10-Q

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

for the fiscal period ended March 31, 2010

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

for the transition period from                to               

Commission File Number 001-32722

INVESTMENT TECHNOLOGY GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	95 - 2848406
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
380 Madison Avenue, New York, New York	10017
(Address of Principal Executive Offices)	(Zip Code)

(212) 588 - - 4000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

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

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

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

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

At April 30, 2010 the Registrant had 43,576,003 shares of common stock, $0.01 par value, outstanding.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page
PART I. — Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Statements of Financial Condition: March 31, 2010 (unaudited) and December 31, 2009	3
	Condensed Consolidated Statements of Income (unaudited): Three Months Ended March 31, 2010 and 2009	4
	Condensed Consolidated Statement of Changes in Stockholders’ Equity (unaudited): Three Months Ended March 31, 2010	5
	Condensed Consolidated Statements of Cash Flows (unaudited): Three Months Ended March 31, 2010 and 2009	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26
PART II. — Other Information
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 4.	Submission of Matters to a Vote of Security Holders	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
	Signature	28

Investment Technology Group, ITG, AlterNet, ITG Net, Macgregor XIP, POSIT and POSIT Marketplace are registered trademarks or service marks of the Investment Technology Group, Inc. companies. ITG Derivatives is a trademark of the Investment Technology Group, Inc. companies.

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PRELIMINARY NOTES

When we use the terms “ITG”, the “Company”, “we”, “us” and “our”, we mean Investment Technology Group, Inc. and its consolidated subsidiaries.

FORWARD-LOOKING STATEMENTS

In addition to the historical information contained throughout this Quarterly Report on Form 10-Q, there are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995. All statements regarding our expectations related to our future financial position, results of operations, revenues, cash flows, dividends, financing plans, business and product strategies, competitive positions, as well as the plans and objectives of management for future operations, and all expectations concerning securities markets, client trading and economic trends are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” and the negative of these terms and other comparable terminology.

Although we believe our expectations reflected in such forward-looking statements are based on reasonable assumptions and beliefs, and on information currently available to our management, 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, fluctuations in market trading volumes, financial market volatility, changes in commission pricing, potential impairment charges related to goodwill and other long-lived assets, evolving industry regulations, errors or malfunctions in our systems or technology, rapid changes in technology, cash flows into or redemptions from equity mutual funds, effects of inflation, ability to meet liquidity requirements related to the clearing of our customers’ trades, customer trading patterns, the success of our products and service offerings, our ability to continue to innovate and meet the demands of our customers for new or enhanced products, our ability to successfully integrate companies we have acquired, changes in tax policy or accounting rules, fluctuations in foreign exchange rates, adverse changes or volatility in interest rates, our ability to attract and retain talented employees, as well as general economic, business, credit and financial market conditions, internationally and nationally.

Certain of these factors, and other factors, are more fully discussed in Item 1A, Risk Factors, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in our Annual Report on Form 10-K, for the year ended December 31, 2009, which you are encouraged to read.  Our 2009 Annual Report on Form 10-K is also available through our website at http://investor.itg.com.

We disclaim any duty to update any of these forward-looking statements after the filing of this report to conform our prior statements to actual results or revised expectations and we do not intend to do so. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the filing of this report.

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PART I. — FINANCIAL INFORMATION

Item 1. Financial Statements

INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(In thousands, except share amounts)

	March 31, 2010			December 31, 2009
	(unaudited)
Assets
Cash and cash equivalents	$	322,024		$	330,879
Cash restricted or segregated under regulations and other	92,627			95,787
Deposits with clearing organizations	19,451			14,891
Securities owned, at fair value	7,147			6,768
Receivables from brokers, dealers and clearing organizations	976,731			364,436
Receivables from customers	1,059,125			298,342
Premises and equipment, net	41,469			41,437
Capitalized software, net	64,139			68,913
Goodwill	425,346			425,301
Other intangibles, net	26,530			27,263
Income taxes receivable	7,682			13,897
Deferred taxes	2,515			2,910
Other assets	15,355			12,279
Total assets	$	3,060,141		$	1,703,103
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable and accrued expenses	$	167,590		$	209,496
Payables to brokers, dealers and clearing organizations	953,207			248,664
Payables to customers	1,004,814			299,200
Securities sold, not yet purchased, at fair value	87			31
Income taxes payable	11,900			14,113
Deferred taxes	17,433			16,999
Long term debt	35,000			46,900
Total liabilities	2,190,031			835,403
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding	—			—
Common stock, $0.01 par value; 100,000,000 shares authorized; 51,731,780 and 51,682,153 shares issued at March 31, 2010 and December 31, 2009, respectively	517			517
Additional paid-in capital	231,059			233,374
Retained earnings	817,585			809,153
Common stock held in treasury, at cost; 8,196,381 and 7,891,717 shares at March 31, 2010 and December 31, 2009, respectively	(185,834		)	(182,743		)
Accumulated other comprehensive income (net of tax)	6,783			7,399
Total stockholders’ equity	870,110			867,700
Total liabilities and stockholders’ equity	$	3,060,141		$	1,703,103

See accompanying notes to unaudited condensed consolidated financial statements.

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INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

	Three Months Ended March 31,
	2010		2009
Revenues:
Commissions and fees	$	121,918	$	130,932
Recurring	21,971		21,162
Other	2,801		3,573
Total revenues	146,690		155,667
Expenses:
Compensation and employee benefits	53,464		60,178
Transaction processing	20,659		22,930
Occupancy and equipment	15,197		14,838
Telecommunications and data processing services	13,635		13,970
Other general and administrative	28,070		19,041
Interest expense	224		1,212
Total expenses	131,249		132,169
Income before income tax expense	15,441		23,498
Income tax expense	7,009		10,660
Net income	$	8,432	$	12,838
Earnings per share:
Basic	$	0.19	$	0.30
Diluted	$	0.19	$	0.29
Basic weighted average number of common shares outstanding	43,827		43,337
Diluted weighted average number of common shares outstanding	44,415		43,606

See accompanying notes to unaudited condensed consolidated financial statements.

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INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

Three Months Ended March 31, 2010

(In thousands, except share amounts)

	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings		Common Stock Held in Treasury			Accumulated Other Comprehensive Income			Total Stockholders’ Equity
Balance at January 1, 2010	$	—	$	517	$	233,374		$	809,153	$	(182,743	)	$	7,399		$	867,700
Net income	—		—		—			8,432		—			—			8,432
Other comprehensive income:
Currency translation adjustment	—		—		—			—		—			(759		)	(759		)
Unrealized holding gain on securities available-for-sale (net of tax)	—		—		—			—		—			143			143
Comprehensive income																$	7,816
Issuance of common stock for share awards (286,467 shares) and employee stock unit awards (136,228 shares), including tax benefit decrease of $0.8 million	—		—		(6,359		)	—		9,764			—			3,405
Issuance of common stock for the employee stock purchase plan (49,627 shares)	—		—		864			—		—			—			864
Settlement of share-based awards (161,359 shares)	—		—		—			—		(2,939		)	—			(2,939		)
Purchase of common stock for treasury (566,000 shares)	—		—		—			—		(9,916		)	—			(9,916		)
Share-based compensation	—		—		3,180			—		—			—			3,180
Balance at March 31, 2010	$	—	$	517	$	231,059		$	817,585	$	(185,834	)	$	6,783		$	870,110

See accompanying notes to unaudited condensed consolidated financial statements.

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INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (unaudited)

(In thousands)

	Three Months Ended March 31,
	2010			2009
Cash flows from Operating Activities:
Net income	$	8,432		$	12,838
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	16,043			14,618
Deferred income tax expense	673			5,612
Provision for doubtful accounts	247			(699		)
Share-based compensation	3,307			3,336
Capitalized software write-off	6,091			—
Changes in operating assets and liabilities:
Cash restricted or segregated under regulations and other	609			10,686
Deposits with clearing organizations	(4,560		)	(15,397		)
Securities owned, at fair value	(376		)	1,099
Receivables from brokers, dealers and clearing organizations	(627,793		)	(239,945		)
Receivables from customers	(773,052		)	(636,960		)
Accounts payable and accrued expenses	(41,383		)	(50,464		)
Payables to brokers, dealers and clearing organizations	718,884			110,113
Payables to customers	717,292			785,536
Securities sold, not yet purchased, at fair value	54			(2,384		)
Income taxes payable	4,139			(1,027		)
Excess tax benefit from share-based payment arrangements	—			(22		)
Other, net	(3,505		)	(3,076		)
Net cash provided by / (used in) operating activities	25,102			(6,136		)
Cash flows from Investing Activities:
Acquisition of subsidiaries, net of cash acquired	—			(1,937		)
Capital purchases	(5,721		)	(2,585		)
Capitalization of software development costs	(10,649		)	(11,529		)
Net cash used in investing activities	(16,370		)	(16,051		)
Cash flows from Financing Activities:
Repayments of short-term bank loans	—			(24,900		)
Repayments of long term debt	(11,900		)	(11,900		)
Excess tax benefit from share-based payment arrangements	—			22
Common stock issued	5,109			3,136
Common stock repurchased	(9,916		)	—
Shares withheld for net settlements of share-based awards	(2,939		)	(933		)
Net cash used in financing activities	(19,646		)	(34,575		)
Effect of exchange rate changes on cash and cash equivalents	2,059			(170		)
Net decrease in cash and cash equivalents	(8,855		)	(56,932		)
Cash and cash equivalents — beginning of year	330,879			352,960
Cash and cash equivalents — end of period	$	322,024		$	296,028
Supplemental cash flow information
Interest paid	$	346		$	1,561
Income taxes paid	$	2,846		$	6,432

See accompanying notes to unaudited condensed consolidated financial statements.

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INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

(1) Organization and Basis of Presentation

ITG was formed as a Delaware corporation on July 22, 1983. Its principal subsidiaries and affiliates include: (1) ITG Inc., AlterNet Securities, Inc. (“AlterNet”) and ITG Derivatives LLC (“ITG Derivatives”), United States (“U.S.”) broker-dealers, (2) Investment Technology Group Limited (“ITGL”), an institutional broker-dealer in Europe, (3) ITG Australia Limited (“ITG Australia”), an institutional broker-dealer in Australia, (4) ITG Canada Corp. (“ITG Canada”), an institutional broker-dealer in Canada, (5) ITG Hong Kong Limited (“ITG Hong Kong”), an institutional broker-dealer in Hong Kong, (6) ITG Japan Ltd. (“ITG Japan”), an institutional broker-dealer in Japan, (7) ITG Software Solutions, Inc., an intangible property, software development and maintenance subsidiary in the U.S., and (8) ITG Solutions Network, Inc. (“ITG Solutions Network”), a holding company for ITG Analytics, Inc. (“ITG Analytics”), a provider of pre- and post- trade analysis, fair value and trade optimization services, and The Macgregor Group, Inc. (“Macgregor”), a provider of trade order management technology and network connectivity services for the financial community.

ITG is an independent agency brokerage and financial technology firm that partners with asset managers to deliver institutional global liquidity and help improve performance throughout the investment process. A unique partner in electronic trading since the launch of POSIT in 1987, ITG’s integrated approach includes a range of products from portfolio management and pre-trade analysis to trade execution and post-trade evaluation. Institutional investors rely on ITG’s independence, experience and agility to help measure performance, mitigate risk and navigate increasingly complex markets. The firm is headquartered in New York with offices in North America, Europe and the Asia Pacific region.

The Company’s reportable operating segments are: U.S. Operations, Canadian Operations, European Operations and Asia Pacific Operations.  The U.S. Operations segment provides trade execution, trade order management, network connectivity and research services to institutional investors, brokers, alternative investment funds and money managers. The Canadian Operations segment provides trade execution, network connectivity and research service businesses. The European Operations segment provides trade execution, trade order management, network connectivity and research services in Europe and includes a technology research and development facility in Israel. The Asia Pacific Operations segment provides trade execution, network connectivity and research service businesses in the Asia Pacific region.

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

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

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with Securities and Exchange Commission (“SEC”) rules and regulations; however, management believes that the disclosures herein are adequate to make the information presented not misleading. This report should be read in conjunction with the audited financial statements and the notes included in our Annual Report on Form 10-K for the year ended December 31, 2009.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, which updates the guidance in Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, related to disclosures about fair value measurements.  The amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements will require separate disclosure along with the reasons for the transfers.  The reconciliation for fair value measurements in Level 3 information about purchases, sales, issuances and settlements on a gross rather than net basis will also have to be disclosed separately.  The ASU also amends ASC Subtopic 820-10 to clarify certain existing disclosures regarding the level of disaggregation at which fair value measurements are provided for each class of assets and liabilities (instead of major category) and disclosures about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3.  Except for the detailed Level 3 disclosures, the guidance in the ASU is effective for annual and interim

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periods beginning after December 15, 2009.  The new disclosures about purchases, sales, issuances and settlements in the roll forward activity for Level 3 fair value measurements are effective for interim and annual reporting periods beginning after December 15, 2010.  Early adoption is permitted.  In the initial adoption period, entities are not required to include disclosures for previous comparative periods; however, they are required for periods ending after initial adoption.  The adoption of the guidance effective in the first quarter of 2010 did not have a material impact on the Company’s disclosures nor does the Company expect the adoption of the remaining guidance in the first quarter of 2011 to impact its disclosures.

In February 2010, the FASB issued ASU No. 2010-09, which updates the guidance in ASC 855, Subsequent Events, such that companies that file with the SEC will no longer be required to indicate the date through which they have analyzed subsequent events. This updated guidance became effective immediately upon issuance and was adopted as of the first quarter of 2010.

(2) Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, various methods are used including market, income and cost approaches. Based on these approaches, certain assumptions that market participants would use in pricing the asset or liability are used, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable firm inputs. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, fair value measured financial instruments are categorized according to the fair value hierarchy prescribed by ASC 820. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

·Level 1: Fair value measurements using unadjusted quoted market prices in active markets for identical, unrestricted assets or liabilities.

·Level 2: Fair value measurements using correlation with (directly or indirectly) observable market-based inputs, unobservable inputs that are corroborated by market data, or quoted prices in markets that are not active.

·Level 3: Fair value measurements using inputs that are significant and not readily observable in the market.

Level 1 consists of financial instruments whose value is based on quoted market prices such as exchange-traded mutual funds and listed equities.

Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily standard models that consider various assumptions including time value, yield curve and other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category include non-exchange-traded derivatives such as currency forward contracts.

Level 3 is comprised of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing significant inputs that are generally less readily observable.

Fair value measurements on a recurring basis are as follows (dollars in thousands):

March 31, 2010	Total		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents:
Tax free money market mutual funds	$	6,344	$	6,344	$	—	$	—
U.S. Government money market mutual funds	220,922		220,922		—		—
Money market mutual funds	5,966		5,966		—		—
Securities owned, at fair value:
Trading securities	201		201		—		—
Available-for-sale securities	1,642		1,642		—		—
Equity index mutual funds	3,412		3,412		—		—
Bond mutual funds	1,892		1,892		—		—
Other assets:
Currency forward contracts	235		—		235		—
Total	$	240,614	$	240,379	$	235	$	—
Liabilities
Securities sold, not yet purchased, at fair value:
Common stock	87		87		—		—
Total	$	87	$	87	$	—	$	—

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December 31, 2009	Total		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents:
Tax free money market mutual funds	$	8,938	$	8,938	$	—	$	—
U.S. Government money market mutual funds	207,133		207,133		—		—
Money market mutual funds	4,514		4,514		—		—
Securities owned, at fair value:
Trading securities	125		125		—		—
Available-for-sale securities	1,403		1,403		—		—
Equity index mutual funds	3,357		3,357		—		—
Bond mutual funds	1,883		1,883		—		—
Total	$	227,353	$	227,353	$	—	$	—
Liabilities
Accounts payable and accrued expenses:
Currency forward contracts	$	3	$	—	$	3	$	—
Securities sold, not yet purchased, at fair value:
Common stock	31		31		—		—
Total	$	34	$	31	$	3	$	—

Cash and cash equivalents other than bank deposits are measured at fair value and include U.S. government money market mutual funds.

Securities owned, at fair value and securities sold, not yet purchased, at fair value includes common stocks, equity index mutual funds and bond mutual funds, all of which are exchange traded.

Currency forward contracts are valued based upon forward exchange rates and approximate the credit risk adjusted discounted net cash flow that would have been realized if the contracts had been sold at the balance sheet date.

Assets measured at fair value on a nonrecurring basis are as follows (dollars in thousands):

			Fair Value Measurements Using						Total
	March 31, 2010		Level 1		Level 2		Level 3		Losses
Capitalized software	$	—	$	—	$	—	$	—	$	6,091
Total	$	—	$	—	$	—	$	—	$	6,091

Following the 2009 restructuring (see Note 3, Restructuring Charges), the Company continued to evolve its product development plan in the first quarter of 2010, and as a result determined that additional capitalized development initiatives were not likely to be used.  Included in other general and administrative expense for the three months ended March 31, 2010 is a charge of $6.1 million to write off these amounts.

(3) Restructuring Charges

In the fourth quarter of 2009, the Company committed to a restructuring plan (aimed primarily at our U.S. Operations) to reengineer our operating model to focus on a leaner cost structure and a more selective deployment of resources towards those areas of our business that provide a sufficiently profitable return. As a result, a $25.4 million restructuring charge was recorded, which included costs related to employee separation, the consolidation of leased facilities and write-offs of capitalized software and certain intangible assets primarily due to changes in product priorities.  Employee separation and related costs pertain to the termination of 144 employees primarily from the U.S. Operations. The consolidation of leased facilities charges relate to non-cancelable leases which were vacated.

The following table summarizes the changes in the Company’s liability balance included in accounts payable and accrued expenses in the Condensed Consolidated Statements of Financial Condition (dollars in thousands):

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	Employee separation and related costs		Consolidation of leased facilities		Total
Balance at December 31, 2009	$	16,451	$	1,568	$	18,019
Utilized — cash	13,840		176		14,016
Non-cash adjustment	86		—		86
Balance at March 31, 2010	$	2,525	$	1,392	$	3,917

The remaining accrued costs are expected to be paid during 2010, except payments related to the leased facilities, which will continue until April 2012.

(4) Derivative Instruments

Derivative Contracts

All derivative instruments are recorded on the Condensed Consolidated Statements of Financial Condition at fair value in other assets or accounts payable and accrued expenses. Recognition of the gain or loss that results from recording and adjusting a derivative to fair value depends on the intended purpose for entering into the derivative contract. Gains and losses from derivatives that are not accounted for as hedges under ASC 815, Derivatives and Hedging, are recognized immediately in income. For derivative instruments that are designated and qualify as a fair value hedge, the gains or losses from adjusting the derivative to its fair value will be immediately recognized in income and, to the extent the hedge is effective, offset the concurrent recognition of changes in the fair value of the hedged item. Gains or losses from derivative instruments that are designated and qualify as a cash flow hedge will be recorded on the Condensed Consolidated Statements of Financial Condition in accumulated other comprehensive income (“OCI”) until the hedged transaction is recognized in income. However, to the extent the hedge is deemed ineffective, the ineffective portion of the change in fair value of the derivative will be recognized immediately in income. For discontinued cash flow hedges, prospective changes in the fair value of the derivative are recognized in income. Any gain or loss in accumulated other comprehensive income at the time the hedge is discontinued will continue to be deferred until the original forecasted transaction occurs. However, if it is determined that the likelihood of the original forecasted transaction is no longer probable, the entire related gain or loss in accumulated other comprehensive income is immediately reclassified into income.

Economic Hedges

The Company enters into three month forward contracts to sell Euros and buy British Pounds to economically hedge against the risk of currency movements on Euro deposits held in banks across Europe for equity trade settlement. When a contract matures, an assessment is made as to whether or not the contract value needs to be amended prior to entering into another, to ensure continued economic hedge effectiveness. As these contracts are not designated as hedges, the changes to their fair value are recognized immediately in income. The related counterparty agreements do not contain any credit-risk related contingent features. There were no open three month forward contracts outstanding at March 31, 2010.

When clients request trade settlement in a currency other than the currency in which the trade was executed, the Company enters into foreign exchange contracts in order to close out the resulting foreign currency position. The foreign exchange deals are executed the same day as the underlying trade for value on the trade settlement date, typically three days later. As these contracts are not designated as hedges, the changes to their fair value are recognized immediately in income. These foreign exchange contracts are reflected in the tables below.

Fair Values and Effects of Derivatives Held

Asset derivatives are included in other assets while liability derivatives are included in accounts payable and accrued expenses on the Condensed Consolidated Statements of Financial Condition.  The following table summarizes the fair values of our derivative instruments at March 31, 2010 and December 31, 2009 (dollars in thousands).  There were no derivatives designated as hedging instruments in either period.

	Asset / (Liability) Derivatives
	Fair Value
	March 31, 2010		December 31, 2009
Derivatives not designated as hedging instruments:
Currency forward contracts	$	235	$	(3	)
Total derivatives not designated as hedging instruments	235		(3		)
Total derivatives	$	235	$	(3	)

10

All currency forward contracts open at March 31, 2010 matured in April 2010.

The following table summarizes the impact the effective portion of derivative instruments had on the results of operations (dollars in thousands) during the three months ended March 31, 2010 and 2009. Losses were reclassified from OCI into interest expense on the Condensed Consolidated Statements of Income as of March 31, 2009.

	Gain/(Loss) Recognized in OCI(Effective Portion)				Gain/(Loss) Reclassified from OCI into Income(Effective Portion)
	2010		2009		2010		2009
Interest rate swaps	$	—	$	—	$	—	$	(450	)
Total	$	—	$	—	$	—	$	(450	)

The following table summarizes the impact that derivative instruments not designated as hedging instruments under ASC 815 had on the results of operations at March 31, which are recorded in other general and administrative expense in the Condensed Consolidated Statements of Income (dollars in thousands).

	Gain/(Loss) Recognized in Income
Derivatives Not Designated as Hedging Instruments	2010		2009
Currency forward contracts	$	62	$	326
Total	$	62	$	326

(5) Cash Restricted or Segregated Under Regulations and Other

Cash restricted or segregated under regulations and other represents (i) funds on deposit for the purpose of securing working capital facilities for clearing and settlement activities in Hong Kong, (ii) a special reserve bank account for the exclusive benefit of customers and brokers (“Special Reserve Bank Account”) maintained by ITG Inc. in accordance with Rule 15c3-3 of the Exchange Act (“Customer Protection Rule”), (iii) funds relating to the securitization of a letter of credit and a bank guarantee supporting two Macgregor leases, (iv) funds on deposit for European trade clearing and settlement activity, (v) segregated balances maintained on behalf of customers under certain directed brokerage arrangements and (vi) funds relating to the securitization of bank guarantees supporting Australian and Israeli leases.

(6) Securities Owned and Sold, Not Yet Purchased

The following is a summary of securities owned and securities sold, not yet purchased (dollars in thousands):

	Securities Owned				Securities Sold, Not Yet Purchased
	March 31, 2010		December 31, 2009		March 31, 2010		December 31, 2009
Corporate stocks—trading securities	$	201	$	125	$	87	$	31
Corporate stocks—available-for-sale	1,642		1,403		—		—
Mutual funds	5,304		5,240		—		—
Total	$	7,147	$	6,768	$	87	$	31

Securities owned consists of securities positions held by the Company resulting from temporary positions in securities incurred in the normal course of our agency trading business as well as mutual fund positions and common stock.

Securities sold, not yet purchased consists of short positions in securities resulting from temporary positions in securities incurred in the normal course of our agency trading business.

Available-for-Sale Securities

Unrealized holding gains and losses on available-for-sale securities, net of tax effects, which are reported in accumulated other comprehensive income until realized, are as follows (dollars in thousands):

	After-Tax Unrealized Holding Gain/(Loss)
	March 31, 2010		December 31, 2009
Positions with net gains	$	74	$	—
Positions with net (losses)	—		(69		)
Total gain/(loss)	$	74	$	(69	)

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There were no sales of available-for-sale securities during the three month periods ending March 31, 2010 and 2009.

(7) Income Taxes

The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

During 2010, uncertain tax positions in the U.S. were resolved for the 2008 fiscal year resulting in a decrease in our liability of $0.6 million and the related deferred tax asset of $0.2 million.  An additional minimal cost was incurred as a result of this settlement.

The Company had unrecognized tax benefits for tax positions taken of $11.3 million and $11.0 million at March 31, 2010 and December 31, 2009, respectively.  The Company had accrued interest expense of $1.0 million and $0.9 million, net of related tax effects, related to our unrecognized tax benefits at March 31, 2010 and December 31, 2009, respectively.

(8) Goodwill and Other Intangibles

The following table presents the changes in the carrying amount of goodwill by reportable segment for the period ended March 31, 2010 (dollars in thousands):

	U.S. Operations			European Operations		Asia Pacific Operations		Total
Balance as of December 31, 2009	$	390,801		$	28,387	$	6,113	$	425,301
Currency translation adjustment	(5		)	35		15		45
Balance as of March 31, 2010	$	390,796		$	28,422	$	6,128	$	425,346

Acquired other intangible assets consisted of the following at March 31, 2010 and December 31, 2009 (dollars in thousands):

	March 31, 2010				December 31, 2009
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Useful Lives (Years)
Trade names	$	10,400	$	844	$	10,400	$	780	5.0
Customer related intangibles	8,401		2,044		8,401		1,919		6.4
Proprietary software	20,876		10,474		20,876		9,930		17.6
Trading rights	165		—		165		—		—
Other	50		—		50		—		—
Total	$	39,892	$	13,362	$	39,892	$	12,629

At March 31, 2010, other intangibles not subject to amortization amounted to $8.6 million, of which $8.4 million related to the POSIT trade name.

Amortization expense of other intangibles was $0.7 million and $0.9 million for the three months ended March 31, 2010 and 2009, respectively and was included in other general and administrative expense in the Condensed Consolidated Statements of Income.

During the three months ended March 31, 2010, no goodwill or other intangibles were deemed impaired, and accordingly, no adjustment was required.

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(9) Receivables and Payables

Receivables from, and Payables to, Brokers, Dealers and Clearing Organizations

The following is a summary of receivables from, and payables to, brokers, dealers and clearing organizations (dollars in thousands):

	Receivables from						Payables to
	March 31, 2010			December 31, 2009			March 31, 2010		December 31, 2009
Broker-dealers	$	860,824		$	303,072		$	736,456	$	196,042
Clearing organizations	27			5,401			791		2
Securities borrowed	116,276			56,266			—		—
Securities loaned	—			—			215,960		52,620
Allowance for doubtful accounts	(396		)	(303		)	—		—
Total	$	976,731		$	364,436		$	953,207	$	248,664

Receivables from, and Payables to, Customers

The following is a summary of receivables from, and payables to, customers (dollars in thousands):

	Receivables from						Payables to
	March 31, 2010			December 31, 2009			March 31, 2010		December 31, 2009
Customers	$	1,060,069		$	299,189		$	1,004,814	$	299,200
Allowance for doubtful accounts	(944		)	(847		)	—		—
Total	$	1,059,125		$	298,342		$	1,004,814	$	299,200

(10) Accounts Payable and Accrued Expenses

The following is a summary of accounts payable and accrued expenses (dollars in thousands):

	March 31, 2010		December 31, 2009
Accrued research payables	$	44,845	$	39,027
Trade payables	36,620		19,924
Deferred compensation	20,825		24,952
Accrued compensation and benefits	19,351		64,054
Deferred revenue	11,676		12,625
Acquisition payment obligation	7,087		6,981
Accrued transaction processing	4,135		4,621
Accrued restructuring	3,917		18,019
Other	19,134		19,293
Total	$	167,590	$	209,496

(11) Long Term Debt

On January 3, 2006, the Company entered into a $225 million credit agreement fully underwritten by a syndicate of banks. The credit agreement consists of a five-year term loan in the amount of $200 million (“Term Loan”) and a five-year revolving facility (expiring on December 31, 2010) in the amount of $25 million (“Revolving Credit Facility”). The Revolving Credit Facility is available for future working capital purposes and is not drawn upon as of the filing date of this quarterly report. The current borrowings under the Term Loan bear interest based upon the Three-Month London Interbank Offered Rate (“LIBOR”) plus an applicable margin.

At March 31, 2010, the Company had $35.0 million in outstanding debt under the Term Loan following scheduled principal payments of $11.9 million during the three months ended March 31, 2010.  Payments of $11.9 million were made in the comparable 2009 period.  Principal and interest payments on the Term Loan are due on a quarterly basis. The outstanding balance is scheduled to be repaid in quarterly installments during 2010.

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(12) Earnings Per Share

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

	March 31,
	2010		2009
Three Months Ended
Net income for basic and diluted earnings per share	$	8,432	$	12,838
Shares of common stock and common stock equivalents:
Average common shares used in basic computation	43,827		43,337
Effect of dilutive securities	588		269
Average common shares used in diluted computation	44,415		43,606
Earnings per share:
Basic	$	0.19	$	0.30
Diluted	$	0.19	$	0.29

Earnings per share computations for the three months ended March 31, 2010 and 2009 did not include anti-dilutive equity awards of approximately 720,000 and 768,000, respectively.

(13) Other Comprehensive Income

The components and allocated tax effects of other comprehensive income for the periods ended March 31, 2010 and December 31, 2009 are as follows (dollars in thousands):

	Before Tax Effects			Tax Effects			After Tax Effects
March 31, 2010
Currency translation adjustment	$	6,709		$	—		$	6,709
Unrealized holding gain/(loss) on securities, available-for-sale	124			(50		)	74
Total	$	6,833		$	(50	)	$	6,783
December 31, 2009
Currency translation adjustment	$	7,468		$	—		$	7,468
Unrealized holding gain/(loss) on securities, available-for-sale	(115		)	46			(69		)
Total	$	7,353		$	46		$	7,399

Unrealized holding gains and losses on securities, available-for-sale relates to the common stock in NYSE Euronext, Inc. the Company received as part of the merger of the New York Stock Exchange and Archipelago Holdings Inc. on March 9, 2006.

Deferred taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries or the cumulative translation adjustment related to those investments since such amounts are expected to be reinvested indefinitely.

(14) Net Capital Requirement

ITG Inc., AlterNet, ITG Derivatives and Blackwatch Brokerage Inc. (“Blackwatch”) 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 $1.0 million or 2% of aggregate debit balances arising from customer transactions. AlterNet, ITG Derivatives and Blackwatch 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 62/3% of aggregate indebtedness or $100,000, $500,000 and $5,000, respectively. Dividends or withdrawals of capital cannot be made if capital is needed to comply with regulatory requirements.

Net capital balances and the amounts in excess of required net capital at March 31, 2010 for the U.S. Operations are as follows (dollars in millions):

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	Net Capital		Excess Net Capital
U.S. Operations
ITG Inc.	$	103.4	$	102.4
AlterNet	2.8		2.4
Blackwatch	2.9		2.8
ITG Derivatives	3.2		2.2

As of March 31, 2010, ITG Inc. had a $22.8 million cash balance in a Special Reserve Bank Account for the benefit of customers and brokers under the Customer Protection Rule pursuant to SEC Rule 15c3-3, Computation for Determination of Reserve Requirements.

In addition, the Company’s Canadian, European and Asia Pacific Operations have subsidiaries with regulatory capital requirements. The net capital balances and amount of regulatory capital in excess of the minimum requirements applicable to each business at March 31, 2010, is summarized in the following table (dollars in millions):

	Net Capital		Excess Net Capital
Canadian Operations
Canada	$	49.9	$	49.4
European Operations
Europe	36.2		7.7
Asia Pacific Operations
Australia	8.8		1.9
Hong Kong	23.8		6.3
Japan	22.7		20.5

(15) Segment Reporting

The Company’s reportable operating segments are: U.S. Operations, Canadian Operations, European Operations and Asia Pacific Operations.  The U.S. Operations segment provides trade execution, trade order management, network connectivity and research services to institutional investors, brokers, alternative investment funds and money managers. The Canadian Operations segment provides trade execution, network connectivity and research services. The European Operations segment provides trade execution, trade order management, network connectivity and research service businesses in Europe, as well as a technology research and development facility in Israel. The Asia Pacific Operations segment provides trade execution, network connectivity and research service businesses in the Asia Pacific region.

The accounting policies of the reportable segments are the same as those described in Note 2, Summary of Significant Accounting Policies, in our Annual Report on Form 10-K for the year ended December 31, 2009.  The Company allocates resources to, and evaluates the performance of, its reportable segments based on income or loss before income tax expense. Consistent with the Company’s resource allocation and operating performance evaluation approach, the effects of inter-segment activities are eliminated except in limited circumstances where certain technology related costs are allocated to a segment to support that segment’s revenue producing activities. Commissions and fees revenue for trade executions and commission share revenues are principally attributed to each segment based upon the location of execution of the related transaction. Recurring revenues are principally attributed based upon the location of the client using the respective service.

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

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	U.S. Operations		Canadian Operations		European Operations			Asia Pacific Operations			Consolidated
Three Months Ended March 31, 2010
Total revenues	$	99,908	$	18,436	$	20,369		$	7,977		$	146,690
Income (loss) before income tax expense	13,213		4,590		1,543			(3,905		)	15,441
Identifiable assets	1,055,734		509,781		830,791			663,835			3,060,141
Three Months Ended March 31, 2009
Total revenues	$	117,353	$	17,605	$	15,769		$	4,940		$	155,667
Income (loss) before income tax expense	24,466		5,916		(2,089		)	(4,795		)	23,498
Identifiable assets	985,805		209,256		722,623			574,926			2,492,610

(16) Subsequent Events

In April 2010, the Company implemented a plan to close its on-shore operations in Japan to lower costs and reduce capital requirements.  The annual expenses for the on-shore Japanese operations approximate $4.0 million and as of March 31, 2010 there was $22.7 million of regulatory capital deployed there. A one-time charge, estimated at $2.6 million for employee severance, contract termination costs and non-cash write-offs of fixed assets and capitalized software, was incurred related to this plan.

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

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

Overview

ITG is an independent agency brokerage and financial technology firm that partners with asset managers to deliver institutional global liquidity and help improve performance throughout the investment process. A unique partner in electronic trading since the launch of POSIT in 1987, ITG’s integrated approach includes a range of products from portfolio management and pre-trade analysis to trade execution and post-trade evaluation. Institutional investors rely on ITG’s independence, experience and agility to help measure performance, mitigate risk and navigate increasingly complex markets. The firm is headquartered in New York with offices in North America, Europe and the Asia Pacific region.

Our reportable operating segments are: U.S. Operations, Canadian Operations, European Operations and Asia Pacific Operations. The U.S. Operations segment provides trade execution, trade order management, network connectivity and research services to institutional investors, brokers, alternative investment funds and money managers. The Canadian Operations segment provides trade execution, network connectivity and research services. The European Operations segment provides trade execution, trade order management, network connectivity and research service businesses in Europe, as well as a technology research and development facility in Israel. The Asia Pacific Operations segment provides trade execution, network connectivity and research service businesses in the Asia Pacific region.

Sources of Revenues

Our revenues consist of commissions and fees, recurring and other.

Commissions and fees are derived primarily from (i) commissions charged for trade execution services, (ii) commission sharing arrangements and (iii) income generated on our spread-based trading business whereby equity orders are filled at different prices within or at the National Best Bid and Offer (“NBBO”). Because commissions are earned on a per-transaction basis, such revenues fluctuate from period to period depending on (i) the volume of securities traded through our services in the U.S. and Canada, (ii) the contract value of securities traded in Europe and Asia Pacific and (iii) our commission rates. Certain factors that affect our volumes and contract values traded include: (i) macro trends in the global equities markets that affect overall institutional equity trading activity, (ii) competitive pressure, including pricing, created by a proliferation of electronic execution competitors and (iii) potential changes in market structure in the U.S. and other regions. In addition to share volume, revenues from spread-based trades are also impacted by the width of spreads within the NBBO. Trade orders are delivered to us from our order and execution management products and other vendors’ products, direct computer-to-computer links to customers through ITG Net (our private value-added FIX-based financial electronic communications network) and third-party networks and phone orders from our customers.

Recurring revenues are derived from the following primary sources: (i) subscription revenue generated from the usage of software and analytical products, (ii) maintenance and customer technical support on our order management system and (iii) connectivity fees generated through ITG Net.

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Other revenues include: (i) income from intra-day arbitrage trading in Canada, (ii) market gains/losses resulting from temporary positions in securities assumed in the normal course of our agency trading business and financing costs from customers’ short settlement activities, (iii) non-recurring professional services, such as one-time implementation and customer training related activities, (iv) the interest spread earned on matched stock borrow/stock loan transactions, (v) investment and interest income and (vi) client errors and accommodations.

Expenses

Compensation and employee benefits, our largest expense, consist of salaries and wages, incentive compensation, share-based compensation and related employee benefits and taxes. Incentive compensation is tied to specified objectives such as revenue and profitability and as a result, compensation and employee benefits will fluctuate with these measures.

Transaction processing expense consists of costs to access various third-party execution destinations and to process and settle transactions. These costs tend to fluctuate with share and trade volumes, the mix of trade execution services used by clients and the rates charged by third parties.

Occupancy and equipment expense consists primarily of rent and utilities related to leased premises, office equipment and depreciation and amortization of fixed assets and leasehold improvements.

Telecommunications and data processing expenses primarily consist of costs for obtaining market data, telecommunications services and systems maintenance.

Other general and administrative expenses primarily include software amortization, consulting, business development and professional fees.

Interest expense consists primarily of costs associated with our outstanding debt and credit facility.

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with U.S. GAAP, management uses certain “non-GAAP financial measures” as such term is defined in SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in, or excluded from, the most directly comparable measure calculated and presented in accordance with U.S. GAAP. For example, non-GAAP measures may exclude the impact of certain unique items such as acquisitions, divestitures, restructuring charges, large write-offs or items outside of management’s control, such as foreign currency exchange rates. Management believes that the following non-GAAP financial measures provide investors and analysts useful insight into our financial position and operating performance.

Pro forma operating net income (and pro forma operating net income per diluted share) excluding the write-off of capitalized software development is provided to facilitate the relevant period-to-period comparison of net income by excluding this unique item that impacts overall comparability. This non-GAAP measure should be viewed in addition to, and not as an alternative to, net income as determined in accordance with U.S. GAAP.

Revenues excluding currency translation, which exclude the impact of fluctuations in foreign currency exchange rates, are provided to facilitate relevant period-to-period comparisons of the underlying growth in revenues by excluding these fluctuations outside of management’s control that impact the overall comparability. Underlying revenues should be viewed in addition to, and not as an alternative to, revenues as determined in accordance with U.S. GAAP.

Commissions and fees excluding currency translation, which exclude the impact of fluctuations in foreign currency exchange rates, are provided to facilitate relevant period-to-period comparisons of the underlying growth in commissions and fees by excluding these fluctuations outside of management’s control that impact the overall comparability. Underlying commissions and fees should be viewed in addition to, and not as an alternative to, commissions and fees as determined in accordance with U.S. GAAP.

Pro forma operating expenses excluding the write-off of capitalized software development is provided to facilitate the relevant period-to-period comparison of expenses by excluding this unique item that impacts overall comparability. This non-GAAP measure should be viewed in addition to, and not as an alternative to, expenses as determined in accordance with U.S. GAAP.

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Executive Summary for the Quarter Ended March 31, 2010

During the first quarter of 2010, cost reductions in the U.S., combined with improved international operations substantially reduced the impact of lower U.S. market volumes on our results of operations.  Our net income for the quarter was $8.4 million, or $0.19 per diluted share. Excluding a $6.1 million pre-tax ($3.5 million after-tax) non-cash write-off of capitalized software development initiatives (see below), our pro forma operating net income (see Non-GAAP Financial Measures) for the quarter was $11.9 million, or $0.27 per diluted share, compared to net income of $12.8 million, or $0.29 per diluted share for the first quarter of 2009. Consolidated revenues were down 6% to $146.7 million compared to $155.7 million for the first quarter of 2009, reflecting a $17.4 million (15%) decline in U.S. revenues to $99.9 million, offset in part by an $8.5 million (22%) increase in international revenues to $46.8 million.

Consolidated expenses were comparable during the three months ended March 31, 2010 and 2009 at $131.2 million and $132.2 million, respectively, due to a write-off of certain capitalized software initiatives. As part of our fourth quarter 2009 restructuring, we made certain changes to our product priorities and wrote-off $2.4 million of capitalized development initiatives that were not yet deployed. As our product development plan continued to evolve in the first quarter of 2010, we determined that additional capitalized amounts were not likely to be used and a further $6.1 million was written off. Excluding this write-off, consolidated pro forma operating expenses were down 5% to $125.2 million compared to the first quarter of 2009, reflecting a $12.3 million (13%) decrease in U.S. pro forma operating expenses to $80.6 million, offset in part by a $5.3 million (13%) increase in international expenses to $44.6 million (see Non-GAAP Financial Measures). This reduction in U.S. pro forma operating expenses related primarily to a reduction in compensation and benefits from our 2009 restructuring, a reduction in telecommunication costs from the consolidation of our third-party network providers and reduced transaction processing costs, offset in part by higher general and administrative costs primarily due to increased capitalized software amortization expense. The growth in our international expenses related primarily to increases in infrastructure costs in Europe and Asia Pacific to support these growing businesses and the currency effect on our Canadian Dollar expense base.

Our U.S. Operations are highly correlated to the level of trading activity of our core client base, which is predominantly represented by large U.S. domestic equity funds. Following very challenging years in 2009 and 2008 when U.S. equity funds experienced approximately $40 billion and $151 billion in net outflows, respectively, according to the Investment Company Institute, net inflows into domestic equity funds during the first quarter of 2010 were a relatively modest $5.2 billion. Even with the surge in the S&P 500 index, lower equity volatility, and the overall perception that the U.S. economy is in a recovery mode, the overwhelming share of new investment cash flow continues to be directed into other asset classes such as fixed income and foreign equities. As a result, the amount of equity trading activity by our core client base was down considerably compared to the first quarter of 2009. Overall market volumes of NYSE and NASDAQ-listed securities were down a combined 16.5% compared to the first quarter of 2009. In addition, during periods of low volumes, our share of such volumes comes under greater pressure due to the amount of commission dollars our clients have dedicated for services such as investment research and new issuances. Consequently, our U.S. average daily volume was down 24% compared to the first quarter of 2009 to 162.6 million shares.

According to Greenwich Associates, more than half of the available commission pool is dedicated for research and advisory services. Penetrating this commission pool represents a natural target for us to increase market share. As a result, we recently embarked on a strategic initiative to build a portfolio of differentiated marketable research content through acquisitions, investments and distribution partnerships. Our first step was completed in April 2010, when we made a minority investment in Disclosure Insight, Inc., a provider of independent research and due diligence to the institutional investment community.  Disclosure Insight assesses risk at publicly traded companies and provides valuable reports that summarize 100 different risk factors found over a five year period including undisclosed SEC investigative activity, accounting and auditor problems, unusual capital market events and the stability of the board of directors and executive team.  As part of this investment, we will be the exclusive distribution channel to large institutional investors for Disclosure Insight research.

In Canada, the strength of the Canadian Dollar drove our revenues up 5% compared to the first quarter of 2009 to $18.4 million. Excluding the foreign currency impact (see Non-GAAP Financial Measures), our Canadian revenues were down 13% compared to the first quarter of 2009 due to reduced arbitrage trading revenue and lower commission rates paid by clients. The increased presence of high frequency traders and the lower level of overall market volatility reduced the spread available on arbitrage trading opportunities. As the market structure in Canada continues to fragment into a multiple destination marketplace, we are engaging in new arbitrage trading strategies to generate revenue.  Although commission rates were down as compared to the first quarter of 2009, they were stable in comparison to recent quarters.

Our European operations generated profitability for the fourth consecutive quarter. Market conditions continued to improve in Europe as market volumes and share prices were higher than the first quarter of 2009.  Revenues grew 29% over the first quarter of 2009 to $20.4 million, largely due to an increase in trades internally crossed in POSIT, which also helped significantly reduce transaction processing costs, thereby improving our margins.

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In Asia Pacific, market conditions improved with the rally in equity prices supported by increased market turnover across the region. Asia Pacific revenues were also positively impacted by the allocation of $0.8 million of ITG Net revenue from our European Operations based on the location of the execution of the underlying client transactions associated with these revenues. Regional first quarter revenues increased 61% over the first quarter of 2009 to $8.0 million, resulting in a 19% decrease in our pre-tax loss to $3.9 million. While we continue to gain market share across several markets in the Asia Pacific region, our market share is still a relatively small portion of the entire market and we continue to incur significant pre-tax losses in the region.

In April 2010, we implemented a plan to close our on-shore operations in Japan to lower our costs and reduce our capital requirements.  This move will reduce our annual expenses by approximately $4.0 million and will reduce our net capital in the region by more than $20 million. We recorded a one-time charge related to this closing estimated at $2.6 million for employee severance, contract termination costs and non-cash write-offs of fixed assets and capitalized software. We remain committed to the Asia Pacific region and will continue to offer Japanese trading services to clients via our Hong Kong desk. As a result, we do not expect a material reduction to our current revenue levels. Over the long term, our Asia-Pacific strategy is to be well positioned to capitalize on what we believe will be an increasingly fragmented market characterized by increased electronic trading capabilities as well as unbundled commissions and advisory services. This move does not impact our future plans related to the recent launch of POSIT Marketplace in the region.

Results of Operations — Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

U.S. Operations

	Three Months Ended March 31,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	81,710		$	99,423		$	(17,713	)	(18	)
Recurring	17,034			17,700			(666		)	(4	)
Other	1,164			230			934			406
Total revenues	99,908			117,353			(17,445		)	(15	)
Expenses
Compensation and employee benefits	34,270			41,552			(7,282		)	(18	)
Transaction processing	10,276			13,293			(3,017		)	(23	)
Other expenses	41,925			36,830			5,095			14
Interest expense	224			1,212			(988		)	(82	)
Total expenses	86,695			92,887			(6,192		)	(7	)
Income before income tax expense	$	13,213		$	24,466		$	(11,253	)	(46	)
Pre-tax margin	13.2		%	20.8		%	(7.6		)%

Overall U.S. equity volumes (as measured by the combined share volume in NYSE and NASDAQ-listed securities) were 16.5% lower in the first quarter of 2010 as compared to the first quarter of 2009. Our first quarter average daily volume in the U.S. from our core commission trading business declined 24% compared to the prior year period and remained relatively unchanged from the fourth quarter of 2009. The reduction in our clients’ trading activity has weighed heavily on our average daily volumes, particularly since we do not generally participate in the amount of our client’s commissions dedicated for services such as investment research and new issuances.  Our average commission rate has been relatively unchanged since the first quarter of 2009.  Conversely, our spread-based trading business, which began in the first quarter of 2009, grew despite the decline in market volumes.

	Three Months Ended March 31,
U.S. Operations: Key Indicators*	2010		2009		Change			% Change
Total trading volume (in billions of shares)	9.9		13.1		(3.2		)	(24	)
Trading volume per day (in millions of shares)	162.6		214.8		(52.2		)	(24	)
Average revenue per share ($)	$	0.0068	$	0.0067	$	0.0001		1
U.S. market trading days	61		61		—			—

* Represents core equity business excluding ITG Derivatives, ITG Net commission share revenues and fees on spread-based transactions.

Recurring revenues declined from our analytical products primarily due to the discontinuation of certain product offerings.

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The increase in other revenue is primarily due to a decrease in client accommodations partially offset by lower investment income due to lower interest rates.

Total expenses were down 7% compared to the first quarter of 2009 reflecting the offsetting effects of cost reduction efforts and a $6.1 million write-off of certain capitalized software initiatives. Excluding this write-off, total expenses in the U.S. were down 13% compared to the first quarter of 2009 (see Non-GAAP Financial Measures).

Compensation and employee benefits declined 18% due to the headcount reduction that was part of our restructuring plan in the fourth quarter of 2009 and a net reduction in employee severance of $2.5 million. Incentive compensation fluctuates based on revenues, profitability and other measures, taking into account the increasingly competitive landscape for key talent. As these measures improve going forward, we expect the ratio of compensation and employee benefits to revenues to decline slightly.

Transaction processing costs decreased 23% reflecting the decline in volumes and an increase in the portion of trades being internally crossed through POSIT.

Other expenses increased due to the $6.1 million write-off of certain capitalized software initiatives described above, a $1.1 million increase in capitalized software amortization related to new releases and the recovery of doubtful account provisions in the first quarter of 2009 of $1.0 million. These increases were offset in part by decreases in other costs from our cost reduction efforts including lower amounts of rent expense, telecommunications and market data costs, travel and entertainment and professional services such as legal, recruiting and consulting.

Interest expense declined due to a significantly lower outstanding balance on our long term debt, lower LIBOR-based interest rates and the expiration of economically unfavorable interest rate swaps (due to the drop in interest rates after their inception in 2006) on March 31, 2009.

Canadian Operations

	Three Months Ended March 31,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	16,114		$	14,152		$	1,962		14
Recurring	855			472			383			81
Other	1,467			2,981			(1,514		)	(51	)
Total revenues	18,436			17,605			831			5
Expenses
Compensation and employee benefits	5,201			4,445			756			17
Transaction processing	3,681			3,336			345			10
Other expenses	4,964			3,908			1,056			27
Total expenses	13,846			11,689			2,157			18
Income before income tax expense	$	4,590		$	5,916		$	(1,326	)	(22	)
Pre-tax margin	24.9		%	33.6		%	(8.7		)%

Currency translation increased total Canadian revenues and expenses by $3.0 million and $2.2 million, respectively, resulting in a $0.8 million increase to pre-tax income.

Canadian volumes in our core business increased 7% over the first quarter of 2009, however commissions and fees, excluding the favorable currency impact of the stronger Canadian Dollar, decreased 5% (see Non-GAAP Financial Measures), due to a reduction in commission rates from the first quarter of 2009. Commission rates were stable in comparison to the fourth quarter of 2009.

Recurring revenues grew as our ITG Net connectivity business increased the number of billable network connections in Canada.

Revenues from our arbitrage trading business (included in other revenues) were down in the first quarter of 2010 compared to the prior year period due to the increased presence of high frequency traders and the lower level of overall market volatility, which has reduced the spread available on trading opportunities.

The increase in compensation and employee benefits cost was primarily attributed to the impact of currency translation.

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Transaction processing costs were higher due to the impact of currency translation. As a percentage of revenues, these costs increased to 20%, compared to 18.9% during the first quarter of 2009 due to the impact of increased market fragmentation and changing pricing structures. This rate was down from 22.1% in the fourth quarter of 2009 due to improvements in routing strategies to optimize liquidity credit opportunities.

The increase in other expenses reflects unfavorable exchange rate translation and capitalized software amortization expense related to new product releases, as well as prior year currency transaction gains from holding a non-Canadian Dollar denominated asset.

European Operations

	Three Months Ended March 31,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	16,966		$	12,619		$	4,347		34
Recurring	3,574			2,960			614			21
Other	(171		)	190			(361		)	(190	)
Total revenues	20,369			15,769			4,600			29
Expenses
Compensation and employee benefits	8,808			9,426			(618		)	(7	)
Transaction processing	4,824			5,204			(380		)	(7	)
Other expenses	5,194			3,228			1,966			61
Total expenses	18,826			17,858			968			5
Income (loss) before income tax expense	$	1,543		$	(2,089	)	$	3,632		174
Pre-tax margin	7.6		%	(13.2		)%	20.8		%

Currency translation increased total European revenues and expenses by $1.7 million and $1.9 million, respectively, reducing our pre-tax income by $0.2 million.

European equity market volumes and share prices grew in the first quarter of 2010 as reflected by the increase in market turnover (compared to the first quarter of 2009) resulting in higher share values upon which European commissions and fees are dependent.

European commissions and fees grew by 34% (including a favorable currency translation impact of $1.4 million) driven by initiatives adopted to promote the use of the POSIT suite in the region. The growth in our POSIT business more than offset the impact of a decline in our client portfolio trading business and a shift in the attribution of $0.4 million of ITG Net commission share revenue from Europe to Asia Pacific.

Higher recurring revenues reflect increased analytical product sales, offset in part by a shift in the attribution of $0.4 million of ITG Net connectivity revenue from Europe to Asia Pacific. Other revenues fell due to a decrease in order management system consulting fees and increased client accommodations.

Compensation and employee benefits expense reflects $2.8 million of severance costs in the first quarter of 2009 related to a management reorganization, offset by continued investment in staff to support the growing business and diversified product range and unfavorable currency translation.

Despite the increase in commissions and fees, transaction processing costs declined primarily due to an increase in the use of POSIT to internally cross trades, as well as Multilateral Trading Facilities (MTFs), which are generally less costly than traditional exchanges. Going forward, we expect to complete the migration of our settlement books and records to an in-house solution by the early part of the third quarter, reducing transaction processing costs on an annualized basis by $3.0 million.

Other expenses reflect unfavorable currency exchange translation and higher infrastructure investment costs to improve system capacity and resilience. Connectivity and market data costs also increased due to the expansion of self-directed client business, connectivity to new venues, software maintenance contract costs relating to the implementation of new back office systems, as well as software development associated with product rollout.

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Asia Pacific Operations

	Three Months Ended March 31,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	7,128		$	4,738		$	2,390		50
Recurring	508			30			478			1,593
Other	341			172			169			98
Total revenues	7,977			4,940			3,037			61
Expenses
Compensation and employee benefits	5,185			4,755			430			9
Transaction processing	1,878			1,097			781			71
Other expenses	4,819			3,883			936			24
Total expenses	11,882			9,735			2,147			22
Loss before income tax expense	$	(3,905	)	$	(4,795	)	$	890		19
Pre-tax margin	(49.0		)%	(97.1		)%	48.1		%

Currency translation increased total Asia Pacific revenues and expenses by $0.8 million and $1.1 million, respectively, reducing pre-tax income by $0.3 million.

Asia Pacific revenues improved in the first quarter of 2010 benefiting from higher regional stock market indices and market turnover, market share gains and currency translation, primarily related to the Australian Dollar.

For the first quarter of 2010, revenues reflect the shift in the attribution of ITG Net revenue from Europe to Asia Pacific for commission share ($0.4 million) and recurring connectivity ($0.4 million).

Our compensation and employee benefits cost level reflects an unfavorable currency translation primarily resulting from the strengthening of the Australian Dollar, offset by the decline in headcount resulting from our restructuring plan in the fourth quarter of 2009.

Transaction processing costs increased due to an increase in trades executed as well as a higher proportion of trades being executed in costlier venues such as Japan and Korea, where clearing and execution costs are significantly higher than the Hong Kong and Australia markets. Unfavorable currency translation also contributed to the increase.

Other expenses include unfavorable currency translation, additional connectivity and market data fees related to business growth, higher facilities, software and business development charges and an increase in capitalized software amortization expense related to new product releases.

Consolidated income tax expense

Our effective tax rate was 45.4% in both the first quarter of 2010 and 2009.  Our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.

Liquidity and Capital Resources

Liquidity

Our primary source of liquidity is cash provided by operations. Our liquidity requirements result from our working capital needs, which include clearing and settlement activities, as well as our regulatory capital needs. A substantial portion of our assets are liquid, consisting of cash and cash equivalents or assets readily convertible into cash. Excess cash is principally invested in U.S. government money market mutual funds and other money market mutual funds. At March 31, 2010, cash and cash equivalents and securities owned, at fair value amounted to $329.2 million.

As a self-clearing broker-dealer in the U.S., we are subject to cash deposit requirements with clearing organizations that may be large in relation to total liquid assets and may fluctuate significantly from time to time based upon the nature and size of customers’ trading activity and market volatility. At March 31, 2010, we had interest-bearing security deposits totaling $19.5 million with clearing organizations and clearing agents for the settlement of equity trades. In the normal course of business, we may also need to borrow stock when a security is needed to deliver against a settling transaction, such as a short settlement or a fail to deliver.

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Securities borrowed transactions require that collateral in the form of cash be provided to the counterparty. Such cash deposits may be funded from existing cash balances or from short-term bank loans.

When funding the U.S. securities clearance and settlement transactions with short-term bank loans, pledge facilities with two banks which have no specific limitations on additional borrowing capacities are utilized (see Financing Activities below). However, under the current economic environment, lenders may have more stringent guidelines in making credit available, thus inhibiting our ability to borrow, particularly on a non-collateralized basis.

In Hong Kong and Australia, where equity trades are also self-cleared, working capital facilities with banks for the clearing and settlement activities are maintained. These facilities are in the form of overdraft protection totaling $88.0 million and are supported by $25.8 million in restricted cash deposits. Working capital facilities with a bank in the form of overdraft protection totaling approximately $50.7 million are also maintained for European settlement activities.

Capital Resources

Capital resource requirements relate to capital purchases, as well as business investments and are generally funded from operations. When required, as in the case of a major acquisition, our strong cash generating ability has historically allowed us to access U.S. capital markets.

Operating Activities

The increase in cash flow from operating activities compared to the first quarter of 2009 reflects the net change in broker and customer related activity as we increased our stock loan financing capabilities and externally financed more of our clients’ short settlement activity (rather than use our own cash) and lower payments for annual incentive compensation.

The table below summarizes the effect of the major components of operating cash flow.

	Three Months Ended March 31,
(in thousands)	2010			2009
Net income	$	8,432		$	12,838
Non-cash items included in net income	26,361			22,867
Effect of changes in receivables/payables from/to customers and brokers	35,331			18,744
Effect of changes in other working capital and operating assets and liabilities	(45,022		)	(60,585		)
Net cash provided by (used in) operating activities	$	25,102		$	(6,136	)

In the normal course of clearing and settlement operations worldwide, cash is typically used to fund restricted or segregated cash accounts (under regulations and other), broker and customer fails to deliver/receive, securities borrowed, deposits with clearing organizations and net activity related to receivables/payables from/to customers and brokers. The cash requirements vary from day to day depending on volume transacted and customer trading patterns.

Investing Activities

Net cash used in investing activities of $16.4 million includes our investment in capitalizable software development projects and computer hardware, software and facilities.

Financing Activities

Net cash used in financing activities of $19.6 million primarily reflects principal repayments on our Term Loan and repurchases of ITG common stock, offset by the reduction of deferred compensation amounts through issuances of our common stock.

When funding our securities borrowing activities with short-term bank loans, we have pledge facilities with two banks, JPMorgan Chase Bank, N.A. and The Bank of New York Mellon, which have no specific limitations on our additional borrowing capacities, except that our lenders may limit borrowings at their discretion. Borrowings under these arrangements have carried interest at the federal funds rate plus a spread of 50 - 120 basis points, depending upon the amount borrowed, and are repayable on demand (generally the next business day). The short-term bank loans are collateralized by the securities underlying the transactions equal to 125% of the borrowings.  At March 31, 2010, we had no short-term bank loans under pledge facilities.

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We also have a $25.0 million revolving credit facility available that can be drawn upon to meet working capital needs should they arise. As of the filing date of this Quarterly Report on Form 10-Q, we have no outstanding borrowings under the revolving credit facility.

During the first quarter of 2010, we repurchased approximately 0.7 million shares of our common stock at a cost of approximately $12.8 million, which was funded from our available cash resources. Of these shares, 566,000 were purchased under an authorization by our Board of Directors for a total cost of $9.9 million ($17.52 per share). An additional 161,359 shares ($2.9 million) pertained solely to the satisfaction of minimum statutory withholding tax upon the net settlement of equity awards.

Regulatory Capital

Under the SEC’s Uniform Net Capital Rule, our broker-dealer subsidiaries are required to maintain at least the minimum level of net capital required under Rule 15c3-1 at all times.  Dividends or withdrawals of capital cannot be made if the capital is needed to comply with regulatory requirements.

Net capital balances and the amounts in excess of required net capital at March 31, 2010 for the U.S. Operations are as follows (dollars in millions):

	Net Capital		Excess Net Capital
U.S. Operations
ITG Inc.	$	103.4	$	102.4
AlterNet	2.8		2.4
Blackwatch	2.9		2.8
ITG Derivatives	3.2		2.2

During the three months ended March 31, 2010, we withdrew $56.0 million of capital from ITG Inc. with such amounts transferred to our top holding company for general purposes.

As of March 31, 2010, ITG Inc. had a $22.8 million cash balance in a Special Reserve Bank Account for the benefit of customers and brokers under the Customer Protection Rule pursuant to SEC Rule 15c3-3, Computation for Determination of Reserve Requirements.

In addition, the Company’s Canadian, European and Asia Pacific Operations have subsidiaries with regulatory capital requirements. The net capital balances and amount of regulatory capital in excess of the minimum requirements applicable to each business at March 31, 2010 is summarized in the following table (dollars in millions):

	Net Capital		Excess Net Capital
Canadian Operations
Canada	$	49.9	$	49.4
European Operations
Europe	36.2		7.7
Asia Pacific Operations
Australia	8.8		1.9
Hong Kong	23.8		6.3
Japan	22.7		20.5

As discussed above, our April 2010 plan to close our on-shore operations in Japan will reduce our Asia Pacific net capital by more than $20 million.

Liquidity and Capital Resource Outlook

Historically, our working capital, share repurchase and investment activity requirements have been funded from cash from operations and short-term loans, with the exception of our Macgregor and Plexus Group Inc. acquisitions, which required long term financing. We believe that our cash flow from operations, existing cash balances and our available loan facilities will be sufficient to meet our ongoing operating cash and regulatory capital needs, while also complying with the terms of our credit agreement, which expires on December 31, 2010. However, our ability to borrow additional funds may be inhibited by financial lending institutions’ ability or willingness to lend to us on commercially acceptable terms.

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

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 and customer non-performance. In connection with the settlement of non-U.S. securities transactions, ITG has provided third-party financial institutions with guarantees in amounts up to a maximum of $98.7 million. In the event that one of our customers fails to settle a securities transaction, or if an ITG subsidiary was unable to honor trades with a customer, ITG would be required to provide for the amount of such securities up to the $98.7 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 the 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.

As of March 31, 2010, our other contractual obligations and commercial commitments consisted principally of fixed charges, including principal repayment and interest on the Term Loan, minimum future rentals under non-cancelable operating leases, minimum future purchases under non-cancelable purchase agreements and minimum compensation under employment agreements.

There has been no significant change to such arrangements and obligations since December 31, 2009.

Critical Accounting Estimates

The following describes an update to our critical accounting estimates, which are more fully described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2009.

Goodwill

As set forth in our Annual Report on Form 10-K for the year ended December 31, 2009, we performed our annual goodwill impairment testing in the fourth quarter of 2009.  We also test goodwill for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.  At the time of our annual test, the fair value of each of our reporting units was determined to be in excess of its carrying value by a minimum of 18 percent.  Accordingly, no impairment of goodwill was indicated; however, we recognized the reasonable possibility that one of our reporting units might become impaired in future periods given the persistently unfavorable industry environment for our business, as well as the fact that our market capitalization had fallen below book value at certain points in time during the fourth quarter of 2009.  Our use of the term “reasonable possibility” refers to a potential occurrence that is more than remote, but less than probable in our judgment. As a result, we have continued to monitor economic trends related to our business as well as re-examine the key assumptions used in our annual test.  While events and circumstances have not significantly changed since the completion of our annual test, we maintain a heightened awareness of such trends and their resultant impact on our near-term profitability and the market price of our common stock, which has fallen below book value at certain points in time during the first quarter of 2010.  Accordingly, we performed an interim goodwill impairment evaluation as of March 31, 2010. Based on the results of our interim Step 1 testing, no goodwill impairment was indicated for any reporting units, as the fair value of each of our reporting units, namely U.S. Operations, European Operations, Hong Kong and Australia, was determined to be in excess of its carrying value by 16%, 233%, 51% and 73%, respectively.  Our interim impairment evaluation utilized the same valuation techniques used in our impairment valuation performed in the fourth quarter of 2009. We also examined the sensitivity of the fair values of our reporting units by reviewing other scenarios relative to the initial assumptions we used to see if the resulting impact on fair values would have resulted in a different Step 1 conclusion.  Accordingly, we performed sensitivity analyses based on more conservative terminal growth scenarios and higher discount rates in which the fair values of these reporting units were recalculated. None of the outcomes of the sensitivity analyses performed led us to conclude that our goodwill is impaired.

While we have determined the estimated fair values of our reporting units to be appropriate based on the forecasted level of revenue growth, net income and cash flows, in the current market environment it is a reasonable possibility that one of our reporting units may become impaired in future periods as there can be no assurance that our estimates and assumptions made for purposes of our goodwill interim impairment testing as of March 31, 2010 will prove to be accurate predictions of the future. If our assumptions regarding forecasted revenue or net income growth rates are not achieved, we may be required to record non-cash charges in future periods for goodwill impairment, whether in connection with our next annual impairment testing on October 1, 2010 or prior to that, if any such change constitutes a triggering event outside of the quarter from when the annual goodwill impairment test is performed. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Please see our Annual Report on Form 10-K (Item 7A) for the year ended December 31, 2009. There has been no material change in this information.

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Item 4. Controls and Procedures

a)Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, the Company’s disclosure controls and procedures were effective in reporting, on a timely basis, information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act and this Quarterly Report on Form 10-Q.

b)Changes in Internal Controls over Financial Reporting. There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the Company’s latest fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. — OTHER INFORMATION

Item 1. Legal Proceedings

On November 21, 2006, Liquidnet, Inc. filed a lawsuit in the United States District Court for the District of Delaware (Liquidnet, Inc. v. ITG Inc. et al., 06-CV-703 (D.Del)) alleging that ITG Inc. and The Macgregor Group, Inc. infringe one or more claims of U.S. Patent No. 7,136,834 (the ‘834 Patent) through its “Channel ITG” and the “Macgregor XIP” products. That patent had been issued on November 14, 2006. On January 8, 2007, Liquidnet, Inc. filed a First Amended Complaint in the District of Delaware naming Investment Technology Group, Inc., ITG Solutions Network, Inc. and The Macgregor Group, Inc. as defendants. After determining that Liquidnet Inc. did not own the ‘834 Patent (the patent was owned by Liquidnet Inc.’s corporate parent, Liquidnet Holdings, Inc. (“Liquidnet”)), on January 23, 2007, Investment Technology Group, Inc., ITG Inc., ITG Solutions Network, Inc. and The Macgregor Group, Inc. (collectively “ITG”) sued Liquidnet in the United States District Court for the Southern District of New York seeking a declaratory judgment that the ‘834 Patent was not infringed, was invalid and was unenforceable. On January 24, 2007, ITG advised Liquidnet that if Liquidnet did not withdraw its Delaware lawsuit against ITG, ITG would move to dismiss that lawsuit for lack of standing. On January 26, 2007, Liquidnet dismissed its Delaware lawsuit. On February 13, 2007, Liquidnet filed its answer, affirmative defense and counterclaims, alleging infringement of the ‘834 Patent. ITG’s declaratory judgment action will now proceed in the Southern District of New York. On October 12, 2007, the parties appeared before the court for a pretrial scheduling conference at which an initial plan for discovery was reached. On January 10, 2008, ITG filed a motion for permission to file an amended complaint. The amended complaint alleges that Liquidnet committed fraud against the U.S. Patent and Trademark Office by, among other things, failing to disclose that Liquidnet derived its patent from work done in 1997-1998 by third parties. The amended complaint also contains an additional cause of action against Liquidnet for tortious interference with prospective business relations. On February 13, 2008, ITG’s motion was granted. Fact discovery is complete and on December 16, 2009, the Court held a Markman hearing, in which claim construction arguments were heard. On January 19, 2010, the Court issued a ruling construing the patent claim at issue.

It is our position that ITG is not infringing any valid patent claim of the ‘834 Patent and that Liquidnet’s claims are without merit. We plan to vigorously pursue our declaratory judgment action and claim for tortious interference. However, intellectual property disputes are subject to inherent uncertainties and there can be no assurance that this lawsuit will be resolved favorably to us or that the lawsuit will not have a material adverse effect on us.

Item 1A. Risk Factors

There has been no significant change to the risks or uncertainties that may affect our results of operations since December 31, 2009. Please see Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth our share repurchase activity during the first three months of 2010, including the total number of shares purchased, the average price paid per share, the number of shares repurchased as part of a publicly announced plan or program, and the number of shares yet to be purchased under the plan or program.

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ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares (or Units) Purchased (a)	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
From: January 1, 2010
To: January 31, 2010	60,355	$	20.20	—	2,048,668
From: February 1, 2010
To: February 28, 2010	274,681	16.97		200,000	1,848,668
From: March 1, 2010
To: March 31, 2010	392,323	17.77		366,000	1,482,668
Total	727,359	$	17.67	566,000

(a) This column includes the acquisition of 161,359 common shares from employees in order to satisfy minimum statutory withholding tax requirements upon net settlement of restricted share awards.

On July 22, 2004, the Board of Directors authorized management to use its discretion to repurchase up to 2.0 million shares of common stock in open market or privately negotiated transactions. The authorization, which has no expiration date, was reaffirmed by the Board of Directors on August 6, 2007. On July 30, 2008, the Board of Directors re-authorized the purchase of the shares remaining under the 2004 authorization and authorized the purchase of an additional 2.0 million shares of common stock.  This authorization has no expiration date.

During the first quarter of 2010, we repurchased approximately 0.7 million shares of our common stock at a cost of approximately $12.8 million, which was funded from our available cash resources. Of these shares, 566,000 were purchased under our Board of Directors’ authorization for a total cost of $9.9 million (average cost of $17.52 per share). An additional 161,359 shares ($2.9 million) pertained solely to the satisfaction of minimum statutory withholding tax upon the net settlement of equity awards.

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.

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

There were no matters submitted to a vote of security holders during the first quarter of 2010.

Item 5. Other Information

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

Item 6. Exhibits

(A)	EXHIBITS
	10.1*	Amended and Restated Employment Agreement, dated April 20, 2010, between Investment Technology Group, Inc. and Robert C. Gasser.
	10.2*+	Employment Agreement, dated as of February 14, 2005 between Investment Technology Group Europe Ltd. and David Stevens.
	10.3*	Form of Grant Notice under the Investment Technology Group, Inc. Equity Deferral Award Program Subplan between the Company and certain employees of the Company (2010).
	10.4*	Form of Amendment to Change in Control Agreement
	31.1*	Rule 13a-14(a) Certification

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31.2*	Rule 13a-14(a) Certification
32.1*	Section 1350 Certification

*	Filed herewith.
+	Portions of this agreement have been omitted pursuant to a request for confidential treatment filed on May 10, 2010.
SIGNATURE

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

		INVESTMENT TECHNOLOGY GROUP, INC.
		(Registrant)
Date: May 10, 2010	By:	/s/ STEVEN R. VIGLIOTTI
		Steven R. Vigliotti Chief Financial Officer and Duly Authorized Signatory of Registrant

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EX-10.1

Exhibit 10.1

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) dated as of April 20, 2010 between Investment Technology Group, Inc., a Delaware corporation (the “Company”), and Robert C. Gasser (the “Executive”).

WHEREAS, the Company and the Executive previously entered into an employment agreement on September 15, 2006 and amended and restated such agreement on August 4, 2008 (the “Prior Agreement”); and

WHEREAS, the parties now wish to amend the Prior Agreement to cause the payments and benefits to which the Executive may become entitled following a change in control to substantially conform to the payments and benefits to which other senior executive employees are entitled under change in control agreements with the Company, and to make certain other changes to comply with recently issued guidance related to section 409A of the Code (as defined below).

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements herein set forth, the Company and the Executive agree as follows:

ARTICLE 1

DEFINITIONS

SECTION 1.01       Definitions.  For purposes of this Agreement, the following terms have the meanings set forth below:

“Board” means the Board of Directors of the Company.

“Cause” means the occurrence of any one or more of the following: (i) the Executive’s willful failure to substantially perform his duties with the Company (other than any such failure resulting from the Executive’s Disability), after a written demand for substantial performance is delivered to the Executive that specifically identifies the manner in which the Company believes that the Executive has not substantially performed his duties, and the Executive has failed to remedy the situation within fifteen (15) business days of such written notice from the Company; (ii) gross negligence in the performance of the Executive’s duties which results in material financial harm to the Company; (iii) the Executive’s conviction of, or plea of guilty or nolo contendere to, any crime involving the personal enrichment of the Executive at the expense of the Company, or any felony; (iv) the Executive’s willful engagement in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise; or (v) the Executive’s willful violation of any material provision of the Company’s code of conduct.  For purposes of this definition, no act or failure to act, on the part of the Executive, shall be considered “ willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that his action or omission was in the best interests of the Company, or the Executive is grossly negligent.

“Change in Control” means and shall be deemed to have occurred:

(a)           if any person (within the meaning of the Securities Exchange Act of 1934, as amended (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 thirty-five percent (35%) or more of the total voting power of all the then-outstanding Voting Securities; or

(b)           if the individuals who, as of the date hereof, 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 date hereof or whose recommendation, 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)           upon consummation of a merger, consolidation, recapitalization or reorganization of the Company, reverse split of any class of Voting Securities, or an acquisition of securities or assets by the Company other than (A) 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 fifty percent (50%) 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 (B) any such transaction which would result in a Related Party beneficially owning more than fifty percent (50%) of the voting securities of the surviving or transferee entity outstanding immediately after such transaction; or

(d)           upon consummation of 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 fifty percent (50%) of the assets owned by the Company immediately prior to the transaction; or

(e)           if the stockholders of the Company approve a plan of complete liquidation of the Company.

“Code” means the Internal Revenue Code of 1986, as amended and the regulations promulgated thereunder.

“Confidential Information” means information that is not generally known to the public and that was or is used, developed or obtained by the Company or its Subsidiaries in connection with their business and which constitutes trade secrets or information which the Company has made reasonable efforts to protect.  It shall not include information (i) required to be disclosed by court or administrative order; (ii) lawfully obtainable from other sources or which is in the public domain through no fault of the Executive; or (iii) the disclosure of which is consented to in writing by the Company.

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“Good Reason” means as follows:

(a)           Prior to a Change in Control, “Good Reason” means, without the Executive’s written consent, (i) the material diminution of the Executive’s duties, responsibilities, powers or authorities, including the assignment of any duties and responsibilities inconsistent with his position as President and Chief Executive Officer; (ii) the removal of the Executive from his office as Chief Executive Officer; (iii) the failure to obtain a written assumption of the employment agreement by any person acquiring all or substantially all of the assets of the Company, whether effected by purchase of shares, purchase of assets, merger or otherwise, prior to such acquisition; (iv) a material reduction by the Company of the Executive’s Base Salary in effect on the date hereof, or as the same shall be increased from time to time, unless such reduction applies on substantially the same percentage basis to all executive officers of the Company generally, (v) written notice to Executive from the Company to stop the automatic renewal of the Employment Period pursuant to Section 2.01 hereof; provided that the Executive is willing and able to execute a new contract providing terms and conditions substantially similar to those in this Agreement and to continue providing services to the Company, (vi) material breach by the Company of the terms of this Agreement, or (vii) relocation of the Executive’s principal place of business to a location more than fifty (50) miles from its current location; provided, however, that for any of the foregoing to constitute Good Reason, the Executive must provide written notification of his intention to resign within sixty (60) days after the Executive knows or has reason to know of the occurrence of any such event or condition, and, the Company shall have had thirty (30) business days from the date of receipt of such notice to effect a cure of the event or condition constituting Good Reason and shall have failed to do so and the Executive actually resigns from employment within the sixty (60) day period following the expiration of the foregoing cure period.  In the event of a cure of such event or condition constituting Good Reason by the Company, such event or condition shall no longer constitute Good Reason.

(b)           On or after a Change in Control, “Good Reason” means, without the Executive’s express written consent, the occurrence on or after a Change in Control of the Company of any one or more of the following:

(i)            (A) the removal of the Executive from his office as Chief Executive Officer, or (B) a material reduction of the Executive’s primary functional authorities, duties, or responsibilities as President and Chief Executive Officer of the Company from those in effect immediately prior to the Change in Control or the assignment of duties to the Executive inconsistent with those of President and Chief Executive Officer of the Company, other than an insubstantial and inadvertent reduction or assignment that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(ii)           the Company’s requiring the Executive to be based at a location in excess of fifty (50) miles from the location of the Executive’s principal job location or office immediately prior to the Change in Control;

(iii)          a material reduction by the Company of the Executive’s Base Salary in effect on the date hereof, or as the same shall be increased from time to time, unless

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such reduction applies on substantially the same percentage basis to all employees of the Company generally;

(iv)          a material reduction in the Executive’s participation in, any of the Company’s annual incentive compensation plans in which the Executive participates prior to the Change in Control unless such failure applies to all plan participants generally;

(v)           the failure of the Company to obtain the assumption of the obligations contained herein by any successor;

(vi)          a material breach of this Agreement by the Company; or

(vii)         written notice to Executive from the Company to stop the automatic renewal of the Employment Period pursuant to Section 2.01 hereof; provided that the Executive is willing and able to execute a new contract providing terms and conditions substantially similar to those in this Agreement and to continue providing services to the Company;

provided, however, that for any of the foregoing (i) through (vii) to constitute Good Reason, the Executive must provide written notification of his intention to resign within thirty (30) days after the Executive knows or has reason to know of the occurrence of any such event or condition, and, the Company shall have had thirty (30) business days from the date of receipt of such notice to effect a cure of the event or condition constituting Good Reason and shall have failed to do so and the Executive actually resigns from employment within the eighteen (18) month period following the Change in Control as provided in Section 5.03.  In the event of a cure of such event or condition constituting Good Reason by the Company, such event or condition shall no longer constitute Good Reason.  A termination of employment by the Executive within the eighteen (18) month period following a Change in Control shall be for a Good Reason if one of the occurrences specified above shall have occurred, notwithstanding that the Executive may have other reasons for terminating employment, including employment by another employer which the Executive desires to accept.

On or after a Change in Control, for purposes of this Agreement, it shall be a material breach of this Agreement by the Company if the Company decreases the Executive’s Total Annual Compensation by more than thirty-three percent (33%).

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, an estate, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof.

“Permanent Disability” means those circumstances under which the Executive is determined to be eligible to receive disability benefits under the Company’s long-term disability plan or program, or, in the absence of such a plan or program, “Disability” will be as defined in Section 22(e)(3) of the Code.

“Related Party” means (i) a Subsidiary of the Company; (ii) an employee or group of employees of the Company or any Subsidiary of the Company; (iii) a trustee or other fiduciary

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holding securities under an employee benefit plan of the Company or any majority-owned Subsidiary of the Company; or (iv) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of Voting Securities.

“Subsidiary” or “Subsidiaries” means, with respect to any Person, any corporation, partnership, limited liability company, association or other business entity of which (i) if a corporation, fifty percent (50%) or more of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or combination thereof; or (ii) if a partnership, limited liability company, association or other business entity, fifty percent (50%) or more of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof.  For purposes of this definition, a Person or Persons will be deemed to have a fifty percent (50%) or more ownership interest in a partnership, limited liability company, association or other business entity if such Person or Persons are allocated fifty percent (50%) or more of partnership, limited liability company, association or other business entity gains or losses or control the managing director or member or general partner of such partnership, limited liability company, association or other business entity.

“Total Annual Compensation” shall mean the sum of the Executive’s base salary and average annual bonus (paid or payable to Executive under Section 4.02 hereof with respect to the three calendar years immediately preceding the calendar year in which the Date of Termination occurs) as in effect immediately prior to the Change in Control. For the avoidance of doubt, annual bonuses shall include any bonus amounts paid in the form of Basic Units awarded under the Company’s Equity Deferral Award Program Subplan (or any successor thereto).

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

ARTICLE 2

EMPLOYMENT

SECTION 2.01       Employment.  The Company shall employ the Executive, and the Executive shall accept employment with the Company, upon the terms and conditions set forth in this Agreement for the period beginning on October 4, 2006 (the “Start Date”) and ending as provided in Section 5.01 (the “Employment Period”); provided that the Employment Period shall automatically be extended for periods of one-year unless either party gives written notice to the other party at least 90 days prior to the end of the Employment Period or at least 90 days prior to the end of any one-year renewal period that the Employment Period shall not be further extended.

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ARTICLE 3

POSITION AND DUTIES

SECTION 3.01       Position and Duties.  During the Employment Period, the Executive shall serve as Chief Executive Officer and President of the Company and shall have all duties, authority and responsibilities normally incident to such position.  In such capacity, the Executive shall report to the Board and shall have such responsibilities, powers and duties as may from time to time be prescribed by the Board; provided that such responsibilities, powers and duties are substantially consistent with those customarily assigned to individuals serving in such position at comparable companies.  During the Employment Period, the Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company and its Subsidiaries.  The Executive shall not directly or indirectly render any services of a business, commercial or professional nature to any other person or for-profit organization not related to the business of the Company or its Subsidiaries, whether for compensation or otherwise, without prior written consent of the Board, such consent not to be unreasonably withheld; provided that the foregoing shall not be construed as preventing the Executive from serving on civic, educational, philanthropic or charitable boards or committees, maintaining his personal investments, or, serving with the prior written consent of the Board, in its sole discretion, on corporate boards.

SECTION 3.02       Board Seat.  On the Start Date, the Company caused the Executive to be elected to the Board, and the Executive serves as a member of the Board.  During the Employment Period, the Company shall use its best efforts to cause the Executive to be nominated and reelected to the Board.

SECTION 3.03       Executive Representations.  The Executive hereby represents and warrants to the Company that he is not subject or a party to any employment agreement, non-competition covenant, non-disclosure agreement or other agreement, covenant, understanding or restriction of any nature whatsoever which would prohibit the Executive from executing this Agreement and performing fully his duties and responsibilities hereunder, or which would in any manner, directly or indirectly, limit or affect the duties and responsibilities which may now or in the future be assigned to the Executive by the Company.  Further, the Company expects the Executive not to, and the Executive hereby acknowledges and agrees that he will not, use any proprietary or confidential information of any prior employer in the performance of his duties for the Company.

ARTICLE 4

BASE SALARY, BONUS AND BENEFITS

SECTION 4.01       Base Salary.  During the Employment Period, the Executive’s  base salary will be $750,000 per annum (the “Base Salary”); provided that for the period from the Start Date through December 31, 2006, the Executive was paid an aggregate of $250,000.  The Executive’s Base Salary shall be reviewed periodically for increase, but not decrease, by the Compensation Committee of the Board (the “Committee”) pursuant to the Committee’s normal performance review policies for senior level executives; provided that no provision of this

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Agreement shall prohibit a reduction in the Executive’s Base Salary as part of an across the board reduction in the base salaries of executive officers generally, so long as such reduction applies on substantially the same percentage basis to all executive officers of the Company generally.  The Base Salary will be payable in accordance with the normal payroll practices of the Company.

SECTION 4.02       Bonuses.  In addition to the Base Salary, during the Employment Period, the Executive received or shall be eligible to receive bonus payments as follows: (a) For the period from the Start Date through December 31, 2006, the Executive received a guaranteed bonus of $520,000; (b) For the 2007 calendar year, the Executive was eligible to receive a performance bonus of up to a maximum of $1,575,000 based upon attainment of performance objectives established by the Committee in accordance with Exhibit B hereto; (c) For the 2008 calendar year and each calendar year thereafter, the Executive shall be eligible to receive a performance bonus subject to attainment of performance objectives to be established by the Committee pursuant to the terms of the Company’s Amended and Restated Pay-for-Performance Incentive Plan, as may be further amended, or under any replacement or successor plan and the requirements (if any) to qualify as “performance-based” compensation under section 162(m) of the Code.  In addition, the Executive shall be eligible to receive such other performance-based, discretionary or other bonuses as the Committee may determine, in its sole and absolute discretion.  The Executive’s guaranteed bonus hereunder was paid prior to December 31, 2006.  Performance bonuses, if any, shall be paid on or after January 1 but before March 15 of the calendar year following the calendar year for which the performance bonus is earned.

SECTION 4.03       Equity Awards.

(a)           Contemporaneously with the Executive’s Start Date, the Executive was granted 31,250 restricted stock units (“RSUs”), which number of RSUs represented 6,250 RSUs for the period October 4, 2006 through December 31, 2006 and 25,000 RSUs for the 2007 calendar year.  The foregoing RSUs shall vest in three equal annual installments commencing on the first anniversary of the date of grant; provided that the performance objective established by the Committee in accordance with Exhibit B hereof is satisfied.  The RSUs shall be subject in all respects to terms of the Restricted Share Agreement by and between the Company and the Executive dated as of the Start Date and in substantially the form provided to the Executive and the Company’s 1994 Stock Option and Long-Term Incentive Plan, as amended and restated.

(b)           Contemporaneously with the Executive’s Start Date, the Executive was granted a nonqualified stock option to purchase a number of shares of the Company’s common stock equal to a Black Scholes value for the option of $1,156,000, which represented $231,000 for the period October 4, 2006 through December 31, 2006 and $925,000 for the 2007 calendar year.  The foregoing option shall become exercisable in three equal annual installments commencing on the first anniversary of the date of grant and shall be subject in all respects to the terms of the Stock Option Agreement by and between the Company and the Executive dated as of the Start Date and in substantially the form provided to the Executive and the Company’s 1994 Stock Option and Long-Term Incentive Plan, as amended and restated.  In the event of a Change in Control at a time when the Executive is employed by the Company (including all Subsidiaries), the Option shall become fully vested and exercisable and shall remain exercisable until 5:00 pm, Eastern time, on the fifth anniversary of the Start Date, without regard to whether

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the Executive’s employment with the Company or any of its Subsidiaries continues after such Change in Control.

(c)           On March 24, 2008, the Executive was granted RSUs representing a number of shares of the Company’s common stock equal to $925,000 and on January 2, 2008, the Executive was granted an additional nonqualified stock option grant representing a number of shares of the Company’s common stock equal to a Black Scholes value for the option of $925,000, in each case based on the current stock price of a share of Company common stock on the date of grant.  The foregoing RSU grant shall vest according to performance objectives established by the Committee and in accordance with the requirements of section 162(m) of the Code relating to the “performance-based” compensation (if any) and shall be subject to terms of the agreement pursuant to which it is granted (which shall reflect the provisions hereof) and the Company’s 2007 Omnibus Equity Compensation Plan (the “2007 Equity Compensation Plan”).  The foregoing nonqualified stock option grant shall vest and become exercisable, as applicable, in equal annual installments over the three-year period commencing on the first anniversary of the date of grant and shall be subject in all respects to terms of the agreement pursuant to which it is granted (which agreement shall reflect the provisions hereof) and the 2007 Equity Compensation Plan.

(d)           For calendar years during the Employment Period following the 2008 calendar year, the Executive shall be eligible to receive equity awards as and when equity awards are granted to senior officers generally, with the amount and terms of such awards determined on the same bases as awards granted to senior officers generally.

(e)           All equity awards granted to the Executive shall be subject in all respects to the Company’s Net Share Retention Program.

SECTION 4.04       Benefits.  The Executive shall be eligible for the following benefits during the Employment Period:

(a)           participation in such retirement, medical, life insurance and disability insurance coverages and fringe benefit plans and programs as are, or may during the Employment Period be, made available generally for other senior executive officers of the Company, subject in all respects to the terms of the applicable plans and programs, as in effect from time to time;

(b)           participation in the Company’s Stock Unit Award Program, pursuant to which the Executive may elect to defer a part of his Base Salary and bonus compensation, subject in all respect to the terms of the plan; and

(c)           up to a maximum of five (5) weeks of paid vacation annually during the Employment Period, in accordance with the Company’s vacation policy.

SECTION 4.05       Expenses.  The Company shall reimburse the Executive for all reasonable expenses incurred by him in the course of performing his duties under this Agreement which are consistent with the Company’s policies in effect from time to time with respect to

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travel, entertainment and other business expenses (“Reimbursable Expenses”), subject to the Company’s requirements with respect to reporting and documentation of expenses.

ARTICLE 5

TERM AND TERMINATION

SECTION 5.01       Term.  Subject to the renewal provisions of Section 2.01, the Employment Period will terminate on December 31, 2009; provided that (a) the Employment Period shall terminate prior to such date upon the Executive’s death, and (b) the Employment Period may be terminated by either party at any time pursuant to this Article 5.

SECTION 5.02       Termination for Good Reason or Without Cause Prior to a Change in Control.  If the Employment Period shall be terminated prior to a Change in Control (a) by the Executive for Good Reason or (b) by the Company not for Cause, in either case subject to the Executive’s execution and non-revocation of a Release (as defined below), the Executive shall be provided solely:

(i)            an amount equal to the Executive’s Base Salary payable through the Date of Termination,

(ii)           the amount of the Executive’s Base Salary at the rate in effect on the Date of Termination (before any reduction thereof giving rise to Good Reason) plus an amount equal to the average annual bonus paid or payable to Executive under Section 4.02 hereof with respect to the three calendar years immediately preceding the calendar year in which the Date of Termination occurs. For the avoidance of doubt, annual bonuses shall include any bonus amounts paid in the form of Basic Units awarded under the Company’s Equity Deferral Award Program Subplan (or any successor thereto). If the number of calendar years during which the Executive has been employed by the Company prior to the calendar year of the Date of Termination is less than three, then the foregoing average shall be based on the annual bonuses paid or payable to the Executive for the actual number of calendar years during which the Executive was employed by the Company preceding the calendar year of termination.  In addition, for purposes of the foregoing calculation only, the Executive’s bonus with respect to the 2006 calendar year shall be deemed to be $1,575,000,

(iii)          a pro rated portion of the bonus for the calendar year in which the Executive’s Date of Termination occurs, determined by multiplying the full year bonus that would otherwise have been payable to the Executive based upon the achievement of applicable performance objectives by a fraction, the numerator of which is the number of days during which Executive was employed by the Company in the year of his termination and the denominator of which is 365,

(iv)          all outstanding options held by the Executive that are vested as of the Date of Termination shall remain exercisable by the Executive until the earlier of the first anniversary of the Date of Termination or the expiration of the option term in accordance with the terms of the Company’s 1994 Stock Option and Long-Term Incentive Plan, as amended and restated, the 2007 Equity Compensation Plan, or under any replacement or successor plan,

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(v)           as to all outstanding equity awards held by the Executive as of the Date of Termination that are not vested, the Executive shall continue to vest in those equity awards as if he had remained employed by the Company through the first anniversary of the Date of Termination and any performance objectives applicable to awards granted and performance periods that began prior to January 2, 2009 were deemed satisfied as of the Date of Termination and any outstanding options that vest during the one-year period following the Date of Termination shall remain exercisable until the earlier of one-year period following the applicable vesting date or the expiration of the option term,

(vi)          continued medical coverage at the level in effect at the Date of Termination (or generally comparable coverage) for himself and, where applicable, his spouse and dependents, on the same terms as such coverage is available to employees generally, as the same may be changed from time to time for employees generally, as if Executive had continued in employment, until the end of the one (1) year period following the Date of Termination.  The COBRA health care continuation coverage period under section 4980B of the Code, or any replacement or successor provision of United States tax law, shall run concurrently with the period of continued coverage following the Date of Termination, and

(vii)         the Executive’s entitlements under any other benefit plan or program, including but not limited to, accrued, unused vacation, shall be as determined thereunder, except that severance benefits shall not be payable under any other plan or program.  In addition, promptly following any such termination, the Executive shall also be reimbursed all Reimbursable Expenses incurred by the Executive prior to such termination.

The amount described in clause (i) of this Section 5.02 will be paid within thirty (30) days following the date the Employment Period terminates and will be paid in accordance with the Company’s normal payroll practices.  The amount described in clause (ii) of this Section 5.02 less two times the dollar limit in effect under section 401(a)(17) of the Code for the calendar year in which the Executive’s termination occurs will be paid in a lump sum within thirty (30) days following the Date of Termination and the remaining amount will be paid in installments over the 12-month period following the Date of Termination, with payments commencing within thirty (30) days following the Date of Termination. The amount described in clause (iii) above will be paid at the time provided and in accordance with the applicable terms of the annual bonus plan in effect for the fiscal year in which the Executive’s Date of Termination occurs. Notwithstanding any provision of this Section 5.02 to the contrary, if, at the time of the Executive’s termination of employment with the Company, the Company has securities which are publicly traded on an established securities market and the Executive is a “specified employee” (as defined in section 409A of the Code) and it is necessary to postpone the commencement of any payments or benefits otherwise payable pursuant to Section 5.02 of this Agreement as a result of such termination of employment to prevent any accelerated or additional tax under section 409A of the Code, then the Company will postpone the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Executive), until the first payroll date that occurs after the date that is six months following the Executive’s “separation of service” with the Company (within the meaning of such term under Code section 409A) and will be paid in a lump sum to the Executive on such date.  If the Executive dies during the postponement period prior to the payment of the postponed amount, the amounts

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withheld on account of section 409A of the Code shall be paid to the personal representative of the Executive’ s estate within sixty (60) days after the date of the Executive’s death.

The payments and benefits due to the Executive under this Section 5.02 shall only be paid if the Executive executes and does not revoke a written release, substantially in the form attached hereto as Exhibit A (with such modifications at the time of the Executive’s termination as the Company’s General Counsel deems necessary or appropriate to comply with applicable law or regulation), of any and all claims against the Company and all related parties with respect to all matters arising out of the Executive’s employment by the Company, or the termination thereof (other than claims for any entitlements under the terms of this Agreement, under any plans or programs of the Company under which the Executive has accrued and is due a benefit, or as otherwise contemplated by Exhibit A) (the “Release”).  In the event the Executive fails to execute, or revokes the Release, no payments and benefits shall be provided under this Section 5.02 and the Executive shall be entitled to receive solely the Base Salary through the Date of Termination and reimbursement of all Reimbursable Expenses incurred by the Executive prior to such termination; provided that the Executive’s entitlements under any other benefit plan or program, including but not limited to, accrued, unused vacation, shall be as determined thereunder, except that severance benefits shall not be payable under any plan or program.  Notwithstanding any provision of this Agreement to the contrary, in no event shall the timing of the Executive’s execution of the Release, directly or indirectly, result in the Executive designating the calendar year of payment and to the extent payment could be made in more than one taxable year, payment shall be made in the later taxable year.

SECTION 5.03       Termination for Good Reason or Without Cause On or Within Eighteen Months After a Change in Control.  If the Employment Period shall be terminated on or within eighteen (18) months after a Change in Control (a) by the Executive for Good Reason or (b) by the Company not for Cause and not due to the Executive’s Death or Permanent Disability, in either case subject to the Executive’s execution and non-revocation of a Release, the Executive shall be provided solely:

(i)            an amount equal to the Executive’s Base Salary payable through the Date of Termination,

(ii)           two times the sum of (A) the amount of the Executive’s Base Salary at the rate in effect prior to the Date of Termination or the date of the Change in Control (whichever is higher) and (B) the average annual bonus paid or payable to Executive under Section 4.02 hereof with respect to the three calendar years immediately preceding the calendar year in which the Date of Termination occurs. For the avoidance of doubt, annual bonuses shall include any bonus amounts paid in the form of Basic Units awarded under the Company’s Equity Deferral Award Program Subplan (or any successor thereto).   If the number of calendar years during which the Executive has been employed by the Company prior to the calendar year of the Date of Termination is less than three, then the foregoing average shall be based on the annual bonuses paid or payable to the Executive for the actual number of calendar years during which the Executive was employed by the Company preceding the calendar year of termination.  In addition, for purposes of the foregoing calculation only, the Executive’s bonus with respect to the 2006 calendar year shall be deemed to be $1,575,000,

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(iii)          a pro rated portion of the bonus for the calendar year in which the Executive’s Date of Termination occurs, determined by multiplying the full year bonus that would otherwise have been payable to the Executive based upon the achievement of applicable performance objectives by a fraction, the numerator of which is the number of days during which Executive was employed by the Company in the year of his termination and the denominator of which is 365,

(iv)          continued health, dental and vision insurance coverage for himself and, where applicable, his spouse and dependents, on terms no less favorable than those in effect immediately prior to the Change in Control (or at the option of the Executive, as in effect on the Date of Termination), until the earlier of (A) the end of the two-year period following the Date of Termination or (B) the date on which the Executive is eligible to receive substantially comparable health, dental and/or vision coverage under a plan or plans of a subsequent employer.  The Executive shall promptly notify the Company in writing of the date the Executive is eligible to receive health, dental and/or vision coverage under the plan or plans of a subsequent employer and shall provide a written description to the Company of the health, dental and vision plans and programs provided to the Executive by such employer,

(v)           the Company shall pay to Executive an amount in cash equal to the premium cost that the Company would have paid to maintain disability and life insurance coverage for Executive and, where applicable, his spouse and dependents, under the Company’s disability and life insurance plans or programs (in each case, as in effect on the day immediately preceding the Change in Control or, at the option of Executive, on his Date of Termination) had Executive remained employed by the Company for a period equal to the lesser of (x) two years following the Date of Termination or (y) until Executive is provided by another employer with benefits substantially comparable to the benefits provided by such disability and/or life insurance plans or programs; and such payments shall be made on the first payroll date of each month commencing with the first month following Executive’s Date of Termination and each month thereafter until fully paid in accordance with this subparagraph (v).  The Executive shall promptly inform the Company in writing when he obtains other employment and shall provide a written description to the Company of the disability and life insurance plans and programs provided to Executive by such employer.  Payment under this clause (v) shall be subject to the six-month delay described below, to the extent necessary to comply with section 409A of the Code, and

(vi)          the Executive’s entitlements under any other benefit plan or program, including but not limited to, accrued, unused vacation, shall be as determined thereunder, except that severance benefits shall not be payable under any other plan or program.  In addition, promptly following any such termination, the Executive shall also be reimbursed all Reimbursable Expenses incurred by the Executive prior to such termination.

The amount described in clause (i) of this Section 5.03 will be paid in accordance with standard payroll practices of the Company; the amount described in clause (ii) of this Section 5.03 will be paid in a single lump sum within ten (10) days following the date the Employment Period terminates and the amount described in clause (iii) above will be paid at the time provided and in accordance with the applicable terms of the annual bonus plan in effect for the fiscal year in which the Executive’s Date of Termination occurs.

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Notwithstanding any provision of this Section 5.03 to the contrary, if, at the time of the Executive’s termination of employment with the Company, the Company has securities which are publicly traded on an established securities market and the Executive is a “specified employee” (as defined in section 409A of the Code) and it is necessary to postpone the commencement of any payments or benefits otherwise payable pursuant to Section 5.03 of this Agreement as a result of such termination of employment to prevent any accelerated or additional tax under section 409A of the Code, then the Company will postpone the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Executive), until the first payroll date that occurs after the date that is six months following the Executive’s “separation of service” with the Company (within the meaning of such term under Code Section 409A) and will be paid in a lump sum to the Executive on such date.  If the Executive dies during the postponement period prior to the payment of the postponed amount, the amounts withheld on account of section 409A of the Code shall be paid to the personal representative of the Executive’ s estate within sixty (60) days after the date of the Executive’s death.

In the event the Executive fails to execute, or revokes the Release, no amounts shall be payable under this Section 5.03 and the Executive shall be entitled to receive solely the Base Salary through the Date of Termination and reimbursement of all Reimbursable Expenses incurred by the Executive prior to such termination; provided that the Executive’s entitlements under any other benefit plan or program, including but not limited to, accrued, unused vacation, shall be as determined thereunder, except that severance benefits shall not be payable under any plan or program.  Notwithstanding any provision of this Agreement to the contrary, in no event shall the timing of the Executive’s execution of the Release, directly or indirectly, result in the Executive designating the calendar year of payment and to the extent payment could be made in more than one taxable year, payment shall be made in the later taxable year.

Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled to the benefits described in this Section 5.03, if the Executive’s employment with the Company is terminated by the Company (other than for Cause) within six months prior to the date on which a Change in Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated or intended to effect a Change in Control or (ii) otherwise arose in connection with or anticipation of a Change in Control.  In such event, amounts will be payable hereunder only following the Change in Control.  For the avoidance of doubt, the Executive shall not be entitled to the payments and benefits provided in Section 5.03 hereof upon any termination of his employment with the Company (a) because of his death, (b) because of his Permanent Disability, (c) by the Company for Cause, or (d) by the Executive other than for Good Reason.

SECTION 5.04       Termination Due to Death or Disability, Termination for Cause or Resignation Other Than Good Reason.  If the Employment Period shall be terminated (a) due to death or by the Company due to Permanent Disability of the Executive (subject to the requirements of applicable law), (b) by the Company for Cause, or (c) as a result of the Executive’s resignation or leaving of his employment, other than for Good Reason, the Executive shall be entitled to receive solely the Base Salary through the Date of Termination and reimbursement of all Reimbursable Expenses incurred by the Executive prior to such termination; provided that in the event the Employment Period is terminated due to death or by

13

the Company due to Permanent Disability of the Executive, all outstanding equity awards held by the Executive as of the Date of Termination shall become fully vested and exercisable (and any performance objectives applicable to awards will be deemed satisfied as of the Date of Termination) in accordance with the terms of the Company’s 1994 Stock Option and Long-Term Incentive Plan, as amended and restated, the 2007 Equity Compensation Plan, or under any replacement or successor plan.  The Executive’s entitlements under any other benefit plan or program, including but not limited to, accrued, unused vacation, shall be as determined thereunder, except that severance benefits shall not be payable under any plan or program.

SECTION 5.05       Notice of Termination.  Any termination by the Company for Permanent Disability or Cause or without Cause or by the Executive with or without Good Reason shall be communicated by written Notice of Termination to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision indicated.

SECTION 5.06       Date of Termination.  “Date of Termination” shall mean (a) if the Employment Period is terminated as a result of a Permanent Disability, five (5) days after a Notice of Termination is given, (b) if the Employment Period is terminated for any other reason other than by the Executive for Good Reason, the latest of the date of receipt of the Notice of Termination, or the end of any applicable correction period, or (c) if the Employment Period is terminated by the Executive for Good Reason, within the time periods set forth in the definition of Good Reason under Section 1.01 and Section 5.03, as applicable.

SECTION 5.07       No Duty to Mitigate.  Except as expressly provided to the contrary therein, the Executive shall have no duty to seek new employment or other duty to mitigate following a termination of employment as described in Section 5.02 or 5.03 above, as applicable, and no compensation or benefits described in Section 5.02 or 5.03 shall be subject to reduction or offset on account of any subsequent compensation received by the Executive.

ARTICLE 6

CONFIDENTIAL INFORMATION

SECTION 6.01       Nondisclosure and Nonuse of Confidential Information.  The Executive will not disclose or use at any time during or after the Employment Period any Confidential Information of which the Executive is or becomes aware, whether or not such information is developed by him, except to the extent he reasonably believes that such disclosure or use is directly related to and appropriate in connection with the Executive’s performance of duties assigned to the Executive pursuant to this Agreement.  Under all circumstances and at all times, the Executive will take all appropriate steps to safeguard Confidential Information in his possession and to protect it against disclosure, misuse, espionage, loss and theft.

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ARTICLE 7

INTELLECTUAL PROPERTY

SECTION 7.01       Ownership of Intellectual Property.  In the event that the Executive as part of his activities on behalf of the Company generates, authors or contributes to any invention, design, new development, device, product, method of process (whether or not patentable or reduced to practice or comprising Confidential Information), any copyrightable work (whether or not comprising Confidential Information) or any other form of Confidential Information relating directly or indirectly to the business of the Company as now or hereinafter conducted (collectively, “Intellectual Property”), the Executive acknowledges that such Intellectual Property is the sole and exclusive property of the Company and hereby assigns all right title and interest in and to such Intellectual Property to the Company.  Any copyrightable work prepared in whole or in part by the Executive during the Employment Period will be deemed “a work made for hire” under Section 201(b) of the Copyright Act of 1976, as amended, and the Company will own all of the rights comprised in the copyright therein.  The Executive will promptly and fully disclose all Intellectual Property and will cooperate with the Company to protect the Company’s interests in and rights to such Intellectual Property (including providing reasonable assistance in securing patent protection and copyright registrations and executing all documents as reasonably requested by the Company, whether such requests occur prior to or after termination of Executive’s employment hereunder).

ARTICLE 8

DELIVERY OF MATERIALS UPON TERMINATION OF EMPLOYMENT

SECTION 8.01       Delivery of Materials upon Termination of Employment.  As requested by the Company, from time to time and upon the termination of the Executive’s employment with the Company for any reason, the Executive will promptly deliver to the Company all copies and embodiments, in whatever form or medium, of all Confidential Information or Intellectual Property in the Executive’s possession or within his control (including written records, notes, photographs, manuals, notebooks, documentation, program listings, flow charts, magnetic media, disks, diskettes, tapes and all other materials containing any Confidential Information or Intellectual Property) irrespective of the location or form of such material and, if requested by the Company, will provide the Company with written confirmation that to the best of his knowledge all such materials have been delivered to the Company.  This provision shall not prevent the Executive from retaining his personal property, including his personal information contained on any electronic device.

ARTICLE 9

NONCOMPETITION AND NONSOLICITATION

SECTION 9.01       Noncompetition.  The Executive hereby acknowledges that during his employment with the Company, the Executive has and will become familiar with trade secrets and other Confidential Information concerning the Company, its Subsidiaries and their respective predecessors, and that the Executive’s services have been and will be of special,

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unique and extraordinary value to the Company.  In addition, the Executive hereby agrees that at any time during the Employment Period, and for a period of one year after the Date of Termination (such one-year period referred to as the “Noncompetition Period”), the Executive will not, directly or indirectly, own, manage, control, participate in, consult with, render services for, or in any manner engage in, any business competing with the businesses of the Company or its Subsidiaries as such businesses exist or are in process or are being demonstrably planned as of the Date of Termination, within any geographical area in which, as of the Date of Termination, the Company or its Subsidiaries engage or demonstrably plan to engage in such businesses.  It will not be considered a violation of this Section 9.01 for the Executive to be a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as the Executive has no active participation in the business of such corporation.

SECTION 9.02       Nonsolicitation.  The Executive hereby agrees that (a) during the Employment Period and for a period of one year after the Date of Termination (such one-year period referred to as the “Nonsolicitation Period”) the Executive will not, directly or indirectly through another entity, induce or attempt to induce any employee of the Company or its Subsidiaries to leave the employ of the Company or its Subsidiaries, or in any way interfere with the relationship between the Company or its Subsidiaries and any employee thereof or otherwise employ or receive the services of an individual who was an employee of the Company or its Subsidiaries at any time during such Nonsolicitation Period, except any such individual whose employment has been terminated by the Company and (b) during the Nonsolicitation Period, the Executive will not induce or attempt to induce any customer, supplier, client, broker, licensee or other business relation of the Company or its Subsidiaries to cease doing business with the Company or its Subsidiaries.

SECTION 9.03       Enforcement.  If, at the enforcement of Sections 9.01 or 9.02, a court holds that the duration or scope restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration or scope reasonable under such circumstances will be substituted for the stated duration or scope and that the court will be permitted to revise the restrictions contained in this Section 9 to cover the maximum duration and scope permitted by law.

ARTICLE 10

EQUITABLE RELIEF

SECTION 10.01     Equitable Relief.  The Executive acknowledges that (a) the covenants contained herein are reasonable, (b) the Executive’s services are unique, and (c) a breach or threatened breach by him of any of his covenants and agreements with the Company contained in Sections 6.01, 7.01, 8.01, 9.01 or 9.02 could cause irreparable harm to the Company for which it would have no adequate remedy at law.  Accordingly, and in addition to any remedies which the Company may have at law, in the event of an actual or threatened breach by the Executive of his covenants and agreements contained in Sections 6.01, 7.01, 8.01, 9.01 or 9.02, the Company shall have the absolute right to apply to any court of competent jurisdiction for such injunctive or other equitable relief as such court may deem necessary or appropriate in the circumstances.

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ARTICLE 11

INDEMNIFICATION

SECTION 11.01     General Indemnification.  The Company agrees that if the Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (each, a “Proceeding”), by reason of the fact that he is or was a director, officer or employee of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Proceeding is the Executive’s alleged action in an official capacity while serving as a director, officer, member, employee or agent, the Executive shall be indemnified and held harmless by the Company to the fullest extent permitted or authorized by applicable law and the Company’s certificate of incorporation or bylaws, against all cost, expense, liability and loss (including, without limitation, attorney’s fees, judgments, damages, settlements, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith (collectively, the “Expenses”), and such indemnification shall continue as to the Executive even if he has ceased to be a director, member, employee or agent of the Company or other entity and shall inure to the benefit of the Executive’s heirs, estate, executors and administrators.

SECTION 11.02     Advances of Expenses.  Expenses to be incurred by the Executive in connection with any Proceeding shall be paid by the Company in advance within thirty (30) days after receipt of written request by the Executive specifying the Expenses for which the Executive seeks an advancement but not later than December 31 of the calendar year following the calendar year in which the expenses are actually incurred, provided that the Executive has delivered to the Company a written, signed undertaking to reimburse the Company for Expenses if it is finally determined by a court of competent jurisdiction that the Executive is not entitled under this Agreement to indemnification with respect to such Expenses.

SECTION 11.03     Notice of Claim.  The Executive shall give to the Company notice of any claim made against the Executive for which indemnification will or could be sought under this Agreement, but the Executive’s failure to give such notice shall not relieve the Company of any liability the Company may have to the Executive except to the extent that the Company is prejudiced thereby.  In addition, the Executive shall give the Company such information and cooperation as it may reasonably require and as shall be within the Executive’s power and at such time and places as are convenient for the Executive.

SECTION 11.04     Defense of Claim.  With respect to any Proceeding as to which the Executive notifies the Company of the commencement thereof:

(a)           the Company shall be entitled to participate therein at its own expense; and

(b)           except as otherwise provided below, to the extent that it may wish, the Company will be entitled to assume the defense thereof, with counsel reasonably satisfactory to the Executive.  The Executive also shall have the right to employ the Executive’s own counsel in

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such action, suit or proceeding if the Executive reasonably concludes that failure to do so would involve a conflict of interest between the Company and the Executive, and under such circumstances the fees and expenses of such counsel shall be at the expense of the Company, subject to the provisions herein; and

(c)           the Company shall not be liable to indemnify the Executive under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent.  The Company shall not settle any action or claim in any manner that would not include a full and unconditional release of the Executive without the Executive’s prior written consent.  Neither the Company nor the Executive will unreasonably withhold or delay their consent to any proposed settlement.

SECTION 11.05     Non-exclusivity.  The Executive’s rights conferred in this Article 11 shall not be exclusive of any other right the Executive may have or hereafter may acquire under any statute, provision of the declaration of trust or certificate of incorporation or by-laws of the Company or any subsidiary, or any agreement, vote of shareholders or disinterested directors or trustees or otherwise.

SECTION 11.06     Insurance.  The Company agrees to continue and maintain a directors’ and officers’ liability insurance policy covering the Executive to the extent the Company provides such coverage for its other executive officers.

ARTICLE 12

EXCISE TAX

SECTION 12.01     Application of 280G.  In the event that it shall be determined that any payment or distribution in the nature of compensation (within the meaning of section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would constitute an “excess parachute payment” within the meaning of section 280G of the Code, the aggregate present value of the Payments under the Agreement shall be reduced (but not below zero) to the Reduced Amount (defined below), provided that the reduction shall be made only if the Accounting Firm (described below) determines that the reduction will provide the Executive with a greater net after-tax benefit than would no reduction.  The “Reduced Amount” shall be an amount expressed in present value which maximizes the aggregate present value of Payments under this Agreement without causing any Payment under this Agreement to be subject to the Excise Tax (defined below), determined in accordance with section 280G(d)(4) of the Code.  The term “Excise Tax” means the excise tax imposed under section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.  The Company shall reduce the Payments under this Agreement on a non-discretionary basis in such a way as to minimize the reduction in the economic value deliverable to the Executive.  Where one Payment has the same value for this purpose and they are payable at different times, they will be reduced on a pro rata basis.  Only amounts payable under this Agreement shall be reduced pursuant to this Section 12.01.  If, as a result of subsequent events or conditions, it is determined that payments have been reduced by more than the minimum amount required under this Section 12.01, then an additional payment shall be made to the Executive in an amount equal to the

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excess reduction within 60 days of the date on which the amount of the excess reduction is determined, but not later than December 31 of the year in which the excess reduction is determined.

All determinations to be made under this Article 12 shall be made by an independent certified public accounting firm selected by the Company immediately prior to the Change in Control (the “Accounting Firm”), which shall provide its determinations and any supporting calculations both to the Company and the Executive within 10 days of the Change in Control.  Any such determination by the Accounting Firm shall be binding upon the Company and the Executive.  All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section shall be borne solely by the Company.

ARTICLE 13

MISCELLANEOUS

SECTION 13.01     Dispute Resolution.  In the event of any dispute under the provisions of this Agreement, other than a dispute in which the primary relief sought is an equitable remedy such as an injunction, the parties shall be required to have the dispute, controversy or claim settled by arbitration in New York, New York in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association, before an arbitrator agreed to by both parties.  If the parties cannot agree upon the choice of arbitrator, the Company and the Executive will each choose an arbitrator.  The two arbitrators will then select a third arbitrator who will serve as the actual arbitrator for the dispute, controversy or claim.  Any award entered by the arbitrators shall be final, binding and nonappealable and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction.  This arbitration provision shall be specifically enforceable.  The arbitrators shall have no authority to modify any provision of this Agreement or to award a remedy for a dispute involving this Agreement other than a benefit specifically provided under or by virtue of the Agreement.  If the Executive prevails on any material issue which is the subject of such arbitration or lawsuit, the Company shall be responsible for all of the fees of the American Arbitration Association and the arbitrators and any expenses relating to the conduct of the arbitration (including the Company’s and Executive’s reasonable attorneys’ fees and expenses).  Otherwise, each party shall be responsible for its own expenses relating to the conduct of the arbitration (including reasonable attorneys’ fees and expenses) and shall share the fees of the American Arbitration Association.  Any reimbursement that may become payable to the Executive pursuant to this Section 13.01 shall be made within thirty (30) days following the date on which it is determined that the Executive is the prevailing party and entitled to such reimbursement, but not later than December 31 of the calendar year following the calendar year in which the Executive is finally determined to be the prevailing party.

SECTION 13.02     Legal Fees.  The Company shall promptly pay up to $15,000 of the Executive’s legal fees incurred in negotiating this Agreement and other documents relating to the Executive’s employment and equity grants as contemplated hereunder.

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SECTION 13.03     Remedies Cumulative; No Waiver.  No remedy conferred upon a party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given under this Agreement or now or hereafter existing at law or in equity.  Except as otherwise expressly provided herein, including but not limited to Section 1.01 “Good Reason,” no delay or omission by a party in exercising any right, remedy or power under this Agreement or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by such party from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion.

SECTION 13.04     Consent to Amendments.  The provisions of this Agreement may be amended or waived only by a written agreement executed and delivered by the Company and the Executive.  No other course of dealing between the parties to this Agreement or any delay in exercising any rights hereunder will operate as a waiver of any rights of any such parties.

SECTION 13.05     Successors and Assigns.  All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not; provided that the Executive may not assign his rights or delegate his obligations under this Agreement without the written consent of the Company and the Company may assign this Agreement only to a successor to all or substantially all of its assets.

SECTION 13.06     Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

SECTION 13.07     Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all of which counterparts taken together will constitute one and the same agreement.

SECTION 13.08     Descriptive Headings.  The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

SECTION 13.09     Notices.  All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally to the recipient, two (2) business days after the date when sent to the recipient by reputable express courier service (charges prepaid) or four (4) business days after the date when mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid.  Such notices, demands and other communications will be sent to the Executive and to the Company at the addresses set forth below,

If to the Executive: To the last address delivered to the Company by the Executive in the manner set forth herein.

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If to the Company:	Investment Technology Group, Inc.
	380 Madison Avenue
	New York, New York 10017
	Attn: General Counsel

or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.

SECTION 13.10     Withholding.  The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.  The Executive shall bear all expense of, and be solely responsible for, all federal, state, local and foreign taxes due with respect to any payment received under this Agreement.

SECTION 13.11     No Third Party Beneficiary.  This Agreement will not confer any rights or remedies upon any person other than the Company, the Executive and their respective heirs, executors, successors and assigns.

SECTION 13.12     Entire Agreement.  This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes any prior understandings, agreements or representations by or among the parties, written or oral, that may have related in any way to the subject matter hereof.

SECTION 13.13     Section 409A.  This Agreement is intended to comply with the applicable provisions of section 409A of the Code and shall be interpreted to avoid any penalty sanctions under section 409A of the Code.  If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under section 409A of the Code, then such benefit or payment shall be provided in full at the earliest time thereafter when such sanctions will not be imposed.  For purposes of section 409A of the Code, all payments to be made upon the termination of the Employment Period under this Agreement may only be made upon a “separation from service” under section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment payments under this Agreement is to be treated as a right to a series of separate payments.  In no event shall the Executive, directly or indirectly, designate the calendar year of payment.

SECTION 13.14     Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.  Any reference to any federal, state, local or foreign statute or law will be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.  The use of the word “including” in this Agreement means “including without limitation” and is intended by the parties to be by way of example rather than limitation.

SECTION 13.15     Survival.  Article 5, Sections 6.01, 7.01, 8.01 and Articles 9, 10, 11, 12 and 13 will survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period, and the Agreement shall otherwise

21

remain in full force to the extent necessary to enforce any rights and obligations arising hereunder during the Employment Period.

SECTION 13.16     GOVERNING LAW.  ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.

SECTION 13.17     Reimbursements and In Kind Benefits.  All Reimbursable Expenses, any other reimbursements, and in kind benefits, including any third-party payments, provided under this Agreement shall be made or provided in accordance with the requirements of section 409A of the Code, including, where applicable, the requirement that (i) any reimbursement or in kind benefit is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement, or in kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in kind benefits to be provided, in any other calendar year, (iii) the reimbursement or payment of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit.

[SIGNATURE PAGE FOLLOWS]

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

INVESTMENT TECHNOLOGY GROUP, INC.
By:	/s/ Maureen O’Hara
Printed Name: Maureen O’Hara
Title: Chairperson of the Board of Directors
/s/ Robert C. Gasser
Robert C. Gasser
President and CEO

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EX-10.2

Exhibit 10.2

	Dublin Exchange Facility
	Mayor Street
	International Financial Services Centre
	Dublin 1
	Ireland
	Tel: +353 1 633 8000
	Fax: +353 1 633 8010

The material marked by asterisks within brackets ([**]) on pages 1 and 2 of this document has been omitted pursuant to a request for confidential treatment from the Commission in accordance with 17 C.F.R. § 240.24b-2.

David Stevens

[**]

[**]

[**]

[**]

14th February 2005

Dear David,

CONTRACT OF EMPLOYMENT

We are pleased to offer you a position with Investment Technology Group Europe Ltd. (“ITGEL” or “the Company”) on the terms set out below:

1.     JOB TITLE

Your job title will be that of Sales Director reporting to Alasdair Haynes, Chief Executive Officer, or such other person as may be nominated by the Company from time to time. You shall carry out your duties in a proper, loyal and efficient manner and shall use your best endeavours to promote the interest and reputation of the Company and not do anything that is harmful to it.

2.     COMMENCEMENT OF EMPLOYMENT

Your employment with ITGEL will commence on 7th March 2005, or on such other date as agreed between us, and the date will count as the beginning of your continuous period of employment with the Company.

3.     REMUNERATION

Your basic starting salary will be GBP £[**]per annum. Salaries are paid monthly in arrears on or about the 23rd of the month into your nominated bank account. Your salary will be subject to tax, NI and all other lawful or authorised deductions, where applicable. You will not be eligible for any payments for overtime worked outside your contractual hours of work.

You will be eligible to participate in the Company’s discretionary bonus scheme. With the exception of bonus awards to you anticipated for 2005 and 2006 as further set out below, bonuses are awarded on an entirely discretionary basis and in whatever form or amount the Company determines.

Investment Technology Group Limited

Registered in Ireland No. 283940

Investment Technology Group Europe Limited

Registered in Ireland No. 283939

The Registered Office of the above companies is Dublin Exchange Facility, Mayor Street, IFSC, Dublin 1, Ireland

Investment Technology Group Europe Limited London Branch

Registered in England & Wales: Branch Number BR004642

Directors: A Haynes (British), Massey, R Killian (American), T Huck (American), H Napthali (American), J O’Brien, T Wacker

Investment Technology Group Limited and Investment Technology Group Europe Limited are authorised by the Central Bank of Ireland under the Investment Intermediaries Act, 1995 and provide services within other EU member states under Article 14 of the ISD. Investment Technology Group Limited is a member of the London Stock Exchange, Euronext and Deutsche Börse.  Investment Technology Group Europe Limited London Branch is regulated by the Financial Services Authority for the conduct of investment business in the UK.

Contingent on you not serving a notice period due to resignation, the company will guarantee to pay you a cash bonus for 2005 and 2006 in accordance with the following schedule:

6 Month	Profit (Loss) Before ‘General Mgt
Periods	Bonuses’ & Before Tax Ranges (GBP000)(1)				Bonus (GBP£)(2)
H1 05	Less than	(£[**])			£[**]
	From(3)	(£[**])	to	£[**]	£[**]
	Greater than	£[**]			£[**]
H2 05	Less than	£[**]			£[**]
	From(3)	£[**]	to	£[**]	£[**]
	Greater than	£[**]			£[**]
H1 06	Less than	£[**]			Discretionary
	From	£[**]	to	£[**]	£[**]
	From(3)	£[**]	to	£[**]	£[**]
	From(3)	£[**]	to	£[**]	£[**]
	Greater than	£[**]			£[**]
H2 06	Less than	£[**]			Discretionary
	From	£[**]	to	£[**]	£[**]
	From(3)	£[**]	to	£[**]	£[**]
	From(3)	£[**]	to	£[**]	£[**]
	Greater than	£[**]			£[**]

(1) As per final ITG Europe Management Accounts for the specified period. [**]

(2) For H1 05, calculated as 4/6ths based on the planned 7th March 2005 start date

(3) Bonuses within these ‘Budgeted’ to ‘Exceptional’ case ranges are guaranteed to rise pro rata with improvements in the profit measure e.g. In H1 06, the ‘Budgeted’ profit target of £[**] guarantees £[**]; a profit of £[**] would guarantee a bonus of £[**] [£[**]+ (£[**]-£[**])/(£[**]-£[**])*(£[**]-£[**])]. Variations in bonus for different levels of profit within ranges which are above the ‘Exceptional’ case or below the ‘Budgeted’ cases are discretionary.

If notice of termination is given by the Company on or before 31st December 2005 the Company will guarantee a cash bonus payment of £[**].

In 2006, if notice of termination is given by the Company, the Company will guarantee a pro rated bonus payment in accordance with the table above based on the extrapolated profit measure based on the management accounts for the month end closest to the date of termination.

In line with current company policy, bonuses awarded in respect of the first half of the calendar year are paid 2/3rds in the July payroll and 1/3rd in the following January payroll, subject only to you being in the company’s employment and not serving a period of notice at the time of the January payroll. These conditions do not apply if notice is given by the Company up until and including January 2006 payroll.

4.PENSION

The Company offers an Inland Revenue approved non-contributory pension scheme, the terms and conditions of which can be found in the Staff Handbook. You will be entitled to become a member of the scheme on the condition that no excess health loading exists on your life and subject to satisfactory medical examinations, where necessary.

5.HOLIDAY ENTITLEMENT

(a)You are entitled to 30 days holiday per annum, the timing of which is to be agreed in advance with your manager, in addition to statutory public and bank holidays.

(b)The Company’s holiday entitlement year is a calendar year from 1 January to 31 December. Employees joining and/or leaving the Company during the year will have their holiday entitlement calculated on a pro-rata basis for that year.

(c)Unused holiday entitlement may not be carried forward to the next year, except with the specific agreement of your manager, and in any event a maximum of five days may be carried over to the next holiday year.

(d)The Company reserves the right to require you to take any unused holiday entitlement during your notice period.

6.OTHER STAFF BENEFITS

The Company offers Permanent Health Insurance (PHI), Life Assurance and Private Medical Insurance schemes in which you will be eligible to participate. The Company provides a subsidy towards the membership of a health club. There is no cash alternative to these or any other staff benefits. These benefits are discretionary rather than contractual, and the Company reserves the right to cease or change the level of cover at any time. Certain staff benefits are taxable as required by the Inland Revenue. Further details on staff benefits can be found in the Company’s Staff Handbook.

7.     EXPENSES

On production of valid receipts, the Company will reimburse you for all reasonable expenses incurred wholly and necessarily in the performance of your duties.

8.     HOURS OF WORK

Your hours of work will generally be 8:00 a.m. to 5:00 p.m. Monday to Friday, excluding one hour for lunch or as determined due to market hours. In addition, you are required to work such additional hours as may be requested by or on behalf of the Company as being reasonably necessary for the proper performance of your duties and, unless otherwise agreed in writing, in accordance with the terms of the Working Time Regulations as detailed in the Staff Handbook.

9.     PLACE OF WORK

Your place of employment will be at the Company’s business premises in London. During the course of your employment you may be required to work in the same or similar capacity in any other offices of the Company or of its subsidiaries or affiliates whether in the UK or abroad.

10.   NOTICE PERIOD

Your employment may be terminated by the Company or by you on giving three month’s notice. Such notice of termination must be in writing.

The Company reserves the right to make payment of salary and bonus in lieu of such period of notice. The Company also reserves the right to require you, and you hereby agree if so required, not to attend for work during such period of notice.

11.   EXCLUSIVE SERVICE

During your employment, you must devote your attention and skills exclusively to the business of the Company. You may not, during your employment, engage in work or employment for any other party without the prior written consent of the Company. You should avoid outside personal business relationships or business dealings with any of the Company’s customers, suppliers or competitors.

12.   SICKNESS

If you are absent from work due to illness, you will be expected to notify your senior manager immediately. You are required to provide a medical certificate for all absences from work for more than two consecutive business days.

If you provide satisfactory medical certificates, the Company may continue to pay your full basic salary for up to an aggregate of 20 working days sickness absence in any 12 month period.

The remuneration paid under this clause shall include any sick pay to which you are entitled under law and shall be reduced by the amount of any social welfare or other benefits recoverable by you whether or not recovered. You shall notify the Company of any social welfare or other benefits recoverable by you.

For prolonged or frequent absences from work as a result of sickness, the Company may, at its expense, require you to submit to such medical examinations or tests by doctor(s) nominated by the Company to assess your continued fitness to work. You hereby authorise such doctor(s) to disclose to the Company the results of such examinations or tests. Further details are contained in the Company’s Staff Handbook.

13.   DISCIPLINARY, DISMISSAL AND GRIEVANCE PROCEDURES

The Disciplinary, Dismissal and Grievance Procedures which apply to you are in accordance with the terms of the Employment Act 2002 (Dispute Resolution) Regulations and are set out in the Company’s Staff Handbook. You must familiarise yourself with these and all other company procedures detailed in the Staff Handbook prior to commencing employment.

14.   TERMINATION

Your employment may be terminated by the Company with or without notice in the event that you:

commit any serious or persistent breach of any of the provisions contained herein of any Company rule, regulation or accepted practice notified to you.

are guilty of any serious of gross misconduct prejudicial to the Company or to your appointment.

are guilty of any wilful neglect in the discharge of your duties.

become bankrupt or enter into any arrangement with your creditors.

become of unsound mind or otherwise incapable of performing your duties.

are convicted of a criminal offence.

In the event of any perceived misconduct, the Company will be entitled to suspend you forthwith in order to consider and investigate the alleged offence. Remuneration shall be paid to you during any such suspension. Any allegations of misconduct will be fully investigated by the Company in accordance with the Company’s disciplinary procedure, detailed in the Staff Handbook.

15.   COVENANTS

You hereby covenant with the Company that you will not for a period of six months after the termination of your employment either alone or jointly with or on behalf of any person firm or company directly or indirectly:

(a)  canvass, solicit or approach or cause to be canvassed, solicited or approached any business partnership, firm, company or other body who at the date of termination of your employment or at any time during the period of six months prior to that date was a client or customer of the Company and with whom or which you shall have had dealings or material knowledge during the last six months of your employment

(b)  do business with any business, partnership, firm, company or other body who or which has had at any time during the period of six months immediately preceding the date of such termination done business with the Company as an investment client and with whom you have had dealings or material knowledge during the last six months of your employment,

(c)  solicit or entice away or endeavour to solicit or entice away from the Company any person whom at the date of termination or at any time during the six months prior to that date is or was employed or engaged by the Company in an executive, technical, operational, sales, trading or research capacity and for whom you shall have been responsible at any time during the last six months of your employment (whether or not such person would commit a breach of his/her contract by so doing).

16.   GENERAL INFORMATION

This Contract of Employment is subject to:

you not having any outstanding disagreements or legal proceedings (existing, threatened or otherwise) with your current/previous employer.

employment and credit (if deemed necessary) references, which we consider to be satisfactory.

registration with any appropriate regulatory bodies, including your attempting and passing any regulatory examinations.

successful application for a work permit (if applicable).

a medical examination confirming your fitness to work

the absence of any binding or restrictive covenants from your current / previous employment that may restrict or impede your business activities with the Company.

you agreeing to execute an Employee Patent and Confidentiality Agreement with the Company.

you agreeing to execute a Service Agreement with the Company, if required.

your signed confirmation stating that you have read and understood and will comply with the contents and procedures outlined in the Company’s Staff Manual

your signed confirmation stating that you have read and understood and will comply with the contents and procedures outlined in the Company’s Compliance Manual, in particular, the sections covering -

Personal Account Transactions in Part V of the Criminal Justice Act 1993, Money Laundering.

17.   SEVERABILITY

In the event that any of these terms, conditions or provisions, or any part thereof, shall be determined to be invalid, unlawful or unenforceable, such term, condition or provision, or any part thereof, shall be severed from the remaining terms, conditions and provisions which shall continue to be valid to the fullest extent permitted by law.

18.   VARIATION

The Company reserves the right to vary the terms of this Contract of Employment in line with business needs and changing employment legislation. The Company will consult with you in advance of such changes as appropriate. The right to vary the terms of this contract does not apply to the bonus guarantees undertaken by the Company in Clause 3 of this contract of employment.

19.   LAW

This Contract of Employment is governed by and shall be construed in accordance with the laws of England and the courts of England shall have exclusive jurisdiction to hear any dispute.

20.   DATA PROTECTION ACT

As part of the administration of your employee records, the Company has computer databases in the Human Resources Department and the Payroll Department in which data about you will be stored and processed. Information about you may be transferred to and from other locations within and outside the European Economic Area. This information will not be used or processed other than for employment purposes or the purposes of the Company’s business and is subject to the normal high standards of confidentiality and protection within the Company. It is a condition of your employment that you consent to the holding, storing, using or processing data about you as set out above, and by signing this letter you give your consent to this.

21.   COMPANY STAFF MANUAL

The Company’s Staff Manual incorporating the Staff Handbook will be provided to you prior to joining the Company. In the event that there is any conflict in the terms set out in this Contract of Employment and those contained in the Company’s Staff Manual, the terms of this letter will prevail.

22.   CONFIDENTIALITY

It is in the interests of the Company and its employees that the terms of this offer of Contract of Employment, particularly in reference to salary and benefits, are strictly confidential and should not be disclosed to any other member of staff or anyone outside the Company.

23.   DURATION OF OFFER

This offer of employment is valid for 5 working days.

24.   ENCLOSURES

Please complete, sign and return / provide the following:

an Employee, Referees and Bank Account Details Form

an Employee Patent & Confidentiality Agreement

an Employee Staff and Compliance Manual Acknowledgement Form

a copy of your passport confirming your date of birth and nationality.

Please indicate your agreement to this offer and its terms above by signing and returning a copy of this letter to us. At the same time, please confirm your date of joining.

If you have any questions regarding this letter, please do not hesitate to contact our Human Resources Manager or myself.

Finally, may we say how pleased we are to be making you this offer. We look forward to receiving your acceptance and to your joining the Company and enjoying a successful career with us.

Yours sincerely

/s/ Alasdair Haynes

Alasdair Haynes

Chief Executive Officer

Investment Technology Group Europe Ltd.

Agreed and Accepted this 15th day of February 2005.

/s/ David Stevens

David Stevens

EX-10.3

Exhibit 10.3

INVESTMENT TECHNOLOGY GROUP, INC.

2007 OMNIBUS EQUITY COMPENSATION PLAN
EQUITY DEFERRAL AWARD PROGRAM SUBPLAN

GRANT NOTICE

Investment Technology Group, Inc. (the “Company”), pursuant to its Equity Deferral Award Program Subplan (the “Program”), hereby grants to you as a Participant under the Program, Stock Units representing a generally nontransferable right to receive one share of Company Stock with respect to each underlying Stock Unit at a specified future date together with a right to Dividend Equivalents on Basic Units as specified in the Program (the “Grant”), subject to all of the terms and conditions as set forth herein, the Program and the Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan (the “Plan”).(1)  Notwithstanding anything set forth in the Program, Participant shall not be entitled to any Matching Units in connection with this Grant. All capitalized terms herein that are not otherwise defined shall have the meanings ascribed to such terms in the Program or Plan, as applicable.

Participant:

Date of Grant:

Number of Basic Stock Units subject to Grant:	(which number of units represents $        divided by the Fair Market Value of a share of Company Stock on the Date of Grant)
90 Day Average Price on Date of Grant:	$

Vesting Schedule: The Basic Units subject to this Grant shall vest in equal annual installments on each of the second, third and fourth anniversaries of the Date of Grant if the Participant remains continuously employed by the Company on each applicable vesting date and the average of the Company’s common stock price for the 90 calendar days preceding, and including, each of the vesting dates is higher than the average of the Company’s common stock price for the 90 calendar days preceding, and including, the Date of Grant (as set forth above). The Participant shall receive shares of Company Stock in settlement of the Basic Units in accordance with the terms of the Program, subject to the collection of applicable taxes in connection with the issuance of Company Stock.

Acknowledgements: You acknowledge receipt of this Grant Notice, the Program, the Plan and the Plan prospectus.(1)  You further acknowledge that this Grant is made under, and governed by the terms and conditions of, the Plan and the Program except as otherwise set forth herein and you agree to be bound by such terms.  The Compensation Committee of the Board of Directors of the Company (the “Board”), or any other committee appointed by the Board to administer the Program, has the authority to interpret and construe this Grant pursuant to the terms of the Program and the Plan, and its decisions shall be conclusive as to any questions arising hereunder.

INVESTMENT TECHNOLOGY GROUP, INC.	PARTICIPANT
By:	By:
Name: Robert C. Gasser	Brokerage Name:
Title: President and Chief Executive Officer	Brokerage Account Number:
Date:	Date:

(1)  The Plan, Plan prospectus, and Program are available on the Company’s Intraweb; provided that paper copies of the Plan, Plan prospectus and Program are available upon request by contacting the Legal Department of the Company at ITG_Legal or 212.444.6378.

EX-10.4

Exhibit 10.4

AMENDMENT TO

CHANGE IN CONTROL AGREEMENT

This AMENDMENT is made and entered into as of April 20, 2010, by and between between [INSERT EMPLOYING ENTITY], a [Delaware] corporation (the “Company”), and [                        ] (the “Executive”).

WHEREAS, the Company and the Executive previously entered into that certain [Change in Control Agreement][Amended and Restated Change in Control Agreement], dated as of                        (the “CIC Agreement”); and

WHEREAS, the parties now wish to amend the CIC Agreement to align the “Good Reason” definition with the Company’s or its affiliates current compensation structure and to  make certain other clarifying changes.

NOW, THEREFORE, the parties mutually acknowledge and agree that, effective as of the date hereof, the CIC Agreement is hereby amended as follows:

1.             The last sentence in the definition of “Average Bonus” in Section 2 is hereby deleted and replaced in its entirety with the following:

For the avoidance of doubt, annual bonuses shall include any bonus amounts paid in the form of Basic Units awarded under the Parent Company’s Equity Deferral Award Program Subplan (or any successor thereto).

2.             The definition of “Target Annual Compensation” in Section 2 is hereby deleted and replaced in its entirety with the following:

“Total Annual Compensation” shall mean the sum of the Executive’s base salary and Average Bonus as in effect immediately prior to the Change in Control.

3.             The last sentence in the definition of “Good Reason” in Section 2 is hereby deleted and replaced in its entirety with the following:

For purposes of this Agreement, it shall be a material breach of this Agreement by the Company if the Company decreases the Executive’s Total Annual Compensation by more than thirty-three percent (33%).

4.             In all respects not amended, the CIC Agreement is hereby ratified and confirmed.

5.             For convenience, this Amendment 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.

6.             This Amendment shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws thereof.

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.

[INSERT EMPLOYING ENTITY]

By:

Name: Robert C. Gasser

Title: CEO and President

EXECUTIVE

2

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Robert C. Gasser, certify that:

1.I have reviewed this quarterly report on Form 10-Q 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)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

d)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 registrant’s 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 the registrant’s board of directors (or persons performing the equivalent functions):

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: May 10, 2010
	/s/ ROBERT C. GASSER
	Robert C. Gasser Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Steven R. Vigliotti, certify that:

1.I have reviewed this quarterly report on Form 10-Q 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)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

d)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 registrant’s 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 the registrant’s board of directors (or persons performing the equivalent functions):

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: May 10, 2010
	/s/ STEVEN R. VIGLIOTTI
	Steven R. Vigliotti Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Under Section 906 of the Sarbanes-Oxley Act of 2002

(18 U.S.C., Section 1350)

In connection with the Quarterly Report on Form 10-Q of Investment Technology Group, Inc. (the “Company”) for the quarter ended March 31, 2010, as filed with the SEC on the date hereof (the “Report”), Robert C. Gasser, as Chief Executive Officer of the Company, and Steven R. Vigliotti, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, that to his knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); 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 C. GASSER	/s/ STEVEN R. VIGLIOTTI
Robert C. Gasser Chief Executive Officer May 10, 2010	Steven R. Vigliotti Chief Financial Officer May 10, 2010

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.