Citadel, which holds a 9.8% stake in E*Trade after pumping $2.5 billion into the struggling outfit in 2007, sent the brokerage a letter last month lambasting its board and financial performance.

Citadel called for a special shareholder meeting to look at hiring an investment bank to review "strategic alternatives", including a sale. It also demanded the declassification of E*Trade's board so that all members are elected annually and the ousting of directors Michael Parks and Donna Weaver.

E*Trade responded by setting up a special committee of the board, comprised entirely of independent directors, and bringing in Morgan Stanley for a review.

It also claimed that it decided to change its board structure in April but that the call to remove Parks and Weaver was "inappropriate, and contrary to Delaware law".

Citadel was unappeased, partly because Morgan Stanley had previously advised the brokerage and also because the special committee was due to report to the finance and risk oversight committee, which is overseen by Parks.

E*Trade has now ditched Morgan Stanley for Goldman Sachs and formed a new special committee, composed entirely of independent directors appointed within the last three years.

Citadel, welcomed the latest concessions, saying: "We trust this new process, involving all directors, will be more transparent and objective, and look forward to the Board and its advisor, Goldman, Sachs & Co, working quickly to fulfill this crucial mandate. In light of the steps announced today, we believe it is appropriate to suspend further shareholder action at this time, including our request for a special meeting of E*Trade's shareholders."