eTrade 2001 Annual Report Download - page 82

We sometimes allow customers to purchase securities on margin, and we are therefore subject to risks inherent in extending credit.
This risk is especially great when the market is rapidly declining and the value of the collateral we hold could fall below the amount of
a customer’ s indebtedness. Similarly, as part of our broker-dealer operations, we frequently enter into arrangements with other
broker-dealers for the lending of various securities. Under specific regulatory guidelines, any time we borrow or lend securities, we
must correspondingly disburse or receive cash deposits. If we fail to maintain adequate cash deposit levels at all times, we run the risk
of loss if there are sharp changes in market values of many securities and counterparties to the borrowing and lending transactions fail
to honor their commitments. The significant downturn in equity markets since its record high in March 2000 has led to a greater risk
that parties to stock lending transactions may fail to meet their commitments. Any such losses could harm our financial position and
results of operations. See “Management’ s Discussion and Analysis of Financial Condition and Results of Operations—Recent
Developments.”
An inability to retain and hire skilled personnel and senior management could seriously harm our ability to maintain and
grow our business
If the number of accounts and transaction volume increases significantly over current volume, there could be a shortage of qualified
and, in some cases, licensed personnel that we may then be seeking to hire which could cause a backlog in the handling of banking
transactions, the processing of brokerage orders or the promotion and processing of insurance products that need review or could slow
the growth in our customer accounts, and that could harm our business, financial condition and operating results. Competition for such
personnel is intense when transactions in our various products are high, and there can be no assurance that we will be able to retain or
hire technical persons or licensed representatives in the future.
In addition, our future success depends to a significant degree on the skills, experience and efforts of our Chairman and Chief
Executive Officer, President and Chief Customer Operations Officer, Members of the Office of the President and Managing Directors,
Chief Finance and Administration Officer, our Board of Directors, and other key management personnel. The loss of the services of
any of these individuals could compromise our ability to effectively operate our business.
If our ability to correctly process customer transactions is slowed or interrupted, we could be subject to customer litigation
and our reputation could be harmed
We process customer transactions mostly through the Internet, online service providers, touch-tone telephones, our ATM network, and
our computer systems, and 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, including any such degradation or interruption that is part of a widespread, concerted terrorist attack or computer virus could
cause substantial customer losses and 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 or “holes” in 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
• heavy stress placed on systems in the transaction process during certain peak trading times.
2002. EDGAR Online, Inc.