eTrade 2000 Annual Report Download - page 51

A significant requirement of online commerce for financial services 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., to provide secure transmission of confidential information. Advances in computer and decryption capabilities or other
developments could result in a compromise of the methods we use to protect customer transaction data. If any such compromise were
to occur, it could materially harm our customers’ confidence in our ability to protect information which could seriously harm our
business.
Our inability to retain key customers could reduce our profitability
A significant portion of our transaction revenue is derived from sales to our Power E*TRADE customers. Market conditions over
which we have no control could significantly reduce the transaction volume generated by our Power E*TRADE customers and result
in a material adverse impact to our operating results.
Our inability to retain and hire skilled personnel and senior management could seriously harm our business
We expect staffing levels to increase substantially in the future. In particular, we have hired and intend to hire a significant number of
additional skilled personnel, including persons with experience in the computer, brokerage and banking industries, and persons with
Series 7 or other broker-dealer licenses. As the number of accounts and transaction volume increase, the shortage of qualified and, in
some cases, licensed personnel could cause a backlog in the handling of banking transactions or the processing of brokerage orders
that need review, and could have a material adverse effect on our business, financial condition and operating results. Competition for
such personnel is intense, and there can be no assurance that we will be able to retain or hire technical persons or licensed
representatives in the future.
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In addition, our future success depends to a significant degree on the skills, experience and efforts of our Chief Executive Officer,
President, Chief Financial Officer, and other key management personnel. The loss of the services of any of these individuals could
compromise our ability to effectively operate our business.
We could be subject to customer litigation and our reputation could be materially harmed if our ability to correctly process
customer transactions is slowed or interrupted
We process customer transactions mostly through the Internet, online service providers, touch-tone telephones and our computer
systems. Thus, we depend heavily on the integrity of the communications and computer systems supporting these transactions,
including our internal software programs and computer systems. A degradation or interruption in the operation of these systems could
subject us to significant customer litigation and could materially harm our reputation. Our systems or any other systems in the
transaction process could slow down significantly or fail for a variety of reasons including:
undetected errors in software programs or computer systems;
our inability to effectively resolve any error in our internal software programs or computer systems once they are detected; or
heavy stress placed on systems in the transaction process during certain peak trading times.
If our systems or any other systems in the transaction process slow down or fail even for a short time, our customers could suffer
delays in transaction processing, which could cause substantial customer losses and possibly subject us to claims for such losses or to
litigation claiming fraud or negligence. The NASDR defines a “system failure” as (i) a shutdown of the Company’ s mission critical
systems (defined as those necessary for the acceptance and execution of online securities orders) which causes the customer use of
such systems to equal or exceed system capacity during regular market hours or (ii) a shutdown of any system application necessary
for the acceptance and execution of online securities orders for a period of 15 continuous minutes that affects 25% or more of the
customers on the system from effecting securities transactions during regular market hours. We have experienced such systems failures
and degradation in the past, including failures during fiscal 2000 on January 25, 2000, March 2, 2000, and May 3, 2000, and also
October 18, 2000, in the first quarter of fiscal 2001. System failures and degradations could occur with respect to U.S. markets or
foreign markets where we must implement new transaction processing infrastructures. To promote customer satisfaction and protect
our brand name, we have, on certain occasions, compensated customers for verifiable losses from such failures.
Our ability to process securities transaction orders during systems failures or degradation depends on our having a sufficient
number of qualified customer service personnel
2002. EDGAR Online, Inc.