eTrade 2012 Annual Report Download - page 103

We actively manage interest rate risk positions. As interest rates change, we will re-adjust our strategy and
mix of assets, liabilities and derivatives to optimize our position. For example, a 100 basis points increase in rates
may not result in a change in value as indicated above. The Company compares the parallel shift in interest rate
changes in EVE to the established board limits in order to assess the Company’s interest rate risk on a monthly
basis. In the event that the percentage change in EVE exceeds the board limits, E*TRADE Bank’s Chief Risk
Officer, Chief Financial Officer and Treasurer must all be promptly notified in writing and decide upon a plan of
remediation. In addition, E*TRADE Bank’s Board of Directors must be promptly notified of the exception and
the planned resolution.
Market Risk
Equity Securities Risk
Equity securities risk is the risk of potential loss from investing in public and private equity securities. Our
market maker facilitates customer orders and carries equity security positions on a daily basis. From time to time,
we may carry large positions in securities of a single issuer or issuers engaged in a specific industry. As of
December 31, 2012, we held securities with a fair value of $101.3 million in long positions and $87.6 million in
short positions, for a net exposure of $13.7 million.
We are also indirectly exposed to equity securities risk in connection with securities collateralizing margin
receivables to customers, securities loaned to customers in our securities loaned programs and securities
borrowed from and lent to other broker-dealers. In order to manage equity securities risk, we may require
additional cash or collateral when necessary based upon the fair value of securities purchased on margin,
securities loaned or the underlying collateral for securities borrowed.
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