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Investment Technology Group Reports 2006 Results

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Investment Technology Group Reports 2006 Results 2006 Earnings Per Share Increases 38 Percent

NEW YORK, NY, February 1, 2007 – Investment Technology Group, Inc. (NYSE: ITG), a leading provider of technology-based trading services and transaction research, today announced that for the fourth quarter ended December 31, 2006, net income was $22.1 million, compared to net income of $21.4 million in the fourth quarter of 2005. Earnings were $0.49 per diluted share, a decrease of 2 percent versus earnings of $0.50 per diluted share in the fourth quarter of last year. ITG's total revenue for the fourth quarter of 2006 was $153.1 million, 37 percent higher than total revenue of $112.1 million for the fourth quarter of 2005. Net income for the fourth quarter of 2006 included an after-tax charge of $0.6 million, or approximately $0.015 per share, for restructuring costs in ITG's Asia Pacific region. International pre-tax operating income, exclusive of this restructuring charge, increased to $3.4 million in the fourth quarter of 2006 from $0.4 million in the fourth quarter of 2005.

Excluding the impact of the restructuring charge, operating earnings were $0.51 per diluted share in the fourth quarter of 2006 versus operating earnings of $0.50 per diluted share in the fourth quarter of last year. Pre-tax operating margins in the fourth quarter of 2006 were 23.4 percent, compared to 28.2 percent in the fourth quarter of 2005. For the full year 2006, pre-tax operating margins were 25.6 percent, compared to 26.2 percent in 2005.

For the year ended December 31, 2006, revenues were $599.5 million, net income was $97.9 million, and diluted earnings per share were $2.21. Compared to 2005, revenues increased 47 percent, net income grew 45 percent and diluted earnings per share increased 38 percent. Excluding non-operating items, 2006 revenues increased 45 percent, net income grew 38 percent, and earnings per share increased 32 percent over 2005.

“In 2006, ITG sustained volume and market share growth across all product lines as we continued to execute our strategy of providing clients with solutions that span the trading continuum while also reinvesting in the business” said Bob Gasser, ITG's Chief Executive Officer and President. “Broader distribution of our Radical and Triton direct market access products continues to feed growth in both the institutional demand for our POSIT anonymous block crossing suite, and algorithmic trading offerings. POSIT 2006 average daily executed volume was 46.9 million shares resulting in a 37% increase over 2005.”

ITG's International revenues were $33.1 million in the fourth quarter of 2006, 35 percent higher than revenues of $24.5 million in the fourth quarter of 2005. For the full year, international operating revenues were $118.1 million, representing 28 percent growth over 2005. In 2006, international pre-tax operating income was $9.9 million, up 94 percent from $5.1 million in 2005.

“ITG's Canadian revenues grew significantly in 2006, increasing 45 percent over 2005,” said Mr. Gasser. “In addition, ITG's European revenues were also a highlight this year, growing 19 percent over 2005 as we moved forward with the globalization of our product line,” said Mr. Gasser.

Conference Call


ITG has scheduled a conference call today at 11:00 a.m. ET to discuss fourth quarter results. Those wishing to listen to the call should dial 1-800-798-2884 and enter the pass code 74289080 at least 10 minutes prior to the start of the call to ensure connection. The conference call and webcast will also be accessible through ITG's web site at http://www.itg.com. For those unable to listen to the live broadcast of the call, a replay will be available for one week by dialing 1-888-286-8010 and entering the pass code 81888202. The replay will be available starting approximately two hours after the completion of the conference call.

About Investment Technology Group
Investment Technology Group, Inc. (NYSE:ITG), is a specialized agency brokerage and technology firm that partners with clients globally to provide innovative solutions spanning the entire investment process. A pioneer in electronic trading, ITG has a unique approach that combines pre-trade analysis, order management, trade execution, and post-trade evaluation to provide clients with continuous improvements in trading and cost efficiency. The firm is headquartered in New York with offices in North America, Europe and the Asia Pacific regions. For more information on ITG, please visit www.itg.com.

In addition to historical information, this press release may contain "forward-looking" statements, as defined in the Private Securities Litigation Reform Act of 1995, that reflect management's expectations for the future. A variety of important factors could cause results to differ materially from such statements. These factors include the company's ability to achieve expected future levels of sales; the actions of both current and potential new competitors; rapid changes in technology; financial market volatility; general economic conditions in the United States and elsewhere; evolving industry regulation; cash flows into or redemption from equity funds; effects of inflation; customer trading patterns; and new products and services. These and other risks are described in greater detail in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and other documents filed with the Securities and Exchange Commission and available on the company's web site.

Click Here for Financial Information

Investor and Media Relations Contact:
Alicia Curran
(212) 444-6130


 INVESTMENT TECHNOLOGY GROUP, INC.
Consolidated Statements of Income (unaudited)
(In thousands, except per share amounts)
		Three Months Ended December 31,		Year Ended December 31,	
		2006		2005		2006		2005	
Revenues:			 		 		 		 
Commissions		$	129,420	 	$	106,293	 	$	494,689	 	$	386,331	 
Recurring		18,723	 	3,403	 	73,660	 	10,709	 
Other		4,974	 	2,390	 	31,135	 	11,121	 
Total revenues		153,117	 	112,086	 	599,484	 	408,161	 
									
Expenses:			 		 		 		 
Compensation and employee benefits		55,689	 	43,366	 	211,420	 	151,225	 
Transaction processing		22,732	 	14,693	 	80,704	 	57,842	 
Occupancy and equipment		10,572	 	7,394	 	38,296	 	28,862	 
Telecommunications and data processing services		7,806	 	5,295		30,409	 	20,134	 
Other general and administrative		18,419	 	9,765		64,471	 	41,002	 
Interest expense		2,942	 	—		12,220	 	—	 
Total expenses		118,160	 	80,513		437,520	 	299,065	 
Income before income tax expense		34,957	 	31,573		161,964	 	109,096	 
Income tax expense		12,902	 	10,155		64,041	 	41,410	 
Net income		$	22,055	 	$	21,418	 	$	97,923	 	$	67,686	 
													
Earnings per share:			 				 		 
Basic		$	0.51	 	$	0.50	 	$	2.26	 	$	1.61	 
Diluted		$	0.49	 	$	0.50	 	$	2.21	 	$	1.60	 
													
Basic weighted average number of common shares outstanding		43,649	 	42,455	 	43,350	 	42,152	 
Diluted weighted average number of common shares outstanding		44,554	 	42,919	 	44,289	 	42,391	 
INVESTMENT TECHNOLOGY GROUP, INC.
Consolidated Statements of Financial Condition 
(In thousands, except share amounts)
		December 31,
2006
(unaudited)		December 31,
2005	
					
Assets			 		 
Cash and cash equivalents		$	316,256	 	$	261,044	 
Cash restricted or segregated under regulations and other		18,652	 	7,007	 
Securities owned, at fair value		6,540	 	6,017	 
Receivables from brokers, dealers and other, net		590,060	 	485,012	 
Investments		9,299	 	10,628	 
Premises and equipment, net		34,740	 	22,292	 
Capitalized software, net		32,203	 	12,780	 
Goodwill		396,748	 	176,773	 
Other intangibles, net		29,366	 	12,173	 
Deferred taxes		15,406	 	7,972	 
Other assets		12,016	 	14,636	 
Total assets		$	1,461,286	 	$	1,016,334	 
			 		 
Liabilities and Stockholders' Equity			 		 
Liabilities:			 		 
Accounts payable and accrued expenses		$	167,904	 	$	109,442	 
Payables to brokers, dealers and other		516,945	 	435,141	 
Securities sold, not yet purchased, at fair value		137	 	91	 
Income taxes payable		7,366	 	9,354	 
Long term debt		160,900	 	—	 
Total liabilities		853,252	 	554,028	 
			 		 
Commitments and contingencies			 		 
Stockholders' Equity			 		 
			 		 
Preferred stock, par value $0.01; 1,000,000 shares authorized; no shares issued or outstanding		—	 	—	 
Common stock, par value $0.01; 100,000,000 shares authorized; 51,443,560 and 51,390,027 shares issued at December 31, 2006 and 2005, respectively and 43,809,993 and 42,773,651 shares outstanding at December 31, 2006 and 2005, respectively		514	 	514	 
Additional paid-in capital		198,419	 	175,600	 
Retained earnings		540,570	 	442,647	 
Common stock held in treasury, at cost; 7,633,567 and 8,616,376 shares at December 31, 2006 and 2005, respectively		(144,173	)	(162,735	)
Accumulated other comprehensive income (net of tax)		12,704	 	6,280	 
Total stockholders' equity		608,034	 	462,306	 
Total liabilities and stockholders' equity		$	1,461,286	 	$	1,016,334	 
INVESTMENT TECHNOLOGY GROUP, INC. Reconciliation of US GAAP Results to Pro Forma Operating Results (unaudited) In evaluating the Company's financial performance, management reviews results from operations which excludes non-operating or one-time charges. Pro forma earnings per share is a non-GAAP (generally accepted accounting principles) performance measure, but the Company believes that it is useful to assist investors in gaining an understanding of the trends and operating results for the Company's core businesses. Pro forma earnings per share should be viewed in addition to, and not in lieu of, the Company's reported results under US GAAP. The following is a reconciliation of US GAAP results to pro forma results for the periods presented (in thousands except per share amounts):
	Three Months Ended December 31,		Year Ended December 31,
	2006	2005		2006	2005
					
Total revenues 	$	153,117	$	112,086		$	599,484	$	408,161
   Less:					
   Non-operating revenue (1)(2)	—	—		(13,230)	(3,107)
Pro forma operating revenues 			153,117	112,086		586,254	405,054
					
Total expenses			118,160	80,513		437,520	299,065
   Less:					
   Non-operating expense (3)	(917)	—		(1,421)	—
Pro forma operating expenses	117,243	80,513		436,099	299,065
					
Income before income tax expense	34,957	31,573		161,964	109,096
  Effect of pro forma adjustments 			917	—		(11,809)	(3,107)
Pro forma operating income before income tax expense	35,874	31,573		150,155	105,989
					
Income tax expense			12,902	10,155		64,041	41,410
   Tax effect of pro forma adjustments	275	—		(4,684)	(1,141)
Pro forma operating income tax expense	13,177	10,155		59,357	40,269
					
Net income	22,055	21,418		97,923	67,686
    Net effect of pro forma adjustments			642	—	—	(7,125)	(1,966)
Pro forma operating net income	$	22,697	$	21,418		$	90,798	$	65,720
					
Diluted earnings per share	$	0.49	$	0.50		$	2.21	$	1.60
  Net effect of pro forma adjustments	0.02	—		     (0.16)	(0.05)
Pro forma diluted operating earnings per share	$	0.51	$	0.50		$	2.05	$	1.55

Notes: (1) In 2006, non-operating revenues relate to: a) our ownership of two memberships on the New York Stock Exchange (“NYSE”) that as part of their merger with Archipelago Holdings, Inc. (“Archipelago”) were combined under a new holding company named NYSE Group, Inc. in which each NYSE member received compensation consisting of cash and restricted shares of NYSE Group, Inc. common stock. Accordingly, consideration received for our memberships in First Quarter 2006 consisted of 157,202 restricted shares of NYSE Group, Inc. common stock resulting in gains of approximately $6.9 million and approximately $1.0 million in cash and dividends, which was recorded as dividend income. In Second Quarter 2006, we were able to sell a portion of the shares received and recorded an additional gain of approximately $80,000, and

b) our sale in Second Quarter 2006 of our remaining interests in a Canadian joint venture that we entered into in 2004 with IRESS Market Technology Limited (“IRESS”), to IRESS resulting in a gain of $5.4 million.

(2) 2005 non-operating revenue is comprised of gains ($2.5 million) from our shares of Archipelago Holdings common stock that we received as part of an equity entitlement program, as well as a recovery against previous investment write-downs of $0.6 million for the year.

(3) We recorded a management restructuring charge in our Asia Pacific Region of $0.9 million in the fourth quarter and $0.5 million in the third quarter for a total of $1.4 million for the year ended December 31, 2006.

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