8011-01p
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

15 U.S.C. 78f.

See Securities Exchange Act Release No. 34-98746 (Oct. 13, 2023), 88 FR 72116 (“Notice”).

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.

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.

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.

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.

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.
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

15 U.S.C. 78f(b) and 15 U.S.C. 78s(a), respectively.

See 15 U.S.C. 78f(b)(3).

See 15 U.S.C. 78f(b)(5).

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
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 selfregulatory organization (“SRO”).12
Under the MIAX Sapphire By-Laws:
•

The Exchange Board will be composed of not less than ten Directors;13

•

One Director will be the Chief Executive Officer of MIAX Sapphire;14

•

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 Member16 or any affiliate of any such Exchange Member

See 15 U.S.C. 78k-1.

See 15 U.S.C. 78f(b)(8).

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.

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).

See MIAX Sapphire By-Laws, Article II, Section 2.2(b).

“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).

“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).

(“Independent Director”),17 will equal or exceed the sum of the number of
Industry Directors18 and Member Representative Directors;19 and
•

At least 20% of the Directors on the Exchange Board will be Member
Representative Directors.20

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 Committee22 and Member Nominating

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.

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”).

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).

See MIAX Sapphire By-Laws, Article II, Section 2.2(b)(ii).

See MIAX Sapphire By-Laws, Article II, Sections 2.4 and 2.5. See also MIAX Sapphire LLC Agreement,
Section 9(a).

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).

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
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

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.

See MIAX Sapphire By-Laws, Article V, Section 5.1.

See id. See also MIAX Sapphire By-Laws, Article II, Section 2.4.

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).

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.

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
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
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

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 ByLaws, Article II, Section 2.4(f).

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.

See id.

15 U.S.C. 78f(b)(3).

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”).

15 U.S.C. 78f(b)(3).

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 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.
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

See MIAX Order, supra note 18, at 73067; BATS Order, supra note 18, at 49501; and Nasdaq Order, supra
note 32, at 3553.

See MIAX Sapphire By-Laws, Article II, Section 2.5.

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.

See MIAX Sapphire By-Laws, Article II, Section 2.5(b).

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.
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
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

See MIAX Sapphire By-Laws, Article II, Section 2.5(d).

See MIAX Sapphire By-Laws, Article II, Section 2.5(a).

See MIAX Sapphire By-Laws, Article II, Sections 2.2(e) and 2.5(a).

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.

See 15 U.S.C. 78f(b)(3).

See supra note 36.

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.
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.
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

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.

15 U.S.C. 78f(b)(3).

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
The Audit Committee will consist of three or more Directors, a majority of 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

See MIAX Sapphire By-Laws, Article IV, Section 4.1.

See MIAX Sapphire By-Laws, Article IV, Section 4.1(a).

See MIAX Sapphire By-Laws, Article IV, Section 4.5(e) and (f).

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).

See MIAX Sapphire By-Laws, Article IV, Sections 4.5(a) and 4.5(c).

See MIAX Sapphire By-Laws, Article IV, Section 4.5(d).

See MIAX Sapphire By-Laws, Article IV, Section 4.5(f).

Member Representative Directors must be at least as great as the corresponding percentages on
the Exchange Board as a whole.53
With respect to Committees of the Exchange, the Exchange has proposed to establish a
Nominating Committee54 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

See MIAX Sapphire By-Laws, Article IV, Section 4.5(e).

See MIAX Sapphire By-Laws, Article V, Section 5.2, and supra note 22.

See MIAX Sapphire By-Laws, Article V, Section 5.3, and supra note 23.

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.

See MIAX Sapphire By-Laws, Article IV, Section 4.6.

See id.

See id.

See MIAX Sapphire By-Laws, Article IV, Section 4.7.

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
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
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

See id.

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.

15 U.S.C. 78f(b)(1).

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.
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 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

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).

See Miami Holdings Certificate, Article NINTH (a)(ii) (defining “related persons”).

See Miami Holdings Certificate, Article NINTH (b)(i)(A).

See Miami Holdings Certificate, Article NINTH (b)(i)(B).

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.

See Miami Holdings Certificate, Article NINTH (b)(i)(C).

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
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

See id.

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.

See Miami Holdings Certificate, Article NINTH (b)(iv).

See id.

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

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
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

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”).
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).

See Miami Holdings Certificate, Article NINTH (b)(ii)(B).

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.

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

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
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 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

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.”).
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).

See 15 U.S.C. 78s. See also MIAX Sapphire LLC Agreement, Section 28(b).

See MIAX Sapphire By-Laws, Article III, Section 3.4.

See, e.g., IEX Order, supra note 64.

Sapphire retains a sufficient degree of independence to effectively carry out its regulatory
obligations under the Act.
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.
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.

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.

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

2.

Regulatory Independence and Oversight

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

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

•

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

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”).

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 ByLaws 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.

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
•

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

•

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

See Miami Holdings By-Laws, Article VII, Section 4.

See id.

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

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

•

The books and records of MIAX Sapphire and Miami Holdings must be maintained in the
United States91 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

•

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

•

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

•

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

function of MIAX Sapphire will be subject to confidentiality restrictions and will not be used for any nonregulatory 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.
See MIAX Sapphire By-Laws, Article X, Section 10.4; Miami Holdings By-Laws, Article VII, Section 3.

See Miami Holdings By-Laws, Article VII, Section 3.

See id.

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

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
Further, Section 19(h)(1) of the Act97 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.
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

15 U.S.C. 78f(b)(1).

See 15 U.S.C. 78s(h)(1).

See id.

15 U.S.C. 78f(b)(1); 15 U.S.C. 78s(g)(1).

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.
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
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

15 U.S.C. 78t(a).

15 U.S.C. 78t(e).

15 U.S.C. 78u-3.

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.

See MIAX Sapphire By-Laws, Article VI, Section 6.10.

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
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.
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 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.

See MIAX Sapphire By-Laws, Article IV, Section 4.5(c).

See MIAX Sapphire By-Laws, Article VI, Section 6.10.

See 15 U.S.C. 78f(b)(1).

See id. See also 15 U.S.C. 78s(g).

See MIAX Sapphire Form 1, Exhibit I.

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
Further, any “Regulatory Funds” received by MIAX Sapphire will not be used for nonregulatory 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
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

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.

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); ByLaws of MIAX Exchange, Article I(ll).

See MIAX Sapphire Form 1, Exhibit I.

See MIAX Sapphire Form 1, Exhibit L.

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
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

See id.

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.

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.

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.
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 cover areas where each SRO’s rules substantively overlap, including
such regulatory functions as personnel registration and sales practices. For example, in 2019 the

See 15 U.S.C. 78s(g)(1).

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).

15 U.S.C. 78s(g)(1).

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.

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
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

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”)).

See supra notes 121-122 and accompanying text.

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).

See MIAX Sapphire Form 1, Exhibit L.

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.
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.
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 twosided orders, thereby exposing the orders to competition from the crowd, before submitting any
matched contracts to the Exchange’s system for execution.130

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.

See MIAX Sapphire Form 1, Exhibit E at 44.

See id. at 44, 53; MIAX Sapphire Rule 514(b).

See MIAX Sapphire Form 1, Exhibit E at 44.

See id. at 69; MIAX Sapphire Rule 2030(e)(2).

1.

Access to MIAX Sapphire

Access to MIAX Sapphire’s System131 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

“System” means the automated trading system used by the Exchange for the trading of securities. See
MIAX Sapphire Rule 100.

“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.

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.

See MIAX Sapphire Rule 200(e).

See MIAX Sapphire Rule 200(b).

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.

Trading Permits issued in the future.137 Members of MIAX Sapphire may be Market Makers138
or EEMs.139
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
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

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).

“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.

“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 nonMarket 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.

See MIAX Sapphire Rule 200(c)(1).

See id.

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).

See MIAX Sapphire Rule 200(c)(2).

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
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

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).

See MIAX Sapphire Rules Chapter XIII (incorporating by reference Chapter XIII of the MIAX Exchange
Rules).

See MIAX Sapphire Rules Chapter XI (incorporating by reference Chapter XI of the MIAX Exchange
Rules).

See MIAX Sapphire Rule 200(g). For MIAX Sapphire’s rules concerning discipline, see MIAX Sapphire
Rules Chapter X.

See MIAX Sapphire Rule 100.

“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).

See MIAX Sapphire Rule 2020.

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
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
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
In addition, Members may enter into arrangements with other parties, including nonMembers 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

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.

15 U.S.C. 78f(b)(2).

See, e.g., MIAX Emerald Rules Chapter II; MIAX Pearl Rules Chapter II.

15 U.S.C. 78f(c).

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.

See MIAX Sapphire Rule 210.

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
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 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

See MIAX Sapphire Rule 210(b).

See MIAX Sapphire Rule 210(b)-(c).

See MIAX Sapphire Rule 210(b). See also, e.g., 17 CFR 240.15c3-5.

See, e.g., MIAX Pearl Rule 210; MIAX Exchange Rule 210; Nasdaq Rule 4611(d).

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.).

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

See MIAX Sapphire Rule 100; MIAX Sapphire Rule 600.

See MIAX Sapphire Rule 600(a).

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.

See MIAX Sapphire Rules 600 and 600(i).

See MIAX Sapphire Rule 200(c)(1).

See id.

violates any of its agreements with MIAX Sapphire or any provisions of the MIAX Sapphire
Rules.169
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 Interface171 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
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
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

See MIAX Sapphire Rule 603(b).

See MIAX Sapphire Rule 602(a).

“MEO Interface” means a binary order interface used for submitting certain order types to the MIAX
Sapphire System. See MIAX Sapphire Rule 100.

See MIAX Sapphire Rule 602(b).

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.

See MIAX Sapphire Rule 2105.

See MIAX Sapphire Rule 2100(b).

MIAX Sapphire’s proposed Market Maker qualification requirements are substantially similar to
those of other options exchanges.176
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
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

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

See MIAX Sapphire Rule 604(a).

See id.

See MIAX Sapphire Rule 608.

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.

registered whenever, in the judgment of the Exchange, it is necessary to do so in the interest of
fair and orderly markets.181
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

See MIAX Sapphire Rule 605(d)(2).

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).

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).

See MIAX Sapphire Rule 2105(d).

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
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-à-vis other Members.192
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

See MIAX Sapphire Rule 605(e). See also Nasdaq Rules, Options 2, Section 6(b).

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).

See MIAX Sapphire Rule 600(b).

See, e.g., Securities Exchange Act Release No. 57478 (Mar. 12, 2008), 73 FR 14521 (Mar. 18, 2008) (SRNASDAQ-2007-004) (“NOM Approval Order”), at 14526; BATS Order, supra note 18, at 5159 (discussing
the benefits and obligations of market makers).

See 12 CFR 221.5 and 12 CFR 220.7; see also 17 CFR 240.15c3-1(a)(6) (capital requirements for market
makers).

15 U.S.C. 78k(a). See also infra section III.C.5.

See MIAX Sapphire Rule 514. See also MIAX Sapphire Form 1, Exhibit E at 2.

See NOM Approval Order, supra note 189, at 14526; and BATS Order, supra note 18, at 5159.

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.
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
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

See id.

See, e.g., BOX Rule 8500.

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.

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.”

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

See MIAX Sapphire Rule 510(a).

See MIAX Sapphire Rule 510(a)(3).

See MIAX Sapphire Form 1, Exhibit E at 51.

See id.

See id.

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).

See MIAX Sapphire Rule 2030(e).

thereof exercises investment discretion by relying on an exemption under Section 11(a)(1)(G) of
the Act (“G Exemption”).205
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.
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

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”).

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.

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).

See, e.g., Nasdaq Rules, Options 3, Section 7(a)(7) (Intermarket Sweep Order) and (a)(1) (Cancelreplacement 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).

“Book”).209 The System will continuously and automatically match orders pursuant to pricetime 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
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.”
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

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.

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.

See MIAX Sapphire Rule 515(a) and (b).

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.

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
The Exchange’s rules also provide for a process that applies to non-routable orders215 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 repricing will continue until the managed order is fully executed, reaches its limit price, reaches 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

See MIAX Sapphire Rule 515(c).

See MIAX Pearl Rule 515(c).

Non-routable orders would include, for example, orders marked “Do Not Route.” See MIAX Sapphire
Rule 515(d)(2)(i).

See MIAX Sapphire Rule 515(d)(2).

See id.

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).

See MIAX Sapphire Rule 515(d)(2)(ii).

See id.

See MIAX Sapphire Rule 515(d)(2)(iii)(A). See also MIAX Pearl Rule 515(c)(1)(ii).

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

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.

See MIAX Sapphire Rule 2040(c).

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.

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).

See MIAX Sapphire Rules 2040(a) and 2045(d)(1).

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
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
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

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).

See MIAX Sapphire Rule 2040(f)(3).

See MIAX Sapphire Rule 2040(h).

See id.

See MIAX Sapphire Rule 2040(a)(1) and (d).

See BOX Rule 7600.

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 multiple bids or offers are made
simultaneously, such bids (or offers) will be deemed to be on parity and priority will be afforded

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.

Nasdaq Letter at 2.

Id.

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.

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.

MIAX Sapphire Letter at 3.

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
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

See MIAX Sapphire Letter II at 2-3.

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).

See MIAX Sapphire Letter II at 3.

See MIAX Sapphire Rule 2045(a), (b), and (c).

See MIAX Sapphire Rule 2045(d)(1).

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.
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

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.

Nasdaq Letter at 2.

Id.

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.

MIAX Sapphire Letter at 3.

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
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

See id. at 3-4.

Id. at 4.

See MIAX Sapphire Letter II at 4-5.

Floor Market Maker quotations have a minimum size of 10 contracts. See MIAX Sapphire Rule
2105(c)(1).

considered by the Commission”255 because the MIAX Sapphire Rule is not substantively
different than BOX Rule 7610.256
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
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
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

MIAX Sapphire Letter at 4.

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”).

See MIAX Sapphire Rules 518 and 2040.

See MIAX Sapphire Rules 515, 518, and 2040.

See MIAX Sapphire Rule 518, Interpretations and Policies .03.

See, e.g., MIAX Exchange Rule 518; BOX Rule 7600.

15 U.S.C. 78f(b)(5).

15 U.S.C. 78f(b)(8).

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.
5.

Section 11(a) of the Act

Section 11(a)(1) of the Act265 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

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.

See Securities Exchange Act Release No. 81292 (Aug. 2, 2017), 82 FR 37144 (Aug. 8, 2017) (SR-BOX2016-48) (Order Approving a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To Adopt
Rules for an Open-Outcry Trading Floor).

15 U.S.C. 78k(a)(1).

15 U.S.C. 78k(a)(1)(A)-(I).

17 CFR 240.11a2-2(T).

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
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

See supra note 205 and accompanying text.

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).

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.

17 CFR 240.11a2-2(T).

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”).

associated person may retain any compensation in connection with effecting the transaction
except as provided in the rule.
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.
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 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.

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

See, e.g., Securities Exchange Act Release Nos. 59154 (Dec. 23, 2008), 73 FR 80468 (Dec. 31, 2008) (SRBSE-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”).

See supra note 133.

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.
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

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”).

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

See id.

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.
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

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.

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

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”).

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

See 15 U.S.C. 78f(b)(1).

See id.

See MIAX Sapphire Rule 1000.

See id. See also MIAX Exchange Rule 1000 and MIAX Pearl Rule 1000 (containing similar provisions).

See supra section III.B.4.c (concerning the 17d-2 plans to which MIAX Sapphire has committed to join).

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 officer292 and two members of the
Business Conduct Committee293 (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 Board296 (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
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;

See MIAX Sapphire Rule 1004.

See MIAX Sapphire Rule 1015, Interpretation and Policy .01.

See MIAX Sapphire By-Laws, Article IV, Section 4.7.

See MIAX Sapphire Rule 1006.

See MIAX Sapphire Rule 1010(a).

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).

See MIAX Sapphire Rule 1010(b).

See id.

or (c) limiting or prohibiting services provided by MIAX Sapphire or services of any Exchange
Member.299
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 days300 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

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).

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)).

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.

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)).

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.

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)).

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 Act305 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
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

15 U.S.C. 78f(b)(6) and (b)(7), respectively.

See 15 U.S.C. 78f(b)(1).

See, e.g., ISE Mercury Order, supra note 32; ISE Gemini Order, supra note 32; and MIAX Order, supra
note 18.

See MIAX Sapphire Form 1, Exhibit H.

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.

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.
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.
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

15 U.S.C. 78f(b)(5).

15 U.S.C. 78k-1(a)(3)(B).

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 crossreferenced 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.

17 CFR 240.0-12.

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 rule315 and whenever any such proposed changes are approved by the
Commission or otherwise become effective.316
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.

See Letter from Gregory P. Ziegler, Senior Counsel, Miami Holdings, dated Oct. 25, 2023.

See id.

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.

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.

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-2318 that allocates

regulatory responsibility for those matters specified above319 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.
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.

17 CFR 240.17d-2.

See supra notes 125-126 and accompanying text.

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.
By the Commission.

J. Matthew DeLesDernier,
Deputy Secretary.

[FR Doc. 2024-15914 Filed: 7/18/2024 8:45 am; Publication Date: 7/19/2024]

15 U.S.C. 78mm.