81 FR 16238 - Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 58 (March 25, 2016)

[Federal Register Volume 81, Number 58 (Friday, March 25, 2016)]
[Notices]
[Pages 16238-16240]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-06746]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77412; File No. SR-ISEMercury-2016-06]


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 to count 100% of 
eligible traded volume preferenced to a Market Maker towards that 
member's volume tiers. 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
    On March 10, 2016, ISE Mercury filed a proposed rule change to 
introduce 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\ Pursuant to that 
proposed rule change, the Exchange will assess fees and rebates for 
Market Maker and Priority Customer orders based on five tiers of Total 
Affiliated Priority Customer ADV: \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 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 will also 
include volume executed by affiliated members. In particular, the 
Exchange will aggregate 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 believes 
that it is important to give smaller firms the ability to compete for 
more favorable fees and rebates. The Exchange therefore proposes to 
adopt ADV tiers that are based on preferenced volume--i.e., volume 
directed to a specific Market Maker as provided in Supplementary 
Material .03 to Rule 713.\8\ In particular, the Exchange proposes to 
give Market Makers volume credit for 100% of eligible traded volume 
preferenced to that member,\9\ 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

[[Page 16239]]

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, and the Exchange believes 
that this will put smaller Market Makers on more equal footing with 
large firms that benefit from affiliated volume.
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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 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.
    \8\ 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.
    \9\ ``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 provisions of Section 6 of the Act,\10\ in general, and 
Section 6(b)(4) of the Act,\11\ 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. 
The Exchange believes that the proposed fee change is reasonable and 
equitable as it provides an additional way for members to increase 
volume used to qualify for lower fees and higher rebates. The Exchange 
has adopted volume based fees and rebates in another proposed rule 
change filed with the Commission. While volume based fees and rebates 
based on affiliated volume benefit Market Makers that have affiliated 
order routers, the Exchange believes that smaller Market Makers that 
attract order flow from non-affiliated firms should similarly be able 
to compete for more favorable fees and rebates. Preferred Market Makers 
attract order flow by establishing appropriate relationships with one 
or more EAMs that send Preferenced Orders to the Exchange. Although 
Preferred Market Makers may not be allocated the full volume orders 
preferenced to them, the Exchange believes that it is reasonable and 
equitable to give these Market Makers full credit for the volume of 
orders that they have attracted to ISE Mercury. This will put smaller 
Market Makers that are not affiliated with an order routing firm on 
more equal footing with large firms that benefit from affiliated volume 
today. In addition, the Exchange does not believe that it is unfairly 
discriminatory to provide this incentive specifically to Preferred 
Market Makers. As explained above, Preferred Market Makers attract 
order flow to the Exchange by establishing relationships with EAMs that 
direct Preferenced Orders to them. Moreover, all Market Makers are 
eligible to become Preferred Market Makers provided that they meet the 
quoting obligations expected of such firms.\12\
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ Preferred Competitive Market Makers have quoting 
obligations that mirror those for Primary Market Makers. See 
Supplementary Material .03(d) to Rule 713 and Rule 804(e)(2)(iii).
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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 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,\14\ the Exchange also believes that Market 
Makers whose relationships attract Preference Orders should also 
receive similar benefits. As explained above, these Market Makers 
attract significant volume to the Exchange but currently only receive 
volume credit for a portion of that volume. 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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    \13\ 15 U.S.C. 78f(b)(8).
    \14\ See note 5 supra.
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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,\15\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\16\ because it establishes a due, fee, or other charge 
imposed by ISE Mercury.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 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-2016-06 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-2016-06. 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

[[Page 16240]]

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-2016-06, and 
should be submitted on or before April 15, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-06746 Filed 3-24-16; 8:45 am]
 BILLING CODE 8011-01-P