eTrade 2011 Annual Report Download - page 20

Similarly, failure to maintain the required net capital by our securities broker-dealers could result in
suspension or revocation of registration by the SEC and suspension or expulsion by FINRA, and could ultimately
lead to the firm’s liquidation. If such net capital rules are changed or expanded, or if there is an unusually large
charge against net capital, operations that require an intensive use of capital could be limited. Such operations
may include investing activities, marketing and the financing of customer account balances. Also, our ability to
withdraw capital from brokerage subsidiaries could be restricted.
As a non-grandfathered savings and loan holding company, we are subject to activity limitations and
requirements that could restrict our ability to engage in certain activities and take advantage of business
opportunities.
Under the Gramm-Leach-Bliley Act of 1999, our activities are restricted to those that are financial in nature
and certain real estate-related activities. We believe all of our existing activities and investments are permissible
under the Gramm-Leach-Bliley Act of 1999. At the same time, we are unable to pursue future activities that are
not financial in nature or otherwise real-estate related. We are also limited in our ability to invest in other savings
and loan holding companies. The Dodd-Frank Act also requires savings and loan holding companies like ours, as
well as all of our thrift subsidiaries, to be both “well capitalized” and “well managed” in order for us to conduct
certain financial activities, such as market making and securities underwriting. We believe that we will be able to
continue to engage in all of our current financial activities. However, if we and our thrift subsidiaries are unable
to satisfy the above “well capitalized” and “well managed” requirements, we could be subject to activity
restrictions that could prevent us from engaging in market making and securities underwriting, as well as other
negative regulatory actions.
In addition, E*TRADE Bank is subject to extensive regulation of its activities and investments,
capitalization, community reinvestment, risk management policies and procedures and relationships with
affiliated companies. Acquisitions of and mergers with other financial institutions, purchases of deposits and loan
portfolios, the establishment of new depository institution subsidiaries and the commencement of new activities
by bank subsidiaries require the prior approval of the OCC and the Federal Reserve, and in some cases the FDIC,
which may deny approval or limit the scope of our planned activity. Our compliance with these regulations and
conditions could place us at a competitive disadvantage in an environment in which consolidation within the
financial services industry is prevalent. Also, these regulations and conditions could affect our ability to realize
synergies from future acquisitions, could negatively affect us following an acquisition and could also delay or
prevent the development, introduction and marketing of new products and services. In addition, E*TRADE
Clearing LLC and E*TRADE Securities LLC, as operating subsidiaries of E*TRADE Bank, are subject to
increased regulatory oversight and the same activity restrictions that are applicable to E*TRADE Bank.
Risks Relating to Owning Our Stock
We are substantially restricted by the terms of our corporate debt.
The indentures governing our corporate debt contain various covenants and restrictions that limit our ability
and certain of our subsidiaries’ ability to, among other things:
• incur additional indebtedness;
• create liens;
• pay dividends or make other distributions;
• repurchase or redeem capital stock;
• make investments or other restricted payments;
• enter into transactions with our shareholders or affiliates;
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