SEC Division of Trading and Markets no-action letter: Citigroup Global Markets Inc.

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DIVISION OF
TRADING AND MARKETS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
August 28, 2019
Giovanni Prezioso
Cleary Gottlieb Steen &Hamilton LLP
2112 Pennsylvania Avenue, NW
Washington, DC 20037
Re: Request for Exemption from Rule lOb-10
Dear Mr. Prezioso:
In your letter dated August 26, 2019, you request an exemption pursuant to Rule lOb-10(fl under the Securities Exchange Act of 1934 ("Exchange Act") on behalf of your client, Citigroup Global Markets Inc. ("CGMI"), a registered broker-dealer, from the requirement under Rule lOb-10(a) to deliver trade-by-trade confirmations in connection with execution of multiple infra-day orders on behalf of institutional customers.l In lieu of trade-by-trade confirmations for each individual transaction, CGMI will send, upon request of an institutional customer, a single confirmation reflecting aggregated execution information for one or more same-side orders executed in each security during that trading day. The Division pursuant to delegated authority hereby grants an exemption from Rule l Ob-10(a) under the Exchange Act subject to the facts and terms and conditions described in your letter. This exemption from Rule lOb-10(a) is based solely on the representations you have made and is limited strictly to the facts and terms and conditions described in your letter. In particular, we note your representations that confirmations provided by CGMI on end-of-day confirmations would include: (i) the date and a notice that execution times are available upon request, consistent with Rule lUb-10(a)(1); (ii) whether the confirmation applied to purchase or sale orders; (iii). a weighted average price, which would be calculated by averaging the execution prices of each individual execution that filled the customer's orders and weighting that price by the size of the execution; (iv) the capacity or capacities in which CGMI acted in executing the customer's orders; (v) where required, the total remuneration received; (vi) all other information required by Rule l Ob-10, as applicable; and (vii) notification that, at the customer's request, CGMI would provide the information required by Rule lOb-10 for each individual transaction, including the actual price and capacity in which CGMI acted. In addition, you represent that CGMI would create and maintain records pursuant to Rules 17a-3 and 17a-4 under the Exchange Act and report each execution separately to 1 For purposes of this exemption, you represent that an "institutional customer" is a customer that meets the definition of "institutional account" in Financial Industry Regulatory Authority(FINRA) Rule 4512(c).

the appropriate trade facility, and CGMI would continue to be subject to its best execution obligations with respect to all orders. In the event that a material change occurs with respect to any of the facts or representations presented, the use of trade-by-trade confirmations as required by Rule lOb-10(a) should be reinstated for the transactions described in the letter. In addition, persons relying on this exemption are subject to the anti-fraud and anti-manipulation provisions of the Exchange Act, particularly Sections 9(a), 10(b), and Rule l Ob-5 thereunder. Responsibility for compliance with these and any other applicable provisions of the federal securities laws must rest with the persons relying on this exemption. This exemption should not be considered a view with respect to other questions that the proposed transactions may raise, including the applicability of any other federal or state laws or the applicability ofself-regulatory organization rules concerning customer account statements or confirmations. The exemption ganted in this letter is subject to modification or revocation at any time if the Commission determines that such action is necessary or appropriate in the public interest or otherwise in furtherance of the purposes of the Exchange Act. For the Commission, by Division of Trading and Markets pursuant to delegated authority,2 2 `~_ J anne Rutkowski ssistant Chief Counsel D'vision of Trading and Markets 17 C.F.R. §20030-3(a)(32).

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OLEARYGOTTLIEBSTEEN & HAMILTON LLP GEORGESCARP MITCHELL OURLER GIOVANNI P PREZI000 MICHAEL Н KRIMMINGER ,IATTHEW D SLATER DAVID I GELFAND MICHAEL MAZZUCHI MARK W. NELSON ROBIN M BERGEN DEREK M BUOI BRIAN BYRNE PAULOMAROUARDT JEREMY CALOVN LEARBRANNON MATTIIEWC SOLOMON „ATIERINE MOONEY CARROLL ELAINEEWING NOWELL D BAMBERGER кENNETNS REINKER ALEXIS CULLING ~E81DE~T RA~TNE~! KENNETH BACAMAN. JR DANIEL SILVER RICHARDDEC HINDS SARADSCHOTLAND WILLIAM B MCGURN III JOANS MAGNEV MARXLEDDY JOНNC MURPHYJR DAVID BECKER JANETL WELLER LINDA DOLDO 8ENIO~COV~BE~ WRICHARDBIOSTRUP STEVENJ KAISER KATHLEEN WARD BRADIOH CUNZHRN HUAND' MACEY LEVINGTON CARLLAWRENCEMALM CHARLESSTERLING ~EBІDE~T COO~lEL JDHN P MCGILL. JR МАТТНEWI BACRRACU LARRY WIRKOEMEOWDKI CARL F EMIGUOLZ PATRICKFULLER sAIF I SHAH MOHAMMEO CHRISTIAN J MAHONEY BFNIO~ATTOR~EYL ORARAMRANNON MAtRI BAGIOUR TAVLOR" BATES ZACHARYBAUM ELSBETHBENNETT GRANT RERMANN LINDEN BERNVAROT MARIETTA CATSAMBAS SAMUELH CHANG CNINWET CHUKWUOGO LAURA CONLEY EVERETTK CORAOR LIDAM DANZIG KATHERINE DENBY' OLIVIA ESPY HUNTINGTON BRANDON FIGG MEREDITH LEIGH FINN CHRIGTOPHERM FITZPATRICK RACHEL FRANK ALAN FREEDMAN CAROLINE GEIST'BENITEZ CATHERINEMARIAGENDALL VNOAH GIMBEL MELISSAGOHLKE DAVIDGROTHGUSE CHRIOTOPHERJ HILDEBRAND JESSICAROLLIO STEPHEN ‚DUCK• RICHARDHUBER JARRED RUNGRERGER PHILLIPL BURST SAMEER JAYWANY BRENDAN JORDAN BRIANKESTEN UNDREWLNLINE JOHN F KOZAR TIBIADA KRAFT NATHANAELK KURCAR ALEXISRB LAZDA WHITNEY LEE JOHN LIGHTBOURNE NICOLES LIM NORAMCCLOSKEY ADAM MOTIWALA MUVIWA ODENIVIOE JENNIFER PAUL ROBIN RABINOWITZ MARTINABAGNEY RICKREDMOND W BENJAMIN REESE MARK BINAN MICHAEL SАNОЕЧS MAD OCHECITER MICHAEL DCHULI,RAN WILLIAM SEGAL OMAR SERAGELDIN GARRETTD NRINN CAROLINE STANTON SARAH M OTANTON CNICHOLAS STEER NICOLE TATZ TARALVNN TAVERNIA DACH TOlHIDA ТАМАРА WIESEBRON CRRIDTOPHERAWETZEL JIMWINTERING HUANBING 122УXU JEANNE-PALOMAZELMATI ' HOmilIeS AVIV ;о а Oar CIAR! t ha п Ihdi .J IT D stiVI J• Columbia WUrATg Andel tIR .ипеги5Iоп ег п• mc=ceIs м [не'ltd Ah! YgtYQ JO, VR

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  August 26, 2019
  EmilyWesterberg Russell,Esq.
  Chief Counsel, Office of Chief Counsel
  Division of TradingandMarkets
  SecuritiesandExchange Commission
  100 FStreet, N.E.
  Washington,D.C. 20549
  Re:Requestforan Exemption from Rule lib-l0 under the Securities Exchange Act of 1934 Dear Ms. Russell:
  On behalf of our client, CitigroupGlobalMarkets Inc. ("COMP'), wearewriting torequest an exemption from RulelOb-10under the Securities Exchange Act of 1934(the "Exchange Act") pursuanttoRule llb-10(f)inconnection with CGMI sending each institutional customerson whose behalf it executesmultipleintra-day ordersasingleconfirmation reflecting aggregated execution information,asdescribedmorefully below, fir one ormoresame-side orders executedineach security during that trading day. An"institutional customer"is acustomer that meets the definition of "institutional account"inFinancial Industry Regulatory Authority (FINRA) Rule4512(c). Cleary GottliebSteen&HamiltonLLP or an aellliated entity has an officeineach of the cities listed above.

SecuritiesandExchange Commission
August26, 2019
I. Background
CGMIisregisteredas abroker-dealerandinvestment adviser with the Securities andExchange Commission (the "Commission"),amunicipal securities dealer with the Municipal Securities RulemakingBoard, andswap dealerandfutures commission merchant with the Commodity Futures Trading Commissionandis amember of FINRA, the Securities Investor Protection Corporation, the National Futures Association,andother self-regulatory organizations. Inthe course of itsbusinessas abroker-dealer,COMIfrequently receivesand executesmultipleintra-day ordersfortransactionsinaparticular security on behalf of its institutional customers.Alargepercentage of these orders may be received electronicallyand, in some instances,multipleorders mayoverlap,resultinginorders being entered beforeCOMIhas completed executingaprevious order.COMI,consistent with its best execution obligations, executes such ordersinavariety of ways, including by internalizing, routingtoother broker-dealersandtradingcenters,or effectingrisklessprincipaltransactions. Accordingly, COMImight actaseitheragent,principal,or both.Mostordersarecompleted throughmultiple executions of portions of theoriginalorderand at multipleprices. Each executionisseparately reportedtothe appropriate trade reporting facility. Inmany instances, COMI's institutional customers, including its investment managercustomers, placingmultipleordersfor asecurity would prefer thatCOMIprovidea weighted average price by aggregating the prices obtainedin allexecutions acrossallordersin that security traded on their behalf during that day.Attheendof the trading day the investment managercustomers directCOMI toallocate the securities or proceedsinspecified quantitiesat the weighted average pricetothe accounts they manage,inaccordance with the investment manager's policiesand proceduresgoverning allocation amongmultipleaccounts. Accordingly, atthe request of its institutional customers,COMIwill issue confirmations(inthecaseof an investmentmanagercustomer, addressed separatelytoeach client account holder managed by that investmentmanager)reflecting the weighted average price. These confirmations also include thetotalcompensation receivedandcapacitiesinwhich CGMI actedinexecuting the ordersaswellasthe other information required by Rule lib-ii.
2. Order AggregationandAverage Price AllocationandConfirmation
Investment managers placing ordersinthesamesecurityformultipleclient accounts will often allocate the results of trading activity done on behalf of those clients using an average execution priceforallaccounts. Investment managers use average price allocationto, among other things, avoid favoring, even inadvertently, one accountoveranotherin contravention of their fiduciary obligations. Average price allocations thus promote regulatory complianceinthe context of managingmultipleaccounts.2Average pricing also reduces the '- See, e.g., SECOffice of Compliance InspectionsandExaminations, Examination Prioritiesfor2014 (January9, 2014) (noting focus on examination of investment advisers' practicesinallocating investment

SecuritiesandExchange Commission
August26, 2019 backoffice costsandfees associated withprocessing multipleconfirmationsforeach investment manager. Recognizing the benefitstoinvestment managers of aggregating ordersand allocating an average pricetomultiplemanaged accounts, Commission staff providedno-action relief in 1995toSMC Capital, Inc. (the"SICCapitalLetter")allowingforexpanded average price allocation.3SMC Capital provided investment adviceandmanaged accountservicesto a variety of differenttypesof investors,andrequestedno-action relief allowingforthe aggregation of ordersandallocationataverage pricesforall typesof accounts that it managed, including thoseinwhich SMC Capital or itsemployeesor affiliates were also investors. Thebasisfor SMC Capital's request was twofold: toreduce feesandtoavoid favoring one accountover another.Toensure thatnoone client would receive favorable treatment, the relief required, among other things, that clients receiving average price allocations would receive the average share priceinagiven securityforallof SMC Capital's transactionsinthat security onagiven dayandsharein alltransaction costs (suchasbroker-dealer remuneration) on aprorata basis. Investment managers that allocatetotheir client accounts cashandsecurities based on the average execution prices receivedinagiven trading dayinthe manner describedin the SMC CapitalLettermust therefore calculate theend-of-day average price receivedand associated transaction costsanddetermine the appropriate prorata allocation.Forinvestment managers that transactinalargenumber of securities and/or that placealargenumber of intra-day ordersin singlesecurities the operational burden of calculating the average priceand relevanttransaction costsiscorrespondingly higher. Receivingasingleconfirmation therefore reduces this operational burden, while also reducing fees associated withmultipleconfirmations throughout the trading day. RulelOb-10under the Exchange Act requires that brokersanddealers, including CGMIinexecuting ordersforits institutional customers,ator before the completion of a transaction, provide customers withaconfirmation containing certain prescribed information. Rule iOb-10 generally requires the transactiondateandtime;identity, price,andnumber of shares orunitsof the security purchased or sold;andthe capacityinwhich the broker or dealer acted. The Rule also requires certain information specifictothetypeof security involvedinthe transaction;forexample,forcertain stocks, whether the broker or dealer received any payment fororderflowor,fordebt securities, information determined by whether the transaction was on thebasisof adollarprice or yield. Asinthecaseof investment advisers' average price allocation practicesinthe SMCLetter,Commission staff has previously provided relief tobroker-dealers with respectto certain requirements of Rule iOb-10inthe context of multipleexecutionsandaggregated orders, opportunitiestoensure that advisersareproperly mitigating potential conflicts of
interestinmanagingmultiple accounts). з See SECStaff No-Action Letter re: sMCCapital,Inc. (September 5, 1995).

Securјtјes and ExchangeCommission
August26, 2019 allowingforaverage priceand multiplecapacity confirmations.In 'alettertotheNew York Stock Exchangein 2005(the "NYSELetter"),the staff allowedforconfirmationsforsingle ordersinnational market system securities executedat multipleprices,in multiplecapacities, and/or onmultiplevenuestoinclude aggregated information rather than requireaseparate confirmationforeach execution.4Ingranting relief, the staff noted the potentialformultiple confirmationstoconfuse customersaswellasthe higher costs associated with issuingmultiple confirmations. Confirmations issuedinreliance on this relief arerequiredtoinclude the average price, capacitiesinwhich the broker-dealer acted,andthetotalremuneration earned by the broker-dealer (through commission,mark up, markdown, or otherwise); the remainder of Rule lOb-10's requirementsandotherrelevantsecurities lawsandtrade reporting rules continuedto apply unmodifiedandrelief was contingent on execution specific information being available upon request. Similarly, the staff grantedno-action relief toGoldman Sachs &Co. in 1996(the "GS&Co. Letter")allowingforaverage priceand multiplecapacity confirmations. 5The GS&Co.Letterprovided relief whenabroker-dealer, acting on behalf of an investmentmanager customer that placedmultipleordersfortransactionsinasinglefixed income security, aggregated such ordersforexecutionandprovidedasingleconfirmation.6The investment managercustomerin turnallocated the order among its fiduciary accounts. This relief was also contingent on individual execution information being available upon request by the customer. The exemptive relief requested byCOMI,which would extendtoexecutions of multipleorders of asinglesecurity onasingletrading day rather than solelytomultiple executions of asingleorder,issimilartotheno-action relief grantedinboth the NYSEand GS&Co. Letters, andwould ease compliance with the terms of the SMC CapitalLetterforits investmentmanagercustomers. Following receipt of an aggregated confirmationfor aclient, investmentmanagercustomers can use the average priceandaggregated information reflectedin the confirmation,allof whichisconsistent with the conditions of the SMCLetter, inallocating the day's trading activitiestoclient accounts. Moreover,COMIbelieves,andunderstands from its institutional customers, that confirmationssentwith the above informationaresufficientto allow CGMI's institutional customerstounderstandandverify the terms on which their orders were executedandensure that theyarecomplying with any fiduciary duties owedtotheir clients. Allowingforconfirmationstobe issuedinthe form described below will thus further the goals of theno-actionlettersdiscussed above by increasing the operational efficiency of CGMI's institutional customers, reducing fees,andmitigating any confusion that might result fromacustomer receivingmultipleconfirmations, covering ordersinasinglesecurity executed overthe course of asingletrading day. Further, itisconsistent with evolving market
practicesin See SECStaff No-ActionLetter re: Rule lib-II /Average Price,MultipleCapacity Confirmations (March3, 2005). SeeSEC Staff No-ActionLetter re: Goldman Sachs &Co. (April 17, 1996). See LettertoCatherine McGuire,Esq.re: Confirmation of Average-Priced Trades(April 15. 1996). 5 6

SecuritiesandExchange Commission
August26, 2019 which customers increasingly submitmultipleorders electronically rather thanasingle large order telephonically or through other means.
3. Relief Requested
COMIseeks exemptive relief from Rule lib-10under the Exchange Actto provide the option of asingleaggregated confirmationtoinstitutional customers that place multipleordersinаparticular securityoverthe course of аsingletrading day, andtoprovide that information consistent with the relief grantedintheno-actionlettersdiscussed above. Specifically, CGMI would obtain written documentation from its institutional customers evidencing consenttoreceive confirmations with informationinthe form describedin(i)— (vii), below.Forinstitutional customers that requestasingleconfirmation, andthat provide the necessary documentation,COMIwould send anend-of-day confirmation that will include information about one ormoreordersinaparticular security entered by that customer on that trading dayinasinglesecurity on thesameside of the market, or,forcustomers that enter both purchaseandsale ordersinasinglesecurity, aseparateconfirmationforeachtypeof order aggregatingandaveragingallsale pricesand allpurchase prices separately. Ineachend-of-day confirmation, COMIwould include, where required pursuanttoRule lib-10:
(i) thedateandanotice that executiontimes areavailable upon request, consistent with Rule lib-10(a)(1); (ii) whether the confirmation appliedtopurchase or sale orders; (iii) aweighted average price, which would be calculated by averaging the execution prices of each individual execution that filled the customer's ordersandweighting that price by the size of the execution; (iv) the capacity or capacitiesinwhichCOMIactedinexecuting the customer's orders; (v) where required, thetotalremuneration received; (vi) allother information required by Rule lib-10,asapplicable;and (vii) notification that,atthe customer's request, COMIwould provide the information required by Rule lib-10foreach individual transaction, including the actual priceandcapacityinwhichCOMIacted. Inaddition,COMIwould createandmaintain records pursuanttoRules1 7а-3 and 17a-4under the Exchange Actandreport each execution separatelytothe appropriate trade reporting facility. COMIwould alsocontinue tobe subjecttoits best execution obligations with respecttoallorders.

vanni P. PreZіcбsO
SecuritiesandExchangeCommission
August 26, 2019
Pageб
4. Conclusion
COMIbelieves that the requested exemptive relief isconsistent with the staff's previousno-action relief allowingforaggregating informationinconfirmations delivered pursuanttoRule lib-10.Based on the foregoing,COMIrespectfully requests an exemption from Rule lob-10forconfirmationssent inaccordance with the termssetforth above.

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We appreciate your assistanceinthismatter.Pleasedonothesitatetocontactme (202-974-1650)or my colleagueCarlEmigholz(202-974-1876)if youhaveany questions regarding the exemptive relief requested herein. Sin¡~еге1у.