eTrade 2001 Annual Report Download - page 92

possession and control of customer funds and securities, margin lending and execution and settlement of transactions. Our ability to
comply with these rules depends largely on the establishment and maintenance of a qualified compliance system. We are also subject
to additional laws and rules as a result of our specialist and market-maker operations in Dempsey.
Similarly, E*TRADE Group and ETFC, as savings and loan holding companies, and E*TRADE Bank, as a federally chartered savings
bank and subsidiary of ETFC, are subject to extensive regulation, supervision and
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examination by the OTS, and, in the case of the Bank, the FDIC. Such regulation covers all aspects of the banking business, including
lending practices, safeguarding deposits, capital structure, record keeping, transactions with affiliates, and conduct and qualifications
of personnel.
In addition, our Business Solutions Group manages equity compensation arrangements that are highly regulated and governed by strict
accounting rules. Changes to the regulations governing such arrangements could reduce their widespread use or eliminate such
arrangements altogether.
Because of our international presence, we are also subject to the regulatory controls of each specific country in which we conduct
business.
Because we operate in an industry subject to extensive regulation, the competitive landscape in our industry can change significantly as
a result of new regulation, changes in existing regulation, or changes in the interpretation or enforcement of existing laws and rules.
For example, in November 1999, the Gramm-Leach-Bliley Act was enacted into law. This act reduces the legal barriers between
banking, securities and insurance companies, and will make it easier for financial holding companies to compete directly with our
securities business, as well as for our competitors in the securities business to diversify their revenues and attract additional customers
through entry into the banking and insurance businesses. Over time, the Gramm-Leach-Bliley Act will have a material impact on the
competitive landscape that we face. Similarly, in February 2001, the SEC approved amendments to National Association of Securities
Dealers (“NASD”) Rule 2520 governing margin requirements for “pattern day traders” which became effective September 28, 2001.
Among other requirements, these amendments will require “pattern day traders” to have deposited in their accounts a minimum equity
of $25,000 on any day in which the customer day trades. The amendments to NASD Rule 2520 could affect the behavior of certain of
our most active customers and negatively impact our revenues. In addition, the recent enactment of the USA PATRIOT Act of 2001
and associated actions by various regulatory and industry organization and money laundering regulations issued by the U.S. Treasury
Department will impose significant new “suspicious activity” reporting and other requirements on banks and securities broker-dealers.
There can be no assurance that federal, state or foreign agencies will not further regulate our business. We may also be subject to
additional regulation as the market for online commerce evolves. Because of the growth in the electronic commerce market, Congress
has held hearings on whether to regulate providers of services and transactions in the electronic commerce market. As a result, federal
or state authorities could enact laws, rules or regulations affecting our business or operations. We may also be subject to federal, state
or foreign money transmitter laws and state and foreign sales or use tax laws. If such laws are enacted or deemed applicable to us, our
business or operations could be rendered more costly or burdensome, less efficient or even impossible. Any of the foregoing could
harm our business, financial condition and operating results.
If we fail to comply with applicable securities, banking and insurance regulations, we could be subject to disciplinary actions,
damages, penalties or restrictions that could significantly harm our business
The SEC, the NASDR or other self-regulatory organizations and state securities commissions can, among other things, censure, fine,
issue cease-and-desist orders or suspend or expel a broker-dealer or any of its officers or employees. The OTS may take similar action
2002. EDGAR Online, Inc.