eTrade 2006 Annual Report Download - page 33

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Commission
Retail and institutional commission revenue increased 36% to $625.3 million for 2006 compared to 2005.
The primary factors that affect our commission revenue are DARTs and average commission per trade, which is
impacted by both trade types and the mix between our domestic and international businesses. Each business has a
different pricing structure, unique to its customer base and local market practices, and as a result, a change in the
relative numbers of executed trades in these businesses impacts average commission per trade. Each business
also has different trade types (e.g. equities, options, fixed income, ETFs, CFDs and mutual funds) that can have
different commission rates. As a result, changes in the mix of trade types within either of these businesses may
impact average commission per trade.
DARTs increased 63% to 159,348 for 2006 compared to 2005. Our U.S. DART volume increased 65% from
2005, driven by both our acquisitions of BrownCo and Harrisdirect as well as organic customer growth and
engagement. Our international DARTs grew by 53% compared to 2005, driven entirely by organic growth. Our
international operations continue to be a strong growth contributor within our retail trading business, and we
believe that over time it will become a significant component of our entire business. In addition, option-related
DARTs further increased as a percentage of our total U.S. DARTs and now represent 13% of trading volume
versus 10% a year ago.
Average commission per trade decreased 13% to $12.05 for 2006 compared to 2005. The decrease was
primarily a function of the mix of customers. Main Street Investors, who generally have a higher commission per
trade, traded less during the period which resulted in a heavier weighting of Active Traders, who generally have a
lower commission per trade.
Service Charges and Fees
Service charges and fees increased 2% to $137.4 million for 2006 compared to the 2005. The increase in
service charges and fees for 2006 was due primarily to an increase in the advisory service fee income. This
increase was offset by a decrease in account maintenance fees as our retail customers became more engaged and
a greater number of customers exceeded the minimum activity levels required to avoid account maintenance fees.
We expect our account maintenance fee income to continue to decline over time; however, we expect our
advisory service fee income, which is not currently a significant portion of service charges and fees, to increase
over time as we focus on growing this product.
Principal Transactions
Principal transactions increased 11% to $110.2 million for 2006 compared to 2005. The increase in principal
transactions resulted from higher trading volumes and market volatility which were offset slightly by a decrease
in the average revenue earned per trade. Our principal transactions revenue is influenced by overall trading
volumes, the number of stocks for which we act as a market maker, the trading volumes of those specific stocks
and the performance of our proprietary trading activities.
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