(20) Employee and Non-Employee Director Stock and Benefit Plans

The 2007 Omnibus Equity Compensation Plan (the "2007 Plan") was approved by the Company's stockholders and became effective on May 8, 2007 (the "Effective Date") and was last amended and restated effective May 11, 2010. As of the Effective Date, the Amended and Restated Investment Technology Group, Inc. Directors' Retainer Fee Subplan (the "Directors' Retainer Fee Subplan"), the Amended and Restated Investment Technology Group, Inc. Directors' Equity Subplan (the "Directors' Equity Subplan") and the Stock Unit Award Program Subplan, as amended and restated (the "SUA Subplan" and, collectively with the Directors' Retainer Fee Subplan and the Directors' Equity Subplan, the "Subplans") were merged with and into the 2007 Plan. Since the Effective Date, the Subplans (except for the SUA Subplan which was frozen on January 1, 2009 as described below) have continued to be, and shall continue to be, in effect as subplans of the 2007 Plan and grants and/or deferrals may continue to be made under the Directors' Equity Subplan and the Directors' Retainer Fee Subplan. In October 2008, the compensation committee adopted the Equity Deferral Award Program, another subplan under the 2007 Plan. This subplan was amended and restated in November 2011, is now known as the Variable Compensation Stock Unit Award Program Subplan, and continues to be a subplan under the 2007 Plan (the "VCSUA Subplan").

Under the 2007 Plan, 8,386,208 shares of the Company's common stock are authorized. Shares of common stock which are attributable to awards which have expired, terminated, cash settled or been canceled or forfeited during any calendar year are generally available for issuance or use in connection with future awards. Options that have been granted under the 2007 Plan are exercisable on dates ranging through February 2019. The 2007 Plan will remain in effect until May 7, 2017, unless terminated, or extended, by the Board of Directors with the approval of the Company's stockholders. After this date, no further awards shall be granted pursuant to the 2007 Plan, but previously-granted awards will remain outstanding in accordance with their applicable terms and conditions.

In January 2006, the Board of Directors adopted the Directors' Equity Subplan which became effective January 1, 2006 and merged into the 2007 Plan as referenced above. The Directors' Equity Subplan was amended and restated on February 7, 2008 and more recently on April 30, 2012. The Directors' Equity Subplan provides for the grant of restricted stock unit awards to non-employee directors of the Company. Under the Directors' Equity Subplan, a newly appointed non-employee director will be granted restricted stock unit awards valued at $100,000 at, or shortly after, the time of appointment to the Board of Directors. Such initial restricted stock unit award will vest annually in three equal installments, beginning on the first anniversary of the date of grant. In addition, non-employee directors will be granted restricted stock unit awards valued at $72,000 annually on the day of each of the Company's annual meetings of stockholders at which directors are elected or reelected by the Company's stockholders. Such annual restricted stock unit awards will vest in full on the day immediately preceding the Company's next annual meeting of stockholders at which directors are elected or reelected by the Company's stockholders.

Under the 2007 Plan, the Company is permitted to grant performance-based stock options, in addition to time-based option awards to employees and directors, however the Company did not grant any performance-based option awards under the 2007 Plan during the three years ended December 31, 2012. The Company did not grant any time-based option awards during 2012. Time-based option awards either vest in full on the third anniversary of the grant or annually in three equal installments, beginning on the first anniversary of the date of grant, in each case, if the employee has remained continuously employed or if the director has continued to serve on the board of directors from the grant date to the applicable vesting date. The Company recognizes share-based compensation expense (see Note 2, Summary of Significant Accounting Policies) for time-based option awards over the vesting period.

The tables below summarize the Company's stock options as of December 31, 2012, 2011 and 2010 and changes during the years then ended:

Options Outstanding			Weighted Average Exercise Price

Outstanding at December 31, 2009	703,467		$	36.28
Granted *	305,677			5.59
Exercised	(125,268	)		2.69
Forfeited	(316,913	)		27.08

Outstanding at December 31, 2010	566,963			32.30
Granted	252,464			17.16
Exercised	(111,792	)		1.91
Forfeited	(180,665	)		44.62

Outstanding at December 31, 2011	526,970			27.27
Granted	—			—
Exercised	—			—
Forfeited	(15,995	)		43.15

Outstanding at December 31, 2012	510,975		$	26.77

Amount exercisable at December 31,
2012	319,793		$	32.53
2011	221,344			41.18
2010	347,798			30.35

*: In conjunction with the acquisition of Majestic, the Company assumed certain outstanding incentive stock options to purchase shares of common stock of Majestic under the Majestic Research Corp. 2005 Stock Option Plan. Such stock options became exercisable to purchase 237,060 shares of ITG Common Stock at a weighted average exercise price of $2.32 based on appropriate adjustments to reflect the terms of the acquisition.

	Options Outstanding						Options Exercisable

Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$12.17 - 18.71		321,081		4.89	$	17.10		129,899	$	17.06
18.72 - 37.51		33,569		1.14		25.97		33,569		25.97
37.52 - 47.59		156,325		0.04		46.81		156,325		46.81

		510,975		3.16	$	26.77		319,793	$	32.53

For the year ended December 31, 2012, the Company recorded share-based compensation expense of $0.7 million, related to the Company's outstanding stock options, which were offset by related income tax benefits of approximately $0.3 million. For the year ended December 31, 2011, the Company recorded an expense reversal of $0.2 million related to the recognition of forfeitures during the year, partially offset by income tax expense of $0.1 million. For the year ended December 31, 2010 the Company recorded share-based compensation expense of $2.2 million (of which $0.7 million related to the acquisition of Majestic) related to the Company's outstanding stock options, which were offset by related income tax benefits of approximately $0.6 million.

The weighted average remaining contractual term of stock options currently exercisable is 3.16 years.

All of the stock options outstanding at December 31, 2012 were time-based.

During 2012, no stock options were exercised and as a result the provision for income taxes did not include current tax benefits related to the exercise of stock options. During 2012, a tax shortfall related to cancellations of $0.1 million was recognized. During 2011, only incentive stock options were exercised for which the Company does not receive a tax deduction. During 2010, a tax shortfall of $1.1 million occurred on exercises and the cancellation of stock options, which was the result of the tax deduction being less than the cumulative book compensation cost. Shortfalls are reflected as a decrease to additional paid-in capital.

The following table summarizes information about stock options at December 31, 2012, 2011 and 2010:

($ in thousands, except per share amounts)		2011		2010

Total intrinsic value of stock options exercised	—	$	1,978	$	1,577
Weighted average grant date fair value of stock options granted during period, per share *	—		6.44		6.06
Cash received from stock option exercises	—		0.2		0.3

*: Excludes incentive stock options assumed in the acquisition of Majestic during 2010.

The outstanding and exercisable stock options at December 31, 2012 have no intrinsic value as the exercise price exceeds the current stock price.

As of December 31, 2012, there was $0.7 million of total unrecognized compensation costs related to outstanding stock options. These costs are expected to be recognized ratably over a weighted average period of approximately 1.18 years.

Stock option exercises are settled from issuance of shares of the Company's common stock held in treasury to the extent available.

Under the 2007 Plan, the Company is permitted to grant restricted share awards to employees. Generally, and except for awards granted under the VCSUA Subplan, restricted share awards granted since 2007 vest in one of the following manners: (a) cliff vest on the third anniversary of the grant date so long as the award recipient is employed on such date, (b) cliff vest in whole or in part only if the consolidated cumulative pre-tax operating income of the Company reaches certain levels and the award recipient is employed on such date (performance-based restricted stock units) and (c) serial vest on each of the second, third and fourth anniversaries of the date of grant so long as the award recipient is employed on the applicable vesting date and the 90-day average of the Company's common stock price preceding each of the vesting dates is greater than the 90-day average of the Company's common stock price preceding the grant date (market-based restricted stock units). Accordingly, not all restricted shares awarded will vest and be delivered. The Company recognizes share-based compensation expense (see Note 2, Summary of Significant Accounting Policies) over this three-year period or four-year period, as applicable.

Under the VCSUA Subplan, each eligible participant is granted a number of basic stock units on the date the year-end cash bonus would otherwise be paid to the participant equal to (i) the amount by which the participant's variable compensation is reduced as determined by the compensation committee, divided by (ii) the fair market value of a share of the Company's common stock on the date of grant. In addition, each participant is granted an additional number of matching stock units on the date of grant equal to 10% of the number of basic stock units granted (20% prior to 2012). Basic stock units under the VCSUA Subplan that are time-based vest in equal annual installments on each of the first, second and third anniversaries of the date of grant, if the participant remains continuously employed by the Company on each applicable vesting date. Matching stock units on time-based awards will vest 100% on the third anniversary of the date of grant, if the participant remains continuously employed by the Company through such vesting date. Basic units under the VCSUA Subplan that are market-based vest in equal installments on each of the second, third and fourth anniversaries of the date of grant so long as the award recipient is employed on the applicable vesting date and the 90-day average of the Company's common stock price preceding each of the vesting dates is greater than the 90-day average of the Company's common stock price preceding the grant date. Matching stock units on market-based awards will vest 100% on the fourth anniversary of the date of grant so long as the award recipient is employed on the applicable vesting date and the 90-day average of the Company's common stock price preceding the vesting date is greater than the 90-day average of the Company's common stock price preceding the grant date. All vested stock units are settled in shares of ITG common stock within 30 days after the date on which such matching stock units vest.

During 2010, in conjunction with the acquisition of Majestic, the Company granted "employment inducement awards" under Section 303A.08 of the New York Stock Exchange Listed Company Manual ("Inducement Awards") to certain Majestic employees. Stock units for 319,674 shares vested, or shall vest, in equal installments on each of the first four anniversaries of the grant date of the awards. Stock units for 415,579 shares are performance-based and vested, or shall vest, over the first four anniversaries of the award grant dates, based upon achievement of certain metrics as of the first and second anniversaries of the award grant dates.

During 2011, in conjunction with the acquisition of RSEG, the Company granted Inducement Awards to certain RSEG employees. Stock units for 181,623 shares vested, or shall vest, in equal installments on December 31, 2011, 2012 and 2013 and stock units for 181,328 shares vested, or shall vest, in equal installments on each of the first three anniversaries of the grant date of the awards.

The Company recorded share-based compensation expense of $12.4 million ($0.5 million of which was recorded in restructuring charges), $20.6 million ($2.3 million of which was recorded in severance and restructuring charges), and $15.4 million ($0.4 million of which was recorded in severance and restructuring charges) for the years ended December 31, 2012, 2011 and 2010, respectively, related to restricted share awards which were offset by related income tax benefits of approximately $5.0 million, $8.4 million and $6.2 million, respectively.

A summary of the status of the Company's restricted share awards as of December 31, 2012, 2011 and 2010 and changes during the years then ended are presented below:

							Weighted Average Grant Date Fair Value

Outstanding at December 31, 2009	56,067		1,168,390		1,224,457		$	27.03
Granted	1,009,786		1,183,453		2,193,239			16.26
Vested	(28,249	)	(289,240	)	(317,489	)		25.91
Forfeited	(54,723	)	(110,161	)	(164,884	)		21.02

Outstanding at December 31, 2010	982,881		1,952,442		2,935,323			19.44
Granted	128,208		1,214,964		1,343,172			16.65
Vested	(66,271	)	(776,782	)	(843,053	)		23.29
Forfeited	(252,760	)	(127,378	)	(380,138	)		16.71

Outstanding at December 31, 2011	792,058		2,263,246		3,055,304			17.49
Granted	216,740		1,176,006		1,392,746			10.63
Vested	(86,769	)	(963,991	)	(1,050,760	)		17.99
Forfeited	(244,198	)	(91,757	)	(335,955	)		26.10

Outstanding at December 31, 2012	677,831		2,383,504		3,061,335		$	13.25

At December 31, 2012, 180,476 of the outstanding restricted share awards were performance-based restricted stock units and 497,355 were market-based restricted stock units.

Of the 1.1 million awards vested in 2012, 259,840 were modified in 2012 and settled in cash.

As of December 31, 2012, there was $18.2 million of total unrecognized compensation cost related to outstanding restricted share awards. These costs are expected to be recognized over a weighted average period of approximately 1.72 years. During 2012, restricted shares with a grant date fair value of approximately $12.2 million vested.

The provision for income taxes excludes excess current tax benefits related to the vesting of restricted share awards. There were no such tax benefits, but rather tax shortfalls of $4.0 million, $2.2 million and $1.1 million related to the vesting and cancellation of restricted share awards for the years ended December 31, 2012, 2011 and 2010, respectively. The tax shortfalls that occurred were the result of the tax deduction being less than the cumulative book compensation cost and are reflected as a decrease to additional paid-in capital.

Under the 2007 Plan and the VCSUA Subplan, the Company is permitted to grant phantom share awards. Phantom share awards vest like any other award granted under the 2007 Plan and VCSUA Subplan as described above and are settled in cash. The Company recognizes share-based compensation expense (see Note 2, Summary of Significant Accounting Policies) over the applicable vesting period. For the years ended December 31, 2012, 2011 and 2010, the Company recorded share-based compensation expense of $2.6 million, $1.1 million and $1.1 million, respectively related to phantom share awards offset by related tax benefits of $0.7 million, $0.3 million and $0.4 million, respectively.

A summary of the status of the Company's phantom share awards as of December 31, 2012, and changes during the year then ended are presented below:

			Weighted Average Grant Date Fair Value

Outstanding at December 31, 2009	91,013		$	23.45
Granted	212,047			16.96
Vested	(25,285	)		23.45
Forfeited	(18,405	)		18.25

Outstanding at December 31, 2010	259,370			18.51
Granted	205,760			18.67
Vested	(67,383	)		19.21
Forfeited	—			—

Outstanding at December 31, 2011	397,747			18.47
Granted	447,353			11.33
Vested	(135,049	)		19.46
Forfeited	(14,341	)		17.21

Outstanding at December 31, 2012	695,710		$	13.72

At December 31, 2012, 68,803 of the outstanding phantom share awards were market-based.

As of December 31, 2012, there was $3.6 million of total unrecognized compensation cost related to grants of phantom share awards. These costs are expected to be recognized over a weighted average period of approximately 1.88 years.

SUA Subplan

Effective June 30, 2003, employees earning total cash compensation per annum of $200,000 and greater participated in the SUA Subplan, a mandatory tax-deferred compensation program, which merged into the 2007 Plan as referenced above. Under the SUA Subplan, these employee participants were required to defer receipt of (and thus taxation on) a graduated portion of participants' 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 were at all times fully vested and non-forfeitable; however the units were restricted to settlement to common shares half of which were distributed on the third anniversary of the deferral and the remaining half on the sixth anniversary of the deferral. The match representing 30% of the compensation deferred was contingent only on employment with the Company and vested 50% on the third anniversary of the deferral and the remaining 50% on the sixth year of the deferral.

Effective January 1, 2006, the SUA Subplan was amended to make participation in the plan among eligible participants (employees earning total cash compensation per annum of $200,000 and greater) elective, rather than mandatory. In addition, beginning January 1, 2006, the plan deferred receipt of (and thus taxation on) a graduated portion of participants' total cash compensation for units representing the Company's common stock equal in value to 120% of the compensation deferred. The units representing 100% of the total compensation deferred were at all times fully vested and non-forfeitable; however the units were restricted to settlement to common shares distributed in whole on the third anniversary of the deferral. The match representing 20% of the compensation deferred was contingent only on employment with the Company and vested 100% on the third anniversary of the deferral.

Effective January 1, 2009, the SUA Subplan was further amended and restated. The amendment froze the SUA Subplan such that it did not apply to compensation earned for any calendar year after 2008 and provided participants with a special transition election with respect to cessation of participation in the SUA Subplan for bonus payments for 2008 that were due after December 31, 2008 and on or before March 15, 2009. Certain other amendments were made to the SUA Subplan in order to comply with section 409A of the Internal Revenue Code.

While the Company did not record any additional share-based compensation costs during 2012, approximately $0.2 million was reversed in 2011 as a result of forfeitures. Related income tax expense of less than $0.1 million was also recorded during 2011. The Company recorded $0.5 million in expense for the year ended December 31, 2010, as well as related income tax benefits of approximately $0.2 million.

A summary of activity under the SUA Subplan is as follows:

			Weighted Average Grant Date Fair Value

Outstanding at December 31, 2009	677,379		$	29.32
Granted	—			—
Vested	(311,106	)		28.67
Forfeited	(2,106	)		32.54

Outstanding at December 31, 2010	364,167			29.82
Granted	—			—
Vested	(288,917	)		28.98
Forfeited	(3,670	)		15.40

Outstanding at December 31, 2011	71,580			33.95
Granted	—			—
Vested	(71,580	)		33.95
Forfeited	—			—

Outstanding at December 31, 2012	—		$	—

Shares issued under the SUA Subplan are from common shares held in treasury, to the extent available.

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 ("RSP"). The RSP applies to all eligible compensation up to the Internal Revenue Service annual maximum which was $250,000 during 2012. Prior to January 1, 2011, the RSP's features included a guaranteed Company contribution of 3% of eligible compensation, a discretionary Company contribution between 0% and 8% of eligible compensation based on consolidated Company profits for the year and a 66²/3% Company matching contribution applied to a maximum of 6% of eligible compensation per year. Effective as of January 1, 2011, the guaranteed Company contribution of 3% was eliminated, and until December 31, 2011, the Company matching contribution applied to 50% of voluntary employee contributions, on a maximum of 6% of eligible compensation per year. Effective as of January 1, 2012, the Company matching contribution applies to 50% of voluntary employee contributions, on a maximum of 4% of eligible compensation per year. The Company may still make discretionary contributions based on consolidated profits. Most of the Company's international employees are eligible to participate in similar defined contribution plans. The costs for these benefits were approximately $5.5 million, $6.6 million and $10.2 million in 2012, 2011 and 2010, respectively, and are included in compensation and employee benefits in the Consolidated Statements of Operations.

Non-employee directors receive an annual retainer fee of $60,000, with the exception of the chairman who receives $160,000 under the Directors' Retainer Fee Subplan, which was adopted in 2002. This retainer fee is payable, at the election of each director, either in (i) cash, (ii) Company common stock with a value equal to the retainer fee on the grant date or (iii) under a deferred compensation plan which provides deferred share units with a value equal to the retainer fee on the grant date which convert to freely sellable shares when the director retires from the Board of Directors. Directors who chose common stock or deferred share units, in the aggregate, received 39,571 units or shares, 29,347 units or shares, and 16,819 units in 2012, 2011 and 2010, respectively. At December 31, 2012, there were 105,421 deferred share units outstanding. The cost of the Directors' Retainer Fee Subplan was approximately $854,000, $769,000, and $647,000 in 2012, 2011 and 2010, respectively, and is included in other general and administrative expenses in the Consolidated Statements of Operations.

In November 1997, the 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 ITG common stock at a 15% discount through automatic payroll deductions. In accordance with the provisions of ASC 718, the ESPP is compensatory. The Company recorded share-based compensation expense related to the ESPP of $390,000, $451,000, and $394,000 for the years ended December 31, 2012, 2011 and 2010, respectively. Shares distributed under the ESPP are newly issued shares.