[Federal Register Volume 89, Number 139 (Friday, July 19, 2024)]
[Notices]
[Pages 58848-58866]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15914]


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SECURITIES AND EXCHANGE COMMISSION

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


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

July 15, 2024.

I. Introduction

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

II. Statutory Standards

    Under Sections 6(b) and 19(a) of the Act,\7\ the Commission shall 
by order grant an application for registration as a national securities 
exchange if the Commission finds, among other things, that the proposed 
exchange is so organized and has the capacity to carry out the purposes 
of the Act and to comply, and to enforce compliance by its members and 
persons associated with its members, with the provisions of the Act, 
the rules and regulations thereunder, and the rules of the exchange.
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    \7\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(a), respectively.
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    As discussed in greater detail below, the Commission finds that 
MIAX Sapphire's application, as amended, for exchange registration 
meets the requirements of the Act and the rules and regulations 
thereunder. Further, the Commission finds that the proposed rules of 
MIAX Sapphire are consistent with Section 6 of the Act in that, among 
other things, they assure a fair representation of the exchange's 
members in the selection of its directors and administration of its 
affairs and provide that one or more directors will be representative 
of issuers and investors and not be associated with a member of the 
exchange, or with a broker or dealer; \8\ and that they are designed to 
prevent fraudulent and manipulative acts and practices, promote just 
and equitable principles of trade, foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, and remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, 
protect investors and the public interest, and are not designed to 
permit unfair discrimination between customers, issuers, brokers or 
dealers.\9\ The Commission also finds that the proposed rules of MIAX 
Sapphire are consistent with Section 11A of the Act.\10\ Finally, the 
Commission finds that MIAX Sapphire's proposed rules do not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\11\
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    \8\ See 15 U.S.C. 78f(b)(3).
    \9\ See 15 U.S.C. 78f(b)(5).
    \10\ See 15 U.S.C. 78k-1.
    \11\ See 15 U.S.C. 78f(b)(8).
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III. Discussion

A. Governance of MIAX Sapphire

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

[[Page 58849]]

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

[[Page 58850]]

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

[[Page 58851]]

whom will be Non-Industry Directors.\49\ Each of the Compensation and 
Regulatory Oversight Committees will consist of three or more 
Directors, all of whom will be required to be Non-Industry 
Directors.\50\ The Appeals Committee will consist of one Independent 
Director, one Industry Director, and one Member Representative 
Director.\51\ If established, the Finance Committee will consist of at 
least three Directors, a majority of whom will be Non-Industry 
Directors.\52\ The Executive Committee, if established, will consist of 
at least three Directors. Because the Executive Committee will have the 
powers and authority of the Exchange Board in the management of the 
business and affairs of the Exchange between meetings of the Exchange 
Board, its composition requirements are substantially similar to the 
composition requirements of the Exchange Board. Accordingly, the number 
of Non-Industry Directors on the Executive Committee must equal or 
exceed the number of Industry Directors and the percentages of 
Independent Directors and Member Representative Directors must be at 
least as great as the corresponding percentages on the Exchange Board 
as a whole.\53\
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    \49\ See MIAX Sapphire By-Laws, Article IV, Section 4.5(b). A 
Non-Industry Director shall serve as Chairman of the Committee. See 
id. See also MIAX Sapphire By-Laws, Article IV, Section 4.2(a) 
(requiring that each committee be composed of at least three 
people).
    \50\ See MIAX Sapphire By-Laws, Article IV, Sections 4.5(a) and 
4.5(c).
    \51\ See MIAX Sapphire By-Laws, Article IV, Section 4.5(d).
    \52\ See MIAX Sapphire By-Laws, Article IV, Section 4.5(f).
    \53\ See MIAX Sapphire By-Laws, Article IV, Section 4.5(e).
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    With respect to Committees of the Exchange, the Exchange has 
proposed to establish a Nominating Committee \54\ and a Member 
Nominating Committee.\55\ As discussed above, these committees will 
have responsibility for, among other things, nominating candidates for 
election to the Exchange Board. On an annual basis, the members of 
these committees will nominate candidates for the succeeding year's 
respective committees to be elected by Miami Holdings, as the sole LLC 
Member.\56\ In addition, MIAX Sapphire has proposed to establish a 
Quality of Markets Committee, which will provide advice and guidance to 
the Exchange Board on issues related to the fairness, integrity, 
efficiency, and competitiveness of the information, order handling and 
execution mechanisms of the Exchange from the perspective of individual 
and institutional investors, retail and market making firms, Exchange 
listed companies, and other market participants.\57\ The Quality of 
Markets Committee will include a broad representation of participants 
in the Exchange, including investors, market makers, integrated retail 
firms, and order entry firms.\58\ Additionally, at least 20% of the 
members of the committee will be Member Representative members, and the 
number of Non-Industry members must equal or exceed the total number of 
Industry and Member Representative members.\59\ MIAX Sapphire also has 
proposed to establish a Business Conduct Committee, which shall be 
appointed by the Exchange Chairman.\60\ Specifically, the Business 
Conduct Committee will have a minimum of three members and will be 
composed of a number of individuals as determined by the Exchange 
Chairman, none of whom shall be Directors of MIAX Sapphire. In 
addition, at least one member of the Business Conduct Committee and any 
panel thereof must be an officer, director, or employee of an Exchange 
Member.\61\
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    \54\ See MIAX Sapphire By-Laws, Article V, Section 5.2, and 
supra note 22.
    \55\ See MIAX Sapphire By-Laws, Article V, Section 5.3, and 
supra note 23.
    \56\ See MIAX Sapphire By-Laws, Article V, Section 5.1, and 
supra note 25. Additional candidates for the Member Nominating 
Committee may be nominated and elected by Exchange Members pursuant 
to a petition process. See supra note 25 and accompanying text.
    \57\ See MIAX Sapphire By-Laws, Article IV, Section 4.6.
    \58\ See id.
    \59\ See id.
    \60\ See MIAX Sapphire By-Laws, Article IV, Section 4.7.
    \61\ See id.
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    The proposed Committees of the Board and Committees of the 
Exchange, which are similar to the committees maintained by other 
exchanges,\62\ are designed to help enable MIAX Sapphire to carry out 
its responsibilities under the Act and are consistent with the Act, 
including Section 6(b)(1), which requires, in part, an exchange to be 
so organized and have the capacity to carry out the purposes of the 
Act.\63\
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    \62\ See, e.g., MIAX Emerald Order, MIAX Pearl Order, MIAX 
Order, and BATS Order, supra note 18; and ISE Mercury Order, ISE 
Gemini Order, Nasdaq Order, supra note 32.
    \63\ 15 U.S.C. 78f(b)(1).
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B. Regulation of MIAX Sapphire

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

[[Page 58852]]

value.\68\ In addition, no person, alone or together with its related 
persons, may vote or cause the voting of more than 20% of the voting 
power of the then issued and outstanding capital stock of Miami 
Holdings.\69\ Further, no person, either alone or together with its 
related persons, may enter into any agreement, plan, or other 
arrangement with any other person, either alone or together with its 
related persons, under circumstances that would result in the shares of 
capital stock of Miami Holdings that are subject to such agreement, 
plan, or other arrangement not being voted on any matter or matters or 
any proxy relating thereto being withheld, where the effect of such 
agreement, plan, or other agreement would be to enable any person, 
either alone or together with its related persons, to vote, possess the 
right to vote, or cause the voting of more than 20% of the voting power 
of the then issued and outstanding capital stock of Miami Holdings.\70\ 
If any stockholder purports to vote, or cause the voting of, shares 
that would violate this voting limit, Miami Holdings will not honor 
such vote in excess of the voting limit.\71\
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    \65\ See Miami Holdings Certificate, Article NINTH (a)(ii) 
(defining ``related persons'').
    \66\ See Miami Holdings Certificate, Article NINTH (b)(i)(A).
    \67\ See Miami Holdings Certificate, Article NINTH (b)(i)(B).
    \68\ See Miami Holdings Certificate, Article NINTH (e). Any 
shares which have been called for redemption will not be deemed 
outstanding shares for the purpose of voting or determining the 
total number of shares entitled to vote. Once redeemed by Miami 
Holdings, such shares will become treasury shares and will no longer 
be deemed to be outstanding. See id. Furthermore, if any redemption 
results in another stockholder owning shares in violation of the 
ownership limits described above, Miami Holdings will redeem such 
shares. See id.
    \69\ See Miami Holdings Certificate, Article NINTH (b)(i)(C).
    \70\ See id.
    \71\ See Miami Holdings Certificate, Article NINTH (d). The 
Miami Holdings Certificate also prohibits the payment of any stock 
dividends and conversions that would violate the ownership and 
voting limitations. See Miami Holdings Certificate, Article FOURTH 
A.(b) and (e), and D.7.
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    Any person that alone or together with its related persons proposes 
to own shares of capital stock in excess of the 40% ownership 
limitation, or vote or grant proxies or consents with respect to shares 
of capital stock in excess of the 20% voting limitation, must deliver 
written notice to the Miami Holdings board of directors (``Miami 
Holdings Board'') of its intention.\72\ The notice must be delivered to 
the Miami Holdings Board not less than 45 days before the proposed 
ownership of such shares or proposed exercise of such voting rights or 
the granting of such proxies or consents.\73\ The Miami Holdings Board 
may waive the 40% ownership limitation and the 20% voting limitation, 
pursuant to a resolution duly adopted by the Miami Holdings Board, if 
it makes certain findings,\74\ except that the Miami Holdings Board 
cannot waive the voting and ownership limits above 20% for Exchange 
Members and their related persons.\75\ Any such waiver would not be 
effective unless and until approved by the Commission pursuant to 
Section 19 of the Act.\76\
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    \72\ See Miami Holdings Certificate, Article NINTH (b)(iv).
    \73\ See id.
    \74\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B). 
The required findings include determinations that (A) such waiver 
will not impair the ability of MIAX Sapphire to carry out its 
functions and responsibilities as an ``exchange'' under the Act and 
the rules and regulations promulgated thereunder; (B) such waiver is 
otherwise in the best interests of MIAX Sapphire and Miami Holdings; 
(C) such waiver will not impair the ability of the Commission to 
enforce the Act and the rules and regulations promulgated 
thereunder; and (D) in the case of a sale, assignment, or transfer, 
that the recipient and its related persons are not subject to any 
applicable ``statutory disqualification'' (within the meaning of 
Section 3(a)(39) of the Act). See Miami Holdings Certificate, 
Article NINTH (b)(ii)(B) and (b)(iii). The Commission has previously 
approved the rules of other exchanges that provide for the ability 
of the exchange or its holding company to waive the ownership and 
voting limitations discussed above for non-members of the exchange. 
See, e.g., ISE Mercury Order and ISE Gemini Order, supra note 32; 
MIAX Emerald Order, MIAX Pearl Order, and MIAX Order, supra note 18; 
and Securities Exchange Act Release No. 61698 (Mar. 12, 2010), 75 FR 
13151 (Mar. 18, 2010) (File Nos. 10-194 and 10-196) (order approving 
DirectEdge exchanges) (``DirectEdge Exchanges Order'').
    \75\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B). 
These provisions are generally consistent with waiver of ownership 
and voting limits approved by the Commission for other SROs. See, 
e.g., ISE Mercury Order, supra note 32; MIAX Emerald Order, MIAX 
Pearl Order, and MIAX Order, supra note 18; BATS Order, supra note 
18; NSX Demutualization Order, supra note 64; CHX Demutualization 
Order, supra note 64; and Securities Exchange Act Release No. 49718 
(May 17, 2004), 69 FR 29611 (May 24, 2004) (SR-PCX-2004-08).
    \76\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B).
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    The Miami Holdings Certificate also contains provisions that are 
designed to further safeguard the ownership and voting limitations 
described above or are otherwise related to direct and indirect changes 
in control. Specifically, any person that, either alone or together 
with its related persons owns, directly or indirectly (whether by 
acquisition or by a change in the number of shares outstanding), of 
record or beneficially, 5% or more of the then-outstanding shares of 
capital stock of Miami Holdings will be required to immediately notify 
the Miami Holdings Board in writing upon acquiring knowledge of such 
ownership.\77\ Thereafter, such persons will be required to update 
Miami Holdings Board of any increase or decrease of 1% or more in their 
previously reported ownership percentage.\78\
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    \77\ See Miami Holdings Certificate, Article NINTH(c)(i). The 
notice will require the person's full legal name; the person's title 
or status and the date on which such title or status was acquired; 
the person's (and its related person's) approximate ownership 
interest in Miami Holdings; and whether the person has power, 
directly or indirectly, to direct the management or policies of 
Miami Holdings. See id.
    \78\ See Miami Holdings Certificate, Article NINTH(c)(ii). 
Changes of less than 1% must also be reported to Miami Holdings 
Board if they result in such person crossing a 20% or 40% ownership 
threshold. See id. In addition, the MIAX Sapphire rules also impose 
limits on affiliation between MIAX Sapphire and a member of MIAX 
Sapphire. See MIAX Sapphire Rule 201(g) (``Without prior Commission 
approval, the Exchange or any entity with which it is affiliated 
shall not directly or indirectly through one or more intermediaries 
acquire or maintain an ownership interest in an Exchange Member. In 
addition, without prior Commission approval, no Member shall be or 
become affiliated with (1) the Exchange; or (2) any affiliate of the 
Exchange. Nothing herein shall prohibit a Member from acquiring or 
holding an equity interest in (i) Miami International Holdings, Inc. 
that is permitted by the Certificate of Incorporation of Miami 
International Holdings, Inc. or (ii) MIAX Sapphire that is permitted 
by the Amended and Restated Limited Liability Company Agreement of 
MIAX Sapphire.'').
---------------------------------------------------------------------------

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

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

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

[[Page 58853]]

Sapphire.\82\ As described above, the provisions applicable to direct 
and indirect changes in control of Miami Holdings and MIAX Sapphire, as 
well as the voting limitation imposed on owners of Miami Holdings who 
also are MIAX Sapphire members, are designed to help prevent any owner 
of Miami Holdings from exercising undue influence or control over the 
operation of MIAX Sapphire and to help ensure that MIAX Sapphire 
retains a sufficient degree of independence to effectively carry out 
its regulatory obligations under the Act.
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    \82\ See, e.g., IEX Order, supra note 64.
---------------------------------------------------------------------------

    In addition, these limitations are designed to address the 
conflicts of interests that might result from a member of a national 
securities exchange owning interests in the exchange. As the Commission 
has stated in the past, a member's ownership interest in an entity that 
controls an exchange could become so large as to cast doubts on whether 
the exchange may fairly and objectively exercise its self-regulatory 
responsibilities with respect to such member.\83\ A member that is a 
controlling shareholder of an exchange could seek to exercise that 
controlling influence by directing the exchange to refrain from, or the 
exchange may hesitate to, diligently monitor and conduct surveillance 
of the member's conduct or diligently enforce the exchange's rules and 
the federal securities laws with respect to conduct by the member that 
violates such provisions. As such, these requirements are designed to 
minimize the potential that a person or entity can improperly interfere 
with or restrict the ability of MIAX Sapphire to effectively carry out 
its regulatory oversight responsibilities under the Act.
---------------------------------------------------------------------------

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

    MIAX Sapphire's and Miami Holding's proposed governance provisions 
are consistent with the Act, including Section 6(b)(1), which requires, 
in part, an exchange to be so organized and have the capacity to carry 
out the purposes of the Act.\84\ In particular, these requirements are 
designed to minimize the potential that a person could improperly 
interfere with or restrict the ability of the Commission or MIAX 
Sapphire to effectively carry out their regulatory oversight 
responsibilities under the Act.
---------------------------------------------------------------------------

    \84\ 15 U.S.C. 78f(b)(1). See also ISE Mercury Order, supra note 
32; MIAX Emerald Order, MIAX Pearl Order, and MIAX Order, supra note 
18; and BOX Order, supra note 18.
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2. Regulatory Independence and Oversight
    Although Miami Holdings will not itself carry out regulatory 
functions, its activities with respect to the operation of MIAX 
Sapphire must be consistent with, and must not interfere with, MIAX 
Sapphire's self-regulatory obligations. In this regard, MIAX Sapphire 
has proposed to adopt certain provisions in its governing documents, 
and Miami Holdings has certain provisions in its existing governing 
documents, that are designed to help maintain the independence of the 
regulatory functions of MIAX Sapphire. These proposed provisions are 
substantially similar to those included in the governing documents of 
other exchanges that have been granted registration.\85\ Specifically:
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    \85\ See, e.g., DirectEdge Exchanges Order, supra note 74; and 
BATS Order, supra note 18. See also Securities Exchange Act Release 
No. 61152 (Dec. 10, 2009), 74 FR 66699 (Dec. 16, 2009) (File No. 10-
191) (order approving C2 Options Exchange, Incorporated (``C2'')) 
(``C2 Order'').
---------------------------------------------------------------------------

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

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

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

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

     Miami Holdings, and its officers, directors, employees, 
and agents are deemed to irrevocably submit to the jurisdiction of the 
U.S. federal courts, the Commission, and MIAX Sapphire, for purposes of 
any action, suit, or proceeding pursuant to U.S. federal securities 
laws, and the rules and regulations thereunder, arising out of, or 
relating to, MIAX Sapphire activities.\89\
---------------------------------------------------------------------------

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

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

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

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[[Page 58854]]

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

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

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

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

     Miami Holdings will take reasonable steps necessary to 
cause its officers, directors, employees, and agents, prior to 
accepting a position as an officer, director, employee, or agent (as 
applicable) of Miami Holdings to consent in writing to the 
applicability of provisions regarding books and records, 
confidentiality, jurisdiction, and regulatory obligations, with respect 
to their activities related to MIAX Sapphire.\94\
---------------------------------------------------------------------------

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

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

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

    The provisions discussed in this section, which are designed to 
help ensure the independence of MIAX Sapphire's regulatory function and 
facilitate the ability of MIAX Sapphire to carry out its regulatory 
responsibilities and operate in a manner consistent with the Act, are 
appropriate and consistent with the requirements of the Act, 
particularly with Section 6(b)(1), which requires, in part, an exchange 
to be so organized and have the capacity to carry out the purposes of 
the Act.\96\
---------------------------------------------------------------------------

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

    Further, Section 19(h)(1) of the Act \97\ provides the Commission 
with the authority ``to suspend for a period not exceeding twelve 
months or revoke the registration of [an SRO], or to censure or impose 
limitations upon the activities, functions, and operations of [an SRO], 
if [the Commission] finds, on the record after notice and opportunity 
for hearing, that [the SRO] has violated or is unable to comply with 
any provision of the Act, the rules or regulations thereunder, or its 
own rules or without reasonable justification or excuse has failed to 
enforce compliance'' with any such provision by its members (including 
associated persons thereof).\98\ If the Commission were to find, or 
become aware of, through staff review and inspection or otherwise, 
facts indicating any violations of the Act, including without 
limitation Sections 6(b)(1) and 19(g)(1),\99\ these matters could 
provide the basis for a disciplinary proceeding under Section 19(h)(1) 
of the Act.
---------------------------------------------------------------------------

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

    Even in the absence of the governance provisions described above, 
under Section 20(a) of the Act, any person with a controlling interest 
in MIAX Sapphire would be jointly and severally liable with and to the 
same extent that MIAX Sapphire is liable under any provision of the 
Act, unless the controlling person acted in good faith and did not 
directly or indirectly induce the act or acts constituting the 
violation or cause of action.\100\ In addition, Section 20(e) of the 
Act creates aiding and abetting liability for any person who knowingly 
provides substantial assistance to another person in violation of any 
provision of the Act or rule thereunder.\101\ Further, Section 21C of 
the Act authorizes the Commission to enter a cease-and-desist order 
against any person who has been ``a cause of'' a violation of any 
provision of the Act through an act or omission that the person knew or 
should have known would contribute to the violation.\102\ These 
provisions are applicable to all entities' dealings with MIAX Sapphire, 
including Miami Holdings.
---------------------------------------------------------------------------

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

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

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

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

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

4. Regulatory Funding and Services
    As a prerequisite to the Commission's granting of an exchange's 
application for registration, an exchange must be so organized and have 
the capacity to carry out the purposes of the Act.\107\ Specifically, 
an exchange must be able to enforce compliance by its members, and 
persons associated with its members, with the Act and the rules and 
regulations thereunder and the rules of the exchange.\108\ The 
discussion below summarizes how MIAX Sapphire has proposed to structure 
and conduct its regulatory operations.
---------------------------------------------------------------------------

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

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

[[Page 58855]]

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

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

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

    Further, any ``Regulatory Funds'' received by MIAX Sapphire will 
not be used for non-regulatory purposes or distributed to Miami 
Holdings, but rather, will be applied to fund the legal and regulatory 
operations of MIAX Sapphire, or, as applicable, used to pay restitution 
and disgorgement of funds intended for customers.\112\ Any excess non-
regulatory funds, as determined by MIAX Sapphire, will be remitted to 
Miami Holdings.\113\
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    \112\ See MIAX Sapphire By-Laws, Article IX, Section 9.4. See 
also MIAX Sapphire LLC Agreement, Section 16. MIAX Sapphire By-Laws, 
Article 1(gg) defines ``Regulatory Funds'' as ``fees, fines, or 
penalties derived from the regulatory operations of [MIAX 
Sapphire],'' but such term does not include ``revenues derived from 
listing fees, market data revenues, transaction revenues, or any 
other aspect of the commercial operations of [MIAX Sapphire], even 
if a portion of such revenues are used to pay costs associated with 
the regulatory operations of [MIAX Sapphire].'' This definition is 
consistent with the rules of other SROs. See, e.g., By-Laws of MIAX 
Pearl, Article 1(gg); By-Laws of MIAX Emerald, Article 1(gg); By-
Laws of MIAX Exchange, Article I(ll).
    \113\ See MIAX Sapphire Form 1, Exhibit I.
---------------------------------------------------------------------------

b. Regulatory Contract With FINRA
    Although MIAX Sapphire will be an SRO with all of the attendant 
regulatory obligations under the Act, Financial Industry Regulatory 
Authority, Inc. (``FINRA'') will serve as a regulatory services 
provider and perform certain regulatory functions on behalf of MIAX 
Sapphire pursuant to a Regulatory Services Agreement (``RSA'').\114\ 
Specifically, such services will include assisting MIAX Sapphire with 
member registration and related administrative support services; 
certain cross-market surveillance services; certain options trading 
examinations; at MIAX Sapphire's request, investigating potential 
violations of enumerated MIAX Sapphire market rules, as well as federal 
securities laws, and rules and regulations thereunder, related to MIAX 
Sapphire market activity; performing examinations related to options, 
including routine and for cause examinations of Exchange Members under 
certain MIAX Sapphire rules and federal securities laws; bringing 
formal disciplinary actions, including hearing officer services; and 
providing arbitration, mediation, and other dispute resolution services 
to Exchange Member firms.\115\
---------------------------------------------------------------------------

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

    Notwithstanding the RSA, MIAX Sapphire will retain legal 
responsibility for the regulation of its Members and its market and the 
performance of FINRA as its regulatory services provider. Because MIAX 
Sapphire has entered into an RSA with FINRA, it has not made provisions 
to fulfill the regulatory services that will be undertaken by FINRA. 
Accordingly, the Commission is conditioning the operation of MIAX 
Sapphire on a final RSA with FINRA that specifies the services that 
will be provided to MIAX Sapphire.
    It is consistent with the Act for MIAX Sapphire to contract with 
FINRA to perform certain examination, enforcement, and disciplinary 
functions.\116\ These functions are fundamental elements of a 
regulatory program and constitute core self-regulatory functions. The 
Commission believes that FINRA has the expertise and experience to 
perform these functions for MIAX Sapphire.\117\ However, MIAX Sapphire, 
unless relieved by the Commission of its responsibility, bears the 
self-regulatory responsibilities and primary liability for self-
regulatory failures, not the SRO retained to perform regulatory 
functions on MIAX Sapphire's behalf.\118\ In performing these 
regulatory functions, however, FINRA may nonetheless bear liability for 
causing or aiding and abetting the failure of MIAX Sapphire to perform 
its regulatory functions.\119\ Accordingly, although FINRA will not act 
on its own behalf under its SRO responsibilities in carrying out these 
regulatory services for MIAX Sapphire, FINRA may have secondary 
liability if, for example, the Commission finds that the contracted 
functions are being performed so inadequately as to cause a violation 
of the federal securities laws or rules thereunder by MIAX Sapphire.
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    \116\ For example, MIAX Emerald, MIAX Pearl, MIAX Exchange, Long 
Term Stock Exchange, Inc. (``LTSE''), IEX, Nasdaq MRX, LLC, Cboe 
EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., and Cboe BZX 
Exchange, Inc. (``Cboe BZX'') have all entered into 17d-2 plans and 
RSAs with FINRA. See infra section III.B.4.c for further discussion 
of Rule 17d-2 plans.
    \117\ See, e.g., Securities Exchange Act Release No. 86587 (Aug. 
7, 2019), 84 FR 39883 (Aug. 12, 2019) (File No. 4-747) (``LTSE 
Order''); IEX Order, supra note 64; DirectEdge Exchanges Order, 
supra note 74; and Nasdaq Order, supra note 32. The Commission is 
not approving the RSA or any of its specific terms.
    \118\ See 15 U.S.C. 78s(g)(1).
    \119\ For example, if failings by FINRA have the effect of 
leaving MIAX Sapphire in violation of any aspect of MIAX Sapphire's 
self-regulatory obligations, MIAX Sapphire would bear direct 
liability for the violation, while FINRA may bear liability for 
causing or aiding and abetting the violation. See, e.g., Nasdaq 
Order, supra note 32; BATS Order, supra note 18; and Securities 
Exchange Act Release No. 42455 (Feb. 24, 2000), 65 FR 11388 (Mar. 2, 
2000) (File No. 10-127) (approval of registration of International 
Securities Exchange Act, LLC (``ISE'') as a national securities 
exchange).
---------------------------------------------------------------------------

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

[[Page 58856]]

cover areas where each SRO's rules substantively overlap, including 
such regulatory functions as personnel registration and sales 
practices. For example, in 2019 the Commission declared effective a 
plan to allocate regulatory responsibilities between FINRA and LTSE 
pursuant to which FINRA assumes examination and enforcement 
responsibility for broker-dealers that are members of both FINRA and 
LTSE with respect to the rules of LTSE that are substantially similar 
to the applicable rules of FINRA, as well as certain specified 
provisions of the federal securities laws.\122\
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    \120\ 15 U.S.C. 78s(g)(1).
    \121\ See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section 
17(d)(1) of the Act allows the Commission to relieve an SRO of 
certain responsibilities with respect to members of the SRO who are 
also members of another SRO (``common members''). Specifically, 
Section 17(d)(1) allows the Commission to relieve an SRO of its 
responsibilities to: (i) receive regulatory reports from such 
members; (ii) examine such members for compliance with the Act and 
the rules and regulations thereunder, and the rules of the SRO; or 
(iii) carry out other specified regulatory responsibilities with 
respect to such members.
    \122\ See LTSE Order. See also, e.g., Securities Exchange Act 
Release Nos. 84997 (Jan. 29, 2019), 84 FR 1252 (Feb. 1, 2019) 
(FINRA/MIAX Emerald); 83696 (July 24, 2018), 83 FR 35682 (July 27, 
2018) (FINRA/MIAX Pearl); 77321 (Mar. 8, 2016), 81 FR 13434 (Mar. 
14, 2016) (File No. 4-697) (FINRA/ISE Mercury, LLC); 73641 (Nov. 19, 
2014), 79 FR 70230 (Nov. 25, 2014) (File No. 4-678) (FINRA/MIAX 
Exchange); 70053 (July 26, 2013), 78 FR 46656 (Aug. 1, 2013) (File 
No. 4-663) (FINRA/ISE Gemini, LLC); 59218 (Jan. 8, 2009), 74 FR 2143 
(Jan. 14, 2009) (File No. 4-575) (FINRA/Boston Stock Exchange, 
Inc.); 58818 (Oct. 20, 2008), 73 FR 63752 (Oct. 27, 2008) (File No. 
4-569) (FINRA/BATS Exchange, Inc.); 55755 (May 14, 2007), 72 FR 
28087 (May 18, 2007) (File No. 4-536) (National Association of 
Securities Dealers, Inc. (``NASD'') (n/k/a FINRA) and Chicago Board 
of Options Exchange, Inc. concerning the CBOE Stock Exchange, LLC); 
55367 (Feb. 27, 2007), 72 FR 9983 (Mar. 6, 2007) (File No. 4-529) 
(NASD/International Securities Exchange, LLC); and 54136 (July 12, 
2006), 71 FR 40759 (July 18, 2006) (File No. 4-517) (NASD/The Nasdaq 
Stock Market LLC (``Nasdaq'')).
---------------------------------------------------------------------------

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

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

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

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

C. Trading System and Trading Floor

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

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

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

[[Page 58857]]

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

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

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

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

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

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

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

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

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

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

    The Commission notes that pursuant to Section 6(c) of the Act,\154\ 
an exchange must deny membership to any person, other than a natural 
person, that is not a registered broker or dealer, any natural person 
that is not, or is not associated with, a registered broker or dealer, 
and registered broker-dealers that do not satisfy certain standards, 
such as financial responsibility or operational capacity. As a 
registered exchange, MIAX Sapphire must independently determine if an 
applicant satisfies the standards set forth in the Act, regardless of 
whether an applicant is a member of another SRO.\155\
---------------------------------------------------------------------------

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

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

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

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

[[Page 58858]]

participant to the Linkage Plan, other plan participants would be able 
to send orders to MIAX Sapphire in accordance with the terms of the 
plan as applied to the Exchange. The MIAX Sapphire Rules include 
relevant definitions, establish the conditions pursuant to which 
Members may enter orders in accordance with the Linkage Plan, impose 
obligations on the Exchange regarding how it must process incoming 
orders, establish a general standard that Members and MIAX Sapphire 
should avoid trade-throughs, establish potential regulatory liability 
for Members that engage in a pattern or practice of trading through 
other exchanges, and establish obligations with respect to locked and 
crossed markets.\162\
---------------------------------------------------------------------------

    \161\ See MIAX Sapphire Form 1, Exhibit E at 48. See also 
Securities Exchange Act Release No. 60405 (July 30, 2009), 74 FR 
39362 (Aug. 6, 2009) (File No. 4-546) (order approving the national 
market system Plan Relating to Options Order Protection and Locked/
Crossed Markets Submitted by the Chicago Board Options Exchange, 
Incorporated, ISE, Nasdaq, NASDAQ OMX BX, Inc., NASDAQ OMX PHLX, 
Inc., NYSE Amex LLC, and NYSE Arca, Inc.).
    \162\ See Chapter XIV of the MIAX Sapphire Rules (incorporating 
by reference Chapter XIV of the MIAX Exchange Rules).
---------------------------------------------------------------------------

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

    \163\ See MIAX Sapphire Rule 100; MIAX Sapphire Rule 600.
    \164\ See MIAX Sapphire Rule 600(a).
    \165\ See id. The provision permitting MIAX Sapphire to consider 
``such other factors as [it] deems appropriate'' must be applied in 
a manner that is consistent with the Act, including provisions that 
prohibit an exchange from acting in an unfairly discriminatory 
manner. See 15 U.S.C. 78f(b)(5); see also C2 Order, supra note 85.
    \166\ See MIAX Sapphire Rules 600 and 600(i).
    \167\ See MIAX Sapphire Rule 200(c)(1).
    \168\ See id.
    \169\ See MIAX Sapphire Rule 603(b).
---------------------------------------------------------------------------

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

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

    No Participant can act as a Floor Market Maker in any option unless 
such Participant is already registered as a Floor Market Maker in such 
option by the Exchange pursuant to MIAX Sapphire Rule 600.\173\ Floor 
Market Makers will be subject to a set of obligations and restrictions 
that are specific to Floor Market Makers.\174\ The registration of a 
Floor Participant as a Floor Market Maker may be suspended or 
terminated by the Exchange upon a determination that such Floor 
Participant has failed to properly perform as a Floor Market 
Maker.\175\
---------------------------------------------------------------------------

    \173\ See MIAX Sapphire Rule 2100(a). ``Participant'' means a 
firm or organization that is registered with the Exchange pursuant 
to Chapter II of the MIAX Sapphire Rules for purposes of 
participating in trading on a facility of the Exchange that includes 
a Floor Participant. See MIAX Sapphire Rule 100.
    \174\ See MIAX Sapphire Rule 2105.
    \175\ See MIAX Sapphire Rule 2100(b).
---------------------------------------------------------------------------

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

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

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

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

    On a daily basis, a Market Maker must provide continuous two-sided 
quotes for 90% of the time on a given trading day, or such higher 
percentage as MIAX Sapphire may announce in advance, in at least 75% of 
the options series in which the Market Maker is registered.\180\ 
Further, a Market Maker may be called upon by MIAX Sapphire to submit a 
single bid or offer or maintain continuous bid and offers in one or 
more series to which the Market Maker is registered whenever, in the 
judgment of the Exchange, it is necessary to do so in the interest of 
fair and orderly markets.\181\
---------------------------------------------------------------------------

    \180\ See MIAX Sapphire Rule 605(d)(1) and (d)(3). Immediate-or-
Cancel Orders from Market Makers will not be counted for the 
continuous quoting obligations of Market Makers. See MIAX Sapphire 
Rule 605, Interpretations and Policies .01.
    \181\ See MIAX Sapphire Rule 605(d)(2).

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

[[Page 58859]]

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

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

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

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

    Market Makers will receive certain benefits in return for 
satisfying their responsibilities.\189\ For example, a broker-dealer or 
other lender may extend ``good faith'' credit to a member of a national 
securities exchange or registered broker-dealer to finance its 
activities as a market maker or specialist.\190\ In addition, market 
makers are excepted from the prohibition in Section 11(a) of the 
Act.\191\ Market Makers on MIAX Sapphire will not receive special 
trading allocations or similar rights vis-[agrave]-vis other 
Members.\192\
---------------------------------------------------------------------------

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

    A market maker must be subject to sufficient and commensurate 
affirmative obligations, including the obligation to hold itself out as 
willing to buy and sell options for its own account on a regular or 
continuous basis, to justify favorable treatment.\193\ The rules of all 
U.S. options markets need not provide the same standards for market 
maker participation, so long as they impose affirmative obligations 
that are consistent with the Act.\194\ Nevertheless, MIAX Sapphire's 
proposed Market Maker obligations are substantially similar to those of 
another options exchange.\195\ MIAX Sapphire's Market Maker 
participation requirements impose affirmative obligations on MIAX 
Sapphire's Market Makers that balance the benefits afforded to such 
participants and, accordingly, are consistent with the Act.
---------------------------------------------------------------------------

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

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

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

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

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

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

[[Page 58860]]

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

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

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

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

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

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

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

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

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

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

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

[[Page 58861]]

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

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

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

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

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

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

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

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

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

[[Page 58862]]

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

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

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

    \244\ See MIAX Sapphire Rule 2045(a), (b), and (c).
    \245\ See MIAX Sapphire Rule 2045(d)(1).
    \246\ See MIAX Sapphire Rule 2045(d)(1) and (3). In addition, 
MIAX Sapphire Rule 2040(b) requires an Options Exchange Official to 
certify that a Floor Broker adequately announced the Qualified Floor 
Order to the trading crowd.
---------------------------------------------------------------------------

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

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

    The Commission agrees that Floor Market Maker participation in 
trading crowds is important for price discovery, liquidity, and 
competition. Unlike liquidity provided in an electronic trading system 
where the interest has a visible stated price and quantity, a response 
from a member of the trading crowd might not have an express verbalized 
quantity.\254\ Nevertheless, Floor Participants are incentivized to 
compete by offering improved prices and responding promptly. 
Accordingly, the proposed rule by itself would not constrain the 
ability of Floor Market Makers to provide price improvement and compete 
for orders and thus does not raise a concern that the rule would not 
serve to remove impediments to and perfect the mechanism of a free and 
open market and a national market system. Further, as discussed above, 
the price-time allocation model will provide an objective methodology 
for allocating trades and the Options Exchange Official will resolve 
any disputes about the time priority sequence, thereby alleviating 
concerns that a Floor Broker may be prioritizing an allocation to a 
particular Floor Market Maker for reasons including a financial 
arrangement. The Commission agrees with the Exchange that MIAX Sapphire 
Rule 2045 ``does not present any new or novel issues not already 
considered by the Commission'' \255\ because the MIAX Sapphire Rule is 
not substantively different than BOX Rule 7610.\256\
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    \254\ Floor Market Maker quotations have a minimum size of 10 
contracts. See MIAX Sapphire Rule 2105(c)(1).
    \255\ MIAX Sapphire Letter at 4.
    \256\ See supra note 234 and accompanying text. See also MIAX 
Sapphire Letter at 1 (``proposed Rule 2045 is substantively 
identical to BOX Rule 7610, which became effective on Aug. 2, 2017, 
is currently operative, and has never been amended'').
---------------------------------------------------------------------------

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

[[Page 58863]]

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

    MIAX Sapphire's proposed display, execution, and priority rules 
discussed above in this section are consistent with the Act. In 
particular, the Commission finds that the proposed rules are consistent 
with Section 6(b)(5) of the Act,\261\ which, among other things, 
requires that the rules of a national securities exchange be designed 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system and, 
in general, to protect investors and the public interest, and to not 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. The Commission also finds that the proposed rules are 
consistent with Section 6(b)(8) of the Act,\262\ which requires that 
the rules of an exchange not impose any burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the Act. 
The trading rules of MIAX Sapphire are substantially similar to the 
current trading rules of MIAX Exchange, MIAX Pearl, MIAX Emerald, and 
other exchanges, as noted above, which were filed with and approved by 
the Commission (or otherwise became effective) pursuant to Section 
19(b) of the Act.\263\ With respect to the rules pertaining to the 
Trading Floor, the floor trading rules of MIAX Sapphire are 
substantially similar to the current floor trading rules of BOX, which 
were filed and approved by the Commission pursuant to Section 19(b) of 
the Act.\264\ Therefore, these rules raise no novel regulatory issues 
and, as with the substantially similar rules of other exchanges, the 
Commission finds that they are consistent with the Act.
---------------------------------------------------------------------------

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

5. Section 11(a) of the Act
    Section 11(a)(1) of the Act \265\ prohibits a member of a national 
securities exchange from effecting transactions on that exchange for 
its own account, the account of an associated person, or an account 
over which it or its associated person exercises investment discretion 
(collectively, ``covered accounts''), unless an exception applies. 
Sections 11(a)(1)(A)-(I) \266\ of the Act and the rules thereunder 
provide certain exemptions from this general prohibition, including the 
exemption set forth in Rule 11a2-2(T) under the Act.\267\ The Exchange 
has represented that it has analyzed its rules proposed hereunder, and 
believes that they are consistent with Section 11(a) of the Act and 
rules thereunder.\268\
---------------------------------------------------------------------------

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

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

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

    In addition to statutory exemptions, Rule 11a2-2(T) under the 
Act,\272\ known as the ``effect versus execute'' rule, provides 
exchange members with an exemption from the Section 11(a)(1) 
prohibition. Rule 11a2-2(T) permits an exchange member, subject to 
certain conditions, to effect transactions for covered accounts by 
arranging for an unaffiliated member to execute transactions on the 
exchange. To comply with Rule 11a2-2(T)'s conditions, a member: (i) may 
not be associated with the executing member; (ii) must transmit the 
order from off the exchange floor; (iii) may not participate in the 
execution of the transaction once the order has been transmitted to the 
member performing the execution; \273\ and (iv) with respect to an 
account over which the member or an associated person has investment 
discretion, neither the member nor an associated person may retain any 
compensation in connection with effecting the transaction except as 
provided in the rule.
---------------------------------------------------------------------------

    \272\ 17 CFR 240.11a2-2(T).
    \273\ This prohibition also applies to associated persons. See 
15 U.S.C. 78f(b)(8). The member may, however, participate in 
clearing and settling the transaction. See Securities Exchange Act 
Release No. 14563 (Mar. 14, 1978), 43 FR 11542 (Mar. 17, 1978) 
(regarding the NYSE's Designated Order Turnaround System) (``1978 
Release'').
---------------------------------------------------------------------------

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

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

    First, Rule 11a2-2(T) requires that orders for covered accounts be 
transmitted from off the exchange floor. The Commission has found that 
the off-floor transmission requirement is met if a covered account 
order is transmitted from a remote location directly to an exchange's 
floor by electronic means.\275\

[[Page 58864]]

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

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

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

    \278\ See id. Exchange Members may change or cancel an order or 
quote at any time before the order is executed on the Exchange. See 
MIAX Sapphire Form 1, Exhibit E. The Commission has stated that the 
non-participation requirement is satisfied under such circumstances, 
so long as such modifications or cancellations are also transmitted 
from off the floor. See 1978 Release, supra note 273 (stating that 
the ``non-participation requirement does not prevent initiating 
members from canceling of modifying orders (or the instructions 
pursuant to which the initiating member wishes orders to be 
executed) after the orders have been transmitted to the executing 
member, provided that any such instructions are also transmitted 
from off the floor'').
    \279\ See MIAX Sapphire 11(a) Request Letter, supra note 268.
    \280\ See id.
---------------------------------------------------------------------------

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

    \281\ In considering the operation of automated execution 
systems operated by an exchange, the Commission noted that while 
there is no independent executing exchange member, the execution of 
an order is automatic once it has been transmitted into each system. 
Because the design of these systems ensures that members do not 
possess any special or unique trading advantages in handling their 
orders after transmitting them to the exchange, the Commission has 
stated that executions obtained through these systems satisfy the 
independent execution requirement of Rule 11a2-2(T). See 1979 
Release, supra note 275.
    \282\ See MIAX Sapphire 11(a) Request Letter, supra note 268.
---------------------------------------------------------------------------

    Fourth, in the case of a transaction effected for an account with 
respect to which the initiating member or an associated person thereof 
exercises investment discretion, neither the initiating member nor any 
associated person thereof may retain any compensation in connection 
with effecting the transaction, unless the person authorized to 
transact business for the account has expressly provided otherwise by 
written contract referring to Section 11(a) of the Act and Rule 11a2-
2(T) thereunder.\283\ Exchange Members and their associated persons 
trading for covered accounts over which they exercise investment 
discretion must comply with this condition in order to rely on the 
rule's exemption.\284\
---------------------------------------------------------------------------

    \283\ 17 CFR 240.11a2-2(T)(a)(2)(iv). In addition, Rule 11a2-
2(T)(d) requires a member or associated person authorized by written 
contract to retain compensation, in connection with effecting 
transactions for covered accounts over which such member or 
associated person thereof exercises investment discretion, to 
furnish at least annually to the person authorized to transact 
business for the account a statement setting forth the total amount 
of compensation retained by the member in connection with effecting 
transactions for the account during the period covered by the 
statement. See 17 CFR 240.11a2-2(T)(d). See also 1978 Release, supra 
note 273 (stating ``[t]he contractual and disclosure requirements 
are designed to assure that accounts electing to permit transaction-
related compensation do so only after deciding that such 
arrangements are suitable to their interests'').
    \284\ See MIAX Sapphire 11(a) Request Letter, supra note 268.
---------------------------------------------------------------------------

D. Discipline and Oversight of Members

    One prerequisite for the Commission's grant of an exchange's 
application for registration is that a proposed exchange must be so 
organized and have the capacity to be able to carry out the purposes of 
the Act.\285\ Specifically, an exchange must be able to enforce 
compliance by its members and persons associated with its members with 
the Act and the rules and regulations thereunder and the rules of the 
exchange.\286\
---------------------------------------------------------------------------

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

    MIAX Sapphire's rules codify MIAX Sapphire's disciplinary 
jurisdiction over its Members, thereby facilitating its ability to 
enforce its Members' compliance with its rules and the federal 
securities laws.\287\ MIAX Sapphire's rules permit it to sanction 
Members for violations of its rules and violations of the federal 
securities laws and rules, by, among other things, expelling or 
suspending Members; limiting Members' activities, functions, or 
operations; fining or censuring Members; suspending or barring a person 
from being associated with a Member; or any other fitting sanction in 
accordance with MIAX Sapphire rules.\288\
---------------------------------------------------------------------------

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

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

[[Page 58865]]

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

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

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

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

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

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

    Any person aggrieved by an action of MIAX Sapphire within the scope 
of Chapter XI may file a written application to be heard within thirty 
days \300\ after such action has been taken.\301\ Applications for 
hearing and review will be referred to the Business Conduct Committee, 
which will appoint a hearing panel of no less than three members of 
such Committee.\302\ The decision of the hearing panel made pursuant to 
Chapter XI of the MIAX Sapphire Rules is subject to review by the MIAX 
Sapphire Board, either on its own motion within thirty days after 
issuance of the decision, or upon written request submitted by the 
applicant or the President of MIAX Sapphire, within 15 days after 
issuance of the decision.\303\ The review would be conducted by the 
MIAX Sapphire Board or a committee of the MIAX Sapphire Board composed 
of at least three Directors.\304\
---------------------------------------------------------------------------

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

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

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[[Page 58866]]

    The Commission finds that MIAX Sapphire's proposed initial and 
continued listing rules are consistent with the Act, including Section 
6(b)(5),\310\ in that they are designed to protect investors and the 
public interest, prevent fraudulent and manipulative acts and 
practices, and promote just and equitable principles of trade. Before 
beginning operation, MIAX Sapphire will need to become a participant in 
the Plan for the Purpose of Developing and Implementing Procedures 
Designed to Facilitate the Listing and Trading of Standardized Options 
Submitted Pursuant to Section 11A(a)(3)(B) of the Securities Exchange 
Act of 1934 (``OLPP'').\311\ In addition, before beginning operation, 
MIAX Sapphire will need to become a participant in the Options Clearing 
Corporation.
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    \310\ 15 U.S.C. 78f(b)(5).
    \311\ 15 U.S.C. 78k-1(a)(3)(B).
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IV. Exemption From Section 19(b) of the Act With Regard to MIAX 
Exchange, Cboe, New York Stock Exchange (``NYSE''), and FINRA Rules 
Incorporated by Reference

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

    It is ordered that the application, as amended, of MIAX Sapphire 
for registration as a national securities exchange be, and it hereby 
is, granted.
    It is furthered ordered that operation of MIAX Sapphire is 
conditioned on the satisfaction of the requirements below:
    a. Participation in National Market System Plans Relating to 
Options Trading. MIAX Sapphire must join: (1) the Plan for the 
Reporting of Consolidated Options Last Sale Reports and Quotation 
Information (Options Price Reporting Authority); (2) the OLPP; (3) the 
Linkage Plan; (4) the Plan of the Options Regulatory Surveillance 
Authority; and (5) the Plan Governing the Consolidated Audit Trail.
    b. Bi-lateral Rule 17d-2 Plan. A plan pursuant to Rule 17d-2 \318\ 
that allocates regulatory responsibility for those matters specified 
above \319\ must be declared effective by the Commission, or MIAX 
Sapphire must demonstrate that it independently has the ability to 
fulfill all of its regulatory obligations.
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    \318\ 17 CFR 240.17d-2.
    \319\ See supra notes 125-126 and accompanying text.
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    c. Participation in Multiparty Rule 17d-2 Plans. MIAX Sapphire must 
become a party to the multiparty Rule 17d-2 plans concerning options 
sales practice regulation and market surveillance, and covered 
Regulation NMS rules.
    d. RSA. MIAX Sapphire must have entered into an RSA with its 
regulatory service provider, as described above, that specifies the 
MIAX Sapphire and Commission rules for which the regulatory services 
provider will provide certain regulatory functions, or MIAX Sapphire 
must demonstrate that it independently has the ability to fulfill all 
of its regulatory obligations.
    e. Participation in the Options Clearing Corporation. MIAX Sapphire 
must become an Options Clearing Corporation participant exchange.
    f. Participation in the Intermarket Surveillance Group. MIAX 
Sapphire must join the Intermarket Surveillance Group.
    It is further ordered, pursuant to Section 36 of the Act,\320\ that 
MIAX Sapphire shall be exempted from the rule filing requirements of 
Section 19(b) of the Act with respect to the MIAX Exchange, Cboe, NYSE, 
and FINRA rules that MIAX Sapphire proposes to incorporate by 
reference, subject to the conditions specified in this order that MIAX 
Sapphire provide written notice to MIAX Sapphire members whenever MIAX 
Exchange, Cboe, NYSE, or FINRA proposes to change an incorporated by 
reference rule and whenever any such proposed changes are approved by 
the Commission or otherwise become effective.
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    \320\ 15 U.S.C. 78mm.

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