[Federal Register Volume 81, Number 98 (Friday, May 20, 2016)]
[Notices]
[Pages 31986-31988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11881]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77841; File No. SR-ISEMercury-2016-11]


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

May 16, 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 May 2, 2016, ISE Mercury, LLC (the ``Exchange'' or ``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

    Mercury proposes to amend its Schedule of Fees proposes to amend 
its Schedule of Fees [sic] to add the definitions of ``Mercury 
Appointed Market Maker'' and ``Mercury Appointed Order Flow Provider'' 
effective May 2, 2016, which would increase opportunities for Market 
Makers to qualify for the Exchange's Member Volume Program (``MVP''). 
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
    Mercury proposes to amend its Schedule of Fees to add the 
definitions of Mercury Appointed Market Maker and Mercury Appointed 
Order Flow Provider effective May 2, 2016, which would increase 
opportunities for members to qualify for the Exchange's MVP.\3\
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    \3\ The MVP tiers are determined by a member's average daily 
volume of Priority Customer Regular Orders, in Penny and Non-Penny 
Pilot Symbols traded on the Exchange.
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    Specifically, the Exchange proposes to allow a Mercury Appointed 
Order Flow Provider (``MOFP'') \4\ to designate a Mercury Appointed 
Market Maker (``MAMM'') \5\ for purposes of Section I, Table 4 of the 
Fee Schedule.\6\ MOFPs and MAMMs would effectuate the designation by 
each sending an email to the Exchange by the 5th day of the month with 
their designations.\7\ The Exchange would view the corresponding emails 
as acceptance of such an appointment and would only recognize one such 
designation for each party once every 6 months, which designation would 
remain in effect until the Exchange receives an email from either party 
indicating that the appointment has been terminated.\8\ The proposed 
new concepts would be applicable to, and included in, Section

[[Page 31987]]

I, Table 4 of the ISE Mercury Fee Schedule, as described below, and are 
designed to increase opportunities for firms to qualify for the 
Exchange's MVP.\9\
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    \4\ A ``MOFP'' is an Electronic Access Member who has been 
appointed by a Mercury Market Maker pursuant to Section I, Table 4 
of the ISE Mercury Fee Schedule.
    \5\ A ``MAMM'' is a Mercury Market Maker who has been appointed 
by an Electronic Access Member pursuant to Section I, Table 4 of the 
ISE Mercury Fee Schedule.
    \6\ See proposed ISE Mercury Fee Schedule, Preface.
    \7\ See proposed ISE Mercury Fee Schedule, Section 1, Table 4. 
Members should direct their emails designating a MAMM/MOFP to 
[email protected].
    \8\ See id.
    \9\ See proposed ISE Mercury Fee Schedule, Section 1, Table 4.
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    ISE Mercury introduced the MVP fee and rebate tiers for Market 
Maker and Priority Customer \10\ orders based on the average daily 
volume (``ADV'') that a member executes in Priority Customer 
orders.\11\ 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: 
\12\ 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'').\13\ As 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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    \10\ 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).
    \11\ See Exchange Act Release No. 77409 (March 21, 2016), 81 FR 
16240 (March 25, 2016) (SR-ISE Mercury-2016-05).
    \12\ 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 Price 
Improvement Mechanism, Facilitation, and Qualified Contingent Cross 
mechanisms.
    \13\ 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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    The Exchange then adopted ADV tiers that are based on preferenced 
volume \14\--i.e., volume directed to a specific Market Maker as 
provided in Supplementary Material .03 to Rule 713.\15\ In particular, 
the Exchange gives Market Makers volume credit for 100% of eligible 
traded volume preferenced to that member,\16\ regardless of the actual 
allocation that the Market Maker receives (``the Preferenced Volume 
Program.''). 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 now proposes to 
give 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 
Exchange notes that even though Market Maker ABC receives full credit 
for all 10 contracts when executing 4 contracts, Market Makers that 
execute the remaining 6 contracts will still receive credit for those 6 
contracts.
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    \14\ See Exchange Act release No. 77412 (March 21, 2016), 81 FR 
16238 (March 25, 2016) (SR-ISE Mercury-2016-06).
    \15\ An 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.
    \16\ ``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.''
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    The proposed rule would replace the Preferenced Volume Program, but 
all other aspects of the MVP, including its five tiers of Total 
Affiliated Priority Customer ADV, will remain in effect. The Exchange 
proposes to modify its Fee Schedule to include the newly introduced 
concepts of a MOFP and MAMM. The proposal would be available to all 
MOFPs and MAMMs as defined in the Fee Schedule. Specifically, the 
proposed changes would enable any MOFP to qualify its MAMM for credits 
under the MVP. In this regard, the proposed change would enable a MAMM 
to enter a relationship with a MOFP and receive volume credit from that 
MOFP.\17\ Thus, the proposed changes would (1) enable members that are 
not currently eligible for the MVP to avail themselves of the MVP and 
(2) assist firms that are currently eligible for the MVP to potentially 
achieve a higher MVP tier, thus qualifying for lower fees or higher 
rebates.
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    \17\ The Market Maker (i.e., MAMM) would still receive volume 
credit from its affiliates.
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    The Exchange believes these proposed changes would incentivize 
firms to direct their order flow to the Exchange to the benefit of all 
market participants. As proposed, the Exchange would only process one 
designation of a MOFP and MAMM every 6 months, which designation would 
remain in effect unless or until either party informs the Exchange of 
its termination.\18\ The Exchange believes that this requirement would 
impose a measure of exclusivity and would enable MAMMs to rely upon the 
MOFP's transaction volume executed on the Exchange, which is beneficial 
to all Exchange participants.
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    \18\ A MOFP may not have more than one MAMM selected at any 
given time.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\19\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\20\ in particular, 
because it provides for the equitable allocation of reasonable dues, 
fees, and other charges among its members, issuers and other persons 
using its facilities and does not unfairly discriminate between 
customers, issuers, brokers or dealers.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposal is reasonable, equitable and not unfairly 
discriminatory for the following reasons. First, this rule filing is 
substantially similar NYSE MKT LLC's fee filing to modify NYSE Amex's 
Option Fee Schedule.\21\ As such, the proposal would be available to 
all Electronic Access Members (``EAMs'') and Market Makers. 
Additionally, the designations are completely voluntary and members may 
elect to accept this appointment or not. In addition, the proposed 
changes would enable firms that are not currently eligible for the MVP 
to avail themselves of the MVP as well as to assist firms that are 
currently eligible for the MVP to potentially achieve a higher MVP 
tier, thus qualifying for lower fees or higher rebates. The Exchange 
believes these proposed changes would incentivize firms to direct their 
order flow to the Exchange. Specifically, the proposed changes would 
enable any qualifying member (i.e. a MAMM) by virtue of designating a 
MOFP to aggregate its Priority Customer volume with that of the MOFP, 
which would enhance the MAMM's potential to qualify for lower fees or 
higher rebates under the MVP. The Exchange believes these proposed 
changes would incentivize MOFPs and

[[Page 31988]]

MAMMs to direct their order flow to the Exchange, which would increase 
orders routed to the Exchange and benefit all market participants by 
expanding liquidity, providing more trading opportunities and tighter 
spreads, including those market participants that opt not to become a 
MAMM and therefore may be ineligible to earn the credits under the MVP.
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    \21\ Exchange Act Release No. 77370 (March 15, 2016), 81 FR 
15136 (March 21, 2016) (SR-NYSEMKT-2016-35).
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    The proposal is also reasonable, equitable and not unfairly 
discriminatory because the Exchange would only process one designation 
of a MOFP and MAMM every 6 months, which requirement would impose a 
measure of exclusivity while allowing MAMM's to rely upon, and 
potentially increase, the MOFP's transaction volume executed on the 
Exchange to the benefit of all Exchange participants.
    Finally, the Exchange believes the proposal is reasonable, 
equitable and not unfairly discriminatory as it may encourage an 
increase in orders routed to the Exchange, which would expand liquidity 
and provide more trading opportunities and tighter spreads to the 
benefit of all market participants.

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

    In accordance with Section 6(b)(8) of the Act,\22\ 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 will increase 
competition by allowing smaller Market Makers to compete for more 
favorable fees and rebates. As currently implemented, Market Makers 
that are affiliated with an order router are advantaged relative to 
other firms in achieving volume based fees and rebates. Although the 
Exchange continues to believe that counting volume across affiliated 
members is appropriate, a Market Maker that has a similar relationship, 
without common ownership, should be able to compete for and receive 
similar benefits. The proposed rule change is designed to level the 
playing field between these members and their competitors that already 
benefit from affiliated volume. The Exchange operates in a highly 
competitive market in which market participants can readily direct 
their order flow to competing venues. For the reasons described above, 
the Exchange believes that the proposed fee change reflects this 
competitive environment.
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    \22\ 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 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,\23\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\24\ because it establishes a due, fee, or other charge 
imposed by ISE Mercury.
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    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \24\ 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-2016-11 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-2016-11. 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-2016-11, and 
should be submitted on or before June 10, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11881 Filed 5-19-16; 8:45 am]
 BILLING CODE 8011-01-P