June 28, 2006

Mr. John M. Byrne
Compliance Officer
Bloomberg Tradebook LLC
731 Lexington Avenue
New York, NY 10022

Dear Mr. Byrne:

In your letter dated June 28, 2006, you requested that the Division of Market Regulation ("Division") of the Securities and Exchange Commission ("Commission") reaffirm its view that the Bloomberg Tradebook System ("System"), owned and operated by Bloomberg Tradebook LLC ("Bloomberg Tradebook"), a registered broker-dealer, is an electronic communications network ("ECN") as defined in Regulation NMS¹ under the Securities Exchange Act of 1934 ("Exchange Act") and would be in compliance with the requirements applicable to the ECN Display Alternative, as described in paragraph (b)(5)(ii) of Rule 602 of Regulation NMS ("Quote Rule"),² with respect to NMS stocks³ for which a linkage between the System and a self-regulatory organization ("SRO") is operational. The Division has previously taken that view in a number of no-action letters, most recently in November 2005.⁴

The Division hereby grants your request. Accordingly, the Division will not recommend that the Commission take enforcement action against OTC market makers⁵ or exchange market makers⁶ who are participants in the System, if those market makers enter orders into the System without modifying their public quotations, in compliance with the Quote Rule and Rule 604 of Regulation NMS ("Limit Order Display Rule"),⁷ as applicable. In taking this position, the Division has relied on various representations you made regarding the operation of the System, specifically that:

1. The System is an ECN within the meaning of Rule 600(b)(23) of Regulation NMS and allows subscribers, including OTC market makers and exchange market makers, electronically to enter orders in certain NMS securities.
    
2. Bloomberg Tradebook will maintain a linkage with at least one SRO trading facility⁸ or SRO display-only facility.⁹ With respect to any SRO trading facility or SRO display-only facility with which Bloomberg Tradebook has established a linkage, Bloomberg Tradebook transmits to such SRO trading facility or SRO display-only facility for display in the SRO's montage the best-priced orders entered by, among others, OTC market makers and exchange market makers for those NMS securities in which they make markets (or act as specialists). With respect to orders displayed in an SRO trading facility, Bloomberg Tradebook provides to any registered broker-dealer access to such orders that is functionally equivalent to the access that is generally available for quotations displayed by an SRO trading facility. With respect to orders displayed in an SRO display-only facility, Bloomberg Tradebook provides to any registered broker-dealer, directly or through a third party, a level and cost of access to such quotations that is substantially similar to the level and cost of access to quotations displayed by SRO trading facilities in that stock.
    
3. Bloomberg Tradebook responds and intends to continue to respond to orders in NMS securities in which it publishes its best bid and offer and associated sizes in SRO trading facilities and SRO display-only facilities delivered by non-subscribers as promptly as it responds to orders received from subscribers to execute against orders displayed in the System and in any event in substantially less than one second.¹⁰
    
4. In connection with its highest-priced published buy orders and lowest-priced sell orders, Bloomberg Tradebook will charge non-subscriber broker dealers a rate that does not exceed the then current rate charged to a substantial proportion of its active broker-dealer subscribers, and in any event, no more than the maximum fee permitted under Rule 610 of Regulation NMS.¹¹
    
5. The System has sufficient capacity to handle the volume of trading reasonably anticipated to be conducted in the System. In addition, the System will conduct periodic review and testing to: (a) ensure future capacity, (b) identify potential weaknesses, and (c) reduce the risks of system failures and threats to system integrity.

The Division's no-action position is conditioned on Bloomberg Tradebook maintaining active connectivity with one or more SRO trading facilities or SRO display-only facilities. In the event that the System loses connectivity with an SRO trading facility or SRO display-only facility, Bloomberg Tradebook, with respect to that facility, would not be in compliance with the ECN Display Alternative and the no-action relief described herein would not be available. Bloomberg Tradebook represents that it continuously and systematically monitors its connections to each SRO trading facility and/or SRO display-only facility with which it has established a linkage.

The Division further conditions its position on the continuing accuracy of these representations and compliance by Bloomberg Tradebook 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, Bloomberg Tradebook — may require a different response. The Division may request additional representations from you regarding the operation of the System. 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 Exchange Act only,¹² and does not express any legal conclusions regarding the applicability of Section 11A or other statutory or regulatory provisions of the federal securities laws.

Endnotes

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¹ See 17 CFR 242.600(b)(23).

² 17 CFR 242.602(b)(5)(ii).

³ See 17 CFR 242.600(b)(47).

⁴ See letter from Michael J. Gaw, Assistant Director, Division, to John M. Byrne, Compliance Officer, System, dated November 17, 2005.

⁵ See 17 CFR 242.600(b)(52).

⁶ See 17 CFR 242.600(b)(24).

⁷ 17 CFR 242.604.

⁸ See 17 CFR 242.600(b)(72).

⁹ See 17 CFR 242.600(b)(71).

¹⁰ Bloomberg Tradebook does not now have a linkage with an SRO display-only facility, but if it were to establish any such linkage, it would not deliver any quotation in an NMS security to such facility unless (a) it delivered the same quotation to an SRO trading facility at the same time, or (b) Bloomberg Tradebook would contract with an established party engaged in the securities industry that would be able to provide order-delivery services on behalf of Bloomberg Tradebook. In the latter case, such a relationship would be established to provide meaningful access to the System's quotations displayed in such SRO display-only facility.

¹¹ 17 CFR 242.610. The 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. See Securities Exchange Act Release No. 53829 (May 18, 2006) (extending compliance dates for Rule 610 and Rule 611 of Regulation NMS from June 29, 2006 to a series of dates, beginning on October 16, 2006, for different functional stages of compliance).

¹² 15 U.S.C. 78k-1.

Incoming Letter:

The Incoming Letter is in Acrobat format.

http://www.sec.gov/divisions/marketreg/mr-noaction/bloomberg062806.htm