-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A8LbFkDa9zyBD08lKkVTTN7Vx4LRaIirGnppGB7O8b11NbNzg5gYqlsM5uMkyvbh 8nbDjOJOYzkLnR5wxxLJfQ== 0000912057-02-041982.txt : 20021112 0000912057-02-041982.hdr.sgml : 20021111 20021112145355 ACCESSION NUMBER: 0000912057-02-041982 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020927 FILED AS OF DATE: 20021112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTMENT TECHNOLOGY GROUP INC CENTRAL INDEX KEY: 0000920424 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 133757717 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-78309 FILM NUMBER: 02816835 BUSINESS ADDRESS: STREET 1: 380 MADISON AVE STREET 2: 2ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125884000 MAIL ADDRESS: STREET 1: 11100 SANTA MONICA BLVD STREET 2: 12TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90025 10-Q 1 a2093127z10-q.htm FORM 10-Q

Use these links to rapidly review the document
TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 27, 2002

Commission file number: 0-23644

INVESTMENT TECHNOLOGY GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE		95-2848406
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
380 Madison Avenue, New York, New York		(212) 588-4000
(Address of Principal Executive Offices)		(Registrant's Telephone Number, Including Area Code)
10017
(Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

As of November 5, 2002, the Registrant had 47,922,245 shares of common stock, $0.01 par value, outstanding.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I.—Financial Information


Item 1. Financial Statements
		Condensed Consolidated Statements of Financial Condition: September 27, 2002 (unaudited) and December 31, 2001
		Condensed Consolidated Statements of Income (unaudited): Three and Nine Months Ended September 27, 2002 and September 30, 2001
		Condensed Consolidated Statement of Changes in Stockholders' Equity (unaudited): Nine Months Ended September 27, 2002
		Condensed Consolidated Statements of Cash Flows (unaudited): Nine Months Ended September 27, 2002 and September 30, 2001
		Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
PART II.—Other Information
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
		Signature

QuantEX and ITG are registered trademarks of the Investment Technology Group, Inc. companies.
POSIT is a registered service mark of the POSIT Joint Venture.
SmartServer, SPI, SPI SmartServer, VWAP SmartServer, ITG ACE, TCA, ITG WebAccess, ITG/Opt, ITG PRIME, ResRisk, Hoenig and AlterNet are trademarks of the Investment Technology Group, Inc. companies.

FORWARD-LOOKING STATEMENTS

In addition to the historical information contained throughout this Quarterly Report on Form 10-Q, there are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements regarding our expected future financial position, results of operations, cash flows, dividends, financing plans, business strategies, competitive positions, plans and objectives of management for future operations, and concerning securities markets and economic trends are forward-looking statements. Although we believe our expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements herein include, among others, the actions of both current and potential new competitors, rapid changes in technology, fluctuations in market trading volumes, financial market volatility, evolving industry regulations, risk of errors or malfunctions in our systems or technology, cash flows into or redemptions from equity funds, effects of inflation, customer trading patterns, the success of our new products and services offerings as well as general economic and business conditions, internationally or nationally, securities, credit and financial market conditions, and adverse changes or volatility in interest rates. Certain of these factors, and other factors, are more fully discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations—Issues and Uncertainties—in our annual report on Form 10-K for the year ended December 31, 2001, which you are encouraged to read.

PART I.—FINANCIAL INFORMATION

Item 1. Financial Statements

INVESTMENT TECHNOLOGY GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In thousands, except share amounts)

			September 27, 2002			December 31, 2001
			(unaudited)
Assets
Cash and cash equivalents			$	194,718		$	236,607
Securities owned, at fair value				74,309			62,758
Receivables from brokers, dealers and other, net				316,028			21,435
Investments in limited partnerships				25,612			25,607
Premises and equipment				28,455			28,083
Capitalized software				6,576			4,097
Goodwill and other intangibles				82,791			24,392
Deferred taxes				9,892			9,959
Other assets				15,587			5,540

Total assets			$	753,968		$	418,478

Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses			$	92,391		$	57,333
Payables to brokers, dealers and other				287,552			7,893
Software royalties payable				4,769			6,435
Securities sold, not yet purchased, at fair value				72			4,787
Income taxes payable				11,157			24,086

	Total liabilities			395,941			100,534

Commitments and contingencies
Stockholders' Equity:
	Preferred stock, par value $0.01; shares authorized: 1,000,000; shares issued: none			—			—
	Common stock, par value $0.01; shares authorized: 100,000,000; shares issued: 51,220,201 and 51,184,489 at September 27, 2002 and December 31, 2001, respectively			512			512
	Additional paid-in capital			155,865			146,131
	Retained earnings			279,959			218,215
	Common stock held in treasury, at cost; shares: 3,143,526 and 2,543,312 at September 27, 2002 and December 31, 2001, respectively			(78,816	)		(45,939	)
	Accumulated other comprehensive income (loss):
		Currency translation adjustment		507			(975	)

	Total stockholders' equity			358,027			317,944

Total liabilities and stockholders' equity			$	753,968		$	418,478

See accompanying unaudited notes to condensed consolidated financial statements.

INVESTMENT TECHNOLOGY GROUP, INC.
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except per share amounts)

				Three Months Ended				Nine Months Ended
				September 27, 2002		September 30, 2001		September 27, 2002		September 30, 2001
Revenues:
	Commissions:
		POSIT		$	35,334	$	46,833	$	123,520	$	137,357
		Electronic Trading Desk			29,499		22,184		76,415		64,284
		Client Site Trading Products			29,630		21,220		87,052		69,470
	Other				2,411		568		7,023		6,283

			Total revenues		96,874		90,805		294,010		277,394

Expenses:
	Compensation and employee benefits				28,770		26,980		84,405		76,523
	Transaction processing				13,160		11,904		36,732		37,780
	Software royalties				4,563		5,868		15,871		17,497
	Occupancy and equipment				7,311		5,836		20,443		15,657
	Telecommunications and data processing services				4,279		3,958		12,565		11,089
	Net gain on long-term investments				—		—		—		(309	)
	Other general and administrative				5,794		7,884		17,427		21,511

			Total expenses		63,877		62,430		187,443		179,748

Income before income tax expense					32,997		28,375		106,567		97,646
Income tax expense					14,222		12,427		44,823		41,576

Net income				$	18,775	$	15,948	$	61,744	$	56,070

Earnings per share(1):
Basic				$	0.39	$	0.33	$	1.27	$	1.18

Diluted				$	0.39	$	0.33	$	1.25	$	1.16

Basic weighted average number of common shares outstanding					48,247		47,921		48,692		47,689

Diluted weighted average number of common shares outstanding					48,581		48,635		49,347		48,426

(1): Earnings per share have been retroactively restated to reflect a three-for-two stock split in December 2001.

See accompanying unaudited notes to condensed consolidated financial statements.

INVESTMENT TECHNOLOGY GROUP, INC.
Condensed Consolidated Statement of Changes in Stockholders' Equity (unaudited)
Nine Months Ended September 27, 2002
(In thousands, except share amounts)

		Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Common Stock Held in Treasury			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance at January 1, 2002		$	—	$	512	$	146,131	$	218,215	$	(45,939	)	$	(975	)	$	317,944
Issuance of common stock in connection with the employee stock option plan (696,626 shares) and the employee stock unit award plan (78,060 shares)			—		—		7,240		—		15,023			—			22,263
Issuance of common stock in connection with the employee stock purchase plan (35,712 shares)			—		—		1,188		—		—			—			1,188
Purchase of common stock for treasury (1,374,900 shares)			—		—		—		—		(47,900	)		—			(47,900	)
Rollover of Hoenig Group Inc. stock options			—		—		1,306		—		—			—			1,306
Comprehensive income:
	Net income		—		—		—		61,744		—			—			61,744
Other comprehensive income:
	Currency translation adjustment		—		—		—		—		—			1,482			1,482

Comprehensive income																	63,226

Balance at September 27, 2002		$	—	$	512	$	155,865	$	279,959	$	(78,816	)	$	507		$	358,027

See accompanying unaudited notes to condensed consolidated financial statements.

INVESTMENT TECHNOLOGY GROUP, INC.
Condensed Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)

			Nine Months Ended
			September 27, 2002			September 30, 2001
Cash flows from operating activities:
Net income			$	61,744		$	56,070
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			12,139			12,069
	Tax benefit from employee stock options			6,029			3,793
	Deferred income tax benefit			(127	)		(1,707	)
	Provision for doubtful accounts			(403	)		1,193
	Stock-based compensation			613			546
	Gain on sale of investments, including available-for-sale securities			—			(1,157	)
	Undistributed gain of affiliates			—			(309	)
	Write-down of investment in limited partnership			—			1,285
Changes in operating assets and liabilities:
	Securities owned, at fair value			2,950			(13,189	)
	Receivables from brokers, dealers and other, net			(233,010	)		(8,683	)
	Accounts payable and accrued expenses			6,256			17,057
	Payables to brokers, dealers and other			228,318			6,407
	Securities sold, not yet purchased, at fair value			(4,715	)		(2,394	)
	Income taxes payable			(10,945	)		11,652
	Other, net			(1,826	)		11,675

		Net cash provided by operating activities		67,023			94,308

Cash flows from investing activities:
	Acquisition of subsidiary, net of cash acquired			(66,314	)		(17,793	)
	Capital purchases			(9,381	)		(7,649	)
	Capitalization of software development costs			(4,071	)		(3,062	)
	Purchase of investments in limited partnerships			—			(11,000	)
	Proceeds from sale of investments, including available-for-sale securities			—			1,295

		Net cash used in investing activities		(79,766	)		(38,209	)

Cash flows from financing activities:
	Common stock issued			17,422			9,129
	Common stock repurchased			(47,900	)		—

		Net cash (used in) provided by financing activities		(30,478	)		9,129

	Effect of foreign currency translation on cash and cash equivalents			1,332			(666	)
		Net (decrease) increase in cash and cash equivalents		(41,889	)		64,562
Cash and cash equivalents—beginning of period				236,607			135,533

Cash and cash equivalents—end of period			$	194,718		$	200,095

Supplemental cash flow information:
	Interest paid		$	1,185		$	2,479

	Income taxes paid		$	49,209		$	27,866

See accompanying unaudited notes to condensed consolidated financial statements.

INVESTMENT TECHNOLOGY GROUP, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)

Organization and Basis of Presentation

The Consolidated Financial Statements include the accounts of Investment Technology Group, Inc. and its wholly-owned subsidiaries ("ITG" or the "Company"), which principally include: (1) ITG Inc. and AlterNet Securities, Inc. ("AlterNet"), United States ("U.S.") broker-dealers in equity securities, (2) Hoenig Group Inc. (since the date of the acquisition on September 3, 2002) and its operating affiliates, Hoenig & Co., Inc. and Hoenig (Far East) Limited (collectively, "Hoenig"), primarily agency soft dollar broker-dealers in equity securities, (3) Investment Technology Group Limited ("ITG Europe"), an institutional broker-dealer in Europe, which was 50% owned prior to our May 2, 2001 purchase of the 50% ownership interest in the ITG Europe joint venture we did not already own, (4) ITG Australia Limited ("ITG Australia"), an institutional broker-dealer in Australia, (5) ITG Canada Corp. ("ITG Canada"), an institutional broker-dealer in Canada, (6) KTG Technologies Corporation ("KTG"), a direct access provider in Canada, (7) ITG Hong Kong Ltd. ("ITG Hong Kong"), our start-up brokerage operation in Hong Kong, (8) ITG Software, Inc., our intangible property management subsidiary in California, (9) ITG Software Solutions, Inc., our software development and maintenance subsidiary in California and (10) Inference Group LLC, an asset management subsidiary. We provide equity trading services and transaction research to institutional investors and brokers in the U.S., Canada, Australia, Europe and Asia.

We are a financial technology firm that provides electronic equity analysis and trade execution tools. We provide services that help our clients optimize their portfolio construction and trading strategies, access liquidity in multiple markets and achieve low-cost trade execution. Our clients are major institutional investors and broker-dealers. Our products include: POSIT, an electronic equity matching system; QuantEX, a Unix-based decision-support, trade management and order routing system; ITG Platform, a PC-based order routing and trade management system; ITG ACE and TCA, a set of pre- and post-trade tools for systematically estimating and measuring transaction costs; SmartServers, which offer server-based implementation of trading strategies; ITG/Opt, a computer-based equity portfolio selection system; ITG WebAccess, a browser-based order routing tool; and ITG PRIME, a web-based portfolio risk analysis and management platform. In addition, we provide research, development, sales and consulting services to clients. Through Hoenig, we provide trade execution, independent research and other services to alternative investment funds and money managers in the U.S., Europe and Asia.

The quarterly financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the U.S. All material intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements reflect all adjustments, which are in the opinion of management, necessary for the fair presentation of results. Certain reclassifications and format changes have been made to prior period amounts to conform to the current period presentation.

The preparation of the financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets, liabilities, revenues and expenses. Actual results could differ from those estimates.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with our consolidated financial statements and footnotes therein included in our annual report on Form 10-K for the year ended December 31, 2001 that we filed on March 27, 2002.

Acquisitions

ITG Europe

In the fourth quarter of 1998, we entered into a 50/50 joint venture with Société Générale, and founded ITG Europe. On November 18, 1998, ITG Europe launched a new agency brokerage operation that included the operation of a European version of the POSIT system. On May 2, 2001, we purchased Société Générale's entire interest in ITG Europe for $18.5 million. The acquisition was recorded under the purchase method of accounting. The purchase price has been allocated to assets acquired and liabilities assumed based upon estimated fair market values at the date of acquisition. The $16.7 million excess of the purchase price over the estimated fair value of the net assets acquired has been allocated to goodwill.

KTG

On September 28, 2001, we acquired the KastenNet business of Kasten Chase Applied Research Limited for $7.4 million Canadian dollars (approximately $4.7 million U.S. dollars). KastenNet is a direct access provider that employs proprietary technology to connect its clients, Canadian broker-dealers, to the Toronto Stock Exchange. We acquired the assets of KastenNet via KTG, a new wholly-owned subsidiary of ITG. The purchase price has been allocated to assets acquired and liabilities assumed based upon estimated fair market values at the date of acquisition. A software license we acquired amounting to $4.2 million U.S. dollars is being amortized on a straight-line basis over its estimated useful life. This transaction was accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.

Hoenig

On September 3, 2002, we completed the acquisition of Hoenig Group Inc., which provides trade execution, independent research and other services to alternative investment funds and money managers globally.

Under the terms of the amendment to the merger agreement dated July 2, 2002, Hoenig stockholders received approximately $105.0 million, or $11.58 per share, of which approximately $2.4 million, or $0.23 per share, have been placed into an escrow account. This $2.4 million cash deposit balance is classified in other assets and a corresponding liability is recorded as accounts payable and accrued expenses in our consolidated statement of financial condition as of September 27, 2002.

Such escrow requirement relates to the pursuit, on behalf of Hoenig Group Inc. shareholders, of certain insurance and other claims in connection with a $7.2 million pre-tax loss announced by Hoenig Group Inc. on May 9, 2002 as a result of unauthorized trading in foreign securities, by a former employee of Hoenig & Company Limited, in violation of Hoenig's policies and procedures.

In connection with this acquisition, we incurred transaction costs consisting primarily of professional fees of approximately $2.8 million, which have been included in the purchase price. The purchase price was allocated to those assets acquired and liabilities assumed based on the estimated fair value of Hoenig's net assets as of September 3, 2002. At that date, the market value of two New York Stock Exchange ("NYSE") memberships owned by Hoenig was $5.0 million. Hoenig's carrying value for the NYSE memberships was $0.8 million. This resulted in a $4.2 million allocation of the purchase consideration to such memberships. In addition, approximately $0.5 million was allocated to the "Hoenig" trade name, which is being amortized over three years from the date of acquisition. Also, a $3.7 million allowance has been provided in relation to certain deferred tax assets as it appears more likely than not that these assets will not be realized. In addition, we recorded liabilities totaling approximately $3.2 million principally in relation to (i) the severance provided to the former Hoenig

Chief Executive Officer and certain other employees of Hoenig, and (ii) lease and contract termination costs in relation to the closure of Hoenig offices in London and Hong Kong as local personnel moved into ITG offices following the acquisition. All other assets acquired and liabilities assumed had fair values substantially equal to their historic book values. The remaining purchase consideration, or $57.4 million, was recorded as goodwill. The results of operations of Hoenig have been included in our results of operations since September 3, 2002.

The following is a summary of the allocation of the purchase price in the Hoenig acquisition (dollars in thousands):

Purchase price	$	105,012
Acquisition costs		2,795

Total purchase price	$	107,807

Historical net assets acquired	$	53,435
Write-up of exchange seats and trading rights		4,200
Write-up of "Hoenig" trade name		486
Write-down of deferred tax assets		(3,659	)
Liabilities for restructuring and integration costs incurred		(3,236	)
Other, net		(848	)
Goodwill		57,429

Total purchase price	$	107,807

This purchase business combination was recorded using management's estimates derived from preliminary evaluations. The actual purchase price accounting adjustments to reflect the fair value of net assets will be based on management's final evaluation; therefore, the information above is subject to change pending the final allocation of purchase price.

The following represents the summary unaudited pro forma condensed combined results of operations for the nine-month periods ended September 27, 2002 and September 30, 2001 as if the Hoenig acquisition had occurred at the beginning of each of the periods presented (dollars in thousands, except per share data):

	Nine Months Ended
	Sept. 27 2002		Sept. 30 2001
Total revenues	$	324,774	$	311,552
Net income		54,900		53,063
Basic earnings per share		1.13		1.11
Diluted earnings per share		1.11		1.10

The pro forma results are not necessarily indicative of what would have occurred if the Hoenig acquisition had been in effect for the periods presented, nor are they indicative of the results that will occur in the future.

The historical results of operations of Hoenig include the following gains and losses:

•: During the nine-month period ended September 27, 2002, Hoenig recorded a charge of approximately $7.9 million (inclusive of legal costs) before taxes ($6.9 million after taxes) representing the loss incurred as a result of unauthorized trading in foreign securities, by a former employee of Hoenig & Company Limited, in violation of Hoenig's policies and procedures. This loss was announced by Hoenig Group Inc. on May 9, 2002;

•: During the nine-month period ended September 30, 2001, Hoenig incurred a one-time impairment charge of approximately $9.3 million before taxes ($5.5 million after taxes) representing the entire write-off (including certain acquisition costs and accrued interest on convertible notes) of its investment in InstiPro Group, a business-to-business on-line brokerage firm, in which Hoenig had invested $7.5 million in 2000;
•: During the nine-month period ended September 30, 2001, Hoenig recognized a pre-tax gain of $1.3 million ($1.0 million after taxes) relating to the sale of shares of stock that they held in the London and Hong Kong stock exchanges. These shares were received in 2000 at the time of the demutualization of these exchanges.

Excluding the above one-time gains and losses, the unaudited pro forma combined diluted earnings per share would have been $1.25 and $1.19 for the nine months ended September 27, 2002 and September 30, 2001, respectively.

Goodwill and Other Intangibles

The following is a summary of goodwill and other intangibles:

	Goodwill				Other Intangibles, Net
	September 27, 2002		December 31, 2001		September 27, 2002		December 31, 2001
	(Dollars in thousands)
U.S. Operations	$	55,606	$	—	$	472	$	—
International Operations		22,037		20,261		4,676		4,131

Total	$	77,643	$	20,261	$	5,148	$	4,131

In accordance with SFAS No. 142, which became effective January 1, 2002, we discontinued the amortization of goodwill. SFAS No. 142 requires goodwill to be assessed no less than annually for impairment. There was no impairment of goodwill upon adoption of SFAS No. 142. Other intangibles with definite lives will continue to be amortized over their useful lives and are assessed annually for impairment pursuant to the provisions of SFAS No. 142 and SFAS No. 144, Accounting for Long Lived Assets and for Long Lived Assets to be Disposed Of.

For the quarter ended September 27, 2002, the impact of discontinuing goodwill amortization on net income for acquisitions prior to June 30, 2001 was approximately $225,000 or less than $0.01 per share.

On September 3, 2002, we recorded approximately $57.4 million of goodwill in relation to the completion of the Hoenig acquisition. See "Acquisitions". As of September 27, 2002, goodwill also included an aggregate of $20.2 million recognized as part of our November 2000 acquisition of ITG Australia and our May 2001 acquisition of ITG Europe. During the nine months ended September 27, 2002, no goodwill was deemed impaired and, accordingly, no write-off was required.

During the nine months ended September 27, 2002, we acquired $1.2 million of other intangibles corresponding to the Hoenig trade name ($0.5 million) and certain trading rights in Hong Kong ($0.7 million). As of September 27, 2002, other intangibles also included the software license acquired from KastenNet with a carrying value of $3.9 million.

We recorded amortization expense in relation to other intangibles of approximately $0.3 million for the nine-month period ended September 27, 2002. Estimated amortization expense for existing other intangibles is approximately $2.3 million in total for the five-year period ending December 31, 2006.

Securities Owned and Securities Sold, Not Yet Purchased

The following is a summary of securities owned and securities sold, not yet purchased:

	Securities Owned				Securities Sold, Not Yet Purchased
	September 27, 2002		December 31, 2001		September 27, 2002		December 31, 2001
	(Dollars in thousands)
Auction rate preferred stock	$	41,175	$	43,850	$	—	$	—
State and municipal obligations		16,050		11,200		—		—
U.S. treasury securities		13,040		—		—		—
Corporate stocks		248		3,871		72		4,787
Equity and other		3,796		3,837		—		—

Total	$	74,309	$	62,758	$	72	$	4,787

Receivables From and Payables To Brokers, Dealers and Other

The following is a summary of receivables from and payables to brokers, dealers and other:

	Receivables From				Payables To
	September 27, 2002		December 31, 2001		September 27, 2002		December 31, 2001
	(Dollars in thousands)
Customers, net	$	275,245	$	15,897	$	247,695	$	2,713
Clearing brokers and other		40,783		5,538		39,857		5,180

Total	$	316,028	$	21,435	$	287,552	$	7,893

Accounts Payable and Accrued Expenses

The following is a summary of accounts payable and accrued expenses:

	September 27, 2002		December 31, 2001
	(Dollars in thousands)
Trade payables and accrued expenses	$	27,716	$	23,966
Accrued soft dollar liabilities		21,922		11,108
Accrued compensation		21,259		1,315
Deferred compensation		19,144		18,406
Accrued rent expense		2,350		2,538

Total	$	92,391	$	57,333

Earnings Per Share

Net earnings per share of common stock is based upon the weighted average number of shares of common stock outstanding adjusted to reflect our three-for-two stock split in December 2001.

The following is a reconciliation of the basic and diluted earnings per share computations (amounts in thousands except per share amounts):

		Sept. 27, 2002		Sept. 30 2001
*Three Months*
Net income for basic and diluted earnings per share		$	18,775	$	15,948

Shares of common stock and common stock equivalents:
	Average shares used in basic computation		48,247		47,921
	Effect of dilutive securities		334		714

	Average shares used in diluted computation.		48,581		48,635

Earnings per share(1):
	Basic	$	0.39	$	0.33

	Diluted	$	0.39	$	0.33

*Nine Months*
Net income for basic and diluted earnings per share		$	61,744	$	56,070

Shares of common stock and common stock equivalents:
	Average shares used in basic computation		48,692		47,689
	Effect of dilutive securities		655		737

	Average shares used in diluted computation.		49,347		48,426

Earnings per share(1):
	Basic	$	1.27	$	1.18

	Diluted	$	1.25	$	1.16

(1): Earnings per share have been retroactively restated to reflect a three-for-two stock split in December 2001.

Net Capital Requirement

ITG Inc., AlterNet and Hoenig & Co., Inc. are subject to the Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934, which requires the maintenance of minimum net capital. ITG Inc. has elected to use the alternative method permitted by Rule 15c3-1, which requires that ITG Inc. maintain minimum net capital equal to the greater of $250,000 or 2% of aggregate debit balances arising from customer transactions, as defined. AlterNet and Hoenig & Co., Inc. have elected to use the basic method permitted by Rule 15c3-1, which requires that they maintain minimum net capital, as defined, equal to the greater of $100,000 for AlterNet and $250,000 for Hoenig & Co., Inc., or 6²/3% of aggregate indebtedness.

At September 27, 2002, ITG Inc., AlterNet and Hoenig & Co., Inc. had net capital of $87.4 million, $3.4 million and $6.8 million, respectively, of which $87.1 million, $3.3 million and $5.5 million, respectively, was in excess of required net capital.

In addition, our Canadian, Australian, European and Asian operations had regulatory capital in excess of the minimum requirements applicable to each business of approximately $6.8 million, $2.3 million, $14.1 million and $4.2 million, respectively.

Segment Reporting

Segment information is presented in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The Company has two reportable segments: U.S. Operations and International Operations. The U.S. Operations segment provides equity trading and research services to institutional investors, brokers and alternative investment funds and money managers in the U.S. The International Operations segment includes our brokerage businesses in Australia, Canada, Europe, and Hong Kong, as well as a research facility in Israel. The services provided in each segment are deemed to have similar economic characteristics.

A summary of the segment financial information is as follows (dollars in thousands):

		U.S. Operations		International Operations			Consolidated
*Three Months*
Total revenues
	September 27, 2002	$	86,052	$	10,822		$	96,874
	September 30, 2001		81,488		9,317			90,805
Income (loss) before income tax expense
	September 27, 2002		34,840		(1,843	)		32,997
	September 30, 2001		29,205		(830	)		28,375
*Nine Months*
Total revenues
	September 27, 2002	$	265,842	$	28,168		$	294,010
	September 30, 2001		260,088		17,306			277,394
Income (loss) before income tax expense
	September 27, 2002		114,041		(7,474	)		106,567
	September 30, 2001		101,899		(4,253	)		97,646
*Identifiable Assets*
	As of September 27, 2002	$	367,731	$	386,237		$	753,968
	As of December 31, 2001		337,039		81,439			418,478

Subsequent Event

On November 1, 2002, Inference Group LLC was reorganized. In connection with this reorganization, we sold 81% of Inference Group LLC to the current Inference Group management team and retained a 19% minority ownership interest. This transaction will not have a material effect on our consolidated financial statements.

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

General

The Company has two reportable segments: U.S. Operations and International Operations. The U.S. Operations segment provides equity trading and research services to institutional investors, brokers and alternative investment funds and money managers in the United States of America. The International Operations segment includes our agency brokerage businesses in Australia, Canada, Europe and Hong Kong, as well as a research facility in Israel.

Revenues

We generate substantially all of our revenues from the following three products and services ("Product Revenues"):

•

POSIT: a confidential electronic stock crossing system;

•

Electronic Trading Desk: an agency-only trading desk;

•

Client Site Trading Products;

•: QuantEX: a Unix-based front-end software system providing market analysis, trade management and electronic connectivity to POSIT and multiple trade execution destinations;
•: ITG Platform: a PC-based front-end software system providing market analysis, trade management and electronic connectivity to POSIT and multiple trade execution destinations.

Revenues primarily consist of commissions from customers' use of our trade execution and analytical services. Because these commissions are paid on a per-transaction basis, revenues fluctuate from period to period depending on (i) the volume of securities traded through our services in the U.S. and Canada, and (ii) the contract value of securities traded in Europe, Australia and Hong Kong. We record as POSIT revenue any order that is executed on the POSIT system regardless of the manner in which the order was submitted to POSIT. ITG collects a commission from each side of a trade matched in POSIT. We record as Electronic Trading Desk revenue any order that is handled by our trading desk personnel and executed at any trade execution destination other than POSIT. We record as Client Site Trading Products revenue any order that is sent by our clients, through ITG's Client Site Trading Products systems but without assistance from the Electronic Trading Desk, to any third party trade execution destination. We also record within our three products and services, commissions earned in connection with providing independent research, a practice commonly referred to as soft dollars. Soft dollars are reported net of the corresponding costs of independent research and other services. Other revenues include (a) interest income/expense, (b) market gains/losses and financing costs resulting from temporary positions in securities assumed in the normal course of our agency trading business, (c) fees for development and other services provided to our unconsolidated international affiliates prior to our acquisition of the remaining interest in ITG Europe in May 2001, (d) realized gains and losses in connection with our cash management and strategic investment activities, (e) subscription revenues from KTG following the September 28, 2001 acquisition of the KastenNet business of Kasten Chase, and (f) income from positions taken by ITG Canada as customer facilitations which are a customary practice in the Canadian marketplace.

Expenses

Expenses consist of compensation and employee benefits, transaction processing, software royalties, occupancy and equipment, telecommunications and data processing services, net gain on long-term investments, and other general and administrative expenses. Compensation and employee benefits expenses include base salaries, bonuses, employment agency fees, part-time employee compensation, fringe benefits, including employer contributions for medical insurance, life insurance, retirement plans and payroll taxes, less the portion of salaries that is capitalized as part of our software development activities. Transaction processing expenses consist of floor brokerage and clearing fees as well as connection fees for use of certain third party execution services. Software royalties are payments to a subsidiary of Barra, Inc., our POSIT joint venture partner. Occupancy and equipment expenses include rent, depreciation, amortization of leasehold improvements, maintenance, utilities and occupancy taxes. Telecommunications and data processing services include costs for computer hardware, infrastructure enhancements, data center equipment, market data services and voice, data, telex and network

communications. Net gain on long-term investments includes equity gain on our joint venture investment prior to our acquisition of the remaining interest in ITG Europe in May 2001. Other general and administrative expenses include amortization of capitalized software costs, amortization of other intangibles as well as legal, audit, tax, consulting and promotional expenses.

Acquisitions

ITG Europe

KTG

Hoenig

Such escrow requirement relates to the pursuit, on behalf of Hoenig Group Inc. shareholders, of certain insurance and other claims in connection with the $7.2 million pre-tax loss announced by Hoenig Group Inc. on May 9, 2002 as a result of unauthorized trading in foreign securities, by a former employee of Hoenig & Company Limited, in violation of Hoenig's policies and procedures.

Critical Accounting Policies

The Securities and Exchange Commission ("SEC") has recently issued Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies" ("FR 60"), encouraging companies to provide additional disclosure on those accounting policies considered critical. FR 60 defines an accounting policy as critical if it is most important to the portrayal of a company's financial condition and results, and requires the company to make its most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. For a summary of all of our significant accounting policies, including the critical accounting policies discussed below, see Note 2, Summary of Significant Accounting Policies, in our annual report on Form 10-K for the year ended December 31, 2001 that we filed on March 27, 2002.

Accounting for Business Combinations, Goodwill and Other Intangibles

Determining the fair value of certain assets and liabilities acquired in a business combination is judgmental in nature and often involves the use of significant estimates and assumptions. For initial valuations, we retain valuation experts to provide us with independent fair value determinations of goodwill and other intangibles. In addition, we perform valuations based on internally developed models. Specifically, a number of different methods are used in estimating the fair value of acquired intangibles as well as testing goodwill and other intangibles for impairment. Such methods include the income approach, the market approach and the replacement cost approach. Significant estimates and assumptions applied in these approaches include, but are not limited to, projection of future cash flows, the applicable discount rate, perpetual growth rates, and adjustments made to assess the characteristics and relative performance of similar assets.

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, which became effective January 1, 2002, we discontinued the amortization of goodwill. SFAS No. 142 requires goodwill to be assessed no less than annually for impairment. As of September 27, 2002, there was no impairment of goodwill. Other intangibles with definite lives will continue to be amortized over their useful lives and are assessed annually for impairment pursuant to the provisions of SFAS No. 142 and SFAS No. 144, Accounting for Long Lived Assets and for Long Lived Assets to be Disposed Of. As of September 27, 2002, goodwill and other intangibles, net of accumulated amortization, recorded in our consolidated statement of financial condition amounted to $77.6 million and $5.2 million, respectively.

Capitalized Software

Pursuant to the provisions of SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, we capitalize software development costs where technological feasibility of a product has been established. Technological feasibility is established when we have completed all planning, designing, coding and testing activities that are necessary to establish that the product can be produced to meet design specifications. All costs incurred to establish technological feasibility are expensed as incurred as required by SFAS No. 2, Accounting for Research and Development Costs.

Costs that are capitalized relate to new customer products or significant innovations to an existing customer product. After technological feasibility has been established, we capitalize direct labor costs for specific tasks involving development and implementation activities. Such capitalized costs include an allocation of expenses incurred by our software development subsidiary including rent, depreciation, utilities, supplies and employee benefits. The capitalization process continues until the product is released to customers, at which point amortization begins.

We are amortizing capitalized software costs using the straight-line method over the estimated economic useful life of the related product, the life of which is 24 months or less. The assessment of recoverability of capitalized software development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross revenues, estimated economic life of a product and changes in software and hardware technologies. As of September 27, 2002, capitalized software, net of accumulated amortization, recorded in our consolidated statement of financial condition amounted to $6.6 million.

Income Taxes

SFAS No. 109, Accounting for Income Taxes, establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact our financial position or results of operations.

Results of Operations—Three Months Ended September 27, 2002 Compared to Three Months Ended September 30, 2001

The table below sets forth, certain items in the statement of operations expressed as a percentage of revenues for the periods indicated:

			Three Months Ended
			Sept. 27, 2002		Sept. 30, 2001
Revenues:
	Commissions:
		POSIT	36.5		51.6
		Electronic Trading Desk	30.5		24.4
		Client Site Trading Products	30.6		23.4
	Other		2.4		0.6

		Total revenues	100.0	%	100.0	%

Expenses:
	Compensation and employee benefits		29.7		29.7
	Transaction processing		13.6		13.1
	Software royalties		4.7		6.5
	Occupancy and equipment		7.5		6.4
	Telecommunications and data processing services		4.4		4.4
	Other general and administrative		6.0		8.7

		Total expenses	65.9		68.8

Income before income tax expense			34.1		31.2
Income tax expense			14.7		13.6

Net income			19.4		17.6

Earnings Per Share

Basic earnings per share for the three months ended September 27, 2002 ("Third Quarter 2002") increased $0.06, or 18%, from $0.33 for the three months ended September 30, 2001 ("Third Quarter 2001") to $0.39. Diluted earnings per share also increased $0.06, or 18%, from $0.33 to $0.39.

Revenues

Consolidated revenues increased $6.1 million, or 7%, from $90.8 million to $96.9 million. Revenues from U.S. Operations increased $4.6 million, or 6%, from $81.5 million to $86.1 million. Revenues from International Operations increased $1.5 million, or 16%, from $9.3 million to $10.8 million.

There were 63 trading days in the U.S. markets in Third Quarter 2002 and 59 trading days in Third Quarter 2001, as a result of the September 11, 2001 tragedy that led to a four-day closure of the U.S. financial markets from September 11 to September 14, 2001. Product Revenues per trading day from our U.S. Operations were $1.4 million for both Third Quarter 2002 and Third Quarter 2001. Our total trading volume in the U.S. reached 6.3 billion shares (averaging 100.0 million per trading day) in Third Quarter 2002 as compared to 5.4 billion shares (averaging 91.4 million per trading day) for the same period a year earlier. U.S. Product Revenues per average number of employees decreased $20,000, or 10%, from $197,000 to $177,000. In Third Quarter 2002, U.S. Product Revenues included $2.7 million relating to our U.S. Hoenig business since the acquisition on September 3, 2002, representing almost 69% of the growth in Product Revenues as well as contributing 48 employees to the total U.S. headcount increase. Excluding the effect of the Hoenig acquisition, U.S. Product Revenues per average number of employees decreased approximately $17,000, or 8%.

In Third Quarter 2002, International Product Revenues included $4.5 million from our European business, down from $5.4 million in Third Quarter 2001. Product Revenues from our Canadian operations increased from $2.0 million to $2.7 million showing continued growth despite difficult market conditions. In Australia, we reported Product Revenues of $1.3 million in Third Quarter 2002 as compared to $1.2 million a year earlier, a $100,000 or 8% increase.

Consolidated POSIT revenues decreased $11.5 million, or 25%, primarily resulting from lower U.S. institutional trading volume. The number of shares crossed on the U.S. POSIT system decreased approximately 0.4 billion, or 18%, from 2.2 billion in Third Quarter 2001 to 1.8 billion in Third Quarter 2002. ITG Europe contributed $3.4 million to consolidated POSIT revenues in Third Quarter 2002. In Europe, commissions are calculated on the basis of the underlying contract value of transactions rather than on a per share basis. Consolidated POSIT revenues per trading day decreased by $233,000, or 29%, from $794,000 in Third Quarter 2001 to $561,000 in Third Quarter 2002. The average number of shares crossed on the U.S. POSIT system per trading day decreased 9.3 million, or 25%, from 37.9 million in Third Quarter 2001 to 28.6 million in Third Quarter 2002.

Electronic Trading Desk revenues increased $7.3 million, or 33%. U.S. revenues increased $6.8 million, or 39%, of which Hoenig's U.S. business contributed $2.7 million, or 40% of the increase, following its acquisition on September 3, 2002. International revenues increased $0.5 million, or 10%, as our businesses in Canada, Australia and Hong Kong increased $1.4 million but were partially offset by a $0.9 million reduction in revenue from our European business. Electronic Trading Desk revenues per trading day increased by $92,000, or 24%, from $376,000 in Third Quarter 2001 to $468,000 in Third Quarter 2002, with average shares per trading day increasing by 16% to 18.5 million in Third Quarter 2002 from 15.9 million in Third Quarter 2001.

We sell various Electronic Trading Desk services as a package for program trading business. In this way, our clients receive blended pricing for executions through the Electronic Trading Desk and POSIT driven by our clients' desire to receive a single price for an entire portfolio of equity transactions regardless of the execution venue.

Client Site Trading Products revenues increased $8.4 million, or 40%, principally as a result of a 50% increase in U.S. share volume. Client Site Trading Products revenues per trading day increased by $110,000, or 31%, from $360,000 in Third Quarter 2001 to $470,000 in Third Quarter 2002.

Other revenues increased $1.8 million from $0.6 million to $2.4 million primarily due to the inclusion of revenues from KTG of $0.8 million (following the September 28, 2001 acquisition of the

KastenNet business of Kasten Chase), a $0.4 million increase from our Canadian business as a result of customer facilitations, and a $0.5 million increase in investment income resulting from our cash enhanced strategies.

Expenses

The table below sets forth certain items in the statements of income and their variance over the periods indicated (dollars in thousands):

	Three Months Ended
	Sept. 27, 2002		Sept. 30, 2001		Change			% change
Compensation and employee benefits	$	28,770	$	26,980	$	1,790		6.6
Transaction processing		13,160		11,904		1,256		10.6
Software royalties		4,563		5,868		(1,305	)	(22.2	)
Occupancy and equipment		7,311		5,836		1,475		25.3
Telecommunications and data processing services		4,279		3,958		321		8.1
Other general and administrative		5,794		7,884		(2,090	)	(26.5	)
Income tax expense		14,222		12,427		1,795		14.4

Compensation and employee benefits: Salaries, bonuses and related employee benefits increased primarily due to the growth in our employee base of 141 employees, or 25%, from 558 as of September 30, 2001 to 699 as of September 27, 2002. A total of 65 employees or 46% of the growth related to the addition of employees arising from the Hoenig acquisition in Third Quarter 2002. A total of 19 employees, or 14% of the increase, related to the addition of employees arising from the KTG acquisition and the start-up of our operation in Hong Kong. The remaining increase of 57 employees, or 40% of the growth, primarily related to new staff in technology, product development, sales and trading and production infrastructure. Average compensation and employee benefits per (average) headcount decreased $11,500, or 21%, from $54,500 in Third Quarter 2001 to $43,000 in Third Quarter 2002.

Transaction processing: Transaction processing as a percentage of revenues increased from 13.1% in Third Quarter 2001 to 13.6% of revenues in Third Quarter 2002 primarily due to the inclusion of Hoenig's results since September 3, 2002, as well as higher transaction processing costs from our European operations. U.S. transaction costs as a percentage of total U.S. revenues increased from 12.6% in Third Quarter 2001 to 12.8% in Third Quarter 2002, which includes costs related to the inclusion of Hoenig's U.S. results. Excluding Hoenig's U.S. costs, U.S. transaction processing costs were 12.3% of revenues in Third Quarter 2002. In the U.S. and excluding Hoenig, ECN costs decreased $0.9 million, or 27%, from $3.3 million in Third Quarter 2001 to $2.4 million in Third Quarter 2002 reflecting (i) a 46% increase in ECN volume that was more than offset by a 51% decline in ECN cost rate per share chiefly associated with our use of lower unit cost ECN providers as well as (ii) overall rate reductions by most ECN providers.

Software royalties: Because software royalties are contractually fixed as a percentage of POSIT revenues, the decrease is entirely attributable to a decrease in POSIT revenues.

Occupancy and equipment: Depreciation and amortization of furniture, fixtures and equipment, and office rent were the main contributors to the $1.5 million, or 25% increase in occupancy and equipment costs in Third Quarter 2002 compared to Third Quarter 2001. International Operations, which included related expenses incurred by both KTG in Canada and our start-up operation in Hong Kong, accounted for $0.7 million or 47% of the increase. The U.S. Operations represented the remainder of the increase, or $0.8 million, primarily as a result of (i) incremental depreciation and

amortization related to upgrades of infrastructure, and (ii) loss of sublease income on certain facilities in New York and in California due to the expiration of short-term subleases, and (iii) the inclusion of Hoenig costs in the 2002 period.

Telecommunications and data processing services: Telecommunications and data processing services as a percentage of revenues were 4.4% in both Third Quarter 2002 and Third Quarter 2001.

Other general and administrative: The $2.1 million decrease in other general and administrative expenses primarily resulted from (i) our $1.0 million charitable contribution to The New York Times 9/11 Neediest Fund in Third Quarter 2001, (ii) lower software amortization costs due to timing of new product releases and (iii) reflects cost control measures in the current uncertain market environment, offset by increases in certain corporate insurance premiums.

Income Tax Expense

The decrease in the effective tax rate from 43.8% in Third Quarter 2001 to 43.1% in Third Quarter 2002 was primarily due to a reduction in U.S. federal, state and local income taxes.

Results of Operations—Nine Months Ended September 27, 2002 Compared to Nine Months Ended September 30, 2001

The table below sets forth, certain items in the statement of operations expressed as a percentage of revenues for the periods indicated:

			Nine Months Ended
			Sept. 27, 2002		Sept. 30, 2001
Revenues:
	Commissions:
		POSIT	42.0		49.5
		Electronic Trading Desk	26.0		23.2
		Client Site Trading Products	29.6		25.0
	Other		2.4		2.3

		Total revenues	100.0	%	100.0	%

Expenses:
	Compensation and employee benefits		28.7		27.6
	Transaction processing		12.5		13.6
	Software royalties		5.4		6.3
	Occupancy and equipment		7.0		5.6
	Telecommunications and data processing services		4.3		4.0
	Net gain on long-term investments		0.0		(0.1	)
	Other general and administrative		5.9		7.8

		Total expenses	63.8		64.8

Income before income tax expense			36.2		35.2
Income tax expense			15.2		15.0

Net income			21.0		20.2

Earnings Per Share

Basic earnings per share for the nine months ended September 27, 2002 ("First Nine Months 2002") increased $0.09, or 8%, from $1.18 for the nine months ended September 30, 2001 ("First Nine

Months 2001") to $1.27, while diluted earnings per share increased $0.09, or 8%, from $1.16 to $1.25. In 2001, our results included the effect of a gain, which approximated $0.04 per diluted share, relating to the sale of 100,000 shares of stock that ITG Europe held in the London Stock Exchange ("LSE"). Excluding this non-recurring gain, diluted earnings per share increased $0.13, or 12%.

Revenues

Consolidated revenues increased $16.6 million, or 6%, from $277.4 million to $294.0 million. Revenues from U.S. Operations increased $5.7 million, or 2%, from $260.1 million to $265.8 million. Revenues from International Operations increased $10.9 million, or 63%, from $17.3 million to $28.2 million.

There were 187 trading days in the U.S. markets in First Nine Months 2002 versus 184 trading days in First Nine Months 2001. Product Revenues per trading day from our U.S. Operations were $1.4 million for both First Nine Months 2002 and First Nine Months 2001. Our total trading volume in the U.S. reached 18.7 billion shares (averaging 100.2 million per trading day) in First Nine Months 2002 as compared to 16.3 billion shares (averaging 88.5 million per trading day) for the same period a year earlier. U.S. Product Revenues per average number of employees decreased $86,000, or 13%, from $648,000 to $562,000. In First Nine Months 2002, U.S. Product Revenues included $2.7 million relating to our Hoenig business, which also contributed 48 employees to the total U.S. headcount increase. Excluding the effect of the Hoenig acquisition, U.S. Product Revenues per average number of employees decreased $62,000, or 10%.

In First Nine Months 2002, International Product Revenues included $12.2 million from our European business versus $7.2 million in First Nine Months 2001 as our European business was only 50% owned prior to our May 2001 purchase of the remaining 50% ownership interest. Product Revenues from our Canadian operations increased by $3.2 million, or 84%, from $3.8 million to $7.0 million showing continued growth despite weak market conditions. In Australia, we reported Product Revenues of $3.7 million in First Nine Months 2002 and in First Nine Months 2001.

Consolidated POSIT revenues decreased $13.8 million, or 10%, as a result of lower U.S. share volume and a business mix where ITG customers directed more of their trades through our Client Site Trading Products and our Electronic Trading Desk. This was partially offset by increased revenues from our European POSIT business. The number of shares crossed on the U.S. POSIT system decreased approximately 0.7 billion, or 10%, from 6.8 billion in First Nine Months 2001 to 6.1 billion in First Nine Months 2002. In Europe, where our POSIT share volumes doubled in First Nine Months 2002 as compared to the same period a year earlier, commissions are calculated on the basis of the underlying contract value of transactions rather than on a per share basis. ITG Europe contributed $9.7 million to consolidated POSIT revenues in First Nine Months 2002 as compared to $4.7 million in First Nine Months 2001. We began consolidating ITG Europe in May 2001. Consolidated POSIT revenues on a per trading day basis decreased by $86,000, or 12%, from $747,000 in First Nine Months 2001 to $661,000 in First Nine Months 2002. The average number of shares crossed on the U.S. POSIT system per trading day decreased 4.4 million, or 12%, from 37.2 million in First Nine Months 2001 to 32.8 million in First Nine Months 2002.

Electronic Trading Desk revenues increased $12.1 million, or 19%. Our U.S. Electronic Trading Desk revenues increased $7.9 million, or 14%, of which Hoenig's U.S. business contributed $2.7 million following its acquisition on September 3, 2002. Our International Operations contributed $4.2 million of the total increase. Specifically our Canadian Electronic Trading Desk business grew by $3.2 million and our Australian Trading Desk business grew by $0.5 million. Electronic Trading Desk revenues per trading day increased by $60,000, or 17%, from $349,000 in First Nine Months 2001 to $409,000 in First Nine Months 2002.

Client Site Trading Products revenues increased $17.6 million, or 25%, as a result of a 41% increase in U.S. share volume partially offset by a business mix reflecting comparatively stronger growth in lower priced routing only services, where we do not incur transaction processing costs. Client Site Trading Products revenues per trading day increased by $88,000, or 23%, from $378,000 in First Nine Months 2001 to $466,000 in First Nine Months 2002.

Other revenues increased $0.7 million, or 12%, from $6.3 million to $7.0 million. In First Nine Months 2002, this growth was driven by the inclusion of subscription revenues from KTG of $2.2 million (following the September 28, 2001 acquisition of the KastenNet business of Kasten Chase) as well as an increase in revenues from our routing services. This was partially offset by lower investment income as higher average invested balances were more than offset by significantly lower average interest rates. In addition, First Nine Months 2001 included $1.3 million in development and service fee income from the European joint venture prior to its consolidation in May 2001. In First Nine Months 2001, we also recognized a $1.3 million loss in relation to the partial writedown of our venture capital investment in Angel Investors II, L.P., which was mostly offset by a $1.2 million gain on the sale of our investment in Advanced Investment Technology, Inc., an asset management company.

Expenses

The table below sets forth certain items in the statements of income and their variance over the periods indicated:

	Nine Months Ended
	Sept. 27, 2002		Sept. 30, 2001			Change			% change
Compensation and employee benefits	$	84,405	$	76,523		$	7,882		10.3
Transaction processing		36,732		37,780			(1,048	)	(2.8	)
Software royalties		15,871		17,497			(1,626	)	(9.3	)
Occupancy and equipment		20,443		15,657			4,786		30.6
Telecommunications and data processing services		12,565		11,089			1,476		13.3
Net gain on long-term investments		—		(309	)		309		100.0
Other general and administrative		17,427		21,511			(4,084	)	(19.0	)
Income tax expense		44,823		41,576			3,247		7.8

Compensation and employee benefits: Salaries, bonuses and related employee benefits increased primarily due to the growth in our employee base of 141 employees, or 25%, from 558 as of September 30, 2001 to 699 as of September 27, 2002. This increase includes 65 employees from the Hoenig acquisition on September 3, 2002, 19 employees from the KTG acquisition and our start-up operations in Hong Kong, and the remaining 57 employees primarily relate to new staff in technology, product development, sales and trading, and production infrastructure. Average compensation and employee benefits per (average) headcount decreased $22,000, or 14%, from $153,000 in First Nine Months 2001 to $131,000 in First Nine Months 2002.

Transaction processing: Transaction processing as a percentage of revenues decreased from 13.6% in First Nine Months 2001 to 12.5% of revenues in First Nine Months 2002. First Nine Months 2002 includes $2.9 million of transaction processing costs incurred by ITG Europe, which we began consolidating in May 2001. U.S. transaction costs as a percentage of total U.S. revenues decreased from

13.4% in First Nine Months 2001 to 11.7% in First Nine Months 2002. Despite our share volume growth, U.S. clearing and execution costs declined primarily from rate reductions negotiated with our clearing vendor (effective August 2001) as well as significantly lower ECN costs. In the U.S. and excluding Hoenig, ECN costs decreased $1.6 million, or 15%, from $10.4 million in First Nine Months 2001 to $8.8 million in First Nine Months 2002 reflecting a 46% decline in ECN cost rate per share chiefly associated with our use of lower unit cost ECN providers as well as overall rate reductions by most ECN providers. These decreases were partially offset by significantly higher ECN volume, which increased 52% compared to First Nine Months 2001.

Software royalties: Because software royalties are contractually fixed as a percentage of POSIT revenues, the decrease is entirely attributable to a decrease in POSIT revenues.

Occupancy and equipment: Depreciation and amortization of furniture, fixtures and equipment, and office rent were the main contributors to the $4.8 million increase in First Nine Months 2002 compared to First Nine Months 2001. International Operations accounted for $2.1 million, or 44% of the increase, due to the consolidation of ITG Europe over the entire current period, as well as the inclusion of related expenses incurred by both KTG in Canada and our start-up operation in Hong Kong. The U.S. Operations represented the remainder of the increase, or $2.7 million, primarily as a result of (i) incremental depreciation and amortization related to upgrades of infrastructure, (ii) loss of sublease income on certain facilities in New York and in California due to the expiration of short-term subleases, and (iii) additional space requirements due to U.S. headcount growth and for contingency purposes.

Telecommunications and data processing services: Telecommunications and data processing services increased $1.5 million, or 13%, from $11.1 million in First Nine Months 2001 to $12.6 million in First Nine Months 2002. This increase largely resulted from our International Operations reflecting the consolidation of ITG Europe for the entire current period, as well as the inclusion of expenses incurred by KTG in Canada and our start-up operation in Hong Kong. Costs related to U.S. Operations declined slightly from 3.6% of revenues in First Nine Months 2001 to 3.4% of revenues in First Nine Months 2002.

Net gain on long-term investments: In First Nine Months 2001, we recognized a one time gain of $1.9 million through our ITG Europe joint venture relating to the sale of 100,000 shares of stock that ITG Europe held in the LSE, which were received at the time of the LSE demutualization in the year 2000. The reported gain on long-term investments of $0.3 million was net of our $1.6 million share of ITG Europe's operating loss prior to consolidation in May 2001. There were no such amounts reported in First Nine Months 2002.

Other general and administrative: The $4.1 million decrease in other general and administrative expenses primarily reflects (i) a $1.7 million decrease in bad debt provisions resulting from collection efforts and the reversal of the receivable provision related to the events of September 11, 2001, as the related accounts have been fully collected, (ii) a $1.1 million decrease in amortization of capitalized software costs due to timing of new product launches, (iii) $1.0 million in charitable contributions made in September 2001 to the New York Times 9/11 Neediest Fund, and (iv) cost control measures in the current uncertain market environment, offset by increases in certain corporate insurance premiums.

Income Tax Expense

The decrease in the effective tax rate from 42.6% in First Nine Months 2001 to 42.1% in First Nine Months 2002 was primarily due to a decrease in the U.S. effective tax rate, offset by an increase in net operating losses from our International Operations where no tax benefit has been recorded.

Liquidity and Capital Resources

Our liquidity and capital resource requirements result from our working capital needs, primarily consisting of compensation and benefits, transaction processing fees and software royalty fees. Historically, cash from operations has met all working capital requirements. A substantial portion of our assets are liquid, consisting of cash and cash equivalents or assets readily convertible into cash.

We believe that our cash flow from operations and existing cash balances will be sufficient to meet our cash requirements. We generally invest our excess cash in money market funds and other short-term investments that generally mature within 90 days or less. Additionally, securities owned at fair value include highly liquid, state and municipal obligations, auction rate preferred stock, U.S. Treasury obligations and common stock. At September 27, 2002, our cash, cash equivalents and securities owned at fair value amounted to $269.0 million and net receivables from brokers, dealers and other, of $303.2 million were due within 30 days.

We also invest a portion of our excess cash balances in cash enhanced strategies, which we believe should yield higher returns without any significant effect on risk. As of September 27, 2002, we had investments in limited partnerships investing in marketable securities and a venture capital fund amounting to $25.6 million in the aggregate. The limited partnerships employ either a hedged convertible strategy or a long/short strategy to capitalize on short term price movements.

Cash flows from operating activities reached $67.0 million in First Nine Months 2002, a $27.3 million decrease compared to First Nine Months 2001. The decrease is primarily attributable to our September 15, 2001 estimated Federal income tax payment, which was not paid until January 2002 in accordance with the tax relief provided by the U.S. government to counties affected by the events of September 11, 2001. Net cash used in investing activities was $79.8 million in First Nine Months 2002, a $41.6 million increase in our use of cash from the same period a year earlier, primarily as a result of (i) our September 2002 acquisition of Hoenig for $66.3 million, net of the cash amount on Hoenig's balance sheet at the acquisition date, offset by (ii) our May 2001 acquisition of the 50% of ITG Europe we did not already own and our September 2001 acquisition of KTG for $17.8 million in the aggregate, net of the cash amount on their balance sheet at their respective acquisition date, and (iii) our second quarter 2001 investment in limited partnerships for $11.0 million. Net cash used in financing activities was $30.5 million in First Nine Months 2002, an additional $39.6 million use of cash compared to First Nine Months 2001, primarily reflecting (i) purchases of our common stock for $47.9 million as part of our share repurchase program, offset by (ii) $17.4 million of stock option exercises by employees in First Nine Months 2002 as compared to $9.1 million in First Nine Months 2001.

As of September 27, 2002, we were authorized to repurchase up to approximately 625,000 shares of common stock pursuant to our share repurchase program. According to the provisions of the share repurchase program, we are authorized to purchase shares of our common stock in the open market or in negotiated transactions, depending on market conditions. The purchases are funded from our available cash resources. The share repurchase program may be suspended at any time.

As of September 27, 2002, the Company's other contractual obligations and commercial commitments consisted principally of minimum future rentals under non-cancelable operating leases.

Historically, all regulatory capital needs of our broker-dealer subsidiaries have been provided by cash from operations. We believe that cash flows from operations will provide our broker-dealer subsidiaries with sufficient regulatory capital. At September 27, 2002, ITG Inc., AlterNet and Hoenig & Co., Inc. had net capital in excess of required net capital of $87.1 million, $3.3 million and $5.5 million, respectively. In addition, our Canadian, Australian, European and Asian operations had regulatory capital in excess of the minimum requirements applicable to each business of approximately $6.8 million, $2.3 million, $14.1 million and $4.2 million, respectively. Although we believe that the combination of our existing net regulatory capital and operating cash flows will be sufficient to meet

regulatory capital requirements, a shortfall in net regulatory capital would have a material adverse effect on us.

Item 4. Controls and Procedures

Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART II.—OTHER INFORMATION

Item 5. Other Information

Our Audit Committee approved all of the non-audit services performed by KPMG LLP, our independent auditors, during the period covered by this report.

Item 6. Exhibits and Reports on Form 8-K

(A): EXHIBITS

3.1		Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K for the year ended December 31, 1999)
3.2		By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K for the year ended December 31, 1999)
10.1		Employment Agreement between ITG Inc. and Raymond L. Killian, Jr., dated July 1, 2002 (filed herewith)
10.2		Investment Technology Group, Inc. Third Amended and Restated 1998 Stock Unit Award Program (filed herewith)
10.3		Investment Technology Group, Inc. Directors' Retainer Fee Subplan (filed herewith)
99.1		Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (filed herewith)
99.2		Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (filed herewith)

(B): REPORTS ON FORM 8-K

The Company filed Current Reports on Form 8-K dated July 8, 2002 and September 3, 2002, each relating to the Hoenig acquisition, during the quarter ended September 27, 2002.

SIGNATURE

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

	INVESTMENT TECHNOLOGY GROUP, INC.
	(Registrant)
Date: November 12, 2002	By:	/s/ HOWARD C. NAPHTALI Howard C. Naphtali Chief Financial Officer and Duly Authorized Signatory of Registrant

CERTIFICATION

I, Robert J. Russel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Investment Technology Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 12, 2002
		/s/ ROBERT J. RUSSEL Robert J. Russel Chief Executive Officer

CERTIFICATION

I, Howard C. Naphtali, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Investment Technology Group, Inc.;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

Date: November 12, 2002
		/s/ HOWARD C. NAPHTALI Howard C. Naphtali Chief Financial Officer

EX-10.1 3 a2093127zex-10_1.htm EXHIBIT 10.1
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.1

EMPLOYMENT AGREEMENT BETWEEN
INVESTMENT TECHNOLOGY GROUP, INC.
AND RAYMOND L. KILLIAN, JR.

July 1, 2002

Dear Ray:

We are delighted that you have agreed to continue to be employed by ITG Inc. (the "Company") as an Advisor to the Company. This letter sets forth the terms of your continued employment.

1.: The term of your employment as an Advisor hereunder will begin on January 1, 2003 and continue through December 31, 2006.
2.: As an Advisor to the Company, you will provide strategic advice to the Chief Executive Officer of the Company and call on customers from time to time. It is anticipated that you will devote approximately one week per month to your duties with the Company.
3.: Your salary during the term of your employment hereunder will be $600,000 per annum, payable in biweekly installments in accordance with the normal payroll practices of the Company.
4.: In addition to salary, you will be entitled to benefits under any plan or arrangement available generally for senior executives of the Company, subject to and consistent with the terms and conditions and overall administration of such plans as set forth from time to time in the applicable plan documents. In addition, you and your spouse will be eligible to receive medical benefits for the remainder of your lives on terms substantially similar to the medical benefits provided to senior executives from time to time. Such medical benefits will either be provided under the Company's medical benefit plan or through Company paid medical insurance obtained by the Company for your benefit and the benefit of your spouse.
5.: The Company will reimburse you for all reasonable expenses incurred by you in the course of performing your duties under this agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses.
6.: You will not disclose or use at any time during or after your employment with the Company any Confidential Information of which you are or become aware, whether or not such information is developed by you, except to the extent that such disclosure or use is directly related to and required by your performance of duties assigned to you pursuant to this agreement. Under all circumstances and at all times, you will take all appropriate steps to safeguard Confidential Information in your possession and to protect it against disclosure, misuse, espionage, loss and theft. "Confidential Information" means information that is not generally known to the public and that was or is used, developed or obtained by the Company or its subsidiaries in connection with their business. It shall not include information (a) required to be disclosed by court or administrative order (after notice to the Company and an opportunity for the Company to defend against such disclosure), (b) lawfully obtainable from other sources or which is in the public domain through no fault of yours; or (c) the disclosure of which is consented to in writing by the Company.
7.: You acknowledge that during your employment with the Company, you have and will become familiar with trade secrets and other Confidential Information concerning the Company, its subsidiaries and their respective predecessors, and that your services have been and will be of special, unique and extraordinary value to the Company. In addition, you hereby agree that at any time during your employment with the Company, and for a period ending one (1) year after the termination of your employment (the "Noncompetition Period"), you will not directly or indirectly

own, manage, control, participate in, consult with, render services for, or in any manner engage in, any business competing with the businesses of the Company or its subsidiaries as such businesses exist or are in process or being planned as of the date of termination of your employment, within any geographical area in which the Company or its subsidiaries engage or plan to engage in such businesses. It will not be considered a violation of this paragraph 7 for you to be a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as you have no active participation in the business of such corporation.

8.: You hereby agree that (a) during the period you are employed by the Company and for a period of one (1) year thereafter (the "Nonsolicitation Period") you will not, directly or indirectly through another entity, induce or attempt to induce any employee of the Company or its subsidiaries to leave the employ of the Company or its subsidiaries, or in any way interfere with the relationship between the Company or its subsidiaries and any employee thereof or otherwise employ or receive the services of any individual who was an employee of the Company or its subsidiaries at any time during such Nonsolicitation Period or within the six-month period prior thereto, and (b) during the Nonsolicitation Period, you will not induce or attempt to induce any customer, supplier, client, broker, licensee or other business relation of the Company or its subsidiaries to cease doing business with the Company or its subsidiaries.
9.: If, at the enforcement of paragraphs 7 or 8, a court holds that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances will be substituted for the stated duration, scope or area and that the court will be permitted to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law.
10.: In the event that you as part of your activities on behalf of the Company generate, author or contribute to any invention, design, new development, device, product, method of process (whether or not patentable or reduced to practice or comprising Confidential Information), any copyrightable work (whether or not comprising Confidential Information) or any other form of Confidential Information relating directly or indirectly to the business of the Company as now or hereinafter conducted (collectively, "Intellectual Property"), you acknowledge that such Intellectual Property is the sole and exclusive property of the Company and hereby assign all right, title and interest in and to such Intellectual Property to the Company. Any copyrightable work prepared in whole or in part by you during your employment with the Company will be deemed "a work made for hire" under Section 201(b) of the Copyright Act of 1976, as amended, and the Company will own all of the rights comprised in the copyright therein. You will promptly and fully disclose all Intellectual Property and will cooperate with the Company to protect the Company's interests in and rights to such Intellectual Property (including providing reasonable assistance in securing patent protection and copyright registrations and executing all documents as reasonably requested by the Company, whether such requests occur prior to or after termination of your employment hereunder).
11.: You acknowledge that (a) the covenants contained herein are reasonable, (b) your services are unique, and (c) a breach or threatened breach by you of any of your covenants and agreements with the Company contained in paragraphs 6, 7, 8 or 10 could cause irreparable harm to the Company for which it would have no adequate remedy at law. Accordingly, and in addition to any remedies which the Company may have at law, in the event of an actual or threatened breach by you of such covenants and agreements, the Company will have the absolute right to apply to any court of competent jurisdiction for such injunctive or other equitable relief as such court may deem necessary or appropriate in the circumstances.
12.: The Company may withhold from any amounts payable under this agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

13.: This agreement constitutes the entire agreement among the parties and supersedes any prior understandings, agreements or representations by or among the parties, written or oral, that relate to the subject matter hereof.
14.: Paragraphs 4 and 6 through 10 will survive and continue in full force in accordance with their terms notwithstanding any termination of your employment hereunder.
15.: All questions concerning the construction, validity and interpretation of this agreement will be governed by the internal law of New York, without regard to principles of conflict of laws thereof.

Please sign a counterpart of this letter agreement confirming your acceptance, and return it to me.

		Sincerely,
		/s/ ROBERT J. RUSSEL

		Robert J. Russel
		Chief Executive Officer

Accepted this 1^st day of July, 2002:

/s/ Raymond L. Killian, Jr.

QuickLinks

Exhibit 10.1

EMPLOYMENT AGREEMENT BETWEEN INVESTMENT TECHNOLOGY GROUP, INC. AND RAYMOND L. KILLIAN, JR.
EX-10.2 4 a2093127zex-10_2.htm EXHIBIT 10.2
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.2

INVESTMENT TECHNOLOGY GROUP, INC.
THIRD AMENDED AND RESTATED
1998 STOCK UNIT AWARD PROGRAM

1.: Purpose

This 1998 Stock Unit Award Program (the "Program") is implemented under the 1994 Stock Option and Long-Term Incentive Plan, as amended and restated (the "Plan"), of Investment Technology Group, Inc. (the "Company") in order to provide an additional incentive to selected members of senior management and key employees to increase the success of the Company, by substituting stock units for a portion of the cash compensation payable to such persons on a mandatory basis, which stock units represent an equity interest in the Company to be acquired and held under the Program on a long-term, tax-deferred basis, and otherwise to promote the purposes of the Plan.

2.: Definitions

Capitalized terms used in the Program but not defined herein shall have the same meanings as defined in the Plan. In addition to such terms and the terms defined in Section 1, the following terms used in the Program shall have the meanings set forth below:

2.1 "Account" means the account established for each Participant pursuant to Section 7(g) hereof.

2.2 "Actual Reduction Amount" means the amount by which a given quarterly or year-end bonus payment to a Participant is in fact reduced under Section 6.

2.3 "Administrator" shall be the person or committee appointed by the Committee to perform ministerial functions under the Program and to exercise other authority delegated by the Committee.

2.4 "Assigned Reduction Amount" means an amount determined by the Administrator in accordance with Section 6(b), in the case of an individual Participant, which shall be used under Section 7(a) to determine the number of Stock Units to be credited to the Participant's Account in respect of a given calendar quarter. The assigned Reduction Amount does not accumulate from one quarter to the next.

2.5 "Current Participant" means a Participant who, during the current year, is subject to mandatory payment of a portion of compensation by grant of Stock Units under the Program.

2.6 "Participant" means an eligible person who is granted Stock Units under the Program, which Stock Units have not yet been settled.

2.7 "Stock Unit" means an award, granted pursuant to Section 6.5 and 6.6 of the Plan, representing a generally nontransferable right to receive one share of Common Stock at a specified future date together with a right to Dividend Equivalents as specified in Section 7(d) hereof and subject to the terms and conditions of the Plan and the Program. Notwithstanding anything to the contrary, in the case of Stock Units granted to employees of ITG Canada Corp. and KTG Technologies Corp., the Committee may, in its discretion, settle such Stock Units by delivery of cash equal to the Fair Market Value, on the third anniversary of the date of grant of such Stock Units, of the number of shares of Common Stock equal to the number of such Stock Units. Stock Units are bookkeeping units, and do not represent ownership of Common Stock or any other equity security.

2.8 "Termination of Employment" means termination of a Participant's employment by the Company or a subsidiary for any reason, including due to death or disability, immediately after which event the Participant is not employed by the Company or any subsidiary.

3.: Administration

(a) Authority. The Program shall be established and administered by the Committee, which shall have all authority under the Program as it has under the Plan; provided, however, that terms of the

grant of Stock Units hereunder may not be inconsistent with the express terms set forth in the Program. Ministerial functions under the Program and other authority specifically delegated by the Committee shall be performed or exercised by and at the direction of the Administrator.

(b) Manner of Exercise of Authority. Any action of the Committee or its delegatee with respect to the Program shall be final, conclusive, and binding on all persons, including the Company, subsidiaries, participants granted Stock Units which have not yet been settled, and any person claiming any rights under the Program from or through any Participant, except that the Committee may take action within a reasonable time after any such action superseding or overruling a prior action.

(c) Limitation of Liability. Each member of the Committee or delegatee shall be entitled to, in good faith, rely or act upon any report or other information furnished to him by any officer or other employee of the Company or any subsidiary or any agent or professional assisting in the administration of the Plan, such member or person shall not be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Program, and such member or person shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination, or interpretation.

(d) Status as Subplan Under the Plan. The Program constitutes a subplan implemented under the Plan, to be administered in accordance with the terms of the Plan. Accordingly, all of the terms and conditions of the Plan are hereby incorporated by reference, and, if any provision of the Program or a statement or document relating to Stock Units granted hereunder conflicts with a provision of the Plan, the provision of the Plan shall govern.

4.: Stock Subject to the Program

Shares of Common Stock delivered upon settlement of Stock Units under the Program shall be shares reserved and available under the Plan. Accordingly, Stock Units may be granted under the Program if sufficient shares are not then reserved and available under the Plan, and the number of shares delivered in settlement of Stock Units hereunder shall be counted against the shares reserved and available under the Plan. Awards may be granted under the Plan even though the effect of such grants will be to reduce the number of shares remaining available for grants hereunder. Stock Units granted under the Program in place of compensation under the Plan resulting from a 162(m) Award (as defined in the Plan) or in place of compensation under the Company's Pay-for-Performance Incentive Plan shall be subject to annual per-person limitations applicable to such compensation under such plan.

5.: Eligibility and Selection

The Committee may select any person who is eligible to be granted an Award under the Plan to be granted Stock Units under the Program as a mandatory portion of compensation otherwise payable to the Participant. A Participant who is selected to be a Current Participant in one year will not necessarily be selected to be a Current Participant in a subsequent year.

6.: Mandatory Reduction of Bonus Compensation

(a) Amount of Mandatory Reduction. A Current Participant's cash compensation shall be automatically reduced by an amount determined in accordance with a schedule adopted by the Committee and applicable to compensation payable in the specified year; provided, however, that the Committee may adjust the schedule applicable to an individual Current Participant. For 1998, the initial year under the Program, unless adjusted by the Committee in an individual case, the amount of total compensation payable to a Current Participant shall be reduced on a mandatory basis as follows:

5% of the first $100,000 of annual compensation;
10% of the next $100,000 of annual compensation;
15% of the next $400,000 of annual compensation; and
20% of annual compensation in excess of $600,000.

The foregoing notwithstanding, in no event will the amount by which cash compensation is reduced exceed the amount of bonus payable to the Participant. For purposes of the Program, the amount by which cash compensation is reduced hereunder shall be calculated without regard to any reductions in compensation resulting from Participant's contributions under any Section 401(k), Section 125, pension plan, or other plan of the Company or a subsidiary, and such amount shall not be deemed a reduction in the Participant's compensation for purposes of any such Section 401(k), Section 125, pension plan, or other plan of the Company or a subsidiary.

(b) Manner of Reduction of Compensation. Amounts by which compensation is reduced under Section 6(a) will be subtracted from bonus amounts in respect of services during the year otherwise payable to the Current Participant at or following the end of the first three calendar quarters of such year and at or following the end of the year. The amount by which each bonus amount payable following the end of the first three calendar quarters will be reduced will be calculated based on a reasonable estimate of total compensation for the year, taking into account the amount by which compensation previously has been reduced for the year (i.e., in the case of a Participant employed since the beginning of the year and for whom estimated annual compensation has not varied during the year, by calculating an estimated aggregate amount by which compensation will be reduced for the year and reducing the quarterly bonus payment by one-fourth of such amount), and will be calculated at the time the year-end bonus amount otherwise becomes payable based on actual compensation for the year, taking into account the amount by which compensation previously has been reduced for the year (i.e., by calculating the actual amount by which compensation will be reduced for the year and reducing the year-end bonus payment by that amount less the amount by which compensation was reduced in previous quarters). The foregoing notwithstanding, the Administrator may determine in the case of any individual Participant, including a Participant who is not paid a bonus on a quarterly basis, the extent (if any) to which any bonus amounts other than the Participant's year-end bonus amount shall be reduced taking into account the terms of the Participant's compensation arrangement and the Participant's individual circumstances. In such cases, the Administrator may assign to the Participant an Assigned Reduction Amount for each calendar quarter, so that Stock Units will be automatically granted to such Participant under Section 7(a) at times and in amounts comparable to grants to other Participants, such that, on a full-year basis, the aggregate of the Participant's Assigned Reduction Amounts and any Actual Reduction Amounts used to determine the number of Stock Units credited to the Participant's Account under Section 7(a) for such year will equal the aggregate amount by which the Participant's full-year's compensation is to be reduced (after giving effect to adjustments under Section 7(b)).

7.: Grant of Stock Units

(a) Automatic Grant of Stock Units. Each Participant shall be automatically granted Stock Units, as of fifteen days after the last day of each calendar quarter, in a number equal to the Participant's Actual Reduction Amount or Assigned Reduction Amount (as applicable) divided by the Fair Market Value of a share of Common Stock on the last day of such calendar quarter. In addition, each Participant shall be automatically granted Stock Units, as of fifteen days after the last day of each calendar quarter, in a number equal to 15% of the number of Stock Units granted under this Section 7(a) at that date. Stock Units shall be initially credited to the Participant's Account as of the date of grant (it being recognized, however, that the determination of the number of Stock Units granted and the posting of such transactions to the Account may occur after date of grant under this Section 7(a), based on the time at which quarterly bonus amounts are determined and the Actual Reduction Amount or Assigned Reduction Amount determined in accordance with Section 6 hereof). Other provisions of the Program notwithstanding, no grant of Stock Units shall be effective until the date of grant specified in this Section 7(a), and, at any time prior to such date of grant, the Committee shall retain full discretion to adjust a Participant's Actual Reduction Amount or Assigned Reduction Amount downward or otherwise reduce or cancel the automatic grant of Stock Units, provided that any such adjustment or reduction in the number of Stock Units to be issued shall result in a reversal of any corresponding reduction in compensation under Section 6(b).

(b) Risk of Forfeiture; Cancellation of Certain Stock Units. Stock Units shall at all times be fully vested and non-forfeitable. The foregoing notwithstanding, if, at the end of a given year (upon calculation of year-end bonuses), the aggregate of the Participant's Actual Reduction Amounts and any Assigned Reduction Amounts used to determine the number of Stock Units credited under Section 7(a) for such year exceeds the amount by which the full-year's compensation should have been reduced under Section 6(a) (the "corrected full-year amount"), the Participant shall be paid in cash, without interest, the amount (if any) by which such Actual Reduction Amounts and Assigned Reduction Amounts exceeded such corrected full-year amount, and any Stock Units credited to the Participant under Section 7 as a result of such excess Actual Reduction Amounts and Assigned Reduction Amounts shall be cancelled. Unless otherwise determined by the Administrator, the Stock Units to be cancelled shall be cancelled from each of the four quarterly grants in the proportion the Actual Reduction Amounts and Assigned Reduction Amounts used in determining such quarterly grant bore to the aggregate of the Actual Reduction Amounts and Assigned Reduction Amounts used in determining all grants of Stock Units over the full year.

(c) Nontransferability. Stock Units and all rights relating thereto shall not be transferable or assignable by a Participant, other than by will or the laws of descent and distribution, and shall not be pledged, hypothecated, or otherwise encumbered in any way or subject to execution, attachment, or similar process.

(d) Dividend Equivalents on Stock Units. Dividend Equivalents shall be credited on Stock Units as follows:

(i): Cash and Non-Common Stock Dividends. If the Company declares and pays a dividend or distribution on Common Stock in the form of cash or property other than shares of Common Stock, then a number of additional Stock Units shall be credited to a Participant's Account as of the payment date for such dividend or distribution equal to (i) the number of Stock Units credited to the Account as of the record date for such dividend or distribution multiplied by (ii) the amount of cash plus the fair market value of any property other than shares actually paid as a dividend or distribution on each outstanding share of Common Stock at such payment date, divided by (iii) the Fair Market Value of a share of Common Stock at such payment date.
(ii): Common Stock Dividends and Splits. If the Company declares and pays a dividend or distribution on Common Stock in the form of additional shares of Common Stock, or there occurs a forward split of Common Stock, then a number of additional Stock Units shall be credited to the Participant's Account as of the payment date for such dividend or distribution or forward split equal to (i) the number of Stock Units credited to the Account as of the record date for such dividend or distribution or split multiplied by (ii) the number of additional shares of Common Stock actually paid as a dividend or distribution or issued in such split in respect of each outstanding share of Common Stock.

(e) Adjustments to Stock Units. The number of Stock Units credited to each Participant's Account shall be appropriately adjusted, in order to prevent dilution or enlargement of Participants' rights with respect to such Stock Units, to reflect any changes in the number of outstanding shares of Common Stock resulting from any event referred to in Section 5.5 of the Plan, taking into account any Stock Units credited to the Participant in connection with such event under Section 7(d).

(f) Fractional Shares. The number of Stock Units credited to a Participant's Account shall include fractional shares calculated to at least three decimal places, unless otherwise determined by the Committee.

(g) Accounts and Statements. The Administrator shall establish, or cause to be established, an Account for each Participant. An individual statement of each Participant's Account will be issued to each Participant not less frequently than annually. Such statements shall reflect the Stock Units credited to the Participant's Account, transactions therein during the period covered by the statement,

and other information deemed relevant by the Administrator. Such statement may include information regarding other plans and compensatory arrangements for Directors.

(h) Consideration for Stock Units. Stock Units shall be granted for the general purposes set forth in Section 1 of the Program. Except as specified in Section 6 and 7 of the Program, a Participant shall not be required to pay any cash consideration or other tangible or definable consideration for Stock Units, nor may a Participant choose to receive Stock Units in lieu of other compensation or other compensation in lieu of Stock Units. No negotiation shall take place between the Company and any Participant as to the amount, timing, or other terms of an award of Stock Units.

8.: Settlement

(a) Issuance and Delivery of Shares in Settlement. Stock Units shall be settled by issuance and delivery, as promptly as practicable on or after the third anniversary of the date of grant of such Stock Units, to the Participant or, following his death, to the Participant's designated beneficiary, of a number of shares of Common Stock equal to the number of such Stock Units; provided, however, that the Committee may, in its discretion, accelerate the settlement date of any or all Stock Units. The Committee may, in its discretion, make delivery of shares hereunder by depositing such shares into an account maintained for the Participant (or of which the Participant is a joint owner, with the consent of the Participant) established in connection with the Company's Employee Stock Purchase Plan or another plan or arrangement providing for investment in Common Stock and under which the Participant's rights are similar in nature to those under a stock brokerage account. If the Committee determines to settle Stock Units by making a deposit of shares into such an account, the Company may settle any fractional share by means of such deposit. In other circumstances or if so determined by the Committee, the Company shall instead pay cash in lieu of fractional shares, on such basis as the Committee may determine. In no event will the Company in fact issue fractional shares. Notwithstanding anything to the contrary, in the case of Stock Units granted to employees of ITG Canada Corp. and KTG Technologies Corp., the Committee may, in its discretion, settle such Stock Units by delivery of cash equal to the Fair Market Value, on the third anniversary of the date of grant of such Stock Units, of the number of shares of Common Stock equal to the number of such Stock Units. Upon settlement of Stock Units, all obligations of the Company in respect of such Stock Units shall be terminated, and the shares so distributed shall no longer be subject to any restriction or other provision of the Program.

(b) Tax Withholding. The Company and any subsidiary may deduct from any payment to be made to a Participant any amount that federal, state, local, or foreign tax law requires to be withheld with respect to the settlement of Stock Units. At the election of the Committee, the Company may withhold from the shares of Common Stock to be distributed in settlement of Stock Units that number of shares having a Fair Market Value, at the settlement date, equal to the amount of such withholding taxes.

(c) No Elective Deferral. Participant's may not elect to further defer settlement of Stock Units or otherwise to change the applicable settlement date under the Program.

9.: General Provisions

(a) No Right to Continued Employment. Neither the Program nor any action taken hereunder, including the grant of Stock Units, will be construed as giving any employee the right to be retained in the employ of the Company or any of its subsidiaries, nor will it interfere in any way with the right of the Company or any of its subsidiaries to terminate such employee's employment at any time.

(b) No Rights to Participate; No Stockholder Rights. No Participant or employee will have any claim to participate in the Program, and the Company will have no obligation to continue the Program. A grant of Stock Units will confer on the Participant none of the rights of a stockholder of the Company (including no rights to vote or receive dividends or distributions) until settlement by delivery of Common Stock, and then only to the extent that such Stock Unit has not otherwise been forfeited by the Participant.

(c) Changes to the Program. The Committee may amend, alter, suspend, discontinue, or terminate the Program without the consent of Participants; provided, however, that, without the consent of an affected Participant, no such action shall materially and adversely affect the rights of such Participant with respect to outstanding Stock Units, except insofar as the Committee's action results in accelerated settlement of the Stock Units.

10. Effective Date and Termination of Program. The Program shall become effective as of January 1, 1998, and shall apply to compensation payable during 1998 and thereafter. Unless earlier terminated under Section 9(c), the Program shall terminate at such time after 1998 as no Stock Units previously granted under the Program remain outstanding.

Adopted by the Committee:		June 4, 1998
Amended and restated by the Committee:		February 25, 1999
Amended and restated by the Committee:		March 20, 2002
Amended and restated by the Committee:		September 3, 2002

QuickLinks

Exhibit 10.2

INVESTMENT TECHNOLOGY GROUP, INC. THIRD AMENDED AND RESTATED 1998 STOCK UNIT AWARD PROGRAM
EX-10.3 5 a2093127zex-10_3.htm EXHIBIT 10.3
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.3

INVESTMENT TECHNOLOGY GROUP, INC.
DIRECTORS' RETAINER FEE SUBPLAN

Section 1. Introduction.

The Investment Technology Group, Inc. Directors' Retainer Fee Subplan (the "Subplan") is implemented under the 1994 Stock Option and Long-Term Incentive Plan, as amended and restated from time to time (the "Plan") of Investment Technology Group, Inc. (the "Company") in order to provide nonemployee directors with an election to receive payment of their annual retainer fees in the form of shares of Common Stock or cash or to defer payment of their annual retainer fees in the form of Deferred Share Units. The Plan is intended to encourage qualified individuals to accept nominations as directors of the Company and to strengthen the mutuality of interest between the nonemployee directors and the Company's other shareholders.

Section 2. Definitions.

Capitalized terms used in the Subplan but not defined herein shall have the same meanings as defined in the Plan. In addition to such terms and the terms defined in Section 1 hereof, the following terms used in the Subplan shall have the meaning set forth below.

(a): "Deferred Share Unit" means a fully vested unit entitling the holder to receive one share of Common Stock per unit in accordance with the terms of the Subplan.
(b): "Director" means a member of the Board who is not, and has not been during the preceding three months, (i) an employee of the Company or any parent or subsidiary of the Company or (ii) a consultant who has received, during the preceding 12-month period, payments in excess of $150,000 from the Company and its subsidiaries for consulting services.
(c): "Subplan Benefits" means the benefits described in Sections 5 and 6 hereof.

Section 3. Administration.

The Subplan shall be administered by the Committee. The Committee shall have full authority to construe and interpret the Subplan, and any action of the Committee with respect to the Subplan shall be final, conclusive, and binding on all persons.

Section 4. Cash or Stock Election.

Each Director may elect to receive his or her annual retainer fee in the form of cash or fully vested shares of Common Stock. In addition, each Director may elect to defer receipt of his or her annual retainer fee in the form of Deferred Share Units as provided in Section 5 below. If a Director elects to receive his or her annual retainer fee in the form of vested shares of Common Stock, the shares will be distributed on the date the annual retainer fee is otherwise payable, and the amount of Common Stock distributed shall be the number of shares of Common Stock having an aggregate Fair Market Value on the payment date equal to the amount of the Director's annual retainer fee that is otherwise payable on that date. Fractional shares will be rounded up to the nearest whole share. A Director's election to receive his or her annual retainer fee in the form of cash or vested shares of Common Stock shall continue in effect until the Director notifies the Company in writing, in a manner consistent with Section 5 below, that the Director wishes to prospectively change his or her election. If a Director fails to make any election under the Subplan, the Director's annual retainer fee shall be paid in cash.

Section 5. Deferred Share Unit Accounts.

The Company shall maintain a Deferred Share Unit account (an "Account") for each Director who has elected to defer his or her annual retainer. Deferred Share Units will be credited to each such Account as follows:

(a): Each Director may make an irrevocable election on or before the December 31 by written notice to the Company, to defer payment of all of the compensation otherwise payable as his or her annual retainer fee for service as a Director for the following calendar year. Notwithstanding the foregoing, a Director may make such an election within 60 days after the Effective Date or first becoming eligible to participate in the Subplan (whichever is later), with respect to compensation payable after the effective date of the election. All compensation which a Director elects to defer pursuant to this Section 5(a) shall be credited in the form of Deferred Share Units to the Director's Account. The number of units so credited will be equal to the number of shares of Common Stock having an aggregate Fair Market Value (on the date the compensation would otherwise have been paid) equal to the amount by which the Director's compensation was reduced pursuant to the deferral election. Deferrals of compensation hereunder shall continue until the Director notifies the Company in writing that the Director wishes his or her compensation for the following calendar year, and succeeding periods to be paid on a current basis either in the form of cash or Common Stock.
(b): As of each date on which a cash dividend is paid on Common Stock, there shall be credited to each Account that number of Deferred Share Units (including fractional units) determined by (i) multiplying the amount of such dividend (per share) by the number of Deferred Share Units in such Account; and (ii) dividing the total so determined by the Fair Market Value of a share of Common Stock on the date of payment of such cash dividend. The additions to a Director's Account pursuant to this Section 5(b) shall continue until the Director's Subplan Benefit is fully paid.

Section 6. Subplan Benefits.

(a)

Form. The Subplan Benefit of a Director shall consist of shares of Common Stock equal in number to the Deferred Share Units in the Director's Account. Any fractional Deferred Share Units shall be rounded up to the nearest whole Deferred Share Unit.

(b)

Distribution.

(i): The Subplan Benefit of a Director shall be distributed at the time of termination of the Director's service on the Board.
(ii): In the case of the death of a Director, the Director's Subplan Benefit shall be distributed, within a reasonable time as determined by the Company, after the Director's death to the Director's surviving spouse as beneficiary if such spouse is still living or, if not living, in equal shares to the then living children of the Director as beneficiaries or, if none, to the Director's estate as beneficiary, unless the Director has requested a different distribution by written notice to the Secretary of the Company.

Section 7. General.

(a): Nontransferabilily. Except as provided in Section 6(b)(ii), no payment of any Subplan Benefit of a Director shall be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor's process, whether voluntarily or involuntarily or by operation of law. Any act in violation of this subsection shall be void.
(b): Compliance with Legal and Trading Requirements. The Subplan shall be subject to all applicable laws, rules and regulations, including, but not limited to, federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may be required.

(c): Amendment. The Committee may amend, alter, suspend, discontinue, or terminate the Subplan without the consent of shareholders of the Company or individual Directors, except that any such action will be subject to the approval of the Company's stockholders at the next annual meeting of the stockholders having a record date after the date such action was taken if such stockholder approval is required by any federal or state law or regulation or the rules of any automated quotation system or securities exchange on which the Common Stock may be quoted or listed, or if the Committee determines in its discretion to seek such stockholder approval; provided, however, that, without the consent of an affected Director, no amendment, alteration, suspension, discontinuation, or termination of the Subplan may impair or, in any other manner, adversely affect the rights of such Director to accrued Subplan Benefits hereunder.
(d): Unfunded Status of Awards. The Subplan (other than Section 4 hereof) is intended to constitute an "unfunded" plan of deferred compensation. With respect to any payments not yet made to a Director, nothing contained in the Subplan shall give any such Director any rights that are greater than those of a general creditor of the Company; provided, however, that the Company may authorize the creation of trusts or make other arrangements to meet the Company's obligations under the Subplan to deliver cash, or other property pursuant to any award, which trusts or other arrangements shall be consistent with the "unfunded" status of the Subplan unless the Company otherwise determines with the consent of each affected Director.
(e): Nonexclusivity of the Subplan. The adoption of the Subplan shall not be construed as creating any limitations on the power of the Board or the Committee to adopt such other compensation arrangements as it may deem desirable, including, without limitation, the granting of options on Common Stock and other awards otherwise than under the Subplan, and such arrangements may be either applicable generally or only in specific cases.
(f): Adjustments. In the event that subsequent to the Effective Date any dividend in Common Stock, recapitalization, share split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other such change, affects the shares of Common Stock such that they are increased or decreased or changed into or exchanged for a different number or kind of shares, other securities of the Company or of another corporation or other consideration, then in order to maintain the proportionate interest of the Directors and preserve the value of the Directors' Deferred Share Units, there shall automatically be substituted for each Deferred Share Unit a new unit representing the number and kind of shares, other securities or other consideration into which each outstanding share of Common Stock shall be changed and/or for which each such share of Common Stock shall be exchanged. The substituted units shall be subject to the same terms and conditions as the original Deferred Share Units.
(g): No Right to Remain on the Board. Neither the Subplan nor the crediting of Deferred Share Units under the Subplan shall be deemed to give any individual a right to remain a director of the Company or create any obligation on the part of the Board to nominate any Director for reelection by the shareholders of the Company.
(h): Governing Law. The validity, construction, and effect of the Subplan shall be determined in accordance with the laws of the State of Delaware without giving effect to principles of conflict of laws.
(i): Effective Date. The Subplan shall become effective as of August 30, 2002 (the "Effective Date").
(j): Titles and Headings. The titles and headings of the Sections in the Subplan are for convenience of reference only. In the event of any conflict, the text of the Subplan, rather than such titles or headings, shall control.

QuickLinks

INVESTMENT TECHNOLOGY GROUP, INC. DIRECTORS' RETAINER FEE SUBPLAN
EX-99.1 6 a2093127zex-99_1.htm EXHIBIT 99.1 CERTIFICATIONS BY CEO
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 99.1

Investment Technology Group, Inc.
380 Madison Avenue
New York, NY 10017

Certification Under Section 906 of the Sarbanes-Oxley Act of 2002
(United States Code, Title 18, Chapter 63, Section 1350)
Accompanying Quarterly Report on Form 10-Q of
Investment Technology Group, Inc. for the Fiscal Quarter Ended September 27, 2002

I, Robert J. Russel, Chief Executive Officer of Investment Technology Group, Inc., hereby certify that the accompanying Quarterly Report on Form 10-Q of Investment Technology Group, Inc. for the fiscal quarter ended September 27, 2002 fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Investment Technology Group, Inc.

		Date: November 12, 2002



		/s/ ROBERT J. RUSSEL Robert J. Russel Chief Executive Officer

QuickLinks

Exhibit 99.1

EX-99.2 7 a2093127zex-99_2.htm EXHIBIT 99.2 CERTIFICATION BY CFO
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 99.2

Investment Technology Group, Inc.
380 Madison Avenue
New York, NY 10017

I, Howard C. Naphtali, Chief Financial Officer of Investment Technology Group, Inc., hereby certify that the accompanying Quarterly Report on Form 10-Q of Investment Technology Group, Inc. for the fiscal quarter ended September 27, 2002 fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Investment Technology Group, Inc.

		Date: November 12, 2002



		/s/ HOWARD C. NAPHTALI Howard C. Naphtali Chief Financial Officer

QuickLinks

Exhibit 99.2

Certification Under Section 906 of the Sarbanes-Oxley Act of 2002 (United States Code, Title 18, Chapter 63, Section 1350) Accompanying Quarterly Report on Form 10-Q of Investment Technology Group, Inc. for the Fiscal Quarter Ended September 27, 2002
-----END PRIVACY-ENHANCED MESSAGE-----