U.S. Securities & Exchange Commission
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U.S. Securities and Exchange Commission

October 7, 2005

Mr. John M. Schaible
OnTrade, Inc.
301 S. Missouri Avenue, Second Floor
Clearwater, Florida 33756

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:

(i)  OnTrade is registered with the Commission as a broker-dealer;
(ii)  OnTrade has established and maintains a linkage with an SRO and provides broker-dealers access to certain orders. Specifically, OnTrade (a) transmits to an SRO for display in the SRO’s montage the best priced order in such securities of all orders entered by OTC market makers and exchange market makers for those securities in which they make markets (or act as specialists); and (b) provides, to any broker or dealer, access to such orders displayed in the SRO’s montage that is functionally equivalent to the access that would have been available had the market makers or specialists reflected their superior orders in their quote;
(iii)  OnTrade responds to orders in securities in which it publishes its best bid and offer and associated sizes in an SRO that are received from broker-dealers through the System as promptly as it expects to respond to orders received from subscribers to execute against orders displayed in the System and in any event not more than a few seconds. In addition, OnTrade has a trading desk to receive and execute orders received telephonically from broker-dealers against OnTrade orders displayed in the SRO’s montage. This desk is staffed by personnel that meet the applicable NASD standards for such activity. Finally, if not inconsistent with the rules of the SRO, OnTrade charges broker-dealers a rate no more than the fee OnTrade charges a substantial proportion of its active broker-dealer subscribers, and in any event, no more than $0.003 per share,2 plus any fee payable pursuant to Section 31 of the Act;
(iv)  The System has sufficient capacity to handle the volume of trading reasonably anticipated to be conducted in the System. In addition, OnTrade conducts periodic reviews and tests to (a) ensure future capacity, (b) identify potential weaknesses, and (c) reduce the risks of system failures and threats to system integrity; and
(v)  OnTrade has put in place and maintains procedures to ensure that only certain designated personnel have access to the System. Those designated personnel keep all trading information entered into the System confidential, and do not use such information for trading in OnTrade’s proprietary account, its customers’ accounts, or their own personal trading accounts. In addition, the operation of the System is kept separate from other business of 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
Deputy Director

1 17 CFR 242.600(b)(23). Regulation NMS became effective as of August 29, 2005. See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005).

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.



Modified: 10/17/2005