eTrade 2010 Annual Report Download - page 19

As a non-grandfathered savings and loan holding company, we are subject to regulations that could restrict our
ability to take advantage of certain business opportunities.
We are required to file periodic reports with the OTS and are subject to examination by the OTS. The OTS
also has certain types of enforcement powers over us, ETB Holdings, Inc. and certain of its subsidiaries,
including the ability to issue cease-and-desist orders, force divestiture of E*TRADE Bank and impose civil and
monetary penalties for violations of federal banking laws and regulations or for unsafe or unsound banking
practices. In addition, under the Gramm-Leach-Bliley Act, our activities are restricted to those that are financial
in nature and certain real estate-related activities. We may make merchant banking investments in companies
whose activities are not financial in nature if those investments are made 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. In recent periods, the Company moved its subsidiaries, E*TRADE Clearing LLC and E*TRADE
Securities LLC, respectively, to become operating subsidiaries of E*TRADE Bank, resulting in increased
regulatory oversight and restrictions on the activities of E*TRADE Clearing LLC and E*TRADE Securities
LLC.
We believe all of our existing activities and investments are permissible under the Gramm-Leach-Bliley
Act. Even if our existing activities and investments are permissible, we are unable to pursue future activities that
are not financial in nature. We are also limited in our ability to invest in other savings and loan holding
companies.
In addition, E*TRADE Bank is subject to extensive regulation of its activities and investments,
capitalization, community reinvestment, risk management policies and procedures and relationships with
affiliated companies. Acquisitions of and mergers with other financial institutions, purchases of deposits and loan
portfolios, the establishment of new bank subsidiaries and the commencement of new activities by bank
subsidiaries require the prior approval of the OTS, and in some cases the FDIC, which may deny approval or
limit the scope of our planned activity. These regulations and conditions could place us at a competitive
disadvantage in an environment in which consolidation within the financial services industry is prevalent. Also,
these regulations and conditions could affect our ability to realize synergies from future acquisitions, could
negatively affect us following the acquisition and could also delay or prevent the development, introduction and
marketing of new products and services.
Risks Relating to Owning Our Stock
We are substantially restricted by the terms of our corporate debt.
The indentures governing our corporate debt contain various covenants and restrictions that limit our ability
and certain of our subsidiaries’ ability to, among other things:
• incur additional indebtedness;
• create liens;
• pay dividends or make other distributions;
• repurchase or redeem capital stock;
• make investments or other restricted payments;
• enter into transactions with our shareholders or affiliates;
• sell assets or shares of capital stock of our subsidiaries;
• receive dividend or other payments from our subsidiaries; and
• merge, consolidate or transfer substantially all of our assets.
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