eTrade 2010 Annual Report Download - page 14

parties on whom we rely to conduct portions of our operations, are potentially vulnerable to security breaches
and unauthorized usage. An actual or perceived breach of the security of our technology could harm our business
and our reputation.
Vulnerability of our customers’ computers and mobile devices could lead to significant losses related to identity
theft or other fraud and harm our reputation and financial performance.
Because our business model relies heavily on our customers’ use of their own personal computers, mobile
devices and the Internet, our business and reputation could be harmed by security breaches of our customers and
third parties. Computer viruses and other attacks on our customers’ personal computer systems and mobile
devices could create losses for our customers even without any breach in the security of our systems, and could
thereby harm our business and our reputation. As part of our E*TRADE Complete Protection Guarantee, we
reimburse our customers for losses caused by a breach of security of the customers’ own personal systems. Such
reimbursements could have a material impact on our financial performance.
We rely on third party service providers to perform certain functions.
We rely on third party service providers for certain technology, processing, servicing and support functions.
These third party service providers are also subject to operational and technology vulnerabilities, which may
impact our business. An interruption in or the cessation of service by any third party service provider and our
inability to make alternative arrangements in a timely manner could have a material impact on our business and
financial performance.
Downturns in the securities markets increase the credit risk associated with margin lending or securities loaned
transactions.
We permit customers to purchase securities on margin. A downturn in securities markets may impact the
value of collateral held in connection with margin receivables and may reduce its value below the amount
borrowed, potentially creating collections issues with our margin receivables. In addition, we frequently borrow
securities from and lend securities to other broker-dealers. Under regulatory guidelines, when we borrow or lend
securities, we must simultaneously disburse or receive cash deposits. A sharp change in security market values
may result in losses if counterparties to the borrowing and lending transactions fail to honor their commitments.
We may be unsuccessful in managing the effects of changes in interest rates and the enterprise interest-earning
assets in our portfolio.
Net operating interest income is an important source of our revenue. Our results of operations depend, in
part, on our level of net operating interest income and our effective management of the impact of changing
interest rates and varying asset and liability maturities. Our ability to manage interest rate risk could impact our
financial condition. We use derivatives to help manage interest rate risk. However, the derivatives we utilize may
not be completely effective at managing this risk and changes in market interest rates and the yield curve could
reduce the value of our financial assets and reduce net operating interest income. Among other items, we
periodically enter into repurchase agreements to support the funding and liquidity requirements of E*TRADE
Bank. If we are unsuccessful in maintaining our relationships with counterparties, we could recognize substantial
losses on the derivatives we utilized to hedge repurchase agreements.
If we do not successfully manage consolidation opportunities, we could be at a competitive disadvantage.
There has recently been significant consolidation in the financial services industry and this consolidation is
likely to continue in the future. Should we be excluded from or fail to take advantage of viable consolidation
opportunities, our competitors may be able to capitalize on those opportunities and create greater scale and cost
efficiencies to our detriment.
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