INVESTMENT TECHNOLOGY GROUP INC (Form: 10-Q, Received: 08/05/2010 12:50:52)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

for the fiscal period ended June 30, 2010

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

for the transition period from to

Commission File Number 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 July 30, 2010, the Registrant had 42,722,789 shares of common stock, $0.01 par value, outstanding.

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QUARTERLY REPORT ON FORM 10-Q

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		Page
PART I. — Financial Information

Item 1.	Financial Statements
	Condensed Consolidated Statements of Financial Condition: June 30, 2010 (unaudited) and December 31, 2009	3

	Condensed Consolidated Statements of Income (unaudited): Three and Six Months Ended June 30, 2010 and 2009	4

	Condensed Consolidated Statement of Changes in Stockholders’ Equity (unaudited): Six Months Ended June 30, 2010	5

	Condensed Consolidated Statements of Cash Flows (unaudited): Six Months Ended June 30, 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	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33

PART II. — Other Information

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults Upon Senior Securities	35

Item 5.	Other Information	36

Item 6.	Exhibits	36

	Signature	36

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)

	June 30, 2010			December 31, 2009
	(unaudited)
Assets
Cash and cash equivalents	$	325,926		$	330,879
Cash restricted or segregated under regulations and other	80,168			95,787
Deposits with clearing organizations	38,856			14,891
Securities owned, at fair value	6,633			6,768
Receivables from brokers, dealers and clearing organizations	975,169			364,436
Receivables from customers	920,910			298,342
Premises and equipment, net	37,186			41,437
Capitalized software, net	63,842			68,913
Goodwill	419,927			425,301
Other intangibles, net	25,842			27,263
Income taxes receivable	5,300			13,897
Deferred taxes	2,308			2,910
Other assets	24,540			12,279
Total assets	$	2,926,607		$	1,703,103

Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable and accrued expenses	$	163,479		$	209,496
Short-term bank loans		29,918			—
Payables to brokers, dealers and clearing organizations	1,230,874			248,664
Payables to customers	572,395			299,200
Securities sold, not yet purchased, at fair value	3,974			31
Income taxes payable	20,039			14,113
Deferred taxes	19,181			16,999
Long-term debt	23,100			46,900
Total liabilities	2,062,960			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 June 30, 2010 and December 31, 2009, respectively	517			517
Additional paid-in capital	234,693			233,374
Retained earnings	825,093			809,153
Common stock held in treasury, at cost; 9,040,912 and 7,891,717 shares at June 30, 2010 and December 31, 2009, respectively	(199,531		)	(182,743		)
Accumulated other comprehensive income (net of tax)	2,875			7,399
Total stockholders’ equity	863,647			867,700
Total liabilities and stockholders’ equity	$	2,926,607		$	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 June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Revenues:
Commissions and fees	$	130,500	$	144,111	$	252,418	$	275,044
Recurring	22,761		21,983		44,732		43,145
Other	2,061		1,871		4,862		5,443
Total revenues	155,322		167,965		302,012		323,632

Expenses:
Compensation and employee benefits	54,587		58,897		108,051		119,075
Transaction processing	23,581		24,916		44,240		47,846
Occupancy and equipment	14,969		14,900		30,166		29,738
Telecommunications and data processing services	12,971		13,312		26,606		27,282
Other general and administrative	21,928		21,357		50,085		40,398
Goodwill impairment	5,375		—		5,375		—
Restructuring charges	2,337		—		2,250		—
Interest expense	206		601		430		1,813
Total expenses	135,954		133,983		267,203		266,152
Income before income tax expense	19,368		33,982		34,809		57,480
Income tax expense	11,860		13,671		18,869		24,331
Net income	$	7,508	$	20,311	$	15,940	$	33,149

Earnings per share:
Basic	$	0.17	$	0.47	$	0.37	$	0.76
Diluted	$	0.17	$	0.46	$	0.36	$	0.76

Basic weighted average number of common shares outstanding	43,226		43,470		43,525		43,404
Diluted weighted average number of common shares outstanding	43,704		43,824		44,129		43,714

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)

Six Months Ended June 30, 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	—		—		—			15,940		—			—			15,940
Other comprehensive income:
Currency translation adjustment	—		—		—			—		—			(4,601		)	(4,601		)
Unrealized holding gain on securities available-for-sale (net of tax)	—		—		—			—		—			77			77
Comprehensive income																$	11,416
Issuance of common stock for share awards (317,489 shares) and employee stock unit awards (194,664 shares), including tax benefit decrease of $1.1 million	—		—		(7,034		)	—		11,788			—			4,754
Issuance of common stock for the employee stock purchase plan (49,627 shares)	—		—		864			—		—			—			864
Settlement of share-based awards (191,448 shares)	—		—		—			—		(3,449		)	—			(3,449		)
Purchase of common stock for treasury (1,469,900 shares)	—		—		—			—		(25,127		)	—			(25,127		)
Share-based compensation	—		—		7,489			—		—			—			7,489
Balance at June 30, 2010	$	—	$	517	$	234,693		$	825,093	$	(199,531	)	$	2,875		$	863,647

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)

	Six Months Ended June 30,
	2010			2009
Cash flows from Operating Activities:
Net income	$	15,940		$	33,149
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	31,837			29,576
Deferred income tax expense	2,602			6,510
Provision for doubtful accounts	153			(983		)
Share-based compensation	7,890			7,418
Capitalized software write-off	6,091			—
Non-cash restructuring charges, net	836			—
Goodwill impairment	5,375			—
Changes in operating assets and liabilities:
Cash restricted or segregated under regulations and other	12,357			9,029
Deposits with clearing organizations	(23,965		)	25,995
Securities owned, at fair value	132			185
Receivables from brokers, dealers and clearing organizations	(620,492		)	(309,772		)
Receivables from customers	(654,855		)	(756,140		)
Accounts payable and accrued expenses	(46,964		)	(39,405		)
Payables to brokers, dealers and clearing organizations	996,377			639,448
Payables to customers	298,953			448,266
Securities sold, not yet purchased, at fair value	3,994			(2,358		)
Income taxes payable (receivable)	14,554			(12,340		)
Excess tax benefit from share-based payment arrangements	—			(252		)
Other, net	(8,965		)	3,449
Net cash provided by operating activities	41,850			81,775

Cash flows from Investing Activities:
Acquisition of subsidiaries and minority interests, net of cash acquired	—			(1,937		)
Acquisition of patent	—			(450		)
Equity investment	(3,000		)	—
Capital purchases	(7,571		)	(4,959		)
Capitalization of software development costs	(21,549		)	(22,175		)
Net cash used in investing activities	(32,120		)	(29,521		)

Cash flows from Financing Activities:
Borrowings (repayments) of short-term bank loans	29,918			(24,900		)
Repayments of long-term debt	(23,800		)	(23,800		)
Excess tax benefit from share-based payment arrangements	—			252
Common stock issued	6,671			5,890
Common stock repurchased	(25,127		)	—
Shares withheld for net settlements of share-based awards	(3,449		)	(1,233		)
Net cash used in financing activities	(15,787		)	(43,791		)

Effect of exchange rate changes on cash and cash equivalents	1,104			304
Net (decrease) increase in cash and cash equivalents	(4,953		)	8,767
Cash and cash equivalents — beginning of year	330,879			352,960
Cash and cash equivalents — end of period	$	325,926		$	361,727

Supplemental cash flow information
Interest paid	$	731		$	3,075
Income taxes paid	$	2,953		$	30,849

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 Singapore Pte Ltd., a licensed broker-dealer in Singapore, (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 services. 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 services 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.

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 periods beginning after December 15, 2009. The new disclosures about purchases, sales, issuances and settlements in the roll forward

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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 significant inputs that are 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 for those items measured on a recurring basis are as follows (dollars in thousands):

June 30, 2010	Total			Level 1			Level 2			Level 3
Assets
Cash and cash equivalents:
Tax free money market mutual funds	$		6,768	$	6,768		$	—		$		—
U.S. Government money market mutual funds	228,355			228,355			—			—
Money market mutual funds	5,889			5,889			—			—
Securities owned, at fair value:
Trading securities	245			245			—			—
Available-for-sale securities	1,532			1,532			—			—
Equity index mutual funds	2,894			2,894			—			—
Bond mutual funds	1,962			1,962			—			—
Other assets:
Currency forward contracts	2,676			—			2,676			—
Total	$		250,321	$	247,645		$	2,676		$		—

Liabilities
Securities sold, not yet purchased, at fair value:
Common stock	$	3,974		$		3,974	$		—	$	—
Total	$		3,974	$		3,974	$		—	$		—

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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 include 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.

Certain items are measured at fair value on a non-recurring basis. The table below details the portion of those items that were measured at fair value during the six months ended June 30, 2010 and the resultant loss recorded (dollars in thousands):

			Fair Value Measurements Using						Total
	June 30, 2010		Level 1		Level 2		Level 3		Losses
Capitalized software	$	—	$	—	$	—	$	—	$	6,781
Goodwill — ITG Australia	—		—		—		—		5,375
Fixed assets	—		—		—		—		240
Total	$	—	$	—	$	—	$	—	$	12,396

The items above, after giving effect to the fair value measurement, had zero balances at June 30, 2010.

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 of $6.1 million were not likely to be used. Included in other general and administrative expense on the Condensed Consolidated Statements of Income for the six months ended June 30, 2010 is a charge of $6.1 million to write off these amounts.

As part of the restructuring of the Asia Pacific Operations (see Note 3, Restructuring Charges ) non-cash write-offs of fixed assets and capitalized software ($0.9 million) were recorded and included in restructuring charges on the Condensed Consolidated Statements of Income.

ITG Australia goodwill with a carrying value of $5.4 million was written down to its implied fair value of zero, resulting in an impairment charge of $5.4 million in the second quarter of 2010 (see Note 8, Goodwill and Other Intangibles ).

(3) Restructuring Charges

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 were approximately $4 million and the amount of net capital required exceeded $20 million. In connection with this move, a one-time charge of $2.5 million was recorded for employee severance, contract termination costs and non-cash write-offs of fixed assets and capitalized software.

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The following table summarizes the pre-tax charges incurred by the Asia Pacific Operations segment for the six months ended June 30, 2010 (dollars in thousands). These charges are classified as restructuring charges in the Condensed Consolidated Statements of Income.

	June 30, 2010
Employee separation and related costs	$	1,282
Contract termination charges	160
Asset write-offs:
Capitalized software	690
Fixed assets	240
Sales tax receivable	146
Total restructuring charges	$	2,518

Employee separation and related costs pertain to the termination of 15 employees. The contract termination charges primarily consist of charges to terminate a lease agreement.

Activity and liability balances recorded as part of the Asia Pacific restructuring plan through June 30, 2010 are as follows (dollars in thousands):

	Employee separation and related costs			Contract termination charges			Asset write-offs			Total
Restructuring charges recognized	$	1,282		$	160		$	1,076		$	2,518
Cash payments	(736		)	(18		)	—			(754		)
Asset write-offs	—			—			(1,076		)	(1,076		)
Acceleration of share-based compensation in additional paid-in capital	(29		)	—			—			(29		)
Other	30			—			—			30
Ending liability balance	$	547		$	142		$	—		$	689

Virtually all of the remaining accrued costs (included in accounts payable and accrued expenses) are expected to be paid during the third quarter of 2010.

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 related to the 2009 restructuring plan included in accounts payable and accrued expenses in the Condensed Consolidated Statements of Financial Condition (dollars in thousands):

	Employee separation and related costs			Consolidation of leased facilities			Total
Balance at December 31, 2009	$	16,451		$	1,568		$	18,019
Utilized — cash	(15,871		)	(361		)	(16,232		)
Non-cash adjustment	(269		)	—			(269		)
Balance at June 30, 2010	$	311		$	1,207		$	1,518

Virtually all the remaining accrued costs are expected to be paid during 2010 except for payments related to the leased facilities and the settlement of phantom stock awards which will continue through April 2012.

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(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 OCI 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 OCI 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 June 30, 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 derivative instruments at June 30, 2010 and December 31, 2009 (dollars in thousands). There were no derivatives designated as hedging instruments in either period.

	Asset / (Liability) Derivatives
	Fair Value
	June 30, 2010		December 31, 2009
Derivatives not designated as hedging instruments:
Currency forward contracts	$	2,676	$	(3	)
Total derivatives not designated as hedging instruments	2,676		(3		)
Total derivatives	$	2,676	$	(3	)

All currency forward contracts open at June 30, 2010 matured in July 2010.

The following table summarizes the impact the effective portion of derivative instruments designated as hedges under ASC 815 had on the results of operations (dollars in thousands) during the three and six months ended June 30, 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)
	June 30, 2010		June 30, 2009		June 30, 2010		June 30, 2009
Three Months Ended
Interest rate swaps	$	—	$	—	$	—	$	—
Total	$	—	$	—	$	—	$	—

Six Months Ended
Interest rate swaps	$	—	$	—	$	—	$	(450	)
Total	$	—	$	—	$	—	$	(450	)

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The following table summarizes the impact that derivative instruments not designated as hedging instruments under ASC 815 had on the results of operations, 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	June 30, 2010		June 30, 2009
Three Months Ended
Currency forward contracts	$	206	$	(399	)
Total	$	206	$	(399	)

Six Months Ended
Currency forward contracts	$	268	$	(73	)
Total	$	268	$	(73	)

(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 under a collateral account control agreement for the benefit of certain customers 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
	June 30, 2010		December 31, 2009		June 30, 2010		December 31, 2009
Corporate stocks—trading securities	$	245	$	125	$	3,974	$	31
Corporate stocks—available-for-sale	1,532		1,403		—		—
Mutual funds	4,856		5,240		—		—
Total	$	6,633	$	6,768	$	3,974	$	31

Securities owned consists of temporary positions 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 temporary positions 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 OCI until realized, are as follows (dollars in thousands):

	After-Tax Unrealized Holding Gain/(Loss)
	June 30, 2010		December 31, 2009
Positions with net gains	$	8	$	—
Positions with net (losses)	—		(69		)
Total gain/(loss)	$	8	$	(69	)

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There were no sales of available-for-sale securities during the six month periods ending June 30, 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 2006 and 2008 fiscal years resulting in a decrease in our liability of $0.8 million and the related deferred tax asset of $0.2 million. As a result of this, we recognized a net tax benefit of $0.1 million.

The Company had unrecognized tax benefits for tax positions taken of $12.0 million and $11.0 million at June 30, 2010 and December 31, 2009, respectively. The Company had accrued interest expense of $1.1 million and $0.9 million, net of related tax effects, related to our unrecognized tax benefits at June 30, 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 June 30, 2010 (dollars in thousands):

	U.S. Operations			European Operations		Asia Pacific Operations			Total

Gross goodwill at December 31, 2009	$	390,801		$	28,387	$	6,113		$	425,301
Accumulated impairment losses	—			—		—			—
Net goodwill at December 31, 2009	$	390,801		$	28,387	$	6,113		$	425,301

2010 Activity:
Impairment losses	—			—		(5,375		)	(5,375		)
Currency translation adjustment	(6		)	44		(37		)	1

Gross goodwill at June 30, 2010	$	390,795		$	28,431	$	6,076		$	425,302
Accumulated impairment losses	—			—		(5,375		)	(5,375		)
Net goodwill at June 30, 2010	$	390,795		$	28,431	$	701		$	419,927

Goodwill impairment

As further described in Note 2, Summary of Significant Accounting Policies , in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, goodwill is assessed annually for impairment in the fourth quarter and 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.

During 2010, indicators of potential impairment prompted the Company to perform interim impairment tests at March 31 and June 30. These indicators included a prolonged decrease in market capitalization, a decline in recent operating results in comparison to prior years, and the significant near-term uncertainty related to both the global economic recovery and the outlook for the Company’s industry. The interim impairment tests applied the same valuation techniques and sensitivity analyses used in the Company’s prior annual impairment test to updated cash flow forecasts. Generally, the cash flow forecasts used in the first quarter testing were not materially different than those which were used in the annual testing, except for ITG Australia, where the updated cash flow forecast resulted in its fair value decreasing 31% from the annual test, but still above its book value.

Based on the results of the March 31 interim testing, no step one goodwill impairment was indicated for any reporting unit, as the fair value of the Company’s U.S Operations was determined to be in excess of its carrying value by 16% and the fair values of its other reporting units with goodwill were determined to be in excess of their carrying values within a range of 51% - 233%. Also, none of the outcomes of the sensitivity analyses performed impacted the step one conclusions. While no impairment of goodwill was indicated, the Company recognized the need to continue monitoring economic trends related to its business as well as the key testing assumptions used in this interim impairment test.

In the second quarter, the operating results of some reporting units did not meet their expected financial performance targets resulting in further revisions to cash flow forecasts used in the June 30 step one impairment testing. In particular, the continued lack of market fragmentation and the continued bundling of research and execution services in the Asia Pacific region pushed results there

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significantly below expectations. With the exception of its Australia reporting unit, no step one goodwill impairment was indicated for any of the Company’s reporting units based on the results of its June 30 interim testing, as the fair value of the Company’s U.S. Operations was determined to be in excess of its carrying value by 21% and the fair values of its remaining reporting units with unimpaired goodwill were determined to be in excess of their carrying values within a range of 70% - 161%. Also, none of the outcomes of the sensitivity analyses performed impacted the step one conclusions. As the fair value of the Australia reporting unit was determined to be below its carrying value, the Company performed a step two analysis to determine the implied fair value of goodwill and measure any impairment loss. Step two analysis requires valuation of the assets and liabilities of the reporting unit as if it had been acquired in a hypothetical business combination. The resultant implied fair value of goodwill is then compared with its carrying value to measure the impairment loss. At June 30, it was determined that the entire balance of goodwill in the Australia reporting unit was impaired resulting in a $5.4 million charge against earnings.

The Company continues to monitor the current estimated fair values of its reporting units based on the forecasted level of revenue growth, net income and cash flows, in the current market environment. There is a reasonable possibility that goodwill for one of its other reporting units may become impaired in future periods as there can be no assurance that estimates and assumptions made for purposes of its goodwill interim impairment testing as of June 30, 2010 will prove to be accurate predictions of the future. If these assumptions regarding forecasted revenue or net income growth rates are not achieved, the Company may be required to record further non-cash charges in future periods for goodwill impairment, whether in connection with its 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.

Other Intangible Assets

Acquired other intangible assets consisted of the following at June 30, 2010 and December 31, 2009 (dollars in thousands):

	June 30, 2010				December 31, 2009
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Useful Lives (Years)
Trade names	$	10,400	$	908	$	10,400	$	780	5.0
Customer related intangibles	8,401		2,158		8,401		1,919		6.4
Proprietary software	20,876		10,984		20,876		9,930		17.6
Trading rights	165		—		165		—		—
Other	50		—		50		—		—
Total	$	39,892	$	14,050	$	39,892	$	12,629

At June 30, 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 $1.4 million for the three and six months ended June 30, 2010, respectively compared with $0.8 million and $1.7 million in the prior year periods and is included in other general and administrative expense in the Condensed Consolidated Statements of Income.

During the six months ended June 30, 2010, no other intangibles were deemed impaired, and accordingly, no adjustment was required.

(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
	June 30, 2010			December 31, 2009			June 30, 2010		December 31, 2009
Broker-dealers	$	376,955		$	303,072		$	587,318	$	196,042
Clearing organizations	51,511			5,401			2,183		2
Securities borrowed	546,964			56,266			—		—
Securities loaned	—			—			641,373		52,620
Allowance for doubtful accounts	(261		)	(303		)	—		—
Total	$	975,169		$	364,436		$	1,230,874	$	248,664

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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
	June 30, 2010			December 31, 2009			June 30, 2010		December 31, 2009
Customers	$	921,857		$	299,189		$	572,395	$	299,200
Allowance for doubtful accounts	(947		)	(847		)	—		—
Total	$	920,910		$	298,342		$	572,395	$	299,200

Securities Borrowed and Loaned

Securities borrowed and securities loaned transactions are reported as collateralized financings. Securities borrowed transactions require the Company to deposit cash, letters of credit, or other collateral with the lender. With respect to securities loaned, the Company receives collateral in the form of cash or other collateral in amounts generally in excess of the fair value of securities loaned. The Company monitors the fair value of securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as necessary. Securities borrowed and securities loaned transactions are recorded at the amount of cash collateral advanced or received adjusted for additional collateral obtained or received. Interest on such transactions is accrued and is included in the Condensed Consolidated Statements of Financial Condition in receivables from, and payables to, broker-dealers and clearing organizations.

The Company engages in securities borrowed and securities loaned transactions as part of its U.S. self-clearing process primarily to facilitate customer transactions, including shortened or extended settlement activities and for failed settlements. Interest income for securities borrowed is recorded in other income while interest expense from securities loaned is recorded in transaction processing expense on the Condensed Consolidated Statements of Income.

The Company also operates a matched book where securities are borrowed from one party for the express purpose of loaning such securities to another party and generating a net interest spread. The Company records the net interest earned on these transactions in other income on the Condensed Consolidated Statements of Income.

As of June 30, 2010, securities borrowed as part of the matched book activity with a fair value of $430 million were delivered for securities loaned. The gross amounts of interest earned on cash provided to counterparties as collateral for securities borrowed, and interest incurred on cash received from counterparties as collateral for securities loaned, and the resulting net amount included in other income on the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2010 were as follows (dollars in thousands):

	Three Months			Six Months
Interest earned	$	1,159		$	1,326
Interest incurred	(779		)	(843		)
Net	$	380		$	483

(10) Accounts Payable and Accrued Expenses

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

	June 30, 2010		December 31, 2009
Accrued research payables	$	49,973	$	39,027
Accrued compensation and benefits	33,453		64,054
Deferred compensation	18,999		24,952
Trade payables	14,170		19,924
Deferred revenue	11,352		12,625
Acquisition payment obligation	9,195		6,981
Accrued transaction processing	5,590		4,621
Accrued restructuring	2,207		18,019
Other	18,540		19,293
Total	$	163,479	$	209,496

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(11) Short-term Bank Loans

The Company’s U.S. securities settlement operations are funded with operating cash or with short-term bank loans. The Company has established uncommitted pledge facilities with two banks, JPMorgan Chase Bank, N.A. and The Bank of New York Mellon, for this purpose. Borrowings under these arrangements generally bear interest at the federal funds rate plus a spread of 50 - 150 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, which equal up to 125% of the borrowings. At June 30, 2010, there were $16.0 million in short-term bank loans outstanding under these pledge facilities at a weighted average interest rate of 1.81%. At December 31, 2009, there were no short-term bank loans under these pledge facilities outstanding.

In Europe, we also have working capital facilities with various banks in the form of overdraft protection. At June 30, 2010, there was $13.9 million outstanding under these facilities at a weighted average interest rate of 1.77% primarily associated with European settlement transactions.

(12) 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 June 30, 2010, the Company had $23.1 million in outstanding debt under the Term Loan following scheduled principal payments of $23.8 million during the six months ended June 30, 2010. Payments of $23.8 million were also 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 the remainder of 2010.

(13) Earnings Per Share

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

	June 30,
	2010		2009
Three Months Ended
Net income for basic and diluted earnings per share	$	7,508	$	20,311
Shares of common stock and common stock equivalents:
Average common shares used in basic computation	43,226		43,470
Effect of dilutive securities	478		354
Average common shares used in diluted computation	43,704		43,824
Earnings per share:
Basic	$	0.17	$	0.47
Diluted	$	0.17	$	0.46

Six Months Ended
Net income for basic and diluted earnings per share	$	15,940	$	33,149
Shares of common stock and common stock equivalents:
Average common shares used in basic computation	43,525		43,404
Effect of dilutive securities	604		310
Average common shares used in diluted computation	44,129		43,714
Earnings per share:
Basic	$	0.37	$	0.76
Diluted	$	0.36	$	0.76

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The following is a summary of anti-dilutive equity awards not included in the detailed earnings per share computations (amounts in thousands):

	June 30,
	2010	2009
Three months ended	1,031	684
Six months ended	708	696

(14) Other Comprehensive Income

The components and allocated tax effects of other comprehensive income for the periods ended June 30, 2010 and December 31, 2009 are as follows (dollars in thousands):

	Before Tax Effects			Tax Effects			After Tax Effects
June 30, 2010
Currency translation adjustment	$	2,867		$	—		$	2,867
Unrealized holding gain on securities, available-for-sale	14			(6		)	8
Total	$	2,881		$	(6	)	$	2,875

December 31, 2009
Currency translation adjustment	$	7,468		$	—		$	7,468
Unrealized holding loss on securities, available-for-sale	(115		)	46			(69		)
Total	$	7,353		$	46		$	7,399

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.

(15) Net Capital Requirement

ITG Inc., AlterNet, ITG Derivatives and Blackwatch Brokerage Inc. (“Blackwatch”) are subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1), 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, as defined. 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 6 2 / 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 June 30, 2010 for the U.S. Operations are as follows (dollars in millions):

	Net Capital		Excess Net Capital
U.S. Operations
ITG Inc.	$	112.4	$	110.9
AlterNet	5.7		5.4
Blackwatch	5.8		5.7
ITG Derivatives	4.6		3.6

As of June 30, 2010, ITG Inc. had a $10.8 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 June 30, 2010, is summarized in the following table (dollars in millions):

	Net Capital		Excess Net Capital
Canadian Operations
Canada	$	52.7	$	52.2
European Operations
Europe	39.3		19.4
Asia Pacific Operations
Australia	7.3		4.3
Hong Kong	22.4		5.7
Singapore	0.4		0.2
Japan	3.9		2.0

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(16) 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 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 services 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):

	U.S. Operations (1)		Canadian Operations		European Operations			Asia Pacific Operations (2)			Consolidated
Three Months Ended June 30, 2010
Total revenues	$	108,089	$	21,494	$	17,940		$	7,799		$	155,322
Income (loss) before income tax expense	24,173		6,292		937			(12,034		)	19,368
Three Months Ended June 30, 2009
Total revenues	$	121,984	$	19,286	$	18,716		$	7,979		$	167,965
Income (loss) before income tax expense	30,214		5,694		1,457			(3,383		)	33,982

Six Months Ended June 30, 2010
Total revenues	$	207,997	$	39,930	$	38,309		$	15,776		$	302,012
Income (loss) before income tax expense	37,386		10,882		2,480			(15,939		)	34,809
Identifiable assets	1,542,913		441,224		451,038			491,432			2,926,607
Six Months Ended June , 2009
Total revenues	$	239,337	$	36,891	$	34,485		$	12,919		$	323,632
Income (loss) before income tax expense	54,680		11,610		(632		)	(8,178		)	57,480
Identifiable assets	1,077,476		332,404		916,347			520,615			2,846,842

(1) Income before income tax expense for the six months ended June 30, 2010 includes the impact of a $6.1 million charge to write-off certain capitalized software initiatives.

(2) Loss before income tax expense for the three and six months ended June 30, 2010 includes the impacts of a $5.4 million impairment charge related to Australian goodwill and a restructuring charge of $2.5 million to close the Company’s on-shore Japanese operations.

(17) Commitments and Contingencies

The Company is a member of various U.S. and non-U.S. exchanges and clearing houses that trade and clear securities and/or derivative contracts. The Company also accesses certain clearing houses through the memberships of third-parties. Associated with these memberships and third-party relationships, the Company may be required to pay a proportionate share of financial obligations of another member who may default on its obligations to the exchanges or the clearing house. While the rules governing different exchange or clearinghouse memberships vary, in general the Company’s obligations would arise only if the exchange and clearinghouses had previously exhausted other remedies. The maximum potential payout under these memberships cannot be estimated. The Company has not recorded any contingent liability in the condensed consolidated financial statements for these agreements and believes that any potential requirement to make payments under these agreements is remote. In the ordinary course of business, the Company guarantees obligations of subsidiaries which may arise from third-party clearing relationships and trading

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counterparties. The activities of the subsidiaries covered by these guarantees are included in the Company’s condensed consolidated financial statements.

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

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 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 services 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 net executions 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 net executions 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.

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 net interest spread earned on securities borrowed and loaned matched book 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.

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Transaction processing expense consists of costs to access various third-party execution destinations and to process, clear 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 goodwill impairment and restructuring charges is provided to facilitate the relevant period-to-period comparison of net income by excluding these unusual items that impact 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.

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.

Disclosures of 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.

Disclosures of 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 expense disclosures excluding goodwill impairment, restructuring charges and the write-off of capitalized software development are provided to facilitate the relevant period-to-period comparison of expenses by excluding these unusual items that impact overall comparability. These non-GAAP measures should be viewed in addition to, and not as an alternative to, expenses as determined in accordance with U.S. GAAP.

Executive Summary

Consolidated Overview

The second quarter was another challenging one for our core institutional clients as the “flash crash” in May and concerns related to the European sovereign debt crisis prompted heightened investor fear and a renewed flight from domestic equity mutual

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funds. Our net income for the quarter was $7.5 million, or $0.17 per diluted share. Excluding $7.7 million in pre- and post-tax charges related primarily to restructuring and goodwill impairment in the Asia Pacific region (see below), our pro forma operating net income (see Non-GAAP Financial Measures ) for the quarter was $15.3 million, or $0.35 per diluted share, compared to net income of $20.3 million, or $0.46 per diluted share for the second quarter of 2009. Consolidated revenues were down 8% to $155.3 million compared to $168.0 million for the second quarter of 2009, reflecting a $13.9 million (11%) decline in U.S. revenues, offset in part by a $1.2 million (3%) increase in international revenues to $47.2 million.

In comparison to the first quarter of 2010, both our revenues and our pro forma operating net income were higher. The $15.3 million of pro forma operating net income increased 28% over the $11.9 million of pro forma operating net income (see Non-GAAP Financial Measures ) during the first quarter of 2010. The $11.9 million of pro forma net income during the first quarter of 2010 excludes a $3.5 million after-tax write-off of capitalized software. Revenues were 6% higher than the $146.7 million generated during the first quarter, boosted by a 16% increase in total U.S. executed volumes. The increase in U.S. volumes was attributable in part to the May volatility spikes, when the CBOE Volatility Index (VIX) hit a peak for the year of 48.2, increased flow associated with our services related to the Russell reconstitution and the expansion of our net executions business.

Consolidated expenses during the second quarter of 2010 of $136.0 million were comparable to 2009 levels of $134.0 million as the impact of cost saving initiatives was offset by restructuring and goodwill impairment charges in the Asia Pacific region. Excluding these charges, consolidated pro forma operating expenses were down 4% to $128.2 million compared to the second quarter of 2009, reflecting a $7.7 million (8%) decrease in U.S. pro forma operating expenses, offset in part by a $1.9 million (5%) increase in international expenses (see Non-GAAP Financial Measures) . The lower U.S. pro forma operating expenses related primarily to a reduction in compensation and benefits from our 2009 restructuring including lower performance-based compensation, reduced 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 from capitalized software amortization. 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, where the U.S. Dollar weakened approximately 13%.

Restructuring and Impairment Charges

In April 2010, we implemented a restructuring plan in our Asia Pacific operating segment to close our on-shore operations in Japan to lower our costs and reduce our capital requirements. This strategy will reduce our annual expenses by approximately $4 million and will reduce our net capital in the region by more than $20 million. We reduced the capital deployed in Japan during the second quarter of 2010 by $17 million and expect to reduce the balance by year-end following the surrender of our dealers license from the Japanese Financial Service Agency in July 2010. We recorded a one-time charge of $2.5 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 operations, and as a result, we do not expect a material reduction to our current revenue levels from this move. Over the long term, our Asia Pacific strategy is to be well positioned to capitalize on what we believe will eventually be an increasingly fragmented market characterized by increased electronic trading capabilities, unbundling of commissions from research and advisory services and the need for trading advisory services. This move does not impact our future plans related to the recent launch of POSIT Marketplace in the region.

In 2010, we continued to perform interim goodwill impairment testing given the decline in our recent operating results, our view of the near-term business outlook and the decline in our market capitalization. During our second quarter impairment testing, it was determined that the entire balance of goodwill in our Australia reporting unit was impaired resulting in a $5.4 million charge (see Critical Accounting Estimates and Note 8 to the condensed consolidated financial statements, Goodwill and Other Intangibles ).

Segment Discussions

The ongoing redirection of fund flows out of domestic equities and into other asset classes continues to significantly curtail the equity trading activity of our core institutional client base. After a relatively quiet first quarter, when domestic funds received a modest $5.2 billion in net inflows, net flows out of domestic funds resumed in the second quarter with a net $21.4 billion withdrawn according to the Investment Company Institute, accelerating in May following the heightened equity market volatility and concerns related to the European sovereign debt crisis. This follows consecutive years in 2008 and 2009 when net flows out of domestic equity funds were substantial at $151.4 billion and $39.5 billion, respectively. Although the combined market volumes of NYSE and NASDAQ-listed securities were relatively flat compared to the second quarter of 2009, our total U.S. executed volumes were down 7%, as much of the overall market volume was attributed to the increased presence of high frequency trading firms, which do not typically use our trading services. In addition, during periods of reduced trading by traditional asset managers, our share of such volumes comes under greater pressure since our clients generally earmark over half their commission dollars for services such as investment research and new issuances. Also, a greater percentage of our business during the quarter was from high turnover, lower

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rate clients that focus more on our direct market access (“DMA”) services. As a result, we saw further rate compression resulting in an overall decline in commissions and fees of 15% compared to the second quarter of 2009.

Following our previously announced minority investment in Disclosure Insight, Inc., a provider of independent research and due diligence to the institutional investment community, we are continuing to explore additional opportunities for differentiated research content. With more than half of the available domestic equity commission pool dedicated for research and advisory services, according to Greenwich Associates, penetrating this commission pool represents a natural target for us to increase our addressable market.

In Canada, our second quarter revenues increased 11% over the prior year quarter driven largely by the strength of the Canadian Dollar. Excluding the foreign currency impact (see Non-GAAP Financial Measures ), our Canadian revenues were down 2% compared to the prior year quarter due to reduced arbitrage trading revenue, offset in part by an increase in our core client commissions. The increased presence of high frequency traders, narrowing of spreads and the reduction in the number of inter-listed securities has combined to reduce arbitrage opportunities in the Canadian marketplace.

Revenues from our European operations declined 4% compared to the second quarter of 2009 to $17.9 million driven primarily by currency translation and reduced client portfolio trading. Higher levels of trades crossed in POSIT and cost saving initiatives implemented for our clearance and settlement activities significantly reduced transaction processing costs and helped preserve profitability. There is considerable uncertainty surrounding the political and economic climate in the region which could have an impact on our near-term results.

In Asia Pacific, market turnover was down compared to the second quarter of 2009 despite higher equity prices. While Asia Pacific revenues were positively impacted by the shift in the attribution of $0.6 million of ITG Net revenue from our European Operations, commission rates decreased and second quarter revenues declined 2% from the second quarter of 2009 to $7.8 million. Asia Pacific’s results also included restructuring charges of $2.5 million and a goodwill impairment of $5.4 million, as described above, resulting in a pre-tax loss of $12.0 million.

Results of Operations — Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

U.S. Operations

	Three Months Ended June 30,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	89,776		$	105,319		$	(15,543	)	(15	)
Recurring	17,398			17,610			(212		)	(1	)
Other	915			(945		)	1,860			197
Total revenues	108,089			121,984			(13,895		)	(11	)

Expenses
Compensation and employee benefits	35,675			40,773			(5,098		)	(13	)
Transaction processing	12,975			13,790			(815		)	(6	)
Other expenses	35,225			36,606			(1,381		)	(4	)
Restructuring charges	(165		)	—			(165		)	—
Interest expense	206			601			(395		)	(66	)
Total expenses	83,916			91,770			(7,854		)	(9	)
Income before income tax expense	$	24,173		$	30,214		$	(6,041	)	(20	)
Pre-tax margin	22.4		%	24.8		%	(2.4		)%

While overall U.S. equity volumes (as measured by the combined share volume in NYSE and NASDAQ-listed securities) remained relatively flat in the second quarter of 2010 as compared to the prior year quarter, our second quarter commissions and fees declined 15% reflecting lower equity trading activity by our core large domestic equity fund clients, resulting in lower volumes. We also experienced a lower average commission rate as a greater percentage of our trading business came from high turnover clients that primarily use our lower rate DMA services. Partially offsetting this decline was an increase in revenues from our net executions due to increased client penetration.

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	Three Months Ended June 30,
U.S. Operations: Key Indicators*	2010	2009	Change		% Change
Total trading volume (in billions of shares)	12.6	13.6	(1.0	)	(7	)
Trading volume per day (in millions of shares)	199.9	215.9	(16.0	)	(7	)
U.S. market trading days	63	63	—		—

* Includes volumes from commission-based executions and net executions and excludes activity from ITG Derivatives and ITG Net commission share arrangements.

Recurring revenues were slightly down primarily from cancellations of order management subscriptions and services and the discontinuation of certain analytical product offerings, while other revenues reflect a decrease in trade processing errors and client accommodations.

Total expenses were down 9% compared to the second quarter of 2009 reflecting, in part, the benefits of cost reduction efforts.

Compensation and employee benefits declined 13%, in-line with a 15% decrease in headcount, largely attributable to our restructuring activities in the fourth quarter of 2009, as well as lower incentive compensation. As a percentage of revenue, these costs declined to 33.0% in the second quarter of 2010 compared to 33.4% in the second quarter of 2009 and 34.3% in the first quarter of 2010. Incentive compensation fluctuates based on revenues, profitability and other measures, taking into account the increasingly competitive landscape for key talent.

Transaction processing costs decreased 6% primarily due to the reduction in executed volumes. The increase in transaction processing costs as a percentage of revenue to 12.0%, compared to 11.3% for the second quarter of 2009, primarily related to the reduction in average commission rates described above.

Other expenses declined 4% reflecting savings from our cost reduction efforts in areas such as (i) network connectivity costs from the consolidation of our third-party network providers, (ii) consulting costs and (iii) facilities and equipment costs, partially offset by an increase in capitalized software amortization related to new product releases.

Restructuring charges reflect the reversal of unused accruals taken in connection with our restructuring plan in the fourth quarter of 2009.

Interest expense declined due to a significantly lower outstanding balance on our long-term debt and lower LIBOR-based interest rates.

Canadian Operations

	Three Months Ended June 30,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	19,097		$	16,307		$	2,790		17
Recurring	987			637			350			55
Other	1,410			2,342			(932		)	(40	)
Total revenues	21,494			19,286			2,208			11

Expenses
Compensation and employee benefits	5,861			4,845			1,016			21
Transaction processing	4,320			3,555			765			22
Other expenses	5,037			5,192			(155		)	(3	)
Restructuring charges	(16		)	—			(16		)	—
Total expenses	15,202			13,592			1,610			12
Income before income tax expense	$	6,292		$	5,694		$	598		11
Pre-tax margin	29.3		%	29.5		%	(0.2		)%

Currency translation increased total Canadian revenues and expenses by $2.6 million and $1.8 million, respectively, resulting in a $0.8 million increase to pre-tax income.

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Canadian average daily volumes in our client business increased 13%, however commissions and fees increased only 3% when excluding the favorable currency impact of the stronger Canadian Dollar (see Non-GAAP Financial Measures ), as average commission rates were 10% lower than in the second quarter of 2009 but stable in comparison with the first quarter of 2010.

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 second quarter of 2010 compared to the prior year period as the increased presence of high frequency traders and the lower level of overall market volatility reduced the spreads available on trading opportunities.

Compensation and employee benefits costs were driven higher by currency translation ($0.7 million), as well as costs associated with a new retirement plan in Canada and higher share-based compensation.

Transaction processing costs rose due to higher volumes and currency translation. As a percentage of revenues, these costs increased to 20.1% from 18.4% during the second quarter of 2009, primarily due to higher clearing costs associated with increased market fragmentation. However, these increases were partially offset by decreases in execution costs as we benefited from more liquidity credits and executions on cheaper venues. This rate was consistent with the first quarter of this year. In the third quarter of 2010, we will be migrating our Canadian settlement activities to another clearing broker with expected annual savings in excess of $2 million.

The decline in other expenses reflects the recovery of doubtful account provisions in the second quarter of 2010, currency transaction losses incurred in 2009 from holding a non-Canadian Dollar denominated asset, and reduced market data fees, partially offset by unfavorable exchange rate translation, higher business development and consulting costs, and capitalized software amortization expense related to recent product releases.

European Operations

	Three Months Ended June 30,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	14,433		$	14,916		$	(483	)	(3	)
Recurring	3,771			3,681			90			2
Other	(264		)	119			(383		)	(322	)
Total revenues	17,940			18,716			(776		)	(4	)

Expenses
Compensation and employee benefits	8,036			7,906			130			2
Transaction processing	4,450			5,884			(1,434		)	(24	)
Other expenses	4,517			3,469			1,048			30
Total expenses	17,003			17,259			(256		)	(1	)
Income before income tax expense	$	937		$	1,457		$	(520	)	(36	)
Pre-tax margin	5.2		%	7.8		%	(2.6		)%

Currency translation reduced total European revenues and expenses by $0.7 million and $0.5 million, respectively, reducing our pre-tax income by $0.2 million.

Political and economic concerns in the European region affected asset manager confidence in European markets and consequently, commission and fees during the second quarter of 2010. Although European market turnover increased significantly over the prior year quarter, this was driven largely by the increased presence of high frequency trading participants, rather than the traditional asset managers that form our core client base. As a result, the growth in our POSIT crossing business was more than offset by a decline in our client portfolio trading, primarily from U.S. clients, as well as unfavorable currency translation. The change in other revenues reflected an increase in trade processing errors. Revenues also include the shift in the attribution of ITG Net revenue from Europe to Asia Pacific for commission share ($0.3 million) and recurring connectivity ($0.3 million).

Compensation and employee benefits expense remained relatively flat compared to the prior year period as the continued investment in staff to support the growing business and diversified product range was offset by reductions in incentive compensation and favorable currency translation.

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The decline in transaction processing costs resulted primarily from an increase in the use of POSIT to internally cross trades as well as other Multilateral Trading Facilities (MTFs), which are generally less costly than traditional exchanges. Additionally, we achieved savings on clearance and settlement costs through our efforts to migrate to a single settlement agent across Europe and to use an in-house solution for our settlement books and records. This migration was fully completed in early July 2010.

Other expenses reflect increases in (i) connectivity and market data costs due to the expansion of self-directed client business and the connectivity to new execution venues, (ii) third-party software amortization and maintenance costs relating to the implementation of the new back office systems and (iii) capitalized software amortization expense from new product releases.

The migration to a single settlement agent and to an in-house solution for our settlement books and records was completed in July 2010 when our U.K. activity was moved. Going forward, we expect the annual savings from this initiative, net of the additional other expenses described above, to be in excess of $3 million based on current trading levels.

Asia Pacific Operations

	Three Months Ended June 30,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	7,194		$	7,569		$	(375	)	(5	)
Recurring	605			55			550			1,000
Other	—			355			(355		)	(100	)
Total revenues	7,799			7,979			(180		)	(2	)

Expenses
Compensation and employee benefits	5,015			5,373			(358		)	(7	)
Transaction processing	1,836			1,687			149			9
Other expenses	5,089			4,302			787			18
Goodwill impairment	5,375			—			5,375			—
Restructuring charges	2,518			—			2,518			—
Total expenses	19,833			11,362			8,471			75
Loss before income tax expense	$	(12,034	)	$	(3,383	)	$	(8,651	)	(256	)
Pre-tax margin	NA			NA			NA

Overall, currency translation, primarily attributable to the Australian Dollar, increased total Asia Pacific revenues and expenses by $0.4 million and $1.1 million, respectively, reducing pre-tax income by $0.7 million.

Asia Pacific revenues decreased in the second quarter of 2010 due to lower commission rates, the effect of which was offset, to a large extent, by favorable currency translation. Regional revenues also include the shift in the attribution of ITG Net revenue from Europe to Asia Pacific for commission share ($0.3 million) and recurring connectivity ($0.3 million).

Compensation and employee benefits costs reflect unfavorable currency translation partially offset by the decline in headcount following our restructuring activities in both the fourth quarter of 2009 and second quarter of 2010.

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

The increase in other expenses reflects unfavorable currency translation, additional connectivity and market data fees related to business growth and higher facilities and business development charges.

As described above (see Executive Summary ), restructuring charges include costs related to employee severance, contract termination costs and non-cash write-offs of fixed assets and capitalized software in connection with closing our on-shore Japanese operation. The goodwill impairment relates to the write-off of the entire balance of goodwill in our Australia reporting unit.

Consolidated income tax expense

Our effective tax rate was 61.2% in the second quarter of 2010 compared to 40.2% in the second quarter of 2009. The increase in the second quarter 2010 effective tax rate is directly attributed to significant pre-tax losses in the Asia Pacific region where we are not recording any tax benefits due to the recording of a full valuation allowance on our deferred tax assets for net operating

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losses in the region in accordance with the guidance under U.S. GAAP. Specifically, the losses in the Asia Pacific region in the second quarter included restructuring charges of $2.5 million and a goodwill impairment charge of $5.4 million. Our consolidated effective tax rate can also vary from period to period depending on, among other factors, the geographic and business mix of our earnings.

Results of Operations — Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

U.S. Operations

	Six Months Ended June 30,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	171,486		$	204,743		$	(33,257	)	(16	)
Recurring	34,432			35,310			(878		)	(2	)
Other	2,079			(716		)	2,795			390
Total revenues	207,997			239,337			(31,340		)	(13	)

Expenses
Compensation and employee benefits	69,945			82,325			(12,380		)	(15	)
Transaction processing	23,251			27,083			(3,832		)	(14	)
Other expenses	77,237			73,436			3,801			5
Restructuring charges	(252		)	—			(252		)	—
Interest expense	430			1,813			(1,383		)	(76	)
Total expenses	170,611			184,657			(14,046		)	(8	)
Income before income tax expense	$	37,386		$	54,680		$	(17,294	)	(32	)
Pre-tax margin	18.0		%	22.8		%	(4.9		)%

While overall U.S. equity volumes were 8% lower in the first half of 2010 as compared to 2009 (as measured by the combined share volume in NYSE and NASDAQ-listed securities), commissions and fees declined 16% reflecting lower equity trading activity by our core large domestic equity fund clients, resulting in lower volumes. We also experienced a lower average commission rate as a greater percentage of our trading business came from high turnover clients that primarily use our lower rate DMA services. Partially offsetting this decline was the growth in revenues from our net executions which began in the first quarter of 2009.

	Six Months Ended June 30,
U.S. Operations: Key Indicators*	2010	2009	Change		% Change
Total trading volume (in billions of shares)	23.4	27.1	(3.7	)	(14	)
Trading volume per day (in millions of shares)	188.7	218.3	(29.6	)	(14	)
U.S. market trading days	124	124	—		—

* Includes volumes from commission-based executions and net executions and excludes activity from ITG Derivatives and ITG Net commission share arrangements.

Recurring revenues declined from cancellations of order management subscriptions and services and from the discontinuation of certain analytical product offerings.

Other revenues increased primarily due to lower trade processing errors and client accommodations partially offset by lower investment income due to lower interest rates and average invested balances.

Total expenses were down 8% compared to the first half of 2009 reflecting our cost reduction efforts which were partially offset by a $6.1 million write-off of certain capitalized software initiatives. Excluding this write-off and the adjustment to accruals for restructuring charges, total expenses in the U.S. were down 11% compared to the first half of 2009 (see Non-GAAP Financial Measures ).

Compensation and employee benefits declined 15%, in-line with the 15% headcount reduction largely attributable to our restructuring activities in the fourth quarter of 2009, a $3.0 million net reduction in employee severance (unrelated to our restructuring plan) and lower incentive compensation. Incentive compensation fluctuates based on revenues, profitability and other measures, taking into account the increasingly competitive landscape for key talent.

Transaction processing costs decreased 14% primarily reflecting the reduction in executed volumes.

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Other expenses were higher reflecting a (i) $6.1 million write-off of certain capitalized software initiatives, (ii) a $1.9 million increase in capitalized software amortization related to new product releases and (iii) the 2009 recovery of doubtful account provisions of $1.1 million, partially offset by savings from our cost reduction efforts in areas such as (i) network connectivity costs from the consolidation of our third-party network providers, (ii) consulting costs, (iii) business development and (iv) facilities and equipment costs. The capitalized software write-off relates to our ongoing assessment of our product development priorities. 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.

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

	Six Months Ended June 30,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	35,211		$	30,459		$	4,752		16
Recurring	1,842			1,109			733			66
Other	2,877			5,323			(2,446		)	(46	)
Total revenues	39,930			36,891			3,039			8

Expenses
Compensation and employee benefits	11,062			9,290			1,772			19
Transaction processing	8,001			6,891			1,110			16
Other expenses	10,001			9,100			901			10
Restructuring	(16		)	—			(16		)	—
Total expenses	29,048			25,281			3,767			15
Income before income tax expense	$	10,882		$	11,610		$	(728	)	(6	)
Pre-tax margin	27.3		%	31.5		%	(4.2		)%

Currency translation increased total Canadian revenues and expenses by $5.7 million and $4.1 million, respectively, resulting in a $1.6 million increase to pre-tax income.

Canadian average daily volumes in our client business increased 14% over the first half of 2009, however commissions and fees were slightly below prior year levels when excluding the favorable currency impact of the stronger Canadian Dollar (see Non-GAAP Financial Measures ), as average commission rates declined 11%.

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 lower in the first half of 2010 compared to the prior year period due to the increased presence of high frequency traders coupled with the narrowing of spread opportunities and the reduction in the number of inter-listed securities.

Compensation and employee benefits costs were driven higher by currency translation ($1.6 million) as well as costs associated with a new retirement plan in Canada and higher share-based compensation.

Transaction processing costs were higher due to the impact of currency translation ($1.2 million). We also incurred higher costs due to higher clearing costs associated with increased market fragmentation. However these increases were partially offset by decreases in execution costs as we benefited from more liquidity credits and executions on cheaper venues. In the third quarter of 2010, we will be migrating our Canadian settlement activities to another clearing broker with expected annual savings in excess of $2 million.

The increase in other expenses reflects an unfavorable exchange rate translation as well as higher (i) equipment depreciation, (ii) business development costs and (iii) capitalized software amortization expense related to recent product releases, partially offset by currency transaction losses incurred in 2009 from holding a non-Canadian Dollar denominated asset.

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European Operations

	Six Months Ended June 30,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	31,399		$	27,535		$	3,864		14
Recurring	7,345			6,641			704			11
Other	(435		)	309			(744		)	(241	)
Total revenues	38,309			34,485			3,824			11

Expenses
Compensation and employee benefits	16,844			17,332			(488		)	(3	)
Transaction processing	9,274			11,089			(1,815		)	(16	)
Other expenses	9,711			6,696			3,015			45
Total expenses	35,829			35,117			712			2
Income (loss) before income tax expense	$	2,480		$	(632	)	$	3,112		492
Pre-tax margin	6.5		%	(1.8		)%	8.3		%

Currency translation increased total European revenues and expenses by $0.9 million and $1.3 million, respectively, reducing our pre-tax income by $0.4 million.

Despite the reemergence of political and economic uncertainty in Europe in the latter half of the second quarter and its consequently negative effect on commission and fee revenues, market turnover increased in the first half of 2010 compared to the prior year.

European commissions and fees grew by 14% inclusive of a favorable currency translation impact of $0.7 million. Excluding this currency translation impact, commission and fees grew 12% (see Non-GAAP Financial Measures ) driven by the increased use of the POSIT crossing suite in the region. The growth in our POSIT business more than offset the impact of a decline in our client portfolio trading business primarily from U.S. clients and the shift in the attribution of $0.7 million of ITG Net commission share revenue from Europe to Asia Pacific.

Higher recurring revenues reflect increased analytical product sales, offset in part by the shift in the attribution of $0.6 million of ITG Net connectivity revenue from Europe to Asia Pacific. Other revenues fell due to a decrease in consulting fees and increased trade processing errors and client accommodations.

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

Despite the increase in commissions and fees, transaction processing costs declined as we benefited from the increased use of POSIT to internally cross trades, as well as MTFs, which are generally less costly than traditional exchanges. Additionally, we achieved cost savings from internalizing our trading books and records for our non-UK business and from switching clearing and settlement agents.

Other expenses increased $3.0 million due to investment in infrastructure to support the growing product range and improve system capacity and resilience, additional market data costs relating to the expansion of our self-directed client business, further software development amortization costs associated with new releases and lower foreign currency transaction gains than in the first half of 2009.

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Asia Pacific Operations

	Six Months Ended June 30,
$ in thousands	2010			2009			Change			% Change
Revenues
Commissions and fees	$	14,322		$	12,307		$	2,015		16
Recurring	1,113			85			1,028			1,209
Other	341			527			(186		)	(35	)
Total revenues	15,776			12,919			2,857			22

Expenses
Compensation and employee benefits	10,200			10,128			72			1
Transaction processing	3,714			2,783			931			33
Other expenses	9,908			8,186			1,722			21
Goodwill impairment	5,375			—			5,375			—
Restructuring charges	2,518			—			2,518			—
Total expenses	31,715			21,097			10,618			50
Loss before income tax expense	$	(15,939	)	$	(8,178	)	$	(7,761	)	(95	)
Pre-tax margin	NA			NA			NA

Overall, currency translation, largely attributable to the Australian Dollar, increased total Asia Pacific revenues and expenses by $1.2 million and $2.4 million, respectively, reducing pre-tax income by $1.2 million.

Asia Pacific revenues improved in the first half of 2010 benefiting from higher regional stock market indices, higher market turnover and currency translation, which more than offset the decrease in commission rates. Revenues also reflect the shift in the attribution of ITG Net revenue from Europe to Asia Pacific for commission share ($0.7 million) and recurring connectivity ($0.6 million).

The slight increase in compensation and employee benefits costs reflects unfavorable currency translation, which more than offset savings from lower headcount levels (resulting from our restructuring activities in both the fourth quarter of 2009 and second quarter of 2010).

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

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

As described above (see Executive Summary ), restructuring charges include costs related to employee severance, contract termination costs and non-cash write-offs of fixed assets and capitalized software in connection with closing our on-shore Japanese operations. The goodwill impairment relates to the write-off of the entire balance of goodwill in our Australia reporting unit.

Consolidated income tax expense

Our effective tax rate was 54.2% in the first half of 2010 compared to 42.3% in the first half of 2009. The increase in the second quarter 2010 effective tax rate is directly attributed to significant pre-tax losses in the Asia Pacific region where we are not recording any tax benefits due to the recording of a full valuation allowance on our deferred tax assets for net operating losses in the region in accordance with the guidance under U.S. GAAP. Specifically, the losses in the Asia Pacific region in the second quarter included restructuring charges of $2.5 million and a goodwill impairment charge of $5.4 million. Our consolidated effective tax rate can also vary from period to period depending on, among other factors, the geographic and business mix of our earnings.

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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. Cash is principally invested in U.S. government money market mutual funds and other money market mutual funds. At June 30, 2010, cash and cash equivalents and securities owned, at fair value amounted to $332.6 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 based upon the nature and size of customers’ trading activity and market volatility. At June 30, 2010, we had interest-bearing security deposits totaling $38.9 million with clearing organizations in the U.S. 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. 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, uncommitted pledge facilities with two banks which have no specific limitations on additional borrowing capacities are utilized (see Financing Activities below). However, in 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.

We self-clear equity trades in Hong Kong and Australia and maintain restricted cash deposits of $25.7 million to support overdraft facilities. In Europe, we maintain $38.3 million in restricted cash deposits supporting working capital facilities primarily in the form of overdraft protection for our European clearing and settlement.

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 decrease in cash flow from operating activities compared to the first half of 2009 reflects lower net income and increases in deposits with our clearing organizations, partially offset by higher non-cash expenses.

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

	Six Months Ended June 30,
(in thousands)	2010			2009
Net income	$	15,940		$	33,149
Non-cash items included in net income	54,784			42,521
Effect of changes in receivables/payables from/to customers and brokers	19,983			21,802
Effect of changes in other working capital and operating assets and liabilities	(48,857		)	(15,697		)
Net cash provided by operating activities	$	41,850		$	81,775

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 $32.1 million includes our investment in capitalizable software development projects and computer hardware, software and facilities, as well as our strategic investment in Disclosure Insight, Inc.

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Financing Activities

Net cash used in financing activities of $15.8 million primarily reflects principal repayments on our Term Loan and repurchases of ITG common stock, offset by short-term bank borrowings from our pledge and overdraft facilities arising from our U.S. and European clearing and settlement activities and the reduction of deferred compensation amounts through issuances of our common stock.

When funding our U.S. securities clearance and settlement transactions with short-term bank loans, we have uncommitted 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 - 150 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 June 30, 2010, we had $16.0 million in short-term bank loans under these pledge facilities outstanding. In Europe, we also have working capital facilities with various banks in the form of overdraft protection. At June 30, 2010, there was $13.9 million outstanding under these facilities, primarily associated with European clearance and settlement transactions.

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 half of 2010, we repurchased approximately 1.7 million shares of our common stock at a cost of approximately $28.6 million, which was funded from our available cash resources. Of these shares, 1,469,900 were purchased under an authorization by our Board of Directors for a total cost of $25.1 million (average cost of $17.09 per share). An additional 191,448 shares ($3.5 million) pertained solely to the satisfaction of minimum statutory withholding tax upon the net settlement of equity awards. In July 2010, ITG’s Board of Directors authorized the repurchase of an additional 4.0 million shares, bringing the total number of shares currently available for repurchase under ITG’s share repurchase program to 4.6 million shares. This authorization has no expiration date. The specific timing and amount of repurchases will vary based on market conditions and other factors.

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 June 30, 2010 for the U.S. Operations are as follows (dollars in millions):

	Net Capital		Excess Net Capital
U.S. Operations
ITG Inc.	$	112.4	$	110.9
AlterNet	5.7		5.4
Blackwatch	5.8		5.7
ITG Derivatives	4.6		3.6

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 June 30, 2010 is summarized in the following table (dollars in millions):

	Net Capital		Excess Net Capital
Canadian Operations
Canada	$	52.7	$	52.2
European Operations
Europe	39.3		19.4
Asia Pacific Operations
Australia	7.3		4.3
Hong Kong	22.4		5.7
Singapore	0.4		0.2
Japan	3.9		2.0

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As a result of closing our on-shore Japanese operations, we reduced the capital deployed in Japan during the second quarter of 2010 by $17 million. In July 2010, we surrendered our dealer’s license from the Japanese Financial Services Agency and as such we no longer have minimum capital requirements in Japan.

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.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

The Company is a member of various U.S. and non-U.S. exchanges and clearing houses that trade and clear securities and/or derivative contracts. Associated with its membership, the Company may be required to pay a proportionate share of financial obligations of another member who may default on its obligations to the exchanges or the clearing house. While the rules governing different exchange or clearinghouse memberships vary, in general the Company’s guarantee obligations would arise only if the exchange had previously exhausted its resources. The maximum potential payout under these memberships cannot be estimated. The Company has not recorded any contingent liability in the consolidated financial statements for these agreements and believes that any potential requirement to make payments under these agreements is remote.

As of June 30, 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.

During 2010, indicators of potential impairment caused us to perform interim impairments tests at March 31 and June 30. Those indicators included a prolonged decrease in market capitalization, a decline in recent operating results in comparison to prior years and the significant near-term uncertainty on both the global economic recovery and the outlook for the Company’s industry. Our interim impairment tests applied the same valuation techniques and sensitivity analyses used in our prior annual impairment test to our updated cash flow forecasts. Generally, the cash flow forecasts used in the first quarter testing were not materially different than those which were used in our annual testing, except for ITG Australia, where the updated cash flow forecast resulted in its fair value decreasing 31% from the annual test, but was still above its book value.

Based on the results of our March 31 interim testing, no step one goodwill impairment was indicated for any reporting unit, as the fair value of our U.S. Operations was determined to be in excess of its carrying value by 16% and the fair values of our other reporting units with goodwill were determined to be in excess of their carrying values within a range of 51% - 233%. Also, none of the outcomes of the sensitivity analyses performed impacted the step one conclusions. While no impairment of goodwill was

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indicated, we recognized the need to continue monitoring economic trends related to our business as well as the key testing assumptions used in this interim impairment test.

In the second quarter, the operating results of some reporting units did not meet their expected financial performance targets, resulting in further revisions to cash flow forecasts used in the June 30 step one impairment testing. In particular, the continued lack of market fragmentation and the continued bundling of research and execution services in the Asia Pacific region pushed results there significantly below expectations. With the exception of our Australia reporting unit, no step one goodwill impairment was indicated for any reporting unit based on the results of our June 30 interim testing, as the fair value of our U.S. Operations was determined to be in excess of its carrying value by 21% and the fair values of our remaining reporting units with unimpaired goodwill were determined to be in excess of their carrying values within a range of 70% - 161%. Also, none of the outcomes of the sensitivity analyses performed impacted the step one conclusions. As the fair value of the Australia reporting unit was determined to be below its carrying value, we performed a step two analysis to determine the implied fair value of goodwill and measure any impairment loss. Step two analysis requires valuation of the assets and liabilities of the reporting unit as if it had been acquired in a hypothetical business combination. The resultant implied fair value of goodwill is then compared with its carrying value to determine the impairment loss. At June 30, it was determined that the entire balance of goodwill in our Australia reporting unit was impaired resulting in a $5.4 million charge against earnings.

While we have determined the current 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 goodwill for one of our other 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 June 30, 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 further 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 Disclosures 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.

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.

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PART II. — OTHER INFORMATION

Item 1. Legal Proceedings

On November 21, 2006, Liquidnet, Inc. filed a lawsuit against ITG Inc. and The Macgregor Group, Inc. in the United States District Court for the District of Delaware alleging infringement of U.S. Patent No. 7,136,834 (the “‘834 patent”) by the “Channel ITG” (now ITG Channel) and “Macgregor XIP” products. The ‘834 patent had issued on November 14, 2006. After learning that Liquidnet, Inc. did not own the ‘834 patent, Investment Technology Group, Inc., ITG Inc., ITG Solutions Network, Inc. and The Macgregor Group, Inc. (collectively “ITG”) sued Liquidnet Holdings, Inc. (“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. The Delaware lawsuit was later voluntarily dismissed by Liquidnet, Inc. In its counterclaims to the New York lawsuit, Liquidnet alleged that POSIT Alert, in addition to the products above, infringes the ‘834 patent. On February 13, 2008, the Court granted ITG’s motion to amend its complaint, whereby ITG added allegations that Liquidnet committed fraud against the U.S. Patent and Trademark Office by, among other things, failing to disclose that Liquidnet derived the ‘834 patent from work done in 1997-1998 by third parties. Fact and expert discovery are now complete. The Court held a Markman hearing on December 16, 2009, and on January 19, 2010, 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. 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.

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

The following table sets forth our share repurchase activity during the first six 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.

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

From: April 1, 2010
To: April 30, 2010	21,677	17.06		—	1,482,668

From: May 1, 2010
To: May 31, 2010	537,312	16.78		528,900	953,768

From: June 1, 2010
To: June 30, 2010	375,000	16.89		375,000	578,768
Total	1,661,348	$	17.20	1,469,900

(a) This column includes the acquisition of 191,448 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.

In July 2010, ITG’s Board of Directors authorized the repurchase of an additional 4.0 million shares, bringing the total number of shares currently available for repurchase under ITG’s share repurchase program to 4.6 million shares. This authorization has no expiration date.

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 3. Defaults Upon Senior Securities

Not applicable.

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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*	Investment Technology Group, Inc. Amended and Restated 2007 Omnibus Equity Compensation Plan

	31.1*	Rule 13a-14(a) Certification

	31.2*	Rule 13a-14(a) Certification

	32.1*	Section 1350 Certification

	101	Interactive Data File
		The following furnished materials from Investment Technology Group, Inc’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, formatted in XBRL (Extensible Business Reporting Language), are collectively included herewith as Exhibit 101:

		101. INS XBRL Instance Document.
		101. SCH XBRL Taxonomy Extension Schema.
		101. CAL XBRL Taxonomy Extension Calculation Linkbase.
		101. DEF XBRL Taxonomy Extension Definition Linkbase.
		101. LAB XBRL Taxonomy Extension Label Linkbase.
		101. PRE XBRL Taxonomy Extension Presentation Linkbase.

	*	Filed herewith.

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: August 5, 2010	By:	/s/ STEVEN R. VIGLIOTTI
		Steven R. Vigliotti Chief Financial Officer and Duly Authorized Signatory of Registrant

Exhibit 10.1

INVESTMENT TECHNOLOGY GROUP, INC.

2007 OMNIBUS EQUITY COMPENSATION PLAN

Amended and Restated Effective May 11, 2010

INVESTMENT TECHNOLOGY GROUP, INC.

2007 OMNIBUS EQUITY COMPENSATION PLAN

1. Purpose

The purpose of the Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan (the “Plan”) is to provide (i) designated employees of Investment Technology Group, Inc. (the “Company”) and its subsidiaries, and (ii) non-employee members of the board of directors of the Company with the opportunity to receive grants of stock options, stock units, stock awards, dividend equivalents and other stock-based awards. The Company believes that the Plan will encourage the participants to contribute materially to the growth of the Company, thereby benefiting the Company’s stockholders, and will align the economic interests of the participants with those of the stockholders. The Plan was originally effective on May 8, 2007 upon approval by the stockholders of the Company, and previously amended and restated on May 12, 2009 upon approval by the stockholders of the Company and on August 18, 2009. This amendment and restatement will be effective May 11, 2010, subject to approval by the stockholders of the Company.

The Investment Technology Group, Inc. Non-Employee Directors Stock Option Plan (the “Director Plan”), the Investment Technology Group, Inc. Amended and Restated 1994 Stock Option and Long-term Incentive Plan (the “1994 Plan”), the Amended and Restated Investment Technology Group, Inc. Stock Unit Award Program Subplan (the “SUA Subplan”), the Amended and Restated Investment Technology Group, Inc. Directors’ Retainer Fee Subplan (the “Directors’ Retainer Fee Subplan”), and the Amended and Restated Investment Technology Group, Inc. Directors’ Equity Subplan (the “Directors’ Equity Subplan”, and collectively with the SUA Subplan and the Directors’ Retainer Fee Subplan, the “Subplans”) were merged with and into this Plan as of May 8, 2007. No additional grants will be made thereafter under the Director Plan and the 1994 Plan. Outstanding grants under the Director Plan, the 1994 Plan and the Subplans as of May 8, 2007 will continue in effect according to their terms as in effect on May 8, 2007 (subject to such amendments as the Committee (as defined below) determines appropriate, consistent with the terms of the Director Plan, the 1994 Plan or the Subplans, as applicable), and the shares with respect to such outstanding grants will be issued or transferred under this Plan. After May 8, 2007, the Subplans shall continue in effect as subplans of the Plan and grants and/or deferrals may continue to be made under the Subplans with shares associated with such grants and/or deferrals being issued under this Plan. Effective as of January 1, 2009, the Equity Deferral Award Program Subplan was added as a subplan under the Plan.

2. Definitions

Whenever used in this Plan, the following terms will have the respective meanings set forth below:

(a) “Board” means the Company’s Board of Directors.

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

(i) if any person (within the meaning of the Exchange Act), other than the Company or a Related Party, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of Voting Securities representing 35% percent or more of the total voting power of all the then-outstanding Voting Securities; or

(ii) 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

(iii) 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 (i) any such transaction in which the holders of outstanding Voting Securities immediately prior to the transaction receive (or retain), with respect to such Voting Securities, voting securities of the surviving or transferee entity representing more than 50 percent of the total voting power outstanding immediately after such transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction, or (ii) any such transaction which would result in a Related Party beneficially owning more than 50 percent of the voting securities of the surviving or transferee entity outstanding immediately after such transaction; or

(iv) 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 50 percent of the assets owned by the Company immediately prior to the transaction; or

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

(d) “Committee” means (i) with respect to Grants to Employees, the Compensation Committee of the Board or another committee appointed by the Board to administer the Plan, (ii) with respect to Grants made to Non-Employee Directors, the Board, and (iii) with respects to Grants that are intended to be “qualified performance-based compensation” under section 162(m) of the Code, a committee that consists of two or more persons appointed by the Board, all of whom shall be “outside directors” as defined under section 162(m) of the Code and related Treasury regulations.

(e) “Company” means Investment Technology Group, Inc. and any successor corporation.

(f) “Company Stock” means the common stock of the Company.

(g) “Dividend Equivalent” means an amount determined by multiplying the number of shares of Company Stock subject to a Grant by the per-share cash dividend, or the per-share fair market value (as determined by the Committee) of any dividend in consideration other than cash, paid by the Company on its Company Stock.

(h) “Employee” means a person classified as an employee of the Employer (including an officer or director who is also an employee) for payroll purposes, as determined in the sole discretion of the Employer. Notwithstanding the foregoing, if a person is engaged in a non-employee status (including, but not limited to, as an independent contractor, an individual being paid through an employee leasing company or other third party agency) and is subsequently reclassified by the Company, the Internal Revenue Service, or a court as an employee for payroll purposes, such person, for purposes of this Plan, shall be deemed an Employee from the actual (and not the effective) date of such reclassification, unless expressly provided otherwise by the Company.

(i) “Employer” means the Company and its subsidiaries.

(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(k) “Exercise Price” means the per share price at which shares of Company Stock may be purchased under an Option, as designated by the Committee.

(l) “Fair Market Value,” unless otherwise required by an applicable provision of the Code, as of any date, means the closing sales price of the Common Stock as reported on the New York Stock Exchange on the date of grant; provided, however, that at any time that the Common Stock is not quoted on the New York Stock Exchange on such trading days, Fair Market Value shall be determined by the Committee in its discretion.

(m) “Grant” means an Option, Stock Unit, Stock Award, SAR, Dividend Equivalent or Other Stock-Based Award granted under the Plan.

(n) “Grant Agreement” means the written instrument that sets forth the terms and conditions of a Grant, including all amendments thereto.

(o) “Incentive Stock Option” means an Option that is intended to meet the requirements of an incentive stock option under section 422 of the Code.

(p) “Non-Employee Director” means a member of the Board who is not an employee of the Employer.

(q) “Nonqualified Stock Option” means an Option that is not intended to be taxed as an incentive stock option under section 422 of the Code.

(r) “Option” means an option to purchase shares of Company Stock, as described in Section 7.

(s) “Other Stock-Based Award” means any Grant based on, measured by or payable in, Company Stock (other than a Grant described in Sections 7, 8, 9 or 10(a) of the Plan), as described in Section 10(b).

(t) “Participant” means an Employee or Non-Employee Director designated by the Committee to participate in the Plan.

(u) “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.

(v) “Plan” means this Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan, as in effect from time to time.

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

(x) “SAR” means a stock appreciation right as described in Section 10(a).

(y) “Stock Award” means an award of Company Stock as described in Section 9.

(z) “Stock Unit” means an award of a phantom unit representing a share of Company Stock, as described in Section 8.

(aa) “Subsidiary” or “Subsidiaries” means, with respect to any Person, any corporation, partnership, limited liability company, association or other business entity of which (a) if a corporation, fifty (50) percent 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 (b) if a partnership, limited liability company, association or other business entity, fifty (50) percent 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 (50) percent or more ownership interest in a partnership, limited liability company, association or other business entity if such Person or Persons are allocated fifty (50) percent 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.

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

3. Administration

(a) Committee . The Plan shall be administered and interpreted by the Compensation Committee of the Board or another committee appointed by the Board to administer the Plan with respect to grants to Employees. The Plan shall be administered and interpreted by the Board with respect to grants to Non-Employee Directors. The Board or committee, as applicable, that has authority with respect to a specific Grant shall be referred to as the “Committee” with respect to that Grant. Ministerial functions may be performed by an administrative committee comprised of Company employees appointed by the Committee.

(b) Committee Authority . The Committee shall have the sole authority to (i) determine the Participants to whom Grants shall be made under the Plan, (ii) determine the type, size and terms and conditions of the Grants to be made to each such Participant, (iii) determine the time when the grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability, (iv) amend the terms and conditions of any previously issued Grant, subject to the provisions of Section 18 below, and (v) deal with any other matters arising under the Plan.

(c) Committee Determinations . The Committee shall have full power and express discretionary authority to administer and interpret the Plan, to make factual determinations and to adopt or amend such rules, regulations, agreements and instruments for implementing the Plan and for the conduct of its business as it deems necessary or advisable, in its sole discretion. The Committee’s interpretations of the Plan and all determinations made by the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interest in the Plan or in any awards granted hereunder. All powers of the Committee shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated Participants.

4. Grants

(a) Grants under the Plan may consist of Options as described in Section 7, Stock Units as described in Section 8, Stock Awards as described in Section 9, and SARs or Other Stock-Based Awards as described in Section 10. All Grants shall be subject to such terms and conditions as the Committee deems appropriate and as are specified in writing by the Committee to the Participant in the Grant Agreement.

(b) All Grants shall be made conditional upon the Participant’s acknowledgement, in writing or by acceptance of the Grant, that all decisions and determinations of the Committee shall be final and binding on the Participant, his or her beneficiaries and any other person having or claiming an interest under such Grant. Grants under a particular Section of the Plan need not be uniform as among the Participants.

5. Shares Subject to the Plan

(a) Shares Authorized . The total aggregate number of shares of Company Stock that may be issued under the Plan is the sum of the following (i) 1,900,000 new shares of Company Stock plus (ii) that number of shares of Company Stock subject to outstanding grants under the Plan as of May 11, 2010 plus (iii) that number of shares remaining available for issuance under the Plan but not subject to previously exercised, vested or paid grants as of May 11, 2010; subject to the limitation that of the 1,300,000 shares added to the number of shares of Company Stock authorized for issuance under the Plan on May 12, 2009, 50,000 shares shall be used solely to grant Options.

(b) Source of Shares; Share Counting . Shares issued under the Plan may be authorized but unissued shares of Company Stock or reacquired shares of Company Stock, including shares purchased by the Company on the open market for purposes of the Plan. If and to the extent Options or SARs granted under the Plan (including options granted under the Director Plan, the 1994 Plan and the Subplans) terminate, expire, or are canceled, forfeited, exchanged or surrendered without having been exercised, and if and to the extent that any Stock Awards, Stock Units, or Other Stock-Based Awards (including any stock awards, stock units or other-stock based awards granted under the Director Plan, the 1994 Plan and the Subplans) are forfeited or terminated, or otherwise are not paid in full, the shares reserved for such Grants shall again be available for purposes of the Plan. Shares of Company Stock surrendered in payment of the Exercise Price of an Option shall again be available for purposes of the Plan. To the extent any Grants are paid in cash, and not in shares of Company Stock, any shares previously subject to such Grants shall again be available for issuance or transfer under the Plan.

(c) Individual Limits . All Grants under the Plan shall be expressed in shares of Company Stock. The maximum aggregate number of shares of Company Stock with respect to which all Grants may be made under the Plan to any individual during any calendar year shall be 1,000,000 shares, subject to adjustment as described in subsection (d) below. A Participant may not accrue Dividend Equivalents during any calendar year in excess of $1,000,000. The individual limits of this subsection (c) shall apply without regard to whether the Grants are to be paid in Company Stock or cash. All cash payments (other than with respect to Dividend Equivalents) shall equal the Fair Market Value of the shares of Company Stock to which the cash payments relate.

(d) Adjustments . If there is any change in the number or kind of shares of Company Stock outstanding by reason of a stock dividend, spinoff, stock split or reverse stock split, or by reason of a combination, reorganization, recapitalization or reclassification affecting the outstanding Company Stock as a class without the Company’s receipt of consideration, the maximum number of shares of Company Stock available for Grants, the maximum number of shares of Company Stock that any individual participating in the Plan may be granted in any year, the number of shares covered by outstanding Grants, the kind of shares issued under the Plan and outstanding Grants, and the price per share of outstanding Grants shall be equitably adjusted by the Committee, as the Committee deems appropriate, to reflect any increase or decrease in the number of, or change in the kind or value of, issued shares of Company Stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under Grants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. In addition, the Committee shall have discretion to make the foregoing equitable adjustments in any circumstances in which an adjustment is not mandated by this subsection (d) or applicable law, including in the event of a Change in Control. Any adjustments to outstanding Grants shall be consistent with section 409A or 422 of the Code, to the extent applicable. Any adjustments determined by the Committee shall be final, binding and conclusive.

6. Eligibility for Participation

(a) Eligible Persons . All Employees, including Employees who are officers or members of the Board, and all Non-Employee Directors shall be eligible to participate in the Plan.

(b) Selection of Participants . The Committee shall select the Employees and Non-Employee Directors to receive Grants and shall determine the number of shares of Company Stock subject to each Grant.

7. Options

(a) General Requirements . The Committee may grant Options to an Employee or Non-Employee Director upon such terms and conditions as the Committee deems appropriate under this Section 7. The Committee shall determine the number of shares of Company Stock that will be subject to each Grant of Options to Employees and Non-Employee Directors.

(b) Type of Option, Price and Term .

(i) The Committee may grant Incentive Stock Options or Nonqualified Stock Options or any combination of the two, all in accordance with the terms and conditions set forth herein. Incentive Stock Options may be granted only to Employees of the Company or its parents or subsidiaries, as defined in section 424 of the Code. Nonqualified Stock Options may be granted to Employees or Non-Employee Directors.

(ii) The Exercise Price of Company Stock subject to an Option shall be determined by the Committee and may be equal to or greater than the Fair Market Value of a share of Company Stock on the date the Option is granted. However, an Incentive Stock Option may not be granted to an Employee who, at the time of grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary, as defined in section 424 of the Code, unless the Exercise Price per share is not less than 110% of the Fair Market Value of the Company Stock on the date of grant.

(iii) The Committee shall determine the term of each Option, which shall not exceed ten years from the date of grant. However, an Incentive Stock Option that is granted to an Employee who, at the time of grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary, as defined in section 424 of the Code, may not have a term that exceeds five years from the date of grant.

(i) Options shall become exercisable in accordance with such terms and conditions as may be determined by the Committee and specified in the Grant Agreement. The Committee may accelerate the exercisability of any or all outstanding Options at any time for any reason.

(ii) The Committee may provide in a Grant Agreement that the Participant may elect to exercise part or all of an Option before it otherwise has become exercisable. Any shares so purchased shall be restricted shares and shall be subject to a repurchase right in favor of the Company during a specified restriction period, with the repurchase price equal to the lesser of (A) the Exercise Price or (B) the Fair Market Value of such shares at the time of repurchase, or such other restrictions as the Committee deems appropriate.

(iii) Options granted to persons who are non-exempt employees under the Fair Labor Standards Act of 1938, as amended, may not be exercisable for at least six months after the date of grant (except that such Options may become exercisable, as determined by the Committee, upon the Participant’s death, Disability or retirement, or upon a Change in Control or other circumstances permitted by applicable regulations).

(d) Termination of Employment or Service . Except as provided in the Grant Agreement, an Option may only be exercised while the Participant is employed by the Employer, or providing service as a Non-Employee Director. The Committee shall determine in the Grant Agreement under what

circumstances and during what time periods a Participant may exercise an Option after termination of employment or service.

(e) Exercise of Options . A Participant may exercise an Option that has become exercisable, in whole or in part, by delivering a notice of exercise to the Company. The Participant shall pay the Exercise Price for the Option (i) in cash, (ii) if permitted by the Committee, by delivering shares of Company Stock owned by the Participant and having a Fair Market Value on the date of exercise equal to the Exercise Price or by attestation to ownership of shares of Company Stock having an aggregate Fair Market Value on the date of exercise equal to the Exercise Price, (iii) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, or (iv) by such other method as the Committee may approve. Shares of Company Stock used to exercise an Option shall have been held by the Participant for the requisite period of time to avoid adverse accounting consequences to the Company with respect to the Option. Payment for the shares pursuant to the Option, and any required withholding taxes, must be received by the time specified by the Committee depending on the type of payment being made, but in all cases prior to the issuance of the Company Stock.

(f) Limits on Incentive Stock Options . Each Incentive Stock Option shall provide that, if the aggregate Fair Market Value of the stock on the date of the grant with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year, under the Plan or any other stock option plan of the Company or a parent or subsidiary, as defined in section 424 of the Code, exceeds $100,000, then the Option, as to the excess, shall be treated as a Nonqualified Stock Option. An Incentive Stock Option shall not be granted to any person who is not an Employee of the Company or a parent or subsidiary, as defined in section 424 of the Code.

8. Stock Units

(a) General Requirements . The Committee may grant Stock Units to an Employee or Non-Employee Director, upon such terms and conditions as the Committee deems appropriate under this Section 8. Each Stock Unit shall represent the right of the Participant to receive a share of Company Stock or an amount based on the value of a share of Company Stock. All Stock Units shall be credited to bookkeeping accounts on the Company’s records for purposes of the Plan.

(b) Terms of Stock Units . The Committee may grant Stock Units that are payable on terms and conditions determined by the Committee, which may include payment based on achievement of performance goals. Stock Units may be paid at the end of a specified vesting or performance period, or payment may be deferred to a date authorized by the Committee. The Committee shall determine the number of Stock Units to be granted and the requirements applicable to such Stock Units.

(c) Payment With Respect to Stock Units . Payment with respect to Stock Units shall be made in cash, in Company Stock, or in a combination of the two, as determined by the Committee. The Grant Agreement shall specify the maximum number of shares that can be issued under the Stock Units.

(d) Requirement of Employment or Service . The Committee shall determine in the Grant Agreement under what circumstances a Participant may retain Stock Units after termination of the Participant’s employment or service, and the circumstances under which Stock Units may be forfeited.

9. Stock Awards

(a) General Requirements . The Committee may issue shares of Company Stock to an Employee or Non-Employee Director under a Stock Award, upon such terms and conditions as the Committee deems appropriate under this Section 9. Shares of Company Stock issued pursuant to Stock Awards may be issued for cash consideration or for no cash consideration, and subject to restrictions or no restrictions, as determined by the Committee. The Committee may establish conditions under which

restrictions on Stock Awards shall lapse over a period of time or according to such other criteria as the Committee deems appropriate, including restrictions based upon the achievement of specific performance goals. The Committee shall determine the number of shares of Company Stock to be issued pursuant to a Stock Award.

(b) Requirement of Employment or Service . The Committee shall determine in the Grant Agreement under what circumstances a Participant may retain Stock Awards after termination of the Participant’s employment or service, and the circumstances under which Stock Awards may be forfeited.

(c) Restrictions on Transfer . While Stock Awards are subject to restrictions, a Participant may not sell, assign, transfer, pledge or otherwise dispose of the shares of a Stock Award except upon death as described in Section 15(a). Each certificate for a share of a Stock Award shall contain a legend giving appropriate notice of the restrictions in the Grant. The Participant shall be entitled to have the legend removed when all restrictions on such shares have lapsed. The Company may retain possession of any certificates for Stock Awards until all restrictions on such shares have lapsed.

(d) Right to Vote and to Receive Dividends . The Committee shall determine to what extent, and under what conditions, the Participant shall have the right to vote shares of Stock Awards and to receive any dividends or other distributions paid on such shares during the restriction period.

10. Stock Appreciation Rights and Other Stock-Based Awards

(a) SARs . The Committee may grant SARs to an Employee or Non-Employee Director separately or in tandem with an Option. The following provisions are applicable to SARs:

(i) Base Amount . The Committee shall establish the base amount of the SAR at the time the SAR is granted. The base amount of each SAR shall be equal to the per share Exercise Price of the related Option or, if there is no related Option, an amount that is at least equal to the Fair Market Value of a share of Company Stock as of the date of Grant of the SAR.

(ii) Tandem SARs . The Committee may grant tandem SARs either at the time the Option is granted or at any time thereafter while the Option remains outstanding; provided, however, that, in the case of an Incentive Stock Option, SARs may be granted only at the date of the grant of the Incentive Stock Option. In the case of tandem SARs, the number of SARs granted to a Participant that shall be exercisable during a specified period shall not exceed the number of shares of Company Stock that the Participant may purchase upon the exercise of the related Option during such period. Upon the exercise of an Option, the SARs relating to the Company Stock covered by such Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to the extent of an equal number of shares of Company Stock.

(iii) Exercisability . An SAR shall be exercisable during the period specified by the Committee in the Grant Agreement and shall be subject to such vesting and other restrictions as may be specified in the Grant Agreement. The Committee may grant SARs the exercise of which is subject to achievement of performance goals or other conditions. The Committee may accelerate the exercisability of any or all outstanding SARs at any time for any reason. The Committee shall determine in the Grant Agreement under what circumstances and during what periods a Participant may exercise an SAR after termination of employment or service. A tandem SAR shall be exercisable only while the Option to which it is related is exercisable.

(iv) Grants to Non-Exempt Employees . SARs granted to persons who are non-exempt employees under the Fair Labor Standards Act of 1938, as amended, may not be exercisable for at least six months after the date of grant (except that such SARs may become exercisable, as determined by the Committee, upon the Participant’s death, Disability or retirement, or upon a Change in Control or other circumstances permitted by applicable regulations).

(v) Value of SARs . When a Participant exercises SARs, the Participant shall receive in settlement of such SARs an amount equal to the value of the stock appreciation for the number of SARs exercised. The stock appreciation for an SAR is the amount by which the Fair Market Value of the underlying Company Stock on the date of exercise of the SAR exceeds the base amount of the SAR as described in subsection (i).

(vi) Form of Payment . The Committee shall determine whether the stock appreciation for an SAR shall be paid in the form of shares of Company Stock, cash or a combination of the two. For purposes of calculating the number of shares of Company Stock to be received, shares of Company Stock shall be valued at their Fair Market Value on the date of exercise of the SAR. If shares of Company Stock are to be received upon exercise of an SAR, cash shall be delivered in lieu of any fractional share.

(b) Other Stock-Based Awards . The Committee may grant other awards not specified in Sections 7, 8 or 9 or subsection (a) above that are based on or measured by Company Stock to Employees and Non-Employee Directors, on such terms and conditions as the Committee deems appropriate. Other Stock-Based Awards may be granted subject to achievement of performance goals or other conditions and may be payable in Company Stock or cash, or in a combination of the two, as determined by the Committee in the Grant Agreement.

11. Dividend Equivalents .

(a) General Requirements . When the Committee makes a Grant under the Plan, the Committee may grant Dividend Equivalents in connection with the Grant, under such terms and conditions as the Committee deems appropriate under this Section 11. Dividend Equivalents may be paid to Participants currently or may be deferred, as determined by the Committee. All Dividend Equivalents that are not paid currently shall be credited to bookkeeping accounts on the Company’s records for purposes of the Plan. Dividend Equivalents may be accrued as a cash obligation, or may be converted to Stock Units for the Participant, and deferred Dividend Equivalents may accrue interest, all as determined by the Committee. The Committee may provide that Dividend Equivalents shall be payable based on the achievement of specific performance goals.

(b) Payment with Respect to Dividend Equivalents . Dividend Equivalents may be payable in cash or shares of Company Stock or in a combination of the two, as determined by the Committee.

12. Qualified Performance-Based Compensation

(a) Designation as Qualified Performance-Based Compensation . The Committee may determine that Stock Units, Stock Awards, Dividend Equivalents or Other Stock-Based Awards granted to an Employee shall be considered “qualified performance-based compensation” under section 162(m) of the Code, in which case the provisions of this Section 12 shall apply. The Committee may also grant Options or SARs under which the exercisability of the Options is subject to achievement of performance goals as described in this Section 12 or otherwise.

(b) Performance Goals . When Grants are made under this Section 12, the Committee shall establish in writing (i) the objective performance goals that must be met, (ii) the period during which performance will be measured, (iii) the maximum amounts that may be paid if the performance goals are met, and (iv) any other conditions that the Committee deems appropriate and consistent with the requirements of section 162(m) of the Code for “qualified performance-based compensation.” The performance goals shall satisfy the requirements for “qualified performance-based compensation,” including the requirement that the achievement of the goals be substantially uncertain at the time they are established and that the performance goals be established in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the performance goals have been met. The Committee shall not have discretion to increase the amount of compensation that

is payable, but may reduce the amount of compensation that is payable, pursuant to Grants identified by the Committee as “qualified performance-based compensation.”

(c) Criteria Used for Objective Performance Goals . The Committee shall use objectively determinable performance goals based on one or more of the following criteria: stock price, earnings per share, price-earnings multiples, net earnings, operating earnings, revenue, number of days sales outstanding in accounts receivable, productivity, margin, EBITDA (earnings before interest, taxes, depreciation and amortization), net capital employed, return on assets, shareholder return, return on equity, return on capital employed, growth in assets, unit volume, sales, cash flow, market share, relative performance to a comparison group designated by the Committee, or strategic business criteria consisting of one or more objectives based on meeting specified revenue goals, market penetration goals, customer growth, geographic business expansion goals, cost targets or goals relating to acquisitions or divestitures. The performance goals may relate to one or more business units or the performance of the Company as a whole, or any combination of the foregoing. Performance goals need not be uniform as among Participants.

(d) Timing of Establishment of Goals . The Committee shall establish the performance goals in writing either before the beginning of the performance period or during a period ending no later than the earlier of (i) 90 days after the beginning of the performance period or (ii) the date on which 25% of the performance period has been completed, or such other date as may be required or permitted under applicable regulations under section 162(m) of the Code.

(e) Certification of Results . The Committee shall certify the performance results for the performance period specified in the Grant Agreement after the performance period ends. The Committee shall determine the amount, if any, to be paid pursuant to each Grant based on the achievement of the performance goals and the satisfaction of all other terms of the Grant Agreement.

(f) Death, Disability or Other Circumstances . The Committee may provide in the Grant Agreement that Grants under this Section 12 shall be payable, in whole or in part, in the event of the Participant’s death or disability, a Change in Control or under other circumstances consistent with the Treasury regulations and rulings under section 162(m) of the Code.

13. Deferrals

The Committee may permit or require a Participant to defer receipt of the payment of cash (including dividend equivalents) or the delivery of shares that would otherwise be due to the Participant in connection with any Grant. The Committee shall establish rules and procedures for any such deferrals, consistent with applicable requirements of section 409A of the Code.

14. Withholding of Taxes

(a) Required Withholding . All Grants under the Plan shall be subject to applicable federal (including FICA), state and local tax withholding requirements. The Company may require that the Participant or other person receiving or exercising Grants pay to the Company the amount of any federal, state or local taxes that the Company is required to withhold with respect to such Grants, or the Company may deduct from other wages paid by the Company the amount of any withholding taxes due with respect to such Grants.

(b) Election to Withhold Shares . If the Committee so permits, a Participant may elect to satisfy the Company’s tax withholding obligation with respect to Grants paid in Company Stock by having shares withheld, at the time such Grants become taxable, up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities. The election must be in a form and manner prescribed by the Committee.

15. Transferability of Grants

(a) Restrictions on Transfer . Except as described in subsection (b) below, only the Participant may exercise rights under a Grant during the Participant’s lifetime, and a Participant may not transfer those rights except by will or by the laws of descent and distribution. When a Participant dies, the personal representative or other person entitled to succeed to the rights of the Participant may exercise such rights. Any such successor must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Participant’s will or under the applicable laws of descent and distribution.

(b) Transfer of Nonqualified Stock Options to or for Family Members . Notwithstanding subsection (a) above, the Committee may provide, in a Grant Agreement, that a Participant may transfer Nonqualified Stock Options to family members, or one or more trusts or other entities for the benefit of or owned by family members, consistent with the applicable securities laws, according to such terms as the Committee may determine; provided that the Participant receives no consideration for the transfer of an Option and the transferred Option shall continue to be subject to the same terms and conditions as were applicable to the Option immediately before the transfer.

16. Consequences of a Change in Control

(a) In the event of a Change in Control, the Committee may take any one or more of the following actions with respect to some or all outstanding Grants, without the consent of any Participant: (i) the Committee may determine that outstanding Options and SARs shall be fully exercisable, and restrictions on outstanding Stock Awards and Stock Units shall lapse, as of the date of the Change in Control or at such other time as the Committee determines, (ii) the Committee may require that Participants surrender their outstanding Options and SARs in exchange for one or more payments by the Company, in cash or Company Stock as determined by the Committee, in an amount equal to the amount by which the then Fair Market Value of the shares of Company Stock subject to the Participant’s unexercised Options and SARs exceeds the Exercise Price, or Base Amount, as applicable, if any, and on such terms as the Committee determines, (iii) after giving Participants an opportunity to exercise their outstanding Options and SARs, the Committee may terminate any or all unexercised Options and SARs at such time as the Committee deems appropriate, (iv) with respect to Participants holding Stock Units, Other Stock-Based Awards or Dividend Equivalents, the Committee may determine that such Participants shall receive one or more payments in settlement of such Stock Units, Other Stock-Based Awards or Dividend Equivalents, in such amount and form and on such terms as may be determined by the Committee, (v) if the Company is the surviving corporation, the Committee may determine that Grants will remain outstanding after the Change in Control, or (vi) if the Company is not the surviving corporation, the Committee may determine that Grants that remain outstanding after the Change in Control shall be converted to similar grants of the surviving corporation (or a parent or subsidiary of the surviving corporation). Such acceleration, surrender, termination, settlement or conversion shall take place as of the date of the Change in Control or such other date as the Committee may specify.

(b) Other Transactions . The Committee may provide in a Grant Agreement that a sale or other transaction involving a subsidiary or other business unit of the Company shall be considered a Change in Control for purposes of a Grant, or the Committee may establish other provisions that shall be applicable in the event of a specified transaction.

17. Requirements for Issuance of Shares

No Company Stock shall be issued in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance of such Company Stock have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any Grant made to any Participant hereunder on such Participant’s undertaking in writing to comply with such restrictions on

his or her subsequent disposition of such shares of Company Stock as the Committee shall deem necessary or advisable, and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of Company Stock issued under the Plan will be subject to such stop-transfer orders and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon. Except as determined under Section 9(a), no Participant shall have any right as a shareholder with respect to Company Stock covered by a Grant until shares have been issued to the Participant.

18. Amendment and Termination of the Plan

(a) Amendment . The Board may amend or terminate the Plan at any time; provided, however, that the Board shall not amend the Plan without approval of the stockholders of the Company if such approval is required in order to comply with the Code or applicable laws, or to comply with applicable stock exchange requirements. No amendment or termination of this Plan shall, without the consent of the Participant, materially impair any rights or obligations under any Grant previously made to the Participant under the Plan, unless such right has been reserved in the Plan or the Grant Agreement, or except as provided in Section 19(b) below. Notwithstanding anything in the Plan to the contrary, the Board may amend the Plan in such manner as it deems appropriate in the event of a change in applicable law or regulations.

(b) No Repricing Without Stockholder Approval . Except as otherwise provided in Section 5(d), the terms of outstanding Grants may not be amended to reduce the exercise price of outstanding Options or the base amount of outstanding SARs or to cancel outstanding Options or SARs in exchange for cash, other awards, Options with an exercise price that is less than the exercise price of the original Options or SARs with a base amount that is less than the base amount for the original SARs, without stockholder approval.

(c) Stockholder Approval for “Qualified Performance-Based Compensation .” If Grants are made under Section 12 above, the Plan must be reapproved by the Company’s stockholders no later than the first stockholders meeting that occurs in the fifth year following the year in which the stockholders previously approved the provisions of Section 12, if additional Grants are to be made under Section 12 and if required by section 162(m) of the Code or the regulations thereunder.

(d) Termination of Plan . The Plan shall terminate on May 7, 2017, unless the Plan is terminated earlier by the Board or is extended by the Board with the approval of the stockholders. The termination of the Plan shall not impair the power and authority of the Committee with respect to an outstanding Grant.

19. Miscellaneous

(a) Grants in Connection with Corporate Transactions and Otherwise . Nothing contained in this Plan shall be construed to (i) limit the right of the Committee to make Grants under this Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including Grants to employees thereof who become Employees, or for other proper corporate purposes, or (ii) limit the right of the Company to grant stock options or make other stock-based awards outside of this Plan. Without limiting the foregoing, the Committee may make a Grant to an employee of another corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company in substitution for a grant made by such corporation. The terms and conditions of the Grants may vary from the terms and conditions required by the Plan and from those of the substituted stock incentives, as determined by the Committee.

(b) Compliance with Law . The Plan, the exercise of Options and the obligations of the Company to issue or transfer shares of Company Stock under Grants shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. With respect to persons

subject to section 16 of the Exchange Act, it is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. In addition, it is the intent of the Company that Incentive Stock Options comply with the applicable provisions of section 422 of the Code, that Grants of “qualified performance-based compensation” comply with the applicable provisions of section 162(m) of the Code and that, to the extent applicable, Grants are either exempt from, or comply with, the requirements of section 409A of the Code. To the extent that any legal requirement of section 16 of the Exchange Act or section 422, 162(m) or 409A of the Code as set forth in the Plan ceases to be required under section 16 of the Exchange Act or section 422, 162(m) or 409A of the Code, that Plan provision shall cease to apply. The Committee may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory government regulation. The Committee may also adopt rules regarding the withholding of taxes on payments to Participants.

(d) Funding of the Plan; Limitation on Rights . This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under this Plan. Nothing contained in the Plan and no action taken pursuant hereto shall create or be construed to create a fiduciary relationship between the Company and any Participant or any other person. No Participant or any other person shall under any circumstances acquire any property interest in any specific assets of the Company. To the extent that any person acquires a right to receive payment from the Company hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company.

(e) Rights of Participants . Nothing in this Plan shall entitle any Employee, Non-Employee Director or other person to any claim or right to receive a Grant under this Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any individual any rights to be retained by or in the employment or service of the Employer.

(f) No Fractional Shares . No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan or any Grant. The Committee shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

(g) Employees Subject to Taxation Outside the United States . With respect to Participants who are subject to taxation in countries other than the United States, the Committee may make Grants on such terms and conditions as the Committee deems appropriate to comply with the laws of the applicable countries, and the Committee may create such procedures, addenda and subplans and make such modifications as may be necessary or advisable to comply with such laws.

(h) Governing Law . The validity, construction, interpretation and effect of the Plan and Grant Agreements issued under the Plan shall be governed and construed by and determined in accordance with the laws of the State of New York, without giving effect to the conflict of laws provisions thereof.

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; and

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: August 5, 2010

		/s/ ROBERT C. GASSER
		Robert C. Gasser Chief Executive Officer

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.;

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: August 5, 2010
		/s/ STEVEN R. VIGLIOTTI
		Steven R. Vigliotti Chief Financial Officer

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 June 30, 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 August 5, 2010		Steven R. Vigliotti Chief Financial Officer August 5, 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.