E TRADE GROUP INC, S-1/A, 1996-08-02

E TRADE GROUP INC
S-1/A, 1996-08-02
SECURITY BROKERS, DEALERS & FLOTATION COMPANIES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996
REGISTRATION NO. 333-05525
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------

AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
E*TRADE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 6211 94-2844166
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

FOUR EMBARCADERO PLACE
2400 GENG ROAD
PALO ALTO, CA 94303
(415) 842-2500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
CHRISTOS M. COTSAKOS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
E*TRADE GROUP, INC.
FOUR EMBARCADERO PLACE
2400 GENG ROAD
PALO ALTO, CA 94303
(415) 842-2500
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
THOMAS A. BEVILACQUA KENNETH L. GUERNSEY
THOMAS J. LIMA

VALERIE J. HORWITZ KARYN R. SMITH
COOLEY GODWARD CASTRO HUDDLESON &
BROBECK, PHLEGER & HARRISON LLP TATUM
ONE MARKET, SPEAR STREET TOWER ONE MARITIME PLAZA, 20TH FLOOR
SAN FRANCISCO, CA 94105 SAN FRANCISCO, CA 94111
(415) 442-0900 (415) 693-2000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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<PAGE>

E*TRADE GROUP, INC.

CROSS-REFERENCE SHEET

PURSUANT TO ITEM 501(B) OF REGULATION S-K

SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS ON FORM S-1

<TABLE>
<C> <S>
ITEM NUMBER AND HEADING
IN FORM S-1 REGISTRATION LOCATION IN PROSPECTUS
- -------------------------------------------------------------------------------
1.Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.. Outside Front Cover Page
2.Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front and Outside Back
Cover Pages
3.Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk
Factors; Inside Front Cover
Page
4.Use of Proceeds........................... Prospectus Summary; Use of
Proceeds
Outside Front Cover Page;
5.Determination of Offering Price........... Underwriting
6.Dilution.................................. Dilution
Principal and Selling
7.Selling Security Holders.................. Stockholders
Outside Front Cover Page;
8.Plan of Distribution...................... Underwriting

9.Description of Securities to be
Registered.............................. Prospectus Summary;
Capitalization; Description of
Capital Stock
10.Interests of Named Experts and Counsel.... Interests of Counsel
11.Information with Respect to the
Registrant.............................. Outside Front Cover Page;
Prospectus Summary; Risk
Factors; Dividend Policy;
Capitalization; Selected
Financial Data; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Business;
Management; Certain
Transactions; Principal and
Selling Stockholders;
Description of Capital Stock;
Shares Eligible for Future
Sale; Experts; Additional
Information; Consolidated
Financial Statements
12.Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED AUGUST 2, 1996

[E*TRADE LOGO]

4,665,000 SHARES

COMMON STOCK

Of the 4,665,000 shares of Common Stock offered hereby, 4,000,000 shares are
being sold by E*TRADE Group, Inc. ("E*TRADE" or the "Company") and 665,000
shares are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders. Prior to this offering, there has been
no public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $10.00 and $12.00 per
share. See "Underwriting" for information relating to the method of determining
the initial public offering price.

--------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.

--------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
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Total(2)............... $ $ $ $
</TABLE>
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(1) Before deducting expenses payable by the Company, estimated at $1,745,000.
(2) The Company and a Selling Stockholder have granted to the Underwriters a
30-day option to purchase up to an additional 699,750 shares of Common
Stock solely to cover over-allotments, if any. See "Underwriting." If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ , respectively.

--------

The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1996.

ROBERTSON, STEPHENS & COMPANY

HAMBRECHT & QUIST

DEUTSCHE MORGAN GRENFELL

The date of this Prospectus is , 1996

<PAGE>

JOIN THE ELECTRONIC TRADING REVOLUTION

WWW.ETRADE.COM

[GRAPHIC OF GLOBE WITH CIRCLING RINGS]

INFORMATION CONTAINED IN THE COMPANY'S WEB SITE SHALL NOT BE DEEMED TO BE PART
OF THIS PROSPECTUS.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
<PAGE>

E*TRADE: INNOVATION, TECHNOLOGY, SERVICE, VALUE

E*TRADE is a leading provider of cost-effective, secure online discount
brokerage services, offering its customers a combination of innovation,
technology, service and value.
Its services feature an easy-to-use graphical user interface, the ability to
create personalized environments reflecting users' individual needs and
interests and unbundled services for cost-effective pricing.
Customers can access E*TRADE through the Internet, direct modem link, online
service providers America Online and CompuServe and touch-tone telephone.
Automated order placement, portfolio tracking, related market information and
news are available 24 hours a day, seven days a week.

ELECTRONIC
COMMERCE

THE INTERNET: INNOVATIVE BUSINESS OPPORTUNITIES

Just as the microprocessor changed computing, the emergence of the Internet as
a tool for communication and commerce is driving a revolution in online
transactions and information services, providing organizations and individuals
around the world with new ways of conducting business.

SOLUTIONS

[collage graphic/photos, including computer hardware, globe in palm]

TECHNOLOGY
<PAGE>

ELECTRONIC COMMERCE: FASTER, LESS EXPENSIVE, MORE CONVENIENT

With the proliferation of personal computers and modems and the rise of the
Internet, companies that have traditionally conducted business in person,
through the mail or by telephone are utilizing electronic commerce. Consumers
are recognizing that self-directed online transactions can be faster, less
expensive and more convenient than transactions conducted through a human
intermediary.

E*TRADE'S MISSION: TO BE A RECOGNIZED LEADER IN ELECTRONIC COMMERCE

E*TRADE offers electronic access virtually anywhere, at any time, thereby
shifting the financial services paradigm from a business hours only,
intermediary-based model to one in which consumers have ultimate control over
when and where they initiate transactions. The Company's technology can be
adapted to other aspects of electronic commerce. Leveraging this technology
and its position as a leading provider of online discount brokerage services,
E*TRADE's mission is to be a recognized leader in electronic commerce.

INNOVATION

[collage graphic/photos, including globe in palm, clock, money, person with
briefcase]

<PAGE>

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT
RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
-------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 4
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Selected Consolidated Financial Data...................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 32
Management................................................................ 54
Certain Transactions...................................................... 64
Principal and Selling Stockholders........................................ 66
Description of Capital Stock.............................................. 69
Shares Eligible for Future Sale........................................... 72
Underwriting.............................................................. 74
Legal Matters............................................................. 76
Experts................................................................... 76
Interests of Counsel...................................................... 76
Additional Information.................................................... 76
Index to Consolidated Financial Statements................................ F-1
</TABLE>
-------------

The Company intends to mail to all of its stockholders an annual report
containing financial statements audited by its independent accountants for
each fiscal year and quarterly reports containing unaudited summary
information for each of the first three quarters of each fiscal year.

E*TRADE (R) is a registered trademark of the Company. TELE*MASTER(TM), among
other marks, is an additional common law trademark of the Company. This
Prospectus also includes trademarks of entities other than the Company.

3
<PAGE>

SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the consolidated financial
statements and notes thereto, appearing elsewhere in this Prospectus. Investors
should consider carefully the information discussed under the heading "Risk
Factors."

THE COMPANY

E*TRADE Group, Inc. ("E*TRADE or the "Company") is a leading provider of
cost-effective, secure online discount brokerage services. The Company offers
automated order placement, portfolio tracking and related market information,
news and other information services 24 hours a day, seven days a week by means
of the Internet, online service providers CompuServe and America Online, direct
modem access, touch-tone telephone and, to a lesser extent, interactive
television. E*TRADE's proprietary transaction processing technology enables it
to offer highly automated, easy-to-use and cost-effective services that empower
its customers to take control of their own financial transactions. Further, the
Company's technology can be adapted to provide information and transaction
processing services related to other aspects of electronic commerce, such as
the processing of insurance transactions and electronic cash transfers. See
"Business--Strategic Relationships and Business Development."

Advancements in telecommunications and information technology have
fundamentally altered the way individuals conduct business. Just as the
microprocessor dramatically changed the way individuals use computers, the
emergence of the Internet as a tool for communications and commerce is bringing
about a revolution in the world of financial transactions and information
services. This phenomenon is providing individual investors with direct access
to information and transaction processing capabilities once available only
through full-commission securities brokerage firms. As a result, consumers are
increasingly taking direct control over their personal investment transactions,
not simply because they are able to, but because they find it more convenient
and cost-effective than relying on full-commission or even traditional discount
brokers.

E*TRADE provides its customers with the ability to place orders for stock
trades and other investment transactions directly, and at a lower, more
predictable transaction cost than traditional full-commission or discount
brokerage firms. The Company's services feature an easy-to-use graphical user
interface, the ability to create "personalized environments" reflecting users'
individual needs and interests, accessibility from virtually anywhere at any
time via multiple gateways, unbundled services for cost-effective pricing and
highly secure services through the use of encryption and authentication
technology.

The Company had over 73,000 accounts as of June 30, 1996, with an average
monthly growth in accounts of 11% since January 1, 1996, and had an average
daily trading volume of approximately 8,000 transactions in June 1996, as
compared to 4,200 transactions in December 1995, representing an average
monthly growth of 11% over that period. The Internet is the Company's most
rapidly growing gateway, with trading volume increasing from approximately
1,300 Internet trades for the first full week the Company offered trading
through the Internet (the week ended February 23, 1996) to over 10,900 for the
week ended June 28, 1996.

E*TRADE's objective is to leverage its leading position as a provider of
electronic brokerage and information services through automation, innovation,
technology, service and value. The Company's strategy to accomplish this
objective includes continued aggressive marketing of its electronic brokerage
services to further establish E*TRADE's brand name recognition and increase its
share of the electronic brokerage market, continual broadening of the
functionality of its services and enhancement of its customers' online
experience, leveraging the benefits of its highly automated services to enhance
their cost-effectiveness, establishing additional strategic relationships with
online service, software and information service providers, and expanding into
international markets and new electronic commerce applications.

4
<PAGE>

In June 1996, SOFTBANK Holdings Inc. ("SOFTBANK"), an affiliate of SOFTBANK
Corporation, purchased Preferred Stock which will convert automatically upon
the completion of this offering into 670,800 shares of Common Stock for an
aggregate price of $9.0 million, or $13.42 per share (the "SOFTBANK
Investment"). As a result, SOFTBANK will own approximately 2.2% of the
Company's outstanding Common Stock upon the completion of this offering.
SOFTBANK Corporation is Japan's largest distributor of computer software,
peripherals and systems, as well as Japan's largest publisher of computer-
related magazines and books. See "Certain Transactions."

The Company was incorporated in California in 1982 and will be reincorporated
in Delaware prior to the commencement of this offering. Its principal corporate
offices are located at Four Embarcadero Place, 2400 Geng Road, Palo Alto,
California 94303, and its telephone number is (415) 842-2500. Unless otherwise
indicated, all references in this Prospectus to "E*TRADE" or the "Company"
refer to E*TRADE Group, Inc., a Delaware corporation, E*TRADE Securities, Inc.,
its principal broker-dealer subsidiary ("E*TRADE Securities"), its other
subsidiaries and its predecessor California corporation. The Company's World
Wide Web ("Web") site is located at http://www.etrade.com. Information
contained in the Company's Web site shall not be deemed to be part of this
Prospectus.

THE OFFERING

<TABLE>
<C> <S>
Common Stock offered by the Company........ 4,000,000 shares
Common Stock offered by the Selling
Stockholders.............................. 665,000 shares
Common Stock to be outstanding after the
Offering.................................. 28,392,597 shares(1)
Use of Proceeds............................ To repay debt and for working
capital and general corporate
purposes, including capital
expenditures and potential
acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol..... EGRP
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(in thousands, except per share and operating data)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
----------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Total revenues.......... $ 832 $ 848 $ 2,974 $10,905 $23,340 $15,149 $34,483
Pre-tax income (loss)... (108) (283) 103 244 4,309 3,590 (2,224)
Net income (loss)....... (110) (285) 99 785 2,581 2,150 (1,334)
Net income (loss) per
share(2)............... $ (0.01) $ (0.01) $ -- $ 0.03 $ 0.10 $ 0.08 $ (0.05)
Shares used to compute
per share data(2)...... 23,954 24,954 26,803 26,312 26,608 25,577 28,550
OPERATING DATA:
Average customer trades
per day................ -- 12 194 869 2,335 1,926 5,606
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------
AS
ACTUAL ADJUSTED(3)
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents........................................ $15,409 $52,251
Total assets................................................ 29,685 66,527
Long-term obligations....................................... 1,860 27
Stockholders' equity........................................ 22,379 61,554
</TABLE>
(footnotes on following page)

5
<PAGE>

- --------
(footnotes from preceding page)

(1) Excludes 5,619,840 shares of Common Stock issuable upon the exercise of
outstanding options as of June 30, 1996. See "Management--Associate Benefit
Plans" and Notes 5 and 10 of Notes to Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements.
(3) Adjusted to give effect to the sale of 4,000,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
per share of $11.00 and the receipt and application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."

----------------

Except as set forth in the Consolidated Financial Statements or as otherwise
indicated, all information in this Prospectus (i) gives effect to the automatic
conversion of all outstanding shares of Preferred Stock into Common Stock upon
the completion of this offering, (ii) assumes no exercise of the Underwriters'
over-allotment option and (iii) reflects the filing of the Restated Certificate
of Incorporation, the reincorporation of the Company in Delaware in July 1996
and the related conversion of each share of Common Stock of the Company into 60
shares of Common Stock of the Delaware corporation and adjustment of the
conversion ratio of all outstanding shares of Preferred Stock so that each
share of Preferred Stock is convertible into 60 shares of Common Stock.

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.

6
<PAGE>

RISK FACTORS

In addition to the other information contained in this Prospectus, the
following risk factors should be considered in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.

RISKS ASSOCIATED WITH MANAGEMENT OF A CHANGING BUSINESS

The Company has experienced substantial changes in and expansion of its
business and operations since it began offering electronic brokerage services
in 1992 and expects to continue to experience periods of rapid change. The
Company's past expansion has placed, and any future expansion would place,
significant demands on the Company's administrative, operational, financial
and other resources. The Company expects operating expenses and staffing
levels to increase substantially in the future. In particular, the Company
intends to hire a significant number of additional skilled personnel in 1996
and later years, including persons with experience in both the computer and
brokerage industries, and, in particular, persons with Series 7 or other
broker-dealer licenses. Competition for such personnel is intense, and there
can be no assurance that the Company will be able to attract, assimilate or
retain additional highly qualified senior managers and technical persons in
the future. The Company also expects to expend resources with respect to
future expansion of its accounting and internal management systems and the
implementation of a variety of new systems and procedures. In addition, the
Company expects that future expansion will continue to challenge the Company's
ability to hire, train, motivate and manage its associates. If the Company's
revenues do not increase in proportion to its operating expenses, the
Company's management systems do not expand to meet increasing demands, the
Company fails to attract, assimilate and retain qualified personnel, or the
Company's management otherwise fails to manage the Company's expansion
effectively, there would be a material adverse effect on the Company's
business, financial condition and operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Associates" and "Management."

The rapid growth in the use of the Company's services has strained its
ability to adequately expand technologically. The haste required in acquiring
new equipment and applications may result in less rigorous testing and
validation of hardware and software, which could lead to performance problems.
In addition, the Company relies on a number of third parties to process its
transactions, including online access providers, back office processing
organizations, services providers and market makers, all of which will need to
expand the scope of the operations they perform for the Company. Any backlog
caused by a third party's inability to expand at the rate necessary to meet
the Company's needs could have a material adverse effect on the Company's
business, financial condition and operating results. As trading volume
increases, the Company may have difficulty hiring, training and integrating
qualified personnel at the necessary pace, and the shortage of licensed
personnel could cause a backlog in the processing of orders requiring review,
exposing the Company not only to unsatisfied customers, but also to liability
for transactions that were ordered but not executed on a timely basis.

RISKS OF SYSTEMS FAILURE

The Company receives and processes trade orders principally through the
Internet, online services and touch-tone telephone. This method of trading is
heavily dependent on the integrity of the electronic systems supporting it.
Orders placed from the close of the stock markets one day until the opening
the next business day must be processed through the Company's system in a
short period of time prior to the opening of the stock markets. Heavy stress
placed on the Company's systems during peak trading times could cause the
Company's systems to operate at unacceptably low speed or fail. Any
significant degradation or failure of the Company's systems or any other
systems in the trading process (e.g., online service providers, record keeping
and data processing functions performed by third parties and third-party
software such as Internet browsers), even for a short time, could cause
customers to suffer delays in trading. Such delays could cause substantial
losses for customers and could subject the Company to claims from customers
for losses, including litigation

7
<PAGE>

claiming fraud or negligence. The Company has experienced such systems
failures and degradation in the past and, most recently, experienced two such
failures in May 1996. In order to promote customer satisfaction and protect
the E*TRADE brand name, the Company has compensated customers for verifiable
losses arising in connection with such systems failures. The Company sustained
losses in excess of $1.7 million for such systems failures in May 1996.
Notwithstanding these payments, the Company is aware of electronic third-party
communications in which a potential class action lawsuit against the Company
relating to such systems failures is discussed. Any such lawsuit would require
the attention of senior management and could have a material adverse effect on
the Company's business, financial condition and operating results. During a
systems failure, the Company may be able to take orders by telephone. However,
under applicable regulations, all Company associates accepting telephone
orders must have securities brokers' licenses. An adequate number of personnel
with securities brokers' licenses may not be available to take calls in the
event of a systems failure. There can be no assurance that the Company's
network structure will operate appropriately in the event of a sub-system,
component or software failure or that, in the event of an earthquake, fire or
any other natural disaster, power or telecommunications failure, act of God or
act of war, the Company will be able to prevent an extended systems failure.
Any systems failure that causes interruptions in the Company's operations
could have a material adverse effect on the Company's business, financial
condition and operating results. In addition, the Company has recently
received adverse publicity in the financial press primarily relating to
systems failures. See "Business--E*TRADE Processing Technology."

RISKS ASSOCIATED WITH THE SECURITIES BUSINESS; CONCENTRATION OF SERVICES

Substantially all of the Company's revenues in recent years have been from
electronic brokerage services, and the Company expects its electronic
brokerage services to continue to account for substantially all of its
revenues for the foreseeable future. E*TRADE, like other securities firms, is
directly affected by national and international economic and political
conditions, broad trends in business and finance and substantial fluctuations
in volume and price levels of securities and futures transactions. In October
1987 and October 1989, the stock market suffered two of the largest declines
in history. As a result of these declines, many firms in the industry suffered
financial losses, and the level of individual investor trading activity
decreased. Reduced trading volume and prices have historically resulted in
reduced transaction revenues. In periods of low volume, the Company's
profitability would be adversely affected because certain expenses, consisting
primarily of salaries and benefits, computer hardware and software costs and
occupancy expenses, remain relatively fixed. Severe market fluctuations in the
future could have a material adverse effect on the Company's business,
financial condition and operating results. Certain of the Company's
competitors with more diverse product and service offerings may be better
positioned to withstand such a downturn in the securities industry. See "--
Substantial Competition."

E*TRADE's brokerage business, by its nature, is subject to various other
risks, including customer default and employees' misconduct and errors. In
addition, to the extent E*TRADE permits customers to purchase securities on
margin, the Company is subject to risks inherent in extending credit,
especially during periods of rapidly declining markets in which the value of
the collateral held by the Company could fall below the amount of a customer's
indebtedness. Under specific regulatory guidelines, the borrowing and lending
of securities by E*TRADE are accompanied, respectively, by the disbursement
and receipt of cash deposits. Failure to maintain cash deposit levels at all
times at least equal to the value of the related securities can subject
E*TRADE to risk of loss, should there be sharp changes in market values of
substantial amounts of securities and parties to the borrowing and lending
transactions fail to honor their commitments. Any such losses could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business--Operations."

DEPENDENCE ON IMPROVED CUSTOMER SERVICE OPERATIONS

The Company believes that providing an effective customer service team to
handle customer needs is critical to its success. The Company's customer
service capacity has been and may continue to be severely strained at times.
During the three months ended June 30, 1996, the Company's customer service
department serviced approximately 80% of its inquiries through telephone calls
and approximately 20% through e-mail. This department handles only non-revenue
interactions with customers needing extra assistance and generally

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is not involved in order processing. The Company frequently has fallen far
short of its target response time for customer service calls, with callers
waiting over 20 minutes during peak times. Continued sub-optimal customer
service could damage the E*TRADE name and lead some customers to transfer
their business to other, less congested online brokers, limit their trading
activity or refrain from electronic trading entirely. Although the Company is
addressing the problem through significant investments in technology and
personnel and recently experienced a meaningful improvement in the time
required to respond to customer service calls, such attempts have remained
short of targeted response times. Even if the Company is able to remedy its
current capacity problems, on any given day a surge of activity could cause
the Company to fail to provide adequate customer service. There can be no
assurance that the Company will be able to remedy its customer service
capacity constraints, and the failure to do so could have a material adverse
effect on the Company's business, financial condition and operating results.
See "Business--Customer Service."

RISKS ASSOCIATED WITH ENTERING NEW MARKETS

One element of the Company's strategy is to leverage the E*TRADE brand and
technology to enter new markets. No assurance can be given that the Company
will be able to successfully adapt its proprietary processing technology to
provide information and transaction processing services in other markets or
that, if successful with such adaptation, it will compete successfully in any
such new markets. E*TRADE Securities plans, subject to regulatory approval, to
establish investment banking operations, raising public and private equity
capital for companies over the Internet and other electronic media. In
addition, the Company's strategy is to pursue opportunities, through its
subsidiary E*TRADE Online Ventures, Inc. ("E*TRADE Online Ventures"), to
increase the Company's customer base and the transaction value and number of
products and services offered to the Company's customers. There can be no
assurance that the Company will be successful in its pursuit of these
opportunities or that such pursuit will not divert management attention or
inefficiently utilize Company resources. See "Business--Strategic
Relationships and Business Development."

RISKS ASSOCIATED WITH CONVERSION TO SELF-CLEARING OPERATIONS

The Company implemented self-clearing operations in July 1996. Clearing
services include the confirmation, receipt, settlement and delivery functions
involved in securities transactions. Prior to its conversion to self-clearing
operations, the Company cleared all of its customer trades as a fully-
disclosed correspondent of Herzog, Heine, Geduld, Inc. ("Herzog"), a broker-
dealer that provides clearing services. Because clearing for itself is a new
area of operations for the Company, there can be no assurance that the Company
will perform these operations as accurately and efficiently as they have been
performed by third parties. Self-clearing securities firms are subject to
substantially more regulatory control and examination than the Company has
experienced in the past. Errors in performing clearing functions or reporting
could lead to civil penalties imposed by the Securities and Exchange
Commission (the "SEC") or the National Association of Securities Dealers, Inc.
(the "NASD"). Self-clearing operations, especially where conducted by firms
such as the Company, without significant prior experience, involve substantial
risks of losses due to clerical errors related to the handling of customer
funds and securities. Errors in the clearing process also may lead to civil
liability for actions in negligence brought by parties who are financially
harmed as a result of such errors. Any liability that arises as a result of
self-clearing operations could have a material adverse effect on the Company's
business, financial condition and operating results. Clearing operations have
accounted for a significant portion of the Company's cost of services, and
there can be no assurance that clearing for itself will not result in
significantly higher clearing costs in the future. During the Company's
transition to self-clearing operations, it ran conversion tests to verify the
accuracy of its internal systems, while at the same time continuing to incur
substantial expenses to Herzog for clearing services. There can be no
assurance that such activities accurately tested the reliability of the
Company's clearing operations. The failure of the Company to perform self-
clearing operations accurately and cost-effectively could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Business--Operations."

As a self-clearing firm, the Company assumes direct responsibility for the
possession and control of customer securities and other assets and the
clearance of customer securities transactions. Having this responsibility
requires the Company to record on its balance sheet the customer receivables
and customer payables to the Company that are a result of customer margin
loans (i.e., loans made to customers that are

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<PAGE>

collateralized by securities in the customers' margin accounts at the Company)
and customer free credit balances (i.e., customer cash balances maintained by
the Company), respectively. In addition, to the extent that the Company's
customer debit balances exceed customer free credit balances, the Company must
obtain financing for any excess debit balance. As a result, effective upon
conversion to its self-clearing operations, the Company recorded receivables
from customers, payables to customers and collateralized bank loans, which has
had a significant effect on the Company's total assets and total liabilities.
The Company recorded receivables from customers of $185 million and payables
to customers of $113 million. In addition, as a self-clearing firm, the
Company contracted with a third-party service bureau, Beta Systems, Inc., a
subsidiary of Thomson Information Services, Inc. ("Beta Systems"), for its
customer record keeping and data processing services. The Company previously
relied on Herzog and its data processor for these services. There can be no
assurance that Beta Systems will be able to provide these services in an
efficient, cost-effective manner and will be able to adequately expand its
services to meet the Company's needs. A loss in the availability of these
services from Beta Systems and the inability of the Company to make
alternative arrangements in a timely manner, if at all, would have a material
adverse effect on the Company's business, financial condition and operating
results.

POTENTIAL LOSS OF FUTURE ORDER FLOW PAYMENTS

The Company has arrangements with various Nasdaq market makers, third market
firms and exchanges to receive cash payments in exchange for routing trade
orders to these firms for execution. This practice of receiving payments for
order flow is widespread in the securities industry. Under applicable SEC
regulations, receipt of these payments requires disclosure of such payments by
the Company to its customers. The revenues received by the Company under these
arrangements for the year ended September 30, 1995 and the nine months ended
June 30, 1996 amounted to 20% and 22% of total revenues, respectively. There
can be no assurance that these revenues will continue at their present levels
or that the Company will be able to continue its present arrangements and
terms for such payments for order flow. In addition, there can be no assurance
that payments for order flow will continue to be permitted by the SEC, the
NASD or other regulatory agencies, courts or governmental units. Loss of any
or all of these revenues could have a material adverse effect on the Company's
business, financial condition and operating results. See "Business--
Operations."

SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; LOSS IN QUARTER ENDED
JUNE 30, 1996

The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including the
following: the timing of introductions or enhancements of online brokerage
services and products by the Company or its competitors; market acceptance of
online brokerage services and products; the pace of development of the market
for online commerce; changes in trading volume in the securities markets;
trends in the securities markets; changes in pricing policies by the Company
or its competitors; changes in strategy; the success of or costs associated
with acquisitions, joint ventures or other strategic relationships; changes in
key personnel; seasonal trends; the extent of international expansion; the mix
of international and domestic sales; changes in the level of operating
expenses to support projected growth; and general economic conditions. In
addition, the Company recently has experienced a decrease in the average
number of customer trades per day and expects that its recent rate of growth
in customer trades is not necessarily indicative of future trading activity.

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<PAGE>

In connection with its transition to self-clearing operations, the Company
began hiring consultants, in fiscal 1995, to perform clearing functions that
previously were performed by Herzog. As a consequence, the Company has
incurred not only significant nonrecurring costs associated with the hiring
and training of its associates, but also ongoing personnel and other costs
associated with its transition to self-clearing operations and the integration
of its own systems. At the same time, the Company continued to incur expenses
to Herzog for clearing operations through June 1996.

As a result of the costs associated with the Company's conversion to self-
clearing operations and its recent systems failures, the Company incurred a
loss of $2.4 million in the quarter ended June 30, 1996. See "-- Risks of
Systems Failure," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Operations."

SUBSTANTIAL COMPETITION

The market for electronic brokerage services, particularly over the
Internet, is new, rapidly evolving and intensely competitive, and the Company
expects competition to continue and intensify in the future. E*TRADE
encounters direct competition from other discount brokerage firms providing
either touch-tone telephone or online brokerage services, or both. Discount
brokerage firms generally effect transactions for their customers on an
"execution only" basis, without offering other services such as portfolio
valuation, investment recommendations and research. These competitors include
such discount brokerage firms as Charles Schwab & Co., Inc. ("Charles
Schwab"), Fidelity Brokerage Services, Inc., Waterhouse Securities, Inc.,
Quick & Reilly, Inc. ("Quick & Reilly"), Pacific Brokerage Services, Inc.,
National Discount Brokers (a subsidiary of Sherwood Securities Corp.), Lombard
Institutional Brokerage, Inc., firms owned by TransTerra Co. (including All-
American Brokers, also known as eBroker) and PC Financial Network (a division
of Donaldson, Lufkin & Jenrette Securities Corporation), among others. The
Company also encounters competition from established full-commission brokerage
firms such as Dean Witter Reynolds Inc., Paine Webber Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Smith Barney,
Inc., among others. In addition, the Company competes with financial
institutions, mutual fund sponsors and other organizations, some of which
provide electronic brokerage services.

There are virtually no barriers to entry in the market in which the Company
operates. Many of the Company's competitors have longer operating histories
and significantly greater financial, technical, marketing and other resources
than the Company. In addition, many of these competitors offer a wider range
of services and financial products than the Company, and thus may be able to
respond more quickly to new or changing opportunities, technologies and
customer requirements. Many current and potential competitors also have
greater name recognition and more extensive customer bases that could be
leveraged, thereby gaining market
share to the Company's detriment. Such competitors may be able to undertake
more extensive promotional activities, offer more attractive terms to
customers than the Company and adopt more aggressive pricing policies,
possibly even sparking a price war in the electronic brokerage business.
Moreover, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to enhance
their services and products. For example, Charles Schwab's One-Source mutual
fund service and similar, more complete services may discourage potential
customers from using the Company's brokerage services. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.

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<PAGE>

their securities activities, as well as their activities relating to the
provision of financial services. While it is not possible to predict the type
and extent of competitive services that commercial banks and other financial
institutions ultimately may offer or whether administrative or legislative
barriers will be repealed or modified, brokerage firms such as the Company may
be adversely affected by such competition or legislation. Particularly as
financial services and products proliferate, to the extent the Company's
competitors are able to attract and retain customers on the basis of the
convenience of one-stop shopping, the Company's business or its ability to
grow could be adversely affected. In many instances, the Company is competing
with such organizations for the same customers. In addition, competition among
financial services firms exists for experienced technical and other personnel.

There can be no assurance that the Company will be able to compete
effectively with current or future competitors or that the competitive
pressures faced by the Company will not have a material adverse effect on the
Company's business, financial condition and operating results. See "Business--
Competition."

EARLY STAGE OF MARKET DEVELOPMENT; DEPENDENCE ON ONLINE COMMERCE AND THE
INTERNET

The market for electronic brokerage services, particularly over the
Internet, is at an early stage of development and is rapidly evolving. As is
typical for new and rapidly evolving industries, demand and market acceptance
for recently introduced services and products are subject to a high level of
uncertainty. With respect to the Company, this uncertainty is compounded by
the risks that consumers will not adopt online commerce and that an
appropriate infrastructure necessary to support increased commerce on the
Internet will fail to develop, in each case, to a sufficient extent and within
an adequate time frame to permit the Company to succeed.

Sales of many of the Company's services and products will depend upon the
adoption of the Internet by consumers as a widely used medium for commerce and
communication. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as a reliable network backbone, or timely development of complementary
services and products, such as high speed modems and high speed communication
lines. The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic.
There can be no assurance that the Internet infrastructure will continue to be
able to support the demands placed on it by this continued growth. In
addition, the Internet could lose its viability due to delays in the
development or adoption of new standards and protocols to handle increased
levels of Internet activity or due to increased governmental regulation.
Moreover, critical issues concerning the commercial use of the Internet
(including security, reliability, cost, ease of use, accessibility and quality
of service) remain unresolved and may negatively affect the growth of Internet
use or the attractiveness of commerce and communication on the Internet.
Because global commerce and online exchange of information on the Internet and
other similar open wide area networks are new and evolving, there can be no
assurance that the Internet will prove to be a viable commercial marketplace.
If critical issues concerning the commercial use of the Internet are not
favorably resolved, if the necessary infrastructure is not developed, or if
the Internet does not become a viable commercial marketplace, the Company's
business, financial condition and operating results will be materially
adversely affected.

Adoption of online commerce, particularly by those individuals that have
historically relied upon traditional means of commerce, will require a broad
acceptance by such individuals of new and substantially different methods of
conducting business. Moreover, the Company's brokerage services over the
Internet involve a new approach to securities trading and, as a result,
intensive marketing and sales efforts may be necessary to educate prospective
customers regarding the uses and benefits of the Company's brokerage services
and products. For example, consumers who already obtain brokerage services
from more traditional full-commission brokerage firms, or even discount
brokers, may be reluctant or slow to change to obtaining brokerage services
over the Internet. Moreover, the security and privacy concerns of existing and
potential users of the Company's services may inhibit the growth of online
commerce generally, and online brokerage trading in particular, which could
have a material adverse effect on the Company's business, financial condition
and operating results. See "Business--Background."

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<PAGE>

RAPID TECHNOLOGICAL CHANGE; DELAYS IN INTRODUCTION OF NEW SERVICES AND
PRODUCTS

The information and financial services and communications industries are
characterized by rapid technological change, changes in customer requirements,
frequent new service and product introductions and enhancements, and emerging
industry standards. The introduction of services or products embodying new
technologies and the emergence of new industry standards and practices can
render existing services or products obsolete and unmarketable. The Company's
future success will depend, in part, on its ability to develop leading
technologies, enhance its existing services and products, develop new services
and products that address the increasingly sophisticated and varied needs of
its prospective customers, and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis. The
development of new services and products or enhanced versions of existing
services and products entails significant technical risks. There can be no
assurance that the Company will be successful in effectively using new
technologies, adapting its services and products to emerging industry
standards, developing, introducing and marketing service and product
enhancements, or new services and products, or that it will not experience
difficulties that could delay or prevent the successful development,
introduction or marketing of these services and products, or that its new
service and product enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. If the Company is unable, for
technical or other reasons, to develop and introduce new services and products
or enhancements of existing services and products in a timely manner in
response to changing market conditions or customer requirements, or if new
services and products do not achieve market acceptance, the Company's
business, financial condition and operating results will be materially
adversely affected. See "Business--Strategy," "--Brokerage and Information
Services and Products" and "--E*TRADE Processing Technology."

RISKS ASSOCIATED WITH ENCRYPTION TECHNOLOGY

A significant barrier to online commerce and communication is the secure
transmission of confidential information over public networks. The Company
relies on encryption and authentication technology, including public key
cryptography technology licensed from RSA Data Security, Inc. ("RSA"), to
provide the security and authentication necessary to effect secure
transmission of confidential information. There can be no assurance that
advances in computer capabilities, new discoveries in the field of
cryptography or other events or developments will not result in a compromise
or breach of the RSA or other algorithms used by the Company to protect
customer transaction data. If any such compromise of the Company's security
were to occur, it could have a material adverse effect on the Company's
business, financial condition and operating results. See "Business--Brokerage
and Information Services and Products."

DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS

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<PAGE>

In addition, litigation may be necessary in the future to enforce the
Company's intellectual property rights, to protect the Company's trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation, whether successful or unsuccessful, could result in substantial
costs and diversions of resources, either of which could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Business--Intellectual Property and Other Proprietary Rights."

RISK OF INFRINGEMENT

The Company may in the future receive notices of claims of infringement of
other parties' proprietary rights. There can be no assurance that claims for
infringement or invalidity (or claims for indemnification resulting from
infringement claims) will not be asserted or prosecuted against the Company.
Any such claims, with or without merit, could be time consuming to defend,
result in costly litigation, divert management's attention and resources or
require the Company to enter into royalty or licensing agreements. There can
be no assurance that such licenses would be available on reasonable terms, if
at all, and the assertion or prosecution of any such claims could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business--Intellectual Property and Other Proprietary
Rights."

DEPENDENCE ON KEY PERSONNEL

The Company's success has been, and will be, dependent to a large degree on
its ability to retain the services of its existing executive officers and to
attract and retain qualified additional senior and middle managers and key
personnel in the future. The Company does not have "key person" life insurance
policies on any of its officers or associates. The loss of the services of any
of the key personnel or the inability to identify, hire, train and retain
other highly qualified technical and managerial personnel, including qualified
customer service personnel, in the future could have a material adverse effect
on the Company's business, financial condition and operating results.
Competition for such personnel is intense. There can be no assurance that the
Company will be able to attract, assimilate or retain qualified technical and
managerial personnel in the future, and the failure of the Company to do so
would have a material adverse effect on the Company's business, financial
condition and operating results. See "Business--Associates" and "Management."

GOVERNMENT REGULATION

The securities industry in the United States is subject to extensive
regulation under both federal and state laws. Broker-dealers are subject to
regulations covering all aspects of the securities business, including sales
methods, trade practices among broker-dealers, use and safekeeping of
customers' funds and securities, capital structure, record keeping and the
conduct of directors, officers and employees. The Company is required to
comply with many complex laws and rules to which it previously has not been
subject as a fully-disclosed broker-dealer, including rules relating to
possession and control of customer funds and securities, margin lending and
execution and settlement of transactions.

Additional legislation, changes in rules promulgated by the SEC, the NASD,
the Board of Governors of the Federal Reserve System, the various stock
exchanges and other self-regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules, may directly affect
the mode of operation and profitability of broker-dealers. The SEC, the NASD
or other self-regulatory organizations and state securities commissions may
conduct administrative proceedings, which can result in censure, fine, the
issuance of cease-and-desist orders or the suspension or expulsion of a
broker-dealer or any of its officers or employees. The Company's ability to
comply with all applicable laws and rules is dependent in large part upon the
establishment and maintenance of a compliance system reasonably designed to
ensure such compliance, as well as the Company's ability to attract and retain
qualified compliance personnel. The Company's growth has placed considerable
strain on its ability to ensure such compliance, and it has experienced recent
turnover in its compliance personnel. The principal purpose of regulation and
discipline of broker-dealers is the protection of customers and the securities
markets, rather than protection of creditors and stockholders of

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<PAGE>

broker-dealers. The Company could in the future be subject to disciplinary or
other actions due to claimed noncompliance, which could have a material
adverse effect on the Company's business, financial condition and operating
results.

The Company has initiated an aggressive marketing campaign designed to bring
brand name recognition to E*TRADE. All marketing activities by E*TRADE
Securities are regulated by the NASD, and all such marketing materials are
required by the NASD to be reviewed by E*TRADE Securities' compliance officer
prior to release. The Company has in the past been requested by the NASD to
discontinue the use of certain marketing materials. The NASD can impose
certain penalties, including censure, fine, suspension of all advertising the
issuance of cease-and-desist orders or the suspension or expulsion of a
broker-dealer or any of its officers or employees for violations of the NASD's
advertising regulations. The Company does not currently solicit orders from
its customers or make investment recommendations. However, if the Company were
to engage in such activities, it would become subject to additional rules and
regulations governing, among other things, the suitability of recommendations
to customers and sales practices.

It is the Company's intent to expand its business in United States
securities to other countries through the Internet and other gateways. For the
nine months ended June 30, 1996, the Company received approximately 2.5% of
its commission revenues from customers with addresses in over 60 foreign
countries. In order to expand its services globally, E*TRADE Securities must
comply with the regulatory controls of each specific country in which it
conducts business. E*TRADE Securities is regulated in the United States
primarily by the NASD and the SEC. The varying compliance requirements of
other national regulatory jurisdictions will impose a limit to the Company's
rate of international expansion.

There can be no assurance that other federal, state or foreign agencies will
not attempt to regulate the Company's online and other electronic activities.
The Company anticipates that it may be required to comply with record keeping,
data processing and other regulatory requirements as a result of proposed
federal legislation or otherwise, and the Company may be subject to additional
regulation as the market for online commerce evolves. Because of the growth in
the electronic commerce market, Congress has held hearings on whether to
regulate providers of services and transactions in the electronic commerce
market, and federal or state authorities could enact laws, rules or
regulations affecting the Company's business or operations. The Company also
may be subject to federal, state and foreign money transmitter laws and state
and foreign sales and use tax laws. If enacted or deemed applicable to the
Company, such laws, rules or regulations could be imposed on the Company's
activities or its business, thereby rendering the Company's business or
operations more costly or burdensome, less efficient or even impossible, any
of which could have a material adverse effect on the Company's business,
financial condition and operating results.

Due to the increasing popularity of the Internet, it is possible that laws
and regulations may be enacted with respect to the Internet, covering issues
such as user privacy, pricing, content and quality of products and services.
The Telecommunications Act of 1996, which was enacted in January 1996,
prohibits the transmission over the Internet of certain types of information
and content. Although certain of these prohibitions have been held
unconstitutional by a federal trial court, that ruling is expected to be
appealed, and, in any event the increased attention focused upon these
liability issues as a result of the Telecommunications Act could adversely
affect the growth of Internet and private network use. In addition, the
adoption of other laws or regulations may reduce the rate of growth of the
Internet, which could in turn decrease the demand for the Company's services
or could otherwise have a material adverse effect on the Company's business,
financial condition and operating results. See "Business--Government
Regulation; Net Capital Requirements."

EFFECT OF NET CAPITAL REQUIREMENTS

The SEC, the NASD and various other regulatory agencies have stringent rules
with respect to the maintenance of specific levels of net capital by
securities brokers, including the SEC's Uniform Net Capital Rule (the "Net
Capital Rule"), which governs both E*TRADE Securities and E*TRADE Capital,
Inc. (formerly ET Execution Services), a non-operational broker-dealer
subsidiary of E*TRADE Group, Inc.

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<PAGE>

("E*TRADE Capital"). Net capital is the net worth of a broker or dealer
(assets minus liabilities), less certain deductions that result from excluding
assets that are not readily convertible into cash and from conservatively
valuing certain other assets. Failure to maintain the required net capital may
subject a firm to suspension or revocation of registration by the SEC and
suspension or expulsion by the NASD and other regulatory bodies and ultimately
could require the firm's liquidation. In addition, a change in the net capital
rules, the imposition of new rules or any unusually large charge against net
capital could limit those operations of the Company that require the intensive
use of capital, such as trading activities and the financing of customer
account balances, and also could restrict the Company's ability to withdraw
capital from its brokerage subsidiaries, which in turn could limit the
Company's ability to pay dividends, repay debt and redeem or purchase shares
of its outstanding stock. A significant operating loss or any unusually large
charge against net capital could adversely affect the ability of the Company
to expand or even maintain its present levels of business, which could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business--Government Regulation; Net Capital
Requirements."

As of June 30, 1996, E*TRADE Securities was required to maintain minimum net
capital of $250,000 and had total net capital of approximately $13.9 million,
or approximately $13.6 million in excess of the minimum amount required. In
February 1996, E*TRADE Capital, then doing business as ET Execution Services,
undertook to act as guarantor pursuant to an agreement between the Company and
Merrill Lynch Business Financial Services, Inc. This undertaking caused
E*TRADE Capital to fall short of its minimum net capital requirement and thus
be in violation of the Net Capital Rule through May 30, 1996 when E*TRADE
Capital was released from the guarantee. The Company has reported the
violation of E*TRADE Capital to the SEC and the NASD and is awaiting their
decisions. There can be no assurance that either or both the SEC or the NASD
will not impose a penalty upon E*TRADE Capital, including fines, restrictions
on business activities or suspension of trading activities, or that the
imposition of any such penalty will not have a material adverse effect on the
Company's business, financial condition and operating results. In addition,
there can be no assurance that a violation of the Net Capital Rule will not
occur in the future. See "Business--Government Regulation--Net Capital
Requirements."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING

The Company currently anticipates that its available cash resources and
credit facilities, combined with the net proceeds to the Company from this
offering, will be sufficient to meet its presently anticipated working capital
and capital expenditure requirements for at least the next 12 months. However,
the Company may need to raise additional funds in order to support more rapid
expansion, develop new or enhanced services and products, respond to
competitive pressures, acquire complementary businesses or technologies or
respond to unanticipated requirements. If additional funds are raised through
the issuance of equity securities, the percentage ownership of the
stockholders of the Company will be reduced, stockholders may experience
additional dilution in net book value per share, or such equity securities may
have rights, preferences or privileges senior to those of the holders of the
Company's Common Stock. There can be no assurance that additional financing
will be available when needed on terms favorable to the Company, if at all. If
adequate funds are not available on acceptable terms, the Company may be
unable to develop or enhance its services and products, take advantage of
future opportunities or respond to competitive pressures or unanticipated
requirements, any of which could have a material adverse effect on the
Company's business, financial condition and operating results. See "Dilution"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."

RISKS ASSOCIATED WITH ACQUISITIONS, JOINT VENTURES AND OTHER STRATEGIC
RELATIONSHIPS

While the Company has no current agreements or negotiations underway with
respect to any potential acquisitions, the Company may make acquisitions of
other companies or technologies in the future, and the Company regularly
evaluates such opportunities. Acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations and products,
diversion of management's attention to other business concerns, amortization
of acquired intangible assets and potential loss of key employees of acquired
companies. The Company has no experience in assimilating acquired
organizations into the Company's operations. No assurance can be given as to
the ability of the Company to integrate successfully any

16
<PAGE>

operations, personnel, services or products that might be acquired in the
future, and the failure of the Company to do so could have a material adverse
effect on the Company's business, financial condition and operating results.

The Company has established a number of strategic relationships with online
service providers and software and information service providers. A
significant number of such relationships have only recently been entered into.
There can be no assurance that any such relationships will be maintained, that
if such relationships are maintained, they will be successful or profitable,
or that the Company will develop any new such relationships. See "Business--
Strategic Relationships and Business Development."

RISKS ASSOCIATED WITH INTERNATIONAL STRATEGY

A component of the Company's strategy is its planned increase in efforts to
attract more international customers. To date, the Company has limited
experience in providing brokerage services internationally. There can be no
assurance that the Company will be able to market successfully its services
and products in international markets. In addition, there are certain risks
inherent in doing business in international markets, particularly in the
heavily regulated brokerage industry, such as unexpected changes in regulatory
requirements, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, political instability, fluctuations in currency
exchange rates, reduced protection for intellectual property rights in some
countries, seasonal reductions in business activity during the summer months
in Europe and certain other parts of the world, and potentially adverse tax
consequences, any of which could adversely impact the success of the Company's
international operations. There can be no assurance that one or more of such
factors will not have a material adverse effect on the Company's future
international operations, if any, and, consequently, on the Company's
business, financial condition and operating results. See "Business--Strategy"
and
"--Marketing."

MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS

The Company has designated only limited specific use for the net proceeds
from the sale of Common Stock described in this Prospectus. The Company
expects to use approximately $2.3 million of the net proceeds to repay debt
and the remainder for working capital and general corporate purposes.
Consequently, the Board of Directors and management of the Company will have
broad discretion in allocating a significant portion of the net proceeds of
this offering. See "Use of Proceeds."

CONCENTRATION OF STOCK OWNERSHIP

Upon the completion of this offering, the Company's present directors
(including the director emeritus) and executive officers and their respective
affiliates will beneficially own approximately 53.3% of the outstanding Common
Stock. As a result, these stockholders, if they act together, will be able to
exercise significant influence over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions, and will have veto power with respect to any
stockholder action or approval requiring a majority vote. Such concentration
of ownership also may have the effect of delaying, preventing or deterring a
change in control of the Company. See "Principal and Selling Stockholders" and
"Description of Capital Stock--Certain Provisions Affecting Stockholders."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for
the Common Stock will develop or be sustained after the offering. The initial
offering price will be determined by negotiation among the Company,
representatives of the Selling Stockholders and the representatives of the
Underwriters based upon several factors. For a discussion of the factors to be
taken into account in determining the initial public offering price, see
"Underwriting." The market price of the Company's Common Stock is likely to be
highly volatile and could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new software, services or products by the Company or its
competitors, changes in financial estimates by securities analysts or other
events or factors, many of which are beyond the Company's control. In
addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many technology and services companies and that often have been
unrelated to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. In the past, following periods of volatility in the market price
for a company's securities, securities class action litigation

17
<PAGE>

often has been instituted. Such litigation could result in substantial costs
and a diversion of management attention and resources, which could have a
material adverse effect on the Company's business, financial condition and
operating results.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial numbers of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon the completion of this offering, the Company will have outstanding
an aggregate of 28,392,597 shares of Common Stock, based upon the number of
shares outstanding as of June 30, 1996. Of these shares, all of the shares sold
in this offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless such shares are purchased by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act ("Affiliates"). The
remaining 23,727,597 shares of Common Stock held by existing stockholders (the
"Restricted Shares") are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rule 144 or Rule 701 promulgated under the Securities Act. As a result of
contractual restrictions and the provisions of Rule 144 and Rule 701,
additional shares will be available for sale in the public market as follows:
(i) approximately 933,060 Restricted Shares will be eligible for immediate sale
on the date of this Prospectus; (ii) approximately 569,820 Restricted Shares
will be eligible for sale 90 days after the date of this Prospects; (iii)
approximately 12,627,450 Restricted Shares will be eligible for sale upon
expiration of the lock-up agreements 180 days after the date of this
Prospectus; and (iv) the remainder of the Restricted Shares will be eligible
for sale from time to time thereafter upon expiration of their respective two-
year holding periods. Pursuant to an agreement between the Company and the
holders (or their permitted transferees) of approximately 13,663,560 shares of
Common Stock, these holders are entitled to certain rights with respect to the
registration of such shares under the Securities Act. See "Description of
Capital Stock" and "Shares Eligible for Future Sale."

IMMEDIATE AND SUBSTANTIAL DILUTION

Investors participating in this offering will incur immediate and substantial
dilution in the amount of $8.83 per share. To the extent that outstanding
options or warrants to purchase the Common Stock are exercised, there will be
further dilution. See "Dilution."

EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS

The Company's Board of Directors has the authority to issue up to an
additional 868,484 shares of Preferred Stock and to determine the price,
rights, preferences and privileges of those shares without any further vote or
action by the Company's stockholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of Preferred Stock. While the Company has no present intention to issue shares
of Preferred Stock, such issuance, while providing desirable flexibility in
connection with the possible acquisitions and other corporate purposes, could
have the effect of delaying, deferring or preventing a change in control of the
Company and entrenching existing management. In addition, such Preferred Stock
may have other rights, including economic rights, senior to the Common Stock,
and, as a result, the issuance thereof could have a material adverse effect on
the market value of the Common Stock. The Company is also subject to the anti-
takeover provisions of Section 203 of the Delaware General Corporation Law,
which restricts certain "business combinations" with "interested stockholders"
for three years following the date the person becomes an interested
stockholder, unless the Board of Directors approves the business combination.
By delaying and deterring unsolicited takeover attempts, these provisions could
adversely affect prevailing market prices for the Company's Common Stock.
Certain other provisions of the Company's Restated Certificate of Incorporation
or Restated Bylaws, including elimination of the ability of stockholders to act
by written consent, a staggered Board of Directors and advance notice for
stockholder proposals and director nominations , may have the effect of
delaying or preventing changes of control or management of the Company, which
could adversely affect the market price of the Company's Common Stock. See
"Description of Capital Stock."

18
<PAGE>

USE OF PROCEEDS

The net proceeds from the sale of the 4,000,000 shares of Common Stock
offered by the Company hereby are estimated to be approximately $39.2 million
($43.9 million if the Underwriters' over-allotment option is exercised in
full), assuming an initial public offering price of $11.00 per share and after
deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company. The Company will not receive any proceeds
from the sale of shares of Common Stock by the Selling Stockholders. See
"Principal and Selling Stockholders."

The principal purposes of the offering are to increase the Company's working
capital and equity base, to provide a public market for its Common Stock, to
permit future acquisitions using cash or publicly tradeable Common Stock and
to facilitate future access to public capital markets. The net proceeds will
be used to repay approximately $2.3 million of debt and for working capital
and general corporate purposes, which will include capital expenditures,
increasing capacity and funding potential acquisitions. The loan being repaid
was obtained in February 1996 from Merrill Lynch Business Financial Services
Inc. to provide financing for equipment purchases. The loan can be drawn in
installments of a minimum of $100,000 and with a maximum outstanding of $2.5
million. The loan bears an interest rate equal to 2.70% over the 30-day
commercial paper rate as published in the Wall Street Journal and was 8.2% at
June 28, 1996.

The Company continues to evaluate potential acquisition opportunities;
however, none are presently under active consideration. Pending such uses, the
Company will invest the net proceeds of this offering in short-term,
investment-grade, interest-bearing securities.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain all of its earnings, if any, for use
in its business and does not anticipate paying any cash dividends in the
foreseeable future. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will depend upon a number
of factors, including future earnings, the success of the Company's business
activities, capital requirements, the general financial condition and future
prospects of the Company, general business conditions and such other factors
as the Board of Directors may deem relevant.

19
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on an actual basis, (ii) on a pro forma basis to reflect the
automatic conversion of all outstanding shares of Preferred Stock into
7,890,960 shares of Common Stock upon the completion of this offering and
(iii) on such pro forma basis as adjusted to reflect the sale by the Company
of 4,000,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $11.00 per share and the receipt and application of
the estimated net proceeds therefrom. This table should be read in conjunction
with the consolidated financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
PRO AS
ACTUAL FORMA ADJUSTED
------- ------- --------
(in thousands)
<S> <C> <C> <C>
Current portion of long-term obligations(1)......... $ 523 $ 523 $ 23
======= ======= =======
Long-term obligations, net of current portion(1).... $ 1,860 $ 1,860 $ 27
======= ======= =======
Stockholders' equity:
Preferred Stock, issuable in series, $.01 par value;
1,000,000 shares authorized, 131,516 shares
outstanding, actual; no shares outstanding, pro
forma and as adjusted.............................. 1 -- --
Common Stock, $.01 par value, 50,000,000 shares
authorized, 16,501,637 shares outstanding, actual;
24,392,597 shares outstanding, pro forma; and
28,392,597 shares outstanding, as adjusted(2)...... 165 244 284
Additional paid-in capital ......................... 22,448 22,370 61,505
Retained earnings (deficit)......................... (235) (235) (235)
------- ------- -------
Total stockholders' equity...................... 22,379 22,379 61,554
------- ------- -------
Total capitalization.......................... $24,762 $24,762 $61,604
======= ======= =======
</TABLE>
- --------
(1) See Notes 3 and 7 of Notes to Consolidated Financial Statements.
(2) Excludes 4,000,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Incentive Plan, options to purchase 54,000 of which
were outstanding as of June 30, 1996, and also excludes 5,565,840 shares
of Common Stock as of June 30, 1996 reserved for issuance pursuant to the
exercise of options granted under the Company's 1993 Stock Option Plan and
1983 Employee Incentive Stock Option Plan. Also excludes 650,000 shares of
Common Stock reserved for issuance under the Company's 1996 Stock Purchase
Plan. See "Management--Associate Benefit Plans" and Notes 5 and 10 of
Notes to Consolidated Financial Statements.

20
<PAGE>

DILUTION

The pro forma net tangible book value of the Company as of June 30, 1996 was
$22.4 million, or $0.92 per share of Common Stock. Pro forma net tangible book
value per share represents the amount of the Company's total assets less total
liabilities, divided by the pro forma number of shares of Common Stock
outstanding, after giving effect to the automatic conversion of all
outstanding shares of Preferred Stock into Common Stock upon the completion of
this offering. Pro forma net tangible book value dilution per share represents
the difference between the amount per share paid by purchasers of shares of
Common Stock in this offering and the pro forma net tangible book value per
share of Common Stock immediately after the completion of this offering. After
giving effect to the sale of the 4,000,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $11.00 per
share and after deduction of estimated underwriting discounts and commissions
and offering expenses payable by the Company, the pro forma net tangible book
value of the Company as of June 30, 1996 would have been $61.6 million, or
$2.17 per share. This represents an immediate increase in pro forma net
tangible book value of $1.25 per share to the existing stockholders and an
immediate dilution of $8.83 per share to purchasers of Common Stock in this
offering. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $11.00
Pro forma net tangible book value per share as of June 30,
1996....................................................... $0.92
Increase per share attributable to new stockholders......... 1.25
-----
Pro forma net tangible book value per share at June 30, 1996
after the offering.......................................... 2.17
------
Dilution per share to new stockholders....................... $ 8.83
======
</TABLE>

The following table summarizes, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and by new stockholders purchasing shares of Common
Stock in this offering (based on an assumed initial public offering price of
$11.00 per share and before the deduction of estimated underwriting discounts,
commissions and offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
------------------------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 24,392,597 85.9% $35,629,502 44.7% $ 1.46
New stockholders........... 4,000,000 14.1 44,000,000 55.3 11.00
------------ ------- ----------- -----
Total.................... 28,392,597 100.0% $79,629,502 100.0%
============ ======= =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will cause the number
of shares held by existing stockholders to be reduced to 23,727,597
shares, or 83.6% (23,487,597 shares, or 81.4%, if the Underwriters' over-
allotment option is exercised in full) of the total number of shares of
Common Stock to be outstanding after this offering, and will increase the
number of shares held by new stockholders to 4,665,000 shares, or 16.4%
(5,364,750 shares, or 18.6%, if the Underwriters' over-allotment option is
exercised in full) of the total number of shares of Common Stock to be
outstanding after the offering. See "Principal and Selling Stockholders."

The foregoing assumes no exercise of options to purchase Common Stock after
June 30, 1996. As of June 30, 1996, there were options outstanding to purchase
a total of 5,619,840 shares of Common Stock under the Company's 1996 Stock
Incentive Plan, 1993 Stock Option Plan and 1983 Employee Incentive Stock
Option Plan, at a weighted average exercise price of $2.33 per share. To the
extent that any of these options or other options granted after June 30, 1996
are exercised, there will be further dilution to new stockholders. See
"Management--Associate Benefit Plans" and Notes 5 and 10 of Notes to
Consolidated Financial Statements.

21
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth for the periods indicated selected
consolidated financial data for the Company. The consolidated statement of
income data for the years ended September 30, 1993, 1994 and 1995 and the
consolidated balance sheet data at September 30, 1994 and 1995 have been
derived from the Company's consolidated financial statements included
elsewhere in this Prospectus. The following selected consolidated financial
data are qualified by the more detailed consolidated financial statements of
the Company and the notes thereto included elsewhere in this Prospectus and
should be read in conjunction with such consolidated financial statements and
notes and the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus. The consolidated statement of income data for the year ended
September 30, 1992 and the consolidated balance sheet data at September 30,
1993 has been derived from audited financial statements not included in this
Prospectus. The consolidated statement of income data for the year ended
September 30, 1991 and for the nine months ended June 30, 1995 and 1996 and
the consolidated balance sheet data at September 30, 1991 and 1992 and June
30, 1996 are derived from unaudited consolidated financial statements which,
in the opinion of management, have been prepared on the same basis as the
audited consolidated financial statements and contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for such periods. The results of
operations for the nine months ended June 30, 1996 are not necessarily
indicative of results to be expected for the full year.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------------------ ------- ------- ------- -------- --------
CONSOLIDATED STATEMENT OF INCOME
DATA: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Transaction revenues... $ 184 $ 327 $ 2,158 $ 9,548 $20,835 $ 13,592 $ 30,208
Computer services...... 455 480 709 953 1,425 911 1,794
Interest and other..... 193 41 107 404 1,080 646 2,481
-------- ------- ------- ------- ------- -------- --------
Total revenues....... 832 848 2,974 10,905 23,340 15,149 34,483
-------- ------- ------- ------- ------- -------- --------
Cost of services
Cost of services....... 470 579 1,973 6,796 12,678 8,011 21,105
Self-clearing start-up
costs................. -- -- -- -- 141 85 1,844
-------- ------- ------- ------- ------- -------- --------
Total cost of
services............ 470 579 1,973 6,796 12,819 8,096 22,949
-------- ------- ------- ------- ------- -------- --------
Operating expenses
Selling and marketing.. 17 116 282 998 2,466 1,539 5,749
Technology development. 189 176 216 335 943 538 1,322
General and
administrative........ 264 260 400 2,532 2,803 1,386 6,687
-------- ------- ------- ------- ------- -------- --------
Total operating
expenses............ 470 552 898 3,865 6,212 3,463 13,758
-------- ------- ------- ------- ------- -------- --------
Total cost of
services
and operating
expenses............ 940 1,131 2,871 10,661 19,031 11,559 36,707
-------- ------- ------- ------- ------- -------- --------
Pre-tax income (loss).... (108) (283) 103 244 4,309 3,590 (2,224)
Income tax expense
(benefit)............... 2 2 4 (541) 1,728 1,440 (890)
-------- ------- ------- ------- ------- -------- --------
Net income (loss).... $ (110) $ (285) $ 99 $ 785 $ 2,581 $ 2,150 $ (1,334)
======== ======= ======= ======= ======= ======== ========
Net income (loss) per
share................... $ (0.01) $ (0.01) $ -- $ 0.03 $ 0.10 $ 0.08 $ (0.05)
======== ======= ======= ======= ======= ======== ========
Shares used to compute
per share data.......... 23,954 24,954 26,803 26,312 26,608 25,577 28,550
======== ======= ======= ======= ======= ======== ========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------ JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------- ------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and equivalents....... $ 50 $ 48 $ 36 $ 692 $ 9,624 $15,409
Total assets............... 140 226 728 2,163 14,164 29,685
Long-term obligations...... 1,085 1,165 1,310 64 45 1,860
Stockholders' equity
(deficiency).............. (1,022) (1,107) (788) (92) 11,148 22,379
</TABLE>

22
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under "Risk Factors"
and elsewhere in this Prospectus.

OVERVIEW

E*TRADE is a leading provider of cost-effective, secure electronic brokerage
services. Founded in 1982, the Company operated initially as a service bureau,
providing automated online stock trading services to various brokerage firms,
including Fidelity Brokerage Services, Inc., Quick & Reilly and, through an
agreement with Bank of America for Charles Schwab. In 1992, the Company formed
E*TRADE Securities and began to offer retail brokerage services, with
automated order placement now available 24 hours a day, seven days a week by
means of the Internet, direct modem access, online service providers America
Online Inc. ("America Online") and CompuServe, Inc. ("CompuServe"), touch-tone
telephone and, to a lesser extent, interactive television.

The Company's revenues consist principally of transaction revenues, which
include securities brokerage commissions and payments based on order flow
(described below), interest and certain other fees related to the Company's
product offerings. The Company has experienced substantial growth in its
revenues since the inception of E*TRADE Securities. At the end of fiscal 1992,
the Company was processing slightly over 100 trades per day, and by September
30, 1995, the end of the Company's most recent fiscal year, the Company was
processing in excess of 3,800 trades per day. By June 30, 1996, the Company's
average daily trade volume had grown to 8,000 trades per day. Although
increases in the overall activity in the securities markets have contributed
to the Company's growth, the Company believes that its growth has also been
due in part to the success of its advertising campaign to bring brand name
recognition to the E*TRADE name, the launch of Internet access to E*TRADE and
the continuing successful integration of new system developments.

The Company uses other broker-dealers to execute its customers' orders and,
in recent years, has derived a significant portion of its revenues from these
broker-dealers for such order flow. The revenues received by the Company under
these arrangements for the year ended September 30, 1995 and the nine months
ended June 30, 1996 amounted to 20% and 22% of total revenues, respectively.
There can be no assurance that these revenues will continue at their present
levels or that the Company will be able to continue its present relationships
and terms for such payments for order flow. In addition, there can be no
assurance that payments for order flow will continue to be permitted by the
SEC, the NASD or other regulatory agencies, courts or governmental units. Loss
of any or all of these revenues could have a material adverse effect on the
Company's business, financial condition and operating results.

The Company is making significant investments in systems technology and has
designed a "hot" back-up site in Rancho Cordova, California. The Rancho
Cordova site will become fully operational in late July 1996. This new
facility will support systems, network and transaction redundancy between the
Company's Palo Alto and Rancho Cordova data centers, thereby providing a fully
operational system in the event of a service interruption at either facility.
The Company also is making significant investments in its customer service
department. The Company's customer service capacity has been severely strained
at times and the Company is seeking to address this problem through
significant investments in technology and personnel. See "Risk Factors--Risks
Associated with Management of a Changing Business, "--Risks of Systems
Failure" and "-- Dependence on Improved Customer Service Operations."

The Company implemented self-clearing operations in July 1996. Clearing
services include the confirmation, receipt, settlement and delivery functions
involved in securities transactions. Prior to its

23
<PAGE>

conversion to self-clearing operations, the Company cleared all of its
customer trades as a fully-disclosed correspondent of Herzog. In the first
quarter of fiscal 1996, the Company began hiring and training associates to
perform the clearing functions that previously were performed by Herzog. As a
consequence, the Company has incurred not only significant non-recurring costs
associated with the hiring and training of its associates, but also ongoing
personnel and other costs associated with the transition to self-clearing
operations and the integration of its own systems. At the same time, the
Company continued to incur expenses to Herzog for clearing operations through
June 1996. The Company believes that its conversion to self-clearing
operations is a strategic investment in the Company's future that will allow
the Company to realize significant future savings, although there can be no
assurance in that regard. See "Risk Factors--Risks of Systems Failures" and
"--Risks Associated with Conversion to Self-clearing Operations."

As a self-clearing firm, the Company assumes direct responsibility for the
possession and control of customer securities and other assets and the
clearance of customers securities transactions. Having this responsibility
requires the Company to record on its balance sheet the customer receivables
and customer payables to the Company that are a result of customer margin
loans (i.e., loans made to customers that are collateralized by securities
held in the customers' margin accounts at the Company) and customer free
credit balances (i.e., customer cash balances maintained by the Company),
respectively. In addition, to the extent that the Company's customer debit
balances exceed customer free credit balances, the Company must obtain
financing for any excess debit balance. As a result, effective upon conversion
to its self-clearing operations, the Company recorded receivables from
customers, payables to customers and collateralized bank loans, which has had
a significant effect on the Company's total assets and total liabilities. The
Company recorded receivables from customers of $185 million and payables to
customers of $113 million. The difference between receivables from customers
and payables to customers is being financed through a combination of corporate
resources, settlement facilities and customer collateralized bank loans. In
connection with the transition to self-clearing operations, the Company
obtained bank financing to finance its customer balances. In addition, as a
self-clearing firm, the Company contracted with a third-party service bureau,
Beta Systems, for its customer record keeping and data processing services.
The Company previously relied on Herzog and its data processor for these
services. A loss in the availability of these services from Beta Systems and
the inability of the Company to make alternative arrangements in a timely
manner, if at all, would have a material adverse effect on the Company's
business, financial condition and operating results. See "--Liquidity and
Capital Resources" and "Risk Factors--Risks Associated with Conversion to
Self-clearing Operations."

The Company's transaction revenues have grown from $327,000 in fiscal 1992,
the first year that the Company began to offer retail brokerage services, to
$20.8 million in fiscal 1995. Transaction revenues include securities
brokerage transactions and, since late fiscal 1994, payments based on order
flow. Computer service revenues have grown from $480,000 in fiscal 1992 to
$1.4 million in fiscal 1995, and are comprised primarily of fees for the time
customers are connected to the Company online. Interest and other revenues
have grown from $41,000 in fiscal 1992 to $1.1 million in fiscal 1995. The
Company previously participated in the interest spread on its customer debit
and credit balances through its clearing agreement with Herzog. The Company
began receiving fees on its customers' assets invested in money market
accounts in September 1994. Other revenues represent the Company's return on
its investment in Roundtable Partners LLC, a consortium of broker-dealers that
provides the Company with an alternative broker-dealer through which to route
its customers' orders for execution. The Company also participates in the
operating results of Roundtable Partners LLC as an equity owner.

The Company's cost of services has grown from $579,000 in fiscal 1992 to
$12.8 million in fiscal 1995. Cost of services includes clearing fees paid to
the Company's clearing broker, system maintenance and communication expenses,
and expenses related to the Company's order operations and customer service
departments. In connection with its conversion to self-clearing operations,
the Company incurred ongoing expenses such as payroll and systems
expenditures.

Selling and marketing expenses have grown from $116,000 in fiscal 1992 to
$2.5 million in fiscal 1995 and consist primarily of the costs associated with
the actual placement expenses as well as the creative development of
advertising.

24
<PAGE>

Technology development expenses have grown from $176,000 in fiscal 1992 to
$943,000 in fiscal 1995 and consist of payroll and consulting costs associated
with the development and enhancement of the Company's product offerings.

General and administrative expenses have grown from $260,000 in fiscal 1992
to $2.8 million in fiscal 1995 and consist primarily of facilities costs,
equipment and maintenance expenses, as well as corporate management costs,
including accounting, human resources and other administrative expenses.

The Company has experienced substantial changes in and expansion of its
business and operations since it began offering electronic brokerage services
in 1992 and expects to continue to experience periods of rapid change. The
Company's past expansion has placed, and any future expansion would place,
significant demands on the Company's administrative, operational, financial
and other resources. The Company expects operating expenses and staffing
levels to increase substantially in the future. In particular, the Company
intends to hire a significant number of additional skilled personnel in 1996
and later years, including persons with experience in both the computer and
brokerage industries, and, in particular, persons with Series 7 or other
broker-dealer licenses. Competition for such personnel is intense, and there
can be no assurance that the Company will be able to attract, assimilate or
retain additional highly qualified senior managers and technical persons in
the future. The Company also expects to expend resources with respect to
future expansion of its accounting and internal management systems and the
implementation of a variety of new systems and procedures. In addition, the
Company expects that future expansion will continue to challenge the Company's
ability to hire, train, motivate and manage its associates. If the Company's
revenues do not increase in proportion to its operating expenses, the
Company's management systems do not expand to meet increasing demands, the
Company fails to attract, assimilate and retain qualified personnel, or the
Company's management otherwise fails to manage the Company's expansion
effectively, there would be a material adverse effect on the Company's
business, financial condition and operating results. See "Risk Factors--Risks
Associated with Management of a Changing Business," "Business--Associates" and
"Management."

RESULTS OF OPERATIONS

The following table sets forth the percentage of total revenues represented
by certain items on the Company's consolidated statements of income for the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
------------------- ------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues
Transaction revenues...................... 72.6% 87.6% 89.3% 89.7% 87.6%
Computer services......................... 23.8 8.7 6.1 6.0 5.2
Interest and other........................ 3.6 3.7 4.6 4.3 7.2
----- ----- ----- ----- -----
Total revenues.......................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of services
Cost of services.......................... 66.3 62.3 54.3 52.9 61.2
Self-clearing start-up costs.............. -- -- 0.6 0.6 5.4
----- ----- ----- ----- -----
Total cost of services.................. 66.3 62.3 54.9 53.5 66.6
----- ----- ----- ----- -----
Operating expenses
Selling and marketing..................... 9.5 9.2 10.6 10.2 16.7
Technology development.................... 7.3 3.1 4.0 3.6 3.8
General and administrative................ 13.4 23.2 12.0 9.0 19.4
----- ----- ----- ----- -----
Total operating expenses................ 30.2 35.5 26.6 22.8 39.9
----- ----- ----- ----- -----
Total cost of services and
operating expenses..................... 96.5 97.8 81.5 76.3 106.5
----- ----- ----- ----- -----
Pre-tax income (loss) ...................... 3.5 2.2 18.5 23.7 (6.5)
Income tax expense (benefit)................ 0.2 (5.0) 7.4 9.5 (2.6)
----- ----- ----- ----- -----
Net income (loss)....................... 3.3% 7.2% 11.1% 14.2% (3.9)%
===== ===== ===== ===== =====
</TABLE>

25
<PAGE>

Nine Months Ended June 30, 1996 and 1995

Revenues

Transaction revenues increased 122% to $30.2 million for the nine months
ended June 30, 1996 from $13.6 million for the comparable period in 1995. Of
that amount, payments for order flow increased 167% to $7.5 million for the
nine months ended June 30, 1996 from $2.8 million for the comparable period in
1995. The increase in transaction revenues was primarily the result of the
rise in the number of securities transactions processed by the Company, offset
in part by reductions in the commission rates charged for certain
transactions. The average revenue per securities transaction was $31.76 for
the nine months ended June 30, 1996 compared with $36.16 during the same
period in the prior year. Computer services revenues increased 97% to $1.8
million for the nine months ended June 30, 1996 from $911,000 for the
comparable period in 1995, primarily due to an increase in the amount of
connect time utilized by customers. Interest and other revenues increased 284%
to $2.5 million for the nine months ended June 30, 1996 from $646,000 for the
comparable period in 1995. The increase was largely due to an increase in
customer margin debt of 181% to $135 million, an increase in customer free
credit balances of 330% to $77 million and an increase in customer money
market fund balances of 85% to $317 million.

Cost of Services

Cost of services increased 163% to $21.1 million for the nine months ended
June 30, 1996 from $8.0 million for the comparable period in 1995, due to both
the increase in the number of securities transactions processed by the Company
and the increase in customer service calls following the May 1996 systems
failures. Self-clearing start-up costs increased to $1.8 million for the nine
months ended June 30, 1996 from $85,000 for the comparable period in 1995. The
Company incurred these expenses as it continued to hire associates and utilize
consultants in preparation of the conversion to self-clearing operations.

Operating Expenses

Selling and marketing expenses increased 274% to $5.7 million for the nine
months ended June 30, 1996 from $1.5 million for the comparable period in
1995. This increase reflects the brand name advertising campaign that was
initiated by the Company during the nine months ended June 30, 1996, as well
as the advertising costs associated with the launch of the Company's Web site
in February 1996. The Company expects that these expenses will fluctuate as a
percent of revenue from period to period.

Technology development expenses increased 146% to $1.3 million for the nine
months ended June 30, 1996 from $538,000 for the comparable period in 1995.
This increase was attributable to an acceleration of the Company's development
efforts associated with the launch of the Web site in February 1996, as well
as the work associated with designing and implementing the Company's "hot"
back-up site in Rancho Cordova, California.

General and administrative expenses increased 382% to $6.7 million for the
nine months ended June 30, 1996 from $1.4 million for the comparable period in
1995. This increase was a result of increased costs associated with personnel
additions in the finance, human resources, facilities and compliance
departments, a $3.0 million increase in customer claims and bad debt reserves,
a relocation to larger facilities and an increased use of consultants by the
Company. The increase in personnel and the Company's relocation to new
facilities were undertaken to accommodate the growth experienced during the
period.

Income Tax Expense (Benefit)

Income tax benefit represents federal and state income taxes at an effective
rate of 40.0% for the nine months ended June 30, 1996 and 40.1% income tax
expense for the comparable period in 1995.

Fiscal Years Ended September 30, 1995 and 1994

Revenues

Transaction revenues increased 118% to $20.8 million for fiscal 1995 from
$9.5 million for fiscal 1994. The increase was attributable to an increase in
the number of securities transactions processed by the

26
<PAGE>

Company. The average revenue per securities transaction increased to $31.61 in
fiscal 1995 from $29.68 in fiscal 1994 because of the initiation of order flow
payments partially offset by reductions of the base commission rate charged to
customers for securities transactions late in fiscal 1994. Computer services
revenues increased 50% to $1.4 million for fiscal 1995 from $953,000 for
fiscal 1994. The increase was due to an increase in amount of connect time
utilized by customers. Interest and other revenues increased 167% to $1.1
million for fiscal 1995 from $404,000 for fiscal 1994. The increase was
largely due to an increase of 172% in customer margin debt to $68.9 million,
an increase of 85% in customer credit balances to $18.7 million and an
increase of 160% in customer money market fund balances to $209.4 million.

Cost of Services

Cost of services increased 87% to $12.7 million for fiscal 1995 from $6.8
million for fiscal 1994. The increase was largely attributable to an increase
in the Company's payments to its clearing broker and, to a lesser extent,
modest increases in brokerage operations and quotation expenses. Self-clearing
start-up costs were $141,000 for fiscal 1995, as the Company began to utilize
consultants in preparation of its conversion to self-clearing operations. No
such expenses were incurred in fiscal 1994.

Operating Expenses

Selling and marketing expenses increased 147% to $2.5 million for fiscal
1995 from $998,000 for the comparable period in fiscal 1994. This increase was
due to increased expenditures on advertising placements, creative development
and collateral materials.

Technology development expenses increased 181% to $943,000 for fiscal 1995
from $335,000 for the comparable period in fiscal 1994. This increase was
attributable to activities associated with enhancing the Company's existing
product offerings, as well as costs associated with the development of the
Company's Web site, which was launched in February 1996.

General and administrative expenses increased 11% to $2.8 million for fiscal
1995 from $2.5 million for the comparable period in fiscal 1994. In fiscal
1994, the Company settled claims in the amount of $850,000 made by its former
clearing broker. Excluding this claim, fiscal 1995 general and administrative
expenses increased 67% over fiscal 1994. This increase was a result of
additional expenses incurred for customer bad debts, claims resulting from a
systems failure in the fourth quarter of fiscal 1995 and increases in the
number of corporate associates needed to accommodate the growth experienced by
the Company during the period.

Income Tax Expense

Income tax expense represents the provision for federal and state income
taxes at an effective rate of 40.1% for fiscal 1995. The Company recorded a
net income tax benefit of $541,000 for fiscal 1994, due to full recognition of
net operating loss carryforwards generated in prior years.

Fiscal Years Ended September 30, 1994 and 1993

Revenues

Transaction revenues increased 342% to $9.5 million for fiscal 1994 from
$2.2 million for fiscal 1993. The increase was attributable to an increase in
the number of securities transactions processed by the Company. Computer
services revenues increased 34% to $953,000 for fiscal 1994 from $709,000 for
fiscal 1993. This increase was due to an increase in the connect time access
charges utilized by the customers. Interest and other revenue increased 279%
to $404,000 for fiscal 1994 from $107,000 for fiscal 1993. The increase was
due to an overall increase in customer margin debit and free credit balances.

Cost of Services

Cost of services increased 245% to $6.8 million for fiscal 1994 from $2.0
million for fiscal 1993. This increase was attributable to increases in
clearing fees and communication expenses.

27
<PAGE>

Operating Expenses

Selling and marketing expenses increased 253% to $998,000 for the fiscal
1994 from $282,000 for fiscal 1993. This increase was a result of increased
advertising expenses. Technology development expenses increased 55% to
$335,000 for fiscal 1994 from $216,000 for fiscal 1993. This increase was a
result of additional resources being applied to product development. General
and administrative expenses increased 532% to $2.5 million for fiscal 1994
from $401,000 for fiscal 1993. This increase was attributable to increases in
customer claims and bad debt reserves as well as the $850,000 settlement in
fiscal 1994 noted above.

28
<PAGE>

QUARTERLY RESULTS

The following table sets forth certain unaudited quarterly financial data
for the seven quarters ended June 30, 1996. In the opinion of the Company's
management, this unaudited information has been prepared on the same basis as
the audited consolidated financial statements contained herein and includes
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein when read in conjunction with
the consolidated financial statements and footnotes. The operating results for
any quarter are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1995 1995 1995 1995 1996 1996
------------ --------- -------- ------------- ------------ --------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Transaction revenues.. $3,272 $4,206 $6,114 $7,243 $7,329 $ 9,160 $13,719
Computer services..... 267 280 364 514 455 624 715
Interest and other.... 162 204 280 434 644 666 1,171
------ ------ ------ ------ ------ ------- -------
Total revenues...... 3,701 4,690 6,758 8,191 8,428 10,450 15,605
------ ------ ------ ------ ------ ------- -------
Cost of services
Cost of services...... 2,049 2,480 3,482 4,667 4,373 5,855 10,877
Self-clearing start-up
costs................ 2 39 44 56 166 469 1,209
------ ------ ------ ------ ------ ------- -------
Total cost of
services........... 2,051 2,519 3,526 4,723 4,539 6,324 12,086
------ ------ ------ ------ ------ ------- -------
Operating expenses
Selling and marketing. 459 578 502 927 1,127 2,391 2,231
Technology
development.......... 63 65 410 405 253 359 710
General and
administrative....... 415 438 533 1,417 1,042 1,058 4,587
------ ------ ------ ------ ------ ------- -------
Total operating
expenses........... 937 1,081 1,445 2,749 2,422 3,808 7,528
------ ------ ------ ------ ------ ------- -------
Total cost of
services and
operating expenses. 2,988 3,600 4,971 7,472 6,961 10,132 19,614
------ ------ ------ ------ ------ ------- -------
Pre-tax income (loss)... 713 1,090 1,787 719 1,467 318 (4,009)
Income tax expense
(benefit).............. 286 437 717 288 589 133 (1,612)
------ ------ ------ ------ ------ ------- -------
Net income (loss)... $ 427 $ 653 $1,070 $ 431 $ 878 $ 185 $(2,397)
====== ====== ====== ====== ====== ======= =======
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Transaction revenues.. 88.4% 89.7% 90.5% 88.4% 87.0% 87.7% 87.9%
Computer services..... 7.2 6.0 5.4 6.3 5.4 6.0 4.6
Interest and other.... 4.4 4.3 4.1 5.3 7.6 6.3 7.5
------ ------ ------ ------ ------ ------- -------
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------- -------
Cost of services
Cost of services...... 55.4 52.9 51.5 57.0 51.9 56.0 69.7
Self-clearing start-up
costs................ -- 0.8 0.7 0.7 2.0 4.5 7.7
------ ------ ------ ------ ------ ------- -------
Total cost of
services........... 55.4 53.7 52.2 57.7 53.9 60.5 77.4
------ ------ ------ ------ ------ ------- -------
Operating expenses
Selling and marketing. 12.4 12.3 7.4 11.3 13.4 22.9 14.3
Technology
development.......... 1.7 1.4 6.1 4.9 3.0 3.4 4.6
General and
administrative....... 11.2 9.3 7.9 17.3 12.3 10.1 29.4
------ ------ ------ ------ ------ ------- -------
Total operating
expenses........... 25.3 23.0 21.4 33.5 28.7 36.4 48.3
------ ------ ------ ------ ------ ------- -------
Total cost of
services and
operating expenses. 80.7 76.7 73.6 91.2 82.6 96.9 125.7
------ ------ ------ ------ ------ ------- -------
Pre-tax income (loss)... 19.3 23.3 26.4 8.8 17.4 3.1 (25.7)
Income tax expense
(benefit).............. 7.8 9.4 10.6 3.5 7.0 1.3 (10.3)
------ ------ ------ ------ ------ ------- -------
Net income (loss)... 11.5% 13.9% 15.8% 5.3% 10.4% 1.8% (15.4)%
====== ====== ====== ====== ====== ======= =======
</TABLE>

29
<PAGE>

The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including the
following: the timing of introductions or enhancements of online brokerage
services and products by the Company or its competitors; market acceptance of
online brokerage services and products; the pace of development of the market
for online commerce; changes in trading volume on the securities markets;
trends in the securities markets; changes in pricing policies by the Company
or its competitors; changes in strategy; the success of or costs associated
with acquisitions, joint ventures or other strategic relationships; changes in
key personnel; seasonal trends; the extent of international expansion; the mix
of international and domestic sales; changes in the level of operating
expenses to support projected growth; and general economic conditions. In
addition, the Company recently has experienced a decrease in the average
number of customer trades per day and expects that its recent rate of growth
in customer trades is not necessarily indicative of future trading activity.

Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast, and the Company believes that period-to-period
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as any indication of future performance. It is
likely that the Company's future quarterly operating results from time to time
will not meet the expectations of securities analysts or investors, which may
have an adverse effect on the market price of the Company's Common Stock.
During fiscal 1995, in connection with its transition to self-clearing
operations, the Company began hiring consultants to perform clearing functions
that previously were performed by Herzog. As a consequence, the Company has
incurred not only significant non-recurring costs associated with the hiring
and training of its associates, but also ongoing personnel and other costs
associated with the transition to self-clearing operations and the integration
of its own systems, while still incurring expenses to Herzog for clearing
operations.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its activities through cash
provided by operations, the private placement of Common Stock and Preferred
Stock and, to a lesser extent, equipment financing. In September 1995, the
Company privately placed $12.3 million of convertible Preferred Stock, of
which $3.8 million was used to repurchase and retire outstanding Common Stock
from existing stockholders. In April 1996, the Company sold an additional
20,336 shares of convertible Preferred Stock for $2.8 million. In June 1996,
the Company sold an additional 11,180 shares of convertible Preferred Stock to
SOFTBANK for $9.0 million.

In February 1996, the Company obtained $2.5 million in equipment financing
from Merrill Lynch Business Financial Services, Inc. to finance the purchase
of equipment and facilities at the Company's new corporate headquarters in
Palo Alto, California. In May 1996, the Company obtained $100 million in
authorized financing, to be collateralized by customer securities, which
became available in July 1996 upon completion of its conversion to self-
clearing operations. In addition, the Company has entered into numerous
agreements with other broker-dealers to provide financing for the Company's
stock loan activities.

30
<PAGE>

requirements, any of which could have a material adverse effect on the
Company's business, financial condition and operating results.

Cash provided by (used in) operating activities was $(4.1) million for the
nine months ended June 30, 1996 compared to $3.1 million for the comparable
period in 1995. The cash provided by (used in) operating activities of both
periods was primarily the result of net income (loss), respectively, which for
the nine months ended June 30, 1996 was reduced by an increase in deposits
with clearing organizations and other long-term assets. Cash provided by (used
in) operating activities was $(112,000), $891,000 and $3.4 million in fiscal
1993, 1994 and 1995, respectively. The increases were due to higher net income
during the periods.

Cash used in investing activities was $2.1 million for the nine months ended
June 30, 1996 compared to $1.3 million for the comparable period in 1995 and
was $114,000, $124,000 and $1.7 million in fiscal 1993, 1994 and 1995,
respectively. The increases were primarily a result of additional purchases of
office facilities, equipment and leasehold improvements.

Cash provided by financing activities was $12.0 million for the nine months
ended June 30, 1996 compared to cash used in financing activities of $703,000
for the comparable period in 1995. The Company sold stock and received the
proceeds from exercised warrants in the nine months ended June 30, 1996 and
retired long-term notes payable in the comparable period in 1995. Cash
provided by (used in) financing activities was $215,000, ($111,000) and $7.3
million in fiscal 1993, 1994 and 1995, respectively. The increases and
decreases in each fiscal period are the net result of the issuance and
retirement of Company securities, respectively.

The Company expects that it will have $10.0 million of capital expenditures
through June 30, 1997.

RECENTLY ISSUED ACCOUNTING STANDARDS

The Company is required to adopt SFAS No. 123, Accounting for Stock-Based
Compensation, in fiscal 1997. SFAS No. 123 establishes accounting and
disclosure requirements using a fair-value based method of accounting for
stock based employee compensation plans. Under SFAS No. 123, the Company may
either adopt the new fair-value based accounting method or continue the
intrinsic value based method and provide pro forma disclosures of net income
and earnings per share as if the accounting provisions of SFAS No. 123 had
been adopted. The Company plans to adopt only the disclosure requirements of
SFAS No. 123; therefore, such adoption will have no effect on the Company's
consolidated net income or cash flows.

The Company is also required to adopt SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
in fiscal 1997. SFAS No. 121 establishes the accounting and reporting
requirements for recognizing and measuring impairment of long-lived assets to
be either held and used or held for disposal. The Company does not expect SFAS
No. 121 to have a material effect on its consolidated financial statements.

31
<PAGE>

BUSINESS

The following discussion of the Company's business contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to,
those set forth under "Risk Factors" and elsewhere in this Prospectus.

OVERVIEW

E*TRADE Group, Inc. ("E*TRADE or the "Company") is a leading provider of
cost-effective, secure online discount brokerage services. The Company offers
automated order placement, portfolio tracking and related market information,
news and other information services 24 hours a day, seven days a week by means
of the Internet, online service providers CompuServe and America Online,
direct modem access, touch-tone telephone and, to a lesser extent, interactive
television. E*TRADE's proprietary transaction processing technology enables it
to offer highly automated, easy-to-use and cost-effective services that
empower its customers to take control of their own financial transactions.
Further, the Company's technology can be adapted to provide information and
transaction processing services related to other aspects of electronic
commerce, such as the processing of insurance transactions and electronic cash
transfers. See "--Strategic Relationships and Business Development."

E*TRADE provides its customers with the ability to place orders for stock
trades and other investment transactions directly, and at a lower, more
predictable transaction cost than traditional full-commission or discount
brokerage firms. The Company's services feature an easy-to-use graphical user
interface, the ability to create "personalized environments" reflecting users'
individual needs and interests, accessibility from virtually anywhere at any
time via multiple gateways, unbundled services for cost-effective pricing, and
highly secure services through the use of encryption and authentication
technology.

The Company had over 73,000 accounts as of June 30, 1996, with an average
monthly growth in accounts of 11% since January 1, 1996, and had an average
daily trading volume of approximately 8,000 in June 1996, as compared to 4,200
transactions in December 1995, representing an average monthly growth of 11%
over that period. The Internet is the Company's most rapidly growing gateway,
with trading volume increasing from approximately 1,300 Internet trades for
the first full week the Company offered trading through the Internet (the week
ended February 23, 1996) to over 10,900 for the week ended June 28, 1996.

E*TRADE's objective is to leverage its leading position as a provider of
electronic brokerage and information services through automation, innovation,
technology, service and value. The Company's strategy to accomplish this
objective includes continued aggressive marketing of its electronic brokerage
services to further establish E*TRADE's brand name recognition and increase
its share of the electronic brokerage market, continual broadening of the
functionality of its services and enhancement of its customers' online
experience, leveraging the benefits of its highly automated services to
enhance their cost-effectiveness, establishing additional strategic
relationships with online service, software and information service providers,
and expanding into international markets and new electronic commerce
applications.

BACKGROUND

Advancements in telecommunications and information technology have
fundamentally altered the way individuals conduct business. For example, the
development of the microprocessor and the personal computer revolutionized the
way individuals use computers by providing inexpensive and powerful
capabilities to them. Consumers have embraced the personal computer and
expressed strong preferences for the convenience and control it provides. In a
similar fashion, consumers also have begun using a variety of other electronic
devices such as the automatic teller machine ("ATM") and the facsimile
machine, which are now seen as valuable tools for expediting and controlling
transactions and eliminating human intermediaries.

Just as the microprocessor changed the use of computers, the emergence of
the Internet as a tool for communications and commerce is driving a revolution
in the world of financial transactions and information

32
<PAGE>

services. Consumers are rapidly embracing the Internet because it is simple to
access, makes vast amounts of information available instantaneously, and
allows individuals to communicate with one another regardless of location.
With the proliferation of personal computers and modems and the development of
easy-to-use Web browsers, use of the Internet grew to 56 million users
worldwide by the end of 1995, according to International Data Corporation,
which estimates that the number will reach approximately 200 million by the
end of 1999.

The Emergence of Electronic Commerce

The Internet and online services have provided organizations and individuals
with innovative ways of conducting business. With the emergence of the
Internet as a globally accessible, fully interactive and individually
addressable communications and computing medium, companies that have
traditionally conducted business in person, through the mail or over the
telephone are increasingly utilizing electronic commerce. Increased use of
credit cards, ATMs, the incidence of electronic funds transfers and online
banking and bill paying has automated, simplified and reduced the costs of
financial transactions for consumers, businesses and financial institutions.
Consumers are showing strong preferences for transacting certain types of
business--such as paying bills, buying insurance, booking airline tickets and
trading securities--electronically, rather than in person or over the
telephone. These transactions are being streamlined through online commerce
and can now be performed directly by individuals virtually anywhere at any
time. Consumers have accepted and even welcomed self-directed online
transactions because such transactions can be faster, less expensive and more
convenient than transactions conducted through a human intermediary.

Development of Online Brokerage Services

In the past, the individual investor could access the financial markets only
through a full-commission broker, who would give investment advice and place
trades. With the deregulation of brokerage commissions in 1975 and the
resulting unbundling of brokerage services, investors began to realize that
they could separate financial advisory services from securities trading. This
brought about the advent of the discount brokerage firm, which provided an
alternative investment approach by completing trades at a reduced cost.

With the emergence of electronic brokerage services, investors are being
given the ability to further unbundle the costs associated with the human
interaction required by full-commission and traditional discount brokerage
firms. By requiring personnel to handle each transaction, most traditional
brokerage firms restrict their customers' access to trading and information to
the availability of the person processing the transaction. In addition,
although full-commission and discount brokerage firms are able to offer
electronic trading services, their continued reliance on personnel, branch
offices and the associated infrastructure for a major part of their business
prevents them from reducing their cost structure to the lower level achievable
through an all electronic model. As a result of these factors, online
brokerage accounts are gaining popularity, and Forrester Research, Inc.
reports that by the year 2000, over $46 billion of financial assets is
expected to be managed on the Internet.

The Company believes that the ubiquity of ATMs, the presence of banks in
supermarkets, the proliferation of do-it-yourself financial transaction
software, the growth of discount brokerage firms and a variety of other
indicators evidence a shift in demographics and societal norms that is
fundamentally altering the way consumers manage their personal financial
assets. The Company also believes, based on customer feedback and the rapid
acceptance by consumers of online transactions, that consumers are
increasingly taking direct control over their personal financial affairs, not
simply because they are able to do so, but because they find it more
convenient and less expensive than relying on financial intermediaries.
Investors want the flexibility to transact business at times and places that
are convenient for them. In addition, the broad availability of financial
information online has dramatically narrowed the gap between the resources
available to the individual investor and the institutional investor.
Individual investors have become increasingly sophisticated and knowledgeable
about investing, having experienced greater access to stock quotes, company

33
<PAGE>

financial information, investment advice and other investment information on
the Web or through other online services. As investors obtain even more access
to investment information, the Company believes they will desire greater
control over their financial decisions and seek alternative ways to invest
more conveniently and cost-effectively and with less interaction with brokers
and other financial services professionals. The Company believes that this
trend has created a growing opportunity to provide online trading services
that are easy to access, easy to use, cost-effective and secure.

THE E*TRADE SOLUTION

E*TRADE uses its proprietary processing technology to provide consumers with
easy-to-use and cost-effective online securities brokerage services. E*TRADE's
service is accessible through multiple gateways: the Internet, direct modem
access, online service providers CompuServe and America Online, touch-tone
telephone and, to a lesser extent, interactive television. The Company offers
order placement services 24 hours a day, seven days a week, thereby shifting
the financial transactions paradigm from a business hours only, intermediary-
based model to one in which consumers have the ultimate control over where and
when they initiate transactions.

The Company's services are highly automated, with most customer orders being
entered, processed and confirmed electronically and without human
intervention. By avoiding the inefficiencies and personnel requirements and
associated costs of non-automated order entry and processing, the Company is
able to provide its services at a lower cost than traditional full-commission
or discount brokerage firms. The Company's technology is based on a modular
architecture which is scalable to handle increasing transaction volumes.
Modular architecture allows for application programs to be quickly modified in
response to changing business requirements. In addition, a modular
architecture which utilizes multiple components and tiers is designed to scale
quickly without requiring fundamental changes to the application programs. The
Company's first target market for the application of its proprietary
processing technology is the electronic brokerage industry. However, this
technology can be adapted to provide information and transaction processing
services related to other electronic commerce applications.

E*TRADE empowers its customers to take control of their own financial
transactions through the following features:

. User-Friendly Web Trading Interface. Through its easy-to-use graphical
trading interface, E*TRADE has made online trading simple, fast and fun.
Consumers accessing E*TRADE for the first time are able to understand
quickly the wide variety of services available and how to access those
services. The barriers to first-time trading online have been reduced,
enabling new users to feel just as comfortable trading online as
technologically savvy early adopters. The look and feel of the graphical
user interface on the Web is being replicated on other gateways.

. Personalized Environments. Customers are able to create "personalized
environments," including personalized watch lists and portfolios for
tracking securities. A customer's trading experience is enhanced with
portfolio, account and market information readily available prior to
initiating a trade. The Company plans to enable customers to customize
further their user interfaces by allowing them to select the market
indicators, portfolio views and value-added information services,
including news, charts and market analysis, that are most valuable to
them.

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. Anywhere Any Time Access. By maintaining multiple gateways through which
customers may access E*TRADE virtually anywhere at any time, the Company
can increase the number of customers served and transactions processed.
As depicted below, customers are able to trade securities through the
Internet, direct modem access, online service providers CompuServe and
America Online, touch-tone telephone and, to a lesser extent,
interactive television.

CONNECT ANYWHERE, ANY TIME
E*TRADE Transacts Business Through Multiple Gateways

[Graphical depiction of multiple gateways with E*TRADE logo]

. Cost-effective Services. By unbundling the services that many full-
commission and discount brokerage firms include in their high
transaction costs, the Company is able to offer customers just the
services that they want at lower costs. The Company, through its
proprietary processing technology, is able to charge a lower price, yet
provide value-added products and services.

. Secure Operations. The Company believes that account security is one of
the key factors for success in the brokerage industry. By offering
highly secure services through the use of encryption and authentication
technology, the Company has achieved a leadership position in the secure
provision of online brokerage services.

Based on the design of its processing technology, which was developed with a
view to expansion beyond its current use, and on the technical expertise of
its research and development staff, the Company believes that the robust
processing technology that it has developed for the provision of online
electronic brokerage services can be adapted for the provision of additional
services within that market segment, as well as for application to other
aspects of electronic commerce.

STRATEGY

The Company's objective is to be a leader in the provision of commercial
transaction processing services through automation, innovation, technology,
service and value. The key elements of the Company's strategy to accomplish
this objective include the following:

. Enhance E*TRADE Brand Awareness. The Company intends to continue to
aggressively market its online brokerage services to further establish
E*TRADE's brand name recognition through media reports, both in print
and on television, and through advertisements in mass market
publications.

. Increase Electronic Brokerage Market Share. Through aggressive mass
market advertising, the Company intends to raise consumer awareness and
generate new accounts to increase its share of the electronic brokerage
market. The Company's brokerage accounts increased from over 39,000 at
January 1, 1996 to over 73,000 at June 30, 1996, representing an average
monthly growth in accounts of 11% during that period.

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<PAGE>

. Continue to Broaden Service Offerings. The Company continually strives
to increase the functionality of its services, as well as to offer new
services that enhance its customers' online experience. For example, the
Company currently provides portfolio tracking and records management,
market data and access to delayed quotes through the Internet at no
additional cost, while real-time quotes can be obtained online for a
small fee. The Company recently entered into an agreement with Quote.com
to provide current news and charting capabilities to the Company's
customers expected to be available by August 1996. In addition, the
Company intends to expand its existing services to include immediate
access to research reports and company financial information and an
automatic deposit program. The Company also plans to adapt its
proprietary processing technology to provide additional online brokerage
services, such as mutual fund trading, fixed income securities trading,
401(k) plan administration and stock option plan management. In
addition, E*TRADE Securities intends to commence, subject to regulatory
approval, investment banking operations, raising public and private
equity capital for companies over the Internet and other electronic
media.

. Leverage Benefits of Highly Automated Operations. The Company's services
are highly automated, with most customer orders being entered, processed
and confirmed electronically and without human intervention. By avoiding
the inefficiencies, personnel requirements and associated costs of non-
automated order entry and processing, the Company is able to provide its
services at a lower cost than traditional full-commission and discount
brokerage firms. The Company continually seeks ways to automate other
aspects of its business, such as the customer new account application,
lead fulfillment cashiering and customer service functions. In addition,
the Company recently implemented self-clearing operations, which it
expects will further reduce the cost of providing its services to
customers.

. Develop and Maintain Strategic Relationships. In order to enhance
accessibility of its services and provide new service offerings, the
Company has established strategic relationships with online service
providers CompuServe and America Online, whose subscribers are potential
consumers for online brokerage services, as well as certain software and
information service providers. The Company believes that these
relationships help build E*TRADE's brand name recognition and enable the
low-cost acquisition of additional customers. E*TRADE also seeks to
develop and maintain alternative distribution channels through the
expansion of its service bureau business.

. Leverage E*TRADE Brand and Technology to Enter New Markets. E*TRADE
seeks to capitalize on its brand name recognition by leveraging its
branded proprietary processing technology to provide other individual
and business-to-business clients with electronic services. E*TRADE's
proprietary processing technology, while currently used for the
processing of online brokerage transactions, can be adapted to provide
information and transaction processing services related to other
electronic commerce applications.

. Penetrate International Customer Base. The Internet, America Online and
CompuServe permit the Company's customers to access its system without
regard to geographic location. Although E*TRADE currently has no
marketing program directed specifically at consumers outside the United
States, it already has over 400 accounts for customers with addresses in
over 60 foreign countries, and it plans to increase its marketing
efforts to attract more international customers. The Company plans to
create "localized" user interfaces using local languages and offering
services tailored to regional requirements and customs. The Company has
been discussing possible alliances with local institutions such as
brokers and banks to make the portfolio tracking, purchase and sale, and
funds transfer processes easier for foreign investors, to facilitate the
handling of foreign securities, and to ensure the Company is in
compliance with local laws and regulations.

The Company's strategy involves substantial risks and uncertainties. There
can be no assurance that the Company will be successful in implementing its
strategy or that its strategy, even if implemented, will lead to successful
achievement of the Company's objectives. If the Company is unable to implement
its strategy effectively, the Company's business, financial condition and
operating results would be materially adversely affected.

36
<PAGE>

BROKERAGE AND INFORMATION SERVICES AND PRODUCTS

The Company's consumer services are based on proprietary processing
technology and are designed to meet the needs of individuals who make their
own investment decisions. The Company's services include fully automated stock
and option order processing via personal computer or touch-tone telephone,
online investment portfolio tracking and financial market news and
information. The Company offers its services to consumers through a broad
range of electronic access points, including the Internet, direct modem
access, online service providers CompuServe and America Online, touch-tone
telephone and, to a lesser extent, interactive television. All records are
maintained on one centralized system, so that customers have access to current
account information and can place orders through multiple gateways.

The Company continually strives to increase the functionality of its
services, as well as to offer new services that enhance its customers' online
trading experiences. The Company's services give consumers increased control
of their personal investments by providing a direct link to the financial
markets through a customized user interface. The Company's existing and
anticipated services and product offerings include those described below:

Stock and Option Trading

Customers can directly place orders to buy and sell Nasdaq and exchange-
listed securities, as well as equity options, through the E*TRADE automated
order processing system. E*TRADE supports a range of order types, including
market orders, limit orders (good-till-cancelled or day), stop orders and
short sales. System intelligence automatically checks the parameters of an
order, together with the customer's buying power and positions held, prior to
executing an order. All trade transaction and portfolio records are
automatically updated to reflect trading activity. Buy and sell orders placed
when the markets are closed are automatically submitted prior to the next
day's market opening. Account holders receive electronic notification of order
executions, printed trade confirmations and detailed monthly statements.
Customers also receive annual reports, which are distributed by E*TRADE as
received from the respective companies and proxy statements from those
companies that supply them to E*TRADE for distribution.

Customer payments are received through the mail or federal wire system and
are credited to customer accounts upon receipt. The Company is currently
reviewing various electronic funds transfer systems. The Company intends to
implement a "frequent trader" program in which high-volume customers are given
credit for a number of free trades or free access to services that are
ordinarily priced separately, such as real-time quotes and market data. In
addition, the Company is exploring the provision of mutual fund trading
capabilities in the future.

All listed market orders (subject to certain size limitations) are executed
at the National Best Bid/Offer ("NBBO") at the time of receipt by the third
market firm or exchange. The NBBO is a dynamically updated representation of
the combined highest bid and lowest offer quoted across all United States
stock exchanges and market makers registered in a specific stock. Eligible
orders are exposed to the marketplace for possible price improvement, but in
no case are orders executed at a price inferior to the NBBO. Limit orders are
executed based on an indicated price and time priority. All Nasdaq market
orders (subject to certain size limitations) are executed at the Best
Bid/Offer (Inside Market) at the time of receipt by the market-maker.

Market Data

During trading hours, E*TRADE continually receives a direct feed of detailed
quote data, market information and news. Customers can create their own
personal lists of stocks and options for quick access to current pricing
information. E*TRADE provides its customers free access 20-minute delayed
data, including quotes, major market indices, most active issues, and largest
gainers and losers for the major exchanges. Users are alerted when there is
current news on an identified stock and when a stock has reached a user-
defined price threshold.

Upon placing an order, the customer is provided with a real-time bid and ask
quote, at no extra charge. For $30 per month, individual investors can obtain
unlimited real-time quotes and market data on the

37
<PAGE>

Company's system. The Company's Web site provides links to other business and
financial Web sites, including the CNN Financial Network and the SEC's EDGAR
database, which provides access to SEC filings of public companies. The
Company is expanding its existing services to include immediate access to
breaking news, charts and company financial information.

Portfolio Tracking and Records Management

Customers have online access to a listing of all their portfolio assets held
through E*TRADE, including data on the date of purchase, cost basis, current
price and current market value. The system automatically calculates unrealized
profits and losses for each asset held. Detailed account balance and
transaction information includes cash and money fund balances, buying power,
net market portfolio value, dividends paid, interest earned, deposits and
withdrawals. Brokerage history includes all orders, changes and cancellations.
Tax records include total short-term or long-term gain/loss and commissions
paid. Customers can also create "shadow" portfolios to include any number of
financial instruments a customer is interested in tracking --for example,
portfolio assets held at another firm. These shadow portfolios can include
stocks, options, bonds and mutual funds.

Cash Management Services

The Company provides certain cash management services to its customers. For
example, uninvested funds earn interest in a credit interest program or can be
invested in one of five money market funds. In addition, the Company provides
limited checking services through a commercial bank and is exploring the
expansion of these services. The Company plans to expand its cash management
offerings to include electronic funds transfer via the Internet and an
automatic deposit program to allow scheduled periodic transfers of funds into
customers' accounts.

Account Security

The Company uses a combination of proprietary and industry standard security
measures to protect customers' assets. Customers are assigned unique account
numbers, user identifications and passwords that must be used each time they
log on to the system. The Company relies on encryption and authentication
technology, including public key cryptography technology licensed from RSA, to
provide the security and authentication necessary to effect the secure
exchange of information. Telephone transactions are secured through a personal
identification number (PIN)--the same technology used in ATMs. A second level
of password protection is used prior to order placement.

Access and Delivery of Services

The Company's services are widely accessible through multiple gateways, with
automated order placement available 24 hours a day, seven days a week by
personal computer. In addition, customers can access E*TRADE by touch-tone
telephone and, in a limited number of markets, through interactive television.

Personal Computer. Customers using personal computers can access the E*TRADE
system through the Internet, online service providers CompuServe and America
Online, or direct modem access. Accessing the E*TRADE Web site via the
Internet offers the customer platform independence. The Company's Web site
combines an easy-to-use graphical user interface with the trading capabilities
that experienced investors demand. The Web-based system also includes direct
links to many investment-related resources on the Web. Alternatively,
accessing E*TRADE by dialing directly through a modem offers an efficient
method for connecting to the trading system independent of either the Internet
or a proprietary online service.

Touch-tone Telephone. TELE*MASTER, E*TRADE's interactive voice response
system, provides a convenient way for customers to access quote information,
place stock and options trades, review account balances and check messages
through any touch-tone telephone.

Interactive Television. GTE MainStreet, an interactive television system
operated by GTE Corporation, is available as a gateway to the Company's
brokerage service. GTE MainStreet has been on the air over certain cable
television franchises on a pilot basis for approximately four years and is now
operational in three test

38
<PAGE>

markets. Revenues and volume of trades through GTE MainStreet represent an
immaterial portion of the Company's business.

E*TRADE PROCESSING TECHNOLOGY

The E*TRADE engine is a proprietary transaction processor that automates
traditionally labor-intensive transactions. Because it was custom-tailored for
electronic marketplace use, the E*TRADE engine provides customers with
efficient service and has the added advantage of being scalable and adaptable
as usage increases and service offerings are expanded. Beyond these features,
the design of the E*TRADE engine and related software allows for rapid
expansion of network and computing capacity without interrupting service or
requiring replacement of existing hardware or software. Although the E*TRADE
engine can be adapted to provide information and transaction processing
services related to electronic commerce applications other than brokerage,
there can be no assurance that the Company will be able to successfully adapt
its technology to other markets or that, if successful with such adaptation,
it will compete successfully in any such new markets.

[Graphical depiction of E*TRADE engine showing gateway servers; interface
server and automated transaction server]

The E*TRADE Engine

The E*TRADE transaction processing engine includes a wide variety of
functions and services that allow customers to open and monitor brokerage
accounts and to place orders for equity and option transactions. The engine
also has been structured so that it can be adapted for use by other service
providers, enabling them to integrate E*TRADE's transaction processor into
their own front-end applications to create or expand their electronic
services.

E*TRADE's core technology, developed over a period of several years, is
comprised of three parts: the graphical user interface that the customer sees;
the interface server that connects the customer to the processor; and the
automated processor that processes the transactions.

. Graphical User Interface ("GUI"). E*TRADE's GUI environment is based on
Netscape's Secure Commerce Server and today can run on any Netscape-
enabled computer. It is also being adapted to a second Internet browser,
Microsoft Internet Explorer. E*TRADE's GUI connects to the interface
server through a bank of Sun Sparc servers. These "gateway servers"
provide a round-robin method

39
<PAGE>

for load balancing and offer immediate scalability. Access is restricted
through the use of secured network servers and routers and by requiring
two applications of passwords--one for access to the secured Web site,
and a second before an order is placed.

. The Interface Server. The Interface Server's primary function is to
provide access to an efficient, standard transaction processor from all
gateways. The server enables communications through multiple platforms
and allows different platforms to communicate with each other. Beyond
these features, the Interface Server also has been designed to be
scalable and portable and runs in an environment that is both fully
redundant and secure.

. The Automated Processor. The core of the E*TRADE engine is the Automated
Processor, designed to provide the highest degree of automation for all
E*TRADE transactions. The Automated Processor was written for the
Digital Equipment Corporation ("DEC") hardware and operating system to
rapidly read data files, process transactions and transmit information
back to the customer. Because of this, the Company is able to process
approximately 80% of its transactions without any manual intervention.
Dual facilities that run independently share load balancing and provide
redundancy, as well as scalability. The proprietary nature of the
system, along with internal security from DEC and user ID and password
protection at the application level, provide security for the Automated
Processor. Internet access to the processor is through the Company's Web
site, which restricts access through the use of secured network servers
and routers.

The Company maintains an internal development staff to continually enhance
its software and develop new services and transactions. The Company's software
is designed to be versatile and adaptable, so that the E*TRADE engine can be
configured to meet the differing demands of strategic relationships or
individual customer needs.

The Company is establishing a remote back-up data center in Rancho Cordova,
California. This facility will replace the current back-up facility in Palo
Alto, California, in late July 1996. This new facility will support systems,
network and transaction redundancy between the Company's Palo Alto and Rancho
Cordova data centers, thereby providing a fully operational system in the
event of a service interruption at either facility. To provide for system
continuity during short outages, the Company also has equipped its computer
facilities with uninterruptible power supply units as well as back-up
generators.

STRATEGIC RELATIONSHIPS AND BUSINESS DEVELOPMENT

The Company recently formed a subsidiary, E*TRADE Online Ventures, with the
objective of leveraging its transaction-processing capabilities, access to
online consumers and brand name recognition into growth and diversification
opportunities. E*TRADE Online Ventures continues the Company's focus on
strategic alliances and represents a new emphasis on acquisitions and internal
development of new businesses. These efforts are designed to expand the
Company's core business, offer new products and services to its online
customers and diversify its customer base and revenue stream by providing
transaction processing services in areas outside its core business.

Core Business Expansion

With the objective of expanding the Company's core business, E*TRADE Online
Ventures has secured or is actively pursuing alliances with (i) Internet
access and service providers, (ii) Internet software providers, (iii)
providers of home and online banking services, (iv) financial advisors and
money managers, (v) electronic commerce and currency companies and (vi) other
companies either requiring an efficient operation or wanting to offer new
services to their established customer bases. Although the focus with these
alliances is on utilizing the Company's brand name, private branding
opportunities are considered on occasion. The Company intends that these
alliances will increase its core customer base, trading volume and operational
efficiency and will further enhance its brand name recognition.

<PAGE>

To date, the Company has concentrated principally on securing alliances with
online service providers. While a majority of the Company's customers access
its services directly through the Internet, direct modem access or touch-tone
telephone, many go through online service providers CompuServe and America
Online. Strategic relationships with such service providers allow the Company
to access a greater number of potential customers and allow the online service
providers to offer their subscribers a broader range of service options.

[LOGO OF AMERICA ONLINE APPEARS HERE]
America Online. America Online and the Company have had a
business relationship for over nine years. The Company is
negotiating a non-exclusive agreement with America Online to
place E*TRADE in America Online's new Investment Area,
currently scheduled for release in mid-summer 1996. E*TRADE
would receive a more prominent presence, accessible through an icon to an
upgraded graphical user interface. E*TRADE's current non-graphical, ASCII
interface through the America Online service can be accessed only through
a key word search. There can be no assurance that the Company will reach
agreement with America Online on terms favorable to the Company, or at
all, or that, absent a formal written agreement with America Online, the
Company's relationship with America Online will continue on the same basis
as it has in the past, or at all.

[LOGO OF COMPUSERVE APPEARS HERE]
CompuServe. CompuServe and the Company have had a non-exclusive
contractual relationship for over ten years. Initially,
CompuServe served as an access point for the Company's service
bureau business. The Company's current agreement with
CompuServe permits CompuServe customers to open brokerage
accounts with E*TRADE and access those accounts either through CompuServe
or via the Company's TELE*MASTER service. The economics of this
relationship were recently restructured in a three-year contract to
provide for the Company to pay CompuServe a fee for these trades. The
Company has also entered into a three-year network agreement with
CompuServe Network Services for the provision of network access for the
Company's customers who wish to access E*TRADE using direct modem
software.

[LOGO OF DATA BROADCASTING CORPORATION APPEARS HERE]
Data Broadcasting Corporation. Data Broadcasting Corporation
("DBC"), a provider of financial and sports information to
individual investors, has entered into an agreement with the
Company whereby DBC will provide direct access to E*TRADE's
services from its own Internet Web site and that of the brand
labeled quote sites it provides to others.

[LOGO OF GTE CORPORATION APPEARS HERE]
GTE Corporation. The Company entered into an agreement with GTE
Corporation ("GTE") in 1989 to develop an online interactive
television brokerage service that would be made available
through GTE MainStreet, an interactive television system
operated by GTE over certain cable television franchises. GTE
MainStreet has been on the air on a pilot basis for approximately four
years and is now operational in three test markets. The volume of trades
through GTE MainStreet and associated revenues represent an immaterial
portion of the Company's business.

[LOGO OF INTUIT APPEARS HERE]
Intuit. The Company has signed a letter of intent for a
strategic relationship with Quicken Investment Services, Inc.,
a subsidiary of Intuit, Inc. ("Intuit"), pursuant to which the
services of Intuit would permit Intuit users to download
information from E*TRADE to the Intuit software resident on an
Intuit user's personal computer. In addition, it is intended that these
same users will be able to link to E*TRADE for the purpose of entering
orders for trades via their E*TRADE accounts. There can be no assurance
that the Company will reach a definitive agreement with Intuit on terms
favorable to the Company, or at all.

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<PAGE>

New Products and Services

E*TRADE Online Ventures is also pursuing opportunities to increase the
number of products and services offered to E*TRADE customers. These include
(i) other investment products, including mutual funds, additional fixed income
securities and foreign securities, (ii) electronic cash, (iii) preferred
vendor relationships, and (iv) insurance. The Company intends to provide its
customers with electronic means to apply for and process various products,
including life, homeowners and auto insurance. The Company intends to offer
electronic transfer of funds which will allow them to fund their accounts or
purchase products and services provided by E*TRADE by electronic means. In
addition, E*TRADE Securities intends to commence, subject to regulatory
approval, investment banking operations, raising public and private equity
capital for companies over the Internet and other electronic media. There can
be no assurance that the Company will be successful in its pursuit of these
opportunities or that such pursuit will not divert management attention or
inefficiently utilize Company resources.

Significant relationships formed to date are as follows:

[LOGO OF BASELINE APPEARS HERE]
Baseline. The Company signed an agreement with Baseline
Financial Services in June 1996 to provide company
information and earnings estimates to E*TRADE's Internet
customers. Baseline information provides customers with
access to a wide array of fundamentals, First Call earnings
estimates and historical prices on over 7,500 stocks. Available to
customers free of charge from the "Information Resources" area of the
E*TRADE web site, Baseline information can be used to examine a company's
statistics prior to making investment decisions.

[LOGO OF CYBERCASH APPEAR HERE]
CyberCash. The Company has signed a memorandum of
understanding for a strategic relationship with CyberCash,
Inc. ("CyberCash"), pursuant to which E*TRADE would use the
software and services of CyberCash to permit E*TRADE
customers to perform direct deposits into their E*TRADE
accounts via the Internet from accounts at third-party institutions. There
can be no assurance that the Company will reach a definitive agreement
with CyberCash on terms favorable to the Company, or at all.

[LOGO OF NATIONAL PROCESSING COMPANY APPEAR HERE]
National Processing Company. The Company has signed a letter
of intent with National Processing Company ("NPC") to
provide the ability for E*TRADE's Internet customers to
initiate, over the Web, funds transfers from checking
accounts at third-party institutions into their E*TRADE
accounts. This service would be made available to E*TRADE customers free
of charge. There can be no assurance that the Company will reach a
definitive agreement with NPC on terms favorable to the Company, or at
all.

[LOGO OF QUOTE.COM APPEARS HERE]
Quote.com. Quote.com and the Company signed an agreement in
June 1996 to provide value-added information to E*TRADE
Internet customers. Quote.com will provide current news and
charting capabilities that are directly linked to E*TRADE
customers' stock watch and quote lookup features. News
provided includes Reuters News, PR Newswire and BusinessWire. Charts
provided include intra-day, daily and weekly price graphs. These services
are being integrated into E*TRADE's Web site and will be free to E*TRADE
customers.

Alternative Distribution Channels Through Service Bureau Business

The Company began as an online brokerage transaction service bureau and
seeks to develop and maintain alternative distribution channels through the
expansion of its service bureau business. The Company's service bureau
business permits third-party institutions' customers to place brokerage
orders, access their accounts and access other resources online using the
E*TRADE system. The Company has relationships with Quick & Reilly and Bank of
America to offer online services to their customers. The advantage of this
type of relationship is that the Company is able to provide its services to a
greater number of customers at little added cost, eliminating the necessity to
deal directly with customer service and other administrative responsibilities
of providing direct service.

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<PAGE>

A significant number of the Company's strategic relationships have only
recently been entered into. There can be no assurance that any such
relationships will be maintained, that if such relationships are maintained,
they will be successful or profitable, or that the Company will develop any
new such relationships.

The information and financial services and communications industries are
characterized by rapid technological change, changes in customer requirements,
frequent new service and product introductions and enhancements, and emerging
industry standards. The introduction of services or products embodying new
technologies and the emergence of new industry standards and practices can
render existing services or products obsolete and unmarketable. The Company's
future success will depend, in part, on its ability to develop leading
technologies, enhance its existing services and products, develop new services
and products that address the increasingly sophisticated and varied needs of
its prospective customers, and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis. The
development of new services and products or enhanced versions of existing
services and products entails significant technical risks. There can be no
assurance that the Company will be successful in effectively using new
technologies, adapting its services and products to emerging industry
standards, developing, introducing and marketing service and product
enhancements, or new services and products, including those identified above,
or that it will not experience difficulties that could delay or prevent the
successful development, introduction or marketing of these services and
products, or that its new service enhancements will adequately meet the
requirements of the marketplace and achieve market acceptance. If the Company
is unable, for technical or other reasons, to develop and introduce new
services and products or enhancements of existing services and products in a
timely manner in response to changing market conditions or customer
requirements, or if new services and products do not achieve market
acceptance, the Company's business, financial condition and operating results
will be materially adversely affected.

MARKETING

The Company's marketing strategy is based on an integrated marketing model
which employs a mix of communications media. The goals of the Company's
marketing programs are to increase E*TRADE's brand name recognition and to
attract new customers. The Company pursues these goals through direct-response
advertising, marketing through its own Web site, an aggressive public
relations program and co-marketing. All communications by E*TRADE Securities
with the public are regulated by the NASD. See "--Government Regulation; Net
Capital Requirements."

Direct Response Advertising; Web Site Marketing

The Company's advertising focuses on marketing online trading as a better
way of initiating transactions, building awareness of the E*TRADE brand and
selling the benefits of E*TRADE services. Advertising is

43
<PAGE>

increasingly directing interested prospects to the Company's Web site for
additional information, as opposed to generating primarily telephone-based
inquiries. Print advertisements are placed in a broad range of business,
technology and financial publications, including the Wall Street Journal,
Investor's Business Daily, Forbes, Forbes ASAP, Barron's, SmartMoney and
Wired. E*TRADE also advertises regularly on CNBC and on national business
radio networks. The Company believes its aggressive advertising program has
contributed to significant growth in new accounts, based on the increase in
the number of accounts following the launch of new advertising campaigns.

At the Web site, prospective customers can get detailed information on the
Company's services, use an interactive demonstration system, request
additional information and complete an account application online. Since May
1, 1996, a majority of the Company's new accounts have been generated through
the Internet. The Company believes its increasing Internet focus is resulting
in decreased customer acquisition costs, since increasing its presence on the
Web can be accomplished for minimal added cost, and many of the Company's
customers have indicated that they first became acquainted with the Company
through its Web site. The Company may capitalize on the popularity of its Web
site by selling advertising to third parties who are interested in targeted
marketing. The Company regards this revenue as additional income, raised
without a significant increase in overall costs and with no increase in
capital costs.

Public Relations Program

The Company aggressively pursues public relations opportunities to build
brand awareness. This campaign has resulted in appearances on The Today Show,
CNN and CNBC, in addition to profiles in Business Week, Time, the Financial
Times, Investor's Business Daily and the Wall Street Journal. There are links
to E*TRADE's home page from more than 900 sites on the Web, which the Company
believes is a significant factor in increasing brand awareness and generating
leads, as consumers increasingly look to the Internet as a key source of
information and commercial activity. The Company also actively seeks speaking
opportunities at industry conferences and events.

Co-marketing/Promotion

The Company has established a number of significant co-marketing
relationships to promote its products. These include participation in
Netscape's in-box promotional offer for the Netscape Navigator browser
available through retail outlets, Apple Computer's in-store interactive
demonstrations and links with a number of Web-based information providers. The
Company intends to enter into additional co-marketing relationships as a
component of its marketing strategy.

E*TRADE is also developing a virtual shopping mall of software, services and
products that will help individuals make informed investment decisions.
Through E*TRADE's Web site, customers would be able to purchase or subscribe
to products available from this mall at special discount prices. Goods and
services offered would be reviewed and selected for inclusion by E*TRADE based
on overall perceived "best value" within specified product categories.
Companies selected for inclusion in return would promote E*TRADE's services
through their Web sites and/or marketing materials. There can be no assurance
that the Company will succeed in developing a virtual shopping mall or that if
developed it will be successful or profitable.

International Customer Base

The Company's customers are able to trade securities online from anywhere in
the world. The Internet, America Online and CompuServe permit the Company's
customers to access its system without regard to geographic location. Although
E*TRADE currently has no marketing program directed specifically at consumers
outside the United States, it has over 400 accounts for customers with
addresses in over 60 foreign countries, who open accounts directly with the
Company. The Company expects its international customer base to grow with the
continued proliferation of the Internet and increasing free trade, although
there can be no assurance in that regard.

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A component of the Company's strategy is its planned aggressive increase in
marketing efforts to attract more international customers. The Company plans
to create "localized" user interfaces using local languages and offering
services tailored to regional requirements and customs. The Company has been
discussing possible alliances with local institutions such as brokers and
banks to make the portfolio tracking, purchase and sale and funds transfer
processes easier for foreign investors, to facilitate the handling of foreign
securities, and to ensure the Company is in compliance with local laws and
regulations. In addition, the Company recognizes the revenue potential of
providing online trading services for the purchase of foreign securities and
plans to pursue this market in the future.

To date, the Company has limited experience in providing brokerage services
internationally. There can be no assurance that the Company will be able to
market successfully its services and products in international markets. In
addition, there are certain risks inherent in doing business in international
markets, particularly in the heavily regulated brokerage industry, such as
unexpected changes in regulatory requirements, tariffs and other trade
barriers, difficulties in staffing and managing foreign operations, political
instability, fluctuations in currency exchange rates, reduced protection for
intellectual property rights in some countries, seasonal reductions in
business activity during the summer months in Europe and certain other parts
of the world, and potentially adverse tax consequences, any of which could
adversely impact the success of the Company's international operations. There
can be no assurance that one or more of such factors will not have a material
adverse effect on the Company's future international operations, if any, and,
consequently, on the Company's business, financial condition and operating
results.

CUSTOMER SERVICE

The Company believes that providing an effective customer service team to
handle customer needs is critical to its success. The Company's customer
service organization helps customers get online, handles product and service
inquiries and addresses all brokerage and technical questions. The customer
service team also makes welcome calls to verify the satisfaction of its
customers. The Company's customers have access to a toll-free number from 9:00
a.m. to 8:00 p.m. Eastern time, Monday through Friday. The Company's current
policy specifies that customer service associates have or obtain a securities
broker's license.

The Company believes that it can further enhance the quality of its customer
service by utilizing currently available technology. For example, current
interactive voice response ("IVR") technology has the capability of allowing
customers to request forms from their touch-tone telephones and immediately
receive them via fax. The Company believes that these "faxes-on-demand" have
resulted in a reduction of about 5% of the Company's current call volume. The
Company bases the foregoing beliefs on the experience of its customer service
team. Many customers have similar questions, and, through technology, several
customers can be serviced at the same time or customers with common questions
can be sent a response via e-mail or fax. By July 1996, key portions of the
help text currently available on the Company's Internet site will be available
on the IVR system, accessible by those customers whose access is telephonic
rather than personal-computer based. The Company expects to continue to
enhance this IVR capability and is exploring additional self-help options over
the Internet. Also in development is an "electronic trouble ticket," which
will allow customers to obtain answers via the Internet or touch-tone
telephone to most system-related access questions. The Company believes that
broadening the access of the most frequently asked questions regarding terms,
procedures and policies will result in a substantial reduction in the number
of customer service calls received by the Company.

The Company's customer service capacity has been and may continue to be
severely strained at times. During the three months ended June 30, 1996, the
Company's customer service department serviced approximately 80% of its
inquiries through telephone calls and approximately 20% through e-mail. This
department handles only non-revenue interactions with customers needing extra
assistance and generally is not involved in order processing. The Company
frequently has fallen far short of its target response time for customer
service calls, with callers waiting over 20 minutes during peak times.
Continued sub-optimal customer service could damage the E*TRADE name and lead
some customers to transfer their business to other, less congested online
brokers, limit their trading activity or refrain from electronic trading
entirely.

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Although the Company is addressing the problem through significant investments
in technology and personnel and has recently experienced a meaningful
improvement in the time required to respond to customer service calls, such
attempts have fallen short of increased requirements thus far, as growth in
inquiries has, over certain periods, exceeded the growth in the Company's
capacity to handle such volumes. The training received by new and current
associates now emphasizes efficient call handling and reduced call processing
times.

The Company has contracted with external vendors, allowing for potential
outsourcing of certain customer calls during peak call times, without the
Company having to pay for such excess capacity in house. On certain high
volume days, such vendors have already handled as much as 15% of the Company's
daily customer inquiries, generally achieving response times of a few seconds;
however on any given day a surge of activity could cause the Company to fail
to provide adequate customer service. There can be no assurance that the
Company will be able to remedy its customer service capacity constraints, and
the failure to do so could have a material adverse effect on the Company's
business, financial condition and operating results.

The Company's previous investments in customer service were primarily
personnel-driven. The Company's new focus on customer independence and
technology has successfully resulted in fewer inquiries to E*TRADE personnel
per trade than in the past. The impact of these efforts can already be seen in
the service levels reached. Wait times and average speed of answer have
dropped significantly since the implementation of the new investments in
technology, people, training and out-sourcing.

OPERATIONS

Clearing

The Company implemented self-clearing operations in July 1996. Clearing
operations include the confirmation, receipt, settlement and delivery
functions involved in securities transactions. Performing its own clearing
operations will allow E*TRADE Securities to retain free credit balances and
securities for use in margin lending activities subject to SEC and NASD rules.
Prior to its conversion to self-clearing operations, the Company cleared all
of its customer trades as a fully disclosed correspondent of Herzog. The
Company has entered into a seven-year agreement with Beta Systems for the
provision of computer services by Beta Systems to support order entry, order
routing, order match, securities processing, customer statements, trading,
underwriting, syndicate, tax reporting, regulatory reporting, and other
services necessary to the management of a general brokerage business. See
"Risk Factors--Risks Associated with Conversion to Self-clearing Operations."

Since the Company's conversion to self-clearing operations, customers'
securities typically are held by the Company in nominee name on deposit at one
or more of the recognized securities industry depository trust companies, to
facilitate ready transferability. The Company collects dividends and interest
on securities held in nominee name and makes the appropriate credits to the
customer's account. The Company also facilitates exercise of subscription
rights on securities held for customers. The Company arranges for the
transmittal of proxy and tender offer materials and issuer reports to
customers. E*TRADE Securities' operations department relies upon certificate
counts and microfilming procedures as deterrents to theft of securities and,
as required by the NASD and certain other regulatory authorities, carries
fidelity bonds covering loss or theft.

Self-clearing operations, especially where conducted by firms such as the
Company, without significant prior experience, involve substantial risks of
losses due to clerical errors related to the handling of customer funds and
securities. Errors in the clearing process also may lead to civil liability
for actions in negligence brought by parties who are financially harmed as a
result of such errors. Any liability that arises as a result of self-clearing
operations could have a material adverse effect on the Company's business,
financial condition and operating results. Clearing operations have accounted
for a significant portion of the Company's cost of services, and there can be
no assurance that clearing for itself will not result in significantly higher
clearing costs in the future. During the Company's transition to self-clearing
operations, it ran conversion tests to verify the accuracy of its internal
systems, while at the same time continuing to incur substantial expenses to
Herzog for clearing services. There can be no assurance that such activities
accurately tested the reliability of the

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Company's clearing operations. The failure of the Company to perform self-
clearing operations accurately and cost-effectively could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Risk Factors--Risks Associated with Conversion to Self-clearing
Operations."

Lending and Borrowing Activities

Margin Lending. The Company makes loans to customers collateralized by
customer securities. Margin lending by the Company is subject to the margin
rules of the Board of Governors of the Federal Reserve System, NASD margin
requirements and the Company's internal policies, which are more stringent
than the Federal Reserve and NASD requirements. In permitting customers to
purchase on margin, the Company takes the risk of a market decline that could
reduce the value of the collateral held by the Company to below the customers'
indebtedness before the collateral can be sold. Under applicable NASD rules,
in the event of a decline in the market value of the securities in a margin
account, the Company is obligated to require the customer to deposit
additional securities or cash in the account so that at all times the
customer's equity in the account is at least 25% of the value of the
securities in the account. E*TRADE's current internal requirement, however, is
that the customer's equity not fall below 30%. If it does, the customer will
be required to increase the account's equity to 40%. Margin lending to
customers constitutes the major portion of the basis on which net capital
requirements of the Company are determined under the SEC's Net Capital Rule.
To the extent these activities expand, the Company's net capital requirements
will increase.

Securities Lending and Borrowing. The Company borrows securities both to
cover short sales and to complete customer transactions in the event a
customer fails to deliver securities by the required settlement date. The
Company collateralizes such borrowings by depositing cash or securities with
the lender and receives a rebate (in the case of cash collateral) or pays a
fee calculated to yield a negotiated rate of return. When lending securities,
the Company receives cash or securities and generally pays a rebate (in the
case of cash collateral) to the other party in the transaction. Securities
lending and borrowing transactions are executed pursuant to written agreements
with counterparties that require that the securities borrowed be "marked to
market" on a daily basis and that excess collateral be refunded or that
additional collateral be furnished in the event of changes in the market value
of the securities. The securities usually are "marked to market" on a daily
basis through the facilities of various clearing houses.

Order Processing

All listed market orders other than those with special qualifiers (subject
to certain size limitations based on the size in the primary market) are
executed at the National Best Bid/Offer ("NBBO") at the time of receipt by the
third market firm or exchange. Eligible orders are exposed to the marketplace
for possible price improvement, but in no case are orders executed at a price
inferior to the NBBO. Limit orders are executed based on an indicated price
and time priority. All Nasdaq market orders (subject to certain size
limitations based on the trading characteristics of the particular security)
are executed at the Best Bid/Offer (Inside Market), at the time of receipt by
the market-maker. Eligible orders are subject to possible price improvement in
the marketplace.

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in the Company's operations could have a material adverse effect on the
Company's business, financial condition and operating results. In addition,
the Company has recently received adverse publicity in the financial press
primarily relating to systems failures. See "Risk Factors--Risks of Systems
Failure."

COMPETITION

The market for electronic brokerage services, particularly over the
Internet, is new, rapidly evolving and intensely competitive, and the Company
expects competition to continue and intensify in the future. E*TRADE
encounters direct competition from other discount brokerage firms providing
either touch-tone telephone or online brokerage services, or both. Discount
brokerage firms generally effect transactions for their customers on an
"execution only" basis, without offering other services such as portfolio
valuation, investment recommendations and research. These competitors include
such discount brokerage firms as Charles Schwab, Fidelity Brokerage Services,
Inc., Waterhouse Securities, Inc., Quick & Reilly, Pacific Brokerage Services,
Inc., National Discount Brokers (a subsidiary of Sherwood Securities Corp.),
Lombard Institutional Brokerage, Inc., firms owned by TransTerra Co.
(including All-American Brokers, also known as eBroker) and PC Financial
Network (a division of Donaldson, Lufkin & Jenrette Securities Corporation),
among others. The Company also encounters competition from established full-
commission brokerage firms such as Dean Witter Reynolds Inc., PaineWebber
Incorporated, Merrill Lynch and Smith Barney, Inc., among others. In addition,
the Company competes with financial institutions, mutual fund sponsors and
other organizations, some of which provide electronic and online brokerage
services.

The Company believes that the principal competitive factors affecting the
market for its electronic commercial transaction processing services are cost,
service, quality, execution, delivery platform capabilities, ease of use,
graphical user interface look and feel, depth and breadth of services,
financial strength and innovativeness. Based on research conducted with both
customer and non-customer focus groups and the success the Company has
enjoyed, the Company believes that it presently competes favorably with
respect to each of these factors.

There are virtually no barriers to entry in the market in which the Company
operates. Many of the Company's competitors have longer operating histories
and significantly greater financial, technical, marketing and other resources
than the Company. In addition, many of these competitors offer a wider range
of services and financial products than the Company, and thus may be able to
respond more quickly to new or changing opportunities, technologies and
customer requirements. Many current and potential competitors also have
greater name recognition and more extensive customer bases that could be
leveraged, thereby gaining market share to the Company's detriment. Such
competitors may be able to undertake more extensive promotional activities,
offer more attractive terms to customers than the Company, and adopt more
aggressive pricing policies, possibly even sparking a price war in the
electronic brokerage business. Moreover, current and potential competitors
have established or may establish cooperative relationships among themselves
or with third parties to enhance their services and products. For example,
Charles Schwab's One-Source mutual fund service and similar, more complete
services may discourage potential customers from using the Company's brokerage
services. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share.

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The general financial success of companies within the securities industry
over the past several years has strengthened existing competitors. Management
believes that such success will continue to attract new competitors to the
industry such as banks, software development companies, insurance companies,
providers of online financial and information services and others, as such
companies expand their product lines. Commercial banks and other financial
institutions have become a competitive factor in the securities industry by
offering their customers certain corporate and individual financial services
traditionally provided by securities firms. The current trend toward
consolidation in the commercial banking industry could further increase
competition in all aspects of the Company's business. Commercial banks
generally are expanding their securities activities, as well as their
activities relating to the provision of financial services. While it is not
possible to predict the type and extent of competitive services that
commercial banks and other financial institutions ultimately may offer or
whether administrative or legislative barriers will be repealed or modified,
brokerage firms such as the Company may be adversely affected by such
competition or legislation. Particularly as financial services and products
proliferate, to the extent the Company's competitors are able to attract and
retain customers on the basis of the convenience of one-stop shopping, the
Company's business or its ability to grow could be adversely affected. In many
instances, the Company is competing with such organizations for the same
customers. In addition, competition among financial services firms exists for
experienced technical and other personnel.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

The Company's success and ability to compete are dependent to a significant
degree on its proprietary technology. The Company relies primarily on
copyright, trade secret and trademark law to protect its technology. The
Company has no patents. Effective trademark protection may not be available
for the Company's trademarks. Although the Company has registered the
trademark "E*TRADE" in the United States and certain other countries, and has
certain other registered trademarks, there can be no assurance that the
Company will be able to secure significant protection for these trademarks. It
is possible that competitors of the Company or others will adopt product or
service names similar to "E*TRADE," thereby impeding the Company's ability to
build brand identity and possibly leading to customer confusion. The inability
of the Company to adequately protect the name "E*TRADE" would have a material
adverse effect on the Company's business, financial condition and operating
results. The source code for the Company's proprietary software is protected
both as a trade secret and as a copyrighted work. The Company's policy is to
enter into confidentiality and assignment agreements with its associates,
consultants and vendors and generally to control access to and distribution of
its software, documentation and other proprietary information. Notwithstanding
the precautions taken by the Company, it may be possible for a third party to
copy or otherwise obtain and use the Company's software or other proprietary
information without authorization or to develop similar software
independently. Policing unauthorized use of the Company's technology is
difficult, particularly because the global nature of the Internet makes it
difficult to control the ultimate destination or security of software or other
data transmitted. The laws of other countries may afford the Company little or
no effective protection of its intellectual property. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology or that agreements entered into for that purpose will be
enforceable. In addition, litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation, whether successful or unsuccessful, could result in substantial
costs and diversions of resources, either of which could have a material
adverse effect on the Company's business, financial condition and operating
results.

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with or without merit, could be time consuming to defend, result in costly
litigation, divert management's attention and resources or require the Company
to enter into royalty or licensing agreements. There can be no assurance that
such licenses would be available on reasonable terms, if at all, and the
assertion or prosecution of any such claims could have a material adverse
effect on the Company's business, financial condition and operating results.

GOVERNMENT REGULATION; NET CAPITAL REQUIREMENTS

Securities Industry

The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The SEC is the federal agency
responsible for the administration of the federal securities laws. E*TRADE
Securities is registered as a broker-dealer with the SEC. Much of the
regulation of broker-dealers has been delegated to self-regulatory
organizations, principally the NASD, which has been designated by the SEC as
E*TRADE Securities' primary regulator. These self-regulatory organizations
adopt rules (subject to approval by the SEC) that govern the industry and
conduct periodic examinations of E*TRADE Securities' operations. Securities
firms are also subject to regulation by state securities administrators in
those states in which they conduct business. E*TRADE Securities is registered
as a broker-dealer in all 50 states, the District of Columbia and Puerto Rico.

Broker-dealers are subject to regulations covering all aspects of the
securities business, including sales methods, trade practices among broker-
dealers, use and safekeeping of customers' funds and securities, capital
structure, record keeping and the conduct of directors, officers and
employees. The Company is required to comply with many complex laws and rules
to which it previously has not been subject as a fully-disclosed broker-
dealer, including rules relating to possession and control of customer funds
and securities, margin lending and execution and settlement of transactions.
Additional legislation, changes in rules promulgated by the SEC, the NASD, the
Board of Governors of the Federal Reserve System, the various stock exchanges,
and other self-regulatory organizations, or changes in the interpretation or
enforcement of existing laws and rules, may directly affect the mode of
operation and profitability of broker-dealers. The SEC, the NASD or other
self-regulatory organizations and state securities commissions may conduct
administrative proceedings, which can result in censure, fine, the issuance of
cease-and-desist orders or the suspension or expulsion of a broker-dealer or
any of its officers or employees. The Company's ability to comply with all
applicable laws and rules is dependent in large part upon the establishment
and maintenance of a compliance system reasonably designed to ensure such
compliance, as well as the Company's ability to attract and retain qualified
compliance personnel. The Company's growth has placed considerable strain on
its ability to ensure such compliance, and it has experienced recent turnover
in its compliance personnel. The principal purpose of regulation and
discipline of broker-dealers is the protection of customers and the securities
markets, rather than protection of creditors and stockholders of broker-
dealers. The Company could in the future be subject to disciplinary or other
actions due to claimed noncompliance, which could have a material adverse
effect on the Company's business, financial condition and operating results.

E*TRADE Securities is a member of Securities Investor Protection Corporation
("SIPC"), which provides, in the event of the liquidation of a broker-dealer,
protection for customers' accounts held by E*TRADE Securities of up to
$500,000 for each customer account, subject to a limitation of $100,000 for
claims for cash balances. In addition, E*TRADE Securities has obtained
protection, in excess of SIPC coverage, of $9.5 million for each account in
the form of an excess securities bond from National Union Fire Insurance
Company of Pittsburgh, Pennsylvania, a member company of American
International Group.

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advertising, the issuance of cease-and-desist orders or the suspension or
expulsion of a broker-dealer or any of its officers or employees for
violations of the NASD's advertising regulations. The Company does not
currently solicit orders from its customers or make investment
recommendations. However, if the Company were to engage in such activities, it
would become subject to additional rules and regulations governing, among
other things, the suitability of recommendations to customers and sales
practices.

Net Capital Requirements

As registered broker-dealers and members of the NASD, E*TRADE Securities and
E*TRADE Capital (a non-operational broker-dealer subsidiary of the Company)
are subject to the Net Capital Rule. The Net Capital Rule, which specifies
minimum net capital requirements for registered brokers and dealers, is
designed to measure the general financial integrity and liquidity of a broker-
dealer and requires that at least a minimum part of its assets be kept in
relatively liquid form.

E*TRADE Securities has elected to compute net capital under the alternative
method of calculation permitted by the Net Capital Rule. Under the alternative
method, E*TRADE Securities is required to maintain minimum net capital, as
defined in the Net Capital Rule, equal to the greater of $250,000 or 2% of the
amount of its "aggregate debit items" computed in accordance with the Formula
for Determination of Reserve Requirements for Brokers and Dealers. The
"aggregate debit items" are assets that have as their source transactions with
customers, primarily margin loans. Failure to maintain the required net
capital may subject a firm to suspension or revocation of registration by the
SEC and suspension or expulsion by the NASD and other regulatory bodies and
ultimately could require the firm's liquidation. The Net Capital Rule
prohibits payments of dividends, redemption of stock, the prepayment of
subordinated indebtedness, and the making of any unsecured advance or loan to
a stockholder, employee or affiliate, if aggregate debit items rise beyond 5%
of net capital. The Net Capital Rule also provides that the SEC may restrict
for up to 20 business days any withdrawal of equity capital, or unsecured
loans or advances to stockholders, employees or affiliates ("capital
withdrawal") if such capital withdrawal, together with all other net capital
withdrawals during a 30-day period, exceeds 30% of excess net capital and the
SEC concludes that the capital withdrawal may be detrimental to the financial
integrity of the broker-dealer. The Net Capital Rule also provides that the
total outstanding principal amount of a broker-dealer's indebtedness under
certain subordination agreements, the proceeds of which are included in its
net capital, may not exceed 70% of the sum of the outstanding principal amount
of all subordinated indebtedness included in net capital, par or stated value
of capital stock, paid in capital in excess of par, retained earnings and
other capital accounts for a period in excess of 90 days.

Net capital is essentially defined as net worth (assets minus liabilities),
plus qualifying subordinated borrowings and certain discretionary liabilities,
and less certain mandatory deductions that result from excluding assets that
are not readily convertible into cash and from valuing conservatively certain
other assets. Among these deductions are adjustments (called "haircuts") which
reflect the possibility of a decline in the market value of an asset prior to
disposition.

A change in the Net Capital Rule, the imposition of new rules or any
unusually large charge against net capital could limit those operations of the
Company that require the intensive use of capital, such as trading activities
and the financing of customer account balances, and also could restrict the
Company's ability to withdraw capital from its brokerage subsidiaries, which
in turn could limit the Company's ability to pay dividends, repay debt and
redeem or purchase shares of its outstanding stock. A significant operating
loss or

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any unusually large charge against net capital could adversely affect the
ability of the Company to expand or even maintain its present levels of
business, which could have a material adverse effect on the Company's
business, financial condition and operating results.

As of June 30, 1996, E*TRADE Securities was required to maintain minimum net
capital of $250,000 and had total net capital of approximately $13.9 million,
or approximately $13.6 million in excess of the minimum amount required. In
February 1996, E*TRADE Capital, then doing business as ET Execution Services,
undertook to act as guarantor pursuant to an agreement between the Company and
Merrill Lynch Business Financial Services, Inc. As a result of a breakdown of
internal controls for the monitoring of such proposed contracts by finance
personnel of the Company, this undertaking inadvertently caused E*TRADE
Capital to fall short of its minimum net capital requirement and thus be in
violation of the Net Capital Rule through May 30, 1996 when E*TRADE Capital
was released from the guarantee. The Company has reported the violation of
E*TRADE Capital to the SEC and the NASD and is awaiting their decisions. The
Company believes that any penalty imposed by the NASD will not be substantial,
as the subsidiary in violation is non-operational and no customer assets are
now, nor ever have been, in jeopardy as a result of this occurrence. However,
there can be no assurance that either or both the SEC or the NASD will not
impose a penalty upon E*TRADE Capital, including fines, restrictions on
business activities or suspension of trading activities, or that the
imposition of any such penalty will not have a material adverse effect on the
Company's business, financial condition and operating results. Although the
Company has implemented internal controls intended to prevent such violations
in the future, including the review of proposed contracts by finance personnel
of the Company, there can be no assurance that a violation of the Net Capital
Rule will not occur in the future.

Electronic Commerce

Due to the increasing popularity of the Internet, it is possible that laws
and regulations may be enacted with respect to the Internet, covering issues
such as user privacy, pricing, content and quality of products and services.
The Telecommunications Act of 1996, which was enacted in January 1996,
prohibits the transmission over the Internet of certain types of information
and content. Although certain of these prohibitions have been held
unconstitutional by a federal trial court, that ruling is expected to be
appealed, and, in any event, the increased attention focused upon these
liability issues as a result of the Telecommunications Act could adversely
affect the growth of Internet and private network use. In addition, the
adoption of other laws or regulations may reduce the rate of growth of the
Internet, which could in turn decrease the demand for the Company's services,
or could otherwise have a material adverse effect on the Company's business,
financial condition and operating results.

ASSOCIATES

At June 30, 1996, the Company had 297 full-time associates, of whom 82 were
employed by E*TRADE Group, Inc. and 215 were employed by E*TRADE Securities.
The 82 associates in E*TRADE Group, Inc. performed the following functions:
systems (47); marketing (10); strategic relationships (4); finance (5); human
resources and facilities (11); and administration (5). The 215 associates in
E*TRADE Securities performed the following functions: account initiation (36);
customer service (114); clearing operations (43); trading (17); compliance
(3); and administration (2).

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The Company's success has been, and will be, dependent to a large degree on
its ability to retain the services of its existing executive officers and to
attract and retain qualified additional senior and middle managers and key
personnel in the future. Competition for such personnel is intense. There can
be no assurance that the Company will be able to attract, assimilate or retain
qualified technical and managerial personnel in the future, and the failure of
the Company to do so would have a material adverse effect on the Company's
business, financial condition and operating results. None of the Company's
associates is subject to collective bargaining agreements or is represented by
a union. The Company considers its relations with its associates to be good.

PROPERTIES

The Company currently leases two spaces for its corporate offices in Palo
Alto, California. The leases comprise an aggregate of 59,000 square feet and
expire in December 2001. The Company believes that it has adequate space for
its current needs. The Company established a remote back-up data center in
Rancho Cordova, California, which facility will become fully operational in
late July 1996, replacing a back-up facility in Palo Alto. The Company leases
an aggregate 70,000 square feet at the Rancho Cordova facility. The lease
expires in July 2006. In addition, the Company leases a small office in New
York City under a lease expiring in February 2001.

LEGAL AND ADMINISTRATIVE PROCEEDINGS

The Company is not currently a party to any litigation that it believes
could have a material adverse effect on the Company's business, financial
condition or operating results. However, from time to time the Company has
been threatened with or named as a defendant in lawsuits and administrative
claims. Compliance and trading problems that are reported to the NASD or the
SEC by dissatisfied customers are investigated by the NASD or the SEC, and, if
pursued by such customers, may rise to the level of arbitration or
disciplinary action. One or more of such lawsuits, claims or disciplinary
actions decided adversely to the Company could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company is also subject to periodic government audits and inspections. See
"Risk Factors--Government Regulation."

The Company is aware of electronic third-party communications in which a
potential class action lawsuit against the Company relating to its systems
failures in May 1996 is discussed. The Company believes that any such suit
would be without merit and the Company would rigorously defend against it. See
"Risk Factors--Risks of Systems Failure."

The Company maintains insurance in such amounts and with such coverages,
deductibles and policy limits as management believes are reasonable and
prudent. The principal risks that the Company insures against are
comprehensive general liability, commercial property and hardware/software
damage. The Company believes that such insurance coverages are adequate for
the purposes of its business.

SUBSIDIARIES

The following are wholly owned subsidiaries of the Company: (i) E*TRADE
Securities, Inc., a California corporation, is a discount online brokerage
firm performing financial transactions through the Internet, direct modem
link, online service providers America Online and Compuserve and touch-tone
telephone; (ii) E*TRADE Online Ventures, Inc., a California corporation,
develops strategic alliances for the Company, with an emphasis on acquisitions
and internal development of new business; (iii) E*TRADE Capital, Inc.,
formerly ET Execution Services, Inc., a California corporation, is a non-
operational broker-dealer; and (iv) TRADE*PLUS Brokerage, Inc., a California
corporation, is non-operational.

53
<PAGE>

MANAGEMENT

DIRECTORS AND OFFICERS

The directors and officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William A. Porter(1).......... 67 Chairman of the Board
Christos M. Cotsakos(1)....... 47 President, Chief Executive Officer and
Director
David R. Ewing................ 40 Corporate Senior Vice President, Systems and
Chief Information Officer
Wayne H. Heldt................ 56 Corporate Vice President and Managing
Director, International Affairs
Kathy Levinson................ 41 Corporate Senior Vice President; President
and Chief Operating Officer of E*TRADE
Securities, Inc.
Rodney E. Paterson............ 47 Corporate Vice President; Vice President of
E*TRADE Online Ventures, Inc.
Rebecca L. Patton............. 40 Corporate Vice President, Marketing,
Communications and Quality
Stephen C. Richards........... 42 Corporate Senior Vice President, Finance and
Administration, Chief Financial Officer and
Treasurer; Chief Financial Officer of E*TRADE
Securities, Inc.
Robin N. Rosenberg............ 41 Corporate Vice President, Human Resources
David M. Traversi............. 37 Corporate Senior Vice President; President
and Chief Operating Officer of E*TRADE Online
Ventures, Inc.; Executive Director,
Investment Banking and Research of E*TRADE
Securities, Inc.
Thomas A. Bevilacqua.......... 39 Secretary
Richard S. Braddock(2)........ 54 Director
William E. Ford(2)(3)......... 35 Director
George Hayter(3).............. 57 Director
Bernard A. Newcomb............ 52 Director Emeritus
Keith Petty(2)................ 76 Director
Lewis E. Randall(1)........... 54 Director
Lester C. Thurow(3)........... 58 Director
</TABLE>
- --------
(1) Member of the Nominating Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee

William A. Porter is the Chairman and Founder of E*TRADE Group, Inc. He
founded the Company in 1982 and served as President until October 1993 and
Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary,
until April 1996. He founded E*TRADE Securities, Inc. in 1992. Mr. Porter
received a BA in Mathematics from Adams State College, an MA in Physics from
Kansas State College, and an MBA in Management from the Massachusetts
Institute of Technology. In May 1996, Mr. Porter was named Silicon Valley's
Emerging Company Entrepreneur of the Year by the San Jose Business Journal.

Christos M. Cotsakos joined E*TRADE Group, Inc. in March 1996 as President,
Chief Executive Officer and a director. Prior to joining E*TRADE, he served as
President, Co-Chief Executive Officer, Chief Operating Officer and a director
of A.C. Nielsen, Inc. from March 1995 to January 1996, as President and Chief
Executive Officer of Nielsen International from September 1993 to March 1995,
and as President and Chief Operating Officer of Nielsen Europe, Middle East
and Africa from March 1992 to September 1993. Mr. Cotsakos joined Nielsen
after 19 years with the Federal Express Corporation from 1973 to 1992, where

54
<PAGE>

he held a number of senior executive positions both in the United States and
Europe, including vice president and general manager for Europe, Africa and
the Near East from 1988 to March 1992. Mr. Cotsakos serves as a director of
National Processing, Inc., a provider of transaction processing services and
customized processing software. A decorated Vietnam Veteran, he received a BA,
cum laude, from William Paterson College, an MBA, summa cum laude, from
Pepperdine University and is currently pursuing a PhD in the field of
corporate governance at the Management School, University of London.

David R. Ewing has served as Corporate Senior Vice President, Systems and
Chief Information Officer of E*TRADE Group, Inc., since May 1996 and Vice
President since September 1995. From 1994 to September 1995, Mr. Ewing served
as President of Vital Business Solutions, Inc., a company that provides
information systems consulting services. From September 1990 to September
1994, Mr. Ewing served as Director of Information Systems at Nellcor Puritan
Bennett, Inc., a manufacturer of critical care monitoring components. Prior to
that, Mr. Ewing served as a Manager in the Information Technology practice at
Price Waterhouse and as a Manager in the Information Systems Division at
Charles Schwab.

Wayne H. Heldt has been Corporate Vice President and Managing Director,
International Affairs for E*TRADE Group, Inc. since May 1996 and has served as
a director of E*TRADE Securities, Inc. since January 1995. Mr. Heldt joined
the Company in June 1993 as Vice President of Operations of E*TRADE Group,
Inc., served as President and Chief Operating Officer from October 1993 to
July 1995, and served on the Board of Directors from November 1993 to April
1996. Mr. Heldt has also served in various positions with E*TRADE Securities,
Inc. and E*TRADE Capital, including Chairman of the Board and Chief Executive
Officer, from May 1993 to June 1996. From 1986 to April 1993, Mr. Heldt served
as Executive Vice President and Chief Operating Officer of Reynolds, Kendrick,
Stratton, Inc., a brokerage firm specializing in clearing securities
transactions. He also served as President of PHASE3 Systems, Inc. from January
1983 to December 1984. Previously, he was a founding Partner of Robertson,
Colman & Siebel (now Robertson, Stephens & Company) where he was Chief
Financial Officer and Chief Operating Officer. Mr. Heldt received a BA in
Philosophy from Westminster College.

Kathy Levinson has served as Corporate Senior Vice President of the Company
since May 1996 and President and Chief Operating Officer of E*TRADE
Securities, Inc., since January 1996, and a director of E*TRADE Securities,
Inc. since June 1996. From January 1995 to December 1995, Ms. Levinson worked
as a consultant for the Company. Prior to that, Ms. Levinson worked for
Charles Schwab from 1981 to October 1994, most recently serving as Senior Vice
President of Custody Services and prior to that was Senior Vice President of
Credit Service from 1989 to October 1994. She received a BA in Economics from
Stanford University.

Rodney E. Paterson has been a Corporate Vice President of the Company since
September 1995, most recently serving as Vice President of E*TRADE Online
Ventures. From January 1992 to July 1995, Mr. Paterson served as Chief
Executive Officer for MAI Financial Services Ltd., a financial information and
software company, now a subsidiary of United News and Media PLC. Prior to that
time, he served as a Vice President of Marketing for Shark Information
Services, Inc., a trading information service company, from 1984 to December
1991. Mr. Paterson serves as a director of Audicom Corp., a broadcasting
technology company. He received a BA in Science from Open University.

Rebecca L. Patton has served as Corporate Vice President, Marketing of
E*TRADE Group, Inc. since September 1995. From 1988 to September 1995, Ms.
Patton served in a variety of management positions at Apple Computer,
including Worldwide Marketing Manager of the Personal Interactive Electronics
Division and Manager of Apple's PowerBook marketing group. Ms. Patton received
a BA in Economics, summa cum laude, from Duke University and an MBA from
Stanford University.

Stephen C. Richards joined the Company in April 1996 as Chief Financial
Officer and Treasurer and, as of June 1996, Corporate Senior Vice President,
Finance and Administration and Chief Financial Officer of E*TRADE Securities,
Inc. From 1984 to April 1996, Mr. Richards served in various positions at Bear
Stearns

55
<PAGE>

& Co., Inc., an investment bank, including Managing Director and Chief
Financial Officer of Correspondent Clearing. Prior to 1984, Mr. Richards
served as Vice President/Deputy Controller of Becker Paribas and First Vice
President/Controller of Jefferies & Company, Inc. He received a BA in
Statistics and Economics from the University of California at Davis and an MBA
in Finance from the University of California at Los Angeles. Mr. Richards is a
certified public accountant.

Robin N. Rosenberg has been the Company's Corporate Vice President, Human
Resources since August 1995. Ms. Rosenberg served as President of Career
Transitions, a human resources consulting service, from August 1991 to August
1995. Prior to that, she served as Vice President of Human Resources for Wells
Fargo Bank for nine years. Ms. Rosenberg received a bachelor's degree in music
from Indiana University.

David M. Traversi joined E*TRADE Group, Inc. in May 1996 as Corporate Senior
Vice President of the Company, President and Chief Operating Officer of
E*TRADE Online Ventures and Executive Director, Investment Banking and
Research of E*TRADE Securities. Before joining E*TRADE, Mr. Traversi served in
various positions at Montgomery Securities, an investment banking firm, from
June 1989 to May 1996, most recently as Managing Director, Corporate Finance
and Co-Head of the Financial Services Technology Group. He has a BS from
California State University at Chico, a JD from the University of California
at Davis and an MBA from the University of California at Berkeley. He has been
admitted to the bar in California and Alaska.

Thomas A. Bevilacqua has served as the Secretary of E*TRADE Group, Inc.
since May 1996 and also serves as a director of E*TRADE Online Ventures. Mr.
Bevilacqua has been a partner at the law firm of Brobeck, Phleger & Harrison
LLP since 1991. He has a BA and a JD from the University of California.

Richard S. Braddock has been a director of the Company since April 1996.
From June 1994 to September 1995, he served as a partner in Clayton, Dubilier
& Rice, a leveraged buy-out firm. From January 1993 to July 1993, he served as
Chief Executive Officer of Medco Containment. From 1974 to October 1992, Mr.
Braddock served in various capacities with a division of Citibank, including
as President and Chief Executive Officer from 1990 to October 1992 and as a
director from 1985. Mr. Braddock serves on the board of directors of Eastman
Kodak Company, True North Communications, an advertising company, ION Laser
Technology and Excimer Vision Leasing. He received a BA in History from
Dartmouth and an MBA from Harvard University.

William E. Ford has been a director of the Company since September 1995. Mr.
Ford is a managing member of General Atlantic Partners, LLC ("GAP LLC") and
has been with GAP LLC since July 1991. From August 1987 to July 1991, Mr. Ford
was an associate with Morgan Stanley & Co., Incorporated. Mr. Ford is also a
director of Envoy Corporation, a publicly traded health insurance claims
processing company, GT Interactive Software, a publicly traded software
company, Marcam Corporation, a publicly traded software company, SS&C
Technologies, Inc., a publicly traded software company, and several private
software companies in which GAP LLC or one of its affiliates is an investor.
Mr. Ford received a BA in Economics from Amherst College and an MBA from the
Stanford Graduate School of Business.

George Hayter has been a director of the Company since December 1995 and
currently provides consulting services to the Company. Mr. Hayter has served
as a partner of George Hayter Associates, a consulting firm, from 1990 to the
present. From 1976 to December 1990, he served with the London Stock Exchange,
serving in his final position as the Managing Director of Trading Markets
Division. Mr. Hayter serves on the boards of directors of Critchley Group PLC,
an electrical accessories company listed on the London Stock Exchange, Linea
Directa Aseguradora SA, a car insurance company in Spain, Pegasus Group PLC,
an accounting software company listed on the London Stock Exchange, and Active
Imaging PLC, a digital image processing manufacturer traded on the London AIM
Market. He received an MA in Natural Sciences from Queens' College, Cambridge,
England.

Bernard A. Newcomb was a co-founder of the Company, has a been a director
emeritus of the Company since May 1996 and served as a director from 1982 to
May 1996 and Vice President of Research and Development from 1982 to June
1996. Mr. Newcomb has a BS in Business from Oregon State University.

56
<PAGE>

Keith Petty has been a director of the Company since 1982. Mr. Petty was a
founding partner of the law firm of Jackson Tufts Cole & Black, LLP (formerly
Petty, Andrews, Tufts & Jackson) and retired from that firm in 1986. He
received a BS in Business (major in accounting) from the University of Idaho
and a JD from Stanford Law School, is a certified public accountant and has
been admitted to the bar in California and Idaho. Mr. Petty currently provides
business and legal consulting to start-up companies, and serves as a Director
for four other privately held for profit companies and two nonprofit
companies.

Lewis E. Randall has been a director of the Company since 1983. Mr. Randall
served both Apple Computer and Intel during their formative years, largely in
the capacity of software and hardware engineering management. Mr. Randall is a
private investor.

Lester C. Thurow has been a director of the Company since April 1996. Mr.
Thurow has been a Professor of Economics at Massachusetts Institute of
Technology ("MIT") since 1990. From 1987 to 1993, he served as Dean of MIT's
Sloan School of Management. Mr. Thurow received a BA in economics from
Williams College, an MA from Oxford and a Ph.D. from Harvard University.

Messrs. Braddock, Ford, Hayter, Petty, Randall and Thurow are independent
directors. Failure to maintain two independent directors could result in a
delisting of the Company's Common Stock from the Nasdaq National Market.

The members of the Board of Directors of the Company are classified into
three classes. One class will be elected at each annual meeting of
stockholders, with the members of each class to hold office for a three-year
term and until successors of such class have been elected and qualified. See
"Description of Capital Stock--Certain Provisions Affecting Stockholders."
Messrs. Porter, Cotsakos and Braddock will initially serve as Class I
directors of the Company until the annual meeting of stockholders held in
1999, or until their respective successors have been elected and qualified.
Messrs. Ford, Hayter and Petty will initially serve as Class II directors of
the Company until the annual meeting of stockholders held in 1998, or until
their respective successors have been elected and qualified. Messrs. Randall
and Thurow will initially serve as Class III directors of the Company until
the annual meeting of stockholders held in 1997, or until their respective
successors have been elected and qualified. Subject in the case of Mr.
Cotsakos to an employment agreement, all officers of the Company serve at the
pleasure of the Board. See "--Employment Contract." There are no family
relationships among any of the directors or officers of the Company.

BOARD COMMITTEES

The Board of Directors has created an Audit Committee, a Compensation
Committee and a Nominating Committee of the Board. The Audit Committee is
composed of William E. Ford (Chair), Lester C. Thurow and George Hayter and is
charged with reviewing the Company's annual audit and meeting with the
Company's independent accountants to review the Company's internal controls
and financial management practices. The Compensation Committee, which is
composed of Richard S. Braddock (Chair), William E. Ford and Keith Petty,
recommends to the Board of Directors compensation for the Company's key
associates and will administer the 1996 Stock Incentive Plan, the 1993 Stock
Option Plan, the 1983 Employee Incentive Stock Option Plan and the 1996 Stock
Purchase Plan. See "--Associate Benefit Plans." The Nominating Committee,
which is comprised of Christos M. Cotsakos (Chair), William A. Porter and
Lewis E. Randall, nominates for stockholder approval persons to membership on
the Board of Directors.

DIRECTOR COMPENSATION

Non-employee directors will receive $5,000 per year, in addition to $800 for
each meeting of the Board attended (and $400 for committee meetings attended).
In addition, each non-employee director will receive stock options pursuant to
the automatic option grant provisions of the Company's 1996 Stock Incentive
Plan. See "--Associate Benefit Plans." All directors will receive
reimbursement of reasonable out-of-pocket

<PAGE>

expenses incurred in connection with meetings of the Board. No director who is
an employee of the Company will receive compensation for services rendered as a
director.

In January 1996, Mr. Hayter was granted an option to purchase 60,000 shares
of Common Stock at an exercise price of $2.05 per share. In March 1996, Messrs.
Braddock, Ford, Petty, Randall and Thurow were each granted options to purchase
60,000 shares of Common Stock at an exercise price of $2.33 per share. The
options become exercisable 20% after each year of service from the date of
grant.

In December 1995, the Company entered into a consulting arrangement with Mr.
Hayter, a director of the Company, to provide international business consulting
at a base rate of $1,500 for each day of consulting plus expenses, with the
exception of attendance at Board meetings. Mr. Hayter's fees were payable in
the form of $750 in cash and $750 in Common Stock (issued at fair market value
on the dates of services rendered). During the six months ended March 31, 1996,
Mr. Hayter was paid $23,520 and accrued 6,096 shares of Common Stock pursuant
to this arrangement. He also accrued 1,421 shares of Common Stock pursuant to
this arrangement from April 1, 1996 through June 6, 1996. The Company and Mr.
Hayter restated the consulting arrangement on June 7, 1996, at which time the
Common Stock component of the arrangement terminated.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company anticipates reincorporating in Delaware in July 1996, in part to
take advantage of certain provisions in Delaware's corporate law relating to
limitations on liability of corporate officers and directors. The Company
believes that the reincorporation into Delaware, the provisions of its Restated
Certificate of Incorporation and Restated Bylaws and the separate
indemnification agreements outlined below are necessary to attract and retain
qualified persons as directors and officers. The Company's Restated Certificate
of Incorporation limits the liability of directors to the maximum extent
permitted by Delaware law. This provision is intended to allow the Company's
directors the benefit of Delaware General Corporation Law, which provides that
directors of Delaware corporations may be relieved of monetary liabilities for
breach of their fiduciary duties as directors, except under certain
circumstances, including breach of their duty of loyalty, acts or omissions not
in good faith or involving intentional misconduct or a knowing violation of
law, unlawful payments or dividends or unlawful stock repurchases or
redemptions or any transaction from which the director derived an improper
personal benefit. The Company's Restated Bylaws provide that the Company shall
indemnify its officers and directors to the fullest extent provided by Delaware
law. The Restated Bylaws authorize the use of indemnification agreements and
the Company intends to enter into such agreements with each of its directors
and executive officers. The Company has been advised by the SEC that, in the
SEC's view, indemnification for liabilities arising under the Securities Act is
contrary to the federal securities laws and, therefore, unenforceable.

The Company intends to obtain officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters
arising under the Securities Act.

There is no pending litigation or proceeding involving a director, officer,
associate or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any threatened litigation that may result
in claims for indemnification by any director, officer, associate or other
agent.

EXECUTIVE COMPENSATION

Summary of Cash and Other Compensation

The following table sets forth the compensation for services rendered to the
Company during the year ended September 30, 1995, awarded to or earned by the
three most highly compensated executive officers of the Company whose combined
salary and bonus were in excess of $100,000 (the "Named Executive Officers").

58
<PAGE>

SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
SECURITIES
NAME AND SALARY BONUS OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR ($) ($) COMPENSATION OPTIONS (#)
------------------ ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
William A. Porter.......... 1995 $140,713(3) $22,395 $1,315(4) --
Chief Executive Officer
and Chairman of the
Board(2)
Wayne H. Heldt............. 1995 $127,500(6) $21,664 $ 629(4) 1,080,000
President(5)
Bernard A. Newcomb(7)...... 1995 $112,709(8) $14,745 $ 963(4) --
Vice President of Research
and Development
</TABLE>
- --------
(1) In accordance with the rules of the SEC, the compensation described in
this table does not include medical, group life insurance or other
benefits received by the Named Executive Officers that are available
generally to all salaried employees of the Company, and certain
perquisites and other personal benefits received by the Named Executive
Officers that do not exceed the lesser of $50,000 or 10% of any such
officer's salary and bonus disclosed in this table.
(2) Since April 1996, Mr. Porter has served as Chairman of the Board.
(3) Includes $5,000 paid to Mr. Porter in his capacity as a director.
(4) Represents employer contributions to the Company's 401(k) Plan.
(5) Mr. Heldt now serves as Corporate Vice President and Managing Director,
International Affairs.
(6) Includes $5,000 paid to Mr. Heldt in his capacity as a director.
(7) Mr. Newcomb now serves as a director emeritus of the Company.
(8) Includes $5,000 paid to Mr. Newcomb in his capacity as a director.

Stock Option Grants to Named Executive Officers

No stock options were granted to the Named Executive Officers during the
year ended September 30, 1995.

Option Exercises and Holdings

The following table sets forth certain information with respect to exercises
of stock options during the year ended September 30, 1995 by the Named
Executive Officers and with respect to stock options held by each of the Named
Executive Officers as of September 30, 1995.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
NUMBER OF OPTIONS/SARS AT AT SEPTEMBER 30,
SHARES VALUE SEPTEMBER 30, 1995 1995($)(2)
ACQUIRED ON REALIZED ------------------------- -------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William A. Porter....... -- -- -- -- -- --
Wayne H. Heldt.......... 127,980 $179,098 520,020 432,000 $918,702 $763,200
Bernard A. Newcomb...... -- -- -- -- -- --
</TABLE>

(footnotes on following page)

59
<PAGE>

- --------

(footnotes from preceding page)

(1) The amount set forth represents the difference between the fair market
value of the shares at the time of exercise, as determined by the Board of
Directors, and the exercise price of the option, multiplied by the
applicable number of options.
(2) The amount set forth represents the difference between the fair market
value of the shares at September 30, 1995, as determined by the Board of
Directors, and the exercise price of the option, multiplied by the
applicable number of options.

ASSOCIATE BENEFIT PLANS

Stock Incentive Plan and Option Plans

The Company's 1996 Stock Incentive Plan (the "1996 Plan") is intended to
serve as the successor equity incentive program to the Company's existing 1993
Stock Option Plan (the "1993 Plan") which is the successor to the Company's
1983 Employee Incentive Stock Option Plan (the "1983 Plan"). The 1996 Plan
became effective on May 31, 1996 upon adoption by the Board of Directors.

The authorized reserves under the 1996 Plan consist of all of the
outstanding options under the 1993 Plan and 1983 Plan, which are incorporated
into the 1996 Plan, and an additional 4,000,000 shares, which have been
authorized for issuance under the 1996 Plan. No further option grants will be
made under the 1993 Plan and the 1983 Plan. The incorporated options will
continue to be governed by their existing terms, unless the Plan Administrator
elects to extend one or more features of the 1996 Plan to those options.
However, except as otherwise noted below, the outstanding options under the
1993 Plan and the 1983 Plan contain substantially the same terms and
conditions summarized below for the Discretionary Option Grant Program in
effect under the 1996 Plan.

The 1996 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members
and consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price not less than
the fair market value of those shares on the grant date, (ii) the Stock
Issuance Program under which such individuals may, in the Plan Administrator's
discretion, be issued shares of Common Stock directly, through the purchase of
such shares at a price not less than the fair market value of those shares at
the time of issuance or as a bonus tied to the performance of services, and
(iii) the Automatic Option Grant Program under which option grants will
automatically be made at periodic intervals to eligible non-employee Board
members to purchase shares of Common Stock at an exercise price equal to the
fair market value of those shares on the grant date.

The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee of the Board. The Compensation
Committee as Plan Administrator will have complete discretion to determine
which eligible individuals are to receive option grants or stock issuances,
the time or times when such option grants or stock issuances are to be made,
the number of shares subject to each such grant or issuance, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the federal tax laws, the vesting schedule to be in effect for
the option grant or stock issuance and the maximum term for which any granted
option is to remain outstanding. The administration of the Automatic Option
Grant Program will be self-executing in accordance with the express provisions
of each such program.

The exercise price for the shares of Common Stock subject to option grants
made under the 1996 Plan may be paid in cash or in shares of Common Stock
valued at fair market value on the exercise date. The option also may be
exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the Plan Administrator may provide financial assistance
to one or more optionees in the exercise of their outstanding options by
allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the exercise price and any associated
withholding taxes incurred in connection with such exercise.

60
<PAGE>

In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not
to be assumed by the successor corporation will automatically accelerate in
full, and all unvested shares under the Stock Issuance Program will
immediately vest, except to the extent the Company's repurchase rights with
respect to those shares are to be assigned to the successor corporation. The
Plan Administrator will have the authority under the Discretionary Option
Grant and Stock Issuance Programs to grant options and to structure repurchase
rights so that the shares subject to those options or repurchase rights will
automatically vest in the event the individual's service is terminated,
whether involuntarily or through a resignation for good reason, within twelve
(12) months following (i) a merger or asset sale in which those options are
assumed or those repurchase rights are assigned or (ii) a hostile change in
control of the Company effected by a successful tender offer for more than 50%
of the outstanding voting stock or by proxy contest for the election of Board
members. Options outstanding under the 1993 Plan upon merger or asset sale
will be assumed by the acquiring entity. In the event the acquiring entity
refuses to assume or substitute the options or in the event of a dissolution
or liquidation of the Company, the options will expire on a date at least 20
days after the plan administrator gives written notice to the optionees
specifying the terms and conditions of such termination.

Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program that provide the holders with the election
to surrender their outstanding options for an appreciation distribution from
the Company equal to the excess of (i) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (ii) the
aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of Common Stock. There are
currently no outstanding stock appreciation rights under the 1993 Plan or the
1983 Plan.

The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the 1993 Plan and the 1983 Plan) in return for the
grant of new options for the same or different number of option shares with an
exercise price per share not less than the fair market value of the Common
Stock on the new grant date.

Under the Automatic Option Grant Program, each individual who is serving as
a non-employee member of the Board on the date the underwriting agreement for
this offering is executed and who has not previously received a stock option
grant from the Company will receive at that time an option grant for 20,000
shares of Common Stock with an exercise price equal to the price per share at
which the Common Stock is to be sold in this offering. Each individual who
first joins the Board after the effective date of this offering as a non-
employee Board member will also receive an option grant for 20,000 shares of
Common Stock at the time of his or her commencement of Board service, provided
such individual has not otherwise been in the prior employ of the Company. In
addition, at each annual stockholders meeting, beginning with the 1997 annual
meeting, each individual who is to continue to serve as a non-employee Board
will receive an option grant to purchase 5,000 shares of Common Stock, whether
or not such individual has been in the prior employ of the Company.

Each automatic grant will have an exercise price equal to the fair market
value per share of Common Stock on the grant date and will have a maximum term
of 10 years, subject to earlier termination following the optionee's cessation
of Board service. Each automatic option will be immediately exercisable;
however, any shares purchased upon exercise of the option will be subject to
repurchase, at the option exercise price paid per share, should the optionee's
service as a non-employee Board member cease prior to vesting in the shares.
The 20,000-share grant will vest in four equal and successive annual
installments over the optionee's period of Board service. Each additional
5,000-share grant will vest upon the optionee's completion of two years of
Board service measured from the grant date. However, each outstanding option
will immediately vest upon (i) certain changes in the ownership or control of
the Company or (ii) the death or disability of the optionee while serving as a
Board member.

The Board may amend or modify the 1996 Plan at any time. The 1996 Plan will
terminate on May 30, 2006, unless sooner terminated by the Board.

61
<PAGE>

Options to purchase an aggregate of 5,619,840 shares were outstanding under
the 1996 Plan, the 1993 Plan and the 1983 Plan as of June 30, 1996. The
Company plans to grant options to purchase an estimated 180,000 shares of
Common Stock to employees of the Company who have not received options from
the Company in the past. No employee will receive options to purchase more
than 600 shares of Common Stock. The exercise price for the options will be
equal to the initial public offering price. The options will vest 20% after
each year of service from the grant date.

1996 Stock Purchase Plan

The Company's 1996 Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors on May 31, 1996. The Purchase Plan is designed to allow
eligible associates of the Company and participating subsidiaries to purchase
shares of Common Stock, at semi-annual intervals, through their periodic
payroll deductions under the Purchase Plan, and a reserve of 650,000 shares of
Common Stock has been established for this purpose.

The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period will begin on the day the underwriting agreement is executed
in connection with this offering and will end on the last business day in July
1998.

Individuals who are eligible associates on the start date of any offering
period may enter the Purchase Plan on that start date or on any subsequent
semi-annual entry date (February 1 or August 1 each year). Individuals who
become eligible associates after the start date of the offering period may
join the Purchase Plan on any subsequent semi-annual entry date within that
period.

Payroll deductions may not exceed 10% of the participant's base salary for
each semi-annual period of participation, and the accumulated payroll
deductions will be applied to the purchase of shares on the participant's
behalf on each semi-annual purchase date (the last business day in January and
July each year, with the first such purchase date to occur on January 31,
1997) at a purchase price per share not less than 85% of the lower of (i) the
fair market value of the Common Stock on the participant's entry date into the
offering period or (ii) the fair market value on the semi-annual purchase
date. Should the fair market value of the Common Stock on any semi-annual
purchase date be less than the fair market value of the Common Stock on the
first day of the offering period, then the current offering period will
automatically end and a new 24-month offering period will begin, based on the
lower fair market value.

The Board may amend or modify the Purchase Plan following any semi-annual
purchase date. The Purchase Plan will terminate on the last business day in
July 2006, unless sooner terminated by the Board.

401(k) Plan

Effective January 1, 1995, the Company adopted a 401(k) (the "401(k) Plan")
that covers all eligible associates of the Company. An associate is eligible
to participate in the plan upon hire, and may elect to defer, in the form of
contributions to the 401(k) Plan, up to the $9,500 limitation imposed by
Internal Revenue Code Section 402(g). Associates' contributions are invested
in specific assets, specific funds or other investments permitted under the
401(k) Plan according to the directions of each individual associate and the
directed investment procedure. The contributions are fully vested and
nonforfeitable at all times. Upon completion of one year of service, the
401(k) Plan provides for employer contributions to the 401(k) Plan of an
amount equal to 25% of the amount contributed by all eligible associates, up
to 2% for individual associates total compensation. The Company has made
contributions of $5,994 and $11,938 for the year ended September 30, 1995 and
the nine months ended June 30, 1996, respectively.

Bonus Plan

Effective October 1, 1994, the Company adopted a bonus plan (the "Bonus
Plan") to allow all eligible associates to share a portion of the Company's
profits. Thirty days after the end of each fiscal quarter, the

62
<PAGE>

Company will pay 20% of any operating profit that is in excess of 10% of gross
revenue into the Bonus Plan. Each eligible associate will be allocated a
percent of the total Bonus Plan pool based on the Company's total salary base,
that associate's gross earnings for the quarter and designation by group.
Bonus payments are distributed over time to associates, who receive 50% of the
bonus payment at the end of the month following the end of the quarter, and
the remaining 50% over the succeeding three-year time period in increments of
one-sixth. If an associate leaves the Company for any reason other than
disability, death or retirement, that associate's accumulation of earnings in
the bonus pool remains in the pool as additional earnings for the remaining
eligible associates.

EMPLOYMENT CONTRACT

Christos M. Cotsakos entered into an employment agreement with the Company
in March 1996. The agreement provides for annual base salary compensation of
$250,000. Mr. Cotsakos' base salary is subject to adjustment as follows: if,
at the end of any fiscal quarter during the term of the agreement, the
Company's annualized revenues equal or exceed $75 million and there is a
positive net income at the end of such quarter, the base salary shall be
increased to an annualized basis of $320,000; and if, at the end of any fiscal
quarter during the term of the agreement, the Company's annualized revenues
equal or exceed $100 million and there is a positive net income at the end of
such quarter, the base salary shall be increased to an annualized basis of
$390,000. Mr. Cotsakos is also eligible to participate in the Company's bonus
plan and other benefit plans.

Pursuant to the employment agreement, on March 29, 1996, Mr. Cotsakos was
granted options to purchase 600,000 shares at the Company's Common Stock at an
exercise price of $2.33 per share under the Company's 1993 Stock Option Plan.
In addition, on May 15, 1996, Mr. Cotsakos was granted additional options to
purchase 480,000 shares of Common Stock at the then-current fair market value.
The options vest for 20% of the shares on September 1, 1996 and 80% of the
shares in equal monthly installments of employment over a period of four
years. These options are exercisable until March 28, 2006, subject to certain
exceptions.

The employment agreement terminates on December 31, 2001, but is renewable
for successive one-year periods, unless either party gives 180 days' notice.
Upon termination of Mr. Cotsakos' employment, he is entitled to severance
payments as follows: (i) payment equal to five full years of current total
annual compensation if termination within three years after a change in
control of the Company (as defined) or if he elects to terminate his
employment for good reason (as defined) within three years after any change in
control, and (ii) payment equal to four full years of (A) current total annual
compensation if he is terminated by the Company other than for cause (as
defined) and such termination is not described in (i) above and (B) he elects
to terminate his employment for good reason and such termination is not
described in (i) above. In addition, Mr. Cotsakos' options become immediately
exercisable upon a change in control or upon the termination of Mr. Cotsakos
other than for cause or at his election for good reason.

The Company is in the process of establishing revised terms of employment
for Bernard A. Newcomb, a founder of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the year ended September 30, 1995, the Company's Compensation
Committee consisted of William A. Porter, Keith Petty and Lewis E. Randall.
Mr. Porter was an executive officer of the Company during the year ended
September 30, 1995.

In September 1990, the Company entered into a restructuring agreement with
all of its long-term creditors, whereby certain obligations of the Company,
totaling $999,508, were converted to subordinated and unsecured promissory
notes bearing interest at a rate of seven percent per annum (the "7% Notes").
At that time, the Company's founders, William Porter, the Chairman of the
Board, and Bernard Newcomb, then a director and Vice President of Research and
Development, received 7% Notes in principal amounts of $230,316 and $152,490,
respectively. The Company's indebtedness to Messrs. Porter and Newcomb
resulted from accrued but unpaid salaries owed to them. In September 1995, all
outstanding principal and accrued interest on the 7% Notes was repaid. Messrs.
Porter and Newcomb received $318,276 and $210,741, respectively, pursuant to
the 7% Notes.

<PAGE>

CERTAIN TRANSACTIONS

PREFERRED STOCK FINANCING TRANSACTIONS

On September 28, 1995, the Company sold 100,000 shares of Series A Preferred
Stock for $123 per share. On April 10, 1996, the Company sold 20,336 shares of
Series B Preferred Stock for $140 per share. On June 6, 1996, the Company sold
11,180 shares of Series C Preferred Stock for $805 per share. All Preferred
Stock was sold in private financings, pursuant to preferred stock purchase
agreements and investors' rights agreements. The terms of those agreements
(with the exception of amount and price) are substantially similar for the
Series A, Series B and Series C, under which the Company made the standard
representations, warranties and covenants, and which provided the purchasers
thereunder with rights of first offer, tag-along rights, preemptive rights,
and demand and piggyback registration rights. All of the material terms of the
Series A and Series B agreements, with the exception of the registration
rights, will terminate upon the effective date of the Registration Statement
of which this Prospectus is a part. All shares of Preferred Stock will convert
into Common Stock on a 60-for-1 basis automatically upon the completion of
this offering. See "Shares Eligible for Future Sale--Registration Rights." The
purchasers of the Preferred Stock included, among others, the following
directors, entities associated with directors, and holders of 5% or more of
the Company's Common Stock:

<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK PURCHASED
--------------------------------------
INVESTOR SERIES A SERIES B SERIES C
-------- ------------ ----------- ------------
<S> <C> <C> <C>
General Atlantic Partners II, L.P.(1).. 87,742 6,267 --
GAP Coinvestment Partners, L.P.(1)..... 12,258 876 --
Christos M. Cotsakos(2)................ -- 6,050 --
Richard S. Braddock.................... -- 7,143 --
SOFTBANK Holdings Inc.(3).............. -- -- 11,180
</TABLE>
- --------
(1) The general partner of General Atlantic Partners II, L.P. ("GAP II") is
General Atlantic Partners, LLC ("GAP LLC"), a Delaware limited liability
company. William E. Ford, a director of the Company, is one of the
managing members of GAP LLC. The same managing members of GAP LLC are the
general partners of GAP Coinvestment Partners, L.P. ("GAP Coinvestors").
Mr. Ford disclaims beneficial ownership of shares owned by GAP II and GAP
Coinvestment except to the extent of his pecuniary interest.
(2) Includes shares held by the Cotsakos Revocable Trust under Agreement dated
September 3, 1987, shares held in an IRA account and shares held as a
custodian for his daughter. Mr. Cotsakos disclaims beneficial ownership of
shares held as a custodian and one-half of the shares held by the Cotsakos
Revocable Trust.
(3) E*TRADE is exploring a business relationship with Upgrade Corporation of
America dba UCA&L, a company in which SOFTBANK indirectly owns a majority
interest. The Company has no other relationship with SOFTBANK or SOFTBANK
Corporation other than SOFTBANK's investment in the Company.

OTHER TRANSACTIONS

In September 1990, the Company entered into a restructuring agreement with
all of its long-term creditors, whereby certain obligations of the Company,
totaling $999,508, were converted to subordinated and unsecured promissory
notes. At that time, the Company's founders, William Porter, the Chairman of
the Board, and Bernard Newcomb, then a director and Vice President of Research
and Development, received certain of the promissory notes. See "Management--
Compensation Committee Interlocks and Insider Participation."

In December 1995, the Company entered into a consulting arrangement with
George Hayter, a director of the Company, to provide international business
consulting. The agreement was modified in June 1996. See "Management--Director
Compensation."

64
<PAGE>

From January 1995 to December 1995, Kathy Levinson, the President and Chief
Operating Officer of E*TRADE Securities was self-employed as a consultant.
During this period, Ms. Levinson, worked under contract with the Company,
pursuant to which she provided consulting services to assist with E*TRADE's
transition to self-clearing operations. During the term of this agreement, Ms.
Levinson was paid $166,000 by the Company, and received a warrant to purchase
300,000 shares of Common Stock, which warrant was fully exercised by January
1996, and options to purchase 300,000 shares of Common Stock which vest at a
rate of 20% per year over a period of five years and will terminate on January
2, 2005.

In March 1996, Christos M. Cotsakos entered into an employment agreement
with the Company. See "Management--Employment Contracts."

The Company believes that each of these transactions were on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties and were in connection with bona fide business purposes. As a matter
of policy, all future transactions between the Company and any of its
officers, directors or principal stockholders will be approved by a majority
of the independent and disinterested members of the Board of Directors, will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and will be in connection with bona fide business
purposes.

65
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1996 and as adjusted to
reflect the sale of shares of Common Stock offered hereby by (i) each person
who is known to the Company to own beneficially more than 5% of the
outstanding shares of the Common Stock of the Company, (ii) each Named
Executive Officer, (iii) each director, (iv) each of the Selling Stockholders
and (v) all directors and executive officers as a group. Unless otherwise
indicated below, to the knowledge of the Company, all persons listed below
have sole voting and investment power with respect to their shares of Common
Stock, except to the extent authority is shared by spouses under applicable
law.

<TABLE>
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
NAME OFFERING NUMBER OF OFFERING(1)(2)
---- ------------------- SHARES TO BE -----------------
MANAGEMENT AND OTHER SOLD IN
SIGNIFICANT STOCKHOLDERS NUMBER PERCENT(1) THE OFFERING NUMBER PERCENT
------------------------ --------- --------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
William A. Porter(3)(4)(5). 3,086,940 12.7% -- 3,086,940 10.9%
Bernard A. Newcomb(4)...... 2,420,820 10.0 -- 2,420,820 8.5
Christos M. Cotsakos(4)(6). 1,443,000 5.9 -- 1,443,000 4.9
Wayne H. Heldt(4)(7)....... 700,020 2.8 -- 700,020 2.4
Richard S. Braddock........ 428,580 1.8 -- 428,580 1.5
William E. Ford(8)......... -- * -- -- *
George Hayter.............. 7,517 * -- 7,517 *
Keith Petty(9)............. 364,620 1.5 -- 364,620 1.3
Lewis E. Randall(10)....... 495,000 2.0 -- 495,000 1.7
Lester C. Thurow........... -- * -- -- *
General Atlantic Partners, 6,872,580 28.2 -- 6,872,580 24.2
LLC(11)...................
All directors and executive
officers as a group
(16 persons)(12).......... 6,324,617 25.9 -- 6,324,617 21.6
<CAPTION>
OTHER SELLING STOCKHOLDERS
--------------------------
<S> <C> <C> <C> <C> <C>
Kristin Marit Dahl(13)..... 213,000 * 90,000 123,000 *
R.D. Fritts................ 249,900 1.0 2,100 247,800 *
Fred Haeckl & Ann G.
Haeckl, Trustees, Fred
Haeckl & Ann G. Haeckl
Family Trust 269 U/A Dated
08/28/91.................. 576,600 2.4 36,600 540,000 1.9
William D. Happ & Roxann M.
Happ, Trustees, William &
Roxann Happ Revocable
Living Trust Dated
4/12/91................... 668,880 2.8 47,530 621,350 2.2
Susan M. Harning........... 20,820 * 8,820 12,000 *
Hawaiian Trust Company,
Ltd., Agent for the
Alexander S. Atherton
Family Limited
Partnership(14)........... 109,680 * 54,840 54,840 *
Charles R. Huegel.......... 26,040 * 17,040 9,000 *
Jackson, Tufts, Cole &
Black Profit Sharing Plan
f/b/o/ Templeton C. Peck.. 7,200 * 7,200 -- --
Robert C. & Normalee A.
Jacobson, as Joint
Tenants(15)............... 75,720 * 18,930 56,790 *
Robert C. Jacobson,
Individual Retirement
Account(16)............... 60,000 * 60,000 -- --
Brian S. Kahn & Julie O.
Kahn, Trustees, Kahn
Revocable Family Trust.... 60,720 * 12,000 48,720 *
</TABLE>

66
<PAGE>

<TABLE>
<CAPTION>
SHARES NUMBER OF
BENEFICIALLY SHARES TO BE SHARES TO BE
OWNED PRIOR TO SOLD IN BENEFICIALLY OWNED
NAME OFFERING THE OFFERING AFTER OFFERING(1)(2)
---- ----------------- ------------ -----------------------
OTHER SELLING
STOCKHOLDERS NUMBER PERCENT(1) NUMBER PERCENT
------------- ------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Jacqueline Lancaster.... 26,040 * 14,040 12,000 *
Larkin S. Lapides....... 12,000 * 1,000 11,000 *
Diane F. Lee(17)........ 149,100 * 27,660 121,440 *
Frank T. McIntosh....... 26,040 * 11,040 15,000 *
Kathleen P. McIntosh.... 52,020 * 4,020 48,000 *
Diane Munro............. 78,060 * 15,000 63,060 *
Robert Donald Murie &
Nancy Dolores Murie,
Trustees, Robert D.
Murie and Nancy D.
Murie Intervivos Trust
Dated August 16, 1993.. 52,020 * 15,000 37,020 *
Raymond J. Noorda &
Lewena Noorda.......... 465,420 1.9 100,460 364,960 1.3
Arden Orrel............. 9,000 * 4,500 4,500 *
Jeannie Pasturel........ 15,000 * 4,500 10,500 *
Herbert & Marlene
Swanson(18)............ 88,020 * 6,000 82,020 *
John M. & Lynn
Thornburn.............. 104,100 * 7,000 97,100 *
Thomas A. & Rosemary
Tisch Trust............ 124,860 * 72,000 52,860 *
Brenda L. Vogel......... 26,040 * 720 25,320 *
Agnes Waters............ 36,420 * 9,000 27,420 *
Robert L. Waymost &
Catherine M. Waymost,
Trustees, Waymost
Family Revocable Trust. 60,720 * 12,000 48,720 *
Thomas R. Yates/Wayne S.
Fuller, as Joint
Tenants................ 20,820 * 6,000 14,820 *
-------
Total................................. 665,000
=======
</TABLE>
- --------
* Less than 1%.

(1) Based on 24,392,597 shares outstanding on June 30, 1996 prior to the
offering and 28,392,597 after the offering. Shares of Common Stock
subject to options that are exercisable within 60 days of June 30, 1996
are deemed beneficially owned by the person holding such options for the
purpose of computing the percentage of ownership of such person but are
not treated as outstanding for the purpose of computing the percentage of
any other person.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) If the Underwriters exercise their over-allotment option to purchase up
to an additional 699,750 shares of Common Stock, then William A. Porter
will sell up to 240,000 shares of Common Stock to the Underwriters and
Mr. Porter will beneficially own 2,846,940 shares of Common Stock, or
approximately 9.9% of the outstanding shares.
(4) The address of Mr. Porter, Mr. Newcomb, Mr. Cotsakos and Mr. Heldt is c/o
E*TRADE Group, Inc., Four Embarcadero Place, 2400 Geng Road, Palo Alto,
California 94303.
(5) Excludes 200,460 shares of Common Stock held by Mr. Porter's wife. Mr.
Porter disclaims beneficial ownership of such shares.
(6) Includes 198,000 shares held by the Cotsakos Revocable Trust under
Agreement dated September 3, 1987, 105,000 shares held in an IRA account
and 60,000 shares held as a custodian for his daughter. Mr. Cotsakos
disclaims beneficial ownership of shares held as a custodian and one-half
the shares held by the Cotsakos Revocable Trust. Also includes 1,080,000
shares of Common Stock which Mr. Cotsakos has the option to purchase. See
"Management--Employment Contract" for a description of the vesting of
these options to purchase Common Stock.
(7) Includes 420,000 shares of Common Stock issuable upon exercise of stock
options that are exercisable within 60 days.
(8) Excludes 6,030,120 shares held by General Atlantic Partners II, L.P. and
842,460 shares held by GAP Coinvestment Partners, L.P. See footnote 11
below.
(9) Represents shares held by Keith and Gail Wells Petty, as Trustees or the
Keith and Gail Wells Petty Trust.

67
<PAGE>

(10) Includes 96,000 shares held solely by Mr. Randall's wife. Mr. Randall
disclaims beneficial ownership of such shares.
(11) Includes 6,030,120 shares held by General Atlantic Partners II, L.P.
("GAP II") and 842,460 shares held by GAP Coinvestment Partners, L.P.
("GAP Coinvestment"). The general partner of GAP II is General Atlantic
Partners, LLC ("GAP LLC"), a Delaware limited liability company. Mr.
Ford, a director of the Company, is one of the managing members of GAP
LLC. The same managing members of GAP LLC are the general partners of GAP
Coinvestment. Mr. Ford disclaims beneficial ownership of shares owned by
GAP II and GAP Coinvestment except to the extent of his pecuniary
interest therein. The address for GAP II, GAP Coinvestment, GAP LLC and
Mr. Ford is: c/o General Atlantic Service Corporation, Three Pickwick
Plaza, Greenwich, CT 06830.
(12) Includes the information in the notes above, as applicable. In addition,
includes an additional 248,820 shares of Common Stock issuable upon
exercise of stock options that are exercisable within 60 days, which
options are held by executive officers of the Company who are not
identified in the above table. Excludes 1,080,000 shares of Common Stock
which Mr. Cotsakos has the option to purchase. Excludes shares held by
Mr. Newcomb who is a director emeritus, but not currently an executive
officer of the Company.
(13) Includes 6,000 shares of Common Stock issuable upon exercise of stock
options held by Ms. Dahl exercisable within 60 days. Excludes 9,000
shares of Common Stock issuable upon exercise of stock options held by
Ms. Dahl not exercisable within 60 days.

(14) Includes 54,840 shares held for a partnership beneficially owned by Mr.
Atherton's wife, with Hawaiian Trust Company, Ltd. also serving as agent.

(15) Excludes 60,000 shares of Common Stock held by Robert C. Jacobson,
Individual Retirement Account, all of which are being sold in this
offering.

(16) Excludes 75,720 shares of Common Stock held by Robert C. & Normalee A.
Jacobson, as Joint Tenants, 18,930 of which are being sold in this
offering.

(17) Includes 1,440 shares held as a custodian for Ms. Lee's minor children.

(18) Includes 64,020 shares of Common Stock issuable upon exercise of stock
options held by Mr. Swanson exercisable within 60 days. Excludes 108,000
shares of Common Stock issuable upon exercise of stock options held by
Mr. Swanson not exercisable within 60 days.

68
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $.01 par value per
share ("Common Stock"), and 1,000,000 shares of Preferred Stock, $.01 par
value per share ("Preferred Stock").

COMMON STOCK

Subject to the rights of holders of Preferred Stock, the holders of
outstanding shares of Common Stock are entitled to share ratably in dividends
declared out of assets legally available therefor at such time and in such
amounts as the Board of Directors may from time to time lawfully determine.
Each holder of Common Stock is entitled to one vote for each share held. The
Common Stock is not entitled to conversion or preemptive rights and is not
subject to redemption or assessment. Subject to the rights of holders of any
outstanding Preferred Stock, upon liquidation, dissolution or winding up of
the Company, any assets legally available for distribution to stockholders as
such are to be distributed ratably among the holders of the Common Stock at
that time outstanding. As of June 30, 1996, giving effect to the conversion of
all outstanding shares of Preferred Stock into Common Stock automatically upon
the completion of this offering, there were 24,392,597 shares of Common Stock
outstanding held of record by approximately 150 stockholders. The Common Stock
presently outstanding is, and the Common Stock issued in this offering will
be, fully paid and nonassessable. The Common Stock has been approved for
quotation on the Nasdaq National Market under the trading symbol "EGRP."

PREFERRED STOCK

Preferred Stock may be issued in series from time to time with such
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions thereof, to the extent that such are not fixed in
the Company's Restated Certificate of Incorporation, as the Board of Directors
determines. The rights, preferences, limitations and restrictions of different
series of Preferred Stock may differ with respect to dividend rates, amounts
payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and other matters. The Board of Directors
may authorize the issuance of Preferred Stock which ranks senior to the Common
Stock with respect to the payment of dividends and the distribution of assets
on liquidation. In addition, the Board of Directors is authorized to fix the
limitations and restrictions, if any, upon the payment of dividends on Common
Stock to be effective while any shares of Preferred Stock are outstanding. The
Board of Directors, without stockholder approval, can issue Preferred Stock
with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company. Upon the completion of the offering, there will be no shares of
Preferred Stock outstanding and the Company has no present intention to issue
any shares of Preferred Stock. See "Risk Factors--Effects of Certain Charter
and Bylaw Provisions."

CERTAIN PROVISIONS AFFECTING STOCKHOLDERS

Delaware, like many other states, permits a corporation to adopt a number of
measures through amendment of the corporate charter or bylaws or otherwise,
which may have the effect of delaying or deterring any unsolicited takeover
attempts. The right of stockholders to cumulate votes in the election of
directors is eliminated. In addition, Section 203 of the Delaware General
Corporation Law, which will apply to the Company if its Common Stock is
authorized for quotation on the Nasdaq National Market, restricts certain
"business combinations" with "interested stockholders" for three years
following the date that person becomes an interested stockholder, unless the
Board of Directors approves the business combination. By delaying or deterring
unsolicited takeover attempts, these provisions could adversely affect
prevailing market prices for the Company's Common Stock. See "Risk Factors--
Effects of Certain Charter and Bylaw Provisions."

69
<PAGE>

The Company's Restated Certificate of Incorporation and Restated Bylaws
contain certain provisions that could discourage potential takeover attempts
and make more difficult attempts by stockholders to change management. The
Restated Certificate of Incorporation and the Restated Bylaws provide for a
classified Board of Directors and permit the Board to create new directorships
and to elect new directors to serve for the full term of the class of
directors in which the new directorship was created. The terms of the
directors are staggered to provide for the election of approximately one-third
of the Board members each year, with each director serving a three-year term.
The Board (or its remaining members, even though less than a quorum) is also
empowered to fill vacancies on the Board occurring for any reason for the
remainder of the term of the class of directors in which the vacancy occurred.
Stockholders may remove a director or the entire Board only for cause, and
such removal requires the affirmative vote of two-thirds of the outstanding
voting stock. The Company's Restated Certificate of Incorporation provides
that stockholders may not take action by written consent but only at a
stockholders' meeting and that special meetings of the stockholders of the
Company may only be called by the Chairman of the Board, the President, a
majority of the directors or the holders of not less than 10% of the
outstanding voting stock. The Restated Bylaws also establish procedures,
including advance notice procedures with regard to the nomination of
candidates for election as directors, and stockholder proposals.

The Company's Restated Certificate of Incorporation provides that, in
addition to the requirements of the Delaware General Corporation Law, any
"Business Combination" (as defined in the Certificate of Incorporation)
requires the affirmative vote of two-thirds of the votes entitled to be cast
by the holders of the Company's then outstanding capital stock, voting
together as a class, unless two-thirds of the directors approve the proposed
transaction.

A "Business Combination" includes (i) a merger or consolidation of the
Company or any of its subsidiaries with an "Interested Stockholder" (as
defined in the Restated Certificate of Incorporation) or any other corporation
which is, or after such transaction would be, an "Affiliate" or "Associate"
(as such terms are defined in the Securities Exchange Act of 1934, as amended)
of an Interested Stockholder, (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition to or with, or proposed by or on behalf
of, any Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder involving any assets of the Company or any subsidiary that
constitute 5% or more of the total assets of the Company, (iii) the issuance
or transfer by the Company or any subsidiary of any securities of the Company
or any subsidiary to, or proposed by or on behalf of, an Interested
Stockholder or any Affiliate or Associate of an Interested Stockholder in
exchange for cash, securities or other property that constitute 5% or more of
the total assets of the Company, (iv) the adoption of any plan or proposal for
the liquidation or dissolution of the Company or any spin-off or split-up of
any kind of the Company or any subsidiary, proposed by or on behalf of an
Interested Stockholder or an Affiliate or Associate of an Interested
Stockholder, or (v) any reclassification, recapitalization, or merger or
consolidation of the Company with any of its subsidiaries or any other
transaction that has the effect, directly or indirectly, of increasing the
proportionate share of any class or series of capital stock of the Company or
any of its subsidiaries that is beneficially owned by any Interested
Stockholder or an Affiliate or Associate of any Interested Stockholder.

An "Interested Stockholder" generally is defined as (i) an individual,
corporation or other entity which is or was at any time within the two-year
period preceding the date of the transaction in question, the beneficial owner
of 10% or more of the outstanding voting securities of the Company, (ii) an
Associate or Affiliate of the Company who within the two-year period preceding
the date of the transaction in question was the beneficial owner of 10% or
more of the outstanding voting securities of the Company, or (iii) under
certain circumstances, an assignee of any of the foregoing persons. A person
is a "beneficial owner" of any capital stock of the Company (a) which such
person or any of its Affiliates or Associates beneficially owns, directly or
indirectly, (b) which such person or any of its Affiliates or Associates has,
directly or indirectly, (i) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to
any agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (ii) the right
to vote pursuant to any agreement, arrangement or understanding, or

70
<PAGE>

(c) which are beneficially owned, directly or indirectly, by any other person
with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares of capital stock.

The foregoing provisions of the Restated Certificate of Incorporation and
Restated Bylaws of the Company may deter any potential unfriendly offers or
other efforts to obtain control of the Company that are not approved by the
Board of Directors and could thereby deprive the stockholders of opportunities
to realize a premium on their Common Stock and could make removal of incumbent
directors more difficult. At the same time, these provisions may have the
effect of inducing any persons seeking control of the Company or a business
combination with the Company to negotiate terms acceptable to the Board of
Directors. Such provisions of the Company's Restated Certificate of
Incorporation and Restated Bylaws can be changed or amended only by the
affirmative vote of the holders of at least 66 2/3% of the Company's then
outstanding voting stock.

Following the completion of the offering, the Company's present directors
(including the director emeritus) and executive officers and their respective
affiliates will beneficially own approximately 53.3% of the outstanding Common
Stock, giving them veto power with respect to any stockholder action or
approval requiring a majority vote.

TRANSFER AGENT AND REGISTRAR

The Company has appointed American Stock Transfer & Trust Company as its
transfer agent and registrar of the Common Stock.

71
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

GENERAL

Upon the completion of this offering, the Company will have outstanding an
aggregate of 28,392,597 shares of Common Stock, based upon the number of
shares outstanding as of June 30, 1996. Of these shares, all of the shares
sold in this offering will be freely tradeable without restriction or further
registration under the Securities Act, unless such shares are purchased by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Affiliates"). The remaining 23,727,597 shares of Common Stock
held by existing stockholders (the "Restricted Shares") are "restricted
securities" as that term is defined in Rule 144 under the Securities Act.
Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701
promulgated under the Securities Act. As a result of contractual restrictions
and the provisions of Rule 144 and Rule 701, additional shares will be
available for sale in the public market as follows: (i) approximately 933,060
Restricted Shares will be eligible for immediate sale on the date of this
Prospectus; (ii) approximately 569,820 Restricted Shares will be eligible for
sale 90 days after the date of this Prospectus; (iii) approximately 12,627,450
Restricted Shares will be eligible for sale upon expiration of the lock-up
agreements 180 days after the date of this Prospectus; and (iv) the remainder
of the Restricted Shares will be eligible for sale from time to time
thereafter upon expiration of their respective two-year holding periods.

The Company, its officers and directors, all of the Selling Stockholders and
certain other stockholders, representing in the aggregate approximately
22,032,717 shares of Common Stock and options to purchase approximately
4,950,840 shares of Common Stock, have agreed pursuant to lock-up agreements,
subject to certain limited exceptions, not to sell or offer to sell or
otherwise dispose of any of such shares and options for a period of 180 days
after the date of this Prospectus (the "Lock-Up Period") without the prior
consent of Robertson, Stephens & Company.

The Company has reserved 4,000,000 shares of Common Stock for issuance under
the Company's 1996 Stock Incentive Plan, none of which are outstanding. In
addition, the Company has outstanding options to purchase 5,619,840 shares,
which options were granted under the Company's 1996 Stock Incentive Plan 1993
Stock Option Plan and 1983 Employee Incentive Stock Option Plan. Following the
offering, the Company intends to file a registration statement under the
Securities Act to register 4,000,000 shares of Common Stock issuable upon the
exercise of stock options granted under the Company's 1996 Stock Incentive
Plan, options to purchase 54,000 shares of which were outstanding as of June
30, 1996, and 5,565,840 shares issuable upon exercise of stock options granted
under the 1993 Stock Option Plan and 1983 Employee Incentive Stock Option
Plan. Shares issued upon the exercise of stock options after the effective
date of such registration statement or previously issued on exercise,
generally will be available for sale in the open market subject to Rule 144
volume limitations applicable to affiliates and the lock-up agreements with
Robertson, Stephens & Company described above. The Company also intends to
file a registration statement under the Securities Act to register 650,000
shares of Common Stock for issuance under the Company's 1996 Stock Purchase
Plan.

In general, under Rule 144 as currently in effect, beginning 90 days after
the completion of this offering, a person (or persons whose shares are
aggregated) who, together with any previous holder who is not an affiliate of
the Company, has beneficially owned restricted shares of at least two years,
including persons who may be deemed "affiliates" of the Company, will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 284,000 shares immediately after this offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the SEC. Sales pursuant to Rule 144 are also subject to certain other
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the three months immediately preceding the sale, and who, together
with any previous holder

72
<PAGE>

who is not an affiliate of the Company, has beneficially owned restricted
shares for at least three years, would be entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.

An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits affiliates and
non-affiliates to sell their Rule 701 shares without having to comply with
Rule 144's holding period restrictions, in each case commencing 90 days after
the date of this Prospectus. In addition, non-affiliates may sell Rule 701
shares without complying with the public information, volume and notice
provisions of Rule 144.

Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for
the Common Stock will develop or will continue after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to
time. As described herein, only a limited number of shares will be available
for sale shortly after this offering because of certain contractual and legal
restrictions on resale. Sales of substantial amounts of Common Stock of the
Company in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future. See "Risk Factors--Shares Eligible for Future
Sale."

REGISTRATION RIGHTS

Pursuant to an agreement between the Company and the holders (or their
permitted transferees) of approximately 13,663,560 shares of Common Stock and
Preferred Stock ("Holders") (which Preferred Stock will automatically be
converted into Common Stock upon the completion of this offering), the Holders
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. If the Company proposes to register its Common Stock
in any public offering subsequent to this offering, subject to certain
exceptions, under the Securities Act, the Holders are entitled to notice of
the registration and are entitled at the Company's expense, subject to certain
limitations, to include such shares therein, provided that the managing
underwriters have the right to limit the number of such shares included in the
registration. In addition, certain of the Holders may require the Company, at
its expense, subject to certain limitations, on no more than on five occasions
in the aggregate, to file a registration statement under the Securities Act
with respect to their shares of Common Stock. Such rights may not be exercised
until 90 days after the completion of a subsequent offering.

73
<PAGE>

UNDERWRITING

The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Hambrecht & Quist LLC and Deutsche Morgan
Grenfell/C. J. Lawrence Inc. (the "Representatives"), have severally agreed
with the Company and the Selling Stockholders, subject to the terms and
conditions of the Underwriting Agreement, to purchase the numbers of shares of
Common Stock set forth opposite their respective names below. The Underwriters
are committed to purchase and pay for all such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC..................................
Hambrecht & Quist LLC..............................................
Deutsche Morgan Grenfell/C. J. Lawrence Inc........................
---------
Total............................................................ 4,665,000
=========
</TABLE>

The Representatives have advised the Company and the Selling Stockholders
that the Underwriters initially propose to offer shares of the Common Stock to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession of not
more than $ per share, of which $ may be reallowed to other dealers.
After the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such
reduction shall change the amount of proceeds to be received by the Company as
set forth on the cover page of this Prospectus.

The Company and a Selling Stockholder have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to 459,750 and 240,000 additional shares of Common
Stock, respectively, at the same price per share as will be paid for the
4,665,000 shares that the Underwriters have agreed to purchase. To the extent
that the Underwriters exercise such option, each of the Underwriters will have
a firm commitment to purchase approximately the same percentage of such
additional shares that the number of shares of Common Stock to be purchased by
it shown in the above table represents as a percentage of the 4,665,000 shares
offered hereby. If purchased, such additional shares will be sold by the
Underwriters on the same terms as those on which the 4,665,000 shares are
being sold.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement. The Company has been advised by the SEC that, in the
SEC's view, indemnification for liabilities arising under the Securities Act
is contrary to the federal securities laws and, therefore, unenforceable.

Each officer and director who hold shares of the Company and holders of
22,032,717 shares of Common Stock (including such officers and directors) have
agreed with the Representatives, for the Lock-Up Period, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock owned as of the
date of this Prospectus or thereafter acquired directly by such holders or
with respect to which they have or hereafter acquire the power of disposition,
without the prior written consent of Robertson, Stephens & Company LLC.
However, Robertson, Stephens & Company LLC may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to lock-up agreements. There are no

74
<PAGE>

agreements between the Representatives and any of the Company's stockholders
providing consent by the Representatives to the sale of shares prior to the
expiration of the Lock-Up Period. In addition, the Company has agreed that,
during the Lock-Up Period, the Company will not, subject to certain
exceptions, without the prior written consent of Robertson, Stephens & Company
LLC, issue, sell, contract to sell, or otherwise dispose of, any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock
or any securities convertible into, exercisable for or exchangeable for shares
of Common Stock, other than the Company's sale of shares in this offering, the
issuance of Common Stock upon the exercise of outstanding options, and the
Company's issuance of options and shares under existing stock option and stock
purchase plans. See "Shares Eligible for Future Sale."

The Representatives have advised the Company and the Selling Stockholders
that they do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby will be determined through negotiations among the
Company, representatives of the Selling Stockholders and the Representatives.
Among the factors to be considered in such negotiations are prevailing market
conditions, certain financial information of the Company, market valuations of
other companies that the Company and the Representatives believe to be
comparable to the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant.

SUBSEQUENT RESTRICTIONS

Securities industry regulations prohibit an NASD member firm, after the
completion of a distribution of securities of its parent to the public, from
effecting any transaction (except on an unsolicited basis) for the account of
any customer in, or making any recommendation with respect to, any such
security. Thus, following this offering, E*TRADE Securities and the Company's
other subsidiaries will not be permitted to make recommendations regarding the
purchase or sale of the Company's Common Stock.

Pursuant to the bylaws of the NASD, if any employee of E*TRADE Securities,
any person associated (as defined in such bylaws) with E*TRADE Securities or
any of the Company's other subsidiaries, or any immediate family member of any
such employee or associated person purchases any of the shares offered hereby,
such person may not sell, transfer, assign, pledge or hypothecate such shares
for a period of five months following the effective date of the offering.

75
<PAGE>

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, San Francisco, California. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Cooley Godward Castro Huddleson & Tatum, San Francisco,
California. Thomas A. Bevilacqua, a partner at Brobeck, Phleger & Harrison
LLP, holds options to purchase certain shares of Common Stock. See "Interests
of Counsel."

EXPERTS

The consolidated financial statements as of September 30, 1995 and 1994 and
for each of the three years in the period ended September 30, 1995, included
in this Prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein. Such consolidated
financial statements have been included herein in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.

INTERESTS OF COUNSEL

Thomas A. Bevilacqua, in his capacity as a director of E*TRADE Online
Ventures, received in May 1996 an option to purchase 30,000 shares of Common
Stock of the Company with an exercise price of $9.50 per share. This number of
option shares represents one-half the number of option shares granted to each
non-employee director of the Company. See "Management--Director Compensation"
and "Legal Matters."

ADDITIONAL INFORMATION

The Company has filed with the SEC a registration statement (together with
all amendments and exhibits thereto, the "Registration Statement") under the
Act with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the Rules and
Regulations of the SEC. For further information with respect to the Company
and the Common Stock offered hereby, reference is made to the Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement and the exhibits and
schedules thereto may be inspected, without charge, at the offices of the SEC,
or obtained at prescribed rates from the Public Reference Section of the SEC
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the SEC's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade Center
(13th Floor), New York, New York 10019. The SEC also makes electronic filings
publicly available on the Internet within 24 hours of acceptance. The SEC's
Internet address is http://www.sec.gov. The SEC Web site also contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the SEC.

76
<PAGE>

E*TRADE GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of September 30, 1994 and 1995 and June
30, 1996 (Unaudited) and Pro forma June 30, 1996 (Unaudited)............ F-3
Consolidated Statements of Operations for the Years Ended September 30,
1993, 1994 and 1995 and for the Nine Months Ended June 30, 1995 and 1996
(Unaudited)............................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for the
Years Ended September 30, 1993, 1994 and 1995 and for the Nine Months
Ended June 30, 1995 and 1996 (Unaudited)................................ F-5
Consolidated Statements of Cash Flows for the Years Ended September 30,
1993, 1994 and 1995 and for the Nine Months Ended June 30, 1995 and 1996
(Unaudited)............................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of E*TRADE Group, Inc.:

We have audited the accompanying consolidated balance sheets of E*TRADE
Group, Inc. and subsidiaries (the "Company") as of September 30, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for each of the three years in the period
ended September 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of E*TRADE Group, Inc. and
subsidiaries at September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1995 in conformity with generally accepted accounting
principles.

November 20, 1995
( as to Note 10)

----------------

The accompanying consolidated financial statements give effect to the
reincorporation of the Company in Delaware, an increase in the number of
authorized shares to 50,000,000 and the related exchange of each share of
common stock of the Company for 60 shares of common stock of the Delaware
Corporation in July 1996. The above opinion is in the form which will be
signed by Deloitte & Touche LLP upon completion of such exchange of the
Company's outstanding common stock described in Note 10 to the consolidated
financial statements and assuming that from August 1, 1996 to the date of such
completion, no other material events have occurred that would affect the
accompanying consolidated financial statements or required disclosure therein.

DELOITTE & TOUCHE LLP

August 1, 1996

F-2
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, JUNE 30,
------------------------ JUNE 30, 1996
1994 1995 1996 (NOTE 1)
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents...... $ 691,897 $ 9,624,219 $15,408,710
Brokerage receivables..... 498,728 1,935,513 3,091,551
Accounts receivable....... 36,500 115,700 140,500
Income taxes receivable... -- -- 817,008
Deferred tax asset........ 588,821 285,863 1,134,196
Other assets.............. 34,211 68,391 506,268
----------- ----------- -----------
Total current assets..... 1,850,157 12,029,686 21,098,233
Property and equipment--
net....................... 313,189 1,458,152 5,983,175
Deposits with clearing
organizations............. -- -- 1,110,000
Investment................. -- 675,726 809,448
Other assets............... -- -- 684,328
----------- ----------- -----------
TOTAL...................... $ 2,163,346 $14,163,564 $29,685,184
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities...... $ 429,777 $ 1,428,353 $ 3,830,060
Accrued compensation and
benefits................. -- 557,804 587,634
Litigation settlement
payable.................. 350,000 -- --
Provision for claims...... 64,928 360,744 504,960
Income taxes payable...... 8,944 602,275 --
Current portion of notes
payable.................. 1,314,268 -- 500,000
Current portion of capital
leases................... 23,199 21,870 22,805
----------- ----------- -----------
Total current
liabilities............. 2,191,116 2,971,046 5,445,459
Long-term portion of
capital leases............ 64,439 44,551 27,032
Long-term notes payable.... -- -- 1,833,333
----------- ----------- -----------
Total liabilities........ 2,255,555 3,015,597 7,305,824
----------- ----------- -----------
COMMITMENTS AND
CONTINGENCIES (NOTES 7 AND
8)
STOCKHOLDERS' EQUITY (DEFI-
CIENCY):
Preferred stock, $.01 par:
shares authorized,
1,000,000; Series A:
800,000 shares designated;
shares issued and out-
standing: 1994, none;
1995, 100,000; 1996,
131,516 (pro forma 1996,
none)..................... -- 1,000 1,315 $ --
Common stock, $.01 par:
shares authorized,
50,000,000; shares issued
and outstanding: 1994,
14,954,400; 1995,
14,890,980;
1996, 16,501,637 (pro
forma 1996, 24,392,597)... 149,544 148,910 165,016 243,926
Additional paid-in capital. 1,240,560 9,899,373 22,448,331 22,370,736
Retained earnings (defi-
cit)...................... (1,482,313) 1,098,684 (235,302) (235,302)
----------- ----------- ----------- -----------
Total stockholders' eq-
uity (deficiency)....... (92,209) 11,147,967 22,379,360 $22,379,360
----------- ----------- ----------- ===========
TOTAL...................... $ 2,163,346 $14,163,564 $29,685,184
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
----------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Transaction revenues... $2,158,064 $ 9,547,688 $20,834,586 $13,591,794 $ 30,207,651
Computer services...... 709,226 953,228 1,425,536 911,067 1,793,673
Interest and other..... 106,668 404,098 1,080,416 646,322 2,481,549
---------- ----------- ----------- ----------- ------------
Total revenues...... 2,973,958 10,905,014 23,340,538 15,149,183 34,482,873
---------- ----------- ----------- ----------- ------------
COST OF SERVICES:
Cost of services....... 1,972,627 6,795,808 12,678,339 8,011,232 21,104,935
Self-clearing start-up
costs................. -- -- 141,185 84,687 1,843,952
---------- ----------- ----------- ----------- ------------
Total cost of serv-
ices............... 1,972,627 6,795,808 12,819,524 8,095,919 22,948,887
---------- ----------- ----------- ----------- ------------
OPERATING EXPENSES:
Selling and marketing.. 282,324 997,703 2,466,429 1,538,761 5,748,650
Technology development. 215,737 335,371 942,500 538,156 1,322,539
General and
administrative........ 400,573 2,532,361 2,802,724 1,385,969 6,686,982
---------- ----------- ----------- ----------- ------------
Total operating ex-
penses............. 898,634 3,865,435 6,211,653 3,462,886 13,758,171
---------- ----------- ----------- ----------- ------------
Total cost of
services and
operating expenses. 2,871,261 10,661,243 19,031,177 11,558,805 36,707,058
---------- ----------- ----------- ----------- ------------
PRE-TAX INCOME (LOSS)... 102,697 243,771 4,309,361 3,590,378 (2,224,185)
INCOME TAX EXPENSE
(BENEFIT).............. 3,607 (541,474) 1,728,364 1,440,000 (890,199)
---------- ----------- ----------- ----------- ------------
NET INCOME (LOSS)....... $ 99,090 $ 785,245 $ 2,580,997 $ 2,150,378 $ (1,333,986)
========== =========== =========== =========== ============
Net income (loss) per
share.................. $ -- $ .03 $ .10 $ .08 $ (.05)
========== =========== =========== =========== ============
Shares used to compute
per share data......... 26,803,000 26,312,000 26,608,000 25,577,000 28,550,000
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>
TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
---------------- -------------------- PAID-IN EARNINGS EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIENCY)
-------- ------- ---------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1,
1992................... 14,700,180 $147,002 $ 1,112,321 $(2,366,648) $(1,107,325)
Net income............. 99,090 99,090
Issuance of common
stock................. 798,000 7,980 212,680 220,660
---------- -------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30,
1993................... 15,498,180 154,982 1,325,001 (2,267,558) (787,575)
Net income............. 785,245 785,245
Issuance of common
stock................. 380,520 3,805 159,018 162,823
Exercise of stock
warrants.............. 1,235,940 12,359 (12,153) 206
Repurchase of common
stock................. (2,160,240) (21,602) (231,306) (252,908)
---------- -------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30,
1994................... 14,954,400 149,544 1,240,560 (1,482,313) (92,209)
Net income............. 2,580,997 2,580,997
Issuance of Series A
preferred stock....... 100,000 $1,000 12,299,000 12,300,000
Exercise of stock
warrants.............. 1,293,120 12,931 (271) 12,660
Exercise of stock
options............... 497,100 4,971 141,510 146,481
Repurchase of common
stock................. (1,853,640) (18,536) (3,781,426) (3,799,962)
-------- ------- ---------- -------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30,
1995................... 100,000 1,000 14,890,980 148,910 9,899,373 1,098,684 11,147,967
Net loss*.............. (1,333,986) (1,333,986)
Issuance of Series B
preferred stock, net
of issuance costs*.... 20,336 203 2,837,237 2,837,440
Issuance of Series C
preferred stock, net
of issuance costs*.... 11,180 112 8,949,788 8,949,900
Exercise of stock
warrants, including
tax benefit*.......... 403,080 4,031 285,628 289,659
Exercise of stock
options, including tax
benefit*.............. 1,200,060 12,000 456,880 468,880
Issuance of common
stock for services*... 7,517 75 19,425 19,500
-------- ------- ---------- -------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996*. 131,516 $ 1,315 16,501,637 $165,016 $22,448,331 $ (235,302) $22,379,360
======== ======= ========== ======== =========== =========== ===========
</TABLE>
* Unaudited

See notes to consolidated financial statements.

F-5
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
--------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- --------- ----------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $ 99,090 $ 785,245 $ 2,580,997 $2,150,378 $(1,333,986)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Deferred income taxes. (588,821) 302,958 588,821 (848,333)
Issuance of common
stock for services... 19,500
Depreciation and
amortization......... 15,077 64,991 229,807 95,700 477,678
Equity income from
investment........... (352,817) (77,912) (541,907)
Interest converted to
long-term notes
payable.............. 81,070 87,217 67,047 56,190
Net effect of changes
in:
Brokerage
receivables......... (243,544) (203,222) (1,436,785) (1,218,961) (1,156,038)
Accounts receivable.. (73,249) 86,555 (79,200) (39,200) (24,800)
Deposits with
clearing
organizations....... (1,110,000)
Other assets......... (27,262) 10,369 (34,180) (24,293) (1,122,205)
Accounts payable and
accrued expenses.... 36,463 639,784 1,502,196 751,850 2,575,753
Income taxes......... 8,944 593,331 789,479 (1,066,866)
--------- --------- ----------- ---------- -----------
Net cash provided by
(used in) operating
activities......... (112,355) 891,062 3,373,354 3,072,052 (4,131,204)
--------- --------- ----------- ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of office
facilities,
equipment, and
leasehold
improvements......... (114,376) (123,956) (1,374,770) (765,825) (2,502,701)
Purchase of
investment........... (504,000) (504,000)
Distributions received
from investment...... 181,091 408,185
--------- --------- ----------- ---------- -----------
Net cash used in
investing
activities......... (114,376) (123,956) (1,697,679) (1,269,825) (2,094,516)
--------- --------- ----------- ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of Series A preferred
stock................ 12,300,000
Proceeds from issuance
of Series B preferred
stock................ 2,837,440
Proceeds from issuance
of Series C preferred
stock................ 8,949,900
Proceeds from issuance
of common stock...... 220,660 162,823
Proceeds from exercise
of stock options..... 146,481 63,188 293,550
Proceeds from exercise
of stock warrants.... 206 12,660 200 112,572
Repurchase of common
stock................ (252,908) (3,799,962)
Repayment of long-term
notes payable........ (1,381,315) (750,000) (166,667)
Repayment of capital
leases............... (5,813) (21,592) (21,217) (16,273) (16,584)
--------- --------- ----------- ---------- -----------
Net cash provided by
(used in) financing
activities......... 214,847 (111,471) 7,256,647 (702,885) 12,010,211
--------- --------- ----------- ---------- -----------
INCREASE (DECREASE) IN
CASH AND EQUIVALENTS.. (11,884) 655,635 8,932,322 1,099,342 5,784,491
CASH AND EQUIVALENTS--
Beginning of period... 48,146 36,262 691,897 691,897 9,624,219
--------- --------- ----------- ---------- -----------
CASH AND EQUIVALENTS--
End of period......... $ 36,262 $ 691,897 $ 9,624,219 $1,791,239 $15,408,710
========= ========= =========== ========== ===========
SUPPLEMENTAL
DISCLOSURES:
Cash paid for
interest............. $ 13,158 $ 18,347 $ 398,601 $ 381,873 $ 60,324
========= ========= =========== ========== ===========
Cash paid for income
taxes................ $ 3,607 $ 41,000 $ 830,000 $ 70,000 $ 1,025,000
========= ========= =========== ========== ===========
Noncash investing and
financing activities:
Capital expenditures
financed with capital
leases............... $ 70,215 $ 26,070
Tax benefit on
exercise of non-
qualified stock
warrants............. $ 177,087
Tax benefit on
exercise of stock
options.............. $ 175,330
Capital expenditures
financed with note
payable.............. $ 2,500,000
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AT JUNE 30, 1996 AND FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation--The consolidated financial statements include E*TRADE
Group, Inc. and its subsidiaries (collectively, the "Company") E*TRADE
Securities, Inc. ("E*TRADE Securities"), and E*TRADE Capital, Inc. (formerly,
ET Execution Services, Inc.), securities broker-dealers. All intercompany
balances and transactions have been eliminated.

As discussed in Notes 5 and 10, the convertible Preferred Stock will be
automatically converted upon the closing of the public offering contemplated
herein. The accompanying pro forma balance sheet gives effect to this
conversion as if such events had occurred on June 30, 1996.

Transaction Revenues--The Company derives revenues on a discount brokerage
basis from commissions and payments from other broker-dealers for order flow
related to customer transactions in equity and debt securities, options, and
mutual funds. Securities transactions are recorded on a trade date basis and
are executed by independent broker-dealers. Through June 30, 1996, the Company
did not receive or hold customers' securities or funds. The Company
implemented self-clearing operations in July 1996.

Computer services revenues represent connect time charges for interactive
online computer services provided to networks for distribution to customers.
Such revenues are recorded as earned.

Interest revenues represent the Company's participation in the interest
differential on its customer debit and credit balances through a contractual
agreement with its principal clearing broker, and fees on its customer assets
invested in money market accounts.

Depreciation and Amortization--Office facilities and equipment generally are
depreciated on a straight-line basis over their estimated useful lives of
three to seven years. Leasehold improvements are amortized over the lesser of
their useful lives or the life of the lease.

Technology Development Costs--Technology development costs are charged to
operations as incurred. Technology development costs include costs incurred in
the development and enhancement of software used in the Company's product
offerings. The costs to develop such software have not been capitalized as the
Company believes its current software development process is essentially
completed concurrent with the establishment of technological feasibility of
the software.

Cash and Equivalents--For purposes of reporting cash flows, the Company
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.

Investment represents the Company's March 1995 investment in a limited
liability company, Roundtable Partners LLC ("Roundtable"), which is accounted
for using the equity method. The Company's return on its investment in
Roundtable is included in other revenues. Roundtable is a consortium of
broker-dealers.

Estimated Fair-Value of Financial Instruments--The Company believes the
amounts presented for financial instruments on the consolidated balance sheet
consisting of cash equivalents and long-term notes payable to be reasonable
estimates of fair-value.

Use of Estimates--The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the consolidated balance sheet dates and the
reported amounts of revenues and expenses for the periods presented.

Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109--Accounting for
Income Taxes. SFAS 109 requires the recognition of deferred tax liabilities
and assets at tax rates expected to be in effect when these balances reverse.
Future

F-7
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1996 AND FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)
tax benefits attributable to temporary differences are recognized currently to
the extent that realization of such benefits is more likely than not.

Earnings Per Share--Earnings per share is based on the weighted average
number of common and common equivalent shares outstanding during the period.
Pursuant to rules of the Securities and Exchange Commission, all common and
common equivalent shares issued and options, warrants and other rights to
acquire shares of common stock at a price less than the initial public
offering price granted by the Company during the 12 months preceding the
offering date (using the treasury stock method until shares are issued) have
been included in the computation of common and common equivalent shares
outstanding for all periods presented.

Recently Issued Accounting Standards--The Company is required to adopt SFAS
No. 123, Accounting for Stock-Based Compensation, in fiscal 1997. SFAS No. 123
establishes accounting and disclosure requirements using a fair-value based
method of accounting for stock based employee compensation plans. Under SFAS
No. 123, the Company may either adopt the new fair-value based accounting
method or continue the intrinsic value based method and provide pro forma
disclosures of net income and earnings per share as if the accounting
provisions of SFAS No. 123 had been adopted. The Company plans to adopt only
the disclosure requirements of SFAS No. 123; therefore, such adoption will
have no effect on the Company's consolidated net income or cash flows.

Unaudited Interim Information--The consolidated financial information as of
June 30, 1996 and for the nine months ended June 30, 1995 and 1996 is
unaudited. In the opinion of management, such information contains all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of such period. The results of operations for
the nine months ended June 30, 1996 are not necessarily indicative of the
results to be expected for the full year.

Reclassifications--Certain items in prior years' financial statements have
been reclassified to conform to the fiscal 1995 presentation.

2. PROPERTY AND EQUIPMENT--NET

Property and equipment--net consists of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Furniture and fixtures..................... $ 96,066 $ 206,385 $ 651,942
Equipment.................................. 947,991 2,199,193 4,996,762
Leasehold improvements..................... 38,327 51,576 1,811,150
---------- ---------- ----------
1,082,384 2,457,154 7,459,854
Less: Accumulated depreciation............. 769,195 999,002 1,476,679
---------- ---------- ----------
Total...................................... $ 313,189 $1,458,152 $5,983,175
========== ========== ==========
</TABLE>

F-8
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1996 AND FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)

3. LONG-TERM NOTES PAYABLE

In September 1990, the Company entered into a restructuring agreement with
its long-term creditors. In connection with the restructuring agreement, all
royalty obligations due and long-term debt were converted to promissory notes
of $999,508 bearing interest at 7% per annum as well as warrants to purchase
2,626,140 shares of the Company's common stock for an aggregate exercise price
of $438 ("the Restructuring Warrants"). The promissory notes were
uncollateralized and subordinated to all other debt, and principal and
interest was to be paid at the sole discretion of the Board of Directors of
the Company. No principal or interest had been paid on the notes prior to
1995, when the notes, including accrued interest, were paid in full.

In February 1996, the Company obtained $2.5 million in equipment financing
through a term loan agreement with Merrill Lynch Business Financial Services,
Inc. This term loan was used to finance the purchase of equipment and
leasehold improvements. Interest is accrued at the per annum rate equal to the
sum of 2.70% over the 30-Day Commercial Paper Rate as defined. The terms of
such financing provide for the repayment of the term loan in 60 consecutive
monthly installments. The term loan is collateralized by a first lien on all
business assets of the parent company.

4. INCOME TAXES

The components of income tax expense (benefit) for the years ended September
30 are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
------ --------- ----------
<S> <C> <C> <C>
Current:
Federal....................................... $ -- $ 10,752 $1,030,253
State......................................... 3,607 36,595 395,153
------ --------- ----------
Total current............................... 3,607 47,347 1,425,406
------ --------- ----------
Deferred:
Federal....................................... -- (562,594) 301,574
State......................................... -- (26,227) 1,384
------ --------- ----------
Total deferred.............................. -- (588,821) 302,958
------ --------- ----------
Total tax expense (benefit)..................... $3,607 $(541,474) $1,728,364
====== ========= ==========
</TABLE>

Deferred income taxes are recorded when revenues and expenses are recognized
in different periods for financial statement and tax return purposes. The
temporary differences and tax carryforwards which created deferred tax assets
at September 30 are detailed below:
<TABLE>
<CAPTION>
1993 1994 1995
--------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............. $ 645,176 $558,279 $ --
Reserves and allowances...................... 6,823 26,061 144,795
Other........................................ 544 4,481 141,068
--------- -------- --------
Total deferred tax assets.................. 652,543 588,821 285,863
Valuation allowance............................ (652,543) -- --
--------- -------- --------
Net deferred tax asset......................... $ -- $588,821 $285,863
========= ======== ========
</TABLE>

F-9
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1996 AND FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)
The effective tax rate differs from the federal statutory rate as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----- ------ ----
<S> <C> <C> <C>
Tax expense at federal statutory rate............ 34.0 % 34.0 % 35.0%
State income taxes, net of federal tax benefit... 2.3 2.8 6.1
Decrease in federal income tax asset valuation
allowance....................................... (34.1) (260.4) --
Other............................................ 1.3 1.5 (1.0)
----- ------ ----
Effective tax rate............................... 3.5 % (222.1)% 40.1%
===== ====== ====
</TABLE>

5. STOCKHOLDERS' EQUITY

On September 28, 1995, the Company sold 100,000 shares of Series A Preferred
Stock to General Atlantic Partners for $12,300,000. The Company used
approximately $3,800,000 of the proceeds to repurchase and retire outstanding
common stock from existing stockholders.

Each share of Series A Preferred Stock is convertible, at the option of the
stockholder, into 60 shares of common stock (subject to adjustment for events
of dilution). Conversion of the Preferred Stock into common stock is automatic
upon the closing of an underwritten public offering under the Securities Act
of 1933, the proceeds of which exceed $7,500,000. The Preferred stockholders
have voting rights equal to the common shares they would have upon conversion.
Upon liquidation, holders of the Preferred Stock are entitled to receive a
preferential amount equal to their original per share purchase price plus any
declared and unpaid dividends before any distributions to common stockholders.

F-10
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1996 AND FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)
The Company's stock option plans provide for granting of nonqualified or
incentive stock options to officers, directors, key employees and consultants
for the purchase of shares of common stock at the prevailing price of the
Company's stock as determined by the Board of Directors at the date the option
is granted. The options are generally exercisable ratably over a five-year
period from the date the option is granted and expire within ten years from
the date of grant. A summary of stock option activity follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
---------- ------------
<S> <C> <C>
Outstanding at October 1, 1992...................... 840,000 $.13
Granted........................................... 2,370,000 $.13-$.28
---------- ------------
Outstanding at September 30, 1993................... 3,210,000 $.13-$.28
Granted........................................... 90,000 $.28
---------- ------------
Outstanding at September 30, 1994................... 3,300,000 $.13-$.28
Granted........................................... 1,776,000 $.28-$.50
Cancelled......................................... (876,000) $.28-$.42
Exercised......................................... (497,100) $.13-$.50
---------- ------------
Outstanding at September 30, 1995................... 3,702,900 $.13-$.50
Granted........................................... 3,273,000 $2.05-$13.42
Cancelled......................................... (156,000) $.28-$2.05
Exercised......................................... (1,200,060) $.13-$.50
---------- ------------
Outstanding at June 30, 1996........................ 5,619,840 $.13-$13.42
========== ============
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1993 1994 1995
------- --------- ---------
<S> <C> <C> <C>
Options available for grant...................... 690,000 1,800,000 900,000
Options exercisable.............................. 588,000 1,230,000 1,490,000
</TABLE>

In April 1993, the Company's stockholders approved the 1993 Stock Option
Plan (the "1993 Plan") which authorized 1,800,000 shares of the Company's
common stock as available for the granting of options. The 1993 Plan was the
successor plan to the 1983 Employee Incentive Stock Option Plan which expired
in March 1993. In 1994, the number of authorized shares under the 1993 Plan
was increased to 3,000,000. In January 1996, the authorized number of shares
under the 1993 Plan was increased to 4,200,000 and in April 1996, the
authorized number of shares was increased to 5,400,000.

During 1994 and 1995, Restructuring Warrants (see Note 3) to purchase
1,235,940 and 1,263,240 shares of common stock, respectively, were exercised
for $210 and $206, respectively. The remaining Restructuring Warrants expired
in September 1995. In January 1995, a consultant was granted a warrant to
purchase 300,000 shares of the Company's common stock at $.42 per share, of
which 29,880 were exercised in fiscal 1995 and the remainder in the nine
months ended June 30, 1996.

In the opinion of management, exercise prices of stock options, warrants and
common stock issued to employees and consultants were not less than the fair
market value of the common stock at the time of grant or issuance. In
accordance with Accounting Principles Board Opinion No. 25--Accounting for
Stock Issued to Employees, no compensation expense has been recognized.
Estimates of the fair value of the common stock at the grant or issuance date
are based solely on management's opinion. Independent appraisals of the
Company's common stock were not obtained.

F-11
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1996 AND FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)

6. REGULATORY REQUIREMENTS

E*TRADE Securities is subject to the Uniform Net Capital Rule (the "Rule")
under the Securities Exchange Act of 1934. E*TRADE Securities computes net
capital under the aggregate indebtedness method of the Rule, which, at
September 30, 1995, requires the maintenance of minimum net capital of the
greater of six and two-thirds percent (6 2/3%) of aggregate indebtedness or
$100,000 and requires that the ratio of aggregate indebtedness to net capital,
both as defined, shall not exceed 15 to 1. E*TRADE Securities may not repay
subordinated borrowings, pay cash dividends, or make any unsecured advances or
loans to its parent or employees if such payment would result in aggregate
indebtedness exceeding 1000% of net capital or in net capital of less than
120% of the minimum net capital requirement. At September 30, 1995, E*TRADE
Securities had net capital of $7,062,000, which was $6,951,000 in excess of
its required net capital of $111,000. E*TRADE Securities' ratio of aggregate
indebtedness to net capital was .24 to 1 at September 30, 1995. Effective May
31, 1996, E*TRADE Securities has elected to use the alternative method,
permitted by the Rule, which requires that the Company maintain minimum net
capital equal to the greater of $250,000 or 2 percent of aggregate debit
balances arising from customer transactions, as defined. At June 30, 1996,
E*TRADE Securities had net capital of $13,879,596, which was $13,629,596 in
excess of its required net capital of $250,000.

7. LEASE ARRANGEMENTS

The Company leases equipment under capital leases expiring through fiscal
1999. Future minimum lease payments under capital leases as of September 30,
1995 are as follows:

<TABLE>
<S> <C>
Year ending September 30:
1996............................................................. $ 30,249
1997............................................................. 26,826
1998............................................................. 20,137
1999............................................................. 2,473
--------
Total minimum lease payments....................................... 79,685
Less: Amount representing interest ................................ 13,264
--------
Present value of minimum lease payments............................ $ 66,421
========
</TABLE>

The Company also has two noncancelable operating leases for office
facilities through 2002. Future minimum rental commitments under these leases
at September 30, 1995 are as follows:

<TABLE>
<S> <C>
Year ending September 30:
1996........................................................... $ 790,900
1997........................................................... 1,123,700
1998........................................................... 1,191,100
1999........................................................... 1,258,800
2000........................................................... 1,281,100
Thereafter..................................................... 1,634,600
</TABLE>

Rent expense for the years ended September 30, 1993, 1994 and 1995 was
approximately $100,500, $168,800 and $344,100, respectively.

F-12
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1996 AND FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)

8. COMMITMENTS, CONTINGENT LIABILITIES AND OTHER

The Company is a defendant in civil actions arising from the normal course
of business. In the opinion of management, these actions are expected to be
resolved with no material effect on the Company's financial position or
results of operations. During the year ended September 30, 1994, the Company
settled claims made by its former clearing broker. The total amount of this
settlement was $850,000 and is included in general and administrative
expenses. In connection with the settlement agreement, the Company repurchased
all shares of its common stock owned by its former clearing broker at the date
of the settlement for $252,908, which represented their estimated fair market
value.

In March 1996, the Company entered into a five-year employment agreement
with a key executive officer. The employment agreement provides for, among
other things, an annual base salary which is subject to adjustment based on
the Company's performance and a severance payment up to $1,250,000 in the
event of termination of employment under certain defined circumstances.

9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET CREDIT RISK AND CONCENTRATIONS
OF CREDIT RISK

As a securities broker, E*TRADE Securities' transactions are executed with
and on behalf of customers. E*TRADE Securities introduces these transactions
for clearance to its clearing brokers on a fully disclosed basis.

In the normal course of business, E*TRADE Securities' customer activities
involve the execution of securities transactions and settlement by its
clearing brokers. As the agreements between E*TRADE Securities and its
clearing brokers provide that E*TRADE Securities is obligated to assume any
exposure related to nonperformance by its customers, these activities may
expose E*TRADE Securities to off-balance-sheet credit risk in the event a
customer is unable to fulfill its contracted obligations. In the event a
customer fails to satisfy its obligations, E*TRADE Securities may be required
to purchase or sell financial instruments at prevailing market prices in order
to fulfill such customer's obligations.

The Company seeks to control off-balance-sheet credit risk by monitoring its
customer transactions and reviewing information it receives from its clearing
brokers on a daily basis and reserving for doubtful accounts when necessary.

10. SUBSEQUENT EVENTS

Effective January 18, 1996, the stockholders of the Company approved a
change in its name from Trade*Plus, Inc. to E*TRADE Group, Inc.

On April 10, 1996, the Company sold 20,336 shares of Series B Preferred
Stock ("Series B") for $2,847,040 and incurred issuance costs of $9,600. On
June 6, 1996, the Company sold 11,180 shares of Series C Preferred Stock
("Series C") to SOFTBANK Holdings Inc. for $8,999,900 and incurred issuance
costs of $50,000. Each share of Series B and Series C Preferred Stock is
convertible, at the option of the stockholder, into 60 shares of common stock.
Conversion of the Preferred Stock into common stock is automatic upon the
closing of an underwritten public offering under the Securities Act of 1933,
the proceeds of which exceed $7,500,000. The Series B and Series C Preferred
Stock have rights and privileges comparable to the Series A Preferred Stock
(see Note 5), except that Series B and C have no anti-dilution provisions.

F-13
<PAGE>

E*TRADE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1996 AND FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)

In May 1996, the Company obtained $100 million in committed lines of
financing to provide collateral financing of customer securities upon the
conversion to self-clearing.

In July 1996, the stockholders of the Company approved the following:

. The 1996 Stock Incentive Plan (the "1996 Plan"), and reserved 4,000,000
shares of common stock for future grants. The 1996 Plan is divided into
three components: the Discretionary Option Grant Program, the Stock
Issuance Program and the Automatic Option Grant Program. Under the
Discretionary Option Grant Program, options may be granted to purchase
shares of common stock at an exercise price not less than the fair
market value of those shares on the grant date to eligible employees.
The Stock Issuance Program allows for individuals to be issued shares of
common stock directly through the purchase of such shares at a price not
less than the fair market value of those shares at the time of issuance
or as a bonus tied to the performance of services. Under the Automatic
Option Grant Program, options are automatically granted at periodic
intervals to eligible non-employee members of the Board of Directors to
purchase shares of common stock at an exercise price equal to the fair
market value of those shares on the grant date.

. The 1996 Stock Purchase Plan, and reserved 650,000 shares of common
stock for sale to employees at a price no less than 85% of the lower of
the fair market value at the beginning of the two-year offering period
or the end of each of the six-month purchase periods.

. The reincorporation of the Company in Delaware, an increase in the
number of authorized shares of common stock to 50,000,000 and the
related exchange of each share of common stock of the Company into 60
shares of common stock of the Delaware corporation. Such reincorporation
and share exchange will be consummated in July 1996. All references in
the consolidated financial statements to numbers of shares, per share
amounts and prices of the Company's common stock have been retroactively
restated to reflect the increased number of common shares outstanding.

F-14
<PAGE>

E*TRADE: EMPOWERING CONSUMERS THROUGH TECHNOLOGY

E*TRADE uses information technology to provide value-added commercial
transaction processing services. In 1992, the Company formed E*TRADE Securities
and began offering consumers online brokerage services available 24 hours a
day, seven days a week. E*TRADE empowers its customers to take control of their
own financial transactions.

Cost-effective Services.
Services are offered unbundled, so that customers can choose just the services
they want.

User-friendly Web Trading Interface.
E*TRADE has made online trading simple, fast and fun.

Secure Operations.
By offering highly secure services through encrypted transmissions, E*TRADE has
achieved industry recognition for its leadership in the secure provision of
online brokerage services.

Personalized Environments.
Customers can customize their user interfaces to enhance their personal trading
experiences.

Customers are able to trade through a broad range of electronic access points,
including the Internet, direct modem link, America Online, CompuServe and
touch-tone telephone.

[Graphical depiction of E*TRADE order screen]

[Graphical depiction of E*TRADE Web page]

[Photo of person at computer]

ACCESS
ANY TIME
ANYWHERE

<PAGE>

JOIN THE
ELECTRONIC
TRADING
REVOLUTION

[Graphic of globe with circling rings in palm]

www.etrade.com

[COMPANY LOGO]

INFORMATION CONTAINED IN THE COMPANY'S WEB SITE
SHALL NOT BE DEEMED TO BE PART OF THIS
PROSPECTUS.
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of Common Stock being registered. All
amounts are estimates except the registration fee, the NASD fee and the Nasdaq
National Market fee.

<TABLE>
<CAPTION>
AMOUNT
TO
BE PAID
----------
<S> <C>
Registration fee.................................................... $ 35,056
NASD fee............................................................ 10,666
Nasdaq National Market fee.......................................... 50,000
Printing and engraving.............................................. 160,000
Legal fees and expenses............................................. 400,000
Accounting fees and expenses........................................ 400,000
Blue sky fees and expenses.......................................... 15,000
Transfer agent fees................................................. 2,000
Director and officer insurance premiums............................. 425,000
Miscellaneous....................................................... 247,278
----------
Total............................................................. $1,745,000
==========
</TABLE>

The Selling Stockholders will bear their pro rata portion of underwriting
discounts and commissions, based on the number of shares offered by such
holders. All of the other costs and expenses of the Selling Stockholders will
be borne by the Registrant.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of the state of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that such person was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe
his conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation in the performance of his duty. Where an officer or director is
successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which such
officer or director actually and reasonably incurred.

In accordance with the Delaware Law, the Restated Certificate of
Incorporation of the Company contains a provision to limit the personal
liability of the directors of the Registrant for violations of their fiduciary
duty. This provision eliminates each director's liability to the Registrant or
its stockholders for monetary damages except (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under

II-1
<PAGE>

Section 174 of the Delaware Law providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit. The effect of this provision is to eliminate the personal liability
of directors for monetary damages for actions involving a breach of their
fiduciary duty of care, including any such actions involving gross negligence.

Article 5 of the Restated Bylaws of the Registrant provide for
indemnification of the officers and directors of the Registrant to the fullest
extent permitted by applicable law.

In connection with the incorporation of the Registrant into the State of
Delaware, the Registrant entered into indemnification agreements with each
director and certain officers, a form of which is attached as Exhibit 10.1
hereto and incorporated herein by reference. The Indemnification Agreements
provide indemnification to such directors and officers under certain
circumstances for acts or omissions which may not be covered by directors' and
officers' liability insurance. Reference is also made to Section 8 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since June 30, 1993, the Registrant has sold and issued the following
unregistered securities:

(1) During the period June 30, 1993 through June 30, 1996 the Registrant
granted stock options to employees, directors and consultants under its 1993
Stock Option Plan and 1996 Stock Incentive Plan, covering an aggregate of
6,249,000 shares of the Company's Common Stock at an average exercise price of
$2.15 per share. Of these, options covering an aggregate of 1,032,000 were
cancelled without being exercised. During the same period, the Registrant sold
an aggregate of 1,697,160 shares of its Common Stock to employees, directors
and consultants for cash consideration in the aggregate amount of $431,701
upon the exercise of outstanding stock options.

(2) On October 29, 1993, the Registrant sold 125,640 shares of Common Stock
to RKS Financial Group, Inc. ("RKS") for $35,598 in cash as a result of
antidilution provisions in the RKS Stock Purchase Agreement dated October 21,
1991. On May 17, 1994, the Registrant sold an additional 34,620 shares to RKS
for $17,310 in cash as a result of antidilution provisions.

(3) On March 30, 1994, the Registrant sold 220,860 shares of Common Stock to
Robert Graham, Roberta Colin, Tracy Henderson and Steve Herrick for $110,430
in cash.

(4) On May 17, 1994, the Registrant sold 44,116 shares of Common Stock to 17
early stockholders of the Registrant, including co-founders William A. Porter
and Bernard A. Newcomb, for an aggregate price of $441.16 pursuant to the
exercise of warrants.

(5) On September 28, 1995, the Registrant sold 100,000 shares of Series A
Preferred Stock to General Atlantic Partners II, L.P. and GAP Coinvestment
Partners, L.P. for $12,300,000 in cash.

(6) On September 28, 1995, the Registrant sold 29,880 shares of its Common
Stock to a consultant who is now an employee for $12,450 in cash upon the
exercise of a warrant granted on January 3, 1995 to purchase 300,000 shares at
$0.416 per share, and on January 31, 1996 sold the remaining 270,120 shares
exercisable under the warrant for $112,550 in cash.

(7) On April 10, 1996, the Registrant sold 20,336 shares of Series B
Preferred Stock to Christos M. Cotsakos and affiliates, Richard S. Braddock,
General Atlantic Partners II, L.P. and GAP Coinvestment Partners, L.P. for
$2,847,040 in cash.

II-2
<PAGE>

(8) On March 31, 1996 and June 7, 1996 the Registrant issued 6,096 and 1,421
shares of Common Stock, respectively, to George Hayter, a director of the
Company, for consulting services.

(9) On June 6, 1996, the Registrant sold 11,180 shares of Series C Preferred
Stock to SOFTBANK Holdings Inc. for $9.0 million in cash.

The sales and issuances of securities in the transactions described in
paragraph (1) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation, as provided by Rule
701.

The sale and issuance of securities in the transaction described in
paragraphs (2) through (9) were deemed to be exempt from registration under
the Securities Act by virtue of Section 4(2) and/or Regulation D promulgated
thereunder as transactions not involving any public offering. The purchasers
in each case represented their intention to acquire the securities for
investment only and not with a view to the distribution thereof. Appropriate
legends are affixed to the stock certificates issued in such transactions. All
recipients either received adequate information about the Registrant or had
access, through employment or other relationships, to such information.

In May 1996, E*TRADE Group, Inc., a Delaware corporation ("E*TRADE
Delaware") was formed and 100 shares of Common Stock were issued to E*TRADE
Group, Inc., a California corporation ("E*TRADE California") for a de minimis
dollar amount. The sale and issuance was deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) as a transaction not
involving any public offering.

In July 1996, E*TRADE California will merge with and into E*TRADE Delaware.
In connection with the merger, E*TRADE Delaware will issue an aggregate of
16,501,637 shares of Common Stock to the holders of common stock of E*TRADE
California (assuming shares outstanding at June 30, 1996), such that holders
of common stock of E*TRADE California will receive a proportionate interest in
E*TRADE Delaware Common Stock, without giving effect to the offering.
Likewise, E*TRADE Delaware will issue 100,000 shares of Series A Preferred
Stock, 20,336 shares of Series B Preferred Stock and 11,180 shares of Series C
Preferred Stock to the holders of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, respectively. The issues of securities
will not be registered under the Securities Act due to the exemption from
registration thereunder provided by Section 3(a)(9) thereof.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant.
*3.2 Bylaws of the Registrant.
*3.3 Restated Certificate of Incorporation of the Registrant to be
effective prior to the offering.
*3.4 Restated Bylaws of the Registrant to be effective prior to the
offering.
*4.1 Specimen of Common Stock Certificate.
*4.2 Reference is hereby made to Exhibits 3.1 to 3.4.
*5.1 Opinion of Brobeck, Phleger & Harrison LLP.
*10.1 Form of Indemnification Agreement to be entered into between the
Registrant and its directors and certain officers.
*10.2 1983 Employee Incentive Stock Option Plan.
</TABLE>

II-3

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
*10.3 1993 Stock Option Plan.
*10.4 1996 Stock Incentive Plan.
10.5 Not used.
10.6 Not used.
10.7 Not used.
*10.8 401(k) Plan.
*10.9 1996 Stock Purchase Plan.
*10.10 Employee Bonus Plan.
*10.11 Lease of premises at Four Embarcadero Place, 2400 Geng Road, Palo
Alto, California.
*10.12 Lease of premises at 10951 White Rock Road, Rancho Cordova,
California.
*10.13 Employment Agreement dated March 15, 1996, by and between Christos M.
Cotsakos and the Registrant.
*10.14 Clearing Agreement between E*TRADE Securities, Inc. and Herzog,
Heine, Geduld, Inc. dated May 11, 1994.
*10.15 Guarantee by the Registrant to Herzog, Heine, Geduld, Inc.
*+10.16 BETAHOST Master Subscription Agreement between E*TRADE Securities,
Inc. and BETA Systems Inc. dated June 27, 1996.
*10.17 Stock Purchase Agreement among the Registrant, General Atlantic
Partners II, L.P. and GAP Coinvestment Partners, L.P. dated September
28, 1995.
*10.18 Stock Purchase Agreement among the Registrant, General Atlantic
Partners II, L.P., GAP Coinvestment Partners, L.P., Richard S.
Braddock and the Cotsakos Group dated April 10, 1996.
*10.19 Stock Purchase Agreement between the Registrant and SOFTBANK Holdings
Inc. dated
June 6, 1996.
*10.20 Stockholders Agreement among the Registrant, General Atlantic
Partners II, L.P., GAP Coinvestment Partners, L.P. and the
Stockholders named therein dated September 28, 1995 (the
"Stockholders Agreement").
*10.21 Supplement No. 1 to Stockholders Agreement dated as of April 10,
1996.
*10.22 Stockholders Agreement Supplement and Amendment dated as of June 6,
1996.
*10.23 Consulting Agreement between the Registrant and George Hayter dated
as of June 7, 1996.
*11.1 Statement regarding computation of per share earnings.
*21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
*23.2 Consent of Counsel (included in Exhibit 5.1).
*24.1 Power of Attorney.
*27.1 Financial Data Schedule as of and for the six months ended March 31,
1996 and as of and for the year ended September 30, 1995.
*27.2 Financial Data Schedule as of and for the nine months ended June 30,
1996 and as of and for the year ended September 30, 1995.
</TABLE>
- --------
*Previously filed.
+Confidential treatment has been requested with respect to certain portions of
this exhibit.

(B) FINANCIAL STATEMENT SCHEDULES

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

II-4
<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Restated
Certificate of Incorporation or the Restated Bylaws of Registrant,
Indemnification Agreements entered into between the Registrant and its
directors and certain of its officers, Underwriting Agreement, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered hereunder, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall he
deemed to be the initial bona fide offering thereof.

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Palo
Alto, State of California on this 1st day of August 1996.

E*TRADE Group, Inc.

By /s/ Christos M. Cotsakos
-----------------------------------
Christos M. Cotsakos
President
and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:

SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
* William A. Porter Chairman of the August 1, 1996
- ------------------------------------- Board
William A. Porter

/s/ Christos M. Cotsakos President and Chief August 1, 1996
- ------------------------------------- Executive Officer
Christos M. Cotsakos (principal
executive officer)

* Stephen C. Richards Chief Financial August 1, 1996
- ------------------------------------- Officer (principal
Stephen C. Richards financial and
accounting officer)

* Richard S. Braddock Director August 1, 1996
- -------------------------------------
Richard S. Braddock

* William E. Ford Director August 1, 1996
- -------------------------------------
William E. Ford

* George Hayter Director August 1, 1996
- -------------------------------------
George Hayter

</TABLE>

II-6
<PAGE>

SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
* Keith Petty Director August 1, 1996
- -------------------------------------
Keith Petty

* Lewis E. Randall Director August 1, 1996
- -------------------------------------
Lewis E. Randall

* Lester C. Thurow Director August 1, 1996
- -------------------------------------
Lester C. Thurow

*By /s/ Christos M. Cotsakos
---------------------------------
Christos M. Cotsakos
(Attorney-in-fact)

</TABLE>

II-7
<PAGE>

EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant.
*3.2 Bylaws of the Registrant.
*3.3 Restated Certificate of Incorporation of the Registrant to be
effective prior to the offering.
*3.4 Restated Bylaws of the Registrant to be effective prior to the
offering.
*4.1 Specimen of Common Stock Certificate.
*4.2 Reference is hereby made to Exhibits 3.1 to 3.4.
*5.1 Opinion of Brobeck, Phleger & Harrison LLP.
*10.1 Form of Indemnification Agreement to be entered into between
the Registrant and its directors and certain officers.
*10.2 1983 Employee Incentive Stock Option Plan.
*10.3 1993 Stock Option Plan.
*10.4 1996 Stock Incentive Plan.
10.5 Not used.
10.6 Not used.
10.7 Not used.
*10.8 401(k) Plan.
*10.9 1996 Stock Purchase Plan.
*10.10 Employee Bonus Plan.
*10.11 Lease of premises at Four Embarcadero Place, 2400 Geng Road,
Palo Alto, California.
*10.12 Lease of premises at 10951 White Rock Road, Rancho Cordova,
California.
*10.13 Employment Agreement dated March 15, 1996, by and between
Christos M. Cotsakos and the Registrant.
*10.14 Clearing Agreement between E*TRADE Securities, Inc. and Herzog,
Heine, Geduld, Inc. dated May 11, 1994.
*10.15 Guarantee by the Registrant to Herzog, Heine, Geduld, Inc.
*+10.16 BETAHOST Master Subscription Agreement between E*TRADE
Securities, Inc. and BETA Systems Inc. dated June 27, 1996.
*10.17 Stock Purchase Agreement among the Registrant, General Atlantic
Partners II, L.P. and GAP Coinvestment Partners, L.P. dated
September 28, 1995.
*10.18 Stock Purchase Agreement among the Registrant, General Atlantic
Partners II, L.P., GAP Coinvestment Partners, L.P., Richard S.
Braddock and the Cotsakos Group dated April 10, 1996.
*10.19 Stock Purchase Agreement between the Registrant and SOFTBANK
Holdings Inc. dated
June 6, 1996.
*10.20 Stockholders Agreement among the Registrant, General Atlantic
Partners II, L.P., GAP Coinvestment Partners, L.P. and the
Stockholders named therein dated September 28, 1995 (the
"Stockholders Agreement").
*10.21 Supplement No. 1 to Stockholders Agreement dated as of April
10, 1996.
*10.22 Stockholders Agreement Supplement and Amendment dated as of
June 6, 1996.
*10.23 Consulting Agreement between the Registrant and George Hayter
dated as of June 7, 1996.
*11.1 Statement regarding computation of per share earnings.
*21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
*23.2 Consent of Counsel (included in Exhibit 5.1).
*24.1 Power of Attorney.
*27.1 Financial Data Schedule as of and for the six months ended
March 31, 1996 and as of and for the year ended September 30,
1995.
*27.2 Financial Data Schedule as of and for the nine months ended
June 30, 1996 and as of and for the year ended September 30,
1995.
</TABLE>
- -------
*Previously filed.
+Confidential treatment has been requested with respect to certain portions of
this exhibit.

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 2 to Registration Statement No.
333-05525 of E*TRADE Group, Inc. of our report dated November 20, 1995
( as to Note 10), appearing in the Prospectus, which is part of the
Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus, which is part of this Registration Statement.

August , 1996

----------------

The accompanying consolidated financial statements give effect to the
reincorporation of the Company in Delaware, an increase in the number of
authorized shares to 50,000,000 and the related exchange of each share of
common stock of the Company for 60 shares of common stock of the Delaware
Corporation in July 1996. The above consent is in the form which will be
signed by Deloitte and Touche LLP upon completion of such exchange of the
Company's outstanding common stock described in Note 10 to the consolidated
financial statements and assuming that from August 1, 1996 to the date of such
completion, no other material events have occurred that would affect the
accompanying consolidated financial statements or required disclosure therein.

DELOITTE & TOUCHE LLP

August 1, 1996