
[Federal Register Volume 82, Number 6 (Tuesday, January 10, 2017)]
[Notices]
[Pages 3058-3059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00215]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79731; File No. SR-ISEMercury-2016-21]


Self-Regulatory Organizations; ISE Mercury, LLC; Order Approving 
a Proposed Rule Change To Modify the Response Times in the Block 
Mechanism, Facilitation Mechanism, Solicited Order Mechanism, and Price 
Improvement Mechanism

January 4, 2017.

I. Introduction

    On November 8, 2016, ISE Mercury, LLC (the ``Exchange'' or ``ISE 
Mercury'') filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend ISE Mercury Rules 716 (Block Trades) and 
723 (Price Improvement Mechanism for Crossing Transactions) to modify 
the response times in the Block Order Mechanism, Facilitation 
Mechanism, Solicited Order Mechanism, and Price Improvement Mechanism 
(``PIM'') from 500 milliseconds to a time period designated by the 
Exchange of no less than 100 milliseconds and no more than 1 second. 
The proposed rule change was published for comment in the Federal 
Register on November 25, 2016.\3\ No comment letters were received on 
the proposed rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79354 (November 18, 
2016), 81 FR 85295 (``Notice'').
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II. Description of the Proposed Rule Change

    ISE Mercury Rule 716 (Block Trades) contains the requirements 
applicable to the execution of orders using the Block Order Mechanism, 
Facilitation Mechanism, and Solicited Order Mechanism. The Block Order 
Mechanism allows ISE Mercury members to obtain liquidity for the 
execution of a block-size order.\4\ The Facilitation and Solicited 
Order Mechanisms allow ISE Mercury members to enter cross transactions 
seeking price improvement.\5\ ISE Mercury Rule 723 (Price Improvement 
Mechanism for Crossing Transactions) contains the requirements 
applicable to the execution of orders using the PIM. The PIM allows ISE 
Mercury members to enter cross transactions of any size. The 
Facilitation, Solicited Order Mechanisms, and PIM allow for ISE Mercury 
members to designate certain customer orders for price improvement and 
submit such orders into one of the mechanisms with a matching contra 
order. Once such an order is submitted, ISE Mercury commences an 
auction by broadcasting a message to all ISE Mercury members that 
includes the series, price, size, and side of the market.\6\ Further, 
responses within the PIM (i.e., Improvement Orders), are also broadcast 
to market participants during the auction.
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    \4\ Block-size orders are orders for 50 contracts or more. See 
ISE Mercury Rule 716(a).
    \5\ Only block-size orders can be entered into the Facilitation 
Mechanism, whereas only orders for 500 contracts or more can be 
entered into the Solicited Order Mechanism. See ISE Mercury Rule 
716(d) and (e).
    \6\ ISE Mercury members may choose to hide the size, side, and 
price when entering orders into the Block Order Mechanism.
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    Orders entered into the Block Order Mechanism, Facilitation 
Mechanism, Solicited Order Mechanism, and PIM are currently exposed to 
all market participants for 500 milliseconds, giving them an 
opportunity to enter additional trading interest before the orders are

[[Page 3059]]

automatically executed. Under the proposal, ISE Mercury would determine 
an exposure period for each of the four mechanisms that is no less than 
100 milliseconds and no more than 1 second.\7\
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    \7\ While the proposed rule change would allow ISE Mercury to 
increase the exposure period up to 1 second, ISE Mercury stated that 
it currently intends to decrease the time period allowed for 
responses to 100 milliseconds. See Notice, supra note 3, at 85297. 
ISE Mercury further noted that its proposal is consistent with 
exposure periods permitted in similar mechanisms on other options 
exchanges. See id. at 85296. See also Securities Exchange Act 
Release Nos. 76301 (October 29, 2015), 80 FR 68347 (November 4, 
2015) (SR-BX-2015-032) and 77557 (April 7, 2016), 81 FR 21935 (April 
13, 2016) (SR-Phlx-2016-40).
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\8\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\9\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating 
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 not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Commission also finds that the proposed rule 
change is consistent with Section 6(b)(8) of the Act,\10\ which 
requires that the rules of an exchange not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that, given the electronic environment of 
ISE Mercury, reducing each of the exposure periods from 500 
milliseconds to no less than 100 milliseconds could facilitate the 
prompt execution of orders, while continuing to provide market 
participants with an opportunity to compete for exposed bids and 
offers. To substantiate that its members could receive, process, and 
communicate a response back to ISE Mercury within 100 milliseconds, ISE 
Mercury stated that it surveyed all International Securities Exchange, 
LLC (``ISE'') and ISE Gemini, LLC (``ISE Gemini'') members that 
responded to an auction in the period beginning July 1, 2015 and ending 
January 15, 2016.\11\ Each of the twenty-one members surveyed indicated 
that they can currently receive, process, and communicate a response 
back to the exchange within 100 milliseconds.\12\ To implement the 
reduced exposure periods and help ensure that ISE Mercury's and its 
members' systems are working properly given the faster response times, 
ISE Mercury will reduce the auction time over a period of weeks, ending 
at 100 milliseconds. Upon effectiveness of the proposal, and at least 
six weeks prior to implementation of the proposed rule change, ISE 
Mercury will issue a circular to its members, informing them of the 
implementation date of the reduction of the auction from 500 
milliseconds to the auction time designated by ISE Mercury (100 
milliseconds) to allow members the opportunity to perform systems 
changes. ISE Mercury also represented that it will issue a circular at 
least four weeks prior to any future changes, as permitted by its 
rules, to the auction time.\13\ In addition, ISE Mercury reviewed all 
executions occurring in the mechanisms by ISE Mercury members from 
March 28, 2016 to April 25, 2016. This review of executions in the 
mechanisms indicated that approximately 98% of responses that resulted 
in price improving executions at the conclusion of an auction were 
submitted within 500 milliseconds. Approximately 94% of responses that 
resulted in price improving executions at the conclusion of an auction 
were submitted within 100 milliseconds, and 83% were submitted within 
50 milliseconds of the initial order.\14\ Furthermore, with regard to 
the impact of the proposal on system capacity, ISE Mercury has analyzed 
its capacity and represented that it has the necessary systems capacity 
to handle the potential additional traffic associated with the 
additional transactions that may occur with the implementation of the 
reduction in the auction duration to no less than 100 milliseconds.\15\
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    \11\ ISE Mercury launched on February 16, 2016, after the survey 
had been completed. ISE and ISE Gemini are affiliates of ISE Mercury 
that also offer a Block Order Mechanism, Facilitation Mechanism, 
Solicited Order Mechanism, and PIM. See Notice, supra note 3, at 
85297 n.12.
    \12\ ISE Mercury believes the survey results apply equally to 
ISE Mercury as all current ISE Mercury members are also members of 
ISE or ISE Gemini, which are affiliates of ISE Mercury, and the same 
functionality for auction responses offered on ISE Mercury is also 
offered on these affiliated exchanges. See Notice, supra note 3, at 
85297. ISE Mercury further represents that its trading system has 
comparable latency to both ISE and ISE Gemini. See id.
    \13\ See id. at 85298.
    \14\ See id. at 85297.
    \15\ See id.
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    Based on ISE Mercury's statements, the Commission believes that 
market participants should continue to have opportunities to compete 
for exposed bids and offers within an exposure period of no less than 
100 milliseconds and no more than 1 second.\16\ Accordingly, the 
Commission believes that it is consistent with the Act for the Exchange 
to modify the response times in the Block Mechanism, Facilitation 
Mechanism, Solicited Order Mechanism, and PIM from 500 milliseconds to 
a time period designated by the Exchange of no less than 100 
milliseconds and no more than 1 second.
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    \16\ The Commission notes that the ability to designate such an 
exposure time period is consistent with the rules of other options 
exchanges. See supra note 7. See also NASDAQ Phlx Rule 
1080(n)(ii)(A)(4) and NASDAQ BX Options Rules Chapter VI, Section 
9(ii)(A)(3).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-ISEMercury-2016-21) be, and 
hereby is, approved.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00215 Filed 1-9-17; 8:45 am]
 BILLING CODE 8011-01-P


