6066 Federal Register / Vol. 81, No. 23 / Thursday, February 4, 2016 / Notices 

1 ISE Mercury, in conjunction with its submission 

of the Form 1 Application, requested an exemption 

under Section 36(a)(1) of the Act from certain 

requirements of Rules 6a–1(a) and 6a–2 of the Act. 

On September 9, 2015, the Commission issued an 

order granting ISE Mercury exemptive relief, subject 

to certain conditions, in connection with the filing 

of its Form 1 Application. See Securities Exchange 

Act Release No. 75867 (September 9, 2015), 80 FR 

55395 (September 15, 2015). Because the Form 1 

Application was not considered filed without the 

exemptive relief, the date of filing of such 

application is September 9, 2015. Id. 

2 15 U.S.C. 78f. 

3Amendment No. 1, among other things, includes 

changes to the Limited Liability Company 

Agreement of ISE Mercury (‘‘ISE Mercury LLC 

Agreement’’) and the Constitution of ISE Mercury 

(‘‘ISE Mercury Constitution’’) concerning board 

composition and fair representation of the 

Exchange’s members, use of confidential 

information for non-regulatory purposes, and the 

use of regulatory funds. Amendment No. 1 also 

includes revisions to the proposed rules of ISE 

Mercury. Amendment No. 1 further provides 

additional descriptions in Exhibit E to the Form 1 

Application regarding ISE Mercury’s compliance 

with Regulation Systems Compliance and Integrity 

(‘‘Regulation SCI’’). 

4See Securities Exchange Act Release No. 75884 

(September 10, 2015), 80 FR 55691 (‘‘Notice’’). 

5See Letter from Kurt Eckert, Principal, 

Wolverine Trading, LLC (‘‘Wolverine’’), to Elizabeth 

M. Murphy, Secretary, Commission, dated October 

23, 2014 (‘‘Wolverine Letter’’). 

6See Letter from Michael Simon, General Counsel 

and Secretary, ISE Mercury, to Brent J. Fields, 

Secretary, Commission, dated December 7, 2015 

(‘‘ISE Mercury Response Letter’’). 7Amendment No. 2, among other things, also 

includes revisions to the proposed rules of ISE 

Mercury to reflect changes to comparable ISE rules 

since the filing of Amendment No. 1. The changes 

proposed in Amendment No. 2 are not substantive, 

are consistent with the existing rules of other 

registered national securities exchanges, and do not 

raise any new or novel regulatory issues. 

8 15 U.S.C. 78f(b) and 15 U.S.C. 78s(a), 

respectively. 9See 15 U.S.C. 78f(b)(3). 10See 15 U.S.C. 78f(b)(5). 

management investment companies. 

The Fund would also make required 

disclosures in accordance with the 

requirements of Form N–1A concerning 

CDSCs as if the Fund were an open-end 

investment company. Applicants further 

state that, in the event it imposes 

CDSCs, the Fund will apply the CDSCs 

(and any waivers or scheduled 

variations of the CDSCs) uniformly to all 

Members of a given class and 

consistently with the requirements of 

rule 22d–1 under the Act. 

Asset-Based Service and Distribution 

Fees 

1. Section 17(d) of the Act and rule 

17d–1 under the Act prohibit an 

affiliated person of a registered 

investment company or an affiliated 

person of such person, acting as 

principal, from participating in or 

effecting any transaction in connection 

with any joint enterprise or joint 

arrangement in which the investment 

company participates unless the 

Commission issues an order permitting 

the transaction. In reviewing 

applications submitted under section 

17(d) and rule 17d–1, the Commission 

considers whether the participation of 

the investment company in a joint 

enterprise or joint arrangement is 

consistent with the provisions, policies 

and purposes of the Act, and the extent 

to which the participation is on a basis 

different from or less advantageous than 

that of other participants. 

2. Rule 17d–3 under the Act provides 

an exemption from section 17(d) and 

rule 17d–1 to permit open-end 

investment companies to enter into 

distribution arrangements pursuant to 

rule 12b–1 under the Act. Applicants 

request an order under section 17(d) of 

the Act and rule 17d–1 under the Act to 

permit the Fund to impose asset-based 

service and/or distribution fees. 

Applicants have agreed to comply with 

rules 12b–1 and 17d–3 as if those rules 

applied to closed-end investment 

companies. 

Applicants’ Condition 

Applicants agree that any order 

granting the requested relief will be 

subject to the following condition: 

Applicants will comply with the 

provisions of rules 6c–10, 12b–1, 17d– 

3, 18f–3, and 22d–1 under the Act, as 

amended from time to time or replaced, 

as if those rules applied to closed-end 

management investment companies, 

and will comply with NASD Conduct 

Rule 2830, as amended from time to 

time, as if that rule applied to all closedend management investment 

companies. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2016–02065 Filed 2–3–16; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–76998; File No. 10–221] 

In the Matter of the Application of ISE 

Mercury, LLC for Registration as a 

National Securities Exchange; 

Findings, Opinion, and Order of the 

Commission 

January 29, 2016. 

I. Introduction 

On September 29, 2014, ISE Mercury, 

LLC (‘‘ISE Mercury’’ or ‘‘Exchange’’) 

submitted to the Securities and 

Exchange Commission (‘‘Commission’’) 

an Application for Registration as a 

National Securities Exchange (‘‘Form 1 

Application’’) 1 under Section 6 of the 

Securities Exchange Act of 1934 

(‘‘Act’’).2 On June 26, 2015, ISE Mercury 

submitted Amendment No. 1 to its Form 

1 Application.3 Notice of the Form 1 

Application, as modified by 

Amendment No. 1, was published for 

comment in the Federal Register on 

September 16, 2015.4 The Commission 

received one comment letter regarding 

the Form 1 Application.5 ISE Mercury 

submitted a response to comments on 

December 7, 2015.6 On January 8, 2016, 

ISE Mercury submitted Amendment No. 

2 to the Form 1 Application.7

II. Discussion 

Under Sections 6(b) and 19(a) of the 

Act,8 the Commission shall by order 

grant an application for registration as a 

national securities exchange if the 

Commission finds, among other things, 

that the proposed exchange is so 

organized and has the capacity to carry 

out the purposes of the Act and to 

comply, and to enforce compliance by 

its members and persons associated 

with its members, with the provisions of 

the Act, the rules and regulations 

thereunder, and the rules of the 

exchange. 

As discussed in greater detail below, 

the Commission finds, after 

consideration of the comment letter and 

the Exchange’s response thereto, that 

ISE Mercury’s application for exchange 

registration meets the requirements of 

the Act and the rules and regulations 

thereunder. Further, the Commission 

finds that the proposed rules of ISE 

Mercury are consistent with Section 6 of 

the Act in that, among other things, they 

assure a fair representation of the 

Exchange’s members in the selection of 

its directors and administration of its 

affairs and provide that one or more 

directors will be representative of 

issuers and investors and not be 

associated with a member of the 

exchange, or with a broker or dealer; 9

and that they are designed to prevent 

fraudulent and manipulative acts and 

practices, promote just and equitable 

principles of trade, foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities, and remove impediments to 

and perfect the mechanisms of a free 

and open market and a national market 

system and, in general, protect investors 

and the public interest and are not 

designed to permit unfair 

discrimination between customers, 

issuers, or broker-dealers.10 Finally, the 


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11See 15 U.S.C. 78f(b)(8). 

12Following any Commission grant of registration 

to ISE Mercury, ISE Holdings will be the sole 

holding company of three registered national 

securities exchanges: International Securities 

Exchange LLC (‘‘ISE’’), ISE Gemini Exchange, LLC 

(‘‘ISE Gemini’’), and ISE Mercury. See Exhibit C to 

the Form 1 Application, Section M. 

13Eurex Frankfurt holds an 85% interest in U.S. 

Exchange Holdings, and Deutsche Bo ̈rse holds the 

remaining 15%. In turn, Deutsche Bo ̈rse holds a 

100% interest in Eurex Frankfurt. The current 

upstream ownership structure of ISE Mercury is the 

result of the acquisition of ISE Holdings by Eurex 

Frankfurt in 2007 (the ‘‘Eurex Acquisition’’)1 and 

a corporate reorganizations in 2014.1 See Securities 

Exchange Act Release No. 56955 (December 13, 

2007), 72 FR 71979 (December 19, 2007) (File No. 

SR–ISE–2007–101) (order approving a transaction 

in which ISE Holdings became a wholly-owned 

indirect subsidiary of Eurex Frankfurt) (‘‘Eurex 

Acquisition Order’’); and Securities Exchange Act 

Release Nos. 73530 (November 5, 2014), 79 FR 

67224 (November 12, 2014) (SR–ISE–2014–44); 

73860 (December 17, 2014), 79 FR 77066 (December 

23, 2014); 73531 (November 5, 2014), 79 FR 67215 

(November 12, 2014) (SR–ISEGemini-2014–24); and 

73861 (December 17, 2014), 79 FR 77064 (December 

23, 2014). 

14See ISE Mercury Constitution, Article III, 

Section 3.1. 

15See ISE Mercury Constitution, Article III, 

Section 3.2(a). 

16See ISE Mercury Constitution, Article III, 

Section 3.2(b)(ii). Under the ISE Mercury 

Constitution, ‘‘Non-Industry Director’’ means a 

member of ISE Mercury Board that meets the 

requirements of a non-industry representative and 

is elected by ISE Holdings. See id. ‘‘The term ‘nonindustry representative’ means any person that is 

not considered an ‘industry representative,’ as well 

as (i) a person affiliated with a broker or dealer that 

operates solely to assist the securities-related 

activities of the business of non-member affiliates, 

(ii) an employee of an entity that is affiliated with 

a broker or dealer that does not account for a 

material portion of the revenues of the consolidated 

entity, and who is primarily engaged in the 

business of the non-member entity.’’ ISE Mercury 

Constitution, Article VIII, Section 13.1(v). The term 

‘‘industry representative’’ means a person who is an 

officer, director or employee of a broker or dealer 

or who has been employed in any such capacity at 

any time within the prior three (3) years, as well 

as a person who has a consulting or employment 

relationship with or has provided professional 

services to the Exchange and a person who had any 

such relationship or provided any such services to 

the Exchange at any time within the prior three (3) 

years. See ISE Mercury Constitution, Article VIII, 

Section 13.1(s). 

17See ISE Mercury Constitution, Article III, 

Section 3.2(b)(ii). Under the ISE Mercury 

Constitution, ‘‘Public Director’’ means a NonIndustry Director that is a non-industry 

representative who has no material relationship 

with a broker or dealer or any affiliate of a broker 

or dealer or the Exchange or any affiliate of the 

Exchange. See ISE Mercury Constitution, Article 

VIII, Sections 13.1(aa) and (bb), and Article III, 

Section 3.2(b)(ii). 

18See ISE Mercury Constitution, Article III, 

Section 3.2(b)(iii). 

19See ISE Mercury Rule 300 Series. ‘‘Exchange 

Rights’’ means the PMM Rights, CMM Rights and 

EAM Rights collectively. See ISE Mercury Rule 

100(a)(17). PMM Rights, CMM Rights and EAM 

Rights have the meaning set forth in Article VI of 

ISE Mercury LLC Agreement. See ISE Mercury 

Rules 100(a)(12), 100(a)(15) and 100(a)(36). 

20See ISE Mercury Constitution, Article III, 

Section 3.2(b)(i). 

21See infra Section II.B.3. for a description of ISE 

Mercury’s Nominating Committee and Corporate 

Governance Committee. 

22See, e.g., ISE Mercury Constitution, Article III, 

Section 3.10(a)–(b). ISE Holdings, as the Sole LLC 

Member of ISE Mercury, is permitted to petition the 

Corporate Governance Committee to propose 

alternate Non-Industry Directors and Public 

Directors. See ISE Mercury Constitution, Article III, 

Section 3.10(b)(ii). See also infra note 63 for a 

definition of ‘‘Sole LLC Member.’’ 

23See, e.g., ISE Mercury Constitution, Article III, 

Section 3.10(a)(ii). Specifically, in addition to the 

Industry Director nominees named by the 

Nominating Committee, persons eligible to serve as 

such may be nominated for election to the ISE 

Mercury Board by a petition, signed by the holders 

of not less than five percent (5%) of the outstanding 

Exchange Rights of the series entitled to elect such 

person if there are more than eighty (80) Exchange 

Rights in the series entitled to vote, ten percent 

(10%) of the outstanding rights of such series 

entitled to elect such person if there are between 

eighty (80) and forty (40) Exchange Rights in the 

series entitled to vote, and twenty-five percent 

(25%) of the outstanding Exchange Rights of such 

series entitled to elect such person if there are less 

than forty (40) Exchange Rights in the series 

entitled to vote. For purposes of determining 

whether a person has been nominated for election 

by petition by the requisite percentage, no ISE 

Mercury member, alone or together with its 

affiliates, may account for more than 50% of the 

signatures of the holders of outstanding Exchange 

Rights of the series entitled to elect such person, 

and any such signatures by such Exchange 

Members, alone or together with its affiliates, in 

excess of such 50% limitation shall be disregarded. 

Id. This process is identical to the process in place 

at ISE. See ISE Second and Amended Constitution, 

Article III, Section 3.10(a)(ii). 

24See ISE Mercury Constitution, Article III, 

Sections 3.2(b)(i) and (c). The Commission notes 

that pursuant to Section 6.3(b) of the ISE Mercury 

LLC Agreement, a holder of Exchange Rights, 

together with any affiliate, as such term is defined 

in the ISE Mercury Constitution, may not exercise 

the voting rights associated with more than twenty 

percent (20%) of the outstanding Exchange Rights. 

Any exercise of voting rights in excess of twenty 

percent (20%) of the outstanding Exchange Rights 

by a holder of Exchange Rights, together with any 

affiliate, shall be deemed null and void. See Exhibit 

J.2 to the Form 1 Application. 

25 Id. See also ISE Mercury Constitution, Article 

III, Section 3.10(a)(ii). 

Commission finds that ISE Mercury’s 

proposed rules do not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.11

A. Overview of Ownership of ISE 

Mercury 

ISE Mercury is structured as a 

Delaware limited liability company 

(‘‘LLC’’) and is a wholly-owned 

subsidiary of International Securities 

Exchange Holdings, Inc. (‘‘ISE 

Holdings’’).12 ISE Holdings, in turn, is a 

wholly-owned subsidiary of U.S. 

Exchange Holdings, Inc. (‘‘U.S. 

Exchange Holdings’’), which is whollyowned by Eurex Frankfurt AG, a 

German stock corporation (‘‘Eurex 

Frankfurt’’), and Deutsche Bo ̈rse AG 

(‘‘Deutsche Bo ̈rse,’’ and together with 

U.S. Exchange Holdings and Eurex 

Frankfurt, the ‘‘Upstream Owners’’).13

B. Governance of ISE Mercury 

1. ISE Mercury Board of Directors 

The board of directors of ISE Mercury 

(‘‘ISE Mercury Board’’ or ‘‘Board’’) will 

be its governing body and will possess 

all of the powers necessary for the 

management of its business and affairs, 

including governance of ISE Mercury as 

a self-regulatory organization (‘‘SRO’’).14

The ISE Mercury Board will be 

comprised of no fewer than eight, but no 

more than 16, directors.15 Specifically, 

at least 50% of the ISE Mercury Board 

must be comprised of Non-Industry 

Directors,16 of which at least one of the 

Non-Industry Directors must be a Public 

Director.17 Further, the ISE Mercury 

Board will include the President/Chief 

Executive Officer as a director.18

Moreover, at least 30% of the ISE 

Mercury Board must be officers, 

directors or partners of ISE Mercury 

members, and must be elected by a 

plurality of holders of Exchange 

Rights 19 (‘‘Industry Directors’’), of 

which at least: (i) one must be elected 

by a plurality of holders of Primary 

Market Maker (‘‘PMM’’) Exchange 

Rights, (ii) one must be elected by a 

plurality of holders of Competitive 

Market Maker (‘‘CMM’’) Exchange 

Rights, and (iii) one must be elected by 

a plurality of holders of Electronic 

Access Member (‘‘EAM’’) Exchange 

Rights, provided that the number of 

each type of Industry Director shall 

always be equal.20

As part of the process to elect 

members of the Board, the Nominating 

Committee will nominate the proposed 

Industry Directors and the Corporate 

Governance Committee 21 and ISE 

Holdings will nominate the proposed 

Non-Industry Directors.22 A petition 

process will allow ISE Mercury 

members to nominate alternate 

candidates for consideration as Industry 

Directors.23 At the first annual meeting 

and at each annual meeting thereafter, 

ISE Holdings will elect all of the 

members of the ISE Mercury Board 

(except the Industry Directors, which 

are elected by ISE Mercury members 24) 

but will be required to do so in 

compliance with the compositional 

requirements for the Board outlined in 

the ISE Mercury Constitution. 

The Commission believes that the 

requirements in the ISE Mercury 

Constitution—that at least 30% of the 

directors be Industry Directors and the 

means by which they will be chosen by 

ISE Mercury members 25—are consistent 

with Section 6(b)(3) of the Act because 

they provide for the fair representation 

of members in the selection of directors 

and the administration of ISE 


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26 15 U.S.C. 78f(b)(3). 27See, e.g., Securities Exchange Act Release Nos. 

70050 (July 26, 2013), 78 FR 46622 (August 1, 2013) 

(File No. 10–209) (order granting the exchange 

registration of ISE Gemini) (‘‘ISE Gemini Order’’); 

53128 (January 13, 2006), 71 FR 3550 (January 23, 

2006) (File No. 10–131) (order granting the 

exchange registration of Nasdaq Stock Market, Inc.) 

(‘‘Nasdaq Order’’); and 58375 (August 18, 2008), 73 

FR 49498 (August 21, 2008) (File No. 10–182) (order 

granting the exchange registration of BATS 

Exchange, Inc.) (‘‘BATS Order’’). 

28 15 U.S.C. 78f(b)(3). See also ISE Gemini Order, 

supra note 27; Securities Exchange Act Release No. 

68341, p.8, (December 3, 2012), 77 FR 73065, 73067 

(December 7, 2012) (File No. 10–207) (order 

granting the registration of Miami International 

Securities Exchange, LLC) (‘‘MIAX Order’’); and 

Regulation of Exchanges and Alternative Trading 

Systems, Securities Exchange Act Release No. 

40760 (December 8, 1998), 63 FR 70844 (December 

22, 1998) (‘‘Regulation ATS Release’’). 

29See infra Section II.C.1. for a discussion of the 

ownership of ISE Mercury. 

30See Exhibit J to the Form 1 Application. 

31See Exhibit J to the Form 1 Application. 

32See Exhibit L to the Form 1 Application. Based 

on discussions with ISE members, ISE Mercury 

represented that it currently expects that ISE 

Mercury’s membership will consist substantially of 

current ISE and ISE Gemini members, including, 

but not limited to, those ISE and ISE Gemini 

members that have representatives serving as 

industry directors on the ISE Board. See Exhibit J 

to ISE Mercury Form 1 Application. 

33Exhibit J to the Form 1 Application. 

34See id. 

35See ISE Mercury Constitution, Article III, 

Sections 3.2(c) and 3.10; see also Exhibit J to the 

Form 1 Application. 

36See Exhibit J to the Form 1 Application. 

37See 15 U.S.C. 78f(b)(3). ISE Mercury’s proposed 

timeline for the Interim ISE Mercury Board process 

comports with the interim board process approved 

by the Commission for ISE Gemini, the Boston 

Options Exchange (‘‘BOX’’) and Miami 

International Securities Exchange, LLC (‘‘MIAX’’). 

See ISE Gemini Order, supra note at 27; Securities 

Exchange Act Release No. 66871 (April 27, 2012), 

77 FR 26323 (May 3, 2012) (File No. 10–206) (‘‘BOX 

Order’’); and the MIAX Order, supra note 28. 

38See Exhibit J to the Form 1 Application. 

39 ISE Mercury will have a streamlined waive-in 

process for existing ISE and ISE Gemini members 

to apply for membership on ISE Mercury. See ISE 

Mercury Rule 302(a). 

40See, e.g., ISE Mercury Constitution, Article III, 

Section 3.10(a)–(b). 

41See ISE Mercury Constitution, Article III, 

Sections 3.2(c) and 3.10. 

42See ISE Mercury Constitution, Article III, 

Section 3.10(a)(ii). 

43See ISE Mercury Constitution, Article V, 

Section 5.1(a). 

44See ISE Mercury Constitution, Article V, 

Section 5.2. The Executive Committee will have 

and may exercise all the powers and authority of 

the Board, except that the Executive Committee will 

not have the powers of the Board with respect to 

approving: (i) Any merger, consolidation, sale of 

substantially all of the assets or dissolution of the 

Exchange; or (ii) any matters pertaining to the selfregulatory function of the Exchange or relating to 

the structure of the market which the Exchange 

regulates. See id. 

45See ISE Mercury Constitution, Article V, 

Section 5.5. 

46See ISE Mercury Constitution, Article V, 

Section 5.6. 

47See ISE Mercury Constitution, Article V, 

Section 5.4. 

48See ISE Mercury Constitution, Article V, 

Section 5.1(a). 

Mercury.26 Section 6(b)(3) of the Act 

requires that ‘‘the rules of the exchange 

assure a fair representation of its 

members in the selection of its directors 

and administration of its affairs and 

provide that one or more directors shall 

be representative of issuers and 

investors and not be associated with a 

member of the exchange, broker, or 

dealer.’’ As the Commission previously 

has noted, this statutory requirement 

helps to ensure that members have a 

voice in the Exchange’s use of selfregulatory authority and that the 

Exchange is administered in a way that 

is equitable to all those persons who 

trade on its market or through its 

facilities.27 In addition, the Commission 

believes that the requirements that at 

least 50% of the Board be composed of 

Non-Industry Directors and that at least 

one director be a Public Director satisfy 

the requirements of Section 6(b)(3) of 

the Act.28

2. Interim Board 

After ISE Mercury is granted 

registration by the Commission, but 

prior to commencing operations, ISE 

Holdings, as the sole shareholder of ISE 

Mercury,29 will appoint an interim 

board of directors for ISE Mercury that 

will serve only until the first annual 

meeting (‘‘Interim ISE Mercury Board’’). 

The Interim ISE Mercury Board will be 

comprised of the same individuals as 

those then-serving ISE board and ISE 

Gemini board and will consist of 15 

directors: the President/Chief Executive 

Officer Director; 30 six Industry 

Directors; and eight Non-Industry 

Directors.31 ISE Mercury anticipates that 

there will be a significant overlap 

between its membership and the 

membership of ISE and ISE Gemini.32

ISE Mercury also ‘‘does not expect to 

receive a meaningful number of 

applications for membership from nonISE and ISE Gemini members during the 

tenure of the Interim ISE Mercury 

Board.’’ 33 Thus, the six interim Industry 

Directors to be appointed to the ISE 

Mercury Board likely will have been 

elected by ISE Mercury members in 

their capacity as ISE and ISE Gemini 

members.34

These interim Industry Directors will 

serve until the first initial ISE Mercury 

Board is elected pursuant to the full 

nomination, petition, and voting process 

set forth in the ISE Mercury 

Constitution as described above.35 ISE 

Mercury will complete such process as 

promptly as possible and within 90 days 

after its application for registration as a 

national securities exchange is granted 

by the Commission.36

The Commission believes that the 

process for electing the Interim ISE 

Mercury Board, as proposed, is 

consistent with the requirements of the 

Act, including that the rules of the 

exchange assure fair representation of 

the exchange’s members in the selection 

of its directors and administration of its 

affairs.37 The Commission believes that 

the Interim ISE Mercury Board process 

is designed to provide member 

representation sufficient to allow ISE 

Mercury to commence operations for an 

interim period prior to going through 

the process to elect a new Board 

pursuant to the full nomination, 

petition, and voting process set forth in 

the ISE Mercury Constitution. 

The Interim ISE Mercury Board will 

be filled by current ISE and ISE Gemini 

Board members (which currently 

include Industry Directors who were 

elected by current ISE and ISE Gemini 

members) until the first annual meeting 

of ISE Mercury.38 As noted above, ISE 

Mercury anticipates that there will be 

significant overlap between the initial 

members of ISE Mercury and the current 

members of ISE and ISE Gemini.39

Moreover, ISE Mercury will complete 

the full nomination, petition, and voting 

process, as set forth in the ISE Mercury 

Constitution,40 as promptly as possible 

and within 90 days of when ISE 

Mercury’s application for registration as 

a national securities exchange is 

granted.41 As a part of the full 

nomination, petition, and voting 

process, members of ISE Mercury will 

be able to petition for alternate 

candidates to be considered for Industry 

Director positions.42 This process will 

provide persons who are approved as 

members of ISE Mercury after the 

effective date of this order with the 

opportunity to participate in the 

selection of the Industry Directors. 

3. Exchange Committees 

ISE Mercury will have a number of 

Board committees,43 including an 

Executive Committee (consisting of six 

directors, and with the number of NonIndustry Directors equaling or exceeding 

the number of Industry Directors),44 a 

Finance and Audit Committee 

(consisting of between three and five 

directors, all of whom must be NonIndustry Directors),45 a Compensation 

Committee (consisting of between three 

and five directors, all of whom must be 

Non-Industry Directors),46 a Corporate 

Governance Committee (consisting of at 

least three directors, all of whom must 

be Non-Industry Directors),47 and such 

other additional committees as may be 

approved by the ISE Mercury Board.48


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49See ISE Mercury Constitution, Article V, 

Section 5.3. 

50See id. Article XIII, Section 13.1(n) of the ISE 

Mercury Constitution defines ‘‘Exchange Member 

Representative’’ as an associated person of an 

Exchange Member, and Section 13.1(m) defines 

‘‘Exchange Member’’ as an organization that has 

been approved to exercise trading rights associated 

with Exchange Rights. 

51See ISE Mercury Constitution, Article V, 

Section 5.3. The Interim ISE Mercury Board shall 

appoint the initial members of the Nominating 

Committee in accordance with the qualifications 

prescribed in Section 5.3 of the ISE Mercury 

Constitution. 

52See ISE Mercury Constitution, Article III, 

Section 3.10(a)(ii). See also supra note 23 and 

accompanying text. 

53See, e.g., ISE Second Amended and Restated 

Constitution, Articles III and V, Sections 3.10 and 

5.3; ISE Gemini Constitution, Articles III and V, 

Sections 3.10 and 5.3; and MIAX Amended and 

Restated By-laws, Articles II and V, Sections 2.4 

and 5.3. 

54See, e.g., ISE Gemini Order, supra note 27, 

MIAX Order, supra note 28, and BOX Order, supra 

note 37. 

55 15 U.S.C. 78f(b)(1). 

56The ISE Mercury LLC Agreement provides that 

ISE Holdings may not assign its interest in ISE 

Mercury unless such assignment is subject to prior 

approval by the Commission pursuant to the rule 

filing procedure under Section 19 of the Act. See 

ISE Mercury LLC Agreement, Section 7.1 

(Assignments; Additional LLC Members). 

57See Article FOURTH, Section III.(c) of the 

Second Amended and Restated Certificate of 

Incorporation of International Securities Exchange 

Holdings, Inc. (‘‘ISE Holdings Certificate’’). See 

infra notes 67–69 and 101–105 and accompanying 

text for a discussion of the statutory trust. 

58See ISE Holdings Certificate, Article FOURTH, 

Section III for the definition of ‘‘Related Persons.’’ 

59See ISE Holdings Certificate, Article FOURTH, 

Section III.(a)(i) for the definition of ‘‘Voting 

Shares.’’ The ISE Holdings Certificate defines 

‘‘Voting Shares’’ as shares of the capital stock 

(whether Common Stock or Preferred Stock) of the 

ISE Holdings that have the right by their terms to 

vote in the election of members of the ISE Holdings 

board of directors (‘‘ISE Holdings Board’’) or on 

other matters which may require the approval of the 

holders of voting shares of the ISE Holdings (other 

than matters affecting the rights, preferences or 

privileges of a particular class of capital stock). 

60See ISE Holdings Certificate, Article FOURTH, 

Section III.(a)(i). 

61See ISE Holdings Certificate, Article FOURTH, 

Section III.(b). See also Second Amended and 

Restated Bylaws of ISE Holdings (‘‘ISE Holdings 

Bylaws’’), Article XI, Section 11.1(b). 

62See ISE Holdings Certificate, Article FOURTH, 

Section III.(c). See also infra notes 67–70 and 

accompanying text for a discussion of the ISE Trust. 

Consistent with the governance structure of other 

exchanges, however, ISE Holdings Board may waive 

the 40% ownership limitation and the 20% voting 

restriction for persons other than ISE Mercury 

members, subject to certain specified conditions, 

but such waiver will not be effective unless 

approved by the Commission. Specifically, The ISE 

Holdings Certificate allows the ISE Holdings Board 

to waive the ISE Holdings ownership and voting 

limits pursuant to an amendment to the ISE 

Holdings Bylaws, provided that the ISE Holdings 

Board makes certain determinations. See ISE 

Holdings Certificate, Article FOURTH, Sections 

III.(a)(i)(A), III.(a)(i)(B) and III.(b)(i). 

Article XI of the ISE Holdings Bylaws waives the 

ISE Holdings ownership and voting limits to allow 

the Upstream Owners to own and vote all of the 

common stock of ISE Holdings. Article XI, Section 

11.1(b) states that, in waiving the ISE Holdings 

ownership and voting limits to permit the Upstream 

Owners to own and vote the capital stock of ISE 

Holdings, the ISE Holdings Board has determined, 

with respect to each Upstream Owner, that: (i) Such 

waiver will not impair the ability of ISE Holdings 

and each ‘‘Controlled National Securities 

Exchange’’ (i.e., any national securities exchange or 

facility thereof controlled, directly or indirectly, by 

ISE Holdings, including ISE, ISE Gemini, and as a 

result of this order, ISE Mercury) to carry out their 

respective functions and responsibilities under the 

Act; (ii) such waiver is in the best interests of ISE 

Holdings, its stockholders, and each Controlled 

National Securities Exchange; (iii) such waiver will 

not impair the ability of the Commission to enforce 

the Act; (iv) neither the Upstream Owner nor any 

of its related persons is subject to a statutory 

disqualification (within the meaning of Section 

3(a)(39) of the Act, 15 U.S.C. 78c(a)(39)); and (v) 

neither the Upstream Owner nor any of its related 

persons is a member of such Controlled National 

Securities Exchange. Article XI of the ISE Holdings 

Bylaws was adopted in connection with the Eurex 

Acquisition, when ISE was the sole national 

securities exchange controlled by ISE Holdings. See 

Eurex Acquisition Order, supra note 13. Article XI, 

Section 11.1(b) was subsequently amended to apply 

to any Controlled National Securities Exchange, 

which by its terms will include ISE Mercury. See 

Securities Exchange Act Release No. 59135 

(December 22, 2008), 73 FR 79954 (December 30, 

2008) (order approving proposed rule change 

relating to the purchase by ISE Holdings of an 

ownership interest in Direct Edge Holdings, Inc.) 

and 61498 (February 4, 2010), 75 FR 7299 (February 

18, 2010) (order approving proposed rule change 

relating to changes to the U.S. Exchange Holdings 

corporate documents and ISE Trust). 

63See ISE Mercury LLC Agreement, Article II, 

Section 2.1 and ISE Mercury Constitution Article I, 

Section 1.1 (both of which define ‘‘Sole LLC 

Member’’ to mean ISE Holdings, as the sole member 

of ISE Mercury). 

ISE Mercury also will have a 

Nominating Committee, which will be a 

committee of ISE Mercury and not a 

committee of the Board.49 The 

Nominating Committee will be 

composed of three Exchange Member 

Representatives 50 and will be 

responsible for nominating candidates 

for Industry Director positions.51 As 

noted above, there will be a petition 

process by which members of ISE 

Mercury can nominate their own 

nominees for the Industry Director 

positions.52 These nomination processes 

are consistent with processes that the 

Commission has approved for other 

national securities exchanges.53

The Commission believes that ISE 

Mercury’s proposed committees, which 

are similar to committees maintained by 

other national securities exchanges,54

are designed to help enable ISE Mercury 

to carry out its responsibilities under 

the Act and are consistent with the Act, 

including Section 6(b)(1), which 

requires, in part, an exchange to be so 

organized and have the capacity to carry 

out the purposes of the Act.55

C. Regulation of ISE Mercury 

When ISE Mercury commences 

operations as a national securities 

exchange, it will have all the attendant 

regulatory obligations under the Act. In 

particular, ISE Mercury will be 

responsible for the operation and 

regulation of its trading system and the 

regulation of its members. Certain 

provisions in the ISE Mercury’s and ISE 

Holdings’ governance documents are 

designed to facilitate the ability of ISE 

Mercury and the Commission to fulfill 

their regulatory and oversight 

obligations under the Act. The 

discussion below summarizes some of 

these key provisions. 

1. Ownership Structure: Ownership and 

Voting Limitations 

As noted above in Section II.A, ISE 

Mercury is a Delaware LLC and a 

wholly-owned subsidiary of ISE 

Holdings.56 ISE Holdings is owned by 

Eurex Frankfurt and Deutsche Bo ̈rse 

through an intermediary holding 

company, U.S. Exchange Holdings. ISE 

Holdings’ governing documents impose 

limits on any direct or indirect change 

in control of ISE Holdings, which are to 

be enforced through the creation of a 

statutory trust.57

Specifically, ISE Holdings’ governing 

documents prohibit any ISE Mercury 

member (alone or together with its 

Related Persons 58) from owning more 

than 20% of any class of Voting Shares 

of ISE Holdings.59 Moreover, pursuant 

to ISE Holdings’ governing documents, 

no person (alone or together with its 

Related Persons) may own more than 

40% of any class of Voting Shares of ISE 

Holdings.60 Finally, no person (alone or 

together with its Related Persons) may 

vote or cause the voting of shares 

representing more than 20% of the 

voting power of the then outstanding 

Voting Shares of ISE Holdings.61 As 

described more fully below, if a person 

exceeds an ISE Holdings’ ownership or 

voting limit, a majority of the capital 

stock of ISE Holdings that has the right 

by its terms to vote in the election of the 

ISE Holdings Board or on other matters 

(other than matters affecting the rights, 

preferences or privileges of the capital 

stock) automatically will be transferred 

to a Delaware statutory trust (‘‘ISE 

Trust’’).62

The ISE Mercury LLC Agreement and 

ISE Mercury Constitution do not 

include change of control provisions 

that are similar to those in the ISE 

Holdings Certificate and ISE Holdings 

Bylaws. However, the ISE Mercury LLC 

Agreement and the ISE Mercury 

Constitution explicitly provide that ISE 

Holdings is the Sole LLC Member of ISE 

Mercury.63 Under the ISE Mercury LLC 

Agreement, ISE Holdings is permitted to 

‘‘assign all (but not less than all)’’ of its 


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64See 15 U.S.C. 78s; see also ISE Mercury LLC 

Agreement, Article VII, Section 7.1 and ISE 

Mercury Constitution, Article I, Section 1.1. 

65The Third Amended and Restated Certificate of 

Incorporation of U.S. Exchange Holdings (‘‘U.S. 

Exchange Holdings Certificate’’) provides that, for 

so long as U.S. Exchange Holdings directly or 

indirectly controls a Controlled National Securities 

Exchange, U.S. Exchange Holdings will take 

reasonable steps necessary to cause ISE Holdings to 

be in compliance with the ISE Holdings’ ownership 

and voting limits. See U.S. Exchange Holdings 

Certificate, Article THIRTEENTH. 

66See, e.g., Form of German Parent Corporate 

Resolutions (2007 Resolution Section (4)), Exhibit B 

to the Form 1 Application. In the Form 1 

Application, ISE Mercury included these 

supplemental resolutions that Eurex Frankfurt and 

Deutsche Bo ̈rse have each adopted that, in part, 

incorporate provisions regarding the ownership and 

voting limits (‘‘ISE Mercury Resolutions’’) in the 

same manner and to the same extent as prior 

corporate resolutions signed by Eurex Frankfurt and 

Deutsche Bo ̈rse apply to ISE and ISE Gemini (‘‘2007 

Resolutions’’). The ISE Mercury Resolutions were 

signed by Eurex Frankfurt and Deutsche Bo ̈rse, and 

extend to ISE Mercury the commitments made in 

the 2007 Resolutions with respect to ISE and ISE 

Gemini. For example, ISE Mercury represented in 

Exhibit B of Amendment No. 2 to the Form 1 

Application that the Deutsche Bo ̈rse AG Executive 

Board adopted its corporate resolution on February 

17, 2015 and the Eurex Frankfurt Executive Board 

adopted its corporate resolutions on February 13, 

2015. 

67See Third Amended and Restated Trust 

Agreement, dated as of December 22, 2014, by and 

among ISE Holdings, U.S. Exchange Holdings, and 

the Trustees (‘‘ISE Trust Agreement’’). The term of 

the ISE Trust is perpetual, provided that ISE 

Holdings directly or indirectly controls a national 

securities exchange or a facility thereof, which 

would include ISE Mercury. See ISE Trust 

Agreement, Article III, Section 2.6(a). See also 

Eurex Acquisition Order, supra note 13, at Section 

II.C., for a more detailed description of the ISE 

Trust. By its terms, the 2007 Trust Agreement 

related solely to ISE Holdings’ ownership of ISE, 

and not to any other national securities exchange 

that ISE Holdings might control, directly or 

indirectly. In 2010, the Commission approved 

proposed rule changes that revised the 2007 Trust 

Agreement to replace references to ISE with 

references to any Controlled National Securities 

Exchange. See Securities Exchange Act Release Nos. 

59135 (December 22, 2008), 73 FR 79954 (December 

30, 2008) (‘‘ISE Holdings Order’’) and 61498 

(February 4, 2010), 75 FR 7299 (February 18, 2010) 

(‘‘U.S. Exchange Holdings Order’’); see also ISE 

Trust Agreement, Articles I and II, Sections 1.1 and 

2.6. Thus, the ISE Trust Agreement also applies to 

ISE Gemini and will apply to ISE Mercury, upon 

the Commission granting ISE Mercury registration 

as a national securities exchange. 

68Under the ISE Trust Agreement, the term 

‘‘Trust Shares’’ means either Excess Shares or 

Deposited Shares, or both, as the case may be. The 

term ‘‘Excess Shares’’ means that a person obtained 

an ownership or voting interest in ISE Holdings in 

excess of the ownership and voting limits pursuant 

to Article FOURTH of the ISE Holdings Certificate, 

for example, through ownership of one of the 

Upstream Owners, without obtaining the approval 

of the Commission. The term ‘‘Deposited Shares’’ 

means shares that are transferred to the ISE Trust 

pursuant to the ISE Trust’s exercise of the Call 

Option. Under the ISE Trust Agreement, the term 

‘‘Call Option’’ means the option granted by the ISE 

Trust beneficiary to the ISE Trust to call the Voting 

Shares as set forth in Section 4.2 therein. See infra 

Section II.C.2.b for further discussion of the Call 

Option. 

69See ISE Trust Agreement, Article IV, Section 

4.1; see also ISE Holdings Certificate, Article 

FOURTH, Section III.(c); Eurex Acquisition Order, 

supra note 13, at 72 FR 71982 n.37 and 

accompanying text. 

70See id. 

71See ISE Trust Agreement, Article IV, Section 

4.1(f). In addition, as discussed in Section II.C.2.b 

below, the Trust also may accept, hold and dispose 

of Trust Shares in connection with the Call Option. 

Section 4.2(h) of the ISE Trust Agreement governs 

when the Trustees can transfer Deposited Shares in 

connection with the Call Option. Section 4.3(a) of 

the ISE Trust Agreement further permits the 

Trustees, upon receipt of written instructions from 

the Trust Beneficiary, to sell Trust Shares to a 

person or persons whose ownership percentage or 

voting control percentage will not violate the 

ownership or voting limits. 

72See also infra Section II.C.2. (Regulatory 

Independence and Oversight). 

73See, e.g., ISE Gemini Order, supra note 27; and 

BATS Order, supra note 27; see also MIAX Order, 

supra note 28. 

interest in ISE Mercury, but the 

assignment of all of ISE Holdings’ 

interest in ISE Mercury will be subject 

to prior approval by the Commission 

pursuant to the rule filing procedures 

under Section 19 of the Act.64

To facilitate compliance with the ISE 

Holdings ownership and voting limits, 

the Upstream Owners have committed 

to take reasonable steps necessary to 

cause ISE Holdings to be in compliance 

with the ISE Holdings ownership and 

voting limits. These commitments are 

contained in the governing documents 

for U.S. Exchange Holdings 65 and in 

corporate resolutions for Eurex 

Frankfurt and Deutsche Bo ̈rse.66

In connection with the Eurex 

Acquisition, ISE implemented the ISE 

Trust pursuant to a Trust Agreement 

(‘‘2007 Trust Agreement’’) among ISE 

Holdings, U.S. Exchange Holdings, 

trustees (‘‘Trustees’’), and a Delaware 

trustee, which agreement has been 

subsequently amended to take into 

account subsequent acquisitions, 

including the current transaction.67 The 

ISE Trust Agreement serves, in part, to 

effectuate the ownership and voting 

limits for ISE Holdings in the event that 

a person obtains an ownership or voting 

interest in excess of the limits 

established in the ISE Holdings 

Certificate without prior Commission 

approval. To accomplish that purpose, 

for as long as ISE Holdings controls, 

directly or indirectly, a national 

securities exchange, including ISE 

Mercury, the ISE Trust would accept, 

hold and dispose of Trust Shares 68 on 

the terms and subject to the conditions 

set forth therein.69 Specifically, if any 

person’s ownership percentage exceeds 

the ownership limits or any person’s 

voting control percentage exceeds the 

voting limits without Commission 

approval, the Excess Shares will be 

transferred automatically to the ISE 

Trust pursuant to the terms prescribed 

in the ISE Holdings Certificate.70 The 

ISE Trust then would accept the Excess 

Shares and hold them for the benefit of 

the trust beneficiary, U.S. Exchange 

Holdings, who has the right to reacquire 

the Excess Shares either when a person 

no longer exceeds the ownership or 

voting limits or when such excess 

ownership percentage or voting control 

percentage is approved by the 

Commission in accordance with ISE 

Holdings Certificate.71

Although ISE Holdings is not 

independently responsible for 

regulation of ISE Mercury, its activities 

with respect to the operation of ISE 

Mercury must be consistent with, and 

must not interfere with, the selfregulatory obligations of ISE Mercury.72

As described above, the provisions 

applicable to direct and indirect 

changes in control of ISE Holdings and 

ISE Mercury, as well as the voting 

limitation, are designed to help prevent 

any owner of ISE Holdings from 

exercising undue influence or control 

over the operation of ISE Mercury and 

to help ensure that ISE Mercury is able 

to effectively carry out its regulatory 

obligations under the Act. In addition, 

these limitations are designed to address 

the conflicts of interests that might 

result from a member of a national 

securities exchange owning interests in 

the Exchange. As the Commission has 

noted in the past, however, a member’s 

interest in an exchange, including an 

entity that controls an exchange, could 

become so large as to cast doubts on 

whether the exchange may fairly and 

objectively exercise its self-regulatory 

responsibilities with respect to such 

member.73 A member that is a 

controlling shareholder of an exchange 

could seek to exercise that controlling 

influence by directing the exchange to 

refrain from, or the exchange may 

hesitate to, diligently monitor and 

conduct surveillance of the member’s 

conduct or diligently enforce the 

exchange’s rules and the federal 

securities laws with respect to conduct 

by the member that violates such 

provisions. As such, these requirements 

are designed to minimize the potential 

that a person or entity can improperly 

interfere with or restrict the ability of 

ISE Mercury to effectively carry out its 

regulatory oversight responsibilities 

under the Act. 

The Commission believes that ISE 

Mercury’s and ISE Holdings’ proposed 

ownership and voting limitation 

provisions, together with the provisions 

in U.S. Exchange Holdings’ governing 

documents, the ISE Mercury 

Resolutions, and the ISE Trust 


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74See supra notes 65–66, and accompanying text. 

75 15 U.S.C. 78f(b)(1). 

76 In addition, the ISE Trust Agreement is 

consistent with the provisions that other entities 

that directly or indirectly own or control an SRO 

have instituted and that have been approved by the 

Commission. See, e.g., Securities Exchange Act 

Release No. 55293 (February 14, 2007), 72 FR 8033 

(February 22, 2007) (File No. SR–NYSE–2006–120) 

(order relating to the combination between NYSE 

Group, Inc. and Euronext N.V.). See also Eurex 

Acquisition Order, supra note 13, at 72 FR 71986 

n.111. 

77See, e.g., ISE Gemini Order, supra note 27; and 

BOX Order, supra note 37. 

78See, e.g., ISE Gemini Order, supra note 27; BOX 

Order, supra note 37; MIAX Order, supra note 28. 

79See ISE Holdings Bylaws, Article I, Section 1.5. 

Similarly, Article V, Section 5.1(b) of the ISE 

Mercury LLC Agreement requires each ISE Mercury 

Board director to take into consideration the effect 

that his or her actions would have on the ability of 

ISE Mercury to carry out its responsibilities under 

the Act and on the ability of ISE Mercury to engage 

in conduct that fosters and does not interfere with 

ISE Mercury’s ability to prevent fraudulent and 

manipulative acts and practices; to promote just 

and equitable principles of trade; to foster 

cooperation and coordination with persons engaged 

in regulating, clearing, settling, processing 

information with respect to and facilitating 

transactions in securities or assist in the removal of 

impediments to or perfection of the mechanisms for 

a free and open market and a national market 

system; and in general to protect investors and the 

public interest. 

80See ISE Holdings Certificate, Article TENTH. 

ISE Holdings also shall take reasonable steps 

necessary to cause its agents to cooperate with ISE 

Mercury and the Commission pursuant to their 

respective regulatory authority. ISE Holdings 

Certificate, Article THIRTEENTH. 

81See ISE Holdings Bylaws, Article I, Section 1.4. 

82See ISE Holdings Certificate, Article 

ELEVENTH. Additionally, pursuant to the ISE 

Mercury LLC Agreement, books and records of ISE 

Mercury containing confidential information 

pertaining to the self-regulatory function of ISE 

Mercury (including but not limited to confidential 

information regarding disciplinary matters, trading 

data, trading practices and audit information) shall 

be retained in confidence by ISE Mercury and its 

officers, directors, employees and agents and will 

not be used by ISE Mercury for any non-regulatory 

purpose and shall not be made available to persons 

other than those officers, directors, employees and 

agents that have a reasonable need to know the 

contents thereof. See ISE Mercury LLC Agreement, 

Article VI, Section 4.1(b). The requirement to keep 

such information confidential shall not limit or 

impede the Commission’s ability to access and 

examine such information or limit or impede the 

ability of officers, directors, employees, or agents of 

ISE Holdings to disclose such information to the 

Commission. See ISE Holdings Certificate, Article 

ELEVENTH and ISE Mercury LLC Agreement, 

Article VI, Section 4.1(b). 

83See ISE Mercury LLC Agreement, Article IV, 

Section 4.1 and ISE Holdings Bylaws, Article I, 

Section 1.3. 

84See ISE Holdings Certificate, Article 

TWELFTH. 

85See id. 

86See ISE Holdings Bylaws, Article I, Section 1.6. 

87See ISE Holdings Certificate, Article 

FOURTEENTH; and ISE Holdings Bylaws, Article 

X; see also supra notes 63–64 and accompanying 

text discussing a similar provision for ISE Mercury. 

Agreement described above,74 are 

consistent with the Act, including 

Section 6(b)(1), which requires, in part, 

an exchange to be so organized and have 

the capacity to carry out the purposes of 

the Act.75 In particular, these 

requirements are designed to minimize 

the potential that a person could 

improperly interfere with or restrict the 

ability of the Commission or ISE 

Mercury to effectively carry out their 

regulatory oversight responsibilities 

under the Act.76

2. Regulatory Independence and 

Oversight 

a. ISE Holdings 

Although ISE Holdings itself will not 

itself carry out regulatory functions, its 

activities with respect to the operation 

of ISE Mercury must be consistent with, 

and not interfere with, the selfregulatory obligations of ISE Mercury.77

In this regard, ISE Mercury and ISE 

Holdings’ respective corporate 

documents include certain provisions 

that are designed to maintain the 

independence of ISE Mercury’s selfregulatory function. These provisions 

are substantially similar to those 

included in the governing documents of 

the exchanges that have most recently 

been granted registration.78 Specifically: 

• The directors, officers, and 

employees of ISE Holdings must give 

due regard to the preservation of the 

independence of the self-regulatory 

function of ISE Mercury and must not 

take actions that would interfere with 

the effectuation of decisions by the ISE 

Mercury Board relating to ISE Mercury’s 

regulatory functions (including 

disciplinary matters) or that would 

adversely affect the ability of ISE 

Mercury to carry out its responsibilities 

under the Act.79

• ISE Holdings must comply with 

federal securities laws and the rules and 

regulations promulgated thereunder, 

and must cooperate with ISE Mercury 

and the Commission pursuant to, and to 

the extent of, their respective regulatory 

authority. In addition, ISE Holdings’ 

officers, directors, and employees must 

comply with federal securities laws and 

the rules and regulations thereunder 

and agree to cooperate with ISE Mercury 

and the Commission pursuant to their 

respective regulatory authority.80

• ISE Holdings, and its officers, 

directors, employees, and agents are 

deemed to irrevocably submit to the 

jurisdiction of the U.S. federal courts, 

the Commission, and ISE Mercury, for 

purposes of any suit, action, or 

proceeding pursuant to U.S. federal 

securities laws, and the rules and 

regulations thereunder, arising out of, or 

relating to, ISE Mercury’s activities.81

• All books and records of ISE 

Mercury containing confidential 

information pertaining to the selfregulatory function of ISE Mercury 

(including but not limited to 

confidential information regarding 

disciplinary matters, trading data, 

trading practices and audit information) 

will be subject to confidentiality 

restrictions.82

• The books and records of ISE 

Mercury and ISE Holdings must be 

maintained in the United States 83 and, 

to the extent they are related to the 

operation or administration of ISE 

Mercury, ISE Holdings books and 

records will be subject at all times to 

inspection and copying by the 

Commission.84

• Furthermore, to the extent that they 

are related to the activities of ISE 

Mercury, the books, records, premises, 

officers, directors, and employees of ISE 

Holdings will be deemed to be the 

books, records, premises, officers, 

directors, and employees of ISE 

Mercury, for purposes of, and subject to 

oversight pursuant to, the Act.85

• ISE Holdings will take necessary 

steps to cause its officers, directors, and 

employees, prior to accepting a position 

as an officer, director, or employee (as 

applicable) to consent in writing to the 

applicability of provisions regarding 

books and records, confidentiality, 

jurisdiction, and regulatory obligations, 

with respect to their activities related to 

ISE Mercury.86

• ISE Holdings Certificate and ISE 

Holdings Bylaws require that, so long as 

ISE Holdings controls ISE Mercury, any 

changes to those documents be 

submitted to the ISE Mercury Board, 

and, if required, to be filed with, and as 

applicable approved by, the 

Commission pursuant to Section 19 of 

the Act and the rules thereunder before 

they may be effective.87

b. Upstream Owners 

Although the Upstream Owners will 

not carry out any regulatory functions, 

the activities of each of the Upstream 

Owners with respect to the operation of 

ISE Mercury must be consistent with, 

and not interfere with, the selfregulatory obligations of ISE Mercury. 

The 2007 Resolutions, as supplemented 

by the supplemental Resolutions for ISE 

Mercury, the U.S. Exchange Holdings 

Certificate, and the U.S. Exchange 

Holdings Bylaws include certain 

provisions that are designed to maintain 

the independence of the self-regulatory 

function of ISE Mercury, enable ISE 

Mercury to operate in a manner that 

complies with the U.S. federal securities 

laws, including the objectives and 

requirements of Sections 6(b) and 19(g) 


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88 15 U.S.C. 78f(b) and 15 U.S.C. 78s(g). 

89See, e.g., Form of German Parent Corporate 

Resolutions (2007 Resolution Sections (1), (7)(a) 

and (8)(a) and ISE Mercury Resolution Sections 

(2)(a), (2)(b) and (2)(c)); and U.S. Exchange Holdings 

Certificate, Articles TENTH and ELEVENTH. The 

Resolutions also provide that Eurex Frankfurt and 

Deutsche Bo ̈rse will each take reasonable steps 

necessary to cause each person who subsequently 

becomes a board member of Eurex Frankfurt or 

Deutsche Bo ̈rse to agree in writing to certain matters 

included in the Resolutions. See, e.g., Form of 

German Parent Corporate Resolutions (2007 

Resolution Section (7) and ISE Mercury Resolution 

Section (2)(b)). 

90See, e.g., Form of German Parent Corporate 

Resolutions (2007 Resolution Section (7)(f) and ISE 

Mercury Resolution Section (2)(b)); and U.S. 

Exchange Holdings Certificate, Article TENTH. 

91See, e.g., Form of German Parent Corporate 

Resolutions (2007 Resolution Sections (5), (7)(d), 

and (8)(d) and ISE Mercury Resolution Section (2)); 

and U.S. Exchange Holdings Certificate, Article 

TWELFTH. 

92See, e.g., Form of German Parent Corporate 

Resolutions (2007 Resolution Sections (6), (7)(e) 

and (8)(e) and ISE Mercury Resolution Sections (1) 

and (2)); and U.S. Exchange Holdings Certificate, 

Article FOURTEENTH. 

93See, e.g., Form of German Parent Corporate 

Resolutions (2007 Resolution Section (3) and ISE 

Mercury Resolution Section (2)(a)); and U.S. 

Exchange Holdings Certificate, Article FIFTEENTH. 

Additionally, the books and records of U.S. 

Exchange Holdings related to the activities of ISE 

Mercury will be maintained within the United 

States. See U.S. Exchange Holdings Certificate, 

Article FIFTEENTH. 

94See, e.g., Form of German Parent Corporate 

Resolutions (2007 Resolution Sections (3) and (8)(c) 

and ISE Mercury Resolution Sections (2)(a) and 

(2)(c)); and U.S. Exchange Holdings Certificate, 

Article FIFTEENTH. 

95See U.S. Exchange Holdings Certificate, Article 

FIFTEENTH. 

96See, e.g., Form of German Parent Corporate 

Resolutions (2007 Resolution Sections (2), (7)(b), 

and (8)(b) and ISE Mercury Resolution Section (2)). 

See also U.S. Exchange Holdings Bylaws, Article VI, 

Section 16. 

97See, e.g., Form of German Parent Corporate 

Resolutions (ISE Mercury Resolution Section (3)); 

U.S. Exchange Holdings Certificate, Article 

SIXTEENTH; and U.S. Exchange Holdings Bylaws, 

Article VI, Section 9. 

98 15 U.S.C. 78s. 

99See, e.g., Form of German Parent Corporate 

Resolutions (ISE Mercury Resolution Section (3)); 

U.S. Exchange Holdings Certificate, Article 

SIXTEENTH; and U.S. Exchange Holdings Bylaws, 

Article VI, Section 9. The requirement to submit 

changes to the ISE Mercury Board endures for as 

long as U.S. Exchange Holdings directly or 

indirectly controls ISE Mercury. See U.S. Exchange 

Holdings Bylaws, Article VI, Section 9. 

100See supra notes 59–61 and 68–71 and 

accompanying text for a discussion of the 

ownership and voting limits. 

101Under the ISE Trust Agreement, a ‘‘Material 

Compliance Event’’ is any state of facts, 

development, event, circumstance, condition, 

occurrence, or effect that results in the failure of 

any of the Affected Affiliates (as defined therein) to 

adhere to its respective commitments under the 

Resolutions in any material respect. See ISE Trust 

Agreement, Article I, Section 1.1. 102See supra note 68. 

103Under the ISE Trust, the term ‘‘Trust 

Beneficiary’’ means U.S. Exchange Holdings. 

104See ISE Trust Agreement, Article IV, Section 

4.2. Specifically, if a Material Compliance Event 

occurs and continues to be in effect, the Trustees 

must take certain actions, including, after a 

specified cure period, the exercise of a Call Option 

for a transfer of the majority of capital stock of ISE 

Holdings that has the right by its terms to vote in 

the election of the ISE Holdings Board or on other 

matters. 

105See ISE Trust Agreement, Article IV, Section 

4.2. 

106 15 U.S.C. 78f(b)(1). 

of the Act,88 and facilitate the ability of 

ISE Mercury and the Commission to 

fulfill their regulatory and oversight 

obligations under the Act. Specifically: 

• Each Upstream Owner and each 

board member, officer, and employee of 

the Upstream Owners will comply with 

the U.S. federal securities laws and the 

rules and regulations thereunder and 

cooperate with the Commission and ISE 

Mercury.89

• In discharging his or her 

responsibilities as a board member of an 

Upstream Owner, each such member 

must take into consideration the effect 

that the actions of the Upstream Owner 

will have on the ability of ISE Mercury 

to carry out its responsibilities under 

the Act.90

• The Upstream Owners, and their 

board members, officers, and 

employees, must give due regard to the 

preservation of the independence of the 

self-regulatory function of ISE 

Mercury.91

• The Upstream Owners, and their 

respective board members, officers, and 

employees agree to keep confidential 

information pertaining to the selfregulatory function of ISE Mercury, 

including, but not limited to, 

confidential information regarding 

disciplinary matters, trading data, 

trading practices, and audit information, 

contained in the books and records of 

ISE Mercury and not use such 

information for any non-regulatory 

purposes.92

• The books and records of the 

Upstream Owners related to the 

activities of ISE Mercury must at all 

times be made available for, and the 

books and records of U.S. Exchange 

Holdings must be subject at all times to, 

inspection and copying by the 

Commission and ISE Mercury.93

• The books, records, officers, 

directors, and employees of each of the 

Upstream Owners will be deemed to be 

the books, records, officers, directors, 

and employees of ISE Mercury, to the 

extent that such books and records are 

related to, or such officers, directors (or 

equivalent in the case of Eurex 

Frankfurt and Deutsche Bo ̈rse) and 

employees are involved in, the activities 

of ISE Mercury,94 and the premises of 

U.S. Exchange Holdings will be deemed 

to be the premises of ISE Mercury.95

• To the extent involved in the 

activities of ISE Mercury, the Upstream 

Owners, and their board members, 

officers, and employees, irrevocably 

submit to the jurisdiction of the U.S. 

federal courts and the Commission.96

• Any change to the governing 

documents that would have the effect of 

amending or repealing the ISE Mercury 

Resolutions or the 2007 Resolutions 

must be submitted to the ISE Mercury 

Board,97 and, if required, filed with the 

Commission pursuant to Section 19 of 

the Act 98 and the rules thereunder 

before it may be effective.99

The ISE Trust Agreement, in addition 

to enforcing the ownership and voting 

limits,100 also serves to effectuate 

compliance with the other commitments 

made under the ISE Mercury 

Resolutions, which incorporate the 2007 

Resolutions. To accomplish that 

purpose, the ISE Trust would determine 

whether a Material Compliance 

Event 101 has occurred or is continuing. 

The ISE Trust would determine whether 

the occurrence and continuation of a 

Material Compliance Event requires the 

exercise of the Call Option.102 The ISE 

Trust holds a Call Option over the 

capital stock of ISE Holdings that may 

be exercised if a Material Compliance 

Event has occurred and continues to be 

in effect. Upon exercise of the Call 

Option, the Trust Beneficiary 103 and 

ISE Holdings, as applicable, will take 

such actions as are necessary to transfer, 

or cause the transfer to the ISE Trust of 

a majority of the Voting Shares then 

outstanding.104 The ISE Trust will 

transfer Deposited Shares from the ISE 

Trust back to the Trust Beneficiary, as 

provided in Section 4.2(h) of the ISE 

Trust Agreement, only if no Material 

Compliance Event is continuing or, 

notwithstanding its continuation, the 

Trustees determine that the retention of 

the Deposited Shares could not 

reasonably be expected to address the 

continuing Material Compliance Event, 

provided that the determination is filed 

with, or filed with and approved by, the 

Commission.105

The Commission believes that the 

provisions discussed above, which are 

designed to help maintain the 

independence of ISE Mercury’s 

regulatory function and help facilitate 

the ability of ISE Mercury to carry out 

its regulatory responsibilities and 

operate in a manner consistent with the 

Act, are appropriate and consistent with 

the requirements of the Act, particularly 

with Section 6(b)(1), which requires, in 

part, an exchange to be so organized and 

have the capacity to carry out the 

purposes of the Act.106 Whether ISE 

Mercury operates in compliance with 

the Act, however, depends on how it 

and ISE Holdings in practice implement 


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107See 15 U.S.C. 78s(h)(1). 108See id. 109See 15 U.S.C. 78f(b)(1). 110See 15 U.S.C. 78s(g)(1). 111See 15 U.S.C. 78s(h)(1). 112See 15 U.S.C. 78t(a). 113See 15 U.S.C. 78t(e). 114See 15 U.S.C. 78u–3(a). 

115See Section 6(b)(1) of the Act, 15 U.S.C. 

78f(b)(1). 

116See id. See also Section 19(g) of the Act, 15 

U.S.C. 78s(g). 

117See Exhibit L to the Form 1 Application. 

118The Corporate Governance Committee will 

consist of at least three directors, all of whom must 

be Non-Industry Directors. See ISE Mercury 

Constitution, Article V, Section 5.4. 

119See Exhibit L to the Form 1 Application. 

120See id. 

121See id. 

122See id. 

123See id. 

124See id. 

125See id. 

126See id. 

127See id. 

128See id. 

129See Exhibit I to the Form 1 Application. 

130Other applicants for registration as a national 

securities exchange have noted in their Form 1 

applications similar funding commitments and 

representations. In ISE Gemini, ISE Holdings 

represented that it would make a capital 

contribution of $5 million to ISE Gemini. See ISE 

Gemini Order, supra note 27. BOX represented that, 

prior to launch, BOX Group LLC would allocate 

sufficient operational assets, including regulatory 

infrastructure and industry and regulatory 

memberships, along with a $1,000,000 loan to BOX. 

See BOX Order, supra note 37. In MIAX, the 

exchange represented that Miami International 

Holdings, Inc. would allocate sufficient operational 

assets and make a capital contribution of not less 

than $2,000,000 into MIAX capital account prior to 

launching operations. See MIAX Order, supra note 

28. 

131See Exhibit I to the Form 1 Application. 

the governance and other provisions 

that are the subject of this order. 

Accordingly, Section 19(h)(1) of the 

Act 107 provides the Commission with 

the authority ‘‘to suspend for a period 

not exceeding twelve months or revoke 

the registration of [an SRO], or to 

censure or impose limitations upon the 

activities, functions, and operations of 

[an SRO], if [the Commission] finds, on 

the record after notice and opportunity 

for hearing, that [the SRO] has violated 

or is unable to comply with any 

provision of [the Act], the rules or 

regulations thereunder, or its own rules 

or without reasonable justification or 

excuse has failed to enforce 

compliance’’ with any such provision 

by its members (including associated 

persons thereof).108 If Commission were 

to find, or become aware of, through 

staff review and inspection or 

otherwise, facts indicating any 

violations of the Act, including without 

limitation Sections 6(b)(1) 109 and 

19(g)(1),110 these matters could provide 

the basis for a disciplinary proceeding 

under Section 19(h)(1) of the Act.111

Moreover, under Section 20(a) of the 

Act,112 any person who, directly or 

indirectly, controls ISE Mercury would 

be jointly and severally liable with and 

to the same extent that ISE Mercury is 

liable under any provision of the Act, 

unless the controlling person acted in 

good faith and did not directly or 

indirectly induce the act or acts 

constituting the violation or cause of 

action. In addition, Section 20(e) of the 

Act 113 creates aiding and abetting 

liability for any person who knowingly 

or recklessly provides substantial 

assistance to another person in violation 

of any provision of the Act or rule 

thereunder. Further, Section 21C of the 

Act authorizes the Commission to enter 

a cease-and-desist order against any 

person who has been ‘‘a cause of’’ a 

violation of any provision of the Act 

through an act or omission that the 

person knew or should have known 

would contribute to the violation.114

These provisions are applicable to all 

entities controlling ISE Mercury, 

including the ISE Trust, ISE Holdings, 

and the Upstream Owners. 

3. Regulation of ISE Mercury 

As a prerequisite to the Commission’s 

granting of an exchange’s application for 

registration, an exchange must be so 

organized and have the capacity to carry 

out the purposes of the Act.115

Specifically, an exchange must be able 

to enforce compliance by its members, 

and persons associated with its 

members, with the Act and the rules 

and regulations thereunder and the 

rules of the exchange.116 The discussion 

below summarizes how ISE Mercury 

proposes to structure and conduct its 

regulatory operations. 

a. Corporate Governance Committee and 

Finance and Audit Committee 

ISE Mercury will have a Chief 

Regulatory Officer (‘‘CRO’’) with general 

responsibility for supervision of the 

regulatory operations of ISE Mercury.117

The CRO will report to the Corporate 

Governance Committee 118 and to the 

President/Chief Executive Officer, 

although the ISE Mercury Board would 

retain the power to call the CRO to 

report directly to the Board as needed. 

The CRO also may call special meetings 

of the Board, as necessary.119 The 

Corporate Governance Committee will 

meet regularly with the CRO to review 

regulatory matters.120

The Corporate Governance Committee 

will monitor the regulatory program for 

sufficiency, effectiveness, and 

independence, and will oversee trade 

practices and market surveillance, 

audits, examinations, and other 

regulatory responsibilities with respect 

to members and the conduct of 

investigations.121 The Corporate 

Governance Committee also will 

supervise the CRO; will receive an 

annual report from the CRO assessing 

ISE Mercury’s self-regulatory program 

for the Board; will recommend changes 

that would ensure fair and effective 

regulation; and will review regulatory 

proposals and advise the Board as to 

whether and how such changes may 

impact regulation.122 The Corporate 

Governance Committee will review 

annually the regulatory budget and 

specifically inquire into the adequacy of 

the resources available in the budget for 

regulatory activities.123 The Corporate 

Governance Committee will authorize 

unbudgeted expenditures for necessary 

regulatory expenses.124 In addition, the 

Finance and Audit Committee will 

provide oversight over the systems of 

internal controls established by 

management and the Board and the 

Exchange’s regulatory and compliance 

process.125

The Compensation Committee will set 

compensation for the CRO.126 The 

Corporate Governance Committee, in its 

sole discretion, will make hiring and 

termination decisions with respect to 

the CRO, in each case taking into 

consideration any recommendations 

made by the President.127 The Corporate 

Governance Committee will be informed 

about the compensation of the CRO, 

including factors affecting changes 

thereto.128

b. Regulatory Funding 

To help ensure the Commission that 

it has and will continue to have 

adequate funding to be able to meet its 

responsibilities under the Act, ISE 

Mercury represents in its Form 1 

Application that, prior to commencing 

operations as a national securities 

exchange, ISE Holdings will provide 

sufficient funding to ISE Mercury for the 

exchange to carry out its responsibilities 

under the Act.129 Specifically, ISE 

Mercury represents that ISE Holdings 

has made a cash contribution to ISE 

Mercury of $5 million, in addition to 

previously provided ‘‘in-kind’’ 

contributions of legal, regulatory and 

infrastructure-related services to ISE 

Mercury.130 ISE Mercury represents that 

the cash and in-kind contributions to 

ISE Mercury will be adequate to operate 

ISE Mercury, including its regulatory 

program.131

ISE Mercury also represents in its 

Form 1 Application that there is a 

written agreement between ISE Mercury 

and ISE Holdings that requires ISE 


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132See Exhibit I to the Form 1 Application. ISE 

Gemini, BOX and MIAX also represented in their 

Form 1 applications that there would be explicit 

agreements with their respective holding companies 

to provide adequate funding for the exchanges’ 

operations, including regulation. 

133See id. 

134See id. 

135See id. 

136See ISE Mercury LLC Agreement, Article III, 

Section 3.3. The ISE Mercury LLC Agreement 

defines ‘‘Regulatory Funds’’ as fees, fines or 

penalties derived from the regulatory operations of 

ISE Mercury, provided that Regulatory Funds shall 

not include revenues derived from listing fees, 

market data revenues, transaction revenues or any 

other aspect of the commercial operations of ISE 

Mercury or a facility of ISE Mercury, even if a 

portion of such revenues are used to pay costs 

associated with the regulatory operations of ISE 

Mercury. Id. This definition is consistent with the 

rules of other SROs. See, e.g., MIAX Second 

Amended and Restated LLC Agreement, Section 16; 

and MIAX Amended and Restated By-Laws, Article 

IX, Section 9.4. 

137 15 U.S.C. 78s(g)(1). 

138 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), 

respectively. 

139See Section 17(d)(1) of the Act and Rule 17d– 

2 thereunder, 15 U.S.C. 78q(d)(1) and 17 CFR 

240.17d–2. Section 17(d)(1) of the Act allows the 

Commission to relieve an SRO of certain 

responsibilities with respect to members of the SRO 

who are also members of another SRO. Specifically, 

Section 17(d)(1) allows the Commission to relieve 

an SRO of its responsibilities to: (i) Receive 

regulatory reports from such members; (ii) examine 

such members for compliance with the Act and the 

rules and regulations thereunder, and the rules of 

the SRO; or (iii) carry out other specified regulatory 

responsibilities with respect to such members. 

140 17 CFR 240.17d–2. Section 19(g)(1) of the Act 

requires every SRO to examine its members and 

persons associated with its members and to enforce 

compliance with the federal securities laws and the 

SRO’s own rules, unless the SRO is relieved of this 

responsibility pursuant to Section 17(d) of the Act. 

Section 17(d) was intended, in part, to eliminate 

unnecessary multiple examinations and regulatory 

duplication with respect to Common Members. See 

Securities Exchange Act Release No. 12935 (October 

28, 1976), 41 FR 49091 (November 8, 1976). 

141See id. 

142See, e.g., Securities Exchange Act Release Nos. 

73641 (November 19, 2014), 79 FR 70230 

(November 25, 2014) (File No. 4–678) (Financial 

Industry Regulatory Authority, Inc. (‘‘FINRA’’)/

MIAX); 70053 (July 26, 2013), 78 FR 46656 (August 

1, 2013) (File No. 4–663) (FINRA/ISE Gemini) (‘‘ISE 

Gemini Bilateral 17d–2 Plan’’); 59218 (January 8, 

2009), 74 FR 2143 (January 14, 2009) (File No. 4– 

575) (FINRA/Boston Stock Exchange, Inc.); 58818 

(October 20, 2008), 73 FR 63752 (October 27, 2008) 

(File No. 4–569) (FINRA/BATS Exchange, Inc.); 

55755 (May 14, 2007), 72 FR 28087 (May 18, 2007) 

(File No. 4–536) (National Association of Securities 

Dealers, Inc. (‘‘NASD’’) (n/k/a FINRA) and Chicago 

Board of Options Exchange, Inc. (‘‘CBOE’’) 

concerning the CBOE Stock Exchange, LLC); 55367 

(February 27, 2007), 72 FR 9983 (March 6, 2007) 

(File No. 4–529) (NASD/ISE); and 54136 (July 12, 

2006), 71 FR 40759 (July 18, 2006) (File No. 4–517) 

(NASD/The Nasdaq Stock Market LLC). 

143Rule 17d–2 under the Act permits SROs to 

propose joint plans for the allocation of regulatory 

responsibilities with respect to their common 

members (i.e., 17d–2 plans). 

144See Exhibit L to the Form 1 Application. See 

also Securities Exchange Act Release No. 68363 

(December 5, 2012), 77 FR 73711 (December 11, 

2012) (File No. S7–966) (notice of filing and order 

approving and declaring effective an amendment to 

the multiparty 17d–2 plan concerning optionsrelated sales practice matters). 

145See Exhibit L to the Form 1 Application. See 

also Securities Exchange Act Release No. 68362 

(December 5, 2012), 77 FR 73719 (December 11, 

2012) (File No. 4–551) (notice of filing and order 

approving and declaring effective an amendment to 

the multiparty 17d–2 plan concerning optionsrelated market surveillance). 

146See Exhibit L of Amendment No. 2 to the 

Form 1 Application. See also ISE Gemini Bilateral 

17d–2 Plan, supra note 142. 

147Amendments to the multilateral 17d–2 Plans 

and the new bilateral 17d–2 Plan are not before the 

Commission as part of this order and, therefore, the 

Commission is not acting on them at this time. 

148See, e.g., Exhibit L to the Form 1 Application. 

149FINRA executed a single RSA with both ISE 

and ISE Mercury as signatories. The single RSA, 

however, has two separate statements of work. The 

first statement of work describes the specified 

regulatory activities that FINRA will carry out on 

behalf of ISE. The second statement of work 

describes the specified regulatory activities that 

FINRA will carry out on behalf of ISE Mercury. 

150See Exhibit L to the Form 1 Application. 

Holdings to provide adequate funding 

for ISE Mercury’s operation, including 

the regulation of ISE Mercury.132 This 

agreement further provides that ISE 

Holdings will reimburse ISE Mercury 

for its costs and expenses to the extent 

ISE Mercury’s assets are insufficient to 

meet its costs and expenses.133 Excess 

funds, as solely determined by ISE 

Mercury, will be remitted to ISE 

Holdings.134 Further, ISE Mercury will 

receive all fees, including regulatory 

fees and trading fees, payable by ISE 

Mercury’s members, as well as any 

funds received from any applicable 

market data fees and OPRA tape 

revenue.135 Regulatory Funds will not 

be used for non-regulatory purposes and 

will be used to fund the legal, regulatory 

and surveillance operations of ISE 

Mercury.136

c. Rule 17d–2 Agreements; Regulatory 

Contracts With FINRA and ISE 

Unless the SRO is relieved of this 

responsibility pursuant to Section 17(d) 

or Section 19(g)(2) of the Act, Section 

19(g)(1) of the Act,137 among other 

things, requires every SRO registered as 

a national securities exchange, absent 

reasonable justification or excuse, to 

enforce compliance by its members and 

persons associated with its members 

with the Act, the rules and regulations 

thereunder, and the SRO’s own rules.138

Rule 17d–2 of the Act 139 permits SROs 

to propose joint plans to allocate 

regulatory responsibilities among 

themselves for their common rules with 

respect to their common members.140

These agreements, which must be filed 

with and declared effective by the 

Commission, generally cover areas 

where each SRO’s rules substantively 

overlap, including such regulatory 

functions as personnel registration and 

sales practices. Without this relief, the 

statutory obligation of each individual 

SRO could result in a pattern of 

multiple examinations of broker-dealers 

that maintain memberships in more 

than one SRO. Such regulatory 

duplication would add unnecessary 

expenses for common members and 

their SROs. A 17d–2 plan that is 

declared effective by the Commission 

relieves the specified SRO of those 

regulatory responsibilities allocated by 

the plan to another SRO.141 Many SROs 

have entered into Rule 17d–2 

agreements.142

ISE Mercury represents to the 

Commission that it will enter into the 

following allocation of regulatory 

responsibilities pursuant to Rule 17d–2 

of the Act (‘‘17d–2 Plans’’),143 including 

the two existing multiparty plans 

applicable to options trading: 

• Multiparty 17d–2 Plan for the 

Allocation of Regulatory Responsibility 

for Options Sales Practice Matters; 144

• Multiparty 17d–2 Plan for the 

Allocation of Regulatory Responsibility 

for Options Related Market Surveillance 

Matters; 145 and 

• Bilateral 17d–2 Plan with FINRA 

that would cover, among other things, 

general inspection, examination, and 

enforcement activity.146

If the Commission declares effective 

the amendments to the multilateral 

17d–2 Plans and the new bilateral 17d– 

2 Plan, another SRO (often FINRA) 

would assume certain regulatory 

responsibility for members of ISE 

Mercury that are also members of the 

SRO that assumes the regulatory 

responsibilities. This regulatory 

structure would be consistent with that 

of other exchanges, including ISE.147

In addition, ISE Mercury represents 

that it will enter into a third-party 

Regulatory Service Agreement (‘‘RSA’’) 

with FINRA.148 Under the RSA, 

FINRA 149 will carry out certain 

specified regulatory activities on behalf 

of ISE Mercury. For example, FINRA, in 

its capacity as service provider to ISE 

Mercury, will provide member 

operation services, including 

membership application review, 

conducting market surveillance 

investigation services, conducting 

routine and cause examination services, 

assisting ISE Mercury with disciplinary 

proceedings pursuant to ISE Mercury’s 

rules including conducting hearings, 

and providing dispute resolution 

services to ISE Mercury members on 

behalf of ISE Mercury.150 ISE Mercury, 

as an SRO, however, has the ultimate 

legal responsibility for the regulation of 

its members and market. This regulatory 


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151For example, ISE Gemini, ISE, EDGA 

Exchange, Inc., EDGX Exchange Inc., and BATS 

have entered into 17d–2 Plans and RSAs with 

FINRA. 

152See, e.g., Exhibit L to the Form 1 Application. 

The FMA with ISE provides, in part, for the 

provision of legal and other regulatory compliance 

services. 

153See id. 

154See, e.g., Regulation ATS Release, supra note 

28. See also Securities Exchange Act Release Nos. 

50122 (July 29, 2004), 69 FR 47962 (August 6, 2004) 

(SR–Amex–2004–32) (order approving rule that 

allowed Amex to contract with another SRO for 

regulatory services) (‘‘American Stock Exchange 

(‘‘Amex’’) Regulatory Services Approval Order’’); 

57478 (March 12, 2008), 73 FR 14521 (March 18, 

2008) (SR–NASDAQ–2007–004 and SR–NASDAQ– 

2007–080) (‘‘NOM Approval Order’’); Nasdaq 

Order, supra note 27; and BATS Order, supra note 

27. 

155See, e.g., Amex Regulatory Services Approval 

Order, supra note 154; NOM Approval Order, supra 

note 154; and Nasdaq Order, supra note 27. The 

Commission notes that the RSA and FMA are not 

before the Commission and, therefore, the 

Commission is not acting on them. 

156See supra note 139. 

157For example, if failings by the SRO retained 

to perform regulatory functions have the effect of 

leaving an exchange in violation of any aspect of 

the exchange’s self-regulatory obligations, the 

exchange will bear direct liability for the violation, 

while the SRO retained to perform regulatory 

functions may bear liability for causing or aiding 

and abetting the violation. See, e.g., ISE Gemini 

Order, supra note 27; MIAX Order, supra note 28; 

BOX Order, supra note 37; and Securities Exchange 

Act Release No. 42455 (February 24, 2000), 65 FR 

11388 (March 2, 2000) (File No. 10–127) (order 

granting the exchange registration of ISE) (‘‘ISE 

Order’’). 

158See Exhibit L to the Form 1 Application. 

159See, e.g., ISE Gemini Order, supra note 27; 

Securities Exchange Act Release No. 61152 

(December 10, 2009), 74 FR 66699 (December 16, 

2009) (File No. 10–191) (order granting registration 

to C2 Options Exchange) (‘‘C2 Order’’). 

160See supra note 19. 

161The term ‘‘Member’’ means an organization 

that has been approved to exercise trading rights 

associated with Exchange Rights, and the term 

‘‘Membership’’ refers to the trading privileges 

associated with Exchange Rights. See ISE Mercury 

Rules 100(a)(23) and 100(a)(24). Under ISE Mercury 

Rules 300 and 302(c), ISE Mercury shall issue 

memberships that confer the ability to transact on 

ISE Mercury, although no rights shall be conferred 

upon a member except those set forth in the ISE 

Mercury LLC Agreement or ISE Mercury Rules as 

amended from time to time. A membership shall 

not convey any ownership interest in the Exchange. 

See ISE Mercury Rules 300 and 302(c). 

162See ISE Mercury Rules 300 and 302(c); see 

also ISE Mercury LLC Agreement, Article VI, 

Sections 6.1 and 6.3. 

163See ISE Mercury Rule 302(c). In such case, 

member status may be transferred to a qualified 

affiliate or successor upon written notice to ISE 

Mercury. Id. 

164See ISE Mercury Rule 300; see also ISE 

Mercury LLC Agreement, Article VI, Section 6.1. 

165See ISE Mercury Rule 301. 

166See ISE Mercury Rule 1700 Series, which 

incorporates by reference ISE Rule 1700 Series. 

167See ISE Mercury Rule 302(a). 

168See, e.g., C2 Options Exchange, Inc. Rule 

3.1(c)(1) (containing a similar expedited waive-in 

membership process for members of CBOE). 

structure would be consistent with that 

of other exchanges.151

ISE Mercury also represents that it 

will enter into a facilities management 

agreement (‘‘FMA’’) with ISE.152

Pursuant to the proposed FMA, ISE 

intends to provide to ISE Mercury 

certain services, including, for example, 

business management services, facilities 

management services, IT services, fiscal 

services, as well as other regulatory 

compliance services and other legal 

services, such as surveillance programs, 

legal programs, systems and other 

operational services.153 ISE Mercury, 

however, will retain ultimate legal 

responsibility for the regulation of its 

members and market. 

The Commission believes that it is 

consistent with the Act for ISE Mercury 

to contract with other SROs to perform 

certain examination, enforcement, and 

disciplinary functions.154 These 

functions are fundamental elements of a 

regulatory program, and constitute core 

self-regulatory functions. The 

Commission believes that both FINRA, 

as an SRO that provides contractual 

services to other SROs, and ISE, as an 

SRO that currently operates an options 

exchange, should have the capacity to 

perform these functions for ISE 

Mercury.155 However, ISE Mercury, 

unless relieved by the Commission of its 

responsibility,156 bears the ultimate 

responsibility for self-regulatory 

responsibilities and primary liability for 

self-regulatory failures, not the SRO 

retained to perform regulatory functions 

on ISE Mercury’s behalf. In performing 

these regulatory functions, however, the 

SRO retained to perform specified 

regulatory functions may nonetheless 

bear liability for causing or aiding and 

abetting the failure of ISE Mercury to 

perform its regulatory functions.157

Accordingly, although FINRA and ISE 

will not act on their own behalves under 

their respective SRO responsibilities in 

carrying out the above mentioned 

regulatory services for ISE Mercury, as 

the SROs retained to perform regulatory 

functions, FINRA and ISE may have 

secondary liability if, for example, the 

Commission finds that the contracted 

functions are being performed so 

inadequately as to cause a violation of 

the federal securities laws by ISE 

Mercury. 

As part of its FMA with ISE, ISE 

Mercury proposes to use dual 

employees to staff its regulatory services 

program. In other words, current ISE 

employees will also serve in a similar 

capacity for ISE Mercury under the 

FMA. ISE Mercury represents that the 

FMA will contain an obligation on the 

part of ISE Mercury and ISE to preserve 

the other party’s information and 

materials which are confidential, 

proprietary, and/or trade secrets and 

prevent unauthorized use or disclosure 

to third parties.158

The Commission believes that the use 

of ISE employees by ISE Mercury is 

appropriate, as the operations, rules, 

and management of ISE and ISE 

Mercury will overlap to a considerable 

degree such that ISE Mercury should 

benefit by leveraging the experience of 

current ISE staff. The Commission has 

approved such arrangements in a 

similar context.159 However, the 

Commission expects ISE and ISE 

Mercury to monitor the workload of 

their shared employees and supplement 

their staffs, if necessary, so that ISE 

Mercury maintains sufficient personnel 

to allow it to carry out the purposes of 

the Act and enforce compliance with 

the rules of ISE Mercury and the federal 

securities laws. 

D. Trading System 

1. Access to ISE Mercury 

Access to ISE Mercury will be through 

the use of Exchange Rights.160 Through 

an application process, organizations 

will be approved to become members of 

ISE Mercury and to exercise trading 

rights.161 Exchange Rights will not 

convey any ownership rights, but will 

provide for voting rights for 

representation on the ISE Mercury 

Board and will confer the ability to 

transact on ISE Mercury.162 Exchange 

Rights may not be leased and are not 

transferable except in the event of a 

change in control of a member or 

corporate reorganization involving a 

member.163 There is no limit on the 

number of Exchange Rights issued by 

ISE Mercury.164

Membership in ISE Mercury will be 

open to any broker-dealer registered 

under Section 15(b) of the Act that 

meets the standards for membership set 

forth in the rules of ISE Mercury.165 The 

Exchange’s denials from, and 

impositions of conditions upon, 

becoming or continuing to be a member 

may be appealed pursuant to rules 

governing hearing and review, described 

in Section II.E below.166 In addition to 

its regular membership application 

process, ISE Mercury also will provide 

a process whereby a current member of 

ISE or ISE Gemini in good standing that 

is a registered broker-dealer can submit 

an abbreviated ‘‘waive-in’’ application 

to ISE Mercury.167 This waive-in 

process is similar to arrangements in 

place at other exchanges.168


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169See ISE Mercury Rule 301(c). 

170See ISE Mercury Rule 800 Series. 

171See ISE Mercury Rules 713, 802 and 803. See 

infra Section II.D.3.b. for further discussion of 

market maker privileges and obligations. 

172See, e.g., ISE Rules 713, 802 and 803, and ISE 

Gemini Rules 713, 802 and 803 (containing similar 

rights and obligations for market makers on ISE and 

ISE Gemini, respectively). ISE Mercury’s approach 

is consistent with the rules of other exchanges that 

have no limit on the number of exchange rights, or 

their functional equivalent, that may be issued by 

the exchange. See, e.g., C2 Order, supra note 159. 

173 15 U.S.C. 78f(b)(2). 

174See, e.g., ISE Gemini Rule 300 Series 

(‘‘Membership’’); MIAX Rule 200 Series (‘‘Access’’). 

175 15 U.S.C. 78f(c). 

176See, e.g., ISE Gemini Order, supra note 27, at 

78 FR 46633; MIAX Order, supra note 28, at 77 FR 

73074; BOX Order, supra note 37, at 77 FR 26337; 

BATS Order, supra note 27, at 73 FR 49502; and 

Nasdaq Order, supra note 27, at 71 FR 3555. 

177See ISE Mercury Rule 706, Supplementary 

Material .01. 

178See ISE Mercury Rule 706. See also 17 CFR 

240.15c3–5. 

179See, e.g., ISE Rule 706; see also ISE Gemini 

Rule 706; MIAX Rule 210. 

180 17 CFR 240.15c3–5. 

181See Exhibit E to the Form 1 Application, 

Section B for a discussion of the Linkage Plan; and 

Exhibit L to the Form 1 Application. See also 

Securities Exchange Act Release No. 60405 (July 30, 

2009), 74 FR 39362 (August 6, 2009) (File No. 4– 

546) (order approving the National Market System 

Plan Relating to Options Order Protection and 

Locked/Crossed Markets Submitted by the Chicago 

Board Options Exchange, Incorporated, 

International Securities Exchange, LLC, The 

NASDAQ Stock Market LLC, NASDAQ OMX BX, 

Inc., NASDAQ OMX PHLX, Inc., NYSE Amex LLC, 

and NYSE Arca, Inc.). 

182See, e.g., ISE Mercury Rules relating to 

Intermarket Linkage in Rule 1900 Series, which 

incorporates by reference ISE Rule 1900 Series. 

183Market Makers’ benefits and obligations are 

discussed in greater detail in the following section. 

184See ISE Mercury Rule 800(b). 

185See id. The provision permitting ISE Mercury 

to consider ‘‘such other factors as [it] deems 

appropriate’’ must be applied in a manner that is 

consistent with the Act, including provisions that 

prohibit an exchange from acting in an unfairly 

discriminatory manner. See 15 U.S.C. 78f(b)(5); see 

also ISE Gemini Order, supra note 27, at 78 FR 

46634 n. 195; MIAX Order, supra note 28, at 77 FR 

73074 n.149. 

186 17 CFR 240.15c3–1. 

187See ISE Mercury Rule 800 Series. See also ISE 

Mercury Rule 1300 Series relating to Net Capital 

Requirements, which incorporates by reference ISE 

Rule 1300 Series. 

188See ISE Mercury Rule 800(a). 

189See ISE Mercury Rule 300. See also Exhibit E 

to the Form 1 Application, Section 1. 

190See ISE Mercury Rule 302(a). 

191See id. See also Exhibit F to the Form 1 

Application. 

ISE Mercury will have three classes of 

membership: (1) PMMs; (2) CMMs; and 

(3) EAMs.169 PMM and CMMs may seek 

appointment to become market makers 

in one or more options classes traded on 

the Exchange.170 ISE Mercury proposes 

to allow firms that register as market 

makers to receive special privileges or 

rights over non-market maker members, 

such as participation entitlements for 

PMMs, if they satisfy certain affirmative 

and negative market making obligations 

on the Exchange.171 This is similar to 

arrangements in place at other 

exchanges, such as ISE and ISE 

Gemini.172

The Commission finds that ISE 

Mercury’s proposed membership rules 

are consistent with the Act, including 

Section 6(b)(2) of the Act,173 which 

requires the rules of an exchange to 

provide that any registered broker or 

dealer or natural person associated with 

a registered broker or dealer may 

become a member of such exchange and 

any person may become associated with 

a member thereof. ISE Mercury’s 

proposed rules with respect to exchange 

membership are substantively similar to 

the rules of other exchanges.174

The Commission notes that pursuant 

to Section 6(c) of the Act,175 an 

exchange must deny membership to any 

person, other than a natural person, that 

is not a registered broker or dealer, any 

natural person that is not, or is not 

associated with, a registered broker or 

dealer, and registered broker-dealers 

that do not satisfy certain standards, 

such as financial responsibility or 

operational capacity. As a registered 

exchange, ISE Mercury must 

independently determine if an applicant 

satisfies the standards set forth in the 

Act, regardless of whether an applicant 

is a member of another SRO.176

In addition, ISE Mercury also will 

allow non-members to access ISE 

Mercury as ‘‘sponsored customers’’ of 

an ISE Mercury member, subject to 

certain rules.177 The sponsoring member 

will be responsible for implementing 

policies and procedures to supervise 

and monitor the trading of its sponsored 

users to ensure compliance with all 

applicable federal securities laws and 

rules and ISE Mercury rules.178 ISE 

Mercury’s proposed sponsored access 

rules are similar to the rules of other 

exchanges that provide for sponsored 

access 179 and are consistent with Rule 

15c3–5 under the Act.180

2. Linkage 

ISE Mercury intends to become a 

participant in the Plan Relating to 

Options Order Protection and Locked/

Crossed Markets or any successor plan 

(‘‘Linkage Plan’’).181 If admitted as a 

participant to the Linkage Plan, other 

plan participants will be able to send 

orders to ISE Mercury in accordance 

with the terms of the plan as applied to 

ISE Mercury. 

ISE Mercury rules include relevant 

definitions; establish the conditions 

pursuant to which members may enter 

orders in accordance with the Linkage 

Plan; impose obligations on ISE 

Mercury regarding how it must process 

incoming orders; establish a general 

standard that members and ISE Mercury 

should avoid trade-throughs; establish 

potential regulatory liability for 

members that engage in a pattern or 

practice of trading through other 

exchanges; and establish obligations 

with respect to locked and crossed 

markets. 

The Commission believes that ISE 

Mercury has proposed rules that are 

designed to comply with the 

requirements of the Linkage Plan.182

Further, as provided below, before ISE 

Mercury can commence operations as 

an exchange, it must become a 

participant in the Linkage Plan. 

3. Market Makers 

a. Registration of Market Makers 

Members of ISE Mercury may apply to 

become one of two types of market 

maker: PMMs or CMMs (collectively, 

‘‘Market Makers’’). Market Makers are 

entitled to receive certain benefits and 

privileges in exchange for fulfilling 

certain affirmative and negative marketmaking obligations.183 Each class of 

Market Maker will receive a specific 

level of benefits and privileges in 

exchange for a specific level of 

obligation from such Market Maker. 

To begin the process of registering as 

a PMM or CMM, a member will be 

required to file a written application 

with ISE Mercury.184 In reviewing a 

member’s application for membership, 

ISE Mercury will consider, among other 

things, the applicant’s market making 

ability.185 To qualify for registration as 

a Market Maker, a member of ISE 

Mercury must meet the requirements 

established in Rule 15c3–1 under the 

Act 186 and the general requirements set 

forth in ISE Mercury Rule 800 series, 

including the minimum financial 

requirements of ISE Mercury Rule 

809.187 All members who are approved 

to become Market Makers will be 

designated as specialists on ISE Mercury 

for all purposes under the Act and rules 

thereunder.188 ISE Mercury will not 

limit the number of qualifying entities 

that may become Market Makers.189

In addition, all ISE and ISE Gemini 

market makers in good standing will be 

eligible for an Exchange Right in the 

same membership category in which 

they operate on ISE and ISE Gemini, 

respectively, to trade on ISE Mercury.190

For example, a CMM in good standing 

on ISE will be eligible to become a CMM 

on ISE Mercury, through the submission 

and approval of an ISE Mercury WaiveIn Membership Application.191


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192See ISE Mercury Rule 802(a). 

193A non-ISE and ISE-Gemini member must have 

a completed a membership application to be 

eligible to participate in the processes. See ISE 

Mercury Rule 302(b). 

194See Exhibit E to the Form 1 Application, 

Section A (‘‘Introduction’’). 

195See ISE Mercury Rule 802(a). ISE Mercury 

Rule 1700 Series provides the process for hearings, 

review, and arbitration of claims by persons 

economically aggrieved by ISE Mercury action, 

which would include denial of registration as a 

Market Maker. 

196See id. 

197See id. 

198See ISE Mercury Rule 802(b). 

199See ISE Mercury Rule 802(e). 

200See, e.g., ISE Rules 800 and 801, ISE Gemini 

Rules 800 and 801, and MIAX Rule 600 

(registration); ISE Rule 802, ISE Gemini Rule 802, 

and MIAX Rule 602 (appointment). 201See ISE Mercury Rule 803(a). 202See ISE Mercury Rule 803(b). 203See ISE Mercury Rule 803(b)(1)–(4). 

Specifically, under ISE Mercury Rule 803(b)(4), 

following the opening rotation, Market Makers must 

create differences of no more than $5 between the 

bid and offer. Prior to the opening rotation, spread 

differentials shall be no more than $.25 between the 

bid and offer for each options contract for which the 

bid is less than $2, no more than $.40 where the 

bid is at least $2 but does not exceed $5, no more 

than $.50 where the bid is more than $5 but does 

not exceed $10, no more than $.80 where the bid 

is more than $10 but does not exceed $20, and no 

more than $1 where the bid is $20 or greater, 

provided that the ISE Mercury may establish 

differences other than the above for one or more 

options series. These differentials do not apply to 

in-the-money options series where the underlying 

securities market is wider than the differentials. 

204See, e.g., ISE Gemini Rules 802 and 803 

(containing similar rights and obligations for market 

makers on ISE Gemini). 

205See ISE Mercury Rule 1300 Series, which 

incorporates by reference ISE Rule 1300 Series; see 

also ISE Mercury Rule 809. 

206See ISE Mercury Rule 804. 

207See ISE Mercury Rule 804(e)(1); see also ISE 

Mercury Rule 804(c). A PMM shall be deemed to 

have provided continuous quotes pursuant to 

paragraph (e)(1) of Rule 804 if it provides two-sided 

quotes for 90% of the time that an options class is 

open for trading on the ISE Mercury. See ISE 

Mercury Rule 804, Supplementary Material .01. 

208See ISE Mercury Rule 701(b)(1). 

209See ISE Mercury Rule 804(e)(2). A CMM must 

maintain continuous quotations for at least 90% of 

the time the options class for which it receives 

Preferenced Orders is open for trading on the ISE 

Mercury. See ISE Mercury Rule 804(e)(2)(iii); see 

also ISE Mercury Rule 713, Supplementary Material 

.03 regarding Preferenced Orders. 

210See ISE Mercury Rule 804(e)(2)(iv). 

211See ISE Mercury Rule 804(e)(1)–(2). See also 

supra note 203. 

Once approved, a Market Maker may 

seek appointment to make markets in 

one or more options classes traded on 

the ISE Mercury.192 Further, ISE 

Mercury will provide non-ISE and ISE 

Gemini members with at least sixty days 

advance written notice of the date upon 

which the Exchange will allocate 

options classes and appoint market 

makers in order to ensure that non-ISE 

and ISE Gemini members have a 

reasonable opportunity to participate in 

those processes.193 A market participant 

must have completed a membership 

application to be eligible to participate 

in the appointment and allocation 

processes.194

Either the ISE Mercury Board or a 

committee thereof 195 will appoint 

classes of options contracts traded on 

ISE Mercury to Market Makers, taking 

into consideration: (1) The financial 

resources available to the Market Maker; 

(2) the Market Maker’s experience and 

expertise in market making or options 

trading; and (3) the maintenance and 

enhancement of competition among 

Market Makers in each option class to 

which they are appointed.196 No 

appointment of a Market Maker will be 

without the Market Maker’s consent to 

such appointment, provided that refusal 

to accept an appointment may be 

deemed sufficient cause for termination 

or suspension of a market maker’s 

registration.197 ISE Mercury will 

appoint a PMM to each options class 

traded on ISE Mercury.198 Once 

appointed, ISE Mercury will surveil a 

Market Maker’s activity for continued 

compliance with all applicable rules 

and requirements, which are discussed 

in more detail below.199

The Commission finds that ISE 

Mercury’s proposed rules for the 

registration and appointment of Market 

Makers are consistent with the Act. In 

particular, ISE Mercury’s rules provide 

an objective process by which a member 

could become a Market Maker on ISE 

Mercury and provide for oversight by 

ISE Mercury to monitor for continued 

compliance by Market Makers with the 

terms of their application for such 

status. The Commission notes that ISE 

Mercury’s proposed Market Maker 

registration and appointment 

requirements are similar to those of 

other options exchanges.200

b. Market Maker Obligations 

Pursuant to ISE Mercury rules, Market 

Makers will be subject to a number of 

general obligations. In particular, the 

transactions of a Market Maker should 

constitute a course of dealings 

reasonably calculated to contribute to 

the maintenance of a fair and orderly 

market and a Marker Maker should not 

make bids or offers or enter into 

transactions that are inconsistent with 

such a course of dealings.201 A Market 

Maker has a continuous obligation to 

engage, to a reasonable degree under the 

existing circumstances, in dealings for 

his own account when there exists, or 

it is reasonably anticipated that there 

will exist, a lack of price continuity, a 

temporary disparity between the supply 

of and demand for a particular options 

contract, or a temporary distortion of the 

price relationships between options 

contracts of the same class.202 For all 

series of option classes which the 

Market Maker is appointed, the Market 

Maker is expected to: (1) Compete with 

other Market Makers to improve the 

market; (2) make markets that, absent 

changed market conditions, will be 

honored for the number of contracts 

entered into the ISE Mercury’s system; 

(3) update market quotations in 

response to changed market conditions; 

(4) price options contracts fairly by, 

among other things, bidding and 

offering so as to create the prescribed 

bid/ask differentials.203 These 

provisions are similar to arrangements 

in place at other options exchanges.204

Further, Market Makers must 

maintain minimum net capital in 

accordance with ISE Mercury rules, 

including the minimum financial 

requirement pursuant to ISE Mercury 

Rule 809, in addition to the Act and 

rules and regulations thereunder.205

ISE Mercury’s rules governing Market 

Maker quoting obligations also are 

tailored to the specific class of Market 

Maker (i.e., PMM or CMM).206

Specifically, a PMM will be subject to 

the highest standard applicable on ISE 

Mercury. On a daily basis, PMMs must 

enter continuous two-sided quotations 

and enter into any resulting transactions 

in all of the series listed on the ISE 

Mercury of the options classes to which 

they are appointed.207 PMMs are also 

required to participate in the opening 

rotation.208 Although a CMM is not 

required to enter quotations in the 

options classes to which it is appointed, 

whenever a CMM does enter a quote in 

an options class to which it is 

appointed, the CMM must then provide 

continuous quotations in that class for 

60% of the time the options class is 

open for trading on ISE Mercury.209

Further, whenever in the judgment of an 

ISE Mercury official it is necessary in 

the interest of fair and orderly markets 

to do so, CMMs may be called upon to 

submit a single quote or maintain 

continuous quotes in one or more series 

of options class to which the CMM is 

appointed.210 For purposes of meeting 

the continuous quoting obligations 

discussed herein, a Market Maker’s 

quote must meet the bid/ask differential 

requirements of ISE Mercury Rule 

803(b)(4).211

In options classes other than to which 

it is appointed, ISE Mercury’s rules 

provide that a Market Maker should not 

engage in transactions in an account in 

which it has an interest that are 

disproportionate in relation to, or in 

derogation of, the performance of its 


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212See ISE Mercury Rule 803(d). Among other 

things, a Market Maker should not effect purchases 

or sales on the ISE Mercury except in a reasonable 

and orderly manner. See id. 

213See ISE Mercury Rule 805(b)(2). 

214See ISE Mercury Rule 805(b)(3). 

215See ISE Mercury Rule 800(c). 

216See ISE Mercury Rule 802(d). 

217See, e.g., ISE Gemini Order, supra note 27; 

MIAX Order, supra note 28 (discussing the benefits 

and obligations of market makers). 

218See 12 CFR 221.5 and 12 CFR 220.7; see also 

17 CFR 240.15c3–1(a)(6) (capital requirements for 

market makers). 

219See ISE Mercury Rule 713, Supplementary 

Material .01(b)–(c). See also infra notes 248–255 

and accompanying text (describing the PMM 

participation entitlements). 

220 15 U.S.C. 78k(a). 

221See ISE Gemini Order, supra note 27, at 78 FR 

46635; MIAX Order, supra note 28, at 77 FR 73076; 

BOX Order supra note 37. 

222See id. 

223See ISE Mercury Rule 803. 

224See, e.g., ISE Rule 800 Series; ISE Gemini Rule 

800 Series. 

225See, e.g., ISE Gemini Order, supra note 27; 

MIAX Order, supra note 28; BOX Order, supra note 

37. 

226See Exhibit E to the Form 1 Application. 

227See id. 

228See id. 

229See id. 

230See ISE Mercury Rule 714. 

231See Exhibit E to the Form 1 Application. 

232See ISE Mercury Rule 710 and Supplementary 

Material .01. The Commission has approved 

exchange rules on a pilot basis that permit an 

exchange to quote series with premiums under $3 

in pennies and series with premiums of $3 and over 

in nickels in approximately 360 options classes 

(‘‘Penny Pilot’’). In addition, these rules allow all 

series in QQQQs, IWM, and SPY to be quoted in 

pennies. See, e.g., Securities Exchange Act Release 

Nos. 60711 (September 23, 2009), 74 FR 49419 

(September 28, 2009); 61061 (November 24, 2009), 

74 FR 62857 (December 1, 2009) (File No. SR– 

NYSEArca–2009–44) (approving Penny Pilot 

program expansions for NYSE Arca). Proposed 

Supplementary Material .01 to Rule 710 would 

permit ISE Mercury to operate a pilot to permit 

certain options classes to be quoted and traded in 

increments as low as $0.01, consistent with these 

previously approved rules. Specifically, this pilot is 

consistent with the penny pilot on ISE Gemini, 

which was last extended on June 26, 2015 and is 

scheduled to expire on June 30, 2016. See Securities 

Exchange Act Release No. 75315 (June 26, 2015), 80 

FR 38243 (July 2, 2015) (File No. SR–ISE Gemini– 

2015–12). Similar to ISE Gemini, ISE Mercury has 

further agreed to submit to the Commission such 

reports regarding the Penny Pilot as the 

Commission may request. See Exhibit B to the Form 

1 Application. 

233A limit order is an order to buy or sell a stated 

number of options contracts at a specified price or 

better. ISE Mercury Rule 715(b). 

234A market order is an order to buy or sell a 

stated number of options contracts that is to be 

executed at the best price obtainable when the order 

reaches ISE Mercury. ISE Mercury Rule 715(a). 

235See ISE Mercury Rule 715. A Marketable Limit 

Order is a limit order to buy (sell) at or above 

(below) the best offer (bid) on the ISE Mercury. A 

Fill-or-Kill Order is a limit order that is to be 

executed in its entirety as soon as it is received and, 

if not so executed, treated as cancelled. An 

Immediate-or-Cancel Order is a limit order that is 

to be executed in whole or in part upon receipt and 

any portion not so executed is to be treated as 

cancelled. A Non-Displayed Penny Order is a limit 

order that specifies a one-cent price increment in 

a security that has a minimum trading increment 

pursuant to ISE Mercury Rule 710 that is larger than 

one-cent. A Sweep Order is a limit order that is 

executed in whole or in part on the exchange with 

the portion not executed routed pursuant to 

Supplementary Material .05 to ISE Mercury Rule 

1901, which incorporates by reference ISE Rule 

1901. An Intermarket Sweep Order is a limit order 

that meets the requirements of ISE Mercury Rule 

1900(h), which incorporates by reference ISE Rule 

1900(h). A Stopped Order is a limit order that meets 

the requirements of ISE Mercury Rule 1901(b)(8), 

market making obligations.212 Further, 

the total number of contracts executed 

during a quarter by a CMM in options 

classes to which it is not appointed may 

not exceed 25% of the total number of 

contracts traded by such CMMs in 

classes to which it is appointed and 

with respect to which it was quoting 

pursuant to ISE Mercury Rule 

804(e)(2).213 Similarly, the total number 

of contracts executed during a quarter 

by a PMM in options classes to which 

it is not appointed may not exceed 10% 

of the total number of contracts traded 

per each PMM membership.214

If ISE Mercury finds any failure by a 

Market Maker to properly perform as a 

market maker, such Market Maker may 

be subject to suspension or 

termination.215 ISE Mercury may 

suspend or terminate any appointment 

of a Market Maker under ISE Mercury 

Rule 802 and may make additional 

appointments whenever, in ISE 

Mercury’s judgment, the interests of a 

fair and orderly market are best served 

by such action.216

Although Market Makers have a 

number of obligations, Market Makers 

also receive certain benefits for carrying 

out their responsibilities.217 For 

example, a broker-dealer or other lender 

may extend ‘‘good faith’’ credit to a 

member of a national securities 

exchange or registered broker-dealer to 

finance its activities as a market maker 

or specialist.218 PMMs are also entitled 

to certain participation entitlements.219

In addition, market makers are excepted 

from the prohibition in Section 11(a) of 

the Act.220

The Commission believes that a 

market maker must be subject to 

sufficient and commensurate affirmative 

obligations, including the obligation to 

hold itself out as willing to buy and sell 

options for its own account on a regular 

or continuous basis, to justify favorable 

treatment.221 The Commission further 

believes that the rules of all U.S. options 

markets need not provide the same 

standards for market maker 

participation, so long as they impose 

affirmative obligations that are 

consistent with the Act.222 The 

Commission believes that ISE Mercury’s 

Market Maker participation 

requirements impose appropriate 

affirmative obligations on ISE Mercury’s 

Market Makers that are commensurate 

with the benefits afforded to such 

participants, as discussed above, and, 

accordingly, are consistent with the Act. 

The Commission believes that the 

specific levels of benefits conferred on 

the different classes of Market Makers 

are appropriately balanced by the 

obligations imposed by ISE Mercury’s 

rules. The Commission further believes 

that ISE Mercury’s market maker 

requirements,223 which are identical to 

those of ISE and ISE Gemini 224 and 

similar to other options exchanges’ 

rules,225 impose sufficient appropriate 

obligations that are consistent with the 

Act. Finally, the Commission believes 

that the Act does not mandate a 

particular market model for exchanges, 

and while Market Makers may become 

an important source of liquidity on ISE 

Mercury, they will likely not be the only 

source as ISE Mercury is designed to 

match buying and selling interest of all 

ISE Mercury participants. 

4. Order Display, Execution, and 

Priority 

ISE Mercury proposes to operate a 

fully automated electronic options 

trading platform to buy or sell securities 

with a continuous, automated matching 

function.226 Liquidity will be derived 

from ISE Mercury members acting as 

principal or as agent electronically 

submitting quotes as well as market and 

various types of limit orders to buy or 

to sell.227 Non-members also may access 

ISE Mercury pursuant to ISE Mercury 

rules governing ‘‘sponsored access.’’ 228

All electronic submissions of quotes and 

orders to ISE Mercury will be from 

remote locations, as there will be no 

trading floor.229 ISE Mercury’s system 

generally will automatically execute 

incoming orders.230 Non-opening trades 

will occur when a buy order/quote and 

a sell order/quote match on the ISE 

Mercury’s order book.231 All options 

will be traded in decimals on ISE 

Mercury and will be consistent with the 

Penny Pilot.232

All orders submitted to ISE Mercury’s 

trading platform must have a designated 

price and size (limit orders) 233 or must 

be orders to buy or sell a stated amount 

of a security at the national best bid or 

offer when the order reaches ISE 

Mercury (market orders).234 Members 

may submit the following orders to ISE 

Mercury: Market Orders; Limit Orders 

(including Marketable Limit, Fill-orKill, Immediate or Cancel, NonDisplayed Penny Order, Sweep, 

Intermarket Sweep, and Stopped 

Orders); 235 or Contingency Orders 


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which incorporates by reference ISE Rule 

1901(b)(8). To execute Stopped Orders, members 

must enter them into the Facilitation Mechanism or 

Solicited Order Mechanism pursuant to ISE 

Mercury Rule 716. 236See ISE Mercury Rule 715. An All-or-None 

Order is a limit or market order that is to be 

executed in its entirety or not at all. A Stop Order 

is an order that becomes a market order when the 

stop price is elected. A Stop Limit Order is an order 

that becomes a limit order when the stop price is 

elected. A Customer Participation Order is a limit 

order on behalf of a Public Customer (as defined in 

ISE Mercury Rule 100(a)(38)) that, in addition to the 

limit order price in standard increments according 

to ISE Mercury Rule 710, includes a price stated in 

one-cent increments at which the Public Customer 

wishes to participate in trades executed in the same 

options series in penny increments through the 

Price Improvement Mechanism pursuant to ISE 

Mercury Rule 723. A Reserve Order is a limit order 

that contains both a displayed portion and a nondisplayed portion. An Attributable Order is a 

market or limit order which displays the user firm 

ID for purposes of electronic trading on ISE 

Mercury. A Customer Cross Order is comprised of 

a Priority Customer Order (as defined in ISE 

Mercury Rule 100(a)(37B) to buy and a Priority 

Customer Order to sell at the same price and for the 

same quantity. A Qualified Contingent Cross order 

is comprised of an order to buy or sell at least 1000 

contracts that is identified as being part of a 

qualified contingent trade (as defined in ISE 

Mercury Rule 715, Supplementary Material .02) 

coupled with a contra-side order to buy or sell an 

equal number of contracts. A Minimum Quantity 

Order is an order that is initially available for 

partial execution only for a specified number of 

contracts or greater. A Do-Not-Route Order is a 

market or limit order that is to be executed in whole 

or in part on ISE Mercury only. An Add Liquidity 

Order is a limit order that is to be executed in whole 

or in part on ISE Mercury (i) only after being 

displayed on ISE Mercury’s limit order book; and 

(ii) without routing any portion of the order to 

another market center. An Opening Only Order is 

a limit order that can be entered for the opening 

rotation only. A Good-Till-Date Order is a limit 

order to buy or sell which, if not executed, will be 

cancelled at the sooner of the end of the expiration 

date assigned to the order, or the expiration of the 

series. These order types are the same order types 

that are available on ISE, except that ISE also 

includes several complex order types that are not 

proposed for ISE Mercury. See ISE Mercury Rule 

715; ISE Rules 715 and 722; see also Exhibit B to 

the Form 1 Application. 

237See ISE Mercury Rule 1901, Supplementary 

Material .02 (which incorporates by reference ISE 

Rule 1901, Supplementary Material .02). 

238See ISE Mercury Rule 804(b). 

239See ISE Mercury Rule 713(a). 

240See ISE Mercury Rule 804(a). 

241See 17 CFR 240.17a–5. See also Exhibit E to 

the Form 1 Application, Section C. 

242See Exhibit E to the Form 1 Application, 

Section C. 

243See ISE Mercury Rule 704. 

244An Attributable Order is a market or limit 

order which displays the user firm’s ID for purposes 

of trading on the ISE Mercury. See ISE Mercury 

Rule 715(h). Use of Attributable Orders would be 

voluntary. This order type is consistent with similar 

order types on other exchanges. See, e.g., ISE 

Gemini Rule 715(h); CBOE Rule 6.53(o) (attributable 

order type). 

245See ISE Mercury Rules 715(b)(4) and 715(g). 

246See ISE Mercury Rule 713, Supplementary 

Material .01. Under this priority methodology, the 

highest bid and lowest offer will have priority 

except that Priority Customer Orders will have 

priority over professional interest and all market 

maker interest at the same price. Subject to certain 

limits, Professional Orders and market maker 

quotes at the best price receive allocations based 

upon the percentage of the total number of contracts 

available at the best price that is represented by the 

size of the Professional Order or quote. If there were 

two or more Priority Customer Orders for the same 

options series at the same price, priority will be 

afforded based on the sequence in which such 

orders were received. ISE Mercury rules will define 

‘‘Priority Customer’’ as a person or entity that is 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 accounts. ‘‘Professional Orders,’’ i.e., 

orders for the account of a person or entity that is 

not a Priority Customer, will be subordinate to 

Priority Customer Orders for priority and fee 

purposes. Professional Orders will include orders of 

broker-dealers and orders of those Public Customers 

that are not Priority Customers. See ISE Mercury 

Rules 100(a)(37A)–(37C) for definitions of Priority 

Customer, Priority Customer Order and Professional 

Order, respectively. 

247See, e.g., ISE Rule 713; ISE Gemini Rule 713 

(Priority of Quotes and Orders). 

248See ISE Mercury Rule 713, Supplementary 

Material .01. Specifically, the PMM’s participation 

entitlement will be equal to the greater of: (i) The 

proportion of the total size at the best price 

represented by the size of its quote, or (ii) 60% of 

the contracts to be allocated if there is only one 

other Market Maker quotation at the NBBO or 40% 

if there are two or more other Market Maker quotes 

at the NBBO. See ISE Mercury Rule 713, 

Supplementary Material .01(b). 

249See supra note 246 for the definition of 

Priority Customer. 

250See ISE Mercury Rule 713, Supplementary 

Material .01. 

251See id. 

252See ISE Mercury Rule 713, Supplementary 

Material .01(c). The rule provides that ISE Mercury 

will review the functioning of this provision 

quarterly to make sure that small size orders do not 

account for more than 40% of the volume executed 

on ISE Mercury. Id. 

253See, e.g., ISE Gemini Order, supra note 27; 

MIAX Order, supra note 28. 

254See supra Section II.D.3.b (discussing market 

maker obligations). 

255For example, as discussed above, supra 

Section II.D.3.b., PMMs must provide continuous 

two-sided quotes in each appointed option class. 

(including All-Or-None, Stop, Stop 

Limit, Customer Participation, Reserve, 

Attributable, Customer Cross, Qualified 

Contingent Cross, Minimum Quantity, 

Do-Not-Route, Add Liquidity, Opening 

Only, and Good-Till-Date Orders).236

Like ISE, ISE Mercury also will permit 

flash mechanisms. Accordingly, certain 

orders will first be exposed at the 

National Best Bid or Offer (‘‘NBBO’’) to 

all ISE Mercury members for execution 

at the NBBO before an unaffiliated 

broker, under contract with ISE 

Mercury, routes the order to another 

market for execution.237

Quotes entered by PMMs and CMMs 

must, like Limit Orders, be priced and 

have a designated size.238 Orders will be 

accepted for any security traded on ISE 

Mercury, whether submitted by a 

member on a proprietary or agency basis 

in any size,239 whereas quotes for any 

security traded on ISE Mercury may 

only be submitted by PMMs and CMMs 

and only in the options classes to which 

the market makers are appointed.240 ISE 

Mercury will be required to maintain a 

full audit trail of every incoming and 

outgoing message (including all orders 

and quotes) submitted to the ISE 

Mercury’s system.241 Members may 

receive status reports regarding orders 

submitted to ISE Mercury or change or 

cancel an order at any time before that 

order is executed on ISE Mercury, 

except as otherwise specified in ISE 

Mercury Rule 723 (Price Improvement 

Mechanism for Crossing 

Transactions).242

All orders and quotes submitted to 

ISE Mercury will be displayed unless 

designated otherwise by the member 

submitting the order.243 Displayed 

orders and quotes will be displayed on 

an anonymous basis (except for 

Attributable Orders,244 which will allow 

voluntary disclosure of firm 

identification information) at a 

member’s specified price. NonDisplayed Orders (the non-displayed 

portion of a Reserve Order or a NonDisplayed Penny Order) will not be 

displayed to anyone and will not have 

time priority over displayed orders at 

the same price.245

ISE Mercury will utilize a pro-rata 

priority scheme with a Priority 

Customer preference.246 This scheme is 

the same as what the Commission has 

approved for ISE and ISE Gemini.247

In addition, under ISE Mercury rules, 

PMMs are granted certain participation 

entitlements. For example, PMMs will 

be entitled to a participation entitlement 

with respect to each incoming order if 

they have a quote at the NBBO.248 The 

PMM participation entitlement will 

apply only to any remaining balance 

after any Priority Customer 249 orders 

have first been satisfied.250 The PMM 

will not be allocated a total quantity 

greater than the quantity it is quoting at 

the execution price, and it will not 

receive any further allocation of an 

order if it receives a participation 

entitlement.251 Moreover, if the PMM 

has a quote at the NBBO, small size 

orders (i.e., five or fewer contracts) will 

be allocated in full to the PMM.252

These participation entitlements for 

PMMs are consistent with provisions 

that the Commission has approved for 

other exchanges.253 The Commission 

believes that these entitlements are 

appropriately balanced by the 

obligations imposed on these classes of 

market makers, as discussed in detail 

above.254 In particular, PMMs are 

subject to higher quoting obligations 

than other Market Makers who are not 

eligible to receive the aforementioned 

participation entitlements.255 Therefore, 


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256 15 U.S.C. 78f(b)(5). 257The primary difference between ISE Mercury’s 

order processing and matching features and those 

of ISE previously approved by the Commission will 

be that ISE Mercury will not accept complex orders. 

258See ISE Mercury Rule 723. ISE Mercury will 

operate a pilot program whereby there will be no 

minimum size requirements for orders to be eligible 

for the PIM. See Exhibit B to the Form 1 

Application; see also ISE Mercury Rule 723, 

Supplementary Material .03. 

259See ISE Mercury Rule 716(d). 

260See ISE Mercury Rule 716(e). 

261See ISE Rules 716 and 723; ISE Gemini Rules 

716 and 723. 

262See, e.g., ISE Mercury Rule 706, 

Supplementary Material .01. 

263See ISE Mercury Rule 1900 Series, which 

incorporates by reference ISE Rule 1900 Series. 

264See ISE Mercury Rule 714(a); see also ISE Rule 

714(a); ISE Gemini Rule 714(a). 

265See ISE Mercury Rule 1901, which 

incorporates by reference ISE Rule 1901. 

266See ISE Mercury Rule 1901, Supplementary 

Material .02, which incorporates by reference ISE 

Rule 1901, Supplementary Material .02. 

267See id. Any additional balance of the order 

will be executed on ISE Mercury if it is marketable. 

268 15 U.S.C. 78f(b)(5). 

269 15 U.S.C. 78f(b)(8). 

270See ISE Order, supra note 157; ISE Gemini 

Order, supra note 27. 

271The Commission notes, however, that some of 

ISE Mercury’s rules differ in some respects from the 

rules of ISE and ISE Gemini. For example, ISE 

Mercury is not proposing to incorporate ISE’s rules 

relating to the trading of equity securities or to 

incorporate any rules concerning the trading of 

complex or multi-legged orders at this time. 

272 15 U.S.C. 78k(a)(1). 

273See Letter from Michael Simon, General 

Counsel, Secretary and Chief Regulatory Officer, 

ISE Mercury, to Brent J. Fields, Secretary, 

Commission, dated January 7, 2016 (‘‘Exchange 

11(a) Request Letter’’). 

274 17 CFR 240.11a2–2(T). 

the Commission believes that the 

proposed rules regarding participation 

entitlements are consistent with the Act, 

including Section 6(b)(5),256 in that they 

are designed to promote just and 

equitable principles of trade, 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. 

ISE Mercury proposes to make 

available certain additional order 

processing and matching features, 

largely based on features available on 

ISE.257 Mechanisms that will be utilized 

by ISE Mercury include: A Price 

Improvement Mechanism (which 

affords the opportunity for price 

improvement after an auction for 

eligible orders above the NBBO); 258 a 

Facilitation Mechanism (which affords 

members an opportunity to cross orders 

after an auction and provides the 

facilitating member the opportunity to 

receive 40% of the agency order); 259

and a Solicited Order Mechanism 

(which allows members representing 

agency orders the opportunity to cross 

large size solicited orders after an 

auction).260 These mechanisms are 

consistent with substantially similar 

mechanisms currently existing on other 

options exchanges, including identical 

mechanisms on ISE and ISE Gemini.261

Members will be able to access ISE 

Mercury through a variety of electronic 

systems, and non-members will be able 

to access ISE Mercury pursuant to 

sponsored access arrangements with ISE 

Mercury members, pursuant to ISE 

Mercury rules.262 As noted above and 

provided further below, prior to 

commencing operations, ISE Mercury 

also must become a participant in the 

Linkage Plan.263 The manner in which 

ISE Mercury proposes to comply with 

the Linkage Plan is identical to the 

manner in which ISE and ISE Gemini 

comply with the Linkage Plan. 

Specifically, to comply with the Linkage 

Plan, ISE Mercury, among other things, 

will prohibit its members from effecting 

a transaction at a price that is inferior 

to the NBBO, unless an exception 

applies.264 ISE Mercury will provide a 

centralized process for sending 

intermarket sweep orders to other 

exchanges on behalf of Public Customer 

Orders.265 ISE Mercury will contract 

with one or more unaffiliated brokers to 

route orders to other exchanges when 

necessary to comply with the Linkage 

Plan. In circumstances where 

marketable orders are received when 

ISE Mercury is not at the NBBO or 

orders are received that would lock or 

cross another market, they will be 

exposed to ISE Mercury members for up 

to one second.266 If, after an order is 

exposed, such order cannot be executed 

in full on ISE Mercury at the thencurrent NBBO or better and is 

marketable, the lesser of the full 

displayed size of the protected bid(s) or 

protected offer(s) that are priced better 

than the ISE Mercury’s quote or the 

balance of the order will be sent to a 

contracted unaffiliated broker, and any 

additional balance of the order that is 

not marketable against the then-current 

NBBO will be placed on the ISE 

Mercury book.267

The Commission believes that ISE 

Mercury’s proposed display, execution, 

and priority rules are consistent with 

the Act. In particular, the Commission 

finds that the proposed rules are 

consistent with Section 6(b)(5) of the 

Act,268 which, among other things, 

requires 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 to not permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. The 

Commission also finds that the 

proposed rules are consistent with 

Section 6(b)(8) of the Act,269 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. 

The trading rules of ISE Mercury are 

substantially similar to the current ISE 

and ISE Gemini trading rules, which 

were approved at the time each of ISE 

and ISE Gemini’s registration as a 

national securities exchange was 

granted 270 or filed with and approved 

by the Commission (or otherwise 

became effective) pursuant to Section 

19(b) of the Act.271

5. Section 11(a) of the Act 

Section 11(a)(1) of the Act 272

prohibits a member of a national 

securities exchange from effecting 

transactions on that exchange for its 

own account, the account of an 

associated person, or an account over 

which it or its associated person 

exercises investment discretion 

(collectively, ‘‘covered accounts’’), 

unless an exception applies. The 

Exchange has represented that it has 

analyzed its rules proposed hereunder, 

and believes that they are consistent 

with Section 11(a) of the Act and rules 

thereunder.273 For the reasons set forth 

below, based on ISE Mercury’s 

representations, the Commission 

believes that ISE Mercury’s order 

execution algorithm, including the 

Facilitation, Solicitation, Price 

Improvement Mechanism, and 

Customer Cross processes, will allow 

members to meet the requirements of 

Rule 11a2–2(T) for executions on ISE 

Mercury. 

Rule 11a2–2(T) under the Act,274

known as the ‘‘effect versus execute’’ 

rule, provides exchange members with 

an exemption from the Section 11(a)(1) 

prohibition. Rule 11a2–2(T) permits an 

exchange member, subject to certain 

conditions, to effect transactions for 

covered accounts by arranging for an 

unaffiliated member to execute the 

transactions on the exchange. To 

comply with Rule 11a2–2(T)’s 

conditions, a member: (i) May not be 

associated with the executing member; 

(ii) must transmit the order from off the 

exchange floor; (iii) may not participate 

in the execution of the transaction once 

it has been transmitted to the member 


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275This prohibition also applies to associated 

persons. See 15 U.S.C. 78f(b)(8). The member may, 

however, participate in clearing and settling the 

transaction. See Securities Exchange Act Release 

No. 14563 (March 14, 1978), 43 FR 11542 (March 

17, 1978) (regarding the NYSE’s Designated Order 

Turnaround System) (‘‘1978 Release’’). 

276See Exchange 11(a) Request Letter, supra note 

273. 

277 In considering the operation of automated 

execution systems operated by an exchange, the 

Commission noted that while there is no 

independent executing exchange member, the 

execution of an order is automatic once it has been 

transmitted into each system. Because the design of 

these systems ensures that members do not possess 

any special or unique trading advantages in 

handling their orders after transmitting them to the 

exchange, the Commission has stated that 

executions obtained through these systems satisfy 

the independent execution requirement of Rule 

11a2–2(T). See Securities Exchange Act Release No. 

15533 (January 29, 1979), 44 FR 6084, 6086 n.25 

(January 31, 1979) (File No. S7–613) (regarding the 

Amex Post Execution Reporting System, the Amex 

Switching System, the Intermarket Trading System, 

the Multiple Dealer Trading Facility of the 

Cincinnati Stock Exchange, the PCX 

Communications and Execution System, and the 

Philadelphia Stock Exchange Automated 

Communications and Execution System (‘‘1979 

Release’’)). 

278See Exchange 11(a) Request Letter, supra note 

273. 

279See, e.g., Securities Exchange Act Release Nos. 

59154 (December 23, 2008) 73 FR 80468 (December 

31, 2008) (SR–BSE–2008–48) (order approving 

proposed rules of BX); 49068, (January 13, 2004), 

69 FR 2775 (January 20, 2004) (SR–BSE–2002–15) 

(establishing, among other things, BOX as an 

options trading facility of BSE); 44983, (October 25, 

2001), 66 FR 55225 (November 1, 2001) (SR–PCX– 

00–25) (approving the PCX’s use of the Archipelago 

Exchange as its equity trading facility); 29237 (May 

24, 1991), 56 FR 24853 (May 31, 1991) (SR–NYSE– 

90–52 and SR–NYSE–90–53) (regarding NYSE’s OffHours Trading Facility). See 1978 Release, supra 

note 275. See also 1979 Release, supra note 277. 

280The member may cancel or modify the order, 

or modify the instructions for executing the order, 

but only from off the Exchange floor. See 1978 

Release, supra note 275, at 43 FR 11547. The 

Commission has stated that the non-participation 

requirement is satisfied under such circumstances 

so long as such modifications or cancellations are 

also transmitted from off the floor. See id. (stating 

that the ‘‘non-participation requirement does not 

prevent initiating members from canceling or 

modifying orders (or the instructions pursuant to 

which the initiating member wishes orders to be 

executed) after the orders have been transmitted to 

the executing member, provided that any such 

instructions are also transmitted from off the 

floor’’). 

281See Exchange 11(a) Request Letter, supra note 

273. 

282 17 CFR 240.11a2–2(T)(a)(2)(iv). In addition, 

Rule 11a2–2(T)(d) requires a member or associated 

person authorized by written contract to retain 

compensation, in connection with effecting 

transactions for covered accounts over which such 

member or associated person thereof exercises 

investment discretion, to furnish at least annually 

to the person authorized to transact business for the 

account a statement setting forth the total amount 

of compensation retained by the member or any 

associated person thereof in connection with 

effecting transactions for the account during the 

period covered by the statement. See 17 CFR 

240.11a2–2(T)(d). See also 1978 Release, supra note 

275, at 43 FR 11548 (stating ‘‘[t]he contractual and 

disclosure requirements are designed to assure that 

accounts electing to permit transaction-related 

compensation do so only after deciding that such 

arrangements are suitable to their interests’’). 

283See Exchange 11(a) Request Letter, supra note 

273. 

284See 15 U.S.C. 78f(b)(1). 

285See id. 

performing the execution; 275 and (iv) 

with respect to an account over which 

the member or an associated person has 

investment discretion, neither the 

member nor its associated person may 

retain any compensation in connection 

with effecting the transaction except as 

provided in the Rule. 

In a letter to the Commission,276 ISE 

Mercury requested that the Commission 

concur with its conclusion that ISE 

Mercury members that enter orders 

through the ISE Mercury system, 

including the Facilitation, Solicitation, 

Price Improvement Mechanism, and 

Customer Cross processes, satisfy the 

requirements of Rule 11a2–2(T). For the 

reasons set forth below, the Commission 

believes that ISE Mercury members that 

enter orders through the ISE Mercury 

system, including through these 

processes, will satisfy the conditions of 

Rule 11a2–2(T). 

Rule 11a2–2(T)’s first condition is that 

the order be executed by an exchange 

member who is unaffiliated with the 

member initiating the order. The 

Commission has stated that the 

requirement is satisfied when 

automated exchange facilities are used, 

such as the ISE Mercury system, as long 

as the design of these systems ensures 

that members do not possess any special 

or unique trading advantages over nonmembers in handling their orders after 

transmitting them to the Exchange.277

ISE Mercury has represented that the 

design of the ISE Mercury system 

ensures that no member has any special 

or unique trading advantage in the 

handling of its orders after transmitting 

its orders to ISE Mercury.278 Based on 

the Exchange’s representation, the 

Commission believes that the ISE 

Mercury system is designed to enable its 

members to satisfy this requirement. 

Second, Rule 11a2–2(T) requires 

orders for covered accounts to be 

transmitted from off the exchange floor. 

ISE Mercury will not have a physical 

trading floor, and like other automated 

systems, will receive orders 

electronically through remote terminals 

or computer-to-computer interfaces. In 

the context of other automated trading 

systems, the Commission has found that 

the off-floor transmission requirement is 

met if a covered account order is 

transmitted from a remote location 

directly to an exchange’s floor by 

electronic means.279 Orders sent to ISE 

Mercury, regardless of where it executes 

within the ISE Mercury system, will be 

transmitted from remote terminals 

directly to ISE Mercury by electronic 

means. Since the ISE Mercury trading 

system receives all orders electronically, 

the Commission believes that the ISE 

Mercury system will satisfy the off-floor 

transmission requirement. 

Third, Rule 11a2–2(T) requires that 

the member and any associated person 

not participate in the execution of its 

order once it has been transmitted to the 

member performing the execution.280

ISE Mercury represents that at no time 

following the submission of an order is 

a member able to acquire control or 

influence over the result or timing of an 

order’s execution. According to ISE 

Mercury, orders submitted through ISE 

Mercury systems meet the nonparticipation requirement. Trades on 

ISE Mercury will execute when orders 

or quotations on ISE Mercury match one 

another based on their priority. 

Execution will not depend on the 

participant, but rather upon what other 

orders are entered into the system at or 

around the same time as the subject 

order, what orders are on ISE Mercury, 

or submitted as responses, and where 

the order is ranked based on priority 

ranking algorithm.281 Accordingly, the 

Commission believes that the nonparticipation requirement will be met 

when orders are executed automatically 

through use of the ISE Mercury system. 

Fourth, in the case of a transaction 

effected for an account with respect to 

which the initiating member or an 

associated person thereof exercises 

investment discretion, neither the 

initiating member nor any associated 

person thereof may retain any 

compensation in connection with 

effecting the transaction, unless the 

person authorized to transact business 

for the account has expressly provided 

otherwise by written contract referring 

to Section 11(a) of the Act and Rule 

11a2–2(T).282 ISE Mercury members 

trading for covered accounts over which 

they exercise investment discretion 

must comply with this condition in 

order to rely on the rule’s exemption.283

E. Discipline and Oversight of Members 

As noted above, one prerequisite for 

the Commission’s grant of an exchange’s 

application for registration is that a 

proposed exchange must be so 

organized and have the capacity to be 

able to carry out the purposes of the 

Act.284 Specifically, an exchange must 

be able to enforce compliance by its 

members and persons associated with 

its members with the Act and the rules 

and regulations thereunder and the 

rules of the exchange.285


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286See ISE Mercury Rule 1600(a) (which 

incorporates by reference ISE Rule 1600(a)). 287See id. See also ISE Gemini Rule 1600(a); 

MIAX Rule 1000; BOX Exchange Rule 12000 Series 

(containing identical provisions). 288See supra notes 144–146 and accompanying 

text (concerning the multiparty 17d–2 Plans to 

which ISE Mercury has committed to join). 289See ISE Mercury Rule 1602 (which 

incorporates by reference ISE Rule 1602). As noted 

above, ISE Mercury has entered into an RSA with 

FINRA and a FMA with ISE under which FINRA 

and ISE, respectively, will perform certain 

regulatory functions on behalf of ISE Mercury. See 

ISE Mercury Rule 1615 (which incorporates by 

reference ISE Rule 1615). 290See ISE Mercury Rule 1604 (which 

incorporates by reference ISE Rule 1604). If there 

is probable cause for finding a violation, ISE 

Mercury’s regulatory staff will prepare a statement 

of charges including the allegations and specifying 

the provisions of the Act and the rules and 

regulations promulgated thereunder, provisions of 

the ISE Mercury Constitution or rules, or 

interpretations or resolutions of which such acts are 

in violation. The CRO must approve the statement 

of charges. 

291See ISE Mercury Rule 1606 (which 

incorporates by reference ISE Rule 1606); see also 

ISE Mercury Rule 1615, Supplemental Material .01 

(which incorporates by reference ISE Rule 1615, 

Supplemental Material .01). 

292Pursuant to a Resolution of the ISE Mercury 

Board, the President and CEO shall establish ISE 

Mercury’s Business Conduct Committee, pursuant 

to a charter. The Committee shall consist of no more 

than 21 persons, all of whom are employees of 

members of ISE Mercury, representing members as 

follows: At least three persons shall represent 

PMMs; at least three persons shall represent CMMs 

that are not also PMMs; and at least four persons 

shall represent EAMs that neither are, nor are 

affiliated with, a PMM or CMM. See Exhibit L to 

the Form 1 Application. 

293See ISE Mercury Rule 1606 (which 

incorporates by reference ISE Rule 1606). A Panel 

may make a determination without a hearing and 

may impose a penalty as to violations that the 

member or associated person has admitted or has 

failed to answer or that otherwise do not appear to 

be in dispute. See ISE Mercury Rule 1608 (which 

incorporates by reference ISE Rule 1608). A member 

or associated person alleged to have committed a 

disciplinary violation may submit a written offer of 

settlement to the Panel, or CRO if a Panel is not yet 

been appointed, which the Panel or CRO may 

accept or reject. See ISE Mercury Rule 1609 (which 

incorporates by reference ISE Rule 1609). If the 

second offer of settlement is rejected (such decision 

is not subject to review), a hearing will proceed in 

accordance with ISE Mercury Rule 1606 (which 

incorporates by reference ISE Rule 1606). See also 

ISE Mercury Rule 1609 (which incorporates by 

reference ISE Rule 1609). 

294See ISE Mercury Rule 1610 (which 

incorporates by reference ISE Rule 1610). 

295See id. 

296See id. 

297See id. 

298See id. 

299See ISE Mercury Rule 1700 (which 

incorporates by reference ISE Rule 1700). As noted 

above, ISE Mercury has entered into an RSA with 

FINRA and a FMA with ISE under which FINRA 

and ISE, respectively, will perform certain 

regulatory functions on behalf of ISE Mercury. For 

example, FINRA may perform some or all of the 

functions specified in Chapter 17 of ISE Mercury 

rules. See supra notes 148–149 and accompanying 

text. See also ISE Mercury Rule 1706 (which 

incorporates by reference ISE Rule 1706). 

300An applicant may file for an extension of time 

within thirty days of ISE Mercury’s action. An 

application for such an extension will be ruled 

upon by the Chairman of the Business Conduct 

Committee and is not subject to appeal. See ISE 

Mercury Rule 1701 (which incorporates by 

reference ISE Rule 1701). 

301See ISE Mercury Rule 1701 (which 

incorporates by reference ISE Rule 1701). 

302See ISE Mercury Rule 1702 (which 

incorporates by reference ISE Rule 1702). 

303See ISE Mercury Rule 1704 (which 

incorporates by reference ISE Rule 1704). The ISE 

Mercury Board, or a committee of the ISE Mercury 

Board, will have sole discretion to grant or deny 

either request. See id. 

304See ISE Mercury Rule 1704 (which 

incorporates by reference ISE Rule 1704). The ISE 

Mercury Board or its designated committee may 

affirm, reverse, or modify in whole or in part, the 

decision of the hearing panel. The decision of the 

ISE Mercury Board or its designated committee will 

be in writing and will be final. See ISE Mercury 

Rule 1704 (which incorporates by reference ISE 

Rule 1704). 

305 15 U.S.C. 78f(b)(6) and (b)(7), respectively. 

ISE Mercury rules codify ISE 

Mercury’s disciplinary jurisdiction over 

its members, thereby facilitating its 

ability to enforce its members’ 

compliance with its rules and the 

federal securities laws.286 ISE Mercury’s 

rules permit it to sanction members for 

violations of the Act and the rules and 

regulation thereunder and ISE 

Mercury’s rules by, among other things, 

expelling or suspending members; 

limiting members’ activities, functions, 

or operations; fining or censuring 

members; suspending or barring a 

person from being associated with a 

member; or any other fitting sanction in 

accordance with ISE Mercury rules.287

ISE Mercury’s disciplinary and 

oversight functions will be administered 

in accordance with Chapter 16 of the 

ISE Mercury rules, which incorporates 

by reference Chapter 16 of ISE rules, 

governing disciplinary jurisdiction. 

Unless delegated to another SRO 

pursuant to the terms of an effective 

17d–2 Plan,288 ISE Mercury regulatory 

staff (including regulatory staff of 

another SRO that may be acting on ISE 

Mercury’s behalf pursuant to a 

regulatory services agreement) will, 

among other things, investigate 

potential securities laws violations and 

initiate charges pursuant to ISE Mercury 

rules.289

Upon a finding of probable cause of 

a violation within the disciplinary 

jurisdiction of ISE Mercury and where 

further proceedings are warranted,290

ISE Mercury will conduct a hearing on 

disciplinary matters before a 

professional hearing officer 291 and two 

members of the Business Conduct 

Committee 292 (‘‘Panel’’).293 The ISE 

Mercury member (or its associated 

person) or the ISE Mercury regulatory 

staff may petition for review of the 

Panel’s decision by the ISE Mercury 

Board.294 Any review will be conducted 

by the ISE Mercury Board or a 

committee thereof composed of at least 

three of its directors (whose decision 

must be ratified by the ISE Mercury 

Board).295 In addition, the ISE Mercury 

Board on its own motion may order 

review of a disciplinary decision.296 The 

ISE Mercury Board may affirm, reverse, 

or modify, in whole or in part, the 

Panel’s decision.297 The decision of the 

ISE Mercury Board will be in writing 

and will be final.298

Appeals from any determination that 

impacts access to ISE Mercury, such as 

termination or suspension of 

membership, will be instituted under, 

and governed by, the provisions in 

Chapter 17 of the ISE Mercury rules, 

which incorporate by reference the 

provisions in Chapter 17 of ISE rules. 

ISE Mercury’s Chapter 17 applies to 

persons economically aggrieved by any 

of the following actions of ISE Mercury 

including, but not limited to: (a) Denial 

of an application to become a member; 

(b) barring a person from becoming 

associated with a member; and (c) 

limiting or prohibiting services 

provided by the ISE Mercury or services 

of any exchange member.299

Any person aggrieved by an action of 

ISE Mercury within the scope of the 

Chapter 17 may file a written 

application to be heard within thirty 

days 300 after such action has been 

taken.301 Applications for hearing and 

review will be referred to the Business 

Conduct Committee, which will appoint 

a hearing panel of no less than three 

members of such Committee.302 The 

decision of the hearing panel made 

pursuant to Chapter17 of the ISE 

Mercury rules is subject to review by the 

ISE Mercury Board, either on its own 

motion, or upon written request 

submitted by the applicant or the 

President of ISE Mercury.303 The review 

will be conducted by the ISE Mercury 

Board or a committee of the ISE 

Mercury Board composed of at least 

three directors.304

The Commission finds that ISE 

Mercury’s proposed disciplinary and 

oversight rules and structure, as well as 

its proposed process for persons 

economically aggrieved by certain ISE 

Mercury actions, are consistent with the 

requirements of Sections 6(b)(6) and 

6(b)(7) of the Act 305 in that they provide 

fair procedures for the disciplining of 

members and persons associated with 

members. The Commission further finds 

that the proposed ISE Mercury rules, 

which incorporate by reference ISE 

rules, are designed to provide ISE 


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Federal Register / Vol. 81, No. 23 / Thursday, February 4, 2016 / Notices 6083 

306See Section 6(b)(1) of the Act, 15 U.S.C. 

78f(b)(1). 

307See, e.g., ISE Gemini Order, supra note 27; 

MIAX Order, supra note 28; and BOX Order, supra 

note 37. 

308See Exhibit H to the Form 1 Application. 

309See ISE Mercury Rule 500 Series (which 

incorporates by reference ISE Rule 500 Series) 

(Securities Traded on the Exchange). See also ISE 

Gemini Rule 500 Series; MIAX Rule 400 Series; and 

BOX Rule 5000 Series. 

310 15 U.S.C. 78f(b)(5). 

311 15 U.S.C. 78k–1(a)(3)(B). 

312See proposed Rules of ISE Mercury, Chapter 

7, Rule 705, Exhibit B. 

313NASDAQ and NYSE Arca also provide that 

the exchanges may compensate their members for 

certain identified losses resulting from the 

malfunction of their respective systems. See 

NASDAQ Rule 4626; NYSE Arca (Options) Rule 

14.2. 

314 15 U.S.C. 78f(b)(5). 

315The proposed rule is identical to ISE Rule 705 

and ISE Gemini Rule 705. See also Securities 

Exchange Act Release No. 57675 (April 17, 2008), 

73 FR 21996 (April 23, 2008) (noting that the 

approved ISE rule, as approved, was generally 

similar to NASDAQ Rule 4626(b) and NYSE Arca 

Rules 14.2(b) and (c)). 

316See Wolverine Letter, supra note 5. 

317See id. 

318See id. 

319See id. 

320See ISE Mercury Response Letter, supra note 

6. 

321See id. 

322See id. 

323See id. 

324See id. 

325See 15 U.S.C. 78f(b); 15 U.S.C. 78s(a)(1). 

326Specifically, ISE Mercury proposes to 

incorporate by reference the following ISE Rules: 

Continued 

Mercury with the ability to comply, and 

with the authority to enforce 

compliance by its members and persons 

associated with its members, with the 

provisions of the Act, the rules and 

regulations thereunder, and the rules of 

ISE Mercury.306 The Commission notes 

that ISE Mercury’s proposed 

disciplinary and oversight rules and 

structures are similar to the rules of 

other exchanges.307

F. Listing Requirements 

ISE Mercury does not intend to offer 

original listings when it commences 

operations. Instead, ISE Mercury will 

list and trade only standardized option 

contracts that are listed on other 

national securities exchanges and 

cleared by the Options Clearing 

Corporation.308 ISE Mercury’s listing 

rules, including the criteria for the 

underlying securities of the options to 

be traded, incorporate by reference all of 

the listing rules of ISE.309

The Commission finds that ISE 

Mercury’s proposed initial and 

continued listing rules are consistent 

with the Act, including Section 

6(b)(5),310 in that they are designed to 

protect investors and the public interest, 

prevent fraudulent and manipulative 

acts and practices, and promote just and 

equitable principles of trade. Before 

beginning operation, ISE Mercury will 

need to become a participant in the Plan 

for the Purpose of Developing and 

Implementing Procedures Designed to 

Facilitate the Listing and Trading of 

Standardized Options Submitted 

Pursuant to Section 11A(a)(3)(B) of the 

Act (‘‘OLPP’’).311 In addition, before 

beginning operation, ISE Mercury will 

need to become a participant in the 

Options Clearing Corporation. 

G. Limitation on Liability 

ISE Mercury proposes to adopt a rule 

providing that, in general, ISE Mercury 

will not be liable for any losses arising 

from the use of exchange facilities, 

systems, or equipment.312 The rule also 

states that ISE Mercury may compensate 

its members for certain identified losses 

resulting directly from the malfunction 

of ISE Mercury’s physical equipment, 

devices and/or programming.313 Under 

the rule, ISE Mercury’s aggregated 

payments for all claims on a single 

trading day would not exceed $250,000, 

and this amount will be allocated 

proportionally among all claims if the 

claims arising on a single trading day 

exceeded $250,000. 

The Commission finds that ISE 

Mercury’s proposed rule regarding 

limitation of liability is consistent with 

the requirements of Section 6(b)(5) 314 of 

the Act in that it is designed to promote 

just and equitable principles of trade 

and to not permit unfair discrimination 

between customers, issuers, brokers, or 

dealers. The Commission notes that ISE 

Mercury’s proposed limitation of 

liability is similar to the limitations of 

other exchanges, including ISE and ISE 

Gemini.315

H. Comment 

As noted above, the Commission 

received one comment letter regarding 

the Form 1 Application. In its letter, 

Wolverine recommends that the 

Commission disapprove the Form 1 

Application.316 In particular, Wolverine 

asserts that an approval of a new 

options exchange would further 

fragment existing options liquidity and 

hinder best execution for market 

participants.317 Additionally, Wolverine 

argues that the creation of another 

options exchange would impose 

additional costs on the industry without 

providing a sufficient benefit.318 For 

example, Wolverine states that approval 

of a new options exchange would 

impose additional cost on the industry 

through the assessment of Options 

Regulatory Fees (‘‘ORFs’’).319

In response, ISE Mercury provides 

that the ‘‘comment letter does not raise 

any new issues unique to the creation of 

ISE Mercury.’’ 320 The Exchange asserts 

that new options exchanges are 

necessary ‘‘to provide customers with 

additional choices related to fees and 

market structure.’’ 321 The Exchange also 

highlighted that ‘‘there are much fewer 

options exchanges in comparison to the 

many registered equity exchanges, 

ECNs, and ATSs, and this is partly why 

there continues to be an influx of new 

options exchanges.’’ 322 Finally, ISE 

Mercury notes that ORFs are applied 

consistently across the options industry 

(not specific to ISE Mercury) and are 

designed to make options regulatory 

structure stronger.323 The Exchange also 

emphasizes that if ISE Mercury 

determines to propose an ORF for its 

market, Wolverine and all other market 

participants will have an opportunity to 

comment on such proposal at that 

time.324

The Commission believes that ISE 

Mercury has sufficiently addressed the 

principal concerns raised by the 

commenter. The Commission 

acknowledges the concerns that were 

raised by the commenter regarding 

possible impacts resulting from 

potential market fragmentation that may 

result from the approval of the Form 1 

Application. However, the Commission 

also notes that the commenter did not 

identify any specific Exchange Act 

provision or rule or regulation 

thereunder that would be inconsistent 

with the approval of the Form 1 

Application. Although the Commission 

continuously considers issues related to 

market structure—including the issues 

raised by the commenter—pursuant to 

Sections 6 and 19 of the Exchange Act, 

the Commission must grant an 

application for registration as a national 

securities exchange if it finds that the 

requirements of the Exchange Act and 

the rules and regulations thereunder 

with respect to the applicant are 

satisfied.325 For the reasons discussed 

throughout the order, the Commission 

believes that these requirements have 

been met. Finally, the Commission also 

notes that the commenter’s concern 

regarding an increased ORF is not ripe 

for consideration until ISE Mercury 

proposes such a separate fee. 

III. Exemption From Section 19(b) of 

the Act With Regard to ISE, CBOE, New 

York Stock Exchange LLC (‘‘NYSE’’), 

and FINRA Rules Incorporated by 

Reference 

ISE Mercury proposes to incorporate 

by reference certain ISE, CBOE, NYSE 

and FINRA rules.326 Thus, for certain 


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6084 Federal Register / Vol. 81, No. 23 / Thursday, February 4, 2016 / Notices 

Chapter 4 (Business Conduct), Chapter 5 (Securities 

Traded on the Exchange), Chapter 6 (Doing 

Business with the Public), Chapter 10 (Closing 

Transactions), Chapter 11 (Exercises and 

Deliveries), Chapter 12 (Margins), Chapter 13 (Net 

Capital Requirements), Chapter 14 (Records, 

Reports and Audits), Chapter 15 (Summary 

Suspension), Chapter 16 (Discipline), Chapter 17 

(Hearings and Review), Chapter 18 (Arbitration), 

Chapter 19 (Order Protection; Locked and Crossed 

Markets), Chapter 20 (Index Rules), Chapter 22 

(Rate-Modified Foreign Currency Options Rules). 

The following rules are cross-referenced in the ISE 

rules: ISE Rule 1202 (Margin Requirements) crossreferences the same CBOE and NYSE rules that may 

be in effect from time to time; ISE Rule 1615 

(Disciplinary Functions) cross-references the FINRA 

Code of Procedure and ISE Rule 1800 crossreferences the 12000 and 13000 Series of the FINRA 

Manual and FINRA Rule 2268. 

327 17 CFR 240.0–12. 

328See Letter from Michael Simon, General 

Counsel, Secretary and Chief Regulatory Officer, 

ISE Mercury, to Brent J. Fields, Secretary, 

Commission, dated June 26, 2015. 

329See id. 

330 ISE Mercury will provide such notice through 

a posting on the same Web site location where ISE 

Mercury posts its own rule filings pursuant to Rule 

19b–4 under the Act, within the required time 

frame. The Web site posting will include a link to 

the location on the FINRA, ISE, CBOE or NYSE Web 

site where FINRA, ISE, CBOE or NYSE’s proposed 

rule change is posted. See id. 

331See, e.g., BATS Order, supra note 27, C2 

Order, supra note 159, Nasdaq Order, supra note 

27, and NOM Approval Order, supra note 154. 332 15 U.S.C. 78mm. 

ISE Mercury rules, ISE Mercury 

members will comply with an ISE 

Mercury rule by complying with the 

referenced ISE, CBOE, NYSE or FINRA 

rule. 

In connection with the proposal to 

incorporate ISE, CBOE, NYSE and 

FINRA rules by reference, ISE Mercury 

requests, pursuant to Rule 240.0–12 

under the Act,327 an exemption under 

Section 36 of the Act from the rule filing 

requirements of Section 19(b) of the Act 

for changes to the ISE Mercury rules 

that are effected solely by virtue of a 

change to a cross-referenced ISE, CBOE, 

NYSE or FINRA rule.328 ISE Mercury 

proposes to incorporate by reference 

categories of rules, rather than 

individual rules within a category, that 

are not trading rules. In addition, ISE 

Mercury agrees to provide written 

notice to its members whenever FINRA, 

ISE, CBOE or NYSE proposes a change 

to a cross-referenced rule 329 and 

whenever any such proposed changes 

are approved by the Commission or 

otherwise become effective.330

Using the authority under Section 36 

of the Act, the Commission previously 

exempted certain SROs from the 

requirement to file proposed rule 

changes under Section 19(b) of the 

Act.331 The Commission is hereby 

granting ISE Mercury’s request for 

exemption, pursuant to Section 36 of 

the Act, from the rule filing 

requirements of Section 19(b) of the Act 

with respect to the rules that ISE 

Mercury proposes to incorporate by 

reference. The exemption is conditioned 

upon ISE Mercury providing written 

notice to ISE Mercury members 

whenever FINRA, ISE, CBOE or NYSE 

proposes to change an incorporated by 

reference rule and when the 

Commission approves any such 

changes. The Commission believes that 

the exemption is appropriate in the 

public interest and consistent with the 

protection of investors because it will 

promote more efficient use of 

Commission’s and SROs’ resources by 

avoiding duplicative rule filings based 

on simultaneous changes to identical 

rule text sought to be implemented by 

more than one SRO. 

IV. Conclusion 

IT IS ORDERED that the application 

of ISE Mercury for registration as a 

national securities exchange be, and it 

hereby is, granted. 

IT IS FURTHERED ORDERED that 

operation of ISE Mercury is conditioned 

on the satisfaction of the requirements 

below: 

A. Participation in National Market 

System Plans Relating to Options 

Trading. ISE Mercury must join: (1) The 

Plan for the Reporting of Consolidated 

Options Last Sale Reports and 

Quotation Information (Options Price 

Reporting Authority); (2) the OLPP; (3) 

the Linkage Plan; and (4) the Plan of the 

Options Regulatory Surveillance 

Authority. 

B. Participation in Multiparty Rule 

17d–2 Plans. ISE Mercury must become 

a party to the multiparty Rule 17d–2 

agreements concerning options sales 

practice regulation and market 

surveillance. 

C. Participation in the Options 

Clearing Corporation. ISE Mercury must 

become an Options Clearing 

Corporation participant exchange. 

D. Participation in the Intermarket 

Surveillance Group. ISE Mercury must 

join the Intermarket Surveillance Group. 

It is further ordered, pursuant to 

Section 36 of the Act,332 that ISE 

Mercury shall be exempted from the 

rule filing requirements of Section 19(b) 

of the Act with respect to the FINRA, 

ISE, CBOE and NYSE rules that ISE 

Mercury proposes to incorporate by 

reference, subject to the conditions 

specified in this order that ISE Mercury 

provide written notice to ISE Mercury 

members whenever FINRA, ISE, CBOE 

or NYSE propose to change an 

incorporated by reference rule and 

when the Commission approves any 

such changes. 

By the Commission. 

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2016–02061 Filed 2–3–16; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. IC–31974 ] 

Notice of Applications for 

Deregistration Under Section 8(f) of the 

Investment Company Act of 1940 

January 29, 2016. 

The following is a notice of 

applications for deregistration under 

section 8(f) of the Investment Company 

Act of 1940 for the month of January 

2016. A copy of each application may be 

obtained via the Commission’s Web site 

by searching for the file number, or for 

an applicant using the Company name 

box, at http://www.sec.gov/search/

search.htm or by calling (202) 551– 

8090. An order granting each 

application will be issued unless the 

SEC orders a hearing. Interested persons 

may request a hearing on any 

application by writing to the SEC’s 

Secretary at the address below and 

serving the relevant applicant with a 

copy of the request, personally or by 

mail. Hearing requests should be 

received by the SEC by 5:30 p.m. on 

February 23, 2016, and should be 

accompanied by proof of service on 

applicants, in the form of an affidavit or, 

for lawyers, a certificate of service. 

Pursuant to Rule 0–5 under the Act, 

hearing requests should state the nature 

of the writer’s interest, any facts bearing 

upon the desirability of a hearing on the 

matter, the reason for the request, and 

the issues contested. Persons who wish 

to be notified of a hearing may request 

notification by writing to the 

Commission’s Secretary. 

ADDRESSES: The Commission: Secretary, 

U.S. Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

FOR FURTHER INFORMATION CONTACT: 

Jessica Shin, Law Clerk, at (202) 551– 

5921 or Chief Counsel’s Office at (202) 

551–6821; SEC, Division of Investment 

Management, Chief Counsel’s Office, 

100 F Street NE., Washington, DC 

20549–8010. 

GAI Mesirow Insight Fund, LLC [File 

No. 811–22221] 

Summary: Applicant, a closed-end 

investment company, seeks an order 

declaring that it has ceased to be an 


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