SEC Division of Trading and Markets no-action letter: LiquidityHub Limited

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
TRADING AND MARKETS
November 28,2007
Charles S. Gittleman, Esq.
Russell D. Sacks, Esq.
Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
Re: Request for No-Action Relief from Section 15(a) of the Exchange,Act by LiquidityHub Limited Dear Messrs Gittleman and Sacks:
In your letter dated October 5,2007, on behalf of LiquidityHub Limited ("LiquidityHubn), you request assurance that the staff of the Division of Trading and . ~arkets' ("Staff ') would not recommend enforcement action to the Commission under
Section 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") if LiquidityHub
were to operate an electronic messaging system, as described in your letter, without registering as a broker-dealer in accordance with Section 15(b) of the Exchange Act in reliance on the exemption fiom broker-dealer registration in Rule 15a-6(a)(3) under the Exchange ~ct.~ Response:
On the basis of the facts and representations contained in your letter, the Staff will not recommend enforcement action to the Commission under Section 15(a) against LiquidityHub if it operates an electronic messaging system, as described in your letter, without registering as a broker-dealer in accordance with Section 15(b) of the Exchange Act in reliance on the exemption fiom broker-dealer registration in Rule 15a-6(a)(3). We note in particular your representation that, where the Participating Dealer is a Registered Broker-Dealer, it will serve as LiquidityHub's effecting broker-dealer for purposes of Rule 15a-6(a)(3). We also note your representation that, where the Participating Dealer is a Foreign Broker-Dealer, LiquidityHub will confirm that such Foreign Broker-Dealer has made arrangements with its effecting broker-dealer to also serve as the effecting broker-dealer for LiquidityHub for purposes of Rule 15a-6(a)(3). In addition, we note ' As of November 14,2007, the Division of Market Regulation is now known as the Division of Trading and Markets. 2 The defined terms in this letter have the same meaning as in your letter, unless otherwise noted.

Messrs Gittleman and Sacks
November 28,2007 your representation that LiquidityHub will confirm that each Participating Dealer has only enabled "major U.S. institutional investors," as defined in Rule 15a-6(b)(4), to access indicative quotations in securities, and to conduct securities transactions, through ~i~uidit~~ub.~ Ths position is based on the facts presented and the representations you have made, and any different facts and circumstances may require a different response. Furthermore, this response expresses the Staffs position on enforcement action only and does not purport to express any legal conclusions on the question presented. The Staff expresses no view with respect to any other questions that the proposed activities may raise, including the applicability of any other federal or state laws or self-regulatory organization rules.4 Sincerely, A Catherine McGuire Chief Counsel You have not asked for, and we are not granting, no-action relief for the activities of Participating Dealers. Hence, Participating Dealers that are not registered under Section 15(b) or Section 15C of the Act, or that have not provided written notice under Section 15C of the Act, as applicable, will be responsible for complying with the terms of any applicable exception or exemption from the requirement to register or provide written notice under the Act for their securities activities related to LiquidityHub. In this regard, we note that LiquidityHub will advise Participating Dealers that are Foreign Broker-Dealers that, under U.S. law, End Users that are U.S. persons may be dealt with only in accordance with paragraph (a)(3) of Rule 15a-6 or, if a U.S. person is within the category of persons specifically enumerated in paragraph (a)(4) of Rule 15a-6, in accordance with such paragraph, or, with respect to activities involving government securities products, in accordance with the corresponding provisions of Rule 15a-6, as modified by 17 C.F.R. 5 40 1.9. Consultations with staff of the Department of the Treasury have afflrmed that, pursuant to 17 C.F.R. 5 400.2(d), this relief applies equally with respect to the application of 17 C.F.R. 5 401.9 concerning transactions in government securities, as defined in Section 3(a)(42) of the Exchange Act.

549 LESIIGTDN AVENUE I NEW Y[~R.K- I NY I lOdE2-6a89 WWW.$HE&~MAN;~OM I T +i.~12.848..4Q6bI F +1:i12.84.8.7i79 October 5,2007 Catherine M~Guire,Esq. Chief Counsel Division of Market Regulation Securities and.ExchangeCommission 100.FSt.,, m Washington, D.C. 20549 LiquidityHub Limited Request for gno-actionn position: use of Rule 15a-6 by LiquidityHub Limited Dear Ms.McGuire:
We are writing on behalf of our client, LiquidityHub Limited ("LiquidityHub") to saek assurances that the staE of the Division of Market Regulation (the "Staff") would not recommend action against LiquidityHub under Section 15(a) of the Securities Exchange Act of 1934, as amended (the "Act"), if LiquidityHub were to operate as proposed herein without registering as a broker-dder in accordance with Section 15(b) of the Act in reliance on the exemption from broker-dealerregistration in Rule 15a-6 under the Act ("Rule 15a-6").'
I. SUMMARY DESCRIPTION 0F.LZQULI)ITYHUB
LiquidityHub pra;poses to operate an electronic mesiqing system that will enable institutional investors to access an aggregated indicative pricing. str&m provided by pdcipathg broker￾Comparable issues arise in caMection with the registrationrequirementsfor foreign govemmmt securitiesbrokers or dealers under the Government Securities Act of 1986, codified at Section 15Coftbe Act. Inthis regd, the Dqattment of the Treasury, pumt to its ~utborityunder Section 15C(a)(5), has adopted an exemptivemle that largely parallels Rule 1%-6. See 17 C.F.R 5 401.9. Ac~ordmgIy,pursuant to 17C.F.R. 8 400-2(d), LiquihtyHuh requests that my no-action reliefgranted by the SWin response to this request with rapect to the appIicatian of
Section 15(a) afthe Act and Rule 15a-6 alsoapply equally to LiquidityHub with respect to the application of 17
C.F,K # 41.9 (L"Exemptionfor certain foreign government securities brokers or dealers''). ABU OHABl I BElJlNG I BRUSSELS I 006SELOORF I FRAHRFURT I HOHG KONG 1 LONDOPI I MAH#HEIM 1 MEMLD PARK I MUNICH NEW YORK 1 PARIS I ROME I SAW FRAWCWCO I SAO MUIO I ShAHGHAI t SINGAPORE I TORY& 1 TORONTO I WASHINOTOI!, DC SHURiU)I A SIERUHG LLP'IS A LIMITED LlMlLmPMTNEICP @REWliEOIH ME UNlED.:StAKS UNDER THE UWSOFTMESTAROF~OEUWMlE. WHICH LhWS UYII.MEOHLSDML LIIIB1hT OF PWMERE.

ddm registered under Section 15@) of the Act rRegistered Broker-Dealers"'), participating govment securities brokers or government securities dealers that are regismed, or have provided written notice, under Section 15C of he llct ("Govmerrt Securities Dealers"), and participating foreign brokers or dealers, as defmed in Rule 15a-6@)(3) ("Foreign Broker￾Dealas," and together with Registered Br~ker-Dealersand Government Securities Dealers, "Participating Dealers"), in fixed income fmcial products.2 Tfie system also vriIl enable institutiund investors to engage in trade negotiation messaging sessions directly with one or more ofthose Pdcipating ~ealers?LiquidltyHub proposes to commence operations in respect of Euro-denominated interest rate swaps ("Eur-IEiS") in October of 2007, and thereafterproposes to commence operations in respect of US.-denominated interest rate swaps ("US-IRS"), U.S. Treasury securities, and additional fixed income financialproducts, which may include:European gouernmmt securities and U.S. agency securities.' LiquidityHub is based solely in London, and is authorized by the WK Financial Services Authority as an Arranger. LiquidityHub was created by 15 of the world's largest fvlmcial institutions that it is intended will also seave as initial Participating Dealers in the LiquidityHub system. Those organizations are listed on Schedule A hereto. Additional Registered Broker￾Dealers, Government Securities Dealers, and Foreign Broker-Dealerswill, subject to meeting threshold criteria, become Participating Dealers by entering into a Participating Dealer Agreement with LiquidityHub. Participating DeaIers sdat and enable institutional investor end users ("End Users") to access LiquidityHub pricing in aceordance with protocols established by LiquidityHub. The financial abligations of Participating Dealers include the payment of flat-rate fees and,where applicable, transaction fees to LiquidityHub. 1 .2 Sgmmaqy; how theLiguidi~Hzibsystem wurb The LiquidityHubsystem functions as follows:

1. End Ws& are granted pemtission ts .weLiquidi0H~c.bby Parlieipat!~ghuh. In
   order to use LiquidityHub, End Users must.be granted permission by one or more Participating. LiquidityHub also proposes to operate the electronic messaging system to enable institutional investm to access an aggregated ladicativepricing stream provided by certain atherparticipating entitiesin financialproduots that are not sdties products. We m not seeking relief foractivitiesrelating to nonaecurities products. We arenot seekingrelief fim the Staff regarding theactivities of Participating Dedm. Hence, Participating Dealers that are not registeredunder Seciim 15@) or Section 1SC of the Act, or that have not provided written notice under Section 15C of tbe Act, as applicable, will be responsible for compIybg withtheterms of my applicable exceptionat exemption &om the requirementto register or providewritten notice underthe Act for their securities activitim related to LiquidityHub. In thisregard, we note that LiquidiwHub will adviseParticipating Dealers that are ForeignBroker-Deders tha$ under U.S,law, End Users (as definedbelow) that areU,S.persons may be ddt with onlyin amordance with paragraph (a]f3) ofhie 15a-6 or, if a U.S. person iswithin the category of phoas specifidly enumerated iapmxgrqh (a)(4) of Rule 15a-6, in accordancewith suchparagraph, or, wiXh respect Xo activities iny~lvinggovernment securitiesproducb, in accordance with the carrespond@ provisions of Rule 15a-6, as modified by 17 C.F,R. 9 401.9. ' 'me.E&-IRS and the US-IlW',.meintended to be map agreementswithin the meaning aF.Section206A of thl Gramm-Leah-Bliley Act (15 U.S.C. 78c note), Accordingly, we:are riot seekidgrefief for a~~ivitkselating to￾thest products.

Dealers with whom they have a pre-existing trading relationship. End Users will access LiquidityHub through electronic communication networh, as 'that term is defined in Rule 600(b)(23) of Regulation NMS undm the Act (referred to as "distributors"), such as Bloomberg and Reuters, with whom Distribution Agreements have been executed. Once an End User accesses LiquidityHub, it may seek to conduct transactions only with Participating Dealers that have granted it permission. LiquidityHubwill require that Participating Dealers gmt End Usa status inrespect of semities activities only to customers of the Participating Dealer that meet the definition of "major U.S.institutional hvataryYs(or other U.S. persons specifically enumerated at pamgraph (a)(4) of Rule 15a-6) or are non-U.§, persons. End Users will have no contractuaI relationship with LiquidityHub, except for certain third-party rights granted to LiquidityHub under agreements between End Users and distributors or Participating Dealers. End Users will be customers ofenabling ParticipatingDealers.
2. End ucce8.s i7adicabive:p~otation,s..End Users will .access a stream of indicative
quotations in the itrstnunentsinwhich they are-enabledtoconduc't @ansacticms. These indicative quotations will be composite quotationscompiledby LiquidityHub u~hgnon-.executable quqtes generated by Participating,Dealers.. LiquidityHub will produce the composite quotations viewed by End Users by applying an averaging methddology to the individual Participating Dealer quotations. Only>EndUsers authorized by a Participtiting~Dealertouse the LiquidityHub sysp for o~nducting.securities transactions may see composite quotations for seCUXities products on the systm.
3. Eszd Userg reqqest quotatiu~zsfrom P~riicipatingDealers (Regea~sfFor. Skeam- or
'[RFS?). An End User seeking to conduct a msaction will select up to three Participating Dealers (each ofwhom will have authorized the End User to use the system) and qecify details such :as the, direction, instrument and .desired tmnsaction size. Participating Dealers. wiI1 "stream? primand transaction size quotationsin the requested instrummt for the-durationofthe WS session (e.g., 60 seconds),.with transadon size being equal to or lower than the End Userrs requestedttmsact.i.onsize.
4. End Users attempt to execute tmnsactiom directly with a selected Participating Dealer.
During the RFS session, the End User may view the streamed pricer'transaction size quotations and offer to deal with one of the Participating Dealers an the basis of such quotation. The Participating Dealer then has a limited timehme to accept or reject the kmsaction. If the transaction is accepted, he trade is cleared and settled outside the system by the Participating Dealer and the End User inaccordance with applicableregulatoryrequirements; inthefuture, the system may be modified to permit the End User and ParticipatingDealer to thereah enter into a continued one-to-one negotiation session messaged via Liquiditflub to conduct additional transactions (or transaction size) in the specified instrument. In addition to the flat-rate fees charged to Participating Dealers, a transaction fee equal to a specified percentage of the face amount transacted may be charged to the Participating Dealer by LiquidityHub for each transaction, other than transactions consummated during a single-dealer se~sion(i.e., where only one Participating Dealer was selected to provide quotes in the RFS session). LiquidityHub will '- 15?-6(b)[43; .see,also Letterre: Samities Activities of U;Si-AffiliatedForeign Dealers(April 9,1997) (qommonjy knowqasRhe Wk-firms.imer7').

not charge transaction-based fees in respect of U.S. Treasury securities. Transaction fees are phed to be applied to other securities. LiquidityHub will nat receive any compensation from End users.
3. fiecution, cbarance, and .settlement of transaebiom. Once a transaction has been
exem&. such transactions will be cleared and settlid.inthe ordinary come, -andin accordance with applkabl'eregulatory requirements. LiquidityHub does not provide clearanceor settlement of transactionsand .doesnot hold or tran$fercustomer funds..orsecurities. LiquidityHub.wiUnot be-party to my transaction. II, USE OF RULE 1%-6 BY LIQUIDITYIIUB LiquidityHub intends to receive transaction-based compensation in connection with the purchase or sale of securities (other than U.S. Treasury securities). To the extent that LiquidityHub is deemed to be a braket, as defmed in the Act, as a result of its proposed activities, LiquidityHuh proposes to operate without registeritlg as a broker-dealer under Section IS@) of the Act in reliance on the exemption from broker-dealer registration found in Rule 1~a-6(a)(3).~In this regard, note that where the Participating Dealer is a Registered Broker-Deder, it will serve as the effecting broker-dealer for LiquidityHub for purposes of Rule 15a-6(a)(3) .7 LiquidityHub will correspondingly provide all of the information and consents regarding LiquidityHub zmd LiquidityHub's foreign associated persons as required by RuIe 15a-6(a)(3) to the Participating Dealer that is a Registered Broker-Deala. However, where the Participating Dealer is a Foreign Broker-Dealer, LiquidityHub will confirm that such Foreign Broker-Dealer has made arrangements with its effecting broker-dealer to also serve as the eEecting broker-dealm for LiquidityHub for purposes of Rule 15a-6(a)(3). LiquidityHub will correspondingly (a) provide to such Foreign Broker-Dealerall the infomation and consents regarding LiquidityHub and LiquidityHub's foreign associated persons as required by RuIe 15a-6(a)(3), and I;b) confirm that the Foreign Broker-Dealer has provided such information and consents to the effating broker￾dealer. Further, as noted above, LiquidityHub will confm that each Participating Dealer has only enabled "major U.S. institutional investors" (or atber U.S. persons specifically enumerated at paragraph (a)(4) of Rule 1Sa-6) to access indimtive quatations in securities, and to conduct securities transactions through LiquidityHub. Finally, LiquidityHub will confirm that each effecting broker-dder will make a record for each transaction resulting from an RFS session that such transaction resulted fiom a LiquidityHub RFS session, and wit1maintain such record as
part of its recordkeeping requirements under Rule 15a-6(a)(3).
'As noted at foowote 1above,with respect tu government securitiesproducts, LiquidityHubproposes to operate witbut registering as a government adties broker or dealer under Seetion 156:ofthe Act in reliance on 17 C.F.R. 5401.9 ("Exemption for mainfareign governmentsecuritiesbrokers or dealers"). References in this
Section fl to provisions of Rule 15a-6 should be read with respect to activities involving government securities
products as referencesto Me 1Ja-6 asmodified by 17 C.F.R. 8 401.9.
Where the $articiPating Dealeris a Govmment~SedtiesDealer, it will.smeasthe effictingbroker-dealerfor purposgs of17 C.F.R-3401-9, Where-theParticipating Dealer is a Foreign Brok&Dealer whose effi biolrer￾dealer b.a..~ovm~t Securities Dealer, LiquidityHubd. drm'thatsuchForeign Broke-Deal* hasmade arrangements with its effecting brokerdealer to ,alsoserve as the effSctingbroker-deaIer for Li;qui'dityHubfor purposesof 17 C:P.R 5401.9.

III. CONCLUSION
As described above, LiquidityHub requests. assurances: that the Staff would not recommend action against LiquidityEhb under Section 15(a) of the Act if LiquidityHub were to operateas prop~sedherein .without registering in accordance with Section IS@) ,ofthe A& ih rdiimce on the exemptionfiom.brokerdeal& regisbation in Rule 15a-6(a)(3). We will be:happy to provide additional infomation at any time, and you should feel fiee to contact either df the undersigned in respect ofatly.issuerelated to this requef. Charles S. Gittleman cc: Erik R.Sirri, Seouritiesand Exchange Commissi~n Robert L. D, Colby, Securities and ExchangeCornmission. Brian A. Buss,ey,Securitiesand Exchange Commisdon Marlun Quintanilla Paz, Securities.and Exchmge Commission :Matthew;A.Daigler, Securities and Exchange-Commissibn .MarkSchreiber, LiquidityHub Limited :Abigail.Arms; Sheaman.&SterlingLLP Curtis A. Doty,,Shearman & SterlingLLP

Schedule A
Initial Intended Participating Dealer Org~nizations Bardays Capital.
Bank .of America
Brn Paribas
Citigroup
Deutsche Bank
Goldman Sachs
HSBC
JP Morgan.
Moxigan Stanley
Merrill Lynch
R& Bank ofScotland