1, 2018, July 1, 2023, July 1, 2028 and July 1, 2033 at a price equal to 100% of the principal amount of Convertible Notes to be repurchased plus accrued and unpaid interest.

On July 15, 2010, the Company completed its offer to exchange shares of Common Stock and a cash premium for any and all of its outstanding Convertible Notes. In the exchange offer, $9,337 in aggregate principal amount of the Convertible Notes were validly tendered and for each $1 principal amount of Convertible Note tendered, the Company issued 95.6938 shares of its Common Stock and paid a cash premium of $0.48, plus accrued interest up to, but not including, July 15, 2010, amounting to approximately $7.25 per $1 principal amount of notes. The Company issued, in the aggregate, 893,486 shares of its Common Stock and paid an aggregate cash premium of $4,482 to the tendering holders of such Convertible Notes.

As of December 31, 2010, $195,663 in aggregate principal amount of Convertible Notes remains outstanding. The terms and conditions of the Convertible Notes remain unchanged.

Note 10: Commitments and Contingencies

Legal

Set forth below are the potentially material litigations and regulatory proceedings to which the Company is a party or in which the Company is involved directly or through one of its operating subsidiaries.

Unauthorized Trading Incident of February 26/27, 2008

One of the brokers of the Company’s US operating subsidiary MF Global Inc. (MFGI), Evan Dooley, trading for his own account out of a Memphis, Tennessee branch office through one of MFGI’s front end order entry systems, Order Express, put on a significant wheat futures position during the late evening of February 26,

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

2008 and early morning of February 27, 2008. The positions were liquidated at a loss of $141,045 on February 27, 2008. The trades were unauthorized and because the broker had no apparent means of paying for the trades, MFGI, as a clearing member of the exchange, was required to pay the $141,045 shortfall (the “Dooley Trading Incident”). The exchange and regulators were immediately notified, the broker was promptly terminated, and a public announcement of the loss was made by MFGI the next day. As a result of the Dooley Trading Incident:

•

Class Action Suits. The Company, Man Group, certain of its current and former officers and directors, and certain underwriters for the IPO have been named as defendants in five actions filed in the United States District Court for the Southern District of New York. These actions, which purport to be brought as class actions on behalf of purchasers of MF Global stock between the date of the IPO and February 28, 2008, seek to hold defendants liable under §§ 11, 12 and 15 of the Securities Act of 1933 for alleged misrepresentations and omissions related to the Company’s risk management and monitoring practices and procedures. The five purported shareholder class actions have been consolidated for all purposes into a single action. The Company made a motion to dismiss which had been granted, with plaintiff having a right to replead and/or appeal the dismissal. Plaintiffs made a motion to replead by filing an amended complaint, which was denied. Plaintiffs appealed. The Second Circuit Court of Appeals vacated the decision and remanded the case for further consideration. The parties engaged in mediation and have agreed to a preliminary settlement, which is subject to various customary conditions, including preliminary approval by the United States District Court for the Southern District of New York, notice to class members, class member opt-out thresholds, a final hearing, and final approval by the District Court. The settlement provides for a total payment of $90,000 to plaintiffs, $2,500 of which is to be paid and has been accrued by the Company.

•

Insurance Claim. MFGI filed a claim under its Fidelity Bond Insurance (the “Bond”), which provides coverage for wrongful or fraudulent acts of employees, seeking indemnification for this loss. After months of investigation, MFGI’s Bond insurers denied payment of this claim based on certain definitions and exclusions to coverage in the Bond. They also initiated an action against MFGI in the Supreme Court of the State of New York seeking a declaration that there is no coverage for this loss under the Bond. MFGI believes the insurers’ position to be in error and filed a counterclaim in order to seek to enforce its right to payment in court. The Bond insurers sought partial summary judgment, which the Court denied. The Bond insurers have filed a Notice of Appeal in the First Department and have filed a motion to Renew or Reargue with the Supreme Court, challenging the portion of the decision that found that Dooley was an employee of the Company.

Bank of Montreal (“BMO”)

On August 28, 2009, BMO instituted suit against MFGI and its former broker, Joseph Saab (as well as a firm named Optionable, Inc. and five of its principals or employees), in the United States District Court for the Southern District of New York. In its complaint, BMO asserts various claims against all defendants for their alleged misrepresentation of price quotes to BMO’s Market Risk Department as independent quotes when defendants knew, or should have known, that David Lee, BMO’s trader, created the quotes which, in circular fashion, were passed on to BMO through MFGI’s broker, thereby enabling Lee substantially to overvalue his book at BMO. BMO further alleges that MFGI and Saab knew that Lee was fraudulently misrepresenting prices in his natural gas options book and aided and abetted his ability to do so by sending price indications to BMO, and substantially assisted Lee’s breach of his fiduciary duties to BMO as its employee. The Complaint seeks to hold all defendants jointly and severally liable and, although it does not specify an exact damage claim, it claims

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

CAD 680,000 (approximately $660,900) as a pre-tax loss for BMO in its natural gas trading, and claims that it would not have paid brokerage commissions to MFGI (and Optionable, Inc.), would not have continued Lee and his supervisor as employees at substantial salaries and bonuses, and would not have incurred substantial legal costs and expenses to deal with the Lee mispricing except for defendants’ alleged illegal conduct. MFGI made a motion to dismiss the complaint, which was denied by the court. This litigation is in its early stages and MFGI believes it has meritorious defenses. No provision for losses has been recorded in connection with this matter.

Amacker v. Renaissance Asset Management Fund et. al.

In December 2007, MFGI, along with four other futures commission merchants (“FCMs”), was named as a defendant in an action filed in the United States District Court in Corpus Christi, Texas by 47 individuals who were investors in a commodity pool (RAM I LLC) operated by Renaissance Asset Management LLC. The complaint alleges that MFGI and the other defendants violated the Commodity Exchange Act and alleges claims of negligence, common law fraud, violation of a Texas statute relating to securities fraud and breach of fiduciary duty for allegedly failing to conduct due diligence on the commodity pool operator and commodity trading advisor, having accepted executed trades directed by the commodity trading advisor, which was engaged in a fraudulent scheme with respect to the commodity pool, and having permitted the improper allocation of trades among accounts. The plaintiffs claim damages of $32,000, plus exemplary damages, from all defendants. All of the FCM defendants moved to dismiss the complaint for failure to state a claim upon which relief may be granted. Following an initial pre-trial conference, the court granted plaintiffs leave to file an amended complaint. On May 9, 2008, plaintiffs filed an amended complaint in which plaintiffs abandoned all claims except a claim alleging that the FCM defendants aided and abetted violations of the Commodity Exchange Act. Plaintiffs now seek $17,000 in claimed damages plus exemplary damages from all defendants. MFGI filed a motion to dismiss the amended complaint, which was granted by the court and appealed by the plaintiffs. No provision for losses has been recorded in connection with this litigation.

Voiran Trading Limited

On December 29, 2008, the Company received a letter before action from solicitors on behalf of Voiran Trading Limited (“Voiran”) which has now brought an LME arbitration proceeding. The letter and arbitration proceeding alleges that the Company’s U.K. affiliate was grossly negligent in advice it gave to Voiran between April 2005 and April 2006 in relation to certain copper futures contracts and claims $37,600 in damages. This arbitration is in its early stages. No provision for losses has been recorded in connection with this matter.

Sentinel Bankruptcy

The Liquidation Trustee (“Trustee”) for Sentinel Management Group, Inc. (“Sentinel”) sued MFGI in June 2009 on the theory that MFGI’s withdrawal of $50,200 within 90 days of the filing of Sentinel’s bankruptcy petition on August 17, 2007 is a voidable preference under Section 547 of the Bankruptcy Code and, therefore, recoverable by the Trustee, along with interest and costs. MFGI believes there are meritorious defenses available to it and it intends to resist the Trustee’s attempt to recover those funds from MFGI. In addition, to the extent the Trustee recovered any funds from MFGI it would be able to assert an offsetting claim in that amount against the assets available in Sentinel’s bankruptcy case. The matter is in its early stages. No provision for losses has been recorded in connection with this claim.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

Agape World

In May 2009, investors in a venture set up by Nicholas Cosmo sued Bank of America and MFGI, among others, in the United States District Court for the Eastern District of New York, alleging that MFGI, among others, aided and abetted Cosmo and related entities in a Ponzi scheme in which investors lost $400,000. MFGI made a motion to dismiss which has been granted with prejudice. If plaintiffs appeal, MFGI believes it has meritorious defenses. No provision for losses has been recorded in connection with this matter.

Phidippides Capital Management/Mark Trimble

In the late spring of 2009, MFGI was sued in Oklahoma State Court by customers who were substantial investors with Mark Trimble and/or Phidippides Capital Management. Trimble and Phidippides may have been engaged in a Ponzi scheme. Plaintiffs allege that MFGI “materially aided and abetted” Trimble’s and Phidippides’ violations of the anti-fraud provisions of the Oklahoma securities laws and they are seeking damages “in excess of” $10 each. MFGI made a motion to dismiss which was granted by the court. Plaintiffs have appealed. The Court of Civil Appeals for the State of Oklahoma upheld MFGI’s dismissal. No provision for losses has been recorded in connection with this matter.

Man Group Receivable

In late April 2009, the Company formally requested payment of certain amounts that Man Group (its largest shareholder at the time and former parent company) owed to the Company. Man Group demanded arbitration and, as a result of this unresolved claim, the Company recorded a receivable for the amount owed in equity. In June and July 2010, this matter was heard by the LCIA which in September 2010 issued an award in favor of the Company. Man Group paid the Company $32,619, which was comprised of the full amount owed plus an agreed upon amount for costs and interest. Of the amounts paid, $29,779 has been recorded against equity on the consolidated balance sheet, plus an additional payment of $2,840 for legal costs and interest, which has been recorded within Other revenues on the consolidated statement of operations.

Morgan Fuel/Bottini Brothers

MFGI and MF Global Market Services LLC (“Market Services”) are currently involved in litigation with the principals (the “Bottinis”) of a former customer of Market Services, Morgan Fuel & Heating Co., Inc. (“Morgan Fuel”). The litigations arise out of trading losses incurred by Morgan Fuel in over-the-counter derivative swap transactions, which were unconditionally guaranteed by the Bottini principals.

•

MF Global Market Services LLC v. Anthony Bottini, Jr., Brian Bottini and Mark Bottini, FINRA No. 08-03673. On October 6, 2008, Market Services commenced an arbitration against the Bottinis before the Financial Industry Regulatory Authority (“FINRA”) to recover $8,300, which is the amount of the debt owed to Market Services by Morgan Fuel after the liquidation of the swap transactions. Market Services asserted a claim of breach of contract based upon the Bottinis’ failure to honor the personal and unconditional guarantees they had issued for the obligations of Morgan Fuel. This arbitration is proceeding.

•

Morgan Fuel v. MFGI and Market Services, FINRA No. 08-03879. On October 21, 2008, Morgan Fuel commenced a separate arbitration proceeding before FINRA against MFGI and Market Services. Morgan Fuel claims that MFGI and Market Services caused Morgan Fuel to incur approximately $14,200 in trading losses. Morgan Fuel seeks recovery of $5,900 in margin payments that it allegedly made to Market Services and a declaration that it has no responsibility to pay Market Services for the remaining $8,300 in trading losses. Morgan Fuel contends that MFGI and Market Services should not

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

have allowed Morgan Fuel to enter into, or maintain, the swap transactions. MFGI moved to permanently stay this arbitration on the ground that there was no agreement to arbitrate. The Supreme Court of New York for the County of New York denied the motion and MFGI appealed that decision. The Appellate Division, First Department reversed the order of the Supreme Court, permanently stayed the arbitration of Morgan Fuel’s claims, and subsequently denied Morgan Fuel’s motion seeking leave to appeal this decision to the Court of Appeals. Morgan Fuel filed for leave to appeal with the New York Court of Appeals, which was denied.

•

The Bottinis had asserted a third-party claim against Morgan Fuel, which in turn asserted a fourth-party claim against MFGI, Market Services and Steven Bellino (a former MFGI employee) in the arbitration proceeding commenced by Market Services. A motion to stay the fourth-party claim had been denied by the trial court and, on appeal, the Appellate Division, First Department reversed the order of the trial court, permanently stayed this claim and subsequently denied Morgan Fuel’s motion seeking leave to appeal this decision to the Court of Appeals. The Bottinis then withdrew their third-party claim against Morgan Fuel, which is no longer a party to the arbitration on the unconditional guarantees. Morgan Fuel filed for leave to appeal with the New York Court of Appeals, which was denied.

There is no affirmative claim against Market Services at this time, which intends to pursue its arbitration vigorously. No provision for losses has been recorded in connection with this claim.

In re: Platinum and Palladium Commodities Litigation

On August 4, 2010, MFGI was added as a defendant to a consolidated class action complaint filed against Moore Capital Management and related entities in the United States District Court for the Southern District of New York which alleged claims of manipulation and aiding and abetting manipulation in violation of the Commodities Exchange Act. Specifically, the complaint alleged that, between October 25, 2007 and June 6, 2008, Moore Capital directed MFGI, as its executing broker, to enter “large” market on close orders (at or near the time of the close) for platinum and palladium futures contracts, which allegedly caused artificially inflated prices. On August 10, 2010, MFGI was added as a defendant to a related class action complaint filed against the Moore-related entities on behalf of a class of plaintiffs who traded the physical platinum and palladium commodities in the relevant time frame, which alleges price fixing under the Sherman Act and violations of the civil Racketeer Influenced and Corrupt Organizations Act. On September 30, 2010 plaintiffs filed an amended consolidated class action complaint that includes all of the allegations and claims identified above on behalf of subclasses of traders of futures contracts of platinum and palladium and physical platinum and palladium. Plaintiffs’ claimed damages have not been quantified. This matter is in its earliest stages and no provision for losses has been recorded in connection with this claim.

Marion Hecht as Receiver for Joseph Forte, L.P.

On December 21, 2010, Marion Hecht, as Receiver for Joseph Forte, L.P. (the “Partnership”), filed a complaint against MFGI in the United States District Court for the Eastern District of Pennsylvania that alleges one claim of negligence. Specifically, the complaint alleges that the Partnership had a trading account with MFGI and that MFGI violated its duties imposed by state law and under the Commodity Exchange Act by failing to recognize that the Partnership was not properly registered with the CFTC or the National Futures Association, and failed to make sufficient inquiries regarding the registration when discrepancies existed, and that MFGI’s conduct enabled the Partnership to operate a Ponzi scheme and cause damage to the investors. The Receiver claims MFGI caused losses in excess of $10,000. MFGI has not yet been served with the complaint. No provision for losses has been recorded in connection with this claim.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

In re: Agape World Inc. Bankruptcy

On January 28, 2011, Kenneth Silverman as Chapter 7 Trustee of Agape World, Inc. (a substantively consolidated bankruptcy estate of various Agape entities, collectively, “Agape”) filed a complaint against MFGI in the United States Bankruptcy Court, Eastern District of New York seeking to recover the transfers made by Agape to MFGI totaling $27,100 plus any fees earned in connection with the trades. Specifically, the Trustee alleges that MFGI failed to conduct sufficient diligence when opening the account, failed to respond to red flags about how account principal Nicholas Cosmo was using Agape’s funds and failed to provide proper oversight and monitoring which, if conducted, would have caused termination of the accounts and trading, and prevented losses to the investors. This matter is in its earliest stages and no provision for losses has been recorded in connection with this claim.

Other

In addition to the matters discussed above, from time to time the Company is party to, or is involved through one of its operating subsidiaries in, litigation and regulatory proceedings that arise in the ordinary course of its business. Aside from those matters discussed above, the Company does not believe that it is party to any pending or threatened litigation or regulatory proceedings that, individually or in the aggregate, would in the opinion of management have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.

U.K. Bonus Tax

In December 2009, the U.K. government introduced legislation which would impose a 50% charge on certain discretionary bonus payments in excess of £25, made between December 9, 2009 and April 5, 2010 to U.K. employees within the financial services industry. As of March 31, 2010, this law had not been enacted and no accrual had been made with respect to this item in the Company’s financial statements. This law was enacted in April 2010. The Company recorded a charge of approximately $3,000 during the first fiscal quarter of 2011 which was paid during the three months ended September 30, 2010.

Guarantees

The Company is required to disclose representations and warranties which it enters into and which may provide general indemnifications to others. As of December 31, 2010 and 2009, the Company has guaranteed loans to certain individuals for their purchase of exchange seats. In these arrangements, the Company can sell the exchange seats to cover amounts outstanding. As of December 31, 2010 and 2009 the Company has not recorded a guarantee liability, as the fair value of the exchange seats exceeds any potential loss on these loans.

Additionally, in its normal course of business, the Company may enter into contracts that contain such representations and warranties. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on its experience, the Company expects the risk of loss to be remote. The Company is a member of various exchanges and clearing organizations and under standard membership agreement; members are required to guarantee collectively the performance of other members. If another member becomes unable to satisfy its obligations to the clearing house, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and could exceed the cash and securities they have posted as collateral. However, the Company believes that the potential for the Company to be required to make payments under these arrangements is remote, and accordingly, no liability has been recorded.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

Other Commitments

Certain clearing-houses, clearing banks, and clearing firms utilized by the Company are given a security interest in certain assets of the Company held by those clearing organizations. These assets may be applied to satisfy the obligations of the Company to the respective clearing organizations.

Lines of Credit

The Company has a $1,200,875 committed revolving liquidity facility. See Note 9 for further information. The Company also has uncommitted credit agreements with financial institutions, in the form of trading relationships, which facilitate execution, settlement, and clearing flow on a day-to-day basis for the Company’s clients, as well as provide evidence, as required, of liquidity to the exchanges on which it conducts business. The Company had $0 and $6,200 of issued letters of credit as of December 31 and March 31, 2010, respectively.

Note 11: Convertible Preferred Stock

Non-Cumulative Convertible Preferred Stock, Series B

On June 25, 2008, the Company completed the issuance and sale of $150,000 in aggregate liquidation preference of its 9.75% Non-Cumulative Convertible Preferred Stock, Series B (the “Series B Preferred Stock”). The Company pays dividends on the Series B Preferred Stock, when, as and if declared by its board of directors, quarterly in arrears at a rate of 9.75% per year, payable on February 15, May 15, August 15 and November 15. Dividends on the Series B Preferred Stock are not cumulative and may be paid in cash, common stock or both.

The Series B Preferred Stock is convertible, at the holder’s option, at any time, initially into 9.5694 shares of common stock based on an initial conversion price of approximately $10.45 per share, subject to specified adjustments. The conversion rate will also be adjusted upon the occurrence of certain make-whole acquisition transactions and other events. On or after July 1, 2018, if the closing price of the Company’s common stock exceeds 250% of the then-prevailing conversion price for 20 trading days during any consecutive 30 trading day period, the Company may, at its option, cause the Series B Preferred Stock to be automatically converted into common stock at the then-prevailing conversion price. There is no beneficial conversion feature to be recognized at the issuance date of the Series B Preferred Stock, however, given certain conditions, a beneficial conversion feature could be recognized in the future.

The Series B Preferred Stock ranks junior to the Company’s indebtedness and senior to the common stock. Upon liquidation of the Company, holders of Series B Preferred Stock are entitled to receive a liquidation amount of $100 per share plus declared dividends prior to any distribution to holders of Common Stock. The Company used the net proceeds from the sale of the Series B Preferred Stock to repay a portion of the Company’s bridge facility.

On July 15, 2010, the Company completed its offer to exchange shares of Common Stock and a cash premium for any and all of its Series B Preferred Stock. In the exchange offer, 1,096,450 shares of Series B Preferred Stock were validly tendered and for each share of Series B Preferred Stock tendered, the Company issued 9.5694 shares of Common Stock and paid a cash premium of $44.50 per share of Series B Preferred Stock, plus accrued dividends up to, but not including, July 15, 2010, amounting to approximately $1.60 per share of Series B Preferred Stock. The Company issued, in the aggregate, 10,492,366 shares of Common Stock and paid an aggregate cash premium of $48,792 to the tendering holders of such shares of Series B Preferred Stock. For the nine months ended December 31, 2010, this cash premium is presented as a deemed dividend in the unaudited consolidated statement of operations to calculate Net loss applicable to common shareholders.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

As of December 31, 2010, 403,550 shares of Series B Preferred Stock remain outstanding. The terms and conditions of the Series B Preferred Stock remain unchanged.

Cumulative Convertible Preferred Stock, Series A

On July 18, 2008, the Company completed the issuance and sale of $150,000 in aggregate liquidation preference of its Cumulative Convertible Preferred Stock, Series A (the “Series A Preferred Stock”) to J.C. Flowers II L.P. (“J.C. Flowers”). The Company used the net proceeds from the sale of the Series A Preferred Stock to repay a portion of the Company’s then outstanding bridge facility pursuant to its capital plan. Pursuant to certain previously disclosed adjustment provisions of its Investment Agreement with J.C. Flowers and as a result of its completed private offerings of Series B Preferred Stock and Convertible Notes, the Company paid J.C. Flowers approximately $36,300 in cash and reset the annual dividend rate on the Series A Preferred Stock, from 6.0% to 10.725%. In July 2008, the Company also paid J.C. Flowers its $4,500 fee in cash in connection with the backstop facility provided by J.C. Flowers under the Investment Agreement. The Series A Preferred Stock ranks senior to the Company’s common stock with respect to dividend rights and rights upon liquidation of the Company.

Under the terms of the Investment Agreement, J.C. Flowers agreed to purchase a minimum of 1,500,000 shares, for an aggregate value of $150,000 and up to a maximum of 3,000,000 shares, for an aggregate value of $300,000, of a newly authorized series of the Company’s convertible preferred stock, designated as 6.0% Cumulative Convertible Preferred Stock, Series A at a stated offer price which was 100% of their liquidation amount or preference, i.e. $100 per share. The Series A Preferred Stock is convertible any time, at the option of the holder, into eight shares of the Company’s common stock, representing an initial conversion price of $12.50 per share.

Subject to certain exceptions, J.C. Flowers may not beneficially own 20% or more of the Company’s outstanding common stock for a period of three years after the closing. Immediately prior to signing the definitive agreement with J.C. Flowers, the Company also amended its then existing shareholder rights plan (which has since been terminated) to exclude J.C. Flowers (including any affiliate of J.C. Flowers), after the first time it becomes the beneficial owner of 15% or more of the Company’s common stock, and until such time as either it falls below the threshold or becomes the owner of 20% or more of the Company’s common stock, from the provision that triggers the shareholder rights plan when any person acquires 15% or more of the Company’s issued and outstanding common stock without approval of its board of directors.

The conversion rate and the conversion price are subject to adjustments in certain circumstances. Dividends on the Series A Preferred Stock are cumulative at the rate of 10.725% per annum, payable in cash or common stock, at the Company’s option, and holders will participate in common stock dividends, if any. Dividends are payable if, as and when determined by the Company’s board of directors, but if not paid they accumulate and dividends accrue on the arrearage at the same annual rate. Accumulated dividends on the Series A Preferred Stock become payable in full upon any conversion or any liquidation of the Company. The Company will not be permitted to pay any dividends on or to repurchase shares of its common stock during any period when dividends on the Series A Preferred Stock are in arrears. Holders will have the right to vote with holders of the common stock on an “as-converted” basis. The Company may require the holders to convert the stock at any time after May 15, 2013 when the closing price of the common stock exceeds 125% of the conversion price for a specified period. In connection with the investment, J.C. Flowers was granted the right to appoint a director to the Company’s Board of Directors. Pursuant to this right, the Company appointed David I. Schamis to its board. In

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

addition, if the Company fails to pay dividends on the Series A Preferred Stock for six quarterly periods, whether or not consecutive, the Series A preferred shareholders will have the right as a class to elect two additional directors to the Company’s board.

On April 28, 2010, the Company’s Board of Directors declared a quarterly dividend on the Series A Preferred Stock and Series B Preferred Stock in amounts of $4,022 and $3,656, respectively. These dividends had a record date of May 3, 2010, and were paid on May 14, 2010. On July 27, 2010 and October 28, 2010, the Company’s Board of Directors declared a quarterly dividend on the Series A Preferred Stock and Series B Preferred Stock in amounts of $4,022 and $984, respectively. These dividends had a record date of August 2, 2010 and November 1, 2010, and were paid on August 13, 2010 and November 12, 2010.

Note 12: Stock-Based Compensation Plans

The Company has established the 2007 Long-term Incentive Plan (“LTIP”) which provides for equity compensation awards in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, cash-based awards and other awards to eligible employees, consultants, directors, and other individuals who provide services to the Company, each as determined by the Compensation Committee of the Board of Directors. As of December 31, 2010, the LTIP provides for the issuance of up to 24,340,597 shares.

The Company issued restricted stock units, stock options, and restricted stock under the LTIP. Generally, stock options vest in equal installments over three years, and vested awards can be exercised, subject to continued employment, within seven years from the date of grant. Stock options have an exercise price, equal to the price per share of common stock at the grant date. Restricted stock units vest ratably or in full after three years, subject to continued employment or meeting certain retirement eligibility criteria. Certain restricted stock units and restricted stock issued at the Company’s initial public offering (“IPO”) were defined as non-recurring IPO awards and are presented in Employee compensation related to non-recurring IPO awards within the unaudited consolidated statement of operations.

Compensation expense for the stock-based compensation plans has been measured in accordance with ASC 718. Net income for the three and nine months ended December 31, 2010 and 2009 includes the following related to the Company’s stock-based compensation arrangements:


	Three months ended December 31,				Nine months ended December 31,
	2010		2009		2010		2009
Employee compensation and benefits (excluding IPO awards)	$	11,802	$	8,409	$	31,636	$	26,984
Employee compensation related to non-recurring IPO awards		—		7,086		10,921		25,099

Total	$	11,802	$	15,495	$	42,557	$	52,083

Income tax benefits	$	4,092	$	3,181	$	13,741	$	14,862

The Company has no pool of windfall tax benefits. The Company records deferred taxes on its unaudited consolidated balance sheets related to stock compensation awards. Due to declines in the Company’s stock price, these may not equal the tax benefit ultimately realized at the date of delivery of these awards, as the deferred tax assets are based on the stock awards’ grant date fair value and any shortfall will result in a charge to the

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

unaudited consolidated statement of operations in (Benefit)/provision for income taxes. A shortfall of $28,210 related to stock compensation awards issued in connection with the IPO was recorded as tax expense in the unaudited consolidated statement of operations in the nine months ended December 31, 2010.

The fair value of each stock option is estimated on the date of grant using a Black-Scholes option valuation model that uses the following assumptions:

Expected Volatility: Due to the lack of historical data for the Company’s own stock, the Company based its expected volatility on a representative peer group that took into account the following criteria: industry, market capitalization, stage of life cycle and capital structure.

Expected Term: Expected term represents the period of time that options granted are expected to be outstanding. The Company elected to use the ‘simplified’ calculation method, which is to be used for companies that lack extensive historical data. The mid-point between the vesting date and the contractual expiration date is used as the expected term under this method.

Expected Dividend Yield: The Company has not paid and does not expect to pay dividends on its Common Stock in the future. Accordingly, the assumed dividend yield is zero.

Risk Free Interest Rate: The risk-free rate is determined using the implied yield currently available on zero-coupon U.S. government bonds with a term consistent with the expected term on the date of grant.


	Nine months ended December 31,
	2010			2009
Expected volatility		49.8	%		55.0	%
Risk free interest rate		2.3	%		2.9	%
Expected dividend yield		0	%		0	%
Expected term		5.1 years			4.5 years

The following tables summarize activity for the Company’s plans for the nine months ended December 31, 2010:


	Options			Weighted- Average Exercise Price (per share)		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Stock options outstanding at April 1, 2010		7,119,502		$	19.72
Granted		4,297,317			8.44
Exercised		(96,857	)		3.01
Forfeited and cancelled		(1,339,744	)		15.78

Stock options outstanding as of December 31, 2010		9,980,218			15.55		5.9	$	4,897
Stock options expected to vest as of December 31, 2010		9,622,984			15.86		5.9		4,448
Stock options exercisable at December 31, 2010		4,510,125			24.15		3.9	$	1,132

During the nine months ended December 31, 2009, 1,317,530 options were granted, 3,301,162 options were exchanged in connection with the stock option exchange program and 964,605 options were forfeited or cancelled. The weighted-average grant-date fair value of options granted during the nine months ended

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

December 31, 2010 and 2009 was $3.90 and $2.81, respectively. The total cash received from options exercised during the nine months ended December 31, 2010 was $292 and the tax benefits realized from these exercises was $98. The total intrinsic value of options exercised during the nine months ended December 31, 2010 was $418. No options were exercised during the nine months ended December 31, 2009.


	Restricted Stock Units
	Awards			Weighted-Average Grant Date Fair Value (per award)
Nonvested as of April 1, 2010		8,394,256		$	17.42
Granted		9,151,972			7.80
Exercised		(6,168,643	)		20.81
Forfeited		(1,319,873	)		9.15

Nonvested as of December 31, 2010		10,057,712		$	7.68
Total unrecognized compensation expense remaining	$	54,614
Weighted-average years expected to be recognized over		2.4

During the nine months ended December 31, 2009, 1,631,145 restricted stock units were granted with a weighted average grant date fair value of $5.91, 284,455 restricted stock units were granted in connection with the stock option exchange program with a weighted average grant date fair value of $10.45 and 214,205 restricted stock units were forfeited. During the nine months ended December 31, 2009, 525,579 shares of stock were issued from the vesting of restricted stock units. The total fair value of restricted stock units exercised during the nine months ended December 31, 2010 and 2009 was $128,369 and $8,861, respectively.


	Restricted Stock
	Awards			Weighted-Average Grant Date Fair Value (per award)
Nonvested as of April 1, 2010		242,720		$	25.25
Granted		83,100			7.22
Vested		(258,964	)		23.76
Forfeited		(4,528	)		16.96

Nonvested as of December 31, 2010		62,328		$	7.22
Total unrecognized compensation expense remaining	$	330
Weighted-average years expected to be recognized over		0.5

During the nine months ended December 31, 2009, 44,976 shares of restricted stock were granted and 78,044 shares of stock vested. The total fair value of restricted stock vested during the nine months ended December 31, 2010 and 2009 was $6,153 and $525, respectively. No shares of restricted stock were forfeited during the nine months ended December 31, 2009.

The Company has employee stock purchase plans in the U.S. and U.K. to provide employees with an opportunity to purchase shares from the Company at a discount and to pay for these purchases through payroll deductions. In the U.S., participants can withhold 1-15% of their eligible compensation; however, no participant can purchase more than 500 shares or total shares exceeding $8 in fair market value. During the nine months ended December 31, 2010, 75,609 shares of stock were awarded from this plan. No shares were awarded from this plan during the nine months ended December 31, 2009. In the U.K., participants can withhold up to

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

£0.25 per month over 3 to 5 years to purchase shares at a 20% discount from the price on the date of grant. During the nine months ended December 31, 2010, 2,396 shares were awarded from this plan, while no shares were awarded from this plan during the nine months ended December 31, 2009. These plans are accounted for as compensatory under ASC 718.

Note 13: Income Taxes

Effective Income Tax Rate

The effective income tax rate for the three and nine months ended December 31, 2010 was approximately 50.5% and (2,416.5)%, respectively, as compared to approximately (18.4)% and 26.4% for the three and nine months ended December 31, 2009, respectively. The change in the Company’s effective tax rate for the three months ended December 31, 2010 reflects (i) a benefit relating to the Company’s state tax liability applicable to current and prior periods, (ii) a write-off of deferred tax assets associated with equity compensation awards that vested at a lower fair market value on the vesting date, (iii) a greater percentage of profits being earned in higher-tax jurisdictions, and (iv) the tax effect of non-deductible items. In addition, recent changes in tax laws significantly reduced the projected full year effective tax rate. The Company’s effective tax rate on ordinary operations (excluding discrete items) for the nine months ended December 31, 2010, was approximately 37.3% compared to 38.0% for the nine months ended December 31, 2009.

Realization of the Company’s deferred tax assets is dependent upon multiple variables including available loss carry-backs, the timing of future earnings, the reversal of current timing differences, and planning. US GAAP requires that the Company continually assess the need for a valuation allowance against all or a portion of its deferred tax assets. As of December 31, 2010, the Company had significant deferred tax assets that it does not have a valuation allowance against because the Company believes that it is more likely than not that these deferred tax assets will be realized in the future. Although realization is not assured, the Company anticipates that realization of these assets will occur.

Uncertain Tax Positions

As of March 31, 2010, the Company had total unrecognized tax benefits of $21,950. For the nine months ended December 31, 2010, the Company decreased gross unrecognized tax benefits by $794 as a result of settlements with certain tax authorities and $2,057 as a result of changes in facts surrounding certain income tax positions. The Company increased gross unrecognized tax benefits by $1,349 which includes $665 of interest on previously-recorded unrecognized tax benefits. The total balance of unrecognized tax benefits of $20,448 would, if recognized, affect the Company’s effective income tax rate in future periods. It is expected that unrecognized tax benefits may decrease by an immaterial amount in the next 12 months as a result of expiring statutes of limitations or settlements.

Note 14: Earnings per Share

The Company computes earnings per share in accordance with applicable accounting standards, which discuss the accounting for earnings per share and participating securities and the two-class method. The Company’s Series A Preferred Stock is classified as participating securities whereby the holder participates in undistributed earnings with common shareholders.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

The numerator for Basic EPS is net income attributable to MF Global Holdings Ltd., reduced by an allocation of earnings between common shareholders and the Series A Preferred shareholder, based on their respective rights to receive dividends on the Company’s common stock as well as any undeclared dividends for the Series A Preferred Stock where the shareholder has a cumulative right to dividends. This is then reduced by dividends declared for the Series B Preferred Stock. The denominator for Basic EPS is the weighted average number of shares of common stock outstanding.

If dilutive, the numerator for Diluted EPS is net income attributable to MF Global Holdings Ltd. after adjusting for the interest expense recorded on the Convertible Notes, net of tax. The denominator for Diluted EPS is the weighted average number of shares of common stock outstanding with the potential effect of stock awards outstanding, calculated as Convertible Notes, Series A and Series B Preferred Stock, if dilutive, in accordance with the if-converted method. The Company then uses the treasury stock method to reflect the potentially dilutive effect of the unvested restricted stock, restricted stock units and unexercised stock options. In calculating the number of shares of dilutive stock outstanding, the shares of common stock underlying unvested restricted stock is assumed to have been delivered on the grant date. The assumed proceeds from the assumed vesting and delivery were calculated as the sum of (a) the amount of compensation cost attributed to future services and not yet recognized as of December 31, 2010 and (b) the amount of tax benefit, if any, that was credited to additional paid-in capital assuming vesting and delivery of the restricted stock. The tax benefit is the amount resulting from a tax deduction, if any, for compensation in excess of compensation expense recognized for financial statement reporting purposes.

The computation of earnings per share is as follows:


	Three months ended December 31, 2010						Nine months ended December 31, 2010
	2010			2009			2010			2009
Basic and diluted loss per share:
Numerator:
Net loss attributable to MF Global Holdings Ltd.	$	(4,709	)	$	(14,618	)	$	(34,642	)	$	(48,103	)
Less: Dividends declared for Series A Preferred Stock		(4,021	)		(4,022	)		(12,065	)		(12,066	)
Dividends declared on Series B Preferred Stock		(984	)		(3,656	)		(7,376	)		(10,968	)
Deemed dividend resulting from exchange offer		—			—			(48,792	)		—

Net loss applicable to common shareholders	$	(9,714	)	$	(22,296	)	$	(102,875	)	$	(71,137	)

Denominator:
Basic and diluted weighted average shares of common stock outstanding		163,268,035			123,272,712			151,379,516			123,149,652

Basic and Diluted loss per share	$	(0.06	)	$	(0.18	)	$	(0.68	)	$	(0.58	)

Diluted loss per share is the same as basic loss per share for all periods presented, as the impact of outstanding stock awards, Convertible Notes, and Series A and Series B Preferred Stock is anti-dilutive. The Convertible Notes, and Series A and Series B Preferred Stock are weighted based on the period outstanding

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

during the respective period presented. The following table presents the potential stock excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive in each period:


	Three months ended December 31, 2010				Nine months ended December 31, 2010
	2010		2009		2010		2009
Restricted stock units and restricted stock		10,080,691		8,304,651		10,080,691		8,304,651
Stock options		9,980,218		7,185,632		9,980,218		7,185,632
9.0% Convertible Notes		18,723,732		19,617,225		18,723,732		19,617,225
Series B Preferred Stock		3,861,722		14,354,067		3,861,722		14,354,067
Series A Preferred Stock		12,000,000		12,000,000		12,000,000		12,000,000

Total		54,646,363		61,461,575		54,646,363		61,461,575

Note 15: Related Party Transactions

Beginning in July 2007, Man Group, through one of its subsidiaries, held an investment in the Company’s outstanding Common Stock. During the three months ended September 30, 2009, Man Group sold its remaining investment, which at the time of sale was approximately 18.4% of the Company’s outstanding Common Stock and, as such, transactions between Man Group and the Company after September 30, 2009 are no longer separately disclosed as related party transactions. Income and expense transactions between Man Group and the Company are disclosed below as related party transactions for the six months ended September 30, 2009. The Company clears transactions on behalf of certain managed investment funds which are related parties of Man Group. The Company earned commission revenues by executing and clearing brokerage transactions for these investment funds as well as incurred net interest expense. The related party revenues, net of interest and transaction-based expenses, do not reflect the interest income earned from third parties from the reinvestment of related party fund balances by the Company.

Revenues earned from and expenses incurred with Man Group for the six months ended September 30, 2009 are summarized as follows:


	Six months ended September 30, 2009
Revenues
Commissions	$	11,617
Interest income		291

Total revenues		11,908
Less: Interest expense		301

Revenues, net of interest and transaction-based expenses		11,607

Expenses
Employee compensation and benefits		109
Communications and technology		877
Occupancy and equipment costs		2,508
Professional fees		2
General and other		1,555

Total non-interest expenses		5,051

Total, net	$	6,556

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

The Company leases office space from and subleases office space to Man Group. In connection with the leasing of office space from Man Group, the Company receives certain office services that will continue for the duration of the lease.

In September 2010, Man Group paid the Company $32,619 related to an arbitration. See Note 10 for further information.

Note 16: Segment and Geographic Information

The Company has one reportable business segment, as defined by the accounting standard for disclosures about segments of an enterprise and related information. This standard requires a public enterprise to report financial information on a basis consistent with that used by management to allocate resources and assess performance. The Company is operated and managed by its chief operating decision maker on an integrated basis as a single operating segment.

Each region’s contribution to the consolidated amount is as follows:


	Three months ended December 31,				Nine months ended December 31,
	2010		2009		2010		2009
Revenues, net of interest and transaction-based expenses:
North America	$	137,135	$	135,891	$	415,853	$	407,019
Europe		71,860		85,640		246,527		266,245
Rest of World		37,764		29,473		114,153		101,300

Total	$	246,759	$	251,004	$	776,533	$	774,564

Revenues, net of interest and transaction-based expenses, are attributed to geographic areas based on the location of the relevant legal entities. Rest of the world comprises primarily the Asia/Pacific region. No single customer accounted for greater than 10% of total revenues in the three and nine months ended December 31, 2010 and 2009. Revenues, net of interest and transaction-based expenses by product, have not been provided as this information is impracticable to obtain.

Note 17: Regulatory Requirements

One of the Company’s subsidiaries is registered as a futures commission merchant and broker-dealer and others are registered as local equivalents and accordingly are subject to the capital rules of the SEC, CFTC, and FSA, principal exchanges of which they are members, and other local regulatory bodies, as applicable.

The Company’s U.S. operating subsidiary, MFGI, is required to maintain minimum net capital equal to the greater of the amount required by the SEC or CFTC, as defined. At December 31, 2010, the Company had net capital, as defined, of $566,914, net capital requirements of $410,801, and excess net capital of $156,113.

The Company is subject to certain notifications and other provisions of the net capital rules of the SEC regarding advances to affiliates, repayments of subordinated liabilities, dividend payments and other equity withdrawals. At December 31, 2010, the Company was in compliance with all of these provisions.

MF GLOBAL HOLDINGS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

In accordance with the rules of the FSA in the U.K., the Company’s FSA-regulated subsidiary, MF Global U.K. Limited, must comply with financial resources requirements, which since January 1, 2008, is subject to the requirements of the European Union’s Capital Requirements Directive. The capital held is intended to absorb unexpected losses and a minimum requirement is calculated in accordance with a standard regulatory formula that addresses the exposure to counterparty credit risk, position/market risk, foreign exchange risk, operational risk and concentration risk. Counterparty risk is calculated as a percentage of unpaid customer margin for exchange traded business and an exposure calculation for off-exchange business. Position risk is calculated by applying percentages to positions based on the underlying instrument and maturity. However, for the purposes of prudential supervision, the Company as a consolidated group is not subject to the consolidated regulatory capital requirements under the current European Union’s Capital Requirements Directive.

At December 31, 2010, the Company’s FSA-regulated subsidiary had financial resources in total, as defined, of $613,647, resource requirements of $403,247, and excess financial resources of $210,400.

The Company is also subject to the requirements of other regulatory bodies and exchanges of which it is a member in other international locations in which it conducts business. The Company was in compliance with all of these requirements at December 31, 2010 and 2009.

Note 18: Subsequent Events

Dividends

On January 28, 2011, the Company’s Board of Directors declared a quarterly dividend on the Series A Preferred Stock and Series B Preferred Stock in an aggregate amount of $4,022 and $984, respectively. These dividends have a record date of February 4, 2011 and payment date of February 15, 2011.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are based on our present beliefs and assumptions and on information currently available to us. You can identify forward-looking statements by terminology such as “may”, “will”, “should”, “could”, “would”, “targets”, “goal”, “expect”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue”, or the negative of these terms or other comparable terminology. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the risks and uncertainties described under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010, our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010 and in this Quarterly Report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We caution you not to place undue reliance on these forward-looking statements. Forward-looking statements in this report include, but are not limited to, statements about:

•

expectations regarding the business environment in which we operate and the trends in our industry such as changes in trading volume and interest rates;

•

our liquidity requirements and our ability to obtain access to necessary liquidity;

•

our ability to continue to provide value-added brokerage services;

•

our ability to capitalize on market convergence;

•

our ability to continue to diversify our service offerings;

•

our ability to pursue opportunities for enhanced operating margins;

•

our ability to expand our business in existing or new geographic regions;

•

our ability to continue to expand our business through acquisitions or organic growth;

•

the effects of pricing and other competitive pressures on our business as well as our perceptions regarding our business’ competitive position;

•

our accuracy regarding our expectations of our revenues and various costs and of expected cost savings;

•

exposure to client and counterparty default risks as well as the effectiveness of our risk-management;

•

exposure to market and other risks from our principal transactions;

•

our exposures to credit, counterparty, and concentration risk;

•

our ability to execute our business strategy and strategic plan;

•

our planned transition of our business from a broker to a broker-dealer and then to an investment bank;

•

our ability to retain our management team and other key employees;

•

fluctuations in interest rates and currency exchange rates and their possible effects on our business;

•

the likelihood of success in, and the impact of, litigation or other legal or regulatory challenges involving our business;

•

the impact of any changes in domestic and foreign regulations or government policy, including any changes or reviews of previously issued regulations and policies;

•

changes in exchange membership requirements;

•

our ability to increase the percentage of our revenues from the Asia/Pacific region;

•

changes in our taxes and tax rate;

•

our ability to maintain trading volumes and market share;

•

our ability to maintain our credit rating and the effects that changes to our credit ratings would have on our business and operations;

•

our ability to maintain our existing technology systems and to keep pace with rapid technological developments;

•

the effects of financial reform legislation and related rule making of regulatory agencies; and

•

our ability to retain existing clients and attract new ones.

We caution that you should not place undue reliance on any of our forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we have no duty to, and do not intend to, update or revise the forward-looking statements in this report after the date of this report.

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 Holdings Ltd. and its consolidated subsidiaries (the “Company”, “we”, “us” or “our”). 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 as well as our audited consolidated and combined financial statements and accompanying notes, in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010.

Business Overview

We are a leading broker of commodities and listed derivatives. We deliver trading and hedging solutions as a broker-dealer across all major markets for futures and options, commodities, fixed income, equities and foreign exchange. We help our clients discover and capitalize on market opportunities by providing actionable insight, market expertise and deep liquidity. We also provide access to more than 70 exchanges around the world and are a leader by volume on many of the largest derivatives exchanges. We operate globally, with a presence in the United States (“U.S.”), the United Kingdom (“U.K.”), France, Singapore, Australia, Hong Kong, Canada, India and Japan, among others. We principally offer execution and clearing services for institutional clients, including broker-dealers and other financial institutions, corporations, hedge funds and other assets managers, sovereign institutions and professional traders. We also offer a range of country-specific product offerings for retail clients ranging from self-directed trading to broker-assisted trading. Our business model is global and client-driven, and we have organized our business to centrally manage our resources to offer 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.

We derive revenues from three main sources: commission fees generated from execution and clearing services; principal transactions, which include matched-principal and other principal transactions, primarily executed to facilitate client trades; 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 collateralized financing arrangements and principal transactions activities.

Consistent with trading activity on major exchanges, the total volume of exchange-traded futures and options we executed and/or cleared increased 0.4% from 425.0 million contracts in the three months ended December 31, 2009 to 426.9 million contracts in the three months ended December 31, 2010. The total volume of exchange-traded futures and options we executed and/or cleared increased 10.5% from 1,250.5 million contracts in the nine months ended December 31, 2009 to 1,381.4 million contracts in the nine months ended December 31, 2010. This is as a result of improved global market conditions as compared to last year, increased client activity driven by the volatility in the currency markets and uncertainty in European markets during the nine months ended December 31, 2010. For a discussion of the manner in which we calculate our volumes, see “—Factors Affecting our Results—Trading Volumes and Volatility”.

Significant Business Developments

Our Strategic Plan

As part of our strategic planning process, our management team and Board of Directors have developed a detailed strategic plan designed to transition our business from primarily a broker-based futures commission merchant to a more diversified broker-dealer in the near term, and eventually to a full service investment bank. As a broker-dealer, we plan to expand our market-making and principal and proprietary trading activities, as well as strengthen our retail brokerage business. In connection with our long term plan to evolve our business to an investment bank, we intend to develop a broader suite of capital markets offerings, including the ability to originate customized structured products, focused research offerings, as well as advisory and underwriting

services. Diversifying revenue streams is important to our long term success. In this regard, we will examine opportunities to add an asset management arm and corresponding fee base revenue to our business model. We believe that this plan will, in the long term, help us diversify and grow revenue and improve the strength and stability of our earnings profile.

We believe that our strategic plan capitalizes on global market opportunities created by changes in the regulation of markets and of capital, as well as changes in the availability of capital. Furthermore, because of these changes, we believe we will attract small-sized and mid-sized asset managers who are underserved by the larger investment banks and financial institutions. Lastly, because of the apparent growing acceptance of, and demand for, commodities as an asset class as well as the globalization of markets, broadening trading activity and proliferation of financial products, our strategic plan will leverage on our core strengths in commodities, leading market position in derivatives, global reach and talented broker base.

As part of our strategic plan, and to facilitate the organizational execution, we intend to align our business into four groups: institutional capital markets, retail services, transaction services and asset management. Our institutional capital markets group will focus on institutional sales, trading, research and other investment banking services. Our retail services group will focus on offering clients brokerage services through a multi-asset, multi-currency trading platform. Our retail services group will also focus on core client segments including high net worth, wholesale and self-directed clients as well as a general brokerage offering. We plan to continue to build our transaction services group by focusing on the correspondent and futures clearing business, offering clients direct market access, and offering clients prime services and financing coordination. We plan to develop, either internally or through acquisition, our asset management group, which we believe will offer an array of alternative investment options such as managed futures and hedge funds. To facilitate our growth strategy, we may need to raise additional capital to support our planned increase in client facilitation and other capital markets activities. Furthermore, the implementation of our strategy, particularly aligning our employees to execute the strategy, may require us to make certain personnel and other changes which may also require us to recognize in the near term certain costs which may affect our near-term earnings. As we implement our strategy, we may incur other costs and may need to make operational changes. Nevertheless, we believe that these actions will allow us to take advantage of the opportunity that we perceive in the global capital markets and the competitive landscape, by offering clients a compelling and comprehensive suite of risk intermediation services. The successful implementation of our strategy has the potential to fundamentally reshape our business mix, growth trajectory, and performance profile. For additional discussion about risks related to our strategy see “Item 1A. Risk Factors.”

Offer to Exchange

On July 15, 2010, we completed our offer to exchange shares (which we refer to as our “exchange offer”) of our common stock, par value $1.00 per share (“Common Stock”) and a cash premium for any and all of our outstanding 9.00% Convertible Senior Notes due 2038 (the “Convertible Notes”) and 9.75% Non-Cumulative Convertible Preferred Stock, Series B (the “Series B Preferred Stock”). As of the expiration of the exchange offer, 1.1 million shares of Series B Preferred Stock were validly tendered and we issued 10.5 million shares of Common Stock, paid a cash premium of $48.8 million and paid accrued dividends of $1.8 million. The cash premium is presented as a deemed dividend in the unaudited consolidated statement of operations to calculate Net loss applicable to common shareholders for the nine months ended December 31, 2010. In addition, $9.3 million in aggregate principal amount of the Convertible Notes were validly tendered and we issued 0.9 million shares of Common Stock, paid a cash premium of $4.5 million and paid accrued interest of $0.1 million. During the nine months ended December 31, 2010, we recorded a loss on extinguishment of debt of $2.7 million as a result of exchanging our Convertible Notes for cash and Common Stock. After settlement of the exchange offer, $195.7 million in aggregate principal amount of Convertible Notes and 0.4 million shares of Series B Preferred Stock remain outstanding. See Notes 9 and 11 to our unaudited consolidated financial statements for further details.

Liquidity Facility

At March 31, 2010, we had a $1,500.0 million five-year unsecured committed revolving credit facility (the “liquidity facility”) with a syndicate of banks. On June 29, 2010, we amended our liquidity facility to (i) permit us, in addition to certain of our subsidiaries, to borrow funds under the liquidity facility and (ii) extend the lending commitments of certain of the lenders by two years, from June 15, 2012 to June 15, 2014. Aggregate commitments under the amended liquidity facility are $1,200.9 million of which $689.6 million is available to us for borrowing until July 15, 2014 and $511.3 million is available for borrowing until June 15, 2012. In connection with the amendment, we paid a one-time fee of $6.8 million to the lenders. In December 2010, for purposes of prudent liquidity management, we borrowed $75.0 million from the liquidity facility, which was subsequently repaid in January 2011. As of December 31 and March 31, 2010, $517.5 million and $442.5 million, respectively, were outstanding under the liquidity facility with the remainder available to us. We have classified the $517.5 million of outstanding loans at December 31, 2010 under the liquidity facility as short term debt. See Note 9 to our unaudited consolidated financial statements for further details.

Equity Offering

On June 8, 2010, we completed our public offering and sale of 25,915,492 shares of our Common Stock, pursuant to an underwriting agreement, dated June 2, 2010. We received $174.3 million in proceeds, net of an underwriting discount and other associated costs. We used the net proceeds from the equity offering to pay all fees and expenses that we incurred in connection with our exchange offer discussed above and we expect to use the remainder of the net proceeds for general corporate purposes. See Note 2 to our unaudited consolidated financial statements for further details.

Restructuring

In May 2010, we commenced a strategic assessment of our cost base, including reviews of our compensation structure and non-compensation expenses. As a result of this evaluation we reduced our workforce by approximately 12%. We recorded restructuring charges of $12.8 million during the nine months ended December 31, 2010, as a result of these plans. These charges include $11.7 million for the nine months ended December 31, 2010, for severance and other employee compensation costs and $1.1 million for the nine months ended December 31, 2010, for occupancy and equipment costs related to office closures. The employee terminations occurred mainly in North America and Europe. As of December 31, 2010, we paid approximately $12.3 million restructuring costs and have a remaining accrual of $0.5 million, substantially all of which will be paid out within one year. We estimate the actions taken in the nine months ended December 31, 2010 in connection with the restructuring initiatives will result in approximately $20.0 million of annual cost savings.

Factors Affecting Our Results

The global business environment directly affects our results of operations. Our results of operations have been and will continue to be affected by many factors, including but not limited to 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 improvement in certain financial markets during the first nine months of fiscal 2011 and turmoil in global markets in fiscal 2010. Financial markets have experienced elevated levels of volatility due to concerns about the outlook for global growth, the solvency of certain sovereign nations and inflation, while in some instances certain markets have begun to recover during the nine months ended December 31, 2010. The global equity markets experienced a significant appreciation during the nine months ended December 31, 2010 and are significantly up from year-ago levels. Mortgage and corporate credit spreads widened in the first half of fiscal 2010, narrowed subsequently, but have begun to widen again and the U.S. dollar appreciated against the Euro and British pound in the first half of fiscal 2010 and again in the first quarter

of fiscal 2011, before depreciating in the second and third quarters. Furthermore, short-term interest rates have continued to remain very low over the past year, and as a result our net interest income has been negatively affected over the same period. 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 and 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 market prices of the underlying assets—that is, the extent to which and how rapidly those prices change during a given period. Historically, higher price volatility increases the need for certain 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 we executed and/or cleared increased 0.4% from 425.0 million contracts in the three months ended December 31, 2009 to 426.9 million contracts in the three months ended December 31, 2010 and also increased 10.5% from 1,250.5 million contracts in the nine months ended December 31, 2009 to 1,381.4 million contracts in the nine months ended December 31, 2010. 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 2010, extreme volatility and widespread uncertainty can impact clients’ ability to take on or maintain positions, which has the effect of decreasing volumes.

All volume statistics presented herein for the three and nine months ended December 31, 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, 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 interest earned in connection with principal transactions, such as fixed income, securities lending and collateralized financing transactions. While spreads on these transactions remained within a relatively constant range over time, they can widen or narrow when interest rate trends change, as was seen in the narrowing of spreads experienced during fiscal 2010 and slight widening of spreads during early fiscal 2011. 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 our portfolio investments made with client balances. 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 our interest expense on our variable rate debt. Accordingly, the historically low short-term interest rates have negatively affected our net interest income and we cannot offer any assurance that interest rates will increase in the future.

Results of Operations

Basis of 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, and from principal transactions. 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 16 to our unaudited consolidated financial statements.

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. In the first quarter of fiscal 2011, we reclassified certain amounts in the statements of operations to better present our business transactions and explain our financial results. Specifically, expenses incurred related to temporary staff and contractors have been reclassified out of Employee compensation and benefits (excluding non-recurring IPO awards) and into Professional fees. Tuition and training costs have also been reclassified out of Employee compensation and benefits (excluding non-recurring IPO awards) and into General and other. In addition, all dividends earned or paid in equity trading strategies previously classified within Interest income and Interest expense have been reclassified into Principal transactions. For the three and nine months ended December 31, 2009 the reclassification made for dividends was $56.3 million and $51.3 million, respectively. These consolidated changes have been voluntarily reclassified by us and do not reflect an error or misstatement. We do not believe that these adjustments are quantitatively or qualitatively material.

Nine Months ended December 31, 2010 Compared to the Nine Months ended December 31, 2009:


	Nine months ended December 31,
(Amounts in millions except per share and share amounts)	2010			2009			% Change
Revenues
Commissions	$	1,049.3		$	1,038.5			1.0	%
Principal transactions		152.4			124.2			22.7
Interest income		383.9			302.1			27.1
Other		31.4			31.7			(0.9	)

Total revenues		1,617.0			1,496.5			8.1

Interest and transaction-based expenses:
Interest expense		165.8			94.5			75.4
Execution and clearing fees		491.3			445.4			10.3
Sales commissions		183.4			182.1			0.7

Total interest and transaction-based expenses		840.5			722.0			16.4
Revenues, net of interest and transaction-based expenses		776.5			774.6			0.2

Expenses
Employee compensation and benefits (excluding non-recurring IPO awards)		437.2			485.4			(9.9	)
Employee compensation related to non-recurring IPO awards		12.4			25.1			(50.6	)
Communications and technology		98.7			87.2			13.2
Occupancy and equipment costs		36.0			29.4			22.4
Depreciation and amortization		32.9			41.3			(20.3	)
Professional fees		52.2			58.6			(10.9	)
General and other		60.9			82.2			(25.9	)
IPO-related costs		—			0.9			(100.0	)
Restructuring charges		12.8			—			100.0
Impairment of intangible assets and goodwill		2.9			2.3			26.1

Total other expenses		746.1			812.4			(8.2	)
Gain on exchange seats and shares		2.1			12.9			(83.7	)
Loss on extinguishment of debt		2.7			9.7			(72.2	)
Interest on borrowings		31.1			30.4			2.3

Loss before provision for income taxes		(1.4	)		(65.0	)		97.8
Provision/(benefit) for income taxes		32.9			(17.2	)		291.3
Equity in income of unconsolidated companies (net of tax)		1.8			1.3			38.5

Net loss		(32.5	)		(46.6	)		30.3
Net income attributable to noncontrolling interest (net of tax)		2.1			1.5			40.0

Net loss attributable to MF Global Holdings Ltd.	$	(34.6	)	$	(48.1	)		28.1

Loss per share:
Basic	$	(0.68	)	$	(0.58	)
Diluted	$	(0.68	)	$	(0.58	)
Weighted average number of shares of common stock outstanding:
Basic		151,379,516			123,149,652
Diluted		151,379,516			123,149,652

Three Months ended December 31, 2010 Compared to the Three Months ended December 31, 2009:


	Three months ended December 31,
(Amounts in millions except per share and share amounts)	2010		2009		% Change
Revenues
Commissions	$	344.8	$	357.2		(3.5	)%
Principal transactions		40.9		33.2		23.2
Interest income		141.8		106.2		33.5
Other		8.8		8.7		1.1

Total revenues		536.2		505.4		6.1

Interest and transaction-based expenses:
Interest expense		65.2		35.4		84.2
Execution and clearing fees		161.1		157.0		2.6
Sales commissions		63.1		62.0		1.8

Total interest and transaction-based expenses		289.5		254.4		13.8
Revenues, net of interest and transaction-based expenses		246.8		251.0		(1.7	)

Expenses
Employee compensation and benefits (excluding non-recurring IPO awards)		142.3		150.5		(5.4