eTrade 2000 Annual Report Download - page 59

Due to the increasing popularity of the Internet, laws and regulations may be passed dealing with issues such as user privacy,
pricing, content and quality of products and services and those regulations could adversely affect the growth of the online
financial services industry
As required by the Gramm-Leach-Bliley Act, the SEC and OTS have recently adopted regulations on financial privacy (to take effect
in July 2001), that will require E*TRADE Securities and the Bank to notify consumers about the circumstances in which they may
share consumers’ personal information with unaffiliated third parties and to give consumers the right to prohibit such information
sharing in specified circumstances. Although E*TRADE Securities and the Bank already provide such opt-out rights in our privacy
policies, the regulations will require us to modify the text and the form of presentation of our privacy policies and to incur additional
expense to ensure ongoing compliance with the regulations.
In addition, several recent reports have focused attention on the online brokerage industry. For example, the New York Attorney
General investigated the online brokerage industry and issued a report in November 1999, citing consumer complaints about delays
and technical difficulties in companies conducting online stock trading. SEC Commissioner Laura Unger also issued a report in
November 1999 on issues raised by online brokerage, including suitability and marketing issues. Most recently, the United States
General Accounting Office issued a report citing a need for better investor protection information on brokers’ Web sites.
Increased attention focused upon these issues could adversely affect the growth of the online financial services industry, which could,
in turn, decrease the demand for our services or could otherwise have a material adverse effect on our business, financial condition and
operating results.
Due to our recent acquisition of ETFC, we are subject to regulations that could restrict our ability to take advantage of good
business opportunities and that may be burdensome to comply with
Upon the completion of our acquisition of ETFC and its subsidiary, the Bank, on January 12, 2000, we became subject to regulation as
a savings and loan holding company. As a result, we are required to file periodic reports with the OTS, and are subject to examination
by the OTS. These obligations may be burdensome to comply with. Under financial modernization legislation recently enacted into
law, our activities are restricted to activities that are financial in nature and certain real estate-related activities. We may also make
merchant banking investments in companies whose activities are not financial in nature, if those investments are engaged in for the
purpose of appreciation and ultimate resale of the investment, and we do not manage or operate the company. Such merchant banking
investments may be subject to maximum holding periods and special recordkeeping and risk management requirements.
We believe that all of our existing activities and investments are permissible under the new legislation, but the OTS has not yet issued
regulations or otherwise interpreted the new statute. Even if all of our existing activities and investments are permissible, under the
new legislation we will be constrained in pursuing future new activities that are not financial in nature. We are also limited in our
ability to invest in other savings and loan holding companies. These restrictions could prevent us from pursuing certain activities and
transactions that could be beneficial to us.
In addition to regulation of us and ETFC as savings and loan holding companies, federal savings banks such as the Bank are subject to
extensive regulation of their activities and investments, their capitalization, their risk management policies and procedures, and their
relationship with affiliated companies. In addition, as a condition to approving our acquisition of ETFC, the OTS imposed various
notice and other requirements, primarily a requirement that the Bank obtain prior approval from the OTS of any future material
changes to the Bank’ s business plan. These regulations and conditions, and our inexperience with them, could affect our ability to
realize synergies
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from the acquisition, and could negatively affect both us and the Bank following the acquisition and could also delay or prevent the
development, introduction and marketing of new products and services.
Loss or reductions in revenue from order flow rebates could harm our business
Order flow revenue is comprised of rebate income from various market makers and market centers for processing transactions through
them. Order flow revenue as a percentage of revenue has decreased over the past three years. There can be no assurance that payments
for order flow will continue to be permitted by the SEC, the NASDR or other regulatory agencies, courts or governmental units. Loss
of any or all of these revenues could have a material adverse effect on our business, financial condition and operating results.
We may incur costs to avoid investment company status and may suffer adverse consequences if we are deemed to be an
investment company
2002. EDGAR Online, Inc.