Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees, 16240-16245 [2016-06744]
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16240
Federal Register / Vol. 81, No. 58 / Friday, March 25, 2016 / Notices
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
ISEMercury–2016–06, and should be
submitted on or before April 15, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Brent J. Fields,
Secretary.
[FR Doc. 2016–06746 Filed 3–24–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77409; File No. SR–
ISEMercury–2016–05]
Self-Regulatory Organizations; ISE
Mercury, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the Schedule
of Fees
March 21, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 10,
2016, ISE Mercury, LLC (the
‘‘Exchange’’ or ‘‘ISE Mercury’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change, as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
ISE Mercury proposes to amend its
Schedule of Fees by adopting volumebased tiered rebates and fees. These tiers
are determined by a member’s average
daily volume of Priority Customer
orders traded on the Exchange. The text
of the proposed rule change is available
on the Exchange’s Internet Web site at
https://www.ise.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
self-regulatory organization has
prepared summaries, set forth in
Sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
ISE Mercury is proposing to amend its
Schedule of Fees to establish volumebased tiered rebates and fees (the
‘‘Member Volume Program’’ or ‘‘MVP’’).
The MVP tiers are determined by a
member’s average daily volume
(‘‘ADV’’) of Priority Customer 3 Regular
Orders,4 in Penny and Non-Penny Pilot
Symbols,5 traded on the Exchange. The
Exchange will also aggregate the trading
activity of affiliated members in
determining this ADV.6 ISE Mercury
believes the proposed fee and rebate
tiers will incentivize firms to increase
Priority Customer order flow to the
Exchange. The Exchange is also
proposing Penny and Non-Penny
Symbol fees for both Crossing Orders
and Responses to Crossing Orders.
Finally, the Exchange proposes to offer
Market Makers 7 a per contract discount
3 A Priority Customer is a person or entity that is
not a broker/dealer in securities, and does not place
more than 390 orders in listed options per day on
average during a calendar month for its own
beneficial account(s).
4 A Regular Order is an order that consists of only
a single option series and is not submitted with a
stock leg.
5 Under the Penny Pilot, the minimum price
variation for all participating options classes, except
for the Nasdaq-100 Index Tracking Stock (‘‘QQQ’’),
the SPDR S&P 500 Exchange Traded Fund (‘‘SPY’’)
and the iShares Russell 2000 Index Fund (‘‘IWM’’),
is $0.01 for all quotations in options series that are
quoted at less than $3 per contract and $0.05 for
all quotations in options series that are quoted at
$3 per contract or greater. The proposed fees and
rebates for Penny Pilot symbols apply to all classes
in the Penny Pilot, i.e., to series that are quoted at
less than $3 that have a minimum price variation
of $0.01 and to series that are quoted at $3 or more
that have an minimum price variation of $0.05.
QQQ, SPY, and IWM are quoted in $0.01
increments for all options series.
6 Aggregation is necessary and appropriate
because certain members conduct customer and
market maker trading activity through separate but
related broker-dealers.
7 The term Market Makers refers to ‘‘Competitive
Market Makers’’ and ‘‘Primary Market Makers’’
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when trading against Non-Priority
Customer orders.
The Member Volume Program
Currently, the fees and rebates
assessed for Regular Orders in standard
options that are in the Penny Pilot are:
(1) $0.20 per contract for Market Maker
orders,8 (2) $0.47 per contract for NonISE Mercury Market Maker,9 Firm
Proprietary 10/Broker-Dealer,11 and
Professional Customer 12 orders; and (3)
($0.18) per contract for Priority
Customer orders. The transaction fees
and rebates assessed for Regular Orders
that are not in the Penny Pilot are: (1)
$0.20 per contract for Market Maker
orders; (2) $0.90 per contract for NonISE Mercury Market Maker, Firm
Proprietary/Broker-Dealer, and
Professional Customer orders; and (3)
($0.18) per contract for Priority
Customer orders.
The Exchange proposes to amend the
above fees and rebates so that they will
be based on a member’s ADV of Priority
Customer orders traded in a given
month and the highest tier threshold
attained applies retroactively in a given
month to all eligible traded contracts
and applies to all eligible market
participants. This Priority Customer
ADV includes all Priority Customer
volume executed on the Exchange in all
symbols and order types, including
volume executed in the Price
Improvement Mechanism (‘‘PIM’’) and
the Facilitation and Qualified
Contingent Cross mechanisms.
Further, the Exchange will aggregate
the trading activity of separate members
in calculating Priority Customer ADV
provided there is at least 75% common
ownership between the firms as
reflected on each firm’s Form BD,
Schedule A. The Exchange believes that
aggregating this volume across members
that share at least 75% common
ownership will allow members to
continue to execute trades on the
Exchange through separate brokerdealer entities for different types of
collectively. Market Maker orders sent to the
Exchange by an Electronic Access Member are
assessed fees at the same level as Market Maker
orders.
8 This fee applies to ISE Mercury Market Maker
orders sent to the Exchange by Electronic Access
Members.
9 A Non-ISE Mercury Market Maker, or Far Away
Market Maker (‘‘FARMM’’), is a market maker as
defined in Section 3(a)(38) of the Securities
Exchange Act of 1934, as amended (‘‘Exchange
Act’’), registered in the same options class on
another options exchange.
10 A Firm Proprietary order is an order submitted
by a member for its own proprietary account.
11 A Broker-Dealer order is an order submitted by
a member for a non-member broker-dealer account.
12 A Professional Customer is a person who is not
a broker/dealer and is not a Priority Customer.
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16241
Federal Register / Vol. 81, No. 58 / Friday, March 25, 2016 / Notices
Exchange did not have the ability to
exclude aberrant low volume days when
calculating ADV for the month, as a
result of the decreased trading volume,
the numerator for the calculation (e.g.,
trading volume) would be
correspondingly lower, but the
denominator for the threshold
calculations (e.g., the number of trading
days) would not be decreased. This
could result in an unintended cost
increase. Absent the authority to
exclude days that the market is not open
for the entire trading day, members will
experience an effective decrease in
rebates. The artificially low volumes of
trading on such days could reduce the
trading activity of members both daily
and monthly. Accordingly, excluding
such days from the monthly calculation
will diminish the likelihood of an
effective increase in the cost of trading
on the Exchange, a result that is
unintended and undesirable to the
Exchange and its members.
The Exchange notes that the fees
charged to Non-ISE Mercury Market
Maker, Firm Proprietary/Broker Dealer
and Professional Customer in Penny and
Non-Penny Symbols are the same as the
current fees charged, regardless of the
tier level reached. However, the tiered
fees and rebates for both Priority
Customers and Market Makers have
changed. The proposed fees and rebates
for each tier and participant type are as
follows:
its ADV calculations where the
Exchange is technically open for the
entire trading day, but has instructed
members to route away due to a systems
or other error that ultimately does not
impact trading on the Exchange. The
Exchange also notes, however, that if it
has a systems issue in the morning
before the market opens, it may instruct
members to route away to other markets.
If the systems issue continues into
trading hours, the Exchange is permitted
to exclude the day for all members that
QUALIFYING TIER THRESHOLDS
would have a lower ADV with the day
Total
included. If, however, the systems issue
Tier
affiliated priority
is resolved prior to the opening of
customer ADV
trading, the Exchange is not permitted
Tier 1 ..............................
0–19,999 to exclude the day from its ADV
Tier 2 ..............................
20,000–39,999 calculations. This is the case regardless
Tier 3 ..............................
40,000–59,999 of the fact that many members would
Tier 4 ..............................
60,000–79,999 have already made arrangements to
Tier 5 ..............................
80,000+ route away in accordance with the
Exchange’s instructions. To prevent this
Additionally, the Exchange proposes
undesirable result, and preserve the
to amend the Schedule of Fees to
Exchange’s intent behind adopting
include language related to excluding
volume-based pricing, the Exchange
days from the ADV calculations used to proposes to allow days to be excluded
determine applicable fee and rebate
from its ADV calculation whenever all
tiers. Specifically, the Exchange
members are instructed, in writing, to
proposes to (1) exclude from its ADV
route their orders to other markets.
calculations any trading day on which
Because the days the Exchange
the Exchange is closed early for holiday proposes to exclude from its ADV
observance; (2) exclude days where the
calculation generally have artificially
Exchange declares a trading halt in all
lower trading volume, the Exchange
securities or honors a market-wide
believes that it is reasonable and
trading halt declared by another market; equitable to not include such days in
and (3) permit days to be excluded from determining fee and rebate tiers. If the
volume, while receiving rebates based
on the aggregate volume being executed
across such entities.
The Exchange now proposes fees and
rebates based on five volume tier levels
as described in the table below. These
fees and rebates will be based on the
highest tier that a member reaches in a
given month, and these tiered rates will
apply retroactively to all eligible traded
contracts for all client categories.
PENNY SYMBOL FEES AND REBATES
[Per contract]
Tier
Tier
Tier
Tier
Tier
Tier
1
2
3
4
5
Priority customer
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
Market maker
($0.05)
($0.10)
($0.15)
($0.21)
($0.24)
$0.25
$0.22
$0.18
$0.15
$0.10
Firm proprietary,
B/D, FarMM &
professional
customer
$0.47
$0.47
$0.47
$0.47
$0.47
NON-PENNY SYMBOL FEES AND REBATES
[Per contract]
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Tier
Tier
Tier
Tier
Tier
Tier
1
2
3
4
5
Priority customer
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
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Market maker
($0.05)
($0.10)
($0.15)
($0.21)
($0.24)
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$0.25
$0.22
$0.18
$0.15
$0.10
25MRN1
Firm proprietary,
B/D, FarMM &
professional
customer
$0.90
$0.90
$0.90
$0.90
$0.90
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Federal Register / Vol. 81, No. 58 / Friday, March 25, 2016 / Notices
Crossing Orders
The Exchange proposes Penny and
Non-Penny Symbol fees for Crossing
Orders. The Exchange currently charges
a fee of $0.20 per contract for Crossing
Orders 13 in all symbols traded on the
Exchange for all market participants,
except Priority Customers who are
charged $0.00 per contract for Crossing
Orders. A Crossing Order is an order
executed in the Exchange’s Facilitation
Mechanism, Solicited Order
Mechanism, PIM, or submitted as a
Qualified Contingent Cross order.
Orders executed in the Block Order
Mechanism are also considered Crossing
Orders. The fees for Crossing Orders,
except for PIM Orders of 500 or Fewer
Contracts, in both Penny and NonPenny Symbols have not changed from
current levels.
As an exception to the fees charged
for Crossing Orders, the Exchange
charges a fee of $0.05 per contract for
PIM Orders of 500 or Fewer Contracts in
all symbols traded on the Exchange for
all market participants, except that
Priority Customer orders on the
originating side of a PIM auction receive
a rebate of ($0.13) per contract. Priority
Customer orders on the contra-side of a
PIM auction pay no fee and receive no
rebate. PIM orders greater than 500
contracts pay the Crossing Order fee,
described above. The Exchange now
proposes to offer tiered fees and rebates
based on Priority Customer volume, as
described above, for PIM Orders of 500
or Fewer Contracts. The Exchange notes
that the fees for Non-Priority Customer
orders have not changed from current
levels, but the fees for Priority Customer
orders have changed as described in the
table, below.
ALL SYMBOLS FEE/REBATE FOR PIM ORDERS OF 500 OR FEWER CONTRACTS
Tier
Tier
Tier
Tier
Tier
Tier
1
2
3
4
5
Priority customer
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Responses to Crossing Orders
The Exchange proposes Penny and
Non-Penny Symbol fees for Responses
to Crossing Orders. A Response to a
Crossing Order is any contra-side
interest (i.e., orders and quotes)
submitted after the commencement of
an auction in the Exchange’s
Facilitation Mechanism, Solicited Order
Mechanism, Block Order Mechanism, or
PIM. Currently, the Exchange charges a
fee of (1) $0.20 per contract for Market
Maker orders and (2) $0.50 per contract
for Non-ISE Mercury Market Maker,
Firm Proprietary/Broker-Dealer,
Professional Customer, and Priority
Customer orders in all symbols. For
Responses to Crossing Orders in Penny
Symbols, the Exchange proposes to
charge Market Makers the
corresponding tiered fees in the chart
titled Penny Symbol Fees and Rebates,
above. For Non-ISE Mercury Market
Maker, Firm Proprietary/Broker-Dealer,
Professional Customer, and Priority
Customer orders in Penny Symbols, the
fees have not changed from current
levels. For Responses to Crossing Orders
in Non-Penny Symbols, the Exchange
proposes to charge Market Makers the
corresponding tiered fees in the chart
titled Non-Penny Symbol Fees and
Rebates, above. For Non-ISE Mercury
Market Maker, Firm Proprietary/BrokerDealer, Professional Customer, and
Priority Customer orders in Non-Penny
13 These fees apply to both originating and contra
orders.
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($0.11)
($0.11)
($0.13)
($0.13)
($0.13)
Symbols, the Exchange proposes to
charge a fee of $0.95 per contract.
With respect to the proposed MVP,
described above, the Exchange notes
that the fees and rebates currently being
paid on ISE Mercury are in the range of
fees and rebates in the new structure.
During the initial rollout of symbols on
ISE Mercury, the Exchange did not
adopt the proposed tiered structure due
to the difficulty of calculating
appropriate ADV thresholds for each
tier when symbols were being listed on
the Exchange each week. The Exchange,
therefore, opted to provide attractive
introductory rates and Priority Customer
order rebates in order to attract Priority
Customer orders to the Exchange during
the initial rollout phase. By adopting the
proposed tiered structure now, the
Exchange seeks to incentivize members
to send additional order flow to the
Exchange in order to qualify for lower
fees and higher rebates.
Market Maker Discount
The Exchange is also proposing a
$0.05 per contract discount to Market
Maker fees when the Market Maker
trades against Non-Priority Customer
orders. We believe this will incentivize
Market Makers to provide competitive
markets. This discount does not apply
to Crossing Orders.
14 15
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U.S.C. 78f.
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$0.05
$0.05
$0.05
$0.05
$0.05
Firm proprietary,
B/D, FarMM &
professional
customer
$0.05
$0.05
$0.05
$0.05
$0.05
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,14
in general, and Section 6(b)(4) of the
Act,15 in particular, in that it is designed
to provide for the equitable allocation of
reasonable dues, fees, and other charges
among its members and other persons
using its facilities.
The Exchange believes the fees
proposed for transactions on ISE
Mercury are reasonable. ISE Mercury
will operate within a highly competitive
market in which market participants can
readily send order flow to any of the
thirteen other competing venues if they
deem fees at a particular venue to be
excessive. The proposed MVP is
intended to attract order flow to ISE
Mercury by offering certain market
participants incentives to submit their
orders to ISE Mercury.
Member Volume Program
The Exchange believes the proposed
fees and rebates in the MVP are
reasonable and equitably allocated
because ISE Mercury has already
established fees for members trading on
the Exchange, and is merely proposing
to adopt volume-based tiers designed to
incentivize members to send additional
Priority Customer order flow to the
Exchange. Further, the language
permitting aggregation of volume
amongst corporate affiliates for purposes
15 15
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U.S.C. 78f(b)(4).
25MRN1
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Federal Register / Vol. 81, No. 58 / Friday, March 25, 2016 / Notices
of the ADV calculation is intended to
avoid disparate treatment of firms that
have divided their various business
activities between separate corporate
entities as compared to firms that
operate those business activities within
a single corporate entity. For example,
many firms that are members of the
Exchange operate several different
business lines within the same
corporate entity. In contrast, other firms
may be part of a corporate structure that
separates those business lines into
different corporate affiliates, either for
business, compliance, or historical
reasons. Those corporate affiliates, in
turn, are required to maintain separate
memberships with the Exchange in
order to access the Exchange. The
Exchange believes that corporate
affiliates should continue to be
aggregated and is clarifying when
members will be considered affiliated.
The Exchange notes that the proposed
definition of ‘‘affiliate’’ to be used to
aggregate affiliated member ADV is
consistent with definitions used by
other options exchanges, including
MIAX.16
The Exchange believes that it is
equitable and reasonable to permit the
Exchange to eliminate from the
calculation days on which the market is
not open the entire trading day, either
due to a holiday or trading halt, because
it preserves the Exchange’s intent
behind adopting volume-based pricing.
The proposed change is nondiscriminatory because it applies
equally to all members and to all
volume tiers. Additionally, the
Exchange believes that it is reasonable
and equitable to exclude a day from its
ADV calculations when members are
instructed to route their orders to other
markets as this preserves the Exchange’s
intent behind adopting volume-based
pricing, and avoids penalizing members
that follow this instruction. Without this
change, members that route away in
accordance with the Exchange’s
instructions may be negatively
impacted, resulting in an effective cost
increase for those members. The
Exchange further believes that the
proposed rule change is not unfairly
discriminatory because it applies
equally to all members and ADV
calculations. As is the Exchange’s
current practice, the Exchange will
inform members of any day to be
excluded from its ADV calculations by
16 See MIAX Fee Schedule, (1) Transaction Fees,
(a) Exchange Fees, (iii) Priority Customer Rebate
Program at https://www.miaxoptions.com/sites/
default/files/MIAX_Options_Fee_Schedule_
02012016B.pdf.
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sending members a notice and posting
such notice on the Exchange’s Web site.
The Exchange further believes that its
proposal to provide rebates for Priority
Customer orders is reasonable and
equitable because the proposed rebates
are competitive with the rebates offered
by other exchanges employing similar
tiered rebate structures based on Priority
Customer volume. For example, MIAX
Options Exchange (‘‘MIAX’’) and
NASDAQ OMX PHLX (‘‘PHLX’’) have
Priority Customer, tiered rebate
programs.17 MIAX offers a per contract
rebate of $0.00 for its base tier and a per
contract rebate of $0.24 for its highest
rebate tier in select symbols. Similarly,
PHLX offers a per contract rebate of
$0.00 for its base tier and a per contract
rebate of $0.21 for its highest tier in
customer simple orders.18 As proposed,
ISE Mercury’s Priority Customer order
rebates are not unfairly discriminatory
because they would apply uniformly to
all similarly situated market
participants and they are competitive
with the rebates offered by MIAX’s and
PHLX’s Priority Customer rebate
programs.
The Exchange believes that providing
higher rebates for Priority Customer
orders, and creating ADV thresholds
specifically for members that send such
orders to ISE Mercury, attracts that
order flow to the Exchange and thereby
creates liquidity to the benefit of all
market participants who trade on the
Exchange. Further, the Exchange
believes that it is equitable and not
unfairly discriminatory to provide
higher rebates to Priority Customer
orders than to Professional Customer
orders. A Priority Customer is by
definition not a broker or dealer in
securities, and does not place more than
390 orders in listed options per day on
average during a calendar month for its
own beneficial account(s). This
limitation does not apply to participants
on the Exchange whose behavior is
substantially similar to that of market
professionals, including Professional
Customers, who will generally submit a
higher number of orders (many of which
do not result in executions) than
Priority Customers. Further,
Professional Customers engage in
trading activity similar to that
17 See MIAX Fee Schedule, (1) Transaction Fees,
(a) Exchange Fees, (iii) Priority Customer Rebate
Program at https://www.miaxoptions.com/sites/
default/files/MIAX_Options_Fee_Schedule_
03012016.pdf and PHLX Fee Schedule, B. Customer
Rebate Program at https://www.nasdaqtrader.com/
Micro.aspx?id=phlxpricing.
18 PHLX Fee Schedule, B. Customer Rebate
Program, Category A at https://www.nasdaqtrader.
com/Micro.aspx?id=phlxpricing.
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16243
conducted by Market Makers and
proprietary traders.
The Exchange believes that its
proposal to assess a per contract fee for
Market Maker orders is reasonable and
equitable because the proposed fees are
within the range of fees assessed by
other exchanges employing similar
tiered rebate structures such as MIAX,
which offers tiered fees for Market
Makers. In Penny Symbols, MIAX
generally charges Market Makers a per
contract fee as high as $0.25 for its base
tier and a per contract fee of $0.05 for
its highest tier.19 In Non-Penny
Symbols, MIAX charges a per contract
fee of $0.29 for its base tier and a per
contract fee of $0.09 for its highest
tier.20 Thus, MIAX’s tiered Market
Maker fees are competitive with ISE
Mercury’s fees. The Exchange believes
that the price differentiation between
Market Makers and other Non-Priority
Customers is appropriate and not
unfairly discriminatory because Market
Makers have different requirements and
obligations to the Exchange that other
market participants do not (such as
quoting requirements). The Exchange
believes that it is equitable and not
unfairly discriminatory to provide lower
fees to Market Makers because they
would apply uniformly to similarly
situated market participants.
Crossing Orders
The Exchange believes the proposed
rebates for PIM Orders of 500 or Fewer
Contracts 21 are reasonable and
equitably allocated because the
proposed fees are within the range of
fees assessed by other exchanges such as
MIAX, which offers a rebate for PRIME
Agency orders.22 For example, MIAX
offers a per contract rebate of $0.10 for
each Priority Customer order and also
offers an additional per contract rebate
of $0.02 for members that qualify for
MIAX’s Priority Customer Rebate
Program’s volume tiers 3 and 4.23 While
ISE Mercury’s tiered rebate is
specifically targeted towards Priority
Customer orders, the Exchange does not
believe that this is unfairly
discriminatory. As discussed above,
19 See MIAX Fee Schedule, (1) Transaction Fees,
(a) Exchange Fees, (i) Market Maker Transaction
Fees, Market Maker Sliding Scale at https://
www.miaxoptions.com/sites/default/files/MIAX_
Options_Fee_Schedule_03012016.pdf.
20 Id.
21 The level is set at 500 or fewer contracts
because Priority Customer orders are typically less
than 500 contracts.
22 See MIAX Fee Schedule, (1) Transaction Fees,
(a) Exchange Fees, (iii) Priority Customer Rebate
Program at https://www.miaxoptions.com/sites/
default/files/MIAX_Options_Fee_Schedule_
03012016.pdf.
23 Id.
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Federal Register / Vol. 81, No. 58 / Friday, March 25, 2016 / Notices
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Priority Customer orders on the
Exchange are generally entitled to lower
fees and higher rebates, and the
Exchange believes that attracting more
liquidity from Priority Customers will
benefit all market participants that trade
on ISE Mercury. Further, the Exchange
believes that it is equitable and not
unfairly discriminatory to provide lower
fees to Priority Customers because they
would apply uniformly to similarly
situated market participants.
Responses to Crossing Orders
The Exchange’s proposal to assess
Penny and Non-Penny Symbol fees for
Responses to Crossing Orders is
reasonable and equitably allocated
because they are within the range of fees
assessed by other exchanges.
Specifically, the Exchange proposes to
keep fees for Responses to Crossing
Orders in Penny Symbols the same and
to increase fees for Responses to
Crossing Orders in Non-Penny Symbols
so that these fees are competitive with
similar fees charged on other exchanges.
For example, ISE Gemini’s Fees for
Responses to Crossing Orders 24 in both
Penny and Non-Penny Symbols are
competitive with those proposed by ISE
Mercury. Further, the Exchange believes
the proposed Fees for Responses to
Crossing Orders are not unfairly
discriminatory because they would
uniformly apply to all similarly situated
market participants.
With respect to the Responses to
Crossing Orders’ tiered fees for Market
Maker orders, the Exchange believes
that the proposed fees are fair, equitable,
and not unfairly discriminatory because
the proposed fees are consistent with
the fees charged at other exchanges. For
example, ISE Gemini charges Market
Makers a Fee for Responses to Crossing
Orders of $0.49 per contract in Penny
Symbols and $0.89 per contract in NonPenny Symbols. Similarly, ISE
Mercury’s proposal would charge per
contract fees ranging from $0.50 (Tier 1
fee plus Marketing Fee) to $0.35 (Tier 5
fee plus Marketing Fee) in Penny
Symbols and per contract fees ranging
from $0.95 (Tier 1 fee plus Marketing
Fee) to $0.80 (Tier 5 fee plus marketing
fee) in Non-Penny Symbols. As
discussed above, the Exchange believes
that the price differentiation between
Market Makers and the other market
participants is appropriate and not
unfairly discriminatory because they
have requirements and obligations to
the Exchange that the other market
24 See
ISE Gemini Fee Schedule, I. Regular Order
Fees and Rebates, Fee for Crossing Orders at
https://www.ise.com/assets/gemini/documents/
OptionsExchange/legal/fee/Gemini_Fee_
Schedule.pdf.
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18:30 Mar 24, 2016
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participants do not. Market Makers also
incur Marketing Fees, which the other
market participants do not. Thus, the
Exchange believes that it is equitable
and not unfairly discriminatory to
assess a higher fee to certain market
participants that do not have such
requirements and obligations that
Exchange Market Makers do.
Market Maker Discount
The Exchange believes the proposed
Market Maker discount is reasonable,
equitable, and not unfairly
discriminatory because Market Makers
have different requirements and
obligations to the Exchange that other
market participants do not and they
incur Marketing Fees. The Exchange
notes that when trading against a
Priority Customer the exchange pays a
rebate for Priority Customer orders, but
the Exchange charges a fee for
executions of Non-Priority Customer
orders. The Exchange believes that
offering a discount on the fees charged
to Market Makers will encourage Market
Maker to make better markets and
execute more trades. Furthermore,
charging Market Makers lower fees for
trading against a Non-Priority Customer
order is not a new concept in the
industry. For example, BOX Options
Exchange, in Non-Penny Pilot Symbols,
charges Market Makers a maker fee of
$0.85 per contract for trading against a
Priority Customer order and a maker fee
of $0.00 for trading against a
Professional Customer/Broker Dealer
order.25 Finally, [sic]
The Exchange notes that the proposed
rule filing is intended to further
establish ISE Mercury as an attractive
venue for market participants to direct
their order flow as the proposed fees
and rebates are competitive with those
established by other exchanges. The
Exchange operates in a highly
competitive market in which market
participants can readily direct order
flow to another exchange if they deem
rebates at a particular exchange to be too
low. For the reasons noted above, the
Exchange believes that the proposed
rebates are fair, equitable and not
unfairly discriminatory.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,26 the Exchange does not believe
that the proposed rule change will
impose any burden on intermarket or
25 See BOX Options Exchange Fee Schedule,
Section I. Exchange Fees, A. Non-Auction
Transactions at https://boxexchange.com/assets/
BOX-Exchange-Fee-Schedule-as-of-February-262016.pdf.
26 15 U.S.C. 78f(b)(8).
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The tiered
rebate structure that the Exchange
proposes to adopt is similar to those
currently in effect on other options
exchanges such as MIAX and PHLX,
and will increase competition between
ISE Mercury and these markets.
In establishing the MVP, the Exchange
is not imposing any burden on
competition. The established volume
tiers are transparent and offer members
a simple way to reach different levels of
fees and rebates on the exchange,
similar to levels and differentials these
same participants are familiar with on
several other exchanges. Volume tiers
are not new to the options industry and
generally reward members for
submitting additional volume to the
Exchange, with ISE Mercury now
seeking to introduce a similar structure.
The Exchange also notes that other
exchanges have substantially similar
requirements for aggregating affiliated
member ADV in determining applicable
tiered rebates.
Finally, in establishing a Market
Maker discount for Market Makers
trading against Non-Priority Customer
orders, the Exchange is not imposing
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act because other
exchanges offer lower fees to Market
Makers trading against Non-Priority
Customers. Additionally, the Exchange
notes that when trading against a
Priority Customer the exchange pays a
rebate for Priority Customer orders, but
the Exchange charges a fee for
executions of Non-Priority Customer
orders. The Exchange believes that
offering a discount on the fees charged
to Market Makers will encourage Market
Maker to make better markets and
execute more trades.
The Exchange operates in a highly
competitive market in which market
participants can readily direct their
order flow to competing venues. In such
an environment, the Exchange must
continually review, and consider
adjusting, its fees and rebates to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed fee
changes reflect this competitive
environment.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
E:\FR\FM\25MRN1.SGM
25MRN1
Federal Register / Vol. 81, No. 58 / Friday, March 25, 2016 / Notices
unsolicited written comments from
members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act,27 and
subparagraph (f)(2) of Rule 19b–4
thereunder,28 because it establishes a
due, fee, or other charge imposed by ISE
Mercury.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ISEMercury–2016–05 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–ISEMercury–2016–05. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
ISEMercury–2016–05, and should be
submitted on or before April 15, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Brent J. Fields,
Secretary.
[FR Doc. 2016–06744 Filed 3–24–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77413; File No. SR–ICC–
2016–003]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Notice of Filing of
Proposed Rule Change To Revise the
ICC Operational Risk Management
Framework
March 21, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2
notice is hereby given that on March 10,
2016, ICE Clear Credit LLC (‘‘ICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared primarily by ICC.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The principal purpose of the
proposed rule change is to update ICC’s
Operational Risk Management
29 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
27 15
U.S.C. 78s(b)(3)(A)(ii).
28 17 CFR 240.19b–4(f)(2).
VerDate Sep<11>2014
18:30 Mar 24, 2016
1 15
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Frm 00119
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16245
Framework. These revisions do not
require any changes to the ICC Clearing
Rules.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, ICC
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. ICC has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of these statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
ICC proposes updates to the ICC
Operational Risk Management
Framework. ICC believes such revisions
will facilitate the prompt and accurate
clearance and settlement of securities
transactions and derivative agreements,
contracts, and transactions for which it
is responsible. The proposed revisions
are described in detail as follows.
The ICC Operational Risk
Management Framework details ICC’s
dynamic and independent program of
risk assessment and oversight, managed
by the Operational Risk Manager
(‘‘ORM’’), which aims to reduce
operational incidents, encourage
process and control improvement, bring
transparency to operational performance
standard monitoring, and fulfill
regulatory obligations. ICC proposes
organizational changes to its
Operational Risk Management
Framework related to its operational
risk management processes.
ICC has revised the Operational Risk
Management Framework to frame its
existing operational risk program and
processes around an operational risk
lifecycle, designed to highlight certain
aspects of the processes and present the
processes in a more efficient manner.
The operational risk lifecycle utilized by
ICC has five components: Identify,
assess, monitor, mitigate and report.
Each of these lifecycle components are
first defined generally in the document
then applied to each of ICC’s two
operational risk processes: Risk
assessment; and performance objectives
setting and monitoring. Specifically, the
content for each risk process has been
reorganized to fall into each of the
operational risk lifecycle components
(i.e., identify, assess, monitor, mitigate,
and report). For completion purposes,
E:\FR\FM\25MRN1.SGM
25MRN1
]]>Agencies
[Federal Register Volume 81, Number 58 (Friday, March 25, 2016)]
[Notices]
[Pages 16240-16245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06744]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77409; File No. SR-ISEMercury-2016-05]
Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Schedule of Fees
March 21, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 10, 2016, ISE Mercury, LLC (the ``Exchange'' or ``ISE
Mercury'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change, as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
ISE Mercury proposes to amend its Schedule of Fees by adopting
volume-based tiered rebates and fees. These tiers are determined by a
member's average daily volume of Priority Customer orders traded on the
Exchange. The text of the proposed rule change is available on the
Exchange's Internet Web site at https://www.ise.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The self-regulatory organization has prepared summaries,
set forth in Sections A, B and C below, of the most significant aspects
of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
ISE Mercury is proposing to amend its Schedule of Fees to establish
volume-based tiered rebates and fees (the ``Member Volume Program'' or
``MVP''). The MVP tiers are determined by a member's average daily
volume (``ADV'') of Priority Customer \3\ Regular Orders,\4\ in Penny
and Non-Penny Pilot Symbols,\5\ traded on the Exchange. The Exchange
will also aggregate the trading activity of affiliated members in
determining this ADV.\6\ ISE Mercury believes the proposed fee and
rebate tiers will incentivize firms to increase Priority Customer order
flow to the Exchange. The Exchange is also proposing Penny and Non-
Penny Symbol fees for both Crossing Orders and Responses to Crossing
Orders. Finally, the Exchange proposes to offer Market Makers \7\ a per
contract discount when trading against Non-Priority Customer orders.
---------------------------------------------------------------------------
\3\ A Priority Customer is a person or entity that is not a
broker/dealer in securities, and does not place more than 390 orders
in listed options per day on average during a calendar month for its
own beneficial account(s).
\4\ A Regular Order is an order that consists of only a single
option series and is not submitted with a stock leg.
\5\ Under the Penny Pilot, the minimum price variation for all
participating options classes, except for the Nasdaq-100 Index
Tracking Stock (``QQQ''), the SPDR S&P 500 Exchange Traded Fund
(``SPY'') and the iShares Russell 2000 Index Fund (``IWM''), is
$0.01 for all quotations in options series that are quoted at less
than $3 per contract and $0.05 for all quotations in options series
that are quoted at $3 per contract or greater. The proposed fees and
rebates for Penny Pilot symbols apply to all classes in the Penny
Pilot, i.e., to series that are quoted at less than $3 that have a
minimum price variation of $0.01 and to series that are quoted at $3
or more that have an minimum price variation of $0.05. QQQ, SPY, and
IWM are quoted in $0.01 increments for all options series.
\6\ Aggregation is necessary and appropriate because certain
members conduct customer and market maker trading activity through
separate but related broker-dealers.
\7\ The term Market Makers refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. Market Maker
orders sent to the Exchange by an Electronic Access Member are
assessed fees at the same level as Market Maker orders.
---------------------------------------------------------------------------
The Member Volume Program
Currently, the fees and rebates assessed for Regular Orders in
standard options that are in the Penny Pilot are: (1) $0.20 per
contract for Market Maker orders,\8\ (2) $0.47 per contract for Non-ISE
Mercury Market Maker,\9\ Firm Proprietary \10\/Broker-Dealer,\11\ and
Professional Customer \12\ orders; and (3) ($0.18) per contract for
Priority Customer orders. The transaction fees and rebates assessed for
Regular Orders that are not in the Penny Pilot are: (1) $0.20 per
contract for Market Maker orders; (2) $0.90 per contract for Non-ISE
Mercury Market Maker, Firm Proprietary/Broker-Dealer, and Professional
Customer orders; and (3) ($0.18) per contract for Priority Customer
orders.
---------------------------------------------------------------------------
\8\ This fee applies to ISE Mercury Market Maker orders sent to
the Exchange by Electronic Access Members.
\9\ A Non-ISE Mercury Market Maker, or Far Away Market Maker
(``FARMM''), is a market maker as defined in Section 3(a)(38) of the
Securities Exchange Act of 1934, as amended (``Exchange Act''),
registered in the same options class on another options exchange.
\10\ A Firm Proprietary order is an order submitted by a member
for its own proprietary account.
\11\ A Broker-Dealer order is an order submitted by a member for
a non-member broker-dealer account.
\12\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
---------------------------------------------------------------------------
The Exchange proposes to amend the above fees and rebates so that
they will be based on a member's ADV of Priority Customer orders traded
in a given month and the highest tier threshold attained applies
retroactively in a given month to all eligible traded contracts and
applies to all eligible market participants. This Priority Customer ADV
includes all Priority Customer volume executed on the Exchange in all
symbols and order types, including volume executed in the Price
Improvement Mechanism (``PIM'') and the Facilitation and Qualified
Contingent Cross mechanisms.
Further, the Exchange will aggregate the trading activity of
separate members in calculating Priority Customer ADV provided there is
at least 75% common ownership between the firms as reflected on each
firm's Form BD, Schedule A. The Exchange believes that aggregating this
volume across members that share at least 75% common ownership will
allow members to continue to execute trades on the Exchange through
separate broker-dealer entities for different types of
[[Page 16241]]
volume, while receiving rebates based on the aggregate volume being
executed across such entities.
The Exchange now proposes fees and rebates based on five volume
tier levels as described in the table below. These fees and rebates
will be based on the highest tier that a member reaches in a given
month, and these tiered rates will apply retroactively to all eligible
traded contracts for all client categories.
Qualifying Tier Thresholds
------------------------------------------------------------------------
Total affiliated
Tier priority customer
ADV
------------------------------------------------------------------------
Tier 1............................................... 0-19,999
Tier 2............................................... 20,000-39,999
Tier 3............................................... 40,000-59,999
Tier 4............................................... 60,000-79,999
Tier 5............................................... 80,000+
------------------------------------------------------------------------
Additionally, the Exchange proposes to amend the Schedule of Fees
to include language related to excluding days from the ADV calculations
used to determine applicable fee and rebate tiers. Specifically, the
Exchange proposes to (1) exclude from its ADV calculations any trading
day on which the Exchange is closed early for holiday observance; (2)
exclude days where the Exchange declares a trading halt in all
securities or honors a market-wide trading halt declared by another
market; and (3) permit days to be excluded from its ADV calculations
where the Exchange is technically open for the entire trading day, but
has instructed members to route away due to a systems or other error
that ultimately does not impact trading on the Exchange. The Exchange
also notes, however, that if it has a systems issue in the morning
before the market opens, it may instruct members to route away to other
markets. If the systems issue continues into trading hours, the
Exchange is permitted to exclude the day for all members that would
have a lower ADV with the day included. If, however, the systems issue
is resolved prior to the opening of trading, the Exchange is not
permitted to exclude the day from its ADV calculations. This is the
case regardless of the fact that many members would have already made
arrangements to route away in accordance with the Exchange's
instructions. To prevent this undesirable result, and preserve the
Exchange's intent behind adopting volume-based pricing, the Exchange
proposes to allow days to be excluded from its ADV calculation whenever
all members are instructed, in writing, to route their orders to other
markets.
Because the days the Exchange proposes to exclude from its ADV
calculation generally have artificially lower trading volume, the
Exchange believes that it is reasonable and equitable to not include
such days in determining fee and rebate tiers. If the Exchange did not
have the ability to exclude aberrant low volume days when calculating
ADV for the month, as a result of the decreased trading volume, the
numerator for the calculation (e.g., trading volume) would be
correspondingly lower, but the denominator for the threshold
calculations (e.g., the number of trading days) would not be decreased.
This could result in an unintended cost increase. Absent the authority
to exclude days that the market is not open for the entire trading day,
members will experience an effective decrease in rebates. The
artificially low volumes of trading on such days could reduce the
trading activity of members both daily and monthly. Accordingly,
excluding such days from the monthly calculation will diminish the
likelihood of an effective increase in the cost of trading on the
Exchange, a result that is unintended and undesirable to the Exchange
and its members.
The Exchange notes that the fees charged to Non-ISE Mercury Market
Maker, Firm Proprietary/Broker Dealer and Professional Customer in
Penny and Non-Penny Symbols are the same as the current fees charged,
regardless of the tier level reached. However, the tiered fees and
rebates for both Priority Customers and Market Makers have changed. The
proposed fees and rebates for each tier and participant type are as
follows:
Penny Symbol Fees and Rebates
[Per contract]
----------------------------------------------------------------------------------------------------------------
Firm proprietary,
B/D, FarMM &
Tier Priority customer Market maker professional
customer
----------------------------------------------------------------------------------------------------------------
Tier 1................................................. ($0.05) $0.25 $0.47
Tier 2................................................. ($0.10) $0.22 $0.47
Tier 3................................................. ($0.15) $0.18 $0.47
Tier 4................................................. ($0.21) $0.15 $0.47
Tier 5................................................. ($0.24) $0.10 $0.47
----------------------------------------------------------------------------------------------------------------
Non-Penny Symbol Fees and Rebates
[Per contract]
----------------------------------------------------------------------------------------------------------------
Firm proprietary,
B/D, FarMM &
Tier Priority customer Market maker professional
customer
----------------------------------------------------------------------------------------------------------------
Tier 1................................................. ($0.05) $0.25 $0.90
Tier 2................................................. ($0.10) $0.22 $0.90
Tier 3................................................. ($0.15) $0.18 $0.90
Tier 4................................................. ($0.21) $0.15 $0.90
Tier 5................................................. ($0.24) $0.10 $0.90
----------------------------------------------------------------------------------------------------------------
[[Page 16242]]
Crossing Orders
The Exchange proposes Penny and Non-Penny Symbol fees for Crossing
Orders. The Exchange currently charges a fee of $0.20 per contract for
Crossing Orders \13\ in all symbols traded on the Exchange for all
market participants, except Priority Customers who are charged $0.00
per contract for Crossing Orders. A Crossing Order is an order executed
in the Exchange's Facilitation Mechanism, Solicited Order Mechanism,
PIM, or submitted as a Qualified Contingent Cross order. Orders
executed in the Block Order Mechanism are also considered Crossing
Orders. The fees for Crossing Orders, except for PIM Orders of 500 or
Fewer Contracts, in both Penny and Non-Penny Symbols have not changed
from current levels.
---------------------------------------------------------------------------
\13\ These fees apply to both originating and contra orders.
---------------------------------------------------------------------------
As an exception to the fees charged for Crossing Orders, the
Exchange charges a fee of $0.05 per contract for PIM Orders of 500 or
Fewer Contracts in all symbols traded on the Exchange for all market
participants, except that Priority Customer orders on the originating
side of a PIM auction receive a rebate of ($0.13) per contract.
Priority Customer orders on the contra-side of a PIM auction pay no fee
and receive no rebate. PIM orders greater than 500 contracts pay the
Crossing Order fee, described above. The Exchange now proposes to offer
tiered fees and rebates based on Priority Customer volume, as described
above, for PIM Orders of 500 or Fewer Contracts. The Exchange notes
that the fees for Non-Priority Customer orders have not changed from
current levels, but the fees for Priority Customer orders have changed
as described in the table, below.
All Symbols Fee/Rebate for PIM Orders of 500 or Fewer Contracts
----------------------------------------------------------------------------------------------------------------
Firm proprietary,
B/D, FarMM &
Tier Priority customer Market maker professional
customer
----------------------------------------------------------------------------------------------------------------
Tier 1................................................. ($0.11) $0.05 $0.05
Tier 2................................................. ($0.11) $0.05 $0.05
Tier 3................................................. ($0.13) $0.05 $0.05
Tier 4................................................. ($0.13) $0.05 $0.05
Tier 5................................................. ($0.13) $0.05 $0.05
----------------------------------------------------------------------------------------------------------------
Responses to Crossing Orders
The Exchange proposes Penny and Non-Penny Symbol fees for Responses
to Crossing Orders. A Response to a Crossing Order is any contra-side
interest (i.e., orders and quotes) submitted after the commencement of
an auction in the Exchange's Facilitation Mechanism, Solicited Order
Mechanism, Block Order Mechanism, or PIM. Currently, the Exchange
charges a fee of (1) $0.20 per contract for Market Maker orders and (2)
$0.50 per contract for Non-ISE Mercury Market Maker, Firm Proprietary/
Broker-Dealer, Professional Customer, and Priority Customer orders in
all symbols. For Responses to Crossing Orders in Penny Symbols, the
Exchange proposes to charge Market Makers the corresponding tiered fees
in the chart titled Penny Symbol Fees and Rebates, above. For Non-ISE
Mercury Market Maker, Firm Proprietary/Broker-Dealer, Professional
Customer, and Priority Customer orders in Penny Symbols, the fees have
not changed from current levels. For Responses to Crossing Orders in
Non-Penny Symbols, the Exchange proposes to charge Market Makers the
corresponding tiered fees in the chart titled Non-Penny Symbol Fees and
Rebates, above. For Non-ISE Mercury Market Maker, Firm Proprietary/
Broker-Dealer, Professional Customer, and Priority Customer orders in
Non-Penny Symbols, the Exchange proposes to charge a fee of $0.95 per
contract.
With respect to the proposed MVP, described above, the Exchange
notes that the fees and rebates currently being paid on ISE Mercury are
in the range of fees and rebates in the new structure. During the
initial rollout of symbols on ISE Mercury, the Exchange did not adopt
the proposed tiered structure due to the difficulty of calculating
appropriate ADV thresholds for each tier when symbols were being listed
on the Exchange each week. The Exchange, therefore, opted to provide
attractive introductory rates and Priority Customer order rebates in
order to attract Priority Customer orders to the Exchange during the
initial rollout phase. By adopting the proposed tiered structure now,
the Exchange seeks to incentivize members to send additional order flow
to the Exchange in order to qualify for lower fees and higher rebates.
Market Maker Discount
The Exchange is also proposing a $0.05 per contract discount to
Market Maker fees when the Market Maker trades against Non-Priority
Customer orders. We believe this will incentivize Market Makers to
provide competitive markets. This discount does not apply to Crossing
Orders.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\14\ in general, and
Section 6(b)(4) of the Act,\15\ in particular, in that it is designed
to provide for the equitable allocation of reasonable dues, fees, and
other charges among its members and other persons using its facilities.
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\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the fees proposed for transactions on ISE
Mercury are reasonable. ISE Mercury will operate within a highly
competitive market in which market participants can readily send order
flow to any of the thirteen other competing venues if they deem fees at
a particular venue to be excessive. The proposed MVP is intended to
attract order flow to ISE Mercury by offering certain market
participants incentives to submit their orders to ISE Mercury.
Member Volume Program
The Exchange believes the proposed fees and rebates in the MVP are
reasonable and equitably allocated because ISE Mercury has already
established fees for members trading on the Exchange, and is merely
proposing to adopt volume-based tiers designed to incentivize members
to send additional Priority Customer order flow to the Exchange.
Further, the language permitting aggregation of volume amongst
corporate affiliates for purposes
[[Page 16243]]
of the ADV calculation is intended to avoid disparate treatment of
firms that have divided their various business activities between
separate corporate entities as compared to firms that operate those
business activities within a single corporate entity. For example, many
firms that are members of the Exchange operate several different
business lines within the same corporate entity. In contrast, other
firms may be part of a corporate structure that separates those
business lines into different corporate affiliates, either for
business, compliance, or historical reasons. Those corporate
affiliates, in turn, are required to maintain separate memberships with
the Exchange in order to access the Exchange. The Exchange believes
that corporate affiliates should continue to be aggregated and is
clarifying when members will be considered affiliated. The Exchange
notes that the proposed definition of ``affiliate'' to be used to
aggregate affiliated member ADV is consistent with definitions used by
other options exchanges, including MIAX.\16\
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\16\ See MIAX Fee Schedule, (1) Transaction Fees, (a) Exchange
Fees, (iii) Priority Customer Rebate Program at https://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_02012016B.pdf.
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The Exchange believes that it is equitable and reasonable to permit
the Exchange to eliminate from the calculation days on which the market
is not open the entire trading day, either due to a holiday or trading
halt, because it preserves the Exchange's intent behind adopting
volume-based pricing. The proposed change is non-discriminatory because
it applies equally to all members and to all volume tiers.
Additionally, the Exchange believes that it is reasonable and equitable
to exclude a day from its ADV calculations when members are instructed
to route their orders to other markets as this preserves the Exchange's
intent behind adopting volume-based pricing, and avoids penalizing
members that follow this instruction. Without this change, members that
route away in accordance with the Exchange's instructions may be
negatively impacted, resulting in an effective cost increase for those
members. The Exchange further believes that the proposed rule change is
not unfairly discriminatory because it applies equally to all members
and ADV calculations. As is the Exchange's current practice, the
Exchange will inform members of any day to be excluded from its ADV
calculations by sending members a notice and posting such notice on the
Exchange's Web site.
The Exchange further believes that its proposal to provide rebates
for Priority Customer orders is reasonable and equitable because the
proposed rebates are competitive with the rebates offered by other
exchanges employing similar tiered rebate structures based on Priority
Customer volume. For example, MIAX Options Exchange (``MIAX'') and
NASDAQ OMX PHLX (``PHLX'') have Priority Customer, tiered rebate
programs.\17\ MIAX offers a per contract rebate of $0.00 for its base
tier and a per contract rebate of $0.24 for its highest rebate tier in
select symbols. Similarly, PHLX offers a per contract rebate of $0.00
for its base tier and a per contract rebate of $0.21 for its highest
tier in customer simple orders.\18\ As proposed, ISE Mercury's Priority
Customer order rebates are not unfairly discriminatory because they
would apply uniformly to all similarly situated market participants and
they are competitive with the rebates offered by MIAX's and PHLX's
Priority Customer rebate programs.
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\17\ See MIAX Fee Schedule, (1) Transaction Fees, (a) Exchange
Fees, (iii) Priority Customer Rebate Program at https://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_03012016.pdf and PHLX Fee Schedule, B.
Customer Rebate Program at https://www.nasdaqtrader.com/Micro.aspx?id=phlxpricing.
\18\ PHLX Fee Schedule, B. Customer Rebate Program, Category A
at https://www.nasdaqtrader.com/Micro.aspx?id=phlxpricing.
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The Exchange believes that providing higher rebates for Priority
Customer orders, and creating ADV thresholds specifically for members
that send such orders to ISE Mercury, attracts that order flow to the
Exchange and thereby creates liquidity to the benefit of all market
participants who trade on the Exchange. Further, the Exchange believes
that it is equitable and not unfairly discriminatory to provide higher
rebates to Priority Customer orders than to Professional Customer
orders. A Priority Customer is by definition not a broker or dealer in
securities, and does not place more than 390 orders in listed options
per day on average during a calendar month for its own beneficial
account(s). This limitation does not apply to participants on the
Exchange whose behavior is substantially similar to that of market
professionals, including Professional Customers, who will generally
submit a higher number of orders (many of which do not result in
executions) than Priority Customers. Further, Professional Customers
engage in trading activity similar to that conducted by Market Makers
and proprietary traders.
The Exchange believes that its proposal to assess a per contract
fee for Market Maker orders is reasonable and equitable because the
proposed fees are within the range of fees assessed by other exchanges
employing similar tiered rebate structures such as MIAX, which offers
tiered fees for Market Makers. In Penny Symbols, MIAX generally charges
Market Makers a per contract fee as high as $0.25 for its base tier and
a per contract fee of $0.05 for its highest tier.\19\ In Non-Penny
Symbols, MIAX charges a per contract fee of $0.29 for its base tier and
a per contract fee of $0.09 for its highest tier.\20\ Thus, MIAX's
tiered Market Maker fees are competitive with ISE Mercury's fees. The
Exchange believes that the price differentiation between Market Makers
and other Non-Priority Customers is appropriate and not unfairly
discriminatory because Market Makers have different requirements and
obligations to the Exchange that other market participants do not (such
as quoting requirements). The Exchange believes that it is equitable
and not unfairly discriminatory to provide lower fees to Market Makers
because they would apply uniformly to similarly situated market
participants.
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\19\ See MIAX Fee Schedule, (1) Transaction Fees, (a) Exchange
Fees, (i) Market Maker Transaction Fees, Market Maker Sliding Scale
at https://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_03012016.pdf.
\20\ Id.
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Crossing Orders
The Exchange believes the proposed rebates for PIM Orders of 500 or
Fewer Contracts \21\ are reasonable and equitably allocated because the
proposed fees are within the range of fees assessed by other exchanges
such as MIAX, which offers a rebate for PRIME Agency orders.\22\ For
example, MIAX offers a per contract rebate of $0.10 for each Priority
Customer order and also offers an additional per contract rebate of
$0.02 for members that qualify for MIAX's Priority Customer Rebate
Program's volume tiers 3 and 4.\23\ While ISE Mercury's tiered rebate
is specifically targeted towards Priority Customer orders, the Exchange
does not believe that this is unfairly discriminatory. As discussed
above,
[[Page 16244]]
Priority Customer orders on the Exchange are generally entitled to
lower fees and higher rebates, and the Exchange believes that
attracting more liquidity from Priority Customers will benefit all
market participants that trade on ISE Mercury. Further, the Exchange
believes that it is equitable and not unfairly discriminatory to
provide lower fees to Priority Customers because they would apply
uniformly to similarly situated market participants.
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\21\ The level is set at 500 or fewer contracts because Priority
Customer orders are typically less than 500 contracts.
\22\ See MIAX Fee Schedule, (1) Transaction Fees, (a) Exchange
Fees, (iii) Priority Customer Rebate Program at https://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_03012016.pdf.
\23\ Id.
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Responses to Crossing Orders
The Exchange's proposal to assess Penny and Non-Penny Symbol fees
for Responses to Crossing Orders is reasonable and equitably allocated
because they are within the range of fees assessed by other exchanges.
Specifically, the Exchange proposes to keep fees for Responses to
Crossing Orders in Penny Symbols the same and to increase fees for
Responses to Crossing Orders in Non-Penny Symbols so that these fees
are competitive with similar fees charged on other exchanges. For
example, ISE Gemini's Fees for Responses to Crossing Orders \24\ in
both Penny and Non-Penny Symbols are competitive with those proposed by
ISE Mercury. Further, the Exchange believes the proposed Fees for
Responses to Crossing Orders are not unfairly discriminatory because
they would uniformly apply to all similarly situated market
participants.
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\24\ See ISE Gemini Fee Schedule, I. Regular Order Fees and
Rebates, Fee for Crossing Orders at https://www.ise.com/assets/gemini/documents/OptionsExchange/legal/fee/Gemini_Fee_Schedule.pdf.
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With respect to the Responses to Crossing Orders' tiered fees for
Market Maker orders, the Exchange believes that the proposed fees are
fair, equitable, and not unfairly discriminatory because the proposed
fees are consistent with the fees charged at other exchanges. For
example, ISE Gemini charges Market Makers a Fee for Responses to
Crossing Orders of $0.49 per contract in Penny Symbols and $0.89 per
contract in Non-Penny Symbols. Similarly, ISE Mercury's proposal would
charge per contract fees ranging from $0.50 (Tier 1 fee plus Marketing
Fee) to $0.35 (Tier 5 fee plus Marketing Fee) in Penny Symbols and per
contract fees ranging from $0.95 (Tier 1 fee plus Marketing Fee) to
$0.80 (Tier 5 fee plus marketing fee) in Non-Penny Symbols. As
discussed above, the Exchange believes that the price differentiation
between Market Makers and the other market participants is appropriate
and not unfairly discriminatory because they have requirements and
obligations to the Exchange that the other market participants do not.
Market Makers also incur Marketing Fees, which the other market
participants do not. Thus, the Exchange believes that it is equitable
and not unfairly discriminatory to assess a higher fee to certain
market participants that do not have such requirements and obligations
that Exchange Market Makers do.
Market Maker Discount
The Exchange believes the proposed Market Maker discount is
reasonable, equitable, and not unfairly discriminatory because Market
Makers have different requirements and obligations to the Exchange that
other market participants do not and they incur Marketing Fees. The
Exchange notes that when trading against a Priority Customer the
exchange pays a rebate for Priority Customer orders, but the Exchange
charges a fee for executions of Non-Priority Customer orders. The
Exchange believes that offering a discount on the fees charged to
Market Makers will encourage Market Maker to make better markets and
execute more trades. Furthermore, charging Market Makers lower fees for
trading against a Non-Priority Customer order is not a new concept in
the industry. For example, BOX Options Exchange, in Non-Penny Pilot
Symbols, charges Market Makers a maker fee of $0.85 per contract for
trading against a Priority Customer order and a maker fee of $0.00 for
trading against a Professional Customer/Broker Dealer order.\25\
Finally, [sic]
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\25\ See BOX Options Exchange Fee Schedule, Section I. Exchange
Fees, A. Non-Auction Transactions at https://boxexchange.com/assets/BOX-Exchange-Fee-Schedule-as-of-February-26-2016.pdf.
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The Exchange notes that the proposed rule filing is intended to
further establish ISE Mercury as an attractive venue for market
participants to direct their order flow as the proposed fees and
rebates are competitive with those established by other exchanges. The
Exchange operates in a highly competitive market in which market
participants can readily direct order flow to another exchange if they
deem rebates at a particular exchange to be too low. For the reasons
noted above, the Exchange believes that the proposed rebates are fair,
equitable and not unfairly discriminatory.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\26\ the Exchange
does not believe that the proposed rule change will impose any burden
on intermarket or intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The tiered
rebate structure that the Exchange proposes to adopt is similar to
those currently in effect on other options exchanges such as MIAX and
PHLX, and will increase competition between ISE Mercury and these
markets.
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\26\ 15 U.S.C. 78f(b)(8).
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In establishing the MVP, the Exchange is not imposing any burden on
competition. The established volume tiers are transparent and offer
members a simple way to reach different levels of fees and rebates on
the exchange, similar to levels and differentials these same
participants are familiar with on several other exchanges. Volume tiers
are not new to the options industry and generally reward members for
submitting additional volume to the Exchange, with ISE Mercury now
seeking to introduce a similar structure. The Exchange also notes that
other exchanges have substantially similar requirements for aggregating
affiliated member ADV in determining applicable tiered rebates.
Finally, in establishing a Market Maker discount for Market Makers
trading against Non-Priority Customer orders, the Exchange is not
imposing any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act because other exchanges offer
lower fees to Market Makers trading against Non-Priority Customers.
Additionally, the Exchange notes that when trading against a Priority
Customer the exchange pays a rebate for Priority Customer orders, but
the Exchange charges a fee for executions of Non-Priority Customer
orders. The Exchange believes that offering a discount on the fees
charged to Market Makers will encourage Market Maker to make better
markets and execute more trades.
The Exchange operates in a highly competitive market in which
market participants can readily direct their order flow to competing
venues. In such an environment, the Exchange must continually review,
and consider adjusting, its fees and rebates to remain competitive with
other exchanges. For the reasons described above, the Exchange believes
that the proposed fee changes reflect this competitive environment.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any
[[Page 16245]]
unsolicited written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\27\ and subparagraph (f)(2) of Rule 19b-4
thereunder,\28\ because it establishes a due, fee, or other charge
imposed by ISE Mercury.
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\27\ 15 U.S.C. 78s(b)(3)(A)(ii).
\28\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-ISEMercury-2016-05 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISEMercury-2016-05. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-ISEMercury-2016-05, and
should be submitted on or before April 15, 2016.
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\29\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
Brent J. Fields,
Secretary.
[FR Doc. 2016-06744 Filed 3-24-16; 8:45 am]
BILLING CODE 8011-01-P
