eTrade 2005 Annual Report Download - page 18

Table of Contents
provision for loan losses recorded to meet additional allowance for loan loss requirements could adversely affect our financial results,
if those higher yields do not cover the provision for loan losses.
An increase in our delinquency rate could adversely affect our results of operations
Our underwriting criteria or collection methods may not afford adequate protection against the risks inherent in the loans comprising
our consumer loan portfolio. In the event of a default, the collateral value of the financed item may not cover the outstanding loan
balance and costs of recovery. In the event our portfolio of consumer finance receivables experiences higher delinquencies,
foreclosures, repossessions or losses than anticipated, our results of operations or financial condition could be adversely affected.
Risks associated with principal trading transactions could result in trading losses
A majority of our specialist and market-making revenues are derived from trading as a principal. We may incur trading losses relating to
the purchase, sale or short sale of securities for our own account, as well as trading losses in our specialist and market maker stocks.
From time to time, we may have large positions in securities of a single issuer or issuers engaged in a specific industry. Sudden
changes in the value of these positions could impact our financial results.
Reduced grants by companies of employee stock options could adversely affect our results of operations
We are a provider of stock plan administration and options management tools, and our revenue from these tools depends in part on
the size and complexity of our customers’ employee stock option and stock purchase plans. In December 2004, the Financial
Accounting Standards Board (“FASB”) issued SFAS No.123(R)
Share-Based Payment
, which among other things requires public
companies to expense employee stock options and other share-based payments at their fair value when issued. SFAS No.123(R) may
result in companies granting fewer employee options and modifying their existing employee stock purchase plans, potentially reducing
the amount of products and services we provide these companies and compelling us to incur additional costs so that our tools comply
with the new FASB statement. Additionally, we may see a reduction in commission revenues as fewer employee stock options would
be available for exercise and sale by the employees of these companies.
Reduced spreads in securities pricing, levels of trading activity and trading through market makers and/or specialists could harm
our specialist and market maker business
Computer-generated buy/sell programs and other technological advances and regulatory changes in the marketplace may continue to
tighten securities spreads. Tighter spreads could reduce revenue capture per share by our specialists and market makers, thus
reducing revenues for this line of business. In addition, new and enhanced alternative trading systems such as electronic
communications networks, or ECNs, have emerged as an alternative for individual and institutional investors, as well as broker-dealers,
to avoid directing their trades through market makers and could result in reduced revenue for our specialist and market maker business.
Advisory services subject us to additional risks
We provide advisory services to investors to aid them in their decision making and also provide full service portfolio management.
Investment decisions and suggestions are based on publicly available documents and communications with investors regarding
investment preferences and risk tolerances. Publicly available documents may be inaccurate and misleading resulting in
recommendations or transactions that are inconsistent with the investors’ intended results. In addition, advisors may not understand
investor needs and risk tolerances resulting in the recommendation or purchase of a portfolio of assets that may not be well suited for
the investor. Should we be found to have failed to know our customers or improperly advised them, we could be found liable for losses
suffered by customers, which could harm our business.
Our international efforts subject us to additional risks and regulation, which could impair our business growth
One component of our strategy has been an effort to build an international business. We have established certain joint venture and/or
licensee relationships. We have limited control over the management and direction of
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2006. EDGAR Online, Inc.