Document:

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EXHIBIT 10.5

                       SECOND AMENDMENT TO PROMISSORY NOTE
                       -----------------------------------
                                    (Penson)

         This Second  Amendment to Promissory Note dated as of May __, 2002 (the
"SECOND  AMENDMENT"),  is executed  by and between  A.B.  Watley  Group Inc.,  a
Delaware  corporation (the "BORROWER") and Penson  Financial  Services,  Inc., a
North Carolina corporation (the "LENDER").

                                    RECITALS

         A. As of March 27,  2002,  the Borrower  executed a certain  promissory
note (the "PENSON PROMISSORY NOTE") that was payable to the Lender.

         B. As of April 11, 2002, the Borrower and the Lender executed a certain
First Amendment to Promissory Note (the "FIRST AMENDMENT"; the Penson Promissory
Note,  as amended by the First  Amendment,  herein  referred to as the "ORIGINAL
NOTE")  amending  the Penson  Promissory  Note in certain  respects as set forth
therein.

         C. The Borrower and the Lender now desire to further amend the Original
Note as hereinafter set forth.

                                    AGREEMENT

         In consideration of the agreements  contained herein,  the Borrower and
the Lender hereby agree as follows:

         Section 1.  DEFINITIONS.  All capitalized  terms not otherwise  defined
herein shall have the meanings  set forth in the  Original  Note.  The first two
paragraphs  of  Section  1 of the  Original  Note  are  hereby  incorporated  by
reference  herein.  The term "Note" as defined in Section 1 of the Original Note
is hereby amended to mean the Penson Promissory Note, as the same was amended by
the First  Amendment,  as the same is further amended by this Second  Amendment,
and as the same may be further amended or modified from time to time.

         Section 2.  AMENDMENTS.  All  references  in the Original  Note and the
Schedules  thereto to the  maximum  principal  amount of the  Original  Note are
hereby  amended to refer to a maximum  principal  amount of THREE  MILLION THREE
HUNDRED  THOUSAND AND NO/100  DOLLARS  ($3,300,000.00).  All  references  in the
Original  Note and the Schedules  thereto to the maximum  amount of the Lender`s
Commitment  are  hereby  amended to refer to a maximum  amount of THREE  MILLION
THREE  HUNDRED  THOUSAND  AND NO/100  DOLLARS  ($3,300,000.00),  provided  that,
notwithstanding  anything to the contrary  contained  in the Note,  it is agreed
that the  $1,500,000.00  in additional Loan  availability  being provided by the
Lender to the  Borrower  contemporaneously  with the  execution  of this  Second
Amendment (a) shall be subject to the conditions  precedent set forth in Section
8(b) of the Note,  and (b) shall be subject to the further  condition  precedent
that the Lender,  acting in its sole discretion,  shall have approved the making
of all such Loans to the Borrower.

<PAGE>

         Section 3. REPRESENTATIONS AND WARRANTIES.  The Borrower represents and
warrants to the Lender that:  (a) there exists no Default or Event of Default or
condition  or act that  constitutes,  or with  notice  or  lapse  of time  would
constitute,  an Event of Default under the Note;  (b) the Borrower has conformed
and  complied  in all  material  respects  with the  covenants,  agreements  and
conditions contained in the Note required to be conformed and complied with, and
(c) the  representations  of the  Borrower  contained  in the Note were true and
correct when made and are true and correct in all material  respects at the time
of delivery of the Second Amendment.

         Section 4. EFFECT OF AMENDMENT.  Except as expressly stated herein, (a)
the Note and the  documents  executed in  connection  therewith  (including  the
Security  Documents)  are and shall be  unchanged  and  remain in full force and
effect,  and (b) this  Second  Amendment  shall not  constitute  a waiver of any
Default  or Event of  Default  or a waiver of the right of the  Lender to insist
upon compliance with any term, covenant, condition, or provision of the Note and
such documents,  as amended hereby.  Except as specifically  stated herein,  the
execution and delivery of this Second Amendment shall in no way release, harm or
diminish,  impair,  reduce or otherwise affect,  the respective  obligations and
liabilities  under the Note and such  documents,  all of which shall continue in
full force and effect.

         Section 5.  MISCELLANEOUS.  This Second  Amendment  is a contract  made
under and shall be construed in accordance  with and governed by the laws of the
state of New York.  This  Second  Amendment  shall  benefit and bind the parties
hereto and their respective assigns, successors and legal representatives.  This
Second Amendment may be executed in two or more  counterparts,  and it shall not
be necessary  that the  signatures of all parties hereto be contained on any one
counterpart  hereof;  each counterpart  shall be deemed an original,  but all of
which  together  shall  constitute  one and the same  instrument.  All titles or
headings to the sections or other  divisions of this Second  Amendment  are only
for the convenience of the parties and shall not be construed to have any effect
or meaning with respect to the other content of such  sections,  subsections  or
the divisions,  such other content being controlling as to the agreement between
the parties hereto.

                            [SIGNATURE PAGES FOLLOW]

                                       2
<PAGE>

         IN  WITNESS  WHEREOF,  the  parties  hereto  have  caused  this  Second
Amendment to be executed as of the date first above written.

                                       A.B. WATLEY GROUP INC.

                                       By:_____________________________
                                            Name:
                                            Title:

                                      S-1

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                                     PENSON FINANCIAL SERVICES, INC.

                                     By:_____________________________
                                          Name:
                                          Title:

                                      s-2

<PAGE><PAGE>

EXHIBIT 10.6
                                                                EXECUTION DRAFT

                                 FIRST AMENDMENT
                          TO SOFTWARE LICENSE AGREEMENT

                                                              April 4, 2002

A.B. Watley Group Inc. ("WATLEY") and E*TRADE Group, Inc. ("E*TRADE") hereby
agree to amend the Software License Agreement dated November __, 2000 between
E*TRADE and Watley (the "SOFTWARE LICENSE AGREEMENT"), effective immediately, as
follows.

The first three sentences of Section 1(a) are deleted and replaced with:

     Upon the terms and conditions contained in this Agreement, Watley grants to
     E*TRADE and E*TRADE`s Affiliates a limited, worldwide, perpetual,
     irrevocable, fully paid-up license to use the Software (as hereinafter
     defined) on E*TRADE`s and E*TRADE`s Affiliate`s servers and to sublicense
     object code versions of the Software to, and make object code versions of
     the Software available through E*TRADE`s service offerings for use only by,
     Authorized Users. An "Authorized User" is an E*TRADE customer who has been
     sublicensed by E*TRADE to use object code versions of the Software.

Section 1(b) is deleted and replaced with:

     The Software will be provided to E*TRADE in object code and source code
     versions, along with any documentation related thereto.

Sections 1(d)(i) and 1(d)(iv) are deleted.

Section 1(d) is amended to further include:

     To the extent that E*TRADE allows a third party to access source code
     included in the Software, such access shall be governed by the provisions
     of Section 16.

Section 1(e) is deleted.

Section 1(f) is deleted and replaced with:

     E*TRADE acknowledges and agrees that, as between Watley and E*TRADE, Watley
     owns the Software (including the source code thereof) and the ideas,
     methods of operation, processes, know-how and intellectual property rights,
     including without limitation, all patent, copyright, trade secret and
     trademark rights, associated therewith, as well as any and all derivative
     works related thereto created by or on behalf of Watley and, other than as
     expressly set forth in this Agreement, E*TRADE further acknowledges and
     agrees that it has no interest whatsoever therein. Watley acknowledges and
     agrees that, as between Watley and E*TRADE, E*TRADE owns all derivative
     works in the Software (including the source code thereof) created by or on
     behalf of E*TRADE and the ideas, methods of operation, processes, know-how
     and intellectual property rights, including without limitation, all patent,
     copyright, trade secret and trademark rights, associated therewith, as well
     as any and all derivative works related thereto created by or on behalf of
     E*TRADE and Watley further acknowledges and agrees that it has no interest
     whatsoever therein.

Section 1(g) is deleted.

Section 2(a) is deleted and replaced by:

          "Software" includes the object code and source code versions, as well
          as any documentation related thereto, of:

          (A) the current version of the E*TRADE Pro platform;

          (B) the current version of the Watley UltimateTrader platform; and

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                                                                EXECUTION DRAFT

          (C) the current version of the Watley UltimateTrader platform (which
          includes such features as Comtex news, hot keys, the Island and Arca
          ECN books, order entry window/level II window, improved chart
          studies/improved performance, market ticker, high and low ticker,
          position ticker and export order status, as such features currently
          exist) modified to include the features and customizations by Watley
          for E*TRADE included in the current version of the E*TRADE Pro
          platform.

Section 3 is deleted and replaced with:

     This Agreement shall become effective as of the date first above written
     and shall remain in effect in perpetuity (the "TERM"), unless earlier
     terminated in accordance with the provisions of Section 4.

Sections 4(a) and (b) are deleted.

Section 5 is deleted and replaced with:

     (a) In consideration for the license and the Transition (as defined in
     Section 13 hereof) provided hereby,

          (i)  Upon delivery of the source code for the customized version of
               the UltimateTrader platform provided for by Section 13(c)(1)(C),
               E*TRADE will pay Watley $1,000,000.

          (ii) Upon successful completion of the Transition as determined in the
               reasonable judgment of E*TRADE, E*TRADE agrees to: (i) issue to
               Watley $2,400,000 of shares of the common stock, par value $.01
               per share, of E*TRADE (the "SHARES"), with the number of such
               Shares to be issued determined by dividing $2,400,000 by the
               average closing price for the shares on the New York Stock
               Exchange for the ten trading days prior to the completion of the
               Transition and (ii) pay Watley $1,000,000.

          (iii) Any dispute with respect to successful completion of the
               Transition as determined in the reasonable judgment of E*TRADE
               shall be resolved by arbitration under the Commercial Rules of
               the American Arbitration Association. Three arbitrators shall be
               selected. Each party shall select one arbitrator and the two
               chosen arbitrators shall select the third arbitrator or, failing
               agreement on the selection of the third arbitrator, the American
               Arbitration Association shall select the third arbitrator. Unless
               otherwise agreed by the parties, arbitration will take place in
               New York City, New York. Any court having jurisdiction over the
               matter may enter judgment on the award of the arbitrator(s).

          (iv) Payments made to date (including the payment for February 2002)
               made by E*TRADE to Watley shall not be refunded.

     (b) Investment Representations of Watley.

               Watley hereby represents and warrants that it is an accredited
               investor within the meaning of Regulation D prescribed by the
               Securities and Exchange Commission (the "SEC") pursuant to the
               Securities Act of 1933, as amended (the "SECURITIES ACT"), and
               that it is acquiring the Shares for investment for its own
               account and not with a view to, or for resale in connection with,
               any distribution thereof. Watley understands that the transaction
               in which Watley is receiving the Shares has not been registered
               under the Securities Act, that the Shares must be held
               indefinitely unless subsequently registered under the Securities
               Act or an exemption from such registration is available, and that
               the certificates representing the Shares shall bear an
               appropriate legend to such effect.

     (c) Registration Rights with respect to the Shares.

          (i)  From and after the date that the Shares are issued to Watley (the
               "ISSUE DATE"), E*TRADE agrees to use reasonable efforts to file a
               registration statement (the "REGISTRATION STATEMENT") with the

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                                                                EXECUTION DRAFT

               SEC to effect the registration under the Securities Act of the
               resale by Watley of the Shares (together with any shares of
               E*TRADE common stock issued in connection with any stock
               dividend, split, combination or recapitalization on, of or with
               respect to such Shares, collectively, the "REGISTRABLE SHARES"),
               and to respond promptly to any and all comments made by the staff
               of the SEC to such Registration Statement so as to cause the
               Registration Statement to be declared effective by the SEC,
               subject to the provisions of subsection (c)(ix) below. E*TRADE
               will use reasonable efforts to file the Registration Statement
               not later than thirty (30) days after the Issue Date.

          (ii) E*TRADE agrees that the Registration Statement shall comply in
               all material respects with the requirements of the Securities Act
               and the rules and regulations of the SEC promulgated thereunder
               and shall not contain any untrue statement of a material fact or
               omit to state a material fact required to be stated therein, or
               necessary to make the statements therein not misleading. The
               financial statements of E*TRADE included in the Registration
               Statement or incorporated by reference therein will comply as to
               form in all material respects with the applicable accounting
               requirements and the published rules and regulations of the SEC
               applicable with respect thereto, and will be prepared in
               accordance with GAAP consistently applied during the periods
               involved (except as may be otherwise indicated in the financial
               statements or the notes thereto or, in the case of unaudited
               interim statements, as permitted by the SEC) and fairly present
               the financial position of E*TRADE at the dates thereof and the
               results of operations and cash flows for the periods then ended
               (subject, in the case of unaudited interim statements, to
               immaterial year-end adjustments).

          (iii) E*TRADE shall prepare and file with the SEC, as promptly as is
               commercially reasonably practicable, such amendments (including
               post-effective amendments) and supplements to the Registration
               Statement and the prospectus used in connection with the
               Registration Statement as may be necessary to keep the
               Registration Statement effective during the Registration Period,
               and, during such period, to comply with the provisions of the
               Securities Act with respect to the disposition of all Registrable
               Shares covered by the Registration Statement.

          (iv) E*TRADE shall furnish to Watley promptly after the same is
               prepared and filed with the SEC, one copy of the Registration
               Statement and any amendment thereto and each preliminary
               prospectus and each amendment or supplement thereto; (B) on the
               date of effectiveness of the Registration Statement or any
               amendment thereto, a notice to Watley stating that the
               Registration Statement or amendment has been declared effective;
               and (C) such number of copies of a prospectus, including a
               preliminary prospectus, and all amendments and supplements
               thereto and such other documents as Watley may reasonably request
               in order to facilitate the disposition of the Registrable Shares
               owned by Watley.

          (v)  E*TRADE shall use reasonable efforts to cause all Registrable
               Shares to be listed on each national securities exchange or
               quotation service on which securities of the same class or series
               issued by E*TRADE are then listed.

          (vi) As promptly as practicable after becoming aware of such event,
               E*TRADE shall notify Watley of the happening of any event, of
               which E*TRADE has knowledge, as a result of which the prospectus
               included in the Registration Statement, as then in effect,
               includes an untrue statement of a material fact or omission to
               state a material fact required to be stated therein or necessary
               to make the statements therein not misleading, and use reasonable
               efforts to promptly prepare a supplement or amendment to the
               Registration Statement to correct such untrue statement or
               omission, and deliver such number of copies of such supplement or
               amendment to Watley as it may reasonably request.

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                                                                EXECUTION DRAFT

          (vii) E*TRADE shall use reasonable efforts to prevent the issuance of
               any stop order or other suspension of effectiveness of the
               Registration Statement, and, if such an order is issued, to
               obtain the withdrawal of such order as soon as practicable
               (including in each case by amending or supplementing the
               Registration Statement) and to notify Watley of the issuance of
               such order and the resolution thereof, and if the Registration
               Statement is supplemented or amended, deliver such number of
               copies of such supplement or amendment to Watley as it may
               reasonably request.

          (viii) E*TRADE will keep the Registration Statement effective until
               the earlier of (A) such date as all of the Registrable Shares
               have been resold or (B) two years from the date such Registration
               Statement is declared effective by the SEC (the "REGISTRATION
               PERIOD").

          (ix) Without limiting the generality of subsections (vi) and (vii)
               above, E*TRADE may defer filing of the Registration Statement or
               refuse to permit Watley to resell any Registrable Shares pursuant
               to the Registration Statement at any time if E*TRADE determines
               in good faith that such a sale would be in violation of the
               requirements of the Securities Act and the regulations
               promulgated by the SEC thereunder or there exists at the time
               material non-public information relating to E*TRADE which, in the
               business judgment of E*TRADE, should not be disclosed. E*TRADE
               shall not under any circumstances be entitled to exercise its
               right to defer filing of the Registration Statement or suspend
               sales under this subsection more than two times in any twelve
               (12)-month period, and the period during which the Registration
               Statement under this subsection may be withdrawn shall not exceed
               90 days each such time.

          (x)  Watley agrees that, upon receipt of any notice from E*TRADE of
               the happening of any event of the kind described in (vi), (vii)
               or (ix) above, Watley will immediately discontinue disposition of
               the Registrable Shares pursuant to the Registration Statement
               until Watley`s receipt of the copies of the supplemented or
               amended prospectus contemplated by (vi), (vii) or (ix) above, if
               so directed by E*TRADE, Watley shall deliver to E*TRADE or
               destroy (and deliver to E*TRADE a certificate of destruction) all
               copies in Watley`s possession, of the prospectus covering such
               Registrable Shares current at the time of receipt of such notice.

          (xi) Watley agrees that E*TRADE shall not be required to conduct an
               underwritten offering and that any sales of Registerable Shares
               shall be made through E*TRADE Securities Inc., provided that no
               commission shall be payable by Watley in connection with such
               sales.

          (xii) Watley, by its acceptance of the Registrable Shares, agrees to
               cooperate with E*TRADE as reasonably requested by E*TRADE in
               connection with the preparation and filing of the Registration
               Statement, unless Watley has notified E*TRADE in writing of its
               election to waive the obligations of E*TRADE with respect to the
               Registration Statement, including without limitation that (A)
               Watley will provide E*TRADE all information and statements about
               or pertaining to Watley, and shall execute such documents in
               connection with such registration as E*TRADE may reasonably
               request, on such timely basis as is reasonably deemed by E*TRADE
               to be necessary or appropriate for the Registration Statement or
               to comply with applicable requirements of the National
               Association of Securities Dealers or other applicable regulatory
               requirements, and (B) Watley will furnish promptly to E*TRADE in
               writing all information required from time to time to be
               disclosed in order to make the information previously furnished
               to E*TRADE by Watley not misleading. E*TRADE shall have no
               obligation to register the resale of the Registerable Shares or
               to cause or maintain the effectiveness of the Registration
               Statement unless Watley complies with the terms hereof.

          (xiii) E*TRADE pay all Registration Expenses (as defined below) in
               connection with any registration, qualification or compliance
               hereunder, and Watley shall pay all Selling Expenses (as defined

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                                                                EXECUTION DRAFT

               below) and other expenses that are not Registration Expenses
               relating to the Registrable Shares to be resold by Watley.
               "Registration Expenses" shall mean all expenses, except for
               Selling Expenses, incurred by E*TRADE in complying with the
               registration provisions set forth herein, including, without
               limitation, all registration, qualification and filing fees,
               printing expenses, escrow fees, fees and disbursements of counsel
               for E*TRADE, blue sky fees and expenses and the expense of any
               special audits incident to or required in connection with any
               such registration. "Selling Expenses" shall mean selling
               commissions, underwriting fees, expenses of counsel to Watley and
               stock transfer taxes applicable to the Registrable Shares.

Section 6(c) is amended by deleting the first sentence thereof and replacing
such first sentence with:

         E*TRADE will have sole responsibility for obtaining the third-party
         software licenses needed to host the Software specified as follows:
         Oracle 8i, BEA Tuxedo, BEA Jolt, Veritas, Sonic Software Sonic MQ,
         Rogue Wave Tools.H++, Tools.H++ Professional and Threads.H++.

Section 7 is deleted.

Section 8(c) is deleted and replaced with:

         EXCEPT FOR BREACHES OF SECTION 16, NEITHER PARTY SHALL HAVE ANY
         LIABILITY WHATSOEVER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL
         DAMAGES ARISING OUT OF OR RELATING TO THE LICENSING, DESIGN,
         MANUFACTURE, INSTALLATION OR USE OF THE SOFTWARE, WHETHER DUE TO
         NEGLIGENCE OR ANY OTHER CAUSE INCLUDING, WITHOUT LIMITATION, DAMAGES
         FOR LOSS OF DATA OR GOODWILL, OR THE COST OF PROCUREMENT OF SUBSTITUE
         GOODS. EXCEPT IN THE EVENT OF E*TRADE`S VIOLATION OF WATLEY`S
         INTELLECTUAL PROPERTY RIGHTS IN AND TO THE SOFTWARE (INCLUDING, WITHOUT
         LIMITATION, E*TRADE`S WILLFULL BREACH OF THE RESTRICTIONS ON
         SUBLICENSING THE SOFTWARE AND E*TRADE`S BREACH OF SECTIONS 1(d), 11 OR
         16 HEREOF), EITHER PARTY`S LIABILITY TO THE OTHER FOR ANY CLAIMS
         HEREUNDER SHALL BE LIMITED TO THE AGGREGATE CONSIDERATION PAID WATLEY
         BY E*TRADE.

Section 8(d) is deleted.

Section 9 is deleted.

Section 10 is deleted.

Section 11 is deleted and replaced with:

         E*TRADE shall not remove or otherwise change any terms of the End-User
         Agreement or the copyright notice contained in the Software without the
         prior written consent of Watley, provided that E*TRADE may include in
         the Software a copyright notice with respect to any additions to or
         modifications of the Software created by or on behalf of E*TRADE.
         Notwithstanding the foregoing, the Software shall not feature or
         display any trademarks, service marks or trade names of Watley unless
         approved in advance and in writing by E*TRADE.

Section 13(a) is amended to further include:

         Watley shall not be responsible for providing Maintenance and Support
Services in connection with derivative works based on the Software made by
E*TRADE.

Section 13 is amended to further include:

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                                                                EXECUTION DRAFT

         (c)

          (1) Watley and E*TRADE shall each use reasonable best efforts to
          effect the following transition (the "TRANSITION"):

               (A) provide on the date hereof copies of and familiarize E*TRADE
               personnel with the source code and operation of the current
               version of the E*TRADE Pro platform based on the Software;

               (B) on the date hereof, provide E*TRADE with copies of the source
               code of the current version of the Watley UltimateTrader
               platform;

               (C) within sixty (60) days of the date hereof, customize the
               current version of the UltimateTrader platform (which includes
               such features as Comtex news, hot keys, the Island and Arca ECN
               books, order entry window/level II window, improved chart
               studies/improved performance, market ticker, high and low ticker,
               position ticker and export order status, as such features
               currently exist) to include those features unique to the current
               version of the E*TRADE Pro platform (including removing Times Ten
               and replacing it with Oracle) and provide copies of and
               familiarize E*TRADE personnel with the source code and operation
               of such customized version;

               (D) on the date hereof, provide all source code and documentation
               related to Super SOES order entry to enable E*TRADE to implement
               Super SOES order entry when its back end is ready; and

               (E) to the extent required by E*TRADE, provide those services
               necessary to operate the E*TRADE Pro platform (or UltimateTrader
               platform, as appropriate) using competent and qualified
               personnel, including the data feeds and related hardware and
               software.

         (2) Until the Transition is completed, Watley shall continue to provide
         the services and access to intellectual property and data feeds
         currently provided by Watley to E*TRADE and its customers and otherwise
         as necessary to allow E*TRADE to continue to operate its E*TRADE Pro
         platform based on the Software ("TRANSITION SUPPORT"). Transition
         Support shall include providing the levels of availability set forth in
         Schedule 3. The Transition shall be completed and no further Transition
         Support shall be required only when:

               (A) E*TRADE is able to operate the customized version of the
               UltimateTrader platform (including the data feeds and ticker
               plant) at the same level of functionality and performance as
               currently provided by Watley in an E*TRADE or an E*TRADE
               authorized third party data center (such as the AT&T Co-Location
               center) without assistance from Watley or dependence on
               third-party data feeds to Watley; and

               (B) all of the special features unique to E*TRADE`s current
               production version of the E*TRADE Pro platform are fully
               integrated into the current Watley production version of the
               UltimateTrader platform such that the E*TRADE specific features
               run as well as on the current E*TRADE production version, and the
               Watley-specific features run as well as on the current Watley
               production version;

         provided that:

               (C) E*TRADE shall have 21 business days from the date of delivery
               of the source code (as part of a complete CD-ROM package or via
               FTP over a web site) for the current version of the E*TRADE Pro
               platform to compile such source code to determine if the
               resulting object code is equivalent to the version of object code
               currently used by E*TRADE; and

               (D) E*TRADE shall have 21 business days from the date of delivery
               of the source code (as part of a complete CD-ROM package or via
               FTP over a web site) for the customized version of the
               UltimateTrader platform to perform acceptance tests in accordance
               with the criteria set forth in subsections (A) and (B) above.

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                                                                EXECUTION DRAFT

     In each case in subsections (C) and (D) above, unless E*TRADE informs
     Watley within such 21 business day period that such source code is not
     acceptable, such source code will be deemed accepted.

     (3) For a period of at least six (6) months and until the Transition is
     complete; provided that such period shall not exceed twelve (12) months,
     E*TRADE shall pay $100,000 per month as follows:

                    (i) E*TRADE shall pay Watley`s UltimateTrader platform data
               feed vendors directly on behalf of Watley upon presentation of
               invoices by Watley; then

                    (ii) E*TRADE shall apply any remaining funds to cover
               E*TRADE`s costs of implementing Co-Location (as defined below);
               then

                    (iii) E*TRADE shall pay any remaining funds to Watley to be
               applied by Watley first to paying for costs associated with
               Watley`s technology infrastructure (e.g., servers, networks,
               etc.), maintenance, and technical facilities (either owned or
               leased) to ensure the delivery of the data feeds and redundancy
               necessary to support E*TRADE production trading, and second to
               paying the salaries of employees required to support E*TRADE
               production trading.

     (4) Watley represents and warrants that the following activities are all of
     the principal tasks required to co-locate the communications and routing
     equipment necessary to support E*TRADE in the manner in which Watley has
     supported E*TRADE to date ("CO-LOCATION"):

          (A) Re-terminating the following circuits inside of the AT&T
          Co-Location space in Allen, TX.

                    (i) NASDAQ T1 circuit from Worldcom (carries Level I, Level
                    II, and NTDS feeds)

                    (ii) SIAC T3 circuit from AT&T (carries CQS and CTS feeds)

                    (iii) E*Trade T1 circuit.

          (B) Connecting the above-listed circuits to a router in the
          Co-Location space.

          (C) Installing a Sun departmental machine with 4 CPUs (as well as a
          back-machine, which also runs the processes that provides the needed
          market data for the market feed servers located at E*Trade`s site) to
          run the ticker plant and distribution processes in the facility.

     (5) The data feeds required to support the UltimateTrader platform are CQS
     and CTS (both from Siac), Level 1, Level 2 and NTDS (all from NASDAQ), the
     Island ECN book and the Arca ECN book. E*TRADE shall apply for such data
     feeds within 14 days of the date hereof and use reasonable best efforts to
     get them up and running as soon as reasonably possible.

     (6) The parties agree that:

          (A) in order to assist in the Transition, E*TRADE will send one senior
          Java developer with Swing experience, one senior Java developer with
          Oracle or Times Ten database experience, server experience and some
          C++ experience, and one senior developer with real time multi-tasking
          C++ experience, to work with Watley developers during the Transition;
          and

          (B) because the services of personnel with in-depth knowledge of the
          operation of the UltimateTrader platform and the E*Trade Pro platform
          are essential to competing the Transition, Watley will make available
          the services of each of Leon Ferguson, Eric Lesatz, Jim Mathieu, Barry
          Kaplan, Chad Hooker, Ashok Kumar and Dale Jensen (along with other
          necessary Watley employees) to assist in the Transition and as
          required by E*TRADE.

          (C) because the services of personnel with in-depth knowledge of the
          operation of the E*Trade Pro platform are essential to completing the
          Transition, E*TRADE will make available the services of its personnel
          with the greatest familiarity with the E*Trade Pro platform (along
          with other necessary E*TRADE employees) to assist in the Transition.

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                                                                EXECUTION DRAFT

         (7) Until the Transition is completed, E*TRADE may have an E*TRADE
         employee present on the Watley premises, and such employee shall be
         given access to management and all such information or documents as he
         or she shall reasonably request, to monitor the progress of the
         Transition and the compliance by Watley with the terms of this
         Amendment.

         (8) As part of the Transition, Watley will modify its ticker plant to
         allow the use of E*TRADE`s existing Bridge data feed to E*TRADE`s data
         room for providing index quotes and as a back-up for market feeds.

         (e) Watley and E*TRADE agree that E*TRADE shall be entitled to all of
         the benefits of 11 U.S.C. Section 365(n) in connection with this
         license.

Section 14 is deleted and replaced by:

         E*TRADE shall have the right to solicit all of Watley`s employees;
         provided that E*TRADE may not solicit Leon Ferguson, Eric Lesatz, Barry
         Kaplan, Louis Van Houten or Steve Bate during their employment by
         Watley.

Section 17 is amended to further include:

         (d) For purposes of Section 17(a), "Software" shall not include any
         modifications to the Software made by E*TRADE. For purposes of Section
         17(b), "Software" shall include any modifications to the Software made
         by E*TRADE.

Section 18 (m) is deleted and replaced with:

         The provisions of Sections 11, 14, 16, 17 and 18 shall survive
termination or expiration of this Agreement.

Schedule 3 (Preferred Escrow Agreement) is deleted and replaced by:

         A. INFRASTRUCTURE SERVICES AVAILABILITY.

         Watley will provide the following level of availability for the market
         data feeds, connectivity and Watley technology infrastructure necessary
         to support delivery of market data to E*TRADE (the "WATLEY PLATFORM"):

         1. Watley Platform Availability. During Market Hours (as defined
         below), Watley will provide 99.0% average Watley Platform availability
         in any given month and 99.0% average Watley Platform availability in
         any given calendar quarter (not including Scheduled Watley Platform
         Maintenance). "Watley Platform availability" will not be affected by
         failures of E*TRADE developed applications or E*TRADE`s systems, or any
         other failures beyond the reasonable control of Watley. The Watley
         Platform is considered unavailable if a Severity 1 Problem or a
         Severity 2 Problem occurs.

         2. Definition of Market Hours. "Market Hours" shall mean 8:00 am to
         8:00 pm ET on days on which the NASD considers normal operating days.
         In the event that those hours of operation are expanded beyond normal
         "Market Hours," the parties shall meet in good faith to discuss whether
         to make any appropriate modifications.

         3. Notification of Scheduled Watley Platform Downtime. Watley will
         notify E*TRADE of scheduled platform changes a minimum of seventy-two
         (72) hours in advance.

         B. RESPONSE AND RESOLUTION TIMES.

         1. Definitions.

                                       8
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                                                                EXECUTION DRAFT

                           * A "Response" is an acknowledgement of a trouble
         ticket delivered by E*TRADE to Watley (a "Trouble Ticket") or a
         response initiated by Watley to E*TRADE in those cases where Watley
         discovers the problem without contact from E*TRADE. Watley will
         proactively escalate problems that are unresolved in accordance with
         the intervals of time listed in the escalation chart. To determine
         compliance with the Response intervals, a Response shall be deemed to
         be provided to E*TRADE when: (1) in response to a Trouble Ticket,
         E*TRADE has received a communication (phone or email or page) from
         Watley acknowledging the problem; or (2) Watley notifies E*TRADE
         through phone or email or page contact of such problem, if such problem
         was discovered by Watley or one of its other partners.
                           * "Resolution" is reached when one or more of the
         following actions have occurred: (1) corrective actions by Watley has
         resumed service; (2) further use of the application during the
         resolution period does not reproduce the problem (in this case, the
         problem is considered closed, but can be reopened should the same
         problem occur at a later date); (3) the suspected problem is determined
         by Watley, in its reasonable discretion and evidenced through records,
         to be known code restriction, caused by the applications or the
         facilities, equipment, and personnel of E*TRADE other than Watley, its
         agents, subcontractors or any third party service provider of Watley
         (in which case, it will no longer be classified as a problem); or (4)
         Watley and E*TRADE mutually agree that the problem is either resolved
         or not considered severe.

                         * A "problem" is a failure of the Infrastructure
         Services as described below.

                           * A "Severity 1 Problem" is a problem that causes a
         complete outage of the market data services provided by Watley. For
         example, E*TRADE is unable to retrieve market data at E*Trade`s site.
         This would be an indication of an outage. This example must occur
         multiple times and be reproducible by Watley employees
                           * A "Severity 2 Problem" is a problem that causes a
         significant failure or degradation in performance of market data
         services provided by Watley. Examples: (1) delivery of market data
         which is delayed more than one second (1 sec) or (2) Watley code
         modules fail to return the correct result. These examples must have
         occurred multiple times and be reproducible by Watley employees.
                           * A "Severity 3 Problem" is a problem that that
         causes a minor portion of an application to run in degraded mode or not
         work as expected but has only minimal impact upon the use of the
         application. This problem must have occurred multiple times and be
         reproducible by Watley employees.

         2. Response and Resolution Times.

                  Severity 1 Problem:
                           Response:        within fifteen (15) minutes
                           Resolution:      within four (4) hours

                  Severity 2 Problem:
                           Response:        within thirty (30) minutes
                           Resolution:      within twenty-four (24) hours

                  Severity 3 Problem:
                           Response:        within one (1) business day
                           Resolution:      within five (5) business days

         Although Watley is under no obligation to resolve non-reproducible
         errors, Watley will respond to any such error in the time-frame set
         forth above and will use commercially reasonable efforts in
         collaborating with E*TRADE to resolve such non-reproducible error.

          3. Escalation Procedures: If Watley does not respond to requests for
          service from E*TRADE within the time frames described above, E*TRADE
          may contact Watley escalation contacts below.

         Escalation Level           Severity 1       Severity 2      Severity 3
         Support Engineer           15 minutes       1 hour          24 hours
         Manager                    2 hours          4 hours         48 hours
         Vice President             8 hours          24 hours        96 hours

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                                                                EXECUTION DRAFT

         Severity 1 Update Frequency:     Every 30 minutes or as otherwise
                                          agreed to by the parties.

         Severity 2 Update Frequency:     Every hour during business hours or
                                          as otherwise agreed to by the parties.

         Severity 3 Update Frequency:     Every business day or as otherwise
                                          agreed to by the parties.

         4. Customer Assistance: E*TRADE employees or E*TRADE authorized
         independent contractors with sufficient knowledge of the problem must
         be available during the Resolution interval to explain and/or describe
         the problem if the Watley staff deems it necessary. Timely resolution
         of the problem may require E*TRADE to provide web access logs,
         application error logs etc.

                                            E*TRADE GROUP, INC.

                                            By:  ___________________

                                            Name:  _________________

                                            Date: __________________

                                            A.B. WATLEY GROUP INC.

                                            By:  ___________________

                                            Name:  _________________

                                            Date: __________________

                                       10

<PAGE>

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