January 11, 2006

Mr. C. Thomas Richardson
Member of the Board of Directors
OnTrade, Inc.
301 South Missouri Avenue
Clearwater, FL 33756

Dear Mr. Richardson:

In your letter dated January 10, 2006, you state that Citigroup Financial Products Inc. ("CFPI") intends to acquire (i) the stock of OnTrade, Inc. ("OnTrade"), the broker-dealer that is currently registered with the Securities and Exchange Commission ("Commission") and has previously operated through the date hereof the electronic communications network ("ECN")¹ known as NexTrade ECN ("NexTrade ECN"), and (ii) certain assets of NexTrade Holdings, Inc., the parent company of OnTrade (collectively, the "Proposed Acquisition").

The Division has previously taken the position that NexTrade ECN is an ECN as defined in the "ECN Amendment" to the Quote Rule² and the Limit Order Display Rule³ (collectively the "Order Execution Rules") under the Act and that OnTrade would be in compliance with the requirements applicable to the ECN Display Alternative⁴ set forth in the ECN Amendment with respect to any Nasdaq security for which a linkage between NexTrade ECN and a self-regulatory organization ("SRO") is operational. The Division has stated that it would not recommend that the Commission take enforcement action against OTC market makers or exchange market makers, each as defined in Regulation NMS,⁵ who are participants in NexTrade ECN if those market makers enter orders into NexTrade ECN without modifying their public quotations, in compliance with the ECN Display Alternative. The Division set forth this position in a series of no-action letters; the original no-action letter, issued on April 2, 2004, was extended most recently on October 7, 2005.

You represent that, upon consummation of the Proposed Acquisition, CFPI will re-brand the NexTrade ECN as OnTrade ECN ("OnTrade ECN"), and OnTrade will entirely own and operate OnTrade ECN as an alternative trading system pursuant to Regulation ATS of the Act.⁶ In addition, you represent that OnTrade will operate OnTrade ECN in substantially the same manner as OnTrade had operated NexTrade ECN, i.e., as an ECN in NMS stocks,⁷ pursuant to the rules of one or more national securities exchanges or national securities associations.

In your letter, you request that the Division advise OnTrade that:

1. OnTrade ECN is an ECN as that term is defined in Rule 600(b)(23) of Regulation NMS;⁸
    
2. OnTrade would be in compliance with the requirements of the ECN Display Alternative with respect to any NMS stock for which a linkage between OnTrade ECN and an SRO or the NASD Alternative Display Facility ("ADF") is operational; and
    
3. Upon compliance by OnTrade with the ECN Display Alternative, the Division would not recommend that the Commission take enforcement action against any OTC market maker or exchange market maker for entry into OnTrade ECN of (i) orders, without modifying their public quotations in compliance with the ECN Display Alternative; and (ii) customer limit orders, in compliance with the Limit Order Display Rule.⁹

The Division hereby grants your request. Accordingly, the Division takes the position that, upon consummation of the Proposed Acquisition, OnTrade ECN will be an ECN as defined in Rule 600(b)(23) of Regulation NMS. The Division also believes that OnTrade will be in compliance with the requirements applicable to the ECN Display Alternative with respect to NMS stocks for which a linkage between OnTrade ECN and an SRO or the ADF is operational and OnTrade ECN provides access to certain orders pursuant to the terms of the ECN Display Alternative. The Division will not recommend that the Commission take enforcement action under the ECN Amendment or the Limit Order Display Rule against any OTC market maker or exchange market maker for entry into OnTrade ECN of: (i) orders without modifying their public quotations in compliance with the ECN Display Alternative; and (ii) customer limit orders, in compliance with the Limit Order Display Rule. In taking this position, the Division relied on the following representations made in your letter of January 10, 2006:

1. OnTrade ECN will be an ECN within the meaning of Rule 600(b)(23) of Regulation NMS and will be an electronic trading system that allows subscribers, including OTC market makers and exchange market makers, to enter orders in NMS stocks for dissemination to other subscribers, and will permit other subscribers to effect executions, in whole or in part, against such orders;
    
2. OnTrade ECN will be operated in substantially the same manner as NexTrade ECN was operated;
    
3. OnTrade will establish a linkage with an SRO and/or the ADF and provide broker-dealers access to certain orders. All subscriber orders at the "top" of OnTrade ECN's book, i.e., best bid/ask by time priority, will be aggregated by security and transmitted to either such SRO or the ADF for display. Non-subscriber broker-dealers will be able to view the "top of the book" quote of OnTrade ECN displayed through the SRO or the ADF and will be able to execute against the quotes in an SRO montage via such SRO's platform or execute against quotes displayed in the ADF, either via an SRO platform or through a separate linkage system between such non-subscriber broker-dealer and OnTrade ECN;
    
4. OnTrade will respond to orders entered into OnTrade ECN through access to an SRO, or through the linkage system to OnTrade ECN for quotes displayed in the ADF, no slower than it will respond to orders entered directly by subscribers into OnTrade ECN, and in any event, in no more than a few seconds. Access to OnTrade ECN through the ADF can be made through a direct connection (e.g., T-1 line) or an indirect one through another broker-dealer or order router that is directly connected, as further described in Exhibit F to OnTrade's IOR filed on December 14, 2005. OnTrade will maintain a team of duly registered personnel to receive and execute orders received telephonically from subscriber and non-subscriber broker-dealers against OnTrade ECN orders displayed in an SRO montage or the ADF. OnTrade will charge non-subscriber broker-dealers a rate no more than the fee it charges a substantial portion of its active broker-dealer subscribers, and in any event no more than $0.009 per share,¹⁰ plus any fees charged to OnTrade by an SRO for such trades (e.g., Nasdaq Market Center order entry and/or cancellation fees).
    
5. OnTrade ECN will have sufficient capacity to handle the volume of data reasonably anticipated to be conducted in OnTrade ECN. OnTrade will conduct periodic review and testing to: (i) ensure future capacity; (ii) identify potential weaknesses; and (iii) reduce the risks of system failures and threats to system integrity; and
    
6. OnTrade has put in place and will maintain procedures to ensure that only certain designated personnel have access to OnTrade ECN. Those designated personnel will keep all trading information entered into OnTrade ECN confidential, and will not use such information for trading in any proprietary account(s) of OnTrade or of its affiliated broker-dealers, its or their customers' accounts, or such personnel's own personal trading accounts.

The Division conditions its position on the continuing accuracy of these representations and compliance by OnTrade 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, OnTrade ECN, may require a different response. The Division may request additional representations from you regarding the operation of OnTrade ECN. 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 Act¹¹ 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 OnTrade ECN and the manner of operation of the linkage between OnTrade ECN and the SRO or members of the ADF. Therefore, the Division is limiting the effectiveness of this no-action position until June 28, 2006.

Upon consummation of the Proposed Acquisition, the Division's no-action position with respect to NexTrade ECN is withdrawn.

Endnotes

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¹The term "electronics communications network" is defined in Rule 600(b)(23) of Regulation NMS, 17 CFR 242.600(b)(23).

²Formerly 17 CFR 240.11Ac1-1. See Securities Exchange Act Release No. 37619A (September 6, 1996), 61 FR 48290. The Quote Rule has been re-designated as Rule 602 of Regulation NMS under the Securities Exchange Act of 1934 ("Act"), 17 CFR 242.602. See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). Regulation NMS became effective as of August 29, 2005.

³Formerly 17 CFR 240.11Ac1-4. The Limit Order Display Rule has been re-designated as Rule 604 of Regulation NMS, 17 CFR 242.604.

⁴Formerly 11Ac1-1(c)(5)(ii). The ECN Display Alternative has been re-designated as Rule 602(b)(5)(ii) of Regulation NMS, 17 CFR 242.602(b)(5)(ii).

⁵The term "exchange market maker" is defined in Rule 600(b)(24) of Regulation NMS, 17 CFR 242.600(b)(24); the term "OTC market maker" is defined in Rule 600(b)(52) of Regulation NMS, 17 CFR 242.600(b)(52).

⁶See 17 CFR 242.300-303.

⁷See 17 CFR 242.600(b)(47) (defining "NMS stock"). In its Initial Operation Report on Form ATS ("IOR"), originally filed on March 5, 2004, OnTrade represented that NexTrade ECN traded in all Nasdaq securities, as such term is currently defined in Rule 600(b)(41) of Regulation NMS, 17 CFR 242.600(b)(41), and NMS securities (which include options), as such term is currently defined in Rule 600(b)(46) of Regulation NMS, 17 CFR 242.600(b)(46). With respect to OnTrade ECN, OnTrade represented in its IOR filed on December 14, 2005 that OnTrade ECN expects to trade in all NMS stocks, which, by definition, include all Nasdaq and NMS securities, but exclude options. OnTrade represented in both IORs that their respective alternative trading systems did not, or did not expect to, trade in any securities that are not registered under Section 12(a) of the Act.

⁸17 CFR 242.600(b)(23).

⁹17 CFR 242.604.

¹⁰The 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).

¹¹15 U.S.C. 78k-1.

http://www.sec.gov/divisions/marketreg/mr-noaction/ontrade011106.htm