October 7, 2005
Mr. John M. Schaible
Re: Trading System Operated by OnTrade, Inc.
Dear Mr. Schaible:
This letter extends the temporary no-action position taken by the Division of Market Regulation (“Division”) on January 6, 2005 until July 6, 2006. In its letter to you taking the no-action position dated January 6, 2005 (“January Letter”), the Division confirmed that the NexTrade ECN (“NexTrade” or “System”), operated by OnTrade, Inc. (“OnTrade”), is an electronic communications network (“ECN”) as defined in Rule 600(b)(23) of Regulation NMS1 under the Securities Exchange Act of 1934 (“Act”) 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 System and a self-regulatory organization (“SRO”) is operational. Accordingly, the Division took the position in the January Letter that it would not recommend the Securities and Exchange Commission (“Commission”) take enforcement action against OTC market makers or exchange market makers who are participants in the System, if those market makers enter orders into the System without modifying their public quotations in compliance with the ECN Amendment.
In extending this no-action position, the Division relied on the following representations made by OnTrade:
In addition, the Division continues to condition its no-action position on compliance with the terms expressed in the January Letter. These terms include, but are not limited to, compliance with the requirement that NexTrade respond to orders entered into the System through access to the SRO no slower than the System responds to orders entered directly into the System, and in any event in no more than a few seconds.
The Division will consider extending, modifying, or revoking its temporary no-action position prior to July 6, 2006, based on its continuing experience with OnTrade’s compliance with the terms of this no-action letter and the operation of the ECN Display Alternative.
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
2 The Division notes that the Commission has promulgated in Regulation NMS final rules which limit fees that any trading center charges for accessing its protected quotations to no more than $0.003 per share. See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). Such rules became effective as of August 29, 2005 and are subject to delayed compliance dates to be implemented in two phases. See id. at 37576.