eTrade 2008 Annual Report Download - page 34

Operating interest income and operating interest expense reflect income and expense on hedges that qualify
for hedge accounting under SFAS No. 133, as amended. The following table shows the income (expense) on
hedges that are included in operating interest income and expense (dollars in thousands):
Year Ended December 31,
Variance
2008 vs. 2007
2008 2007 Amount %
Operating interest income:
Operating interest income, gross $ 2,443,886 $ 3,509,453 $(1,065,567) (30)%
Hedge income 26,054 13,602 12,452 92%
Operating interest income 2,469,940 3,523,055 (1,053,115) (30)%
Operating interest expense:
Operating interest expense, gross (1,127,026) (1,936,256) 809,230 (42)%
Hedge expense (74,908) (3,200) (71,708) *
Operating interest expense (1,201,934) (1,939,456) 737,522 (38)%
Net operating interest income $ 1,268,006 $ 1,583,599 $ (315,593) (20)%
* Percentage not meaningful
Commission
Commission revenue decreased 22% to $515.6 million for the year ended December 31, 2008, compared to
the same period in 2007. This decrease was due almost entirely to a decrease of $142.6 million, or 99%, in our
institutional commission revenue as a result of the exit of our institutional brokerage operations. Commission
revenue from our retail segment, which is the sole source of commission revenue in future periods, remained
stable for the year ended December 31, 2008 declining by only 1% compared to 2007. The primary factors that
affect our retail commission revenue are DARTs and average commission per trade, which is impacted by both
trade types and the mix between our domestic and international businesses. Each business has a different pricing
structure, unique to its customer base and local market practices, and as a result, a change in the relative number
of executed trades in these businesses impacts average commission per trade. Each business also has different
trade types (e.g. equities, options, fixed income, exchange-traded funds, contract for difference and mutual funds)
that can have different commission rates. As a result, changes in the mix of trade types within either of these
businesses may impact average commission per trade.
DARTs increased 6% to 188,116 for the year ended December 31, 2008 compared to 2007. Our U.S. DART
volume increased 5% and our international DARTs grew by 9% for the year ended December 31, 2008 compared
to 2007, driven entirely by organic growth. In addition, option-related DARTs as a percentage of our total U.S.
DARTs represented 15% and 16% of U.S. trading volume for the periods ending December 31, 2008 and 2007,
respectively.
Average commission per trade decreased 7% to $10.88 for the year ended December 31, 2008 compared to
2007. The decrease was primarily a function of the product and customer mix. The overall poor performance of
the equity markets for the year ended December 31, 2008 disproportionately impacted higher commission
products, such as corporate services transactions and mutual funds. Main Street Investors, who generally have a
higher commission per trade, traded less during the period compared to Active Traders and Mass Affluent
customers, who generally have a lower commission per trade. Customer appreciation, win-back and other
promotional campaigns also contributed to the decrease in average commission per trade.
Fees and Service Charges
Fees and service charges decreased 13% to $200.0 million for the year ended December 31, 2008 compared
to 2007. This decrease was primarily due to a lower order flow revenue, advisory management fees and CDO
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