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

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. Notice of the Form 1 was published for comment in the Federal Register on October 19, 2023. On December 21, 2023, MIAX Sapphire consented to an extension of time to March 1, 2024 for Commission consideration of its Form 1. The Commission received two comment letters on the Form 1 and two letters from MIAX Sapphire responding to one of the comment letters. On February 28, 2024, MIAX Sapphire consented to an additional extension of time to July 15, 2024 for Commission consideration of its Form 1. On May 22, 2024, MIAX Sapphire submitted Amendment No. 1 to the 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, 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; 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. The Commission also finds that the proposed rules of MIAX Sapphire are consistent with Section 11A of the Act. 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.

III. Discussion

A. Governance of MIAX Sapphire

1. MIAX Sapphire Board of Directors

The board of directors of MIAX Sapphire (“Exchange Board” or “MIAX Sapphire Board”) will be its governing body and will possess all of the powers necessary for the management of its business and affairs, including governance of MIAX Sapphire as a self-regulatory organization (“SRO”).

Under the MIAX Sapphire By-Laws:

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

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

• The number of Non-Industry Directors, including at least one Director who has no material relationship with MIAX Sapphire or any affiliate of MIAX Sapphire, or any Exchange Member or any affiliate of any such Exchange Member (“Independent Director”), will equal or exceed the sum of the number of Industry Directors and Member Representative Directors; and

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

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. In addition, Miami Holdings will appoint the initial Nominating Committee and Member Nominating Committee, consistent with each committee's compositional requirements, 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.

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. Additional candidates, however, may be nominated for the Member Representative Director positions by Exchange Members pursuant to a petition process. If no candidates are nominated pursuant to the petition process, then the initial nominees submitted by the Member Nominating Committee will be nominated as Member Representative Directors by the Nominating Committee. If the petition process produces additional candidates, then the candidates nominated pursuant to the petition process, together with those nominated by the Member Nominating Committee, will be presented to Exchange Members for a run-off election to determine the final slate of nominees for the vacant Member Representative Director positions. 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. Miami Holdings, as the sole LLC Member, is obligated to elect the final nominees for the Member Representative Director positions.

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. 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.

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, which requires in part that one or more directors be representative of issuers and investors and not be associated with a member of the exchange, or with a broker or dealer. The Commission previously has stated that the inclusion of public, non-industry representatives on exchange oversight bodies is an important mechanism to support an exchange's ability to protect the public interest. 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. 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. Such persons and entities will be allowed 14 days to submit the names of alternative candidates. Voting will occur no sooner than five days after the interim election notice is delivered to confirm the final slate of candidates to become an interim Member Representative Director. 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. 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. MIAX Sapphire will complete such process within 90 days after its application for registration as a national securities exchange is granted by the Commission.

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. 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. MIAX Sapphire will engage the persons and firms who have submitted the initial documents for membership in the Exchange and would meet the qualifications for membership in the Interim Exchange Board election process by, prior to the commencement of operations as an exchange, providing each of them with the opportunity to participate in the selection of interim Member Representative Directors consistent with the MIAX Sapphire By-Laws. Further, MIAX Sapphire represents that it will complete the full nomination, petition, and voting process as set forth in the MIAX Sapphire By-Laws, which will provide persons that are approved as members after the effective date of this order with the opportunity to participate in the selection of the Member Representative Directors, within 90 days of when MIAX Sapphire's application for registration as a national securities exchange is granted. 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, 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 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). The standing Committees of the Board would be the Audit, Compensation, Appeals, and Regulatory Oversight Committees. 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.

The Audit Committee will consist of three or more Directors, a majority of whom will be Non-Industry Directors. 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. The Appeals Committee will consist of one Independent Director, one Industry Director, and one Member Representative Director. If established, the Finance Committee will consist of at least three Directors, a majority of whom will be Non-Industry Directors. The Executive Committee, if established, will consist of at least three Directors. Because the Executive Committee will have the powers and authority of the Exchange Board in the management of the business and affairs of the Exchange between meetings of the Exchange Board, its composition requirements are substantially similar to the composition requirements of the Exchange Board. Accordingly, the number of Non-Industry Directors on the Executive Committee must equal or exceed the number of Industry Directors and the percentages of Independent Directors and Member Representative Directors must be at least as great as the corresponding percentages on the Exchange Board as a whole.

With respect to Committees of the Exchange, the Exchange has proposed to establish a Nominating Committee and a Member Nominating Committee. 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. 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. 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. 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. MIAX Sapphire also has proposed to establish a Business Conduct Committee, which shall be appointed by the Exchange Chairman. Specifically, the Business Conduct Committee will have a minimum of three members and will be composed of a number of individuals as determined by the Exchange Chairman, none of whom shall be Directors of MIAX Sapphire. In addition, at least one member of the Business Conduct Committee and any panel thereof must be an officer, director, or employee of an Exchange Member.

The proposed Committees of the Board and Committees of the Exchange, which are similar to the committees maintained by other exchanges, 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.

B. Regulation of MIAX Sapphire

When MIAX Sapphire commences operations as a national securities exchange, the Exchange will have all the attendant regulatory obligations under the Act. In particular, MIAX Sapphire will be responsible for the operation and regulation of its trading system and the regulation of its members. Certain provisions in the MIAX Sapphire and Miami Holdings governance documents are designed to facilitate the ability of MIAX Sapphire to fulfill its regulatory obligations and to help facilitate Commission oversight of MIAX Sapphire. The discussion below summarizes some of these key provisions.

1. Ownership Structure: Ownership and Voting Limitations

MIAX Sapphire will be structured as a Delaware limited liability company, which will be wholly owned by the sole member of the LLC, Miami Holdings. The Miami Holdings' Amended and Restated Certificate of Incorporation (“Miami Holdings Certificate”) includes restrictions on the ability to own and vote shares of capital stock of Miami Holdings. 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, will be permitted to beneficially own more than 40% of any class of capital stock of Miami Holdings. 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. 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. 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. Further, no person, either alone or together with its related persons, may enter into any agreement, plan, or other arrangement with any other person, either alone or together with its related persons, under circumstances that would result in the shares of capital stock of Miami Holdings that are subject to such agreement, plan, or other arrangement not being voted on any matter or matters or any proxy relating thereto being withheld, where the effect of such agreement, plan, or other agreement would be to enable any person, either alone or together with its related persons, to vote, possess the right to vote, or cause the voting of more than 20% of the voting power of the then issued and outstanding capital stock of Miami Holdings. 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.

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. 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. 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, except that the Miami Holdings Board cannot waive the voting and ownership limits above 20% for Exchange Members and their related persons. Any such waiver would not be effective unless and until approved by the Commission pursuant to Section 19 of the Act.

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. 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.

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. 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. 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.

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

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. 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. 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.

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. 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.

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

• 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.

• 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.

• The books and records of MIAX Sapphire and Miami Holdings must be maintained in the United States 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.

• 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.

• 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.

• 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.

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.

Further, Section 19(h)(1) of the Act 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). 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), 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 or acts constituting the violation or cause of action. 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. 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. 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.

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. The Regulatory Oversight Committee also will be responsible for recommending compensation and personnel actions involving the CRO and senior regulatory personnel to the Compensation Committee of MIAX Sapphire for action. The CRO will report to the Regulatory Oversight Committee.

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. 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. 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. 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.” 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.

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.

Further, any “Regulatory Funds” received by MIAX Sapphire will not be used for non-regulatory purposes or distributed to Miami Holdings, but rather, will be applied to fund the legal and regulatory operations of MIAX Sapphire, or, as applicable, used to pay restitution and disgorgement of funds intended for customers. Any excess non-regulatory funds, as determined by MIAX Sapphire, will be remitted to Miami Holdings.

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”). Specifically, such services will include assisting MIAX Sapphire with member registration and related administrative support services; certain cross-market surveillance services; certain options trading examinations; at MIAX Sapphire's request, investigating potential violations of enumerated MIAX Sapphire market rules, as well as federal securities laws, and rules and regulations thereunder, related to MIAX Sapphire market activity; performing examinations related to options, including routine and for cause examinations of Exchange Members under certain MIAX Sapphire rules and federal securities laws; bringing formal disciplinary actions, including hearing officer services; and providing arbitration, mediation, and other dispute resolution services to Exchange Member firms.

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. 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. However, MIAX Sapphire, unless relieved by the Commission of its responsibility, bears the self-regulatory responsibilities and primary liability for self-regulatory failures, not the SRO retained to perform regulatory functions on MIAX Sapphire's behalf. 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. 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. 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. 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 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.

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. 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. 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. Under these plans, the examining SROs will examine firms that are common members of MIAX Sapphire and the particular examining SRO for compliance with certain provisions of the Act, certain rules and regulations adopted thereunder, and certain MIAX Sapphire rules. In addition, the Commission is conditioning operation of MIAX Sapphire as an exchange on MIAX Sapphire first joining the applicable multilateral Rule 17d-2 plans.

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

1. Access to MIAX Sapphire

Access to MIAX Sapphire's System will be granted to individuals or organizations who are approved to become Members. Approved Members will be issued Trading Permits that grant the Member the ability to transact on MIAX Sapphire. 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. Membership will be open to any broker-dealer that: (1) is registered under Section 15 of the Act; and (2) has and maintains membership in another registered national securities exchange (other than MIAX Exchange, MIAX PEARL, or MIAX Emerald) or FINRA. There will be no limit to the number of Trading Permits that MIAX Sapphire may issue, although MIAX Sapphire will have the authority to limit or decrease the number of Trading Permits issued in the future. Members of MIAX Sapphire may be Market Makers or EEMs.

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. 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. This waive-in application process is similar to arrangements in place at other exchanges.

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. Individuals and entities that become Members, and their associated persons, will be required to meet and maintain certain qualification and registration criteria similar to what is required by other options exchanges. In addition, MIAX Sapphire will impose further requirements on Members that seek to do business with the public. Applicants who are denied membership may appeal MIAX Sapphire's decision pursuant to MIAX Sapphire's rules governing hearings, review, and arbitration. Every Member will be subject to MIAX Sapphire's regulatory jurisdiction, including MIAX Sapphire's disciplinary jurisdiction.

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. “Floor Participants” may be Floor Brokers or Floor Market Makers. 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. No employee of a Floor Participant will be admitted to the Trading Floor unless that person is registered with and approved by the Exchange, which may at any time in its discretion withdraw its approval.

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. MIAX Sapphire's proposed rules with respect to exchange membership are substantially similar to the rules of other exchanges.

The Commission notes that pursuant to Section 6(c) of the Act, 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.

In addition, Members may enter into arrangements with other parties, including non-Members and other Members, to provide “Sponsored Access” to trading on MIAX Sapphire. Members who provide such Sponsored Access will be responsible for all trading conducted pursuant to the access agreement, and to the same extent as if the Member were trading directly. Accordingly, Members that provide Sponsored Access must maintain and implement policies and procedures to supervise and monitor sponsored trading activity. 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. MIAX Sapphire's rules governing Sponsored Access arrangements are similar to the rules of other exchanges.

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”). 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.

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. 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. 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. All Market Makers will be designated as specialists and dealers on MIAX Sapphire for all purposes under the Act and rules thereunder. 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. 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. The good standing of a Market Maker may be suspended, terminated, or otherwise withdrawn if the conditions for approval cease to be maintained or the Market Maker violates any of its agreements with MIAX Sapphire or any provisions of the MIAX Sapphire Rules.

A Member that has qualified as a Market Maker may register to make markets in individual series of options. A Market Maker may become registered in a series by either: (i) entering a registration request via the MEO Interface 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.

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. Floor Market Makers will be subject to a set of obligations and restrictions that are specific to Floor Market Makers. 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.

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

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. 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. In addition, Market Makers must maintain minimum net capital in accordance with the federal securities laws.

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. Further, a Market Maker may be called upon by MIAX Sapphire to submit a single bid or offer or maintain continuous bid and offers in one or more series to which the Market Maker is registered whenever, in the judgment of the Exchange, it is necessary to do so in the interest of fair and orderly markets.

On the Trading Floor, in response to any request for quote by a Floor Broker or Options Exchange Official, 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. 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. 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.

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. 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). 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.

Market Makers will receive certain benefits in return for satisfying their responsibilities. 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. In addition, market makers are excepted from the prohibition in Section 11(a) of the Act. Market Makers on MIAX Sapphire will not receive special trading allocations or similar rights vis-à-vis other Members.

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. The rules of all U.S. options markets need not provide the same standards for market maker participation, so long as they impose affirmative obligations that are consistent with the Act. Nevertheless, MIAX Sapphire's proposed Market Maker obligations are substantially similar to those of another options exchange. 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. 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.

Options traded on the Exchange will be subject to Minimum Price Variations (“MPV”) that will begin at $0.05 for option contracts trading at less than $3.00 per option, and $0.10 for option contracts trading at $3.00 per option or higher. 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.

Orders submitted to the Exchange will be displayed unless the order is a contingent order, such as an immediate- or-cancel order. Displayed orders and quotes will be displayed on an anonymous basis at a specified price. Non-displayed orders will not be displayed to any Members and will not have time priority over displayed orders. On MIAX Sapphire's Trading Floor, a Floor Broker must announce an agency order that the Floor Broker is representing to the trading crowd (“open outcry”) before submitting the order to the Exchange's System for execution, whether the Floor Broker is representing a single-sided order and soliciting contra-side interest, or the Floor Broker has sufficient interest to match against the agency order already. 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. A Participant shall not utilize the Trading Floor to effect any transaction for its own account, the account of an associated person, or an account with respect to which it or an associated person thereof exercises investment discretion by relying on an exemption under Section 11(a)(1)(G) of the Act (“G Exemption”).

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. 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. All of these order types are based on similar order types available on other options exchanges. 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 “Book”). The System will continuously and automatically match orders pursuant to price-time priority. The highest bid and lowest offer will have priority on the Exchange. Within each price level, if there are two or more orders at the best price, trading interest will be executed in time priority.

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”). 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”). When triggered, price protection will cancel an order or the remaining contracts of an order. The System will not execute such orders at prices inferior to the current NBBO. The MIAX Sapphire price protection process is substantially similar to that adopted by MIAX Pearl and can benefit all market participants.

The Exchange's rules also provide for a process that applies to non-routable orders that would either lock or cross the current opposite side NBBO where the SBBO is inferior to the NBBO (the “Managed Interest Process”). The System will not execute such orders at prices inferior to the current NBBO. 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. 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. Such re-pricing will continue until the managed order is fully executed, reaches its limit price, reaches its price protection limit, or is cancelled. 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. MIAX Sapphire's Managed Interest Process is consistent with the managed interest process that the Commission approved for MIAX Pearl.

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. Then the Floor Broker must submit the Qualified Floor Order to the System without undue delay. 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. 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. 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. 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.

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. 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. 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). 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. 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.

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.

A commenter states that MIAX Sapphire's proposed Rule 2045, which describes the role of a Floor Broker on the Trading Floor and priority in a trading crowd, “does not promote just and equitable principles of trade” and “hinders competition.” 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.” 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.” 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. In response, the Exchange states that proposed MIAX Sapphire Rule 2045(d)(1) is “substantively identical” to BOX Rule 7610(d)(1), 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.” 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 to them, insofar as practicable, on an equal basis. 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.” 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.

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.” 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.” If there is any dispute over the Floor Broker's determination of time priority sequence for the bids/offers the Floor Broker heard, an Options Exchange Official would resolve the dispute and the rule provides that the Options Exchange Official's determination of time priority sequence follows the same process used by the Floor Broker. 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.” 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.” 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.” 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.” The Exchange also states that, in addition to the Exchange's rule being “substantively identical” to BOX Rule 7610(d)(2), the price-time allocation model is in use on a number of other electronic options exchanges, including Nasdaq BX, NYSE Arca, and Cboe BZX. 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.” 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.

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. Nevertheless, Floor Participants are incentivized to compete by offering improved prices and responding promptly. Accordingly, the proposed rule by itself would not constrain the ability of Floor Market Makers to provide price improvement and compete for orders and thus does not raise a concern that the rule would not serve to remove impediments to and perfect the mechanism of a free and open market and a national market system. Further, as discussed above, the price-time allocation model will provide an objective methodology for allocating trades and the Options Exchange Official will resolve any disputes about the time priority sequence, thereby alleviating concerns that a Floor Broker may be prioritizing an allocation to a particular Floor Market Maker for reasons including a financial arrangement. The Commission agrees with the Exchange that MIAX Sapphire Rule 2045 “does not present any new or novel issues not already considered by the Commission” because the MIAX Sapphire Rule is not substantively different than BOX Rule 7610.

MIAX Sapphire will permit the trading of complex orders on the Exchange, including on the Trading Floor. 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. MIAX Sapphire also has proposed price and order protection features for complex orders. 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.

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, 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, which requires that the rules of an exchange not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The trading rules of MIAX Sapphire are substantially similar to the current trading rules of MIAX Exchange, MIAX Pearl, MIAX Emerald, and other exchanges, as noted above, which were filed with and approved by the Commission (or otherwise became effective) pursuant to Section 19(b) of the Act. 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. 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 Act 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) 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. 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.

As described above, 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. 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.

In addition to statutory exemptions, Rule 11a2-2(T) under the Act, 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; and (iv) with respect to an account over which the member or an associated person has investment discretion, neither the member nor an associated person may retain any compensation in connection with effecting the transaction except as provided in the rule.

In a letter to the Commission, 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. Floor Brokers will receive orders from members electronically through the use of a variety of systems. 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. 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.

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. 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. 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. 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 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. 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. 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. 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.

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. 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.

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. 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.

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, 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.

Upon a finding of probable cause of a violation within the disciplinary jurisdiction of MIAX Sapphire and where further proceedings are warranted, MIAX Sapphire will conduct a hearing on disciplinary matters before a professional hearing officer and two members of the Business Conduct Committee (the “Panel”). 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. Any review would be conducted by the MIAX Sapphire Board or a committee thereof composed of at least three Directors of the MIAX Sapphire Board (whose decision must be ratified by the MIAX Sapphire Board) and such decision will be final. In addition, the MIAX Sapphire Board on its own motion may order review of a disciplinary decision.

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

Any person aggrieved by an action of MIAX Sapphire within the scope of Chapter XI may file a written application to be heard within thirty days after such action has been taken. 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. 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. The review would be conducted by the MIAX Sapphire Board or a committee of the MIAX Sapphire Board composed of at least three Directors.

The Commission finds that MIAX Sapphire's proposed disciplinary and oversight rules and structure, as well as its proposed process for persons economically aggrieved by certain MIAX Sapphire actions, are consistent with the requirements of Sections 6(b)(6) and 6(b)(7) of the Act 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. The Commission notes that MIAX Sapphire's proposed disciplinary and oversight rules and structures are similar to the rules of other exchanges.

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. 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.

The Commission finds that MIAX Sapphire's proposed initial and continued listing rules are consistent with the Act, including Section 6(b)(5), 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”). 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. 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, an exemption under Section 36 of the Act from the rule filing requirements of Section 19(b) of the Act for changes to the MIAX Sapphire rules that are effected solely by virtue of a change to a cross-referenced MIAX Exchange, Cboe, NYSE, or FINRA rule. MIAX Sapphire has proposed to incorporate by reference categories of rules, rather than individual rules within a category, that are not trading rules. In addition, MIAX Sapphire agrees to provide written notice to its members whenever MIAX Exchange, Cboe, NYSE, or FINRA proposes a change to a cross-referenced rule and whenever any such proposed changes are approved by the Commission or otherwise become effective.

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. 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.

V. Conclusion

It is ordered that the application, as amended, of MIAX Sapphire for registration as a national securities exchange be, and it hereby is, granted.

It is furthered ordered that operation of MIAX Sapphire is conditioned on the satisfaction of the requirements below:

a. Participation in National Market System Plans Relating to Options Trading. MIAX Sapphire must join: (1) the Plan for the Reporting of Consolidated Options Last Sale Reports and Quotation Information (Options Price Reporting Authority); (2) the OLPP; (3) the Linkage Plan; (4) the Plan of the Options Regulatory Surveillance Authority; and (5) the Plan Governing the Consolidated Audit Trail.

b. Bi-lateral Rule 17d-2 Plan. A plan pursuant to Rule 17d-2 that allocates regulatory responsibility for those matters specified above 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.

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, 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.