eTrade 2000 Annual Report Download - page 22

additional securities or cash in the account so that at all times the customer’ s equity in the account is at least a fixed percentage (25%
in respect of NASDR regulations) of the value of the securities in the account. Our current internal requirement, however, is that the
customer’ s equity not fall below 30% (5% higher than the NASDR regulatory minimum). In the event a customer’ s equity falls below
such percentage, the customer will be required to increase the account’ s equity to a percentage at least five percentage points higher.
Margin lending to customers constitutes the major portion of the basis on which our net capital requirements are determined. To the
extent these activities expand, our net capital requirements around the world will increase. See “Item 7. Risk factors—We may be
fined or forced out of business if we do not maintain the net capital levels required by regulators” and “Item 7. Risk factors—As a
significant portion of our revenues come from online investing services, any downturn in the securities industry could significantly
harm our business.”
Securities Lending and Borrowing. Similar to the U.S., and subject to the local regulatory environment, we may borrow securities
both to cover short sales and to complete customer transactions in the event a customer fails to deliver securities by the required
settlement date. We collateralize such borrowings by depositing cash or securities with the lender and receive a rebate (in the case of
cash collateral) or pay a fee calculated to yield a negotiated rate of return. When lending securities, we receive cash or securities and
generally pay a rebate (in the case of cash collateral) to the other party in the transaction. Securities lending and borrowing transactions
are executed pursuant to written agreements with counterparties that require that the securities borrowed be “marked-to-market” on a
daily basis and that excess collateral be refunded or that additional collateral be furnished in the event of changes in the market value
of the securities. The securities usually are “marked-to-market” on a daily basis through the facilities of the various international
clearing organizations.
In our institutional business, we provide a number of services to a variety of clients. This mix of institutional customers includes large
pension plans and insurance groups who control billions of dollars in assets which are available for securities lending and hedge funds
that are large borrowers of securities. During fiscal 2001, we intend to explore the establishment of an international agency stock
lending business to take advantage of our presence in both the institutional and retail global markets.
Order Processing
In most international markets, there are specific or implicit rules to ensure that customers obtain the best price. There are many factors
that need to be taken into account when assessing best price, such as order size and liquidity of the stock. In each location we have
established the necessary order-routing and management systems, seeking to ensure the best possible service to our customer in this
respect. We anticipate that during fiscal 2001 we will be able to enhance this process further by the consolidation of the global
cross-border retail flow and the institutional order flow for the benefit of both the retail and institutional client base. The technology to
achieve this will be developed by combining the resources of our retail and institutional businesses with those of VERSUS, acquired in
August 2000. See “Item 7. Risk factors—We could be subject to customer litigation and our reputation could be materially harmed if
our ability to correctly process customer transactions is slowed or interrupted.’ ’
The market for online investing services in the U.S. and overseas particularly over the Internet, is rapidly evolving and intensely
competitive, and we expect competition to continue to intensify in the future. See “Item 7. Risk factors—Our business will suffer if we
cannot effectively compete.’ ’
The securities industry in the U.S. and overseas is subject to extensive regulation. See “Item 7. Risk factors—Our ability to attract
customers and our profitability may suffer if changes in government regulation favor our competition or restrict our business
practices’ ’ and “Item 7. Risk factors—We may be fined or forced out of business if we do not maintain the net capital levels required
by regulators.’ ’
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ASSET GATHERING AND OTHER
Business Overview
Our asset gathering and other business segment is comprised primarily of the business activities of our mutual fund operations, BSG,
and corporate operations.
Mutual Funds
In November 1997, we established a Mutual Fund Center, which now features more than 5,000 mutual funds, approximately 1,100 of
which are available without transaction fees or loads. The center also offers several services free of charge, such as a state-of-the-art
proprietary screening tool, and a wide spectrum of research, including risk measures, portfolio information, historical charts and online
prospectuses. Mutual fund orders received by 4:00 p.m. EST result in purchases at the net asset value of the fund as of the day of
2002. EDGAR Online, Inc.