eTrade 2005 Annual Report Download - page 19

Table of Contents
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.
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 to the regulations
governing these activities have been proposed in the United Kingdom and the United States. If the regulations are changed in a way
that limits or eliminates altogether the services we could provide to clients in exchange for commissions, we may realize a decrease in
our institutional commission revenues.
Similarly, E*TRADE Financial Corporation, E*TRADE Re, LLC and ETB Holdings, Inc., as savings and loan holding companies, and
the Bank, as a Federally chartered savings bank, are subject to extensive regulation, supervision and examination by the Office of
Thrift Supervision (“OTS”) and, in the case of the Bank, also the Federal Deposit Insurance Corporation (“FDIC”.) Such regulation
covers all banking business, including lending practices, safeguarding deposits, capital structure, recordkeeping, transactions with
affiliates and conduct and qualifications of personnel.
If we fail to comply with applicable securities, banking and insurance laws, rules and regulations, either domestically or
internationally, we could be subject to disciplinary actions, damages, penalties or restrictions that could significantly harm our
business
The Securities and Exchange Commission (“SEC”), the New York Stock Exchange (“NYSE”), the NASD, Inc. (“NASD”) and other
self-regulatory organizations and state securities commissions can, among other things, 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. Similarly, the attorneys general of each state could bring legal action on behalf of the citizens of the various states to ensure
compliance with local laws. Regulatory agencies in countries outside of the United States have similar authority. The ability to comply
with applicable laws and rules is dependent in part on the establishment and maintenance of a reasonable compliance system. The
failure to establish and enforce reasonable compliance procedures, even if unintentional, could subject us to significant losses or
disciplinary or other actions.
If we do not maintain the capital levels required by regulators, we may be fined or even forced out of business
The SEC, NYSE, NASD, 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. Failure to maintain the required net capital could result in
suspension or revocation of registration by the SEC
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2006. EDGAR Online, Inc.