SEC Division of Corporation Finance no-action letter: Merrill Lynch and Co., Inc. (HO-10038)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF February 15,2011 CORPORATION FINANCE Mr. Bruce E. Coolidge Wilmer Cutler Pickering Hale and Dorr LLP 1875 Pennsylvania Avenue, NW Washington, DC 20006 Re: In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated (HO-10038) Merrill Lynch and Co., Inc. - Waiver Request oflneligible Issuer Status under Rule 405 of the Securities Act Dear Mr. Coolidge:
This is in response to your letter dated February 15,2011, written on behalf ofMerrill Lynch and Co., Inc. (ML&Co.) and its subsidiary Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill) and constituting an application for relief from ML&Co. being considered an "ineligible issuer" under Rule 405(1)(vi) of the Securities Act of 1933 (Securities Act). ML&Co. requests relief from being considered an "ineligible issuer" under Rule 405, due to the entry on January 25,2011, of a Commission Order (Order) pursuant to Sections 15(b) and 21C ofthe Securities Exchange Act of 1934 (Exchange Act), naming Merrill as a respondent. The Order, among other things, requires that Merrill cease and desist from committing or causing any violations of Sections 15(c)(1)(A), 15(b)(4)(E), 15(g) and 17(a) of the Exchange Act. Based on the facts and representations in your letter, and assuming ML&Co. and Merrill comply with the Order, the Commission, pursuant to delegated authority, has determined that ML&Co. has made a showing of good cause under Rule 405(2) and that ML&Co. will not be considered an ineligible issuer under Rule 405 ofthe Securities Act by reason of the entry of the Order. Accordingly, ML&Co.'s application for relief is hereby granted, and the effectiveness of such relief is as of the date of the entry of the Order. Any different facts from those represented or non-compliance with the Order might require us to reach a different conclusion. Sincerely, ?r.1~i~~/(,.,/" Chief, Office of Enforcement Liaison Division of Corporation Finance

WILMERHALE

Bruce Fa Coolidge
February 15, 2011 +1 202 663 6376(t)
+1 202663 6363(f) bruce.coolidgE@wilmerhalacom BY EMAIL AND FIRST CLASS MAIL . Mary J. Kosterlitz, Esq. Chief, Office of Enforcement Liaison Division of Corporation Finance U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

Re: In the Matter o/Merrill Lynch, Pierce, Fenner & Smith Incorporated (File No. HO-I0038) Dear Ms. Kosterlitz:
We submit this application on behalf of our client Merrill Lynch & Co., Inc. ("ML&Co.") in connection with the order of the Securities and Exchange Commission (the "Commission") in the above matter dated January 25,2011 (the "Order"). ML&Co. is a broker-dealer subsidiary of Bank of America Corporation ("BOA") and the parent of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill"). Pursuant to Rule 405 promulgated under the Securities Act of 1933 (the "Securities Act"), ML&Co. hereby requests that the Commission determine that for good cause shown it is not necessary under the circumstances that ML&Co. be considered an "ineligible issuer" under Rule 405. ML&Co. requests that this determination be effective as of the date of the entry of the Order. The Staff of the Division of Enforcement has informed ML&Co. that it does not object to the Commission providing the requested determination. BACKGROUND The Staffofthe Division ofEnforcement and Merrill engaged in settlement discussions in connection with the contemplated administrative proceeding arising out of the above-captioned investigation. As a result ofthese discussions, Merrill submitted an Offer of Settlement (the "Offer") that was accepted by the Commission and resulted in the entry ofthe Order. In the Order, the Commission made findings (1) that Merrill improperly charged mark-ups and mark-downs on certain riskless principal trades ofinstitutional and high net worth customers for which the firm had agreed to charge only a commission equivalent and (2) that Merrill's proprietary traders obtained information about institutional customer orders from traders on the market making desk and used it to place trades on Merrill's behalf. The Order found that as a result of its activities, Merrill violated Sections 15(c)(I)(A), 15(b)(4)(E), 15(g), and 17(a) of the Exchange Act. Based on these findings and significant voluntary remedial measures taken by Merrill, the Order censured Merrill, ordered it to cease and desist from committing or causing any violation of the regulations listed above, and ordered it to pay a civil money penalty of$10,000,000. On January 26,2011, the Commission (acting through Wilmer Cutler Pickering Hale and Dorr LLP, 1875 Pennsylvania Avenue NW; Washington, DC 20006 Beijing Berlin Boston Brussels Frankfurt London Los Angeles New York Oxford Palo Alto Waltham Washington

WILMERI-IALE

Mary J. Kosterlitz, Esq.
February 15, 2011 the Division of Corporation Finance as its delegate) determined that for good cause shown it was not necessary under the circumstances that BOA be considered an "ineligible issuer" under Rule 405. This request seeks a similar determination on behalf of BOA's subsidiary ML&Co. DISCUSSION In 2005, the Commission revised the registration, communications, and offering processes under the Securities Act. 11 As part of this offering reform, the Commission revised Securities Act Rule 405, creating a new category ofissuer, the "well-known seasoned issuer," and a new category of offering communication, the "free writing prospectus." A well-known seasoned issuer is eligible for important reforms that have changed the way corporate finance transactions for larger issuers are planned and structured. These reforms include the ability to "file-and-go" (i.e., eligibility for automatically effective shelf registration statements) and "pay-as-you-go" (i.e., the ability to pay filing fees as the issuer sells securities off the shelf). These reforms have removed the risk of regulatory delay in connection with capital formation. In addition, well-known seasoned issuers are provided with the most flexibility in terms of communications, including the ability to use free writing prospectuses in advance of filing a registration statement. The Commission also created another category ofissuer under Rule 405, the "ineligible issuer." An ineligible issuer is excluded from the category of "well-known seasoned issuer" and is ineligible to make communications by way of free writing prospectuses, except in limited circumstances?1 As a result, an ineligible issuer that would otherwise be a well-known seasoned issuer does not have access to file-and-go or pay-as-you-go, and cannot use most free writing prospectuses. Securities Act Rule 405 authorizes the Commission to determine, "upon a showing of good cause, that it is not necessary under the circumstances that the issuer be considered an ineligible issuer.,,31 The Commission has delegated the function of granting or denying such applications to the Director of the Division of Corporation Finance. 41 ML&Co. understands that the entry ofthe Order makes ML&Co. an ineligible issuer under Rule 405. Merrill is and has been since January 1, 2009 a wholly-owned subsidiary ofML&Co. (and, See Securities Offering Reform, Securities Act Release No. 8591, Exchange Act Release No. 52,056, Investment Company Act Release No. 26,993, 70 Fed. Reg. 44,722, 44,790 (Aug. 3, 2005). 2/ See Securities Act Rules 164(e), 405 & 433, 17 C.F.R. §§ 230.l64(e), 230.405 & 230.433. 3/ Securities Act Rule 405, 17 C.F.R. § 230.405. 4/ 17 C.F.R. § 200.30-1 (a)(10). 11

WILMERHALE

Mary J. Kosterlitz, Esq.
February 15,2011 through BOA's ownership ofML&Co. of BOA). Thus, Merrill is an "entity that at the time [it] was a subsidiary ofthe issuer" was "made the subject of [an] administrative... order. ..,,5/ IfML&Co. is not an ineligible issuer, it will continue to qualify as a well-known seasoned issuer, and, therefore, have access to file-and-go and other reforms available to well-known seasoned issuers, and will continue to be eligible to take advantage of all ofthe free writing prospectus reforms of Rules 164 and 433. ML&Co. respectfully requests that the Commission determine that it is not necessary for ML&Co. to be considered an ineligible issuer. Applying the ineligibility provisions to ML&Co. would be disproportionately and unduly severe because the conduct addressed in the Order does not pertain to activities undertaken by ML&Co. or its subsidiaries in connection with ML&Co.'s role as an issuer of securities (or any disclosure related thereto) or any of its filings with the Commission. In addition, the Division ofCorporation Finance already has determined that BOA should not be deemed an ineligible issuer as a result ofthe Order. In light ofthese considerations, we believe there is good cause to determine that ML&Co. should not be considered an ineligible issuer under Rule 405. We respectfully request the Commission to make that determination. Please contact me at the above listed telephone number if you should have any questions regarding this request. Sincerely, Bruce E. Coolidge cc: Christopher Chatfield, Bank of America, Legal Department 5/ Securities Act Rule 405, definition of "Ineligible Issuer", Sec. l(vi), 17 C.F.R. § 230.405.