eTrade 2006 Annual Report Download - page 6

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Institutional
Our institutional segment includes market-making activities which match buyers and sellers of securities
from both the retail segment and unrelated third parties, often taking principal positions in these securities.
Institutional customers are offered access to a range of execution services through traditional sales traders and
direct market access to exchanges.
We act as a specialist on the Chicago Stock Exchange for listed securities through E*TRADE Capital
Markets, LLC. A specialist is a broker-dealer authorized by an exchange through which trading on the floor of
the exchange is transacted. As a specialist, we are responsible for maintaining an orderly market in the securities
assigned to us by the exchange and are frequently required to take principal positions in these securities.
We act as a market maker in certain over-the-counter issues. A market maker’s function is similar to that of
a specialist except that its trading activities are not on the floor of the exchange. The majority of our share
volume for market-making activities involves bulletin board securities, which are securities that are not listed on
the NASDAQ Global Select Market (“NASDAQ”) or a national securities exchange.
As a market maker, we take positions in securities and function as a wholesale trader by combining trading
lots to match buyers and sellers of securities. Trading gains and losses result from these activities. Our revenues
are influenced by overall trading volumes, the number of stocks for which we act as a market maker or a
specialist and the trading volumes and volatility of those specific stocks.
We also transact large block trading activity on the New York Stock Exchange (“NYSE”) and NASDAQ
exchanges. In addition, we provide institutional customers with trade execution services, including direct access
to international exchanges. Our web-based platform offers real-time, online access to statements and electronic
settlement capabilities.
In addition to activities with external customers, the institutional segment includes the management of our
balance sheet. Balance sheet management functions focus on asset allocation and managing interest rate risk,
credit risk and liquidity risk. The retail segment team works in conjunction with the institutional team by
originating margin receivables and loans and by gathering retail deposits which are leveraged by the institutional
group to enhance overall net interest income.
For additional statistical information regarding products and customers, see Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) beginning on page 23.
Three years of segment financial performance and data can also be found in MD&A beginning on page 39.
CUSTOMER SERVICE
We believe providing superior customer service is fundamental to our business. During 2006, we
significantly increased the number of customer service representatives and relationship managers in order to
increase the quality of our service. We created a new service tier that focuses on the growth and retention of the
mass affluent customer. Customers in this category will receive a more personalized level of service from
representatives dedicated to providing complete financial solutions. We also added eight new E*TRADE
Financial Centers in the United States, which are available to retail customers for any of their customer service
needs.
TECHNOLOGY
We believe our focus on being a technological leader in the financial services industry enhances our
competitive position. This focus allows us to deploy a secure, scalable technology and a back office platform that
promotes innovative product development and delivery. During 2006, we continued to enhance our leading
family of E*TRADE Complete optimizer products by enabling our customers to evaluate their investment and
lending choices through the Intelligent Investment and Risk Optimizer as well as the Intelligent Lending
Optimizer. We further strengthened our leading edge technology for our retail trading customers with the
introduction of new conditional order functionality including trailing stops for options and group orders. Our
ongoing commitment to investing in our technology infrastructure continued with our conversion to a new
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