eTrade 2000 Annual Report Download - page 57

subsidiary of ETFC, are subject to extensive regulation, supervision and examination by the OTS and, in the case of the Bank, the
Federal Deposit Insurance Corporation (“FDIC”). Such regulation covers all aspects of the banking business, including lending
practices, safeguarding deposits, capital structure, record keeping, and conduct and qualifications of personnel.
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Because of our international presence, we are also subject to the regulatory controls of each specific country in which we conduct
business.
Because we operate in an industry subject to extensive regulation, the competitive landscape in our industry can change significantly as
a result of new regulation, changes in existing regulation, or changes in the interpretation or enforcement of existing laws and rules.
For example, in November 1999, the Gramm-Leach-Bliley Act was enacted into law. This act reduces the legal barriers between
banking, securities and insurance companies, and will make it easier for bank holding companies to compete directly with our
securities business, as well as for our competitors in the securities business to diversify their revenues and attract additional customers
through entry into the banking and insurance businesses. The Gramm-Leach-Bliley Act may have a material impact on the competitive
landscape that we face.
There can be no assurance that federal, state or foreign agencies will not further regulate our business. We anticipate that we may be
required to comply with record keeping, data processing and other regulatory requirements as a result of proposed federal legislation
or otherwise. We may also be subject to additional regulation as the market for online commerce evolves. Because of the growth in the
electronic commerce market, Congress has held hearings on whether to regulate providers of services and transactions in the electronic
commerce market. As a result, federal or state authorities could enact laws, rules or regulations affecting our business or operations.
We may also be subject to federal, state or foreign money transmitter laws and state and foreign sales or use tax laws. If such laws are
enacted or deemed applicable to us, our business or operations could be rendered more costly or burdensome, less efficient or even
impossible. Any of the foregoing could have a material adverse effect on our business, financial condition and operating results.
Our inability to comply with applicable securities and banking regulations could significantly harm our business
The SEC, the NASDR or other self-regulatory organizations and state securities commissions can censure, fine, issue cease-and-desist
orders or suspend or expel a broker-dealer or any of its officers or employees. The OTS may take similar action with respect to our
banking activities. Our ability to comply with all applicable laws and rules is largely dependent on our establishment and maintenance
of a system to ensure such compliance, as well as our ability to attract and retain qualified compliance personnel. Our growth has
placed considerable strain on our ability to ensure such compliance. We could be subject to disciplinary or other actions due to
claimed noncompliance in the future, which could have a material adverse effect on our business, financial condition and operating
results.
We may be fined or forced out of business if we do not maintain the net capital levels required by regulators
The SEC, NASDR, OTS and various other regulatory agencies have stringent rules with respect to the maintenance of specific levels
of net capital by securities broker-dealers and regulatory capital by banks. Net capital is the net worth of a broker or dealer (assets
minus liabilities), less deductions for certain types of assets. If a firm fails to maintain the required net capital it may be subject to
suspension or revocation of registration by the SEC and suspension or expulsion by the NASDR, and could ultimately lead to the
firm’ s liquidation. In the past, our broker-dealer subsidiaries have depended largely on capital contributions by us in order to comply
with net capital requirements. If such net capital rules are changed or expanded, or if there is an unusually large charge against net
capital, operations that require the 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, which in turn could limit our ability to pay dividends, repay debt and redeem or purchase shares of our outstanding stock. A
large operating loss or charge against net capital could adversely affect our ability to expand or even maintain our present levels of
business, which could have a material adverse effect on our business, financial condition and operating results.
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The table below summarizes the minimum net capital requirements for our domestic broker-dealer subsidiaries as of September 30,
2000 (dollars in thousands):
Required
Net Capital
Net Capital Excess
Net Capital
E*TRADE Securities, Inc. $ 103,747 $ 479,036 $ 375,289
TIR Securities, Inc. $ 250 $ 1,161 $ 911
TIR Investor Select, Inc. $ 5 $ 351 $ 346
Marquette Securities, Inc. $ 250 $ 536 $ 286
E*TRADE Capital Markets, Inc. $ 113 $ 21,774 $ 21,661
2002. EDGAR Online, Inc.