eTrade 2006 Annual Report Download - page 134

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401(k) Plan
The Company has a 401(k) salary deferral program for eligible employees who have met certain service
requirements. The Company matches certain employee contributions; additional contributions to this plan are at
the discretion of the Company. Total contribution expense under this plan was $5.7 million, $5.2 million and
$5.0 million for the years ended December 31, 2006, 2005 and 2004, respectively.
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 NYSE and NASD, which requires the
maintenance of minimum net capital. The minimum net capital requirements can be met under either the
Aggregate Indebtedness method or the Alternative method. Under the Aggregate Indebtedness method, a
broker-dealer is required to maintain minimum net capital of the greater of 6
2
⁄
3
% of its aggregate indebtedness,
as defined, or a minimum dollar amount. Under the Alternative method, a broker-dealer is required to maintain
net capital equal to the greater of $250,000 or 2% of aggregate debit balances arising from customer transactions.
We use both the Aggregate Indebtedness and the Alternative methods to compute net capital. The method
used depends on the individual broker-dealer subsidiary.
As of December 31, 2006, all of the Company’s broker-dealer subsidiaries met minimum net capital
requirements. Total required net capital was $0.2 billion at December 31, 2006. In addition, the Company’s
broker-dealer subsidiaries had excess net capital of $0.6 billion at December 31, 2006.
The table below summarizes the minimum excess capital requirements for the Company’s broker-dealer
subsidiaries (dollars in thousands):
December 31, 2006
Required
Net
Capital
Net
Capital
Excess
Net
Capital
E*TRADE Clearing LLC(1) $143,530 $611,598 $468,068
E*TRADE Securities LLC(1) 250 68,639 68,389
E*TRADE Capital Markets, LLC(2) 1,332 29,906 28,574
E*TRADE Global Asset Management, Inc.(2) 890 2,581 1,691
International broker-dealers 44,976 106,386 61,410
Total $190,978 $819,110 $628,132
(1) Elected to use the Alternative method to compute net capital.
(2) Elected to use the Aggregate Indebtedness method to compute net capital.
Banking
E*TRADE Bank is subject to various regulatory capital requirements administered by Federal banking
agencies. Failure to meet minimum capital requirements can trigger certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on E*TRADE Bank’s
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action,
E*TRADE Bank must meet specific capital guidelines that involve quantitative measures of E*TRADE Bank’s
assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.
E*TRADE Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
131