eTrade 1999 Annual Report Download - page 15

address year 2000 issues for the products and services they provide to the Company, this could have a material adverse impact on the
Company's operations and financial results. Contingency plans are being developed in the event that we, or our key vendors, will not
be year 2000 capable, but any such nonreadiness may have a negative effect on our financial results;
. The method of trading we employ depends heavily on the integrity of electronic systems outside of our control, such as online and
Internet service providers, and third-party software such as Internet browsers. A failure of any of these systems due to year 2000 issues
would interfere with the trading process and, in turn, may have a material adverse effect on our business, financial condition and
operating results.
Due to our dependence on computer technology to conduct our business, the nature and impact of year 2000 processing failures on our
business, financial condition and operating results could be material. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compatibility."
Risks Associated with Systems Failure
We receive and process trade orders mostly through the Internet, online service providers and touch-tone telephone. Thus, we depend
heavily on the integrity of the electronic systems supporting this type of trading, including our internal software programs and
computer systems. Our systems or any other systems in the trading process could slow down significantly or fail for a variety of
reasons including:
. undetected errors in our internal software programs or computer systems;
. our inability to effectively resolve any errors in our internal software programs or computer systems once they are detected; or
17
. heavy stress placed on our system during certain peak trading times.
If our systems or any other systems in the trading process slow down significantly or fail even for a short time, our customers could
suffer delays in trading, which could cause substantial losses and possibly subject us to claims for such losses or to litigation claiming
fraud or negligence. We have experienced such systems failures and degradation in the past, and on certain days in February 1999, we
again experienced similar systems failures. We could experience future system failures and degradations. To promote customer
satisfaction and protect our brand name, we have, on certain occasions, compensated customers for verifiable losses from such
failures. To date, during our systems failures, we were able to take orders by telephone, however, only associates with securities
brokers' licenses can accept telephone orders. An adequate number of such associates may not be available to take customer calls in
the event of a future systems failure. We could experience a number of adverse consequences as a result of these systems failures
including the loss of existing customers and the inability to attract or retain new customers. There can be no assurance that our network
structure will operate appropriately in any of the following events:
. subsystem, component or software failure;
. a power or telecommunications failure;
. human error;
. an earthquake, fire or other natural disaster; or
. an act of God or war.
There can be no assurance that, in any such event, we will be able to prevent an extended systems failure. Any such systems failure
that interrupts our operations could have a material adverse effect on our business, financial condition and operating results. We have
received in the past, including as a result of our systems failures in February 1999, adverse publicity in the financial press and in online
discussion forums primarily relating to systems failures.
Risks Associated with Encryption Technology
A significant barrier to online commerce is the secure transmission of confidential information over public networks. We rely on
encryption and authentication technology, including cryptography technology licensed from RSA Data Security, Inc. ("RSA"), to
provide secure transmission of confidential information. There can be no assurance that advances in computer and cryptography
capabilities or other developments will not result in a compromise of the RSA or other algorithms we use to protect customer
2002. EDGAR Online, Inc.