[Federal Register Volume 81, Number 58 (Friday, March 25, 2016)]
[Notices]
[Pages 16240-16245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06744]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77409; File No. SR-ISEMercury-2016-05]


Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees

March 21, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 10, 2016, ISE Mercury, LLC (the ``Exchange'' or ``ISE 
Mercury'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change, as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    ISE Mercury proposes to amend its Schedule of Fees by adopting 
volume-based tiered rebates and fees. These tiers are determined by a 
member's average daily volume of Priority Customer orders traded on the 
Exchange. The text of the proposed rule change is available on the 
Exchange's Internet Web site at http://www.ise.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The self-regulatory organization has prepared summaries, 
set forth in Sections A, B and C below, of the most significant aspects 
of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    ISE Mercury is proposing to amend its Schedule of Fees to establish 
volume-based tiered rebates and fees (the ``Member Volume Program'' or 
``MVP''). The MVP tiers are determined by a member's average daily 
volume (``ADV'') of Priority Customer \3\ Regular Orders,\4\ in Penny 
and Non-Penny Pilot Symbols,\5\ traded on the Exchange. The Exchange 
will also aggregate the trading activity of affiliated members in 
determining this ADV.\6\ ISE Mercury believes the proposed fee and 
rebate tiers will incentivize firms to increase Priority Customer order 
flow to the Exchange. The Exchange is also proposing Penny and Non-
Penny Symbol fees for both Crossing Orders and Responses to Crossing 
Orders. Finally, the Exchange proposes to offer Market Makers \7\ a per 
contract discount when trading against Non-Priority Customer orders.
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    \3\ A Priority Customer is a person or entity that is not a 
broker/dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s).
    \4\ A Regular Order is an order that consists of only a single 
option series and is not submitted with a stock leg.
    \5\ Under the Penny Pilot, the minimum price variation for all 
participating options classes, except for the Nasdaq-100 Index 
Tracking Stock (``QQQ''), the SPDR S&P 500 Exchange Traded Fund 
(``SPY'') and the iShares Russell 2000 Index Fund (``IWM''), is 
$0.01 for all quotations in options series that are quoted at less 
than $3 per contract and $0.05 for all quotations in options series 
that are quoted at $3 per contract or greater. The proposed fees and 
rebates for Penny Pilot symbols apply to all classes in the Penny 
Pilot, i.e., to series that are quoted at less than $3 that have a 
minimum price variation of $0.01 and to series that are quoted at $3 
or more that have an minimum price variation of $0.05. QQQ, SPY, and 
IWM are quoted in $0.01 increments for all options series.
    \6\ Aggregation is necessary and appropriate because certain 
members conduct customer and market maker trading activity through 
separate but related broker-dealers.
    \7\ The term Market Makers refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. Market Maker 
orders sent to the Exchange by an Electronic Access Member are 
assessed fees at the same level as Market Maker orders.
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The Member Volume Program
    Currently, the fees and rebates assessed for Regular Orders in 
standard options that are in the Penny Pilot are: (1) $0.20 per 
contract for Market Maker orders,\8\ (2) $0.47 per contract for Non-ISE 
Mercury Market Maker,\9\ Firm Proprietary \10\/Broker-Dealer,\11\ and 
Professional Customer \12\ orders; and (3) ($0.18) per contract for 
Priority Customer orders. The transaction fees and rebates assessed for 
Regular Orders that are not in the Penny Pilot are: (1) $0.20 per 
contract for Market Maker orders; (2) $0.90 per contract for Non-ISE 
Mercury Market Maker, Firm Proprietary/Broker-Dealer, and Professional 
Customer orders; and (3) ($0.18) per contract for Priority Customer 
orders.
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    \8\ This fee applies to ISE Mercury Market Maker orders sent to 
the Exchange by Electronic Access Members.
    \9\ A Non-ISE Mercury Market Maker, or Far Away Market Maker 
(``FARMM''), is a market maker as defined in Section 3(a)(38) of the 
Securities Exchange Act of 1934, as amended (``Exchange Act''), 
registered in the same options class on another options exchange.
    \10\ A Firm Proprietary order is an order submitted by a member 
for its own proprietary account.
    \11\ A Broker-Dealer order is an order submitted by a member for 
a non-member broker-dealer account.
    \12\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
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    The Exchange proposes to amend the above fees and rebates so that 
they will be based on a member's ADV of Priority Customer orders traded 
in a given month and the highest tier threshold attained applies 
retroactively in a given month to all eligible traded contracts and 
applies to all eligible market participants. This Priority Customer ADV 
includes all Priority Customer volume executed on the Exchange in all 
symbols and order types, including volume executed in the Price 
Improvement Mechanism (``PIM'') and the Facilitation and Qualified 
Contingent Cross mechanisms.
    Further, the Exchange will aggregate the trading activity of 
separate members in calculating Priority Customer ADV provided there is 
at least 75% common ownership between the firms as reflected on each 
firm's Form BD, Schedule A. The Exchange believes that aggregating this 
volume across members that share at least 75% common ownership will 
allow members to continue to execute trades on the Exchange through 
separate broker-dealer entities for different types of

[[Page 16241]]

volume, while receiving rebates based on the aggregate volume being 
executed across such entities.
    The Exchange now proposes fees and rebates based on five volume 
tier levels as described in the table below. These fees and rebates 
will be based on the highest tier that a member reaches in a given 
month, and these tiered rates will apply retroactively to all eligible 
traded contracts for all client categories.

                       Qualifying Tier Thresholds
------------------------------------------------------------------------
                                                        Total affiliated
                         Tier                          priority customer
                                                              ADV
------------------------------------------------------------------------
Tier 1...............................................           0-19,999
Tier 2...............................................      20,000-39,999
Tier 3...............................................      40,000-59,999
Tier 4...............................................      60,000-79,999
Tier 5...............................................            80,000+
------------------------------------------------------------------------

    Additionally, the Exchange proposes to amend the Schedule of Fees 
to include language related to excluding days from the ADV calculations 
used to determine applicable fee and rebate tiers. Specifically, the 
Exchange proposes to (1) exclude from its ADV calculations any trading 
day on which the Exchange is closed early for holiday observance; (2) 
exclude days where the Exchange declares a trading halt in all 
securities or honors a market-wide trading halt declared by another 
market; and (3) permit days to be excluded from its ADV calculations 
where the Exchange is technically open for the entire trading day, but 
has instructed members to route away due to a systems or other error 
that ultimately does not impact trading on the Exchange. The Exchange 
also notes, however, that if it has a systems issue in the morning 
before the market opens, it may instruct members to route away to other 
markets. If the systems issue continues into trading hours, the 
Exchange is permitted to exclude the day for all members that would 
have a lower ADV with the day included. If, however, the systems issue 
is resolved prior to the opening of trading, the Exchange is not 
permitted to exclude the day from its ADV calculations. This is the 
case regardless of the fact that many members would have already made 
arrangements to route away in accordance with the Exchange's 
instructions. To prevent this undesirable result, and preserve the 
Exchange's intent behind adopting volume-based pricing, the Exchange 
proposes to allow days to be excluded from its ADV calculation whenever 
all members are instructed, in writing, to route their orders to other 
markets.
    Because the days the Exchange proposes to exclude from its ADV 
calculation generally have artificially lower trading volume, the 
Exchange believes that it is reasonable and equitable to not include 
such days in determining fee and rebate tiers. If the Exchange did not 
have the ability to exclude aberrant low volume days when calculating 
ADV for the month, as a result of the decreased trading volume, the 
numerator for the calculation (e.g., trading volume) would be 
correspondingly lower, but the denominator for the threshold 
calculations (e.g., the number of trading days) would not be decreased. 
This could result in an unintended cost increase. Absent the authority 
to exclude days that the market is not open for the entire trading day, 
members will experience an effective decrease in rebates. The 
artificially low volumes of trading on such days could reduce the 
trading activity of members both daily and monthly. Accordingly, 
excluding such days from the monthly calculation will diminish the 
likelihood of an effective increase in the cost of trading on the 
Exchange, a result that is unintended and undesirable to the Exchange 
and its members.
    The Exchange notes that the fees charged to Non-ISE Mercury Market 
Maker, Firm Proprietary/Broker Dealer and Professional Customer in 
Penny and Non-Penny Symbols are the same as the current fees charged, 
regardless of the tier level reached. However, the tiered fees and 
rebates for both Priority Customers and Market Makers have changed. The 
proposed fees and rebates for each tier and participant type are as 
follows:

                                          Penny Symbol Fees and Rebates
                                                 [Per contract]
----------------------------------------------------------------------------------------------------------------
                                                                                               Firm proprietary,
                                                                                                  B/D, FarMM &
                          Tier                           Priority customer     Market maker       professional
                                                                                                    customer
----------------------------------------------------------------------------------------------------------------
Tier 1.................................................            ($0.05)              $0.25              $0.47
Tier 2.................................................            ($0.10)              $0.22              $0.47
Tier 3.................................................            ($0.15)              $0.18              $0.47
Tier 4.................................................            ($0.21)              $0.15              $0.47
Tier 5.................................................            ($0.24)              $0.10              $0.47
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                                        Non-Penny Symbol Fees and Rebates
                                                 [Per contract]
----------------------------------------------------------------------------------------------------------------
                                                                                               Firm proprietary,
                                                                                                  B/D, FarMM &
                          Tier                           Priority customer     Market maker       professional
                                                                                                    customer
----------------------------------------------------------------------------------------------------------------
Tier 1.................................................            ($0.05)              $0.25              $0.90
Tier 2.................................................            ($0.10)              $0.22              $0.90
Tier 3.................................................            ($0.15)              $0.18              $0.90
Tier 4.................................................            ($0.21)              $0.15              $0.90
Tier 5.................................................            ($0.24)              $0.10              $0.90
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[[Page 16242]]

Crossing Orders
    The Exchange proposes Penny and Non-Penny Symbol fees for Crossing 
Orders. The Exchange currently charges a fee of $0.20 per contract for 
Crossing Orders \13\ in all symbols traded on the Exchange for all 
market participants, except Priority Customers who are charged $0.00 
per contract for Crossing Orders. A Crossing Order is an order executed 
in the Exchange's Facilitation Mechanism, Solicited Order Mechanism, 
PIM, or submitted as a Qualified Contingent Cross order. Orders 
executed in the Block Order Mechanism are also considered Crossing 
Orders. The fees for Crossing Orders, except for PIM Orders of 500 or 
Fewer Contracts, in both Penny and Non-Penny Symbols have not changed 
from current levels.
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    \13\ These fees apply to both originating and contra orders.
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    As an exception to the fees charged for Crossing Orders, the 
Exchange charges a fee of $0.05 per contract for PIM Orders of 500 or 
Fewer Contracts in all symbols traded on the Exchange for all market 
participants, except that Priority Customer orders on the originating 
side of a PIM auction receive a rebate of ($0.13) per contract. 
Priority Customer orders on the contra-side of a PIM auction pay no fee 
and receive no rebate. PIM orders greater than 500 contracts pay the 
Crossing Order fee, described above. The Exchange now proposes to offer 
tiered fees and rebates based on Priority Customer volume, as described 
above, for PIM Orders of 500 or Fewer Contracts. The Exchange notes 
that the fees for Non-Priority Customer orders have not changed from 
current levels, but the fees for Priority Customer orders have changed 
as described in the table, below.

                         All Symbols Fee/Rebate for PIM Orders of 500 or Fewer Contracts
----------------------------------------------------------------------------------------------------------------
                                                                                               Firm proprietary,
                                                                                                  B/D, FarMM &
                          Tier                           Priority customer     Market maker       professional
                                                                                                    customer
----------------------------------------------------------------------------------------------------------------
Tier 1.................................................            ($0.11)              $0.05              $0.05
Tier 2.................................................            ($0.11)              $0.05              $0.05
Tier 3.................................................            ($0.13)              $0.05              $0.05
Tier 4.................................................            ($0.13)              $0.05              $0.05
Tier 5.................................................            ($0.13)              $0.05              $0.05
----------------------------------------------------------------------------------------------------------------

Responses to Crossing Orders
    The Exchange proposes Penny and Non-Penny Symbol fees for Responses 
to Crossing Orders. A Response to a Crossing Order is any contra-side 
interest (i.e., orders and quotes) submitted after the commencement of 
an auction in the Exchange's Facilitation Mechanism, Solicited Order 
Mechanism, Block Order Mechanism, or PIM. Currently, the Exchange 
charges a fee of (1) $0.20 per contract for Market Maker orders and (2) 
$0.50 per contract for Non-ISE Mercury Market Maker, Firm Proprietary/
Broker-Dealer, Professional Customer, and Priority Customer orders in 
all symbols. For Responses to Crossing Orders in Penny Symbols, the 
Exchange proposes to charge Market Makers the corresponding tiered fees 
in the chart titled Penny Symbol Fees and Rebates, above. For Non-ISE 
Mercury Market Maker, Firm Proprietary/Broker-Dealer, Professional 
Customer, and Priority Customer orders in Penny Symbols, the fees have 
not changed from current levels. For Responses to Crossing Orders in 
Non-Penny Symbols, the Exchange proposes to charge Market Makers the 
corresponding tiered fees in the chart titled Non-Penny Symbol Fees and 
Rebates, above. For Non-ISE Mercury Market Maker, Firm Proprietary/
Broker-Dealer, Professional Customer, and Priority Customer orders in 
Non-Penny Symbols, the Exchange proposes to charge a fee of $0.95 per 
contract.
    With respect to the proposed MVP, described above, the Exchange 
notes that the fees and rebates currently being paid on ISE Mercury are 
in the range of fees and rebates in the new structure. During the 
initial rollout of symbols on ISE Mercury, the Exchange did not adopt 
the proposed tiered structure due to the difficulty of calculating 
appropriate ADV thresholds for each tier when symbols were being listed 
on the Exchange each week. The Exchange, therefore, opted to provide 
attractive introductory rates and Priority Customer order rebates in 
order to attract Priority Customer orders to the Exchange during the 
initial rollout phase. By adopting the proposed tiered structure now, 
the Exchange seeks to incentivize members to send additional order flow 
to the Exchange in order to qualify for lower fees and higher rebates.
Market Maker Discount
    The Exchange is also proposing a $0.05 per contract discount to 
Market Maker fees when the Market Maker trades against Non-Priority 
Customer orders. We believe this will incentivize Market Makers to 
provide competitive markets. This discount does not apply to Crossing 
Orders.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\14\ in general, and 
Section 6(b)(4) of the Act,\15\ in particular, in that it is designed 
to provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members and other persons using its facilities.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the fees proposed for transactions on ISE 
Mercury are reasonable. ISE Mercury will operate within a highly 
competitive market in which market participants can readily send order 
flow to any of the thirteen other competing venues if they deem fees at 
a particular venue to be excessive. The proposed MVP is intended to 
attract order flow to ISE Mercury by offering certain market 
participants incentives to submit their orders to ISE Mercury.
Member Volume Program
    The Exchange believes the proposed fees and rebates in the MVP are 
reasonable and equitably allocated because ISE Mercury has already 
established fees for members trading on the Exchange, and is merely 
proposing to adopt volume-based tiers designed to incentivize members 
to send additional Priority Customer order flow to the Exchange. 
Further, the language permitting aggregation of volume amongst 
corporate affiliates for purposes

[[Page 16243]]

of the ADV calculation is intended to avoid disparate treatment of 
firms that have divided their various business activities between 
separate corporate entities as compared to firms that operate those 
business activities within a single corporate entity. For example, many 
firms that are members of the Exchange operate several different 
business lines within the same corporate entity. In contrast, other 
firms may be part of a corporate structure that separates those 
business lines into different corporate affiliates, either for 
business, compliance, or historical reasons. Those corporate 
affiliates, in turn, are required to maintain separate memberships with 
the Exchange in order to access the Exchange. The Exchange believes 
that corporate affiliates should continue to be aggregated and is 
clarifying when members will be considered affiliated. The Exchange 
notes that the proposed definition of ``affiliate'' to be used to 
aggregate affiliated member ADV is consistent with definitions used by 
other options exchanges, including MIAX.\16\
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    \16\ See MIAX Fee Schedule, (1) Transaction Fees, (a) Exchange 
Fees, (iii) Priority Customer Rebate Program at https://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_02012016B.pdf.
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    The Exchange believes that it is equitable and reasonable to permit 
the Exchange to eliminate from the calculation days on which the market 
is not open the entire trading day, either due to a holiday or trading 
halt, because it preserves the Exchange's intent behind adopting 
volume-based pricing. The proposed change is non-discriminatory because 
it applies equally to all members and to all volume tiers. 
Additionally, the Exchange believes that it is reasonable and equitable 
to exclude a day from its ADV calculations when members are instructed 
to route their orders to other markets as this preserves the Exchange's 
intent behind adopting volume-based pricing, and avoids penalizing 
members that follow this instruction. Without this change, members that 
route away in accordance with the Exchange's instructions may be 
negatively impacted, resulting in an effective cost increase for those 
members. The Exchange further believes that the proposed rule change is 
not unfairly discriminatory because it applies equally to all members 
and ADV calculations. As is the Exchange's current practice, the 
Exchange will inform members of any day to be excluded from its ADV 
calculations by sending members a notice and posting such notice on the 
Exchange's Web site.
    The Exchange further believes that its proposal to provide rebates 
for Priority Customer orders is reasonable and equitable because the 
proposed rebates are competitive with the rebates offered by other 
exchanges employing similar tiered rebate structures based on Priority 
Customer volume. For example, MIAX Options Exchange (``MIAX'') and 
NASDAQ OMX PHLX (``PHLX'') have Priority Customer, tiered rebate 
programs.\17\ MIAX offers a per contract rebate of $0.00 for its base 
tier and a per contract rebate of $0.24 for its highest rebate tier in 
select symbols. Similarly, PHLX offers a per contract rebate of $0.00 
for its base tier and a per contract rebate of $0.21 for its highest 
tier in customer simple orders.\18\ As proposed, ISE Mercury's Priority 
Customer order rebates are not unfairly discriminatory because they 
would apply uniformly to all similarly situated market participants and 
they are competitive with the rebates offered by MIAX's and PHLX's 
Priority Customer rebate programs.
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    \17\ See MIAX Fee Schedule, (1) Transaction Fees, (a) Exchange 
Fees, (iii) Priority Customer Rebate Program at https://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_03012016.pdf and PHLX Fee Schedule, B. 
Customer Rebate Program at http://www.nasdaqtrader.com/Micro.aspx?id=phlxpricing.
    \18\ PHLX Fee Schedule, B. Customer Rebate Program, Category A 
at http://www.nasdaqtrader.com/Micro.aspx?id=phlxpricing.
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    The Exchange believes that providing higher rebates for Priority 
Customer orders, and creating ADV thresholds specifically for members 
that send such orders to ISE Mercury, attracts that order flow to the 
Exchange and thereby creates liquidity to the benefit of all market 
participants who trade on the Exchange. Further, the Exchange believes 
that it is equitable and not unfairly discriminatory to provide higher 
rebates to Priority Customer orders than to Professional Customer 
orders. A Priority Customer is by definition not a broker or dealer in 
securities, and does not place more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s). This limitation does not apply to participants on the 
Exchange whose behavior is substantially similar to that of market 
professionals, including Professional Customers, who will generally 
submit a higher number of orders (many of which do not result in 
executions) than Priority Customers. Further, Professional Customers 
engage in trading activity similar to that conducted by Market Makers 
and proprietary traders.
    The Exchange believes that its proposal to assess a per contract 
fee for Market Maker orders is reasonable and equitable because the 
proposed fees are within the range of fees assessed by other exchanges 
employing similar tiered rebate structures such as MIAX, which offers 
tiered fees for Market Makers. In Penny Symbols, MIAX generally charges 
Market Makers a per contract fee as high as $0.25 for its base tier and 
a per contract fee of $0.05 for its highest tier.\19\ In Non-Penny 
Symbols, MIAX charges a per contract fee of $0.29 for its base tier and 
a per contract fee of $0.09 for its highest tier.\20\ Thus, MIAX's 
tiered Market Maker fees are competitive with ISE Mercury's fees. The 
Exchange believes that the price differentiation between Market Makers 
and other Non-Priority Customers is appropriate and not unfairly 
discriminatory because Market Makers have different requirements and 
obligations to the Exchange that other market participants do not (such 
as quoting requirements). The Exchange believes that it is equitable 
and not unfairly discriminatory to provide lower fees to Market Makers 
because they would apply uniformly to similarly situated market 
participants.
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    \19\ See MIAX Fee Schedule, (1) Transaction Fees, (a) Exchange 
Fees, (i) Market Maker Transaction Fees, Market Maker Sliding Scale 
at https://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_03012016.pdf.
    \20\ Id.
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Crossing Orders
    The Exchange believes the proposed rebates for PIM Orders of 500 or 
Fewer Contracts \21\ are reasonable and equitably allocated because the 
proposed fees are within the range of fees assessed by other exchanges 
such as MIAX, which offers a rebate for PRIME Agency orders.\22\ For 
example, MIAX offers a per contract rebate of $0.10 for each Priority 
Customer order and also offers an additional per contract rebate of 
$0.02 for members that qualify for MIAX's Priority Customer Rebate 
Program's volume tiers 3 and 4.\23\ While ISE Mercury's tiered rebate 
is specifically targeted towards Priority Customer orders, the Exchange 
does not believe that this is unfairly discriminatory. As discussed 
above,

[[Page 16244]]

Priority Customer orders on the Exchange are generally entitled to 
lower fees and higher rebates, and the Exchange believes that 
attracting more liquidity from Priority Customers will benefit all 
market participants that trade on ISE Mercury. Further, the Exchange 
believes that it is equitable and not unfairly discriminatory to 
provide lower fees to Priority Customers because they would apply 
uniformly to similarly situated market participants.
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    \21\ The level is set at 500 or fewer contracts because Priority 
Customer orders are typically less than 500 contracts.
    \22\ See MIAX Fee Schedule, (1) Transaction Fees, (a) Exchange 
Fees, (iii) Priority Customer Rebate Program at https://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_03012016.pdf.
    \23\ Id.
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Responses to Crossing Orders
    The Exchange's proposal to assess Penny and Non-Penny Symbol fees 
for Responses to Crossing Orders is reasonable and equitably allocated 
because they are within the range of fees assessed by other exchanges. 
Specifically, the Exchange proposes to keep fees for Responses to 
Crossing Orders in Penny Symbols the same and to increase fees for 
Responses to Crossing Orders in Non-Penny Symbols so that these fees 
are competitive with similar fees charged on other exchanges. For 
example, ISE Gemini's Fees for Responses to Crossing Orders \24\ in 
both Penny and Non-Penny Symbols are competitive with those proposed by 
ISE Mercury. Further, the Exchange believes the proposed Fees for 
Responses to Crossing Orders are not unfairly discriminatory because 
they would uniformly apply to all similarly situated market 
participants.
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    \24\ See ISE Gemini Fee Schedule, I. Regular Order Fees and 
Rebates, Fee for Crossing Orders at http://www.ise.com/assets/gemini/documents/OptionsExchange/legal/fee/Gemini_Fee_Schedule.pdf.
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    With respect to the Responses to Crossing Orders' tiered fees for 
Market Maker orders, the Exchange believes that the proposed fees are 
fair, equitable, and not unfairly discriminatory because the proposed 
fees are consistent with the fees charged at other exchanges. For 
example, ISE Gemini charges Market Makers a Fee for Responses to 
Crossing Orders of $0.49 per contract in Penny Symbols and $0.89 per 
contract in Non-Penny Symbols. Similarly, ISE Mercury's proposal would 
charge per contract fees ranging from $0.50 (Tier 1 fee plus Marketing 
Fee) to $0.35 (Tier 5 fee plus Marketing Fee) in Penny Symbols and per 
contract fees ranging from $0.95 (Tier 1 fee plus Marketing Fee) to 
$0.80 (Tier 5 fee plus marketing fee) in Non-Penny Symbols. As 
discussed above, the Exchange believes that the price differentiation 
between Market Makers and the other market participants is appropriate 
and not unfairly discriminatory because they have requirements and 
obligations to the Exchange that the other market participants do not. 
Market Makers also incur Marketing Fees, which the other market 
participants do not. Thus, the Exchange believes that it is equitable 
and not unfairly discriminatory to assess a higher fee to certain 
market participants that do not have such requirements and obligations 
that Exchange Market Makers do.
Market Maker Discount
    The Exchange believes the proposed Market Maker discount is 
reasonable, equitable, and not unfairly discriminatory because Market 
Makers have different requirements and obligations to the Exchange that 
other market participants do not and they incur Marketing Fees. The 
Exchange notes that when trading against a Priority Customer the 
exchange pays a rebate for Priority Customer orders, but the Exchange 
charges a fee for executions of Non-Priority Customer orders. The 
Exchange believes that offering a discount on the fees charged to 
Market Makers will encourage Market Maker to make better markets and 
execute more trades. Furthermore, charging Market Makers lower fees for 
trading against a Non-Priority Customer order is not a new concept in 
the industry. For example, BOX Options Exchange, in Non-Penny Pilot 
Symbols, charges Market Makers a maker fee of $0.85 per contract for 
trading against a Priority Customer order and a maker fee of $0.00 for 
trading against a Professional Customer/Broker Dealer order.\25\ 
Finally, [sic]
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    \25\ See BOX Options Exchange Fee Schedule, Section I. Exchange 
Fees, A. Non-Auction Transactions at http://boxexchange.com/assets/BOX-Exchange-Fee-Schedule-as-of-February-26-2016.pdf.
---------------------------------------------------------------------------

    The Exchange notes that the proposed rule filing is intended to 
further establish ISE Mercury as an attractive venue for market 
participants to direct their order flow as the proposed fees and 
rebates are competitive with those established by other exchanges. The 
Exchange operates in a highly competitive market in which market 
participants can readily direct order flow to another exchange if they 
deem rebates at a particular exchange to be too low. For the reasons 
noted above, the Exchange believes that the proposed rebates are fair, 
equitable and not unfairly discriminatory.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\26\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The tiered 
rebate structure that the Exchange proposes to adopt is similar to 
those currently in effect on other options exchanges such as MIAX and 
PHLX, and will increase competition between ISE Mercury and these 
markets.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In establishing the MVP, the Exchange is not imposing any burden on 
competition. The established volume tiers are transparent and offer 
members a simple way to reach different levels of fees and rebates on 
the exchange, similar to levels and differentials these same 
participants are familiar with on several other exchanges. Volume tiers 
are not new to the options industry and generally reward members for 
submitting additional volume to the Exchange, with ISE Mercury now 
seeking to introduce a similar structure. The Exchange also notes that 
other exchanges have substantially similar requirements for aggregating 
affiliated member ADV in determining applicable tiered rebates.
    Finally, in establishing a Market Maker discount for Market Makers 
trading against Non-Priority Customer orders, the Exchange is not 
imposing any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act because other exchanges offer 
lower fees to Market Makers trading against Non-Priority Customers. 
Additionally, the Exchange notes that when trading against a Priority 
Customer the exchange pays a rebate for Priority Customer orders, but 
the Exchange charges a fee for executions of Non-Priority Customer 
orders. The Exchange believes that offering a discount on the fees 
charged to Market Makers will encourage Market Maker to make better 
markets and execute more trades.
    The Exchange operates in a highly competitive market in which 
market participants can readily direct their order flow to competing 
venues. In such an environment, the Exchange must continually review, 
and consider adjusting, its fees and rebates to remain competitive with 
other exchanges. For the reasons described above, the Exchange believes 
that the proposed fee changes reflect this competitive environment.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any

[[Page 16245]]

unsolicited written comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\27\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\28\ because it establishes a due, fee, or other charge 
imposed by ISE Mercury.
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    \27\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \28\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISEMercury-2016-05 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISEMercury-2016-05. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISEMercury-2016-05, and 
should be submitted on or before April 15, 2016.
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    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Brent J. Fields,
Secretary.
[FR Doc. 2016-06744 Filed 3-24-16; 8:45 am]
 BILLING CODE 8011-01-P