Ring formation via oxymercuration-demercuration
Observe that there is no nucleophile give in the mercuration step and recall that the three-membered mercury ring intermediate is very reactive. Hence, this is suggestive that the oxygen would attack the intermediate with its lone pair on the more substituted position as follows:

Edit: Oops! Missed a carbon on the last step as correctly pointed out by @Waylander. I have updated the answer with a new image that corrects the mistake.

For reference see  Addition reactions of Alkene's in David Kleins organic chemistry (around page-410 ) and for a quick reference see wiki