eTrade 2000 Annual Report Download - page 8

online investing services, any downturn in the securities industry could significantly harm our business.’ ’
Securities Lending and Borrowing. We borrow securities both to cover short sales and to complete customer transactions in the event
a customer fails to deliver securities by the required settlement date. We collateralize such borrowings by depositing cash or securities
with the lender and receive a rebate (in the case of cash collateral) or pay a fee calculated to yield a negotiated rate of return. When
lending securities, we receive cash or securities and generally pay a rebate (in the case of cash collateral) to the other party in the
transaction. Securities lending and borrowing transactions are executed pursuant to written agreements with counterparties that require
that the securities borrowed be ‘‘marked-to-market’ ’ on a daily basis and that excess collateral be refunded or that additional collateral
be furnished in the event of changes in the market value of the securities. The securities usually are ‘‘marked-to-market’ ’ on a daily
basis through the facilities of the various national clearing organizations.
Order Processing
All market orders for exchange-listed securities (subject to certain size limitations) are executed at the NBBO or better, at the time of
receipt by the third market firm or exchange. The NBBO is a dynamically updated representation of the combined highest bid and
lowest offer quoted across all United States stock exchanges and market makers registered in a specific stock. Eligible orders are
exposed to the marketplace for possible price improvement, but in no case are orders executed at a price inferior to the NBBO. Limit
orders are executed based on an indicated price and time priority. All NASDAQ market orders, subject to certain size limitations, are
executed at the Best Bid/Offer, Inside Market or better at the time of receipt by the market-maker. All transaction and portfolio records
are automatically updated to reflect trading activity. Buy and sell orders placed when the markets are closed are automatically
submitted prior to the next day’ s market opening unless the customer chose to enter the order as an extended-hours transaction.
Account holders receive electronic notification of order executions, printed transaction confirmations and detailed statements. See
“Item 7. Risk factors—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.’ ’
The market for online investing services, particularly over the Internet, is rapidly evolving and intensely competitive, and we expect
competition to continue to intensify in the future. See “Item 7. Risk factors—Our business will suffer if we cannot effectively
compete.’ ’
The securities industry in the United States is subject to extensive regulation under both federal and state laws. See “Item 7. Risk
factors—Our ability to attract customers and our profitability may suffer if changes in government regulation favor our competition or
restrict our business practices’ ’ and “Item 7. Risk factors—We may be fined or forced out of business if we do not maintain the net
capital levels required by regulators.’ ’
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Access and Delivery of Services
Our services are widely accessible through multiple gateways, with automated order placement available 24 hours a day, 7 days a
week by personal computer, touch-tone telephone, Internet-enabled wireless devices, and live telephone representatives. In August
1999, we further enhanced our ability to offer a superior customer experience by introducing access to live agent customer service on a
247366 basis.
Personal Computer. Customers using personal computers can access our system through the Internet or direct modem access.
Our Web site combines an easy-to-use graphical user interface with the trading capabilities that experienced investors
demand. The Web-based system also includes direct links to many investment-related resources on the Web. Alternatively,
accessing our system by dialing directly through a modem offers a method for connecting to the trading system independent
of either the Internet or a proprietary online service.
Touch-tone Telephone. TELE*MASTER , our interactive investing system, provides customers with a convenient way to
access quotes, place orders and access portfolio information using their voice or a touch-tone telephone keypad.
Internet-enabled Wireless Devices. Customers may access our system via Internet-enabled wireless phones supporting the
Handheld Device Markup Language (HDML) or Palm VII with built in modem or Palm V handheld computer equipped with
an after-market wireless modem addition. Our Mobile E*TRADE suite of products allow customers to access quotes, place
orders, view portfolio and account information and retrieve customized investment-related information wherever the
2002. EDGAR Online, Inc.