ITG. Raymond L. Killian Chairman, President & CEO. Howard C. Naphtali Managing Director Chief Financial Officer. The Future of Trading

Transcription

1 ITG The Future of Trading Raymond L. Killian Chairman, President & CEO Howard C. Naphtali Managing Director Chief Financial Officer

2 Safe Harbor Statement This document may contain forward-looking statements that reflect management s expectations for the future. A variety of important factors could cause results to differ materially from such statements. These factors are noted throughout the Company s 2000 Annual Report on Form 10-K and include: the actions of both current and potential new competitors, rapid changes in technology, fluctuations in market trading volumes, market volatility, changes in the regulatory environment, risk of errors or malfunctions in our systems or technology, cash flows into or redemptions from equity funds, effects of inflation, customer trading patterns, general economic and business conditions, securities, credit and financial market conditions, as well as adverse changes or volatility in interest rates. QuantEX is a registered trademark of ITG Software, Inc. POSIT is a registered service mark of the POSIT Joint Venture. SmartServer is a trademark of Investment Technology Group, Inc. TCA is a trademark of ITG Software, Inc. ACE is a trademark of Investment Technology Group, Inc ITG Inc., All Rights Reserved, Not to be reproduced without permission 2

3 Our Mission Leverage technology to help portfolio managers and traders minimize transaction costs, thereby improving performance 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 3

4 Trading Cost Measurement Investors tend to focus on explicit trading costs (which are only the tip of the iceberg) ITG s sophisticated technology, value-added content and analytic tools empower customers to measure and reduce the hidden costs while simultaneously improving the quality of the execution Explicit Costs 22% Primarily Brokerage Commissions Implicit (Hidden) Costs 78% Delay Cost Timing Gain/Loss Market Impact Opportunity Cost Source: Liquidity, Volatility, and Equity Trading Costs Across Countries and Over Time Ian Domowitz, Jack Glen, and Ananth Madhavan, January ITG Inc., All Rights Reserved, Not to be reproduced without permission 4

5 2001 Results Growth Compared to 2000 (in millions) Annual 4Q01 Actual Adjusted* Revenue 31% 22% 25% Net Income 57% 24% 32% EPS 48% 21% 28% (In Millions) $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 $76 4Q00 $0.31 $100 $0.46 4Q01 Revenue $310 $1.34 $377 $1.62 $2.50 $2.00 $1.50 $1.00 $0.50 $ ITG Inc., All Rights Reserved, Not to be reproduced without permission 5 EPS *Based upon an equivalent 252 trading days and excluding Versus and LSE one-time gains $1.65 (1) $1.62 (2) $1.58 (3) (1) Adjusted (2) GAAP (3) Ex-LSE

6 Annual Results (in millions) Revenues Pre-Tax Earnings (ex-spin) (5 YR CAGR = 27.1%) (5 YR CAGR = 27.6%) $310.4 $377.4 $232.0 $212.2 $137.0 $136.1 $113.0 $82.9 $89.4 $ ITG Inc., All Rights Reserved, Not to be reproduced without permission 6

7 Diluted Earnings Per Share Ex-Spin 4th Quarter YR CAGR = 25% 4th Quarter 3rd Quarter Adjusted-Impact of 4 Lost Trading Days $1.34 $1.29 (1) $1.62 $0.46 $1.58 (2) 2nd Quarter 1st Quarter $0.59 $0.12 $0.14 $0.18 $0.15 $0.98 $0.28 $0.33 $0.31 $0.24 $0.23 $1.03 $0.24 $0.17 $0.22 $0.31 $0.32 $0.30 (1) $0.37 $0.34 (1) $0.34 $0.39 $0.44 $0.40 (2) (1) Excluding Versus $0.33 (2) Excluding LSE Gain Note: EPS has been restated for 3 for 2 stock split effective December 7, 2001 $ ITG Inc., All Rights Reserved, Not to be reproduced without permission 7

8 ITG The Future of Trading

9 ITG Products and Services are Built on a Foundation of Technology and Research POSIT Client Site Trading Products Electronic Trading Desk Analytic Products Revenuereporting business lines Clients saved $1.2 billion in % 2001 growth ITG Research (components) Technology 76+ liquidity destinations +23% 2001 growth Ranked #1 in overall portfolio trading quality +34% 2001 growth TCA ITG/Opt ACE Analytical capabilities and trading strategies provide integral elements of system content and functionality Technology is at the heart of all ITG s capabilities electronic trading, decision-support systems, and an extensive connectivity network Revenue driver (provides incentive to do business with ITG) 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 9

10 Sources of Revenue: 98% Commissions Product diversification has been a primary strategic goal With the expansion of our other product lines, POSIT now accounts for less than half of ITG s revenues 1999 Electronic Trading Desk POSIT 20.5% 55.7% Client Site Products 22.0% Non-commission 1.8% 2000 Electronic Trading Desk POSIT 21.6% 49.8% Client Site Products 24.5% Non-commission 4.1% POSIT 2001 Electronic Trading Desk 23.8% 49.3% Client Site Products 24.9% Non-commission 2.0% 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 10

11 POSIT The world s largest equity-matching system 8 daily matches $3.6 billion of liquidity per match Broad based liquidity ❽ Average of 2,500 distinct names submitted per match ❽ Customers saved $1.2 billion in 2000, representing approximately $0.15 per share Advantages Confidential crossing at mid-point minimizes opportunity cost and eliminates market impact Low commission reduces explicit trading costs Broad coverage large & small cap liquidity Fully automated electronic orders and reports 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 11

12 Connectivity to POSIT QuantEX ITG Platform POSIT Computer-to-Computer Interface ITG Electronic Trading Desk Third Party Front Ends and Networks AutEX/TradeRoute Eze Castle LongView MacGregor/Merrin Advent 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 12 Brass

13 Client-Site Trading Products: QuantEX Advanced trading blotter complete flexibility in the organization and manipulation of trade data sophisticated user control of trading process Integrated analytics pre-calculated components quantitative analysis of trade data vs analytics / benchmarks Trading strategies generation of rules-based trading strategies Auto-trading capability complete automated trading process 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 13

14 Client-Site Trading Products: ITG Platform Access to market destinations and ITG Research toolkit Streamlined order-handling ❽ Spreadsheet orientation ❽ Efficient single stock and list handling capabilities Integration into customer environment ❽ Trade Order Management Systems ❽ Runs on clients LAN Real time analytics utilizing historical data ❽ Flexible comparisons and calculations End of day trade reporting/electronic allocations 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 14

15 Client Site Products: ITG Access Web-based application Initially POSIT and Desk destinations ❽ specify POSIT constraints ❽ file wizard for importing files Reports ❽ standard reports ❽ export report files to other systems 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 15

16 ITG Electronic Trading Desk Agency only trading singular focus on client s objectives ITG s in-house staff are most expert at using advanced ITG technology Significant value added providing greatest access to liquidity, lowest transaction costs Providing customized trading strategies to fit customers trading style 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 16

17 #1 Ranking in Portfolio Trading Quality A leading independent survey*, which evaluates broker capabilities, ranks ITG #1 in overall portfolio trading quality ahead of large bulge bracket firms The same study asked respondents to identify firms that are important for domestic portfolio trading 20% of respondents selected ITG as a top-2 firm 8% selected ITG as a lead firm In both cases, ITG ranked 4th against all major competitors (mostly large bulge bracket firms) *Source: Greenwich Associates 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 17

18 Third Party Connectivity Client-Site Trading Products Electronic Trading Desk POSIT 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 18 POSIT Trades (36%) POSIT Trades (27%) Client Site Products (QuantEX Platform) ITG Electronic Trading Desk DOT/ECN Trades POSIT Trades (37%) DOT/ECN Trades I T G C o m m i s s i o n R e v e n u e s Commission Revenue Flow

19 ITG The Future of Trading

20 How Research Contributes to ITG s Growth Trading Desk Cost Advantage ITG Product Capabilities Desktop System Features Advanced POSIT Features Increased Flow of Commission Revenue ITG Research Tools for Client Use Enhanced Competitive Positioning TCA ITG/Opt Technology Leadership Expand Product Line Increased Desktop Presence Incentive for Substantial Client Order Flow / New Relationships Potential to Increase Market Share 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 20

21 Driving Commissions to ITG: Research Products TCA TM (Transaction Cost Analysis) Growing pressure to measure costs TCA: sophisticated post-trade cost analysis ❽ Replacing paper-based end-of-quarter reports ❽ Sophisticated electronic daily and historical analyses Web-based for easy access Drives commissions to ITG when traders: ❽ Measure their trading and as a result recognize the value of using POSIT, ETD and Client Site Products ❽ Trade through ITG as compensation for the implementation and use of the TCA product 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 21

22 Driving Commissions to ITG: Research Products ITG/Opt (Portfolio Stock Selection Tool) Allows portfolio managers to maximize after-tax returns while meeting other portfolio objectives By-product of ITG s advanced quantitative, technology capabilities Developed in partnership with large clients Indirect obligation to compensate ITG through commission allocations 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 22

23 Driving Commissions to ITG: Connectivity ITG client-site trading products provide access to multiple liquidity sources ITG Strategy Servers QuantEX ITG Platform NYSE Brokers Regionals Market Makers fqd ITG Access (Web) ECNs 3rd Party Connections POSIT ITG Trading Desk Straight through processing minimizes errors frees traders to concentrate on adding value Connections to five ECNs 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 23

24 Adding Value at Every Stage of the Investment Cycle Investment Strategy Evaluation Post Trade Cost Analysis (TCA) Liquidity Sources (Connectivity) Exchanges Market Makers ECNs Traditional Brokers POSIT Order Execution Electronic Trading Desk Portfolio Trading Block Negotiation Smart Servers Portfolio Analytics Alpha Model Risk Model Performance Attribution Client Site Products Direct Access QuantEX PC Platform ITG Access Strategies Optimization Back-testing ITG/OPT Pre-trade Cost Analysis (ACE) Portfolio Formation Pre-Trade Analysis 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 24

25 ITG The Future of Trading

26 New Customer Opportunity: ITG Has Penetrated Only 46%of the Top Institutions 2000 Revenues* (In Billions) $12.7* Top 425 Institutions $11.5* ITG does business with 194 $8.5* All Institutions of the Top 425 Institutions * Source: ITG analysis of Commissioner Data ** Note: Does not include commission generated by Broker/Dealers ITG s revenue from these 194 Institutions $221.6 MM** in 2000 (Representing 71% of ITG revenue) 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 26

27 Impact of Decimalization Quoted bid-ask spreads narrow... But so does depth and the incentive to place limit orders With liquidity away from the inside quotes, it is difficult to assess the price impact of a block trade These factors greatly complicate trading, especially for blocks... Driving institutional trading to POSIT, rules-based systems like QuantEX and upstairs markets Consistent with the experience in other countries following decimalization POSIT volumes have grown since decimalization Decimalization also means faster, more volatile markets, increasing the value of our autotrading strategies and Smartservers TM With increased focus on transaction cost management, the market for research products such as ACE and TCA is larger 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 27

28 ITG The Future of Trading

29 International Objectives Provide customers with worldwide electronic access to all major equity markets Affiliates will offer execution services in major market centers to achieve Global Reach with Local Expertise Current operations in: Europe Australia Canada 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 29

30 International Expansion Europe POSIT launched in UK in 1998 ❽ Nine other markets added Early 2000: Germany, France, Spain, Italy, Holland, Switzerland & Belgium 3Q01: Sweden and Finland More than 170 international institutions have matched trades Commission breakdown by clients ❽ Approximately 82% European and 18% US Revenue grew 62% in 2001 to 11.5 million Key analytical products being introduced this year 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 30

31 International Expansion Australia Launched August 1997; became profitable in 1999 Revenue mix: 75% non-posit, 25% POSIT Market is active user of ITG research/risk management tools Launching pad for operations in Hong Kong and potentially Singapore Canada Launched October 2000 Agency trading utilizing ITG value-added products Executed agreement with Toronto Stock Exchange for POSIT to function as a facility of the Exchange ❽ Anticipated launch 2Q02 Anticipate 30% pre-tax margins at maturity 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 31

32 ITG Offices Worldwide New York Trading Research Admin. Los Angeles Software ITG Canada Toronto Boston Financial Engineering Trading / Domestic & Intl. Tel Aviv Software ITG Europe London, Dublin ITG Australia Sydney/Melbourne ITG Hong Kong 2002 ITG Inc., All Rights Reserved, Not to be reproduced without permission 32