SEC Division of Trading and Markets no-action letter: Bloomberg Tradebook LLC

November 17, 2005

Mr. John M. Byrne Bloomberg Tradebook LLC 731 Lexington Avenue New York, NY 10022

Re: The Tradebook System

Dear Mr. Byrne:

This letter extends the temporary no-action position taken by the Division of Market Regulation ("Division") on January 6, 2005 ("January Letter") until June 28, 2006. In the January Letter, the Division took the view that Bloomberg Tradebook LLC ("Tradebook" or "System") is an electronic communications network ("ECN"), as defined in Rule 600(b)(23) of Regulation NMS 1 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 and exchange-listed securities for which a linkage between Tradebook and a self-regulatory organization ("SRO") is operational. Accordingly, the Division took the position in the January Letter that it would not recommend that the Securities and Exchange Commission ("Commission") take enforcement action against market makers or exchange specialists who are participants in the System, if those participants enter orders into the System without modifying their public quotations, in compliance with the ECN Display Alternative.

In extending this no-action position, the Division relied on the following representations made by Tradebook:

Tradebook is registered with the Commission as a broker-dealer;

Tradebook's method of operation with respect to Nasdaq and exchange-listed securities for which a linkage between Tradebook and an SRO is operational is in compliance with paragraph (b)(5)(ii) of the Quote Rule (the "ECN Display Alternative"); 2

With respect to Tradebook's current linkage with Nasdaq, Tradebook (a) transmits to Nasdaq for display in Nasdaq's montage the best-priced orders entered by over-the-counter ("OTC") market makers and exchange market makers for those securities in which they make markets (or act as specialist); and (b) provides to any registered broker-dealers access to such orders displayed in Nasdaq'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 published quotations;

With respect to any other linkage Tradebook establishes with an SRO (in addition to its current linkage with Nasdaq), Tradebook will (a) transmit to an SRO for display in the SRO's montage the best-priced orders 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 specialist); and (b) provide to any broker-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 published quotations;

Tradebook responds to orders in securities in which it publishes its best bid and offer and associated sizes in Nasdaq's montage that are entered into the System by broker-dealers through access to Nasdaq's montage as promptly as it responds to orders entered directly to the System by subscribers and in any event in not more than a few seconds. In addition, Tradebook provides to registered broker-dealers the ability, subject to security procedures to verify the identity and authority of the caller, to execute trades by telephone against Tradebook's quotations displayed in Nasdaq's montage. The telephone desk is staffed by appropriately registered personnel;

Tradebook intends to respond to orders in securities in which it publishes its best bid and offer and associated sizes in an SRO to which it has established a linkage (in addition to its current linkage with Nasdaq) 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 in not more than a few seconds. In addition, with respect to an SRO to which Tradebook has established a linkage (in addition to its current linkage with Nasdaq), Tradebook also will provide to registered broker-dealers the ability, subject to security procedures to verify the identity and authority of the caller, to execute trades by telephone against Tradebook's quotations displayed in the SRO's montage. The telephone desk will be staffed by appropriately registered personnel;

With respect to the NASD's Alternative Display Facility ("ADF"), Tradebook allows broker-dealers the ability to effect transactions with orders in the System displayed in the ADF in accordance with NASD rules;

In connection with its highest priced published buy orders and lowest priced sell orders, Tradebook charges broker-dealers a rate no more than the fee Tradebook charges a substantial proportion of its active broker-dealer subscribers, and in any event, will not charge more than $0.009 per share, 3 plus any fee charged to Tradebook by an SRO for such trades;

The Tradebook System has sufficient capacity to handle the volume of trading reasonably anticipated to be conducted in the System. In addition, Tradebook will conduct periodic review and testing to: (a) ensure future capacity; (b) identify potential weaknesses; and (c) reduce the risks of system failures and threats to system integrity;

Information entered into the system will be kept confidential by employees of Tradebook or B-Trade Services LLC having access to it. Operation of the System will be kept separate from other businesses of Bloomberg L.P.; and

Tradebook will comply with all rules of each SRO regarding use of the SRO's facilities and obligations imposed by the SRO to provide access to orders entered into the SRO's facilities.

The Division conditions its position on the continuing accuracy of these representations and compliance by Tradebook with all applicable Commission and SRO rules, including any additional requirements applicable to ECNs. Any different facts or conditions - including but not limited to modifications or revisions to, or expansion of service provided by, Tradebook - may require a different response. The Division may request additional representations from you regarding the operation of Tradebook. 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. This no-action position concerns enforcement action under Section 11A of the Act only, and does not express any legal conclusions regarding the applicability of Section 11A or other statutory or regulatory provisions of the federal securities laws.

Compliance with the ECN Display Alternative depends in many respects on the practical effect of the operational conditions established by Tradebook and the manner of operation of the linkage between Tradebook and the SRO or ADF. Therefore, the Division is limiting the effectiveness of this no-action position until June 28, 2006.

Sincerely,

Michael J. Gaw Assistant Director

Endnotes

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 17 CFR 242.602(b)(5)(ii).

3 The Division notes that Rule 610(c) of Regulation NMS, 17 CFR 242.610(c), generally limits the fee that a trading center may charge for accessing a protected quotation to no more than $0.003 per share. Rule 610(c) became effective as of August 29, 2005, and is subject to delayed compliance to be implemented in two phases. See Securities Exchange Act Release 51808 (June 9, 2005), 70 FR 37496, 37576 (June 29, 2005).

Incoming Letter:

The Incoming Letter is in Acrobat format.

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11/08/2005 TUE 18:10 FAX

Member NASWSlPC
Via e-mall: colbyr@sec.~ov
Robert L.D. Colby, Esq.
Acting Director
Division of Market Regulation
U.S. Securities and Exchange Commission
Station Place
100F Street, NE
Washington, DC 20549-9303
Re: The Tradebook System
Dear Mr. Colby:
On behalf of Bloomberg E.P.,a Delaware limited partnership (L'BLP"), and its affiliate, Bloombetg Tradebook LLC, a Delaware limited liability company ("Tradebook"), we respectfully request that the Division of Market Regulation (the "Division") extend its current no-action position regarding Tradebook activities. Tradebook is registered with the Securities and Exchange Commission (the 'Tomission") as a broker-dealer and opemtes a computerized, proprietary trading system (the Tradebook System"). The Division has already taken a no-action position with respect to Tradebook and the Tradebook System, most recently extended on January 6,2005. Thisrequest supersedes Tradebook's request dated October 13,2005. Tradebook respccthlly requests that the Division advise Tradebook that:

1. The Tradebook System is an electronic communications network
   (an "EW) within the meaning of paragraph (b)(23) of Rule 600 for purposes of Rule 602 (the "Quote Rule") under the Securities Exchange Act of 1934;
2. The Badebook System's method of operation with respect to
   Nasdaq and exchange-listed securities for vvhich a linkage between the Tradebook System and an SRO is operational, as disclosted to the Division in our letter of January 12,2004, is incompliance with paragraph (b)(li)(ii) of the Quote Rule (the "ECN Display Alternative"); and

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Securities and Exchange Commission
3. The Division will not recommend that the Commission take
enforcement action under the Quote Rule against any exchange market maker (as that term is defined in paragraph (b)(24) of Rule 600) or OTC market maker (as that term is defined in paragraph (b)(52) of Rule 600) and .will not recommend that the Commission take enforcement action under Rule 604 (the "Limit Order Display Rule") against any specialist or member of an exchange anthorize:d by that exchange to perform fundions substantially similar to those of a specialist ("Exchange-Authorized Member") or OTC market maker, as those terms are used in paragraph (a) of the Limit Order Display Rule, if such exchange market maker, specialist, Exchange-Authorized Member or OTC market maker transmits orders to the Tradebook Syst~m in reliance on the assumption that the Tradebook System is in compliance with the ECN Display Alternative and paragraph (b)(5) of the Limit Order Display Rule with respect to such orders and if such exchange market maker, specialist, Exchange-Authorized Memba or OTC market maker omits to take any other adon that would otherwise be required if the Tradebook System were not so in compliance with such provisions, Desniation of the Tradebook Svstem The Tradebook System provides broker-dealers and institutional clients with execution, clearance and settlement of trades in certain equity securities via BLP's worldwide, proprietary, electronic network. Thc broker-dealer participants currently include over-the-counter market makers and other broker-dealers and may in future include exchange specialists and other registerled broker-dealers. &dm displayed over the Tradebook System are available for exe~uti~on in whole or, where permitted under the terms of the order, in pa?. Participants can access the Tradebook System either though the Bloomberg PROFESSIONAL Service or through a computer-to-computer connection. Within the Tradebook System, orders entered by participants are disseminated to all other participants. There is not any provision for certain specialist or market-maker priced orders to be entered but not included in the quotation furnished by the Tradebook System, In connection with the Tradebook System, Tradebook has registered as a broker-dealer with the Commission and is a member of the NASD and acts as introducing broker in arranging transactions in over-the-counter and listed U.S.equity securities on the Tradebook System. Reouest for No-Action Relief In connection with its request for no-action relief, Tradebook makes the following representations with respect to any Nasdaq and exchange-listed securities in which it seeks to operate as an ECN and satisfy the requirements of the ECN Display Alternative pursuant to the rules of an SRO:

1. The Tradebook System ie an ECN within the meaning of paragraph
   (b)(23) of Rule 600 for purposes of the Quote Rule;

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Securities and Exchange Commission , .,
2. The Tradebook System's method of operation with respect to
Nasdaq and exchange-listed securities for which a linkage between the Tradebook System and an SROis operational, as disclosed to the Division, is in compliance with the ECN Display Alternative;
3. With respect to Tradebook's current linkage with Nasdaq,
Tradebook provides broker-dealers access to certain orders. Specifically, Tradebook (i) transmits to Nasdaq for display in Nasdaq's montage the best-priced orders entered by OTC market makers and exchange market makers for those securities in which they make markets (or act as specialist); and (ii) provides to any rezjstered broker-dealers access to such orders displayed in Nasdaq's montage that is functionally equivalent to the access that would have been available bad the market makers or specialists reflected their superior orders in their published quotations;
5. With respect to any othlx linkage Tradebook establishes with an
SRO (in addition to its current linkage with Nasdaq), Tradebook will provide broker-dealers access to certain orders. Specifically, Tradebook will (i) transmit to an SRO for display in the SRO's montagc the b~est-priced orders in such secutities of all orders entered by OTC market makers and ex~hange market makers for those securities in which they make markets (or act as specialist); and (ii) provide to any broker-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 published quotations;
6. Tradebook responds to orders in securities in which it publishes its
best bid and offer and associated sizes in Nasdaq's montage that are entered into the Tradebook System by broker-dealers through access to Nasdaq's montage as promptly as it responds to orders entered directly to the Tradebook System by subscribem and in any event in not more than a few seconds. In addition, Tradebook provides to registered broker-dealers the ability, subject to security procedures to verify the identity and authority of the caller, to execute trades by telephone against Tradebook's quotations displayed in Nasdaq's montage, The telephone desk is staffed by appropriately registered personnel;
7. Tradebook responds to orders in securities in which it publishes its
best bid and offer and associated sizes in an SR.0 to which it has established a linkage (in addition to its current linkage with Nasdaq) that arc received from broker-dealers through the Tradebook System as promptly as it responds to orders received from subscribers to execute against orders displayed in the Tradebook System and in any event in not more than a few seconds. In addition, with resptcd to an SRO to which Tradebook has established a linkage (in addition to its current linkage with Nasdaq), Tradebook will provide to registered broker-dealers the abilicr, subjoct to security procedures to verify the identity and authority of the caller, to execute trades by telephone against Tradebook's quotations displayed in the SROl's montage, The telephone desk will be staffed by appropriately registeted personnel;

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Securities and Exchange Commission
8. With respect to the ACIF, Tradebook allows broker-dealers the
ability to effect transactions with orders in the Tradebook System displayed in the ADF in accordance with NASD mles;
9. In connection with its highest priced published buy orders and
lowest priced sell orders, Tradebook charges broker-dealers a rate no more than the fee Tradebook charges a substantial proportion of its active brokw-dealer subscribers, and in any event, will not charge more than $0.009per share, plus any fee charged to Tradebook by an SRO for such trades. In connection wilh its highest ~riced published buy orders and lowest priced sell orders, Tradebook will comply in all material respects with those parts of Reg NMS as they become effective that affect the maximum transaction fee Tradebook may charge;
10. The Tradebook System has sufficient capacity to handle the
volume of trading reasonably anticipated to be conducted in the Tradebook System. In addition, Tradebook will conduct periodic review and testing to: (i) ensure hture capacity; (ii) identify potential weaknesses; and (iii) reduce the risks of system failures and threats to system integrity;
11. Infomation entered into the system will be kept coddmtid by
employees of Tradebook or B-Trade Services LLC having access to it. Operation of the System will be kept separate from other businesses of BLP; and
12. Tradebook will comply vvith all rules of each SROregarding use of
the SRO's facilities and obligations imposed by the SRO to provide access to orders entered into the SRO's facilities. Conclusion On the basis of the foregoing, we respectfully request that the Division advise Tradebook that the Division will not recommend that the Commission take enforcement action under the Quote Rule against any exchange market maker or OTC market maker and will not recommend that the Commission take enforcement action under the Limit Order Display Rule against any specialist, ExchangeAuthorized Member or OTC market maker if such exchange market maker, specialist, Exchange-Authorized Member or OTC market maker &ansmits ordms to the Tradebook System in reliance on the assumption that the Tradebook System is in compliance with the ECN Display Alternative and paragraph @)(5) of the Limit Order Display Rule with respect to such orders and if such exchange market maker, specialist, Exchange-Authorized Member or OTC market maker omits to take any other action that would otherwise be required if the Tradebook System were not so in compliance with such provisions.

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Securities and Exchange Cominission
If you have any questions or seek any additional information regarding this request, 'please contact either me at (212) 61 7-3917 or Joseph Zang-i at (212) 617-4345, very truly yours, 6b