eTrade 2003 Annual Report Download - page 8

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Table of Contents
Index to Financial Statements
Inc., (“E*TRADE Financial Corporate Services”), formerly E*TRADE Business Solutions Group Inc., a provider of stock plan administration
and options management tools; E*TRADE Securities Limited, incorporated in the U.K., E*TRADE Securities Limited, incorporated in Hong
Kong, and E*TRADE Canada Securities Corp., providers of brokerage services to both retail and institutional customers.
Products and Services. Brokerage services are based upon proprietary transaction-enabling technology and are designed primarily to
serve the needs of self-directed investors. Our services include: automated order placement and execution of market and limit equity orders;
streaming quotes; advanced trading platforms for active traders; personalized portfolio tracking; access to nearly 5,000 non-proprietary and
proprietary mutual funds; futures; options trading; bond trading and proprietary bond funds; individual retirement accounts; college savings
plan products; real-time market commentary and news; and stock option plan administration products and services. In 2003, we began offering
customers the opportunity to move some of their money market fund investments into an E*TRADE Financial Sweep Deposit Account (an
FDIC-insured bank account through E*TRADE Bank).
We offer our services to customers 24 hours a day, seven days a week through the Internet, automated telephone service, Internet-
enabled
wireless devices and direct modem access. Customers can access us in person at any one of our E*TRADE FINANCIAL Centers for help in
opening a new account or for assistance with an existing account. E*TRADE FINANCIAL Centers in New York City, San Francisco,
either alone or with our partners, branded retail brokerage websites in the U.S., Australia, Canada, Denmark, Germany, Hong Kong, Korea,
Sweden, Japan and the United Kingdom.
We provide institutional customers with online brokerage and financial services, as well as direct access to international exchanges
through a web-based platform. The platform also offers our institutional customers real-time, online access to statements and electronic
settlement capabilities. A significant part of our institutional business includes providing our customers worldwide access to research provided
by third parties. Our customers select research data they consider relevant and use it to assist in reaching trading decisions. Customers may use
a portion of the commissions that they generate in trading securities to pay for the research services. We use our proprietary system to track the
commissions a customer has generated and the corresponding research credits awarded.
Market-Making Activities. Market-making activities in listed and over-the-counter issues are conducted by Dempsey, a Chicago Stock
Exchange specialist. A specialist is a broker-dealer authorized by an exchange to be a party through which trading on the floor of the exchange
is transacted. The specialist is responsible for facilitating an underlying market, and frequently takes or is required to make, principal positions
in the securities it trades. Trading gains and losses result from these activities. While a significant portion of security trades originated by
E*TRADE Securities’ customers are directed to Dempsey, a large percentage of Dempsey’s trading volume comes from parties other than
E*TRADE Securities. GVR, a wholly owned subsidiary of Dempsey is a market-maker in the National Market System (“Nasdaq”)
and bulletin
board securities.
Margin Lending. We make margin loans to customers and employees that are collateralized by their securities. Our margin lending is
subject to the margin rules of the Board of Governors of the Federal Reserve System, NYSE margin requirements and our own internal
policies, which are more stringent than the Federal Reserve and NYSE requirements. In permitting customers and employees to purchase
securities on margin, we take the risk of a market decline that could reduce the value of the collateral held by us below the customers’
indebtedness before the collateral can be sold, which could result in losses to us. In overseas markets, the rules regarding margin lending vary
significantly and are generally not as well defined as the rules within the U.S.
Clearing Operations. Clearing operations include the confirmation, receipt, settlement, custody and delivery functions involved in
securities transactions. Performing most of our own clearing operations allows E*TRADE Clearing to retain customer free credit balances and
securities for use in margin and stock lending
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