81_FR_92225 81 FR 91982 - Self-Regulatory Organizations; ISE Mercury LLC; Notice of Filing of Proposed Rule Change to Amend ISE Mercury Rule 723 and To Make Pilot Program Permanent

81 FR 91982 - Self-Regulatory Organizations; ISE Mercury LLC; Notice of Filing of Proposed Rule Change to Amend ISE Mercury Rule 723 and To Make Pilot Program Permanent

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 243 (December 19, 2016)

Page Range91982-91987
FR Document2016-30392

Federal Register, Volume 81 Issue 243 (Monday, December 19, 2016)
[Federal Register Volume 81, Number 243 (Monday, December 19, 2016)]
[Notices]
[Pages 91982-91987]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-30392]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79539; File No. SR-ISEMercury-2016-25]


Self-Regulatory Organizations; ISE Mercury LLC; Notice of Filing 
of Proposed Rule Change to Amend ISE Mercury Rule 723 and To Make Pilot 
Program Permanent

December 13, 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 December 12, 2016, ISE Mercury, LLC (the ``Exchange'' or ``ISE 
Mercury'') filed with the Securities and Exchange

[[Page 91983]]

Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. 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

    The Exchange proposes to amend ISE Mercury Rule 723, concerning its 
Price Improvement Mechanism (``PIM''). Certain aspects of PIM are 
currently operating on a pilot basis (``Pilot''), which is set to 
expire on January 18, 2017.\3\ The Pilot concerns (i) the termination 
of the exposure period by unrelated orders; and (ii) no minimum size 
requirement of orders eligible for PIM. ISE Mercury seeks to make the 
Pilot permanent, and also proposes to change the requirements for 
providing price improvement for Agency Orders of less than 50 option 
contracts.
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    \3\ See Securities Exchange Act Release No. 78342 (July 15, 
2016), 81 FR 47481 (July 21, 2016) (SR-ISEMercury-2016-13).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.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 Exchange 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
    The purpose of this proposed rule change is to make permanent 
certain pilots within Rule 723, relating to PIM. Paragraph .03 of the 
Supplementary Material to Rule 723 provides that there is no minimum 
size requirement for orders to be eligible for PIM. Paragraph .05 
concerns the termination of the exposure period by unrelated orders. In 
addition, ISE Mercury proposes to modify the requirements for PIM 
auctions involving less than 50 contracts where the National Best Bid 
and Offer (``NBBO'') is only $0.01 wide.
Background
    The Exchange adopted PIM as part of its application to be 
registered as a national securities exchange.\4\ In approving PIM, the 
Commission noted that it was largely based on a similar functionality 
offered by the International Securities Exchange, LLC (``ISE'').\5\ The 
PIM is a process that allows Electronic Access Members (``EAM'') to 
provide price improvement opportunities for a transaction wherein the 
Member seeks to execute an agency order as principal or execute an 
agency order against a solicited order (a ``Crossing Transaction''). A 
Crossing Transaction is comprised of the order the EAM represents as 
agent (the ``Agency Order'') and a counter-side order for the full size 
of the Agency Order (the ``Counter-Side Order''). The Counter-Side 
Order may represent interest for the Member's own account, or interest 
the Member has solicited from one or more other parties, or a 
combination of both.
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    \4\ See Securities Exchange Act Release No. 76998 (January 29, 
2016), 81 FR 6066 (February 4, 2016) (File No. 10-221) (``Exchange 
Approval Order'').
    \5\ See Exchange Approval Order, supra note 4.
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    Rule 723 sets forth the criteria pursuant to which the PIM is 
initiated. Specifically, a Crossing Transaction must be entered only at 
a price that is equal to or better than the national best bid or offer 
(``NBBO'') and better than the limit order or quote on the Exchange 
order book on the same side of the Agency Order. The Crossing 
Transaction may be priced in one-cent increments. The Crossing 
Transaction may not be canceled, but the price of the Counter-Side 
Order may be improved during the exposure period.
    Rule 723 also sets forth requirements relating to the exposure of 
orders in PIM and the termination of the exposure period. Upon entry of 
a Crossing Transaction into the Price Improvement Mechanism, a 
broadcast message that includes the series, price and size of the 
Agency Order, and whether it is to buy or sell, will be sent to all 
Members. This broadcast message will not be included in the ISE Mercury 
disseminated best bid or offer and will not be disseminated through 
OPRA. Members will be given 500 milliseconds to indicate the size and 
price at which they want to participate in the execution of the Agency 
Order (``Improvement Orders''). Improvement Orders may be entered by 
all Members for their own account or for the account of a Public 
Customer in one-cent increments at the same price as the Crossing 
Transaction or at an improved price for the Agency Order, and for any 
size up to the size of the Agency Order. During the exposure period, 
Improvement Orders may not be canceled, but may be modified to (1) 
increase the size at the same price, or (2) improve the price of the 
Improvement Order for any size up to the size of the Agency Order. 
During the exposure period, responses (including the Counter Side 
Order, Improvement Orders, and any changes to either) submitted by 
Members shall not be visible to other auction participants. The 
exposure period will automatically terminate (i) at the end of the 500 
millisecond period, (ii) upon the receipt of a market or marketable 
limit order on the Exchange in the same series, or (iii) upon the 
receipt of a nonmarketable limit order in the same series on the same 
side of the market as the Agency Order that would cause the price of 
the Crossing Transaction to be outside of the best bid or offer on the 
Exchange.
    Rule 723 also describes how orders will be executed at the end of 
the exposure period. Specifically, at the end of the exposure period, 
the Agency Order will be executed in full at the best prices available, 
taking into consideration orders and quotes in the Exchange market, 
Improvement Orders, and the Counter-Side Order. The Agency Order will 
receive executions at multiple price levels if there is insufficient 
size to execute the entire order at the best price. At a given price, 
Priority Customer interest is executed in full before Professional 
Orders and any other interest of Members (i.e., proprietary interest 
from Electronic Access Members and Exchange market makers).
    After Priority Customer interest at a given price, Professional 
Orders and Members' interest will participate in the execution of the 
Agency Order based upon the percentage of the total number of contracts 
available at the price that is represented by the size of the Members' 
interest.
    In the case where the Counter-Side Order is at the same price as 
Members' interest (after Priority Customer interest at a given price), 
the Counter-Side order will be allocated the greater of one (1) 
contract or forty percent (40%) of the initial size of the Agency Order 
before other Member interest is executed. Upon entry of Counter-Side 
orders, Members can elect to automatically match the price and size of 
orders, quotes and responses received during the exposure period up to 
a specified

[[Page 91984]]

limit price or without specifying a limit price. In this case, the 
Counter-Side order will be allocated its full size at each price point, 
or at each price point within its limit price if a limit is specified, 
until a price point is reached where the balance of the order can be 
fully executed. At such price point, the Counter-Side order shall be 
allocated the greater of one contract or forty percent (40%) of the 
original size of the Agency Order, but only after Priority Customer 
Orders at such price point are executed in full. Thereafter, all other 
orders, Responses, and quotes at the price point will participate in 
the execution of the Agency Order based upon the percentage of the 
total number of contracts available at the price that is represented by 
the size of the order, Response or quote. An election to automatically 
match better prices cannot be cancelled or altered during the exposure 
period.
    When a market order or marketable limit order on the opposite side 
of the market from the Agency Order ends the exposure period, it will 
participate in the execution of the Agency Order at the price that is 
mid-way between the best counter-side interest and the NBBO, so that 
both the market or marketable limit order and the Agency Order receive 
price improvement. Transactions will be rounded, when necessary, to the 
$.01 increment that favors the Agency Order.
The Pilot
    As described above, two components of PIM are currently operating 
on a pilot basis: (i) The termination of the exposure period by 
unrelated orders; and (ii) no minimum size requirement of orders 
entered into PIM. The pilot has been extended until January 18, 
2017.\6\
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    \6\ See note 3 above.
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    As described in greater detail below, during the pilot period the 
Exchange has been required to submit, and has been submitting, certain 
data periodically as required by the Commission, to provide supporting 
evidence that, among other things, there is meaningful competition for 
all size orders within the PIM, that there is significant price 
improvement for all orders executed through the PIM, and that there is 
an active and liquid market functioning on the Exchange both within PIM 
and outside of the Auction mechanism. The Exchange has also analyzed 
the impact of certain aspects of the Pilot; for example, situation in 
which PIM is terminated prematurely by an unrelated order.
    The Exchange now seeks to have the Pilot approved on a permanent 
basis. In addition, the Exchange proposes to modify the scope of PIM so 
that, with respect to PIM orders for less than 50 option contracts, 
members will be required to receive price improvement of at least one 
minimum price improvement increment over the NBBO if the NBBO is only 
$0.01 wide. For orders of 50 contracts or more, or if the difference in 
the NBBO is greater than $0.01, the requirements for price improvement 
remain the same.
Price Improvement for Orders Under 50 Contracts
    Currently, the PIM may be initiated if all of the following 
conditions are met. A Crossing Transaction must be entered only at a 
price that is equal to or better than the NBBO and better than the 
limit order or quote on the Exchange order book on the same side of the 
Agency Order. The Crossing Transaction may be priced in one-cent 
increments. The Crossing Transaction may not be canceled, but the price 
of the Counter-Side Order may be improved during the exposure period.
    ISE Mercury proposes to amend Rule 723(b) to require Electronic 
Access Members to provide at least $0.01 price improvement for an 
Agency Order if that order is for less than 50 contracts and if the 
difference between the NBBO is $0.01. For the period beginning January 
19, 2017 until a date specified by the Exchange in a Regulatory 
Information Circular, which date shall be no later than September 15, 
2017, ISE Mercury will adopt a member conduct standard to implement 
this requirement.\7\ Under this provision, the Exchange is proposing to 
amend the Auction Eligibility Requirements to require that, if the 
Agency Order is for less than 50 option contracts, and if the 
difference between the NBBO is $0.01, an Electronic Access Member shall 
not enter a Crossing Transaction unless such Crossing Transaction is 
entered at a price that is one minimum price improvement increment 
better than the NBBO on the opposite side of the market from the Agency 
Order and better than any limit order on the limit order book on the 
same side of the market as the Agency Order. This requirement will 
apply regardless of whether the Agency Order is for the account of a 
public customer, or where the Agency Order is for the account of a 
broker dealer or any other person or entity that is not a Public 
Customer. Failure to provide such price improvement will subject 
Members to the fines set forth in Rule 1614(d)(4) of the International 
Securities Exchange, LLC (``ISE'').\8\
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    \7\ The Exchange notes that its indirect parent company, U.S. 
Exchange Holdings, Inc. has been acquired by Nasdaq, Inc. See 
Securities Exchange Act Release No. 78119 (June 21, 2016), 81 FR 
41611 (June 27, 2016) (SR-ISEMercury-2016-10). Pursuant to this 
acquisition, ISE Mercury platforms are migrating to Nasdaq 
platforms, including the platform that operates PIM. ISE Mercury 
intends to retain the proposed member conduct standard requiring 
price improvement for options orders of under 50 contracts where the 
difference between the NBBO is $0.01 until the ISE Mercury platforms 
and the corresponding symbols are migrated to the platforms operated 
by Nasdaq, Inc.
    \8\ In a separate proposed rule change, ISE is proposing to 
adopt similar price improvement requirements for orders of less than 
50 contracts for its PIM. As part of that rule change, ISE is 
proposing to amend ISE Rule 1614 (Imposition of Fines for Minor Rule 
Violations) to add Rule 1614(d)(4), which will provide that, 
beginning January 19, 2017, any Member who enters an order into PIM 
for less than 50 contracts, while the National Best Bid or Offer 
spread is $0.01, must provide price improvement of at least one 
minimum price improvement increment better than the NBBO on the 
opposite side of the market from the Agency Order, which increment 
may not be smaller than $0.01. Failure to provide such price 
improvement will result in members being subject to the following 
fines: $500 for the second offense, $1,000 for the third offense, 
and $2,500 for the fourth offense. Subsequent offenses will subject 
the member to formal disciplinary action. ISE will review violations 
on a monthly cycle to assess these violations.
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    The Exchange will conduct electronic surveillance of PIM to ensure 
that members comply with the proposed price improvement requirements 
for option orders of less than 50 contracts. Specifically, using an 
electronic surveillance system that produces alerts of potentially 
unlawful PIM orders, the Exchange will perform a frequent review of 
member firm activity to identify instances of apparent violations. Upon 
discovery of an apparent violation, the Exchange will attempt to 
contact the appropriate member firm to communicate the specifics of the 
apparent violation with the intent to assist the member firm in 
preventing submission of subsequent problematic orders. The Exchange 
will review the alerts monthly and determine the applicability of the 
MRVP and appropriate penalty. The Exchange is not limited to the 
application of the MRVP, and may at its discretion, choose to escalate 
a matter for processing through the Exchange's disciplinary program.
    The Exchange is also proposing a systems-based mechanism to 
implement this price improvement requirement, which shall be effective 
following the migration of a symbol to INET, the platform operated by 
Nasdaq, Inc. that will also operate the PIM. Under this provision, if 
the Agency Order is for less than 50 option contracts, and if the 
difference between the National Best Bid and National Best Offer 
(``NBBO'') is $0.01, the Crossing Transaction must

[[Page 91985]]

be entered at one minimum price improvement increment better than the 
NBBO on the opposite side of the market from the Agency Order and 
better than the limit order or quote on the ISE order book on the same 
side of the Agency Order.
    The Exchange believes that these changes to PIM may provide 
additional opportunities for Agency Orders of under 50 option contracts 
to receive price improvement over the NBBO where the difference in the 
NBBO is $0.01 and therefore encourage the increased submission of 
orders of under 50 option contracts. The Exchange notes that the 
statistics for the current pilot, which include, among other things, 
price improvement for orders of less than 50 option contracts under the 
current auction eligibility requirements, show relatively small amounts 
of price improvement for such orders. ISE Mercury believes that the 
proposed requirements will therefore increase the price improvement 
that orders of under 50 option contracts may receive in PIM.
    The Exchange will retain the current requirements for auction 
eligibility where the Agency Order is for 50 option contracts or more, 
or if the difference between the NBBO is greater than $0.01. 
Accordingly, the Exchange is amending the Auction Eligibility 
Requirements to state that, if the PIM Order is for 50 option contracts 
or more or if the difference between the NBBO is greater than $0.01, 
the Crossing Transaction must be entered only at a price that is equal 
to or better than the NBBO and better than the limit order or quote on 
the ISE Mercury order book on the same side as the Agency Order.
No Minimum Size Requirement
    Supplemental Material .03 to Rule 723 provides that, as part of the 
current Pilot, there will be no minimum size requirement for orders to 
be eligible for the Auction.\9\ As with the ISE PIM, the Exchange 
proposed the no-minimum size requirement for the PIM because it 
believed that this would provide small customer orders with the 
opportunity to participate in the PIM and to receive corresponding 
price improvement. In initially approving the ISE PIM, the Commission 
noted that the no minimum size requirement provided an opportunity for 
more market participants to participate in the auction.\10\ The 
Commission also stated that it would evaluate PIM during the Pilot 
Period to determine whether it would be beneficial to customers and to 
the options market as a whole to approve any proposal requesting 
permanent approval to permit orders of fewer than 50 contracts to be 
submitted to the PIM.\11\
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    \9\ The provision relating to the no minimum size requirement 
also requires the Exchange to submit certain data, periodically as 
required by the Commission, to provide supporting evidence that, 
among other things, there is meaningful competition for all size 
orders within the PIM, that there is significant price improvement 
for all orders executed through the PIM, and that there is an active 
and liquid market functioning on the Exchange outside of the PIM. 
Any raw data which is submitted to the Commission will be provided 
on a confidential basis.
    \10\ See Securities Exchange Act Release No. 50819 (December 8, 
2004), 69 FR 75093 (December 15, 2004) (SR-ISE-2003-06) (``ISE PIM 
Approval Order'').
    \11\ Id.
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    As noted above, throughout the Pilot, the Exchange has been 
required to submit certain data periodically to provide supporting 
evidence that, among other things, there is meaningful competition for 
all size orders within the PIM, that there is significant price 
improvement for all orders executed through the PIM, and that there is 
an active and liquid market functioning on the Exchange both within PIM 
and outside of the Auction mechanism.
    The Exchange believes that the data gathered since the approval of 
the Pilot establishes that there is liquidity and competition both 
within PIM and outside of PIM, and that there are opportunities for 
significant price improvement within PIM.\12\
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    \12\ Specifically, the Exchange gathered and reported nine 
separate data fields relating to PIM orders of fewer than 50 
contracts, including (1) the number of orders of fewer than 50 
contracts entered into the PIM; (2) the percentage of all orders of 
fewer than 50 contracts sent to the Exchange that are entered into 
the PIM; (3) the spread in the option, at the time an order of fewer 
than 50 contracts is submitted to the PIM; and (4) of PIM trades, 
the percentage done at the NBBO plus $.01, plus $.02, plus $.03, 
etc. See Exhibit B to ISE Mercury Exchange Application (File No. 10-
209).
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    In the period between February and June 2016, the PIM executed a 
total of 613,353 contracts, which represented 26.36% of total ISE 
Mercury contract volume and 0.04% of industry volume. The percent of 
ISE Mercury volume traded in PIM ranged from 0% in February 2016 to 
37.88% in June 2016.
    The Exchange compiled price improvement data in orders from 
February through June 2016 that divides the data into the following 
groups: (1) Orders of over 50 contracts where the Agency Order was on 
behalf of a Public Customer and ISE Mercury was at the NBBO; (2) orders 
of over 50 contracts where the Agency Order was on behalf of a Public 
Customer and ISE Mercury was not at the NBBO; (3) orders of over 50 
contracts where the Agency Order was on behalf of a non-customer and 
ISE Mercury was at the NBBO; (4) orders of over 50 contracts where the 
Agency Order was on behalf of a non-customer and ISE Mercury was not at 
the NBBO; (5) orders of 50 contracts or less where the Agency Order was 
on behalf of a Public Customer and ISE Mercury was at the NBBO; (6) 
orders of 50 contracts or less where the Agency Order was on behalf of 
a Public Customer and ISE Mercury was not at the NBBO; (7) orders of 50 
contracts or less where the Agency Order was on behalf of a non-
customer and ISE Mercury was at the NBBO; and (8) orders of 50 
contracts or less where the Agency Order was on behalf of a non-
customer and ISE Mercury was not at the NBBO.
    For March 2016, where the order was on behalf of a Public Customer, 
the order was for 50 contracts or less, and ISE Mercury was at the 
NBBO, the most contracts traded (2,525) occurred when the spread was 
$0.03, with an average number of two participants.\13\ All of these 
contracts received $0.01 price improvement. When the spread was $0.01 
for this same category, a total of 734 contracts traded, with none of 
those contracts receiving price improvement. There was an average 
number of 3 participants when the spread was $0.01.
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    \13\ This discussion of March 2016 data is intended to be 
illustrative of data that was gathered between February 2016 and 
July 2016. The complete underlying data for February 2016 through 
June 2016 for these eight categories is attached as Exhibit 3.
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    In comparison, where the order was on behalf of a Public Customer, 
the order was for greater than 50 contracts, and ISE Mercury was at the 
NBBO, the most contracts traded (934) occurred when the spread was 
$0.10 to $0.20, with an average number of 3 participants. The greatest 
number of these contracts (429) received $0.05-$0.10 price improvement.
    In March 2016, where the order was on behalf of a Public Customer, 
the order was for 50 contracts or less, and ISE Mercury was not at the 
NBBO, the most contracts traded (3,772) occurred when the spread $0.01. 
Of this category, the greatest number of contracts (3,722) received no 
price improvement, and 50 contracts received $0.01 price improvement. 
There was an average number of 2 participants when the spread was 
$0.01.
    In comparison, in March 2016, where the order was on behalf of a 
Public Customer, the order was for greater than 50 contracts, and ISE 
Mercury was not at the NBBO, the most contracts traded (1,431) occurred 
when the spread was $0.02. Of these contracts, the greatest number of 
contracts (758) received no price improvement. There was an

[[Page 91986]]

average number of 2 participants when the spread was $0.02.
    ISE Mercury believes that the data gathered during the Pilot period 
indicates that there is meaningful competition in PIM auctions for all 
size orders, there is an active and liquid market functioning on the 
Exchange outside of the auction mechanism, and that there are 
opportunities for significant price improvement for orders executed 
through PIM. The Exchange therefore believes that it is appropriate to 
approve the no-minimum size requirement on a permanent basis.
Early Conclusion of the PIM Auction
    Supplemental Material .05 to Rule 723 provides that Rule 723(c)(5) 
and Rule 723(d)(4), which relate to the termination of the exposure 
period by unrelated orders shall be part of the current Pilot. Rule 
723(c)(5) provides that the exposure period will automatically 
terminate (i) at the end of the 500 millisecond period,\14\ (ii) upon 
the receipt of a market or marketable limit order on the Exchange in 
the same series, or (iii) upon the receipt of a nonmarketable limit 
order in the same series on the same side of the market as the Agency 
Order that would cause the price of the Crossing Transaction to be 
outside of the best bid or offer on the Exchange. Rule 723(d)(4) 
provides that, when a market order or marketable limit order on the 
opposite side of the market from the Agency Order ends the exposure 
period, it will participate in the execution of the Agency Order at the 
price that is mid-way between the best counter-side interest and the 
NBBO, so that both the market or marketable limit order and the Agency 
Order receive price improvement. Transactions will be rounded, when 
necessary, to the $.01 increment that favors the Agency Order.
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    \14\ The Exchange notes that it is proposing to modify the 
exposure period to a time period of no less than 100 milliseconds 
and no more than one second. See Securities Exchange Act Release No. 
79354 (November 18, 2016), 81 FR 85295 (November 25, 2016) (SR-
ISEMercury-2016-21).
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    As with the no minimum size requirement, the Exchange has gathered 
data on these three conditions to assess the effect of early PIM 
conclusions on the Pilot.\15\
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    \15\ The Exchange agreed to gather and submit the following data 
on this part of the Pilot: (1) The number of times that a market or 
marketable limit order in the same series on the same side of the 
market as the Agency Order prematurely ended the PIM auction, and 
the number of times such orders were entered by the same (or 
affiliated) firm that initiated the PIM that was terminated; (2) the 
percentage of PIM early terminations due to the receipt of a market 
or marketable limit order in the same series on the same side of the 
market that occurred within a \1/2\ second of the start of the PIM 
auction; the percentage that occurred within one second of the start 
of the PIM auction; the percentage that occurred within one and \1/
2\ second of the start of the PIM auction; the percentage that 
occurred within 2 seconds of the start of the PIM auction; the 
percentage that occurred within 2 and \1/2\ seconds of the PIM 
auction; and the average amount of price improvement provided to the 
Agency Order where the PIM is terminated early at each of these time 
periods; (3) the number of times that a market or marketable limit 
order in the same series on the opposite side of the market as the 
Agency Order prematurely ended the PIM auction and at what time the 
unrelated order ended the PIM auction, and the number of times such 
orders were entered by the same (or affiliated) firm that initiated 
the PIM that was terminated; (4) the percentage of PIM early 
terminations due to the receipt of a market or marketable limit 
order in the same series on the opposite side of the market that 
occurred within a \1/2\ second of the start of the PIM auction; the 
percentage that occurred within one second of the start of the PIM 
auction; the percentage that occurred within one and \1/2\ second of 
the start of the PIM auction; the percentage that occurred within 2 
seconds of the start of the PIM auction; the percentage that 
occurred within 2 and \1/2\ seconds of the PIM auction; and the 
average amount of price improvement provided to the Agency Order 
where the PIM is terminated early at each of these time periods; (5) 
the number of times that a nonmarketable limit order in the same 
series on the same side of the market as the Agency Order that would 
cause the price of the Crossing Transaction to be outside of the 
best bid or offer on the Exchange prematurely ended the PIM auction 
and at what time the unrelated order ended the PIM auction, and the 
number of times such orders were entered by the same (or affiliated) 
firm that initiated the PIM that was terminated; (6) the percentage 
of PIM early terminations due to the receipt of a market or 
marketable limit order in the same series on the same side of the 
market as the Agency Order that would cause the price of the 
Crossing Transaction to be outside of the best bid or offer on the 
Exchange that occurred within a \1/2\ second of the start of the PIM 
auction; the percentage that occurred within one second of the start 
of the PIM auction; the percentage that occurred within one and \1/
2\ second of the start of the PIM auction; the percentage that 
occurred within 2 seconds of the start of the PIM auction; the 
percentage that occurred within 2 and \1/2\ seconds of the PIM 
auction; and the average amount of price improvement provided to the 
Agency Order where the PIM is terminated early at each of these time 
periods; and (7) the average amount of price improvement provided to 
the Agency Order when the PIM auction is not terminated early. See 
Exhibit B to ISE Mercury Exchange Application (File No. 10-209).
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    For the period from January 2016 through June 2016, there were a 
total of 77 early terminated auctions. The number of orders in early 
terminated PIM auctions constituted 0.35% of total PIM orders. There 
were a total of 1,581 contracts that traded through early terminated 
auctions. The number of contracts in early terminated PIM auctions 
represented 0.26% of total PIM contracts. Of the early terminated 
auctions, 46.75% of those auctions received price improvement, and 
31.37% of contracts that traded in an early-terminated auction received 
price improvement. Of the PIM auctions that terminated early and 
received price improvement from February 2016 through June 2016, the 
total amount of price improvement received was $16.53.
    Based on the data gathered during the pilot, the Exchange does not 
anticipate that any of these conditions will occur with significant 
frequency, or will otherwise significantly affect the functioning of 
the PIM. Of the early terminated auctions, 46.75% of those auctions 
received price improvement, and 31.37% of contracts that traded in an 
early-terminated auction received price improvement. The total amount 
of price improvement for PIM auctions that terminated early was $16.53. 
The Exchange therefore believes it is appropriate to approve this 
aspect of the Pilot on a permanent basis.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\16\ in general and with 
Section 6(b)(5) of the Act,\17\ in that it is designed to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, or to regulate by virtue of any authority conferred by the Act 
matters not related to the purposes of the Act or the administration of 
the Exchange.
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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act \18\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that PIM, including the rules 
to which the Pilot applies, results in increased liquidity available at 
improved prices, with competitive final pricing out of the complete 
control of the Electronic Access Member that initiated the auction. The 
Exchange believes that PIM promotes and fosters competition and affords 
the opportunity for price improvement to more options contracts. The 
Exchange believes that the changes to the PIM requiring price 
improvement of at least one minimum price improvement increment over 
the NBBO for Agency Orders of less than 50 option contracts where the 
difference in the NBBO is $0.01 will provide further

[[Page 91987]]

price improvement for those orders, and thereby encourage additional 
submission of those orders into PIM. The Exchange believes that the 
proposal, which subjects members to the Minor Rule Violation Plan for 
failing to provide the required price improvement, coupled with the 
Exchange's surveillance efforts, are designed to facilitate members' 
compliance with the proposed requirement.
    The Exchange believes that approving the Pilot on a permanent basis 
is also consistent with the Act. With respect to the no minimum size 
requirement, the Exchange believes that the data gathered during the 
Pilot period indicates that there is meaningful competition in the PIM 
for all size orders, there is an active and liquid market functioning 
on the Exchange outside of the auction mechanism, and that there are 
opportunities for significant price improvement for orders executed 
through PIM, including for small customer orders.
    With respect to the early termination of the PIM, the Exchange 
believes that it is appropriate to terminate an auction (i) at the end 
of the 500 millisecond period, (ii) upon the receipt of a market or 
marketable limit order on the Exchange in the same series, or (iii) 
upon the receipt of a nonmarketable limit order in the same series on 
the same side of the market as the Agency Order that would cause the 
price of the Crossing Transaction to be outside of the best bid or 
offer on the Exchange. The Exchange also believes that it is consistent 
with the Act to require that, when a market order or marketable limit 
order on the opposite side of the market from the Agency Order ends the 
exposure period, it will participate in the execution of the Agency 
Order at the price that is mid-way between the best counter-side 
interest and the NBBO, so that both the market or marketable limit 
order and the Agency Order receive price improvement. Based on the data 
gathered during the pilot, the Exchange does not anticipate that any of 
these conditions will occur with significant frequency, or will 
otherwise disrupt the functioning of the PIM. The Exchange also notes 
that a significant percentage of PIM auctions that terminated early 
executed at a price that was better than the NBBO at the time the 
auction began, and that a significant percentage of contracts in 
auctions that terminated early received price improvement.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposal will apply to all 
Exchange members, and participation in the PIM process is completely 
voluntary. Based on the data collected by the Exchange during the 
Pilot, the Exchange believes that there is meaningful competition in 
the PIM for all size orders, there are opportunities for significant 
price improvement for orders executed through PIM, and that there is an 
active and liquid market functioning on the Exchange outside of the 
PIM. The Exchange believes that requiring increased price improvement 
for Agency Orders may encourage competition by attracting additional 
orders to participate in the PIM. The Exchange believes that approving 
the Pilot on a permanent basis will not significantly impact 
competition, as the Exchange is proposing no other change to the Pilot 
beyond implementing it on a permanent basis.

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

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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 2016-25 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-2016-25. 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 the 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 2016-25 and 
should be submitted on or before January 9, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-30392 Filed 12-16-16; 8:45 am]
 BILLING CODE 8011-01-P



                                                91982                      Federal Register / Vol. 81, No. 243 / Monday, December 19, 2016 / Notices

                                                  For the Commission, by the Division of                approximately $13.03 (i.e., $11,050/848               (‘‘Exchange Act’’) (15 U.S.C. 78m or
                                                Trading and Markets, pursuant to delegated              responses).                                           78o(d)). The information provided by
                                                authority.27                                              Written comments are invited on: (a)                Form 10–K is intended to ensure the
                                                Eduardo A. Aleman,                                      whether the proposed collection of                    adequacy of information available to
                                                Assistant Secretary.                                    information is necessary for the proper               investors and securities markets about
                                                [FR Doc. 2016–30391 Filed 12–16–16; 8:45 am]            performance of the functions of the                   an issuer. Form 10–K takes
                                                BILLING CODE 8011–01–P                                  Commission, including whether the                     approximately 2003.7884 hours per
                                                                                                        information shall have practical utility;             response to prepare and is filed by
                                                                                                        (b) the accuracy of the Commission’s                  approximately 8,137 respondents. We
                                                SECURITIES AND EXCHANGE                                 estimates of the burden of the proposed               estimate that 75% of the approximately
                                                COMMISSION                                              collection of information; (c) ways to                2003.7884 hours per response
                                                                                                        enhance the quality, utility, and clarity             (1,502.8413 hours) is prepared by the
                                                Proposed Collection; Comment                            of the information to be collected; and               company for an annual reporting burden
                                                Request                                                 (d) ways to minimize the burden of the                of 12,228,620 hours (1,502.8413 hours
                                                Upon Written Request, Copies Available                  collection of information on                          per response × 8,137 responses).
                                                 From: Securities and Exchange                          respondents, including through the use                   An agency may not conduct or
                                                 Commission, Office of FOIA Services,                   of automated collection techniques or                 sponsor, and a person is not required to
                                                 100 F Street NE., Washington, DC                       other forms of information technology.                respond to, a collection of information
                                                 20549–2736.                                            Consideration will be given to                        unless it displays a currently valid
                                                Extension:                                              comments and suggestions submitted in                 control number.
                                                  Rule 104, SEC File No. 270–411, OMB                   writing within 60 days of this                           The public may view the background
                                                    Control No. 3235–0465.                              publication.                                          documentation for this information
                                                                                                          An agency may not conduct or                        collection at the following Web site,
                                                   Notice is hereby given that pursuant
                                                                                                        sponsor, and a person is not required to              www.reginfo.gov. Comments should be
                                                to the Paperwork Reduction Act of 1995
                                                                                                        respond to, a collection of information               directed to: (i) Desk Officer for the
                                                (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
                                                                                                        under the PRA unless it displays a                    Securities and Exchange Commission,
                                                Securities and Exchange Commission
                                                                                                        currently valid OMB control number.                   Office of Information and Regulatory
                                                (‘‘Commission’’) is soliciting comments
                                                                                                          Please direct your written comments                 Affairs, Office of Management and
                                                on the existing collection of information
                                                                                                        to: Pamela Dyson, Director/Chief                      Budget, Room 10102, New Executive
                                                provided for in Rule 104 of Regulation
                                                                                                        Information Officer, Securities and                   Office Building, Washington, DC 20503,
                                                M (17 CFR 242.104), under the
                                                                                                        Exchange Commission, c/o Remi Pavlik-                 or by sending an email to: Shagufta_
                                                Securities Exchange Act of 1934 (15
                                                                                                        Simon, 100 F Street NE., Washington,                  Ahmed@omb.eop.gov; and (ii) Pamela
                                                U.S.C. 78a et seq.). The Commission
                                                                                                        DC 20549 or send an email to:                         Dyson, Director/Chief Information
                                                plans to submit this existing collection
                                                                                                        PRA_Mailbox@sec.gov.                                  Officer, Securities and Exchange
                                                of information to the Office of
                                                Management and Budget (‘‘OMB’’) for                       Dated: December 6, 2016.                            Commission, c/o Remi Pavlik-Simon,
                                                extension and approval.                                 Brent J. Fields,                                      100 F Street NE., Washington, DC 20549
                                                   Rule 104—Stabilizing and Other                       Secretary.
                                                                                                                                                              or send an email to: PRA_Mailbox@
                                                Activities in Connection with an                                                                              sec.gov. Comments must be submitted to
                                                                                                        [FR Doc. 2016–30373 Filed 12–16–16; 8:45 am]
                                                Offering—permits stabilizing by a                                                                             OMB within 30 days of this notice.
                                                                                                        BILLING CODE 8011–01–P
                                                distribution participant during a                                                                               Dated: December 6, 2016.
                                                distribution so long as the distribution                                                                      Brent J. Fields,
                                                participant discloses information to the                SECURITIES AND EXCHANGE                               Secretary.
                                                market and investors. This rule requires                COMMISSION                                            [FR Doc. 2016–30376 Filed 12–16–16; 8:45 am]
                                                disclosure in offering materials of the                                                                       BILLING CODE 8011–01–P
                                                potential stabilizing transactions and                  Submission for OMB Review;
                                                that the distribution participant inform                Comment Request
                                                the market when a stabilizing bid is                                                                          SECURITIES AND EXCHANGE
                                                                                                        Upon Written Request Copies Available
                                                made. It also requires the distribution                                                                       COMMISSION
                                                                                                         From: Securities and Exchange
                                                participants (i.e., the syndicate manager)
                                                                                                         Commission, Office of FOIA Services,                 [Release No. 34–79539; File No. SR–
                                                to maintain information regarding
                                                                                                         100 F Street NE., Washington, DC                     ISEMercury–2016–25]
                                                syndicate covering transactions and
                                                                                                         20549–2736.
                                                penalty bids and disclose such                                                                                Self-Regulatory Organizations; ISE
                                                information to the Self-Regulatory                      Extension:
                                                                                                          Form 10–K, SEC File No. 270–48, OMB                 Mercury LLC; Notice of Filing of
                                                Organization (SRO).                                                                                           Proposed Rule Change to Amend ISE
                                                   There are approximately 848                              Control No. 3235–0063.
                                                                                                                                                              Mercury Rule 723 and To Make Pilot
                                                respondents per year that require an                       Notice is hereby given that, pursuant              Program Permanent
                                                aggregate total of 170 hours to comply                  to the Paperwork Reduction Act of 1995
                                                with this rule. Each respondent makes                   (44 U.S.C. 3501 et seq.), the Securities              December 13, 2016
                                                an estimated 1 annual response. Each                    and Exchange Commission                                  Pursuant to Section 19(b)(1) of the
                                                response takes approximately 0.20                       (‘‘Commission’’) has submitted to the                 Securities Exchange Act of 1934 (the
                                                hours (12 minutes) to complete. Thus,
sradovich on DSK3GMQ082PROD with NOTICES




                                                                                                        Office of Management and Budget this                  ‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                the total compliance burden per year is                 request for extension of the previously               notice is hereby given that on December
                                                170 hours. The total estimated internal                 approved collection of information                    12, 2016, ISE Mercury, LLC (the
                                                labor cost of compliance for the                        discussed below.                                      ‘‘Exchange’’ or ‘‘ISE Mercury’’) filed
                                                respondents is approximately                               Form 10–K (17 CFR 249.310) is filed                with the Securities and Exchange
                                                $11,050.00 per year, resulting in an                    by issuers of securities to satisfy their
                                                estimated cost of compliance for each                   annual reporting obligations under to                   1 15   U.S.C. 78s(b)(1).
                                                respondent per response of                              Section 13 or 15(d) of the Exchange Act                 2 17   CFR 240.19b–4.



                                           VerDate Sep<11>2014   20:55 Dec 16, 2016   Jkt 241001   PO 00000   Frm 00083   Fmt 4703   Sfmt 4703   E:\FR\FM\19DEN1.SGM     19DEN1


                                                                           Federal Register / Vol. 81, No. 243 / Monday, December 19, 2016 / Notices                                             91983

                                                Commission (‘‘Commission’’) the                         addition, ISE Mercury proposes to                     entered by all Members for their own
                                                proposed rule change as described in                    modify the requirements for PIM                       account or for the account of a Public
                                                Items I, II, and III below, which Items                 auctions involving less than 50                       Customer in one-cent increments at the
                                                have been prepared by the Exchange.                     contracts where the National Best Bid                 same price as the Crossing Transaction
                                                The Commission is publishing this                       and Offer (‘‘NBBO’’) is only $0.01 wide.              or at an improved price for the Agency
                                                notice to solicit comments on the                                                                             Order, and for any size up to the size of
                                                proposed rule change from interested                    Background                                            the Agency Order. During the exposure
                                                persons.                                                   The Exchange adopted PIM as part of                period, Improvement Orders may not be
                                                                                                        its application to be registered as a                 canceled, but may be modified to (1)
                                                I. Self-Regulatory Organization’s                       national securities exchange.4 In                     increase the size at the same price, or (2)
                                                Statement of the Terms of Substance of
                                                                                                        approving PIM, the Commission noted                   improve the price of the Improvement
                                                the Proposed Rule Change
                                                                                                        that it was largely based on a similar                Order for any size up to the size of the
                                                   The Exchange proposes to amend ISE                   functionality offered by the                          Agency Order. During the exposure
                                                Mercury Rule 723, concerning its Price                  International Securities Exchange, LLC                period, responses (including the
                                                Improvement Mechanism (‘‘PIM’’).                        (‘‘ISE’’).5 The PIM is a process that                 Counter Side Order, Improvement
                                                Certain aspects of PIM are currently                    allows Electronic Access Members                      Orders, and any changes to either)
                                                operating on a pilot basis (‘‘Pilot’’),                 (‘‘EAM’’) to provide price improvement                submitted by Members shall not be
                                                which is set to expire on January 18,                   opportunities for a transaction wherein               visible to other auction participants.
                                                2017.3 The Pilot concerns (i) the                       the Member seeks to execute an agency                 The exposure period will automatically
                                                termination of the exposure period by                   order as principal or execute an agency               terminate (i) at the end of the 500
                                                unrelated orders; and (ii) no minimum                   order against a solicited order (a                    millisecond period, (ii) upon the receipt
                                                size requirement of orders eligible for                 ‘‘Crossing Transaction’’). A Crossing                 of a market or marketable limit order on
                                                PIM. ISE Mercury seeks to make the                      Transaction is comprised of the order                 the Exchange in the same series, or (iii)
                                                Pilot permanent, and also proposes to                   the EAM represents as agent (the                      upon the receipt of a nonmarketable
                                                change the requirements for providing                   ‘‘Agency Order’’) and a counter-side                  limit order in the same series on the
                                                price improvement for Agency Orders of                  order for the full size of the Agency                 same side of the market as the Agency
                                                less than 50 option contracts.                          Order (the ‘‘Counter-Side Order’’). The               Order that would cause the price of the
                                                   The text of the proposed rule change                 Counter-Side Order may represent                      Crossing Transaction to be outside of
                                                is available on the Exchange’s Web site                 interest for the Member’s own account,                the best bid or offer on the Exchange.
                                                at http://nasdaq.cchwallstreet.com, at                  or interest the Member has solicited                     Rule 723 also describes how orders
                                                the principal office of the Exchange, and               from one or more other parties, or a                  will be executed at the end of the
                                                at the Commission’s Public Reference                    combination of both.                                  exposure period. Specifically, at the end
                                                Room.                                                      Rule 723 sets forth the criteria                   of the exposure period, the Agency
                                                                                                        pursuant to which the PIM is initiated.               Order will be executed in full at the best
                                                II. Self-Regulatory Organization’s
                                                                                                        Specifically, a Crossing Transaction                  prices available, taking into
                                                Statement of the Purpose of, and
                                                                                                        must be entered only at a price that is               consideration orders and quotes in the
                                                Statutory Basis for, the Proposed Rule
                                                                                                        equal to or better than the national best             Exchange market, Improvement Orders,
                                                Change
                                                                                                        bid or offer (‘‘NBBO’’) and better than               and the Counter-Side Order. The
                                                   In its filing with the Commission, the               the limit order or quote on the Exchange              Agency Order will receive executions at
                                                Exchange included statements                            order book on the same side of the                    multiple price levels if there is
                                                concerning the purpose of and basis for                 Agency Order. The Crossing Transaction                insufficient size to execute the entire
                                                the proposed rule change and discussed                  may be priced in one-cent increments.                 order at the best price. At a given price,
                                                any comments it received on the                         The Crossing Transaction may not be                   Priority Customer interest is executed in
                                                proposed rule change. The text of these                 canceled, but the price of the Counter-               full before Professional Orders and any
                                                statements may be examined at the                       Side Order may be improved during the                 other interest of Members (i.e.,
                                                places specified in Item IV below. The                  exposure period.                                      proprietary interest from Electronic
                                                Exchange has prepared summaries, set                       Rule 723 also sets forth requirements              Access Members and Exchange market
                                                forth in sections A, B, and C below, of                 relating to the exposure of orders in PIM             makers).
                                                the most significant aspects of such                    and the termination of the exposure                      After Priority Customer interest at a
                                                statements.                                             period. Upon entry of a Crossing                      given price, Professional Orders and
                                                                                                        Transaction into the Price Improvement                Members’ interest will participate in the
                                                A. Self-Regulatory Organization’s
                                                                                                        Mechanism, a broadcast message that                   execution of the Agency Order based
                                                Statement of the Purpose of, and
                                                                                                        includes the series, price and size of the            upon the percentage of the total number
                                                Statutory Basis for, the Proposed Rule
                                                                                                        Agency Order, and whether it is to buy                of contracts available at the price that is
                                                Change
                                                                                                        or sell, will be sent to all Members. This            represented by the size of the Members’
                                                1. Purpose                                              broadcast message will not be included                interest.
                                                   The purpose of this proposed rule                                                                             In the case where the Counter-Side
                                                                                                        in the ISE Mercury disseminated best
                                                change is to make permanent certain                                                                           Order is at the same price as Members’
                                                                                                        bid or offer and will not be
                                                pilots within Rule 723, relating to PIM.                                                                      interest (after Priority Customer interest
                                                                                                        disseminated through OPRA. Members                    at a given price), the Counter-Side order
                                                Paragraph .03 of the Supplementary                      will be given 500 milliseconds to                     will be allocated the greater of one (1)
                                                Material to Rule 723 provides that there                indicate the size and price at which they             contract or forty percent (40%) of the
sradovich on DSK3GMQ082PROD with NOTICES




                                                is no minimum size requirement for                      want to participate in the execution of               initial size of the Agency Order before
                                                orders to be eligible for PIM. Paragraph                the Agency Order (‘‘Improvement                       other Member interest is executed.
                                                .05 concerns the termination of the                     Orders’’). Improvement Orders may be                  Upon entry of Counter-Side orders,
                                                exposure period by unrelated orders. In
                                                                                                           4 See Securities Exchange Act Release No. 76998
                                                                                                                                                              Members can elect to automatically
                                                  3 See Securities Exchange Act Release No. 78342       (January 29, 2016), 81 FR 6066 (February 4, 2016)     match the price and size of orders,
                                                (July 15, 2016), 81 FR 47481 (July 21, 2016) (SR–       (File No. 10–221) (‘‘Exchange Approval Order’’).      quotes and responses received during
                                                ISEMercury–2016–13).                                       5 See Exchange Approval Order, supra note 4.       the exposure period up to a specified


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                                                91984                        Federal Register / Vol. 81, No. 243 / Monday, December 19, 2016 / Notices

                                                limit price or without specifying a limit                 modify the scope of PIM so that, with                 requirement will apply regardless of
                                                price. In this case, the Counter-Side                     respect to PIM orders for less than 50                whether the Agency Order is for the
                                                order will be allocated its full size at                  option contracts, members will be                     account of a public customer, or where
                                                each price point, or at each price point                  required to receive price improvement                 the Agency Order is for the account of
                                                within its limit price if a limit is                      of at least one minimum price                         a broker dealer or any other person or
                                                specified, until a price point is reached                 improvement increment over the NBBO                   entity that is not a Public Customer.
                                                where the balance of the order can be                     if the NBBO is only $0.01 wide. For                   Failure to provide such price
                                                fully executed. At such price point, the                  orders of 50 contracts or more, or if the             improvement will subject Members to
                                                Counter-Side order shall be allocated                     difference in the NBBO is greater than                the fines set forth in Rule 1614(d)(4) of
                                                the greater of one contract or forty                      $0.01, the requirements for price                     the International Securities Exchange,
                                                percent (40%) of the original size of the                 improvement remain the same.                          LLC (‘‘ISE’’).8
                                                Agency Order, but only after Priority                                                                              The Exchange will conduct electronic
                                                Customer Orders at such price point are                   Price Improvement for Orders Under 50                 surveillance of PIM to ensure that
                                                executed in full. Thereafter, all other                   Contracts                                             members comply with the proposed
                                                orders, Responses, and quotes at the                         Currently, the PIM may be initiated if             price improvement requirements for
                                                price point will participate in the                       all of the following conditions are met.              option orders of less than 50 contracts.
                                                execution of the Agency Order based                       A Crossing Transaction must be entered                Specifically, using an electronic
                                                upon the percentage of the total number                   only at a price that is equal to or better            surveillance system that produces alerts
                                                of contracts available at the price that is               than the NBBO and better than the limit               of potentially unlawful PIM orders, the
                                                represented by the size of the order,                     order or quote on the Exchange order                  Exchange will perform a frequent
                                                Response or quote. An election to                         book on the same side of the Agency                   review of member firm activity to
                                                automatically match better prices                         Order. The Crossing Transaction may be                identify instances of apparent
                                                cannot be cancelled or altered during                     priced in one-cent increments. The                    violations. Upon discovery of an
                                                the exposure period.                                      Crossing Transaction may not be                       apparent violation, the Exchange will
                                                  When a market order or marketable                       canceled, but the price of the Counter-               attempt to contact the appropriate
                                                limit order on the opposite side of the                   Side Order may be improved during the                 member firm to communicate the
                                                market from the Agency Order ends the                     exposure period.                                      specifics of the apparent violation with
                                                exposure period, it will participate in                      ISE Mercury proposes to amend Rule                 the intent to assist the member firm in
                                                the execution of the Agency Order at the                  723(b) to require Electronic Access                   preventing submission of subsequent
                                                price that is mid-way between the best                    Members to provide at least $0.01 price               problematic orders. The Exchange will
                                                counter-side interest and the NBBO, so                    improvement for an Agency Order if                    review the alerts monthly and
                                                that both the market or marketable limit                  that order is for less than 50 contracts              determine the applicability of the MRVP
                                                order and the Agency Order receive                        and if the difference between the NBBO                and appropriate penalty. The Exchange
                                                price improvement. Transactions will be                   is $0.01. For the period beginning                    is not limited to the application of the
                                                rounded, when necessary, to the $.01                      January 19, 2017 until a date specified               MRVP, and may at its discretion, choose
                                                increment that favors the Agency Order.                   by the Exchange in a Regulatory                       to escalate a matter for processing
                                                                                                          Information Circular, which date shall                through the Exchange’s disciplinary
                                                The Pilot
                                                                                                          be no later than September 15, 2017, ISE              program.
                                                   As described above, two components                                                                              The Exchange is also proposing a
                                                                                                          Mercury will adopt a member conduct
                                                of PIM are currently operating on a pilot                                                                       systems-based mechanism to implement
                                                                                                          standard to implement this
                                                basis: (i) The termination of the                                                                               this price improvement requirement,
                                                                                                          requirement.7 Under this provision, the
                                                exposure period by unrelated orders;                                                                            which shall be effective following the
                                                                                                          Exchange is proposing to amend the
                                                and (ii) no minimum size requirement                                                                            migration of a symbol to INET, the
                                                                                                          Auction Eligibility Requirements to
                                                of orders entered into PIM. The pilot has                                                                       platform operated by Nasdaq, Inc. that
                                                                                                          require that, if the Agency Order is for
                                                been extended until January 18, 2017.6                                                                          will also operate the PIM. Under this
                                                   As described in greater detail below,                  less than 50 option contracts, and if the
                                                                                                                                                                provision, if the Agency Order is for less
                                                during the pilot period the Exchange                      difference between the NBBO is $0.01,
                                                                                                                                                                than 50 option contracts, and if the
                                                has been required to submit, and has                      an Electronic Access Member shall not
                                                                                                                                                                difference between the National Best
                                                been submitting, certain data                             enter a Crossing Transaction unless
                                                                                                                                                                Bid and National Best Offer (‘‘NBBO’’)
                                                periodically as required by the                           such Crossing Transaction is entered at
                                                                                                                                                                is $0.01, the Crossing Transaction must
                                                Commission, to provide supporting                         a price that is one minimum price
                                                evidence that, among other things, there                  improvement increment better than the                    8 In a separate proposed rule change, ISE is

                                                is meaningful competition for all size                    NBBO on the opposite side of the                      proposing to adopt similar price improvement
                                                orders within the PIM, that there is                      market from the Agency Order and                      requirements for orders of less than 50 contracts for
                                                significant price improvement for all                     better than any limit order on the limit              its PIM. As part of that rule change, ISE is proposing
                                                                                                          order book on the same side of the                    to amend ISE Rule 1614 (Imposition of Fines for
                                                orders executed through the PIM, and                                                                            Minor Rule Violations) to add Rule 1614(d)(4),
                                                that there is an active and liquid market                 market as the Agency Order. This                      which will provide that, beginning January 19,
                                                functioning on the Exchange both                                                                                2017, any Member who enters an order into PIM for
                                                                                                             7 The Exchange notes that its indirect parent      less than 50 contracts, while the National Best Bid
                                                within PIM and outside of the Auction                     company, U.S. Exchange Holdings, Inc. has been        or Offer spread is $0.01, must provide price
                                                mechanism. The Exchange has also                          acquired by Nasdaq, Inc. See Securities Exchange      improvement of at least one minimum price
                                                analyzed the impact of certain aspects of                 Act Release No. 78119 (June 21, 2016), 81 FR 41611    improvement increment better than the NBBO on
                                                                                                          (June 27, 2016) (SR–ISEMercury–2016–10).              the opposite side of the market from the Agency
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                                                the Pilot; for example, situation in
                                                                                                          Pursuant to this acquisition, ISE Mercury platforms   Order, which increment may not be smaller than
                                                which PIM is terminated prematurely by                    are migrating to Nasdaq platforms, including the      $0.01. Failure to provide such price improvement
                                                an unrelated order.                                       platform that operates PIM. ISE Mercury intends to    will result in members being subject to the
                                                   The Exchange now seeks to have the                     retain the proposed member conduct standard           following fines: $500 for the second offense, $1,000
                                                Pilot approved on a permanent basis. In                   requiring price improvement for options orders of     for the third offense, and $2,500 for the fourth
                                                                                                          under 50 contracts where the difference between       offense. Subsequent offenses will subject the
                                                addition, the Exchange proposes to                        the NBBO is $0.01 until the ISE Mercury platforms     member to formal disciplinary action. ISE will
                                                                                                          and the corresponding symbols are migrated to the     review violations on a monthly cycle to assess these
                                                  6 See   note 3 above.                                   platforms operated by Nasdaq, Inc.                    violations.



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                                                                           Federal Register / Vol. 81, No. 243 / Monday, December 19, 2016 / Notices                                                       91985

                                                be entered at one minimum price                         size requirement provided an                           Agency Order was on behalf of a non-
                                                improvement increment better than the                   opportunity for more market                            customer and ISE Mercury was not at
                                                NBBO on the opposite side of the                        participants to participate in the                     the NBBO; (5) orders of 50 contracts or
                                                market from the Agency Order and                        auction.10 The Commission also stated                  less where the Agency Order was on
                                                better than the limit order or quote on                 that it would evaluate PIM during the                  behalf of a Public Customer and ISE
                                                the ISE order book on the same side of                  Pilot Period to determine whether it                   Mercury was at the NBBO; (6) orders of
                                                the Agency Order.                                       would be beneficial to customers and to                50 contracts or less where the Agency
                                                  The Exchange believes that these                      the options market as a whole to                       Order was on behalf of a Public
                                                changes to PIM may provide additional                   approve any proposal requesting                        Customer and ISE Mercury was not at
                                                opportunities for Agency Orders of                      permanent approval to permit orders of                 the NBBO; (7) orders of 50 contracts or
                                                under 50 option contracts to receive                    fewer than 50 contracts to be submitted                less where the Agency Order was on
                                                price improvement over the NBBO                         to the PIM.11                                          behalf of a non-customer and ISE
                                                where the difference in the NBBO is                        As noted above, throughout the Pilot,               Mercury was at the NBBO; and (8)
                                                $0.01 and therefore encourage the                       the Exchange has been required to                      orders of 50 contracts or less where the
                                                increased submission of orders of under                 submit certain data periodically to                    Agency Order was on behalf of a non-
                                                50 option contracts. The Exchange notes                 provide supporting evidence that,                      customer and ISE Mercury was not at
                                                that the statistics for the current pilot,              among other things, there is meaningful                the NBBO.
                                                which include, among other things,                      competition for all size orders within                    For March 2016, where the order was
                                                price improvement for orders of less                    the PIM, that there is significant price               on behalf of a Public Customer, the
                                                than 50 option contracts under the                      improvement for all orders executed                    order was for 50 contracts or less, and
                                                current auction eligibility requirements,               through the PIM, and that there is an                  ISE Mercury was at the NBBO, the most
                                                show relatively small amounts of price                  active and liquid market functioning on                contracts traded (2,525) occurred when
                                                improvement for such orders. ISE                        the Exchange both within PIM and                       the spread was $0.03, with an average
                                                Mercury believes that the proposed                      outside of the Auction mechanism.                      number of two participants.13 All of
                                                requirements will therefore increase the                   The Exchange believes that the data                 these contracts received $0.01 price
                                                price improvement that orders of under                  gathered since the approval of the Pilot               improvement. When the spread was
                                                50 option contracts may receive in PIM.                 establishes that there is liquidity and                $0.01 for this same category, a total of
                                                  The Exchange will retain the current                  competition both within PIM and                        734 contracts traded, with none of those
                                                requirements for auction eligibility                    outside of PIM, and that there are                     contracts receiving price improvement.
                                                where the Agency Order is for 50 option                 opportunities for significant price
                                                                                                                                                               There was an average number of 3
                                                contracts or more, or if the difference                 improvement within PIM.12
                                                                                                                                                               participants when the spread was $0.01.
                                                between the NBBO is greater than $0.01.                    In the period between February and
                                                                                                        June 2016, the PIM executed a total of                    In comparison, where the order was
                                                Accordingly, the Exchange is amending                                                                          on behalf of a Public Customer, the
                                                the Auction Eligibility Requirements to                 613,353 contracts, which represented
                                                                                                        26.36% of total ISE Mercury contract                   order was for greater than 50 contracts,
                                                state that, if the PIM Order is for 50                                                                         and ISE Mercury was at the NBBO, the
                                                option contracts or more or if the                      volume and 0.04% of industry volume.
                                                                                                        The percent of ISE Mercury volume                      most contracts traded (934) occurred
                                                difference between the NBBO is greater                                                                         when the spread was $0.10 to $0.20,
                                                than $0.01, the Crossing Transaction                    traded in PIM ranged from 0% in
                                                                                                        February 2016 to 37.88% in June 2016.                  with an average number of 3
                                                must be entered only at a price that is                                                                        participants. The greatest number of
                                                equal to or better than the NBBO and                       The Exchange compiled price
                                                                                                        improvement data in orders from                        these contracts (429) received $0.05–
                                                better than the limit order or quote on                                                                        $0.10 price improvement.
                                                the ISE Mercury order book on the same                  February through June 2016 that divides
                                                                                                        the data into the following groups: (1)                   In March 2016, where the order was
                                                side as the Agency Order.                                                                                      on behalf of a Public Customer, the
                                                                                                        Orders of over 50 contracts where the
                                                No Minimum Size Requirement                             Agency Order was on behalf of a Public                 order was for 50 contracts or less, and
                                                  Supplemental Material .03 to Rule                     Customer and ISE Mercury was at the                    ISE Mercury was not at the NBBO, the
                                                723 provides that, as part of the current               NBBO; (2) orders of over 50 contracts                  most contracts traded (3,772) occurred
                                                Pilot, there will be no minimum size                    where the Agency Order was on behalf                   when the spread $0.01. Of this category,
                                                requirement for orders to be eligible for               of a Public Customer and ISE Mercury                   the greatest number of contracts (3,722)
                                                the Auction.9 As with the ISE PIM, the                  was not at the NBBO; (3) orders of over                received no price improvement, and 50
                                                Exchange proposed the no-minimum                        50 contracts where the Agency Order                    contracts received $0.01 price
                                                size requirement for the PIM because it                 was on behalf of a non-customer and                    improvement. There was an average
                                                believed that this would provide small                  ISE Mercury was at the NBBO; (4)                       number of 2 participants when the
                                                customer orders with the opportunity to                 orders of over 50 contracts where the                  spread was $0.01.
                                                participate in the PIM and to receive                                                                             In comparison, in March 2016, where
                                                corresponding price improvement. In                        10 See Securities Exchange Act Release No. 50819    the order was on behalf of a Public
                                                initially approving the ISE PIM, the
                                                                                                        (December 8, 2004), 69 FR 75093 (December 15,          Customer, the order was for greater than
                                                                                                        2004) (SR–ISE–2003–06) (‘‘ISE PIM Approval             50 contracts, and ISE Mercury was not
                                                Commission noted that the no minimum                    Order’’).
                                                                                                           11 Id.                                              at the NBBO, the most contracts traded
                                                   9 The provision relating to the no minimum size         12 Specifically, the Exchange gathered and          (1,431) occurred when the spread was
                                                requirement also requires the Exchange to submit        reported nine separate data fields relating to PIM     $0.02. Of these contracts, the greatest
                                                certain data, periodically as required by the           orders of fewer than 50 contracts, including (1) the   number of contracts (758) received no
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                                                Commission, to provide supporting evidence that,        number of orders of fewer than 50 contracts entered    price improvement. There was an
                                                among other things, there is meaningful                 into the PIM; (2) the percentage of all orders of
                                                competition for all size orders within the PIM, that    fewer than 50 contracts sent to the Exchange that
                                                there is significant price improvement for all orders   are entered into the PIM; (3) the spread in the           13 This discussion of March 2016 data is intended

                                                executed through the PIM, and that there is an          option, at the time an order of fewer than 50          to be illustrative of data that was gathered between
                                                active and liquid market functioning on the             contracts is submitted to the PIM; and (4) of PIM      February 2016 and July 2016. The complete
                                                Exchange outside of the PIM. Any raw data which         trades, the percentage done at the NBBO plus $.01,     underlying data for February 2016 through June
                                                is submitted to the Commission will be provided on      plus $.02, plus $.03, etc. See Exhibit B to ISE        2016 for these eight categories is attached as Exhibit
                                                a confidential basis.                                   Mercury Exchange Application (File No. 10–209).        3.



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                                                91986                      Federal Register / Vol. 81, No. 243 / Monday, December 19, 2016 / Notices

                                                average number of 2 participants when                     For the period from January 2016                          Based on the data gathered during the
                                                the spread was $0.02.                                   through June 2016, there were a total of                  pilot, the Exchange does not anticipate
                                                  ISE Mercury believes that the data                    77 early terminated auctions. The                         that any of these conditions will occur
                                                gathered during the Pilot period                        number of orders in early terminated                      with significant frequency, or will
                                                indicates that there is meaningful                      PIM auctions constituted 0.35% of total                   otherwise significantly affect the
                                                competition in PIM auctions for all size                PIM orders. There were a total of 1,581                   functioning of the PIM. Of the early
                                                orders, there is an active and liquid                   contracts that traded through early                       terminated auctions, 46.75% of those
                                                market functioning on the Exchange                      terminated auctions. The number of                        auctions received price improvement,
                                                outside of the auction mechanism, and                   contracts in early terminated PIM                         and 31.37% of contracts that traded in
                                                that there are opportunities for                        auctions represented 0.26% of total PIM                   an early-terminated auction received
                                                significant price improvement for orders                contracts. Of the early terminated                        price improvement. The total amount of
                                                executed through PIM. The Exchange                      auctions, 46.75% of those auctions                        price improvement for PIM auctions
                                                therefore believes that it is appropriate               received price improvement, and                           that terminated early was $16.53. The
                                                to approve the no-minimum size                          31.37% of contracts that traded in an                     Exchange therefore believes it is
                                                requirement on a permanent basis.                       early-terminated auction received price                   appropriate to approve this aspect of the
                                                                                                        improvement. Of the PIM auctions that                     Pilot on a permanent basis.
                                                Early Conclusion of the PIM Auction                     terminated early and received price
                                                                                                                                                                  2. Statutory Basis
                                                  Supplemental Material .05 to Rule                     improvement from February 2016
                                                723 provides that Rule 723(c)(5) and                    through June 2016, the total amount of                       The Exchange believes that the
                                                Rule 723(d)(4), which relate to the                     price improvement received was $16.53.                    proposed rule change is consistent with
                                                termination of the exposure period by                                                                             the provisions of Section 6 of the Act,16
                                                unrelated orders shall be part of the                   second of the start of the PIM auction; the               in general and with Section 6(b)(5) of
                                                current Pilot. Rule 723(c)(5) provides                  percentage that occurred within one and 1⁄2 second        the Act,17 in that it is designed to
                                                                                                        of the start of the PIM auction; the percentage that      promote just and equitable principles of
                                                that the exposure period will                           occurred within 2 seconds of the start of the PIM
                                                automatically terminate (i) at the end of               auction; the percentage that occurred within 2 and        trade, to foster cooperation and
                                                the 500 millisecond period,14 (ii) upon                 1⁄2 seconds of the PIM auction; and the average           coordination with persons engaged in
                                                                                                        amount of price improvement provided to the               regulating, clearing, settling, processing
                                                the receipt of a market or marketable                   Agency Order where the PIM is terminated early at
                                                limit order on the Exchange in the same                 each of these time periods; (3) the number of times
                                                                                                                                                                  information with respect to, and
                                                series, or (iii) upon the receipt of a                  that a market or marketable limit order in the same       facilitating transactions in securities, to
                                                nonmarketable limit order in the same                   series on the opposite side of the market as the          remove impediments to and perfect the
                                                                                                        Agency Order prematurely ended the PIM auction            mechanism of a free and open market
                                                series on the same side of the market as                and at what time the unrelated order ended the PIM
                                                the Agency Order that would cause the                   auction, and the number of times such orders were         and a national market system, and, in
                                                price of the Crossing Transaction to be                 entered by the same (or affiliated) firm that initiated   general, to protect investors and the
                                                                                                        the PIM that was terminated; (4) the percentage of        public interest; and is not designed to
                                                outside of the best bid or offer on the                 PIM early terminations due to the receipt of a
                                                Exchange. Rule 723(d)(4) provides that,                 market or marketable limit order in the same series
                                                                                                                                                                  permit unfair discrimination between
                                                when a market order or marketable limit                 on the opposite side of the market that occurred          customers, issuers, brokers, or dealers,
                                                order on the opposite side of the market                within a 1⁄2 second of the start of the PIM auction;      or to regulate by virtue of any authority
                                                                                                        the percentage that occurred within one second of         conferred by the Act matters not related
                                                from the Agency Order ends the                          the start of the PIM auction; the percentage that
                                                exposure period, it will participate in                 occurred within one and 1⁄2 second of the start of
                                                                                                                                                                  to the purposes of the Act or the
                                                the execution of the Agency Order at the                the PIM auction; the percentage that occurred             administration of the Exchange.
                                                price that is mid-way between the best                  within 2 seconds of the start of the PIM auction; the        The Exchange believes that the
                                                                                                        percentage that occurred within 2 and 1⁄2 seconds         proposed rule change is also consistent
                                                counter-side interest and the NBBO, so                  of the PIM auction; and the average amount of price
                                                that both the market or marketable limit                improvement provided to the Agency Order where
                                                                                                                                                                  with Section 6(b)(8) of the Act 18 in that
                                                order and the Agency Order receive                      the PIM is terminated early at each of these time         it does not impose any burden on
                                                price improvement. Transactions will be                 periods; (5) the number of times that a                   competition not necessary or
                                                                                                        nonmarketable limit order in the same series on the       appropriate in furtherance of the
                                                rounded, when necessary, to the $.01                    same side of the market as the Agency Order that
                                                increment that favors the Agency Order.                 would cause the price of the Crossing Transaction         purposes of the Act.
                                                   As with the no minimum size                          to be outside of the best bid or offer on the                Specifically, the Exchange believes
                                                requirement, the Exchange has gathered                  Exchange prematurely ended the PIM auction and            that PIM, including the rules to which
                                                                                                        at what time the unrelated order ended the PIM            the Pilot applies, results in increased
                                                data on these three conditions to assess                auction, and the number of times such orders were
                                                the effect of early PIM conclusions on                  entered by the same (or affiliated) firm that initiated
                                                                                                                                                                  liquidity available at improved prices,
                                                the Pilot.15                                            the PIM that was terminated; (6) the percentage of        with competitive final pricing out of the
                                                                                                        PIM early terminations due to the receipt of a            complete control of the Electronic
                                                  14 The Exchange notes that it is proposing to
                                                                                                        market or marketable limit order in the same series       Access Member that initiated the
                                                                                                        on the same side of the market as the Agency Order
                                                modify the exposure period to a time period of no       that would cause the price of the Crossing                auction. The Exchange believes that PIM
                                                less than 100 milliseconds and no more than one         Transaction to be outside of the best bid or offer on     promotes and fosters competition and
                                                second. See Securities Exchange Act Release No.
                                                79354 (November 18, 2016), 81 FR 85295
                                                                                                        the Exchange that occurred within a 1⁄2 second of         affords the opportunity for price
                                                                                                        the start of the PIM auction; the percentage that         improvement to more options contracts.
                                                (November 25, 2016) (SR–ISEMercury–2016–21).            occurred within one second of the start of the PIM
                                                  15 The Exchange agreed to gather and submit the
                                                                                                        auction; the percentage that occurred within one          The Exchange believes that the changes
                                                following data on this part of the Pilot: (1) The       and 1⁄2 second of the start of the PIM auction; the       to the PIM requiring price improvement
                                                number of times that a market or marketable limit       percentage that occurred within 2 seconds of the          of at least one minimum price
                                                order in the same series on the same side of the
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                                                                                                        start of the PIM auction; the percentage that
                                                market as the Agency Order prematurely ended the        occurred within 2 and 1⁄2 seconds of the PIM
                                                                                                                                                                  improvement increment over the NBBO
                                                PIM auction, and the number of times such orders        auction; and the average amount of price                  for Agency Orders of less than 50 option
                                                were entered by the same (or affiliated) firm that      improvement provided to the Agency Order where            contracts where the difference in the
                                                initiated the PIM that was terminated; (2) the          the PIM is terminated early at each of these time         NBBO is $0.01 will provide further
                                                percentage of PIM early terminations due to the         periods; and (7) the average amount of price
                                                receipt of a market or marketable limit order in the    improvement provided to the Agency Order when
                                                                                                                                                                   16 15 U.S.C. 78f.
                                                same series on the same side of the market that         the PIM auction is not terminated early. See Exhibit
                                                                                                                                                                   17 15 U.S.C. 78f(b)(5).
                                                occurred within a 1⁄2 second of the start of the PIM    B to ISE Mercury Exchange Application (File No.
                                                auction; the percentage that occurred within one        10–209).                                                   18 15 U.S.C. 78f(b)(8).




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                                                                           Federal Register / Vol. 81, No. 243 / Monday, December 19, 2016 / Notices                                                 91987

                                                price improvement for those orders, and                 any burden on competition not                         Paper comments
                                                thereby encourage additional                            necessary or appropriate in furtherance
                                                submission of those orders into PIM.                                                                            • Send paper comments in triplicate
                                                                                                        of the purposes of the Act. The proposal
                                                The Exchange believes that the                                                                                to Brent J. Fields, Secretary, Securities
                                                                                                        will apply to all Exchange members,
                                                proposal, which subjects members to                                                                           and Exchange Commission, 100 F Street
                                                                                                        and participation in the PIM process is
                                                the Minor Rule Violation Plan for failing                                                                     NE., Washington, DC 20549–1090.
                                                                                                        completely voluntary. Based on the data
                                                to provide the required price                           collected by the Exchange during the                  All submissions should refer to File
                                                improvement, coupled with the                           Pilot, the Exchange believes that there is            Number SR–ISEMercury-2016–25. This
                                                Exchange’s surveillance efforts, are                    meaningful competition in the PIM for                 file number should be included on the
                                                designed to facilitate members’                         all size orders, there are opportunities              subject line if email is used. To help the
                                                compliance with the proposed                            for significant price improvement for                 Commission process and review your
                                                requirement.                                            orders executed through PIM, and that                 comments more efficiently, please use
                                                   The Exchange believes that approving                 there is an active and liquid market                  only one method. The Commission will
                                                the Pilot on a permanent basis is also                                                                        post all comments on the Commission’s
                                                                                                        functioning on the Exchange outside of
                                                consistent with the Act. With respect to                                                                      Internet Web site (http://www.sec.gov/
                                                                                                        the PIM. The Exchange believes that
                                                the no minimum size requirement, the                                                                          rules/sro.shtml). Copies of the
                                                                                                        requiring increased price improvement
                                                Exchange believes that the data gathered                                                                      submission, all subsequent
                                                during the Pilot period indicates that                  for Agency Orders may encourage
                                                                                                        competition by attracting additional                  amendments, all written statements
                                                there is meaningful competition in the                                                                        with respect to the proposed rule
                                                PIM for all size orders, there is an active             orders to participate in the PIM. The
                                                                                                        Exchange believes that approving the                  change that are filed with the
                                                and liquid market functioning on the                                                                          Commission, and all written
                                                Exchange outside of the auction                         Pilot on a permanent basis will not
                                                                                                                                                              communications relating to the
                                                mechanism, and that there are                           significantly impact competition, as the
                                                                                                                                                              proposed rule change between the
                                                opportunities for significant price                     Exchange is proposing no other change
                                                                                                                                                              Commission and any person, other than
                                                improvement for orders executed                         to the Pilot beyond implementing it on
                                                                                                                                                              those that may be withheld from the
                                                through PIM, including for small                        a permanent basis.
                                                                                                                                                              public in accordance with the
                                                customer orders.                                        C. Self-Regulatory Organization’s                     provisions of 5 U.S.C. 552, will be
                                                   With respect to the early termination                Statement on Comments on the                          available for Web site viewing and
                                                of the PIM, the Exchange believes that                  Proposed Rule Change Received From                    printing in the Commission’s Public
                                                it is appropriate to terminate an auction               Members, Participants, or Others                      Reference Room, 100 F Street NE.,
                                                (i) at the end of the 500 millisecond                                                                         Washington, DC 20549, on official
                                                period, (ii) upon the receipt of a market                 No written comments were either                     business days between the hours of
                                                or marketable limit order on the                        solicited or received.                                10:00 a.m. and 3:00 p.m. Copies of the
                                                Exchange in the same series, or (iii)                                                                         filing also will be available for
                                                upon the receipt of a nonmarketable                     III. Date of Effectiveness of the
                                                                                                        Proposed Rule Change and Timing for                   inspection and copying at the principal
                                                limit order in the same series on the                                                                         office of the Exchange. All comments
                                                same side of the market as the Agency                   Commission Action
                                                                                                                                                              received will be posted without change;
                                                Order that would cause the price of the                                                                       the Commission does not edit personal
                                                Crossing Transaction to be outside of                      Within 45 days of the date of
                                                                                                        publication of this notice in the Federal             identifying information from
                                                the best bid or offer on the Exchange.                                                                        submissions. You should submit only
                                                The Exchange also believes that it is                   Register or within such longer period (i)
                                                                                                        as the Commission may designate up to                 information that you wish to make
                                                consistent with the Act to require that,
                                                                                                        90 days of such date if it finds such                 available publicly. All submissions
                                                when a market order or marketable limit
                                                                                                        longer period to be appropriate and                   should refer to File Number SR–
                                                order on the opposite side of the market
                                                                                                        publishes its reasons for so finding or               ISEMercury 2016–25 and should be
                                                from the Agency Order ends the
                                                                                                        (ii) as to which the Exchange consents,               submitted on or before January 9, 2017.
                                                exposure period, it will participate in
                                                the execution of the Agency Order at the                the Commission shall: (a) By order                      For the Commission, by the Division of
                                                price that is mid-way between the best                  approve or disapprove such proposed                   Trading and Markets, pursuant to delegated
                                                counter-side interest and the NBBO, so                  rule change, or (b) institute proceedings             authority.19
                                                that both the market or marketable limit                to determine whether the proposed rule                Eduardo A. Aleman,
                                                order and the Agency Order receive                      change should be disapproved.                         Assistant Secretary.
                                                price improvement. Based on the data                    IV. Solicitation of Comments                          [FR Doc. 2016–30392 Filed 12–16–16; 8:45 am]
                                                gathered during the pilot, the Exchange                                                                       BILLING CODE 8011–01–P
                                                does not anticipate that any of these                     Interested persons are invited to
                                                conditions will occur with significant                  submit written data, views, and
                                                frequency, or will otherwise disrupt the                arguments concerning the foregoing,                   SECURITIES AND EXCHANGE
                                                functioning of the PIM. The Exchange                    including whether the proposed rule                   COMMISSION
                                                also notes that a significant percentage                change is consistent with the Act.
                                                of PIM auctions that terminated early                                                                         Proposed Collection; Comment
                                                                                                        Comments may be submitted by any of
                                                executed at a price that was better than                                                                      Request
                                                                                                        the following methods:
                                                the NBBO at the time the auction began,                                                                       Upon Written Request, Copies Available
                                                                                                        Electronic Comments
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                                                and that a significant percentage of                                                                           From: Securities and Exchange
                                                contracts in auctions that terminated                     • Use the Commission’s Internet                      Commission, Office of FOIA Services,
                                                early received price improvement.                       comment form (http://www.sec.gov/                      100 F Street NE., Washington, DC
                                                B. Self-Regulatory Organization’s                       rules/sro.shtml); or                                   20549–2736.
                                                Statement on Burden on Competition                        • Send an email to rule-comments@                   Extension:
                                                  The Exchange does not believe that                    sec.gov. Please include File Number SR–
                                                the proposed rule change will impose                    ISEMercury 2016–25 on the subject line.                 19 17   CFR 200.30–3(a)(12).



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Document Created: 2016-12-17 03:15:50
Document Modified: 2016-12-17 03:15:50
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 91982 

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