eTrade 2001 Annual Report Download - page 94

total and Tier 1 capital to risk-weighted assets and of Core Capital to adjusted tangible assets. To satisfy the capital requirements for a
well capitalized financial institution, a bank must maintain minimum total risk-based, Tier 1 risk-based, and Core Capital ratios as set
forth in the following table.
The table below summarizes the capital adequacy requirements for the Bank as of December 31, 2001 (dollars in thousands):
Actual Well Capitalized Requirements
Amount Ratio Amount Ratio
Total Capital to risk-weighted assets $ 836,866 11.52 % >$ 726,233 >10.0 %
Tier 1 Capital to risk-weighted assets $ 819,367 11.28 % >$ 435,740 >6.0 %
Core Capital to adjusted tangible assets $ 819,367 6.07 % >$ 674,588 >5.0 %
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Restrictions on the ability of, or decreased willingness of, third parties to make payments for order flow or potential payments
by us to third parties for handling orders could affect our profitability
Order flow revenue is comprised of rebate income from various market makers and market centers for processing transactions through
them. There can be no assurance that payments for order flow will continue to be permitted by the SEC, the NASDR or other
regulatory agencies, courts or governmental units. In addition, the listed marketplaces other than Nasdaq moved from trading using
fractional share prices to trading using decimals in January 2001 and the Nasdaq initiated decimalization in March 2001. With the
advent of decimalization, certain market makers have reduced payments for order flow, others have announced plans to reduce
payments for order flow, and others are taking a “wait and see” approach. It is possible that some market makers and market centers
could begin charging companies that direct order flow to them. As a majority of our order flow revenues is derived from Nasdaq listed
securities, we were negatively affected by decimalization during the quarter ended September 30, 2001. The impact of decimalization
on future revenues cannot be accurately predicted at this time, and a continued, general decrease in these revenues is expected. Further,
there can be no assurance that we will be able to continue our present relationships and terms for payments for order flow. Loss of any
or all of these revenues could harm our business.
Specialist rules may require Dempsey to make unprofitable trades or to refrain from making profitable trades
Dempsey’ s role as a specialist, at times, requires it to make trades that adversely affect its profitability. In addition, as a specialist,
Dempsey is at times required to refrain from trading for its own account in circumstances in which it may be to Dempsey’ s advantage
to trade. For example, Dempsey may be obligated to act as a principal when buyers or sellers outnumber each other. In those instances,
Dempsey may take a position counter to the market, buying or selling shares to support an orderly market in the affected stocks. In
order to perform these obligations, Dempsey holds varying amounts of securities in inventory. In addition, specialists generally may
not trade for their own account when public buyers are meeting public sellers in an orderly fashion and may not compete with public
orders at the same price. By having to support an orderly market, maintain inventory positions and refrain from trading under some
favorable conditions, Dempsey is subject to a high degree of risk. Additionally, stock exchanges periodically amend their rules and
may make the rules governing Dempsey’ s activities as a specialist more stringent or may implement other changes, which could
adversely affect its trading revenues.
2002. EDGAR Online, Inc.