eTrade 2003 Annual Report Download - page 106

Table of Contents
Index to Financial Statements
Additionally, for all periods, options excluded from the calculation of diluted net income (loss) per share are approximately 45.4 million
for 2003, 46.0 million for 2002 and 42.6 million for 2001 of common stock issuable under convertible subordinated notes. These shares have
been excluded from the calculation as their effect would be anti-dilutive in the calculation of diluted income (loss) per share.
NOTE 23—REGULATORY REQUIREMENTS
Registered Broker-Dealers
The Company’s broker-dealer subsidiaries are subject to the Uniform Net Capital Rule (the “Rule”)
under the Securities Exchange Act of
1934 administered by the SEC, the New York Stock Exchange (“NYSE”) and the National Association of Securities Dealers (“NASD”),
which
requires the maintenance of minimum net capital. E*TRADE Securities and E*TRADE Clearing have elected to use the alternative method
permitted by the Rule, which requires that E*TRADE Securities and E*TRADE Clearing maintain minimum net capital equal to the greater of
$250,000 or two percent of aggregate debit balances arising from customer transactions, as defined.
Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends or make any unsecured
advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than
120% of its minimum dollar amount requirement.
The table below summarizes the minimum capital requirements for the Company’s broker-dealer subsidiaries (in thousands):
Banking
December 31, 2003
Required Net
Capital
Net Capital
Excess Net
Capital
E*TRADE Securities LLC
$
250
$
45,874
$
45,624
E*TRADE Clearing LLC
36,502
270,229
233,727
Dempsey & Company, LLC
448
17,056
16,608
GVR Company, LLC
1,000
22,483
21,483
Engelman Securities, Inc.
307
1,345
1,038
E*TRADE Professional Trading, LLC
250
2,845
2,595
Versus Brokerage Service (U.S.) Inc.
100
594
494
E*TRADE Global Asset Management, Inc.
543
13,026
12,483
International broker
-
dealers
30,157
73,035
42,878
Totals
$
69,557
$
446,487
$
376,930
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 have a
direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of
Total and Tier I capital to risk-weighted assets, Tier I Capital to adjusted total assets and Tangible Capital to tangible assets. To be categorized
as “well capitalized” under the regulatory
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