[Federal Register Volume 81, Number 84 (Monday, May 2, 2016)]
[Notices]
[Pages 26277-26279]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-10155]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77716; File No. SR-ISEMercury-2016-09]


Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing 
of Proposed Rule Change Relating to Preferenced Volume

April 26, 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 April 13, 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 and 
II 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 the 
Substance of the Proposed Rule Change

    The purpose of this proposed rule change is to amend the Exchange's 
Schedule of Fees to explain that while 100% of eligible traded volume 
preferenced to a Market Maker counts towards that member's volume 
tiers, Market Makers not preferenced on an order will receive credit 
for the volume those non-preferenced members execute. The text of the 
proposed rule change is available on the Exchange's Web site (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 self-regulatory organization 
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
    On March 10, 2016, ISE Mercury introduced fee and rebate tiers for 
Market Maker \3\ and Priority Customer \4\ orders based on the average 
daily volume (``ADV'') that a member executes in Priority Customer 
orders.\5\ The Exchange assesses fees and rebates for Market Maker and 
Priority Customer orders based on five tiers of Total Affiliated 
Priority Customer ADV, as described in Table 4 of the Fee Schedule: \6\ 
0--19,999 contracts (``Tier 1''), 20,000--39,999 contracts (``Tier 
2''), 40,000--59,999 contracts (``Tier 3''), 60,000--79,999 contracts 
(``Tier 4''), and 80,000 or more contracts (``Tier 5'').\7\ As

[[Page 26278]]

is the case on ISE Mercury's affiliated exchanges--the International 
Securities Exchange, LLC (``ISE'') and ISE Gemini, LLC (``ISE 
Gemini'')--the Exchange's ADV calculation includes volume executed by 
affiliated members. In particular, the Exchange aggregates all eligible 
volume from affiliated members in determining applicable tiers, 
provided that there is at least 75% common ownership between the 
members as reflected on the member's Form BD, Schedule A. While this 
method of aggregating volume is beneficial to large firms with multiple 
affiliated members, the Exchange believed that it was also important to 
give smaller firms the ability to compete for more favorable fees and 
rebates.
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    \3\ The term Market Makers refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively.
    \4\ 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), as defined in ISE Mercury Rule 
100(a)(37A).
    \5\ See Securities Exchange Act Release No. 77409 (March 21, 
2016), 81 FR 16240 (March 25, 2016) (SR-ISE Mercury-2016-05).
    \6\ The Total Affiliated Priority Customer ADV category includes 
all Priority Customer volume executed on the Exchange in all symbols 
and order types, including volume executed in the PIM, Facilitation, 
and QCC mechanisms.
    \7\ The highest tier threshold attained applies retroactively in 
a given month to all eligible traded contracts and applies to all 
eligible market participants. Any day that the market is not open 
for the entire trading day or the Exchange instructs members in 
writing to route their orders to other markets may be excluded from 
the ADV calculation; provided that the Exchange will only remove the 
day for members that would have a lower ADV with the day included.
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    On March 10, 2016, the Exchange adopted ADV tiers that are based on 
preferenced volume \8\--i.e., volume directed to a specific Market 
Maker as provided in Supplementary Material .03 to Rule 713.\9\ In 
particular, the Exchange gives Market Makers volume credit for 100% of 
eligible traded volume preferenced to that member,\10\ regardless of 
the actual allocation that the Market Maker receives. For example, 
assume Market Maker ABC is quoting at the national best bid or offer 
(``NBBO'') and receives a Preferenced Order for 10 contracts from an 
unaffiliated firm for the account of a Priority Customer. If there are 
other Market Makers quoting at the NBBO, Market Maker ABC may receive 
an allocation of 4 contracts--i.e., 40% of the order. Rather than 
counting only the 4 contracts executed towards the Market Maker's 
volume total, the Exchange gives that Market Maker credit for the full 
10 contracts preferenced to it. This is the same credit the member 
would receive if the 10 contracts were sent to the exchange by an 
affiliated member. The purpose of the current rule filing is to clarify 
that even though Market Maker ABC receives full credit for all 10 
contracts when executing 4 contracts, the non-preferenced Market Makers 
that execute the remaining 6 contracts will still receive credit for 
those 6 contracts as they normally would.
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    \8\ See Securities Exchange Act Release No. 77412 (March 21, 
2016), 81 FR 16238 (March 25, 2016) (SR-ISE Mercury-2016-06).
    \9\ An Electronic Access Member (``EAM'') may designate a 
``Preferred Market Maker'' on orders it enters into the System 
(``Preferenced Orders''). Supplementary Material .03 to Rule 713 
describes the Exchange's rules concerning Preferenced Orders.
    \10\ ``Eligible volume'' refers to volume that would otherwise 
count towards to applicable volume tier. In the case of ADV 
thresholds based on Total Affiliated Priority Customer ADV, as 
currently implemented on ISE Mercury, all Priority Customer volume 
would be ``eligible.'' See note 6 supra.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act, and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\11\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\12\ because it is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest. The Exchange believes 
that the proposed clarification is reasonable and equitable because it 
will eliminate member confusion regarding how volume is counted among 
Market Makers when contracts are preferenced to a Market Maker and 
executed by preferenced and non-preferenced Market Makers.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\13\ 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. To the contrary, 
the Exchange believes that the proposed rule change merely clarifies an 
existing rule already in effect.
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    \13\ 15 U.S.C. 78f(b)(8).
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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 written comments from members or other interested parties.

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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    At any time within 60 days of the filing of the 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-2016-09 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-2016-09. 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

[[Page 26279]]

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-2016-09, and 
should be submitted on or before May 23, 2016.\16\
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-10155 Filed 4-29-16; 8:45 am]
 BILLING CODE 8011-01-P