SEC Division of Corporation Finance no-action letter: KCG Holdings, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE
December 21, 2015
Giovanni P. Prezioso
Clearly Gottlieb Steen & Hamilton LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

Re: In the Matter of KCG Americas LLC (NY-08495) KCG Holdings, Inc. – Waiver Request of Ineligible Issuer Status under Rule 405 of the Securities Act Dear Mr. Prezioso:
This is in response to your letter dated December 7, 2015, written on behalf of KCG Holdings, Inc. (“Company”) and constituting an application for relief from the Company being considered an “ineligible issuer” under Clause (1)(vi) of the definition of ineligible issuer in Rule 405 of the Securities Act of 1933 (“Securities Act”). The Company requests relief from being considered an “ineligible issuer” under Rule 405, due to the entry on December 21, 2015, of a Commission Order (“Order”) pursuant to Section 8A of the Securities Act and Section 15(b) of the Securities Exchange Act of 1934 naming KCG Americas LLC (“KCG Americas”) as a respondent. The Order requires that, among other things, KCG Americas cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act.

Based on the facts and representations in your letter, and assuming that KCG Americas complies with the Order, the Commission, pursuant to delegated authority has determined that the Company has made a showing of good cause under Clause (2) of the definition of ineligible issuer in Rule 405 and that the Company will not be considered an ineligible issuer by reason of the entry of the Order. Accordingly, the relief described above from the Company being an ineligible issuer under Rule 405 of the Securities Act is hereby granted. Any different facts from those represented or failure to comply with the terms of the Order would require us to revisit our determination that good cause has been shown and could constitute grounds to revoke or further condition the waiver. The Commission reserves the right, in its sole discretion, to revoke or further condition the waiver under those circumstances. Sincerely, /s/ Elizabeth Murphy Associate Director Division of Corporation Finance

CLEARYGOTTLIEBSTEEN & HAMILTON LLP
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HONG KONG
BEIJING
BUENOSAIRES
SAO PAULO
ABU DHABI
SEOUL
MARKLEIDT
GEORGE &, CARY
MITCHELL 5, DUPLER
GIOVANNI P. PREZIOSO
MICHAELH. KRIMMINGER
MATTHEW D. SLATER
MICHAELA. MAZZUCHI
ROBERT W. COOK
MARKW. NELSON
ROBIN M. BERGEN
DEREK M. BUSH
BRIAN BYRNE
PAUL D. MARQUARDT
JEREMY CALSYN
LEAH BRANNON
KATHERINE MOONEY CARRQLL
PAUL R. ET. LAWRENCE
RESIDENT PARTNERS
KENNETH L. RACHMAN. JR.
DANIEL B. SILVER
RICHARD DEC, HINDS
SARAD. SCHOTLAND
WILLIAMB. MCGURN III
JOHNS. MAGNEY
JANET L. WELLER
LINDAJ. BOLDO
SENIORCOUNSEL
W. RICHARD BIDSTRUP
STEVEN J. KAISER
JOYCE E. MCCARTY
COUNSEL
KARENA. KERR
JOHN P. MCGILL. JR.
THOMAS L. HALL
LARRY WORK-DEMBOWSKI
MEGHAN A. IRMLER
SENIORATTORNEYS
KELLYERIN BAHLKE'
NOWELL BAMBERGER
ELSBETHBENNETT
GRANT A. BERMANN'
KEVIN BIRNEY'
JACOBBOYARS
NATHAN Ѕ. BROWNBACK•
STEVEN W. CHURCH'
Ell-IAN CRAIG
SARAHCRANDALL
DANIELCULLEY -
REGINALD CUTLER JR.'
LISAM. DANZIG
RYAN M. DAVIS
JOANNA MARIAEL KHOURY•
TABITHA EDGENS'
ELAINE EWING
BRANDON J. FIGG'
ERIN FRAKE
PATRICK FULLER
JOSHUAB, GARDNER'
MICHAEL D. GENDALL`
MELISSA L. GOHLKE
JEFFREY AARONHALL
CARRIE ELIZABETH HANSON
EILEEN HO'
JAMES HUNSBERGER
PHILLIPL. HUвfiТ'
BRADLEYJUSTUS
ANNAKARASS
THOMAS KELLY
ANDREW L. KLINE
ZUZANNA KNYPINSKI
ALBERTLAI
ALEXIS R.B. LAZDA•
JOANNA R. LAMPE
CHINYELUK. LEE
MEREDITH LEIGH MANN
BENJAMINA. LEVIN
KATHERINE LEVINE
MACEY LEVINGTON
JENNIFER X. LUO
CARLL. MALM
FARRELL MALONE
MATTHEW A. MCGUIRE
ROBERTA. MCNAMEE
BENJAMINMEEKS
DAN MIFFLIN
KARI E. MILLIGAN
MORGAN L. MULVENON
CHRISTINEMUNDIA
TANYA TAUBMAN O'NEIL
SAMUEL PARK'
JENNIFER E. PAUL
DANIEL PEREZ -
.AMBERV. PHILLIPS'
KENNETH S. R"NKER
HAKEEM RIZK
GREGORY T.W. ROSENBERG
AARON B. ROSS
MICHAELRUTHENBERG-MARSHALL
ANDRES SAENZ•
ALYSEA C. SCRUGGS
OMARSERAGELDIN
SAIF SHAH MOHAMMED
ZACK SMITH'
LAUREN E. SNYDER
CAROLINE STANTON
C. NICHOLAS STEER' _
CHARLESSTERLING
RYANBUGG'
TARA LYNN TAVERNIA
TEALE TOWEILL
ASHLEY WALKER
ERIK WITTMAN
ASSOCIATES

• ADMITTED ONLY TO A BAR OTHER THEN THAT OF THE DISTRICT OF COLUMBIA.
  WORKING UNDER THE SUPERVISION OF PRINCIPALS OF THE WASHINGTON OFFICE.
  Writer'sDirectDial: +1(202)974-1650
  Email: gprezioso@cgsh.com
  BY EMAILANDOVERNIGHT COURIER
  Division of Corporation Finance
  United States SecuritiesandExchange Commission 100 FStreet, NE Washington,DC20549 Re: IntheMatterof KCG Americas LLC Dear Ms. Choi:
  We submit thisletteron behalf of our client, KCG Holdings, Inc. ("KCG"),in connection with the settlement of the above-captionedmatterinvolving its wholly owned broker￾dealer subsidiary, KCG Americas LLC ("KCG Americas"), pursuanttothe settlement orderto be entered into by the U.S. SecuritiesandExchange Commission (the "Commission")inan administrative proceeding against KCG Americas (the "Order"). PursuanttoRule405("Rule,405")under the Securities Act of 1933 (the "Securities Act"), KCG respectfully requests that the Commission determine that,forgood cause shown, itisnotnecessaryforKCGtobe considered an "ineligible issuer" under Rule405.KCG requests that this determination bemadeeffective immediately upon the entry of the Order.
  I. BACKGROUND
  The Commissionisinitiatingasettled administrativeandcease-and-desist proceeding against KCG Americas under Section8Aof the Securities ActandSections15(b)

and 21 Cof the Securities Exchange Act of 1934(the "Exchange Act").Asdescribedinthe Order, the Commission finds that KCG Americas fadedtoseektoobtain best execution of certain customer ordersand,as aresult of such failures, KCG Americas' representationstoits customers that their orders were being handled consistent with best execution requirements were inaccurate. Specifically,asdescribedinthe Order, the Commission finds that, fromatleast2010 until July1, 2013,KCG Americas' systems failedtoprotect certain customer ordersinsituations where KCG Americas simultaneouslyheldapending customer orderandan order received through the electronic messagingserviceoffered by OTCLinkLLC ("OTCLink") andfilled the customer orderfirst. Without admitting or denying thematters setforthinthe Order, exceptas .tothe jurisdiction of the Commissionandthe subjectmatterof the proceedings, KCG Americasis consentingtoentry of the Order finding that it violated Sectиons17(a)(2) and17(а)(3)of the Securities Act. Pursuanttothe Order, the Commission will require KCG Americastoceaseand desist from committing or causing any future violations of Sectиonsi7(а)(2)andi7(а)(3)of the Securities Act; censure KCG Americas;andrequire KCG Americastopay disgorgement of $685,900,including prejudgment interest of $69,297.38, anda civilmoney penalty of $300,000.
II. DISCUSSION
KCG has registered its securities pursuanttoSectиon12(b)of the Exchange Act andfilesthe required periodic disclosure repprts.Asindicatedinitsmost recentAnnual Report on Form10-Kfiled on March2, 2015,KCG currentlyis awell-known seasoned issuer ("WKSI"). PursuanttoRule405,aWKSIis acategory of issuer thatiseligibleforthe securities offering reforms adopted by the Commissionin 2005,1 including the abilityto,among other things,registersecurities under an automatic shelf registrationstatement,asdefinedinRule405, andtouse free-writing prospectusesinregistered offerings pursuanttoRules164 and 433 of the Securities Act, Rule405provides that an "ineligible issuer" cannot be treatedas aWКSI.An ineligible issuer includes any issuer who, within the past three years, was — orhadasubsidiary that was -"madethe subject of any ... administrative decree or order arisingoutof a governmental action that: (A)[p]rohibits certain conduct or activities regarding, including future violations of, the anti-fraud provisions of thefederalsecurities laws;(B)[r]equires that the personceaseanddesist from violating the anti-fraud provisions of thefederalsecurities laws; or (C)[djetermines that thepersonviolated the anti-fraud provisions of thefederalsecurities laws." However, Rule405authorizes the Commissiontodetermine, "uponashowing of good cause, that itisnotnecessary under the circumstances that the issuer be considered an ineligible issuer."3 1 See securities OfferingReform,Securities ActReleaseNo. 8591,Exchange ActReleaseNo. 52,056, Investment Company ActReleaseNo. 26,993, 70Fed. Reg.44,722, 44,790(Aug.3, 2005). 2 Rule405, 17 C.F.R. § 230.405. 3 Rule405, 17 C.F.R. § 230.405.

PursuanttoRule405,unless the Commission grantsawaiver of ineligible issuer status,KCG will lose itsstatusas aWKSI upon entry of the Orderandforthe three-year period after entry of the Order.Asan ineligible issuer, KCO would be unabletoestablishaWKSI shelf andbenefit from the other provisions of the2005reforms. Thereisgood causeforthe Commissiontograntawaiver of ineligible issuerstatustoKCG because the conductatissuein the Orderdoesnot"relate[ ] tothe reliability of the issuer's currentandfuture disclosures." See Division of Corporation Finance, "RevisedStatementon Well-Known Seasoned Issuer Waivers,"April 24, 2014(the "PolicyStatement").Infact, the conduct didnotinvolve KCG, the issuer,at all— only the conduct of its broker-dealer subsidiary —and inany event, remedial measureshavebeen implementedtoprevent the conductinthe future. Iп. REASONSFORGRANTINGAWAIVER Based on the frameworksetforthinthe PolicyStatement,KCG respectfully submits that,forthe reasons detailed below, the loss of KCG's ineligible issuerstatusisnot necessaryforthe protection of investorsandgranting its waiver requestisinthepublicinterest:
A. Natureof the Violation
The violationatissueinthe Orderdoesnotinvolve any activities undertaken by KCGinits roleasan issuer of securities or any of its filings with or disclosurestothe Commission. Rather, the conduct involves the activity of KCG Americasinits roleas abroker￾dealer. Such conduct hasnoimpact on the reliability of KCG's future disclosuresand, accordingly, shouldnotresultinthe loss of-KCG'sstatusas aWKSI. The PolicyStatementexplains that the determination of whethertograntawaiver will entail consideration of "thenatureof the violation or convictionandwhether it involved disclosureforwhich the issuer or any of its subsidiaries was responsible or calls into question the ability of the issuertoproduce reliable disclosure currentlyand inthe future." Further, it will includeareview of "whether the conduct involvedacriminal conviction orascienter based violation." The issuer's burdentoshowgood causefor awaiverissignificantly greater "[w]here thereis acriminal conviction orascienter based violation involving disclosureforwhich the issuer or any of its subsidiaries was responsible." Inthismatter,although the Order findsawillful violation of Sections17(а)(2)and 17(а)(3)of the Securities Act4by therespondent,KCG Americas, itdoesnotfind that KCG Americas acted with scienter, i.e., the "intenttodeceive, manipulate, or defraud."5Moreover, the issuer, KCG, didnotengageinany misconductandisnotapartytothe settlement. a Asnotedinthe Order,awillful violation of the securities laws means merely "`that thepersoncharged with the duty knows what heisdoing." Wonsoverv. SEC, 205F.3d408, 414(D.C. Cir.2000)(quoting Hughesv. SEC, 174F.2d969, 977(D.C. Cir.1949)). s SeeErnst&Ernstv. Hochfelder, 425U.S. 185, 194 f.2 (1976).

B. ResponsibilityforandDuration of the Misconduct Asdescribedinthe Order, the violationatissue involved an operating subsidiary, KCG Americas,inrelationtothe failuretoachieve best execution of acategory of client orders inthe subsidiary's broker-dealerbusiness.The conductatissueinthe Order, which took place fromatleast2010until July2013,didnotcall into question the reliability of KCG's disclosures asan issuer of securities. Noemployeesof KCG or KCG Americasareidentifiedasrespondentsinthis matter. Moreover, the conduct occurredprior tothe creation of KCGas aresult of amerger between KCG's predecessor — Knight Capital Group, Inc. ("Knight Capital") —andGETCO HoldingCompany, LLC ("GETCO")inJuly2013.Since the merger was implemented, GETCO'smanagementhas taken control of the merged entity.Inconnection with the merger, KCG appointedanew Chief Executive Officer;GeneralCounselandChief LegalOfficer;and Chief Operating OfficerandChief Risk Officer, among others. The new Chief Operating Officer andChief Risk Officer was appointedtoalsoserve asthe head of KCG Americas. The Knight Capital executives formerlyinthese roles, who wouldhavepreviously been involvedinthe company's disclosuresasan issuer of securities, werenotinvolvedinany of the conductatissue inthe Order. KCG's currentsenior managementwasnotpresent atthetimethe conduct occurred.
C. RemedialStepsTaken by the Issuer
Asdescribed above, the conductatissueinthe Order didnotinvolve, orhavean impact on, the reliability of KCG's disclosures. Further, the company cooperated fully with the Commission's investigation. Once the issue was discovered, KCG Americas promptlyand voluntarily implemented remedial measurestoprevent the conduct from occurringinthe future, including by(1)analyzing the issueandarchitecting logicforan automated report that would identify ordersinwhich customers' fills with respecttosecurities quoted on OTCLinkarenot at or better than prices available through OTCLink; (2)running the automated report against historicaldata toascertain the scope of the issue;(3)implementing new automated daily notifications of potential best execution exceptions, effectiveasof July2013,tofacilitate supervisoryproceduresaimedatdetecting such occurrences;and (4)requiring customerstobe notified of any such occurrencesandbe given the opportunitytoeither obtain cash compensation forthe price difference or adjust the trade. Additionally, after learning of the conductatissueinthe Order, the Desk Supervisorinstructed therelevantpersonnel about their best execution obligationsinthis context.Morespecifically,in November 2012,the Head of Cash TradingforKCG Americas met with the firm's Chief Compliance OfficerforCash Tradingtoreview the systemsinplaceto protect customer ordersinsituations where bothacustomer orderandan OTCLinkmessage were simultaneouslyinhand but the customer order was executedfirst.Ator about thattime, the Head of Cash Trading also discussed the issue with the firm's OTC tradersandinformed them that,incircumstances where they were aware that they simultaneouslyheldacustomer orderandreceived an OTCLinkmessage, they were requiredtoprotect the customer order. Further,ator about thetimeKCG Americas implemented its automated surveillance report, the

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subject was discussed again by the Head of Cash Trading with the Firm's OTC Traders, includingtoinform traders that the firmhadimplemented the automated reportandthat the supportdesk would be providing noticeandopportunityforcompensation or trade adjustments asdescribed above. D. Impact on the Issuer KCG believes that the consequences of the loss of itsstatusasan ineligible issuer would be disproportionately severe relativetothe conduct describedinthe Order — which,as noted above, involvedanon-scienter-based violation of the securities laws byanon-issuer subsidiary that hasnoimpact on the reliability of KCG's future disclosures. The loss of KCG's statusas aWKSI could make future attempts by KCGtoraise debt or equity capitalmorecostly andtimeconsuming.6 Since the2013 merger, KCG has focused sіgnіficant efforts on the integrationand operation of Knight CapitalandGETCO, During thattime,it has met its capital needs primarily through the incurrence of debt, bothinthe form of unregisterednoteissuancesandcredit facilities.Asitmovesforward,KCG anticipates that the issuance of securities through the publicoffering process will constituteasignificantfeatureof its capital-raisingandfinancing activities. The abilitytoquicklyandefficiently raise capital throughpublicofferings will provide KCG with the flexibilitytopursue acquisitionsandinvestmentsinthe futureandwill allow itsmanagementto executeon its strategic goals without constraints on liquidity. Future publicequity offerings by KCG or certainlargeshareholders with registration rights will also increase KCG's"publicfloat"andthus diversify its shareholderbase. Additionally, KCGisobligated, subjecttothe terms of aRegistration Rights Agreement with certainlargeshareholders,to file ashelf registrationstatementon FormS-3 in July2016,upon expiration of the initial shelf registrationstatementcurrently stillineffect. Loss of WKSIstatusthus also potentially imposesaheightened burden on KCGin meetingits obligations under the Registration Rights Agreement. Moreover,asan ineligible issuer, KCG Holdings would be disadvantaged by losing the abilitytoestablishaWKSI shelf andto(1)filenew automatically effective shelf registrationstatementorpost-effective amendments pursuantto aWKSI shelf registration;(2) omit certain information from the prospectus;and (3)utilize the pay-as-you-go feesforofferings from the WKSI Shelf (asan ineligible issuer, KCG would be requiredtopayall relevantfeesat thetimeof registration). KCG also would lose its abilitytouse free writing prospectuses —atool that allows issuerstoconvey informationtoinvestorsinauser-friendly format.

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6 Wenotethat,asаresult of arecentmodified Dutch auctiontenderoffer,KCG specifically identified potential loss of WKSIstatusas a"RiskFactor" inits twomost recent 10-Qfilings, consistent with the concerns identifiedinthisletter.

iovanniP. Prezioso
BunØChoi,Esq.
Asdescribed above, granting KCG's waiver request would be consistent with the publicinterestandthe protection of investors, particularly since the conductatissueinthe Order involvedanon-scienter based violation of the securities law relatedtothe activities of anon￾issuer subsidiary of KCGandisunrelatedtothe reliability of KCG's current or future disclosures. KCG thus respectfully requests that the Commission grant its requestforwaiver of ineligible issuerstatus. If youhaveany questions or require any additional information, pleasedonot hesitatetocontactmeat (202) 974-1650or by emailatgprezioso@cgsh.com. sincerely yours,