April 1, 2004
Mr. John M. Schaible
Trading System Operated by NexTrade, Inc.
Dear Mr. Schaible:
This letter extends the temporary no-action position taken by the Division of Market Regulation ("Division") on January 6, 2003 until January 6, 2005. The January 6th letter confirmed that the Trading System Electronic Communications Network ("Trading System" or "System") operated by NexTrade, Inc. ("NexTrade") is an "electronic communications network" ("ECN") as defined in the amendments to the Quote Rule and the Limit Order Display Rule (cumulatively, "Order Execution Rules") and would be in compliance with the requirements applicable to the ECN Display Alternative set forth in the ECN Amendment with respect to Nasdaq securities for which a linkage between the Trading System and a self-regulatory organization ("SRO") is operational. In the January 6th letter, the Division took the position that it would not recommend the Commission take enforcement action against OTC market makers or exchange market makers who are participants in the Trading System, if those market makers enter orders into the Trading System without modifying their public quotations in compliance with the ECN Amendment.
The Division continues to condition its position on compliance with the terms expressed in the January 6th letter. These terms include, but are not limited to, compliance with the requirement that the Trading System respond to orders entered into the Trading System through access to the SRO no slower than the Trading System responds to orders entered directly into the System, and in any event in no more than a few seconds.
The Division further conditions its position upon your representation that the Trading System has sufficient capacity to handle the volume of trading reasonably anticipated in its System. Such capacity should be ensured through periodic review and testing to (1) ensure future capacity, (2) identify potential weaknesses, and (3) reduce the risks of system failures and threats to system integrity. The Division may request records from NexTrade regarding such reviews and tests.
The Division further conditions its position on NexTrade providing brokers access via either an SRO or the telephone for a charge of no more than the fee NexTrade charges a substantial proportion of its active broker-dealer subscribers, and in any event, no more than $0.009 per share, plus any fee charged to NexTrade by an SRO for trades and plus any applicable transaction fee payable pursuant to Section 31 of the Securities Exchange Act of 1934 ("Exchange Act"). In addition, the Division may request additional representations from you regarding the operation of the Trading System. Further, the Division will consider extending, modifying, or revoking its temporary no-action position prior to January 6, 2005, based on its continuing experience with NexTrade's compliance with the terms of this no-action letter and the operation of the ECN Display Alternative.
As noted above, this no-action letter is conditioned upon NexTrade's compliance with the representations made in the January 6th letter, and upon NexTrade's compliance with all applicable rules of the Commission and any applicable SRO. The Division also notes the letter dated June 2, 2000 to NexTrade from Annette Nazareth, Director of the Division, and Lori Richards, Director of the Commission's Office of Compliance Inspections and Examinations.
This no-action position regards enforcement action under Section 11A of the Exchange Act only, and does not express any legal conclusions regarding the applicability of Section 11A of the Exchange Act or other statutory or regulatory provisions of the federal securities laws. This no-action position is based solely on the representations you have made. Any different facts or conditions might require a different response. This no-action position is subject to changes in current law, regulation, and interpretations; any such change may require the Division to reevaluate and withdraw or modify this position.
Robert L.D. Colby