In a letter from the SEC’s Division of Trading and Market staff on July 19, 2012, the SEC staff indicated that broker-dealer registration would not be required for a trading platform, essentially, linking broker-dealers to one another, including those registered as alternative trading systems.  See http://www.sec.gov/divisions/marketreg/mr-noaction/2012/s3-matching-tech-071912.pdf.

The SEC Staff found that the platform, as designed, would not be acting as a broker dealer, although it would be working with broker dealers in alternative trading systems.  The platform would relay buy and sell orders between brokers, but have no input as to price execution or order flow, among other things.  Further, the company would not recommend or endorse specific securities or financial services, or hold itself out as providing such financial services.  The platform would also not display any form of quotation among other things.  Based upon these–and other numerous representations– the SEC staff found that this was not an entity that would be required to be registered as a broker dealer.

This no-action letter extends the SEC Staff’s treatment of electronic trading systems and facilitators.  Based upon the representations that were made, the company’s platform was solely designed as a facilitator, and not as an interactive process.  In short, the traditional concept of a broker dealer seem to be shrinking, at least, as it relates to electronic communications.