If you want to allow to add new merchant for network merchants, you need to add for network merchants privilege read and add for Merchant. So merchants can see Merchants screen with merchants in same network account. (Tools > Merchants).
With these permissions merchant can open window for adding merchants, but he see in Account listbox only own account. You can allow to display there names of all accounts by adding permission read for Account name.
For new merchant is needed to choose role. You need to allow to see roles names by adding privilege read_own (merchant will see only roles created in own account) or read (merchant will see all roles from all accounts) for Role name.