Notice2026-09130
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 2040, Qualified Floor Orders
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
May 8, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 89 (Friday, May 8, 2026)</title>
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[Federal Register Volume 91, Number 89 (Friday, May 8, 2026)]
[Notices]
[Pages 25413-25421]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-09130]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105376; File No. SR-SAPPHIRE-2026-19]
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 2040, Qualified Floor Orders
May 5, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on April 29, 2026, 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 (1) amend Exchange Rule 2040 to permit
Floor Brokers \3\ to execute Customer Cross Orders,\4\ Complex Customer
Cross Orders,\5\ Qualified Contingent Cross Orders,\6\ and Complex
Qualified Contingent Cross Orders \7\ (collectively, the ``Crossing
Orders'') on the Trading Floor \8\ immediately without announcement to
the trading crowd provided that certain requirements are met; (2) amend
Exchange Rule 2040(a)(4) to remove the reference to paragraph ``(a)''
of Exchange Rule 518 to broaden the rule cross-reference; and (3) add
an explicit reference and description of the behavior of a QFO with an
ISO designation (described below) to the Exchange's Rulebook to provide
additional detail and clarity regarding trading on the Exchange's
Trading Floor.
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\3\ A Floor Broker is an individual who is registered with the
Exchange for the purpose, while on the Trading Floor, of accepting
and handling options orders. A Floor Broker must be registered as a
Floor Participant prior to registering as a Floor Broker. A Floor
Broker may take into his own account, and subsequently liquidate,
any position that results from an error made while attempting to
execute, as Floor Broker, an order. See Exchange Rule 2015.
\4\ A Customer Cross Order is comprised of a Priority Customer
Order to buy and a Priority Customer Order to sell at the same price
and for the same quantity. A Customer Cross Order is not valid
during the Opening Process described in Rule 503. See Exchange Rule
516(i).
\5\ A Complex Customer Cross or ``cC2C'' Order is comprised of
one Priority Customer complex order to buy and one Priority Customer
complex order to sell at the same price and for the same quantity.
Trading of cC2C Orders is governed by Rule 515(g)(3). See Exchange
Rule 518(b)(3).
\6\ A Qualified Contingent Cross Order is comprised of an
originating order to buy or sell at least 1,000 contracts, or 10,000
mini-option contracts, that is identified as being part of a
qualified contingent trade, as that term is defined in
Interpretation and Policy .01 below, coupled with a contra-side
order or orders totaling an equal number of contracts. A Qualified
Contingent Cross Order is not valid during the Opening Process
described in Rule 503. See Exchange Rule 516(j).
\7\ A Complex Qualified Contingent Cross or ``cQCC'' Order is
comprised of an originating complex order to buy or sell where each
component is at least 1,000 contracts that is identified as being
part of a qualified contingent trade, as defined in Rule 516,
Interpretation and Policy .01, coupled with a contra-side complex
order or orders totaling an equal number of contracts. Trading of
cQCC Orders is governed by Rule 515(g)(4). See Exchange Rule
518(b)(4).
\8\ The term ``Trading Floor'' or ``Floor'' means the physical
trading floor of the Exchange located in Miami, Florida. The Trading
Floor shall consist of one ``Crowd Area'' or ``Pit'' where Floor
Participants will be located and option contracts will be traded.
The Crowd Area or Pit shall be marked with specific visible
boundaries on the Trading Floor, as determined by the Exchange. A
Floor Broker must represent all orders in an ``open outcry'' fashion
in the Crowd Area. See Exchange Rule 100.
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The text of the proposed rule change is available on the Exchange's
website at <a href="https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings">https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings</a>, and at MIAX Sapphire'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
The Exchange proposes to (1) amend Exchange Rule 2040 to permit
Floor Brokers to execute Crossing Orders on the Trading Floor
immediately without announcement to the trading crowd provided that
certain requirements are met; (2) amend Exchange Rule 2040(a)(4) to
remove the reference to paragraph ``(a)'' of Exchange Rule 518 to
broaden the rule cross-reference; and (3) add an explicit reference and
description of the behavior of a QFO with an ISO designation to the
Exchange's Rulebook to provide additional detail and clarity regarding
trading on the Exchange's Trading Floor.
Background
Electronic Market
The MIAX Sapphire Exchange operates both an electronic market and a
physical Trading Floor. The electronic market supports both a Simple
Order
[[Page 25414]]
Book \9\ and a Strategy Book.\10\ The order types available to Members
\11\ on the electronic market for the Simple Order Book are described
in Exchange Rule 516, Order Types. Specifically included in Rule 516 is
a description of a Customer Cross Order \12\ and a Qualified Contingent
Cross Order.\13\ The order types available to Members on the electronic
market for the Strategy Book are described in Rule 518, Complex Orders.
Specifically included in Rule 518(b) is a description of a Complex
Customer Cross Order (``cC2C'') \14\ and a Complex Qualified Contingent
Cross Order (``cQCC'').\15\
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\9\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 100.
\10\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders. See Exchange Rule 100.
\11\ The term ``Member'' means an individual or organization
that is registered with the Exchange pursuant to Chapter II of these
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.
\12\ See Exchange Rule 516(i).
\13\ See Exchange Rule 516(j).
\14\ See Exchange Rule 518(b)(3).
\15\ See Exchange Rule 518(b)(4).
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Customer Cross Orders
The trading of Customer Cross Orders is governed by Exchange Rule
515(g)(1). Specifically, Rule 515(g)(1) provides that, ``Customer Cross
Orders, as defined in Rule 516(i), are automatically executed upon
entry provided that the execution (i) is at or between the best bid and
offer on the Exchange; (ii) is not at the same price as a Priority
Customer Order on the Exchange's Simple Order Book; and (iii) will not
trade at a price inferior to the NBBO.'' \16\ Further, the rule
provides, ``[i]f trading interest exists on the Exchange's Simple Order
Book that is subject to the Managed Interest Process pursuant to Rule
515(d)(2) when the Exchange receives a Customer Cross Order, the System
will reject the Customer Cross Order. Customer Cross Orders will be
automatically canceled if they cannot be executed. Rule 520,
Interpretation and Policy .01 applies to the entry and execution of
Customer Cross Orders.'' \17\
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\16\ See Exchange Rule 515(g)(1).
\17\ See Exchange Rule 515(g)(1).
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Complex Customer Cross Orders
The trading of Complex Customer Cross Orders is governed by Rule
515(g)(3). Rule 515(g)(3) provides that, ``cC2C Orders, as defined in
Rule 518(b)(3), are automatically executed upon entry provided that (A)
a cC2C Order with a conforming ratio \18\ will be executed in
accordance with Rule 518(c)(1)(iv) and will improve the best price
available on the Strategy Book; and (B) a cC2C Order with a non-
conforming ratio \19\ will be executed in accordance with Rule
518(c)(1)(v) and will improve the best price available on the Strategy
Book.'' \20\ Rule 515(g)(3)(i) provides that, ``cC2C Orders will be
automatically canceled if they cannot be executed.'' \21\ Additionally,
Rule 515(g)(3)(ii) provides that, ``cC2C Orders may only be entered in
minimum trading increments of $0.01.'' \22\ Rule 515(g)(3)(iii)
provides that, ``Rule 520, Interpretation and Policy .01, applies to
the entry and execution of cC2C Orders.'' \23\ Finally, Rule
515(g)(3)(iv) provides that, ``[t]he Exchange will determine, on a
class-by-class basis, the option classes in which cC2C Orders are
available for trading on the Exchange, and will announce such classes
to Members via Regulatory Circular.'' \24\
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\18\ A ``conforming ratio'' is where the ratio between the sizes
of the options components of a complex order is equal to or greater
than one-to-three (.333) and less than or equal to three-to-one
(3.00); and where one component of the complex order is the
underlying security (stock or ETF) or security convertible into the
underlying stock (``convertible security''), the ratio between the
option component(s) and the underlying security (stock or ETF) or
convertible security is less than or equal to eight-to-one (8.00).
See Exchange Rule 518(a).
\19\ A ``non-conforming ratio'' is where the ratio between the
sizes of the options components of a complex order is greater than
three-to-one (3.00) or less than one-to-three (.333); or where one
component of the complex order is the underlying security (stock or
ETF) or security convertible into the underlying stock
(``convertible security''), the ratio between the option
component(s) and the underlying security (stock or ETF) or
convertible security is greater than eight-to-one (8.00).
\20\ See Exchange Rule 515(g)(3).
\21\ See Exchange Rule 515(g)(3)(i).
\22\ See Exchange Rule 515(g)(3)(ii).
\23\ See Exchange Rule 515(g)(3)(iii).
\24\ See Exchange Rule 515(g)(3)(iv).
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Qualified Contingent Cross Orders
The trading of Qualified Contingent Cross Orders is governed by
Rule 515(g)(2). Rule 515(g)(2) provides that, ``Qualified Contingent
Cross Orders, as defined in Rule 516(j), are automatically executed
upon entry provided that the execution (i) is not at the same price as
a Priority Customer Order on the Exchange's Simple Order Book; and (ii)
is at or between the NBBO.'' \25\ Further, the rule provides, ``[i]f
trading interest exists on the Exchange's Simple Order Book that is
subject to the Managed Interest Process pursuant to Rule 515(d)(2) when
the Exchange receives a Qualified Contingent Cross Order, the System
will reject the Qualified Contingent Cross Order. Qualified Contingent
Cross Orders will be automatically canceled if they cannot be
executed.'' \26\
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\25\ See Exchange Rule 515(g)(2).
\26\ See Id.
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Complex Qualified Contingent Cross Orders
The trading of Complex Qualified Contingent Cross Orders is
governed by Rule 515(g)(4). Rule 515(g)(4) provides that, ``cQCC
Orders, as defined in Rule 518(b)(4), are automatically executed upon
entry provided that, with respect to each option leg of the cQCC Order,
the execution (i) is not at the same price as a Priority Customer Order
on the Exchange's Simple Order Book; and (ii) is at or between the
NBBO.'' \27\ Rule 515(g)(4)(i) provides that, ``cQCC Orders will be
automatically canceled if they cannot be executed.'' \28\ Additionally,
Rule 515(g)(4)(ii) provides that, ``cQCC Orders may only be entered in
the minimum trading increments applicable to complex orders under Rule
518(c)(1)(i) or 518(c)(1)(ii) if the cQCC includes the stock component
upon entry.'' \29\ Rule 515(g)(4)(iii) provides that, ``[t]he Exchange
will determine, on a class-by-class basis, the option classes in which
cQCC Orders are available for trading on the Exchange, and will
announce such classes to Members via Regulatory Circular.'' \30\
Additionally, Rule 515(g)(4)(iv) provides that, ``[a] cQCC Order may be
entered with or without the stock component. A cQCC Order entered
without the stock component will be treated as a complex strategy with
only option components. A cQCC Order entered with the stock component
shall be subject to Rule 518.01. A Member that submits a cQCC Order to
the Exchange (with or without the stock component) represents that such
order satisfies the requirements of a qualified contingent trade (as
described in Interpretations and Policies .01 of Rule 516) and agrees
to provide information to the Exchange related to the execution of the
stock component as determined by the Exchange and communicated via
Regulatory Circular.'' \31\ Rule 515(g)(4)(v) provides that, ``[a] cQCC
Order with a conforming ratio will be executed in accordance with Rule
518(c)(1)(iv).'' Finally, Rule 515(g)(4)(vi) provides that, ``[a] cQCC
Order with a non-conforming ratio will be executed in accordance with
Rule 518(c)(1)(v).'' \32\ In sum, the Crossing Orders described above
are
[[Page 25415]]
automatically executed upon entry provided that each specific crossing
order satisfies the requirements unique to that type of crossing order
as described.
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\27\ See Exchange Rule 515(g)(4).
\28\ See Exchange Rule 515(g)(4)(i).
\29\ See Exchange Rule 515(g)(4)(ii).
\30\ See Exchange Rule 515(g)(4)(iii).
\31\ See Exchange Rule 515(g)(4)(iv).
\32\ See Exchange Rule 515(g)(4)(v).
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Trading Floor
The Exchange operates a physical Trading Floor located in Miami,
Florida. Only Qualified Floor Orders (``QFOs'') may be transacted on
the Trading Floor.\33\ QFOs may also be complex orders as defined in
Rule 518(a) with no more than the applicable number of legs, as
determined by the Exchange and communicated to Participants via
Regulatory Circular.\34\ Additionally, Rule 2040(b) provides that all
QFOs must be announced to the trading crowd, as provided in Rule
2030(e)(2), prior to the QFO being submitted to the Exchange's System
to facilitate post-trade workflows.
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\33\ See Exchange Rule 2040(a)(2).
\34\ See Exchange Rule 2040(a)(4).
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Proposal
The Exchange now proposes to amend Rule 2040(a)(4) to remove the
reference to paragraph (a) of Rule 518. Paragraph (a) of Rule 518
provides a generic definition of what a ``complex order'' is on the
Exchange.\35\ Exchange Rule 518(b), however, provides a list of
specific types of complex orders including Complex Customer Cross Order
\36\ and Complex Qualified Contingent Cross Order.\37\ The Exchange
proposes to remove the reference to paragraph (a) so that it is not
mistakenly interpreted as excluding the complex order types enumerated
in paragraph (b).
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\35\ A ``complex order'' is any order involving the concurrent
purchase and/or sale of two or more different options in the same
underlying security (the ``legs'' or ``components'' of the complex
order), for the same account, in a conforming or non-conforming
ratio as defined below for the purposes of executing a particular
investment strategy. Mini-options may only be part of a complex
order that includes other mini-options. Only those complex orders in
the classes designated by the Exchange and communicated to Members
via Regulatory Circular with no more than the applicable number of
legs, as determined by the Exchange on a class-by-class basis and
communicated to Members via Regulatory Circular, are eligible for
processing. The term complex order also includes stock-option
orders. A stock-option order is an order to buy or sell a stated
number of units of an underlying security (stock or Exchange Traded
Fund Share (``ETF'')) or a security convertible into the underlying
stock (``convertible security'') coupled with the purchase or sale
of options contract(s) on the opposite side of the market
representing either (i) the same number of units of the underlying
security or convertible security, or (ii) the number of units of the
underlying stock necessary to create a delta neutral position where
the ratio represents the total number of units of the underlying
security or convertible security in the option leg to the total
number of units of the underlying security or convertible security
in the stock leg. A stock-option order may have a conforming or non-
conforming ratio as defined below, and is subject to the limitations
set forth in Interpretation and Policy .01 of this Rule. Only those
stock-option orders in the classes designated by the Exchange and
communicated to Members via Regulatory Circular with no more than
the applicable number of legs as determined by the Exchange on a
class-by-class basis and communicated to Members via Regulatory
Circular, are eligible for processing.'' See Exchange Rule 518(a).
\36\ See Exchange Rule 518(b)(3).
\37\ See Exchange Rule 518(b)(4).
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Crossing Orders
The Exchange also proposes to amend Exchange Rule 2040 to permit
Floor Brokers to execute the Crossing Orders (as identified in this
proposal) on the Trading Floor immediately, without being announced to
the trading crowd as required by Rule 2040(b), provided that the
requirements that allow each of the Crossing Orders to be executed
immediately on the electronic market are similarly satisfied on the
Trading Floor.
Customer Cross Orders
Specifically, the Exchange proposes to adopt Interpretation and
Policy .11 to Exchange Rule 2040 related to Customer Cross Orders. The
Exchange proposes to adopt rule text to provide that,
``[n]otwithstanding Exchange Rule 2040(b), Customer Cross Orders, as
defined in Exchange Rule 516(i), may be executed on the Trading Floor
immediately without announcement to the trading crowd provided that the
execution (i) is at or between the best bid and offer on the Exchange;
(ii) is not at the same price as a Priority Customer Order on the
Exchange's Simple Order Book; (iii) will not trade at a price inferior
to the NBBO; and (iv) no trading interest exists on the Exchange's
Simple Order Book that is subject to the Managed Interest Process
pursuant to Rule 515(d)(2). Rule 520, Interpretation and Policy .01
applies to Floor Broker execution of Customer Cross Orders.'' The
requirements that a Floor Broker must satisfy to immediately execute
Customer Cross Orders on the Trading Floor are identical to those
required in the electronic market pursuant to Exchange Rule
515(g)(1),\38\ with one minor exception that is not applicable to the
Trading Floor due to the separate and distinct execution processes that
exist between the electronic market and the Trading Floor.
Specifically, the Exchange does not propose to adopt the provision in
Exchange Rule 515(g)(1) that states, ``Customer Cross Orders will be
automatically canceled if they cannot be executed.'' In the electronic
market, Electronic Exchange Members \39\ will submit a Customer Cross
Order directly into the System for execution, and if an order fails to
satisfy the requirements of Exchange Rule 515(g)(1), the System will
automatically cancel the order. By contrast, a Customer Cross Order may
be executed immediately on the Trading Floor prior to the order being
submitted into the System for post-trade validation. If an order fails
the post-trade validation, the order will be invalidated and returned
to the Floor Broker. The processes are substantively similar in that
they both ensure that all the requirements necessary to immediately
execute a Customer Cross Order are satisfied. Therefore, the Exchange
does not propose to adopt the automatic cancellation provision in
proposed Interpretation and Policy .11 to Exchange Rule 2040 as a
similar mechanism already exists on the Trading Floor. Additionally,
the Exchange notes that at least one other options exchange with a
trading floor has a rule substantially similar to proposed
Interpretation and Policy .11 to Exchange Rule 2040, that requires that
the execution (i) be at or between the best bid and offer on the
Exchange; (ii) is not at the same price as a Priority Customer Order on
the Exchange's Simple Order Book; and (iii) will not trade at a price
inferior to the NBBO.\40\
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\38\ Exchange Rule 515(g)(1) provides that ``Customer Cross
Orders, as defined in Rule 516(i), are automatically executed upon
entry provided that the execution (i) is at or between the best bid
and offer on the Exchange; (ii) is not at the same price as a
Priority Customer Order on the Exchange's Simple Order Book; and
(iii) will not trade at a price inferior to the NBBO.''
\39\ The term ``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.
Electronic Exchange Members are deemed ``members'' under the
Exchange Act. See Exchange Rule 100.
\40\ See e.g. PHLX Rulebook, Options 8, Section 30(f)
(providing, in relevant part, that ``Customer Cross Orders are
automatically executed upon entry provided that the execution is at
or between the best bid and offer on the Exchange and (i) is not at
the same price as a Public Customer Order on the Exchange's limit
order book and (ii) will not trade through the NBBO.'')
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Complex Customer Cross Orders
The Exchange proposes to adopt Interpretation and Policy .12 to
Exchange Rule 2040 related to Complex Customer Cross (``cC2C'') Orders.
The Exchange proposes to adopt rule text to provide that,
``[n]otwithstanding Exchange Rule 2040(b), cC2C Orders, as defined in
Exchange Rule 518(b)(3), with a conforming ratio, may be executed on
the Trading Floor immediately without announcement to the trading crowd
provided that the requirements of Rule 518(c)(1)(iv) are satisfied and
the cC2C Order improves
[[Page 25416]]
the best price available on the Exchange's Strategy Book.'' The
Exchange also proposes to adopt paragraph (a) to Interpretation and
Policy .12 to provide that, ``cC2C Orders may be executed in minimum
trading increments of $0.01.'' The Exchange proposes to adopt paragraph
(b) to Interpretation and Policy .12 to provide that, ``cC2C Orders are
only available on the Trading Floor in the option classes announced by
the Exchange as provided for in Exchange Rule 515(g)(3)(iv).'' The
Exchange proposes to adopt paragraph (c) to Interpretation and Policy
.12 to provide that, ``Rule 520, Interpretation and Policy .01 applies
to Floor Broker execution of cC2C Orders.'' The requirements that a
Floor Broker must satisfy to immediately execute cC2C Orders on the
Trading Floor are identical to those required in the electronic market
pursuant to Exchange Rule 515(g)(3),\41\ with two minor exceptions. The
first exception is related to one of the requirements in Rule 515(g)(3)
that is not applicable to the Trading Floor due to the separate and
distinct execution processes that exist between the electronic market
and the Trading Floor. Specifically, the Exchange does not propose to
adopt the provision in Exchange Rule 515(g)(3)(i) that states, ``cC2C
Orders will be automatically canceled if they cannot be executed.'' In
the electronic market, Electronic Exchange Members will submit a cC2C
Order directly into the System for execution, and if an order fails to
satisfy the requirements of Exchange Rule 515(g)(3), the System will
automatically cancel the order. By contrast, a cC2C Order may be
executed immediately on the Trading Floor, prior to the order being
submitted into the System for post-trade validation. If an order fails
the post-trade validation, the order will be invalidated and returned
to the Floor Broker. The processes are substantively similar in that
they both ensure that all the requirements necessary to immediately
execute a cC2C Order are satisfied. Therefore, the Exchange does not
propose to adopt the automatic cancellation provision in proposed
Interpretation and Policy .12 to Exchange Rule 2040 as a similar
mechanism already exists on the Trading Floor. The second exception is
that only Complex Customer Cross Orders with a conforming ratio would
be permitted to be executed on the Trading Floor immediately without
announcement to the trading crowd, as provided in proposed
Interpretation and Policy .12. By contrast, today, two Priority
Customer Orders in open outcry pursuant to proposed Exchange Rule
2040(a)(4)may be in either conforming or non-conforming ratios.\42\ The
Exchange proposes to permit only Complex Customer Cross Orders with a
conforming ratio to be executed on the Trading Floor immediately
without announcement to the trading crowd in order to align its rules
to that of another options exchange that provides a trading floor.\43\
The Exchange notes that Floor Brokers may continue to cross two
Priority Customer Orders in open outcry pursuant to Exchange Rule
2040(a)(4). This would be necessary if a Floor Broker desired to cross
two Priority Customer Orders with non-conforming ratios. The Exchange
notes that at least one other options exchange with a trading floor has
a substantially similar rule that allows for the immediate execution of
Complex Customer Cross Orders provided that the order is in a
conforming ratio and the order will not trade ahead of a Priority
Customer Order on the Simple Order Book without improving the SBBO of
at least one option component of the complex strategy.\44\
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\41\ Exchange Rule 515(g)(3) provides that ``cC2C Orders, as
defined in Rule 518(b)(3), are automatically executed upon entry
provided that: (A) a cC2C Order with a conforming ratio will be
executed in accordance with Rule 518(c)(1)(iv) and will improve the
best price available on the Strategy Book; and (B) a cC2C Order with
a non-conforming ratio will be executed in accordance with Rule
518(c)(1)(v) and will improve the best price available on the
Strategy Book. (i) cC2C Orders will be automatically canceled if
they cannot be executed. (ii) cC2C Orders may only be entered in
minimum trading increments of $0.01. (iii) Rule 520, Interpretation
and Policy .01, applies to the entry and execution of cC2C Orders.
(iv) The Exchange will determine, on a class-by-class basis, the
option classes in which cC2C Orders are available for trading on the
Exchange, and will announce such classes to Members via Regulatory
Circular.''
\42\ As mentioned above, proposed Exchange Rule 2040(a)(4)
provides that ``QFOs may be complex orders as defined in Rule 518 .
. .'' Floor Brokers may execute complex orders such as Complex
Customer Cross Orders on the Trading Floor. Exchange Rule 518(b)(3)
states that ``. . . [t]rading of cC2C Orders is governed by Rule
515(g)(3).'' Pursuant to Exchange Rule 515(g)(3), cC2C Orders can be
entered into the System in either conforming or non-conforming
ratios.
\43\ See PHLX Rulebook, Options 8, Section 30(g) (providing, in
relevant part, that ``Only Complex Customer Cross Orders with a
conforming ratio as defined in Options 1, Section 1(b)(13) will be
accepted.'').
\44\ See e.g. PHLX Rulebook, Options 8, Section 30(g)
(providing, in relevant part, that ``Complex Orders may be entered
as Customer Cross Orders, as defined in Options 8, Section 32(g).
Such orders will be automatically executed upon entry so long as:
(i) the price of the transaction is at or within the best bid and
offer for the same complex startegy on the Complex Order Book; (ii)
there are no Public Customer Complex Orders for the same strategy at
the same price on the Complex Order Book; and (iii) the options legs
can be executed at prices that comply with the provisions of Options
3, Section 14(c)(2). '') Options 3, Section 14(c)(2)(i) provides
that Complex Options Strategies may be executed at a total credit or
debit price with one other member organization without giving
priority to bids or offers established on the Exchange that are no
better than the bids or offers in the individual options series
comprising such total credit or debit; provided, however, that if
any of the bids or offers established on the Exchange consist of a
Public Customer Order, the price of at least one leg of the complex
stategy must trade at a price that is better than the corresponding
bid or offer on the Exchange by at least one minimum trading
increment for the series as defined in Options 3, Section 3. Options
8, Section 30(g) also provides that only Complex Customer Cross
Orders with a conforming ratio as defined in Options 1, Section
1(b)(13) will be accepted. The Exchange notes that only Complex
Customer Cross Orders with a conforming ratio would be permitted to
executed on the Trading Floor immediately without annoucement to the
trading crowd as provided in proposed Interpretation and Policy .12,
which is substantively similar to PHLX Rulebook, Options 8, Section
30(g).
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Qualified Contingent Cross Orders
The Exchange proposes to adopt Interpretation and Policy .13 to
Exchange Rule 2040 related to Qualified Contingent Cross Orders. The
Exchange proposes to adopt rule text to provide that,
``[n]otwithstanding Exchange Rule 2040(b), Qualified Contingent Cross
Orders, as defined in Exchange Rule 516(j), may be executed on the
Trading Floor immediately without announcement to the trading crowd
provided that the execution (i) is not at the same price as a Priority
Customer Order on the Exchange's Simple Order Book; (ii) is at or
between the NBBO; and (iii) no trading interest exists on the
Exchange's Simple Order Book that is subject to the Managed Interest
Process pursuant to Rule 515(d)(2).'' The requirements that a Floor
Broker must satisfy to immediately execute Qualified Contingent Cross
Orders on the Trading Floor are identical to those required in the
electronic market pursuant to Exchange Rule 515(g)(2) \45\ with one
minor exception that is not applicable to the Trading Floor due to the
separate and distinct execution processes that exist between the
electronic market and the Trading Floor. Specifically, the Exchange
does not propose to adopt the provision in Exchange Rule 515(g)(2) that
states, ``Qualified Contingent Cross Orders will be automatically
canceled if they cannot be executed.'' In the electronic market,
Electronic Exchange Members will submit a Qualified Contingent Cross
Order directly into the System for execution, and if an order fails to
satisfy the requirements of Exchange Rule 515(g)(2), the System will
automatically cancel the order. By
[[Page 25417]]
contrast, a Qualified Continent Cross Order may be executed immediately
on the Trading Floor, prior to the order being submitted into the
System for post-trade validation. If an order fails the post-trade
validation, the order will be invalidated and returned to the Floor
Broker. The processes are substantively similar in that they both
ensure that all the requirements necessary to immediately execute a
Qualified Contingent Cross Order are satisfied. Therefore, the Exchange
does not propose to adopt the automatic cancellation provision in
proposed Interpretation and Policy .13 to Exchange Rule 2040 as a
similar mechanism already exists on the Trading Floor. Additionally,
the Exchange notes at least one other options exchange with a trading
floor has a rule substantially similar to proposed Interpretation and
Policy .13 to Exchange Rule 2040 that requires that the execution (i)
is not at the same price as a Priority Customer Order on the Exchange's
Simple Order Book; and (ii) is at or between the NBBO.\46\
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\45\ Exchange Rule 515(g)(2) provides that ``Qualified
Contingent Cross Orders, as defined in Rule 516(j), are
automatically executed upon entry provided that the execution (i) is
not at the same price as a Priority Customer Order on the Exchange's
Simple Order Book; and (ii) is at or between the NBBO . . .''
\46\ See e.g. PHLX Rulebook, Options 8, Section 30(e)
(providing, in relevant part, that ``A Floor Qualified Contingent
Cross Order shall be transacted as specified in Options 3, Section
12(c) and (d).''). Options 3, Section 12(c) states that ``Qualified
Contingent Cross Orders are automatically executed upon entry
provided that the execution (i) is not at the same price as a Public
Customer Order on the Exchange's limit order book and (ii) is at or
between the better of the internal PBBO or the NBBO.''
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Complex Qualified Contingent Cross Orders
The Exchange proposes to adopt Interpretation and Policy .14 to
Exchange Rule 2040 related to Complex Qualified Contingent Cross
(``cQCC'') Orders. The Exchange proposes to adopt rule text to provide
that, ``[n]otwithstanding Exchange Rule 2040(b), cQCC Orders, as
defined in Exchange Rule 518(b)(4), may be executed on the Trading
Floor immediately without announcement to the trading crowd provided
that, with respect to each option leg of the cQCC Order, the execution
(i) is not at the same price as a Priority Customer Order on the
Exchange's Simple Order Book; and (ii) is at or between the NBBO.'' The
Exchange proposes to adopt paragraph (a) to Interpretation and Policy
.14 to provide that, ``cQCC Orders may only be executed in the minimum
trading increments applicable to complex orders under Exchange Rule
518(c)(1)(i) or 518(c)(1)(ii) if the cQCC Order includes the stock
component upon entry.'' The Exchange proposes to adopt paragraph (b) to
Interpretation and Policy .14 to provide that, ``cQCC Orders are only
available on the Trading Floor in the option classes announced by the
Exchange as provided for in Exchange Rule 515(g)(4)(iii).'' The
Exchange proposes to adopt paragraph (c) to Interpretation and Policy
.14 to provide that, ``a cQCC Order may be executed with or without the
stock component. A cQCC Order executed without the stock component will
be treated as a complex strategy with only option components. A cQCC
Order executed with the stock component shall be subject to Exchange
Rule 518, Interpretation and Policy .01(a). A Member that submits a
cQCC Order to the Exchange's System (with or without the stock
component) represents that such order satisfies the requirements of a
qualified contingent trade (as described in Interpretations and
Policies .01 of Exchange Rule 516) and agrees to provide information to
the Exchange related to the execution of the stock component as
determined by the Exchange and communicated via Regulatory Circular.''
The Exchange proposes to adopt paragraph (d) to Interpretation and
Policy .14 to provide that, ``a cQCC Order with a conforming ratio will
be executed in accordance with Exchange Rule 518(c)(1)(iv).'' The
Exchange proposes to adopt paragraph (e) to Interpretation and Policy
.14 to provide that, ``a cQCC Order with a non-conforming ratio will be
executed in accordance with Exchange Rule 518(c)(1)(v).'' The
requirements that a Floor Broker must satisfy to immediately execute
cQCC Orders on the Trading Floor are identical to those required in the
electronic market pursuant to Exchange Rule 515(g)(4) \47\ with one
minor exception that is not applicable to the Trading Floor due to the
separate and distinct execution processes that exist between the
electronic market and the Trading Floor. Specifically, the Exchange
does not propose to adopt the provision in Exchange Rule 515(g)(4) that
states, ``cQCC Orders will be automatically canceled if they cannot be
executed.'' In the electronic market, Electronic Exchange Members will
submit a cQCC Order directly into the System for execution, and if an
order fails to satisfy the requirements of Exchange Rule 515(g)(4), the
System will automatically cancel the order. By contrast, a cQCC Order
may be executed immediately on the Trading Floor, prior to the order
being submitted into the System for post-trade validation. If an order
fails the post-trade validation, the order will be invalidated and
returned to the Floor Broker. The processes are substantively similar
in that they both ensure that all the requirements necessary to
immediately execute a cQCC Order are satisfied. Therefore, the Exchange
does not propose to adopt the automatic cancellation provision in
proposed Interpretation and Policy .14 to Exchange Rule 2040 as a
similar mechanism already exists on the Trading Floor. Additionally,
the Exchange notes at least one other options exchange with a trading
floor has a rule substantially similar to proposed Interpretation and
Policy .14 to Exchange Rule 2040 that requires, with respect to each
option leg of the cQCC Order, that the execution (i) is not at the same
price as a Priority Customer Order on the Exchange's Simple Order Book;
and (ii) is at or between the NBBO.\48\
---------------------------------------------------------------------------
\47\ Exchange Rule 515(g)(4) provides that ``cQCC Orders, as
defined in Rule 518(b)(4), are automatically executed upon entry
provided that, with respect to each option leg of the cQCC Order,
the execution (i) is not at the same price as a Priority Customer
Order on the Exchange's Simple Order Book; and (ii) is at or between
the NBBO . . .''
\48\ See e.g. PHLX Rulebook, Options 8, Section 30(e)
(providing, in relevant part, that ``[a] Floor Qualified Contingent
Cross Order shall be transacted as specified in Options 3, Section
12(c) and (d).''). Options 3, Section 12(d) provides, in relevant
part, that ``Complex Options Orders may be entered as Qualified
Contingent Cross Orders so long as . . . (iii) the options legs can
be executed at prices that (A) are at or between the better of the
internal PBBO or the NBBO for the individual series, and (B) comply
with the provisions of Options 3, Section 14(c)(2)(i), provided that
no legs of the Complex Options Order can be executed at the same
price as a Public Customer Order on the Exchange in the individual
options series.''
---------------------------------------------------------------------------
The purpose of the proposed rule changes is to align and harmonize
the rules governing the electronic market and Trading Floor. The
Exchange's proposal would permit Floor Brokers to immediately execute
the Crossing Orders pursuant to proposed Interpretations and Policies
.11 through .14 to Exchange Rule 2040 utilizing the same order entry
requirements as the Members that transact business electronically
pursuant to Exchange Rule 515(g)(1) through (4). The requirements that
a Floor Broker must satisfy to immediately execute the Crossing Orders
on the Trading Floor are identical to those required in the electronic
market with certain exceptions that are not applicable to the Trading
Floor due to the separate and distinct execution processes that exists
between the electronic market and the Trading Floor. The Exchange notes
that at least one other options exchange with a trading floor has
substantially similar rules.\49\
---------------------------------------------------------------------------
\49\ See supra notes 40, 44, 46, and 48.
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[[Page 25418]]
QFO With an ISO Designation
The Exchange proposes to adopt Interpretation and Policy .10 to
Exchange Rule 2040 to explicitly state that a two-sided order
(``Qualified Floor Order'' or ``QFO'') with an Intermarket Sweep Order
(``ISO'') \50\ designation can be executed on the Trading Floor and
entered into the Exchange's System to facilitate post-trade workflow.
The Exchange proposes to add this explicit reference and description of
the behavior of a QFO with an ISO designation into the Exchange
Rulebook to provide greater detail to the Rulebook.
---------------------------------------------------------------------------
\50\ An Intermarket Sweep Order or ``ISO'', as defined in Rule
1400(i), is a limit order that is designated by a Member as an ISO
in the manner prescribed by the Exchange, and is executed within the
System by Members without respect to Protected Quotations of other
Eligible Exchanges as defined in Rule 1400(q) and (g). ISOs are
immediately executable within the System and shall not be eligible
for routing. ISOs that are not designated as immediate or cancel
will be cancelled by the System if not executed upon receipt.
Simultaneously with the routing of an ISO to the System, one or more
additional limit orders, as necessary, are routed by the entering
Member to execute against the full displayed size of any Protected
Bid or Protected Offer (as defined in Rule 1400(p)) in the case of a
limit order to sell or buy with a price that is superior to the
limit price of the limit order identified as an ISO. These
additional routed orders must be identified as ISOs. An ISO is not
valid during the Opening Process described in Rule 503. See Exchange
Rule 516(f).
---------------------------------------------------------------------------
An Intermarket Sweep Order (``ISO''), as defined in Exchange Rule
1400(i),\51\ is a limit order that is designated by a Member as an ISO
in the manner prescribed by the Exchange, and is executed within the
System by Members without respect to Protected Quotations \52\ of other
Eligible Exchanges \53\ as defined in Rule 1400(q) and (g).\54\ A
Member may submit an ISO to the Exchange only if it has simultaneously
routed one or more additional ISOs to execute against the full
displayed size of any Protected Bid,\55\ in the case of a limit order
to sell, or Protected Offer,\56\ in the case of a limit order to buy,
for an options series with a price that is superior to the limit price
of the ISO.
---------------------------------------------------------------------------
\51\ Rule 1400 contained in Chapter XIV of MIAX Options Exchange
Rulebook is incorporated by reference into MIAX Sapphire Options
Exchange Rulebook and therefore is a MIAX Sapphire Rule applicable
to MIAX Sapphire Members. See Chapter XIV of the MIAX Sapphire
Options Exchange Rulebook.
\52\ ``Protected Quotation'' means a Protected Bid or Protected
Offer. See Exchange Rule 1400(q).
\53\ ``Eligible Exchange'' means a national securities exchange
registered with the SEC in accordance with Section 6(a) of the
Exchange Act that: (1) is a Participant Exchange in OCC (as that
term is defined in Section VII of the OCC by-laws); (2) is a party
to the OPRA Plan (as that term is described in Section I of the OPRA
Plan); and (3) if the national securities exchange is not a party to
the Options Order Protection and Locked/Crossed Markets Plan as
defined below, is a participant in another plan approved by the
Commission providing for comparable Trade-Through and Locked and
Crossed Market protection. See Exchange Rule 1400(g).
\54\ See Exchange Rule 516(f).
\55\ ``Protected Bid'' or ``Protected Offer'' means a Bid or
Offer in an options series, respectively, that: (a) is disseminated
pursuant to the OPRA Plan; and (b) is the Best Bid or Best Offer,
respectively, displayed by an Eligible Exchange. See Exchange Rule
1400(p).
\56\ See Id.
---------------------------------------------------------------------------
The Exchange notes that it currently allows a Floor Broker to
execute a QFO with an ISO designation. The Exchange now proposes to add
this explicit reference and description of the behavior of a QFO with
an ISO designation to provide greater detail within the Rulebook.
Specifically, the Exchange proposes to adopt Interpretation and Policy
.10 to Exchange Rule 2040 to provide that notwithstanding Exchange Rule
2040(e), a QFO with an ISO designation will be processed without regard
for better priced Protected Bids or Protected Offers (as defined in
Exchange Rule 1400) because the Member submitting the QFO to the
Exchange's System has simultaneously transmitted one or more ISOs, as
necessary, to execute against the full displayed size of any Protected
Bid or Protected Offer. The Exchange processes the QFO with an ISO
designation in the same manner that it currently processes QFOs without
an ISO designation, except that it accepts the QFOs with an ISO
designation without protecting away prices. The Member submitting the
QFO with an ISO designation shall bear the responsibility to clear all
better priced interest away simultaneously with the submission of the
QFO with an ISO designation to the Exchange.
The proposed rule change to add an explicit reference and
description of the behavior of a QFO with an ISO designation to the
Exchange Rulebook is intended to provide greater detail within the
Exchange's Rulebook.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\57\ in general, and furthers the objectives of Section 6(b)(5)
\58\ of the Act in particular, in that it is designed to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in 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.
---------------------------------------------------------------------------
\57\ 15 U.S.C. 78f(b).
\58\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The proposal to add an explicit reference and description of the
behavior of a QFO with an ISO designation to the Exchange's Rulebook is
designed to provide greater detail within the Exchange's Rulebook. The
proposal to amend Exchange Rule 2040(a)(4) is to ensure that it is not
mistakenly interpreted as excluding the complex order types enumerated
in paragraph (b). These proposed rule changes are not as a result of
any changes made to the Exchange functionality, operations, policies or
procedures, but are rather designed to provide greater detail and
better reflect the current operation of the Exchange's Trading Floor in
the Exchange's Rulebook. These proposed non-substantive changes would
ensure that the Exchange's Rules are clear, concise, and easier to
understand. In addition, the proposed rule changes would reduce
potential investor and market participant confusion and therefore
remove impediments to and perfect the mechanism of a free and open
market and a national market system by ensuring that investors and
market participants can more easily navigate, understand and comply
with the Exchange's Rules. The Exchange also believes that the proposed
rule changes would remove impediments to and perfects the mechanism of
a free and open market by ensuring that persons subject to the
Exchange's jurisdiction, regulators, and the investing public can more
easily navigate and understand the Exchange's Rules. The proposed rule
changes are consistent with the public interest and the protection of
investors because investors will not be harmed and in fact would
benefit from the increased transparency and clarity, thereby reducing
potential confusion.
Permitting Floor Brokers to immediately execute Crossing Orders (as
defined herein) without having to first announce the order to the
trading crowd is consistent with the Act because it would permit Floor
Brokers to execute these orders similarly to how these orders are
executed on the electronic market, provided similar requirements for
each specific order type are similarly satisfied. The Exchange believes
that the proposed rule changes would remove impediments to and perfect
the mechanism of a free and open market by placing Floor Brokers on
equal footing with Members that trade Crossing Orders electronically.
The proposed rule changes are consistent with the public interest and
the protection of investors because it would harmonize the
[[Page 25419]]
requirements for immediate execution of Crossing Orders on the Trading
Floor to those of the electronic market, with certain exceptions as
discussed above.
Customer Cross Orders
Identical to Members that transact electronically, with one minor
exception that is not applicable to the Trading Floor due to the
separate and distinct execution processes, Floor Brokers may
immediately execute Customer Cross Orders on the Trading Floor provided
the requirements mandated for automatic execution in the electronic
market are similarly satisfied on the Trading Floor. Specifically, a
Customer Cross Order may be executed immediately on the Trading Floor
so long as the execution (i) is at or between the best bid and offer on
the Exchange; (ii) is not at the same price as a Priority Customer
Order on the Exchange's Simple Order Book; (iii) will not trade at a
price inferior to the NBBO; and (iv) no trading interest exists on the
Exchange's Simple Order Book that is subject to the Managed Interest
Process pursuant to Rule 515(d)(2).\59\ The Exchange does not propose
to adopt the provision in Exchange Rule 515(g)(1) that states,
``Customer Cross Orders will be automatically canceled if they cannot
be executed.'' In the electronic market, Electronic Exchange Members
will submit a Customer Cross Order directly into the System for
execution, and if an order fails to satisfy the requirements of
Exchange Rule 515(g)(1), the System will automatically cancel the
order. By contrast, a Customer Cross Order may be executed immediately
on the Trading Floor, prior to the order being submitted into the
System for post-trade validation. If an order fails the post-trade
validation, the order will be invalidated and returned to the Floor
Broker. The processes are substantively similar in that they both
ensure that all the requirements necessary to immediately execute a
Customer Cross Order are satisfied. Therefore, the Exchange does not
propose to adopt the automatic cancellation provision in proposed
Interpretation and Policy .11 to Exchange Rule 2040 as a similar
mechanism already exists on the Trading Floor.
---------------------------------------------------------------------------
\59\ See proposed Interpretation and Policy .11 to Exchange Rule
2040.
---------------------------------------------------------------------------
Complex Customer Cross Orders
Additionally, identical to Members that transact electronically,
with two minor exceptions, Floor Brokers may immediately execute cC2C
Orders on the Trading Floor provided the requirements mandated for
automatic execution in the electronic market are similarly satisfied on
the Trading Floor. Specifically, a cC2C Order may be executed
immediately on the Trading Floor so long as: the requirements of Rule
518(c)(1)(iv) are satisfied and the cC2C Order improves the best price
available on the Exchange's Strategy Book.\60\ The first exception is
related to one of the requirements in Rule 515(g)(3) that is not
applicable to the Trading Floor due to the separate and distinct
execution processes that exist between the electronic market and the
Trading Floor. The Exchange does not propose to adopt the provision in
Exchange Rule 515(g)(3)(i) that states, ``cC2C Orders will be
automatically canceled if they cannot be executed.'' In the electronic
market, Electronic Exchange Members will submit a cC2C Order directly
into the System for execution, and if an order fails to satisfy the
requirements of Exchange Rule 515(g)(3), the System will automatically
cancel the order. By contrast, a cC2C Order may be executed immediately
on the Trading Floor, prior to the order being submitted into the
System for post-trade validation. If an order fails the post-trade
validation, the order will be invalidated and returned to the Floor
Broker. The processes are substantively similar in that they both
ensure that all the requirements necessary to immediately execute a
cC2C Order are satisfied. Therefore, the Exchange does not propose to
adopt the automatic cancellation provision in proposed Interpretation
and Policy .12 to Exchange Rule 2040 as a similar mechanism already
exists on the Trading Floor. The second exception is that the Exchange
would permit only cC2C Orders with a conforming ratio to be executed on
the Trading Floor immediately without announcement to the trading crowd
in order to align its rules with those of other options exchanges. The
Exchange notes that at least one other options exchange similarly
permits only Complex Customer Cross Orders with a conforming ratio to
be executed on the Trading Floor immediately without announcement to
the trading crowd.\61\
---------------------------------------------------------------------------
\60\ See proposed Interpretation and Policy .12 to Exchange Rule
2040.
\61\ See PHLX Rulebook, Options 8, Section 30(g) (providing, in
relevant part, that ``Only Complex Customer Cross Orders with a
conforming ratio as defined in Options 1, Section 1(b)(13) will be
accepted.'').
---------------------------------------------------------------------------
Qualified Contingent Cross Orders
Identical to Members that transact electronically, with one minor
exception that is not applicable to the Trading Floor due to the
separate and distinct execution processes, Floor Brokers may
immediately execute Qualified Contingent Cross Orders on the Trading
Floor provided the requirements mandated for automatic execution in the
electronic market are similarly satisfied on the Trading Floor.
Specifically, a Qualified Contingent Cross Order may be executed
immediately on the Trading Floor so long as the execution (i) is not at
the same price as a Priority Customer Order on the Exchange's Simple
Order Book; (ii) is at or between the NBBO; and (iii) no trading
interest exists on the Exchange's Simple Order Book that is subject to
the Managed Interest Process pursuant to Rule 515(d)(2).\62\ The
Exchange does not propose to adopt the provision in Exchange Rule
515(g)(2) that states, ``Qualified Contingent Cross Orders will be
automatically canceled if they cannot be executed.'' In the electronic
market, Electronic Exchange Members will submit a Qualified Contingent
Cross Order directly into the System for execution, and if an order
fails to satisfy the requirements of Exchange Rule 515(g)(2), the
System will automatically cancel the order. By contrast, a Qualified
Contingent Cross Order may be executed immediately on the Trading
Floor, prior to the order being submitted into the System for post-
trade validation. If an order fails the post-trade validation, the
order will be invalidated and returned to the Floor Broker. The
processes are substantively similar in that they both ensure that all
the requirements necessary to immediately execute a Qualified
Contingent Cross Order are satisfied. Therefore, the Exchange does not
propose to adopt the automatic cancellation provision in proposed
Interpretation and Policy .13 to Exchange Rule 2040 as a similar
mechanism already exists on the Trading Floor.
---------------------------------------------------------------------------
\62\ See proposed Interpretation and Policy .13 to Exchange Rule
2040.
---------------------------------------------------------------------------
Complex Qualified Contingent Cross Orders
Identical to Members that transact electronically, with one minor
exception that is not applicable to the Trading Floor due to the
separate and distinct execution processes, Floor Brokers may
immediately execute cQCC Orders on the Trading Floor provided the
requirements mandated for automatic execution in the electronic market
are similarly satisfied on the Trading Floor. Specifically, a cQCC
Order may be executed immediately on the Trading Floor so long as: with
respect to each option leg of the cQCC
[[Page 25420]]
Order, the execution (i) is not at the same price as a Priority
Customer Order on the Exchange's Simple Order Book; and (ii) is at or
between the NBBO.\63\ The Exchange does not propose to adopt the
provision in Exchange Rule 515(g)(4) that states, ``cQCC Orders will be
automatically canceled if they cannot be executed.'' In the electronic
market, Electronic Exchange Members will submit a cQCC Order directly
into the System for execution, and if an order fails to satisfy the
requirements of Exchange Rule 515(g)(4), the System will automatically
cancel the order. By contrast, a cQCC Order may be executed immediately
on the Trading Floor, prior to the order being submitted into the
System for post-trade validation. If an order fails the post-trade
validation, the order will be invalidated and returned to the Floor
Broker. The processes are substantively similar in that they both
ensure that all the requirements necessary to immediately execute a
cQCC Order are satisfied. Therefore, the Exchange does not propose to
adopt the automatic cancellation provision in proposed Interpretation
and Policy .14 to Exchange Rule 2040 as a similar mechanism already
exists on the Trading Floor.
---------------------------------------------------------------------------
\63\ See proposed Interpretation and Policy .14 to Exchange Rule
2040.
---------------------------------------------------------------------------
Further, the Exchange believes it is consistent with the Act and
the protection of investors to permit the Crossing Orders to be
executed on the Trading Floor immediately without announcement to the
trading crowd. This would place them on equal footing with Members that
trade these orders electronically. With this proposal, Floor Brokers
may only immediately execute cC2C Orders (without announcement) if such
orders are in conforming ratios as proposed in Interpretation and
Policy .12 to Exchange Rule 2040, however Floor Brokers would be able
to continue to cross two Priority Customer Orders in open outcry
pursuant to Exchange Rule 2040(a)(4). This would be necessary if a
Floor Broker desired to cross two Priority Customer Orders with non-
conforming ratios because under proposed Interpretation and Policy .12
to Exchange Rule 2040 only Complex Customer Cross Orders with a
conforming ratio are accepted for electronic processing. The Exchange
proposes to permit only Complex Customer Cross Orders with a conforming
ratio to be executed on the Trading Floor immediately without
announcement to the trading crowd in order to align its rules with that
of another options exchange that has a trading floor. Specifically, the
Exchange notes that at least one other options exchange similarly
permits only Complex Customer Cross Orders with a conforming ratio to
be executed on the Trading Floor immediately without announcement to
the trading crowd.\64\
---------------------------------------------------------------------------
\64\ See supra note 43.
---------------------------------------------------------------------------
Permitting Floor Brokers to only submit cQCC Orders with a stock/
ETF component if such orders comply with the Qualified Contingent Trade
Exemption from Rule 611(a) of Regulation NMS is consistent with the Act
and the protection of investors.\65\ Proposed Interpretation and
Policy.14(c) to Exchange Rule 2040 will require that Floor Brokers
submitting such orders with a stock/ETF component represent that such
orders comply with the Qualified Contingent Trade Exemption. This
proposal is consistent with today's treatment of Complex Orders with a
stock/ETF component and is not changing the manner in which a Complex
Order with a stock/ETF component is treated today on the Exchange.\66\
---------------------------------------------------------------------------
\65\ See proposed Interpretation and Policy .14(c) of Exchange
Rule 2040.
\66\ See Interpretation and Policy .01 of Exchange Rule 518.
---------------------------------------------------------------------------
Section 11(a) and the rules thereunder generally prohibit members
of an exchange from effecting transactions on the exchange for their
own account, the account of an associated person, or an account with
respect to which it or an associated person thereof exercises
investment discretion unless an exemption applies.\67\ With respect to
the application of the Crossing Orders to Section 11(a) of the Act and
the rules thereunder, the Exchange notes that the entry and execution
of the Crossing Orders raises no novel issues under Section 11(a) and
the rules thereunder from a compliance, surveillance or enforcement
perspective. Floor Brokers are required to comply and the Exchange
surveils for compliance with Section 11(a) and the rules thereunder
when using Exchange systems to effect transactions using existing order
types, and they will be required to comply with Section 11(a) and the
rules thereunder when using the Crossing Orders as amended.\68\
---------------------------------------------------------------------------
\67\ See 15 U.S.C. 78k(a). Section 11(a) contains multiple
exemptions, including exemptions for those acting in the capacity of
market makers, as odd-lot dealers, and those engaged in stabilizing
conduct; there are also rule-based exemptions such as the ``effect
vs. execute'' exception under SEC Rule 11a2-2(T) under the Act. See
17 CFR 240.11a2-2(T).
\68\ See also Interpretation and Policy .05 of Exchange Rule
2040.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Intramarket Competition
The Exchange believes the proposed rule changes do not impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed changes to add
an explicit reference and description of the behavior of a QFO with an
ISO designation to the Exchange's Rulebook and amend Exchange Rule
2040(a)(4) to remove the reference to paragraph (a) of Rule 518 are not
intended to address competitive issues but rather are concerned solely
with making clarifying changes to the rule text with no proposed
changes to related functionality. The proposal to permit Floor Brokers
to execute certain Crossing Orders on the Trading Floor immediately
without announcement to the trading crowd does not impose any burden on
intramarket competition because today Members that transact
electronically are subject to identical rules, with certain exceptions
that are not applicable to the Trading Floor due to the distinct
execution processes, and may enter such orders without exposing such
orders. The proposal does not impose an undue burden on intramarket
competition because all Floor Brokers may similarly execute Crossing
Orders.
Intermarket Competition
The Exchange believes the proposed rule changes do not impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed changes to add
an explicit reference and description of the behavior of a QFO with an
ISO designation to the Exchange's Rulebook and amend Exchange Rule
2040(a)(4) to remove the reference to paragraph (a) of Rule 518 are not
intended to address competitive issues but rather are concerned solely
with making clarifying changes to the rule text with no proposed
changes to related functionality. The proposal to permit Floor Brokers
to execute certain Crossing Orders on the Trading Floor immediately
without announcement to the trading crowd does not impose any burden on
intermarket competition because at least one other options
[[Page 25421]]
exchange with a trading floor has similar rules.\69\
---------------------------------------------------------------------------
\69\ See supra notes 40, 44, 46, and 48.
---------------------------------------------------------------------------
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
The Exchange has designated this rule filing as non-controversial
under Section 19(b)(3)(A) of the Act \70\ and Rule 19b-4(f)(6) \71\
thereunder. Because the proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \72\ and Rule 19b-
4(f)(6) \73\ thereunder.
---------------------------------------------------------------------------
\70\ 15 U.S.C. 78s(b)(3)(A).
\71\ 17 CFR 240.19b-4(f)(6).
\72\ 15 U.S.C. 78s(b)(3)(A).
\73\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \74\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \75\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposed rule change may become operative upon filing. The
Exchange states that waiving the operative delay will allow the
Exchange to make clarifying changes to its rule text immediately, which
will benefit investors and the public interest because such changes
would add clarity to the Exchange's rules and therefore alleviate
potential investor or market participant confusion. Further, the
Exchange states that waiver of the operative delay will permit Floor
Brokers immediately to execute Crossing Orders on the Trading Floor
without requiring prior announcement to the trading crowd, to the
benefit of market participants, and would align and harmonize its rules
governing its electronic market and its Trading Floor, thereby placing
Floor Brokers on an equal footing with Members that trade Crossing
Orders electronically. The Exchange also states that another options
exchange with a trading floor has similar rules.\76\ For these reasons,
and because the proposal raises no new or novel legal or regulatory
issues, the Commission finds that waiver of the 30-day operative delay
is consistent with the protection of investors and the public interest.
Accordingly, the Commission waives the 30-day operative delay and
designates the proposed rule change to be operative immediately upon
filing.\77\
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\74\ 17 CFR 240.19b-4(f)(6).
\75\ 17 CFR 240.19b-4(f)(6)(iii).
\76\ See supra notes 40, 44, 46, and 48.
\77\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of this proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
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#82f0f7eee7afe1edefefe7ecf6f1c2f1e7e1ace5edf4"><span class="__cf_email__" data-cfemail="f785829b92da94989a9a92998384b7849294d9909881">[email protected]</span></a>. Please include
file number SR-SAPPHIRE-2026-19 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-2026-19. 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. 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-2026-19 and should be submitted
on or before May 29, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\78\
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\78\ 17 CFR 200.30-3(a)(12) and (59).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2026-09130 Filed 5-7-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on May 8, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.