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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
TRADING AND MARKETS
December 3 1,2007
Larry E. Bergmann, Esq.
Willkie Farr & Gallagher LLP
1875K Street, NW
Washington, DC 20006-1238
Susan Ameel, Esq.
Cadwalader, Wickersham & Tafi LLP
One World Financial Center
New York, NY 1028 1
Dear Mr. Bergmann and Ms. Ameel:
Based on the facts and representations set forth in your letter dated December 3 1,2007,' we find that it is appropriate in the public interest and consistent with the protection of investors to grant, and hereby grant, to Bloomberg Tradebook LLC ("Tradebook") and Calyon Securities (USA) Inc. (or another registered broker-dealer that performs the roles currently performed by CSI, as described in your letter, if all the other facts therein remain the same)("CSI", and together with Tradebook, the "Brokers") an exemption pursuant to Rule lob-10(f) under the Securities Exchange Act of 1934 ("Exchange Act") from the requirements in: (1) paragraph (a)(2)(i)(A) of Rule lob-10 to disclose to customers of the Brokers the name of the person from whom a security was purchased, or to whom it was sold, or the fact that such information will be provided upon the customer's written request; and (2) paragraph (a)(2)(i)(D) of Rule lob-10 to disclose the source and amount of other remuneration received or to be received by the Brokers in connection with the transaction, for transactions in U.S. equity securities effected on Tradebook's electronic trading system (the "Tradebook System") on behalf of customers by the ~rokers.~ This exemptive position is subject to modification or revocation if at any time the Commission or the staff of the Division of Trading and Markets determines that such action is necessary or appropriate in fbrtherance of the purposes of the Exchange Act. In addition, this exemption from Rule lob-1 0 is based solely upon the representations you have made and is ' We note your representation in footnote 4 of your letter that the current operation of the Tradebook System is consistent with the description in the letter from Roger D. Blanc, Esq. to Dr. Richard Lindsey, Director, Division of Market Regulation, Securities and Exchange Commission (Dec. 3, 1996), except as specifically set forth in your letter. YOU have not asked for, and we are not granting relief with respect to transactions in non-U.S. equity securities.

Larry Bergrnann, Esq.
Susan Arneel, Esq.
December 31,2007 limited strictly to the facts and conditions described in your incoming letter. Any different facts or circumstances, including any change to the operation of the Tradebook System, other than another registered broker-dealer performing the role currently performed by CSI, as described above, may require a different response. Finally, we express no view with respect to other questions the proposed activities of the Tradebook System may raise, including the applicability of any other federal or state laws or the applicability of self-regulatory organization rules concerning customer account statements or confirmations. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority,3 Brian A. Bussey Assistant Chief Counsel

-8' Scvcrlti> ,\vciluc Cadwalador, Wlc6crsharn & Tart LLP NLWYork, SY 10019-6079 New York Londol Charlotte 'flash~ngtonBe~jiry I cl: 717'-78 8000 I::I~. 2127388111 One World Financ~alCenter, New York. NY 10281 Tel 212 504 6000 Fw 212 504 6666 www cadwalador cam December 3 1,2007 Associate Director and Chief Counsel Division of Trading and Markets U.S. Securities and Exchange Commission 100 f: Street, N.E. Washington, DC 20549 Re: Request of Bloomberg Tradebook LLC and Calyon Securities (USA) Inc. for Continued Exemption from Exchange Act Rules lob-lO(a)(2)(i)(A) and 1Ob￾lO(a)(2)(i)(D) Disclosure Requirements Dear Ms. McGuire:
On behalf of our respective clients, Bloomberg Tradebook LLC ("'Fradcbook") and Calyon Securities (USA) Inc. ("CSI"), Willkie Farr & Gallagher LLP and Cadwalader, Wickersham & Taft LLP respectfully request that the Securities and Exchange Commission (the "Commlssion") continue to exempt Tradebook, a registered broker-dealer and an affiliate of Bloornberg L.P., and CSI, a registered broker-dealer (together with Tradebook, the "Brokers"), from the requirements in paragraphs (a)(2)(i)(A) and (a)(2)(i)(D) of Rule lob-1 0 under the Securities Exchange Act of 1934 (the "Exchange Act") insofar as such requirements (the "Other Side Requirements") oblige the Brokers, or either of them, to disclose to a customer ("Customer"), upon written request or otherwise, the identity of the counterparty and the source and amount of "other remuneration" received by the Brokers. or either of them, in conncction with trar~sactions in U.S. equity securities entered by the Customer on Tradebook's electronic trading system (the "Tradebook System"), as described below.

December 3 1,2007
I. Background of Tradebook Rule lob-1 0 Exemption
On December 18, 1997, the Div~sion of Market ~egulation' (the "D~vislon") pursuant to delegated authority granted Tradebook and B-Trade Services LLC, a registered broker-dealer ("B￾Trade"), an exemption pursuant to Exchange Act Rulc lob-1 ~(e)' from the requirement in:
(I ) paragraph (a)(2)(i)(,4) of Rule 1Ob- 10 to disclose to Customers the name of the person from whom a security was purchased, or to whom it was sold, or the Fdct that such information will be provided upon the Customer's written request; and (2) paragaph (a)(2)(i)(D) of Rule 1Ob-10 to disclose the source and amount of other remuneration received or to be received by Tradebook or R-Trade, In connection with the transaction, for transactions effected on behalf of Customers by the Tradebook System (the "~xem~tion").~
11. Changes to Tradebook Operational Agreements
As relevant to this request, the Tradebook System offers to institutional clients and to registered broker-dealers the opportunity to transact electronically and anonymously in securities traded on the Tradcbook System. At the tirne that the Exemption was granted and as more fully described in a 1996 ietter to the ~ivision,"~radebook acted as introducing broker in arranging transactions in over-the￾I As of November 14, 2007, the Division of Market Regulation IS known as the Division of Trading and Markets The Con~mrssion's exemptlve power 1s set forth in paragraph (0of Rule lob-10 The Divislon of Trading and Markets has delegated author~ty to that power pursuant to 17 CFR 200.30-3(a)(32) Rule lob-lO(e) IS now Rule lob-lO(1) 3 Letter from Catherine McGuire, Chief Counsel, Division of Market Regulation, Securities and Exchange Commission to Roger D. Blanc, Esq. (Dec. 18, 1997). 4 Letter from Roger D. Blanc, Esq. to Dr. Richard Lindsey, Director. Division of Market Regulat~on, Secur~rles and Exchange Commission (Dec. 3, 1996). The current operation of the 'I'radebook Systenl is consistent wlth the descrlpt~onin the 1996 letter, except as specifically set forth in this Ictter. U.S. equity securities and non-U.S. equity securities arc eligible to be traded on or through the facilities of the Tradebook Systenl. Eligibility 10 participate 111 the 'l'radebook System is open to registered broker-dealers, banks, institutional investors and certain companies that are engaged in invest~nenb as a regular part of thc~r business and meet the crlteria established by the Tradebook System. Tradebook will serve as introducing broker for Customer transactions eKected on the Tradebook System in non-U.S. equity securities. Tradebook's affiliate, Bloomberg Tradebook (Bermuda) Lrd. will act as executing broker and will make available to CSI the clearance and settlement information for transactions in non-U.S. equity sec~mties. At the present time, the Tradebook System only routes orders for non￾U.S.equity securities out and does not match thein. Tradebook is not requesting relief for wades in non-U.S. equity securities. Tradcbook System's act~vities in non-U.S. equlty securities will be conducted in compliance

December 31,2007 counter and listed U.S. equity securities on the Tradebook Systan. Tradebook had cntcred into a fully disclosed clearing and cxccution agreement with a registered broker-dealer and a member of the NASD and of the New York Stock Exchange, Inc. ("Clearing Firm") and thc Clearing Firm's aftiliate B-Trade (the "Clearing Agreement"). Under the Clearing Agreement, B-Trade acts as executing broker. The Clearing Firm acts as clearing and settlement broker. Tradebook has now entered into a fully disclosed clearing agreement with CSI (the "New Agseement"). Pursuant to the New Agreement, Tradcbook will serve as introducing and executing broker and CSI will serve as clearing and settlement broker for Customer transactions effected on the Tradebook System in U.S. equity securities. The responsibilities of each party to the New Agreement are substantially the same as undcr the Clearing Agreement except that Tradebook will act as executing broker. As introducing and executing broker, Tradebook will continue to act as an agent on each trade. Tradebook will also market and provide the Tradebook System to participants, maintain risk management fknctions for the Tradebook System, and develop trading algorithms for the Tradebook System, Tradebook will not act as principal on any trade.
111. Request for Continuation of the Exemption
The Tradebook System and the New Agreement do not involve any of the opportunities for contlict or customer abuse the Commission sought to control with the Other Side Requirements. Neither of the Brokers has any investment discretion in connection with transactions effected on the Tradebook System. Tradebook personnel may have limited trading discretion on the infrequent occasions that they are asked by a Customer to implement a trade in the Tradebook All with Ruke 15a-6 under the Exchange Act. 'I'radebook avoids proprietary trading except to (I) close out proprietary pos~tions created by a system disrupt1011 and (2) correct error transactions. Tradebook will assume the responsibillt~es carried out by B-Trade as described in the 1996 letter under Defi~~ilis On limltcd occasions and as an accommodation to a Customer, Tradebook personnel may be asked by a Customer that is unable to take the time to enter or cancel its order on the 'Tradebook System to do so on behalfof the Customer. In such a case, Tradebook personnel follow the Cusro~ner's instructions and enter or cancel the order as the Customer would. Once the order is entered into the Tradebook System. ~t interacts in the same way as any other order entered by a Custon~er directly into the Tradebook System. Tradebook personnel do not have 5

December 31,2007 trades are submitted to the Tradebook System using the Customer's unique user identifier, and all executions are reported directly to the Customer. Given the institutional character of the Customers and the Brokers' limited roles in effecting their trades, the transactions in the Tradebook System do not present the risks that the Other Side Requirements were meant to address. It continues to be a fundamental premise of participation in an anonymous system like the Tradebook Systein that the participation will be anonymous, and it is that very anonymity that enticcs participants to display quotations and sizes and enter orders that they might not have entered if their trading interest and activity were publicly known. Therc is not any reason to expect, under the circumstances of trading on the Tradebook System, that a Customer should have reason to know the identity of the counterparty because it is or should be indifferent to that information, has not relied on the credit of the counterparty in agreeing to do the trade, and has willingly undertaken to trade in a system that it knows has established strict anonymity as a precondition to participation. Therefore, we submit that continuation of the exemption from Rule lob-1 O(a)(z)(i)(A) is appropriate. It also continues to be true that the amount of compensation paid by the counterparty could In some cases remove a significant part of the anonymity currently provided. For that reason, we requcst that the Commission continue to exempt the Brokers from paragraph (a)(2)(i)(D) as well as paragraph (a)(2)(1)(A). In view of the foregoing, we respectfully request that the Commission continue to exempt the Brokcrs, or either of them, from the Other Side Requirements insofar as they oblige the Brokcrs, or either of them, to disclose to a Customer, upon written request or otherwise, the identity of a counterparty or the source and amount of "other remuneration" received by the Brokers, or either of them, in connection with transactions in U.S. equity securities entered by the Customer on the Tradebook System. Tradebook also rcspcctfully requests that the Exemption continue to be available if another registered broker-dealer performs the roles currently performed by CSI, as described in this lcttcr and if all other facts abovc remain the same. knowledge oior the ability to influence the selection of any counterparty to any transaction entered on thc Tradebook System.

December 3 1,2007
If you require any additional information about this request, please call Larry Bergrnann (Willkie Fan & Gallagher LLP for Tradebook) at (202) 303-1 103 or Susan Ameel (Cadwalader, Wickersham & Taft LLP for CSI) at (212) 504-5665. Sincerely, sincerely, \ ( l-' It I 1 2 .%- i LarryE.Bergmam CU^\ usa an Arneel cc: Brian Bussey, Esq. .* Alicia Goldin, Esq. Matthew Daigla, Esq.