10-K

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

FORM 10-K

(Mark One)
ý	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2003
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                to

Commission File Number 0-23644

INVESTMENT TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)

DELAWARE (State of incorporation)	95-2848406 (IRS Employer Identification No.)
380 Madison Avenue, New York, New York (Address of principal executive offices)	(212) 588-4000 (Registrant's telephone number, including area code)
10017 (Zip Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Common Stock, $0.01 par value	New York Stock Exchange
(Title of class)	(Name of exchange on which registered)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None

        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

        Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this form 10-K    Yes o    No ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2)

Yes ý    No o

Aggregate market value of the voting stock held by non-affiliates of the Registrant at March 2, 2004:	Number of shares outstanding of the Registrant's Class of common stock at March 2, 2004:
$681,148,281	43,803,748

DOCUMENTS INCORPORATED BY REFERENCE:

        Proxy Statement relating to the 2004 Annual Meeting of Stockholders (incorporated, in part, in Form 10-K Part III).

2003 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 2.	Properties	17
Item 3.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
PART II
Item 5.	Market for Registrant's Common Stock and Related Stockholder Matters	18
Item 6.	Selected Financial Data	19
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	42
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	73
Item 9A.	Controls and Procedures	73
PART III
Item 10.	Directors and Executive Officers of the Registrant	73
Item 11.	Executive Compensation	73
Item 12.	Security Ownership of Certain Beneficial Owners and Management	73
Item 13.	Certain Relationships and Related Transactions	73
Item 14.	Principal Accounting Fees and Services	73
PART IV
Item 15.	Exhibits, Financial Statements, Schedules and Reports on Form 8-K	74

QuantEX, ITG ACE, TCA, ITG/Opt, SmartServer, Investment Technology Group and ITG are registered trademarks of the Investment Technology Group, Inc. companies. POSIT is a registered service mark of the POSIT Joint Venture. TriAct is a trademark of the POSIT Joint Venture. Triton, SPI SmartServer, Horizon, 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 Annual Report on Form 10-K, 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 this Annual Report on Form 10-K, which you are encouraged to read.

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PART I

Item 1.    Business

        Investment Technology Group, Inc. ("ITG" or the "Company") was formed as a Delaware corporation on July 22, 1983. Its principal subsidiaries 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 its acquisition on September 3, 2002) and its operating affiliates, Hoenig & Company, Inc. and Hoenig (Far East) Limited (collectively, "Hoenig"), agency soft dollar broker-dealers in equity securities in the U.S. and Hong Kong, (collectively "Hoenig") (3) Investment Technology Group Limited ("ITG Europe"), an institutional broker-dealer in Europe, (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 Corp. ("KTG"), a direct access provider in Canada, (7) ITG Hoenig Limited ("ITG Hong Kong"), an institutional broker-dealer in Hong Kong, and (8) ITG Software Solutions, Inc., our intangible property and software development and maintenance subsidiary in the U.S.

        On September 3, 2003, ITG completed the integration of the soft dollar agency brokerage business of Hoenig & Co., Inc. into ITG Inc (herein referred to as the "Hoenig division"). Hoenig & Co., Inc. changed its name to ITG Execution Services Inc. ("ITG Execution Services") and its sole continuing business is the conduct of floor brokerage activities on the New York Stock Exchange ("NYSE") for its affiliated companies. In December 2003, ITG Hong Kong Ltd. changed its name to ITG Hoenig Limited.

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

        We are a full service trade execution firm that uses technology to increase the effectiveness and lower the cost of trading. With an emphasis on ongoing research, we offer the following products and services to our clients:

Execution Services:

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POSIT: an electronic stock crossing system.



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TriAct: a continuous intra-day trading vehicle.



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Electronic Trading Desk: an agency trading desk offering clients the ability to efficiently access multiple sources of liquidity.

Client-Site Trading Products:

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QuantEX: a Unix-based decision support, trade management and order routing system.



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Triton: a Windows-based decision-support, trade management and order routing system



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ITG Platform: a Windows-based order routing and trade management system.



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Radical: a Windows-based trading platform targeted for the active trading community.



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ITG WebAccess: a browser-based order routing tool.



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SmartServers: which implement automated server-based trading strategies

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Analytical Products and Research:

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ITG ACE and TCA: a set of pre and post-trade tools for systematically estimating and measuring transaction costs.



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ITG Peer Group Database: a system which analyzes a firm's trading costs relative to the trading costs of its peers, trading similar stocks under similar circumstances.



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ITG/Opt: a computer-based equity portfolio selection system.



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ITG Fair Value Model: a research tool to assist mutual funds in making fair value calculations of fund net asset value ("NAV").



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ITG Risk Models: a set of equity risk models to assist portfolio managers, researchers and traders in measuring, analyzing and managing a variety of risks.



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ITG ResRisk+: a multifaceted optimizer, enabling portfolio managers and traders to assess and control portfolio risk characteristics through any series of executions.



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Research, development, sales and consulting services.

Soft Dollar Programs:

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Provision of independent third party research and ITG Analytical Products and Research products and services.



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Directed brokerage and commission recapture arrangements.

We generate revenues on a "per transaction" basis for all orders executed. Orders are delivered to us from our "front-end" software products, Triton, QuantEX, ITG Platform, Radical and ITG WebAccess, as well as other vendors' front-ends and direct computer-to-computer links to customers. In the U.S., orders may be executed on or through (1) POSIT, (2) TriAct, (3) our SmartServers, (4) the NYSE, (5) the American Stock Exchange, (6) certain regional exchanges, (7) the Nasdaq National Market, (8) market makers, (9) electronic communication networks ("ECNs"), systems which trade equity securities and (10) third party alternative trading systems ("ATSs"). In our International Operations, we generate revenues on a "per transaction" basis on the volume of securities executed or on the contract value of securities traded through POSIT or our Electronic Trading Desk.

POSIT

        POSIT was introduced in 1987 in the U.S. as a technology-based solution to the trade execution needs of quantitative and passive investment managers. It has since grown to also serve the active trading and broker-dealer communities. There are 544 clients currently using POSIT in the U.S., including corporate and government pension plans, insurance companies, bank trust departments, investment advisors, broker-dealers and mutual funds. There are 176, 58 and 21 clients using versions of POSIT in Europe, Australia and Hong Kong, respectively. In Canada, the POSIT joint venture licenses a Canadian version of the POSIT system to the Toronto Stock Exchange ("TSX"). POSIT operates as a facility of the TSX for TSX listed securities.

        POSIT is an electronic stock crossing system through which clients enter buy and sell orders to trade single stocks and portfolios of equity securities among themselves in a confidential environment. Orders may be submitted to the system directly via Triton, QuantEX, Radical, ITG Platform, ITG WebAccess or other computer-to-computer links, or indirectly via ITG Electronic Trading Desk personnel. We also work in partnership with vendors of other popular trading systems, allowing users the flexibility to route orders directly to POSIT from trading products distributed by Bridge Information Systems, BRASS, Bloomberg and others.

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        U.S. POSIT currently accepts orders for a universe in excess of 22,000 different equity securities, but may be modified, as the need arises, to include additional equity securities. The POSIT algorithm optimizes the maximum possible number of buy and sell orders that match or "cross". Clients may specify conditions on their orders that must be satisfied, such as the requirement that the net cash resulting from buys and sells remain within specified constraints. A client may also specify a minimum number of shares to be executed for a given order. There are currently thirteen scheduled intraday crosses every business day. POSIT prices trades at the midpoint of the best bid and offer for each security at the time of the cross, based on information provided directly to the system by a third-party data vendor. Immediately after each match, clients receive electronic reports showing match results for their orders. Clients then decide whether to keep unmatched orders in the system for future matches or to execute them by other means. We recently introduced POSIT after hours, which runs twice nightly. In the POSIT after hours cross, all trades are priced at the day's closing price.

        POSIT provides the following significant benefits to clients:

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Confidential matching of buy and sell orders eliminates market impact. In contrast, participants in traditional or other open markets are constantly subject to the risk that disclosure of an order will unfavorably affect price conditions.



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The average execution size in POSIT is significantly larger than the average execution size on ECNs.



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Access to the substantial pool of liquidity represented by aggregate POSIT orders in each match.



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Midpoint pricing allows users to save half the bid/offer spread.



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Clients pay a low commission on completed transactions relative to the industry average. POSIT generates revenue from commissions charged on each share crossed through the system.



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Immediately after each cross, the system electronically provides clients with reports of match results. Clients may then submit the unexecuted portion of their orders to subsequent POSIT matches, choose to execute unmatched orders through other means or take advantage of the Electronic Trading Desk services (described below).

        POSIT gives users the option of customizing their trading objectives and specifying additional constraints, while preserving the functionality of the existing POSIT system. This capability is referred to collectively as a "POSIT strategy." This capability allows orders that might otherwise be ineligible for POSIT to participate in the match. POSIT strategies include ResRisk, which allows users to control the risk of the unexecuted "residual" portfolio, and Pairs, which makes execution of one trade contingent on the execution of another, at or better than a given relative valuation. Clients engaging in portfolio funding, liquidation, restructuring and rebalancing transactions often utilize ResRisk. Risk arbitrage, statistical arbitrage and portfolio substitution trades are examples of transactions that can be implemented using the Pairs strategy. We also implement custom applications upon request.

        Clients can also access POSIT through our brokerage subsidiary, AlterNet. AlterNet enables clients to execute trades in POSIT on a net basis, i.e.with the commission payable to us for the POSIT trade included in the price at which the client executes their POSIT trade. This feature is particularly attractive to our broker-dealer customers and AlterNet was created in response to broker-dealers' desires to have net pricing in POSIT.

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        The following graph illustrates the annual total share volume crossed in U.S. POSIT since 1994:

TriAct

        TriAct is a continuous, intra-day trading vehicle offering full anonymity, continuous execution opportunities, no market impact in respect of executions, and access to our POSIT system. TriAct provides price improvement on every transaction and opportunities for size improvement. Participants in TriAct submit orders that may be executed in one of three ways: (a) against the ongoing flow of market bound orders submitted by other ITG clients and our Electronic Trading Desk, (b) against orders from other TriAct participants (liquidity suppliers) and (c) for TriAct orders marked as eligible to participate in POSIT, in one of POSIT's thirteen intra-day crosses. Both listed and OTC securities can be traded in TriAct.

        An execution in TriAct is priced between the bid/offer spread. When a liquidity supplier interacts with a market-bound order, the supplier receives 75 percent of the spread, when executing against other suppliers, or in POSIT, the supplier receives 50 percent of the spread. TriAct allows traders to control how their orders are traded by offering order expiration time, control of the rate at which orders are traded (1, 5, or 15 minute intervals), price protection, and portfolio buy/sell and minimum share constraints. In addition, TriAct enforces the tick/bid test rules for short sales of securities. TriAct is accessible from Triton, Radical, ITG Platform and QuantEX as well as third party trade order management systems and ITG's Electronic Trading Desk.

Electronic Trading Desk

        The Electronic Trading Desk is a full-service, agency execution group that specializes in lowering transaction costs for our clients through the utilization of our proprietary trading products, including extensive use of POSIT, TriAct and our SmartServers.

        Clients use QuantEX, Triton, Radical, ITG Platform and ITG WebAccess to deliver lists of orders electronically to our desk and, as orders are executed by the desk, reports are automatically delivered electronically back to the client. For clients that do not send orders electronically to ITG execution destinations through our Client Site Trading Products, our account executives receive orders by

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telephone, fax or e-mail. The Electronic Trading Desk personnel are able to assist customers with decision support analyses generated during the execution of trades. Clients give our active traders single stock orders or lists of orders to work throughout the day as well as residual trades from unfilled orders in POSIT.

        For order completion outside of POSIT, the Electronic Trading Desk utilizes numerous sources of liquidity to complete trades. The Electronic Trading Desk will use QuantEX and Triton to route orders to multiple market destinations, including primary exchanges, regional exchanges, over-the-counter market makers, ECNs and ATSs, or actively seek the contra side of client orders by soliciting interest among other clients.

        The Portfolio Trading Group focuses on agency list or program trading. By employing a step-by-step process that leverages technology and access to multiple sources of liquidity, the Portfolio Trading Group seeks to systematically achieve high quality executions for the client by controlling transaction costs. A client program is evaluated with a pre-trade analysis to determine aggregate portfolio characteristics, estimate market impact, and to quantify risk. The group implements a number of sophisticated trading strategies using QuantEX and Triton to meet execution objectives. After the execution is completed, we provide the client with comprehensive reports analyzing execution results utilizing ITG Research products.

QuantEX

        QuantEX is our Unix-based list-oriented order management and execution system. QuantEX provides clients with functionality to efficiently manage every step of the trading process: from trade decision-making to execution and order tracking. From the QuantEX desktop, users can access fully-integrated real-time and historical data and analytics, route and execute orders to OTC and Listed electronic market centers, perform trade management functions, and implement customizable rules-based automated trading strategies.

        Using QuantEX's blotter management functionality, users can view and act upon their orders as single orders or portfolios of orders. From the blotter, orders can be routed to OTC and Listed electronic market centers, ITG's agency trading desk, the POSIT cross, ITG's family of SmartServers, and certain third party brokers through our on RouteNet order routing service. Clients can use the blotter to monitor order status and portfolio statistics. Since real-time and historical data are fully integrated with QuantEX, users can make trading decisions and track trading performance (e.g., performance against a benchmark, progress against completion) on single orders or portfolios.

        QuantEX provides a rule-based decision support system that allows traders to quantify their trading processes to create automated strategies. This allows construction of custom trading analytics and algorithms.

        QuantEX provides access to a broad selection of market data and models, including real-time quote and trade data, historical price data and various analytics derived from quote and price data. QuantEX also has integrated access to certain proprietary ITG trading analytics such as ITG ACE and ITG Risk Models.

        Revenues are generated through commissions and transaction fees charged for each trade electronically routed through QuantEX to the many destinations available from the application. We do not derive royalties from the sale or licensing of the QuantEX software. As of December 31, 2003, there were 106 installations of QuantEX at 38 client sites in the U.S.

Triton

        Triton, released in 2003, is our next generation list-oriented order management and execution system bringing a complete set of integrated execution and analytical tools to the user's desktop. Triton

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supports similar functionality as QuantEX, but has been built with a Windows-based architecture that easily allows new features to be added.

        Triton provides clients with the functionality to efficiently manage every step of the trading process: from trade decision-making to execution and order tracking. From the Triton desktop, users will access fully-integrated real-time and historical data and analytics, route and execute orders to OTC and listed electronic market centers, perform trade management functions, and implement customizable rules-based automated trading strategies.

        Triton improves upon QuantEX in several key areas. Its blotter management capabilities allow for sophisticated portfolio aggregation and user customization. Additionally, Triton has an open data architecture and development environment that will allow our customers to develop automated trading strategies using industry standard programming languages. Triton provides more fully integrated access to ITG's proprietary pre-trade, execution and post-trade analytics and is also a multi-user system.

        Revenues are generated through commissions and transaction fees charged for each trade electronically routed through Triton and executed on one of the many destinations available from the application. We do not derive royalties from the sale or licensing of the Triton software. As of December 31, 2003, there were 37 installations of Triton at 26 client sites in the U.S.

ITG Platform

        ITG Platform provides clients with seamless connectivity from their desktop to a variety of execution destinations. We continue to create links to additional liquidity sources where appropriate. Orders may be corrected or cancelled electronically, and all reports are delivered electronically back to the ITG Platform. ITG Platform also supports special trading interfaces as needed by POSIT strategies and SmartServers. Allocation information can be associated with executions in the ITG Platform and delivered to us electronically. ITG Platform has access to historical data through the ITG Data Center, including a wide array of analytics, such as average historical share volumes, dollar volumes, volatility and historical spread statistics. ITG Platform also provides clients enhanced list trading capabilities, access to ECN order types and, in some cases, access to real time Nasdaq Level II data as well as the ability to communicate with us via the Internet or through private networks.

        ITG Platform was intended for broad distribution to institutional clients, so it was designed to run in conventional Windows environments alongside other applications, and be inexpensive to install, maintain and support.

        Many technical features support these goals:

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Other applications can link to ITG Platform using the FIX data messaging protocol.



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ITG Platform incorporates a spreadsheet package, so users can extend their trade blotter with custom calculations.



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Custom execution reports can be created to fit each user's requirements.



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ITG Platform can access Bridge and ILX quote data if those systems are used by the client.

        As of December 31, 2003, there were 471 installations of ITG Platform at 122 client sites in the U.S.

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Radical

        Radical is our order routing and execution system primarily targeted at the active trading community. From the Radical desktop, users can access fully-integrated real-time data and analytics, route and execute single or multiple orders to OTC and Listed electronic market centers, perform trade management functions, and implement customizable rules-based order types.

        From the Radical Level II window and staged orders page, orders can be routed to OTC and listed electronic market centers, ITG's agency trading desk, the POSIT cross, ITG's family of SmartServers, and certain third party brokers through RouteNet. Clients can use Radical account/order management functionality to monitor order status and position information. Since real-time and historical data are fully integrated with Radical, users can make trading decisions and track intra-day profit and loss statistics (e.g., performance against a benchmark, progress against completion) on single orders or portfolios.

        Radical is a Windows-based thin-client application architected for speed and user interface flexibility.

        As of December 31, 2003, there were 59 installations of Radical at client sites in the U.S.

ITG WebAccess

        ITG WebAccess allows users to take advantage of our advanced trading services from anywhere through the Internet. ITG WebAccess is a browser-based order routing tool for sending orders to POSIT and the Electronic Trading Desk.

SmartServers

        SmartServers are automated trading destinations that accept orders from client workstations and execute them using a computerized trading strategy. All SmartServers are physically located at ITG, and are accessed electronically by clients via the ITG Platform, Radical, Triton or QuantEX, via direct connections or via our Electronic Trading Desk. Each SmartServer is an automated trading agent pre-programmed with a particular trading style. By using these agents, traders can focus their attention on a subset of their orders, letting the SmartServer trade the rest of the orders on the list.

        Currently, we provide four strategy-based servers: Horizon SmartServer, SPI SmartServer, activePeg SmartServer and the OTC Router. The Horizon SmartServer is designed to allow clients to direct their orders to us to be executed in a manner designed to closely track a security's volume-weighted average price, or VWAP, throughout the trading day. The Horizon SmartServer analyzes liquidity and market conditions continuously throughout the day and determines the appropriate order size and order price to approximate the VWAP. Clients may choose to execute relative to the VWAP price for the entire trading day, or for some subset of that trading day.

        The SPI SmartServer is designed to improve trading performance of small- and medium-size orders that are traditionally executed as market orders. The SPI SmartServer analyzes momentum, volatility, and indicators to decide how and when to trade an order to improve upon the results expected from a market order. Clients may choose a time horizon for each order, anywhere from 5 to 30 minutes, whereby the SPI SmartServer monitors the market and determines the timing, pricing, and size of outgoing orders using real-time market data.

        ITG's activePeg SmartServer is aimed at traders who are benchmarked to a decision-price (pre-trade) benchmark or who would like to execute as quickly as possible while still minimizing the market impact of their trades. Traders can specify an expiration time to explicitly define the time horizon for a wave of orders, or they can let the strategy choose an appropriate time horizon for each

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order individually. The trading algorithm uses a blended passive/aggressive style to work orders automatically over the time horizon, supplying liquidity passively with the objective of attracting executions at favorable prices but also issuing carefully timed aggressive orders to keep the trade on schedule. Care is taken by all components of the algorithm to blend in with other orders in the market and minimize the leakage of information to other parties in the marketplace.

        The OTC Router provides convenient electronic access to the OTC market, a single portal through which traders can access all OTC destinations. For marketable orders, the OTC Router sweeps available liquidity from all destinations using SuperMontage and direct connections to all major ECNs. The OTC Router features liquidity-hunting algorithms that rapidly locate all hidden liquidity at each price level without leaking any information to the market. For non-marketable limit orders, the OTC Router supports all major ECN features to eliminate the guesswork from posting liquidity. Instead of keeping track of which ECNs support each of the various order types, traders specify the features they want and let the OTC Router determine the appropriate venue. Whenever the Router has a choice between several destinations, it uses historical execution quality to determine the best routing.

Analytical Products and Research

        ITG's Analytical Products and Research group ("APR") has developed an integrated suite of tools that address every stage of the investment process, from portfolio construction to pre-trade analysis, on to trade execution and post-trade cost and performance reporting. These products are available for direct client use, enabling clients to measure, analyze, and control the cost of trading. The guiding principle of research and product development in this area is to increase investment returns by lowering transaction costs, managing risk, and optimizing portfolio decisions. As part of its activities, APR also publishes and distributes studies on topics of interest to our clients. In the same way users of fundamental research compensate the brokerage firms that provide such research (i.e., directing commissions to such brokerage firms), our clients reward us for these value-added research services.

        In addition to its role in our overall research and development effort, APR provides both sales and consulting services to our clients and prospective clients. Taken together, these activities are a key component of our overall relationship development and maintenance activities. Consulting encompasses a set of value-added services for the benefit of our clients. These services break down into four main categories: product support, development of customized pre-trade and post-trade reporting vehicles, customization of analytical software, and provision of quantitative research. In its sales capacity, APR introduces clients and prospective clients to the full range of products and services offered by our company, and provides information about features, pricing and functional specifications. The sales process includes establishment of an in-depth understanding of client practices and requirements, followed by design and presentation of integrated solutions based on our products, described below.

TCA (Post-trade Transaction Cost Analysis)

        Transaction cost measurement is critical to controlling trading costs and has become a focus of the international trading community. TCA, ITG's web-based transaction cost analysis tool, identifies, measures and analyzes trading costs, and delivers prompt daily results. Integrated with our Triton front end, TCA reports are available anytime during the trading day. Clients can generate a large variety of standard reports built into the browser-based application and customized reports can be produced based on specific client requests.

        The TCA post-trade reporting facility allows users to compare actual executed prices to user-selected benchmark prices in order to help assess trade execution quality. Over 30 benchmarks are available as part of the core product, including the volume-weighted average price, closing price, pre-trade midquote and last trade. Customized benchmarks can be produced based on client requests.

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ITG ACE (Pre-trade Agency Cost Analysis)

        ITG ACE is a mathematical model providing transaction cost forecasts for single stock executions or portfolio trades. Among other features, ITG ACE can compute optimal trading strategies that balance price impact and opportunity costs.

        ITG ACE can be used by investment professionals as a tool for cost analysis at a variety of decision points. Portfolio managers can factor expected transaction costs into portfolio rebalancing decisions, traders can assess trade execution before placing orders into the market, and managers can benchmark trading performance, handicapping trades for execution difficulty, post-trade.

        The ACE model also is incorporated in several other ITG products, including TCA, Triton, ITG/Opt, and ResRisk+.

ITG Peer Group Database

        The ITG Peer Group Database provides buyside institutions and their clients with a measure of a firm's relative trading costs. Rather than comparing costs to a fixed benchmark, the system analyzes a firm's trading costs relative to the trading costs of its peers, trading similar stocks under similar circumstances. Performance rankings also can be calculated for a firm's traders, portfolio managers, and brokers. While TCA provides clients with tactical and strategic measures of trading cost measurement, the ITG Peer Group Database provides a context for judging a firm's performance.

ITG/Opt

        ITG/Opt is a computer-based equity portfolio selection system, employing advanced optimization techniques to help investors construct portfolios that meet their investment objectives. Special features of the system make it particularly useful to "long/short" and taxable investors, as well as any investor seeking to control transaction costs. ITG/Opt is usually delivered as a "turnkey" system that includes software and, in some cases, hardware and data. Included in the service is telephone and on-site support to assist in training and integration of the system with the user's other investment systems and databases, with the goal of tightly coupling ITG/Opt to the client's workflow. In addition to its core portfolio construction capabilities, ITG/Opt has powerful back testing and batch scheduling features that permit efficient researching of new or refined investment strategies. The system, which is targeted at highly sophisticated investment applications, is offered primarily to our largest clients.

ITG Fair Value Model

        Under the Investment Company Act of 1940, mutual funds and their directors/trustees are required to make a good faith determination of the fair value of a fund's portfolio securities when market quotations are not readily available. The ITG Fair Value Model facilitates such fair value computations.

        In most instances, an open-end mutual fund's NAV is calculated based on the closing price for each security underlying the fund's portfolio. For mutual funds with foreign or thinly traded assets, however, this practice may raise concerns regarding the "fair value" of a fund's securities where the underlying securities' local markets close prior to the close of the U.S. markets and therefore do not account for market events in the U.S. or other subsequent events.

        The ITG Fair Value Model is an independent service, which provides fair value adjustment factors to assist in determining whether to adjust securities' closing prices when market quotations are not readily available. In historical tests of international funds, the ITG Fair Value Model has significantly reduced the opportunity for mutual fund market timing. Covering all major global equity markets, the

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model supplies a monitoring report for each country, with information on universe coverage and the model's historic performance. The information is updated daily and made available shortly after the U.S. market close for downloading to the client site.

ITG Risk Models

        ITG Risk Models are equity risk models that assist portfolio managers, researchers and traders in measuring, analyzing and managing risk in a variety of market environments and applications. ITG Risk Models can be used to estimate tracking error relative to benchmark portfolios, forecast total volatility of long/short portfolios, construct market/sector/industry-neutral trade lists, measure exposure and decompose risk, as well as create optimal portfolios in conjunction with an equity portfolio selection system such as ITG/Opt. U.S. Equity Risk Models are delivered for daily, weekly, and monthly horizons. Country-specific and Global Risk Models also are available.

ITG ResRisk+

        ResRisk+ is a multifaceted optimizer, enabling portfolio managers and traders to assess and control portfolio risk characteristics through any series of executions. ResRisk+ is not an automated trading tool, rather a "power assist" that provides users with intelligently constructed trading scenarios, while preserving full control over executions.

        A capability unique to ITG, ResRisk+ allows users to target the portfolio and stock-specific risks of greatest concern, adjusting controls as a portfolio's composition shifts. It is used to quantify risk levels before and after execution, construct waves of trades to minimize selected costs and risks, and move portfolios progressively closer to their benchmarks and targeted risk characteristics, including liquidity, tracking error, sector balance, and cash imbalance. As such, it is a tool for controlling risk through manager transitions, rebalancings, multiple POSIT matches, or any other transactions requiring meticulous control of portfolio characteristics.

Soft Dollar Programs

        We actively market and distribute independent third-party and our own analytical and research products and services to professional investment managers with the expectation that these managers will generate specified amounts of commission revenues. These types of arrangements are referred to as soft dollar arrangements and are pursued by ITG Europe, ITG Hong Kong, ITG Canada and, in the U.S., primarily by our Hoenig division.

        An important aspect of our soft dollar programs involves identifying independent sources of investment research and information that adds value to our customers' investment decision-making process. We seek research services from private research groups, independent analysts, information services organizations and other entities in the U.S. and overseas and collaborate with these providers to obtain products and services that assist our investment management customers in carrying out their investment management responsibilities.

        We obtain research products and services from numerous independent sources and regularly communicate the availability and suitability of these products and services to our customers. Through our relationships with independent research analysts and other service providers, we offer a wide variety of specialized and sophisticated research products and services, including fundamental research, economic research and forecasting, quantitative analysis, global research, quotation, news and database systems, fixed income research, software for securities analysis, portfolio management and performance measurement services. Many of these products and services are available directly from the research

10

analyst or service provider, as well as from other brokerage firms, including specialty firms offering only independent research and firms that also provide proprietary research.

        Our relationship with an independent research provider typically is one in which the research organization agrees to supply research products or services to our customers for a specified period of time (generally one year or less), and we agree to pay for such research. All of our research relationships are non-exclusive arrangements.

        In addition, we engage in directed brokerage arrangements with certain institutional investors, particularly hedge funds, private investment funds and investment partnerships, corporations and pension plans. A directed brokerage arrangement is a contractual arrangement between a brokerage firm and its customer whereby the broker pays certain expenses of the customer, such as custodian fees, or refunds to the customer a portion of commissions paid in consideration of the customer directing commission business to the broker. These types of arrangements are commonly known as directed brokerage because the customer instructs its money managers to direct trades for the customer's account to the broker with whom the customer has a directed brokerage arrangement. In the case of pension plans, directed brokerage arrangements often involve the payment of commission refunds to the pension plan and are often referred to as "commission recapture" programs.

ITG Europe

        ITG Europe was founded in 1998 as an institutional broker focusing on European equities and provides institutional investors with most of the products and services provided to our U.S. customer base, including POSIT, Electronic Trading Desk, Soft Dollar Programs, and research products such as TCA and ACE. Eight daily European POSIT matches are currently run dealing in equities from the UK, France, Germany, Switzerland, the Netherlands, Spain, Italy, Belgium, Sweden, Finland and Ireland. A flexible range of electronic connectivity options into POSIT and our European trading desk are provided through ITG Platform, Financial Information Exchange protocol and other tailored solutions. ITG Europe had in excess of 200 clients, with its trading capabilities covering 16 European markets.

ITG Australia

        In 1997, we launched ITG Australia Limited, an international brokerage firm that applies our cost-saving execution and transaction research technologies to Australian equity trading. ITG Australia provides institutional investors from Australia, Asia, North America and Europe dealing in Australia many of the products and services provided to our U.S. customer base, including POSIT and certain other research and dealing products such as TCA, automated trading strategies and performance attribution. ITG Australia has achieved a high degree of penetration into the institutional investor base in Australia.

ITG Canada

        In April 2000, we formed our Canadian subsidiary, ITG Canada Corp., which functions as an institutional broker-dealer in Canada focusing on Canadian equities. ITG Canada provides institutions access to many of the ITG products provided to our U.S. customer base. In June of 2001, the POSIT joint venture entered into an agreement to license a Canadian version of the POSIT system to the TSX. This Canadian version of POSIT was launched in 2002 and operates as a facility of the TSX for TSX listed securities.

        On September 28, 2001, we acquired the KastenNet business of Kasten Chase Applied Research Limited for $4.7 million. KastenNet is a direct access provider that employs proprietary technology to

11

connect its Canadian broker-dealer clients to the TSX and U.S. markets. We acquired the assets of KastenNet via KTG, a wholly-owned subsidiary of ITG.

ITG Hong Kong

        In June 2001, we formed ITG Hong Kong Ltd. ITG Hong Kong is an institutional broker-dealer focusing on applying ITG's cost saving trading technologies in the Asian markets. POSIT was launched in Hong Kong in June 2002 for the matching of Hong Kong equities. In addition to POSIT, ITG Hong Kong provides a range of research and dealing products such as automated trading strategies and TCA. ITG Hong Kong has continued to increase its client penetration in the Asian markets, with clients from Asia, North America and Europe.

        On September 3, 2002 as a result of the acquisition of Hoenig Group Inc., by ITG, the Hong Kong operations were substantially boosted by the addition of Hoenig (Far East) Limited, a Hong Kong based, wholly owned broker-dealer subsidiary. Hoenig (Far East) provides trade execution, independent research and other services in Asian markets to alternative investment funds and money managers.

        During December 2003, ITG Hong Kong Ltd. changed its name to ITG Hoenig Limited in preparation for the merger of ITG Hong Kong and Hoenig (Far East), which was subsequently carried out on February 27, 2004.

Hoenig

        On September 3, 2002, we acquired Hoenig Group Inc., which, through its operating affiliates, provides trade execution, independent research and other services to alternative investment funds and money managers globally.

        Under the terms of the transaction, Hoenig Group Inc. 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. 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.

        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 fair value of Hoenig's net assets as of September 3, 2002. Approximately $0.5 million was allocated to the "Hoenig" trade name, which is being amortized over three years. The excess of the purchase price over the estimated fair value of the net assets acquired was $56.8 million and has been allocated to goodwill. The results of operations of Hoenig have been included in our results of operations since September 3, 2002.

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Regulation

        Certain of our U.S. and non-U.S. subsidiaries are subject to various securities regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. In the U.S., the Securities and Exchange Commission ("SEC") is the federal agency responsible for the administration of the federal securities laws, with the regulation of broker-dealers primarily delegated to self-regulatory organizations ("SROs"), principally the National Association of Securities Dealers, Inc. ("NASD") and national securities exchanges. In addition to federal oversight, securities firms are also subject to regulation by state securities administrators in those states in which they conduct business. Furthermore, our non-US subsidiaries are subject to regulation by central banks and regulatory bodies in those jurisdictions where each subsidiary is authorized to do business. The SROs, central banks and regulatory bodies conduct periodic examinations of our broker-dealers subsidiaries in accordance with the rules they have adopted and amended from time to time.

ITG's principal regulated subsidiaries are discussed below.

•

ITG Inc. is a U.S. broker-dealer registered with the SEC, NASD, National Futures Association, Pacific Stock Exchange ("PCX"), Ontario Securities Commission ("OSC"), all 50 states, Puerto Rico and the District of Columbia. ITG Inc.'s principal regulator is the NASD.

•

AlterNet is a U.S. broker-dealer registered with the SEC, NASD and 12 states. AlterNet's principal regulator is the NASD.

•

ITG Execution Services is a U.S. broker-dealer registered with the SEC, NASD, NYSE, PCX, Boston Stock Exchange ("BSE"), Chicago Stock Exchange ("CHX"), Philadelphia Stock Exchange ("PHLX") and New York State.

•

ITG Canada is a Canadian broker-dealer registered with the Investment Dealers' Association ("IDA"), OSC and 6 other Provincial securities authorities (Alberta Securities Commission, British Columbia Securities Commission, Commission des valeurs mobilières du Québec, Manitoba Securities Commission, New Brunswick Securities Commission, Saskatchewan Financial Services Commission). ITG Canada is a member of the TSX and TSX Venture Exchange.

•

ITG Australia, an Australian broker-dealer, is a participating organization of the Australian Stock Exchange Limited ("ASX") and a holder of an Australian Financial Services License issued by the Australian Securities and Investment Commission. ITG Australia's principal regulator is the ASX.

•

ITG Europe refers to Investment Technology Group Limited ("ITGL") and/or its wholly owned subsidiary Investment Technology Group Europe Limited ("ITGEL"). ITGL and ITGEL are authorized by the Irish Financial Services Regulatory Authority ("IFSRA") under Section 10 of the Investment Intermediaries Act, 1995. ITGL's POSIT business is also regulated by IFSRA under the Committee of European Securities Regulators' Standards for Alternative Trading Systems. ITGEL London Branch is regulated by the Financial Services Authority for the conduct of investment business in the United Kingdom. ITGL is a member of the London Stock Exchange ("LSE"), Deutsche Boerse and Euronext.

•

ITG Hong Kong refers to ITG Hoenig Ltd. ("ITGHK") and/or its affiliate ITG Securities (Asia) Limited ("ITG Asia"). ITGHK is a participating organization of the Hong Kong Stock Exchange and a holder of a dealer's license issued by the Securities and Futures Commission of Hong Kong ("SFC"), with the SFC acting as its principal regulator.

•

At December 31, 2003 Hoenig (Far East) Limited was a participating organization of the Hong Kong Stock Exchange and a holder of a dealer's license issued by the SFC, with the SFC acting as its principal regulator. On February 27, 2004, Hoenig (Far East) ceased trading and its soft dollar balances will be transferred to ITG Hoenig Limited.

        Broker-dealers are subject to regulations covering all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of clients' funds and

13

securities, capital structure of securities firms, record-keeping and conduct of directors, officers and employees. Additional legislation, changes in the interpretation or enforcement of existing laws and rules may directly affect the mode of operation and profitability of broker-dealers. The SEC, SROs, state securities commissions and foreign regulatory authorities may conduct administrative proceedings, which can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer, its officers or employees. The principal purpose of regulation and discipline of broker-dealers is the protection of clients and the securities markets, rather than the protection of creditors and stockholders of broker-dealers.

        ITG Inc., AlterNet and ITG Execution Services are required by law to belong to the Securities Investor Protection Corporation. In the event of a U.S. broker-dealer's insolvency, the Securities Investor Protection Corporation fund provides protection for client accounts up to $500,000 per customer, with a limitation of $100,000 on claims for cash balances. ITG Canada is required by Canadian law to belong to the Canadian Investors Protection Fund ("CIPF"). In the event of a Canadian broker-dealer's insolvency, CIPF provides protection for client accounts up to 1,000,000 Canadian dollars per customer.

Regulation ATS

        From the formation of the POSIT joint venture until the adoption of Regulation ATS, POSIT operated under a "no-action" letter from the SEC staff that it would not recommend that the SEC commence an enforcement action if POSIT were operated without registering as an exchange. We are currently operating POSIT and TriAct as part of our broker-dealer operations in accordance with Regulation ATS. Accordingly, neither POSIT nor TriAct are registered with the SEC as an exchange. There can be no assurance that the SEC will not in the future seek to impose more stringent regulatory requirements on the operation of alternative trading systems such as POSIT or TriAct. In addition, certain of the securities exchanges have actively sought to have more stringent regulatory requirements imposed upon automated trade execution systems. There can be no assurance that Congress will not enact additional legislation applicable to alternative trading systems.

Net Capital Requirement

        ITG Inc., AlterNet and ITG Execution Services are subject to the Uniform Net Capital Rule (Rule 15c3-1) under the Exchange Act, 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. AlterNet and ITG Execution Services have elected to use the basic method permitted by Rule 15c3-1, which requires that they maintain minimum net capital equal to the greater of $100,000 for AlterNet and $5,000 for ITG Execution Services, or 6²/3% of aggregate indebtedness.

        At December 31, 2003, ITG Inc., AlterNet and ITG Execution Services had net capital of $107.3 million, $3.6 million and $3.9 million, respectively, of which $107.0 million, $3.5 million and $3.9 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 as of December 31, 2003 of approximately $8.9 million, $3.7 million, $27.1 million and $6.7 million, respectively.

        As of December 31, 2003, ITG Inc. held a $4.3 million cash balance on behalf of its Hoenig division in a segregated deposit account at its clearing broker, Jefferies and Company, Inc., for the benefit of customers under certain directed brokerage arrangements.

        Although we believe that the combination of our existing net regulatory capital and operating cash flows will be sufficient to meet regulatory capital requirements for our subsidiaries, a shortfall in net regulatory capital would have a material adverse effect on our business and our results of operations.

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License and Relationship with Barra

        In 1987, Jefferies & Company, Inc. and BARRA Inc. ("Barra") formed a joint venture for the purpose of developing and marketing POSIT. In 1993, Jefferies & Company, Inc. assigned all of its rights relating to the joint venture and the license agreement, discussed below, to us.

        The technology used to operate POSIT in the U.S. is licensed to us pursuant to a perpetual license agreement between ITG Inc. and the POSIT joint venture. The license agreement grants ITG Inc. the exclusive right to use certain proprietary software necessary to the continued operation of POSIT in the U.S. and a non-exclusive license to use proprietary software that operates in conjunction with POSIT.

        The license agreement permits Barra on behalf of the joint venture to terminate the agreement upon certain events of bankruptcy or insolvency or upon an uncured breach by ITG Inc. of certain covenants, the performance of which are all within our control. Although we do not believe that we will experience difficulty in complying with our obligations under the license agreement, any termination of the license agreement resulting from an uncured default would have a material adverse effect on us.

        Under the license agreement and the terms of the joint venture, Barra continues to provide certain support services to ITG Inc. in connection with the operation of POSIT, including software updates and the availability of experienced personnel. Barra also provides support for the development and maintenance of POSIT.

        Under the terms of the joint venture, Barra generally has the right to approve any sale, transfer, assignment or encumbrance of our interest in the joint venture. The POSIT joint venture may earn a royalty from licensing the POSIT technology to other businesses. The joint venture licensed to ITG Australia, ITG Europe and ITG Hong Kong the right to use the POSIT technology for crossing Australian, European and Asian equity securities. The POSIT joint venture has also licensed the TriAct technology to the Company on an exclusive basis.

        Under the license agreements, ITG Inc., ITG Australia, ITG Europe and ITG Hong Kong pay quarterly royalties to the POSIT joint venture equal to specified percentages of the transaction fees we charge on each share crossed through POSIT. For the years ended December 31, 2003, 2002, and 2001, we paid aggregate royalties to the POSIT Joint Venture of $16.7 million, $19.6 million, and $23.7 million, respectively, under the license agreements.

Competition

        The automated trade execution and analysis services that we offer compete with services offered by leading brokerage firms and transaction processing firms, and with providers of electronic trading, trade order management systems and financial information services. POSIT also competes with various national and regional securities exchanges and execution facilities, the Nasdaq National Market, ATSs and ECNs, as well as other share matching systems for trade execution services. In addition, the number of trading products that compete with our Client Site Trading Products has been increasing. Many of our competitors have substantially greater financial, research and development and other resources. We believe that our services compete on the basis of access to liquidity, transaction cost and market impact cost reduction, timeliness of execution and probability of trade completion. Although we believe that POSIT, TriAct, QuantEX, Triton, Radical, ITG Platform, SmartServers, the Electronic Trading Desk and our Analytical Products and Research services have established certain competitive advantages, our ability to maintain these advantages will require continued identification of enhancements to our products, investment in the development of our services, additional marketing activities and customer support services. There can be no assurance that we will have sufficient resources to continue to make this investment, that our competitors will not devote significantly more resources to competing services or that we will otherwise be successful in maintaining our current competitive advantages. In addition, we cannot predict the effect that changes in regulations applicable to our business may have on the competitive environment.

15

Research and Product Development

        We devote a significant portion of our resources to the development and improvement of technology-based services. Important aspects of our research and development effort include enhancements of existing software, the ongoing development of new software and services and investment in technology to enhance our efficiency. In our consolidated statements of income, we expensed research and development costs amounting to $24.1 million, $23.0 million, and $19.7 million for the years ended December 31, 2003, 2002, and 2001, respectively.

        The development of technology-based services is a complex and time-consuming process. New products and enhancements to existing products can require long development and testing periods. Significant delays in new product releases or significant problems in creating new products could negatively impact our revenues.

Dependence on Proprietary Intellectual Property; Risks of Infringement

        Our success is dependent, in part, upon our proprietary intellectual property. We generally rely upon patents, copyrights, trademarks and trade secrets to establish and protect our rights in our proprietary technology, methods and products. A third party may still try to challenge, invalidate or circumvent the protective mechanisms that we select. We cannot assure that any of the rights granted under any patent, copyright or trademark that we may obtain will protect our competitive advantages. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as the laws of the U.S.

        In the past several years, there has been a proliferation of so-called "business method patents" applicable to the computer and financial services industries. There has also been a substantial increase in the number of such patent applications filed. Under current law, U.S. patent applications remain secret for 18 months and may, depending upon where else such applications are filed, remain secret until issuance of a patent. In light of these factors, it is not economically practicable to determine in advance whether our products or services may infringe the present or future patent rights of others. We believe that factors such as technological and creative skills of our personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance are essential to establishing and maintaining a state-of-the-art technological system. There can be no assurance that we will be able to protect our technology from disclosure or that others will not develop technologies that are similar or superior to our technology. It is likely that from time to time, we will receive notices from others of claims or potential claims of intellectual property infringement or we may be called upon to defend a joint venture partner, customer, vendee or licensee against such third party claims. Responding to these kinds of claims, regardless of merit, could consume valuable time, result in costly litigation or cause delays, all of which could have a material adverse effect on us. Responding to these claims could also require us to enter into royalty or licensing agreements with the third parties claiming infringement. Such royalty or licensing agreements, if available, may not be available on terms acceptable to us.

Employees

        As of December 31, 2003, we employed 607 personnel globally. Our U.S. Operations employed 431 personnel and our International Operations employed 176 personnel at that date.

Availability of Public Reports

        Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are available without charge on our web site at http://www.itginc.com/investor. You may also obtain copies of our reports without charge by writing to: Investment Technology Group, Inc., 380 Madison Avenue, New York, NY, 10017, attn: Investor Relations.

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Item 2.    Properties

U.S. Operations

        Our principal offices are located at 380 Madison Avenue in New York, New York. We currently lease the entire 4^th floor and a portion of the 5^th and 7^th floors or approximately 83,400 square feet of office space. The fifteen-year lease terms for the 4^th and 5^th floors and the thirteen-year lease term for the 7^th floor expire in January 2013.

        We maintain a research, development and technical support services facility in Culver City, California where we occupy approximately 78,000 square feet of office space. We lease the California facility pursuant to lease agreements that expire in December 2005.

        Additionally, we have a backup and regional office in Boston, Massachusetts where we occupy approximately 21,300 square feet of office space. The ten-year lease term for this space expires in April 2005.

        The Hoenig division maintains an office in Rye Brook, New York where we occupy approximately 28,000 square feet of office space. The lease agreement expires in December 2010.

International Operations

        We have a research facility in Herzliya, Israel where we occupy approximately 7,800 square feet of office space. We lease the Israel space pursuant to a seven-year lease agreement that expires in December 2008.

        ITG Canada has offices in Toronto, Canada where we occupy approximately 7,800 square feet of office space pursuant to two leases expiring in December 2007 and August 2008, respectively. In addition, KTG has approximately 4,800 square feet of office space under a lease expiring in May 2013.

        ITG Europe has offices in Dublin, Ireland and London, England where we occupy approximately 4,000 and 5,000 square feet of office space, respectively. We lease the Dublin space pursuant to a twenty-year lease agreement that expires in July 2018 and we lease the London space pursuant to a seven-year lease agreement that expires in July 2005.

        ITG Australia has trading facilities in Melbourne and Sydney, Australia where we occupy approximately 4,600 and 2,700 square feet of office space, respectively. We lease the Melbourne space pursuant to a three-year lease agreement that expires in June 2005 and we lease the Sydney space pursuant to a five-year lease agreement that expires in February 2006.

        Our Hong Kong operations occupy approximately 6,800 square feet of office space. The lease agreement expires in June 2004. We are currently negotiating with the landlord to extend our lease for an additional three years.

Item 3.    Legal Proceedings

        Except as described below, we are not a party to any pending legal proceedings other than claims and lawsuits arising in the ordinary course of business. We do not believe these proceedings will have a material adverse effect on our financial position or results of operations.

        In March 2004, we were served with a complaint by John Wald and Pendelton Trading Systems, Inc. (collectively "Pendelton") asserting that certain features of ITG ACE and our Limit Order Model infringe Pendelton's U.S. Patent No. 6,493,682 (the "Pendelton Patent"). It is our position that we are not infringing the Pendelton Patent and that such claim is without merit. We plan to vigorously defend such claim. However, intellectual property disputes are subject to inherent uncertainties and there can be no assurance that such claim will be resolved favorably to us or that it would not have a material adverse effect on us.

Item 4.    Submission of Matters to a Vote of Security Holders

        There were no matters submitted to a vote of security holders during the fourth quarter ended December 31, 2003.

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PART II

Item 5.    Market for Registrant's Common Stock and Related Stockholder Matters

Common Stock Data

        Our common stock trades on the New York Stock Exchange under the symbol "ITG".

        The following table sets forth, for the periods indicated, the range of the high and low closing sales prices per share of our common stock as reported on the New York Stock Exchange.

	High	Low
2002
First Quarter	54.15	37.51
Second Quarter	51.23	30.31
Third Quarter	37.40	27.87
Fourth Quarter	33.36	21.31
2003
First Quarter	24.27	11.06
Second Quarter	19.29	11.51
Third Quarter	21.12	16.50
Fourth Quarter	20.80	15.61

        On March 2, 2004, the closing sales price per share for our common stock as reported on the New York Stock Exchange was $15.55. On March 2, 2004, we believe that our common stock was held by approximately 10,500 stockholders of record or through nominees in street name accounts with brokers.

        In the beginning of 2003, we had a remaining Board of Directors authorization to repurchase an aggregate of 3.0 million additional shares of our common stock pursuant to our share repurchase program. The share repurchase program was effected from time to time, depending on market conditions and other factors, through open market purchases and privately negotiated transactions. As of December 31, 2003, we repurchased all shares permitted under this share repurchase program authorization.

        During the first quarter of 2004, our Board of Directors authorized the repurchase of 3.0 million additional shares of our common stock and we have 2.0 million shares remaining for repurchase under such authorization.

        Our dividend policy is to retain earnings to finance the operations and expansion of our businesses. We do not anticipate paying any cash dividends on our common stock at this time.

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Item 6.    Selected Financial Data

        The selected Consolidated Statement of Income data and the Consolidated Statement of Financial Condition data presented below as of and for each of the years in the five-year period ended December 31, 2003, are derived from our consolidated financial statements, which financial statements have been audited by KPMG LLP, our independent auditors. Earnings per share information prior to 2001 have been retroactively restated to reflect our three-for-two stock split in December 2001. Such selected financial data should be read in connection with the consolidated financial statements contained in this report.

		Year Ended December 31,
		2003			2002			2001			2000			1999
		(In thousands, except per share amounts)
Consolidated Statement of Income Data:
Total revenues		$	333,992		$	387,581		$	377,407		$	310,405		$	232,044
Total expenses			264,291			260,328			241,295			197,409			149,183
Income before income taxes			69,701			127,253			136,112			112,996			82,861
Income tax expense			27,748			53,443			57,217			49,403			37,435
Net income		$	41,953		$	73,810		$	78,895		$	63,593		$	45,426
Basic earnings per share		$	0.89		$	1.52		$	1.65		$	1.37		$	0.99
Diluted earnings per share		$	0.89		$	1.51		$	1.62		$	1.34		$	0.95
Basic weighted average number of common shares outstanding (in millions)			47.0			48.5			47.9			46.5			46.0
Diluted weighted average number of common shares outstanding (in millions)			47.0			49.0			48.7			47.3			47.9
Consolidated Statement of Financial Condition Data:(1)
Total assets		$	649,848		$	594,254		$	418,478		$	281,712		$	179,488
Total stockholders' equity		$	361,303		$	356,509		$	317,944		$	210,416		$	115,652
Other Selected Financial Data:
Revenues per trading day by U.S. Operations (in thousands)		$	1,086		$	1,373		$	1,416		$	1,232		$	921
Revenues per trading day by Non U.S. Operations (in thousands)			239			165			106			—			—
Shares executed per trading day by U.S. Operations (in millions)			81			98			91			65			46
Average number of employees			617			643			524			368			293
Total number of U.S. customers(2)			1,014			1,085			636			613			572
	POSIT(2)		544			559			551			521			492
	Electronic Trading Desk(2)		452			449			444			418			411
	Client Site(3)		245			290			258			254			240
	Soft Dollar(2)		436			423			—			—			—
Total number of Non U.S. customers(2)			517			457			292			34			—
Total number of U.S. customer Client Site installations(1,3)			673			658			591			480			399
Return on average stockholders' equity			11.5	%		21.2	%		30.4	%		38.1	%		34.4	%
Book value per share(4)		$	8.08		$	7.50		$	6.54		$	4.44		$	2.57
Tangible book value per share(4)		$	6.25		$	5.76		$	6.03		$	4.34		$	2.55
Price to earnings ratio using diluted earnings per share			18.1			14.8			24.1			20.7			19.9

(1)

Numbers are as of December 31^st of each year.

(2)

Total POSIT, Electronic Trading Desk and soft dollar customers include those customers who have generated revenues in excess of $1,000 per annum.

(3)

Client Site customers and customer installations include those customers and installations that have either (a) traded 100,000 shares in the last quarter of such calendar year or (b) traded shares on at least 12 different days during such quarter.

(4)

Share and earnings per share information have been retroactively restated to reflect the Company's three-for-two stock split in December 2001.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion and analysis should be read in conjunction with our consolidated financial statements, including the notes thereto.

Executive Overview

        We have 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 agency brokerage businesses in Australia, Canada, Europe and Hong Kong, as well as a research facility in Israel.

        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:

        Revenues primarily consist of commissions from customers' use of our trade execution and analytical and research 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.

        Expenses consist of compensation and employee benefits, transaction processing, software royalties, occupancy and equipment, telecommunications and data processing services, restructuring charges, and other general and administrative expenses.

        Our U.S. operations faced a challenging economic environment in 2003 with lower levels of portfolio turnover and continued pricing pressure in the U.S. equity markets. Total institutional commission dollars paid in the U.S. equity market have declined approximately 15% versus the prior year with a significant portion of the institutional order flow allocated for fundamental research commitments, soft dollar obligations or directed for commission recapture. The area that has suffered the most from this decline is the execution-only commission pool, which is ITG's historical base. In addition to difficult market conditions, 2003 brought an increase in competition from electronic execution providers and from traditional broker-dealers. In a year where market volatility reached historic lows, large broker-dealers aggressively used capital to compete for the portfolio trades which have been traditionally a core component of both POSIT and our Electronic Trading Desk. In this environment, ITG's U.S. domestic revenues declined 21%. Excluding the incremental revenues generated by Hoenig since its acquisition on September 3, 2002, ITG's U.S. domestic revenues declined by 28%.

        Our international operations fared better, achieving record revenues of $60.2 million for 2003. According to London Stock Exchange ("LSE") statistics, the value of the U.K. equity customer business in the U.K. grew a modest 1.6% for the year. Our European business grew at a much faster pace, with ITG Europe's market share of LSE equity customer business value traded for the year increasing to 1.44% from 1.12% in 2002. This increase in market share was attributable to a range of factors including winning new clients with TCA, developing our portfolio trading services and generally increasing POSIT executions. In Canada, our second largest international business after Europe, the volume of shares traded on the Toronto Stock Exchange increased to 55.6 billion shares in 2003 (from 46.4 billion in 2002), with ITG Canada increasing its market share to 2.6% of value traded on the TSX from 2.2% in 2002.

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        The year ended December 31, 2003 includes the benefit of a full year of operating results for Hoenig following its September 3, 2002 acquisition. In 2003 Hoenig contributed an additional $24.3 million and $4.6 million of revenues and income before income taxes, respectively.

        Our 2003 results reflect the following non-recurring items:

i.

Resolution of an Internal Revenue Service examination of research and development tax credits taken on ITG's federal income tax returns prior to 1996. As a result of this settlement, we reversed approximately $1.9 million of tax reserves into income, together with $454,000 of related interest expense that had been accrued as a pre-tax item within "other general and administrative expenses."



ii.

Impairment charges of $2.7 million recorded during 2003 relating to certain assets whose fair market value was lower than our cost basis.

The impact of the 2003 non-recurring items was a $2.3 million decrease in pretax income and a $0.3 million increase in after-tax net income. Due to rounding, there was no impact on reported earnings per share for the year.

        For comparative purposes, our 2002 results also included a non-recurring item. In December 2002, we recorded a pre-tax restructuring charge of $5.9 million, which net of the related tax benefit, approximated $0.08 per diluted share for the year. The 2002 restructuring charge consisted of severance and related costs for 72 employees.

Certain Factors That May Affect Our Results of Operations

        While our management's long-term expectations are optimistic, we may face risks or uncertainties that may affect our results of operations. The following conditions, among others, should be considered in evaluating our business and growth outlook.

Financial Market Conditions and General Economic and Political Conditions

        The demand for our securities brokerage and related services is directly affected by factors such as economic and political conditions that may lead to decreased trading activity and prices in the securities markets generally. The future economic environment may be subject to periodic economic downturns, such as recessions, as well as geopolitical unrest, war and acts of terrorism in regions where we do business or otherwise, which could also result in reduced trading volumes and prices, which could materially harm our business, financial condition and operating results. Over the last year, the institutional equities market in the U.S. have also experienced continued pricing pressure on commission revenues. Our business is materially affected by conditions in both domestic and foreign financial markets. We anticipate a continuation of the weak pricing environment in the immediate future.

Decreases in Trading Volumes or Market Prices

        Declines in the volume of securities trading and in market liquidity generally result in lower revenues from our POSIT, Client Site Trading Products and Electronic Trading Desk products. In addition, our trading commissions outside the U.S. and Canada are based on the value of transactions (rather than volume based), which would be adversely affected by price declines. Our profitability would be adversely affected by a decline in trading revenues because a significant portion of our costs are fixed. For these reasons, decreases in trading volume or securities prices could have a material adverse effect on our operating results.

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Regulation

General

        The securities markets and the brokerage industry in which we operate are subject to extensive regulation in the United States and other jurisdictions around the world. We face the risk of significant intervention by regulatory authorities in all jurisdictions in which we conduct business. In our case, the impact of regulation extends beyond "traditional" areas of securities regulation, such as disclosure and prohibitions on fraud and manipulation by market participants, to the regulation of the structure of markets.

        The securities industry has been subject to several fundamental regulatory changes. In the future, the industry may become subject to new regulations or changes in the interpretation or enforcement of existing regulations, which may adversely affect our business. The markets for equity securities have been subject to the most significant regulatory changes. We cannot predict the extent to which any future regulatory changes can affect our business.

        On February 26, 2004, the SEC published proposed "Regulation NMS" for public comment. If adopted Regulation NMS would incorporate four substantive rules related to the regulatory structure of the U.S. equity markets. Subject to expressly delineated exceptions, Proposed Rule 611 of Regulation NMS would require national securities exchanges, national securities associations and order execution facilities (which would include, among other persons, broker-dealers such as ITG Inc. that execute orders internally by crossing orders as agent) to establish, maintain, and enforce policies and procedures reasonably designed to prevent the execution of "trade-throughs." For purposes of the proposed rule, a trade-through means the purchase (or sale) of a security listed on the NYSE, American Stock Exchange ("Amex") or Nasdaq at a price that is higher (lower) that the best offer (best bid) disseminated through the market at the time the transaction was executed. Proposed Rule 610 would impose new standards governing access to quotations and the execution of orders for equity securities by requiring market centers and market participants that make their quotes publicly available through a national securities exchange or national securities association to permit all market participants access to their limit order books on a non-discriminatory basis. The proposal also would limit the fees that market participants could charge for access to their quotations to a de minimis amount, and require SROs to reduce the incidence of so-called "locked" and "crossed" markets. Proposed Rule 612 generally would prohibit market participants from accepting, ranking or displaying orders, quotes or indications of interest in increments finer than one penny. The proposed rule would not prohibit systems, such as ITG Inc.'s POSIT system, that match unpriced orders at the midpoint of the national best bid and offer from executing such orders in share prices of less than one cent. Finally, Regulation NMS would amend various national market system joint industry quotation and trade reporting plans to modify the formulas for allocating net income among the exchanges and national securities associations that are the participants of such plans. ITG cannot predict whether or when any or all of Proposed Regulation NMS, either as currently proposed or as may be later modified by the SEC, ultimately will be adopted by the SEC. As a result, we cannot predict the extent to which any future regulatory changes associated with Regulation NMS would affect our business.

Regulation ATS

        Before Regulation ATS went into effect on April 21, 1999, we operated POSIT pursuant to a "no-action" letter from the SEC staff which stated that it would not commence an enforcement action if POSIT were operated without registering as an exchange. We are currently operating POSIT and TriAct as part of our broker-dealer operations in accordance with Regulation ATS. Accordingly, neither POSIT nor TriAct is registered with the SEC as an exchange. There can be no assurance that the SEC will not in the future seek to impose more stringent regulatory requirements on the operation of alternative trading systems such as POSIT and TriAct. There can be no assurance that Congress will not enact additional legislation applicable to alternative trading systems. Similarly, the non-U.S. POSIT

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systems are subject to various regulations in the jurisdictions in which they operate, changes to which can have a negative impact on each POSIT system's ability to operate.

Net Capital Requirement

        Each of our broker-dealer subsidiaries is subject to regulatory capital requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. The failure by any of these subsidiaries to maintain its required regulatory capital may lead to suspension or revocation of its broker-dealer registration and its suspension or expulsion by U.S. or international regulatory bodies, and ultimately could require its liquidation. We do not currently maintain any credit facilities in the event of a regulatory capital shortfall.

Soft Dollars

        In the U.S., the provision of research to investment managers in consideration of commissions is conducted in reliance upon the safe harbor provided under Section 28(e) of the Securities Exchange Act of 1934. The safe harbor protections of Section 28(e) apply equally to the provision of independent third-party research, as well as proprietary research.

        The SEC from time to time has been urged by competitors of the Company and others to seek Congressional reconsideration of Section 28(e) or alter its scope, including modifying the nature of Section 28(e) from a safe harbor to a mandatory regime for the use of soft dollars applicable to all investment advisors (including those not registered with the SEC). From time to time, other regulatory or governmental entities, as well as industry groups, have issued statements, reports and best practices regarding soft dollars. Any regulatory changes or industry best practices that narrow the definition of research provided in Section 28(e) or limit the scope, or modify the nature, of the Section 28(e) safe harbor, or impose onerous record-keeping, reporting or other obligations regarding soft dollar and directed brokerage arrangements could have a material adverse effect on the Hoenig Division's operations.

Competition

        The financial services industry generally, and the securities brokerage business in which we engage in particular, is extremely competitive, and we expect it to remain so. The brokerage and related services offered by us compete with services provided by leading brokerage firms and transaction processing firms and with providers of electronic trading and trade order management systems and financial information services. POSIT also competes with various national and regional securities exchanges and execution facilities, the Nasdaq National Market, ATSs and ECNs for trade execution services. Many of our competitors have substantially greater financial, technical, marketing and other resources which, among other things, enable them to compete with the services we provide on the basis of price, and a willingness to commit their firms' capital to service a client's trading needs on a principal, rather than on an agency, basis. Many of them offer a wider range of services, have broader name recognition and have larger customer bases than we do. Outside the United States, in addition to our U.S. competitors with international capabilities, we compete with non-U.S. financial service companies that may also have long-standing, well-established relations with their clients, some of which also hold dominant positions in their trading markets. We compete on the basis of a number of factors, including access to liquidity, transaction execution, our products and services, innovation, reputation and price.

Insufficient System Capacity or System Failures

        Our business relies heavily on the computer and communications systems supporting our operations. Peak trading times and times of unusual market volatility could cause our systems to operate slowly or even fail for periods of time as could general power or telecommunications failures or natural disasters, despite the contingency plans we have in place. Moreover, we have varying levels

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of contingency plan coverage among our non-U.S. subsidiaries. The presence of computer viruses can also cause failure of our systems. As our business expands, we will need to expand our systems to accommodate an increasing volume of transactions. If any of our systems do not operate properly or are disabled, we could incur financial loss, liability to clients, regulatory intervention or reputational damage. System failure or degradation could lead our customers to file formal complaints with industry regulatory organizations, initiate regulatory inquiries or proceedings, file lawsuits against us, trade less frequently through us or cease doing business with us.

Rapid Changes in Technology

        Due to the high demand for technology-based services in the securities industry, we are subject to rapid technological change and evolving industry standards. Also, customer demands become greater and more sophisticated as the dissemination of information to customers increases. If we are unable to anticipate and respond to the demand for new services, products and technologies in a timely and cost-effective manner and to adapt to the technological advancements and changing standards, we will be less able to compete effectively, which could have a material adverse effect on our business.

Credit Risk

        We are exposed to credit risk from third parties that owe us money, securities, or other obligations, including our customers and trading counterparties. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. Substantially all of the clearing and depository operations for our broker-dealer subsidiaries are performed pursuant to clearing agreements with their clearing brokers, who review the credit risk of trading counterparties, as deemed necessary. Volatile securities markets, credit markets and regulatory changes increase our exposure to credit risk, which could adversely affect our financial condition and operating results.

License and Relationship with Barra

        We have a perpetual license from the POSIT joint venture, which is a joint venture we own with Barra. The license grants ITG Inc. the exclusive right to use certain proprietary software necessary to the continued operation of POSIT in the U.S. and a non-exclusive license to use proprietary software that operates in conjunction with POSIT. The license agreement permits Barra on behalf of the joint venture to terminate the agreement upon certain events of bankruptcy or insolvency or upon an uncured breach by ITG Inc. of certain covenants the performance of which are all within our control. Although we do not believe that we will experience difficulty in complying with our obligations under the license agreement, any termination of the license agreement resulting from an uncured default would have a material adverse effect on us. The POSIT joint venture also licenses the right to use the POSIT technology for crossing Australian, European and Asian equity securities to ITG Australia Limited, ITG Europe and ITG Hong Kong. These licenses contain substantially the same default and termination provisions as the U.S. license.

Infrastructure and Research

        In connection with our research and product development activities, as well as capital expenditures to improve other aspects of our business, we incur substantial expenses that do not vary directly, at least in the short term, with fluctuations in securities transaction volumes and revenues. In the event of a material reduction in revenues, we may not be able to reduce such expenses quickly and, as a result, we could experience reduced profitability or losses. Conversely, sudden surges in transaction volumes can result in increased profit and profit margin. To ensure that we have the capacity to process projected increases in transaction volumes, we have historically made substantial capital and operating expenditures in advance of such projected increases, including during periods of low transaction volumes. In the event that such growth in transaction volumes does not occur or we are not able to

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bring a research or product idea to fruition (or do not accurately forecast the demand for any such product), the expenses related to such investments could cause reduced profitability or losses.

Dependence on Major Customers

        Changes in our customer base (which includes institutional investors, portfolio managers, hedge funds and broker-dealers) can materially affect our profitability and net income. A substantial portion of our revenue is derived from our 10 largest customers. The loss of any significant customer could have a material adverse effect on our results of operations. In addition, the loss of significant POSIT customers or a significant reduction in liquidity provided by a customer could result in lower share volumes of securities submitted to POSIT systems around the world, which may adversely affect the liquidity of the systems, reducing their attractiveness to our customers and adversely affect our trading volumes, operating results and financial condition.

        The chart below sets forth our dependence on our three largest clients individually, as well as on our ten largest clients in the aggregate, expressed as a percentage of total revenues:

	% of Total Consolidated Revenue
	2003		2002		2001
Largest customer	5.4	%	4.4	%	4.8	%
Second largest customer	4.0		3.8		4.6
Third largest customer	3.1		3.4		3.9
Ten largest customers	28.2		26.8		29.6

Employee Misconduct or Errors

        Employee misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. It is not always possible to deter employee misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of customers or improper use of confidential information.

        Similarly, employee errors in recording or executing transactions for customers can cause us to enter into transactions that customers may disavow and refuse to settle. These transactions expose us to risk of loss, which can be material, until we detect the errors in question and unwind or reverse the transactions. As with any unsettled transaction, adverse movements in the prices of the securities involved in these transactions before we unwind or reverse them can increase this risk.

Dependence on Third Party Suppliers for Key Services

        We depend on a number of third parties to supply elements of our trading systems, computers, communication infrastructure and other equipment, and related support and maintenance. We cannot be certain that any of these providers will be able to continue to provide these services in an efficient and cost-effective manner or that they will be able to meet our expanding needs. If we are unable to make alternative arrangements for the supply of these services in the event of a disruption in the services, our business, financial condition and operating results could be materially harmed.

Risks of Infringement of our Intellectual Property Rights

        We rely upon patents, copyrights, trademarks and trade secrets to establish and protect our rights in our proprietary technology, methods and products. However, a third party may still try to challenge, invalidate or circumvent the mechanisms we select to protect our rights. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as the laws of the U.S.

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        In the past several years, there has been a proliferation of so-called "business method patents" applicable to the computer and financial services industries. Under current law, U.S. patent applications remain secret for 18 months and may, depending upon where else such applications are filed, remain secret until issuance of a patent. Thus it is not economically practicable to determine in advance whether our products or services may infringe the present or future patent rights of others. There can be no assurance that we will be able to protect our technology from disclosure or that others will not develop technologies that are similar or superior to our technology. It is likely that from time to time we may also face claims that use of technology material to our business operations infringes on rights of third parties or we may be called upon to defend a joint venture partner, customer or licensee against such third party claims, which could consume valuable time, result in costly litigation or cause delays, all of which could have a material adverse effect on our business.

Results of Operations

        The table below sets forth certain items in the consolidated statements of income expressed as a percentage of revenues for the periods indicated:

			Year Ended December 31,
			2003		2002		2001
Revenues:
	POSIT		37.9	%	40.0	%	49.3	%
	Electronic Trading Desk		35.7		28.8		23.8
	Client Site Trading Products		23.2		28.7		24.9
Other			3.2		2.5		2.0
Total revenues:			100.0		100.0		100.0
Expenses:
	Compensation and employee benefits		35.4		29.5		27.5
	Transaction processing		13.9		13.0		13.1
	Software royalties		5.1		5.1		6.3
	Occupancy and equipment		9.3		7.2		5.5
	Telecommunications and data processing services		5.4		4.5		4.0
	Net gain loss on long-term investments		—		—		(0.1	)
	Restructuring charges		—		1.5		—
	Other general and administrative		10.0		6.4		7.6
		Total expenses	79.1		67.2		63.9
Income before income tax expense			20.9		32.8		36.1
Income tax expense			8.3		13.8		15.2
Net income			12.6		19.0		20.9

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Earnings Per Share

        Basic earnings per share for 2003 and 2002 were $0.89 and $1.52, respectively. Diluted earnings per share decreased 41%, from $1.51 to $0.89. Our 2003 and 2002 results included non-recurring items discussed above in "Executive Overview".

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        The following table sets forth the components of revenues, by segment, included in the statement of income with percent change information for the periods indicated (dollars in thousands):

		Year Ended December 31,
									% Change
		2003		2002		Change
U.S. Operations		$	273,781	$	346,040	$	(72,259	)	(21	)
International Operations			60,211	$	41,541		18,670		45
	Consolidated	$	333,992	$	387,581	$	(53,589	)	(14	)

Revenues

        Consolidated revenues decreased 14% to $334.0 million despite the 45% increase in revenues achieved by our international operations.

Revenues by segment—U.S. operations

        Revenues in our U.S. operations decreased 21% to $273.8 million during 2003 reflecting lower portfolio turnover and the highly competitive environment which continued throughout the year. Our U.S. operations benefited from the full year of Hoenig ownership (following its acquisition on September 3, 2002). In 2003 Hoenig contributed an additional $20.4 million of revenues to our U.S. operations.

        Key volume and revenue performance indicators for the last two years, as well as percent change information, for our U.S. operations are as follows:

U.S. Operations, excluding Hoenig(a)	2003		2002		Change			% Change
Total trading volume (in billions of shares)		18.6		24.1		(5.5	)	(23	)
Trading volume per day (in millions of shares)		74.0		95.7		(21.7	)	(23	)
Product revenues per trading day ($ million)	$	0.96	$	1.32	($	0.36	)	(27	)
Average revenue per share ($)	$	0.0129	$	0.0138	($	0.0009	)	(7	)
U.S. market trading days		252		252		—		—

(a)

Hoenig excluded for purposes of year to year comparability.

        There were 252 U.S. trading days in both 2003 and 2002. Product Revenues per trading day from our U.S. operations decreased 27% driven by a volume decrease of 23% coupled with a decline in average revenue per share. Specifically, trading volume fell to 18.6 billion shares from 24.1 in 2002, while our average revenue capture decreased almost 7% to $0.0129 per share in 2003.

Revenues by segment—International operations

        In 2003, product revenues from our international operations grew $16.0 million or 46%, which included a $4.6 million benefit from exchange rate fluctuations as a result of a weakened U.S. Dollar relative to the currencies in our international markets. From an operational perspective, we grew product revenues $11.4 million. This increase included the full year benefit of Hoenig ownership which added $3.8 million. Our European product revenue grew $6.9 million, or 38%, to 25.2 million. Our Canadian product revenues increased by $4.3 million, or 44% to $14.1 million, reflecting increased installations of our client-site trading products and analytical products such as ITG ACE and TCA. In Australia, we reported product revenues of $6.2 million, an increase of 22% from 2002. In Hong Kong, we reported product revenues of $5.3 million compared with $1.7 million in 2002. While our Hong Kong operations began generating revenues in June 2002, $3.2 million of the growth was the result of the full year benefit of Hoenig.

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Revenues by product—POSIT

        Consolidated POSIT revenues decreased $28.3 million, or 18%, principally reflecting lower U.S. share volume, as indicated in the table below. This was partially offset by a 30% increase in European POSIT revenues, resulting from growth in the contract value of shares crossed, since commissions are calculated on the basis of the underlying contract value of transactions rather than on a per share basis.

POSIT		2003		2002		Change			% Change
U.S. POSIT system:
	Shares crossed (in billions)		6.4		7.7		(1.3	)	(17	)
	Average shares per day (in millions)		25.3		30.5		(5.2	)	(17	)
European POSIT system:
	Contract value of shares crossed ($ billions)	$	20.6	$	14.8	$	5.8		39

Revenues by product—Electronic Trading Desk

        Electronic Trading Desk revenues increased $7.7 million, or 7% in 2003. Our U.S. Electronic Trading Desk revenues decreased $4.2 million or 5%, despite Hoenig's U.S. business contributing an additional $18.2 million of U.S. Electronic Trading Desk revenues. In our International Operations, Electronic Trading Desk revenues increased $11.8 million with our Canadian, European and Australian trading desk businesses growing by $4.2 million, $2.8 million and $1.1 million, respectively. Our Asian trading desk business contributed an additional $3.7 million of revenue of which $3.2 million was added by Hoenig. Electronic Trading Desk revenues per trading day increased by 7%, to $474,000 in 2003.

        In marketing our program trading services, we package our Electronic Trading Desk services with POSIT. Our clients receive blended pricing for executions as a way to provide a single price for an entire portfolio of equity transactions regardless of the execution venue. In the U.S., our combined POSIT and Electronic Trading Desk rate per share declined $0.0016, or 9% to $0.0168 in 2003 reflecting competitive pricing in the program trading business.

Revenues by product—Client Site Trading Products

        Client Site Trading Product revenues, which are only generated by our U.S. Operations, decreased 30%. Share volumes decreased 28% while our rates per share decreased 3%. More than 75% of the revenue decline resulted from a reduction in business with several high volume, low commission clients. During the second half of 2003, we began replacing our QuantEX and ITG Platform products with our next generation product offerings, Triton and Radical.

Other Revenues

        Other revenues increased $0.9 million, or 9%, to $10.4 million in 2003 due to higher (i) subscription revenues for routing and other services in the U.S. and direct access connectivity in Canada from KTG and (ii) income/loss from positions taken by ITG Canada as customer facilitations (a customary practice in the Canadian marketplace) and income from same day Canadian interlisted arbitrage trading. These increases were partially offset by a decline in our global investment income due to lower interest rates.

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Expenses

        The following table sets forth the components of expenses and income taxes, by segment, included in the statement of income with percent change information for the periods indicated (dollars in thousands):

	Year Ended December 31,
								% Change
	2003		2002		Change
Consolidated
Compensation and employee benefits	$	118,070	$	114,402	$	3,668		3
Transaction processing		46,316		50,459		(4,143	)	(8	)
Software royalties		16,894		19,643		(2,749	)	(14	)
Occupancy and equipment		31,149		28,017		3,132		11
Telecommunications and data processing services		18,334		17,453		881		5
Restructuring charges		—		5,874		(5,874	)	(100	)
Other general and administrative		33,528		24,480		9,048		37
Income taxes		27,748		53,443		(25,695	)	(48	)
U.S. Operations
Compensation and employee benefits		88,515		89,144		(629	)	(1	)
Transaction processing		31,668		41,836		(10,168	)	(24	)
Software royalties		14,659		18,468		(3,809	)	(21	)
Occupancy and equipment		24,605		22,390		2,215		10
Telecommunications and data processing services		12,768		12,459		309		2
Restructuring charges		—		4,631		(4,631	)	(100	)
Other general and administrative		27,305		19,193		8,112		42
Income taxes		26,008		52,848		(26,840	)	(51	)
International Operations
Compensation and employee benefits		29,555		25,258		4,297		17
Transaction processing		14,648		8,623		6,025		70
Software royalties		2,235		1,175		1,060		90
Occupancy and equipment		6,544		5,627		917		16
Telecommunications and data processing services		5,566		4,994		572		11
Restructuring charges		—		1,243		(1,243	)	(100	)
Other general and administrative		6,223		5,287		936		18
Income taxes		1,740		595		1,145		192

        During 2003, foreign exchange rate fluctuations contributed approximately $6 million to the overall increase in expenses for our international operations.

        Compensation and employee benefits:    Our compensation expense increase of $3.7 million was mainly driven by (i) the full year impact of our acquisition of Hoenig, (ii) the expensing of stock based compensation and (iii) the impact of exchange rate fluctuations, specifically the weaker U.S. Dollar, increasing the relative costs of compensation in our International operations. These increases were offset by savings achieved in 2003 following our December 2002 restructuring.

        U.S. compensation expense decreased $0.6 million despite the inclusion of (i) Hoenig, which added an incremental $8.4 million to U.S. compensation costs in 2003, (ii) the expensing of performance based stock options of $1.2 million in 2003 and (iii) severance costs due to additional headcount reductions in 2003. These additional costs were more than offset by the savings achieved in 2003 from our December 2002 restructuring (approximately $8.4 million), as well as declines in other benefits such

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as performance based bonuses in 2003. Weighted average U.S. headcount (excluding Hoenig, for comparability) in 2003 was 395 compared to 450 in 2002.

        Total international compensation expense increased $4.3 million primarily from (i) the Hoenig acquisition, which accounted for $1.5 million of the increase, (ii) exchange rate fluctuation ($2.6 million), (iii) additional severance for international staffing reductions in 2003, and (iv) increases in compensation in Canada and Europe. These additional costs were partially offset by the headcount reduction as part of the December 2002 restructuring.

        Transaction processing:    Consolidated transaction processing expenses decreased $4.1 million in 2003.

        U.S. transaction processing costs declined by $10.2 million in 2003 driven primarily by rate decreases from our clearance and settlement, and execution providers, as well as the overall decline in our share volume. These lower rates included ECN costs, which declined $3.2 million reflecting a 32% decrease in our ECN rates in 2003. These savings were offset by the inclusion of additional Hoenig transaction processing costs of $3.5 million.

        International transaction processing costs increased $6.0 million in 2003 primarily from (i) the increase in share volume and contract value of transactions in 2003, (ii) exchange rate fluctuation ($1.3 million) and (iii) the inclusion of Hoenig ($1.3 million).

        Software royalties:    Software royalties principally relate to POSIT royalties, which are contractually fixed as a percentage of POSIT revenues. Accordingly, declines in our consolidated POSIT revenues resulted in declines in software royalty expense.

        Occupancy and equipment:    Consolidated occupancy and equipment costs, which are primarily comprised of fixed costs, increased $3.1 million in 2003 reflecting (i) the inclusion of Hoenig ($1.1 million), (ii) exchange rate impact of $0.6 million, (iii) lease related expenses, including escalation and taxes, and (iv) management expenses for business continuity services.

        Telecommunications and data processing services:    Consolidated telecommunications and data processing services increased $0.9 million, or 5% largely due to the inclusion of Hoenig costs ($0.8 million).

        Restructuring charges:    In order to align our infrastructure with expected levels of trading volume, we terminated 72 employees in December 2002, including 54 personnel employed in our U.S. Operations and 18 personnel employed in our International Operations. As a result of this decision, we recorded a $5.9 million pretax charge consisting of severance and related expenses for the 72 employees. There were no such charges in 2003.

        Other general and administrative:    Consolidated general and administrative costs increased $9.0 million in 2003 primarily due to:

(i)

Write down of the carrying value of two New York Stock Exchange seats that we obtained as part of the Hoenig acquisition ($2 million);



(ii)

Write down of Stock Exchange Trading Rights in Hong Kong which we also obtained in the Hoenig acquisition ($0.5 million);



(iii)

The inclusion of a full year of Hoenig costs ($2.9 million) in 2003;



(iv)

Higher software amortization ($2.6 million) primarily due to our releases of new versions of ITG/Opt and Triton in late 2002;



(v)

Exchange rate fluctuations;

30

(vi)

Increases in corporate insurance, particularly directors and officers insurance;



(vii)

Higher consulting costs related to business and product marketing, information systems and other non-recurring consulting activities and short-term projects including the mandates of the Sarbanes-Oxley Act; and



(viii)

Write-off of our investment in Inference Group LLC.

        These cost increases were partially offset by reversal of accrued interest ($0.5 million) related to the resolution of an Internal Revenue Service examination of research and development tax credits taken on our tax returns prior to 1996.

Income Tax Expense

        Our 39.8% effective tax rate includes the reversal of a tax reserve of $1.9 million related to an Internal Revenue Service examination of research and development tax credits taken on our tax returns prior to 1996. Excluding the impact of this item, our effective tax rate would have been 42.5%, compared with 42.0% in 2002.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Earnings Per Share

        Basic earnings per share for 2002 and 2001 were $1.52 and $1.65, respectively. Diluted earnings per share decreased $0.11, or 7%, from $1.62 to $1.51. Earnings per share have been retroactively restated to reflect a three-for-two stock split in December 2001. 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 LSE. In December 2002, we recorded a restructuring charge, which approximated $0.08 per diluted share for the year ended December 31, 2002, consisting of severance for 72 employees and related costs.

Revenues

        Consolidated revenues increased $10.2 million, or 3%, from $377.4 million to $387.6 million. Revenues from U.S. Operations decreased $5.0 million, or 1%, from $351.0 million to $346.0 million. Revenues from International Operations increased $15.2 million, or 58%, from $26.4 million to $41.6 million.

        There were 252 U.S. trading days in 2002 versus 248 U.S. trading days in 2001, reflecting the four-day closure of the U.S. financial markets from September 11 through September 14, 2001. Product Revenues per trading day from our U.S. Operations were $1.4 million for both 2002 and 2001. Our total trading volume in the U.S. reached 24.1 billion shares (averaging 95.7 million per trading day) in 2002 as compared to 22.5 billion shares (averaging 90.8 million per trading day) in 2001. Excluding Hoenig, which was included in our results for four months, U.S. Product Revenues per average number of U.S. employees decreased $74,000, or 8%, from $874,000 to $800,000. In 2002, U.S. Product Revenues included $11.4 million relating to our Hoenig business, which also contributed 46 employees to the total U.S. headcount increase.

        In 2002, International Product Revenues included $18.4 million from our European business versus $11.9 million for the year ended December 31, 2001 primarily resulting from our May 2001 purchase of the remaining 50% ownership interest in ITG Europe that we did not already own. Product Revenues from our Canadian operations increased by $4.2 million, or 75%, from $5.6 million to $9.8 million showing continued growth despite weak market conditions. In Australia, we reported Product Revenues of $5.1 million in 2002 compared with $4.8 million in 2001. In Hong Kong, we reported Product Revenues of $1.7 million in 2002 primarily as a result of our September 2002 Hoenig acquisition. Our

31

Hong Kong operations were in the very early stages of development in 2001 and began generating revenues in 2002.

        Consolidated POSIT revenues decreased $31.0 million, or 17%, 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. 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 1.5 billion, or 16%, from 9.2 billion in 2001 to 7.7 billion in 2002. In Europe, where our POSIT share volumes increased 85% in 2002 compared to 2001, commissions are calculated on the basis of the underlying contract value of transactions rather than on a per share basis. ITG Europe, which we began consolidating in May 2001, contributed $13.9 million to consolidated POSIT revenues in 2002 as compared to $8.2 million a year earlier. Consolidated POSIT revenues per trading day decreased by $135,000, or 18%, from $750,000 in 2001 to $615,000 in 2002. The average number of shares crossed on the U.S. POSIT system per trading day decreased 6.8 million, or 18%, from 37.3 million in 2001 to 30.5 million in 2002.

        In 2002, Electronic Trading Desk revenues increased $22.0 million, or 24%, as compared to the 2001 period. Our U.S. Electronic Trading Desk revenues increased $14.6 million, or 19%, of which Hoenig's U.S. business contributed $11.4 million following its acquisition on September 3, 2002. Our International Operations contributed $7.4 million of the total increase. Our Canadian Electronic Trading Desk business grew by $4.2 million and both our Australian and European Trading Desk business grew by $0.8 million. In addition, our Asian Trading Desk business contributed $1.6 million. Electronic Trading Desk revenues per trading day increased by $81,000, or 22%, from $362,000 in 2001 to $443,000 in 2002 primarily due to the acquisition of Hoenig.

        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 $17.3 million, or 18%. Share volumes in the U.S. increased 29%, partially offset by a 9% decline in our rates per share. Client Site Trading Products revenues per trading day increased by $63,000, or 17%, from $379,000 in 2001 to $442,000 in 2002.

        Other revenues increased $1.9 million, or 25%, from $7.6 million to $9.5 million. In 2002, subscription revenues from our Canadian direct access provider, KTG, were $3.1 million (as compared to $0.7 million in the 2001 period following the September 28, 2001 acquisition of the KastenNet business of Kasten Chase). Market gains/losses and financing costs resulting from temporary positions in securities assumed in the normal course of our agency trading business increased $0.9 million, which was offset by a decline in our global investment income of $2.6 million due to interest rate declines in 2002. In 2001, we recognized a $2.4 million loss from a write-down of our venture capital investment in Angel Investors II, L.P., which was partially offset by a $1.2 million gain on the sale of our investment in Advanced Investment Technology, Inc. an asset management company.

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Expenses

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

	Year Ended December 31,
								% Change
	2001		2000			Change
Compensation and employee benefits	$	114,402	$	103,745		10,657		10.3
Transaction processing		50,459		49,531		928		1.9
Software royalties		19,643		23,726		(4,083	)	(17.2	)
Occupancy and equipment		28,017		20,638		7,379		35.8
Telecommunications and data processing services		17,453		15,086		2,367		15.7
Net gain on long-term investments		—		(309	)	309		(100.0	)
Restructuring charges		5,874		—		5,874		100.0
Other general and administrative		24,480		28,878		(4,398	)	(15.2	)
Income taxes		53,443		57,217		(3,774	)	(6.6	)

        Compensation and employee benefits:    Total compensation expense increased $10.7 million primarily due to (i) our acquisition of Hoenig (accounting for $5.9 million of the increase) combined with (ii) the impact of consolidating the results of ITG Europe for the full year 2002 (versus the eight months consolidated in 2001) and (iii) the launch of ITG Hong Kong in the second quarter 2002. This combined impact of ITG Europe and ITG Hong Kong was $5.0 million.

        U.S. compensation increased $3.3 million primarily from Hoenig's U.S. compensation costs of $5.0 million since September 3, 2002 reflecting additional headcount of 46 at December 31, 2002. Total U.S. headcount at December 31, 2002 was 451 compared to 431 at December 31, 2001 and reflects our headcount reduction in December 2002. The increase in compensation from the Hoenig acquisition was partially offset by decreases in variable bonuses and profit sharing, which are tied to our financial performance.

        Total international compensation increased $7.4 million primarily from the full year impact of ITG Europe from its date of consolidation in May 2001 and ITG Hong Kong operations (totaling $5.0 million) and the acquisition of Hoenig, which contributed $0.9 million. The international headcount at December 31, 2002 was 184, which included 16 from Hoenig's non-U.S. operations.

        Transaction processing:    Consolidated transaction processing expenses increased slightly by $0.9 million from $49.5 million in 2001 to $50.4 million in 2002.

        U.S. transaction processing expenses declined by $3.0 million in 2002. We realized total savings of $7.0 million primarily from declines of 44% in ECN costs per share and the full year impact of clearing rate reductions obtained in 2001, offset by a 43% increase in share volumes executed through ECNs. U.S. transaction processing costs increased $4.0 million as a result of the inclusion of Hoenig since September 3, 2002 and an increase in charges for floor brokerage executions.

        International transaction processing costs increased $3.9 million in 2002 primarily from expenses associated with Hoenig's non-U.S. operations and the full year consolidation of ITG Europe (aggregating $3.0 million). In addition, ITG Canada's transaction processing costs increased $1.4 million on revenue growth of 75% over 2001.

        Software royalties:    Software royalties are contractually fixed as a percentage of POSIT revenues. Accordingly, declines in our POSIT revenues resulted in declines in software royalty expense.

33

        Occupancy and equipment:    Consolidated occupancy and equipment costs increased $7.4 million from $20.6 million in 2001 to $28.0 million in 2002.

        U.S. costs increased $4.5 million primarily from a $2.3 million loss of sublease income on certain facilities in New York and California (as short-term sub-leases expired during the year ended December 31, 2002), costs for occupying contingency space and a $1.8 million increase in depreciation and associated maintenance contracts on fixed asset purchases and related infrastructure upgrades.

        International costs increased $2.9 million primarily from the consolidation of ITG Europe since May 2001 and costs associated with our start-up operations in Hong Kong (accounting for $2.2 million).

        Telecommunications and data processing services:    Consolidated telecommunications and data processing services increased $2.4 million, or 16%, from $15.1 million in 2001 to $17.5 million in 2002.

        In the U.S., costs remained relatively unchanged in 2002 from 2001. Cost management controls resulted in reductions in telecommunications rates and usage charges, which were offset by the $0.6 million impact of the purchase of Hoenig.

        International costs increased $2.2 million 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.

        Net gain on long-term investments:    In 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 2002.

        Restructuring charges:    In order to align our infrastructure with expected levels of trading volume, we took actions to reduce our cost structure through the decision to terminate 72 employees in December 2002, including 54 personnel employed in our U.S. Operations and 18 personnel employed in our International Operations. As a result of this decision, we recorded a $5.9 million pretax charge consisting of severance for the 72 employees. There were no such charges in 2001.

        Other general and administrative:    Consolidated general and administrative costs decreased $4.4 million in 2002 primarily from the following U.S. costs: (i) a $2.2 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 $1.4 million decrease in amortization of capitalized software costs due to timing of new product launches, and (iii) $1.1 million in charitable contributions made in September 2001 to the New York Times 9/11 Neediest Fund. These cost benefits were partially offset by increases in certain corporate insurance premiums and the consolidation of Hoenig following its acquisition in September 2002.

Income Tax Expense

        The effective tax rate remained at 42.0% in 2002 as compared to 2001 reflecting an increase in the utilization of certain U.S. Federal and State credits, offset by an increase in non-deductible foreign losses. Our effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.

34

Critical Accounting Policies and Estimates

        Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. In many instances, the application of such principles requires management to make estimates or to apply subjective principles to particular facts and circumstances. A change in the estimates or a variance in the application, or interpretation of accounting principles generally accepted in the United States of America could yield a materially different accounting result. Below is a summary of the Company's critical accounting policies and estimates where we believe that the estimations, judgments or interpretations that we made, if different, would have yielded the most significant differences in our consolidated financial statements. In addition, for a summary of all of our significant accounting policies, see Note 2, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements.

Fair Value

        Securities owned, at fair value, securities sold, not yet purchased, at fair value, and investments in limited partnerships in the consolidated statements of financial condition are carried at fair value or amounts that approximate fair value, with the related unrealized gains or losses recognized in our results of operations. The fair value of these instruments is the amount at which these instruments could be exchanged in a current transaction between willing parties, other than in a forced liquidation. Where available, we use the prices from independent sources such as listed market prices, or broker or dealer quotations. For investments in illiquid and privately held securities that do not have readily determinable fair values, we use estimated fair values as determined by management. At December 31, 2003, we held 758,000 shares of common stock in a privately held company with a fair value of zero as determined by management since a market price is not observable or measurable. In March 2004, this company filed a registration statement on Form S-1 with the SEC in contemplation of an initial public offering of their corporate stock, which, if consummated, may have a material impact on our results of operations.

Stock Based Compensation

        Effective January 1, 2003, we adopted the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, prospectively to all awards granted, modified, or settled after January 1, 2003. Under this method of adoption, compensation expense will be recognized based on the fair value of stock options and/or restricted stock units granted for fiscal 2003 and future years over the related service period. In 2003, the Company granted three-year performance based stock options based on a cumulative three-year performance metric and recorded stock based compensation expense for these options. Under the fair value approach, management employs considerable judgment in estimating, on the date of grant, the options expected life and expected volatility. Additionally, management estimates the number of options that are expected to vest based on the expected outcomes of the performance related conditions.

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 and the market approach. Significant estimates and assumptions applied in these approaches include, but are not limited to, projection of future cash flows, the applicable discount rate,

35

perpetual growth rates, and adjustments made to assess the characteristics and relative performance of similar assets.

        In accordance with Statement of Financial Accounting Standards ("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 the most recent impairment test, we determined that the carrying value of goodwill for each reporting unit was not impaired. Other intangibles with definite lives will continue to be amortized over their useful lives and are assessed for impairment on an annual basis (or sooner when events or circumstances indicate a possible 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. Amortization expense related to goodwill and other intangibles for the years ended December 31, 2003, 2002, and 2001 was as follows:

	Amortization Expense
	2003		2002		2001
	($ millions)
Goodwill	$	0.0	$	0.0	$	1.1
Other Intangibles		0.6		0.5		0.0
Total Amortization	$	0.6	$	0.5	$	1.1

        As is the normal practice in our industry, the values we report for exchange seats, which are included within other assets in our financial statements, are valued at cost or a lesser amount if there is an other-than-temporary impairment in value. During 2003, we wrote down the carrying value of two New York Stock Exchange seats that we obtained as part of the Hoenig acquisition, when the market value of the seats was $2.5 million each. Since the current market environment has led to a reduction in NYSE seat prices, which we believe is other-than-temporary in nature, we have taken a $2 million impairment write-down to reflect the fair value of these seats at $1.5 million each. The fair value was determined by referencing actual NYSE seat sales made during 2003, the last four of which were sold at $1.5 million each. Similarly, our three Stock Exchange Trading Rights in Hong Kong, which are reflected in the financial statements within Other Intangibles, have also been written down to their fair market value resulting in an impairment charge of $524,000 in 2003. The fair value of the Stock Exchange Trading Rights was determined by, amongst other factors, examining the range of indicated prices for sales during 2003, as provided by the Stock Exchange of Hong Kong. Our assessment of the nature and extent of impairment of the exchange seats and exchange trading rights requires considerable judgment by management with respect to evaluating external factors. If actual impairment is greater than the write-downs we estimated, we may be required to record additional expense. The following table indicates our sensitivity to potential future impairment charges from further declines in market value of our NYSE exchange seats and Stock Exchange Trading Rights in Hong Kong:

	Potential Future Impairment
	10%		25%		50%
	($ in millions)
NYSE exchange seats	$	0.3	$	0.8	$	1.5
Stock exchange trading rights	$	0.0	$	0.0	$	0.1

36

Soft Dollar Programs

        We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts so allocated for those purposes are commonly referred to as soft dollar arrangements. We are accounting for the cost of independent research and directed brokerage arrangements on an accrual basis. Commission revenue is recorded when earned on a trade date basis. Our accounting for commission revenues includes the guidance contained in Emerging Issues Task Force ("EITF") Issue No. 99-19, Reporting Revenues Gross versus Net, and accordingly, payments relating to soft dollars are netted against the commission revenues. Prepaid soft dollar research balances are included in Receivables from Brokers, Dealers and Other and accrued soft dollar research payable balances are classified as Accounts Payable and Accrued Expenses in our consolidated statements of financial condition.

        We continuously monitor our customer account balances and maintain an allowance for soft dollar advances which is comprised of a general reserve based on historical collections performance plus a specific reserve for certain known customer issues. If actual bad debts are greater than the reserves calculated based on historical trends and known customer issues, we may be required to record additional bad debt expense, which could have a material adverse impact on our operating results for the periods in which such additional expense would occur. Net soft dollar revenues and related prepaid and accrued soft dollar research balances for the years ended December 31, 2003, 2002, and 2001 were as follows:

	2003			2002			2001
	($ millions)
Net soft dollar commissions	$	53.2		$	33.6		$	28.9
Prepaid soft dollar research, gross		6.8			7.9			—
Allowance for prepaid soft dollar research		(2.0	)		(2.3	)		—
Prepaid soft dollar research, net of allowance		4.8			5.6			—
Accrued soft dollar research payable		18.8			20.9			11.1

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.

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. We believe that our cash flow from operations and existing cash balances will be sufficient to meet our cash requirements.

        In Asia, we maintain working capital facilities with a bank relating to our clearing and settlement activities. These facilities are in the form of overdraft protection totaling approximately $19.6 million and are supported by $3.4 million in restricted cash deposits.

        A substantial portion of our assets are liquid, consisting of cash and cash equivalents or assets readily convertible into cash. We generally invest our excess cash in money market funds and other short-term investments that mature within 90 days or less. Additionally, securities owned at fair value

37

include highly liquid, variable state and municipal obligations, auction rate preferred stock, mutual fund investments, common stock and warrants. At December 31, 2003, cash and cash equivalents and securities owned, at fair value amounted to $263.2 million and net receivables from brokers, dealers and other due within 30 days totaled $207.4 million. In addition, we held $11.9 million of total cash in restricted or segregated bank or clearing broker accounts at December 31, 2003.

        We also invest a portion of our excess cash balances in cash enhanced strategies, which we believe should yield higher returns without significant effect on risk. As of December 31, 2003, we had investments in limited partnerships totaling $19.5 million, of which $10.0 million were invested in marketable securities, $0.1 million was invested in a venture capital fund and $9.4 million, related to the Inference Arbitrage Fund, was in money market funds. The Inference Arbitrage Fund was subsequently liquidated in January 2004 with the proceeds reinvested in money market funds. The limited partnerships employ either a hedged convertible strategy or a long/short strategy to capitalize on short-term price movements.

        On June 11, 2003, we acquired a 25% interest in Radical Corporation, a provider of an equity front-end software-trading platform, for $956,000 including legal expenses of $206,000 with the right to purchase the remaining 75% interest in Radical Corporation during the first half 2004. The additional purchase price is contingent upon performance as per a defined calculation in the purchase agreement and will not exceed $18.0 million. On February 27, 2004 we exercised our option to purchase the remaining 75% of Radical Corporation, which purchase is scheduled to close at the end of March 2004.

        Cash flows provided by operating activities were $62.2 million in 2003 as compared to $70.1 million in 2002. The $7.9 million decrease was primarily attributable to a $31.8 million decrease in net income, partially offset by changes in non-cash items and working capital. These changes include the impact of:

i.

Restricted cash - in 2002 we segregated approximately $12 million as restricted cash relating to (a) funds on deposit with a bank in Asia for the purpose of securing working capital facilities arising from our Asian clearing and settlement activities, (b) funds from the consideration paid for Hoenig Group Inc. held in escrow for the benefit of Hoenig stockholders (see Note 4, Hoenig Acquisition), and (c) a segregated account maintained by ITG Inc.'s clearing broker on behalf of its Hoenig division for the benefit of customers under certain directed brokerage arrangements. The effect of these was to reduce net cash provided by operating activities in 2002.



ii.

Securities owned at fair value - timing differences relating to recently matured investments in securities, presently in the form of cash or cash equivalents, prior to their subsequent reinvestment contributed an additional $5.5 million to net cash provided by operating activities in 2003.



iii.

Higher income tax payments in 2002 - 2002 cash payments included higher quarterly estimated tax payments based on a higher level of income and the 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 tragic events of September 11^th, 2001.

        Net cash provided by/(used in) investing activities reflects a reallocation of certain investments from auction rate preferred stock to cash. We are revisiting the regulatory capital treatment of certain auction rate preferred stock. While conducting this analysis, we have moved those funds to cash to ensure the regulatory capital treatment of these assets.

        Net cash provided by/(used in) used in financing activities reflects purchases of nearly 3 million shares of our common stock as part of our share repurchase program, which were funded from our available cash resources. As part of our share repurchase program, our Board of Directors authorizes management to use its discretion to purchase an agreed-upon maximum number of shares of common

38

stock in the open market or in privately negotiated transactions. During 2003, we purchased approximately 3 million shares of our common stock at an average cost of $16.73 per share, totaling $50.1 million. As of December 31, 2003, we repurchased all shares permitted under the most recent share repurchase program authorization. In January 2004, our Board of Directors authorized further repurchases of up to 3 million shares of our common stock.

        Net cash provided by/(used in) financing activities also reflects $4.7 million in cash provided by common stock issued in connection with our employee stock purchase plan, employee stock option plan, and other stock based compensation.

        Historically, all regulatory capital needs of ITG Inc., AlterNet and ITG Execution Services have been provided by cash from operations. We believe that cash flows from operations will continue to provide ITG Inc., AlterNet and ITG Execution Services with sufficient regulatory capital. At December 31, 2003, ITG Inc., AlterNet and ITG Execution Services had net capital of $107.3 million, $3.6 million and $3.9 million, respectively, of which $107.0 million, $3.5 million and $3.9 million, respectively, was in excess of required net capital.

        In addition, our Canadian, Australian, Asian and European operations had regulatory capital in excess of the minimum requirements applicable to each business as of December 31, 2003 of approximately $8.9 million, $3.7 million, $6.7 million, and $27.1 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. We do not currently maintain any credit facilities in the event of a regulatory capital shortfall.

        As of December 31, 2003, ITG Inc. held a $4.3 million cash balance on behalf of its Hoenig division in a segregated deposit account with its clearing broker for the benefit of customers under certain directed brokerage arrangements.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements

        In the normal course of business, we are involved in the execution of various customer securities transactions. Securities transactions are subject to the credit risk of counterparties or customer nonperformance. In connection with the settlement of non-U.S. securities transactions, Investment Technology Group, Inc. has provided third party financial institutions with guarantees in amounts up to a maximum of $136.0 million. In the event that a customer of ITG's subsidiaries fails to settle a securities transaction, or if the related ITG subsidiaries were unable to honor trades with a customer, Investment Technology Group, Inc. would be required to perform for the amount of such securities up to the $136.0 million cap. However, transactions are collateralized by the underlying security, thereby reducing the associated risk to changes in the market value of the security through settlement date. Therefore, the settlement of these transactions is not expected to have a material effect upon our financial statements. It is also our policy to review, as necessary, the credit worthiness of each counterparty and customer.

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Aggregate Contractual Obligations

        As of December 31, 2003, our contractual obligations and other commercial commitments amounted to $57.1 million in the aggregate and consisted of the following (dollars in thousands):

		Payments due by period
		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
		($ thousands)
Contractual obligations
Long-term debt obligations		$	—	$	—	$	—	$	—	$	—
Capital lease obligations			—		—		—		—		—
Operating lease obligations			49,830		8,622		12,544		9,836		18,828
Minimum compensation
	employment agreements		4,545		4,545		—		—		—
Purchase obligations			2,720		759		1,268		693		—
Other long-term liabilities reflected
	on balance sheet under GAAP		—		—		—		—		—
Total		$	57,095	$	13,926	$	13,812	$	10,529	$	18,828

Business Combinations

        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 an 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 was 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 was allocated to goodwill.

        On September 28, 2001, we acquired the KastenNet business of Kasten Chase Applied Research Limited for $4.7 million. 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 was 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 is being amortized on a straight-line basis over a fifteen-year period.

        On September 3, 2002, we completed the acquisition of Hoenig Group Inc., which, through its operating affiliates, provides trade execution, independent research and other services to alternative investment funds and money managers globally. Under the terms of the transaction, 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. 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. Approximately $0.5 million was allocated to the "Hoenig" trade name, which is being amortized over three years. The excess of the purchase price over the fair value of the net assets acquired was

40

$56.8 million and has been allocated to goodwill. The results of operations of Hoenig have been included in our results of operations since September 3, 2002.

        The consolidated financial statements include the results of operations of the above businesses from their respective dates of acquisition.

        On November 1, 2002, Inference Group LLC, our former asset management subsidiary, was reorganized. In connection with this reorganization, we sold 81% of Inference Group LLC to the Inference Group management team and retained a 19% minority ownership interest. In the fourth quarter of 2003, Inference Group LLC ceased substantially all asset management operations. Accordingly, we took an asset impairment charge of $223,000 representing the full cost basis of our investment.

Recent Accounting Pronouncements

        In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which is effective for fiscal years beginning after December 31, 2002. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The adoption of SFAS No. 146 in the first quarter of 2003 did not have a material effect on our results of operations, financial position or cash flows.

        In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS No. 123. This Statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Until December 31, 2002, we accounted for those plans under the recognition and measurement provisions of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, no stock-based compensation expense was reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2003, we adopted the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, prospectively to all awards granted, modified, or settled after January 1, 2003.

        In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, which requires the identification and assessment for consolidation of variable interest entities. Variable interest entities are identified by reviewing our equity investments at risk, our ability to make decisions about an entity's activities and the obligation to absorb an entity's losses or right to receive expected residual results. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. For entities that were originated prior to February 1, 2003, FIN 46 applies in the first fiscal year or interim period beginning after June 15, 2003. We have completed our analysis of the impact of Interpretation No. 46 and its adoption did not have a material effect on our results of operations, financial position or cash flows.

        In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies accounting for derivative instruments and hedging activities subsequent to the initial issuance of SFAS 133. This statement is generally effective for contracts entered into or modified after June 30, 2003 and did not have a material effect on our results of operations, financial position or cash flows.

        In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 established standards for certain financial instruments which possess characteristics of both a liability and equity, which under previous guidance could be classified as equity or "mezzanine" equity. Generally, it now requires classification of such financial instruments as a liability (or assets in some circumstances). SFAS No. 150 is effective for

41

financial instruments entered into or modified after May 31, 2003. For financial instruments in existence prior to May 31, 2003, SFAS No. 150 is effective as of September 1, 2003. The adoption of this statement did not have a material effect on our results of operations, financial position or cash flows.

Subsequent Event

        On February 27, 2004 we exercised our option to purchase the remaining 75% of Radical Corporation which we did not already own, which purchase is scheduled to close at the end of March 2004. The additional purchase price, which has not yet been finalized, is contingent upon performance as per a defined calculation in the purchase agreement and will not exceed $18.0 million.

Item 7A.    Quantitative and Qualitative Disclosure About Market Risk

        Market risk refers to the potential for adverse changes in the value of a company's financial instruments as a result of changes in market conditions. We are exposed to market risk associated with changes in interest rates, foreign currency exchange rates and equity prices to the extent we own such instruments in our portfolio. We do not engage in speculative or leveraged transactions, nor do we hold or issue financial instruments for trading purposes. We continually evaluate our exposure to market risk and oversee the establishment of policies, procedures and controls to ensure that market risks are identified and analyzed on an ongoing basis.

        We have performed sensitivity analyses on different tests of market risk as described in the following sections to estimate the impacts of a hypothetical change in market conditions on the fair value of securities owned and the U.S. dollar value of non-U.S. dollar-based revenues associated with our international operations. Estimated potential losses assume the occurrence of certain adverse market conditions. Such estimates do not consider the potential effect of favorable changes in market factors and also do not represent management's expectations of projected losses in fair value. We do not foresee any significant changes in the strategies used to manage interest rate risk, foreign currency risk or equity price risk in the near future.

Interest Rate Risk

        Our exposure to interest rate risk relates primarily to interest-sensitive financial instruments in our investment portfolio. Interest-sensitive financial instruments will decline in value if interest rates increase. Our interest-bearing investment portfolio primarily consists of short-term, high-credit quality money market funds, highly liquid variable rate municipal securities auction rate preferred stock and treasury notes. The aggregate fair market value of our portfolio was $191.0 million and $197.5 million as of December 31, 2003 and 2002, respectively. Our interest-bearing investments are not insured and because of the short-term high quality nature of the investments are not likely to fluctuate significantly in market value. For the years ended December 31, 2003 and 2002 we estimated that a hypothetical 100 basis point adverse change in interest rates would have resulted in a $2.0 million and $2.5 million decline in the value of our portfolio, respectively.

Foreign Currency Risk

        We currently operate and continue to expand globally in a variety of ways, including through our operations in Canada, Australia, Europe and Hong Kong, and through the development of specially tailored versions of our services. Additionally, we maintain development facilities in Israel. Our investments and development activities in these countries expose us to currency exchange rate fluctuations primarily between the U.S. Dollar and the British Pound Sterling, Euro, Australian Dollar, Canadian Dollar, Hong Kong Dollar and Israeli New Shekel. When the U.S. dollar strengthens against these currencies, the U.S. dollar value of non-U.S. dollar-based revenue decreases. To the extent that

42

our international activities recorded in local currencies increase in the future, our exposure to fluctuations in currency exchange rates will correspondingly increase. We have not engaged in derivative financial instruments as a means of hedging this risk. Non-U.S. dollar cash balances held overseas are generally kept at levels necessary to meet current operating and capitalization needs.

        Approximately 18%, and 11% of our revenues for the years ended December 31, 2003 and 2002 were denominated in non-U.S. dollar currencies. For the years ended December 31, 2003 and 2002, we estimated that a hypothetical 10% adverse change in foreign exchange rates would have resulted in a further increase in net losses in our international operations of $0.2 million, and $1.1 million, respectively.

Equity Price Risk

        Equity price risk results from exposure to changes in the prices of equity securities. At times we do hold positions overnight due to client or Company errors. Equity price risk can arise from liquidating such positions. Accordingly, we maintain policies and procedures regarding the management of our errors and accommodations proprietary trading accounts. It is our policy to attempt to trade out of all positions arising from errors and accommodations immediately while balancing our exposure to market risk. Certain positions may therefore be liquidated over a period of time in an effort to minimize market impact.

        We manage equity price risk associated with open positions through the establishment and monitoring of trading policies and through controls and review procedures that ensure communication and timely resolution of trading issues. Our operations and trading departments review all open trades daily. Additionally, our clearing broker notifies us of all known trade discrepancies on the day following the trade date. We have also established approval policies that include review by a Supervisory Principal of any proprietary trading activity.

        Our cash management strategy seeks to optimize excess liquid assets by preserving principal, maintaining liquidity to satisfy capital requirements, minimizing risk and maximizing our after tax rate of return. Our policy is to invest in high quality credit issuers, limit the amount of credit exposure to any one issuer and invest in tax efficient strategies. Our first priority is to reduce the risk of principal loss. We seek to preserve our invested funds by limiting default risk, market risk, and re-investment risk. We attempt to mitigate default risk by investing in high quality credit securities that we believe to be low risk and by positioning our portfolio to respond appropriately to reductions in the credit rating of any investment issuer or guarantor that we believe is adverse to our investment strategy.

        For working capital purposes, we invest only in money market instruments. Cash balances that are not needed for normal operations are invested in a tax efficient manner in instruments with appropriate maturities and levels of risk to correspond to expected liquidity needs. We currently have investments in municipal bonds, auction rate preferred bonds and, to a lesser extent, common stock. To the extent that we invest in marketable equity securities, we ensure portfolio liquidity by investing in marketable securities with active secondary or resale markets. We do not use derivative financial instruments in our investment portfolio. At December 31, 2003 and 2002, our cash and cash equivalents and securities owned were approximately $263.2 million and $256.6 million, respectively.

        Our investments in limited partnership funds require approval of executive management and/or the board of directors. As of December 31, 2003, we had investments in limited partnerships totaling $19.5 million, of which $10.0 million were invested in marketable securities, $0.1 million was invested in a venture capital fund and $9.4 million, related to the Inference Arbitrage Fund, was in money market funds. The Inference Arbitrage Fund was subsequently liquidated in January 2004 with the proceeds reinvested in money market funds. At December 31, 2002, investments in limited partnerships investing in marketable securities and a venture capital fund were approximately $26.1 million.

43

Item 8.    Financial Statements and Supplementary Data

	Pages
Independent Auditors' Report	45
Consolidated Statements of Financial Condition	46
Consolidated Statements of Income	47
Consolidated Statements of Changes in Stockholders' Equity	48
Consolidated Statements of Cash Flows	49
Notes to Consolidated Financial Statements	50

44

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Investment Technology Group, Inc. and subsidiaries:

        We have audited the accompanying consolidated statements of financial condition of Investment Technology Group, Inc. and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Investment Technology Group, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Note 2 to the consolidated financial statements, during 2003 the Company changed its method of accounting for stock-based compensation.

/s/ KPMG LLP

New York, New York
February 16, 2004, except for Note 20, which is as of February 27, 2004

45

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

		December 31,
		2003			2002
Assets
Cash and cash equivalents		$	239,013		$	180,970
Cash restricted or segregated under regulations and other			11,892			12,302
Securities owned, at fair value			24,174			75,644
Receivables from brokers, dealers and other, net			219,860			159,293
Investments in limited partnerships			19,529			26,104
Premises and equipment			25,088			28,999
Capitalized software			6,575			6,582
Goodwill			77,143			77,533
Other intangibles			4,747			5,034
Deferred taxes			12,147			9,740
Other assets			9,680			12,053
Total assets		$	649,848		$	594,254
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses		$	82,554		$	83,350
Payables to brokers, dealers and other			187,764			139,138
Software royalties payable			4,209			4,122
Securities sold, not yet purchased, at fair value			1,264			37
Income taxes payable			12,754			11,098
	Total liabilities		288,545			237,745
Commitments and contingencies (Note 18)
Stockholders' Equity:
Preferred stock, par value $0.01 1,000,000 shares authorized; no shares issued or outstanding			—			—
Common stock, par value $0.01; 100,000,000 shares authorized; 51,262,743 and 51,220,201 shares issued at December 31, 2003 and 2002, respectively; and 44,740,279 and 47,530,479 shares outstanding at December 31, 2003 and 2002, respectively			513			512
Additional paid-in capital			157,319			155,085
Retained earnings			333,978			292,025
Common stock held in treasury, at cost; shares: 6,522,464 and 3,689,722 at December 31, 2003 and 2002, respectively			(138,641	)		(92,471	)
Accumulated other comprehensive income:
	Currency translation adjustment		8,134			1,358
	Total stockholders' equity		361,303			356,509
Total liabilities and stockholders' equity		$	649,848		$	594,254

The accompanying Notes to these Consolidated Financial Statements
are integral parts of these statements.

46

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

				Year Ended December 31,
				2003		2002		2001
Revenues:
	Commissions
		POSIT		$	126,729	$	155,060	$	186,101
		Electronic Trading Desk			119,355		111,703		89,748
		Client Site Trading Products			77,554		111,333		93,993
	Other				10,354		9,485		7,565
			Total revenues		333,992		387,581		377,407
Expenses:
	Compensation and employee benefits				118,070		114,402		103,745
	Transaction processing				46,316		50,459		49,531
	Software royalties				16,894		19,643		23,726
	Occupancy and equipment				31,149		28,017		20,638
	Telecommunications and data processing services				18,334		17,453		15,086
	Net gain on long-term investments				—		—		(309	)
	Restructuring charges				—		5,874		—
	Other general and administrative				33,528		24,480		28,878
			Total expenses		264,291		260,328		241,295
Income before income tax expense					69,701		127,253		136,112
Income tax expense					27,748		53,443		57,217
Net income				$	41,953	$	73,810	$	78,895
Earnings per share:
	Basic			$	0.89	$	1.52	$	1.65
	Diluted			$	0.89	$	1.51	$	1.62
Basic weighted average number of common shares outstanding					46,996		48,464		47,886
Diluted weighted average number of common shares outstanding					47,016		49,003		48,689

The accompanying Notes to these Consolidated Financial Statements
are integral parts of these statements.

47

INVESTMENT TECHNOLOGY GROUP, INC.
Consolidated Statements of Changes in Stockholders' Equity For the
Years Ended December 31, 2003, 2002 and 2001
(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, 2001			—		511		138,127			139,320		(67,186	)		(356	)		210,416
Issuance of common stock in connection with the employee stock option plan (1,017,151 shares) and the employee stock unit award plan (158,889 shares)			—		—		6,902			—		21,247			—			28,149
Issuance of common stock in connection with the employee stock purchase plan (40,470 shares)			—		1		1,147			—		—			—			1,148
Effect of the 3-for-2 stock split payout of fractional shares			—		—		(45	)		—		—			—			(45	)
Comprehensive income:
	Net income		—		—		—			78,895		—			—			78,895
Other comprehensive income (loss):
	Currency translation adjustment		—		—		—			—		—			(619	)		(619	)
Comprehensive income																		78,276
Balance at December 31, 2001			—		512		146,131			218,215		(45,939	)		(975	)		317,944
Issuance of common stock in connection with the employee stock option plan (759,146 shares), the employee stock unit award plan (99,230 shares), and the directors' retainer fee subplan (614 shares)			—		—		6,460			—		17,141			—			23,601
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 (2,005,400 shares)			—		—		—			—		(63,673	)		—			(63,673	)
Exchange of Hoenig stock options for ITG stock options			—		—		1,306			—		—			—			1,306
Comprehensive income:
	Net income		—		—		—			73,810		—			—			73,810
Other comprehensive income (loss):
	Currency translation adjustment		—		—		—			—		—			2,333			2,333
Comprehensive income																		76,143
Balance at December 31, 2002			—	$	512	$	155,085		$	292,025	$	(92,471	)	$	1,358		$	356,509
Issuance of common stock in connection with the employee stock option plan (32,423 shares), the employee stock unit award plan (127,769 shares), and the directors' retainer fee subplan (2,745 shares)			—		—		288			—		3,939			—			4,227
Issuance of common stock in connection with the employee stock purchase plan (42,542 shares)			—		1		782			—		—			—			783
Stock-based compensation			—		—		1,164			—		—			—			1,164
Purchase of common stock for treasury (2,995,679 shares)			—		—		—			—		(50,109	)		—			(50,109	)
Comprehensive income:
	Net income		—		—		—			41,953		—			—			41,953
Other comprehensive income:
	Currency translation adjustment		—		—		—			—		—			6,776			6,776
Comprehensive income																		48,729
Balance at December 31, 2003		$	—	$	513	$	157,319		$	333,978	$	(138,641	)	$	8,134		$	361,303

The accompanying Notes to these Consolidated Financial Statements
are integral parts of these statements.

48

INVESTMENT TECHNOLOGY GROUP, INC.
Consolidated Statements of Cash Flows
(In thousands)

		Year ended December 31,
		2003			2002			2001
Cash flows from Operating Activities:
Net income		$	41,953		$	73,810		$	78,895
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		19,961			16,629			16,581
	Impairment charges		2,747			—			—
	Tax benefit from employee stock options		291			5,535			8,473
	Deferred income tax expense (benefit)		(2,332	)		25			(5,460	)
	Gain on sale of investments		—			(345	)		(1,157	)
	Undistributed gain of affiliates		—			—			(309	)
	Write-down of investment in limited partnership		—			—			2,415
	Provision for doubtful accounts		368			(776	)		1,406
	Stock-based compensation		1,164			—			—
Changes in operating assets and liabilities:
	Cash, restricted or segregated		840			(12,302	)		—
	Securities owned, at fair value		7,063			1,615			(10,424	)
	Receivables from brokers, dealers and other, net		(44,106	)		(75,903	)		1,788
	Accounts payable and accrued expenses		(1,926	)		(2,165	)		14,472
	Payables to brokers, dealers and other		32,914			79,904			(72	)
	Securities sold, not yet purchased, at fair value		1,081			(4,750	)		(6,615	)
	Income taxes payable		1,657			(11,004	)		15,021
	Other, net		499			(222	)		10,228
Net cash provided by operating activities			62,174			70,051			125,242
Cash flows from Investing Activities:
Acquisition of subsidiaries, net of cash acquired			—			(66,314	)		(17,793	)
Capital purchases			(10,096	)		(13,667	)		(13,553	)
Capitalization of software development costs			(4,973	)		(4,910	)		(3,277	)
Purchase of investments in limited partnerships			—			—			(11,000	)
Proceeds from sale of investments in limited partnerships			7,143			—			—
Proceeds from sale of securities owned			44,650			1,225			1,295
	Net cash provided by (used in) investing activities		36,724			(83,666	)		(44,328	)
Cash flows from Financing Activities:
Common stock issued			4,719			19,252			20,824
Common stock repurchased			(50,109	)		(63,673	)		—
Payout of fractional shares in connection with stock split			—			—			(45	)
	Net cash (used in) provided by financing activities		(45,390	)		(44,421	)		20,779
Effect of exchange rate changes on cash and cash equivalents			4,535			2,399			(619	)
	Net increase (decrease) in cash and cash equivalents		58,043			(55,637	)		101,074
Cash and cash equivalents—beginning of year			180,970			236,607			135,533
Cash and cash equivalents—end of year		$	239,013		$	180,970		$	236,607
Supplemental cash flow information
	Interest paid	$	668		$	1,578		$	2,734
	Income taxes paid	$	27,623		$	58,932		$	38,894

The accompanying Notes to these Consolidated Financial Statements
are integral parts of these statements.

49

INVESTMENT TECHNOLOGY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)    Organization and Basis of Presentation

        Investment Technology Group, Inc. ("ITG" or the "Company") was formed as a Delaware corporation on July 22, 1983. Its principal subsidiaries 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 its acquisition on September 3, 2002) and its operating affiliates, Hoenig & Company, Inc. and Hoenig (Far East) Limited (collectively, "Hoenig"), agency soft dollar broker-dealers in equity securities in the U.S. and Hong Kong, (collectively "Hoenig") (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 Corp. ("KTG"), a direct access provider in Canada, (7) ITG Hoenig Limited ("ITG Hong Kong"), an institutional broker dealer in Hong Kong, and (8) ITG Software Solutions, Inc., our intangible property and software development and maintenance subsidiary in the U.S.

        On September 3, 2003, ITG completed the integration of the soft dollar agency brokerage business of Hoenig & Co., Inc. into ITG Inc (herein referred to as the "Hoenig division"). Hoenig & Co., Inc. changed its name to ITG Execution Services Inc. ("ITG Execution Services") and its sole continuing business is the conduct of floor brokerage activities on the NYSE for its affiliated companies. In December 2003, ITG Hong Kong Ltd. changed its name to ITG Hoenig Limited.

        We are a financial technology firm that provides electronic equity analysis and trade execution tools. We have 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 Europe, Australia, Canada and Hong Kong, as well as a research facility in Israel.

        The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. 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 statement of results. Certain reclassifications and format changes have been made to prior year amounts to conform to the current year presentation.

        During December 2001, outstanding shares of common stock were split three-for-two. All share and per share amounts have been retroactively restated.

(2)    Summary of Significant Accounting Policies

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

50

Cash and Cash Equivalents

        We have defined cash and cash equivalents as highly liquid investments, with original maturities of less than ninety days, which are part of our cash management activities.

Fair Value of Financial Instruments

        Substantially all of our financial instruments are carried at fair value or amounts approximating fair value. Cash and cash equivalents, securities owned and securities sold, not yet purchased, investments in limited partnerships and certain receivables are carried at market value, estimated fair value or contracted amounts which approximate fair value due to the short period to maturity and repricing characteristics.

Securities Transactions

        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. Other revenues include (a) interest income/expense, (b) market gains/losses resulting from temporary positions in securities assumed in the normal course of our agency trading business and financing costs from our customers' short settlement activities, (c) realized gains and losses in connection with our cash management and strategic investment activities, (d) subscription revenues for routing and other services in the U.S. and direct access connectivity in Canada from KTG, and (e) income/loss from positions taken by ITG Canada as customer facilitations (a customary practice in the Canadian marketplace) as well as income from same day Canadian interlisted arbitrage trading.

        Receivables from brokers, dealers and other, net consist of commissions receivable, amounts receivable for securities transactions that have not yet reached their contractual settlement date and receivables from customers arising from the Company's prepayment of soft dollar research, net of an allowance for doubtful accounts, which is determined based upon management's estimate of the collectibility of such receivables. Transactions in securities, commission revenues and related expenses are recorded on a trade-date basis. The Company clears all securities transactions through other broker-dealers on a fully disclosed basis.

        Securities owned, at fair value consist primarily of highly liquid, variable rate state and municipal government obligations, variable rate auction rate preferred stock, common stock and warrants, and mutual funds. Securities sold, not yet purchased, at fair value consist of common stock.

        Included in securities owned are certain securities that are not readily marketable because (a) there is no market based upon quoted market prices from third parties, (b) they cannot be publicly offered or sold unless registration has been effected under the securities Act of 1933, or (c) they cannot be offered or sold because of other arrangements, restrictions, or conditions applicable to the securities or to the Company. At December 31, 2003, the Company held (a) warrants in a publicly traded company at an estimated fair value of $40,000 and (b) 758,000 shares of corporate stock in a privately held company with a fair value of zero as determined by management since a market price is not observable or measurable. In March 2004, the private company filed a registration statement on Form S-1 with the SEC in contemplation of an initial public offering of their stock. Marketable

51

securities owned are valued using market quotes from third parties. Unrealized gains and losses are included in other revenues in the Consolidated Statement of Income.

        Investments in limited partnerships consist of investments in hedge funds investing primarily in marketable securities and a venture capital fund. At December 31, 2003, Investments in limited partnerships also included $9.4 million in money market funds related to the Inference Arbitrage Fund which was subsequently liquidated in January 2004 (with the proceeds reinvested in money market funds). These investments in limited partnerships do not have readily available price quotations. These investments are accounted for under the equity method, which approximates fair value, or at the fair value as estimated by management. In determining the estimated fair value, we considered all appropriate factors relevant to such investments and consistently apply the procedures for arriving at estimated fair value. However, because of the assumptions inherent to estimate fair value, actual fair value could differ from the estimated fair value as determined by management. Gains and losses for changes in fair value and other than temporary impairments are included in other revenues in the consolidated statements of income.

        In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, which requires the identification and assessment for consolidation of variable interest entities. Variable interest entities are identified by reviewing our equity investments at risk, our ability to make decisions about an entity's activities and the obligation to absorb an entity's losses or right to receive expected residual results. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. For entities that were originated prior to February 1, 2003, FIN 46 applies in the first fiscal year or interim period beginning after June 15, 2003.

Soft Dollar Programs

        We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts so allocated for those purposes are commonly referred to as soft dollar arrangements. We are accounting for the cost of independent research and directed brokerage arrangements on an accrual basis. Commission revenue is recorded when earned on a trade date basis. Our accounting for commission revenues includes the guidance contained in Emerging Issues Task Force ("EITF") Issue No. 99-19, Reporting Revenues Gross versus Net, and accordingly, payments relating to soft dollars are netted against the commission revenues. Prepaid soft dollar research balances are included in Receivables from Brokers, Dealers and Other and accrued soft dollar research payable balances are classified as Accounts Payable and Accrued Expenses in our consolidated statements of financial condition.

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        Soft dollar revenues and related prepaid and accrued soft dollar research balances for the years ended December 31, 2003, 2002, and 2001 were as follows:

	2003			2002			2001
	($ millions)
Net soft dollar commissions	$	53.2		$	33.6		$	28.9
Prepaid soft dollar research, gross		6.8			7.9			—
Allowance for prepaid soft dollar research		(2.0	)		(2.3	)		—
Prepaid soft dollar research, net of allowance		4.8			5.6			—
Accrued soft dollar research payable		18.8			20.9			11.1

Capitalized Software

        Pursuant to the provisions of Statement of Financial Accounting Standards ("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". 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 and changes in software and hardware technologies. We are amortizing capitalized software costs using the straight-line method over the estimated economic useful life, which is 24 months or less. Amortization begins when the product is available for release to customers. Amortization of software development costs is included in other general and administrative expenses in the consolidated statements of income.

Research and Development

        All research and development costs are expensed as incurred. Research and development costs were $24.1 million, $23.0 million and $19.7 million for 2003, 2002 and 2001, respectively.

Goodwill and Other Intangibles

        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. An impairment loss is indicated if the estimated fair value of a reporting unit is less than its net book value. In such a case, the impairment loss is calculated as the amount by which the carrying value of goodwill exceeds the implied fair value 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.

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Premises and Equipment

        Premises and equipment are carried at cost and are depreciated using the straight-line method over the estimated useful lives of the assets (generally three to five years). Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful lives of the related assets or the non-cancelable lease term.

Impairment of Long-Lived Assets

        Long-lived assets, including premises and equipment, are periodically reviewed for impairment by comparing undiscounted future cash flows expected to result from use of the assets with recorded balances. If the sum of the expected undiscounted future cash flows were less than the carrying amount of the assets, an impairment loss would be recognized. The impairment loss, if determined to be necessary, would be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

        As is the normal practice in our industry, the values we report for certain long-lived assets, specifically exchange seats and stock exchange trading rights, are valued at cost or a lesser amount (fair market value) if there is an other-than-temporary impairment in value.

Income Taxes

        Income taxes are accounted for on the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is more likely than not that such assets will not be realized.

Earnings per Share

        Basic earnings per share is determined by dividing earnings by the average number of shares of common stock outstanding, while diluted earnings per share is determined by dividing earnings by the average number of shares of common stock adjusted for the dilutive effect of common stock equivalents.

Stock-Based Compensation

        As of December 31, 2002, we account for stock-based employee compensation plans in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. In accordance with APB No. 25, compensation expense is not recognized for stock options that have no intrinsic value on the date of grant.

        Effective January 1, 2003, we began to account for stock-based compensation in accordance with the fair-value method prescribed by SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, using the prospective adoption method. Under this

54

method of adoption, compensation expense will be recognized based on the fair value of stock options and/or restricted stock units granted for fiscal 2003 and future years over the related service period. The company is permitted to grant performance based stock options and records stock based compensation expense for these options based on management's estimates of performance achievement.

        Had compensation cost for our stock option plan been determined consistent with SFAS No. 123 for all years presented below, our net income and earnings per share would have been changed to the pro forma amounts indicated below (dollars in thousands, except per share data):

	2003			2002			2001
Net income, as reported	$	41,953		$	73,810		$	78,895
Add: Stock-based compensation expense Included in reported net income, net of tax $490		674			—			—
Deduct: Total stock-based compensation expense determined under fair value based method(a)		(5,420	)		(7,890	)		(7,315	)
Pro forma net income	$	37,207		$	65,920		$	71,580
Earnings per share:
Basic—as reported	$	0.89		$	1.52		$	1.65
Basic—pro forma	$	0.79		$	1.36		$	1.49
Diluted—as reported	$	0.89		$	1.51		$	1.62
Diluted—pro forma	$	0.79		$	1.35		$	1.47
Basic shares		46,996			48,464			47,886
Diluted shares		47,016			49,003			48,689

Note:

(a)

determined under fair value based method for all awards, net of tax ($3,941, $5,714 and $5,749 for the years ended December 31, 2003, 2002 and 2001, respectively)

        The fair value of each option grant is estimated on the date of grant using the Black Scholes option pricing model with the following weighted average assumptions used for grants in 2003, 2002 and 2001:

	2003	2002	2001
Dividend yield	0.0%	0.0%	0.0%
Risk free interest rate	2.3%	3.0%	4.6%
Expected volatility	45%	42%	47%
Expected life (years)	4.25	4.25	5.00

Foreign Currency Translation

        Assets and liabilities denominated in non-U.S. currencies are translated at rates of exchange prevailing on the date of the statement of financial condition, and revenues and expenses are translated at average rates of exchange during the fiscal year. Gains or losses on translation of the financial statements of a foreign operation, where the functional currency is other than the U.S. dollar, are reflected as a component of accumulated other comprehensive income in our stockholders' equity. Gains or losses on foreign currency transactions are included in other general and administrative expenses in the consolidated statements of income.

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(3)    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 US$4.7 million). 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 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 US$4.2 million is being amortized on a straight-line basis over a fifteen-year period.

        The consolidated financial statements include the results of operations of the above businesses from their respective dates of acquisition.

Hoenig

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

        Under the terms of the transaction, 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. The initial $2.4 million cash deposit balance as well as any subsequent recoveries from third parties are classified in cash restricted or segregated under regulations and other and a corresponding liability is recorded as accounts payable and accrued expenses in our consolidated statement of financial condition as of December 31, 2003.

        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 as follows:

i.

Exchange seats - at the acquisition date, the market value of two New York Stock Exchange ("NYSE") memberships owned by Hoenig was $5.0 million compared with Hoenig's carrying

56

value of $0.8 million. This resulted in a $4.2 million allocation of the purchase consideration to such memberships.

ii.

Trade name - $0.5 million was allocated to the "Hoenig" trade name, which is being amortized over three years from the date of acquisition.



iii.

Valuation Allowance - a $3.7 million allowance was provided in relation to certain deferred tax assets as it appeared more likely than not that these assets would not be realized.



iv.

Liabilities - - we recorded liabilities totaling approximately $3.1 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 $56.8 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		2,817
Total purchase price	$	107,829
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		(3,129	)
Other, net		(329	)
Goodwill		56,825
Total purchase price	$	107,829

        This business combination, accounted under the purchase method, was recorded using management's final assessment of the fair value of the net assets acquired.

        The following represents the summary unaudited pro forma condensed combined results of operations for the years ended December 31, 2002 and 2001 as if the Hoenig acquisition had occurred at the beginning of each of the periods presented (dollars in thousands, except per share data):

	Year Ended December 31,
	2002		2001
Total revenues	$	417,606	$	424,261
Net income		66,493		77,785
Basic earnings per share		1.37		1.62
Diluted earnings per share		1.36		1.60

        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.

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(4)    Goodwill and Other Intangibles

        The following is a summary of goodwill and other intangibles at December 31:

	Goodwill				Other Intangibles
	2003		2002		2003		2002
	(Dollars in thousands)
Reporting Units:
U.S. Operations	$	56,774	$	55,643	$	270	$	432
International Operations		20,369		21,890		4,477		4,602
Total	$	77,143	$	77,533	$	4,747	$	5,034

        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. Other intangibles with definite lives, 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.

        On September 3, 2002, we recorded approximately $56.8 million of goodwill in relation to the completion of the Hoenig acquisition. See Note 3, Acquisitions. As of December 31, 2003, goodwill also included an aggregate of $20.3 million recognized as part of our November 2000 acquisition of ITG Australia and our May 2001 acquisition of ITG Europe. During the year ended December 31, 2003, no goodwill was deemed impaired and, accordingly, no write-off was required.

        As of December 31, 2003 and December 31, 2002, other intangibles included (i) the software license acquired in 2001 from KastenNet ($4.4 million and $3.9 million respectively), (ii) the Hoenig trade name ($0.3 million and $0.5 million), and (iii) certain trading rights principally in Hong Kong ($0.1 million and $0.8 million). These other intangibles are amortized over their respective estimated useful life, which ranges from 3 to 15 years. As of December 31, 2003 we have taken a $0.5 million impairment write-down to reflect the fair value of our Hong Kong trading rights.

        We recorded amortization expense in relation to other intangibles of approximately $0.6 million and $0.5 million for the years ended December 31, 2003 and December 31, 2002 respectively. Estimated amortization expense for existing other intangibles is approximately $2.0 million in total for the five-year period ending December 31, 2008.

        Had we applied the non-amortization provisions of SFAS No. 142 during the year ended December 31, 2001, net income and per share data for the years ended December 31, 2003, 2002 and 2001 would have been as follows (dollars in thousands, except per share data):

	Year ended December 31,
	2003		2002		2001
Reported net income	$	41,953	$	73,810	$	78,895
Add back goodwill amortization		—		—		1,105
Adjusted net income	$	41,953	$	73,810	$	80,000

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Basic earnings per share:
Reported net income	$	0.89	$	1.52	$	1.65
Add back amortization of goodwill		—		—		0.02
Adjusted net income	$	0.89	$	1.52	$	1.67
Diluted earnings per share:
Reported net income	$	0.89	$	1.51	$	1.62
Add back amortization of goodwill		—		—		0.02
Adjusted net income	$	0.89	$	1.51	$	1.64

(5)    Restructuring Charges

        In accordance with EITF No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring), in 2002 we implemented a plan to align our infrastructure with expected levels of trading volume. As a result of this decision, we recorded a $5.9 million charge consisting of severance and related costs. The following is a summary of the restructuring charges recognized in December 2002 and the activity through December 31, 2003 (dollars in thousands):

Total restructuring charges	$	5,874
Amount paid in 2002		1,414
Balance at December 31, 2002		4,460
Amount paid in 2003		4,320
Adjustments 2003		(140	)
Balance at December 31, 2003	$	0

        The restructuring was completed in 2003.

(6)    Securities Owned and Sold, Not Yet Purchased

        The following is a summary of securities owned and sold, not yet purchased at December 31:

		Securities Owned				Securities Sold, Not Yet Purchased
		2003		2002		2003		2002
		(Dollars in thousands)
Auction rate preferred stock		$	10,500	$	60,950	$	—	$	—
State and municipal government obligations			7,125		3,500		—		—
U.S. treasury securities			—		6,319		—		—
Corporate stocks			1,537		505		1,264		37
Other			5,012		4,370		—		—
	Total	$	24,174	$	75,644	$	1,264	$	37

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        Included in securities owned are certain securities that are not readily marketable because (a) there is no market based upon quoted market prices from third parties, (b) they cannot be publicly offered or sold unless registration has been effected under the securities Act of 1933, or (c) they cannot be offered or sold because of other arrangements, restrictions, or conditions applicable to the securities or to the Company. At December 31, 2003, the Company held (a) warrants at an estimated fair value of $40,000 and (b) 758,000 shares of corporate stock in a privately held company with a fair value of zero as determined by management since a market price is not observable or measurable. Marketable securities owned are valued using market quotes from third parties. Unrealized gains and losses are included in other revenues in the Consolidated Statement of Income.

(7)    Receivables From and Payables To Brokers, Dealers and Other

        The following is a summary of receivables from and payables to brokers, dealers and other at December 31:

		Receivables From						Payables To
		2003			2002			2003		2002
		(Dollars in thousands)
Customers		$	168,448		$	132,061		$	116,792	$	100,263
Clearing brokers and other			53,783			29,787			70,972		38,875
Allowance for doubtful receivables			(2,371	)		(2,555	)		—		—
	Total	$	219,860		$	159,293		$	187,764	$	139,138

        We maintain an allowance for doubtful accounts based upon estimated collectibility of receivables. We recorded additions to the allowance of $0.4 million and $0.2 million, and reductions against the allowance of $0.1 million and $0.9 million during the years ended December 31, 2003 and 2002, respectively. We also reduced the allowance by $0.5 million for items originally included as part of the Hoenig purchase in 2002, but were subsequently collected in 2003.

(8)    Premises and Equipment

        The following is a summary of premises and equipment at December 31:

		2003		2002
		(Dollars in thousands)
Furniture, fixtures and equipment		$	83,880	$	75,432
Leasehold improvements			14,668		13,967
			98,548		89,399
Less: accumulated depreciation and amortization			73,460		60,400
	Total	$	25,088	$	28,999

        Depreciation and amortization expense relating to premises and equipment amounted to $14.4 million, $13.8 million, and $11.8 million in 2003, 2002, and 2001, respectively.

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(9)    Capitalized Software

        The following is a summary of capitalized software costs at December 31:

		2003		2002
		(Dollars in thousands)
Capitalized software costs		$	11,528	$	8,258
Less: accumulated amortization			4,953		1,676
	Total	$	6,575	$	6,582

        Software costs totaling $5.0 million and $4.9 million were capitalized in 2003 and 2002, respectively, primarily for the development of new versions of several products. Also during 2003 and 2002, capitalized software costs and related accumulated amortization were each reduced by $1.7 million and $6.6 million, respectively for fully amortized costs.

        Capitalized software costs of $1.1 million and $0.6 million were not subject to amortization as of December 31, 2003 and 2002, respectively, as the underlying products were not yet available for release to customers. In 2003, 2002 and 2001, other general and administrative expenses in our consolidated statements of income included $5.0 million, $2.4 million and $3.7 million, respectively, in relation to the amortization of capitalized software costs.

(10)    Accounts Payable and Accrued Expenses

        Accounts payable and accrued expenses consisted of the following at December 31:

		2003		2002
		(Dollars in thousands)
Deferred compensation		$	22,172	$	21,676
Accrued soft dollar research payables			18,797		20,927
Trade payables			10,813		9,818
Accrued compensation and benefits			6,197		7,307
Accrued restructuring costs			—		4,460
Accrued rent			2,387		2,372
Accrued telecom			2,132		1,890
Other accrued expenses			20,056		14,900
	Total	$	82,554	$	83,350

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(11)    Income Taxes

        Income tax expense (benefit) consisted of the following components:

	2003			2002			2001
	(Dollars in thousands)
Current
Federal	$	22,134		$	47,050		$	55,038
State		7,235			5,879			6,913
Foreign		548			601			580
		29,917			53,530			62,531
Deferred
Federal		(1,699	)		480			(3,993	)
State		(470	)		(567	)		(1,321	)
		(2,169	)		(87	)		(5,314	)
Total	$	27,748		$	53,443		$	57,217

        Deferred income taxes are provided for temporary differences in reporting certain items, principally deferred compensation. The tax effects of temporary differences that gave rise to the deferred tax asset at December 31 were as follows:

	2003			2002
	(Dollars in thousands)
Deferred compensation	$	9,712		$	9,549
Investment loss		3,659			3,659
Depreciation		3,055			2,606
NYSE exchange seats impairment		762			—
Valuation allowance		(3,659	)		(3,659	)
Other deferred tax liabilities, net		(1,382	)		(2,415	)
Total	$	12,147		$	9,740

        The valuation allowance of $3,659,000 relates solely to a capital loss carryforward generated by Hoenig in 2001. At December 31, 2003, management believes it is unlikely to generate a sufficient amount of capital gain to utilize the deferred tax asset within the carryforward period (expiring June 30, 2006). There has been no change in the valuation allowance in the current year. Management believes that realization of the remaining net deferred tax asset is more likely than not based on future reversals of existing taxable temporary differences and anticipated future taxable income as well as potential carryback capacity.

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        The effective tax rate varied from the U.S. Federal statutory income tax rate due to the following:

	2003		2002		2001
U.S. Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of Federal income tax effect	6.3		4.9		5.9
Non-deductible foreign losses	3.0		3.6		1.6
R&D tax credits	(5.0	)	(2.0	)	—
Other differences, net	0.5		0.5		(0.5	)
Effective income tax rate	39.8	%	42.0	%	42.0	%

(12)    Related Party Transactions

International operations

        Prior to our purchase of the remaining 50% stakes in our European subsidiaries in May 2001, the transactions described below were related party transactions.

        Pursuant to a software license agreement between Investment Technology Group International Limited ("ITGIL") and ITG Ventures Ltd., formerly ITG Technologies Limited ("ITG Ventures"), ITGIL invoiced ITG Ventures $0.8 million, in 2001 for development services.

        In 1999, ITG Inc. entered into service agreements with our related party, Investment Technology Group Limited. under which ITG Inc. provides introductory brokerage and related services. Investment Technology Group Limited's fees for these services are included in revenues and amounted to $473,000 in 2001.

        We received royalty revenue from our related party, ITG Ventures in the amount of $170,000 in 2001, pursuant to software license agreements.

(13)    Off Balance Sheet Risk and Concentration of Credit Risk

        In the normal course of business, we are involved in the execution of various customer securities transactions. Securities transactions are subject to the credit risk of counterparties or customer nonperformance. In connection with the settlement of non-U.S. securities transactions, Investment Technology Group, Inc. has provided third party financial institutions with guarantees in amounts up to a maximum of $136.0 million. In the event that a customer of ITG's subsidiaries fails to settle a securities transaction, or if the related ITG subsidiaries were unable to honor trades with a customer, Investment Technology Group, Inc. would be required to perform for the amount of such securities up to the $136.0 million cap. However, transactions are collateralized by the underlying security, thereby reducing the associated risk to changes in the market value of the security through settlement date. Therefore, the settlement of these transactions is not expected to have a material effect upon our financial statements. It is also our policy to review, as necessary, the credit worthiness of each counterparty and customer.

        In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirement for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This Interpretation clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to the guarantor's

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accounting for, and disclosure of, the issuance of certain types of guarantees. The adoption of Interpretation No. 45 did not have a material effect on our results of operations, financial position or cash flows.

        Financial instruments that potentially subject us to concentrations of credit risk are primarily cash and cash equivalents, securities owned, at fair value and receivables from brokers, dealers and other. Cash and cash equivalents and securities owned, at fair value are deposited with high credit quality financial institutions.

(14)    Net Capital Requirement

        ITG Inc., AlterNet and ITG Execution Services. 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. AlterNet and ITG Execution Services, Inc. have elected to use the basic method permitted by Rule 15c3-1, which requires that they maintain minimum net capital equal to the greater of $100,000 for AlterNet and $5,000 for ITG Execution Services, Inc., or 6²/3% of aggregate indebtedness.

        At December 31, 2003, ITG Inc., AlterNet and ITG Execution Services. had net capital of $107.3 million, $3.6 million and $3.9 million, respectively, of which $107.0 million, $3.5 million and $3.9 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 as of December 31, 2003 of approximately $8.9 million, $3.7 million, $27.1 million and $6.7 million, respectively.

        As of December 31, 2003, ITG Inc. on behalf of its Hoenig division, held a $4.3 million cash balance in a segregated bank account for the benefit of customers under certain directed brokerage arrangements.

(15)    Stockholders' Equity

        Our dividend policy is to retain earnings to finance the operations and expansion of our businesses. As a result, we have never paid and do not anticipate paying cash dividends on our common stock at this time.

        As part of our share repurchase program, our Board of Directors authorizes management to use its discretion to purchase an agreed-upon maximum number of shares of common stock in the open market or in negotiated transactions. During the year ended December 31, 2003, we purchased approximately 3.0 million shares of our common stock at an average cost of $16.73 per share and for $50.1 million in the aggregate. We purchased approximately 2.0 million shares of our common stock at an average cost of $31.75 per share and for $63.7 million in the aggregate during the year ended December 31, 2002. As of December 31, 2003, we repurchased all shares permitted under the most recent share repurchase program authorization.

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(16)    Employee and Non Employee Director Stock and Benefit Plans

Stock option plan

        At December 31, 2003, we had a stock option plan.

        Under the Amended and Restated 1994 Stock Option and Long-term Incentive Plan (the "1994 Plan"), options to purchase 9,506,096 shares of our Common Stock are reserved for issuance under the plan. Shares of Common Stock which are attributable to awards which have expired, terminated or been canceled or forfeited during any calendar year are generally available for issuance or use in connection with future awards during such calendar year. Options that have been granted under the 1994 Plan are exercisable on dates ranging through January 2010. The 1994 Plan will remain in effect until March 31, 2007, unless sooner terminated by the Board of Directors. After such date, no further stock options shall be granted but previously granted stock options shall remain outstanding in accordance with their applicable terms and conditions, as stated in the 1994 Plan.

        In June 1995, the Board of Directors adopted, subject to stockholder approval, the Non-Employee Directors' Plan. The Non-Employee Directors' Plan generally provides for an annual grant to each non-employee director of an option to purchase 6,141 shares of Common Stock. In addition, the Non-Employee Directors' Plan provides for the automatic grant to a non-employee director, at the time he or she is initially elected, of a stock option to purchase 24,564 shares of Common Stock. Stock options granted under the Non-Employee Directors' Plan are non-qualified stock options having an exercise price equal to the fair market value of the Common Stock at the date of grant. All stock options granted through January 21, 2003 became exercisable three months after the date of grant. All options granted subsequent to January 21, 2003 vest and become exercisable in equal installments on or about the first, second, and third anniversaries of the grant date. Stock options granted under the Non-Employee Directors' Plan expire five years after the date of grant. A total of 557,050 shares of Common Stock are reserved for issuance under the Non-Employee Directors' Plan.

        Under the 1994 Plan, the Company is permitted to grant performance based stock options. In 2003, performance-based options for 1.1 million shares were granted to select employees that vest, in whole or in part, on the third anniversary of the grant only if consolidated pre-tax profits of the Company reach certain levels. The Company recognizes stock based compensation expense (see Note 2—Summary of Significant Accounting Policies) over this three-year period. For the year-ended December 31, 2003, the Company recorded stock based compensation expense of $0.8 million based on management's estimates of performance achievement. The performance based options vest at the end of the three year period and could result in no options actually being granted as a result of not meeting the three-year performance metric. The option summary tables below include 100% of the options granted regardless of management's estimate of the likelihood of achieving the performance metric. No such performance based options were granted in 2002 or 2001.

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        A summary of the status of our stock option plan as of December 31, 2003, 2002 and 2001 and changes during the years ended on those dates is presented below:

		Number of Shares		Weighted Average Exercise Price
Options Outstanding
Outstanding at December 31, 2000		3,563,445		$	22.21
	Granted	1,314,903			35.70
	Exercised	(1,017,146	)		19.35
	Forfeited	(169,019	)		24.38
Outstanding at December 31, 2001		3,692,183			27.70
	Granted	949,630			31.87
	Exchanged by Hoenig employees for ITG options	99,448			22.02
	Exercised	(759,146	)		23.87
	Forfeited	(84,419	)		27.44
Outstanding at December 31, 2002		3,897,696			29.36
	Granted	1,367,551			13.80
	Exercised	(32,423	)		13.53
	Forfeited	(794,556	)		26.25
Outstanding at December 31, 2003		4,438,268			25.47
Amount Exercisable at December 31,
	2003	2,242,818			28.18
	2002	1,773,183			27.69
	2001	1,259,100			24.18

        The provision for income taxes excludes current tax benefits related to the exercise of stock options of $0.3 million, $5.5 million and $8.5 million for the years ended December 31, 2003, 2002 and 2001, respectively. Such benefit is reflected as an increase to Stockholders' Equity.

        The following table summarizes information about stock options outstanding at December 31, 2003:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding at December 31, 2003	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable at December 31, 2003	Weighted Average Exercise Price
$  9.69  –  $19.39	1,317,100	3.78	$	13.86	136,613	$	14.56
19.40  –    25.72	861,186	0.53		15.99	861,186		24.46
25.73  –    33.85	1,542,736	2.74		30.08	804,696		28.84
33.86  –    45.82	711,239	3.07		38.00	434,316		38.31
45.83  –    51.85	6,007	3.24		51.85	6,007		51.85
$  9.69  –  $51.85	4,438,268	2.73	$	25.47	2,242,818	$	28.18

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ITG Employee and Non Employee Director Benefit Plans

        All U.S. employees are eligible to participate in the Investment Technology Group, Inc. Retirement Savings Plan and the Investment Technology Group, Inc. Money Purchase Pension Plan (the "Plans"). These Plans include all eligible compensation (base salary, bonus, commissions, options and overtime) up to the Internal Revenue Service annual maximum, or $200,000 for 2003. The Plans' features include a guaranteed Company contribution of 3% of eligible pay to be made to all eligible employees regardless of participation in the Plans, a discretionary Company contribution based on total consolidated Company profits between 0% and 8% of eligible compensation regardless of participation in the Plans and a Company matching contribution of 66²/3% of voluntary employee contributions up to a maximum of 6% of eligible compensation per year. The costs for the Plans were $3,335,000, $2,767,000 and $6,221,000 in 2003, 2002 and 2001, respectively, and are included in compensation and employee benefits in the consolidated statements of income.

        Effective January 1, 1998, selected members of senior management and key employees participated in the Stock Unit Award Program ("SUA"), a mandatory tax-deferred compensation program established under the Amended and Restated 1994 Stock Option and Long-term Incentive Plan. Under the SUA, selected participants of the Company are required to defer receipt of (and thus defer taxation on) a graduated portion of their total cash compensation for units representing common stock equal in value to 115% of the compensation deferred. Each participant is automatically granted units, 15 days following the end of each calendar quarter based on participant's actual or assigned compensation reduction. The units are at all times fully vested and non-forfeitable. The units are to be settled on or after the third anniversary of the date of grant. Effective April 1, 2003, the SUA plan was amended prospectively to include mandatory participation for all employees earning total compensation per annum of $200,000 and greater. The amended plan also deferred receipt of (and thus taxation on) a graduated portion of their total cash compensation for units representing the Company's common stock equal in value to 130% of the compensation deferred. The units representing 100% of the total compensation deferred are at all times fully vested and non-forfeitable; however the units are restricted to settlement to common shares half of which are to be distributed on the third anniversary of the deferral and the remaining half on the sixth anniversary of deferment. The match representing 30% is contingent only on employment with the Company and vests 50% on the third anniversary of the match and the remaining 50% on the sixth year of the match. We included the participants' deferral in compensation expense and recognized additional compensation expense of $227,000, $758,000, and $801,000 in 2003, 2002, and 2001, respectively, which represents the 15% (and 30%, effective April 1, 2003) excess over the amount actually deferred by the participants. During 2003, 2002, and 2001, we granted 219,054, 115,477, and 170,808 units, respectively, to the employees in the SUA. During 2003, 2002, and 2001 we issued 127,769, 99,230 and 158,889 shares, respectively, of our common stock in connection with the SUA.

        Under the Directors' Retainer Fee Subplan, adopted in 2002, directors who are not our employees receive an annual retainer fee of $50,000. This retainer fee is payable, at the election of each director, either in (i) cash, (ii) ITG common stock valued at $50,000 on the grant date or (iii) under a deferred compensation plan which provides deferred share units valued at $50,000 on the grant date which convert to freely sellable shares when the director retires from our board of directors. The cost of the Directors' Retainer Fee Subplan was $350,000 and $150,000 in 2003 and 2002, respectively, and is included in other general and administrative expenses in the consolidated statements of income.

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        In November 1997, our Board of Directors approved the ITG Employee Stock Purchase Plan ("ESPP"), an employee stock purchase plan qualified under Section 423 of the Internal Revenue Code. The ESPP became effective February 1, 1998 and allows all full-time employees to purchase shares of our Common Stock at a 15% discount through automatic payroll deductions.. In 2003, upon adoption of the fair value method for recording stock based compensation, we recognized expense of $146,000 in connection with the 15% discount provided to ESPP participants.

(17)    Earnings Per Share

        Net earnings per share of common stock is based upon an adjusted weighted average number of shares of common stock outstanding to reflect our three-for-two stock split in December 2001. The average number of outstanding shares for the years ended December 31, 2003, 2002, and 2001 were 47.0 million, 48.5 million and 47.9 million, respectively.

        The following is a reconciliation of the basic and diluted earnings per share computations for the years ended December 31:

		2003		2002		2001
		(In thousands, except per share amounts)
Net income for basic and diluted earnings per share		$	41,953	$	73,810	$	78,895
Shares of common stock and common stock equivalents:
	Average number of common shares		46,996		48,464		47,886
	Average shares used in basic computation		46,996		48,464		47,886
	Effect of dilutive securities		20		539		803
	Average shares used in diluted computation		47,016		49,003		48,689
Earnings per share:
	Basic	$	0.89	$	1.52	$	1.65
	Diluted	$	0.89	$	1.51	$	1.62

        At December 31, 2003, 2002 and 2001, approximately 3,691,000, 759,000 and 767,000 securities, respectively, were not included in the computation of diluted earnings per share because their effects would have been antidilutive.

(18)    Commitments and Contingencies

Lease commitments

        We have entered into lease and sublease agreements with third parties for certain offices and equipment, which expire at various dates through 2018. Rent expense for the years ended

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December 31, 2003, 2002, and 2001 was $8.9 million, $7.7 million, and $6.0 million, respectively. Minimum future rental commitments under non-cancelable operating leases follow:

Year Ending December 31,		(dollars in thousands)
2004		$	8,622
2005			7,523
2006			5,021
2007			4,896
2008			4,940
2009 and thereafter			18,828
	Total	$	49,830

Other commitments

        Pursuant to employment agreements expiring in 2004, we are obligated to pay five employees aggregate minimum compensation of $4.5 million in the year ending December 31, 2004. In the event of termination of employment without cause prior to their respective expiration, these agreements provide for aggregate severance payments totaling the lower of $4.5 million or the remaining minimum compensation due, net of payments made through the termination date.

(19)    Segment Reporting

        Segment information is presented in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information".

        The Company's business structure is organized into 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.

        Due to the highly integrated nature of global financial markets, the Company manages its international operations segment as a whole. Accordingly, management believes that results by geographic region are not necessarily conducive to a better understanding of its business.

        The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment transactions that occur are based on specific criteria or approximate market prices. The Company allocates resources to and evaluates performance of its reportable segments based on income before income tax expense.

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

	U.S. Operations		International Operations			Consolidated
2003
Total revenues	$	273,781	$	60,211		$	333,992
Income (loss) before income tax expense		74,262		(4,561	)		69,701
Identifiable Assets		344,525		305,323			649,848
Capital purchases		8,675		1,421			10,096
2002
Total revenues	$	346,040	$	41,541		$	387,581
Income (loss) before income tax expense		137,919		(10,666	)		127,253
Identifiable Assets		360,052		234,202			594,254
Capital purchases		10,144		3,523			13,667
2001
Total revenues	$	351,041	$	26,366		$	377,407
Income (loss) before income tax expense		142,461		(6,349	)		136,112
Identifiable Assets		337,039		81,439			418,478
Capital purchases		12,065		1,488			13,553

(20)    Subsequent Event

        On February 27, 2004 we exercised our option to purchase the remaining 75% of Radical Corporation which we did not already own, which purchase is scheduled to close at the end of March 2004. The additional purchase price, which has not yet been finalized, is contingent upon performance as per a defined calculation in the purchase agreement and will not exceed $18.0 million.

(21)    Supplementary Financial Information (unaudited)

        The following tables set forth certain unaudited financial data for our quarterly operations in 2003, 2002, and 2001. The following information has been prepared on the same basis as the annual information presented elsewhere in this report and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the quarterly periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.

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INVESTMENT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

		Unaudited Year Ended December 31, 2003								Unaudited Year Ended December 31, 2002
		Fourth Quarter		Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter
		(In thousands, except per share amounts)
Total Revenues		$	86,517	$	85,322	$	88,642	$	73,511	$	93,571	$	96,874	$	99,398	$	97,738
Expenses:
	Compensation and employee benefits		29,836		29,028		30,438		28,768		29,997		28,770		29,474		26,161
	Transaction processing		12,756		11,501		11,965		10,094		13,727		13,160		11,664		11,908
	Software royalties		4,367		4,881		4,530		3,116		3,772		4,563		5,387		5,921
	Occupancy and equipment		7,431		7,963		8,093		7,662		7,574		7,311		6,851		6,281
	Telecommunications and data processing services		4,630		4,457		4,757		4,490		4,888		4,279		4,040		4,246
	Restructuring charges		—		—		—		—		5,874		—		—		—
	Other general and administrative		9,536		8,106		8,746		7,140		7,053		5,794		6,196		5,437
Total expenses			68,556		65,936		68,529		61,270		72,885		63,877		63,612		59,954
Income before income tax expense			17,961		19,386		20,113		12,241		20,686		32,997		35,786		37,784
Income tax expense			5,504		8,194		8,298		5,752		8,620		14,222		14,985		15,616
Net income		$	12,457	$	11,192	$	11,815	$	6,489	$	12,066	$	18,775	$	20,801	$	22,168
Basic earnings per share		$	0.27	$	0.24	$	0.25	$	0.14	$	0.25	$	0.39	$	0.43	$	0.45
Diluted earnings per share		$	0.27	$	0.24	$	0.25	$	0.14	$	0.25	$	0.39	$	0.42	$	0.45
Basic weighed average number of common shares outstanding			46,257		47,168		47,227		47,337		47,785		48,247		48,941		48,893
Diluted weighted average number of common shares outstanding			46,284		47,197		47,237		47,353		47,927		48,581		49,597		49,723

        Earnings per share for quarterly periods are based on average common shares outstanding in individual quarters; thus, the sum of earnings per share of the quarters may not equal the amounts reported for the full year.

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INVESTMENT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

		Unaudited Year Ended December 31, 2003								Unaudited Year Ended December 31, 2002
		Fourth Quarter		Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter
		(As a percentage of Total Revenues)
Total Revenues		100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Expenses:
	Compensation and employee benefits	34.5		34.0		34.3		39.1		32.1		29.7		29.7		26.8
	Transaction processing	14.7		13.5		13.5		13.7		14.7		13.6		11.7		12.2
	Software royalties	5.0		5.7		5.1		4.2		4.0		4.7		5.4		6.1
	Occupancy and equipment	8.6		9.4		9.1		10.4		8.1		7.5		6.9		6.4
	Telecommunications and data processing services	5.4		5.2		5.4		6.1		5.2		4.4		4.1		4.3
	Restructuring charges	0.0		0.0		0.0		0.0		6.3		0.0		0.0		0.0
	Other general and administrative	11.0		9.5		9.9		9.8		7.5		6.0		6.2		5.5
Total expenses		79.2		77.3		77.3		83.3		77.9		65.9		64.0		61.3
Income before income tax expense		20.8		22.7		22.7		16.7		22.1		34.1		36.0		38.7
Income tax expense		6.4		9.6		9.4		7.9		9.2		14.7		15.1		16.0
Net income		14.4	%	13.1	%	13.3	%	8.8		12.9	%	19.4	%	20.9	%	22.7	%

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Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        There were no changes in or disagreements with accountants reportable herein.

Item 9A.    Controls and Procedures

        The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, as of the end of such period, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective.

PART III

Item 10.    Directors and Executive Officers of the Registrant

        Information with respect to this item is contained in the Proxy Statement for the 2004 Annual Meeting of Stockholders, which is incorporated herein by reference.

Item 11.    Executive Compensation

        Information with respect to this item is contained in the Proxy Statement for the 2004 Annual Meeting of Stockholders, which is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management

        Information with respect to this item is contained in the Proxy Statement for the 2004 Annual Meeting of Stockholders, which is incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions

        Information with respect to this item is contained in the Proxy Statement for the 2004 Annual Meeting of Stockholders, which is incorporated herein by reference.

Item 14.    Principal Accounting Fees and Services

        Information with respect to this item is contained in the Proxy Statement for the 2004 Annual Meeting of Stockholders, which is incorporated herein by reference.

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PART IV

Item 15.    Exhibits, Financial Statements, Schedules and Reports on Form 8-K

        (a)(1)     Financial Statements

        Included in Part II of this report:

	Page
Independent Auditors' Report	45
Consolidated Statements of Financial Condition	46
Consolidated Statements of Income	47
Consolidated Statements of Changes in Stockholders' Equity	48
Consolidated Statements of Cash Flows	49
Notes to Consolidated Financial Statements	50

        (a)(2)     Schedules

        Schedules are omitted because the required information either is not applicable or is included in the financial statements or the notes thereto.

        (a)(3)     Exhibits

Exhibits Number	Description
2.1	Agreement and Plan of Merger, dated as of March 17, 1999, by and between Jefferies Group, Inc. Company (incorporated by reference to Exhibit 2.1 Annual Report on Form 10-K for the year ended December 31, 1998).
2.2	Distribution Agreement, dated as of March 17, 1999, by and among Jefferies Group, Inc. and JEF Holding Inc. (incorporated by reference to Exhibit 2.2 to the Annual Report on Form 10-K for the year Company, ended December 31, 1998).
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).
4.1	Form of Certificate for Common Stock of the Company (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.1	Joint Venture Agreement, dated October 1, 1987, between Jefferies & Company, Inc. and BARRA, Inc. (formerly Barr Rosenberg Associates, Inc.) (incorporated by reference to Exhibit 10.1.1 to Registration Statement Number 33-76474 on Form S-1 as declared effective by the Securities and Exchange Commission on May 4, 1994 (the "Registration Statement")).
10.1.1	Exclusive Software License Agreement, dated October 1, 1987, between the POSIT Joint Venture and Jefferies & Company, Inc. (incorporated by reference to Exhibit 10.1.2 to Registration Statement).
10.1.2	Amendment No. 1 to Exclusive Software License Agreement, dated August 1, 1990, between the POSIT Joint Venture and Jefferies & Company, Inc. (incorporated by reference to Exhibit 10.1.3 to Registration Statement).

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10.1.3	Consent of BARRA, Inc. to the assignment to the Company of the interests of Jefferies & Company, Inc. in the Posit Joint Venture referenced in item 10.1.1 and rights in the Software License Agreement referenced in item 10.1.2 (incorporated by reference to Exhibit 10.1.4 to Registration Statement).
10.2	Fully Disclosed Clearing Agreement, dated as of January 1, 1999, by and between Jefferies & Company, Inc. and ITG Inc. (incorporated by reference to Exhibit 10.2.3 to the Annual Report on Form 10-K for the year ended December 31, 1998).
10.2.1	Benefits Agreement, dated as of March 17, 1999, by and between Jefferies Group, Inc. and JEF Holding Company, Inc. (incorporated by reference to Exhibit 10.2.4 to the Annual Report on Form 10-K for the year ended December 31, 1998).
10.2.2	Amended and Restated Tax Sharing Agreement, dated as of March 17, 1999, by and among Jefferies Group, Inc., JEF Holding Company, Inc. and the Company (incorporated by reference to Exhibit 10.2.5 to the Annual Report on Form 10-K for the year ended December 31, 1998).
10.2.3	Tax Sharing and Indemnification Agreement, dated as of March 17, 1999, by and among Jefferies Group, Inc., JEF Holding Company, Inc. and the Company (incorporated by reference to Exhibit 10.2.6 to the Annual Report on Form 10-K for the year ended December 31, 1998).
10.3	Amended and Restated 1994 Stock Option and Long-Term Incentive Plan (incorporated by reference to Exhibit A to the 1997 Annual Meeting Proxy Statement).
10.3.1	Non-Employee Directors' Stock Option Plan (incorporated by reference to Appendix A to the 1996 Annual Meeting Proxy Statement).
10.3.2	Form of Stock Option Agreement between the Company and certain employees of the Company (incorporated by reference to Exhibit 10.4.3 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.3.3*	Amended Form of Stock Option Agreement between the Company and certain employees of the Company (2003).
10.3.4	Amended and Restated Pay-For-Performance Incentive Plan (incorporated by reference to Exhibit A to the 2003 Annual Meeting Proxy Statement).
10.3.5	Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3.1A to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.3.6	Fourth Amended and Restated Stock Unit Award Program (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 27, 2003).
10.3.7	Investment Technology Group, Inc. Deferred Compensation Plan, dated as of January 1, 1999 (incorporated by reference to Exhibit 10.4.7 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.3.8	Employment Agreement between ITG Inc. and Raymond L. Killian, Jr., dated July 1, 2002 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 27, 2002).
10.3.9	Investment Technology Group, Inc. Directors' Retainer Fee Subplan (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended September 27, 2002).

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10.4	Lease, dated July 11, 1990, between AEW/LBA Acquisition Co. LLC (as successor to 400 Corporate Pointe, Ltd.) and Integrated Analytics Corporation, as assigned by Integrated Analytics Corporation to the Company (incorporated by reference to Exhibit 10.3.3 to Registration Statement).
10.4.1	First Amendment to Lease, dated as of June 1, 1995, between AEW/LBA Acquisition Co. LLC (as successor to 400 Corporate Pointe, Ltd.) and the Company (incorporated by reference to Exhibit 10.5.7 to Annual Report of Form 10-K for the year ended December 31, 1996).
10.4.2	Second Amendment to Lease, dated as of December 5, 1996, between Arden Realty Limited Partnership and the Company (incorporated by reference to Exhibit 10.5.2 to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.4.3	Third Amendment to Lease, dated as of March 13, 1998 between Arden Realty Finance Partnership, L.P. and the Company (incorporated by reference to Exhibit 10.5.3 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.4.4	Fourth Amendment to Lease, dated as of February 29, 2000 between Arden Realty Finance Partnership, L.P. and the Company (incorporated by reference to Exhibit 10.5.4 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.4.5	Lease, dated as of February 29, 2000 between Arden Realty Finance IV, L.L.C. and the Company (incorporated by reference to Exhibit 10.5.5 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.4.6	First Amendment to lease, dated as of April 1, 2000, between Arden Realty Finance IV, L.L.C. and the Company (incorporated by reference to Exhibit 10.5.6 to the Annual Report on Form 10-K for the year ended December 31, 2001).
10.4.7	Lease, dated October 4, 1996, between Spartan Madison Corp. and the Company (incorporated by reference to Exhibit 10.5.3 to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.4.8	First Supplemental Agreement, dated as of January 29, 1997, between Spartan Madison Corp. and the Company (incorporated by reference to Exhibit 10.5.4 to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.4.9	Second Supplemental Agreement, dated as of November 25, 1997, between Spartan Madison Corp. and the Company (incorporated by reference to Exhibit 10.5.5 to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.4.10	Third Supplemental Agreement dated as of September 29, 1999 between Spartan Madison Corp. and the Company (incorporated by reference to Exhibit 10.5.9 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.4.11	Lease dated March 10, 1995, between Boston Wharf Co. and the Company (incorporated by reference to Exhibit 10.5.6 to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.5*	Stock Purchase Agreement dated as of June 11, 2003, by and among the Company, Radical Corporation, and the Individuals Named Therein.
21*	Subsidiaries of Company.
31.1*	Rule 13a-14(a) Certification

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31.2*	Rule 13a-14(a) Certification
32.1*	Section 1350 Certification
23*	Consent of KPMG LLP.

*

Filed herewith

        (b)   Reports on Form 8-K

        We filed Current Reports on Form 8-K dated January 27, 2004, January 12, 2004, December 8, 2003 and November 10, 2003 relating, respectively, to our press release announcing financial results for the quarter and year ended December 31, 2003 and our press releases announcing trading statistics for the months ended December 31, 2003, November 30, 2003 and October 31, 2003.

        (c)   Index to Exhibits            See list of exhibits at Item 14(a)(3) above and exhibits following.

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) 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.
By:	/s/  HOWARD C. NAPHTALI Howard C. Naphtali Chief Financial Officer and Duly Authorized Signatory of Registrant

Dated: March 12, 2004

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons and on behalf of the Registrant in the capacities and on the dates indicated.

Name	Title	Date
/s/  ROBERT J. RUSSEL Robert J. Russel	Chief Executive Officer, President and Director	March 12, 2004
/s/  HOWARD C. NAPHTALI Howard C. Naphtali	Managing Director and Chief Financial Officer (Principal Financial Officer)	March 12, 2004
/s/  ANGELO BULONE Angelo Bulone	Senior Vice President and Controller (Principal Accounting Officer)	March 12, 2004
/s/  FRANK E. BAXTER Frank E. Baxter	Director	March 12, 2004
/s/  J. WILLIAM BURDETT J. William Burdett	Director	March 12, 2004
/s/  NEAL S. GARONZIK Neal S. Garonzik	Director	March 12, 2004
/s/  RAYMOND L. KILLIAN, JR. Raymond L. Killian, Jr.	Chairman of the Board of Directors	March 12, 2004

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/s/  WILLIAM I JACOBS William I Jacobs	Director	March 12, 2004
/s/  ROBERT L. KING Robert L. King	Director	March 12, 2004
/s/  MAUREEN O'HARA Maureen O'Hara	Director	March 12, 2004
/s/  MARK A. WOLFSON Mark A. Wolfson	Director	March 12, 2004

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EXHIBIT INDEX

Exhibits Number	Description	Sequentially Numbered Page
2.1	Agreement and Plan of Merger, dated as of March 17, 1999, by and between Jefferies Group, Inc. Company (incorporated by reference to Exhibit 2.1 Annual Report on Form 10-K for the year ended December 31, 1998).
2.2	Distribution Agreement, dated as of March 17, 1999, by and among Jefferies Group, Inc. and JEF Holding Inc. (incorporated by reference to Exhibit 2.2 to the Annual Report on Form 10-K for the year Company, ended December 31, 1998).
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).
4.1	Form of Certificate for Common Stock of the Company (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.1	Joint Venture Agreement, dated October 1, 1987, between Jefferies & Company, Inc. and BARRA, Inc. (formerly Barr Rosenberg Associates, Inc.) (incorporated by reference to Exhibit 10.1.1 to Registration Statement Number 33-76474 on Form S-1 as declared effective by the Securities and Exchange Commission on May 4, 1994 (the "Registration Statement")).
10.1.1	Exclusive Software License Agreement, dated October 1, 1987, between the POSIT Joint Venture and Jefferies & Company, Inc. (incorporated by reference to Exhibit 10.1.2 to Registration Statement).
10.1.2	Amendment No. 1 to Exclusive Software License Agreement, dated August 1, 1990, between the POSIT Joint Venture and Jefferies & Company, Inc. (incorporated by reference to Exhibit 10.1.3 to Registration Statement).
10.1.3	Consent of BARRA, Inc. to the assignment to the Company of the interests of Jefferies & Company, Inc. in the Posit Joint Venture referenced in item 10.1.1 and rights in the Software License Agreement referenced in item 10.1.2 (incorporated by reference to Exhibit 10.1.4 to Registration Statement).
10.2	Fully Disclosed Clearing Agreement, dated as of January 1, 1999, by and between Jefferies & Company, Inc. and ITG Inc. (incorporated by reference to Exhibit 10.2.3 to the Annual Report on Form 10-K for the year ended December 31, 1998).
10.2.1	Benefits Agreement, dated as of March 17, 1999, by and between Jefferies Group, Inc. and JEF Holding Company, Inc. (incorporated by reference to Exhibit 10.2.4 to the Annual Report on Form 10-K for the year ended December 31, 1998).
10.2.2	Amended and Restated Tax Sharing Agreement, dated as of March 17, 1999, by and among Jefferies Group, Inc., JEF Holding Company, Inc. and the Company (incorporated by reference to Exhibit 10.2.5 to the Annual Report on Form 10-K for the year ended December 31, 1998).

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10.2.3	Tax Sharing and Indemnification Agreement, dated as of March 17, 1999, by and among Jefferies Group, Inc., JEF Holding Company, Inc. and the Company (incorporated by reference to Exhibit 10.2.6 to the Annual Report on Form 10-K for the year ended December 31, 1998).
10.3	Amended and Restated 1994 Stock Option and Long-Term Incentive Plan (incorporated by reference to Exhibit A to the 1997 Annual Meeting Proxy Statement).
10.3.1	Non-Employee Directors' Stock Option Plan (incorporated by reference to Appendix A to the 1996 Annual Meeting Proxy Statement).
10.3.2	Form of Stock Option Agreement between the Company and certain employees of the Company (incorporated by reference to Exhibit 10.4.3 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.3.3*	Amended Form of Stock Option Agreement between the Company and certain employees of the Company (2003).
10.3.4	Amended and Restated Pay-For-Performance Incentive Plan (incorporated by reference to Exhibit A to the 2003 Annual Meeting Proxy Statement).
10.3.5	Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3.1A to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.3.6	Fourth Amended and Restated Stock Unit Award Program (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 27, 2003).
10.3.7	Investment Technology Group, Inc. Deferred Compensation Plan, dated as of January 1, 1999 (incorporated by reference to Exhibit 10.4.7 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.3.8	Employment Agreement between ITG Inc. and Raymond L. Killian, Jr., dated July 1, 2002 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 27, 2002).
10.3.9	Investment Technology Group, Inc. Directors' Retainer Fee Subplan (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended September 27, 2002).
10.4	Lease, dated July 11, 1990, between AEW/LBA Acquisition Co. LLC (as successor to 400 Corporate Pointe, Ltd.) and Integrated Analytics Corporation, as assigned by Integrated Analytics Corporation to the Company (incorporated by reference to Exhibit 10.3.3 to Registration Statement).
10.4.1	First Amendment to Lease, dated as of June 1, 1995, between AEW/LBA Acquisition Co. LLC (as successor to 400 Corporate Pointe, Ltd.) and the Company (incorporated by reference to Exhibit 10.5.7 to Annual Report of Form 10-K for the year ended December 31, 1996).
10.4.2	Second Amendment to Lease, dated as of December 5, 1996, between Arden Realty Limited Partnership and the Company (incorporated by reference to Exhibit 10.5.2 to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.4.3	Third Amendment to Lease, dated as of March 13, 1998 between Arden Realty Finance Partnership, L.P. and the Company (incorporated by reference to Exhibit 10.5.3 to the Annual Report on Form 10-K for the year ended December 31, 1999).

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10.4.4	Fourth Amendment to Lease, dated as of February 29, 2000 between Arden Realty Finance Partnership, L.P. and the Company (incorporated by reference to Exhibit 10.5.4 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.4.5	Lease, dated as of February 29, 2000 between Arden Realty Finance IV, L.L.C. and the Company (incorporated by reference to Exhibit 10.5.5 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.4.6	First Amendment to lease, dated as of April 1, 2000, between Arden Realty Finance IV, L.L.C. and the Company (incorporated by reference to Exhibit 10.5.6 to the Annual Report on Form 10-K for the year ended December 31, 2001).
10.4.7	Lease, dated October 4, 1996, between Spartan Madison Corp. and the Company (incorporated by reference to Exhibit 10.5.3 to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.4.8	First Supplemental Agreement, dated as of January 29, 1997, between Spartan Madison Corp. and the Company (incorporated by reference to Exhibit 10.5.4 to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.4.9	Second Supplemental Agreement, dated as of November 25, 1997, between Spartan Madison Corp. and the Company (incorporated by reference to Exhibit 10.5.5 to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.4.10	Third Supplemental Agreement dated as of September 29, 1999 between Spartan Madison Corp. and the Company (incorporated by reference to Exhibit 10.5.9 to the Annual Report on Form 10-K for the year ended December 31, 1999).
10.4.11	Lease dated March 10, 1995, between Boston Wharf Co. and the Company (incorporated by reference to Exhibit 10.5.6 to the Annual Report on Form 10-K for the year ended December 31, 1997).
10.5*	Stock Purchase Agreement dated as of June 11, 2003, by and among the Company, Radical Corporation, and the Individuals Named Therein.
21*	Subsidiaries of Company.
23*	Consent of KPMG LLP.
31.1*	Rule 13a-14(a) Certification
31.2*	Rule 13a-14(a) Certification
32.1*	Section 1350 Certification

*

Filed herewith

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QuickLinks

DOCUMENTS INCORPORATED BY REFERENCE
2003 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
PART I
PART II
INDEPENDENT AUDITORS' REPORT
INVESTMENT TECHNOLOGY GROUP, INC. Consolidated Statements of Financial Condition (In thousands, except share amounts)
INVESTMENT TECHNOLOGY GROUP, INC. Consolidated Statements of Income (In thousands, except per share amounts)
INVESTMENT TECHNOLOGY GROUP, INC. Consolidated Statements of Changes in Stockholders' Equity For the Years Ended December 31, 2003, 2002 and 2001 (In thousands, except share amounts)
INVESTMENT TECHNOLOGY GROUP, INC. Consolidated Statements of Cash Flows (In thousands)
INVESTMENT TECHNOLOGY GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART III
PART IV
SIGNATURES
EXHIBIT INDEX

EX-10.3.3

Exhibit 10.3.3

STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (the “Agreement”) is entered into as of     , 2003, between INVESTMENT TECHNOLOGY GROUP, INC., a Delaware corporation (the “Company”) and                                , an employee of the Company (“Employee”).

WHEREAS, the Company has determined that it is in the interest of the Company to provide the Employee with an option to purchase the common stock of the Company:

NOW THEREFORE, the parties agree as follows:

1.1.  The Company has granted to the Employee a nonqualified stock option (the “Option”) to purchase               shares of the Company’s Common Stock (the “Common Stock”), for a price per share equal to $           per share (the “Option Price”).  The date of grant of the Option is             , 2003 (“Grant Date”).  This Option is intended to be a nonqualified stock option and shall not be treated as an incentive stock option under the provisions of the Internal Revenue Code of 1986, as amended.

1.2.  The Option is granted under Section 6.1 of the Company’s 1994 Stock Option and Long-Term Incentive Plan, as amended (the “Plan”).  All of the terms and conditions of the Plan are hereby incorporated by reference in this Agreement as though fully set forth herein.  Terms defined in the Plan but not in this Agreement shall have the meanings set forth in the Plan.  To the extent of any conflict between the provisions of this Agreement and those of the Plan, the provisions of the Plan shall govern.  Employee acknowledges receipt of a copy of the Plan, accepts the Option subject to the terms and conditions set forth in the Plan and this Agreement, and consents to and agrees to comply with such terms and conditions.

1.3.  This Option is granted for no consideration other than the services of Employee and Employee’s agreements set forth herein.

1.4.  The grant of the Option is exempt from the provisions of Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) pursuant to the provisions of Rule l6b-3, all of the requirements of which have been satisfied.

2.1.  Except as otherwise provided herein, a percentage between 0% and 100% of the Option will vest and become exercisable on January 1, 2006  provided the Employee has remained continuously employed by the Company or any Subsidiary (as defined below) through such date, based on the amount of the Company’s “Cumulative Three Year Pre-Tax Operating Income” (as defined below) determined in accordance with the following schedule:

Vesting Thresholds  - Cumulative Three Year Pre-Tax Operating Income	Percentage of Options that Vest
Less than $	0	%
$	25	%
$	50	%
$	75	%
$	100	%

In the event the amount of Cumulative Three Year Pre-Tax Operating Income is between two of the thresholds set forth in the schedule above, the percentage of the Option that will vest and become exercisable will be determined by multiplying (A) 25% by (B) a fraction, the numerator of which is the excess of the actual Cumulative Three Year Pre-Tax Operating Income over the next lowest vesting threshold and the denominator of which is the excess of the next higher vesting threshold over the next lower vesting threshold and adding the product to the percentage corresponding to the next lowest vesting threshold .

To the extent the Option does not vest and become exercisable on January 1, 2006 , the Option will be forfeited.  Except as set forth below in this Section 2.1, in the event of termination of Employee’s employment with the Company or any Subsidiary for any reason prior to January 1, 2006 , the Option shall be forfeited.  Notwithstanding any other provision of this Agreement to the contrary, (i) in the event of a Change of Control (as defined in Section 3.2 below) prior to January 1, 2006 , 50% of the Option will become vested and exercisable at the time of such Change of Control and the remaining 50% of the Option will vest (if at all) and become exercisable on January 1, 2006  in accordance with the vesting thresholds outlined in this Section 2.1, provided in each case that the Employee’s employment with the Company or any Subsidiary has not terminated prior to such time; provided, however, that if, following a Change of Control, the Employee’s employment with the Company or any Subsidiary terminates due to his disability or death or due to termination by the Company not for Cause (as defined below), any unvested portion of the Option shall become vested and exercisable upon such termination of employment.

For purposes hereof, (i) “Cumulative Three Year Pre-Tax Operating Income” shall mean the Company’s “Pre-Tax Operating Income” for the period beginning January 1, 2003 through December 31, 2005, and (ii) “Pre-Tax Operating Income” means the consolidated pre-tax income of the Company and its subsidiaries, computed in accordance with generally accepted accounting principles, (A) prior to reduction for income taxes and (B) excluding one time gains, nonrecurring restructuring charges and non-cash charges (including impairment of good will).  The determination of “Cumulative Three Year Pre-Tax Operating Income” shall be made by the Committee in good faith, which determination shall be binding on the Employee.

For purposes hereof “Cause” shall be deemed to exist where Employee: (i) commits any act of fraud, willful misconduct or dishonesty in connection with their employment; (ii) fails, refuses or neglects to timely perform any material duty or job responsibility and such failure, refusal or neglect is not cured after appropriate warning; (iii) commits a material violation of any law, rule, regulation or by-law of any governmental authority (state, federal or foreign), any securities exchange or association or other regulatory or

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self-regulatory body or agency applicable to Company or any of its subsidiaries or affiliates or any general written policy or directive of Company or any of its subsidiaries or affiliates; (v) commits a crime involving dishonesty, fraud or unethical business conduct, or a felony; or (vii) is expelled or suspended, or is subject to an order temporarily or permanently enjoining Employee from an area of activity which constitutes a significant portion of Employee’s activities by the Securities and Exchange Commission, the National Association of Securities Dealers Regulation, Inc., any national securities exchange or any self-regulatory agency or governmental authority, state, foreign or federal.

For purposes hereof a “Subsidiary” shall mean any corporation or other organization, whether incorporated or unincorporated, (i) of which the Company or any other Subsidiary of the Company is a general partner (excluding partnerships, the general partnership interests of which held by the Company any Subsidiary do not have a majority of the voting interests in such partnership), or (ii) at least a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by the Company or by any one or more of its Subsidiaries.

2.2.  The Option (to the extent not earlier exercised or forfeited) will expire at 5:00 p.m., Eastern time, on the earliest of (i) the fifth anniversary of the Grant Date, (ii) if Employee’s employment with the Company (including all subsidiaries) terminates by reason of death or disability, one year following such termination of employment, or (iii) if Employee’s employment with the Company (including all subsidiaries) terminates for any other reason, 60 days after the date of such termination.

3.1.  To the extent the Option is exercisable under the provisions of Sections 2.1 and 2.2 hereof, the Option may be exercised by giving written notice of exercise of the Option to the Secretary of the Company, and it shall be deemed to have been received either when delivered personally to the office of the Secretary or at 11:58 p.m. on the date of any U.S. Postal Service postmark on the notice, whichever is earlier (the “Exercise Date”).  Such notice shall be irrevocable and must be accompanied by the payment of the purchase price as provided in Section 4 below.  Upon the exercise of the Option, the Company will transfer or will cause to be issued a certificate or certificates for the Common Stock being purchased as promptly as practicable.

3.2.  “Change of Control” means and shall be deemed to have occurred if:

(a)any person (within the meaning of the Exchange Act), other than the Company or a Related Party, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of Voting Securities representing 30% percent or more of the total voting power of all the then-outstanding Voting Securities; or

(b)the individuals who, as of the Grant Date, constitute the Board, together with those who first become directors subsequent to such date and whose recommendation, election or nomination for election to the Board was approved by a vote of at least a majority of the directors then still in office who either were directors as of the Grant Date or whose recommendation,

3

election or nomination for election was previously so approved, cease for any reason to constitute a majority of the members of the Board; or

(c)the stockholders of the Company approve a merger, consolidation, recapitalization or reorganization of the Company or one of its subsidiaries, reverse split of any class of Voting Securities, or an acquisition of securities or assets by the Company or one of its subsidiaries, or consummation of any such transaction if stockholder approval is not obtained, other than (i) any such transaction in which the holders of outstanding Voting Securities immediately prior to the transaction receive (or retain), with respect to such Voting Securities, voting securities of the surviving or transferee entity representing more than 50 percent of the total voting power outstanding immediately after such transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction, or (ii) any such transaction which would result in a Related Party beneficially owning more than 50 percent of the voting securities of the surviving or transferee entity outstanding immediately after such transaction; or

(d)the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets other than any such transaction which would result in a Related Party owning or acquiring more than 50 percent of the assets owned by the Company immediately prior to the transaction.

“Related Party” means (a) a Subsidiary ; (b) an employee or group of employees of the Company or any Subsidiary ; (c) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary ; or (d) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of Voting Securities.

“Voting Securities or Security” means any securities of the Company which carry the right to vote generally in the election of directors.

4.1.  The purchase price of Common Stock purchased by the Employee upon exercise of the Option (the “Option Shares”) shall be paid in full to the Company at the time of such exercise in cash (including by check) or by the surrender of Common Stock of the Company or a combination thereof, in accordance with Section 9.3 of the Plan, provided that Common Stock held for less than six months may be surrendered only with the approval of the Committee.

5.1.  The number and kind of shares purchasable upon exercise of the Option, and other terms of the Option, may be appropriately adjusted, in the discretion of the Committee, in accordance with Section 5.5 of the Plan, in order to prevent dilution or enlargement of the rights of the Employee.

6.1.  The Employee represents and warrants that the Employee is acquiring the Option for his/her own account and not with a view to distribution of this Option or the Option Shares.  As a condition to the exercise of the Option, and in the event that the Option Shares have not yet been registered under the Securities Act of 1933, as amended (the “Act”) at the time

4

they are issued, the Company may require the Employee to make any representation and/or warranty to the Company as may, in the judgment of counsel to the Company, be required under any applicable law or regulation, including but not limited to a representation and warranty that the Option Shares are being acquired only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required under the Act or any other applicable law, regulation or rule of any governmental agency.

7.1.  Neither the Employee nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey the Option or any amounts payable pursuant to the provisions of this Agreement, which Option and amounts are, and all rights under this Agreement are, expressly declared to be unassignable and nontransferable, other than by will or under the laws of descent and distribution.  No part of the Option or such amounts payable shall be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by the Employee or any other person, nor be transferable by operation of law in the event of the Employee’s or any other person’s bankruptcy or insolvency.

8.1.  Neither the Employee nor any other person shall acquire by reason of the Option or the Option Shares any right in or title to any assets, funds or property of the Company whatsoever including, without limiting the generality of the foregoing, any specific funds or assets which the Company, in its sole discretion, may set aside in anticipation of a liability.  No trust shall be created in connection with or by the granting of the Option or the purchase of any Option Shares, and any benefits which become payable hereunder shall be paid from the general assets of the Company.  The Employee shall have only a contractual right to the amounts, if any, payable pursuant to this Agreement, unsecured by any asset of the Company or any of its affiliates.

9.1.  Nothing herein will limit the Company’s right to issue Common Stock, or options or other rights to purchase Common Stock, to its employees, subject to vesting, expiration and other terms and conditions deemed appropriate by the Company and its affiliates.

10.1.  The Employee authorizes the Company to withhold, in accordance with any applicable law, from any compensation payable to him/her any taxes required to be withheld by federal, state or local law upon the issuance of Option Shares or the payment of money pursuant to the exercise of the Option.  The Employee may elect to have the Company withhold Option Shares to pay any applicable withholding taxes resulting from the exercise of the Option, in accordance with any rules or regulations of the Committee then in effect.

11.1.  Shares issued pursuant to exercise of the Options shall be shares of Common Stock, the issuance of which is registered under the Act.

12.1.  The terms of this Agreement shall be binding upon the executors, administrators, heirs, successors, transferees and assignees of the Employee and the Company.

13.1.  In any action at law or in equity to enforce any of the provisions or rights under this Agreement, including any arbitration proceedings to enforce such provisions or rights,

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the unsuccessful party to such litigation or arbitration, as determined by the court in a final judgment or decree, or by the panel of arbitrators in its award, shall pay the successful party or parties all costs, expenses and reasonable attorneys’ fees incurred by the successful party or parties (including without limitation costs, expenses and fees on any appeals), and if the successful party recovers judgment in any such action or proceeding such costs, expenses and attorneys’ fees shall be included as part of the judgment.

14.1.  The Employee agrees to perform all acts and execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Agreement, including but not limited to all acts and documents related to compliance with federal and/or state securities laws.

15.1.  For convenience, this Agreement may be executed in any number of identical counterparts, each of which shall be deemed a complete original in itself and may be introduced in evidence or used for any other purposes without the production of any other counterparts.

16.1.  This Agreement shall be construed and enforced in accordance with Section 10 of the Plan.

17.1.  This Agreement, together with the Plan, sets forth the entire agreement between the parties with reference to the subject matter hereof, and there are no agreements, understandings, warranties, or representations, written, express, or implied, between them with respect to the Option other than as set forth herein or therein, all prior agreements, promises, representations and understandings relative thereto being herein merged.

18.1.  Nothing expressed or implied herein is intended or shall be construed to confer upon or give to any person, other than the parties hereto, any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof.

19.1.  This Agreement may be amended, modified, superseded, canceled, renewed or extended and the terms or covenants hereof may be waived only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance.  Any such written instrument must be approved by the Committee to be effective as against the Company.  The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same.  No waiver by any party of the breach of any term or provision contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

20.1.  Any notice to be given hereunder shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, and, if to the Company, addressed to it at 380 Madison Avenue, New York, New York 10017, Attn: General Counsel, and, if to the Employee, addressed to him/her at the address set forth in his/her offer letter, or to such other address of such party as that party may designate by written notice to the other.

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21.1.  Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

22.1.  Neither this Agreement nor any action taken hereunder shall be construed as giving Employee the right to be retained in the employ of the Company (or any of its subsidiaries) nor shall it interfere in any way with the right of the Company (or any of its subsidiaries) to terminate Employee’s employment at any time.

IN WITNESS WHEREOF, the parties hereto have executed this Stock Option Agreement as of the date first above written.

INVESTMENT TECHNOLOGY GROUP, INC.
By:
	Robert J. Russel,
	Chief Executive Officer
EMPLOYEE

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EX-10.5

Exhibit 10.5

Execution Copy

STOCK PURCHASE AGREEMENT

dated as of June 11, 2003

by and among

INVESTMENT TECHNOLOGY GROUP, INC.,

RADICAL CORPORATION

and

THE INDIVIDUALS LISTED HEREIN

TABLE OF CONTENTS

ARTICLE ONE
DEFINITIONS
SECTION 1.1	Definitions
ARTICLE TWO
PURCHASE AND SALE; OPTION
SECTION 2.1	Purchase and Sale
SECTION 2.2	Purchase Price
SECTION 2.3	Payment of Purchase Price and Delivery of Shares
SECTION 2.4	Option
SECTION 2.5	Additional Option Payment Amounts
SECTION 2.6	Change of Control
SECTION 2.7	Certain Acquisitions
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
SECTION 3.1	Representations and Warranties of the Company
SECTION 3.2	Representations and Warranties of the Selling Stockholders
SECTION 3.3	Representations and Warranties of the Purchaser
ARTICLE FOUR
GOVERNANCE
SECTION 4.1	Board Composition
SECTION 4.2	Board Action
SECTION 4.3	Cessation of Rights
ARTICLE FIVE
COVENANTS
SECTION 5.1	Transfers
SECTION 5.2	Right of First Refusal; Tag Along Rights
SECTION 5.3	Validity of Transfer
SECTION 5.4	By-laws
SECTION 5.5	Spartan License Agreement
SECTION 5.6	Purchaser Reporting Obligations

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SECTION 5.7	Company Reporting Obligations
SECTION 5.8	No Solicitation
SECTION 5.9	System Marketing
SECTION 5.10	US Trading Corporation License Agreement
ARTICLE SIX
TERMINATION OF OBLIGATIONS; SURVIVAL
SECTION 6.1	Termination
SECTION 6.2	Effect of Termination
ARTICLE SEVEN
CONFIDENTIALITY
SECTION 7.1	Confidential Information
SECTION 7.2	Confidentiality Obligations
SECTION 7.3	Notice Preceding Compelled Disclosure
SECTION 7.4	Consultation as to Announcements
ARTICLE EIGHT
INDEMNIFICATION
SECTION 8.1	Indemnity
SECTION 8.2	Claims for Indemnification
SECTION 8.3	Survival of Representations, Warranties and Covenants
SECTION 8.4	Limitation of Liability
SECTION 8.5	Sole Remedy
SECTION 8.6	New Escrow
SECTION 8.7	Sellers’ Representative
ARTICLE NINE
GENERAL PROVISIONS
SECTION 9.1	Notices
SECTION 9.2	Interpretation
SECTION 9.3	Amendment
SECTION 9.4	Waiver
SECTION 9.5	Counterparts; Effectiveness
SECTION 9.6	Entire Agreement; No Third Party Beneficiaries
SECTION 9.7	Governing Law; Consent to Jurisdiction
SECTION 9.8	Waiver of Jury Trial
SECTION 9.9	Severability
SECTION 9.10	Assignment

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SECTION 9.11	Specific Performance
SECTION 9.12	Time of Essence
Exhibit A	Form of License Agreement
Exhibit B	Selling Stockholder Shares
Exhibit C	Form of Employment Agreements
Exhibit D	Form of Escrow Agreement
Exhibit E	Budget
Exhibit F	Current Form of License Agreement
Exhibit G	Form of Amended and Restated By-Laws
Exhibit H	Form of Officer Certificate

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STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT, dated as of June 11, 2003 (this “Agreement”) is made by and among Investment Technology Group, Inc., a Delaware corporation (the “Purchaser”), Radical Corporation, a Delaware corporation (the “Company”), and the individuals listed on the signature page(s) hereto (collectively, the “Selling Stockholders” and each individually, a “Selling Stockholder”).

WHEREAS, the Selling Stockholders own an aggregate of 42,160 shares of the Company Common Stock (as hereinafter defined), which shares prior to giving effect to the issuance of the Purchased Shares (as hereinafter defined), constitute 100% of the issued and outstanding shares of Company Common Stock;

WHEREAS, the Purchaser desires to purchase from the Company and the Company desires to issue and sell to the Purchaser 14,053 shares of the Company Common Stock (the “Purchased Shares”), which shares upon issuance shall constitute 25% of the issued and outstanding shares of Company Common Stock;

WHEREAS, the Selling Stockholders desire to grant to the Purchaser an option to purchase an aggregate of 42,160 shares of Company Common Stock, which shares after giving effect to the issuance of the Purchased Shares shall constitute 75% of the issued and outstanding shares of Company Common Stock; and

WHEREAS, the Company has entered into an amended and restated software license and network access agreement with the Purchaser’s Affiliate (the “License Agreement”) for use of the System (as hereinafter defined) in the form of Exhibit A hereto.

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto, intending to be legally bound, agree as follows:

ARTICLE ONE

DEFINITIONS

SECTION 1.1.  Definitions.  For all purposes in this Agreement, the following terms shall have the respective meanings set forth in this Section 1.1 (such definitions to be equally applicable to both the singular and plural forms of the terms herein defined):

“Additional Option Payment Amounts” shall have the meaning specified in Section 2.5(a) of this Agreement.

“Additional Payment Calculation Date” shall have the meaning specified in Section 2.5(a) of this Agreement.

“Additional Payment Date” shall have the meaning specified in Section 2.5(b) of this Agreement.

“Affiliate” of a Person shall mean any and all Persons that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such Person.

“Agreement” shall have the meaning specified in the Preamble of this Agreement.

“Average Daily Revenue” shall mean, for any period, the Gross Revenues for such period divided by the number of Business Days in such period.

“Budget” shall have the meaning specified in Section 4.2(i) of this Agreement.

“Business Day” shall mean any day when all of the New York Stock Exchange, the American Stock Exchange and Nasdaq are open for trading.

“Change of Control” shall mean entering into a Contract with respect to any of the following, occurring in a single transaction or as part of a series of related transactions: (a) the direct or indirect acquisition by any Person or group of Persons acting in concert of more than 50% of the voting power of the Purchaser or (b) the acquisition by any Person or group of Persons acting in concert of all or substantially all of the assets of the Purchaser and its subsidiaries, taken as a whole; provided that, a Change of Control shall include any subsequent Change of Control of the Purchaser or a surviving entity if the Purchaser has merged into another entity.

“Change of Control Event” shall have the meaning specified in Section 2.6 of this Agreement.

“Closing” shall have the meaning specified in Section 2.3 of this Agreement.

“Closing Date” shall have the meaning specified in Section 2.3 of this Agreement.

“Company” shall have the meaning specified in the Preamble of this Agreement.

“Company Common Stock” shall mean the common stock, $.001 par value, of the Company.

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“Company Financial Statements” shall have the meaning specified in Section 3.1(e) of this Agreement.

“Competing Acquisition” shall mean the Purchaser or any of its Affiliates entering into a Contract to acquire, directly or indirectly, of any title, interest or right to use, market, distribute, license or sublicense a trading system that competes with the System; provided that, list trading systems will not be considered to compete with the System.

“Competing Acquisition Event” shall have the meaning specified in Section 2.7 of this Agreement.

“Confidential Information” shall have the meaning specified in Section 7.1(a) of this Agreement.

“Contract” shall mean any written or oral agreement, contract, understanding, arrangement, instrument, note, insurance policy, benefit plan, commitment, covenant, assurance or undertaking.

“Disclosing Party” shall have the meaning specified in Section 7.1(a) of this Agreement.

“Employment Agreements” shall have the meaning specified in Section 2.4(c) of this Agreement.

“Encumbrance” shall mean any mortgage, pledge, hypothecation, assignment, encumbrance, lien (statutory or other), other charge or security interest, or any preference, priority or other agreement or preferential arrangement of any kind or nature whatsoever.

“Escrow Agent” shall mean JPMorgan Chase Bank or any other Person reasonably acceptable to the Purchaser, Hemant Sharma and Thomas George.

“Escrow Agreement” shall have the meaning specified in Section 2.4(d) of this Agreement.

“Expiration Date” shall have the meaning specified in Section 2.4(b) of this Agreement.

“Final Payment Date” shall have the meaning specified in Section 2.5(b) of this Agreement.

“Fiscal Month” shall mean, for the first fiscal month of the year, the period beginning on the first day of January, and ending on the last Friday in January and, for each subsequent fiscal month, the period beginning on the day after the last day of the prior fiscal month and ending on the last Friday of such month; provided that, the last fiscal month in any year shall end on December 31^st of such year.

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“Fiscal Quarter” shall mean, for the first fiscal quarter of the year, the period beginning on the first day of January, and ending on the last Friday in March and, for each subsequent fiscal quarter, the period beginning on the day after the last day of the prior fiscal quarter and ending on the last Friday of such quarter; provided that, the last fiscal quarter in any year shall end on December 31^st of such year.

“GAAP” shall mean accounting principles generally accepted in the United States in effect from time to time.

“Governmental Entity” shall mean any federal, state, local or foreign court, administrative agency or commission or other governmental authority or instrumentality, or self-regulatory organization.

“Gross Revenue” shall mean, for any period, any and all gross commissions, fees or other remuneration accrued during such period to the ITG Group in respect of trades executed via the System, which amount shall not include any revenues from commissions, fees or other remuneration related to trades executed (a) by the trading desks of the ITG Group or (b) through POSIT by existing ITG Group customers as of the date hereof that have executed trades through POSIT within three months prior to the date hereof or prior to using the System, whichever is earlier, and which amount shall be determined after deduction of volume or other discounts actually granted, soft dollar credits and verified trade differences (including errors and accommodations, as such term is used in the brokerage industry); provided that, any deductions with respect to soft dollar credits shall not include any credits to the ITG Group which are not consistent with the ITG Group’s soft dollar practices and any deductions with respect to any discounts shall not include any discounts which are not consistent with the ITG Group’s ordinary course of business and ITG Group’s practices with respect to discounts.

“Gross Revenue Statement” shall have the meaning specified in Section 5.6 of this Agreement.

“Indemnitee” shall have the meaning specified in Section 8.1 of this Agreement.

“Intellectual Property” shall mean all of the following, in whatever form or medium, anywhere in the world: patents, trademarks, service marks, trade names, corporate names, domain names, copyrights, and copyrighted works; registrations thereof and applications (including provisional applications) therefore; derivatives, continuations, continuations-in-part, extensions, divisionals, re-examinations, reissues and renewals thereof; trade secrets, software (in any form, including source code and object code), firmware, mask works, programs, flow charts, research records, documentation, inventions (whether patentable or unpatentable), utility models, discoveries, proprietary processes, and items of proprietary know-how, information, data (whether or not protected by copyright or other intellectual property), proprietary prospect lists, customer lists, projections, analyses,

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proprietary market studies and any other intellectual property, including any enhancements or improvements of any of the above.

“ITG Group” shall mean the Purchaser and all its direct and indirect Affiliates.

“Legal Requirement” shall mean any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, constitution, treaty, or Order or determination of any Governmental Entity.

“License Agreement” shall have the meaning specified in the Recitals of this Agreement.

“Losses” shall have the meaning specified in Section 8.1 of this Agreement.

“Material Adverse Effect” shall mean, with respect to any Person, a material adverse effect on the business, assets, financial condition or results of operation of such Person.

“Minimum Interest” shall mean a 20% or more beneficial ownership interest in the aggregate issued and outstanding Company Common Stock.

“New Escrow Agreement” shall have the meaning specified in Section 8.6 of this Agreement.

“Option” shall have the meaning specified in Section 2.4(a) of this Agreement.

“Option Closing Date” shall have the meaning specified in Section 2.4(b) of this Agreement.

“Option Exercise Date” shall have the meaning specified in Section 2.4(b) of this Agreement.

“Option Exercise Notice” shall have the meaning specified in Section 2.4(b) of this Agreement.

“Option Exercise Price” shall have the meaning specified in Section 2.4(a) of this Agreement.

“Option Shares” shall have the meaning specified in Section 2.4(a) of this Agreement.

“Order” shall mean any order, judgment, injunction, edict, decree, ruling, pronouncement, determination, decision, opinion, arbitration, verdict, sentence, subpoena,

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writ or award made, entered, rendered or otherwise put into effect by or under the authority of any Governmental Entity or any arbitrator or arbitration panel.

“Patent Infringement Losses”shall mean any Losses incurred subsequent to the Option Exercise Date resulting from or arising out of Intellectual Property of the Company infringing any patents issued as of the Option Closing Date (or continuations, continuations-in-part, extensions, divisionals, re-examinations, reissues and renewals thereof) or any patents issued in respect of patent applications published as of the Option Closing Date (or continuations, continuations-in-part, extensions, divisionals, re-examinations, reissues and renewals thereof).

“Payment Instructions” shall have the meaning specified in Section 2.4(b) of this Agreement.

“Permit” shall mean any permit, license, franchise, concession, variance, exemption, or approval of any Governmental Entity.

“Permitted Investments” shall mean obligations denominated in U.S. dollars maturing or capable of redemption by the holder not more than twelve months after the date of acquisition which are (a) issued or guaranteed by the U.S. Government or any agency or instrumentality thereof, (b) demand deposits, time deposits, certificates of deposit or other obligations issued, accepted or guaranteed by a bank having a rating at time of such investment or acquisition of at least A2 from Moody’s Investors Service, Inc. or A from Standard & Poor’s Ratings Services and having a combined capital, surplus and undivided profits (less any undivided losses) of not less than $100 million, or (c) money market funds having a rating from Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services in the highest investment category granted thereby at the time of acquisition.

“Person” shall mean any individual, corporation, partnership, limited liability company, incorporated or unincorporated association, joint venture, joint stock company, estate, trust, unincorporated organization, firm or other enterprise, association, entity or Governmental Entity.

“Proceeding” shall have the meaning specified in Section 3.1(i) of this Agreement.

“Purchase Price” shall have the meaning specified in Section 2.2 of this Agreement.

“Purchased Shares” shall have the meaning specified in the Recitals of this Agreement.

“Purchaser” shall have the meaning specified in the Preamble of this Agreement.

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“Purchaser Indemnitee” shall have the meaning specified in Section 8.1 of this Agreement.

“Receiving Party” shall have the meaning specified in Section 7.1(a) of this Agreement.

“Representative” shall mean, with respect to any party to this Agreement, any officer, director, manager, employee, affiliate, agent, representative or advisor.

“Restricted Transfer Period” shall mean the period commencing the date hereof and ending on the earlier of (a) the Option Closing Date and (b) the Expiration Date.

“Scheduled Patents” shall mean the patents listed on Schedule 8.4 to this Agreement.

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Sellers’ Representative” shall have the meaning specified in Section 8.7 of this Agreement.

“Selling Stockholder” shall have the meaning specified in the Preamble of this Agreement.

“Stockholder Indemnitee” shall have the meaning specified in Section 8.1 of this Agreement.

“Stockholders” shall mean the Purchaser and each of the Selling Stockholders.

“Software” shall mean any and all computer programs (including any and all software implementations of algorithms, models and methodologies, whether in source code or object code but excluding any off-the-shelf software except off-the-shelf software that is both material and relates to the Company business) and computer databases and computer compilations (including any and all data and collections of data, whether machine readable or otherwise).

“Source Code Escrow Agreement” shall have the meaning specified in the License Agreement.

“Spartan License Agreement” shall mean the software license agreement between the Company and Spartan Technologies, LLC, dated March 22, 2002.

“System” shall mean (i) the “Licensed Product” and/or (ii) the “Radical Network” as defined in the License Agreement.

“Tag Along Shares” shall have the meaning specified in Section 5.2(d) of this Agreement.

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“Taxes” shall mean all federal, state, local and foreign income, profits, franchise, gross receipts, payroll, sales, employment, use, property, withholding, excise, occupancy, custom, duty, capital stock, ad valorem, value added, estimated, stamp, alternative and other taxes, governmental duties or governmental assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts.

“Transaction Agreements” shall mean (a) this Agreement, (b) the License Agreement, (c) the Source Code Escrow Agreement, (d) the Employment Agreements, (e) the Escrow Agreement, if any, (f) the Spartan Assignment Agreement between the Company and Hemant Sharma and Thomas George, dated the date hereof and (g) the New Escrow Agreement, if any.

“Transfer” shall have the meaning specified in Section 5.1 of this Agreement.

“Transferee” shall have the meaning specified in Section 5.2(a) of this Agreement.

“Transfer Notice” shall have the meaning specified in Section 5.2(a) of this Agreement.

“Transferring Stockholder” shall have the meaning specified in Section 5.2(a) of this Agreement.

“Transfer Shares” shall have the meaning specified in Section 5.2(a) of this Agreement.

“Violation” shall have the meaning specified in Section 3.1(c)(i)(A) of this Agreement.

“Voting Debt” shall have the meaning specified in Section 3.1(d) of this Agreement.

ARTICLE TWO

PURCHASE AND SALE; OPTION

SECTION 2.1.  Purchase and Sale.  On the date hereof, and upon the terms and subject to the conditions hereinafter set forth, the Company shall issue and sell to the Purchaser the Purchased Shares, and the Purchaser shall purchase from the Company the Purchased Shares.

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SECTION 2.2.  Purchase Price.  The purchase price for the Purchased Shares shall be $750,000 (the “Purchase Price”), payable by the Purchaser to the Company as provided in Section 2.3 below.

SECTION 2.3.  Payment of Purchase Price and Delivery of Shares.  On the date hereof (the “Closing Date”), the Purchaser shall pay the Purchase Price to the Company in cash by wire transfer of immediately available funds to the Company’s account at JPMorgan Chase Bank, Account Number 305-0671403-65, ABA Routing Number 021000021, the Company shall deliver to the Purchaser a certificate representing the Purchased Shares issued in the Purchaser’s name, and the Selling Stockholders shall deliver the Option Shares, duly endorsed for transfer to the Purchaser or accompanied by stock powers executed in blank to the Company to be held in escrow by it.  The consummation of the purchase and sale of the Purchased Shares shall occur at the offices of Boies, Schiller and Flexner LLP, 570 Lexington Avenue, 16^th Floor, New York, New York 10022, or at such other place as the Purchaser and the Company may agree (the “Closing”).

SECTION 2.4.  Option. (a) On the Closing Date, and upon the terms and subject to the conditions hereinafter set forth, the Selling Stockholders hereby grant to the Purchaser an option, exercisable in whole and not in part in the Purchaser’s sole discretion, to purchase an aggregate of 42,160 shares of Company Common Stock (the “Option”) for the Option Exercise Price, which shares represent, after giving effect to the issuance of the Purchased Shares contemplated in Section 2.1 above, 75% of the issued and outstanding shares of Company Common Stock.  The number of shares of Company Common Stock to be sold by each Selling Stockholder (in each case, the “Option Shares”) upon exercise of the Option is set forth next to such Selling Stockholders’ name in Exhibit B hereto.  The “Option Exercise Price” for the Option shall be equal to the product of (i) the Average Daily Revenue for the three Fiscal Months immediately prior to the Option Exercise Date and (ii) 252.  In the event that the Option Exercise Price as calculated in accordance with the preceding sentence is (A) less than $4,000,000, the Option Exercise Price shall be $4,000,000 or (B) greater than $18,000,000, the Option Exercise Price shall be $18,000,000.  Notwithstanding the foregoing, if the Exercise Price is less than $18,000,000, Additional Option Payment Amounts, as set forth in Section 2.5 below, if any, shall be paid to the Selling Stockholders towards the purchase of Option Shares.

(b)In the event that the Purchaser wishes to exercise the Option, the Purchaser shall deliver a written notice to the Company and each of the Selling Stockholders (the “Option Exercise Notice”) specifying a date for the exercise of the Option which date shall be one of February 28, 2004, March 27, 2004, May 1, 2004 or May 29, 2004 (each, an “Option Exercise Date”).  Such notice may be delivered at any time within the 30 day period prior to and including any such Option Exercise Date.  If an Option Exercise Notice is not delivered on or prior to May 29, 2004 (the “Expiration Date”), the Option shall expire and the parties hereto shall have no further rights or obligations with respect to such Option.  Within 10 days of delivery of the Option Exercise Notice, each of the Selling Stockholders shall provide the Purchaser with written payment instructions for their pro rata portion of the Option Exercise Price (the “Payment Instructions”) and each of the Selling Stockholders

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shall provide written notice to the Purchaser of any updates to the representations and warranties set forth in Section 3.1 or 3.2 below, as the case may be, to be made or confirmed on the Option Closing Date pursuant to Section 2.4(c) below which are necessary to make such representations and warranties true and correct on the Option Closing Date, which update may only reflect events that occurred subsequent to, and not prior to, the Closing Date.  The closing of the purchase and sale of the Option Shares shall take place at the offices of the Purchaser on the thirtieth day after the Option Exercise Date (or if such date is not a Business Day, the immediately succeeding Business Day) (the “Option Closing Date”) unless on or prior to such date the Purchaser determines, in its sole judgment, as a result of any updates to the representations and warranties not to exercise the Option.  Failure of one or more Selling Stockholders to provide Payment Instructions shall not affect each such Selling Stockholder’s obligation to deliver the Option Shares on the Option Closing Date.  In the event one or more Selling Stockholders (other than Hemant Sharma or Thomas George) fails to provide Payment Instructions, payment will be made by certified check to any such Selling Stockholder as provided in Section 9.1 hereof.

(c)On the Option Closing Date, unless the Purchaser shall have elected not to exercise the Option pursuant to Section 2.4(b) above, the Purchaser shall (i) pay the portion of the Option Exercise Price to each Selling Stockholder in the manner set forth in Section 2.4(d) below on a pro rata basis based on the number of Option Shares sold by each Selling Stockholder and (ii) provide written confirmation that the representations and warranties of the Purchaser set forth in Section 3.3 below are true and correct as if made on the Option Closing Date.  Simultaneously, on the Option Closing Date, unless the Purchaser shall have elected not to exercise the Option pursuant to Section 2.4(b) above, (A) the Company shall release from escrow to the Purchaser the Option Shares duly endorsed for transfer to the Purchaser or accompanied by stock powers executed in blank, (B) the Selling Stockholders shall jointly and severally make the representations and warranties set forth in Section 3.1 below as of the Option Closing Date, with such updates as previously disclosed in writing to the Purchaser pursuant to Section 2.4(b) above, (C) each Selling Stockholder shall provide written confirmation that the representations and warranties of each Selling Stockholder set forth in Section 3.2 below are true and correct as if made on the Option Closing Date with such updates as previously disclosed in writing to the Purchaser pursuant to Section 2.4(b) above, and (D) each of Hemant Sharma and Thomas George shall have entered into separate employment agreements with the Purchaser or any of its Affiliates as designated by the Purchaser substantially in the form of Exhibit C hereto (the “Employment Agreements”).

(d)The Option Exercise Price shall be paid by the Purchaser to the Selling Stockholders in the following manner: (i) their respective pro rata portion of the first $1,575,000 of the Option Exercise Price shall be paid in cash by certified check or by wire transfer of immediately available funds, and (ii) the remainder of the Option Exercise Price shall be paid in cash by certified check or by wire transfer of immediately available funds to the Escrow Agent to hold in an interest bearing escrow account maintained by the Escrow Agent in accordance with an escrow agreement substantially in the form of Exhibit D hereto (the “Escrow Agreement”) for the benefit of each of the Selling Stockholders and shall,

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subject to the terms of the Escrow Agreement, be released by the Escrow Agent to each of the Selling Stockholders in their respective pro rata shares on the date that is one calendar year from the Option Exercise Date (or if such date is not a Business Day, the immediately succeeding Business Day).  Notwithstanding anything to the contrary in this Agreement, but subject to the terms of the Escrow Agreement, after the Option Closing Date, (A) if cumulative Gross Revenues for the period beginning as of the date hereof exceeds (x) $100,000,000, then an amount equal to 25% of the Escrow Fund (as defined in the Escrow Agreement) shall be released by the Escrow Agent to the Selling Stockholders or (y) $150,000,000, then an amount equal to 50% of such remaining Escrow Fund shall be released by the Escrow Agent to the Selling Stockholders, and (B) if there is a Change of Control, an amount equal to 50% of the amounts then in Escrow Fund shall be released by the Escrow Agent to the Selling Stockholders, and in the event of this clause (B), any subsequent Additional Option Payment Amounts, if any, to be paid to the Escrow Agent pursuant to Section 2.5(b) in respect of any Purchaser Claims subsequent to the Change of Control shall instead be paid directly to the Selling Stockholders.

SECTION 2.5.  Additional Option Payment Amounts.  (a) Subject to Sections 2.6 and 2.7 below, to the extent that the Purchaser has exercised the Option, each of the Selling Stockholders shall be entitled to their pro rata share based on the number of Option Shares sold by each Selling Stockholder of up to four additional payments (together, the “Additional Option Payment Amounts”) to be calculated, with respect to the first Additional Option Payment Amount, as of the date that is the last day of the second Fiscal Month after the Fiscal Month in which the Option Exercise Date occurs and, with respect to the second, third, and fourth Additional Option Payment Amounts, as of the date that is the last day of the third Fiscal Month from the previous calculation date (each, an “Additional Payment Calculation Date”).  Each Additional Option Payment Amount shall be an amount, if any, equal to (i) the product of (A) 25% and (B) the difference between (1) the Gross Revenues during the period from and including the Option Exercise Date to and including the relevant Additional Payment Calculation Date and (2) the Option Exercise Price less (ii) any Additional Option Payment Amounts corresponding to a previous Additional Payment Calculation Date; provided that, in no event shall the aggregate Additional Option Payment Amounts be greater than the difference between (I) $18,000,000 and (II) the Option Exercise Price.

(b)Subject to Sections 2.6 and 2.7 below, the Additional Option Payment Amounts shall be payable in cash as follows: (i) 50% of each Additional Option Payment Amount, if any, shall be payable on the fifteenth day after the corresponding Additional Payment Calculation Date (or if such date is not a Business Day, the immediately preceding Business Day) and (ii) 50% of each of the first, second and third Additional Option Payment Amounts, if any, shall be payable on the fifteenth day after the fourth Additional Payment Calculation Date (or if such date is not a Business Day, the immediately preceding Business Day) and (iii) 50% of the fourth Additional Option Payment Amount, if any, shall be payable no later than 90 days after the fourth Additional Payment Calculation Date (or if such date is not a Business Day, the immediately succeeding Business Day) (the “Final Payment Date”, and such Final Payment Date and each such other payment date, an “Additional Payment

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Date”); provided that, the amount to be paid pursuant to clauses (ii) and (iii) above shall be increased or decreased, as the case may be, to reflect any adjustments to the Gross Revenues as reflected in the Purchaser’s books and records during the applicable period; provided further that, at the time of any payment of any Additional Option Payment Amount pursuant to clauses (i), (ii) or (iii) above, to the extent that any Purchaser Claim Amount (as defined in the Escrow Agreement) exceeds the amount of any related Purchaser Reserve (as defined in the Escrow Agreement), any such Additional Payment Amounts to be paid up to an amount equal to any such excess amounts shall be paid to the Escrow Agent and held pursuant to the Escrow Agreement.

SECTION 2.6.  Change of Control.  In the event of a Change of Control (a) that results in the ITG Group discontinuing or being unable to continue the use, marketing and distribution of the System in a manner substantially similar to the marketing and distribution of the System prior to the Change of Control, or (b) in which the acquiring Person, directly or indirectly, owns a trading system that competes with the System (provided that any list trading system shall not be considered to compete with the System) (each such event, a “Change of Control Event”), then:

(i)The Purchaser shall promptly notify the Selling Stockholders of the Change of Control Event in writing.

(ii)To the extent such Change of Control Event has occurred prior to the Expiration Date and the Option has not been exercised, then the Purchaser shall have the right to exercise the Option pursuant to Section 2.4 hereof only within five Business Days of the Change of Control Event, by delivery of a written notice to the Company and each of the Selling Stockholders within five Business Days of the Change of Control Event electing to exercise such Option, which notice shall constitute an Option Exercise Notice.

(A)If the Purchaser elects to exercise the Option, then, notwithstanding anything to the contrary, (1) the Option Exercise Date shall be the date of such Option Exercise Notice, (2) the Option Exercise Price shall be $18,000,000 which entire amount shall be payable on the Option Closing Date directly to the Selling Stockholders, (3) no Additional Option Payment Amounts shall be payable, and (4) the Option Closing Date shall be fifteen days after the Option Exercise Date (or if such date is not a Business Day, the immediately succeeding Business Day).

(B)If the Purchaser does not elect to exercise the Option, then, on the fifth Business Day after the date of the Change of Control Event, notwithstanding anything to the contrary, (1) the License Agreement shall become non-exclusive and terminable by the Company at any time upon six months notice pursuant to Section 2 of the License Agreement, (2) the Purchaser and the Company shall give joint instructions to the source code escrow agent to terminate the Source Code Escrow Agreement, (3) the Option shall terminate and the Expiration Date shall be the last day the Purchaser may elect to exercise such Option pursuant to clause (ii) above, and (4) the

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Purchaser shall pay a purchase price adjustment to the Company towards the purchase of Purchased Shares as follows:

if the Change of Control Event occurs within

less than 6 months after Closing Date	$3 million or 35% of aggregate Gross Revenues from the date hereof to such date, whichever is higher
6-9 months after Closing Date	$4 million or 35% of aggregate Gross Revenues from the date hereof to such date, whichever is higher
more than 9 months after Closing Date	$5 million or 35% of aggregate Gross Revenues from the date hereof to such date, whichever is higher

(iii)To the extent such Change of Control Event has occurred prior to the fourth Additional Payment Calculation Date and the Option has been exercised, then

(A)No further Additional Option Payment Amounts shall be paid (including any Additional Option Payment Amounts accrued but unpaid) unless the sum of such unpaid amounts calculated in accordance with Section 2.5 is higher than the amounts paid pursuant to (B) below in which case the difference between the two shall be paid to the Selling Stockholders on the Final Payment Date.

(B)The Purchaser shall pay to each of the Selling Stockholders their pro rata share based on the number of Option Shares sold by each Selling Stockholder:

(1)if the Option Exercise Price was $4 million or more, but less than $6 million, $12 million,

(2)if the Option Exercise Price was $6 million or more, but less than $9 million, 16 million, and

(3)if the Option Exercise Price was $9 million or more, $18 million.

In each case less (x) the Option Exercise Price and (y) any Additional Option Payment Amounts actually paid.

(C)Subject to the terms of the Escrow Agreement, the Escrow Fund shall be released by the Escrow Agent to the Selling Stockholders.

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SECTION 2.7.  Certain Acquisitions.  (a)  In the event of a Competing Acquisition that results in the ITG Group either (x) discontinuing or being unable to continue the use, marketing and distribution of the System in a manner substantially similar to the marketing and distribution of the System prior to the Competing Acquisition or (y) replacing the use of the System with a competing system (each, a “Competing Acquisition Event”), then:

(i)The Purchaser shall promptly notify the Selling Stockholders of the Competing Acquisition Event in writing.

(ii)To the extent such Competing Acquisition Event has occurred prior to the Expiration Date, the Option has not been exercised and no Change of Control Event shall have occurred, then

(A)(1) The License Agreement shall become non-exclusive and shall be terminable by the Company at any time upon six months notice pursuant to Section 2 of the License Agreement, (2) the Purchaser and the Company shall give joint instructions to the source code escrow agent to terminate the Source Code Escrow Agreement, (3) the Option shall terminate and the Expiration Date shall be the date of the Competing Acquisition Event, and (4) the Purchaser shall pay a purchase price adjustment to the Company towards the purchase of Purchased Shares equal to the higher of (x) $1,000,000 and (y) 25% of the aggregate Gross Revenues for the period beginning on the date hereof and ending on the date of the Competing Acquisition Event; provided that, if Gross Revenues have not exceeded $1,250,000 within the first six calendar months, or $2,500,000 within the first nine calendar months, from the Closing Date, as applicable, then no such purchase price adjustment shall be paid.

(B)The Company shall have an option, for six months from the date of the Competing Acquisition Event, to repurchase the Purchased Shares from the Purchaser for $750,000.

(iii)To the extent such Competing Acquisition Event has occurred prior to the fourth Additional Payment Calculation Date, the Option has been exercised and no Change of Control Event shall have occurred, then

(A)No further Additional Option Payment Amounts shall be paid (including any Additional Option Payment Amounts accrued but unpaid) unless the sum of such unpaid amounts calculated in accordance with Section 2.5 is higher than the amounts paid pursuant to (B) below in which case the difference between the two shall be paid to the Selling Stockholders on the Final Payment Date.

(B)The Purchaser shall pay to each of the Selling Stockholders their pro rata share based on the number of Option Shares sold by each Selling Stockholder:

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(1)if the Option Exercise Price was $4 million or more, but less than $6 million, $12 million,

(2)if the Option Exercise Price was $6 million or more, but less than $9 million, $16 million, and

(3)if the Option Exercise Price was $9 million or more, $18 million.

In each case less (x) the Option Exercise Price and (y) any Additional Option Payment Amounts actually paid.

(C)Subject to the terms of the Escrow Agreement, the Escrow Fund shall be released by the Escrow Agent to the Selling Stockholders.

(b)In the event that ITG Group enters into negotiations (but not a binding contract) for a Competing Acquisition prior to the Expiration Date, the Option has not been exercised and no Change of Control Event shall have occurred, then the Purchaser shall promptly notify the Company of such fact in writing and the License Agreement shall become non-exclusive pursuant to Section 2 of the License Agreement.

ARTICLE THREE

REPRESENTATIONS AND WARRANTIES

SECTION 3.1.  Representations and Warranties of the Company.  The Company hereby makes the following representations and warranties to the Purchaser:

(a)Organization, Qualification and Corporate Power.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with the requisite corporate power and authority to own, lease, operate and use its properties and assets and to carry on its business as currently conducted.  The Company does not own any interest in any other Person.

(b)Authorization; Enforcement.  The Company has all requisite corporate power and authority to enter into the Transaction Agreements to which it is a party and to consummate the transactions contemplated thereby.  The execution and delivery of the Transaction Agreements to which the Company is a party and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Company.  The Transaction Agreements to which the Company is a party have been duly executed and delivered by the Company and constitute valid and binding obligations of the Company, enforceable against it in accordance with their terms, except as may be limited by bankruptcy, insolvency or other similar laws affecting the rights

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and remedies of creditors generally, and subject to general principles of equity, whether applied by a court of law or equity.

(c)No Conflicts; No Consents.  (i) The execution and delivery of the Transaction Agreements to which the Company is a party do not, and the consummation of the transactions contemplated thereby and the compliance with the terms thereof will not, (A) conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation, acceleration or increase of any obligation, liability or fee, or the loss of a benefit under (any such conflict, violation, default, right of termination, cancellation, acceleration or increase, or loss, including under any “change of control” provision, a “Violation”) any provision of the certificate of incorporation or by-laws of the Company, (B) result in any Violation of any Contract to which the Company is a party or by which any of its properties, assets or businesses are bound or (C) result in any Violation of any Permit, Order or Legal Requirement applicable to the Company or its properties, assets or business or (D) result in the creation or imposition of any Encumbrance on any properties or assets of the Company.

(ii)No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, or notice to, any Person is required in connection with the execution and delivery of the Transaction Agreements by the Company, or the consummation of the transactions contemplated thereby or the compliance with the terms thereof.

(d)Capitalization.  The authorized capital stock of the Company consists solely of 10,000,000 shares of Company Common Stock.  At the close of business on June 11, 2003, 56,213 shares of Company Common Stock were issued and outstanding, no shares of Company Common Stock were held by the Company in its treasury and, except as set forth on Schedule 3.1(d) hereto, no shares of Company Common Stock were authorized and reserved for issuance.  Exhibit B sets forth a true and complete list of the names of each of the holders of the outstanding shares of Company Common Stock and the number of shares of Company Common Stock owned by each such holder.  All of the outstanding shares of Company Common Stock have been duly authorized and validly issued and are fully paid and non-assessable, are not subject to any preemptive rights (and were not issued in violation of any preemptive rights) and have been issued in full compliance with all applicable securities laws and other applicable Legal Requirements.  No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which holders of the Company Common Stock may vote (“Voting Debt”) are issued or outstanding.  Except for this Agreement, there are no options, warrants, calls, rights, commitments or agreements of any character to which the Company is a party or by which the Company is bound relating to the issued or unissued capital stock or Voting Debt of the Company, or obligating the Company to issue, transfer, deliver or sell any shares of capital stock or other equity interest or any Voting Debt, or any securities convertible or exchangeable for any capital stock or other equity interest or any Voting Debt, of the Company or obligating the Company to issue, grant, extend or enter into any such option, warrant, call, right, commitment or agreement.  There are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or pursuant to which the

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Company is or could be required to register shares of Company Common Stock or other securities under the Securities Act.  The Company has, and upon delivery of the Purchased Shares by the Company to the Purchaser pursuant to the terms of this Agreement, the Purchaser will acquire, good and valid title to the Purchased Shares free and clear of any Encumbrances.

(e)Financial Statements.  The Company has delivered to the Purchaser true and complete copies of the balance sheet of the Company as of May 31, 2003, November 30, 2002, and November 30, 2001, together with statements of operations and changes in stockholders’ equity for the six month period ended May 31, 2003 and for the years ended November 30, 2002 and 2001 (the “Company Financial Statements”).  The Company Financial Statements (i) comply with all applicable accounting requirements, and (ii) are true and correct and fairly present the financial condition, results of operations, and changes in stockholders’ equity of the Company as of and for the periods indicated.  Except for those liabilities that are fully reflected or reserved for in the balance sheet of the Company as of November 30, 2002, and liabilities incurred since November 30, 2002 in the ordinary course of business consistent with past practice, at November 30, 2002 the Company did not have, and since such date, except as set forth in Schedule 3.1(e) hereto, the Company has not incurred, any liabilities or obligations of any nature whatsoever (whether accrued, absolute, contingent or otherwise).  The Company Financial Statements have not been audited by an independent auditor.

(f)Compliance with Applicable Laws.  The business of the Company has not been and is not being conducted in violation of any material Legal Requirement or Order of any Governmental Entity applicable to the Company.  No Governmental Entity has initiated any proceeding or, to the knowledge of Company, investigation into the business or operations of Company.  To the knowledge of the Company, there is no unresolved or uncured violation or exception noted by any Governmental Entity in any report, comment letter or other statement relating to or based on any examinations of the Company or otherwise, and the Company is not a party to any written agreement, commitment letter or other similar undertaking with or to any Governmental Entity with respect to the conduct of its business.  The Company has filed all material regulatory reports, schedules, forms, registrations and other documents, together with any amendments required to be made with respect thereto, that it was required to file with any Governmental Entity, and has paid all fees and assessments due and payable in connection therewith.

(g)[Intentionally omitted.]

(h)Certificate of Incorporation and Bylaws; Records.  The Company has delivered to the Purchaser true and complete copies of: (i) the Company’s certificate of incorporation and by-laws, including all amendments thereto, (ii) the stock records of the Company, and (iii) the minutes and other records of the meetings and other proceedings (including any actions taken by written consent or otherwise without a meeting) of the stockholders of the Company, the board of directors of the Company and all committees of the board of directors of the Company.  There have been no meetings or other proceedings of the stockholders of the Company, the board of directors of the Company or any committee of

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the board of directors of the Company that are not fully reflected in such minutes or other records.  The accounting records, stock records, minute books and other records of the Company are accurate, up-to-date and complete, and to the knowledge of the Company, have been maintained in accordance with sound and prudent business practices.

(i)Legal Proceedings.  Except as set forth in Schedule 3.1(i), there is no claim, litigation, inquiry, suit, action, investigation or proceeding (whether judicial, arbitral, administrative or other) (“Proceeding”) pending or, to the knowledge of the Company, threatened, against or affecting the Company, or any of its properties, assets or businesses which if adversely determined could reasonably be expected to have a Material Adverse Effect on the Company, or challenging the validity or propriety of the Transaction Agreements or any of the transactions contemplated thereby, nor is there any Order of any Governmental Entity or arbitrator, or any settlement or stipulation with any Person, outstanding or imminent against the Company.

(j)Taxes.  Except as set forth in Schedule 3.1(j), the Company has filed all tax returns required to be filed by it and has paid all Taxes required to be paid (whether or not shown to be due on such tax returns).  All such tax returns are true and complete.

(k)Contracts.  The Company has delivered to the Purchaser true and complete copies of all material Contracts to which the Company is a party or by which any of its properties, assets or businesses are bound and all material Contracts or term sheets currently under negotiation with any other Person.  Schedule 3.1(k)(i) sets forth a true and complete list of all material Contracts to which the Company is a party or by which any of its properties, assets or businesses are bound and all material Contracts or term sheets currently under negotiation with any other Person.  Attached as Section 3.1(k)(ii) of the Disclosure Schedule are correct, accurate and complete copies of the form agreements presently used by Company with respect to the Company’s business.  Each material Contract to which the Company is a party is valid and in full force and effect, and is enforceable by the Company in accordance with its terms.

(l)Property.  The properties and assets owned or leased by the Company constitute all properties (whether real or personal or tangible or intangible) and assets necessary for the Company to conduct its business as it is presently being conducted.  The Company has good and marketable title to all of the properties and assets owned by the Company and has a valid leasehold interest in all properties or assets leased by the Company, in each case, free and clear of all Encumbrances of any nature whatsoever except statutory Encumbrances securing payments not yet due, and Encumbrances as do not adversely affect the use of properties or assets subject thereto or affected thereby or otherwise adversely impair business operations at such properties.

(m)Intellectual Property.  (i) The Company owns or possesses licenses or rights to use all of the Intellectual Property necessary for the conduct and operation of the Company’s business as presently conducted and operated, free and clear of any Encumbrances.

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(ii)None of the Intellectual Property, products, services or written material used in the Company’s business or sold or provided by the Company contains any libelous or obscene material.  Neither the Intellectual Property of the Company nor the conduct of the Company’s business as presently conducted by the Company infringes upon any Intellectual Property rights of any other Person, provided that, no representation or warranty is made as to the infringement or the noninfringement of any patent rights.

(iii)Schedule 3.1(m)(iii) contains a true and complete list of all of the currently registered United States and foreign trademarks, service marks, trade names and domain names (with registrar) owned by the Company and a list of the registrations or pending applications for registration thereof.  There is no pending or, to the Company’s knowledge, threatened opposition, interference or cancellation proceeding before any court or registration authority in any jurisdiction against the registrations listed in Schedule 3.1(m)(iii).

(iv)Schedule 3.1(m)(iv) contains a true and complete list of all of the currently issued and registered United States and foreign patents and pending applications owned by the Company.  The patents listed, if any, in Schedule 3.1(m)(iv) are valid and subsisting, in full force and effect, and have not been cancelled, expired or abandoned.  There is no pending or, to the Company’s knowledge, threatened opposition, interference or cancellation proceeding before any court or registration authority in any jurisdiction against the patents and patent applications listed in Schedule 3.1(m)(iv).

(v)Schedule 3.1(m)(v) contains a true and complete list of all Contracts under which Intellectual Property used in the Company’s business and (A) owned by the Company is licensed, or rights thereunder are granted, to any Person or (B) owned by any other Person, other than “shrink-wrap” and similar widely available commercial end-user licenses, is licensed, or rights thereunder are granted, to the Company.  The Company is not in default under any such Contracts and the Company has not received notice of any default thereunder by the Company.  All such Contracts are valid and binding on the parties thereto and are in full force and effect, and the Company is not, to Company’s knowledge, in breach of any provision thereof or in default in any respect under the terms thereof.

(vi)No claim of trade name, trade secret, trademark, copyright, patent or other Intellectual Property infringement has been asserted or threatened against the Company.  To the best of the Company’s knowledge, no Person is infringing any Intellectual Property owned by the Company and no such claims are pending or threatened against a third party by the Company.

(vii)The Company takes, and has taken, reasonable measures to protect the confidentiality of its trade secrets, know-how or other confidential information relating to the Company’s business as currently operated.  No trade secret, know-how or other confidential information has been disclosed or authorized to be disclosed to any Person, including any employee, agent, contractor or other entity, other than pursuant to a non-disclosure agreement or other confidential obligation that adequately protects Company’s proprietary interests in and to such trade secrets.

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(viii)Schedule 3.1(m)(viii) contains a true and complete list of all Software relating to the Company’s business which is owned, licensed, leased or otherwise used by the Company in connection with the operation of the Company’s business.  Each item of Software listed in Schedule 3.1(m)(viii) is (A) owned by the Company, (B) currently in the public domain or otherwise available to the Company without the license, lease or consent of any Person, or (C) used under rights granted to the Company pursuant to a Contract with another Person, which Contract is disclosed in Schedule 3.1(m)(v).  With respect to the Software set forth in Schedule 3.1(m)(viii) which the Company purports to own, such Software was either (1) developed by employees of the Company within the scope of their employment, (2) developed by independent contractors who have assigned their rights to the Company pursuant to a Contract, (3) developed by independent contractors as work made for hire, or (4) acquired or purchased from one or more Persons pursuant to a written Contract.

(n)Absence of Changes.  Since the date of the most recent Company Financial Statements provided to the Purchaser,there has not been any Material Adverse Effect on the Company.  Since the date of the most recent Company Financial Statements provided to the Purchaser, the Company has conducted its business in the ordinary course consistent with the past practices of the Company.

(o)Certain Fees.  No fees or commissions will be payable by the Company to any broker, financial advisor, consultant, finder, placement agent, investment banker, bank or other Person, with respect to the Transaction Agreements or any transactions contemplated thereby.

(p)Costs.  The Company shall bear its own costs and expenses, including attorney fees and disbursements, in preparing, negotiating, entering or performing under any of the Transaction Agreements.

SECTION 3.2.  Representations and Warranties of the Selling Stockholders.  Each Selling Stockholder severally hereby makes the following representations and warranties to the Purchaser and each other Selling Stockholder:

(a)Ownership of Option Shares.  Such Selling Stockholder has, and, upon delivery of the Option Shares set forth opposite such Selling Stockholder’s name on Appendix A by such Selling Stockholder to the Purchaser pursuant to the terms of this Agreement, the Purchaser will acquire, good and valid title to such Option Shares free and clear of any Encumbrances.  Except for this Agreement, there are no options, warrants, calls, rights, commitments or agreements of any character to which such Selling Stockholder is a party or by which such Selling Stockholder is bound relating to the issued or unissued capital stock or Voting Debt of the Company, or obligating such Selling Stockholder to transfer, deliver or sell any shares of capital stock or other equity interest or any Voting Debt, or any securities convertible or exchangeable for any capital stock or other equity interest or any Voting Debt, of the Company or obligating such Selling Stockholder to issue, grant, extend or enter into any such option, warrant, call, right, commitment or agreement.  There are no

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outstanding contractual obligations of such Selling Stockholder to repurchase, redeem or otherwise acquire any shares of capital stock of the Company.

(b)Authorization; Enforcement.  Such Selling Stockholder has all requisite legal capacity, power and authority to enter into the Transaction Agreements to which such Selling Stockholder is a party and to consummate the transactions contemplated thereby, including the sale of the Option Shares.  The Transaction Agreements to which such Selling Stockholder is a party have been duly executed and delivered by such Selling Stockholder and constitute valid and binding obligations of such Selling Stockholder, enforceable against the Selling Stockholder in accordance with their terms, except as may be limited by bankruptcy, insolvency or other similar laws affecting the rights and remedies of creditors generally, and subject to general principles of equity, whether applied by a court of law or equity.

(c)No Conflicts; No Consents.  (i) The execution and delivery of the Transaction Agreements to which such Selling Stockholder is a party do not, and the consummation of the transactions contemplated thereby and the compliance with the terms thereof will not, (A) result in any Violation of any Contract to which such Selling Stockholder is a party or by which any of its properties or assets are bound, (B) result in any Violation of any Permit, Order or Legal Requirement applicable to such Selling Stockholder or its properties or assets or (C) result in the creation or imposition of any Encumbrance on any properties or assets of such Selling Stockholder.

(ii)No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, or notice to, any Person is required in connection with the execution and delivery of the Transaction Agreements by such Selling Stockholder, or the consummation of the transactions contemplated thereby or their compliance with the terms thereof, including the sale of the Option Shares.

(d)Certain Fees.  No fees or commissions will be payable by such Selling Stockholder to any broker, financial advisor, consultant, finder, placement agent, investment banker, bank or other Person with respect to the Transactions Agreements or any transactions contemplated thereby, including the sale of the Option Shares.

(e)Costs.  Each Selling Stockholder shall bear its own costs and expenses, including attorney fees and disbursements, in preparing, negotiating, entering or performing under any of the Transaction Agreements.

SECTION 3.3.  Representations and Warranties of the Purchaser.  The Purchaser hereby makes the following representations and warranties to each of the Company and each Selling Stockholder:

(a)Organization; Qualification and Corporate Power.  The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with the requisite corporate power and authority to own, lease, operate and use its properties and assets and to carry on its business as currently conducted.  The Purchaser is

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duly licensed or qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than in such jurisdictions where the failure to be so licensed or qualified would not, either individually or in the aggregate, have a Material Adverse Effect on the Purchaser.

(b)Authorization; Enforcement.  The Purchaser has all requisite corporate power and authority to enter into the Transaction Agreements to which it is a party and to consummate the transactions contemplated thereby.  The execution and delivery of the Transaction Agreements to which the Purchaser is a party and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Purchaser.  The Transaction Agreements to which the Purchaser is a party have been duly executed and delivered by the Purchaser and constitute valid and binding obligations of the Purchaser, enforceable against it in accordance with their terms, except as may be limited by bankruptcy, insolvency or other similar laws affecting the rights and remedies of creditors generally, and subject to general principles of equity, whether applied by a court of law or equity.

(c)No Conflicts.  The execution and delivery of the Transaction Agreements to which the Purchaser is a party do not, and the consummation of the transactions contemplated thereby and the compliance with the terms thereof will not, (i) result in a Violation of any provision of the certificate of incorporation or by-laws of the Purchaser, (ii) result in any Violation of any Contract to which the Purchaser is a party or by which any of its properties, assets or businesses are bound or (iii) result in any Violation of any Permit, Order or Legal Requirement applicable to the Purchaser or its properties, assets or business or (iv) result in the creation or imposition of any Encumbrance on any properties or assets of the Purchaser, except in the case of clauses (ii), (iii) and (iv), Violations which, individually or in the aggregate, would not have a Material Adverse Effect on the Purchaser.

(d)No Consents.  No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, or notice to, any Person is required in connection with the execution and delivery of the Transaction Agreements by the Purchaser, or the consummation of the transactions contemplated thereby or the compliance with the terms thereof.

(e)Investment.  The Purchaser is an “accredited investor” within the meaning of Rule 501 under the Securities Act, and is acquiring the Purchased Shares (and the Option Shares assuming the exercise of the Option) pursuant to this Agreement for its own account for investment and not with a view to or for resale in connection with any “distribution” thereof within the meaning of the Securities Act.

(f)Costs.  The Purchaser shall bear its own costs and expenses, including attorney fees and disbursements, in preparing, negotiating, entering or performing under any of the Transaction Agreements.

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ARTICLE FOUR

GOVERNANCE

SECTION 4.1.  Board Composition.  The business of the Company shall be managed by the board of directors.  Each of Hemant Sharma, Thomas George and the Purchaser shall be entitled, so long as such Stockholder continues to hold a Minimum Interest, to nominate one of the members of the board of directors.  If any other Person becomes a Stockholder that holds a Minimum Interest, such Stockholder shall also be entitled to nominate one of the members of the board of directors.  Each of the Stockholders agrees to vote his/her/its Company Common Stock and cause the Company to appoint any such nominee to the board of directors.  If any Stockholder ceases to hold a Minimum Interest, such Stockholder shall no longer be entitled to nominate a member of the board of directors, and shall cause its nominee to resign from the board of directors; provided that, if the Option is exercised, then subsequent to the exercise of the Option, so long as the Company shall continue its existence as a separate legal entity, Hemant Sharma and Thomas George shall have the right, together, to nominate only one member to the board of directors of the Company until the Final Payment Date.  Notwithstanding this Section 4.1, the number of directors may be greater than the number of Stockholders that hold a Minimum Interest.

SECTION 4.2.  Board Action.  Subject to the provisions of Section 4.3, until the Option Closing Date, the following actions shall be taken by the Company only after the unanimous approval of the board of directors of the Company, or by the approval of Stockholders that beneficially own an aggregate of least 90% of the issued and outstanding shares of Company Common Stock if such issue is in the power of the Stockholders in accordance with applicable Legal Requirements:

(a)the amendment of the certificate of incorporation or by-laws of the Company;

(b)a change in the nature of the business of the Company or the entering into a new business by the Company;

(c)the issuance, redemption or repurchase of any capital stock of the Company;

(d)the undertaking of any merger, consolidation or joint venture, or the acquisition of the capital stock or other equity interests of, or all or substantially all of the assets of, another Person;

(e)the creation of any subsidiaries of the Company;

(f)the appointment or discharge of any employees of the Company and the approval of compensation of any employees of the Company including bonuses, stock options, profit sharing or retirement benefits; provided that, (i) approval of any recommendations made by Hemant Sharma or Thomas George with respect to the foregoing shall not be unreasonably withheld, and (ii) no such approval will be required with respect to

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a base salary of $110,000 for, and any benefits currently received by and specified in Schedule 3.1(k)(i), each of Hemant Sharma and Thomas George;

(g)adjusting the size of the board of directors of the Company;

(h)the dissolution, liquidation or cessation of business activities of the Company;

(i)the entering into, modification or termination of one or more Contracts with a term of one year or more or involving a payment or obligation of (i) $25,000 or more on an individual basis or (ii) $250,000 or more in respect of Contracts not unanimously approved by the board of directors in the aggregate in any twelve month period, except where such entering into, modification or termination is reflected in the Company’s budget, attached hereto as Exhibit E (the “Budget”);

(j)the entering into any transaction with an affiliate of the Company or any Stockholder other than the Transaction Agreements and the transactions contemplated therein;

(k)the sale, purchase, transfer, hypothecation or lease of one or more assets having a value of (i) $25,000 or more on an individual basis or (ii) $250,000 or more in respect of sales, purchases, transfers, hypothecations or leases not unanimously approved by the board of directors in the aggregate in any twelve month period, except where such sale, purchase, transfer, hypothecation or lease is reflected in the Budget;

(l)the incurrence of any indebtedness (which shall not include accounts payable in the ordinary course of business) by the Company in excess of $25,000 in the aggregate in any twelve month period, except if such amount of indebtedness is provided for in the Budget;

(m)the investment of funds of the Company other than in Permitted Investments;

(n)the making by the Company of any loan or advance to any Person that results in total outstanding loans and advances given by the Company to exceed $25,000 at any time;

(o)the guaranty of any obligation or debt of any Person;

(p)the making of one or more capital expenditures of (i) $25,000 or more on an individual basis or (ii) $250,000 or more in respect of capital expenditures not unanimously approved by the board of directors in the aggregate in any twelve month period, or any capital expenditure not in the ordinary course of business, except where such capital expenditure is included in the Budget;

(q)the declaration or payment of dividends or distributions upon the capital stock of the Company;

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(r)the approval or modification of any accounting policies, or the appointment or removal of independent auditors of the Company;

(s)any amendments to the Budget;

(t)the handling or resolution of any Proceeding pending, threatened against or affecting the Company or any of its properties, assets or businesses; provided that, to the extent the sole relief sought pursuant to such Proceeding is monetary, such Proceeding involves a claim of $100,000 or more;

(u)enter into any license agreements to license the System, other than license agreements specified in Schedule 4.2(u), on which license agreements shall be, except as otherwise specified in Schedule 4.2(u), on terms and conditions consistent with the Company’s ordinary business practices and in form and substance substantially similar to the Company’s current form of license agreement attached hereto as Exhibit F; and

(v)enter into any commitment (contingent or otherwise) to do any of the foregoing;

provided that, (i) any actions to be taken with respect to a breach by the Purchaser of any of the Transaction Agreements shall not require the approval of the director nominated by the Purchaser; (ii) only the approval of the director nominated by the Purchaser shall be required for the appointment of independent auditors by the Purchaser to audit the Company to the extent the costs of such independent auditor are bourne by the Purchaser; and (iii) only the approval of the director nominated by the Purchaser will be required to approve any accounting policies that are consistent with GAAP or to modify any accounting policies in order for such policies to become consistent with GAAP.

SECTION 4.3.  Cessation of Rights.  Notwithstanding anything herein to the contrary, Section 4.2 other than Section 4.2(h), 4.2(r) and clauses (ii) and (iii) of the proviso to Section 4.2 shall no longer be effective if (a) the Purchaser is found by final judgment by a court of competent jurisdiction (not subject to further appeal) that the Purchaser has materially breached this Agreement or any of the Transaction Agreements; provided that, (i) Section 4.2(b) shall continue to apply with respect to the entry by the Company into a business that is unrelated to the Company’s business as currently conducted, (ii) Section 4.2(c) shall continue to apply with respect to the issuance of capital stock if such issuance is not for cash or has not been offered to existing Stockholders, and (iii) Section 4.2(e) shall continue to apply with respect to the creation of any subsidiary that is not wholly owned, or (b) the Purchaser does not exercise the Option by the Expiration Date or the Option is terminated.

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ARTICLE FIVE

COVENANTS

SECTION 5.1.  Transfers.  During the Restricted Transfer Period, no Stockholder shall (a) offer, sell, transfer, agree to sell or transfer, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, assign, pledge, hypothecate or create or permit to exist any Encumbrance on, or otherwise transfer or dispose of (including the deposit of any such shares of Company Common Stock into a voting trust or similar arrangement), directly or indirectly, any shares of Company Common Stock or any securities convertible into or exercisable or exchangeable therefore, or any interest therein or (b) enter into any swap or other arrangement that transfers to another Person, in whole or in part, any of the economic consequences of owning such Company Common Stock (any transactions described in clause (a) or (b) being referred to herein as a “Transfer”), except (i) in the case of Transfers of the Option Shares in accordance with the terms and subject to the conditions of Section 2.4 above or (ii) with the prior written consent of each other Stockholder.  After the Restricted Transfer Period, any Stockholder may Transfer all or part of its Company Common Stock subject to Sections 5.2.

SECTION 5.2.  Right of First Refusal; Tag Along Rights.  (a) In the event that any Stockholder (a “Transferring Stockholder”) proposes to Transfer all or part of their Company Common Stock (the “Transfer Shares”) after the Restricted Transfer Period, such Transferring Stockholder shall notify the Company and each Stockholder that holds a Minimum Interest at least 60 days prior to the date of such proposed Transfer in writing of (i) its bona fide intention to Transfer the Transfer Shares, (ii) the number of Transfer Shares to be Transferred, (iii) the price, which must be payable entirely in immediately available U.S. dollars, and other terms pursuant to which such Transferring Stockholder proposes to Transfer the Transfer Shares, (iv) the proposed date of Transfer and (v) the identity of the proposed purchaser of the Transfer Shares (“Transferee”) (the “Transfer Notice”).

(b)  The Company shall notify the Transferring Stockholder and each Stockholder that holds a Minimum Interest, within ten days after receipt of such Transfer Notice, in writing whether it elects to purchase from the Transferring Shareholder the Transfer Shares and the Tag Along Shares, if any.  The Company, if it elects, shall have the right to purchase from the Transferring Shareholder all, but not less than all, of the Transfer Shares, and from the Purchaser all, but not less than all, of the Tag Along Shares, if the Purchaser elects to exercise its rights pursuant to Section 5.2(d) below, at the same price and on the same terms as provided in the Transfer Notice.

(c)  If the Company does not elect to exercise its rights to purchase the Transfer Shares and Tag Along Shares, if any, each Stockholder that holds a Minimum Interest shall notify the Company, the Transferring Stockholder and each Stockholder that holds a Minimum Interest, within 15 days after receipt of such Transfer Notice, in writing whether it elects to purchase from the Transferring Stockholder its pro rata portion of the Transfer Shares and from the Purchaser its pro rata portion of the Tag Along Shares, if any.

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Such Stockholder, if it elects, shall have the right to purchase from the Transferring Shareholder its pro rata portion of the Transfer Shares, and from the Purchaser its pro rata portion of the Tag Along Shares, if the Purchaser elects to exercise its rights pursuant to Section 5.2(d) below, at the same price and on the same terms as provided in the Transfer Notice.  The number of shares to be purchased by each such Stockholder electing to purchase shall be equal to (i) the number of shares of Company Common Stock owned by such Stockholder electing to purchase multiplied by (ii) the number of Transfer Shares and Tag Along Shares, if any, to be Transferred divided by (iii) the aggregate number of shares of Company Common Stock owned by each such Stockholder electing to purchase.  If neither the Company nor one or more Stockholders that holds a Minimum Interest has elected to purchase all of the Transfer Shares and Tag Along Shares, if any, within such 15 day period, the Transferring Stockholder shall have the right, subject to Section 5.2(d) below, within 60 days from the expiration of such 15 day period to Transfer the Transfer Shares on the terms and conditions specified by the Transferring Stockholder in the Transfer Notice free of the restrictions imposed by Sections 5.2(b) and (c).

(d)  In the event that the Transferring Stockholder is either Hemant Sharma or Thomas George, the Purchaser shall notify the Company, the Transferring Stockholder and each Stockholder that holds a Minimum Interest, within 15 days after the receipt of such Transfer Notice, in writing whether it elects to participate in such Transfer by selling a portion of the Purchaser’s Company Common Stock.  The Purchaser, if it elects, shall have the right to sell to the Transferee, or, if the Company or one or more Stockholders that holds a Minimum Interest exercises its rights pursuant to Section 5.2(b) or (c) above, as the case may be, to the Company or such Stockholders, as the case may be, at the same price and on the same terms as the Transferring Stockholder, an amount of Company Common Stock equal to the number of shares of Company Common Stock owned by the Purchaser multiplied by the number of Transfer Shares divided by the aggregate number of shares of Company Common Stock owned by any Stockholder that has been granted tag along rights by Hemant Sharma and Thomas George (the “Tag Along Shares”).  If the Purchaser does not elect to participate in such Transfer of Company Common Stock within such 15 day period, the Transferring Stockholder shall have the right, subject to Sections 5.2(b) and (c) above, within 60 days from the expiration of such 15 day period, to Transfer the Transfer Shares on the terms and conditions specified by the Transferring Stockholder in the Transfer Notice free of the restrictions imposed by this Section 5.2(d).  In no event after the Purchaser has elected to exercise its right to Transfer its Company Common Stock pursuant to this Section 5.2(d) shall the Transferring Stockholder Transfer the Transfer Shares to any Person without the Transfer by the Purchaser of its Company Common Stock to such Person.

SECTION 5.3.  Validity of Transfer.  Any Transfer by a Stockholder that does not comply with the provisions of this Agreement shall be null and void.  The Stockholders shall cause the Company not to, and Company shall not, Transfer on its books any shares of Company Common Stock that have been transferred in violation of any of the provisions set forth in this Agreement or treat as owner of such Company Common Stock, or accord the right to vote or pay dividends to, any transferee to whom such Company Common Stock shall have been so transferred.  The Stockholders shall cause the Company to, and the Company shall, register on each stock certificate representing Company Common Stock that

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such Company Common Stock is subject to the restrictions contained in this Agreement.  No Transfer of Company Common Stock by a Stockholder to any Person other than any Person already a party to this Agreement shall be effective unless the transferee of such Company Common Stock executes a counterpart of this Agreement and thereby becomes a party thereto.

SECTION 5.4.  By-laws.  The Stockholders shall cause the Company to, and the Company shall, adopt the amended and restated by-laws of the Company in the form attached as Exhibit G to this Agreement.

SECTION 5.5.  Spartan License Agreement.   The Stockholders shall cause the Company to, and the Company shall, assign all right, title and interest that the Company now has or that shall hereafter arise in and to any amounts due to the Company pursuant to Sections 3.3 and 3.4 of the Spartan License Agreement, all proceeds thereof to Hemant Sharma and Thomas George net of any tax liability to the Company, if any.

SECTION 5.6.  Purchaser Reporting Obligations.   (a) So long as any payment (whether in cash or stock) to any of the Selling Stockholders is outstanding under this Agreement, Purchaser shall furnish to each of the Company, Hemant Sharma and Thomas George periodic statements (the “Gross Revenue Statement”) setting forth in reasonably sufficient detail Gross Revenue accrued during the preceding period to ITG Group in respect of trades executed via the System.  The Gross Revenue Statement shall set forth, by name of the entity that executed any trade, any and all of the commissions, fees or other remuneration accrued to ITG Group in respect of the trades executed via the System, and all of the deductions or discounts granted or proposed to be granted, together with the following (i) with respect to any soft dollar credits to ITG Group, the terms under which such soft dollar services were provided, and (ii) with respect to any discounts and deductions, the nature, applicable period and terms of such discounts and deductions.  The Gross Revenue Statement shall be furnished as follows:

(A)From the date hereof, within 17 Business Days after the end of each Fiscal Month, an unaudited Gross Revenue Statement;

(B)From the date hereof, within 30 Business Days after the end of each Fiscal Quarter, an unaudited Gross Revenue Statement.  The quarterly Gross Revenue Statement shall set forth, in addition to all other details, comments as to whether any discounts or deductions were not in the ordinary course of business;

(C)As of the Option Exercise Date, an unaudited Gross Revenue Statement, setting forth all of the details included in the quarterly Gross Revenue Statement; and

(D)From the date hereof, from time to time, such further information regarding Gross Revenue, including copies of any Contracts between any entity of the ITG Group and its customers that could reasonably be expected to have an impact on Gross Revenues, as the Company, Hemant Sharma or Thomas George may reasonably request.

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The Purchaser shall provide to each of Hemant Sharma or Thomas George reasonable access during normal business hours, upon reasonable notice to the Company, to the Gross Revenue Statements and all records pertaining to the calculation of Gross Revenue; provided that, such request may only be made two times in any calendar year.

(b)From the Option Exercise Date until one year after the Option Exercise Date, Purchaser shall furnish to the Sellers’ Representative prompt notice of any Change of Control.

SECTION 5.7.  Company Reporting Obligations.  The Company shall (i) use commercially reasonable efforts to provide to the Purchaser in a reasonably timely manner on a monthly basis, monthly financial information consisting of a balance sheet of the Company as of the month end, together with statements of operation and statements of cash flows as of the month end and (ii) provide on a quarterly basis the Company officer certification in the form attached hereto as Exhibit H.

SECTION 5.8.  No Solicitation.  The Purchaser agrees that from the date hereof and until (a) if the Option is exercised, the Option Closing Date or (b) if the Option is not exercised, two years after the Expiration Date, that the ITG Group shall not directly or indirectly employ, solicit, induce, enter into any agreement with, or attempt to influence any individual who is or was an employee or software consultant of the Company to terminate his or her employment relationship with the Company or to be employed by the ITG Group or interfere in any other way with the employment, or other relationship of any employee or software consultant of the Company.  Each of the Company and the Selling Stockholders agrees that if the Option is not exercised, for two years after the Expiration Date, the Company and each of Hemant Sharma and Thomas George shall not directly or indirectly employ, solicit, induce, enter into any agreement with, or attempt to influence any individual who is an employee or software consultant of the ITG Group or interfere in any other way with the employment or other relationship of any employee or software consultant of the ITG Group; provided that, in the case of Hemant Sharma and Thomas George, such restriction shall only apply to employees or software consultants that Hemant Sharma or Thomas George had contact with in connection with the transactions contemplated under this Agreement.

SECTION 5.9.  System Marketing.  In consideration of the exclusive license granted to the Purchaser and its Affiliates under the License Agreement and other rights and privileges granted to the Purchaser and its Affiliates under the Transaction Agreements, the Purchaser shall at all times from the date hereof until one year from the Option Exercise Date (or the Expiration Date if the Option is not exercised) use all commercially reasonable efforts to market the System including marketing the System to ITG Group customers.

SECTION 5.10.  US Trading Corporation License Agreement.  The Company shall terminate the Software Site License Agreement dated as of April 8, 2001 between US Trading Corporation and the Company within 30 days of the Closing Date.

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ARTICLE SIX

TERMINATION OF OBLIGATIONS; SURVIVAL

SECTION 6.1.  Termination.  This Agreement may be terminated: (a) by any Selling Stockholder that holds a Minimum Interest, in the event of a material breach or default in the performance by the Purchaser of any representation, warranty, covenant or agreement set forth in this Agreement, which breach or default has not been, or cannot be, cured within 15 days of written notice of such breach or default, describing such breach or default, by any such Selling Stockholder to the other parties hereto, (b) by the Purchaser so long as it holds a Minimum Interest, in the event of a material breach or default in the performance by a Selling Stockholder that holds a Minimum Interest or the Company of any representation, warranty, covenant or agreement set forth in this Agreement, which breach or default has not been, or cannot be, cured within 15 days of written notice of such breach of default, describing such breach or default, is given by the Purchaser to the other parties hereto, or (c) by mutual consent of the Stockholders that hold a Minimum Interest.

SECTION 6.2.  Effect of Termination.  In the event of termination of this Agreement pursuant to Section 6.1, this Agreement shall thereafter have no effect, and no party shall have any liability to the other parties in respect hereof, except that (a) the obligations of the parties under Section 6.2, Article Seven, Article Eight and Section 9.7, shall survive and (b) nothing herein contained shall relieve any party from liability for any breach of any representation, warranty or agreement hereunder that occurred prior to such termination.

ARTICLE SEVEN

CONFIDENTIALITY

SECTION 7.1.  Confidential Information.  (a)  “Confidential Information” shall mean all information that is furnished by any party hereto (the “Disclosing Party”) to any other party hereto (the “Receiving Party”) pursuant to this Agreement, whether written or oral and in whatever form or medium it is provided, and shall specifically include (i) the Transaction Agreements, (ii) all data, records, oral discussions and information exchanged between the parties hereto in connection with the Company, and (iii) all information generated by each party hereto or its Representatives that analyzes, summarizes, or reproduces the furnished information.

(b)  The following information shall not be deemed to be Confidential Information, and the provisions of this Article shall not apply to: (i) information which is or becomes generally available to the public other than as a result of a disclosure in violation of this Agreement, (ii) information which was already known to such Receiving Party or its Representatives prior to being furnished pursuant to this Agreement, (iii) information which becomes available to such Receiving Party or its Representative on a non-confidential basis

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from a source other than a Disclosing Party or its Representatives if such Receiving Party or its Representatives had no reason to believe that the source of such information was subject to any prohibition against transmitting the information to such Receiving Party or its Representative, and (iv) information independently developed by such Receiving Party or its Representative.

SECTION 7.2.  Confidentiality Obligations.  (a)  Each Receiving Party shall not disclose any Confidential Information to any other Person without the consent of all of the Stockholders holding a Minimum Interest other than to: (i) such Receiving Party’s Representatives, the other parties hereto or their Representatives, (ii) after the Restricted Transfer Period, a prospective transferee of all or part of the shares of the Company Common Stock held by a Stockholder, or (iii) a Person to which the Receiving Party is required to disclose by applicable Legal Requirements.

(b)  In case of a disclosure of Confidential Information to a Person permitted by Section 7.2(a)(ii), the Receiving Party disclosing such information shall ensure that such third party has signed an agreement in writing to protect the Confidential Information from further disclosure to the same extent as the parties hereto are obligated under this Article.

SECTION 7.3.  Notice Preceding Compelled Disclosure.  If a party hereto or its Representative reasonably believes it is required by applicable Legal Requirements to disclose any Confidential Information, such party shall promptly notify the other parties hereto of such requirement as soon as it becomes aware of it.

SECTION 7.4.  Consultation as to Announcements.  No public announcement or press release concerning the Company or the Transaction Agreements or the transactions contemplated thereby shall be made by any party hereto without prior consultation with all Stockholders holding a Minimum Interest; provided that, this Section 7.4 shall not prohibit any public announcement or press release required to be made pursuant to applicable Legal Requirements.

ARTICLE EIGHT

INDEMNIFICATION

SECTION 8.1.  Indemnity.(a) (i) The Purchaser shall indemnify and hold harmless the Company and each of the Selling Stockholders and their Representatives (each, a “Stockholder Indemnitee”, and collectively, the “Stockholder Indemnitees”) and (ii) (A) with respect to the representations and warranties set forth in Section 3.1 above, and given on the date hereof, the Company, and with respect to the representations and warranties set forth in Section 3.1 above (as modified pursuant to Section 2.4(c)(B) above), and given on the Option Closing Date, if any, the Selling Stockholders, jointly and severally, and (B) with respect to the representations and warranties set forth in Section 3.2 above and any covenant or agreement made by the Selling Stockholders in this Agreement, each of the Selling

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Stockholders, severally, shall indemnify and hold harmless the Purchaser and its Representatives (each, a “Purchaser Indemnitee”, and collectively, the “Purchaser Indemnitees”, and together with the Stockholder Indemnitees, the “Indemnitees”), in each case of (i) and (ii), against any losses, claims, damages, liabilities or reasonable expenses (including reasonable attorneys fees) (collectively, the “Losses”), joint or several, to which such Indemnitee may become subject resulting from or arising out of any inaccuracy or misrepresentation in, or breach of, any representation, warranty, covenant or agreement made by such party pursuant to this Agreement; provided that, for the purposes of this Section 8.1, the representations and warranties set forth in the last sentence of Section 3.1(k) above shall be deemed not to contain any materiality qualifiers.

(b)If the Option is exercised, the Selling Stockholders, jointly and severally, shall indemnify and hold harmless the Purchaser and its Representatives (each of which shall also constitute a “Purchaser Indemnitee”) against any Patent Infringement Losses.  Such indemnification obligations shall cease one year after the date of the Option Exercise Date other than in respect to claims for Patent Infringement Losses made prior to such date.

(c)If a New Escrow Agreement is entered into pursuant to Section 8.6, the Selling Stockholders, jointly and severally, shall indemnify and hold harmless the Purchaser and its Representatives (each of which shall also constitute a “Purchaser Indemnitee”) against any Patent Infringement Losses incurred on or subsequent to the date that is one year after the Option Exercise Date and such indemnification obligations shall survive until all escrowed funds are released pursuant to the New Escrow Agreement.

SECTION 8.2.  Claims for Indemnification.  Promptly after receipt by an Indemnitee of notice of the commencement of any Proceeding, such Indemnitee shall, if a claim in respect thereof is to be made against an indemnifying party under Section 8.1 above, notify the indemnifying party in writing of the commencement thereof and with reasonable particularity; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any Indemnitee otherwise unless, and solely to the extent, the indemnifying party thereby is actually and materially prejudiced by such failure to give notice.  In case any such Proceeding shall be brought against any Indemnitee, it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall have, jointly with any other indemnifying party similarly notified, the right to participate in the defense, compromise or settlement thereof, including the selection of counsel.  Each of the Indemnitee and the indemnifying party agrees to cooperate and work together in good faith in the selection of counsel and to coordinate any defense, compromise or settlement of any such Proceeding.  If the parties cannot agree upon the selection of counsel, each party is entitled to, at its own expense, engage counsel of its choice in connection with the defense, compromise or settlement of any such Proceeding.  Notwithstanding anything to the contrary in this Section 8.2, the Purchaser shall not settle any such Proceeding without the consent of the Sellers’ Representative, which consent shall not be unreasonably withheld, if and to the extent that 80% or more of the amount of any such settlement is borne by the Selling Stockholders as an indemnifying party.

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SECTION 8.3.  Survival of Representations, Warranties and Covenants.  All of the representations and warranties of any party hereto contained in this Agreement and the liabilities and obligations of the parties with respect thereto shall survive until (a) if the Option is exercised, for one year after the Option Exercise Date, and (b) if the Option is not exercised, the Expiration Date.  All of the covenants of any party hereto contained in this Agreement shall survive until fully performed or fulfilled unless waived in writing by the party or parties entitled to performance.  Any indemnification obligations pursuant to Section 8.1(a) shall cease when the applicable representation, warranty or covenant terminates other than in respect to claims for Losses made prior to such date.

SECTION 8.4.  Limitation of Liability.  The indemnification obligations set forth in this Article Eight shall apply only if a Closing occurs, and then only after the aggregate amount of such obligations exceed $50,000, at which time the indemnification obligations shall be effective as to all amounts exceeding $50,000.  Notwithstanding anything contained herein to the contrary, the indemnification obligation (a) of the Company provided for in Section 8.1(a), shall not exceed with respect to any claims arising before the exercise or expiration of the Option, whichever is earlier, $750,000, (b) of the Selling Stockholders provided for in Section 8.1(a), shall not exceed with respect to any claims arising after the Option Exercise Date if the Option is exercised, an amount equal to the amounts held in escrow at such time pursuant to the Escrow Agreement, (c) of the Selling Stockholders provided for in Section 8.1(b), shall not exceed an amount equal to 50% of the amounts held in escrow at such time pursuant to the Escrow Agreement and (d) of the Selling Stockholders provided for in Section 8.1(c), shall not exceed an amount equal to the amounts held in escrow at such time pursuant to the New Escrow Agreement; provided that, in the case of clause (c) above, (A) such amount shall not exceed an amount equal to 50% of the Patent Infringement Losses; (B) such amounts shall not exceed 50% of the aggregate of the Option Exercise Price and the Additional Option Payment Amounts, if any, less $1,575,000, and (C) if the amount of Patent Infringement Losses as a percentage of the aggregate Gross Revenues (calculated from the Closing Date to the earlier of (i) the date on which such claim is resolved and (ii) one year from the Option Exercise Date) is less than 3.5% of such Gross Revenues, such amount shall not exceed $2,000,000; provided further, that in the case of clauses (c) and (d) above, such amount shall not exceed $2,000,000 in the case of the Patent Infringement Losses with respect to such patents set forth in Schedule 8.4 hereto (“Scheduled Patents”).  Notwithstanding anything contained herein to the contrary, the indemnification obligation of the Purchaser provided for in Section 8.1(a), shall not exceed 1.5 times the Option Exercise Price plus any Additional Option Payment Amounts previously paid or otherwise due under this Agreement.

SECTION 8.5.  Sole Remedy.  The sole and exclusive remedy of an Indemnitee for breaches of any of the representations and warranties under this Agreement or for any Patent Infringement Losses is the indemnification in this Article 8.  Any claims of the Purchaser for indemnification pursuant to Section 8.1(a), 8.1(b) and 8.1(c) other than with respect to any claims arising before the exercise or the expiration of the Option shall be

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limited to the funds held in escrow pursuant to the Escrow Agreement and the New Escrow Agreement, as the case may be.

SECTION 8.6.  New Escrow.  To the extent that any payments have been received by the Purchaser from any indemnifying party with respect to any Patent Infringement Losses pursuant to this Article 8 prior to the Final Payment Date and the System continues to be used by the Purchaser, the indemnifying parties and the Purchaser shall enter into a new escrow agreement (the “New Escrow Agreement”).  The Purchaser shall deposit 7% of the Gross Revenues on a monthly basis beginning with the first Fiscal Month after entering into the New Escrow Agreement until the Purchaser has deposited an amount of funds equal to the amount received by the Purchaser from any indemnifying party with respect to Patent Infringement Losses under this Article 8.  The New Escrow Agreement shall provide that an amount equal to 25% of the funds in the escrow account, from time to time, shall be released on a semiannual basis to the Selling Stockholders and the entire amount of funds in the escrow account shall be released when the Purchaser shall have deposited an amount equal to the amount received by the Purchaser by any indemnifying party with respect to Patent Infringement Losses under this Article 8, except to the extent that there are additional unresolved pending claims for Patent Infringement Losses.

SECTION 8.7.  Sellers’ Representative.  The Selling Stockholders hereby irrevocably appoint Hemant Sharma as the sellers’ representative (the “Sellers’ Representative”) as their agent and attorney-in-fact to take all actions on their behalf as contemplated by this Agreement, the Escrow Agreement and the New Escrow Agreement, including, without limitation, to receive any and all payments to be made by Purchaser hereunder.  The Purchaser shall be entitled to rely for all purposes on Hemant Sharma’s authority to act as the Sellers’ Representative, as herein contemplated.  In the event of the death or resignation of the Sellers’ Representative, the Selling Stockholders (or their heirs, executors or successors, as the case may be) shall promptly irrevocably appoint a successor Sellers’ Representative and give the Purchaser written notice of such appointment within one business day following such death or resignation.  Until such time as the Purchaser is notified of the appointment of such successor Sellers’ Representative, Hemant Sharma shall act in that capacity on behalf of the Selling Stockholders and the Purchaser shall be entitled to rely for all purposes on Hemant Sharma’s authority to act as the Sellers’ Representative, as herein contemplated.  In the event Hemant Sharma shall be unable to act as the Sellers’ Representative, Thomas George shall act in that capacity on behalf of Selling Stockholders and the Purchaser shall be entitled to rely for all purposes on Thomas George’s authority to act as the Stockholders Representative, as herein contemplated.  Notwithstanding anything to the contrary herein, any notices to be delivered to, or by, any Selling Stockholder, any payments to be made to, or by, any Selling Stockholder and any other instruments or documents to be executed or delivered to, or by, any Selling Stockholder may be delivered or made to, or by, the Sellers’ Representative on behalf of any such Selling Stockholder.

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ARTICLE NINE

GENERAL PROVISIONS

SECTION 9.1.  Notices.  All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, or by telecopy upon confirmation of receipt, (b) on the first business day following the date of dispatch if delivered by a nationally recognized next-day courier service, or (c) on the third business day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid.  All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:

if to Purchaser, to:

Investment Technology Group, Inc.

380 Madison Avenue, 4^th Floor

New York, New York 10017

Attention: General Counsel

Telephone: (212) 444-6327

Facsimile: (212) 444-6494

with a copy to:

Boies, Schiller and Flexner LLP

333 Main Street

Armonk, New York 10504

Attention: Robert W. Leung, Esq.

Telephone: (914) 749-8388

Facsimile: (914) 749-8300

if to the Company, to:

Radical Corporation

100 Quentin Roosevelt Blvd., Suite 203

Garden City, NY 11530

Telephone: (516) 832-1014

Facsimile: (516) 227-1268

with a copy to:

Lehman & Eilen LLP

50 Charles Lindbergh Blvd.

Uniondale, New York 11553

Attention: Hank Gracin, Esq.

Telephone: (516) 222-0888

Facsimile: (516) 222-0948

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if to a Selling Stockholder, to:

Sellers’ Representative

Hemant Sharma

76 South Bergen Place

Apt 4R

Freeport, NY 11520

Telephone: (516) 263-7784

with a copy to:

Lehman & Eilen LLP

50 Charles Lindbergh Blvd.

Uniondale, New York 11553

Attention: Hank Gracin, Esq.

Telephone: (516) 222-0888

Facsimile: (516) 222-0948

SECTION 9.2.  Interpretation.  When a reference is made in this Agreement to Sections, Appendices or Schedules, such reference shall be to a Section of, or Appendix or Schedule to, this Agreement unless otherwise indicated.  The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”  The phrases “the date of this Agreement,” “the date hereof” and terms of similar import, unless the context otherwise requires, shall be deemed to refer to June 11, 2003.  The phrases “known” or “knowledge” mean, with respect to any party to this Agreement, the actual knowledge of any of such Person or its current directors or current executive officers after reasonable inquiry.  References to any Person shall include successors and assigns of such Person.  Except as specifically set forth herein (including actions and obligations of the Selling Stockholders in their individual capacities) or otherwise provided by applicable law, nothing in this Agreement shall be deemed to create or impose any personal liability of any kind on any director or officer of the Company with respect to obligations of the Company.

SECTION 9.3.  Amendment.  This Agreement may be amended, modified or supplemented only by an agreement in writing signed by each of the parties hereto.

SECTION 9.4.  Waiver.  (a) No failure on the part of any Person to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Person in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.

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(b)  No Person shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

SECTION 9.5.  Counterparts; Effectiveness.  This Agreement may be executed in any number of counterparts, each of which shall be considered an original with the same effect as if the signatures were executed upon the same instrument.  This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by each other party hereto.

SECTION 9.6.  Entire Agreement; No Third Party Beneficiaries.  The Transaction Agreements constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among the parties hereof relating to the subject matter hereof (including without limitation, the Agreement of Stockholders of the Company, dated January 29, 2001, among Hemant Sharma, Thomas George, Astor Grenfel, Inc. and the Company), and there are no warranties, representations or other agreements between or among any of the parties hereto in connection with the subject matter hereof except as specifically set forth in the Transaction Agreements.  This Agreement shall inure to the benefit of, and be binding upon, only the parties hereto and their respective successors and assigns, and shall not confer any rights or remedies on any other Person.

SECTION 9.7.  Governing Law; Consent to Jurisdiction.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.  Each of the parties hereto hereby irrevocably and unconditionally agree that any legal action, suit or proceeding arising out of or relating to this Agreement or any agreements or transactions contemplated hereby may be brought in any federal or state court located in The Borough of Manhattan, The City of New York, and hereby irrevocably and unconditionally expressly submits to the personal jurisdiction and venue of such courts for the purposes thereof and hereby irrevocably and unconditionally waives any claim (by way of motion, as a defense or otherwise) of improper venue, that it is not subject personally to the jurisdiction of such court, that such courts are an inconvenient forum or that this Agreement or the subject matter may not be enforced in or by such court.

SECTION 9.8.  Waiver of Jury Trial.  Each of the parties hereto hereby irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or related to this Agreement or the transactions contemplated hereby.

SECTION 9.9.  Severability.  Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability and shall not render invalid or unenforceable the remaining terms and provisions of this Agreement or affect the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction.  If any provision

37

of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

SECTION 9.10.  Assignment.  Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, and any attempt to make any such assignment without such consent shall be null and void.

SECTION 9.11.  Specific Performance.  The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any federal or state court located in The Borough of Manhattan, The City of New York, this being in addition to any other remedy to which they are entitled at law or in equity.

SECTION 9.12.  Time of Essence.  Time is of the essence of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized, executed and delivered as of June 11, 2003.

INVESTMENT TECHNOLOGY GROUP, INC.

By:

Name:

Title:

RADICAL CORPORATION

By:

Name:

Title:

HEMANT SHARMA

THOMAS GEORGE

KIMBERLY CARFERO

RAJIV JOHN

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TIM NICKDOW

ROBERT SCIARRA

MAHESH SINGHI

ANDREW KOVAL

HOSSEIN MAHDAVI

MULTI-COMMERCE USA

40

Exhibit B

Selling Stockholder Shares

Selling Stockholder	Number of Option Shares
Hemant Sharma	20,000
Thomas George	20,000
Kimberly Carfero	225
Rajiv John	200
Tim Nickdow	135
Robert Sciarra	135
Mahesh Singhi	200
Andrew Koval	690
Hossein Mahdavi	215
Multi-Commerce USA	360

B-1

Exhibit H

FORM OF OFFICER CERTIFICATE

Investment Technology Group, Inc.
Certification in Connection with CEO/CFO Certification

                    Report on Form            for the             period ended               , 200  (the “Report”) of Investment Technology Group, Inc. (the “Company”).

Name:
Title:

I certify that:

1.I have read a draft of the Report referred to above.

2.To my knowledge, the information in the Report relating to Radical Corporation, and the information relating to Radical Corporation provided in connection with the preparation of the Report, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made in the Report regarding Radical Corporation, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Report.

3.To my knowledge, all financial information relating to Radical Corporation provided in connection with the preparation of the Report fairly presents, in all material respects, the financial condition, results of operations and cash flows of Radical Corporation as of, and for, the periods presented in the Report.

4.Disclosure Controls and Procedures(1)

(a)The disclosure controls and procedures (including internal controls) for Radical Corporation, as they are designed and implemented, ensure that material information relating to Radical Corporation is made known to me

(1)“Disclosure controls and procedures” are controls and other procedures designed to ensure that all the information the Company is required to disclose in its SEC filings, including required material non-financial information, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management, including its principal executive officer(s) and principal financial officer(s), in a way that allows timely decisions regarding required disclosure.

H-1

and to senior management of the Company, particularly during the period in which the Report is being prepared.

(b)I have evaluated the effectiveness of Radical Corporation’s disclosure controls and procedures (including internal controls) as of a date within 90 days prior to the date of the Report.

(c)Disclosure in the Report regarding the Company’s disclosure controls and procedures (including internal controls) and the effectiveness thereof fairly presents Radical Corporation’s disclosure controls and procedures (including internal controls) and the effectiveness thereof.

5.Internal Controls

(a)I am not aware of any deficiencies in the design or operation of internal controls of Radical Corporation which could adversely affect the Company’s ability to record, process, summarize and report financial data.

(b)I am not aware of any fraud, whether or not material, that involves management or other employees.

6.Bring-Down of Representations:

To my knowledge, there have been no significant changes since my evaluation referred to in 4(b) above in Radical Corporation’s disclosure controls and procedures or internal controls or in any other factors that have significantly affected or could significantly affect such disclosure controls and procedures and/or internal controls subsequent to the date of their evaluation, including any corrective actions with regard to deficiencies and weaknesses.

7.If any information comes to my attention between the date of this certification and the date of the filing of the Report (on or about             , 200  ) which would cause me to change my beliefs as set forth herein, I will promptly notify each of the Chief Executive Officer and Chief Financial Officer of the Company of such information.

Date:
	Signature

H-2

EX-21

Exhibit 21

SUBSIDIARIES OF THE COMPANY

Name	Jurisdiction of Incorporation/Organization
ITG Inc.	Delaware
ITG Capital, Inc.	Delaware
AlterNet Securities, Inc.	Delaware
ITG Ventures, Inc.	Delaware
ITG Software Solutions, Inc.	Delaware
ITG Global Trading Incorporated	Delaware
ITG Execution Services, Inc.	Delaware
Hoenig Group Inc.	Delaware
Investment Technology Group International Limited	Ireland
ITG Investment Technology Group (Israel) Ltd.	Israel
ITG Australia Holdings PTY Ltd.	Australia
ITG Pacific Holdings PTY Limited	Australia
ITG Australia Ltd.	Australia
ITG Canada Corp.	Nova Scotia
KTG Technologies Corp.	Nova Scotia
ITG Ventures Ltd.	Ireland
Investment Technology Group Limited	Ireland
Investment Technology Group Europe Limited	Ireland
Hoenig & Company Limited	United Kingdom
Rye Brook Nominees Limited	United Kingdom
ITG Asia Holdings Ltd.	Bermuda
ITG Hoenig Ltd.	Hong Kong
ITG Securities (Asia) Ltd.	Hong Kong
Hoenig (Far East) Limited	Hong Kong

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EX-23

Exhibit 23

INDEPENDENT AUDITORS’ CONSENT

Board of Directors

Investment Technology Group, Inc. and subsidiaries:

We consent to incorporation by reference in the registration statements (No. 333-78309, No. 333-42725, No. 333-50804 and No. 333-26309) on Form S-8 of Investment Technology Group, Inc. of our report dated February 16, 2004, except for Note 20, which is as of February 27, 2004, relating to the consolidated statements of financial condition of Investment Technology Group, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2003, which report appears in the December 31, 2003 annual report on Form 10-K of Investment Technology Group, Inc.

Our report refers to the Company's adoption of changes in accounting for stock-based compensation awards.

/s/ KPMG LLP

New York, New York

March 12, 2004

1

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Robert J. Russel, certify that:

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

2.  Based on my knowledge, this 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 report;

3.  Based on my knowledge, the financial statements, and other financial information included in this 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 report;

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

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting;

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 12, 2004
	/s/ Robert J. Russel
	Robert J. Russel
	Chief Executive Officer

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EX-31.2

Exhibit 31.2

CERTIFICATION

I, Howard C. Naphtali, certify that:

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

2.  Based on my knowledge, this 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 report;

3.  Based on my knowledge, the financial statements, and other financial information included in this 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 report;

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

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting;

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 12, 2004
	/s/ Howard C. Naphtali
	Howard C. Naphtali
	Chief Financial Officer

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EX-32.1

Exhibit 32.1

Certification Under Section 906 of the Sarbanes-Oxley Act of 2002
(United States Code, Title 18, Chapter 63, Section 1350)
Accompanying Anual Report on Form 10-K of
Investment Technology Group, Inc. for the Year Ended December 31, 2003

In connection with the Annual Report on Form 10-K of Investment Technology Group, Inc. (the “Company”) for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert J. Russel, as Chief Executive Officer of the Company, and Howard C. Naphtali, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. (§)1350,  that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert J. Russel	/s/ Howard C. Naphtali
Robert J. Russel	Howard C. Naphtali
Chief Executive Officer	Chief Financial Officer
March 12, 2004	March 12, 2004

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.

1