Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing of a Proposed Rule Change To Amend Exchange Rule 527

<NOTICE> SECURITIES AND EXCHANGE COMMISSION <DEPDOC>[Release No. 34-103795; File No. SR-SAPPHIRE-2025-32]</DEPDOC> <SUBJECT>Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing of a Proposed Rule Change To Amend Exchange Rule 527</SUBJECT> <DATE>August 28, 2025.</DATE> Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act” or “Act”), <SU>1</SU> <FTREF/> and Rule 19b-4 thereunder, <SU>2</SU> <FTREF/> notice is hereby given that on August 15, 2025, MIAX Sapphire, LLC (“MIAX Sapphire” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. <FTNT> <SU>1</SU>  15 U.S.C. 78s(b)(1). </FTNT> <FTNT> <SU>2</SU>  17 CFR 240.19b-4. </FTNT> <HD SOURCE="HD1">I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change</HD> The Exchange proposes to amend Exchange Rule 527, Exchange Liability, to provide a one-time accommodation payment to Members  <SU>3</SU> <FTREF/> for claims arising from the system difficulties that the Exchange experienced on June 3, 2025 as a result of an operational error (referred to herein as the “Operational Error”). Upon approval of this proposal by the U.S. Securities and Exchange Commission (the “Commission”), the Exchange will implement the accommodation payment process described in proposed subparagraph (e) to Exchange Rule 527 and expects to fully compensate all Members that incurred a loss validated by the Exchange as a result of the Operational Error (described in more detail below). <FTNT> <SU>3</SU>  The term “Member” means an individual or organization that is registered with the Exchange pursuant to Chapter II of the Exchange's Rules for purposes of trading on the Exchange as an “Electronic Exchange Member” or “Market Maker.” Members are deemed “members” under the Exchange Act. <E T="03">See</E> Exchange Rule 100. </FTNT> The text of the proposed rule change is available on the Exchange's website at <E T="03">https://www.miaxglobal.com/markets/us-options/miax-sapphire/rule-filings</E> and at the Exchange's principal office. <HD SOURCE="HD1">II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change</HD> In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. <HD SOURCE="HD2">A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change</HD> <HD SOURCE="HD3">1. Purpose</HD> On June 3, 2025, the Exchange experienced system difficulties as a result of the Operational Error, which caused the Exchange's simulation/testing environment to connect to the MIAX Sapphire production ports and inject data into the MIAX Sapphire matching engines in the live trading environment. Upon discovery of this issue, trading in all symbols on the Exchange was halted at 11:49 a.m. <SU>4</SU> <FTREF/> and the Exchange published a Trading Alert at 11:53 a.m. to announce the trading halt. In the interest of ensuring fair and orderly markets and for the protection of investors, the Exchange determined that it would cancel all trades that occurred between approximately 11:18 a.m. and 11:33 a.m. <SU>5</SU> <FTREF/> Members were notified at 1:07 p.m. that all trades during that time period would be canceled. By 1:54 p.m., the Exchange provided all impacted Members with specific trade details relating to their canceled trades. The Exchange fully remediated the issue and all trading systems began operating normally that same day. The Exchange issued several alerts throughout this period, including alerts to announce the halt, that the Exchange would cancel all trades, the time when the Exchange would resume trading, the time for Members to submit claims for losses, and a post mortem of the Operational Error. <SU>6</SU> <FTREF/> <FTNT> <SU>4</SU>  All times referenced in this filing are in Eastern Standard Time. </FTNT> <FTNT> <SU>5</SU>  The Exchange canceled these trades under the authority provided by Exchange Rule 523, Authority to Take Action Under Emergency Conditions. <E T="03">See</E> Exchange Rule 523(a) (providing that the “Chairman of the Board . . . shall have the power to halt or suspend trading . . . for the maintenance of a fair and orderly market or the protection of investors . . . due to emergency conditions . . . such as (1) . . . loss or interruption of facilities utilized by the Exchange . . .”). </FTNT> <FTNT> <SU>6</SU>   <E T="03">See</E> Regulatory, Technical and Trading Alerts issued by the Exchange on June 3, 2025 and June 4, 2025, <E T="03">available at</E> <E T="03">https://miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-halted-all-symbols-114929-am; https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-busting-all-trades-between-111828506201536;</E> <E T="03">https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-will-resume-trading-230-pm; https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-exchange-all-trades-busted-between-111828506201536;</E> <E T="03">https://www.miaxglobal.com/alert/2025/06/03/miax-sapphire-options-claims-related-issue-today-sapphire-options; and</E> <E T="03">https://www.miaxglobal.com/alert/2025/06/04/miax-sapphire-options-exchange-post-mortem.</E> </FTNT> Since the June 3, 2025 Operational Error, Members compiled their trade data showing losses as a result of the Operational Error and the Exchange canceling all trades during the specific timeframe described above. The Exchange reviewed the events of June 3, 2025 with the goal of proposing a fair and equitable accommodation policy that is consistent with the Exchange Act and MIAX Sapphire's self-regulatory obligations. The Exchange believes this proposal reflects MIAX Sapphire's effort to: (i) identify the categories of investors and Members that the Operational Error caused objective, discernible harm, and the type and scope of such harm; and (ii) propose an objectively reasonable and balanced regulatory plan for accommodating Members and their investor customers for such harm by providing a payment in excess of the Exchange's current rules regarding limitation of liability. MIAX Sapphire has undertaken this effort notwithstanding the liability protections afforded by its contractual limitations of liability and Exchange Rule 527—the rule that MIAX Sapphire proposes to modify. The Exchange's current limitation of liability rules, described in detail below, limit the maximum amount of compensation Members are able to receive from the Exchange arising out of a system issue that impacts the use or enjoyment of the facilities or services afforded by the Exchange, such as the Operational Error. In the interest of protecting Members and their investor customers, <SU>7</SU> <FTREF/> the Exchange proposes to amend Exchange Rule 527 to provide a one-time voluntary accommodation for claims arising from the June 3, 2025 Operational Error. <FTNT> <SU>7</SU>  The majority of claims are from customers of Member firms who utilize a Member firm as their introducing broker to access and submit orders to the Exchange for execution. </FTNT> This type of accommodation plan is not without precedent. In 2012, the Nasdaq Stock Market LLC (“Nasdaq”) experienced system difficulties in the Nasdaq halt and imbalance cross process in connection with the initial public offering (“IPO”) of Facebook, Inc. (“Facebook”). In response, Nasdaq filed with the Commission a proposal to establish an accommodation policy providing compensation for impacted investors in excess of Nasdaq's then-applicable limitation of liability rules, which proposal was approved by the Commission. <SU>8</SU> <FTREF/> <FTNT> <SU>8</SU>   <E T="03">See</E> Securities Exchange Act Release No. 69216 (March 22, 2013), 78 FR 19040 (March 28, 2013) (SR-NASDAQ-2012-090); <E T="03">see also</E> Nasdaq Rules, Equity 2, Section 17. The Exchange's proposal differs from the Nasdaq accommodation filing in several minor respects but ultimately provides a substantively similar accommodation for Members impacted by the Operational Error to be compensated in excess of the Exchange's current limitation of liability limits. Nasdaq also undertook a two-step process to compensate its members and customers by first proposing the accommodation policy and then filing a separate rule proposal with the Commission to implement the accommodation policy. <E T="03">See</E> Securities Exchange Act Release No. 71098 (December 17, 2023), 78 FR 77540 (December 23, 2013) (SR-NASDAQ-2013-152). The Exchange proposes a single-step process since the Exchange has already received and validated all claims from Members that were impacted by the Operational Error; brought the proposed accommodation plan and total value of eligible claims to its Board of Directors for approval; and is ready to promptly compensate Members for their validated claims upon approval of this proposal by the Commission. </FTNT> <HD SOURCE="HD3">Current Limitation of Liability Provisions</HD> Exchange Rule 527(a) describes the general limitations on liability of the Exchange, its directors, officers, committee members, limited liability company members, employees or agents. Exchange Rule 527(a) provides, in relevant part, that ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 45k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━