E*Trade Financial -- Click here to open an E*Trade Account

E*Trade Financial was incorporated in 1982 and is based in New York City. E*Trade
provides financial solutions to retail and institutional customers globally. It
offers retail investing and trading products and services, including automated
order placement and execution of market and limit equity, futures, options,
exchange-traded funds, and bond orders; real-time streaming quotes, commentary,
and news; advanced trading platforms for traders; personalized portfolio
tracking; and access to approximately 7,000 non-proprietary and proprietary
mutual funds. In addition, it provides advisory and asset management services
to retail clients; and token-based security solution. E*Trade serves retail,
institutional, and corporate customers through the Internet and other
electronic media.

E*trade offers a range of offerings which includes banking
services and mutual funds in addition to its main service of stock trading. The
commissions range from $6.99 to $12.99 for a market order based on the asset
amount or number of trades in a quarter. Like many other services, E*Trade has
branch offices where customers can go for in-person advice. This has been
recently added and is only available in selected cities.

E*Trade has now dropped a $3 handling fee for the first 26
trades during each quarter. There is, however, a $40 maintenance fee per
quarter, raising it from $25. Those with additional E*Trade accounts or at
least $10,000 in assets may also avoid fees. E*Trade also provides many free
and usually unpublicized services like asset allocation advice and financial
planning. Research tools included screen charting and daily stock
recommendations based on technical and fundamental analysis. There is no longer
a minimum opening balance requirement, making E*Trade friendly to lower-asset
or novice investors.

Comparison of Online Brokers

The online brokerage services market has expanded
significantly in the last 10 years and continues to evolve rapidly. At its peak
in early 2000, online retail traders accounted for nearly one-third of the
trading volume on the NYSE and NASDAQ, a figure which float around 10% for last
couple of years. The brokerage firms have come to realize that retail trading
levels and commissions may never return to the heights seen in late 1990s and
early 2000. The online brokerage industry has been in the news lately, as the
industry moves towards consolidation; driven primarily by two factors - excess
capacity and the very low level of variable costs associated with processing a
trade.

According to a
research by Tower Group, the online brokerage market has shrunk from 154
players in 2000 to about 50 today. However, the major share of business
is in the control of the five largest companies[1] -
Fidelity, Schwab, TD Ameritrade, E*Trade and Scottrade. These leading firms
have a stranglehold on the online brokerage business, across industry accounts,
trades, assets, revenues and net income. These five dominate the marketplace at
a point in time when trading activity, after a post-Internet-bubble lull, has
surpassed pre-bubble activity. There are currently about 1.27 million online
trades placed per day, compared with 1.20 million in 2000.

Fig. 1: Online
Brokerage Market (2000-2006)

Source: Tower Group, Tiburon Strategic Advisors

Market Competition

Top five players currently accounts for about 80% of market
share with Fidelity and Schwab, whose businesses extend beyond traditional
retail accounts, dramatically ahead of the other three firms in several
categories. In terms of total business, Fidelity is the clear leader with 12.2
million total online accounts because of its mutual fund, 401(k) and clearing
units. Schwab is second at 7.2 million accounts, TD Ameritrade is third with
6.0 million, E*Trade fourth at 4.3 million and Scottrade fifth with 1.4 million
accounts. Together, the big five control 91% of all the accounts in the online
brokerage marketplace.

Source: Tiburon Strategic Advisors

Their dominance is also reflected in revenues, where
Fidelity alone generates 51% of the industry total. Schwab accounts for 25% of
the industry’s revenues, E*Trade is 12%, TD Ameritrade is 9% and Scottrade is
at 1%. The rest of the firms account for only 2% of the industry’s revenues.

Share of Industry Revenues

Source: Tiburon Strategic Advisors

TD Ameritrade's market share for commissionable trades
plummeted from 33.8% of the discounter total in 2004, to just 23.7% in 2006.
E*Trade, on a pro forma basis (including newly acquired HarrisDirect and
BrownCo) has given up 1.9 percentage points of share to reach 15.8% from 17.7% in
2004. Schwab's market share of retail trades jumped to 24.6% from 19.1% in
2004, while Fidelity's share climbed 2.1 percentage points to 12.7%, from 10.6%
in 2004[2].

Share for Commissionable Trades

Source: Tiburon Strategic Advisors

Major Players and their Offerings

Charles Schwab Corporation

The Charles Schwab Corporation was incorporated in 1986 and
engages, through its subsidiaries, in securities brokerage, banking, and
related financial services. The company's principal activities are to provide
security brokerage, banking and related financial services. Its activities are
carried out through four segments: Individual Investor- offering retail
brokerage and banking operations, Institutional Investor - offering custodial,
trading and support services to independent investment advisors, serves company
401(k) plan sponsors and third-party administrators and supports company stock
option plan. Capital Markets offers trade execution services in Nasdaq,
exchange-listed and other securities primarily to broker-dealers, including
Schwab, and institutional clients. US Trust offers investment and wealth
management, custody, fiduciary services, and private banking services to
individual and institutional clients.

Charles Schwab used to be a broker with a complicated fee
structure of minimum account balances and handling fees. But in late 2005, the
broker eliminated its service fees (except for IRAs) to better complete with other
brokerage firms. Schwab has a tiered rate schedule and a $2,500 minimum deposit
to start an account. Those with account balances under $50,000 pay $19.95 per
trade. Those with balances between $50,000 and $1,000,000 pay $12.95 per trade.

Further, Schwab has an easy-to-use website with lots of
accessible information. Also Schwab has now branched out into personal banking,
offering credit cards and online bill paying. Charles Schwab's design and easy website
navigation is simple and easy to understand and provides research from
Morningstar and Goldman Sachs among others. There is also a Market Insight
section that has articles and webcasts on investing strategies and market
commentary.

Fidelity Brokerage Company

Although widely known for mutual fund management, Fidelity
has been a significant provider of brokerage services for over a decade. In
March 2001, Fidelity Brokerage Company was established to integrate Fidelity's
Personal Investments (Retail) and Institutional Brokerage businesses. Fidelity
Brokerage Company, a part of Fidelity Investments, provides a broad range of
retail and institutional brokerage services. Today, Fidelity Brokerage Company
is one of the leading brokerage firms in US with more than $1.5 trillion in
assets under administration and managing over 16 million client accounts.

Fidelity has designed a three-tier-trading scheme for its
customers: Gold, Silver and Bronze. Gold investors, who are privy to an $8
commission rate, must have over $1 million in assets or make 120 trades a year.
Silver-level investors have assets over $50,000 and pay $10.95 per market
trade. The Bronze clients have under $50,000 in assets and pay a $19.95 per
trade.

In 2005, Fidelity has lowered its fees to better compete in
the market. For a market order, Fidelity's highest price is $19.95 for the
first 1000 shares and $.015 for additional shares. Fees drop for those with a
high account balance or for traders with a high level of activity. Inactivity,
handling and maintenance fees have now been eliminated, and while a $2,500
minimum is required to open an account, customers are not penalized for
dropping below that minimum. Fidelity website has a lot to offer, including
financial planning tools, research reports and videos from Lehman Bros. The
biggest bonus may be Fidelity's 110 branch offices throughout US where
customers can go for in-person service.

Table 1:
Summary of Key Online Brokerage Firms

	Fidelity	Charles Schwab	E*Trade	Scottrade	TD Ameritrade
Minimum Account Balance	$2,500	$2,500	$1,000	$500	$1,000
Online Trades & Limit Orders	$19.95	$12.95 + $0.015/share over 1,000 shares	$12.99	$7 unlimited shares	$9.99 unlimited shares
Broker-Assisted Orders	$55.00 + $0.14 per share over 100 shares	$37.95 + $0.015/share over 1,000 shares	$45.00 + online commission	$27 unlimited shares	$44.99
Maintenance Fee	None	None	$40 (quarterly) $160 (annually)	None	None
Margin Interest Rate On $7,500 Debit Balance	11.08%	10.75%	10.24%	10.50%	11.00%
Real-Time Dow Jones News for Investors	Not Available	Complimentary for active traders	$95.00/Month	Complimentary	$29.99/Month
Branch Offices in US	110	300	20	276	103

Source: Company Websites

Scottrade

Established in 1980, Scottrade is among the leading
companies in online investing, serving individual investors. Headquartered in St. Louis, Missouri,
the firm is unique in the industry because it boasts very low commission rates
while offering easily accessible, local branch office support of online trading
in 273 locations throughout US. Scottrade.com is the online trading site of
Scottrade and offers customers the convenience of placing market orders online at
a very low price. In addition to its online capabilities, Scottrade staffs each
branch location with a licensed branch manager plus additional brokers and
assistants.

Scottrade biggest foray is its low broker's commissions which
are much lower than other firms along with a minimum opening balance is just
$500. Trade executions are fast and there are free real-time quotes. The only
drawback is that the company offers little in the way of research. But there
are nearly 300 offices around the US, something most online brokers
do not have. Furthermore, there are no account-inactivity fees and no
maintenance fees at all. Buying no-load mutual funds incurs a $17 commission
but no-load funds are free. Like many brokers, Scottrade also offers a big
selection of No Transaction Fee (NTF) funds, for which investors do not have to
pay anything to buy, sell or exchange.

TD Ameritrade

Founded in 1971, TD Ameritrade Holding Corporation provides
online investment products and services. It was formerly known as Ameritrade
Holding Corporation and changed its name to TD Ameritrade Holding Corporation
in January 2006. The company's principal activity is to provide securities
brokerage services. The company also provides trading execution and clearing
services for the broker-dealer operations and for unaffiliated broker-dealers.
The operations are conducted through the Private Client Segment that provides
brokerage services, clearing services and brokerage capabilities to individual
investors. The company also provides advisor tools as co-branded or
private-label products to business partners and customers. The customers
include retail investors, traders, financial planners and institutions. The
company operates in the US and
Canada and is headquartered
in Omaha, Nebraska.

TD Ameritrade has been around a long time, and is one of the
largest online brokers. A $2,000 deposit is the minimum needed to set up an
Ameritrade account. Dropping below that amount or conducting less than four
trades in six months incurs a $15 fee per quarter (waived for IRA and
beneficiary accounts). A market order is $9.99 and that's regardless of the
number of shares purchased. Ameritrade touts this as a perk over other brokerage
firms whose customers can rack up higher fees for purchasing a large number of
shares.

Independent Unbiased Review

Fig. 5: Online
Trading Investor Satisfaction Study (2005)

Source: J.D. Power and Associates