eTrade 2004 Annual Report Download - page 53

Table of Contents
Index to Financial Statements
Alternative trading systems that have developed over the past few years could also reduce the levels of trading of exchange-listed
securities through specialists and the levels of over-the-counter trading through market makers. In addition, ECNs have emerged as an
alternative forum to which broker-dealers and institutional investors can direct their limit orders. This allows broker-dealers and institutional
investors to avoid directing their trades through market makers. As a result, ETCM-ES may experience a reduction in its flow of limit orders.
If we do not successfully manage consolidation opportunities, we could be at a competitive disadvantage
There has been significant consolidation in the online financial services industry over the last several years, and the consolidation is likely
to continue in the future. Should we fail to take advantage of viable consolidation opportunities or if we acquire businesses that we are unable
to integrate or manage properly, we could be placed at a competitive disadvantage. Acquisitions entail numerous risks including retaining or
hiring skilled personnel, integrating acquired operations, products and personnel and the diversion of management attention from other
business concerns. In addition, there can be no assurance that we will realize a positive return on any acquisition or that future acquisitions will
not be dilutive to earnings.
We rely heavily on technology to deliver products and services
Disruptions to or instability of our technology, including an actual or perceived breach of the security of our technology, could harm our
business and our reputation.
Our international efforts subject us to additional risks and regulation, which could impair our business growth
One component of our strategy has been an effort to build an international business. We have established certain joint venture and/or
licensee relationships. We have limited control over the management and direction of these venture partners and/or licensees, and their action
or inaction, including their failure to follow proper practices with respect to regulatory compliance and/or corporate governance, could harm
our operations and/or our reputation.
Risks Relating to the Regulation of our Business
We are subject to extensive government regulation, including banking and securities rules and regulations, which could restrict our
business practices
The securities and banking industries are subject to extensive regulation. All of our broker-dealer subsidiaries have to comply with many
laws and rules, including rules relating to possession and control of customer funds and securities, margin lending and execution and settlement
of transactions. We are also subject to additional laws and rules as a result of our specialist and market maker operations in ETCM-ES.
To the extent that, now or in the future, we solicit orders from our customers or make investment recommendations (or are deemed to
have done so), or offer products and services, such as investing in futures, that are not suitable for all investors, we would become subject to
additional rules and regulations governing, among other things, sales practices and the suitability of recommendations to customers.
As part of our institutional business we provide clients access to certain third-party research tools and other services in exchange for
commissions earned. Currently, these activities are allowed by various regulatory bodies. However, changes have been proposed in the United
Kingdom and the United States that may limit or eliminate altogether the services we could provide to clients in exchange for commissions. If
these proposals are adopted, we may realize a decrease in our institutional commission revenues.
Similarly, E*TRADE Financial Corporation, E*TRADE Re, LLC and ETBH, as savings and loan holding companies, and E*TRADE
Bank, as a Federally chartered savings bank, are subject to extensive regulation,
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