eTrade 2002 Annual Report Download - page 79

Table of Contents
Index to Financial Statements
to additional laws and rules as a result of our specialist and market maker operations in Dempsey. In addition, if we were deemed to solicit
orders from our customers or make investment recommendations, we would become subject to additional rules and regulations governing,
among other things, sales practices and the suitability of recommendations to customers.
Similarly, E*TRADE Group, E*TRADE Re, LLC 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 examination by the OTS, and, in the case
of the Bank, the FDIC. Such regulation covers all banking business, including lending practices, safeguarding deposits, capital structure, record
keeping, transactions with affiliates and conduct and qualifications of personnel. In addition, we are also subject to the regulatory controls of
each specific country in which we conduct business.
Similarly, Federal, state and local governments may pass legislation affecting the privacy of financial information that could constrain our
ability to communicate, or otherwise conduct business with existing or potential customers.
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, NYSE, CFTC and the NASD 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 with respect to our banking activities. Similarly, the attorneys general of each of the states could bring legal action on behalf of the
citizens of the various states to ensure compliance with local laws. Our ability to comply with all applicable laws and rules is largely dependent
on our establishment, maintenance and enforcement of an effective compliance system. Our failure to establish and enforce proper compliance
procedures, even if unintentional, could subject us to significant losses or disciplinary or other actions.
If we do not maintain the capital levels required by regulators, we may be fined or even forced out of business
The SEC, NYSE, NASD, CFTC, OTS and various other regulatory agencies have stringent rules with respect to the maintenance of specific
levels of net capital by securities broker-dealers and regulatory capital by banks. Net capital is the net worth of a broker or dealer (assets minus
liabilities), less deductions for certain types of assets. Failure to maintain the required net capital could result in suspension or revocation of
registration by the SEC and suspension or expulsion by the NYSE and/or NASD, and could ultimately lead to the firm’ s liquidation. In the past,
our broker-dealer subsidiaries have depended largely on capital contributions by us in order to comply with net capital requirements. If such net
capital rules are changed or expanded, or if there is an unusually large charge against net capital, operations that require an intensive use of
capital could be limited. Such operations may include investing activities, marketing and the financing of customer account balances. Also, our
ability to withdraw capital from brokerage subsidiaries could be restricted, which in turn could limit our ability to pay dividends, repay debt and
redeem or purchase shares of our outstanding stock. See Note 25 of Item 8 Consolidated Financial Statements and Supplemental Data for the
minimum net capital requirements for our domestic broker-dealer subsidiaries for the current reporting period.
Similarly, the Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could harm a
bank’ s operations and financial statements. A bank must meet specific capital guidelines that involve quantitative measures of a bank’ s assets,
liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. A bank’ s capital amounts and classification
are also subject to qualitative judgments by the regulators about the strength of components of the bank’ s capital, risk weightings of assets,
off-balance-sheet transactions and other factors.
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2003. EDGAR Online, Inc.