Notice2025-16811
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing of a Proposed Rule Change To Amend Exchange Rule 527
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 3, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 168 (Wednesday, September 3, 2025)</title>
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[Federal Register Volume 90, Number 168 (Wednesday, September 3, 2025)]
[Notices]
[Pages 42651-42657]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-16811]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103795; File No. SR-SAPPHIRE-2025-32]
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of
Filing of a Proposed Rule Change To Amend Exchange Rule 527
August 28, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on August 15, 2025, MIAX Sapphire, LLC (``MIAX
Sapphire'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Exchange Rule 527, Exchange
Liability, to provide a one-time accommodation payment to Members \3\
for claims arising from the system difficulties that the Exchange
experienced on June 3, 2025 as a result of an operational error
(referred to herein as the ``Operational Error''). Upon approval of
this proposal by the U.S. Securities and Exchange Commission (the
``Commission''), the Exchange will implement the accommodation payment
process described in proposed subparagraph (e) to Exchange Rule 527 and
expects to fully compensate all Members that incurred a loss validated
by the Exchange as a result of the Operational Error (described in more
detail below).
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\3\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of the
Exchange's Rules for purposes of trading on the Exchange as an
``Electronic Exchange Member'' or ``Market Maker.'' Members are
deemed ``members'' under the Exchange Act. See Exchange Rule 100.
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The text of the proposed rule change is available on the Exchange's
website at
[[Page 42652]]
<a href="https://www.miaxglobal.com/markets/us-options/miax-sapphire/rule-filings">https://www.miaxglobal.com/markets/us-options/miax-sapphire/rule-filings</a> and at the Exchange's principal office.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On June 3, 2025, the Exchange experienced system difficulties as a
result of the Operational Error, which caused the Exchange's
simulation/testing environment to connect to the MIAX Sapphire
production ports and inject data into the MIAX Sapphire matching
engines in the live trading environment. Upon discovery of this issue,
trading in all symbols on the Exchange was halted at 11:49 a.m.\4\ and
the Exchange published a Trading Alert at 11:53 a.m. to announce the
trading halt. In the interest of ensuring fair and orderly markets and
for the protection of investors, the Exchange determined that it would
cancel all trades that occurred between approximately 11:18 a.m. and
11:33 a.m.\5\ Members were notified at 1:07 p.m. that all trades during
that time period would be canceled. By 1:54 p.m., the Exchange provided
all impacted Members with specific trade details relating to their
canceled trades. The Exchange fully remediated the issue and all
trading systems began operating normally that same day. The Exchange
issued several alerts throughout this period, including alerts to
announce the halt, that the Exchange would cancel all trades, the time
when the Exchange would resume trading, the time for Members to submit
claims for losses, and a post mortem of the Operational Error.\6\
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\4\ All times referenced in this filing are in Eastern Standard
Time.
\5\ The Exchange canceled these trades under the authority
provided by Exchange Rule 523, Authority to Take Action Under
Emergency Conditions. See Exchange Rule 523(a) (providing that the
``Chairman of the Board . . . shall have the power to halt or
suspend trading . . . for the maintenance of a fair and orderly
market or the protection of investors . . . due to emergency
conditions . . . such as (1) . . . loss or interruption of
facilities utilized by the Exchange . . .'').
\6\ See Regulatory, Technical and Trading Alerts issued by the
Exchange on June 3, 2025 and June 4, 2025, available at <a href="https://miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-halted-all-symbols-114929-am">https://miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-halted-all-symbols-114929-am</a>; <a href="https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-busting-all-trades-between-111828506201536">https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-busting-all-trades-between-111828506201536</a>; <a href="https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-will-resume-trading-230-pm">https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-will-resume-trading-230-pm</a>; <a href="https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-all-trades-busted-between-111828506201536">https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-all-trades-busted-between-111828506201536</a>; <a href="https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-claims-related-issue-today-sapphire-options">https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-claims-related-issue-today-sapphire-options</a>; and <a href="https://www.miaxglobal.com/alert/2025/06/04/miax-sapphire-options-exchange-post-mortem">https://www.miaxglobal.com/alert/2025/06/04/miax-sapphire-options-exchange-post-mortem</a>.
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Since the June 3, 2025 Operational Error, Members compiled their
trade data showing losses as a result of the Operational Error and the
Exchange canceling all trades during the specific timeframe described
above. The Exchange reviewed the events of June 3, 2025 with the goal
of proposing a fair and equitable accommodation policy that is
consistent with the Exchange Act and MIAX Sapphire's self-regulatory
obligations. The Exchange believes this proposal reflects MIAX
Sapphire's effort to: (i) identify the categories of investors and
Members that the Operational Error caused objective, discernible harm,
and the type and scope of such harm; and (ii) propose an objectively
reasonable and balanced regulatory plan for accommodating Members and
their investor customers for such harm by providing a payment in excess
of the Exchange's current rules regarding limitation of liability. MIAX
Sapphire has undertaken this effort notwithstanding the liability
protections afforded by its contractual limitations of liability and
Exchange Rule 527--the rule that MIAX Sapphire proposes to modify.
The Exchange's current limitation of liability rules, described in
detail below, limit the maximum amount of compensation Members are able
to receive from the Exchange arising out of a system issue that impacts
the use or enjoyment of the facilities or services afforded by the
Exchange, such as the Operational Error. In the interest of protecting
Members and their investor customers,\7\ the Exchange proposes to amend
Exchange Rule 527 to provide a one-time voluntary accommodation for
claims arising from the June 3, 2025 Operational Error.
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\7\ The majority of claims are from customers of Member firms
who utilize a Member firm as their introducing broker to access and
submit orders to the Exchange for execution.
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This type of accommodation plan is not without precedent. In 2012,
the Nasdaq Stock Market LLC (``Nasdaq'') experienced system
difficulties in the Nasdaq halt and imbalance cross process in
connection with the initial public offering (``IPO'') of Facebook, Inc.
(``Facebook''). In response, Nasdaq filed with the Commission a
proposal to establish an accommodation policy providing compensation
for impacted investors in excess of Nasdaq's then-applicable limitation
of liability rules, which proposal was approved by the Commission.\8\
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\8\ See Securities Exchange Act Release No. 69216 (March 22,
2013), 78 FR 19040 (March 28, 2013) (SR-NASDAQ-2012-090); see also
Nasdaq Rules, Equity 2, Section 17. The Exchange's proposal differs
from the Nasdaq accommodation filing in several minor respects but
ultimately provides a substantively similar accommodation for
Members impacted by the Operational Error to be compensated in
excess of the Exchange's current limitation of liability limits.
Nasdaq also undertook a two-step process to compensate its members
and customers by first proposing the accommodation policy and then
filing a separate rule proposal with the Commission to implement the
accommodation policy. See Securities Exchange Act Release No. 71098
(December 17, 2023), 78 FR 77540 (December 23, 2013) (SR-NASDAQ-
2013-152). The Exchange proposes a single-step process since the
Exchange has already received and validated all claims from Members
that were impacted by the Operational Error; brought the proposed
accommodation plan and total value of eligible claims to its Board
of Directors for approval; and is ready to promptly compensate
Members for their validated claims upon approval of this proposal by
the Commission.
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Current Limitation of Liability Provisions
Exchange Rule 527(a) describes the general limitations on liability
of the Exchange, its directors, officers, committee members, limited
liability company members, employees or agents. Exchange Rule 527(a)
provides, in relevant part, that except as provided in paragraph (b) of
Exchange Rule 527 or otherwise expressly provided in the Exchange's
rules, neither the Exchange nor its directors, officers, committee
members, limited liability company members, employees or agents shall
be liable to Members or persons associated therewith for any loss,
expense, damages, or other claims arising out of the use or enjoyment
of the facilities or services afforded by the Exchange, including the
interruption in or failure or unavailability of such facilities or
services, or any action taken or omitted in respect to the business of
the Exchange. Exchange Rule 527(a) provides limited exceptions to these
limitations in connection with Exchange employee acts where the extent
of such loss, expense, damages or claims are attributable to the
willful misconduct, gross negligence, bad faith or fraudulent or
criminal acts of the Exchange or its officers, employees or agents
acting within the scope of their authority.
[[Page 42653]]
Exchange Rule 527(b) further describes exceptions to the Exchange's
general limitation of liability rule that allows for the payment of
compensation to Members for Exchange System \9\ issues, subject to
certain conditions, which limit the maximum amount of Exchange
liability. The exceptions under Exchange Rule 527(b) apply whenever
custody of an unexecuted order \10\ or quote \11\ is transmitted by a
Member to or through the Exchange's System or to any other automated
facility of the Exchange whereby the Exchange assumes responsibility
for the transmission or execution of the order or quote, provided that
the Exchange has acknowledged receipt of such order or quote.
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\9\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\10\ The term ``order'' means a firm commitment to buy or sell
option contracts. See Exchange Rule 100.
\11\ The term ``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. When the term order is used
in these Rules and a bid or offer is entered by the Market Maker in
the option series to which such Market Maker is registered, such
order shall, as applicable, constitute a quote or quotation for
purposes of these Rules. See Exchange Rule 100.
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Subparagraphs (b)(1) through (b)(3) of Exchange Rule 527 set forth
the limits for claims made by Members, individually and in the
aggregate, related to Exchange System issues that impact the use or
enjoyment of the facilities of the Exchange. The liability limits
provided for in Exchange Rules 527(b)(1)-(3) are as follows: (1) as to
any one or more claims made by a single Member growing out of the use
or enjoyment of the facilities afforded by the Exchange on a single
trading day, the Exchange shall not be liable in excess of the larger
of $100,000 or the amount of any recovery obtained by the Exchange
under any applicable insurance maintained by the Exchange; (2) as to
the aggregate of all claims made by all Members growing out of the use
or enjoyment of the facilities afforded by the Exchange on a single
trading day, the Exchange shall not be liable in excess of the larger
of $250,000 or the amount of the recovery obtained by the Exchange
under any applicable insurance maintained by the Exchange; and (3) as
to the aggregate of all claims made by all Members growing out of the
use or enjoyment of the facilities afforded by the Exchange during a
single calendar month, the Exchange shall not be liable in excess of
the larger of $500,000 or the amount of the recovery obtained by the
Exchange under any applicable insurance maintained by the Exchange.
Exchange Rule 527(c) provides that if all of the claims arising out
of the use or enjoyment of the facilities afforded by the Exchange
cannot be fully satisfied because, in the aggregate, they exceed the
applicable maximum amount of liability provided for in subparagraph (b)
of Exchange Rule 527, then such maximum amount shall be allocated among
all such claims arising on a single trading day or during a single
calendar month, as applicable, based upon the proportion that each
claim bears to the sum of all claims. Subparagraph (c) further provides
that in order for claims to be included in this allocation, Members
must submit written notice of their claim to the Exchange no later than
the opening of trading on the next business day following the day on
which the use or enjoyment of Exchange facilities giving rise to the
claim occurred.
Background of the Operational Error and Calculation of Losses
As described above, due to the Operational Error on June 3, 2025,
the Exchange determined to cancel all trades executed on MIAX Sapphire
between 11:18 a.m. and 11:33 a.m. Upon learning of the Operational
Error, members of the Exchange's Regulatory Operations Department
contacted all Members to discuss the Operational Error, the Exchange's
proposed method of remedying trades based on erroneous simulation/
testing environment data, and the manner in which Members should submit
claims for compensation. Members were advised to immediately contact
their customers and to compile execution reports for trades made during
the timeframe of the Operational Error as well as execution reports for
``replacement trades'' \12\ made following the timeframe of the
Operational Error to fulfill the original terms of the trades that the
Exchange canceled. In some instances, Members executed new valid trades
at away-exchanges. Some Members executed the new valid trade several
days following the Operational Error as some of their customers did not
learn of the cancelations until they logged back into their brokerage
accounts.\13\ Members summed the difference between the net execution
price of the canceled trade on MIAX Sapphire and the net execution
price for the replacement trade made on MIAX Sapphire or at an away-
exchange and then provided such information to the Exchange.
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\12\ For the purposes of this filing and the proposed new rule
text, unless stated otherwise, the term ``replacement trade'' shall
be construed to mean the new trade executed by a Member on MIAX
Sapphire or at an away-exchange that was executed to replace the
original trade that was canceled by MIAX Sapphire during the
timeframe of the Operational Error. See proposed Exchange Rule
527(e)(1)(iii).
\13\ For example, the Exchange was made aware that certain
retail customers that send orders to an Exchange Member for
execution do not routinely check their brokerage accounts and only
learned of the canceled trade due to the Operational Error days
after originally placing the trade.
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After receipt of all Members' claims over the course of several
weeks, Exchange officials reviewed each claimed loss by validating the
canceled trade execution prices reported during the timeframe of the
Operational Error and the execution prices of the subsequent
replacement trades. For trading losses that resulted from a Member
executing the replacement trade on MIAX Sapphire, the Exchange: (A)
first validated that the canceled trade took place on MIAX Sapphire
during the timeframe of the Operational Error based on the Member's
MPID; \14\ (B) validated the claimed execution price of the canceled
trade; (C) validated that the replacement trade took place on MIAX
Sapphire; and (D) validated the execution price of the replacement
trade. The measure of loss was calculated based on the difference
between the net execution price of the canceled trade and the execution
price of the replacement trade.
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\14\ The term ``MPID'' means unique market participant
identifier. See Exchange Rule 100.
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For trading losses that resulted from a Member executing the
replacement trade on an away-exchange, the Exchange: (A) first
validated that the canceled trade took place on MIAX Sapphire during
the timeframe of the Operational Error based on the Member's MPID; (B)
validated the claimed execution price of the canceled trade; and (C)
validated the execution price of the replacement trade by comparing
such price against the closing or opening price of the option,
depending on the time of execution, as well as the size of the
replacement trade in comparison to the original trade that was
canceled. The measure of loss was calculated based on the difference
between the net execution price of the canceled trade and the execution
price of the replacement trade.
The Exchange determined to use the closing or opening price of the
series of options for replacement trades executed on away-exchanges as
an initial check to determine whether the claimed replacement trade
execution price was within a reasonable range for that particular
series of options. As described above, the Exchange issued an alert to
inform all Members that it would cancel all trades during the
[[Page 42654]]
timeframe of the Operational Error on June 3, 2025 at 1:07 p.m. At 1:54
p.m., the Exchange notified Members of the specific trade details for
their canceled trades. As a result, the Exchange believes that
customers of Members may not have been aware of the Operational Error
until a day or two (or longer) following the Operational Error, thereby
not executing the replacement trade until that time.\15\ Exchange
officials utilized closing and opening options trade prices between
June 3, 2025 and June 6, 2025,\16\ depending on the date when Members
executed the replacement trades, as a reasonable baseline to compare
against replacement values supplied by the Members to validate the
claimed losses. In particular, if the replacement trade took place a
day or more after the Operational Error, Exchange officials were able
to utilize the Cboe Exchange, Inc. LiveVol[supreg] analytics platform
to filter options executions by price and day to determine if the
claimed replacement trade execution price and size aligned with trade
executions in the same option series and size at the later date and, if
so, the new execution price. The Exchange's Regulatory Operations
Department followed up with all Members and received all claims from
Members, including the total value of such claims, all of which were
validated by Exchange officials using the methodology described above.
In total, the Exchange's Regulatory Operations Department reviewed and
validated over 2,200 claims that occurred during the Operational Error,
all of which are eligible to be compensated.
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\15\ See supra note 14.
\16\ Based on records provided by Members with claimed losses,
June 6, 2025 was the latest date that a Member executed a valid
replacement trade.
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Proposal
The Exchange now proposes to amend Exchange Rule 527 to provide a
one-time accommodation payment for Members with claims arising from the
Operational Error that the Exchange experienced on June 3, 2025 that
exceed the limitations provided for in Exchange Rule 527(b)(1)-(3),
including the amount of compensation on a per-Member basis. The
modifications proposed in this rule change are not intended to and do
not affect the limitations of liability set forth in the Exchange's
agreements or Commission-sanctioned rules, or those limitations or
immunities that bar claims for damages against MIAX Sapphire as a
matter of law. Rather, as noted above, they reflect the Exchange's
determination to adopt a fair and equitable accommodation policy that
takes into account the impacts of the Exchange's Operational Error on
Members and their investor customers.
The Exchange proposes to establish new paragraph (e), which will
state that notwithstanding paragraphs (b)(1)-(3) and paragraph (c) \17\
of Rule 527 for the single trading of June 3, 2025 and the full
calendar month of June 2025, for the aggregate of all claims alleged by
all market participants related to the system difficulties as a result
of the Operational Error on June 3, 2025, where the Exchange's
simulation/testing environment connected to the production ports (the
``Operational Error''), the total amount of the Exchange's liability
shall not exceed $525,000. Further, eligibility of all claims for
payment shall be determined in accordance with proposed Exchange Rule
527(e) and only applies to claims previously filed with and validated
by the Exchange. As noted above, the Exchange received all claims
related to the Operational Error and expects that, subject to
Commission approval of this proposal, all Members will be fully
compensated for their claims as a result of the Operational Error.
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\17\ As mentioned above, subparagraph (c) of Exchange Rule 527
provides that if all of the claims arising out of the use or
enjoyment of the facilities afforded by the Exchange cannot be fully
satisfied because in the aggregate they exceed the applicable
maximum amount of liability provided for in paragraph (b) . . . then
such maximum amount shall be allocated among all such claims arising
on a single trading day or during a single calendar month, as
applicable, ``written notice of which has been given to the Exchange
no later than the opening of trading on the next business day
following the day on which the use or enjoyment of Exchange
facilities giving rise to the claim occurred, based upon the
proportion that each such claim bears to the sum of all such
claims'' (emphasis added). See Exchange Rule 527(c). Accordingly,
the Exchange proposes that the notice requirement of Exchange Rule
527(c) will not apply to claims submitted under proposed paragraph
(e) to Exchange Rule 527.
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Proposed subparagraph (e)(1) of Exchange Rule 527 will provide that
all claims for compensation under this paragraph (e) shall arise solely
from realized trading losses from executions that occurred on the
Exchange on June 3, 2025 between 11:18 a.m. and 11:33 a.m. Eastern Time
that the Exchange subsequently canceled pursuant to Exchange Rule 523,
causing Members to execute a new trade on the Exchange or at an away-
exchange to replace the canceled trade. The measure of loss was
determined by the Exchange pursuant to proposed subparagraphs
(e)(1)(i)-(ii), described below.
Proposed subparagraph (e)(1)(i) of Exchange Rule 527 will provide
that for trading losses that resulted from a Member executing the
replacement trade on MIAX Sapphire, the Exchange: (A) first validated
that the canceled trade took place on MIAX Sapphire during the
timeframe of the Operational Error based on the Member's MPID; (B)
validated the claimed execution price of the canceled trade; (C)
validated that the replacement trade took place on MIAX Sapphire; and
(D) validated the execution price of the replacement trade. The measure
of loss was calculated based on the difference between the net
execution price of the canceled trade and the replacement trade.
Proposed subparagraph (e)(1)(ii) of Exchange Rule 527 will provide
that for trading losses that resulted from a Member executing the
replacement trade on an away-exchange, the Exchange: (A) first
validated that the canceled trade took place on MIAX Sapphire during
the timeframe of the Operational Error based on the Member's MPID; (B)
validated the claimed execution price of the canceled trade; and (C)
validated the execution price of the replacement trade by comparing
such price against the closing or opening price of the option,
depending on the time of execution, as well as the size of the
replacement trade in comparison to the original trade that was
canceled. The measure of loss was calculated based on the difference
between the net execution price of the canceled trade and the
replacement trade.
Proposed subparagraph (e)(1)(iii) of Exchange Rule 527 will provide
that for purposes of this proposed Exchange Rule 527(e), unless stated
otherwise, the term ``replacement trade'' shall be construed to mean
the new trade executed by a Member on MIAX Sapphire or at an away-
exchange that was executed to replace the original trade that was
canceled by MIAX Sapphire during the timeframe of the Operational
Error.
Proposed subparagraph (e)(2) of Exchange Rule 527 will state that
in no event shall the Exchange make any payments on claims pursuant to
proposed paragraph (e) until the rule proposal filed with the
Commission setting forth the amount of eligible claims becomes
effective and final. The Exchange proposes to make all payments for
approved claims in cash.
Proposed subparagraph (e)(3) will provide that payments to Members
under proposed paragraph (e) are contingent upon the submission to the
Exchange of an attestation within 14 calendar days after the effective
date of the rule proposal described in proposed paragraph (e)(2),
detailing the information described in proposed
[[Page 42655]]
subparagraphs (e)(1)(i)-(ii). Proposed subparagraph (e)(3) of Exchange
Rule 527 will also state that failure to provide the required
attestation will void the Member's eligibility to receive an
accommodation payment pursuant to proposed paragraph (e) of Exchange
Rule 527. The Exchange will also require each Member to maintain books
and records that detail the nature and amount of these losses.\18\
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\18\ Nasdaq included similar requirements in its accommodation
policy and rule text related to the Facebook IPO system issues. See
Nasdaq Rules, Equity 2, Section 17(b)(3)(I)(i).
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Proposed subparagraph (e)(4) of Exchange Rule 527 will provide that
all payments to Members under proposed paragraph (e) will be contingent
upon the execution and delivery to the Exchange of a release by the
Member of all claims by it or its affiliates \19\ against the Exchange
or its affiliates for losses that arise out of, are associated with, or
relate in any way to the Operational Error or to any actions or
omissions related in any way to the Operational Error. Failure to
provide the required release within 14 calendar days after the
effective date of the rule proposal described in proposed subparagraph
(e)(2) will void the Member's eligibility to receive an accommodation
payment pursuant to this proposed paragraph (e). The purpose of
imposing the release requirement notwithstanding the limitations of
liability and immunities, which apply in any event pursuant to the
Exchange's rules and agreements and/or otherwise as a matter of law,
are to avoid the disruption and expense of unnecessary litigation in
connection with the June 3, 2025 Operational Error and to ensure equal
treatment of all claimants.\20\
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\19\ The term ``affiliate'' of or person ``affiliated with''
another person means a person who, directly, or indirectly,
controls, is controlled by, or is under common control with, such
other person. See Exchange Rule 100.
\20\ Nasdaq also included a similar release requirement in its
accommodation policy and rule text related to the Facebook IPO
system issues. See Nasdaq Rules, Equity 2, Section 17(b)(3)(H).
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The accommodation payment policy proposed herein is a voluntary
step taken by the Exchange to provide a substantial and rare
accommodation to its Members and their customers, and participation in
the program is likewise voluntary on the part of Members. The Exchange
believes this type of occurrence warrants the establishment of an
accommodation plan because, prior to the Operational Error, neither the
Exchange nor any of its affiliates experienced a systems issue similar
to that of the Operational Error. The Exchange believes that it would
be inequitable to approve the Exchange's voluntary program without also
allowing it to establish conditions that promote certainty and
finality.\21\
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\21\ See Securities Exchange Act Release No. 69216 (March 22,
2013), 78 FR 19040 (March 28, 2013) (SR-NASDAQ-2012-090). In the
approval order for the accommodation plan that Nasdaq proposed for
its systems issues related to the Facebook IPO, the Commission
approved similar conditions as proposed herein in order for Nasdaq
members to be compensated for their claims.
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The Exchange notes that it has received all claims that apply to
the Operational Error and that no new additional claims will be
accepted, subject to any final adjustments due to late discovery up to
the time of payment of such claims. As described above, immediately
following the June 3, 2025 Operational Error, the Exchange's Regulatory
Operations Department spoke to each Member to discuss the Operational
Error, the Exchange's proposed method of remedying trades based on
erroneous simulation/testing environment data and the manner in which
Members should submit claims for compensation. The Exchange
independently verified each Member's claim and confirmed the loss
amount with each Member prior to submitting this rule filing. The
Exchange believes its proposal is designed to implement a fair and
equitable accommodation policy that takes into account the impacts of
the Operational Error on the investing public and Exchange Members.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\22\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\23\ in particular, in that it
is 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, 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. The Exchange also believes
the proposed rule change is consistent with the Section 6(b)(5) \24\
requirement that the rules of an exchange not be designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
\24\ Id.
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The Exchange believes that the proposal to expand its accommodation
policy in this unique set of circumstances will balance several
important goals in keeping with the foregoing statutory objectives.
First, the Exchange acknowledges that the June 3, 2025 Operational
Error had an impact on certain of its Members and their customers. As a
result, the Exchange believes that the public interest would be served
by an accommodation policy that quantifies and provides compensation
for customer losses that were directly attributable to those system
issues in an objectively discernible manner. Specifically, the Exchange
believes that the public interest would be served by the Exchange
making accommodation payments in excess of its limitation of liability
rules to fully compensate Members that provided details regarding their
claimed losses as a result of the Operational Error in an objectively
discernible manner. The Exchange further believes that the public
interest would be served by the Exchange providing as an accommodation
the loss differential for the trade execution canceled by MIAX Sapphire
and the replacement trade--that is the difference between the price
that was expected upon execution on MIAX Sapphire during the timeframe
of the Operational Error and the subsequent execution price for the
replacement trade that was actually obtained on the Exchange or at an
away-exchange.
Second, the Exchange believes that it is important to recognize the
regulatory policy objectives underlying Exchange Rule 527 and ensure
that they are not compromised. Hundreds of billions of dollars (or
more) of securities transactions are matched through the systems of the
Exchange and other exchanges every day. Through the operation of those
systems, exchanges provide invaluable services in support of capital
formation, price discovery, and investor protection. If exchanges could
be called upon to bear all costs associated with system malfunctions
and the varying reactions of market participants taken in their wake,
the potential would exist for a single catastrophic event to bankrupt
one or multiple exchanges, with attendant consequences for investor
confidence and macroeconomic stability. Alternatively, the cost of
providing exchange services would have to rise dramatically for all
investors to cover this material and new risk.\25\ In
[[Page 42656]]
addition, exchanges would be less inclined to implement innovative
systems \26\ consistent with the goals of Section 6(b)(5) of the
Act.\27\ Accordingly, the Commission has recognized that it is
consistent with the purposes of the Act for a self-regulatory
organization to limit its liability with respect to the use of such
facilities by its members through rules such as Exchange Rule 527.\28\
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\25\ See Securities Exchange Act Release No. 67507 (July 26,
2012), 77 FR 45706 (August 1, 2012) (SR-NASDAQ-2012-090) (Notice of
Filing of Proposed Rule Change to Amend Rule 4626--Limitation of
Liability). Nasdaq stated in their accommodation filing that trading
costs in the United States are among the lowest in the world, and
thus a contributor to economic growth. Id. The Nasdaq filing cites
the following sources as examples for this assertion: Michael S.
Pagano, Which Factors Influence Trading Costs in Global Equity
Markets?, THE J. OF TRADING, Winter 2009, at 7; Ian Domowitz et al.,
Liquidity, Volatility, and Equity Trading Costs Across Countries and
Over Time, 4 INT'L FIN. 221 (Summer 2001); Asli
Demirg[uuml][ccedil]-Kunt & Ross Levine, Bank-based and Market-based
Financial Systems: Cross-country Comparisons 51 (The World Bank
Working Paper No. 2143, July 1999). Id.
\26\ See Securities Exchange Act Release No. 14777 (May 17,
1978) (SR-CBOE-78-14) (in proposing a limitation on liability, the
Cboe Exchange, Inc. explained that an exchange ``cannot proceed with
innovative systems and procedures for the execution, clearance, and
settlement of Exchange transactions . . . unless it is protected
against losses which might be incurred by members as a result of
their use of such systems,'' and further that ``[t]o the extent [a
limitation of liability rule] enables the Exchange to proceed with
innovative systems, competition should be enhanced''); see also
Securities Exchange Act Release No. 58137 (July 10, 2008), 73 FR
41145 (July 17, 2008) (SR-NYSE-2008-55) (explaining that exchange's
limitation of liability rule encourages vendors to provide services
to the exchange, which results in faster and more innovative
products for order entry, execution, and dissemination of market
information).
\27\ 15 U.S.C. 78f(b)(5) (requiring that an exchange's rules be
``designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect
to, and facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market
and a national market system, and, in general, to protect investors
and the public interest; and not [be] designed to permit unfair
discrimination between customers, issuers, brokers, or dealers, or
to regulate by virtue of any authority conferred by this chapter
matters not related to the purposes of this chapter or the
administration of the exchange'').
\28\ See, e.g., Cboe Rule 1.10; Cboe EDGX Rule 11.14; Cboe BZX
Rule 11.16; BOX Rule 7230; Nasdaq Rules, Equity 2, Section 17.
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Moreover, if the potential for such catastrophic losses existed, as
noted above, it would need to be reflected in the fees charged by
exchanges to market participants in a manner that is not currently the
case, making trading more expensive for all investors all the time.
Rather, as the Commission has recognized, provisions such as Exchange
Rule 527 reflect the view that risks associated with system
malfunctions should be allocated among all exchange members, rather
than being borne solely by the exchange. Indeed, this view is
consistently reflected in the limitation of liability rules common
among United States exchanges.\29\ This view is also reflected in the
Exchange's proposal to condition any accommodation payment on the
execution of a release of claims against MIAX Sapphire for the
Operational Error experienced on June 3, 2025, because this condition
is aimed at avoiding unnecessary litigation and ensuring equal
treatment of all claimants.
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\29\ Id.
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The Exchange further believes that, consistent with Section 6(b)(5)
of the Act,\30\ its proposal will promote just and equitable principles
of trade and protect investors and the public interest by establishing
a fair process through which affected Members may be compensated for
the claims they submitted, which losses will be fully covered by the
proposed accommodation policy. The Exchange believes that this filing
will enhance the transparency of the process to compensate Members for
their losses. The Exchange further believes that its proposed process
for distributing accommodation payments will benefit investors and
promote the public interest by providing incentives for Members to use
accommodation funds for the benefit of investors. Specifically, the
Exchange believes that its proposal will benefit investors and promote
the public interest by requiring a claimant to submit to the Exchange
an attestation detailing the compensation the Member has provided or
will provide to its customers, and detailing the extent to which the
Member incurred the losses covered by the proposed accommodation
payment when trading for its own account.
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\30\ 15 U.S.C. 78f(b)(5).
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As described above, this type of proposal is not without precedent
and is based on the accommodation plan implemented by Nasdaq in 2012
for system difficulties in the Nasdaq halt and imbalance cross process
in connection with the IPO of Facebook.\31\
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\31\ See supra note 9.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change would not impose any burden on
competition. The proposed rule change is designed to promote fairness
in the marketplace by providing compensation to Members and their
customers that experienced a loss as a result of the June 3, 2025
Operational Error. The Exchange believes that the proposed rule change
will not burden intra-market competition because all Members would be
subject to the same standards and requirements to receive accommodation
payments as set forth in proposed Exchange Rule 527(e). The Exchange
believes that the proposed rule change will not burden inter-market
competition because the proposed rule change is not designed to address
any competitive issues.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days of such
date (i) as the Commission may designate if it finds such longer period
to be appropriate and publishes its reasons for so finding or (ii) as
to which the Exchange consents, the Commission shall: (a) by order
approve or disapprove such proposed rule change, or (b) institute
proceedings to determine whether the proposed rule change should be
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2e5c5b424b034d4143434b405a5d6e5d4b4d00494158"><span class="__cf_email__" data-cfemail="f280879e97df919d9f9f979c8681b2819791dc959d84">[email protected]</span></a>. Please include
file number SR-SAPPHIRE-2025-32 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-SAPPHIRE-2025-32. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the filing will be available for inspection and
copying at the principal office of the Exchange.
[[Page 42657]]
Do not include personal identifiable information in submissions; you
should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-SAPPHIRE-2025-32 and
should be submitted on or before September 24, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-16811 Filed 9-2-25; 8:45 am]
BILLING CODE 8011-01-P
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