[Federal Register Volume 89, Number 170 (Tuesday, September 3, 2024)]
[Notices]
[Pages 71496-71501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19641]



[[Page 71496]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100824; File No. SR-SAPPHIRE-2024-25]


Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change by MIAX 
Sapphire LLC To Establish an Options Regulatory Fee (``ORF'')

August 27, 2024.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on August 21, 2024, MIAX Sapphire, LLC (``MIAX 
Sapphire'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Sapphire Fee 
Schedule (the ``Fee Schedule'') to establish an Options Regulatory Fee 
(``ORF'') that would automatically sunset on October 31, 2024.
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on September 1, 2024.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/miax-sapphire/rule-filings, at the Exchange's principal office, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt Section b), Options Regulatory Fee, 
to Chapter 2 of the Fee Schedule. The Exchange proposes to establish an 
ORF in the amount of $0.0013 per contract side. The amount of the 
proposed fee is based on historical industry volume, projected volumes 
on the Exchange, projected Exchange regulatory costs, and an assessment 
practice which is identical to the assessment practices currently 
utilized by the Exchange's affiliates, Miami International Securities 
Exchange, LLC (``MIAX Options'') MIAX PEARL, LLC (``MIAX Pearl''), and 
MIAX Emerald, LLC (``MIAX Emerald''). The Exchange's proposed ORF 
should balance the Exchange's regulatory revenue against the 
anticipated regulatory costs. The Exchange acknowledges that 
alternative ORF models are being pursued, however a consensus has not 
yet been reached among the industry. Therefore the Exchange proposes 
that it will start collecting ORF beginning on September 1, 2024, and 
that the ORF will automatically sunset on October 31, 2024.\3\ The 
Exchange believes this will provide the Exchange additional time to 
inform its approach to ORF, so that it may compete on equal footing 
with each of the other option exchanges that charge similar regulatory 
fees. The Exchange initially filed this proposal on August 7, 2024 (SR-
SAPPHIRE-2024-14). The Exchange withdrew SR-SAPPHIRE-2024-14 on August 
21, 2024, and submitted this proposal.
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    \3\ The Exchange proposes to adopt a note to its Fee Schedule to 
communicate the start date and sunset date.
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    The per-contract ORF will be assessed by MIAX Sapphire to each MIAX 
Sapphire Member \4\ for all options transactions cleared or ultimately 
cleared by the Member which are cleared by the Options Clearing 
Corporation (``OCC'') in the ``customer'' range, regardless of the 
exchange on which the transaction occurs. The ORF will be collected by 
the OCC on behalf of MIAX Sapphire from either: (1) a Member that was 
the ultimate clearing firm \5\ for the transaction; or (2) a non-Member 
that was the ultimate clearing firm where a Member was the executing 
clearing firm \6\ for the transaction. The Exchange will use reports 
from the OCC to determine the identity of the executing clearing firm 
and ultimate clearing firm.
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    \4\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of MIAX 
Sapphire Rules for purposes of trading on the Exchange as an 
``Electronic Exchange Member'' or ``Market Maker.'' Members are 
deemed ``members'' under the Exchange Act. See Exchange Rule 100.
    \5\ The Exchange takes into account any Clearing Member Trade 
Assignment (``CMTA'') transfers when determining the ultimate 
clearing firm for a transaction. CMTA is a form of ``give up'' 
whereby the position will be assigned to a specific clearing firm at 
the OCC.
    \6\ Throughout this filing, ``executing clearing firm'' means 
the clearing firm through which the entering broker indicated that 
the transaction would be cleared at the time it entered the original 
order which executed, and that clearing firm could be a designated 
``give up'', if applicable. The executing clearing firm may be the 
ultimate clearing firm if no CMTA transfer occurs. If a CMTA 
transfer occurs, however, the ultimate clearing firm would be the 
clearing firm that the position was transferred to for clearing via 
CMTA.
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    To illustrate how the ORF will be assessed and collected, the 
Exchange provides the following set of examples. If the transaction is 
executed on the Exchange and the ORF is assessed, if there is no change 
to the clearing account of the original transaction, then the ORF is 
collected from the Member that is the executing clearing firm for the 
transaction. (The Exchange notes that, for purposes of the Fee 
Schedule, when there is no change to the clearing account of the 
original transaction, the executing clearing firm is deemed to be the 
ultimate clearing firm.) If there is a change to the clearing account 
of the original transaction (i.e., the executing clearing firm ``gives-
up'' or ``CMTAs'' the transaction to another clearing firm), then the 
ORF is collected from the clearing firm that ultimately clears the 
transaction--the ultimate clearing firm. The ultimate clearing firm may 
be either a Member or non-Member of the Exchange. If the transaction is 
executed on an away exchange and the ORF is assessed, then the ORF is 
collected from the ultimate clearing firm for the transaction. Again, 
the ultimate clearing firm may be either a Member or non-Member of the 
Exchange. The Exchange notes, however, that when the transaction is 
executed on an away exchange, the Exchange does not assess the ORF when 
neither the executing clearing firm nor the ultimate clearing firm is a 
Member (even if a Member is ``given-up'' or ``CMTAed'' and then such 
Member subsequently ``gives-up'' or ``CMTAs'' the transaction to 
another non-Member via a CMTA reversal). Finally, the Exchange will not 
assess the ORF on outbound linkage trades, whether executed at the 
Exchange or an away exchange. ``Linkage trades'' are tagged in the 
Exchange's system, so the

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Exchange can readily tell them apart from other trades. A customer 
order routed to another exchange results in two customer trades, one 
from the originating exchange and one from the recipient exchange. 
Charging ORF on both trades could result in double-billing of ORF for a 
single customer order, thus the Exchange will not assess ORF on 
outbound linkage trades in a linkage scenario. This assessment practice 
is identical to the assessment practice currently utilized by the 
Exchange's affiliates, MIAX Options, MIAX Pearl, and MIAX Emerald.\7\
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    \7\ See Securities Exchange Act Release Nos. 80875 (June 7, 
2017), 82 FR 27096 (June 13, 2017) (SR-PEARL-2017-26); 81063 (June 
30, 2017), 82 FR 31668 (July 7, 2017) (SR-MIAX-2017-31); and 85251 
(March 6, 2019) 84 FR 8931 (March 12, 2019) (SR-EMERALD-2019-01).
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    As a practical matter, when a transaction that is subject to the 
ORF is not executed on the Exchange, the Exchange lacks the information 
necessary to identify the order entering member for that transaction. 
There are countless order entering market participants, and each day 
such participants can drop their connection to one market center and 
establish themselves as participants on another. For these reasons, it 
is not possible for the Exchange to identify, and thus assess fees such 
as an ORF, on order entering participants on away markets on a given 
trading day.
    Clearing members, however, are distinguished from order entering 
participants because they remain identified to the Exchange on 
information the Exchange receives from the OCC regardless of the 
identity of the order entering participant, their location, and the 
market center on which they execute transactions. Therefore, the 
Exchange believes it is more efficient for the operation of the 
Exchange and for the marketplace as a whole to collect the ORF from 
clearing members. Additionally, this collection method was originally 
instituted for the benefit of clearing firms that desired to have the 
ORF be collected from the clearing firm that ultimately clears the 
transaction. The clearing firms may then choose to pass through all, a 
portion, or none of the cost of the ORF to its customers, i.e., the 
entering firms.
    As discussed below, the Exchange believes it is appropriate to 
charge the ORF only to transactions that clear as customer at the OCC. 
The Exchange believes that its broad regulatory responsibilities with 
respect to a Member's activities support applying the ORF to 
transactions cleared but not executed by a Member. The Exchange's 
regulatory responsibilities are the same regardless of whether a Member 
enters an order that executes or clears a transaction executed on 
behalf of another party. The Exchange will regularly review all such 
activities, including performing surveillance for position limit 
violations, end of day and intra-day manipulation, front-running, 
contrary exercise advice violations and insider trading. These 
activities span across multiple exchanges.
    The ORF is designed to recover a material portion of the costs of 
supervising and regulating Members' customer options business including 
performing routine surveillances and investigations, as well as policy, 
rulemaking, interpretive and enforcement activities. The Exchange 
believes that revenue generated from the ORF, when combined with all of 
the Exchange's other regulatory fees and fines, will cover a material 
portion, but not all, of the Exchange's regulatory costs. The Exchange 
has designed the ORF to generate revenues that, when combined with all 
of the Exchange's other regulatory fees, will be less than or equal to 
the Exchange's regulatory costs.
    Regulatory costs include direct regulatory expenses and certain 
indirect expenses for work allocated in support of the regulatory 
function. The direct expenses include in-house and third-party service 
provider costs to support the day-to-day regulatory work such as 
surveillance, investigations and examinations. The indirect expenses 
include support from personnel in such areas as human resources, legal, 
information technology, facilities and accounting as well as shared 
costs necessary to operate the Exchange and to carry on its regulatory 
function, such as hardware, data center costs and connectivity. The 
Exchange acknowledges that these indirect expenses are also allocated 
towards other business operations, such as providing connectivity and 
market data services, for which the Exchange has also conducted a cost-
based analysis. As such, when analyzing the indirect expenses 
associated with its regulatory program, the Exchange did not double-
count any expenses, but instead allocated a portion of the costs not 
already allocated to other fees imposed by the Exchange. Indirect 
expenses are estimated to be approximately 52% of the total regulatory 
costs for 2024. Thus, direct expenses are estimated to be approximately 
48% of the total regulatory costs for 2024. The Exchange notes that its 
regulatory responsibilities with respect to Member compliance with 
options sales practice rules have been allocated to the Financial 
Industry Regulatory Authority (``FINRA'') under a 17d-2 Agreement. The 
ORF is not designed to cover the cost of options sales practice 
regulation. Finally, the Exchange notes that it takes into account all 
regulatory sources of funding, including fines collected by the 
Exchange in connection with disciplinary matters, when determining the 
appropriate ORF rate.
    The Exchange will monitor the amount of revenue collected from the 
ORF to ensure that it, in combination with its other regulatory fees 
and fines, does not exceed the Exchange's total regulatory costs. The 
Exchange will monitor MIAX Sapphire regulatory costs and revenues at a 
minimum on a semi-annual basis. If the Exchange determines regulatory 
revenues exceed or are insufficient to cover a material portion of its 
regulatory costs, the Exchange will adjust the ORF by submitting a fee 
change filing to the Commission. Going forward, the Exchange will 
notify Members of adjustments to the ORF via regulatory circular at 
least 30 days prior to the effective date of the change.
    The Exchange believes it is reasonable and appropriate for the 
Exchange to charge the ORF for customer options transactions regardless 
of the exchange on which the transactions occur. The Exchange has a 
statutory obligation to enforce compliance by Members and their 
associated persons under the Act and the rules of the Exchange and to 
surveil for other manipulative conduct by market participants 
(including non-Members) trading on the Exchange. The Exchange cannot 
effectively surveil for such conduct without looking at and evaluating 
activity across all options markets. Many of the Exchange's market 
surveillance programs require the Exchange to look at and evaluate 
activity across all options markets, such as surveillance for position 
limit violations, manipulation, front-running and contrary exercise 
advice violations/expiring exercise declarations. While much of this 
activity relates to the execution of orders, the ORF is assessed on and 
collected from clearing firms. The Exchange, because it lacks access to 
information on the identity of the entering firm for executions that 
occur on away markets, believes it is appropriate to assess the ORF on 
its Members' clearing activity, based on information the Exchange 
receives from OCC, including for away market activity. Among other 
reasons, doing so better and more accurately captures activity that 
occurs away from the Exchange over which the Exchange has a degree of 
regulatory responsibility. In so doing, the Exchange believes that

[[Page 71498]]

assessing ORF on Member clearing firms equitably distributes the 
collection of ORF in a fair and reasonable manner. Also, the Exchange 
and the other options exchanges are required to populate a consolidated 
options audit trail (``COATS'') \8\ system in order to surveil a 
Member's activities across markets.
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    \8\ COATS effectively enhances intermarket options surveillance 
by enabling the options exchanges to reconstruct the market promptly 
to effectively surveil certain rules.
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    In addition to its own surveillance programs, the Exchange will 
work with other SROs and exchanges on intermarket surveillance related 
issues. Through its participation in the Intermarket Surveillance Group 
(``ISG''),\9\ the Exchange will share information and coordinate 
inquiries and investigations with other exchanges designed to address 
potential intermarket manipulation and trading abuses. The Exchange's 
participation in ISG helps it to satisfy the requirement that it has 
coordinated surveillance with markets on which security futures are 
traded and markets on which any security underlying security futures 
are traded to detect manipulation and insider trading.\10\
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    \9\ ISG is an industry organization formed in 1983 to coordinate 
intermarket surveillance among the SROs by co-operatively sharing 
regulatory information pursuant to a written agreement between the 
parties. The goal of the ISG's information sharing is to coordinate 
regulatory efforts to address potential intermarket trading abuses 
and manipulations.
    \10\ See Section 6(h)(3)(I) of the Act.
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    The Exchange believes that charging the ORF across markets will 
avoid having Members direct their trades to other markets in order to 
avoid the fee and to thereby avoid paying for their fair share for 
regulation. If the ORF did not apply to activity across markets then a 
Member would send their orders to the least cost, least regulated 
exchange (to the extent permissible under the Options Linkage plan, 
which, among other requirements, prohibits trading through of better 
priced quotations). Other exchanges do impose a similar fee on their 
members' activity, and their fees will extend to include the activities 
of their own members on the Exchange. In fact, all registered options 
exchanges currently impose ORF on their members, and, similar to the 
Exchange, the majority of the options exchanges, including MIAX 
Sapphire's affiliates, launched over the last decade have implemented 
an ORF on the day of launch or shortly thereafter in order to properly 
fund their regulatory programs.\11\
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    \11\ See Securities Exchange Act Release Nos. 68711 (January 23, 
2013), 78 FR 6155 (January 29, 2013) (SR-MIAX-2013-01); 80035 
(February 14, 2017), 82 FR 11272 (February 21, 2017 (SR-PEARL-2017-
09); 85251 (March 6, 2019), 84 FR 8931 (March 12, 2019) (SR-EMERALD-
2019-01).
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    The Exchange notes that there is established precedent for an SRO 
charging a fee across markets, namely, FINRA's Trading Activity Fee 
\12\ and the ORF assessed by other options exchanges including, but not 
limited to, NYSE Amex LLC (``NYSE AMEX''), NYSE Arca, Inc. (``NYSE 
Arca''), Cboe Exchange, Inc. (``Cboe''), Cboe BZX Exchange, Inc. 
(``BZX''), Cboe EDGX Exchange, Inc. (``EDGX''), Nasdaq PHLX LLC 
(``Phlx''), Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX''), 
MIAX Options and BOX Options Exchange LLC (``BOX'').\13\ While the 
Exchange does not have all the same regulatory responsibilities as 
FINRA, the Exchange believes that, like other exchanges that have 
adopted an ORF, its broad regulatory responsibilities with respect to a 
Member's activities, irrespective of where their transactions take 
place, supports a regulatory fee applicable to transactions on other 
markets. Unlike FINRA's Trading Activity Fee, the ORF would apply only 
to a Member's customer options transactions.
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    \12\ See Securities Exchange Act Release No. 47946 (May 30, 
2003), 68 FR 34021 (June 6, 2003) (SR-NASD-2002-148).
    \13\ See Securities Exchange Act Release Nos. 58817 (October 20, 
2008), 73 FR 63744 (October 27, 2008) (SR-CBOE-2008-05) (notice of 
filing and immediate effectiveness of Cboe adopting an ORF 
applicable to transactions across all options exchanges); 61133 
(December 9, 2009), 74 FR 66715 (December 16, 2009) (SR-Phlx-2009-
100) (notice of filing and immediate effectiveness of Phlx adopting 
an ORF applicable to transactions across all options exchanges); 
61154 (December 11, 2009), 74 FR 67278 (December 18, 2009) (SR-ISE-
2009-105) (notice of filing and immediate effectiveness of ISE 
adopting an ORF applicable to transactions across all options 
exchanges); 61388 (January 20, 2010), 75 FR 4431 (January 27, 2010) 
(SR-BX-2010-001) (notice of filing and immediate effectiveness of 
Nasdaq OMX BX, Inc. (``BX'') adopting an ORF applicable to 
transactions across all options exchanges); 70200 (August 14, 2013) 
78 FR 51242 (August 20, 2013)(SR-Topaz-2013-01)) (notice of filing 
and immediate effectiveness of GEMX, formerly known as ISE Gemini 
and Topaz Exchange, adopting an ORF applicable to transactions 
across all options exchanges); 64400 (May 4, 2011), 76 FR 27118 (May 
10, 2011) (SR-NYSEAmex-2011-27) (notice of filing and immediate 
effectiveness of NYSE AMEX adopting an ORF applicable to 
transactions across all options exchanges); 64399 (May 4, 2011), 76 
FR 27114 (May 10, 2011) (SR-NYSEArca-2011-20) (notice of filing and 
immediate effectiveness of NYSE Arca adopting an ORF applicable to 
transactions across all options exchanges); 65913 (December 8, 
2011), 76 FR 77883 (December 14, 2011) (SR-NASDAQ-2011-163) (notice 
of filing and immediate effectiveness of Nasdaq Options Market 
(``NOM'') adopting an ORF applicable to transactions across all 
options exchanges); 66979 (May 14, 2012), 77 FR 29740 (May 18, 2012) 
(SR-BOX-2012-002) (notice of filing and immediate effectiveness of 
BOX adopting an ORF applicable to transactions across all options 
exchanges); 67596 (August 6, 2012), 77 FR 47902 (August 10, 2012) 
(SR-C2-2012-023) (notice of filing and immediate effectiveness of C2 
Options Exchange, Inc. (``C2'') adopting an ORF applicable to 
transactions across all options exchanges); 68711 (January 23, 2013) 
78 FR 6155 (January 29, 2013) (SR-MIAX-2013-01) (notice of filing 
and immediate effectiveness of MIAX Options adopting an ORF 
applicable to transactions across all options exchanges); 74214 
(February 5, 2015), 80 FR 7665 (February 11, 2015) (SR-BATS-2015-08) 
(notice of filing and immediate effectiveness of BZX formerly known 
as BATS, adopting an ORF applicable to transactions across all 
options exchanges); 80025 (February 13, 2017) 82 FR 11081 (February 
17, 2017) (SR-BatsEDGX-2017-04) (notice of filing and immediate 
effectiveness of EDGX formerly known as Bats EDGX Exchange, Inc., 
adopting an ORF applicable to transactions across all options 
exchanges); 80875 (June 7, 2017) 82 FR 27096 (June 13, 2017) (SR-
PEARL-2017-26) (notice of filing and immediate effectiveness of MIAX 
PEARL adopting an ORF applicable to transactions across all options 
exchanges); 85127 (February 13, 2019) 84 FR 5173 (February 20, 2019) 
(SR-MRX-2019-03) (notice of filing and immediate effectiveness of 
Nasdaq MRX, LLC (``MRX'') adopting an ORF applicable to transactions 
across all options exchanges); 85251 (March 6, 2019) 84 FR 8931 
(March 12, 2019) (SR-EMERALD-2019-01) (notice of filing and 
immediate effectiveness of MIAX Emerald adopting an ORF applicable 
to transactions across all options exchanges).
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    Lastly, the Exchange recognizes that in 2019, the Commission issued 
suspensions of and orders instituting proceedings to determine whether 
to approve or disapprove a proposed rule change to modify the Options 
Regulatory Fee of NYSE American, NYSE Arca, MIAX Options, MIAX PEARL, 
MIAX Emerald, Cboe, Cboe EDGX Options, and C2.\14\ Each of those 
exchanges had filed to increase their ORF, and the Commission indicated 
that each of those filings lacked detail and specificity, signaling 
that more information was needed to speak to whether the proposed 
increased ORFs were reasonable, equitably allocated and not unfairly 
discriminatory, particularly given that the ORF is assessed on 
transactions that clear in the ``customer'' range and regardless of the 
exchange on which the transaction occurs. The Commission also noted 
that the filings provided only broad general statements regarding 
options transaction volume and did not provide any information on those 
exchanges' historic or projected

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options regulatory costs (including the costs of regulating activity 
that cleared in the ``customer'' range and the costs of regulating 
activity that occurred off exchange), the amount of regulatory revenue 
they had generated and expected to generate from the ORF as well as 
other sources, or the ``material portion'' of options regulatory 
expenses that they sought to recover from the ORF. Each of those 
exchanges withdrew their filings, but continue charging ORF today as 
discussed above. The Exchange would be at an unfair competitive 
disadvantage if it were not allowed to charge the ORF to recover a 
material portion, but not all, of the Exchange's regulatory costs for 
the supervision and regulation of activity of its Members which as 
noted above, is charged by all currently operating options exchanges.
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    \14\ See Securities Exchange Act Release No. 87168 (September 
30, 2019), 84 FR 53210 (October 4, 2019) (SR-Emerald-2019-29); 
Securities Exchange Act Release No. 87167 (September 30, 2019), 84 
FR 53189 (October 4, 2019) (SR-PEARL-2019-23); Securities Exchange 
Act Release No. 87169 (September 30, 2019), 84 FR 53195 (October 4, 
2019) (SR-MIAX-2019-35); Securities Exchange Act Release No. 87170 
(September 30, 2019), 84 FR 53213 (October 4, 2019) (SRCBOE- 2019-
040); Securities Exchange Act Release No. 87172 (September 30, 2019) 
84 FR 53192 (October 4, 2019) (SR-CboeEDGX-2019-051); Securities 
Exchange Act Release No 87171 (September 30, 2019), 84 FR 53200 
(October 4, 2019) (SR-C2-2019-018); Securities Exchange Act Release 
No. 86832 (August 30, 2019), 84 FR 46980 (September 6, 2019) (SR-
NYSEArca-2019-49); Securities Exchange Act Release No. 86833 (August 
30, 2019) 84 FR 47029 (September 6, 2019) (SR-NYSEAMER-2019-27).
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    The Exchange recognizes that an alternative model is being pursued 
among industry participants but that a consensus has not yet been 
reached. Therefore, the Exchange proposes to establish an ORF in the 
amount of $0.0013 per contract side to be operative on September 1, 
2024, until October 31, 2024, at which time its ORF will automatically 
sunset. The Exchange believes that this will allow it time to gather 
the necessary data, including its actual regulatory costs and revenues, 
as well as the cost of regulating executions that clear in a customer 
capacity and executions that occur on away markets, while also allowing 
it to adequately cover a portion of the projected costs associated with 
the regulation of its Members and avoid the unfair competitive 
disadvantage it would be placed at it if it were not allowed to collect 
ORF during the time period needed to assess and collect data it does 
not have as a new options exchange. Such a process will inform the 
Exchange's approach to the ORF after the sunset date. To reiterate, as 
a new exchange, not having the opportunity to fund its regulatory 
program through the same regulatory fee charged by every other options 
exchange would place an undue competitive disadvantage upon the 
Exchange's regulatory program and options business as a whole. Further, 
the Exchange emphasizes that other exchanges will be charging ORF for 
transactions occurring on MIAX Sapphire, and as such, it follows that 
the Exchange that is primarily responsible for monitoring those 
transactions should also be able to charge ORF for activity occurring 
on its own market, as well as transactions it surveils on away markets.
    The Exchange notes that if, during the proposed ORF collection 
period of September 1, 2024, until the sunset date of October 31, 2024, 
a viable alternative ORF methodology presents itself, the Exchange 
would endeavor to implement said alternative prior to the proposed 
sunset date of October 31, 2024.
    As a new exchange, not having the opportunity to fund its 
regulatory program through the same regulatory fee charged by every 
other options exchange would place an undue competitive disadvantage 
upon the Exchange's regulatory program and options business as a whole. 
Further, the Exchange emphasizes that other exchanges will be charging 
ORF for transactions occurring on MIAX Sapphire, and as such, it 
follows that the exchange that is primarily responsible for monitoring 
those transactions should also be able to charge the ORF for activity 
occurring on its own market, as well as transactions it surveils on 
away markets.
    The Exchange will notify current and future Members via a 
Regulatory Circular of the proposed ORF prior to the operative date of 
September 1, 2024. The Exchange believes that the prior notification to 
future market participants will ensure that the future market 
participants are prepared to configure their systems to properly 
account for the proposed ORF.\15\
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    \15\ See MIAX Sapphire Options Alert, ``MIAX Sapphire Options 
Exchange--Options Regulatory Fee,'' July 23, 2024, available online 
at https://www.miaxglobal.com/alert/2024/07/23/miax-sapphire-options-exchange-options-regulatory-fee. See also, MIAX Sapphire 
Regulatory Circular 2024-03, ``MIAX Sapphire Options--Options 
Regulatory Fee,'' August 2, 2024, available online at https://www.miaxglobal.com/sites/default/files/circular-files/MIAX_Sapphire_Options_RC_2024_03.pdf.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \16\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \17\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees, and other charges among its members and issuers and other persons 
using its facilities. The Exchange also believes the proposal furthers 
the objectives of Section 6(b)(5) of the Act \18\ in that it is 
designed to promote just and equitable principles of trade, 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 is not designed to permit unfair discrimination 
between customers, issuers, brokers and dealers.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that establishing an ORF in the amount of 
$0.0013 is reasonable because the Exchange's collection of ORF needs to 
be balanced against the amount of regulatory costs incurred by the 
Exchange. The Exchange believes that the amount proposed herein will 
serve to balance the Exchange's regulatory revenue against the 
anticipated regulatory costs. Moreover, the proposed amount is lower 
than the amount of ORF assessed on other exchanges.\19\
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    \19\ See, e.g., NYSE Arca Options Fees and Charges, ORF and NYSE 
American Options Fees Schedule, Section VII(A), which provide that 
ORF is assessed at a rate of $0.0055 per contract for each 
respective exchange. See also Nasdaq PHLX, Options 7 Pricing 
Schedule, Section 6(D), which provides for an ORF rate of $0.0034 
per contract; Cboe Options Fee Schedule, which provides an ORF rate 
of $0.0017 per contract; Nasdaq Options Market, Options 7 Pricing 
Schedule, Section 5, which provides an ORF rate of $0.0016 per 
contract; BOX Options Fee Schedule Section II(C), which provides an 
ORF rate of $0.00295 per contract; MIAX Options Fee Schedule, 
Section 2(b), which provides an ORF rate of $0.0019 per contract; 
MIAX Pearl Fee Schedule, Section 2(b), which provides an ORF rate of 
$0.0018 per contract; and the MEMX Fee Schedule which provides an 
ORF rate of $0.0015.
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    The Exchange also believes the proposed fee change is equitable and 
not unfairly discriminatory in that it is charged to all Members on all 
their transactions that clear in the customer range at the OCC, with an 
exception.\20\ The Exchange believes the ORF ensures fairness by 
assessing higher fees to those members that require more Exchange 
regulatory services based on the amount of customer options business 
they conduct. Regulating customer trading activity is much more labor 
intensive and requires greater expenditure of human and technical 
resources than regulating non-customer trading activity, which tends to 
be more automated and less labor-intensive. For example, there are 
costs associated with main office and branch office examinations (e.g., 
staff expenses), as well as investigations into customer complaints and 
the terminations of registered persons. As a result, the costs 
associated with administering the customer component of the Exchange's 
overall regulatory program are materially higher than the costs 
associated with administering the non-customer component (e.g., member 
proprietary transactions) of its regulatory program. Moreover, the 
Exchange notes that it has broad

[[Page 71500]]

regulatory responsibilities with respect to activities of its Members, 
irrespective of where their transactions take place. Many of the 
Exchange's surveillance programs for customer trading activity may 
require the Exchange to look at activity across all markets, such as 
reviews related to position limit violations and manipulation. Indeed, 
the Exchange cannot effectively review for such conduct without looking 
at and evaluating activity regardless of where it transpires. In 
addition to its own surveillance programs, the Exchange also works with 
other SROs and exchanges on intermarket surveillance related issues. 
Through its participation in the Intermarket Surveillance Group 
(``ISG'') \21\ the Exchange shares information and coordinates 
inquiries and investigations with other exchanges designed to address 
potential intermarket manipulation and trading abuses. Accordingly, 
there is a strong nexus between the ORF and the Exchange's regulatory 
activities with respect to customer trading activity of its Members.
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    \20\ When a transaction is executed on an away exchange, the 
Exchange does not assess the ORF when neither the executing clearing 
firm nor the ultimate clearing firm is a Member (even if a Member is 
``given-up'' or ``CMTAed'' and then such Member subsequently 
``gives-up'' or ``CMTAs'' the transaction to another non-Member via 
a CMTA reversal).
    \21\ ISG is an industry organization formed in 1983 to 
coordinate intermarket surveillance among the SROs by cooperatively 
sharing regulatory information pursuant to a written agreement 
between the parties. The goal of the ISG's information sharing is to 
coordinate regulatory efforts to address potential intermarket 
trading abuses and manipulations.
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    The Exchange believes that the proposal to collect the ORF from 
non-Members when such non-Members ultimately clear the transaction 
(that is, when the non-Member is the ``ultimate clearing firm'' for a 
transaction in which a Member was assessed the ORF), is an equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities. The 
Exchange notes that there is a material distinction between 
``assessing'' the ORF and ``collecting'' the ORF. The Exchange does not 
assess the ORF to non-Members in any instance. For all executions, 
regardless of where they occur, the ORF is collected from the ultimate 
clearing firm, regardless of whether that clearing firm is a Member, 
but only if the original executing clearing firm is a Member. If the 
original executing clearing firm is not a Member, no ORF is assessed or 
collected. If the original executing clearing firm is a Member, while 
the ORF may be collected from the ultimate non-Member clearing firm, 
the ORF is assessed to the Member executing clearing firm. The Exchange 
believes that this collection practice is reasonable and appropriate, 
given its broad regulatory responsibilities with respect to its Members 
activity, as well as the fact that this collection method was 
originally instituted for the benefit of clearing firms that
    The ORF is designed to recover a material portion of the costs of 
supervising and regulating Members' customer options business including 
performing routine surveillances and investigations, as well as policy, 
rulemaking, interpretive, and enforcement activities. Allowing the 
Exchange to collect an ORF beginning on September 1, 2024 until the 
sunset date of October 31, 2024, is reasonable as it allows the 
Exchange to recoup its regulatory expenses in the exact manner as other 
options exchanges. MEMX, a competing options exchange, which began 
operations on September 27, 2023,\22\ established an ORF amount of 
$0.0015.\23\ MEMX then adopted a proposal where its ORF would 
automatically sunset eight months later on May 31, 2024.\24\ MEMX then 
extended the sunset period another five months until October 31, 
2024.\25\
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    \22\ See MEMX Trader Alert 23-42: MEMX Options Exchange Launch 
Schedule, available at: https://info.memxtrading.com/trader-alert-23-42-memx-options-exchange-schedule-update/.
    \23\ See Securities Exchange Act Release No. 98585 (September 
28, 2023), 88 FR 68692 (October 4, 2023) (SR-MEMX-2023-25).
    \24\ See Securities Exchange Act Release No. 99259 (January 2, 
2024), 89 FR 99259 (January 8, 2024) (SR-MEMX-2023-38).
    \25\ See Securities Exchange Act Release No. 100253 (May 31, 
2024), 89 FR 48473 (June 6, 2024) (SR-MEMX-2024-23).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    MIAX Sapphire does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. This proposal will not create 
an unnecessary or inappropriate intra-market burden on competition 
because the ORF will apply to all customer activity, and is designed to 
enable the Exchange to recover a material portion of the Exchange's 
cost related to its regulatory activities. This proposal will not 
create an unnecessary or inappropriate inter-market burden on 
competition because it will be a regulatory fee that supports 
regulation in furtherance of the purposes of the Act. The Exchange is 
obligated to ensure that the amount of regulatory revenue collected 
from the ORF, in combination with its other regulatory fees and fines, 
does not exceed regulatory costs. MIAX Sapphire's proposed ORF, as 
described herein, is lower than, or comparable to, fees charged by 
other options exchanges for the same or similar services.
    The Exchange notes that while it does not believe that its proposed 
ORF will impose any burden on inter-market competition, the Exchange 
not charging an ORF or being precluded from charging an ORF would, in-
fact, represent a significant burden on competition. As noted above, 
the Exchange is a new entrant in the highly competitive environment for 
equity options trading. Also, as noted above, all registered options 
exchanges currently impose the ORF on their members, and such ORF fees 
imposed by other options exchanges currently do and will continue to 
extend to executions occurring on the Exchange. The Exchange believes 
that it is likely that a viable ORF alternative may be presented prior 
to the Exchange's sunset period, and the Exchange is not precluded from 
adopting said alternative prior to the sunset date. The Exchange 
believes that in order to compete with these existing options 
exchanges, it must, in fact, impose an ORF on its Members, and that the 
inability to do so would result in an unfair competitive disadvantage 
to the Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\26\ and Rule 119b-4(f)(2) \27\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \26\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \27\ 17 CFR 240.119b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act.

[[Page 71501]]

Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-SAPPHIRE-2024-25 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-SAPPHIRE-2024-25. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-SAPPHIRE-2024-25 and should 
be submitted on or before September 24, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19641 Filed 8-30-24; 8:45 am]
BILLING CODE 8011-01-P