SEC Division of Trading and Markets no-action letter: Omgeo

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

DIVISION OF

TRADING AND MARKETS

March 19,2009
Mr. Nonnan M. Reed
General Counsel
OmgeoLLC
55 Water Street
New York, NY
Re: No-Action Request ofOmgeo LLC
Dear Mr. Reed:
In your letter dated March 19,2009, on behalf of Omgeo LLC ("Omgeo"), you request assurance that the staffofthe Division ofTrading and Markets would not recommend enforcement action under Rules 17a-3(a)(8) and 17a-4 ofthe Securities Exchange Act of 1934 ("Exchange Act") against Omgeo's broker-dealer customers that depend on Omgeo to transmit confinnations ofpurchases and sales ofsecurities (the "Broker-Dealer Participants"), ifthese Broker-Dealer Participants rely on Omgeo to maintain and preserve such confinnations under Exchange Act Rule 17a-4(i),1 as discussed in your letter.2 Response:
Based on the facts and representations set forth in your letter, the staffofthe Division ofTrading and Markets will not recommend enforcement action to the Commission under Exchange Act Rules 17a-3(a)(8) and 17a-4 against Omgeo's Broker￾Dealer Participants ifthey rely on Omgeo maintain and preserve confinnations under Exchange Act 17a-4(i).3 17 CFR 240. 17a-4(i). 2 Unless otherwise noted, each defmed term in this letter has the same meaning as defined, directly or by reference, in your letter. 3 Securities transaction confirmations prepared by a Broker-Dealer Participant without the involvement of Omgeo as described in your letter would not be covered by this response, and must be made and kept in accordance with Exchange Act Rules 17a-3 and 17a-4. We also note that a Broker-Dealer Participant will continue to have a responsibility to give or send such confmnations pursuant to Exchange Act Rule lOb-lO. 17 CFR 240.17a-3, 17a-4, and lOb-lO.

Mr. Norman M. Reed
March 19,2009
Exchange Act Rule 17a-3(a)(8) requires a broker-dealer to make and keep current copies of confirmations of all purchases and sales ofsecurities. A Broker-Dealer Participant would need to retain the required Exchange Act Rule 1Ob-1 0 4 information for each TradeSuite confirmation asa required record under such rule. Broker-Dealer Participants currently transmit to Omgeo all ofthe disclosures included on each electronic confirmation issued by TradeSuite on a transaction-by-transaction basis. Under the 2008 No-Action Letter, Broker-Dealer Participants will provide Omgeo with the types of disclosures that the Broker-Dealer Participant customarily includes on the back of a paper confirmation, and when an electronically-delivered TradeSuite confirmation is sent to a customer, Omgeo will make the applicable disclosures available to the customer via a URL link stamped on the confirmation. Thus, when Omgeo delivers an electronic confirmation via TradeSuite, a Broker-Dealer Participant will no longer need totransmit to Omgeo the disclosures customarily provided on the back of a paper confirmation for each confirmation Omgeo issues, because the Broker-Dealer Participant will have previously transmitted this information to Omgeo. We note in particular in taking this position that a Broker-Dealer Participant, therefore, will have sent Omgeo the required Exchange Act Rule 1Ob-1 0 information to satisfy theiJ;" delivery obligations to institutional customers that are customers for purposes ofRule 10b-1O, as well as its recordkeeping obligation underRule 17a-3(a)(8). Under Rule 17a-4(i), the Broker-Dealer Participants will rely on Omgeo to satisfy the requirements ofRule 17a-3(a)(8) to make and keep current a complete copy of each TradeSuite confirmation delivered to a customer, as well as to preserve such confirmations under Rule 17a-4(b)(1). We also note that Omgeo will preserve the confirmations as is required by Rule 17a-4; and that Omgeo and each Broker-Dealer Participant that engages Omgeo as a third party recordkeeper as described in your letter will enter into an agreement setting forth the obligations and representations of each party under the arrangement, consistent with the representations contained in your letter. We also note that each Broker-Dealer Participant is required by Form BD to promptly notify regulators of any third party books and records maintenance requirements. Finally, we note that Omgeo has made the representations and agreements required by Rule 17a-4(i). 17 CFR 240.10b-l0. 4

Mr. Norman M. Reed
March 19,2009
This position concerns enforcement action under Rules 17a-3(a)(8) and 17a-4 only and is based solely upon the representations you have made and is limited strictly to the facts and conditions described in your letter. Any different facts or circumstances, including any change to the operation ofTradeSuite, may require a different response. Finally, we express no view with respect to other questions the proposed activities of Omgeo may raise, including the applicability of any other federal or state laws or the applicability of any self-regulatory rules. Sincerely, A?c4~ {)~IJ- JJpf... ~~a Dombal Swartz J Special Counsel

o

omgeo
Shaping ST"'~ Norman M. Reed Tel 2! 2.85:>.3244 F3K 2i 2:855.32! S Omgeo is V'';atcr Street wwv:/.,orngeo;(Qrf, March 19, 2009 Michael A. Macchiaroli

Ass.oeiate Director

Division ofTradirtg and Markets

U.8. Securities and Exchange Commission

100 F Street, NE

Washington, DC 20549

Re:Request for Relief from Rules 173-3(3)(8) and 17a-4 Dear· Mr. MacchiaroJi:
Omgeo LLC ("Otngeo"}requests assurance thatthe staff of the Division of Trading and Markets (the "Division';) ofthe Securities an(flIxchange Commission (the "Commission") would not recommend enforcement action under Rules 17a-3(a)(8) and 17a-4 under the Securities Exchange Act of 1934 (the "Exchange Act") if, under the circUmstances described below, broker-deale:rs.that depend On Omgeo to transrnit confirmations ofputchases and sales of sec~rit~es{such broker-dealers, collec~'vely, "Broker-Dealer Participants") :el( on Omgeo.to mamtaIn and preserve such ~onfinnatlonsunder Exchange Act Rule 17a-4(t). In connectIOn with this request, and based on its'representations below, Omgeo seeks assurance that, in lieu of filing the written undertakings prescribedblRUI~ 17a-4(i) for each Broker-De(l.l~.r.Participant, Omgeo be allowecl to rely on the F011l1 BD reqmrement that Broker-Dealer PartICIpants promptly notify regulators ofany third party books and records maintenance arrangements. Omgeo is a Delaware limited liability company that is a joint venture between The Depository Trust & Clearing Corporation ("DTeC") and. certain subsidiaries ofThomson Reuters. In connection with its TradeSuite service,Orrtgeo enters into agreements with Broker..;Dealer Participants pursuant to which 01l1geo agrees to prepare and deliver, and to ml!lintain and preserve copies of, confirmations of purchases and sales ofsecurities ofits Broker-Dealer Participants' customers ("Customers'} TtadeSliite is the currentna.me onhe ID System that I Securitiestran~actionconfirmationsptepated by a Broker-Dealer Participant without the involvement ofOmgeo as described in this le.tter would not be covered by this request, and must be made and kept in accordance with Exchange Act Rules 17a-3 and 17a-4. We also note that a Btoker-Dealer Participant will continue to have a responsibility to give orsend such confirmations pursuant to Exchange Act Rule IOb-I o. 17 CFR§§ 240. 17a-3, 240.17a4, and 240.IOb-1O. 2 17 CFR § 240.15b I-I; 17 CFR § 249.501. A DTCCfThomson Financial Company

Mr. Michael A. Macchiaroli
March 19, 2009 was formerly operated by The Depository Trust Company ("DTC''). 3 Pursuant to a 1983 no￾action letter (the "1983 No-Action Letter"),4 DTC and later Omgeo has provided, and maintained and preserved copies of, confirmations in satisfaction ofExchange Act Rules 10b-10, 17a-3,and 17a-4. Generally, Rule 10b-lO requires broker-dealers to deliver confll1nations to their customerS at or befote completion of each securities transaction, Rule 17a-3(a)(8) requires broker-dealers to make and keep current copies ofconfirmations of all purchases and sales of securities, and Rule 17a-4(b)(1) requires broker-dealers to pt<;:serve for a period of not less than three years, the first twQ years in an easily accessible place, all records required to be made pursuant to Exchange Act Rule 17a-3(a)(8). In the 1983 No~Action Letter, the Division provided Broker-Dealer Participants (referred to in that letter as "ID Brokers") with various alternatives to satisfy their recordkeeping requirements relating to DTC-'prepared confirmations. Ofrelevance to Orngeo's reCjIJest herein, if a Broker~ Dealer Participant chose not to receive a confirmation from DTC, the Division stated that it would.notrecommend enforcement action to the·Commissionifthe Broker-Dealer Participant retained in compliance with Rule 17a-4 the data it submitted to DTC to enable DTC to deliver a confirmation.s In connection with this relief, DTC agreed to promptly make available to the Cominission's examInation staff copies of any confirmation prepared by it upon request by the staff. III 2(jO1, the Division stated that DTe's transfer ofits TradeSuite service to Omgeodid not affect the staff's positions expressed in the 1983 No-Action Letter.6 The ID System, which; as described above, is now known as TradeSuite, has, since 1983, eXPanded in $copeand in the number of users ofthe service. Although the telief provided to Broker-Dealer PattiGipants in the 1983 No~Action Letter has beenhelpful to Omgeo and firms relying on that guidance, forthcoming enhancements to TiadeSuite relating to electronicaIly￾delivered confirmations have caused uncertainty among Broker-'Dealer Participants as to the applicability ofthe 1983 No-Action Letter. As noted above, under the 1983 No-Action Letter, a Broker-Dealer Participant is not required to receive a confirmation from Omgeo ifthe Broker-Dealer Participant retains in compliance with Rule 17a-4 the data it submits to Omgeo to enable it to deliver acontirmatioh. Pursuant to a no'" 3 DTCC was created in 1999 as a holding company for DTCand the National Securities Clearing Corporation, each ofwhich is registered as a clearing agency pursuant to Section 17A ofthe Exchange Act. 4 .Letter re: The Depository Trust Company (Jan. 31, 1983). See also letter re: The Depository Trust Company (Oct. 29,1974). 5 The staffalso permitted a Broker-Dealer Participant to receive a contil111ation from DTC in a me4ium other than hard copy or certain Qther specified media, and to
retain it in the medium received. Finally, the staff stated that if a Broker-Dealer Participant chose to retain the data or confirmation inamedium other than hard copy or another acceptable media, the Broker-Dealer Participant was required, upon request, to make available to the Commission or its staff legible, true and complete copies Qfthe data or confirmation, in readable form. 6 Letter re: The Depository TrustCompany (Apr. 17, 200 I).

Mr. Michael A. MacchiaToli
March 19, 2009 action letter issued to Omgeo last year (the "2008 No-Action Letter")'? however, a Broker~ Dealer Participant will no longer be required to transmit to Omgeo all of the disclosures included on each electronic confirmation issued by TradeSuite on a transaction-by-transaction basis. Specifically, under the 2008 No-Action Letter, when Omgeo delivers an electronic confirmation via TradeSuite; the Broker-Dealer Participant will no longer need to transmit to Omgeo the Rule 1Ob-lO di~do~ures customarily provided on the. back of a paper c()n~rmati~n for.each. confirmatlOn Issued by Omgeo.· Because of thIS change to TradeSulte, whIch Will provIde significant cost savingsto Broker-Dealer Participants and their Customers, itis no longer clear whether the recordkeeping relief contained in the 1983 No-Action Letter will continue to apply. As Omgeo currently maintains and preserves copies of all ofthe confirmations it issues for Broker-Dealer Participants, and in the near future, relying on the 2008 No-Action Letter, Orngeo "viII also maintain artd preserve all ofthe disclosures customarily provided on the backof paper confirmations; Omgeo believes that itis the most appropriate repository to which regulatory authorities can turn to obtain complete copies of a Broker-Dealer Participant's confirmations issued by TradeSuite. Omgeo also continues to adhere to its agreementcontaineu in the 1983 No-ActionLetter and the 2008 No-Action Letter to make av~labIe to the Comrnissi,on's examination staff in a prompt manner a copy of any confimuition it issues where requested by the staff. For these,reasons; Omgeobelieves that permitting a Broket-DealerParticipant to rely on Rule 17a-4(j) withrespectto confirmationsissuedhy Trade$uite is areasonable solution to address the Cominission's regulatory objectives under the recordke,epingrules in conjunctioh with the recent changes to TradeSuite as described in the 2008 No-Action Letter. Under Rule 17a-4(i), ifrecords requited to be maintained and preserved pursuant to Rule 17a-3 and Rule 17a-4 are prepared or maintained on behalfofa broker-dealer by an outside entity, such outside entity must file with the Commission a written undertaking in ~. form acceptable to the CommiSSion, signed by a duly authorized person, tathe effect thatsuch records are the property ofthe broker-dealer requirfjd to main~in.and preserve.sueh records. Such outside entity also must.agree to surrender such records promptly on request oftlie broker-dealer, and include the following language in its written undertaking:
With respect to .any books and records maintained or preserved on behalfofIBD], the undersigned hereby undertakes to permit examination of such books and records at any time or from time to time during business hours by representatives or designees of the Securities and Exchange Commission, and to promptly'furnish to said Commission or its designee, true, correct, complete and current hardcopy of any or all or any part of such books and records. 7 Letter re: Omgeo LLC (Mar. 12, 2008). 8 Broker-Dealer Participants will provide Omgeo with the types of disclosures that the Broker-Dealer Participant customarily includes on the back of paper confirmations (e.g., disclosures for fixed income transactions arid for equity transactions), and when an electronically-delivered TradeSuite. confirmation is sent to a Customer, Omgeo will make applicable disclosures available to the Customer via a URL link stamped on the confirmation.

Mr. Michael A. MacchiaroH
March 19,2009
Omgeo is fully capable and willing to make the representations and agreements contained in Rule 17a-4(i} with respect to confirmations that it issues through its TtadcSuiteservice on behalf ofBroker-DealerParticipants. Omgeo currently has several thousand Broker-Dealer Participants using its TradeSuite service, however, and to provide meaningful cost savings to Customers and Broker-Dealer Participants, Omgeoseeks to affirmatively make the representations and agreements required by Rule 17a-4(i) in this letter.9 Further, in lieuofOmgeo filing the written undertakings prescribed by Rllle 17aA(i) for each Broker-Dealer Participant, Omgeo seeks to rely on the obligation contained in Item 8,A. and
Schedule D of Form BD, which require each Broker-DealerParticipant to report and keep
current details regarding any arrangement that it has with a third party to keep Or maintain the Broker-Dealer Participant's books and records. Specifically, ItemS.A; ofFotm BD requircsa broker-dealer to report whether it has an arrangement with any other person, fll1l1, or organization under Which any bOOks orrecords ofthe broker-dealer are kept ormaintained by suchotherpetson, firm, or organization. If a bioker-dealer responds affirmatively to Item 8.A., the broker-dealer is then required to report details relatitlgto sucharrangeinent(S) on Schedule D,
Section IVofForrn BD, including the name and address ofthe person, hnri, or organization
majntainingthe broker-dealer's books or records. By law, a, broker-dealer must promptly update FQ!mJ3D information by submitting amendments whenever the information on file becomes inaccurate or incomplete for any reason. Und¢r thearraJigements described above, the Commission andea~h appltcable Designated EXaminingAuthority fora .Broker-Dealer Participant will have notice as to Omgeo's status as recordkeeper for the Broker-Dealer Participant'S confitmationsand \vill have ready access to those confirmations through Omgeo based on its representations below. 10 ' Based on the foregoing, Omgeo makes the following representationsto the Commission and requests the Division's assurance that it would not recommend enforcement action unclor Rules 17a-3(a)(8) and 17a-4jfBroker~Dealer Parti¢ipants rely onOmgeo to maintain andpreserve corifinnationsofpurchases and sales ofsecurities under Exchange Act Rule 17a-4(i) as described above. ' 9 We note that Omgen is a Commission-regulated entity and that the Commission has rel\dy access to Omgeo and its records. See Exchange Act Release No. 44188 (Apr. 17,20(1). In Release 3444188, Omgeo agrees to, among other things, respohd to requests from the Commission for informationregarding its TradeSuite service, and to provide access to the Commission to conduct on-site inspections ofall facilities, records,and personne] related to TradeSuite. Omgeo alSOab'TeeS to preserve a copy or record of all trade details, reports and notices sent to customers pertaining to TradeSuite, and to retain these records for a period of not less than five years, the first two years in an easily accessible place. 10 Omgeo also will keep, and will be able generate for the Commission upon request, a list of Btoker-Dealer Participants for which it acts as such a recordkeeper.

Mr. Michael A. Macchiaroli
March 19, 2009
PageS of5
Representations:
(i) Omgeo agrees that records ofRule lOb-lO confirmations of a Broker;..Dealer Participant that are prepared and issued by Omgeo through its TradeSuite service, wbichare required to be maintained and preserved by the Broker-Dealer Participant pursuant to Rules 17a-3 and Rule 17a-4, are the property ofthe Broker-Dealer Plirticipant (except for such additional copies that Omgeo maintains for purposes ofits own recordkeeping obligations); (ii) Omgeo agrees to SUrrendersuch records that are the property of the Broker-Dealer Participant promptly on request ofthe Broker￾Dealer Participant; and (iii) Omgeo agrees to permit examinatiOl) ofsuchrecotds, which Omgeo will maintain in such formatas is required by Rule 17a-4, atanytirne ot from time to time ,during business hours by representatives or designees of the Commission, and to promptly furnish to said CommisSion or its designee true, correct, complete and current hard copy of any or allor any partofsuch books and records. ll We welcome the, opportunity to discuss this requestwith you. Ifyou have any questions regarding this request, please call meat 212-855-3244, or our outside counsel, Jack Drogin and Mark Attar of SchiJfHardin LLP, at 202-778-6422 and 202';778;.6427, respectively. On behalf of Omgeo, we appreciate the staffs cOIl.sidetation ofthis request. Very truly yours1 "ill [{OJ "'//'7 /'" / ,//_ :.< U"YV~.?, l10rman M. Reed General Counsel cc: Thomas K. McGowan, Assistant Director Division ofTrading and Markets, SEC Sheila Dornbal Swartz, Spedal Counsel

Division of Trading and Markets, SEC

II Omgeo and each Broker-Dealer Participantthat engages Omgeo as a third partyrecordkeeper as described above will enter inroan agreement setting forth the obligations and representations ofeach party under the arrangement, consistent with the representations c(jntained in this letter.