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Notice2024-15914

In the Matter of the Application of MIAX Sapphire, LLC for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission

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Published

July 19, 2024

Issuing agencies

Securities and Exchange Commission

Full Text

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<title>Federal Register, Volume 89 Issue 139 (Friday, July 19, 2024)</title>
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[Federal Register Volume 89, Number 139 (Friday, July 19, 2024)]
[Notices]
[Pages 58848-58866]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-15914]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100539; File No. 10-240]

In the Matter of the Application of MIAX Sapphire, LLC for
Registration as a National Securities Exchange; Findings, Opinion, and
Order of the Commission

July 15, 2024.

I. Introduction

On September 26, 2023, MIAX Sapphire, LLC (``MIAX Sapphire'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``Commission'') a Form 1 application (``Form 1'') under the Securities
Exchange Act of 1934 (``Act''), seeking registration as a national
securities exchange under Section 6 of the Act.\1\ Notice of the Form 1
was published for comment in the Federal Register on October 19,
2023.\2\ On December 21, 2023, MIAX Sapphire consented to an extension
of time to March 1, 2024 for Commission consideration of its Form 1.\3\
The Commission received two comment letters on the Form 1 and two
letters from MIAX Sapphire responding to one of the comment letters.\4\
On February 28, 2024, MIAX Sapphire consented to an additional
extension of time to July 15, 2024 for Commission consideration of its
Form 1.\5\ On May 22, 2024, MIAX Sapphire submitted Amendment No. 1 to
the Form 1.\6\
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\1\ 15 U.S.C. 78f.
\2\ See Securities Exchange Act Release No. 34-98746 (Oct. 13,
2023), 88 FR 72116 (``Notice'').
\3\ See Letter from Thomas P. Gallagher, Chairman of the Board,
MIAX Sapphire, dated Dec. 21, 2023, available at: <a href="https://www.sec.gov/comments/10-240/10240-319979-832562.pdf">https://www.sec.gov/comments/10-240/10240-319979-832562.pdf</a>.
\4\ See Letter from Greg Ferrari, Vice President, U.S. Options,
Nasdaq, Inc., dated Nov. 27, 2023 (``Nasdaq Letter''); Letter from
Gregory P. Ziegler, Vice President, Senior Counsel, MIAX Sapphire,
dated Feb. 5, 2024 (``MIAX Sapphire Letter''); Letter from Gregory
P. Ziegler, Vice President, Senior Counsel, MIAX Sapphire, dated
Apr. 10, 2024 (``MIAX Sapphire Letter II''); Letter from James J.
Angel, Associate Professor of Finance, Georgetown University, dated
Apr. 17, 2024 (``Angel Letter''). Comments received on MIAX
Sapphire's Form 1 (File No. 10-240) are available on the
Commission's website at: <a href="https://www.sec.gov/comments/10-240/10-240.htm">https://www.sec.gov/comments/10-240/10-240.htm</a>.
\5\ See Letter from Thomas P. Gallagher, Chairman of the Board,
MIAX Sapphire, dated Feb. 28, 2024, available at: <a href="https://www.sec.gov/comments/10-240/10240-436699-1083602.pdf">https://www.sec.gov/comments/10-240/10240-436699-1083602.pdf</a>.
\6\ See Letter from Thomas P. Gallagher, Chairman of the Board,
MIAX Sapphire, dated May 22, 2024, available at: <a href="https://www.sec.gov/files/rules/other/2024/sapphire-form-1-cover-page-amendment-1.pdf">https://www.sec.gov/files/rules/other/2024/sapphire-form-1-cover-page-amendment-1.pdf</a>. In Amendment No. 1, MIAX Sapphire submitted an
updated Exhibit B (MIAX Sapphire Options Exchange Rules) to its Form
1.
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For the reasons set forth below, this order approves MIAX
Sapphire's application, as amended, for registration as a national
securities exchange.

II. Statutory Standards

Under Sections 6(b) and 19(a) of the Act,\7\ 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.
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\7\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(a), respectively.
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As discussed in greater detail below, the Commission finds that
MIAX Sapphire's application, as amended, for exchange registration
meets the requirements of the Act and the rules and regulations
thereunder. Further, the Commission finds that the proposed rules of
MIAX Sapphire 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; \8\ 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 mechanism 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, brokers or
dealers.\9\ The Commission also finds that the proposed rules of MIAX
Sapphire are consistent with Section 11A of the Act.\10\ Finally, the
Commission finds that MIAX Sapphire's proposed rules do not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.\11\
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\8\ See 15 U.S.C. 78f(b)(3).
\9\ See 15 U.S.C. 78f(b)(5).
\10\ See 15 U.S.C. 78k-1.
\11\ See 15 U.S.C. 78f(b)(8).
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III. Discussion

A. Governance of MIAX Sapphire

1. MIAX Sapphire Board of Directors
The board of directors of MIAX Sapphire (``Exchange Board'' or
``MIAX Sapphire 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 MIAX Sapphire as a self-regulatory
organization (``SRO'').\12\
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\12\ See By-Laws of MIAX Sapphire (``MIAX Sapphire By-Laws''),
Article II, Section 2.1. See also Amended and Restated Limited
Liability Company Agreement of MIAX Sapphire (``MIAX Sapphire LLC
Agreement''), Section 9(a). The MIAX Sapphire By-Laws have been
established pursuant to the MIAX Sapphire LLC Agreement.
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Under the MIAX Sapphire By-Laws:
<bullet> The Exchange Board will be composed of not less than ten
Directors; \13\
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\13\ See MIAX Sapphire By-Laws, Article II, Section 2.2(a).
``Director'' means the persons elected or appointed to the Exchange
Board from time to time in accordance with the MIAX Sapphire LLC
Agreement and MIAX Sapphire By-Laws in their capacity as managers of
MIAX Sapphire. See MIAX Sapphire By-Laws, Article I(j).
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<bullet> One Director will be the Chief Executive Officer of MIAX
Sapphire; \14\
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\14\ See MIAX Sapphire By-Laws, Article II, Section 2.2(b).
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<bullet> The number of Non-Industry Directors,\15\ including at
least one Director who has no material relationship with MIAX Sapphire
or any affiliate of MIAX Sapphire, or any Exchange Member \16\ or any
affiliate of any such Exchange Member (``Independent Director''),\17\
will equal or exceed the sum of the number of

[[Page 58849]]

Industry Directors \18\ and Member Representative Directors; \19\ and
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\15\ ``Non-Industry Director'' means a Director who is an
Independent Director or any other individual who would not be an
Industry Director. See MIAX Sapphire By-Laws, Article I(aa).
\16\ ``Exchange Member'' means any registered broker or dealer
that has been admitted to membership in the national securities
exchange operated by MIAX Sapphire. See MIAX Sapphire By-Laws,
Article I(n).
\17\ See MIAX Sapphire By-Laws, Article I(p). Provided, however,
that an individual who otherwise qualifies as an Independent
Director shall not be disqualified from serving in such capacity
solely because such Director is a Director of MIAX Sapphire or Miami
International Holdings, Inc. (``Miami Holdings''). See id.
\18\ An ``Industry Director'' is, among other things, a Director
that is or has served within the prior three years as an officer,
director, employee, or owner of a broker or dealer, as well as any
Director who has, or has had, a consulting or employment
relationship with MIAX Sapphire or any affiliate of MIAX Sapphire
within the prior three years. See MIAX Sapphire By-Laws, Article
I(r). This definition is consistent with what the Commission has
approved for other exchanges. See Securities Exchange Act Release
Nos. 84891 (Dec. 20, 2018), 83 FR 67421 (Dec. 28, 2018) (File No.
10-233) (order granting the registration of MIAX EMERALD, LLC
(``MIAX Emerald'')) (``MIAX Emerald Order''); 79543 (Dec. 13, 2016),
81 FR 92901 (Dec. 20, 2016) (File No. 10-227) (order granting the
registration of MIAX PEARL, LLC (``MIAX Pearl'')) (``MIAX Pearl
Order''); 68341 (Dec. 3, 2012), 77 FR 73065 (Dec. 7, 2012) (File No.
10-207) (order granting the registration of Miami International
Securities Exchange, LLC (``MIAX Exchange'')) (``MIAX Order'');
58375 (Aug. 18, 2008), 73 FR 49498 (Aug. 21, 2008) (File No. 10-182)
(order granting the registration of BATS Exchange, Inc.) (``BATS
Order''); and 66871 (Apr. 27, 2012), 77 FR 26323 (May 3, 2012) (File
No. 10-206) (order granting the registration of BOX Options Exchange
LLC (``BOX'')) (``BOX Order'').
\19\ See MIAX Sapphire By-Laws, Article II, Section 2.2(b)(i).
``Member Representative Director'' means a Director who has been
appointed as such to the initial Exchange Board pursuant to Article
II, Section 2.5 of the MIAX Sapphire By-Laws, or elected by Miami
Holdings after having been nominated by the Member Nominating
Committee or by an Exchange Member pursuant to the MIAX Sapphire By-
Laws and confirmed as the nominee of Exchange Members after majority
vote of Exchange Members, if applicable. A Member Representative
Director may, but is not required to, be an officer, director,
employee, or agent of an Exchange Member. See MIAX Sapphire By-Laws,
Article I(x). See also MIAX Sapphire By-Laws Article II, Section
2.5. ``Member Nominating Committee'' means the Member Nominating
Committee elected pursuant to the MIAX Sapphire By-Laws. See MIAX
Sapphire By-Laws, Article I(w).
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<bullet> At least 20% of the Directors on the Exchange Board will
be Member Representative Directors.\20\
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\20\ See MIAX Sapphire By-Laws, Article II, Section 2.2(b)(ii).
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For the interim board (discussed below), and subsequently at the
first annual meeting and each annual meeting thereafter, Miami
Holdings, as the sole LLC Member of MIAX Sapphire, will elect the MIAX
Sapphire Board pursuant to the MIAX Sapphire By-Laws.\21\ In addition,
Miami Holdings will appoint the initial Nominating Committee \22\ and
Member Nominating Committee,\23\ consistent with each committee's
compositional requirements,\24\ to nominate candidates for election to
the Exchange Board. Each of the Nominating Committee and Member
Nominating Committee, after completion of its respective duties for
nominating Directors for election to the Board for that year, shall
nominate candidates to serve on the succeeding year's Nominating
Committee or Member Nominating Committee, as applicable. Additional
candidates for the Member Nominating Committee may be nominated and
elected by Exchange Members pursuant to a petition process.\25\
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\21\ See MIAX Sapphire By-Laws, Article II, Sections 2.4 and
2.5. See also MIAX Sapphire LLC Agreement, Section 9(a).
\22\ The Nominating Committee will be composed of at least three
Directors, and the number of Non-Industry members on the Nominating
Committee must equal or exceed the number of Industry members. See
MIAX Sapphire By-Laws, Article V, Section 5.2. See also MIAX
Sapphire By-Laws, Article IV, Section 4.2(a).
\23\ The Member Nominating Committee will be composed of at
least three Directors, and each member of the Member Nominating
Committee shall be a Member Representative member and shall not be
required to be a Director of the Exchange. See MIAX Sapphire By-
Laws, Article V, Section 5.3. See also MIAX Sapphire By-Laws,
Article IV, Section 4.2(a). Pursuant to MIAX Sapphire By-Laws,
Article I(y), a ``Member Representative member'' is a member of any
committee or hearing panel appointed by the Exchange Board who has
been elected or appointed after having been nominated by the Member
Nominating Committee pursuant to the MIAX Sapphire By-Laws and who
is an officer, director, employee, or agent of an Exchange Member.
\24\ See MIAX Sapphire By-Laws, Article V, Section 5.1.
\25\ See id. See also MIAX Sapphire By-Laws, Article II, Section
2.4.
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The Nominating Committee will nominate candidates for each Director
position, and Miami Holdings, as the sole LLC Member, will elect those
Directors. For Member Representative Director positions, the Nominating
Committee will nominate those candidates submitted to it, and approved,
by the Member Nominating Committee.\26\ Additional candidates, however,
may be nominated for the Member Representative Director positions by
Exchange Members pursuant to a petition process.\27\ If no candidates
are nominated pursuant to the petition process, then the initial
nominees submitted by the Member Nominating Committee will be nominated
as Member Representative Directors by the Nominating Committee. If the
petition process produces additional candidates, then the candidates
nominated pursuant to the petition process, together with those
nominated by the Member Nominating Committee, will be presented to
Exchange Members for a run-off election to determine the final slate of
nominees for the vacant Member Representative Director positions.\28\
In the event of a contested run-off election, the candidates who
receive the most votes will be selected as the nominees for the Member
Representative Director positions.\29\ Miami Holdings, as the sole LLC
Member, is obligated to elect the final nominees for the Member
Representative Director positions.\30\
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\26\ The Member Nominating Committee will solicit comments from
Exchange Members for the purpose of approving and submitting names
of candidates for election to the position of Member Representative
Director. See MIAX Sapphire By-Laws, Article II, Section 2.4(b).
\27\ See MIAX Sapphire By-Laws, Article II, Section 2.4(c). The
petition must be signed by executive representatives of 10% or more
of the Exchange Members. No Exchange Member, together with its
affiliates, may account for more than 50% of the signatures
endorsing a particular candidate. See id.
\28\ See MIAX Sapphire By-Laws, Article II, Sections 2.4(e) and
(f). Each Exchange Member shall have the right to cast one vote for
each available Member Representative Director nomination, provided
that any such vote must be cast for a person on the list of
candidates and that no Exchange Member, together with its
affiliates, may account for more than 20% of the votes cast for a
candidate. See MIAX Sapphire By-Laws, Article II, Section 2.4(f).
\29\ See MIAX Sapphire By-Laws, Article II, Section 2.4(f). Tie
votes by the Exchange Members will be decided by the Member
Nominating Committee. See id.
\30\ See id.
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The requirement in the MIAX Sapphire By-Laws that 20% of the
Directors be Member Representative Directors and the means by which
they will be chosen by Exchange Members provide for the fair
representation of members in the selection of Directors and the
administration of MIAX Sapphire and therefore is consistent with
Section 6(b)(3) of the Act.\31\ As the Commission has previously
stated, this requirement helps to ensure that members have a voice in
an exchange's self-regulatory program, and that an exchange is
administered in a way that is equitable to all those who trade on its
market or through its facilities.\32\
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\31\ 15 U.S.C. 78f(b)(3).
\32\ See, e.g., MIAX Pearl Order, supra note 18, at 92903; MIAX
Order, supra note 18, at 73067; BATS Order, supra note 18, at 26325;
Securities Exchange Act Release Nos. 76998 (Jan. 29, 2016), 81 FR
6066, 6068 (Feb. 4, 2016) (File No. 10-221) (order granting the
exchange registration of ISE Mercury, LLC) (``ISE Mercury Order'');
70050 (July 26, 2013), 78 FR 46622, 46624 (Aug. 1, 2013) (File No.
10-209) (order granting the exchange registration of ISE Gemini,
LLC) (``ISE Gemini Order''); and 53128 (Jan. 13, 2006), 71 FR 3550,
3553 (Jan. 23, 2006) (order granting the exchange registration of
Nasdaq Stock Market, Inc.) (``Nasdaq Order'').
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In addition, with respect to the requirement that the number of
Non-Industry Directors, including at least one Independent Director,
will equal or exceed the sum of the number of Industry Directors and
Member Representative Directors, the proposed composition of the
Exchange Board satisfies the requirements in Section 6(b)(3) of the
Act,\33\ which requires in part that one or more directors be
representative of issuers and investors and not be associated with a
member of the exchange, or with a broker or dealer. The Commission
previously has stated that the inclusion of public, non-industry
representatives on exchange

[[Page 58850]]

oversight bodies is an important mechanism to support an exchange's
ability to protect the public interest.\34\ Further, the presence of
public, non-industry representatives can help to ensure that no single
group of market participants has the ability to systematically
disadvantage other market participants through the exchange governance
process. Public directors can provide unbiased perspectives, which may
enhance the ability of the Exchange Board to address issues in a non-
discriminatory fashion and foster the integrity of the Exchange.
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\33\ 15 U.S.C. 78f(b)(3).
\34\ See MIAX Order, supra note 18, at 73067; BATS Order, supra
note 18, at 49501; and Nasdaq Order, supra note 32, at 3553.
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2. Interim Exchange Board
Prior to commencing operations, Miami Holdings will appoint an
interim Exchange board of directors (``Interim Exchange Board''), which
will include interim Member Representative Directors.\35\ With respect
to the selection of the interim Member Representative Directors for the
Interim Exchange Board, prior to the commencement of operations as an
exchange, Miami Holdings will submit the names of its nominees for the
interim Member Representative Directors positions to persons and
entities that have begun the process of becoming members in the new
Exchange.\36\ Such persons and entities will be allowed 14 days to
submit the names of alternative candidates.\37\ Voting will occur no
sooner than five days after the interim election notice is delivered to
confirm the final slate of candidates to become an interim Member
Representative Director.\38\ All other interim Directors, except for
the interim Member Representative Directors, will be appointed and
elected by Miami Holdings, and must meet the MIAX Sapphire Board
composition requirements as set forth in the MIAX Sapphire By-Laws.\39\
Once these interim Member Representative Directors are seated on the
Interim Exchange Board, then the Interim Exchange Board will meet the
board composition requirements set forth in the governing documents of
MIAX Sapphire.
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\35\ See MIAX Sapphire By-Laws, Article II, Section 2.5.
\36\ See MIAX Sapphire By-Laws, Article II, Section 2.5(b).
Specifically, Miami Holdings will submit the names of its nominees
for the interim Member Representative Director positions to persons
who have submitted the initial documents for membership in the
Exchange who would meet the qualifications for membership based on
the information contained in these documents. See MIAX Sapphire By-
Laws, Article II, Section 2.5(b). MIAX Sapphire additionally
represents that the initial members of MIAX Sapphire will consist
substantially of the current group of persons and firms that have
begun the membership application process with MIAX Sapphire. See
MIAX Sapphire Form 1, Exhibit J.
\37\ See MIAX Sapphire By-Laws, Article II, Section 2.5(b).
\38\ See MIAX Sapphire By-Laws, Article II, Section 2.5(d).
\39\ See MIAX Sapphire By-Laws, Article II, Section 2.5(a).
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The Interim Exchange Board will serve until the first Exchange
Board is elected pursuant to the full nomination, petition, and voting
process set forth in the MIAX Sapphire By-Laws.\40\ MIAX Sapphire will
complete such process within 90 days after its application for
registration as a national securities exchange is granted by the
Commission.\41\
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\40\ See MIAX Sapphire By-Laws, Article II, Sections 2.2(e) and
2.5(a).
\41\ See MIAX Sapphire By-Laws, Article II, Section 2.5(a). The
90-day period is consistent with what the Commission approved for
MIAX Emerald. See MIAX Emerald Order, supra note 18, at 67423
(allowing MIAX Emerald to appoint an initial interim board to enable
it to commence operations as a registered exchange). See also MIAX
Pearl Order, supra note 18, at 92903; MIAX Order, supra note 18, at
73067; ISE Mercury Order, supra note 32, at 6068; and BOX Order,
supra note 18, at 26325.
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The process for electing the Interim Exchange 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.\42\ As noted above, MIAX Sapphire represents that the initial
members of MIAX Sapphire will consist substantially of the current
group of persons and firms that have begun the membership application
process with MIAX Sapphire.\43\ MIAX Sapphire will engage the persons
and firms who have submitted the initial documents for membership in
the Exchange and would meet the qualifications for membership in the
Interim Exchange Board election process by, prior to the commencement
of operations as an exchange, providing each of them with the
opportunity to participate in the selection of interim Member
Representative Directors consistent with the MIAX Sapphire By-Laws.
Further, MIAX Sapphire represents that it will complete the full
nomination, petition, and voting process as set forth in the MIAX
Sapphire By-Laws, which will provide persons that are approved as
members after the effective date of this order with the opportunity to
participate in the selection of the Member Representative Directors,
within 90 days of when MIAX Sapphire's application for registration as
a national securities exchange is granted.\44\ Therefore, MIAX
Sapphire's initial interim board process is consistent with the Act,
including Section 6(b)(3), in that it is designed to provide
representation among the persons and firms likely to become members
when MIAX Sapphire commences operations and is sufficient to allow MIAX
Sapphire to commence operations for an interim period prior to going
through the process to elect a new Exchange Board pursuant to the full
nomination, petition, and voting process set forth in the MIAX Sapphire
By-Laws.
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\42\ See 15 U.S.C. 78f(b)(3).
\43\ See supra note 36.
\44\ MIAX Sapphire's proposed timeline for the interim board
process follows a process identical to what the Commission approved
for MIAX Emerald. See MIAX Emerald Order, supra note 18, at 67423.
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In addition, all other interim Directors, except for the interim
Member Representative Directors, must meet the MIAX Sapphire Board
composition requirements as set forth in the MIAX Sapphire By-Laws, and
as such the number of Non-Industry Directors, including at least one
Independent Director, will equal or exceed the sum of the number of
Industry Directors and Member Representative Directors. Therefore, the
proposed composition of MIAX Sapphire's Interim Exchange Board
satisfies the requirements in Section 6(b)(3) of the Act,\45\ which
requires in part that one or more directors be representative of
issuers and investors and not be associated with a member of the
exchange, or with a broker or dealer.
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\45\ 15 U.S.C. 78f(b)(3).
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3. Exchange Committees
In the MIAX Sapphire By-Laws, the Exchange has proposed to
establish several standing committees, which would be divided into two
categories: Committees of the Board (composed of MIAX Sapphire
Directors) and Committees of the Exchange (composed of a mixture of
MIAX Sapphire Directors and persons who are not MIAX Sapphire
Directors).\46\ The standing Committees of the Board would be the
Audit, Compensation, Appeals, and Regulatory Oversight Committees.\47\
In addition, the Chairman of the Exchange Board (``Exchange
Chairman''), with approval of the Exchange Board, may appoint an
Executive Committee and a Finance Committee, which also would be
Committees of the Board.\48\
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\46\ See MIAX Sapphire By-Laws, Article IV, Section 4.1.
\47\ See MIAX Sapphire By-Laws, Article IV, Section 4.1(a).
\48\ See MIAX Sapphire By-Laws, Article IV, Section 4.5(e) and
(f).
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The Audit Committee will consist of three or more Directors, a
majority of

[[Page 58851]]

whom will be Non-Industry Directors.\49\ Each of the Compensation and
Regulatory Oversight Committees will consist of three or more
Directors, all of whom will be required to be Non-Industry
Directors.\50\ The Appeals Committee will consist of one Independent
Director, one Industry Director, and one Member Representative
Director.\51\ If established, the Finance Committee will consist of at
least three Directors, a majority of whom will be Non-Industry
Directors.\52\ The Executive Committee, if established, will consist of
at least three Directors. Because the Executive Committee will have the
powers and authority of the Exchange Board in the management of the
business and affairs of the Exchange between meetings of the Exchange
Board, its composition requirements are substantially similar to the
composition requirements of the Exchange Board. Accordingly, the number
of Non-Industry Directors on the Executive Committee must equal or
exceed the number of Industry Directors and the percentages of
Independent Directors and Member Representative Directors must be at
least as great as the corresponding percentages on the Exchange Board
as a whole.\53\
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\49\ See MIAX Sapphire By-Laws, Article IV, Section 4.5(b). A
Non-Industry Director shall serve as Chairman of the Committee. See
id. See also MIAX Sapphire By-Laws, Article IV, Section 4.2(a)
(requiring that each committee be composed of at least three
people).
\50\ See MIAX Sapphire By-Laws, Article IV, Sections 4.5(a) and
4.5(c).
\51\ See MIAX Sapphire By-Laws, Article IV, Section 4.5(d).
\52\ See MIAX Sapphire By-Laws, Article IV, Section 4.5(f).
\53\ See MIAX Sapphire By-Laws, Article IV, Section 4.5(e).
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With respect to Committees of the Exchange, the Exchange has
proposed to establish a Nominating Committee \54\ and a Member
Nominating Committee.\55\ As discussed above, these committees will
have responsibility for, among other things, nominating candidates for
election to the Exchange Board. On an annual basis, the members of
these committees will nominate candidates for the succeeding year's
respective committees to be elected by Miami Holdings, as the sole LLC
Member.\56\ In addition, MIAX Sapphire has proposed to establish a
Quality of Markets Committee, which will provide advice and guidance to
the Exchange Board on issues related to the fairness, integrity,
efficiency, and competitiveness of the information, order handling and
execution mechanisms of the Exchange from the perspective of individual
and institutional investors, retail and market making firms, Exchange
listed companies, and other market participants.\57\ The Quality of
Markets Committee will include a broad representation of participants
in the Exchange, including investors, market makers, integrated retail
firms, and order entry firms.\58\ Additionally, at least 20% of the
members of the committee will be Member Representative members, and the
number of Non-Industry members must equal or exceed the total number of
Industry and Member Representative members.\59\ MIAX Sapphire also has
proposed to establish a Business Conduct Committee, which shall be
appointed by the Exchange Chairman.\60\ Specifically, the Business
Conduct Committee will have a minimum of three members and will be
composed of a number of individuals as determined by the Exchange
Chairman, none of whom shall be Directors of MIAX Sapphire. In
addition, at least one member of the Business Conduct Committee and any
panel thereof must be an officer, director, or employee of an Exchange
Member.\61\
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\54\ See MIAX Sapphire By-Laws, Article V, Section 5.2, and
supra note 22.
\55\ See MIAX Sapphire By-Laws, Article V, Section 5.3, and
supra note 23.
\56\ See MIAX Sapphire By-Laws, Article V, Section 5.1, and
supra note 25. Additional candidates for the Member Nominating
Committee may be nominated and elected by Exchange Members pursuant
to a petition process. See supra note 25 and accompanying text.
\57\ See MIAX Sapphire By-Laws, Article IV, Section 4.6.
\58\ See id.
\59\ See id.
\60\ See MIAX Sapphire By-Laws, Article IV, Section 4.7.
\61\ See id.
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The proposed Committees of the Board and Committees of the
Exchange, which are similar to the committees maintained by other
exchanges,\62\ are designed to help enable MIAX Sapphire 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.\63\
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\62\ See, e.g., MIAX Emerald Order, MIAX Pearl Order, MIAX
Order, and BATS Order, supra note 18; and ISE Mercury Order, ISE
Gemini Order, Nasdaq Order, supra note 32.
\63\ 15 U.S.C. 78f(b)(1).
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B. Regulation of MIAX Sapphire

When MIAX Sapphire commences operations as a national securities
exchange, the Exchange will have all the attendant regulatory
obligations under the Act. In particular, MIAX Sapphire will be
responsible for the operation and regulation of its trading system and
the regulation of its members. Certain provisions in the MIAX Sapphire
and Miami Holdings governance documents are designed to facilitate the
ability of MIAX Sapphire to fulfill its regulatory obligations and to
help facilitate Commission oversight of MIAX Sapphire. The discussion
below summarizes some of these key provisions.
1. Ownership Structure: Ownership and Voting Limitations
MIAX Sapphire will be structured as a Delaware limited liability
company, which will be wholly owned by the sole member of the LLC,
Miami Holdings. The Miami Holdings' Amended and Restated Certificate of
Incorporation (``Miami Holdings Certificate'') includes restrictions on
the ability to own and vote shares of capital stock of Miami
Holdings.\64\ These limitations are designed to prevent any Miami
Holdings shareholder from exercising undue control over the operation
of MIAX Sapphire, and to assure that MIAX Sapphire and the Commission
are able to carry out their regulatory obligations under the Act.
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\64\ These provisions are consistent with ownership and voting
limits approved by the Commission for other SROs. See, e.g., ISE
Mercury Order and ISE Gemini Order, supra note 32; MIAX Emerald
Order, MIAX Pearl Order, MIAX Order, and BATS Order, supra note 18.
See also Securities Exchange Act Release Nos. 78101 (June 17, 2016),
81 FR 41141 (June 23, 2026) (File No. 10-222) (order granting the
registration of Investors' Exchange, LLC (``IEX'')) (``IEX Order'');
62158 (May 24, 2010), 75 FR 30082 (May 28, 2010) (SR-CBOE-2008-88)
(order approving CBOE demutualization); 53963 (June 8, 2006), 71 FR
34660 (June 15, 2006) (SR-NSX-2006-03) (``NSX Demutualization
Order''); 51149 (Feb. 8, 2005), 70 FR 7531 (Feb. 14, 2005) (SR-CHX-
2004-26) (``CHX Demutualization Order''); and 49098 (Jan. 16, 2004),
69 FR 3974 (Jan. 27, 2004) (SR-Phlx-2003-73) (order approving Phlx
demutualization).
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In particular, for so long as Miami Holdings (directly or
indirectly) controls MIAX Sapphire, no person, either alone or together
with its related persons,\65\ will be permitted to beneficially own
more than 40% of any class of capital stock of Miami Holdings.\66\ A
more conservative restriction will apply to Exchange Members, wherein
Exchange Members, either alone or together with their related persons,
will be prohibited from beneficially owning more than 20% of shares of
any class of capital stock of Miami Holdings.\67\ If any stockholder
violates these ownership limits, Miami Holdings will be required to
redeem the shares in excess of the applicable ownership limit at their
par

[[Page 58852]]

value.\68\ In addition, no person, alone or together with its related
persons, may vote or cause the voting of more than 20% of the voting
power of the then issued and outstanding capital stock of Miami
Holdings.\69\ Further, no person, either alone or together with its
related persons, may enter into any agreement, plan, or other
arrangement with any other person, either alone or together with its
related persons, under circumstances that would result in the shares of
capital stock of Miami Holdings that are subject to such agreement,
plan, or other arrangement not being voted on any matter or matters or
any proxy relating thereto being withheld, where the effect of such
agreement, plan, or other agreement would be to enable any person,
either alone or together with its related persons, to vote, possess the
right to vote, or cause the voting of more than 20% of the voting power
of the then issued and outstanding capital stock of Miami Holdings.\70\
If any stockholder purports to vote, or cause the voting of, shares
that would violate this voting limit, Miami Holdings will not honor
such vote in excess of the voting limit.\71\
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\65\ See Miami Holdings Certificate, Article NINTH (a)(ii)
(defining ``related persons'').
\66\ See Miami Holdings Certificate, Article NINTH (b)(i)(A).
\67\ See Miami Holdings Certificate, Article NINTH (b)(i)(B).
\68\ See Miami Holdings Certificate, Article NINTH (e). Any
shares which have been called for redemption will not be deemed
outstanding shares for the purpose of voting or determining the
total number of shares entitled to vote. Once redeemed by Miami
Holdings, such shares will become treasury shares and will no longer
be deemed to be outstanding. See id. Furthermore, if any redemption
results in another stockholder owning shares in violation of the
ownership limits described above, Miami Holdings will redeem such
shares. See id.
\69\ See Miami Holdings Certificate, Article NINTH (b)(i)(C).
\70\ See id.
\71\ See Miami Holdings Certificate, Article NINTH (d). The
Miami Holdings Certificate also prohibits the payment of any stock
dividends and conversions that would violate the ownership and
voting limitations. See Miami Holdings Certificate, Article FOURTH
A.(b) and (e), and D.7.
---------------------------------------------------------------------------

Any person that alone or together with its related persons proposes
to own shares of capital stock in excess of the 40% ownership
limitation, or vote or grant proxies or consents with respect to shares
of capital stock in excess of the 20% voting limitation, must deliver
written notice to the Miami Holdings board of directors (``Miami
Holdings Board'') of its intention.\72\ The notice must be delivered to
the Miami Holdings Board not less than 45 days before the proposed
ownership of such shares or proposed exercise of such voting rights or
the granting of such proxies or consents.\73\ The Miami Holdings Board
may waive the 40% ownership limitation and the 20% voting limitation,
pursuant to a resolution duly adopted by the Miami Holdings Board, if
it makes certain findings,\74\ except that the Miami Holdings Board
cannot waive the voting and ownership limits above 20% for Exchange
Members and their related persons.\75\ Any such waiver would not be
effective unless and until approved by the Commission pursuant to
Section 19 of the Act.\76\
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\72\ See Miami Holdings Certificate, Article NINTH (b)(iv).
\73\ See id.
\74\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B).
The required findings include determinations that (A) such waiver
will not impair the ability of MIAX Sapphire to carry out its
functions and responsibilities as an ``exchange'' under the Act and
the rules and regulations promulgated thereunder; (B) such waiver is
otherwise in the best interests of MIAX Sapphire and Miami Holdings;
(C) such waiver will not impair the ability of the Commission to
enforce the Act and the rules and regulations promulgated
thereunder; and (D) in the case of a sale, assignment, or transfer,
that the recipient and its related persons are not subject to any
applicable ``statutory disqualification'' (within the meaning of
Section 3(a)(39) of the Act). See Miami Holdings Certificate,
Article NINTH (b)(ii)(B) and (b)(iii). The Commission has previously
approved the rules of other exchanges that provide for the ability
of the exchange or its holding company to waive the ownership and
voting limitations discussed above for non-members of the exchange.
See, e.g., ISE Mercury Order and ISE Gemini Order, supra note 32;
MIAX Emerald Order, MIAX Pearl Order, and MIAX Order, supra note 18;
and Securities Exchange Act Release No. 61698 (Mar. 12, 2010), 75 FR
13151 (Mar. 18, 2010) (File Nos. 10-194 and 10-196) (order approving
DirectEdge exchanges) (``DirectEdge Exchanges Order'').
\75\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B).
These provisions are generally consistent with waiver of ownership
and voting limits approved by the Commission for other SROs. See,
e.g., ISE Mercury Order, supra note 32; MIAX Emerald Order, MIAX
Pearl Order, and MIAX Order, supra note 18; BATS Order, supra note
18; NSX Demutualization Order, supra note 64; CHX Demutualization
Order, supra note 64; and Securities Exchange Act Release No. 49718
(May 17, 2004), 69 FR 29611 (May 24, 2004) (SR-PCX-2004-08).
\76\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B).
---------------------------------------------------------------------------

The Miami Holdings Certificate also contains provisions that are
designed to further safeguard the ownership and voting limitations
described above or are otherwise related to direct and indirect changes
in control. Specifically, any person that, either alone or together
with its related persons owns, directly or indirectly (whether by
acquisition or by a change in the number of shares outstanding), of
record or beneficially, 5% or more of the then-outstanding shares of
capital stock of Miami Holdings will be required to immediately notify
the Miami Holdings Board in writing upon acquiring knowledge of such
ownership.\77\ Thereafter, such persons will be required to update
Miami Holdings Board of any increase or decrease of 1% or more in their
previously reported ownership percentage.\78\
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\77\ See Miami Holdings Certificate, Article NINTH(c)(i). The
notice will require the person's full legal name; the person's title
or status and the date on which such title or status was acquired;
the person's (and its related person's) approximate ownership
interest in Miami Holdings; and whether the person has power,
directly or indirectly, to direct the management or policies of
Miami Holdings. See id.
\78\ See Miami Holdings Certificate, Article NINTH(c)(ii).
Changes of less than 1% must also be reported to Miami Holdings
Board if they result in such person crossing a 20% or 40% ownership
threshold. See id. In addition, the MIAX Sapphire rules also impose
limits on affiliation between MIAX Sapphire and a member of MIAX
Sapphire. See MIAX Sapphire Rule 201(g) (``Without prior Commission
approval, the Exchange or any entity with which it is affiliated
shall not directly or indirectly through one or more intermediaries
acquire or maintain an ownership interest in an Exchange Member. In
addition, without prior Commission approval, no Member shall be or
become affiliated with (1) the Exchange; or (2) any affiliate of the
Exchange. Nothing herein shall prohibit a Member from acquiring or
holding an equity interest in (i) Miami International Holdings, Inc.
that is permitted by the Certificate of Incorporation of Miami
International Holdings, Inc. or (ii) MIAX Sapphire that is permitted
by the Amended and Restated Limited Liability Company Agreement of
MIAX Sapphire.'').
---------------------------------------------------------------------------

The MIAX Sapphire LLC Agreement does not include change of control
provisions that are similar to those in the Miami Holdings Certificate;
however, the MIAX Sapphire LLC Agreement explicitly provides that Miami
Holdings is the sole LLC Member of MIAX Sapphire.\79\ Thus, if Miami
Holdings ever proposes to no longer be the sole LLC Member of MIAX
Sapphire (and therefore no longer its sole owner), MIAX Sapphire would
be required to amend the MIAX Sapphire LLC Agreement and the MIAX
Sapphire By-Laws. Any changes to the MIAX Sapphire LLC Agreement or the
MIAX Sapphire By-Laws, including any change in the provisions that
identify Miami Holdings as the sole owner of MIAX Sapphire, must be
filed with, or filed with and approved by, the Commission pursuant to
Section 19 of the Act, as the case may be.\80\ Further, pursuant to the
MIAX Sapphire By-Laws, Miami Holdings may not transfer or assign, in
whole or in part, its ownership interest in MIAX Sapphire, unless such
transfer is filed with and approved by the Commission pursuant to
Section 19 of the Act.\81\
---------------------------------------------------------------------------

\79\ See MIAX Sapphire LLC Agreement and MIAX Sapphire By-Laws,
Article I(v) (both of which define ``LLC Member'' to mean Miami
Holdings, as the sole member of MIAX Sapphire).
\80\ See 15 U.S.C. 78s. See also MIAX Sapphire LLC Agreement,
Section 28(b).
\81\ See MIAX Sapphire By-Laws, Article III, Section 3.4.
---------------------------------------------------------------------------

Although Miami Holdings is not directly responsible for regulation,
its activities with respect to the operation of MIAX Sapphire must be
consistent with, and must not interfere with, the self-regulatory
obligations of MIAX

[[Page 58853]]

Sapphire.\82\ As described above, the provisions applicable to direct
and indirect changes in control of Miami Holdings and MIAX Sapphire, as
well as the voting limitation imposed on owners of Miami Holdings who
also are MIAX Sapphire members, are designed to help prevent any owner
of Miami Holdings from exercising undue influence or control over the
operation of MIAX Sapphire and to help ensure that MIAX Sapphire
retains a sufficient degree of independence to effectively carry out
its regulatory obligations under the Act.
---------------------------------------------------------------------------

\82\ See, e.g., IEX Order, supra note 64.
---------------------------------------------------------------------------

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 stated in the past, a member's ownership interest in 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.\83\ 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 MIAX Sapphire to effectively carry out
its regulatory oversight responsibilities under the Act.
---------------------------------------------------------------------------

\83\ See, e.g., ISE Mercury Order, supra note 32; MIAX Emerald
Order, MIAX Pearl Order, and MIAX Order, supra note 18; BATS Order,
supra note 18; and DirectEdge Exchanges Order, supra note 74.
---------------------------------------------------------------------------

MIAX Sapphire's and Miami Holding's proposed governance provisions
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.\84\ 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 MIAX
Sapphire to effectively carry out their regulatory oversight
responsibilities under the Act.
---------------------------------------------------------------------------

\84\ 15 U.S.C. 78f(b)(1). See also ISE Mercury Order, supra note
32; MIAX Emerald Order, MIAX Pearl Order, and MIAX Order, supra note
18; and BOX Order, supra note 18.
---------------------------------------------------------------------------

2. Regulatory Independence and Oversight
Although Miami Holdings will not itself carry out regulatory
functions, its activities with respect to the operation of MIAX
Sapphire must be consistent with, and must not interfere with, MIAX
Sapphire's self-regulatory obligations. In this regard, MIAX Sapphire
has proposed to adopt certain provisions in its governing documents,
and Miami Holdings has certain provisions in its existing governing
documents, that are designed to help maintain the independence of the
regulatory functions of MIAX Sapphire. These proposed provisions are
substantially similar to those included in the governing documents of
other exchanges that have been granted registration.\85\ Specifically:
---------------------------------------------------------------------------

\85\ See, e.g., DirectEdge Exchanges Order, supra note 74; and
BATS Order, supra note 18. See also Securities Exchange Act Release
No. 61152 (Dec. 10, 2009), 74 FR 66699 (Dec. 16, 2009) (File No. 10-
191) (order approving C2 Options Exchange, Incorporated (``C2''))
(``C2 Order'').
---------------------------------------------------------------------------

<bullet> The directors, officers, employees, and agents of Miami
Holdings must give due regard to the preservation of the independence
of the self-regulatory function of MIAX Sapphire and to its obligations
to investors and the general public and must not take actions that
would interfere with the effectuation of decisions by the MIAX Sapphire
Board relating to its regulatory functions (including disciplinary
matters) or that would interfere with MIAX Sapphire's ability to carry
out its responsibilities under the Act.\86\
---------------------------------------------------------------------------

\86\ See Amended and Restated By-Laws of Miami Holdings (``Miami
Holdings By-Laws''), Article VII, Section 1. Similarly, Article II,
Section 2.1(d) of the MIAX Sapphire By-Laws requires the MIAX
Sapphire Board to, when managing the business and affairs of MIAX
Sapphire and evaluating any proposal, consider the requirements of
Section 6(b) of the Act. Section 2.1(e) of the MIAX Sapphire By-Laws
also requires the MIAX Sapphire Board, when evaluating any proposal
to take into account (among other things and to the extent
relevant), the potential impact on the integrity, continuity, and
stability of the national securities exchange operated by MIAX
Sapphire and the other operations of MIAX Sapphire, on the ability
to prevent fraudulent and manipulative acts and practices and on
investors and the public; and whether such would 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 or assist in the removal of impediments to or perfection
of the mechanism for a free and open market and a national market
system.
---------------------------------------------------------------------------

<bullet> Miami Holdings must comply with federal securities laws
and the rules and regulations promulgated thereunder, and agrees to
cooperate with the Commission and MIAX Sapphire pursuant to, and to the
extent of, their respective regulatory authority. In addition, Miami
Holdings' officers, directors, employees, and agents must comply with
federal securities laws and the rules and regulations promulgated
thereunder and agree to cooperate with the Commission and MIAX Sapphire
in respect of the Commission's oversight responsibilities regarding
MIAX Sapphire and the self-regulatory functions and responsibilities of
MIAX Sapphire.\87\ Miami Holdings must take reasonable steps necessary
to cause its officers, directors, employees, and agents to so
cooperate.\88\
---------------------------------------------------------------------------

\87\ See Miami Holdings By-Laws, Article VII, Section 4.
\88\ See id.
---------------------------------------------------------------------------

<bullet> Miami 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 MIAX Sapphire, for purposes of
any action, suit, or proceeding pursuant to U.S. federal securities
laws, and the rules and regulations thereunder, arising out of, or
relating to, MIAX Sapphire activities.\89\
---------------------------------------------------------------------------

\89\ See Miami Holdings By-Laws, Article VII, Section 5.
---------------------------------------------------------------------------

<bullet> All books and records of MIAX Sapphire reflecting
confidential information pertaining to the self-regulatory function of
MIAX Sapphire (including but not limited to disciplinary matters,
trading data, trading practices, and audit information) shall be
retained in confidence by MIAX Sapphire and its personnel and will not
be used by MIAX Sapphire for any non-regulatory purpose and shall not
be made available to persons (including, without limitation, any
Exchange Member) other than to personnel of the Commission, and those
personnel of MIAX Sapphire, members of committees of MIAX Sapphire,
members of the MIAX Sapphire Board, or hearing officers and other
agents of MIAX Sapphire, to the extent necessary or appropriate to
properly discharge the self-regulatory function of MIAX Sapphire.\90\
---------------------------------------------------------------------------

\90\ See MIAX Sapphire By-Laws, Article X, Section 10.4. The
Miami Holdings By-Laws also provide that all books and records of
MIAX Sapphire reflecting confidential information pertaining to the
self-regulatory function of MIAX Sapphire will be subject to
confidentiality restrictions and will not be used for any non-
regulatory purposes. See Miami Holdings By-Laws, Article VII,
Section 2. The Miami Holdings governing documents acknowledge that
the requirements to keep such information confidential shall not
limit or impede the rights of the Commission to access and examine
such information or limit or impede the ability of officers,
directors, employees, or agents of Miami Holdings to disclose such
information to the Commission or MIAX Sapphire. See id.

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[[Page 58854]]

<bullet> The books and records of MIAX Sapphire and Miami Holdings
must be maintained in the United States \91\ and, to the extent they
are related to the operation or administration of MIAX Sapphire, Miami
Holdings books and records will be subject at all times to inspection
and copying by the Commission and MIAX Sapphire.\92\
---------------------------------------------------------------------------

\91\ See MIAX Sapphire By-Laws, Article X, Section 10.4; Miami
Holdings By-Laws, Article VII, Section 3.
\92\ See Miami Holdings By-Laws, Article VII, Section 3.
---------------------------------------------------------------------------

<bullet> Furthermore, to the extent they relate to the activities
of MIAX Sapphire, the books, records, premises, officers, directors,
employees, and agents of Miami Holdings will be deemed to be the books,
records, premises, officers, directors, employees, and agents of MIAX
Sapphire, for purposes of, and subject to oversight pursuant to, the
Act.\93\
---------------------------------------------------------------------------

\93\ See id.
---------------------------------------------------------------------------

<bullet> Miami Holdings will take reasonable steps necessary to
cause its officers, directors, employees, and agents, prior to
accepting a position as an officer, director, employee, or agent (as
applicable) of Miami Holdings 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 MIAX Sapphire.\94\
---------------------------------------------------------------------------

\94\ See Miami Holdings By-Laws, Article VII, Section 6.
---------------------------------------------------------------------------

<bullet> The Miami Holdings Certificate and By-Laws require that,
so long as Miami Holdings controls MIAX Sapphire, any changes to those
documents be submitted to the MIAX Sapphire Board, and, if such change
is required to be filed with the Commission pursuant to Section 19(b)
of the Act and the rules and regulations thereunder, such change shall
not be effective until filed with, or filed with and approved by, the
Commission.\95\
---------------------------------------------------------------------------

\95\ See Miami Holdings Certificate, Article EIGHTH; Miami
Holdings By-Laws, Article XII, Section 1.
---------------------------------------------------------------------------

The provisions discussed in this section, which are designed to
help ensure the independence of MIAX Sapphire's regulatory function and
facilitate the ability of MIAX Sapphire 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.\96\
---------------------------------------------------------------------------

\96\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

Further, Section 19(h)(1) of the Act \97\ 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).\98\ If the 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) and 19(g)(1),\99\ these matters could
provide the basis for a disciplinary proceeding under Section 19(h)(1)
of the Act.
---------------------------------------------------------------------------

\97\ See 15 U.S.C. 78s(h)(1).
\98\ See id.
\99\ 15 U.S.C. 78f(b)(1); 15 U.S.C. 78s(g)(1).
---------------------------------------------------------------------------

Even in the absence of the governance provisions described above,
under Section 20(a) of the Act, any person with a controlling interest
in MIAX Sapphire would be jointly and severally liable with and to the
same extent that MIAX Sapphire 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.\100\ In addition, Section 20(e) of the
Act creates aiding and abetting liability for any person who knowingly
provides substantial assistance to another person in violation of any
provision of the Act or rule thereunder.\101\ 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.\102\ These
provisions are applicable to all entities' dealings with MIAX Sapphire,
including Miami Holdings.
---------------------------------------------------------------------------

\100\ 15 U.S.C. 78t(a).
\101\ 15 U.S.C. 78t(e).
\102\ 15 U.S.C. 78u-3.
---------------------------------------------------------------------------

3. Regulatory Oversight Committee
The regulatory operations of MIAX Sapphire will be monitored by the
Regulatory Oversight Committee of the Exchange Board. The Regulatory
Oversight Committee will consist of at least three Directors, all of
whom will be Non-Industry Directors. The Regulatory Oversight Committee
will be responsible for overseeing the adequacy and effectiveness of
MIAX Sapphire's regulatory and SRO responsibilities, assessing MIAX
Sapphire's regulatory performance, and assisting the Exchange Board
(and committees of the Exchange Board) in reviewing MIAX Sapphire's
regulatory plan and the overall effectiveness of MIAX Sapphire's
regulatory functions.\103\
---------------------------------------------------------------------------

\103\ See MIAX Sapphire By-Laws, Article IV, Section 4.5(c). The
Regulatory Oversight Committee is responsible for reviewing MIAX
Sapphire's regulatory budget, and also will meet regularly with the
Chief Regulatory Officer (``CRO''). See id.
---------------------------------------------------------------------------

Further, a CRO of MIAX Sapphire will have general supervision over
MIAX Sapphire's regulatory operations, including responsibility for
overseeing MIAX Sapphire's surveillance, examination, and enforcement
functions and for administering any regulatory services agreements with
another SRO to which MIAX Sapphire is a party.\104\ The Regulatory
Oversight Committee also will be responsible for recommending
compensation and personnel actions involving the CRO and senior
regulatory personnel to the Compensation Committee of MIAX Sapphire for
action.\105\ The CRO will report to the Regulatory Oversight
Committee.\106\
---------------------------------------------------------------------------

\104\ See MIAX Sapphire By-Laws, Article VI, Section 6.10.
\105\ See MIAX Sapphire By-Laws, Article IV, Section 4.5(c).
\106\ See MIAX Sapphire By-Laws, Article VI, Section 6.10.
---------------------------------------------------------------------------

4. Regulatory Funding and Services
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.\107\ 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.\108\ The
discussion below summarizes how MIAX Sapphire has proposed to structure
and conduct its regulatory operations.
---------------------------------------------------------------------------

\107\ See 15 U.S.C. 78f(b)(1).
\108\ See id. See also 15 U.S.C. 78s(g).
---------------------------------------------------------------------------

a. Regulatory Funding
To help ensure that MIAX Sapphire has and will continue to have
adequate funding to be able to meet its responsibilities under the Act,
MIAX Sapphire represents that, prior to beginning operations as a
national securities exchange, Miami Holdings will allocate sufficient
assets to the Exchange to enable its operation.\109\

[[Page 58855]]

Specifically, MIAX Sapphire represents that prior to launching
operations, Miami Holdings will make a cash contribution to the
Exchange of $5,000,000, ``in addition to any previously-provided in-
kind contributions, such as legal, regulatory, and infrastructure-
related services.'' \110\ MIAX Sapphire represents that such cash and
in-kind contributions by Miami Holdings will be adequate to operate the
Exchange, including the regulation of the Exchange.
---------------------------------------------------------------------------

\109\ See MIAX Sapphire Form 1, Exhibit I.
\110\ Id.
---------------------------------------------------------------------------

Miami Holdings will be required to provide adequate funding for
MIAX Sapphire's ongoing operations, including the regulation of MIAX
Sapphire, pursuant to a written agreement (``Funding Agreement'')
between MIAX Sapphire and Miami Holdings. This Funding Agreement
provides that MIAX Sapphire will receive all fees, including regulatory
fees and trading fees, payable by MIAX Sapphire's members, as well as
any funds received from any applicable market data fees and Options
Price Reporting Authority tape revenue. The Funding Agreement further
provides that Miami Holdings will reimburse MIAX Sapphire for its costs
and expenses to operate the Exchange and to carry out its SRO
obligations.\111\
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\111\ See id. Based on the various financial statements for 2022
that MIAX Sapphire has filed as part of its Form 1 for itself, its
affiliates, and Miami Holdings, the Commission believes that the
Funding Agreement appropriately will facilitate the ability of MIAX
Sapphire to commence and continue operations.
---------------------------------------------------------------------------

Further, any ``Regulatory Funds'' received by MIAX Sapphire will
not be used for non-regulatory purposes or distributed to Miami
Holdings, but rather, will be applied to fund the legal and regulatory
operations of MIAX Sapphire, or, as applicable, used to pay restitution
and disgorgement of funds intended for customers.\112\ Any excess non-
regulatory funds, as determined by MIAX Sapphire, will be remitted to
Miami Holdings.\113\
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\112\ See MIAX Sapphire By-Laws, Article IX, Section 9.4. See
also MIAX Sapphire LLC Agreement, Section 16. MIAX Sapphire By-Laws,
Article 1(gg) defines ``Regulatory Funds'' as ``fees, fines, or
penalties derived from the regulatory operations of [MIAX
Sapphire],'' but such term does not include ``revenues derived from
listing fees, market data revenues, transaction revenues, or any
other aspect of the commercial operations of [MIAX Sapphire], even
if a portion of such revenues are used to pay costs associated with
the regulatory operations of [MIAX Sapphire].'' This definition is
consistent with the rules of other SROs. See, e.g., By-Laws of MIAX
Pearl, Article 1(gg); By-Laws of MIAX Emerald, Article 1(gg); By-
Laws of MIAX Exchange, Article I(ll).
\113\ See MIAX Sapphire Form 1, Exhibit I.
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b. Regulatory Contract With FINRA
Although MIAX Sapphire will be an SRO with all of the attendant
regulatory obligations under the Act, Financial Industry Regulatory
Authority, Inc. (``FINRA'') will serve as a regulatory services
provider and perform certain regulatory functions on behalf of MIAX
Sapphire pursuant to a Regulatory Services Agreement (``RSA'').\114\
Specifically, such services will include assisting MIAX Sapphire with
member registration and related administrative support services;
certain cross-market surveillance services; certain options trading
examinations; at MIAX Sapphire's request, investigating potential
violations of enumerated MIAX Sapphire market rules, as well as federal
securities laws, and rules and regulations thereunder, related to MIAX
Sapphire market activity; performing examinations related to options,
including routine and for cause examinations of Exchange Members under
certain MIAX Sapphire rules and federal securities laws; bringing
formal disciplinary actions, including hearing officer services; and
providing arbitration, mediation, and other dispute resolution services
to Exchange Member firms.\115\
---------------------------------------------------------------------------

\114\ See MIAX Sapphire Form 1, Exhibit L.
\115\ See id.
---------------------------------------------------------------------------

Notwithstanding the RSA, MIAX Sapphire will retain legal
responsibility for the regulation of its Members and its market and the
performance of FINRA as its regulatory services provider. Because MIAX
Sapphire has entered into an RSA with FINRA, it has not made provisions
to fulfill the regulatory services that will be undertaken by FINRA.
Accordingly, the Commission is conditioning the operation of MIAX
Sapphire on a final RSA with FINRA that specifies the services that
will be provided to MIAX Sapphire.
It is consistent with the Act for MIAX Sapphire to contract with
FINRA to perform certain examination, enforcement, and disciplinary
functions.\116\ These functions are fundamental elements of a
regulatory program and constitute core self-regulatory functions. The
Commission believes that FINRA has the expertise and experience to
perform these functions for MIAX Sapphire.\117\ However, MIAX Sapphire,
unless relieved by the Commission of its responsibility, bears the
self-regulatory responsibilities and primary liability for self-
regulatory failures, not the SRO retained to perform regulatory
functions on MIAX Sapphire's behalf.\118\ In performing these
regulatory functions, however, FINRA may nonetheless bear liability for
causing or aiding and abetting the failure of MIAX Sapphire to perform
its regulatory functions.\119\ Accordingly, although FINRA will not act
on its own behalf under its SRO responsibilities in carrying out these
regulatory services for MIAX Sapphire, FINRA 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 or rules thereunder by MIAX Sapphire.
---------------------------------------------------------------------------

\116\ For example, MIAX Emerald, MIAX Pearl, MIAX Exchange, Long
Term Stock Exchange, Inc. (``LTSE''), IEX, Nasdaq MRX, LLC, Cboe
EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., and Cboe BZX
Exchange, Inc. (``Cboe BZX'') have all entered into 17d-2 plans and
RSAs with FINRA. See infra section III.B.4.c for further discussion
of Rule 17d-2 plans.
\117\ See, e.g., Securities Exchange Act Release No. 86587 (Aug.
7, 2019), 84 FR 39883 (Aug. 12, 2019) (File No. 4-747) (``LTSE
Order''); IEX Order, supra note 64; DirectEdge Exchanges Order,
supra note 74; and Nasdaq Order, supra note 32. The Commission is
not approving the RSA or any of its specific terms.
\118\ See 15 U.S.C. 78s(g)(1).
\119\ For example, if failings by FINRA have the effect of
leaving MIAX Sapphire in violation of any aspect of MIAX Sapphire's
self-regulatory obligations, MIAX Sapphire would bear direct
liability for the violation, while FINRA may bear liability for
causing or aiding and abetting the violation. See, e.g., Nasdaq
Order, supra note 32; BATS Order, supra note 18; and Securities
Exchange Act Release No. 42455 (Feb. 24, 2000), 65 FR 11388 (Mar. 2,
2000) (File No. 10-127) (approval of registration of International
Securities Exchange Act, LLC (``ISE'') as a national securities
exchange).
---------------------------------------------------------------------------

c. Rule 17d-2 Plans
Section 19(g)(1) of the Act, among other things, requires every SRO
registered as a national securities exchange or national securities
association to comply with the Act, the rules and regulations
thereunder, and the SRO's own rules, and, absent reasonable
justification or excuse, enforce compliance by its members and persons
associated with its members.\120\ Section 17(d) of the Act and Rule
17d-2 thereunder permit SROs to propose joint plans to allocate
regulatory responsibilities amongst themselves for their common rules
with respect to their common members.\121\ These plans, which must be
filed with and declared effective by the Commission, generally

[[Page 58856]]

cover areas where each SRO's rules substantively overlap, including
such regulatory functions as personnel registration and sales
practices. For example, in 2019 the Commission declared effective a
plan to allocate regulatory responsibilities between FINRA and LTSE
pursuant to which FINRA assumes examination and enforcement
responsibility for broker-dealers that are members of both FINRA and
LTSE with respect to the rules of LTSE that are substantially similar
to the applicable rules of FINRA, as well as certain specified
provisions of the federal securities laws.\122\
---------------------------------------------------------------------------

\120\ 15 U.S.C. 78s(g)(1).
\121\ See 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 (``common members''). 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.
\122\ See LTSE Order. See also, e.g., Securities Exchange Act
Release Nos. 84997 (Jan. 29, 2019), 84 FR 1252 (Feb. 1, 2019)
(FINRA/MIAX Emerald); 83696 (July 24, 2018), 83 FR 35682 (July 27,
2018) (FINRA/MIAX Pearl); 77321 (Mar. 8, 2016), 81 FR 13434 (Mar.
14, 2016) (File No. 4-697) (FINRA/ISE Mercury, LLC); 73641 (Nov. 19,
2014), 79 FR 70230 (Nov. 25, 2014) (File No. 4-678) (FINRA/MIAX
Exchange); 70053 (July 26, 2013), 78 FR 46656 (Aug. 1, 2013) (File
No. 4-663) (FINRA/ISE Gemini, LLC); 59218 (Jan. 8, 2009), 74 FR 2143
(Jan. 14, 2009) (File No. 4-575) (FINRA/Boston Stock Exchange,
Inc.); 58818 (Oct. 20, 2008), 73 FR 63752 (Oct. 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. concerning the CBOE Stock Exchange, LLC);
55367 (Feb. 27, 2007), 72 FR 9983 (Mar. 6, 2007) (File No. 4-529)
(NASD/International Securities Exchange, LLC); and 54136 (July 12,
2006), 71 FR 40759 (July 18, 2006) (File No. 4-517) (NASD/The Nasdaq
Stock Market LLC (``Nasdaq'')).
---------------------------------------------------------------------------

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.\123\ MIAX Sapphire has represented to the
Commission that it intends to become a party to the existing multiparty
options Rule 17d-2 plans concerning sales practice regulation and
market surveillance.\124\ MIAX Sapphire has also represented that it
will enter into a bi-lateral 17d-2 plan to allocate regulatory
responsibility to FINRA for common rules of dual members between MIAX
Sapphire and FINRA.\125\ Under these plans, the examining SROs will
examine firms that are common members of MIAX Sapphire and the
particular examining SRO for compliance with certain provisions of the
Act, certain rules and regulations adopted thereunder, and certain MIAX
Sapphire rules. In addition, the Commission is conditioning operation
of MIAX Sapphire as an exchange on MIAX Sapphire first joining the
applicable multilateral Rule 17d-2 plans.
---------------------------------------------------------------------------

\123\ See supra notes 121-122 and accompanying text.
\124\ See MIAX Sapphire Form 1, Exhibit L. See also Securities
Exchange Act Release No. 68363 (Dec. 5, 2012), 77 FR 73711 (Dec. 11,
2012) (File No. S7-966) (notice of filing and order approving and
declaring effective an amendment to the multiparty 17d-2 plan
concerning options-related sales practice matters); and 68362 (Dec.
5, 2012), 77 FR 73719 (Dec. 11, 2012) (File No. 4-551) (notice of
filing and order approving and declaring effective an amendment to
the multiparty 17d-2 plan concerning options-related market
surveillance).
\125\ See MIAX Sapphire Form 1, Exhibit L.
---------------------------------------------------------------------------

Because MIAX Sapphire anticipates entering into these Rule 17d-2
plans, it has not made provision to fulfill the regulatory obligations
that will be undertaken by FINRA and other SROs under these plans with
respect to common members.\126\ Accordingly, the Commission is
conditioning the operation of MIAX Sapphire on approval by the
Commission of a Rule 17d-2 plan that allocates the above-specified
matters to FINRA, and the approval of an amendment to the existing
multi-party Rule 17d-2 plans specified above to add MIAX Sapphire as a
party.
---------------------------------------------------------------------------

\126\ For common members, the regulatory obligations will be
covered by the Rule 17d-2 plans, and for MIAX Sapphire members that
are not also members of FINRA, the regulatory obligations will be
covered by the RSA.
---------------------------------------------------------------------------

C. Trading System and Trading Floor

MIAX Sapphire will operate both a fully automated electronic
options trading platform and a physical trading floor for the trading
of listed options.\127\ As described below, the electronic trading
platform will operate with a continuous, automated matching
function.\128\ The physical trading floor of the Exchange will be
located in Miami, Florida.\129\ On the trading floor, as described
below, floor brokers will announce to the trading crowd either single-
sided or two-sided orders, thereby exposing the orders to competition
from the crowd, before submitting any matched contracts to the
Exchange's system for execution.\130\
---------------------------------------------------------------------------

\127\ See MIAX Sapphire Form 1, Exhibit E at 44.
\128\ See id. at 44, 53; MIAX Sapphire Rule 514(b).
\129\ See MIAX Sapphire Form 1, Exhibit E at 44.
\130\ See id. at 69; MIAX Sapphire Rule 2030(e)(2).
---------------------------------------------------------------------------

1. Access to MIAX Sapphire
Access to MIAX Sapphire's System \131\ will be granted to
individuals or organizations who are approved to become Members.\132\
Approved Members will be issued Trading Permits that grant the Member
the ability to transact on MIAX Sapphire.\133\ Trading Permits will not
convey upon Members any ownership interest in MIAX Sapphire, and they
will not be transferable except in cases where a Member experiences a
change in control or corporate reorganization.\134\ Membership will be
open to any broker-dealer that: (1) is registered under Section 15 of
the Act; \135\ and (2) has and maintains membership in another
registered national securities exchange (other than MIAX Exchange, MIAX
PEARL, or MIAX Emerald) or FINRA.\136\ There will be no limit to the
number of Trading Permits that MIAX Sapphire may issue, although MIAX
Sapphire will have the authority to limit or decrease the number of
Trading Permits issued in the future.\137\ Members of

[[Page 58857]]

MIAX Sapphire may be Market Makers \138\ or EEMs.\139\
---------------------------------------------------------------------------

\131\ ``System'' means the automated trading system used by the
Exchange for the trading of securities. See MIAX Sapphire Rule 100.
\132\ ``Member'' means an individual or organization that is
registered with the Exchange pursuant to Chapter II of the MIAX
Sapphire Rules for purposes of trading on the Exchange as an
Electronic Exchange Member (``EEM'') or Market Maker. MIAX Sapphire
Members are deemed ``members'' under the Act. See MIAX Sapphire Rule
100. See infra notes 138-139 and accompanying text for a description
of EEMs and Market Makers.
\133\ See MIAX Sapphire Rule 200(a). A ``Trading Permit'' means
a permit issued by the Exchange that confers the ability to transact
on the Exchange. See MIAX Sapphire Rule 100. MIAX Sapphire
represents that it has designed its systems to allow its Members to
individually determine the best method for accessing the Exchange,
whether by using customized front-end software using protocols
determined by the Exchange or through third-party vendors who route
orders to MIAX Sapphire through a front-end or service bureau
configuration. See MIAX Sapphire Form 1, Exhibit E. MIAX Sapphire
will not accept telephone orders. See id. As discussed below, before
participating on the physical trading floor, a Member will need to
submit an application to the Exchange and comply with additional
requirements that are specific to the trading floor. See infra notes
148-151 and accompanying text.
\134\ See MIAX Sapphire Rule 200(e).
\135\ See MIAX Sapphire Rule 200(b).
\136\ See MIAX Sapphire Rule 200(d). If such other registered
national securities exchange has not been designated by the
Commission to examine Members for compliance with financial
responsibility rules pursuant to Rule 17d-1 under the Act, then the
broker-dealer must have and maintain a membership in FINRA. See id.
\137\ See MIAX Sapphire Rule 200(a). MIAX Sapphire would
announce in advance any limitation or decrease it plans to impose
pursuant to Rule 200(a). See id. In the event that MIAX Sapphire
imposes a limitation or decrease, MIAX Sapphire, in doing so, may
not eliminate the ability of an existing Member to trade on the
Exchange unless the Exchange is permitted to do so pursuant to a
rule filing submitted to the Commission under Section 19(b) of the
Act. See id. In addition, MIAX Sapphire's exercise of authority
under MIAX Sapphire Rule 200 would be subject to the provisions of
Section 6(c)(4) of the Act. See id. See also MIAX Pearl Rule 200(a)
(concerning limiting or reducing the number of trading permits).
Further, MIAX Sapphire's exercise of authority under MIAX Sapphire
Rule 200 would be subject to the provisions of Section 6(b)(2) of
the Act, which requires the rules of an exchange to provide that any
registered broker or dealer or any 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. See 15
U.S.C. 78f(b)(2).
\138\ ``Market Maker'' means a Member registered with the
Exchange for the purposes of making markets in options contracts
traded on the Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of the MIAX Sapphire Rules.
See MIAX Sapphire Rule 100. For further discussion of Market Maker
registration, see infra section III.C.3.
\139\ ``Electronic Exchange Member'' or ``EEM'' means the holder
of a Trading Permit who is a Member representing as agent Public
Customer Orders or Non-Customer Orders on the Exchange and those
non-Market Maker Members conducting proprietary trading. See MIAX
Sapphire Rule 100. For definitions of ``Public Customer Order'' and
``Non-Customer Order,'' see MIAX Sapphire Rule 100.
---------------------------------------------------------------------------

A holder of a MIAX Exchange, MIAX Pearl, or MIAX Emerald trading
permit in good standing will be eligible to receive one MIAX Sapphire
Trading Permit.\140\ A holder of a MIAX Exchange, MIAX Pearl, or MIAX
Emerald trading permit who wishes to apply to the Exchange will not be
required to submit a full application for membership on MIAX Sapphire,
but rather will only need to complete selected MIAX Sapphire forms
concerning their election to trade on MIAX Sapphire, consent to MIAX
Sapphire's jurisdiction, and other operational matters.\141\ This
waive-in application process is similar to arrangements in place at
other exchanges.\142\
---------------------------------------------------------------------------

\140\ See MIAX Sapphire Rule 200(c)(1).
\141\ See id.
\142\ See, e.g., C2 Rule 3.1(c)(1) (containing similar expedited
waive-in membership process for members of Cboe) and MIAX Emerald
Rule 200(c)(1) (containing a similar expedited waive-in membership
process for members of MIAX Exchange and MIAX Pearl).
---------------------------------------------------------------------------

Applicants that do not hold a MIAX Exchange, MIAX Pearl, or MIAX
Emerald trading permit and seek to become members of MIAX Sapphire will
need to submit a full application in accordance with procedures
established by the Exchange.\143\ Individuals and entities that become
Members, and their associated persons, will be required to meet and
maintain certain qualification and registration criteria similar to
what is required by other options exchanges.\144\ In addition, MIAX
Sapphire will impose further requirements on Members that seek to do
business with the public.\145\ Applicants who are denied membership may
appeal MIAX Sapphire's decision pursuant to MIAX Sapphire's rules
governing hearings, review, and arbitration.\146\ Every Member will be
subject to MIAX Sapphire's regulatory jurisdiction, including MIAX
Sapphire's disciplinary jurisdiction.\147\
---------------------------------------------------------------------------

\143\ See MIAX Sapphire Rule 200(c)(2).
\144\ See MIAX Sapphire Rules Chapter II. Such criteria include,
but are not limited to, capital maintenance requirements. See, e.g.,
MIAX Exchange Rule 200 Series and C2 Rules 3.1 and 3.2 (containing
similar criteria).
\145\ See MIAX Sapphire Rules Chapter XIII (incorporating by
reference Chapter XIII of the MIAX Exchange Rules).
\146\ See MIAX Sapphire Rules Chapter XI (incorporating by
reference Chapter XI of the MIAX Exchange Rules).
\147\ See MIAX Sapphire Rule 200(g). For MIAX Sapphire's rules
concerning discipline, see MIAX Sapphire Rules Chapter X.
---------------------------------------------------------------------------

MIAX Sapphire will operate a physical trading floor of the Exchange
located in Miami, Florida (``Trading Floor'' or ``Floor''), consisting
of one ``crowd area'' or ``pit'' where Floor Participants will be
located and options contracts will be traded.\148\ ``Floor
Participants'' may be Floor Brokers or Floor Market Makers.\149\ Floor
Brokers will be required to submit a written application to be reviewed
by the Exchange, which will consider an applicant's ability as
demonstrated by their passing a Floor Broker's examination and such
other factors as the Exchange deems appropriate.\150\ No employee of a
Floor Participant will be admitted to the Trading Floor unless that
person is registered with and approved by the Exchange, which may at
any time in its discretion withdraw its approval.\151\
---------------------------------------------------------------------------

\148\ See MIAX Sapphire Rule 100.
\149\ ``Floor Participant'' means Floor Brokers as defined in
MIAX Sapphire Rule 2015 and Floor Market Makers as defined in MIAX
Sapphire Rule 2105(b). See MIAX Sapphire Rule 100. ``Floor Broker''
means an individual who is registered with the Exchange for the
purpose, while on the Trading Floor, of accepting and handling
orders, and a Floor Broker must be registered as a Floor Participant
prior to registering as a Floor Broker. See MIAX Sapphire Rule 2015.
``Floor Market Maker'' means a Floor Participant of the Exchange
located on the Trading Floor who has received permission from the
Exchange to trade in options for his own account. See MIAX Sapphire
Rule 2105(b).
\150\ See MIAX Sapphire Rule 2020.
\151\ See MIAX Sapphire Rule 2010. In exercising Exchange
discretion in withdrawing approval, the Exchange will follow
applicable disciplinary rules and procedures, including the ability
to appeal such Exchange determination. See id.
---------------------------------------------------------------------------

The Commission finds that MIAX Sapphire's proposed membership rules
are consistent with the Act, including Section 6(b)(2) of the Act,
which requires the rules of an exchange to provide that any registered
broker or dealer or natural person associated with a broker or dealer
may become a member of such exchange or associated with a member
thereof.\152\ MIAX Sapphire's proposed rules with respect to exchange
membership are substantially similar to the rules of other
exchanges.\153\
---------------------------------------------------------------------------

\152\ 15 U.S.C. 78f(b)(2).
\153\ See, e.g., MIAX Emerald Rules Chapter II; MIAX Pearl Rules
Chapter II.
---------------------------------------------------------------------------

The Commission notes that pursuant to Section 6(c) of the Act,\154\
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, MIAX Sapphire 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.\155\
---------------------------------------------------------------------------

\154\ 15 U.S.C. 78f(c).
\155\ See, e.g., MIAX Pearl Order, supra note 18, at 92910; ISE
Mercury Order, supra note 32, at 6076; ISE Gemini Order, supra note
32, at 46633; MIAX Order, supra note 18, at 73074; BOX Order, supra
note 18, at 26337; BATS Order, supra note 18, at 49502; and Nasdaq
Order, supra note 32, at 3555.
---------------------------------------------------------------------------

In addition, Members may enter into arrangements with other
parties, including non-Members and other Members, to provide
``Sponsored Access'' to trading on MIAX Sapphire.\156\ Members who
provide such Sponsored Access will be responsible for all trading
conducted pursuant to the access agreement, and to the same extent as
if the Member were trading directly.\157\ Accordingly, Members that
provide Sponsored Access must maintain and implement policies and
procedures to supervise and monitor sponsored trading activity.\158\
Additionally, non-Members who seek to trade on MIAX Sapphire through
Sponsored Access agreements will need to agree to comply with all
applicable federal securities laws and rules and Exchange rules.\159\
MIAX Sapphire's rules governing Sponsored Access arrangements are
similar to the rules of other exchanges.\160\
---------------------------------------------------------------------------

\156\ See MIAX Sapphire Rule 210.
\157\ See MIAX Sapphire Rule 210(b).
\158\ See MIAX Sapphire Rule 210(b)-(c).
\159\ See MIAX Sapphire Rule 210(b). See also, e.g., 17 CFR
240.15c3-5.
\160\ See, e.g., MIAX Pearl Rule 210; MIAX Exchange Rule 210;
Nasdaq Rule 4611(d).
---------------------------------------------------------------------------

2. Linkage
MIAX Sapphire intends to become a participant in the Plan Relating
to Options Order Protection and Locked/Crossed Markets or any successor
plan (``Linkage Plan'').\161\ If admitted as a

[[Page 58858]]

participant to the Linkage Plan, other plan participants would be able
to send orders to MIAX Sapphire in accordance with the terms of the
plan as applied to the Exchange. The MIAX Sapphire Rules include
relevant definitions, establish the conditions pursuant to which
Members may enter orders in accordance with the Linkage Plan, impose
obligations on the Exchange regarding how it must process incoming
orders, establish a general standard that Members and MIAX Sapphire
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.\162\
---------------------------------------------------------------------------

\161\ See MIAX Sapphire Form 1, Exhibit E at 48. See also
Securities Exchange Act Release No. 60405 (July 30, 2009), 74 FR
39362 (Aug. 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, ISE, Nasdaq, NASDAQ OMX BX, Inc., NASDAQ OMX PHLX,
Inc., NYSE Amex LLC, and NYSE Arca, Inc.).
\162\ See Chapter XIV of the MIAX Sapphire Rules (incorporating
by reference Chapter XIV of the MIAX Exchange Rules).
---------------------------------------------------------------------------

MIAX Sapphire has proposed rules that are designed to comply with
the requirements of the Linkage Plan. Further, as provided below,
before MIAX Sapphire can commence operations as a national securities
exchange, it must become a participant in the Linkage Plan.
3. Market Makers
a. Registration of Market Makers
MIAX Sapphire Members may register as Market Makers for the purpose
of making markets in options contracts traded on the Exchange,
electronically or on the Trading Floor.\163\ Market Makers are entitled
to receive certain benefits and privileges in exchange for fulfilling
certain affirmative and negative market-making obligations. To begin
the process of registering as a Market Maker, a Member will be required
to file a written application with MIAX Sapphire.\164\ MIAX Sapphire
will consider an applicant's market making ability and other factors it
deems appropriate in determining whether to approve an applicant's
registration.\165\ All Market Makers will be designated as specialists
and dealers on MIAX Sapphire for all purposes under the Act and rules
thereunder.\166\ In addition, all MIAX Exchange, MIAX Pearl, and MIAX
Emerald market makers in good standing will be eligible to receive a
MIAX Sapphire Trading Permit in the same membership category in which
they operate on MIAX Exchange, MIAX Pearl, or MIAX Emerald.\167\ For
example, a Market Maker in good standing on MIAX Exchange will be
eligible to become a Market Maker on MIAX Sapphire, through the
completion of the necessary forms.\168\ The good standing of a Market
Maker may be suspended, terminated, or otherwise withdrawn if the
conditions for approval cease to be maintained or the Market Maker
violates any of its agreements with MIAX Sapphire or any provisions of
the MIAX Sapphire Rules.\169\
---------------------------------------------------------------------------

\163\ See MIAX Sapphire Rule 100; MIAX Sapphire Rule 600.
\164\ See MIAX Sapphire Rule 600(a).
\165\ See id. The provision permitting MIAX Sapphire 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 C2 Order, supra note 85.
\166\ See MIAX Sapphire Rules 600 and 600(i).
\167\ See MIAX Sapphire Rule 200(c)(1).
\168\ See id.
\169\ See MIAX Sapphire Rule 603(b).
---------------------------------------------------------------------------

A Member that has qualified as a Market Maker may register to make
markets in individual series of options.\170\ A Market Maker may become
registered in a series by either: (i) entering a registration request
via the MEO Interface \171\ prior to 9:00 a.m. Eastern Time of the
current trading day, which registration request will need to be
submitted for every requested trading day; or (ii) entering a
registration request via an Exchange approved electronic interface
submitted prior to 6:00 p.m. Eastern Time of the business day
immediately preceding the next trading day, which registration request
will persist until it is withdrawn.\172\
---------------------------------------------------------------------------

\170\ See MIAX Sapphire Rule 602(a).
\171\ ``MEO Interface'' means a binary order interface used for
submitting certain order types to the MIAX Sapphire System. See MIAX
Sapphire Rule 100.
\172\ See MIAX Sapphire Rule 602(b).
---------------------------------------------------------------------------

No Participant can act as a Floor Market Maker in any option unless
such Participant is already registered as a Floor Market Maker in such
option by the Exchange pursuant to MIAX Sapphire Rule 600.\173\ Floor
Market Makers will be subject to a set of obligations and restrictions
that are specific to Floor Market Makers.\174\ The registration of a
Floor Participant as a Floor Market Maker may be suspended or
terminated by the Exchange upon a determination that such Floor
Participant has failed to properly perform as a Floor Market
Maker.\175\
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\173\ See MIAX Sapphire Rule 2100(a). ``Participant'' means a
firm or organization that is registered with the Exchange pursuant
to Chapter II of the MIAX Sapphire Rules for purposes of
participating in trading on a facility of the Exchange that includes
a Floor Participant. See MIAX Sapphire Rule 100.
\174\ See MIAX Sapphire Rule 2105.
\175\ See MIAX Sapphire Rule 2100(b).
---------------------------------------------------------------------------

The Commission finds that the MIAX Sapphire qualification
requirements for Market Makers are consistent with the Act. MIAX
Sapphire's rules provide an objective process by which a Member could
become a Market Maker on MIAX Sapphire. The Commission notes that MIAX
Sapphire's proposed Market Maker qualification requirements are
substantially similar to those of other options exchanges.\176\
---------------------------------------------------------------------------

\176\ See, e.g., Cboe BZX Rules 22.2, 22.3 and 22.4; Nasdaq
Rules, Options 2.
---------------------------------------------------------------------------

b. Market Maker Obligations
Pursuant to MIAX Sapphire rules, all Market Makers, including Floor
Market Makers, will be subject to a number of general obligations. In
particular, the transactions of a Market Maker in its market making
capacity must constitute a course of dealings reasonably calculated to
contribute to the maintenance of a fair and orderly market.\177\ Among
other things, a Market Maker must: (1) during trading hours, maintain a
two-sided market in those option series in which the Market Maker is
registered to trade, in a manner that enhances the depth, liquidity,
and competitiveness of the market; (2) engage in dealings for its own
account when there is a lack of price continuity, a temporary disparity
between the supply of (or demand for) a particular option contract, or
a temporary distortion of the price relationships between option
contracts of the same series; (3) compete with other Market Makers; (4)
make markets that will be honored for the number of contracts entered
into the Exchange's System; (5) update quotations in response to
changed market conditions; and (6) maintain active markets.\178\ In
addition, Market Makers must maintain minimum net capital in accordance
with the federal securities laws.\179\
---------------------------------------------------------------------------

\177\ See MIAX Sapphire Rule 604(a).
\178\ See id.
\179\ See MIAX Sapphire Rule 608.
---------------------------------------------------------------------------

On a daily basis, a Market Maker must provide continuous two-sided
quotes for 90% of the time on a given trading day, or such higher
percentage as MIAX Sapphire may announce in advance, in at least 75% of
the options series in which the Market Maker is registered.\180\
Further, a Market Maker may be called upon by MIAX Sapphire to submit a
single bid or offer or maintain continuous bid and offers in one or
more series to which the Market Maker is registered whenever, in the
judgment of the Exchange, it is necessary to do so in the interest of
fair and orderly markets.\181\
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\180\ See MIAX Sapphire Rule 605(d)(1) and (d)(3). Immediate-or-
Cancel Orders from Market Makers will not be counted for the
continuous quoting obligations of Market Makers. See MIAX Sapphire
Rule 605, Interpretations and Policies .01.
\181\ See MIAX Sapphire Rule 605(d)(2).

---------------------------------------------------------------------------

[[Page 58859]]

On the Trading Floor, in response to any request for quote by a
Floor Broker or Options Exchange Official,\182\ a Floor Market Maker
must provide a two-sided market complying with quote spread parameter
requirements contained in MIAX Sapphire Rule 2105(d)(1) and with a size
of not less than 10 contracts.\183\ With respect to classes of options
to which a Floor Market Maker is assigned, whenever a Floor Market
Maker is called upon by an Options Exchange Official or a Floor Broker
to make a market, the Floor Market Maker is expected to engage in
dealing for its own account when there is a lack of price continuity, a
temporary disparity between the supply of and demand for a particular
option contract, or a temporary distortion of the price relationships
between option contracts of the same class.\184\ Further, in the course
of maintaining a fair and orderly market, a Floor Market Maker is
expected to provide quotations that comply with the quote spread
parameters (bid/ask differentials) in MIAX Sapphire Rule 2105(d)(1),
unless the Exchange establishes otherwise for one or more series of
options classes, and to bid no more than $1 lower (or offer no more
than $1 higher) than the last preceding transaction price for the
particular option contract.\185\
---------------------------------------------------------------------------

\182\ See MIAX Sapphire Rule 2080, Interpretations & Policies
.02 (stating that Exchange employees or officials designated as an
Options Exchange Official will from time to time as provided in the
MIAX Sapphire Rules have the ability to recommend and enforce rules
and regulations relating to trading access, order, decorum, health,
safety, and welfare on the Exchange).
\183\ See MIAX Sapphire Rule 2100(c)(1). In classes of options
contracts to which a Floor Market Maker is assigned, a Floor Market
Maker is expected to provide bids and offers so as to create
differences of no more than $0.25 between the bid and offer for each
option contract for which the prevailing bid is less than $2; no
more than $0.40 where the prevailing bid is $2 or more but less than
$5; no more than $0.50 where the prevailing bid is $5 or more but
less than $10; no more than $0.80 where the prevailing bid is $10 or
more but less than $20; and no more than $1 where the prevailing bid
is $20 or more, provided that, in the case of equity options, the
bid/ask differentials stated above shall not apply to in-the-money
series where the market for the underlying security is wider than
the differentials set forth above. See MIAX Sapphire Rule
2100(d)(1).
\184\ See MIAX Sapphire Rule 2105(d).
\185\ See MIAX Sapphire Rule 2105(d)(1) and (2). The maximum
option price change standard will not ordinarily apply if the price
per share of the underlying stock or exchange-traded fund share has
changed by more than $1 since the last preceding transaction for the
particular option contract. See MIAX Sapphire Rule 2105(d)(2).
---------------------------------------------------------------------------

In options classes other than those in which a Market Maker is
registered, the total number of contracts executed by the Market Maker
may not exceed 25% of the total number of all contracts executed by the
Market Maker in any calendar quarter.\186\ On the Trading Floor, with
respect to classes of options other than those to which a Floor
Broker's assignment extends, a Floor Market Maker, whenever he enters
the trading crowd or is called upon by an Options Exchange Official or
a Floor Broker to make a market, will be subject to the obligations in
MIAX Sapphire Rule 2105(d).\187\ The registration of any Member as a
Market Maker may be subject to suspension or termination by the
Exchange upon a determination that the Member has failed to properly
perform as a Market Maker.\188\
---------------------------------------------------------------------------

\186\ See MIAX Sapphire Rule 605(e). See also Nasdaq Rules,
Options 2, Section 6(b).
\187\ See MIAX Sapphire Rule 2105(e). See supra note 185 and
accompanying text for a discussion of the requirements of MIAX
Sapphire Rule 2105(d).
\188\ See MIAX Sapphire Rule 600(b).
---------------------------------------------------------------------------

Market Makers will receive certain benefits in return for
satisfying their responsibilities.\189\ 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.\190\ In addition, market
makers are excepted from the prohibition in Section 11(a) of the
Act.\191\ Market Makers on MIAX Sapphire will not receive special
trading allocations or similar rights vis-[agrave]-vis other
Members.\192\
---------------------------------------------------------------------------

\189\ See, e.g., Securities Exchange Act Release No. 57478 (Mar.
12, 2008), 73 FR 14521 (Mar. 18, 2008) (SR-NASDAQ-2007-004) (``NOM
Approval Order''), at 14526; BATS Order, supra note 18, at 5159
(discussing the benefits and obligations of market makers).
\190\ See 12 CFR 221.5 and 12 CFR 220.7; see also 17 CFR
240.15c3-1(a)(6) (capital requirements for market makers).
\191\ 15 U.S.C. 78k(a). See also infra section III.C.5.
\192\ See MIAX Sapphire Rule 514. See also MIAX Sapphire Form 1,
Exhibit E at 2.
---------------------------------------------------------------------------

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.\193\ 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.\194\ Nevertheless, MIAX Sapphire's
proposed Market Maker obligations are substantially similar to those of
another options exchange.\195\ MIAX Sapphire's Market Maker
participation requirements impose affirmative obligations on MIAX
Sapphire's Market Makers that balance the benefits afforded to such
participants and, accordingly, are consistent with the Act.
---------------------------------------------------------------------------

\193\ See NOM Approval Order, supra note 189, at 14526; and BATS
Order, supra note 18, at 5159.
\194\ See id.
\195\ See, e.g., BOX Rule 8500.
---------------------------------------------------------------------------

Finally, MIAX Sapphire's proposed continuous quoting obligations
for Market Makers on MIAX Sapphire's electronic market and open outcry
quoting obligation for Floor Market Makers on the Trading Floor are
appropriate under the Act and consistent with a Market Maker's
obligation to contribute to the maintenance of a fair and orderly
market.
4. Order Display, Execution, and Priority
On MIAX Sapphire's electronic options marketplace, liquidity will
be derived from quotes as well as orders to buy and orders to sell
submitted to MIAX Sapphire electronically by Members from remote
locations.\196\ On the Trading Floor, liquidity will be provided by
Floor Participants, including Floor Market Makers. After a Floor Broker
announces and exposes a single-sided or two-sided order to the trading
crowd on the Floor, a Floor Broker submits any resulting matched two-
sided order to the Exchange (referred to as a ``Qualified Floor
Order'') for execution.\197\
---------------------------------------------------------------------------

\196\ See MIAX Sapphire Form 1, Exhibit E at 44. The definition
of ``quote'' or ``quotation'' means a bid or offer entered by a
Market Maker as a firm order that updates the Market Maker's
previous bid or offer, if any. An order entered by the Market Maker
in the options series to which such Market Maker is registered
shall, as applicable, constitute a quote or quotation on MIAX
Sapphire. See MIAX Sapphire Rule 100.
\197\ See MIAX Sapphire Form 1, Exhibit E at 44; MIAX Sapphire
Rule 2040. See infra notes 223-233 for further discussion of
``Qualified Floor Orders.''
---------------------------------------------------------------------------

Options traded on the Exchange will be subject to Minimum Price
Variations (``MPV'') that will begin at $0.05 for option contracts
trading at less than $3.00 per option, and $0.10 for option contracts
trading at $3.00 per option or higher.\198\ In addition, MIAX Sapphire
will implement a ``Penny Interval Program'' pursuant to which it will
permit certain options in the most actively traded multiply listed
options classes to be quoted and traded in increments as low as $0.01,
options contracts included in the program that are trading at less than
$3 to be quoted and traded in increments as low as $0.01, and all other
option contracts included in the program that are trading at or above
$3 to be quoted and traded in increments as low as $0.05.\199\
---------------------------------------------------------------------------

\198\ See MIAX Sapphire Rule 510(a).
\199\ See MIAX Sapphire Rule 510(a)(3).
---------------------------------------------------------------------------

Orders submitted to the Exchange will be displayed unless the order
is a contingent order, such as an immediate-

[[Page 58860]]

or-cancel order.\200\ Displayed orders and quotes will be displayed on
an anonymous basis at a specified price.\201\ Non-displayed orders will
not be displayed to any Members and will not have time priority over
displayed orders.\202\ On MIAX Sapphire's Trading Floor, a Floor Broker
must announce an agency order that the Floor Broker is representing to
the trading crowd (``open outcry'') before submitting the order to the
Exchange's System for execution, whether the Floor Broker is
representing a single-sided order and soliciting contra-side interest,
or the Floor Broker has sufficient interest to match against the agency
order already.\203\ Contemporaneously upon receipt of an order and
prior to the announcement of such an order in the trading crowd, a
Floor Broker or its employees must record all options orders
represented by such Floor Broker onto the Floor Broker's order entry
mechanism.\204\ A Participant shall not utilize the Trading Floor to
effect any transaction for its own account, the account of an
associated person, or an account with respect to which it or an
associated person thereof exercises investment discretion by relying on
an exemption under Section 11(a)(1)(G) of the Act (``G
Exemption'').\205\
---------------------------------------------------------------------------

\200\ See MIAX Sapphire Form 1, Exhibit E at 51.
\201\ See id.
\202\ See id.
\203\ See MIAX Sapphire Rules 2030(e)(2) and 2040(b). In
addition, a Floor Broker must ascertain that at least one Floor
Market Maker is present in the crowd area prior to announcing an
order for execution and an Options Exchange Official will certify
that the Floor Broker adequately announced the Qualified Floor Order
to the trading crowd. See MIAX Sapphire Rules 2030(a) and 2040(b).
\204\ See MIAX Sapphire Rule 2030(e).
\205\ See MIAX Sapphire Rule 2040, Interpretations and Policies
.05. Therefore, pursuant to MIAX Sapphire Rule 2040, Interpretations
and Policies .05, Floor Participants utilizing the Trading Floor to
effect transactions in covered accounts cannot rely on the G
Exemption and must rely on other available exemptions to the
prohibition in Section 11(a)(1) of the Act. See infra note 265 and
accompanying text (describing the Section 11(a)(1) prohibition and
defining ``covered accounts'').
---------------------------------------------------------------------------

Members may electronically submit the following types of orders:
Market; Limit; Marketable Limit; Cancel-Replacement; Immediate-or-
Cancel; Intermarket Sweep; Do Not Route; Day Limit; Customer Cross;
Qualified Contingent Cross; Route to Floor; Complex Market; Complex
Limit; Complex Day Limit; Complex Immediate-or-Cancel; Complex Customer
Cross; and Complex Qualified Contingent Cross Orders.\206\ On the
Trading Floor, only Floor Brokers may submit two-sided Qualified Floor
Orders to the Exchange's System for execution after the ``open outcry''
process described in greater detail below.\207\ All of these order
types are based on similar order types available on other options
exchanges.\208\ These order types are substantially similar to order
types approved by the Commission on other exchanges and thus raise no
novel regulatory issues.
---------------------------------------------------------------------------

\206\ See MIAX Sapphire Rules 516 and 518 for a description of
each of these order types. Some of these order types will be valid
only during certain portions of the trading day (e.g., after the
opening), and if a Member submits an order type during a time period
when the order type is not valid, the System will reject the order.
Further, not all order types will be available for use on each of
the MEO Interface and the FIX Interface, and the Exchange will issue
a Regulatory Circular listing which order types, among the order
types listed above, will be available for delivery via the MEO
Interface and which will be available for delivery via the FIX
Interface. See MIAX Sapphire Rule 516. ``FIX Interface'' means the
Financial Information Exchange interface used for submitting certain
order types to the MIAX Sapphire System. See MIAX Sapphire Rule 100.
\207\ See MIAX Sapphire Rule 2040(a). A Qualified Floor Order
will have an initiating side, which is the side of the order which
must be filled in its entirety, and a contra-side, which must
guarantee the full size of the initiating side of the Qualified
Floor Order and may provide a maximum surrender size, as described
below. See MIAX Sapphire Rule 2040(a)(1).
\208\ See, e.g., Nasdaq Rules, Options 3, Section 7(a)(7)
(Intermarket Sweep Order) and (a)(1) (Cancel-replacement Order);
MIAX Exchange Rule 515(h) (Customer Cross Orders, Qualified
Contingent Cross Orders, Complex Customer Cross Orders, Complex
Qualified Contingent Cross Orders); NASDAQ ISE, LLC Rules, Options
3, Section 7(l) (Day Order) and (m) (Do-Not-Route Order); BOX Rule
7600 (Qualified Open Outcry Order, similar to MIAX Sapphire's
proposed Qualified Floor Order).
---------------------------------------------------------------------------

After the opening, trades will execute on MIAX Sapphire when a buy
order and a sell order match one another on the MIAX Sapphire order
book (``MIAX Sapphire Book'' or ``Book'').\209\ The System will
continuously and automatically match orders pursuant to price-time
priority. The highest bid and lowest offer will have priority on the
Exchange. Within each price level, if there are two or more orders at
the best price, trading interest will be executed in time
priority.\210\
---------------------------------------------------------------------------

\209\ See MIAX Sapphire Form 1, Exhibit E at 53. MIAX Sapphire
will open for trading with an opening process that is substantially
identical to the opening process on MIAX Pearl. See MIAX Sapphire
Rule 503 and MIAX Pearl Rule 503.
\210\ See MIAX Sapphire Rule 514(a) and (b). As noted above,
non-displayed orders will not be displayed to any Members and will
not have time priority over displayed orders. See supra note 202 and
accompanying text.
---------------------------------------------------------------------------

MIAX Sapphire has proposed to make available order processing and
matching features, which are based on those features available on MIAX
Pearl. MIAX Sapphire's System will automatically execute incoming
orders that are executable against orders in its System, provided that
such incoming orders will not be executed at prices inferior to the
national best bid and offer (``NBBO'').\211\ MIAX Sapphire Rule 515
sets forth how MIAX Sapphire's System will handle incoming orders that
cannot be executed in part or in full. In particular, MIAX Sapphire
Rule 515 specifies a ``price protection process'' and a ``managed
interest process.''
---------------------------------------------------------------------------

\211\ See MIAX Sapphire Rule 515(a) and (b).
---------------------------------------------------------------------------

The MIAX Sapphire System offers a ``price protection'' process for
all orders that prevents an order from being executed beyond the price
designated in the order's price protection instructions (``the price
protection limit'').\212\ When triggered, price protection will cancel
an order or the remaining contracts of an order. The System will not
execute such orders at prices inferior to the current NBBO.\213\ The
MIAX Sapphire price protection process is substantially similar to that
adopted by MIAX Pearl and can benefit all market participants.\214\
---------------------------------------------------------------------------

\212\ See MIAX Sapphire Rule 515(c). The price protection limit
is expressed in units of MPV away from the NBBO at the time of the
order's receipt, or the best bid and offer on MIAX Sapphire's
regular Book (``SBBO'') if the best bid or offer on away markets
(``ABBO'') is crossing the SBBO. See id. The Exchange will publish a
Regulatory Circular setting a minimum and maximum number of MPVs
away from the NBBO (or SBBO if the ABBO is crossing the SBBO) that a
market participant may designate for its price protection limit. The
Exchange will also set, and announce by Regulatory Circular, a
default price protection limit within 1 to 5 MPVs away from the NBBO
(or SBBO if the ABBO is crossing the SBBO). See id.
\213\ See MIAX Sapphire Rule 515(c).
\214\ See MIAX Pearl Rule 515(c).
---------------------------------------------------------------------------

The Exchange's rules also provide for a process that applies to
non-routable orders \215\ that would either lock or cross the current
opposite side NBBO where the SBBO is inferior to the NBBO (the
``Managed Interest Process'').\216\ The System will not execute such
orders at prices inferior to the current NBBO.\217\ The managed order
would be displayed at one MPV away from the current opposite side NBBO
and placed on the MIAX Sapphire Book at a price equal to the opposite
side NBBO.\218\ Should the NBBO price change to an inferior price
level, the order's displayed price will continue to re-price so that it
is displayed one MPV away from the new NBBO, and the order's Book price
will continuously reprice to lock the new NBBO.\219\ Such re-pricing
will continue until the managed order is fully executed, reaches its
limit price, reaches

[[Page 58861]]

its price protection limit, or is cancelled.\220\ During the Managed
Interest Process, if the Exchange receives a new order or quote on the
opposite side of the market from the managed order that could be
executed, the System will immediately execute the remaining contracts
to the extent possible at the initiating order's current booked bid or
offer price, provided that it does not trade through the current
NBBO.\221\ MIAX Sapphire's Managed Interest Process is consistent with
the managed interest process that the Commission approved for MIAX
Pearl.\222\
---------------------------------------------------------------------------

\215\ Non-routable orders would include, for example, orders
marked ``Do Not Route.'' See MIAX Sapphire Rule 515(d)(2)(i).
\216\ See MIAX Sapphire Rule 515(d)(2).
\217\ See id.
\218\ See MIAX Sapphire Rule 515(d)(2)(ii). See also MIAX Pearl
Rule 515(c)(1)(ii) (providing for the same Managed Interest Process
on MIAX Pearl).
\219\ See MIAX Sapphire Rule 515(d)(2)(ii).
\220\ See id.
\221\ See MIAX Sapphire Rule 515(d)(2)(iii)(A). See also MIAX
Pearl Rule 515(c)(1)(ii).
\222\ See MIAX Pearl Rule 515(c)(1)(ii).
---------------------------------------------------------------------------

On the Trading Floor, as described above, all Qualified Floor
Orders will be subject to an open outcry process prior to submission to
the System for execution. During this process, the Floor Broker must
provide Floor Participants a reasonable amount of time to respond with
interest in trading against the order held by the Floor Broker.\223\
Then the Floor Broker must submit the Qualified Floor Order to the
System without undue delay.\224\ The execution price must be equal to
or better than the NBBO, with certain exceptions, and may not trade
through any equal priced or better priced Priority Customer bids or
offers on the Book or trade through any better priced interest.\225\
The highest bid (or lowest offer) will have priority, but where two or
more bids (or offers) represent the highest (or lowest) price, priority
will be afforded to such bids (or offers) in the sequence in which they
are made.\226\ The Floor Broker will be responsible for handling all
orders in accordance with the Exchange's priority and trade-through
rules and for determining the sequence in which bids or offers are
vocalized on the Trading Floor in response to the Floor Broker's bid,
offer, or call for a market.\227\ If Floor Participants provide a
collective response to a Floor Broker's request for a market in order
to fill a large order and the size of the trading crowd's market
exceeds the size of the order to be filled, that order will be
allocated on a size pro rata basis.\228\
---------------------------------------------------------------------------

\223\ See MIAX Sapphire Rule 2040, Interpretations and Policies
.09. A Floor Participant must verbalize that he is ``in'' after a
Floor Broker announces an order, even if a valid quote has been
provided by the Floor Participant prior to the announcement of the
order by a Floor Broker. See id.
\224\ See MIAX Sapphire Rule 2040(c).
\225\ See id. ``Priority Customer'' is defined as a person or
entity that (i) is not a broker or dealer in securities, and (ii)
does not place more than 390 orders in listed options per day on
average during a calendar month for its own beneficial accounts. See
MIAX Sapphire Rule 100.
\226\ See MIAX Sapphire Rule 2045(a) and (b). If the bids (or
offers) of two or more Floor Participants are made simultaneously,
or if it is impossible to determine clearly the order of time in
which they are made, such bids (or offers) will be deemed to be on
parity and priority will be afforded to them, insofar as
practicable, on an equal basis. See MIAX Sapphire Rule 2045(c). MIAX
Sapphire's rules also provide split-price priority to a Floor
Participant that buys (sells) one or more contracts at one price
with respect to buying (selling) the same number of contracts at the
next lower (higher) price. See MIAX Sapphire Rule 2040(i).
\227\ See MIAX Sapphire Rules 2040(a) and 2045(d)(1).
\228\ See MIAX Sapphire Rule 2045(d)(5). In such circumstances,
the size of the order to be allocated will be multiplied by the size
of an individual Floor Participant's quote divided by the aggregate
size of all Floor Participants' quotes. See MIAX Sapphire Rule
2045(d)(5)(ii).
---------------------------------------------------------------------------

When a Floor Broker holds an order of the eligible size or greater,
the Floor Broker is entitled to cross a certain percentage of the order
with other orders that he is holding.\229\ Specifically, a Floor Broker
is entitled to cross 40% of the remaining contracts in the order, after
all equal or better priced Priority Customer bids or offers on the
Electronic Book and any better priced interest is filled.\230\ In
addition, a Floor Broker may, but is not required to, provide a maximum
surrender size, which is the number of contracts, if any, of the
initiating side of the Qualified Floor Order that the Floor Broker is
willing to relinquish to orders and quotes on the Book that have
priority pursuant to MIAX Sapphire Rule 2040(c).\231\ If the number of
contracts on the Book that have priority over the contra-side order is
greater than the maximum surrender size, then the Qualified Floor Order
will be rejected.\232\ If a Floor Broker announces a Qualified Floor
Order to the trading crowd and Floor Participants respond with interest
to the initiating side and the Floor Broker provides sufficient
interest to match against the initiating side, the Floor Broker will
allocate the initiating side of the order pursuant to an allocation
process.\233\
---------------------------------------------------------------------------

\229\ See MIAX Sapphire Rule 2040(f)(1). The Exchange may
determine, on an option by option basis, the eligible size, which
may not be less than 50 contracts, for an order that may be
transacted pursuant to this guarantee and will communicate any
changes to the eligible order size to Participants via circular. See
MIAX Sapphire Rule 2040(f)(2).
\230\ See MIAX Sapphire Rule 2040(f)(3).
\231\ See MIAX Sapphire Rule 2040(h).
\232\ See id.
\233\ See MIAX Sapphire Rule 2040(a)(1) and (d).
---------------------------------------------------------------------------

The exposure, execution, and priority rules relating to Qualified
Floor Orders are substantially similar to the exposure, execution, and
priority rules of BOX's trading floor's Qualified Open Outcry
Order.\234\
---------------------------------------------------------------------------

\234\ See BOX Rule 7600.
---------------------------------------------------------------------------

A commenter states that MIAX Sapphire's proposed Rule 2045, which
describes the role of a Floor Broker on the Trading Floor and priority
in a trading crowd, ``does not promote just and equitable principles of
trade'' and ``hinders competition.'' \235\ The commenter states that
MIAX Sapphire Rule 2045 would permit a Floor Broker to determine the
sequence in which bids or offers ``would be vocalized'' on the Trading
Floor and the order in which Floor Market Makers ``would be
allocated.'' \236\ The commenter further states that ``[a]llowing a
Floor Broker to determine the sequence in which a Floor Market Maker
may vocalize liquidity in response to its Floor Broker's bid or offer
and receive an allocation vests unnecessary power with the market
participant and presents a conflict of interest.'' \237\ The commenter
explains that, ``unlike an Options Exchange Official, a Floor Broker
has a vested interest in the trade as a party to the transaction'' such
that ``without providing any guidance on the manner in which a Floor
Broker must act in ranking Floor Market Makers'' the rule does not
promote just and equitable principles of trade.\238\ In response, the
Exchange states that proposed MIAX Sapphire Rule 2045(d)(1) is
``substantively identical'' to BOX Rule 7610(d)(1),\239\ and that it
``disagrees with the assertion that there is some inherent conflict of
interest that will impede upon just and equitable principles of
trade.'' \240\ The Exchange further states that proposed MIAX Sapphire
Rule 2045(a) and (b) requires the Floor Broker to give priority to the
highest bid and lowest offer respectively, and proposed MIAX Sapphire
Rule 2045(c) provides that if

[[Page 58862]]

multiple bids or offers are made simultaneously, such bids (or offers)
will be deemed to be on parity and priority will be afforded to them,
insofar as practicable, on an equal basis.\241\ According to the
Exchange, ``MIAX Sapphire does in fact employ the use of Options
Exchange Officials to ensure that just and equitable principles of
trade are upheld.'' \242\ The Exchange states that the Options Exchange
Officials will have the responsibility under proposed MIAX Sapphire
Rule 2045(d)(1) to resolve any disputes regarding a Floor Broker's
determination of time priority sequence, and under proposed MIAX
Sapphire Rule 2040(b) an Options Exchange Official will certify that
the Floor Broker has adequately announced the Qualified Floor Order to
the trading crowd.\243\
---------------------------------------------------------------------------

\235\ Nasdaq Letter at 1. In response, the Exchange states that
approximately 6% of total equity option contract volume is executed
on physical trading floors and that ``four exchange groups (Nasdaq,
NYSE, Cboe, and BOX) have physical options trading floors, whereas
[Miami International Holdings, LLC] does not, and is therefore
unable to compete for this volume.'' MIAX Sapphire Letter at 2.
\236\ Nasdaq Letter at 2.
\237\ Id.
\238\ Id. The commenter states that the rule does not
``provid[e] any guidance on the manner in which a Floor Broker must
act in ranking Floor Market Makers.'' Id. The Exchange states that
it ``disagrees with the Nasdaq assessment that there is no guidance
for Floor Brokers in ranking bids or offers'' and states that the
Exchange's Rule 2045(a) and (b) discusses the priority of bids and
offers. See MIAX Sapphire Letter at 2.
\239\ MIAX Sapphire Letter II at 3. A separate commenter states
that the objection concerned ``one minor rule'' that ``was identical
to an existing rule on another options exchange,'' and calls for the
Commission to quickly approve the Form 1. See Angel Letter at 1-2.
\240\ MIAX Sapphire Letter at 3.
\241\ See MIAX Sapphire Letter II at 2-3.
\242\ MIAX Sapphire Letter at 3 (stating that the Exchange's
Rule 2045(d) provides that the Options Exchange Official will
resolve any disputes regarding a Floor Broker's determination of
time priority sequence and may nullify a transaction or adjust its
terms if they determine the transaction to have been in violation of
Exchange rules).
\243\ See MIAX Sapphire Letter II at 3.
---------------------------------------------------------------------------

The proposed rule does not allow a Floor Broker to ``determine the
sequence in which a Floor Market Maker may vocalize liquidity in
response to [the] Floor Broker's bid or offer'' (emphasis added) as the
commenter describes, but rather MIAX Sapphire Rule 2045 provides for
price-time priority unless ``the bids (or offers) of two or more Floor
Participants are made simultaneously, or if it is impossible to
determine clearly the order of time in which they are made,'' in which
case they are ``deemed to be on parity.'' \244\ Thus, a Floor Broker
cannot prospectively determine the order in which participants in the
trading crowd ``may'' respond, but rather everyone in the trading crowd
is free to respond and the Floor Broker determines the order in which
each Floor Participant did, in fact, so respond. Paragraph (d) of the
rule addresses the determination of time priority sequence, noting that
the Floor Broker determines ``who was first, second, third, and so
forth.'' \245\ If there is any dispute over the Floor Broker's
determination of time priority sequence for the bids/offers the Floor
Broker heard, an Options Exchange Official would resolve the dispute
and the rule provides that the Options Exchange Official's
determination of time priority sequence follows the same process used
by the Floor Broker.\246\ Accordingly, MIAX Sapphire Rule 2045 does not
allow a Floor Broker to constrain the ability of a trading crowd to
compete for orders and provides a reasonable process to settle any
disputes in determining the time sequence order in which Floor
Participants, in fact, vocalized their bids and offers, and as such
this process does not raise concerns about just and equitable
principles of trade or competition.
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\244\ See MIAX Sapphire Rule 2045(a), (b), and (c).
\245\ See MIAX Sapphire Rule 2045(d)(1).
\246\ See MIAX Sapphire Rule 2045(d)(1) and (3). In addition,
MIAX Sapphire Rule 2040(b) requires an Options Exchange Official to
certify that a Floor Broker adequately announced the Qualified Floor
Order to the trading crowd.
---------------------------------------------------------------------------

The commenter also states that the Exchange's Rule 2045(d)(2),
which would allow the Floor Participant with first priority to trade
against all available contracts, ``would disincentivize participation
in the trading crowd by allowing a Floor Market Maker to block other
liquidity providers from participating in the trade.'' \247\ The
commenter further states that, ``[a]s a result, Sapphire's trading
floor would attract less Floor Market Makers because the ability to
participate in trades would be constrained,'' and ``Floor Market Maker
participation in trading crowds is important for price discovery,
liquidity, and competition.'' \248\ According to the commenter, the
rule would result in a trading floor environment that ``does not serve
to remove impediments to and perfect the mechanism of a free and open
market and a national market system.'' \249\ In response, the Exchange
states that the priority rule that the commenter describes ``is the de
facto definition of a price-time allocation model'' and such a model
``is not a new or novel concept in the options industry.'' \250\ The
Exchange also states that, in addition to the Exchange's rule being
``substantively identical'' to BOX Rule 7610(d)(2), the price-time
allocation model is in use on a number of other electronic options
exchanges, including Nasdaq BX, NYSE Arca, and Cboe BZX.\251\ In
addition, the Exchange states that ``a price-time allocation model
would serve to incentivize market participants to always provide their
best price and greatest size which may result in better execution rates
and execution prices for all market participants.'' \252\ The Exchange
further states that because the proposed rules of MIAX Sapphire provide
Floor Brokers with latitude over disclosing the size of the order,
similar to other options trading floors, all Floor Participants are
incentivized to vocalize their best bid or offer price, as the size of
the Floor Broker's order may be unknown, and the size that other Floor
Participants will transact may be similarly unknown.\253\
---------------------------------------------------------------------------

\247\ Nasdaq Letter at 2.
\248\ Id.
\249\ Id. The commenter also states that ``if a Floor Broker had
a financial arrangement with a Floor Market Maker, the Floor Broker
could utilize this rule to favor a certain Floor Market Maker in
terms of allocation by prioritizing that Floor Market Maker.'' Id.
\250\ MIAX Sapphire Letter at 3.
\251\ See id. at 3-4.
\252\ Id. at 4.
\253\ See MIAX Sapphire Letter II at 4-5.
---------------------------------------------------------------------------

The Commission agrees that Floor Market Maker participation in
trading crowds is important for price discovery, liquidity, and
competition. Unlike liquidity provided in an electronic trading system
where the interest has a visible stated price and quantity, a response
from a member of the trading crowd might not have an express verbalized
quantity.\254\ Nevertheless, Floor Participants are incentivized to
compete by offering improved prices and responding promptly.
Accordingly, the proposed rule by itself would not constrain the
ability of Floor Market Makers to provide price improvement and compete
for orders and thus does not raise a concern that the rule would not
serve to remove impediments to and perfect the mechanism of a free and
open market and a national market system. Further, as discussed above,
the price-time allocation model will provide an objective methodology
for allocating trades and the Options Exchange Official will resolve
any disputes about the time priority sequence, thereby alleviating
concerns that a Floor Broker may be prioritizing an allocation to a
particular Floor Market Maker for reasons including a financial
arrangement. The Commission agrees with the Exchange that MIAX Sapphire
Rule 2045 ``does not present any new or novel issues not already
considered by the Commission'' \255\ because the MIAX Sapphire Rule is
not substantively different than BOX Rule 7610.\256\
---------------------------------------------------------------------------

\254\ Floor Market Maker quotations have a minimum size of 10
contracts. See MIAX Sapphire Rule 2105(c)(1).
\255\ MIAX Sapphire Letter at 4.
\256\ See supra note 234 and accompanying text. See also MIAX
Sapphire Letter at 1 (``proposed Rule 2045 is substantively
identical to BOX Rule 7610, which became effective on Aug. 2, 2017,
is currently operative, and has never been amended'').
---------------------------------------------------------------------------

MIAX Sapphire will permit the trading of complex orders on the
Exchange, including on the Trading Floor.\257\ The proposed rules
define the types of complex orders and quotes, and also describe the
priority, execution, and allocation of complex orders and quotes,
including a managed interest process for complex orders.\258\ MIAX
Sapphire also has proposed price and

[[Page 58863]]

order protection features for complex orders.\259\ MIAX Sapphire's
rules governing the trading of complex orders and quotes are consistent
with the complex order rules that the Commission approved for MIAX
Exchange and, with respect to the rules governing the trading of
complex Qualified Floor Orders, BOX.\260\
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\257\ See MIAX Sapphire Rules 518 and 2040.
\258\ See MIAX Sapphire Rules 515, 518, and 2040.
\259\ See MIAX Sapphire Rule 518, Interpretations and Policies
.03.
\260\ See, e.g., MIAX Exchange Rule 518; BOX Rule 7600.
---------------------------------------------------------------------------

MIAX Sapphire's proposed display, execution, and priority rules
discussed above in this section are consistent with the Act. In
particular, the Commission finds that the proposed rules are consistent
with Section 6(b)(5) of the Act,\261\ 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,\262\ 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 MIAX Sapphire are substantially similar to the
current trading rules of MIAX Exchange, MIAX Pearl, MIAX Emerald, and
other exchanges, as noted above, which were filed with and approved by
the Commission (or otherwise became effective) pursuant to Section
19(b) of the Act.\263\ With respect to the rules pertaining to the
Trading Floor, the floor trading rules of MIAX Sapphire are
substantially similar to the current floor trading rules of BOX, which
were filed and approved by the Commission pursuant to Section 19(b) of
the Act.\264\ Therefore, these rules raise no novel regulatory issues
and, as with the substantially similar rules of other exchanges, the
Commission finds that they are consistent with the Act.
---------------------------------------------------------------------------

\261\ 15 U.S.C. 78f(b)(5).
\262\ 15 U.S.C. 78f(b)(8).
\263\ Many of MIAX Exchange's rules were approved at the time
that MIAX Exchange's registration as a national securities exchange
was granted. See MIAX Order, supra note 18.
\264\ See Securities Exchange Act Release No. 81292 (Aug. 2,
2017), 82 FR 37144 (Aug. 8, 2017) (SR-BOX-2016-48) (Order Approving
a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To
Adopt Rules for an Open-Outcry Trading Floor).
---------------------------------------------------------------------------

5. Section 11(a) of the Act
Section 11(a)(1) of the Act \265\ 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.
Sections 11(a)(1)(A)-(I) \266\ of the Act and the rules thereunder
provide certain exemptions from this general prohibition, including the
exemption set forth in Rule 11a2-2(T) under the Act.\267\ 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.\268\
---------------------------------------------------------------------------

\265\ 15 U.S.C. 78k(a)(1).
\266\ 15 U.S.C. 78k(a)(1)(A)-(I).
\267\ 17 CFR 240.11a2-2(T).
\268\ See Letter from Gregory P. Ziegler, Vice President, Senior
Counsel, MIAX Sapphire, dated Mar. 19, 2024 (``MIAX Sapphire 11(a)
Request Letter'').
---------------------------------------------------------------------------

As described above,\269\ MIAX Sapphire Rule 2040, Interpretations
and Policies .05 states that a Participant shall not utilize the
Trading Floor to effect any transaction for a covered account by
relying on the G Exemption.\270\ Because no covered account
transactions utilizing the Trading Floor may rely on the G Exemption,
Participants utilizing the Trading Floor to effect transactions for
covered accounts may only rely upon other exemptions to the Section
11(a)(1) prohibition.\271\
---------------------------------------------------------------------------

\269\ See supra note 205 and accompanying text.
\270\ 15 U.S.C. 78k(a)(1)(G). Section 11(a)(1)(G) of the Act
provides an exemption from the general prohibition in Section
11(a)(1) of the Act for any transaction for a member's own account,
provided that: (i) such member is primarily engaged in the business
of underwriting and distributing securities issued by other persons,
selling securities to customers, and acting as broker, or any one or
more of such activities, and whose gross income normally is derived
principally from such business and related activities; and (ii) such
transaction is effected in compliance with rules of the Commission
which, as a minimum, assure that the transaction is not inconsistent
with the maintenance of fair and orderly markets and yields
priority, parity, and precedence in execution to orders for the
account of persons who are not members or associated with members of
the exchange. See also 17 CFR 240.11a1-1(T) (setting forth
requirements for relying on the G Exemption).
\271\ Section 11(a) of the Act and the rules thereunder provide
other exemptions to the Section 11(a)(1) prohibition, including, for
example, the ``effect versus execute'' exemption (as discussed
below), the exemption for transactions by a dealer acting in the
capacity of a market maker, and the exemption for transactions to
offset a transaction made in error.
---------------------------------------------------------------------------

In addition to statutory exemptions, Rule 11a2-2(T) under the
Act,\272\ 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 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 the order has been transmitted to the
member performing the execution; \273\ and (iv) with respect to an
account over which the member or an associated person has investment
discretion, neither the member nor an associated person may retain any
compensation in connection with effecting the transaction except as
provided in the rule.
---------------------------------------------------------------------------

\272\ 17 CFR 240.11a2-2(T).
\273\ This 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 (Mar. 14, 1978), 43 FR 11542 (Mar. 17, 1978)
(regarding the NYSE's Designated Order Turnaround System) (``1978
Release'').
---------------------------------------------------------------------------

In a letter to the Commission,\274\ MIAX Sapphire requests that the
Commission concur with its conclusion that Exchange Members that enter
orders into the MIAX Sapphire trading system satisfy the requirements
of Rule 11a2-2(T). For the reasons set forth below, Exchange Members
entering orders into the MIAX Sapphire trading system, including
Participants utilizing the Trading Floor, may comply with the
conditions of Rule 11a2-2(T) under the Act.
---------------------------------------------------------------------------

\274\ See MIAX Sapphire 11(a) Request Letter, supra note 268.
---------------------------------------------------------------------------

First, Rule 11a2-2(T) requires that orders for covered accounts be
transmitted from off the exchange floor. 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.\275\

[[Page 58864]]

Floor Brokers will receive orders from members electronically through
the use of a variety of systems.\276\ The Exchange states that, in
order to rely on the ``effect versus execute'' exemption, a Participant
would submit an order for a covered account from off the Trading Floor
to an unaffiliated Floor Broker.\277\ Accordingly, Participants
utilizing the Trading Floor and relying on the ``effect versus
execute'' exemption may satisfy the off-floor transmission requirement.
Further, with respect to orders submitted from remote locations
directly to the MIAX Sapphire System, the MIAX Sapphire System
satisfies this off-floor transmission condition.
---------------------------------------------------------------------------

\275\ See, e.g., Securities Exchange Act Release Nos. 59154
(Dec. 23, 2008), 73 FR 80468 (Dec. 31, 2008) (SR-BSE-2008-48) (order
approving proposed rules of BX); 49068 (Jan. 13, 2004), 69 FR 2775
(Jan. 20, 2004) (establishing, among other things, BOX as an options
trading facility of BSE); 44983 (Oct. 25, 2001), 66 FR 55225 (Nov.
1, 2001) (approving the PCX's use of the Archipelago Exchange as its
equity trading facility); 29237 (May 24, 1991), 56 FR 24853 (May 31,
1991) (regarding NYSE's Off-Hours Trading Facility). See 1978
Release, supra note 273. See also Securities Exchange Act Release
No. 15533 (Jan. 29, 1979), 44 FR 6084 (Jan. 31, 1979) (regarding the
American Stock Exchange (``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'').
\276\ See supra note 133.
\277\ See MIAX Sapphire 11(a) Request Letter, supra note 268.
---------------------------------------------------------------------------

Second, Rule 11a2-2(T) requires that neither the initiating
exchange member nor an associated person of the initiating exchange
member participate in the execution of the transaction any time after
the order for the transaction has been transmitted. MIAX Sapphire has
represented that at no time following the submission of an order into
the System will the submitting Exchange Member or any associated person
of such member acquire control or influence over the result or timing
of an order's execution.\278\ In addition, the Exchange states that
once a Floor Broker submits an order to the Exchange's system for
execution, neither the Floor Broker nor anyone else may alter the terms
of the order.\279\ Moreover, the execution of an Exchange Member's
order will be in accordance with MIAX Sapphire rules and based on
market conditions present in the MIAX Sapphire System at the time the
Exchange Member submits the order.\280\ Accordingly, an Exchange Member
and its associated persons would not participate in the execution of
its order submitted for execution to the MIAX Sapphire System.
---------------------------------------------------------------------------

\278\ See id. Exchange Members may change or cancel an order or
quote at any time before the order is executed on the Exchange. See
MIAX Sapphire Form 1, Exhibit E. 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 1978 Release, supra note 273 (stating that
the ``non-participation requirement does not prevent initiating
members from canceling of 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'').
\279\ See MIAX Sapphire 11(a) Request Letter, supra note 268.
\280\ See id.
---------------------------------------------------------------------------

Third, Rule 11a2-2(T) requires that the order be executed by an
exchange member that is not associated with the exchange member
initiating the order. To rely on the exemption in Rule 11a2-2(T), a
Participant could submit an order for a covered account from off the
Trading Floor to an unaffiliated Floor Broker. A Participant relying on
Rule 11a2-2(T) could not submit an order for a covered account to its
``house'' Floor Broker on the Trading Floor for execution. If a
Participant sends its order from off the floor to an affiliated
Participant that is on the Trading Floor, who then directs the order
into the MIAX Sapphire System for execution, the off-floor Participant
may not rely on the exemption in Rule 11a2-2(T). Further, with respect
to orders submitted from remote locations directly to the MIAX Sapphire
System, the Commission has stated that the requirement is satisfied
when automated exchange facilities, such as the MIAX Sapphire System,
are used, as long as the design of these systems ensures that Exchange
Members do not possess any special or unique trading advantages over
non-members in handling their orders after transmitting them to the
Exchange.\281\ MIAX Sapphire has represented that the design of its
System ensures that no member has any special or unique trading
advantage over non-members in the handling of its orders after
transmitting its orders to MIAX Sapphire.\282\ Therefore, the MIAX
Sapphire System satisfies this requirement.
---------------------------------------------------------------------------

\281\ 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 1979
Release, supra note 275.
\282\ See MIAX Sapphire 11(a) Request Letter, supra note 268.
---------------------------------------------------------------------------

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) thereunder.\283\ Exchange Members and their associated persons
trading for covered accounts over which they exercise investment
discretion must comply with this condition in order to rely on the
rule's exemption.\284\
---------------------------------------------------------------------------

\283\ 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 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 273 (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'').
\284\ See MIAX Sapphire 11(a) Request Letter, supra note 268.
---------------------------------------------------------------------------

D. Discipline and Oversight of Members

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.\285\ 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.\286\
---------------------------------------------------------------------------

\285\ See 15 U.S.C. 78f(b)(1).
\286\ See id.
---------------------------------------------------------------------------

MIAX Sapphire's rules codify MIAX Sapphire's disciplinary
jurisdiction over its Members, thereby facilitating its ability to
enforce its Members' compliance with its rules and the federal
securities laws.\287\ MIAX Sapphire's rules permit it to sanction
Members for violations of its rules and violations of the federal
securities laws and 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 MIAX Sapphire rules.\288\
---------------------------------------------------------------------------

\287\ See MIAX Sapphire Rule 1000.
\288\ See id. See also MIAX Exchange Rule 1000 and MIAX Pearl
Rule 1000 (containing similar provisions).
---------------------------------------------------------------------------

MIAX Sapphire's disciplinary and oversight functions will be
administered in accordance with Chapter X of the MIAX Sapphire Rules,
which governs

[[Page 58865]]

disciplinary actions. Unless delegated to another SRO pursuant to the
terms of any effective 17d-2 plan,\289\ MIAX Sapphire's regulatory
staff (including regulatory staff of another SRO that may be acting on
MIAX Sapphire's behalf pursuant to an RSA) will, among other things,
investigate potential securities laws violations and initiate charges
pursuant to MIAX Sapphire rules.\290\
---------------------------------------------------------------------------

\289\ See supra section III.B.4.c (concerning the 17d-2 plans to
which MIAX Sapphire has committed to join).
\290\ See MIAX Sapphire Rules 1002 and 1004. As stated above,
MIAX Sapphire will enter into an RSA with FINRA under which FINRA
will perform certain regulatory functions on behalf of MIAX
Sapphire. See MIAX Sapphire Rule 1015.
---------------------------------------------------------------------------

Upon a finding of probable cause of a violation within the
disciplinary jurisdiction of MIAX Sapphire and where further
proceedings are warranted,\291\ MIAX Sapphire will conduct a hearing on
disciplinary matters before a professional hearing officer \292\ and
two members of the Business Conduct Committee \293\ (the
``Panel'').\294\ The MIAX Sapphire Member (or their associated person)
or the MIAX Sapphire regulatory staff may petition for review of the
decision of the Panel by the MIAX Sapphire Board.\295\ Any review would
be conducted by the MIAX Sapphire Board or a committee thereof composed
of at least three Directors of the MIAX Sapphire Board \296\ (whose
decision must be ratified by the MIAX Sapphire Board) and such decision
will be final.\297\ In addition, the MIAX Sapphire Board on its own
motion may order review of a disciplinary decision.\298\
---------------------------------------------------------------------------

\291\ See MIAX Sapphire Rule 1004.
\292\ See MIAX Sapphire Rule 1015, Interpretation and Policy
.01.
\293\ See MIAX Sapphire By-Laws, Article IV, Section 4.7.
\294\ See MIAX Sapphire Rule 1006.
\295\ See MIAX Sapphire Rule 1010(a).
\296\ Specifically, the Exchange Chairman, with the approval of
the Board, will appoint an Appeals Committee to preside over all
appeals related to disciplinary and adverse action determinations.
See supra note 51 and accompanying text (detailing the composition
of the Appeals Committee). If the Independent Director serving on
the Appeals Committee recuses himself or herself from an appeal, due
to a conflict of interest or otherwise, the Independent Director may
be replaced by a Non-Industry Director for purposes of the
applicable appeal if there is no other Independent Director able to
serve as the replacement. See MIAX Sapphire By-Laws, Article IV,
Section 4.5(d). See also MIAX Exchange Amended and Restated By-Laws,
Article IV, Section 4.5(d).
\297\ See MIAX Sapphire Rule 1010(b).
\298\ See id.
---------------------------------------------------------------------------

Appeals from any determination that impacts access to MIAX
Sapphire, such as termination or suspension of membership, will be
instituted under, and governed by, the provisions in the Chapter XI of
the MIAX Sapphire Rules, which incorporates by reference Chapter XI of
the MIAX Exchange Rules. MIAX Sapphire's Chapter XI applies to persons
economically aggrieved by Exchange action including, but not limited
to: (a) denial of an application to become a Member; (b) barring a
person from becoming associated with a Member; or (c) limiting or
prohibiting services provided by MIAX Sapphire or services of any
Exchange Member.\299\
---------------------------------------------------------------------------

\299\ See MIAX Sapphire Rule 1100 (which incorporates by
reference MIAX Exchange Rule 1100). As stated above, MIAX Sapphire
will enter into an RSA with FINRA under which FINRA will perform
certain regulatory functions on behalf of MIAX Sapphire. MIAX
Sapphire may perform some or all of the functions specified in the
Chapter XI of the MIAX Sapphire Rules, which incorporates by
reference Chapter XI of the MIAX Exchange Rules. See supra note 114
and accompanying text. See also MIAX Sapphire Rule 1106 (which
incorporates by reference MIAX Exchange Rule 1106).
---------------------------------------------------------------------------

Any person aggrieved by an action of MIAX Sapphire within the scope
of Chapter XI 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
Chapter XI of the MIAX Sapphire Rules is subject to review by the MIAX
Sapphire Board, either on its own motion within thirty days after
issuance of the decision, or upon written request submitted by the
applicant or the President of MIAX Sapphire, within 15 days after
issuance of the decision.\303\ The review would be conducted by the
MIAX Sapphire Board or a committee of the MIAX Sapphire Board composed
of at least three Directors.\304\
---------------------------------------------------------------------------

\300\ An applicant may file for an extension of time as allowed
by the Chairman of the Business Conduct Committee within thirty days
of MIAX Sapphire's action. An application for an extension will be
ruled upon by the Chairman of the Business Conduct Committee and his
ruling will be given in writing. Rulings on applications for
extensions of time are not subject to appeal. See MIAX Sapphire Rule
1101(b) (which incorporates by reference MIAX Exchange Rule
1101(b)).
\301\ See MIAX Sapphire Rule 1101(a) (which incorporates by
reference MIAX Exchange Rule 1101(a)). The application must include:
(1) the action for which review is sought; (2) the specific reasons
for the applicant's exception to such action; (3) the relief sought;
and (4) whether the applicant intends to submit any documents,
statements, arguments, or other material in support of the
application, with a description of any such materials. See id.
\302\ See MIAX Sapphire Rule 1102(a) (which incorporates by
reference MIAX Exchange Rule 1102(a)). The decision of the hearing
panel will be made in writing and sent to the parties to the
proceedings. See MIAX Sapphire Rule 1103(d) (which incorporates by
reference MIAX Exchange Rule 1103(d)).
\303\ See MIAX Sapphire Rule 1104(a) (which incorporates by
reference MIAX Exchange Rule 1104(a)). The MIAX Sapphire Board, or a
committee of the MIAX Sapphire Board, will have sole discretion to
grant or deny either request. See id.
\304\ See MIAX Sapphire Rule 1104(b) (which incorporates by
reference MIAX Exchange Rule 1104(b)). The MIAX Sapphire 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 MIAX
Sapphire Board or its designated committee will be final, will be in
writing, and will be sent to the parties to the proceeding. See MIAX
Sapphire Rule 1104(c) (which incorporates by reference MIAX Exchange
Rule 1104(c)).
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The Commission finds that MIAX Sapphire's proposed disciplinary and
oversight rules and structure, as well as its proposed process for
persons economically aggrieved by certain MIAX Sapphire actions, are
consistent with the requirements of Sections 6(b)(6) and 6(b)(7) of the
Act \305\ in that they provide that members and persons associated with
members shall be appropriately disciplined for violation of the rules
of the exchange and provide fair procedures for the disciplining of
members and persons associated with members. The Commission further
finds that the proposed MIAX Sapphire Rules are designed to provide
MIAX Sapphire 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 MIAX Sapphire.\306\ The Commission notes
that MIAX Sapphire's proposed disciplinary and oversight rules and
structures are similar to the rules of other exchanges.\307\
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\305\ 15 U.S.C. 78f(b)(6) and (b)(7), respectively.
\306\ See 15 U.S.C. 78f(b)(1).
\307\ See, e.g., ISE Mercury Order, supra note 32; ISE Gemini
Order, supra note 32; and MIAX Order, supra note 18.
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E. Listing Requirements

MIAX Sapphire does not intend to initially list or trade common
stock or non-option securities of operating companies but rather
intends to initially only trade option contracts that meet the options
listing standards of the Exchange.\308\ MIAX Sapphire's listing rules,
including the criteria for the underlying securities of the options to
be traded, are substantially similar to the listing rules of MIAX
Exchange.\309\
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\308\ See MIAX Sapphire Form 1, Exhibit H.
\309\ See MIAX Sapphire Rules Chapter IV (Option Contracts
Traded on the Exchange); MIAX Exchange Rules Chapter IV; and MIAX
Sapphire Rules Chapter XVIII (Index Options) (which incorporates by
reference MIAX Exchange Rules Chapter XVIII). After the submission
of the Form 1, MIAX Exchange adopted a ``Low Priced Stock Strike
Price Interval Program'' and a ``Monthly Options Series Program''
that are not in the MIAX Sapphire Rules as proposed. See MIAX
Exchange Rule 404, Interpretations and Policies .12 and .13.

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[[Page 58866]]

The Commission finds that MIAX Sapphire'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, MIAX Sapphire 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 Securities Exchange
Act of 1934 (``OLPP'').\311\ In addition, before beginning operation,
MIAX Sapphire will need to become a participant in the Options Clearing
Corporation.
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\310\ 15 U.S.C. 78f(b)(5).
\311\ 15 U.S.C. 78k-1(a)(3)(B).
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IV. Exemption From Section 19(b) of the Act With Regard to MIAX
Exchange, Cboe, New York Stock Exchange (``NYSE''), and FINRA Rules
Incorporated by Reference

MIAX Sapphire has proposed to incorporate by reference certain MIAX
Exchange, Cboe, NYSE and FINRA rules.\312\ Thus, for certain MIAX
Sapphire rules, Exchange Members will comply with a MIAX Sapphire rule
by complying with the referenced MIAX Exchange, Cboe, NYSE, and FINRA
rules.
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\312\ Specifically, MIAX Sapphire has proposed to incorporate by
reference the following MIAX Exchange Rules: Chapter III (Business
Conduct), Chapter VII (Exercises and Deliveries), Chapter VIII
(Records, Reports and Audits), Chapter IX (Summary Suspension),
Chapter XI (Hearings, Review and Arbitration), Chapter XIII (Doing
Business With the Public), Chapter XIV (Order Protection, Locked and
Crossed Markets), Chapter XV (Margins), Chapter XVI (Net Capital
Requirements), Chapter XVII (Consolidated Audit Trail Compliance
Rule), and Chapter XVIII (Index Options). The following rules are
cross-referenced in the MIAX Exchange Rules: MIAX Exchange Rule 1107
(Arbitration) incorporates by reference the Rule 12000 Series and
Rule 13000 Series of the FINRA Manual and FINRA Rule 2268; MIAX
Exchange Rule 1321 (Transfer of Accounts) cross-references FINRA
Rule 11870; MIAX Exchange Rule 1502 (Margin Requirements) cross-
references the Cboe and NYSE rules concerning initial and
maintenance margin requirements that may be in effect from time to
time.
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In connection with the proposal to incorporate MIAX Exchange, Cboe,
NYSE and FINRA rules by reference, MIAX Sapphire requests, pursuant to
Rule 240.0-12 under the Act,\313\ an exemption under Section 36 of the
Act from the rule filing requirements of Section 19(b) of the Act for
changes to the MIAX Sapphire rules that are effected solely by virtue
of a change to a cross-referenced MIAX Exchange, Cboe, NYSE, or FINRA
rule.\314\ MIAX Sapphire has proposed to incorporate by reference
categories of rules, rather than individual rules within a category,
that are not trading rules. In addition, MIAX Sapphire agrees to
provide written notice to its members whenever MIAX Exchange, Cboe,
NYSE, or FINRA proposes a change to a cross-referenced rule \315\ and
whenever any such proposed changes are approved by the Commission or
otherwise become effective.\316\
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\313\ 17 CFR 240.0-12.
\314\ See Letter from Gregory P. Ziegler, Senior Counsel, Miami
Holdings, dated Oct. 25, 2023.
\315\ See id.
\316\ MIAX Sapphire will provide such notice through a posting
on the same website location where MIAX Sapphire posts its own rule
filings pursuant to Rule 19b-4 under the Act, within the required
time frame. The website posting will include a link to the location
on the MIAX Exchange, Cboe, NYSE, or FINRA website where MIAX
Exchange, Cboe, NYSE, or FINRA's proposed rule change is posted. See
id.
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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.\317\ The Commission is
hereby granting MIAX Sapphire'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 MIAX Sapphire has
proposed to incorporate by reference. The exemption is conditioned upon
MIAX Sapphire providing written notice to MIAX Sapphire members
whenever MIAX Exchange, Cboe, NYSE, or FINRA proposes to change an
incorporated by reference rule and whenever any such proposed changes
are approved by the Commission or otherwise become effective. The
exemption is appropriate in the public interest and consistent with the
protection of investors because it will promote more efficient use of
the 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.
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\317\ See, e.g., MIAX Emerald, MIAX Pearl, MIAX Order, and BATS
Order, supra note 18; Mercury Order, supra note 32; C2 Order, supra
note 85; Nasdaq Order, supra note 32; and NOM Approval Order, supra
note 189.
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V. Conclusion

It is ordered that the application, as amended, of MIAX Sapphire
for registration as a national securities exchange be, and it hereby
is, granted.
It is furthered ordered that operation of MIAX Sapphire is
conditioned on the satisfaction of the requirements below:
a. Participation in National Market System Plans Relating to
Options Trading. MIAX Sapphire 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; (4) the Plan of the Options Regulatory Surveillance
Authority; and (5) the Plan Governing the Consolidated Audit Trail.
b. Bi-lateral Rule 17d-2 Plan. A plan pursuant to Rule 17d-2 \318\
that allocates regulatory responsibility for those matters specified
above \319\ must be declared effective by the Commission, or MIAX
Sapphire must demonstrate that it independently has the ability to
fulfill all of its regulatory obligations.
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\318\ 17 CFR 240.17d-2.
\319\ See supra notes 125-126 and accompanying text.
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c. Participation in Multiparty Rule 17d-2 Plans. MIAX Sapphire must
become a party to the multiparty Rule 17d-2 plans concerning options
sales practice regulation and market surveillance, and covered
Regulation NMS rules.
d. RSA. MIAX Sapphire must have entered into an RSA with its
regulatory service provider, as described above, that specifies the
MIAX Sapphire and Commission rules for which the regulatory services
provider will provide certain regulatory functions, or MIAX Sapphire
must demonstrate that it independently has the ability to fulfill all
of its regulatory obligations.
e. Participation in the Options Clearing Corporation. MIAX Sapphire
must become an Options Clearing Corporation participant exchange.
f. Participation in the Intermarket Surveillance Group. MIAX
Sapphire must join the Intermarket Surveillance Group.
It is further ordered, pursuant to Section 36 of the Act,\320\ that
MIAX Sapphire shall be exempted from the rule filing requirements of
Section 19(b) of the Act with respect to the MIAX Exchange, Cboe, NYSE,
and FINRA rules that MIAX Sapphire proposes to incorporate by
reference, subject to the conditions specified in this order that MIAX
Sapphire provide written notice to MIAX Sapphire members whenever MIAX
Exchange, Cboe, NYSE, or FINRA proposes to change an incorporated by
reference rule and whenever any such proposed changes are approved by
the Commission or otherwise become effective.
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\320\ 15 U.S.C. 78mm.

By the Commission.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15914 Filed 7-18-24; 8:45 am]
BILLING CODE 8011-01-P

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