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TABLE OF CONTENTS

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

FORM 10-Q

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

For the quarterly period ended June 30, 2002
Commission file number: 0-23644

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

(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 ý    No o

        As of August 7, 2002, the Registrant had 48,145,408 shares of common stock, $0.01 par value, outstanding.

TABLE OF CONTENTS

         PART I.—Financial Information

        QuantEX is a registered trademark of the Investment Technology Group, Inc. companies.
POSIT is a registered service mark of the POSIT Joint Venture.

        SmartServer, SPI, SPI SmartServer, VWAP SmartServer, ITG ACE, TCA, ITG WebAccess, ITG/Opt, ITG PRIME, ResRisk, Inference Group and AlterNet are trademarks of the Investment Technology Group, Inc. companies.

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FORWARD-LOOKING STATEMENTS

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

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PART I.—FINANCIAL INFORMATION

Item 1. Financial Statements

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

See accompanying unaudited notes to condensed consolidated financial statements.

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

(1)

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

See accompanying unaudited notes to condensed consolidated financial statements.

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INVESTMENT TECHNOLOGY GROUP, INC.
Condensed Consolidated Statement of Changes in Stockholders' Equity (unaudited)
Six Months Ended June 30, 2002
(In thousands, except share amounts)

        See accompanying unaudited notes to condensed consolidated financial statements.

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

        See accompanying unaudited notes to condensed consolidated financial statements.

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

Organization and Basis of Presentation

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

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

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

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

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

Acquisitions

        In the fourth quarter of 1998, we entered into a ⁵⁰/50 joint venture with Société Générale, and founded ITG Europe. On November 18, 1998, ITG Europe launched a new agency brokerage

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operation that included the operation of a European version of the POSIT system. On May 2, 2001, we purchased Société Générale's entire interest in ITG Europe for $18.5 million. The acquisition was recorded under the purchase method of accounting. The purchase price has been allocated to assets acquired and liabilities assumed based upon estimated fair market values at the date of acquisition. The $16.7 million excess of the purchase price over the estimated fair value of the net assets acquired has been allocated to goodwill.

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

Goodwill and Other Intangibles

        In accordance with SFAS No. 142, which became effective January 1, 2002, we discontinued the amortization of goodwill as goodwill will be assessed annually for impairment. There was no impairment of goodwill upon adoption of SFAS No. 142. Other intangibles with definite lives will continue to be amortized over their useful lives.

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

        During the six months ended June 30, 2002, no goodwill was acquired, impaired or written off. As of June 30, 2002, recorded goodwill in relation to our International Operations totaled $20.2 million.

        During the six months ended June 30, 2002, no other intangibles were acquired. As of June 30, 2002, other intangibles consisted of the software license acquired from KastenNet with a carrying value of $4.1 million. We recorded amortization expense in relation to other intangibles of approximately $220,000 for the six-month period ended June 30, 2002. Estimated amortization expense for existing other intangibles is approximately $1.4 million in total for the five-year period ending December 31, 2006.

Securities Owned and Sold, Not Yet Purchased

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

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Receivables From and Payables To Brokers, Dealers and Other

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

Accounts Payable and Accrued Expenses

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

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Earnings Per Share

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

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