In the Matter of the Application of MIAX EMERALD, LLC for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission, 67421-67438 [2018-28179]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 248 (Friday, December 28, 2018)]
[Notices]
[Pages 67421-67438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-28179]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84891; File No. 10-233)


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

December 20, 2018.

I. Introduction

    On August 16, 2018, MIAX EMERALD, LLC (``MIAX EMERALD'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission'') an application for Registration as a National 
Securities Exchange (``Form 1 Application'') under Section 6 of the 
Securities Exchange Act of 1934 (``Act''), seeking registration as a 
national securities exchange under Section 6 of the Act.\1\ Notice of 
the Form 1 Application was published for comment in the Federal 
Register on October 3, 2018.\2\ The Commission received no comments.
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    \1\ 15 U.S.C. 78f.
    \2\ See Securities Exchange Act Release No. 84313 (September 28, 
2018), 83 FR 49965 (``Notice'').
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II. Statutory Standards

    Under Sections 6(b) and 19(a) of the Act,\3\ the Commission shall 
by order grant an application for registration as a national securities 
exchange if the Commission finds, among other things, that the proposed 
exchange is so organized and has the capacity to carry out the purposes 
of the Act and to comply, and to enforce compliance by its members and 
persons associated with its members, with the provisions of the Act, 
the rules and regulations thereunder, and the rules of the exchange.
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    \3\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(a), respectively.
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    As discussed in greater detail below, the Commission finds that 
MIAX EMERALD's application 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 EMERALD 
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; \4\ 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 mechanisms 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, or broker-
dealers.\5\ Finally, the Commission finds that MIAX EMERALD's proposed 
rules do not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\6\
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    \4\ See 15 U.S.C. 78f(b)(3).
    \5\ See 15 U.S.C. 78f(b)(5).
    \6\ See 15 U.S.C. 78f(b)(8).
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III. Discussion

A. Governance of MIAX EMERALD

1. MIAX EMERALD Board of Directors
    The board of directors of MIAX EMERALD (``Exchange Board'' or 
``MIAX EMERALD 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 EMERALD as a self-regulatory organization 
(``SRO'').\7\
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    \7\ See MIAX EMERALD By-Laws, Section 2.1. See also Limited 
Liability Company Agreement of MIAX EMERALD, Section 8(b).
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    Under the By-Laws of MIAX EMERALD (``MIAX EMERALD By-Laws''): \8\
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    \8\ The MIAX EMERALD By-Laws are included in the Amended and 
Restated Limited Liability Company Agreement of MIAX EMERALD (``MIAX 
EMERALD LLC Agreement'').
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     The Exchange Board will be composed of not less than ten 
directors; \9\
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    \9\ See MIAX EMERALD By-Laws, Article II, Section 2.2(a).
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     One director will be the Chief Executive Officer of MIAX 
EMERALD; \10\
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    \10\ See MIAX EMERALD By-Laws, Article II, Section 2.2(b).
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     The number of Non-Industry Directors,\11\ including at 
least one Independent Director,\12\ will equal or exceed the sum of the 
number of Industry Directors \13\ and Member Representative Directors; 
\14\ and
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    \11\ ``Non-Industry Director'' means a Director who is an 
Independent Director or any other individual who would not be an 
Industry Director. See MIAX EMERALD By-Laws, Article I(aa).
    \12\ ``Independent Director'' means a ``Director who has no 
material relationship with [MIAX EMERALD] or any affiliate of [MIAX 
EMERALD], or any [MIAX EMERALD member] or any affiliate of any such 
[MIAX EMERALD member]; provided, however, that an individual who 
otherwise qualifies as an Independent Director shall not be 
disqualified from serving in such capacity solely because such 
Director is a Director of [MIAX EMERALD] or [Miami Holdings].'' See 
MIAX EMERALD By-Laws, Article I(p).
    \13\ An ``Industry Director'' is, among other things, a Director 
that is or has served within the prior three years as an officer, 
director, employee, or owner of a broker or dealer, as well as any 
Director who has, or has had, a consulting or employment 
relationship with MIAX EMERALD or any affiliate of MIAX EMERALD 
within the prior three years. See MIAX EMERALD By-Laws, Article 
I(r). This definition is consistent with what the Commission has 
approved for other exchanges. See Securities Exchange Act Release 
Nos. 79543 (December 13, 2016), 81 FR 92901 (December 20, 2016) 
(File No. 10-227) (order granting registration of MIAX PEARL, LLC) 
(``MIAX PEARL Order''); 68341 (December 3, 2012), 77 FR 73065 
(December 7, 2012) (File No. 10-207) (order granting the 
registration of Miami International Securities Exchange, LLC (``MIAX 
Exchange'')) (``MIAX Order''); 58375 (August 18, 2008), 73 FR 49498 
(August 21, 2008) (File No. 10-182) (order granting the registration 
of BATS Exchange, Inc.) (``BATS Order''); and 66871 (April 27, 
2012), 77 FR 26323 (May 3, 2012) (File No. 10-206) (order granting 
the registration of BOX Options Exchange LLC (``BOX'')) (``BOX 
Order'').
    \14\ See MIAX EMERALD By-Laws, Article II, Section 2.2 (b)(i). 
``Member Representative Director'' means a Director who has been 
appointed by Miami International Holdings, Inc. as an initial 
Director pursuant to Section 2.5 of the MIAX EMERALD By-Laws to 
serve until the first annual meeting or who ``has been elected by 
the Miami International Holdings, Inc. after having been nominated 
by the Member Nominating Committee or by an Exchange Member pursuant 
to [the] By-Laws and confirmed as the nominee of Exchange Members 
after majority vote of Exchange Members, if applicable. A Member 
Representative Director may, but is not required to be, an officer, 
director, employee, or agent of an Exchange Member.'' See MIAX 
EMERALD By-Laws, Article I(x). See also MIAX EMERALD By-Laws Article 
II, Section 2.5.

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[[Page 67422]]

     At least 20% of the directors on the Exchange Board will 
be Member Representative Directors.\15\
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    \15\ See MIAX EMERALD By-Laws, Article II, Section 2.2(b)(ii).
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    For the interim board (discussed below), and subsequently at the 
first annual meeting and each annual meeting thereafter, Miami 
International Holdings, Inc. (``Miami Holdings''), as the sole LLC 
Member of MIAX EMERALD, will elect the MIAX EMERALD Board pursuant to 
the MIAX EMERALD By-Laws.\16\ In addition, Miami Holdings will appoint 
the initial Nominating Committee \17\ and Member Nominating 
Committee,\18\ consistent with each committee's compositional 
requirements,\19\ 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 MIAX 
EMERALD members pursuant to a petition process.\20\
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    \16\ See MIAX EMERALD By-Laws, Article II, Section 2.4. See also 
MIAX EMERALD LLC Agreement, Section 9(a).
    \17\ The Nominating Committee will be comprised of at least 
three directors, and the number of Non-Industry members on the 
Nominating Committee must equal or exceed the number of Industry 
members. See MIAX EMERALD By-Laws, Article V, Section 5.2. See also 
MIAX EMERALD By-Laws, Article IV, Section 4.2(a).
    \18\ The Member Nominating Committee will be comprised of at 
least three directors, and each member of the Member Nominating 
Committee shall be a Member Representative member and shall not be 
required to be a Director of the Exchange. See MIAX EMERALD By-Laws, 
Article V, Section 5.3. See also MIAX EMERALD By-Laws, Article IV, 
Section 4.2(a). Pursuant to MIAX EMERALD By-Laws, Article I(y), a 
``Member Representative member'' is a member of any committee or 
hearing panel appointed by the Exchange Board who has been elected 
or appointed after having been nominated by the Member Nominating 
Committee pursuant to the By-Laws and who is an officer, director, 
employee, or agent of an Exchange Member.
    \19\ See MIAX EMERALD By-Laws, Article V, Section 5.1.
    \20\ See id.
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    The Nominating Committee will nominate candidates for each director 
position, and Miami Holdings, as the sole LLC Member, will elect those 
directors. For Member Representative Director positions, the Nominating 
Committee will nominate those candidates submitted to it, and approved, 
by the Member Nominating Committee.\21\ Additional candidates, however, 
may be nominated for the Member Representative Director positions by 
MIAX EMERALD members pursuant to a petition process.\22\ If no 
candidates are nominated pursuant to a petition process, then the 
initial nominees submitted by the Member Nominating Committee will be 
nominated as Member Representative Directors by the Nominating 
Committee. If a 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 MIAX EMERALD members for a run-off election to determine 
the final slate of candidates for the vacant Member Representative 
Director positions.\23\ In the event of a contested run-off election, 
the candidates who receive the most votes will be nominated as the 
final slate of Member Representative Director candidates by the 
Nominating Committee.\24\ Miami Holdings, as the sole LLC Member, is 
obligated to elect the final slate of the Member Representative 
Director candidates that are nominated by the Nominating Committee.\25\
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    \21\ The Member Nominating Committee will solicit comments from 
MIAX EMERALD members for the purpose of approving and submitting 
names of candidates for election to the position of Member 
Representative Director. See MIAX EMERALD By-Laws, Article II, 
Section 2.4(b).
    \22\ See MIAX EMERALD By-Laws, Article II, Section 2.4(c). The 
petition must be signed by executive representatives of 10% or more 
of the MIAX EMERALD members. No MIAX EMERALD member, together with 
its affiliates, may account for more than 50% of the signatures 
endorsing a particular candidate. See id.
    \23\ See MIAX EMERALD By-Laws, Article II, Sections 2.4(e) and 
(f). Each MIAX EMERALD Member shall have the right to cast one vote 
for each available Member Representative Director nomination, 
provided that any such vote must be cast for a person on the List of 
Candidates and that no MIAX EMERALD member, together with its 
affiliates, may account for more than 20% of the votes cast for a 
candidate. See MIAX EMERALD By-Laws, Article II, Section 2.4(f).
    \24\ See MIAX EMERALD By-Laws, Article II, Section 2.4(f).
    \25\ See id.
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    The Commission believes that the requirement in the MIAX EMERALD 
By-Laws that 20% of the directors be Member Representative Directors 
and the means by which they will be chosen by MIAX EMERALD members 
provide for the fair representation of members in the selection of 
directors and the administration of MIAX EMERALD and therefore is 
consistent with Section 6(b)(3) of the Act.\26\ The Commission notes 
that this requirement helps to ensure that members have a voice in the 
use of self-regulatory authority by MIAX EMERALD.\27\
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    \26\ 15 U.S.C. 78f(b)(3).
    \27\ See, e.g., MIAX PEARL Order, supra note 13, at 92903; MIAX 
Order, supra note 13, at 73067; Securities Exchange Act Release Nos. 
76998 (January 29, 2016), 81 FR 6066, 6068 (February 4, 2016) (File 
No. 10-221) (order granting exchange registration of ISE Mercury, 
LLC) (``ISE Mercury Order''); 70050 (July 26, 2013), 78 FR 46622, 
46624 (August 1, 2013) (File No. 10-209) (order granting the 
exchange registration of ISE Gemini, LLC) (``ISE Gemini Order''); 
53128 (January 13, 2006), 71 FR 3550, 3553 (January 23, 2006) (File 
No. 10-131) (granting the exchange registration of Nasdaq Stock 
Market, Inc.) (``Nasdaq Order''); and BATS Order, supra note 13, at 
49501.
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    In addition, with respect to the requirement that the number of 
Non-Industry Directors, including at least one Independent Director, 
will equal or exceed the sum of the number of Industry Directors and 
Member Representative Directors, the Commission believes that the 
proposed composition of the Exchange Board satisfies the requirements 
in Section 6(b)(3) of the Act,\28\ 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 notes 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.\29\ 
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. The Commission believes that public, non-
industry directors can provide unique, unbiased perspectives, which are 
designed to enhance the ability of the Exchange Board to address issues 
in a non-discriminatory fashion and foster the integrity of the 
Exchange.\30\
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    \28\ 15 U.S.C. 78f(b)(3).
    \29\ See, e.g., Regulation of Exchanges and Alternative Trading 
Systems, Securities Exchange Act Release No. 40760 (December 8, 
1998), 63 FR 70844, 70882 (December 22, 1998) (``Regulation ATS 
Release'').
    \30\ See MIAX PEARL Order, supra note 13, at 92903; MIAX Order, 
supra note 13, at 73067; BATS Order, supra note 13, at 49501; and 
Nasdaq Order, supra note 27, at 3553.
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2. Interim Exchange Board
    Prior to commencing operations, Miami Holdings will appoint an 
interim Exchange board of directors (``Interim Exchange Board''), which 
will include

[[Page 67423]]

interim Member Representative Directors.\31\ 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 that have 
begun the process of becoming members in the new Exchange.\32\ Such 
persons and firms will be allowed 14 days to submit the names of 
alternative candidates.\33\ Voting will occur no sooner than 5 days 
after the interim election notice is delivered to confirm the final 
slate of candidates to become an interim Member Representative 
Director.\34\ All other interim directors, except for the interim 
Member Representative Directors, will be appointed and elected by Miami 
Holdings, and must meet the MIAX EMERALD board composition requirements 
as set forth in the MIAX EMERALD By-Laws.\35\ 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 EMERALD.
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    \31\ See MIAX EMERALD By-Laws, Section 2.5.
    \32\ See MIAX EMERALD By-Laws, Section 2.5(b). Specifically, 
Miami Holdings will submit the names of its nominees for the interim 
Member Representative Director positions to persons who have 
submitted the initial documents for membership in the Exchange who 
would meet the qualifications for membership. See MIAX EMERALD By-
Laws, Section 2.5(b). MIAX EMERALD additionally represents that the 
initial members of MIAX EMERALD will consist substantially of the 
current group of persons and firms that have begun the membership 
application process with MIAX EMERALD. See MIAX EMERALD Form 1 
Application, Exhibit J.
    \33\ See MIAX EMERALD By-Laws, Section 2.5(b).
    \34\ See MIAX EMERALD By-Laws, Section 2.5(d).
    \35\ See MIAX EMERALD By-Laws Section 2.5(a).
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    The Interim Exchange Board will serve until the first initial 
Exchange Board is elected pursuant to the full nomination, petition, 
and voting process set forth in the MIAX EMERALD By-Laws.\36\ MIAX 
EMERALD will complete such process within 90 days after its application 
for registration as a national securities exchange is granted by the 
Commission.\37\
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    \36\ See MIAX EMERALD By-Laws, Sections 2.2(e) and 2.5(a).
    \37\ See MIAX EMERALD By-Laws, Sections 2.5(a). The 90-day 
period is consistent with what the Commission approved for MIAX 
PEARL. See MIAX PEARL Order, supra note 13, at 92903 (allowing MIAX 
PEARL to appoint an initial interim board to enable it to commence 
operations as a registered exchange). See also ISE Mercury Order, 
supra note 27, at 6068; MIAX Order, supra note 13, at 73067; and BOX 
Order, supra note 13, at 26325.
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    The Commission believes that 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.\38\ As noted above, MIAX 
EMERALD represents that the initial members of MIAX EMERALD will 
consist substantially of the current group of persons and firms that 
have begun the membership application process with MIAX EMERALD.\39\ 
MIAX EMERALD will engage these persons and firms in the interim 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 EMERALD By-Laws. Further, MIAX EMERALD represents that it 
will complete the full nomination, petition, and voting process as set 
forth in the MIAX EMERALD 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 EMERALD's 
application for registration as a national securities exchange is 
granted.\40\ Therefore, the Commission believes that MIAX EMERALD'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 EMERALD 
commences operations and is sufficient to allow MIAX EMERALD 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 EMERALD By-Laws.
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    \38\ See 15 U.S.C. 78f(b)(3).
    \39\ See supra note 32.
    \40\ MIAX EMERALD's proposed timeline for the interim board 
process follows a process identical to what the Commission approved 
for ISE Mercury, LLC. See ISE Mercury Order, supra note 27, at 6068.
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3. Exchange Committees
    In the MIAX EMERALD By-Laws, the Exchange proposed to establish 
several standing committees, which would be divided into two 
categories: Committees of the Board (composed of MIAX EMERALD 
directors) and Committees of the Exchange (composed of a mixture of 
MIAX EMERALD directors and persons that are not MIAX EMERALD 
directors).\41\ The standing Committees of the Board would be the 
Audit, Compensation, Appeals, and Regulatory Oversight Committees.\42\ 
In addition, the 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.\43\
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    \41\ See MIAX EMERALD By-Laws, Section 4.1.
    \42\ See MIAX EMERALD By-Laws, Section 4.1(a).
    \43\ See MIAX EMERALD By-Laws, Section 4.5(e) and (f), 
respectively.
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    The Audit Committee will consist of three or more directors, a 
majority of which will be Non-Industry Directors.\44\ Each of the 
Compensation and Regulatory Oversight Committees will consist of three 
or more directors, all of which will be required to be Non-Industry 
Directors.\45\ The Appeals Committee will consist of one Independent 
Director, one Industry Director, and one Member Representative 
Director.\46\ If established, the Finance Committee will consist of at 
least three persons (who may, but are not required to, be directors) a 
majority of whom will be Non-Industry Directors.\47\ 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 must 
reflect that 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.\48\
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    \44\ See MIAX EMERALD By-Laws, Section 4.5(b). A Non-Industry 
Director shall serve as Chairman of the Committee. See id. See also 
MIAX EMERALD By-Laws, Section 4.2(a) (requiring that each committee 
be comprised of at least three people).
    \45\ See MIAX EMERALD By-Laws, Section 4.5(a) and 4.5(c).
    \46\ See MIAX EMERALD By-Laws, Section 4.5(d).
    \47\ See MIAX EMERALD By-Laws, Section 4.5(f). See also MIAX 
EMERALD By-Laws, Section 4.2(a) (providing that except as otherwise 
provided in the MIAX EMERALD By-Laws, committees may include persons 
who are not members of the Board).
    \48\ See MIAX EMERALD By-Laws, Section 4.5(e).
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    With respect to Committees of MIAX EMERALD, the Exchange has 
proposed to establish a Nominating Committee \49\ and a Member 
Nominating Committee.\50\ As discussed above, these

[[Page 67424]]

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.\51\ In addition, MIAX EMERALD has proposed to 
establish a Quality of Markets Committee,\52\ which will provide advice 
and guidance to the Exchange Board on issues related to the fairness, 
integrity, efficiency and competiveness of the information, order 
handling and execution mechanisms of the Exchange from the perspective 
of individual and institutional investors, retail and market making 
firms, and other market participants. The Quality of Markets Committee 
will include a broad representation of participants in the Exchange. 
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 EMERALD also has proposed to establish a 
Business Conduct Committee, which shall be appointed by the Chairman of 
the Exchange Board.\53\ Specifically, the Business Conduct Committee, 
which will not be a Board 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 
EMERALD. In addition, at least one member of the Business Conduct 
Committee and any panel thereof must be an officer, director or 
employee of a MIAX EMERALD member.
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    \49\ See MIAX EMERALD By-Laws, Article V, Section 5.2, and supra 
note 17.
    \50\ See MIAX EMERALD By-Laws, Article V, Section 5.3, and supra 
note 18.
    \51\ See MIAX EMERALD By-Laws, Article V, Section 5.1, and supra 
note 20. Additional candidates for the Member Nominating Committee 
may be nominated and elected by MIAX EMERALD members pursuant to a 
petition process. See supra note 22 and accompanying text.
    \52\ See MIAX EMERALD By-Laws, Article IV, Section 4.6.
    \53\ See MIAX EMERALD By-Laws, Article IV, Section 4.7.
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    The Commission believes that MIAX EMERALD's proposed committees, 
which are similar to the committees maintained by other exchanges,\54\ 
are designed to help enable MIAX EMERALD 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.\55\
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    \54\ See, e.g., MIAX PEARL Order, MIAX Order, and BATS Order, 
supra note 13, and ISE Mercury Order, ISE Gemini Order, and Nasdaq 
Order, supra note 27.
    \55\ 15 U.S.C. 78f(b)(1).
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B. Regulation of MIAX EMERALD

    When MIAX EMERALD commences operations as a national securities 
exchange, the Exchange will have all the attendant regulatory 
obligations under the Act. In particular, MIAX EMERALD will be 
responsible for the operation and regulation of its trading system and 
the regulation of its members. Certain provisions in the MIAX EMERALD 
and Miami Holdings governance documents are designed to facilitate the 
ability of MIAX EMERALD and the Commission to fulfill their regulatory 
obligations. The discussion below summarizes some of these key 
provisions.
1. Ownership Structure: Ownership and Voting Limitations
    MIAX EMERALD 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' proposed 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.\56\ These limitations are designed to prevent any Miami 
Holdings shareholder from exercising undue control over the operation 
of MIAX EMERALD and to assure that MIAX EMERALD and the Commission are 
able to carry out their regulatory obligations under the Act.
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    \56\ These provisions are consistent with ownership and voting 
limits approved by the Commission for other SROs. See, e.g., ISE 
Mercury Order and ISE Gemini Order, supra note 27; MIAX PEARL Order, 
MIAX Order, and BATS Order, supra note 13. See also Securities 
Exchange Act Release Nos. 78101 (June 17, 2016), 81 FR 41141 (June 
23, 2016) (File No. 10-222) (order granting the registration of 
Investors' Exchange, LLC); 62158 (May 24, 2010), 75 FR 30082 (May 
28, 2010) (CBOE-2008-88) (``CBOE Demutualization Approval Order''); 
53963 (June 8, 2006), 71 FR 34660 (June 15, 2006) (SR-NSX-2006-03) 
(``NSX Demutualization Order''); 51149 (February 8, 2005), 70 FR 
7531 (February 14, 2005) (SR-CHX-2004-26) (``CHX Demutualization 
Order''); and 49098 (January 16, 2004), 69 FR 3974 (January 27, 
2004) (SR-Phlx-2003-73) (``Phlx Demutualization Order'').
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    In particular, for so long as Miami Holdings (directly or 
indirectly) controls MIAX EMERALD, no person, either alone or together 
with its related persons,\57\ may beneficially own more than 40% of any 
class of capital stock of Miami Holdings.\58\ There would be a more 
conservative restriction for MIAX EMERALD members, wherein MIAX EMERALD 
members, either alone or together with their related persons, are 
prohibited from beneficially owning more than 20% of shares of any 
class of capital stock of Miami Holdings.\59\ If any stockholder 
violates these ownership limits, Miami Holdings would redeem the shares 
in excess of the applicable ownership limit at their par value.\60\ 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.\61\ If any 
stockholder purports to vote, or cause the voting of, shares that would 
violate this voting limit, Miami Holdings would not honor such vote in 
excess of the voting limit.\62\
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    \57\ See Miami Holdings Certificate, Article NINTH (a)(ii) 
(defining ``related persons'').
    \58\ See Miami Holdings Certificate, Article NINTH (b)(i)(A).
    \59\ See Miami Holdings Certificate, Article NINTH (b)(i)(B).
    \60\ See Miami Holdings Certificate, Article NINTH (e). Any 
shares which have been called for redemption shall not be deemed 
outstanding shares for the purpose of voting or determining the 
total number of shares entitled to vote. Once redeemed by Miami 
Holdings, such shares shall become treasury shares and shall no 
longer be deemed to be outstanding. See id. Furthermore, if any 
redemption results in another stockholder owning shares in violation 
of the ownership limits described above, Miami Holdings shall redeem 
such shares. See id.
    \61\ See Miami Holdings Certificate, Article NINTH (b)(i)(C).
    \62\ See Miami Holdings Certificate, Article NINTH (d). The 
Miami Holdings Certificate also prohibits the payment of any stock 
dividends and conversions that would violate the ownership and 
voting limitations. See Miami Holdings Certificate, Article FOURTH 
A.(b) and (e), and D.7.
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    Any person that 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 to 
notify the Board of its intention.\63\ The notice must be delivered to 
the 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.\64\ The Miami Holdings board may waive the 
40% ownership limitation and the 20% voting limitation, pursuant to a 
resolution duly adopted by the Board of Directors, if it makes certain 
findings,\65\

[[Page 67425]]

except that the Miami Holdings board cannot waive the voting and 
ownership limits above 20% for MIAX EMERALD members and their related 
persons.\66\ Any such waiver would not be effective unless and until 
approved by the Commission pursuant to Section 19 of the Act.\67\
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    \63\ See Miami Holdings Certificate, Article NINTH (b)(iv).
    \64\ See id.
    \65\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B). 
The required findings include determinations that (A) such waiver 
will not impair the ability of MIAX EMERALD to carry out its 
functions and responsibilities under the Act and the rules and 
regulations promulgated thereunder, (B) such waiver is otherwise in 
the best interests of MIAX EMERALD and Miami Holdings, (C) such 
waiver will not impair the ability of the Commission to enforce the 
Act and (D) the transferee in such transfer and its related persons 
are not subject to any applicable ``statutory disqualification'' 
(within the meaning of Section 3(a)(39) of the Act). See Miami 
Holdings Certificate, Article NINTH (b)(ii)(B) and (b)(iii). The 
Commission has previously approved the rules of other exchanges that 
provide for the ability of the exchange to waive the ownership and 
voting limitations discussed above for non-members of the exchange. 
See, e.g., ISE Mercury Order and ISE Gemini Order, supra note 27; 
MIAX PEARL Order and MIAX Order, supra note 13; and Securities 
Exchange Act Release No. 61698 (March 12, 2010), 75 FR 13151 (March 
18, 2010) (File Nos. 10-194 and 10-196) (order approving DirectEdge 
exchanges) (``DirectEdge Exchanges Order'').
    \66\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B). 
These provisions are generally consistent with waiver of ownership 
and voting limits approved by the Commission for other SROs. See, 
e.g., ISE Mercury Order, supra note 27; MIAX PEARL Order and MIAX 
Order, supra note 13; BATS Order, supra note 13; NSX Demutualization 
Order, supra note 56; CHX Demutualization Order, supra note 56; and 
Securities Exchange Act Release No. 49718 (May 17, 2004), 69 FR 
29611 (May 24, 2004) (SR-PCX-2004-08).
    \67\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B).
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    The Miami Holdings Certificate also contains provisions that are 
designed to further safeguard the ownership and voting limitation 
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, of 
record or beneficially, 5% or more of the capital stock of Miami 
Holdings will be required to immediately notify Miami Holdings in 
writing upon acquiring knowledge of such ownership.\68\ Thereafter, 
such persons will be required to update Miami Holdings of any increase 
or decrease of 1% or more in their previously reported ownership 
percentage.\69\
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    \68\ See Miami Holdings Certificate, Article NINTH(c)(i). The 
notice will require the person's full legal name; the person's title 
or status; the person's approximate ownership interest in Miami 
Holdings; and whether the person has power, directly or indirectly, 
to direct the management or policies of Miami Holdings. See id.
    \69\ See Miami Holdings Certificate, Article NINTH(c)(ii). 
Changes of less than 1% must also be reported to Miami Holdings if 
they result in such person crossing a 20% or 40% ownership 
threshold. See id. In addition, the MIAX EMERALD rules also impose 
limits on affiliation between MIAX EMERALD and a member of MIAX 
EMERALD. See MIAX EMERALD Rule 201(g) (``Without prior Commission 
approval, the Exchange or any entity with which it is affiliated 
shall not directly or indirectly through one or more intermediaries 
acquire or maintain an ownership interest in an Exchange Member. In 
addition, without prior Commission approval, no Member shall be or 
become affiliated with (1) the Exchange; or (2) any affiliate of the 
Exchange. Nothing herein shall prohibit a Member from acquiring or 
holding an equity interest in (i) Miami International Holdings, Inc. 
that is permitted by the Certificate of Incorporation of Miami 
International Holdings, Inc. or (ii) MIAX Emerald that is permitted 
by the Amended and Restated Limited Liability Company Agreement of 
MIAX Emerald.'').
---------------------------------------------------------------------------

    The MIAX EMERALD LLC Agreement does not include change of control 
provisions that are similar to those in the Miami Holdings Certificate; 
however the MIAX EMERALD LLC Agreement explicitly provides that Miami 
Holdings is the sole LLC Member of MIAX EMERALD.\70\ Thus, if Miami 
Holdings ever proposes to no longer be the sole LLC Member of MIAX 
EMERALD (and therefore no longer its sole owner), MIAX EMERALD would be 
required to amend the MIAX EMERALD LLC Agreement and the MIAX EMERALD 
By-Laws. Any changes to the MIAX EMERALD LLC Agreement or the MIAX 
EMERALD By-Laws, including any change in the provisions that identify 
Miami Holdings as the sole owner of MIAX EMERALD, must be filed with, 
or filed with and approved by, the Commission pursuant to Section 19 of 
the Act, as the case may be.\71\ Further, pursuant to the MIAX EMERALD 
By-Laws, Miami Holdings may not transfer or assign, in whole or in 
part, its ownership interest in MIAX EMERALD, unless such transfer is 
filed with and approved by the Commission pursuant to Section 19 of the 
Act.\72\
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    \70\ See MIAX EMERALD LLC Agreement and MIAX EMERALD By-Laws, 
Article I(v) (both of which define ``LLC Member'' to mean Miami 
Holdings, as the sole member of MIAX EMERALD).
    \71\ See 15 U.S.C. 78s. See also MIAX EMERALD LLC Agreement, 
Section 28(b).
    \72\ See MIAX EMERALD By-Laws, Article III, Section 3.4.
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    As described above, the provisions applicable to direct and 
indirect changes in control of Miami Holdings and MIAX EMERALD, as well 
as the voting limitation imposed on owners of Miami Holdings who also 
are MIAX EMERALD members, are designed to help prevent any owner of 
Miami Holdings from exercising undue influence or control over the 
operation of MIAX EMERALD. 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. A 
member's interest in an exchange, including 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.\73\ 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, the Commission believes that these 
voting and ownership limitations are designed to minimize the potential 
that a person or entity can improperly interfere with or restrict the 
ability of MIAX EMERALD to effectively carry out its regulatory 
oversight responsibilities under the Act.
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    \73\ See, e.g., ISE Mercury Order, supra note 27; MIAX PEARL 
Order and MIAX Order, supra note 13; BATS Order, supra note 13; and 
DirectEdge Exchanges Order, supra note 65.
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    The Commission believes that MIAX EMERALD'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.\74\ 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 EMERALD to effectively carry out 
their regulatory oversight responsibilities under the Act.
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 78f(b)(1). See also ISE Mercury Order, supra note 
27; MIAX PEARL Order and MIAX Order, supra note 13; and BOX Order, 
supra note 13.
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2. Regulatory Independence and Oversight
    Although Miami Holdings will not itself carry out regulatory 
functions, its activities with respect to the operation of MIAX EMERALD 
must be consistent with, and must not interfere with, MIAX EMERALD's 
self-regulatory obligations. In this regard, MIAX EMERALD and Miami 
Holdings propose to adopt certain provisions in their respective 
governing documents that are designed to help maintain the independence 
of the regulatory functions of MIAX EMERALD. These proposed provisions 
are substantially similar to those included in the governing documents 
of other exchanges that recently have been granted registration.\75\ 
Specifically:
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    \75\ See, e.g., DirectEdge Exchanges Order, supra note 65, and 
BATS Order, supra note 13. See also Securities Exchange Act Release 
No. 61152 (December 10, 2009), 74 FR 66699 (December 16, 2009) (File 
No. 10-191) (order approving C2 Options Exchange, Incorporated) 
(``C2 Order'').
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     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 EMERALD and must

[[Page 67426]]

not take actions that would interfere with the effectuation of 
decisions by the MIAX EMERALD Board relating to its regulatory 
functions or that would interfere with MIAX EMERALD's ability to carry 
out its responsibilities under the Act.\76\
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    \76\ See Amended and Restated By-Laws of Miami Holdings (``Miami 
Holdings By-Laws''), Article VII, Section 1.
     Similarly, Article II, Section 2.1(d) of the MIAX EMERALD By-
Laws requires the MIAX EMERALD Board to, when managing the business 
and affairs of MIAX EMERALD and evaluating any proposal, consider 
the requirements of Section 6(b) of the Act. Section 2.1(e) also 
requires the MIAX EMERALD Board, when evaluating any proposal to 
take into account (among other things and to the extent relevant), 
the potential impact on the integrity, continuity and stability of 
the national securities exchange operated by MIAX EMERALD and the 
other operations of MIAX EMERALD, on the ability to prevent 
fraudulent and manipulative acts and practices and on investors and 
the public, and whether such would promote just and equitable 
principles of trade, foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to and facilitating transactions in 
securities or assist in the removal of impediments to or perfection 
of the mechanisms for a free and open market and a national market 
system.
---------------------------------------------------------------------------

     Miami Holdings must comply with federal securities laws 
and the rules and regulations promulgated thereunder, and agrees to 
cooperate with the Commission and MIAX EMERALD 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 EMERALD 
in respect of the Commission's oversight responsibilities regarding 
MIAX EMERALD and the self-regulatory functions and responsibilities of 
MIAX EMERALD.\77\
---------------------------------------------------------------------------

    \77\ See Miami Holdings By-Laws, Article VII, Section 4.
---------------------------------------------------------------------------

     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 EMERALD, 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 EMERALD activities.\78\
---------------------------------------------------------------------------

    \78\ See Miami Holdings By-Laws, Article VII, Section 5.
---------------------------------------------------------------------------

     All books and records of MIAX EMERALD reflecting 
confidential information pertaining to the self-regulatory function of 
MIAX EMERALD (including but not limited to disciplinary matters, 
trading data, trading practices, and audit information) shall be 
retained in confidence by MIAX EMERALD and its personnel and will not 
be used by MIAX EMERALD for any non-regulatory purpose and shall not be 
made available to persons (including, without limitation, any MIAX 
EMERALD member) other than to personnel of the Commission, and those 
personnel of MIAX EMERALD, members of committees of MIAX EMERALD, 
members of the MIAX EMERALD Board, or hearing officers and other agents 
of MIAX EMERALD, to the extent necessary or appropriate to properly 
discharge the self-regulatory function of MIAX EMERALD.\79\
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    \79\ See MIAX EMERALD By-Laws Article X, Section 10.4. The 
Commission notes that the Miami Holdings By-Laws also provide that 
all books and records of MIAX EMERALD reflecting confidential 
information pertaining to the self-regulatory function of MIAX 
EMERALD will be subject to confidentiality restrictions. See Miami 
Holdings By-Laws Article VII, Section 2. The requirement to keep 
such information confidential shall not limit the Commission's 
ability to access and examine such information or limit the ability 
of officers, directors, employees, or agent of Miami Holdings to 
disclose such information to the Commission. See id.
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     The books and records of MIAX EMERALD and Miami Holdings 
must be maintained in the United States \80\ and, to the extent they 
are related to the operation or administration of MIAX EMERALD, Miami 
Holdings books and records will be subject at all times to inspection 
and copying by the Commission.\81\
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    \80\ See MIAX EMERALD By-Laws, Article X, Section 10.4; and 
Miami Holdings By-Laws, Article VII, Section 3.
    \81\ See Miami Holdings By-Laws, Article VII, Section 3.
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     Furthermore, to the extent they relate to the activities 
of MIAX EMERALD, 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 
EMERALD, for purposes of, and subject to oversight pursuant to, the 
Act.\82\
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    \82\ See Miami Holdings By-Laws, Article VII, Section 3.
---------------------------------------------------------------------------

     Miami Holdings will take necessary steps to cause its 
officers, directors, employees, and agents, prior to accepting a 
position as an officer, director, employee or agent (as applicable) 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 EMERALD.\83\
---------------------------------------------------------------------------

    \83\ See Miami Holdings By-Laws, Article VII, Section 6.
---------------------------------------------------------------------------

     Miami Holdings Certificate and By-Laws require that, so 
long as Miami Holdings controls MIAX EMERALD, any changes to those 
documents be submitted to the MIAX EMERALD 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.\84\
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    \84\ See Miami Holdings Certificate, Article VIII; and Miami 
Holdings By-Laws, Article XII, Section 1.
---------------------------------------------------------------------------

    The Commission believes that the provisions discussed in this 
section, which are designed to help maintain the independence of MIAX 
EMERALD's regulatory function and help facilitate the ability of MIAX 
EMERALD 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.\85\ Whether MIAX EMERALD operates 
in compliance with the Act, however, depends on how it and Miami 
Holdings in practice implement the governance and other provisions that 
are the subject of this Order.
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    Further, Section 19(h)(1) of the Act \86\ 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).\87\ If Commission staff 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.
---------------------------------------------------------------------------

    \86\ See 15 U.S.C. 78s(h)(1).
    \87\ See id.
---------------------------------------------------------------------------

    The Commission also notes that, 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 EMERALD would be jointly 
and severally liable with and to the same extent that MIAX EMERALD is 
liable

[[Page 67427]]

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.\88\ 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.\89\ 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.\90\ These 
provisions are applicable to all entities' dealings with MIAX EMERALD, 
including Miami Holdings.
---------------------------------------------------------------------------

    \88\ 15 U.S.C. 78t(a).
    \89\ 15 U.S.C. 78t(e).
    \90\ 15 U.S.C. 78u-3.
---------------------------------------------------------------------------

3. Regulation of MIAX EMERALD
    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.\91\ 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.\92\ The discussion below 
summarizes how MIAX EMERALD proposes to structure and conduct its 
regulatory operations.
---------------------------------------------------------------------------

    \91\ See Section 6(b)(1) of the Act, 15 U.S.C. 78f(b)(1).
    \92\ See id. See also Section 19(g) of the Act, 15 U.S.C. 
78s(g).
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a. Regulatory Oversight Committee
    The regulatory operations of MIAX EMERALD 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 EMERALD's regulatory and SRO responsibilities, assessing MIAX 
EMERALD's regulatory performance, and assisting the Exchange Board (and 
committees of the Exchange Board) in reviewing MIAX EMERALD's 
regulatory plan and the overall effectiveness of MIAX EMERALD's 
regulatory functions.\93\
---------------------------------------------------------------------------

    \93\ See MIAX EMERALD By-Laws, Article IV, Section 4.5(c). The 
Regulatory Oversight Committee is responsible for reviewing MIAX 
EMERALD's regulatory budget, and also will meet regularly with the 
Chief Regulatory Officer. See id.
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    Further, a Chief Regulatory Officer (``CRO'') of MIAX EMERALD will 
have general supervision over MIAX EMERALD's regulatory operations.\94\ 
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 
EMERALD for action.\95\ The CRO will report to the Regulatory Oversight 
Committee.\96\
---------------------------------------------------------------------------

    \94\ See MIAX EMERALD By-Laws, Article VI, Section 6.10.
    \95\ See MIAX EMERALD By-Laws, Article IV, Section 4.5(c).
    \96\ See MIAX EMERALD By-Laws, Article VI, Section 6.10.
---------------------------------------------------------------------------

b. Regulatory Funding
    To help assure the Commission that it has and will continue to have 
adequate funding to be able to meet its responsibilities under the Act, 
MIAX EMERALD represents in its Form 1 Application that, prior to 
beginning operations as a national securities exchange, Miami Holdings 
will provide sufficient funding to MIAX EMERALD for the exchange to 
carry out its responsibilities under the Act.\97\ Specifically, MIAX 
EMERALD represents that Miami Holdings has allocated sufficient 
operational assets to enable its operation and that prior to launching 
operations, Miami Holdings will make a capital contribution of not less 
than $5,000,000 into MIAX EMERALD's capital account, in addition to any 
previously-provided in-kind contributions, such as legal, regulatory, 
and infrastructure-related services.\98\ MIAX EMERALD represents that 
such cash and in-kind contributions by Miami Holdings will be adequate 
to begin operation of the Exchange, including the regulation of the 
Exchange.
---------------------------------------------------------------------------

    \97\ See MIAX EMERALD Form 1 Application, Exhibit I.
    \98\ See id.
---------------------------------------------------------------------------

    MIAX EMERALD also represents in its Form 1 application that there 
is a written agreement (``Funding Agreement'') between MIAX EMERALD and 
Miami Holdings that requires Miami Holdings to provide adequate funding 
for MIAX EMERALD's ongoing operations, including the regulation of MIAX 
EMERALD. This Funding Agreement provides that MIAX EMERALD will receive 
all fees, including regulatory fees and trading fees, payable by MIAX 
EMERALD'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 EMERALD for its costs and expenses to the extent MIAX 
EMERALD's assets are insufficient to meets its costs and expenses.\99\ 
Based on the various financial statements for 2016 through 2018 that 
MIAX EMERALD has filed as part of its Form 1 for itself, its 
affiliates, and Miami Holdings, the Commission believes that the 
Funding Agreement appropriately will facilitate the ability of MIAX 
EMERALD to commence and continue operations.
---------------------------------------------------------------------------

    \99\ See id.
---------------------------------------------------------------------------

    Further, any revenues received by MIAX EMERALD from fees derived 
from its regulatory function or regulatory penalties will not be used 
for non-regulatory purposes.\100\ Any excess funds, as determined by 
MIAX EMERALD, may be remitted to Miami Holdings, however ``Regulatory 
Funds'' will not be remitted to Miami Holdings.\101\
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    \100\ See MIAX EMERALD By-Laws, Article IX, Section 9.4.
    \101\ See MIAX EMERALD Form 1 Application, Exhibit I. See also 
MIAX EMERALD LLC Agreement, Section 16; and MIAX EMERALD By-Laws, 
Article IX, Section 9.4. MIAX EMERALD By-Laws, Article 1(gg) defines 
``Regulatory Funds'' as ``fees, fines, or penalties derived from the 
regulatory operations of [MIAX EMERALD]'', but such term does not 
include ``revenues derived from listing fees, market data revenues, 
transaction revenues, or any other aspect of the commercial 
operations of [MIAX EMERALD], even if such revenues are used to pay 
costs associated with the regulatory operations of [MIAX EMERALD].'' 
This definition is consistent with the rules of other SROs. See, 
e.g., By-Laws of MIAX Exchange, Article I(ll); By-Laws of MIAX 
PEARL, Article 1(gg); By-Laws of Nasdaq PHLX LLC, Article I(ii); and 
By-Laws of Nasdaq BX, Inc., Article I(ii).
---------------------------------------------------------------------------

c. Rule 17d-2 Agreements; Regulatory Contract With FINRA
    Unless the SRO is relieved of this responsibility pursuant to 
Section 17(d) or Section 19(g)(2) of the Act,\102\ Section 19(g)(1) of 
the Act, among other things, requires every SRO registered as a 
national securities exchange, absent reasonable justification or 
excuse, to enforce compliance by its members and persons associated 
with its members with the Act, the rules and regulations thereunder, 
and the SRO's own rules.\103\ Section 17(d) of the Act and Rule 17d-2 
thereunder permit SROs to propose joint plans to allocate regulatory 
responsibilities among themselves for their common rules with respect 
to their common members.\104\ These

[[Page 67428]]

agreements, 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. Without this relief, the statutory obligation of 
each individual SRO could result in a pattern of multiple examinations 
of broker-dealers that maintain memberships in more than one SRO.\105\ 
Such regulatory duplication would add unnecessary expense for common 
members and their SROs. 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.\106\ Many SROs 
have entered into Rule 17d-2 agreements.\107\
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    \102\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
    \103\ 15 U.S.C. 78s(g)(1).
    \104\ See Section 17(d)(1) of the Act and Rule 17d-2 thereunder, 
15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the 
Act allows the Commission to relieve an SRO of certain 
responsibilities with respect to members of the SRO who are also 
members of another SRO. Specifically, Section 17(d)(1) allows the 
Commission to relieve an SRO of its responsibilities to: (i) Receive 
regulatory reports from such members; (ii) examine such members for 
compliance with the Act and the rules and regulations thereunder, 
and the rules of the SRO; or (iii) carry out other specified 
regulatory responsibilities with respect to such members.
    \105\ Section 17(d) was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication with 
respect to Common Members. See Securities Exchange Act Release No. 
12935 (October 28, 1976), 41 FR 49091 (November 8, 1976).
    \106\ See id.
    \107\ See, e.g., Securities Exchange Act Release Nos. 83696 
(July 24, 2018), 83 FR 35682 (July 27, 2018) (Financial Industry 
Regulatory Authority, Inc. (``FINRA'')/MIAX PEARL); 77321 (March 8, 
2016), 81 FR 13434 (March 14, 2016) (File No. 4-697) (FINRA/ISE 
Mercury, LLC), 73641 (November 19, 2014), 79 FR 70230 (November 25, 
2014) (File No. 4-678) (FINRA/MIAX Exchange); 70053 (July 26, 2013), 
78 FR 46656 (August 1, 2013) (File No. 4-663) (FINRA/ISE Gemini, 
LLC); 59218 (January 8, 2009), 74 FR 2143 (January 14, 2009) (File 
No. 4-575) (FINRA/Boston Stock Exchange, Inc.); 58818 (October 20, 
2008), 73 FR 63752 (October 27, 2008) (File No. 4-569) (FINRA/BATS 
Exchange, Inc.); 55755 (May 14, 2007), 72 FR 28087 (May 18, 2007) 
(File No. 4-536) (National Association of Securities Dealers, Inc. 
(``NASD'') (n/k/a FINRA) and Chicago Board of Options Exchange, Inc. 
concerning the CBOE Stock Exchange, LLC); 55367 (February 27, 2007), 
72 FR 9983 (March 6, 2007) (File No. 4-529) (NASD/International 
Securities Exchange, LLC); and 54136 (July 12, 2006), 71 FR 40759 
(July 18, 2006) (File No. 4-517) (NASD/The Nasdaq Stock Market LLC).
---------------------------------------------------------------------------

    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.\108\ MIAX EMERALD 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.\109\ MIAX EMERALD has also represented that it 
will enter into a bi-lateral 17d-2 agreement to allocate regulatory 
responsibility to FINRA for common rules of dual members between MIAX 
EMERALD and FINRA. Under these agreements, the examining SROs will 
examine firms that are common members of MIAX EMERALD and the 
particular examining SRO for compliance with certain provisions of the 
Act, certain rules and regulations adopted thereunder, and certain MIAX 
EMERALD Rules.
---------------------------------------------------------------------------

    \108\ See supra notes 104-105.
    \109\ See MIAX EMERALD Form 1 Application, Exhibit L. See also 
Securities Exchange Act Release No. 68363 (December 5, 2012), 77 FR 
73711 (December 11, 2012) (File No. S7-966) (notice of filing and 
order approving and declaring effective an amendment to the 
multiparty 17d-2 plan concerning options-related sales practice 
matters); and 68362 (December 5, 2012), 77 FR 73719 (December 11, 
2012) (File No. 4-551) (notice of filing and order approving and 
declaring effective an amendment to the multiparty 17d-2 plan 
concerning options-related market surveillance).
---------------------------------------------------------------------------

    In addition, MIAX EMERALD has represented that it will enter into a 
Regulatory Services Agreement (``RSA'') with FINRA, under which FINRA 
will perform certain regulatory functions on behalf of MIAX 
EMERALD.\110\ Pursuant to the RSA, FINRA, in its capacity as service 
provider to MIAX EMERALD, will perform various services on MIAX 
EMERALD's behalf, including assisting MIAX EMERALD with member 
registration and related administrative support services; certain 
cross-market surveillance services; certain options trading 
examinations; at MIAX EMERALD's request, investigating potential 
violations of enumerated MIAX EMERALD market rules, as well as federal 
securities laws, and rules and regulations thereunder, related to MIAX 
EMERALD market activity; performing examinations of options, including 
routine and for cause examinations of MIAX EMERALD members under 
certain MIAX EMERALD rules and federal securities laws; bringing formal 
disciplinary actions, including hearing officer services; and providing 
arbitration, mediation, and other dispute resolution services to MIAX 
EMERALD member firms.\111\ Notwithstanding the RSA, MIAX EMERALD, as an 
SRO, has the ultimate legal responsibility for the regulation of its 
members and market.
---------------------------------------------------------------------------

    \110\ See MIAX EMERALD Form 1 Application, Exhibit L.
    \111\ See id.
---------------------------------------------------------------------------

    The Commission believes that it is consistent with the Act for MIAX 
EMERALD to contract with other SROs to perform certain examination, 
enforcement, and disciplinary functions.\112\ This regulatory structure 
would be consistent with that of other SROs.\113\ These functions are 
fundamental elements of a regulatory program, and constitute core self-
regulatory functions. The Commission believes that FINRA, as an SRO 
that provides contractual services to other SROs, should have the 
capacity to perform these functions for MIAX EMERALD.\114\ However, 
MIAX EMERALD, unless relieved by the Commission of its 
responsibility,\115\ bears the ultimate responsibility for self-
regulatory responsibilities and primary liability for self-regulatory 
failures, not the SRO retained to perform regulatory functions on MIAX 
EMERALD's behalf. In performing these regulatory functions, however, 
the SRO retained to perform regulatory functions may nonetheless bear 
liability for causing or aiding and abetting the failure of MIAX 
EMERALD to perform its regulatory functions.\116\ Accordingly, although 
FINRA will not act on its own behalf in carrying out these regulatory 
services for MIAX EMERALD, as the SRO retained to perform certain 
regulatory functions, 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 by MIAX EMERALD.
---------------------------------------------------------------------------

    \112\ See, e.g., Regulation ATS Release, supra note 29. See also 
Securities Exchange Act Release Nos. 50122 (July 29, 2004), 69 FR 
47962 (August 6, 2004) (SR-Amex-2004-32) (order approving rule that 
allowed Amex to contract with another SRO for regulatory services) 
(``Amex Regulatory Services Approval Order''); 57478 (March 12, 
2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004) (``NOM 
Approval Order''); Nasdaq Order, supra note 27; and BATS Order, 
supra note 13.
    \113\ For example, MIAX Exchange, MIAX PEARL, Nasdaq MRX, LLC, 
Cboe EDGA Exchange, Inc., Cboe EDGX Exchange Inc., and Cboe BZX 
Exchange, Inc. have entered into 17d-2 Plans and RSAs with FINRA.
    \114\ See, e.g., Amex Regulatory Services Approval Order, supra 
note 112; NOM Approval Order, supra note 112; and Nasdaq Order, 
supra note 27. The Commission notes that the RSA is not before the 
Commission and, therefore, the Commission is not acting on it.
    \115\ See supra note 104.
    \116\ For example, if failings by the SRO retained to perform 
regulatory functions have the effect of leaving an exchange in 
violation of any aspect of the exchange's self-regulatory 
obligations, the exchange will bear direct liability for the 
violation, while the SRO retained to perform regulatory functions 
may bear liability for causing or aiding and abetting the violation. 
See, e.g., Nasdaq Order, supra note 27; BATS Order, supra note 13; 
and Release No. 42455 (February 24, 2000), 65 FR 11388 (March 2, 
2000) (File No. 10-127) (approval of registration of International 
Securities Exchange Act, LLC as a national securities exchange).
---------------------------------------------------------------------------

C. Trading System

1. Access to MIAX EMERALD
    Access to MIAX EMERALD will be granted to individuals or 
organizations who are approved to become Members.\117\ Approved Members 
will be

[[Page 67429]]

issued Trading Permits that grant the Member the ability to transact on 
MIAX EMERALD through its electronic systems.\118\ Trading Permits will 
not convey upon Members any ownership interest in MIAX EMERALD, and 
they will not be transferable except in cases where a Member 
experiences a change in control or corporate reorganization.\119\ 
Membership will be open to any broker-dealer that: (1) Is registered 
under Section 15 of the Act; \120\ and (2) has and maintains membership 
in another registered options exchange (other than MIAX Exchange or 
MIAX PEARL) or FINRA.\121\ As explained below, a holder of a MIAX 
Exchange or MIAX PEARL trading permit will not be required to submit a 
full application for membership on MIAX EMERALD.\122\ There will be no 
limit to the number of Trading Permits that MIAX EMERALD can issue, 
although MIAX could determine in the future a limit or decrease in the 
number of Trading Permits issued.\123\ Members of MIAX EMERALD may be 
one of three classes of Market Maker,\124\ or they may be Electronic 
Exchange Members.\125\
---------------------------------------------------------------------------

    \117\ A ``Member'' is defined as an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. MIAX EMERALD Members are ``members'' as defined under the 
Act. See MIAX EMERALD Rule 100. A ``Trading Permit'' means a permit 
issued by the Exchange that confers the ability to transact on the 
Exchange. Id.
    \118\ See MIAX EMERALD Rule 200(a). MIAX EMERALD represents that 
it has designed its systems to allow its Members to individually 
determine the best method for accessing the Exchange, whether by 
using customized front-end software using protocols determined by 
the Exchange or through third-party vendors who route orders to MIAX 
EMERALD through a front-end or service bureau configuration. See 
MIAX EMERALD Form 1 Application, Exhibit E.
    \119\ See MIAX EMERALD Rule 200(e).
    \120\ See MIAX EMERALD Rule 200(b).
    \121\ See MIAX EMERALD Rule 200(d). If such other options 
exchange has not been designated by the Commission to examine 
Members for compliance with financial responsibility rules, then the 
broker-dealer must have and maintain a membership in FINRA. Id.
    \122\ See MIAX EMERALD Rule 200(c) and infra notes 127-128 and 
accompanying text.
    \123\ See MIAX EMERALD Rule 200(a). MIAX EMERALD would announce 
in advance any limitation or decrease it plans to impose pursuant to 
Rule 200(a). See id. In the event that MIAX EMERALD imposes a 
limitation or decrease, MIAX EMERALD, in doing so, may not eliminate 
the ability of an existing member to trade on the Exchange unless 
MIAX EMERALD is permitted to do so pursuant to a rule filing 
submitted to the Commission under Section 19(b) of the Act. See id. 
In addition, MIAX EMERALD's exercise of authority under proposed 
Rule 200 would be subject to the provisions of Section 6(c)(4) of 
the Act. See id. See also Cboe Exchange, Inc. (``Cboe'') Rule 
3.1(a)(vi); MIAX Exchange Rule 200(a) (concerning limiting or 
reducing the number of trading permits); and MIAX PEARL Rule 200(a) 
(concerning limiting or reducing the number of trading permits). 
Further, MIAX EMERALD's exercise of authority under proposed Rule 
200 would be subject to the provisions of Section 6(b)(2) of the 
Act, which requires the rules of an exchange to provide that any 
registered broker or dealer or any natural person associated with a 
registered broker or dealer may become a member of such exchange and 
any person may become associated with a member thereof. See 15 
U.S.C. 78f(b)(2).
    \124\ See MIAX EMERALD Rule 600. Market Maker registration is 
discussed in greater detail below, infra Section III.C.3.
    \125\ An ``Electronic Exchange Member'' is the holder of a 
Trading Permit who is not a Market Maker. MIAX EMERALD Electronic 
Exchange Members are ``members'' as defined under the Act. See MIAX 
EMERALD Rule 100.
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    A holder of a MIAX Exchange or MIAX PEARL trading permit in good 
standing will be eligible to receive one MIAX EMERALD Trading 
Permit.\126\ MIAX Exchange and MIAX PEARL member applicants will not be 
required to submit a full application for membership on MIAX EMERALD, 
but rather will only need to complete selected MIAX EMERALD forms 
concerning their election to trade on MIAX EMERALD, consent to MIAX 
EMERALD's jurisdiction, and other operational matters.\127\ This waive-
in application process is similar to arrangements in place at other 
exchanges.\128\
---------------------------------------------------------------------------

    \126\ See MIAX EMERALD Rule 200(c)(1).
    \127\ See id.
    \128\ See, e.g., Nasdaq MRX, LLC Rule 302(a) (containing similar 
expedited waive-in membership process for members of the Nasdaq ISE, 
LLC and Nasdaq GEMX, LLC); MIAX PEARL Rule 200(c)(1) (containing 
similar expedited waive-in membership process for members of MIAX 
Exchange); and Cboe C2 Exchange, Inc. Rule 3.1(c)(1) (containing 
similar expedited waive-in membership process for members of Cboe).
---------------------------------------------------------------------------

    Applicants that do not hold a MIAX Exchange or MIAX PEARL trading 
permit and seek to become members of MIAX EMERALD will need to submit a 
full application in accordance with procedures established by the 
Exchange.\129\ 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.\130\ In addition, MIAX EMERALD proposes 
further requirements on members that seek to do business with the 
public.\131\ Applicants who are denied membership may appeal MIAX 
EMERALD's decision pursuant to MIAX EMERALD's rules governing Hearings, 
Review, and Arbitration.\132\ Every Member will be subject to MIAX 
EMERALD's regulatory jurisdiction, including MIAX EMERALD's 
disciplinary jurisdiction.\133\
---------------------------------------------------------------------------

    \129\ See MIAX EMERALD Rule 200(c)(2).
    \130\ See MIAX EMERALD Rules Chapter II. Such criteria include, 
but are not limited to, capital maintenance requirements. See, e.g., 
MIAX Exchange Rule 200 Series; MIAX PEARL Rule 200 Series; and Cboe 
C2 Exchange, Inc. Rules 3.1 and 3.2 (containing similar criteria).
    \131\ See MIAX EMERALD Rules Chapter XIII (incorporating by 
reference Chapter XIII of the MIAX Exchange Rules). Chapter XIII of 
the MIAX Exchange Rules also is similar to the rules of other 
exchanges. See, e.g., Nasdaq ISE, LLC Rules Chapter 6.
    \132\ See MIAX EMERALD Rules Chapter XI (incorporating by 
reference Chapter XI of the MIAX Exchange Rules).
    \133\ See MIAX EMERALD Rule 200(g). For MIAX EMERALD's rules 
concerning discipline, see Chapter X of the MIAX EMERALD Rules.
---------------------------------------------------------------------------

    The Commission finds that MIAX EMERALD'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.\134\ MIAX EMERALD's proposed rules with respect to exchange 
membership are substantively similar to the rules of other exchanges.
---------------------------------------------------------------------------

    \134\ 15 U.S.C. 78f(b)(2).
---------------------------------------------------------------------------

    The Commission notes that pursuant to Section 6(c) of the Act,\135\ 
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 EMERALD 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.\136\
---------------------------------------------------------------------------

    \135\ 15 U.S.C. 78f(c).
    \136\ See, e.g., MIAX PEARL Order, supra note 13, at 92910; ISE 
Mercury Order, supra note 27, at 6076; ISE Gemini Order, supra note 
27, at 46633; MIAX Order, supra note 13, at 73074; BOX Order, supra 
note 13, at 26337; BATS Order, supra note 13, at 49502; and Nasdaq 
Order, supra note 27, at 3555.
---------------------------------------------------------------------------

    In addition, Members may enter into arrangements with other 
parties, including non-Members and other Members, to provide 
``Sponsored Access'' to trading on MIAX EMERALD.\137\ 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.\138\ Accordingly, Members that 
provide Sponsored Access must maintain and implement policies and 
procedures to supervise and monitor sponsored trading activity.\139\ 
Additionally, non-Members who seek to trade on MIAX EMERALD

[[Page 67430]]

through Sponsored Access agreements will need to agree to comply with 
all applicable federal securities laws and rules and Exchange 
rules.\140\ MIAX EMERALD's rules governing Sponsored Access 
arrangements are similar to the rules of other exchanges.\141\
---------------------------------------------------------------------------

    \137\ See MIAX EMERALD Rule 210.
    \138\ See MIAX EMERALD Rule 210(b).
    \139\ See MIAX EMERALD Rule 210(b)-(c).
    \140\ See MIAX EMERALD Rule 210(b). See also, e.g., 17 CFR 
240.15c3-5.
    \141\ See, e.g., MIAX PEARL Rule 210; MIAX Exchange Rule 210; 
and Nasdaq Stock Market LLC Rule 4611(d).
---------------------------------------------------------------------------

2. Linkage
    MIAX EMERALD intends to become a participant in the Options Order 
Protection and Locked/Crossed Markets Plan or any successor plan 
(``Linkage Plan'').\142\ If admitted as a participant to the Linkage 
Plan, other plan participants would be able to send orders to MIAX 
EMERALD in accordance with the terms of the plan as applied to the 
Exchange. The MIAX EMERALD 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 EMERALD 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.
---------------------------------------------------------------------------

    \142\ See MIAX EMERALD Form 1 Application, Exhibit E. See also 
Securities Exchange Act Release No. 60405 (July 30, 2009), 74 FR 
39362 (August 6, 2009) (File No. 4-546) (order approving the Options 
Order Protection and Locked/Crossed Markets Plan submitted by the 
Chicago Board Options Exchange, Incorporated, International 
Securities Exchange, LLC, The NASDAQ Stock Market LLC, NASDAQ OMX 
BX, Inc., NASDAQ OMX PHLX, Inc., NYSE Amex LLC, and NYSE Arca, 
Inc.).
---------------------------------------------------------------------------

    The Commission believes that MIAX EMERALD has proposed rules that 
are designed to comply with the requirements of the Linkage Plan.\143\ 
Further, as provided below, before MIAX EMERALD can commence operations 
as a national securities exchange, it must become a participant in the 
Linkage Plan.
---------------------------------------------------------------------------

    \143\ See Chapter XIV of the MIAX EMERALD Rules (incorporating 
by reference Chapter XIV of the MIAX Exchange Rules).
---------------------------------------------------------------------------

3. Market Makers
a. Registration and Appointment
    Members of MIAX EMERALD may apply to become one of three types of 
market maker: Primary Lead Market Maker, Lead Market Maker, or 
Registered Market Maker (collectively, ``Market Makers''). Market 
Makers are entitled to receive certain benefits and privileges in 
exchange for fulfilling certain affirmative and negative market-making 
obligations.\144\ Each class of Market Maker will receive a specific 
level of benefits and privileges in exchange for a specific level of 
obligation that such Market Maker assumes to the MIAX EMERALD market.
---------------------------------------------------------------------------

    \144\ Market Makers' benefits and obligations are discussed in 
greater detail in the following section.
---------------------------------------------------------------------------

    To begin the process of registering as a Registered Market Maker or 
Lead Market Maker, a member will be required to file a written 
application with MIAX EMERALD.\145\ In reviewing a member's application 
for membership, MIAX EMERALD will consider, among other things, the 
applicant's market making ability.\146\ Only approved Lead Market 
Makers may apply to be considered for appointment as a Primary Lead 
Market Maker in one or more option classes traded on MIAX EMERALD.\147\ 
All members who are approved to become Market Makers will be designated 
as specialists on MIAX EMERALD for all purposes under the Act and rules 
thereunder.\148\
---------------------------------------------------------------------------

    \145\ See MIAX EMERALD Rule 600(b).
    \146\ See id. See also MIAX Exchange Rule 600(b) and Nasdaq MRX, 
LLC Rule 800(b). The provision permitting MIAX EMERALD to consider 
``such other factors as [it] deems appropriate'' must be applied in 
a manner that is consistent with the Act, including provisions that 
prohibit an exchange from acting in an unfairly discriminatory 
manner. See 15 U.S.C. 78f(b)(5); see also C2 Order, supra note 75, 
at 66704, n. 80.
    \147\ See id.
    \148\ See MIAX EMERALD Rule 600(a).
---------------------------------------------------------------------------

    In addition, all MIAX Exchange and MIAX PEARL market makers in good 
standing will be eligible to receive a MIAX EMERALD Trading Permit in 
the same membership category in which they operate on MIAX Exchange and 
MIAX PEARL, respectively, to trade on MIAX EMERALD.\149\ For example, a 
Lead Market Maker in good standing in MIAX Exchange will be eligible to 
become a Lead Market Maker on MIAX EMERALD, through the submission and 
approval of a MIAX EMERALD waive-in membership application.\150\
---------------------------------------------------------------------------

    \149\ See MIAX EMERALD Rule 200(c).
    \150\ See id.
---------------------------------------------------------------------------

    Once approved, a Market Maker would seek appointment to make 
markets in one or more options classes traded on MIAX EMERALD.\151\ 
Either the Exchange Board or a committee thereof \152\ will appoint 
classes of options contract traded on MIAX EMERALD to Market Makers 
taking into consideration: (1) The financial resources available to the 
Market Maker; (2) the Market Maker's experience and expertise in market 
making or options trading; (3) the preferences of the Market Maker to 
receive appointment(s) in specific option class(es); and (4) the 
maintenance and enhancement of competition among Market Makers in each 
option class.\153\ MIAX EMERALD will allow one Primary Lead Market 
Maker appointment per class,\154\ and will have a maximum class quoting 
limit of fifty Market Makers per class.\155\ Once appointed, MIAX 
EMERALD will surveil a Market Maker's activity for continued compliance 
with all applicable rules and requirements,\156\ which are discussed in 
more detail below.
---------------------------------------------------------------------------

    \151\ See MIAX EMERALD Rule 602.
    \152\ See MIAX EMERALD Rule 602(a). MIAX EMERALD Chapter XI 
provides the process for hearings, review, and arbitration of claims 
by persons economically aggrieved by MIAX EMERALD action, which 
would include denial of registration as a Market Maker. See MIAX 
EMERALD Chapter XI (incorporating by reference MIAX Exchange Chapter 
XI).
    \153\ See id.
    \154\ See MIAX EMERALD Rule 602(c)(1).
    \155\ See MIAX EMERALD Rule 602(c)(2).
    \156\ See, e.g., MIAX EMERALD Rule 602(f) (stating that MIAX 
EMERALD shall periodically conduct an evaluation of Market Makers to 
determine whether they have fulfilled performance standards relating 
to, among other things, quality of markets, competition among Market 
Makers, observance of ethical standards, and administrative 
factors).
---------------------------------------------------------------------------

    The Commission finds that MIAX EMERALD's rules for the registration 
and appointment of Market Makers are consistent with the Act. In 
particular, MIAX EMERALD's rules provide an objective process by which 
a member could become a Market Maker on MIAX EMERALD and provide for 
oversight by MIAX EMERALD to monitor for continued compliance by Market 
Makers with the terms of their application for such status. The 
Commission notes that MIAX EMERALD's proposed Market Maker registration 
and appointment requirements are similar to those of other options 
exchanges.\157\
---------------------------------------------------------------------------

    \157\ See, e.g., MIAX Exchange Rule 600; Nasdaq MRX, LLC Rule 
800; Nasdaq ISE, LLC Rules 800 and 801; and Cboe C2 Exchange, Inc. 
Rule 8.1 (registration of market makers). See, e.g., MIAX Exchange 
Rule 602; Nasdaq ISE, LLC Rule 802; Nasdaq MRX, LLC Rule 802; and 
Cboe C2 Exchange, Inc. Rule 8.11 (appointment of market makers).
---------------------------------------------------------------------------

b. Market Maker Obligations
    Pursuant to MIAX EMERALD rules, all Market Makers will be subject 
to a number of general obligations. In particular, the transactions of 
a Market Maker must constitute a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market.\158\ Among other things, a Market Maker must: (1) Compete with 
other Market Makers to improve the market; (2) make markets

[[Page 67431]]

that, absent changed market conditions, will be honored for the number 
of contracts entered; (3) update quotations in response to changed 
market conditions; (4) price option contracts fairly by, among other 
things, bidding and offering so as to create differences of no more 
than $5 between the bid and offer following the opening rotation.\159\ 
In addition, Market Makers must maintain minimum net capital in 
accordance with MIAX EMERALD rules and the federal securities 
laws.\160\
---------------------------------------------------------------------------

    \158\ See MIAX EMERALD Rule 603(a).
    \159\ See MIAX EMERALD Rule 603(b).
    \160\ See MIAX EMERALD Rule 609.
---------------------------------------------------------------------------

    MIAX EMERALD's rules governing Market Maker quoting obligations are 
tailored to the specific class of Market Maker.\161\ Specifically, a 
Primary Lead Market Maker will be subject to the highest standard 
applicable on MIAX EMERALD, as they will be required to provide 
continuous two-sided Standard quotes \162\ throughout the trading day 
90% of the time in the lesser of 99% of the series, or 100% of the 
series minus one put-call pair, in each appointed class.\163\ Lead 
Market Makers must provide continuous two-sided quotes (consisting of 
Standard quotes) throughout the trading day 90% of the time in 90% of 
the series in each of their appointed classes.\164\ Lastly, Registered 
Market Makers must provide continuous two-sided quotes (consisting of 
Standard quotes) 90% of the time in 60% of the series in each of its 
appointed classes.\165\ Further, Registered Market Makers may be called 
upon by a MIAX EMERALD official to submit a single quote or maintain 
continuous quotes in one or more series of its appointed classes 
whenever, in the judgment of such official, it is necessary to do so in 
the interest of fair and orderly markets.\166\ For purposes of meeting 
the continuous quoting obligations discussed herein, a Market Maker's 
quote must meet the bid/ask differential requirements of MIAX EMERALD 
Rule 603(b)(4).\167\
---------------------------------------------------------------------------

    \161\ See MIAX EMERALD Rule 604.
    \162\ See infra Section III.C.4 (discussing the various types of 
quotes that may be submitted by Market Makers on MIAX EMERALD).
    \163\ See MIAX EMERALD Rule 604(e)(1). These obligations will 
apply to all appointed classes collectively for each Primary Lead 
Market Maker, rather than on a class-by-class basis. See MIAX 
EMERALD Rule 604(e)(1)(ii).
    \164\ See MIAX EMERALD Rule 604(e)(2). These obligations will 
apply to all appointed classes collectively for each Lead Market 
Maker, rather than on a class-by-class basis. See MIAX EMERALD Rule 
604(e)(2)(ii).
    \165\ See MIAX EMERALD Rule 604(e)(3)(i). These obligations will 
apply to all appointed classes collectively for each Registered 
Market Maker, rather than on a class-by-class basis. Id.
    \166\ See MIAX EMERALD Rule 604(e)(3)(iii).
    \167\ See MIAX EMERALD Rule 604(e)(1)-(3) (for Primary Lead 
Market Makers, Lead Market Makers, and Registered Market Makers, 
respectively).
---------------------------------------------------------------------------

    In options classes other than to which they are appointed, a Market 
Maker is prohibited from engaging in transactions in an account in 
which it has an interest that are disproportionate to, or in derogation 
of, the performance of its market making obligations as set forth in 
the MIAX EMERALD rules.\168\ Further, the total number of contracts 
executed during a quarter by a Registered Market Maker in options 
classes to which it is not appointed may not exceed 25% of the total 
number of contracts traded by such Registered Market Maker in classes 
to which it is appointed.\169\ Similarly, the total number of contracts 
executed during a quarter by a Lead Market Maker (including a Primary 
Lead Market Maker) in options classes to which it is not appointed may 
not exceed 10% of the total number of contracts traded by such Lead 
Market Maker in classes to which it is appointed.\170\
---------------------------------------------------------------------------

    \168\ See MIAX EMERALD Rule 603(d). Among other things, a Market 
Maker should not effect purchases or sales except in an orderly 
manner. See id. See also MIAX Exchange Rule 603(d) and Nasdaq ISE, 
LLC Rule 803(d) (containing an identical provision).
    \169\ See MIAX EMERALD Rule 605(b)(2). See also MIAX Exchange 
Rule 605(b)(2) and Nasdaq ISE, LLC Rule 805(b)(2).
    \170\ See MIAX EMERALD Rule 605(b)(3). See also MIAX Exchange 
Rule 605(b)(3) and Nasdaq ISE, LLC Rule 805(b)(3).
---------------------------------------------------------------------------

    If MIAX EMERALD finds any failure by a Market Maker to meet minimum 
performance standards or properly perform as a Market Maker, such 
Market Maker may be subject to suspension, termination, or restriction 
of registration in one or more of the securities in which the Market 
Maker is registered.\171\
---------------------------------------------------------------------------

    \171\ See MIAX EMERALD Rules 600 and 602(f).
---------------------------------------------------------------------------

    Market Makers will receive certain benefits in return for 
satisfying their responsibilities.\172\ 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.\173\ In addition, market 
makers are excepted from the prohibition in Section 11(a) of the 
Act.\174\ The Commission believes that 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.\175\ The Commission further believes that 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.\176\
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    \172\ See, e.g., MIAX Order, supra note 13, at 73076 and NOM 
Approval Order, supra note 112, at 14526 (discussing the benefits 
and obligations of market makers).
    \173\ See 12 CFR 221.5 and 12 CFR 220.7; see also 17 CFR 
240.15c3-1(a)(6) (capital requirements for market makers).
    \174\ 15 U.S.C. 78k(a).
    \175\ See NOM Approval Order, supra note 112, at 73 FR 14526.
    \176\ See id.
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    The Commission believes that MIAX EMERALD's Market Maker 
participation requirements impose appropriate affirmative obligations 
on MIAX EMERALD's Market Makers that are commensurate with the benefits 
afforded to such participants and, accordingly, are consistent with the 
Act.
    Specifically, with regard to MIAX EMERALD's proposed continuous 
quoting obligations, only those quotes that are liquidity providing--
Standard quotes, including Post-Only Quotes--will be counted towards a 
Market Maker's quoting obligations, rather than all types of eQuotes 
that a Market Maker will be permitted to utilize.\177\ The Commission 
believes that this treatment is appropriate under the Act and 
consistent with a Market Maker's obligation to contribute to the 
maintenance of a fair and orderly market. Further, the Commission 
believes that the specific levels of benefits conferred on the 
different classes of Market Makers are appropriately balanced by the 
obligations imposed by MIAX EMERALD's rules. For example, as discussed 
below, Primary Lead Market Makers and Lead Market Makers are entitled 
to certain participation entitlements,\178\ and at the same time, are 
subject to heightened continuous quoting obligations to justify these 
special benefits.\179\
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    \177\ See infra Section III.C.4 (discussing the various quote 
types that Market Makers can utilize).
    \178\ See infra notes 201-212 and accompanying text (describing 
the Primary Lead Market Maker and Directed Lead Market Maker 
participation entitlements). See also infra Section III.C.4 
(discussing the benefit Market Makers receive from the MIAX EMERALD 
priority quote rule).
    \179\ See supra Section III.C.4 (describing Primary Lead Market 
Maker and Lead Market Maker quoting obligations).
---------------------------------------------------------------------------

    Finally, the Commission believes that the Act does not mandate a 
particular market model for exchanges, and while Market Makers may 
become an important source of liquidity on MIAX EMERALD, they will 
likely not be the only source, as MIAX EMERALD is designed to match 
buying and selling interest of all MIAX EMERALD participants.

[[Page 67432]]

4. Order Display, Execution, and Priority
    MIAX EMERALD will operate a fully automated electronic options 
marketplace. Liquidity will be derived from orders to buy and orders to 
sell, as well as Market Maker quotations,\180\ submitted to MIAX 
EMERALD electronically by its members from remote locations. There will 
be no physical trading floor. 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 $.10 
for option contracts trading at $3.00 per option or higher.\181\ In 
addition, MIAX EMERALD will participate in the penny pilot program 
pursuant to which it will permit certain options with premiums under $3 
(as well as heavily traded options on certain indices) to be quoted and 
traded in increments as low as $.01.\182\
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    \180\ The definition of ``quote'' or ``quotation'' means a bid 
or offer entered by a Market Maker that is firm and may update the 
Market Maker's previous quote, if any. The Rules of the Exchange 
provide for the use of different types of quotes, including Standard 
and eQuotes, as more fully described in MIAX EMERALD Rule 517. A 
Market Maker may, at times, choose to have multiple types of quotes 
active in an individual option. See MIAX EMERALD Rule 100.
    \181\ See MIAX EMERALD Rule 510.
    \182\ See MIAX EMERALD Rule 510, Interpretations and Policies 
.01. MIAX EMERALD has established a scheduled expiration date of 
December 31, 2018. However, MIAX EMERALD may not be operational 
before December 31, 2018, thus the Exchange may need to file a 
proposed rule change under Section 19(b) of the Act to update this 
proposed rule.
---------------------------------------------------------------------------

    All orders and quotes submitted to MIAX EMERALD will be displayed 
unless the order or quote is immediately marketable, is a contingent 
order (such as an immediate-or-cancel (``IOC'') order), or is a certain 
type of eQuote (such as an Auction-or-Cancel (``AOC'') eQuote or IOC 
eQuote). Displayed orders and quotes will be displayed on an anonymous 
basis at a specified price (except for Attributable Orders,\183\ which 
allow voluntary disclosure of firm identification information). Non-
displayed orders and quotes will not be displayed to any participant. 
Additionally, orders and quotes may have a non-displayed price that is 
different than the displayed price, as further described below.\184\
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    \183\ See MIAX EMERALD Rule 516(e). An Attributable Order is a 
market or limit order which displays the user firm ID for purposes 
of trading on the Exchange. Use of Attributable Orders will be 
voluntary.
    \184\ See text accompanying notes 219-233 infra.
---------------------------------------------------------------------------

    Members may submit the following types of orders: Market; 
Marketable Limit; Fill-or-Kill; Auction-or-Cancel; Immediate-or-Cancel; 
Attributable Order; Intermarket Sweep; Do Not Route; Opening; Customer 
Cross; Qualified Contingent Cross; Day Limit; Good `Til Cancelled; and 
Post-Only.\185\ All of these order types are based on similar order 
types available on other options exchanges.\186\ The Commission 
believes that these order types are substantially similar to order 
types approved by the Commission on other exchanges.
---------------------------------------------------------------------------

    \185\ See MIAX EMERALD Rule 516 for a description of each of the 
order types. MIAX EMERALD notes that some of these order types will 
be valid only during certain portions of the trading day (e.g., 
Opening Orders) or during certain events (e.g., Auction-or-Cancel 
Orders). If a Member submits an order type during a time period when 
the order type is not valid, the System will reject the order.
    \186\ See, e.g., Cboe BZX Exchange, Inc. Rule 21.1(c)(1) 
(Attributable Order), (d)(8) (Post Only Order) and (f)(5) (Fill-or-
Kill Order); BOX Rule 7110(c)(5) (Customer Cross Order) and (c)(6) 
(Qualified Contingent Cross Order); MIAX Exchange Rule 516(b)(4) 
(Auction or Cancel Order); Nasdaq Options Market Rules, Chapter VI, 
Section 1(e)(7) (On the Open Order), 1(e)(8) (Intermarket Sweep 
Order) and 1(e)(1) (Cancel-replacement Order); Nasdaq PHLX LLC Rule 
1080(m)(iv)(A) (Do Not Route Order and Immediate or Cancel Order); 
NYSE American, LLC Rule 900.3NY(m) (Day Order) and (n) (Good-Til-
Cancelled Order).
---------------------------------------------------------------------------

    MIAX EMERALD Market Makers will be permitted to submit Standard 
quotes, including Post-Only Quotes.\187\ MIAX EMERALD Market Makers 
will also be allowed to submit eQuotes, which are quotes with a 
specific time in force that do not automatically cancel and replace a 
previous Standard quote or eQuote.\188\ The types of eQuotes permitted 
on MIAX EMERALD will be AOC, Opening Only, IOC, Fill-or-Kill and 
Intermarket Sweep.\189\ Only Standard quotes (including Post-Only 
Quotes) will be permitted to count towards a Market maker's continuous 
quoting obligations.\190\ MIAX EMERALD's proposed quote types are based 
on similar quote types on other options exchanges.\191\ The Commission 
believes that the MIAX EMERALD quote types are substantially similar to 
those approved by the Commission on other exchanges.
---------------------------------------------------------------------------

    \187\ See MIAX EMERALD Rule 517(a)(1) (providing that Standard 
quote is a quote submitted by a Market Maker that cancels and 
replaces the Market Maker's previous Standard quote, and a Post-Only 
Quote is a Standard quote that will not remove liquidity from the 
Book).
    \188\ See MIAX EMERALD Rule 517(a)(2).
    \189\ See id. These eQuote types are similar to the eQuote types 
available on the MIAX Exchange. See MIAX Exchange Rule 517(a)(2); 
see also MIAX Order, supra note 13, at 73080-81.
    \190\ See MIAX EMERALD Rule 604(e); see also supra Section 
III.C.3.b (discussing Market Maker obligations).
    \191\ See, e.g., MIAX PEARL Rules 100 and 516(j) (defining 
Quotations and Post-Only Orders, respectively); Cboe C2 Exchange, 
Inc. Rule 1.1 (similarly); MIAX Exchange Rule 517(a)(2) (describing 
eQuotes).
---------------------------------------------------------------------------

    After the opening, trades will execute on MIAX EMERALD when a buy 
order/quote and a sell order/quote match one another on the MIAX 
EMERALD order book (``MIAX EMERALD Book'' or ``Book'').\192\ The 
highest bid and lowest offer shall have priority on the Exchange. The 
MIAX EMERALD system will continuously and automatically match orders/
quotes pursuant to either price-time allocation or pro-rata allocation, 
as determined by MIAX EMERALD on a class-by-class basis.\193\
---------------------------------------------------------------------------

    \192\ MIAX EMERALD will open for trading with an opening 
rotation similar to that of the MIAX Exchange. See MIAX EMERALD Rule 
503 and MIAX Exchange Rule 503.
    \193\ See MIAX EMERALD Rule 514(c).
---------------------------------------------------------------------------

    On MIAX EMERALD all Market Maker quotes will be designated as 
either ``priority quotes'' or ``non-priority quotes.'' \194\ In the 
event a Market Maker has a priority quote on MIAX EMERALD, all of that 
Market Maker's quotes (including all Standard quotes and eQuotes) would 
be entitled to have precedence over all other ``Professional Interest'' 
(i.e., non-Priority Customer orders, Market Maker orders and non-
priority quotes) at the same price.\195\ The Commission notes that this 
is substantially similar to the MIAX Exchange which was previously 
approved by the Commission.\196\
---------------------------------------------------------------------------

    \194\ See MIAX EMERALD Rule 517(b).
    \195\ See MIAX EMERALD Rules 517(b) and 514(e).
    \196\ See MIAX Exchange Rules 517(b) and 514(e). See also MIAX 
Order, supra note 13, at 73080-82.
---------------------------------------------------------------------------

    MIAX EMERALD also will offer additional priority overlays at its 
discretion on a class-by-class basis, which include ``Priority 
Customer'' \197\ and ``Market Turner'' \198\ overlays. Priority 
overlays would only be applicable for pro-rata allocation.\199\ These 
priority overlays are the same as the priority overlays that were 
approved by the Commission for use on the MIAX Exchange.\200\
---------------------------------------------------------------------------

    \197\ Under the ``Priority Customer Overlay,'' the highest bid 
and lowest offer will have priority except that Priority Customer 
Orders will have priority over Professional Interest and all Market 
Maker interest at the same price. If there were two or more Priority 
Customer orders for the same options series at the same price, 
priority would be afforded based on the sequence in which such 
orders were received. See MIAX EMERALD Rule 514(d)(1); see also MIAX 
EMERALD Rule 100 (providing definitions of ``Priority Customer'' and 
``Professional Interest'').
    \198\ Under the ``Market Turner'' priority overlay, the ``Market 
Turner'' refers to the participant that was the first to enter an 
order or quote at a better price than the previous best disseminated 
MIAX EMERALD price, where such order or quote is continuously in the 
market until the order or quote trades. When this priority overlay 
is in effect, the Market Turner would have priority at the highest 
bid or lowest offer that he or she established. The Market Turner 
overlay will never be in effect in conjunction with other priority 
overlays. See MIAX EMERALD Rule 514(d)(2).
    \199\ See MIAX EMERALD Rule 514(d).
    \200\ See MIAX Exchange Rule 514(d).

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

[[Page 67433]]

    In addition, proposed MIAX EMERALD rules provide that it may grant 
Primary Lead Market Makers and Lead Market Makers certain participation 
entitlements. For example, Primary Lead Market Makers \201\ may be 
entitled to a participation entitlement with respect to each incoming 
order if they have a priority quote \202\ at the National Best Bid and 
Offer (``NBBO'').\203\ The Primary Lead Market Maker participation 
entitlements will only be in effect if the Priority Customer Overlay 
also is in effect and will apply only to any remaining balance after 
any Priority Customer orders have first been satisfied.\204\ Another 
proposed Primary Lead Market Maker entitlement provides that small size 
orders (i.e., five or fewer contracts) will be allocated in full to the 
Primary Lead Market Maker if it has a priority quote at the NBBO.\205\
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    \201\ See supra Section III.C.3 (discussing the various 
categories of Market Makers, including Primary Lead Market Makers).
    \202\ See supra notes 194-196 and accompanying text (discussing 
priority quotes).
    \203\ See MIAX EMERALD Rule 514(g). Specifically, the Primary 
Lead Market Maker's participation entitlement will be equal to the 
greater of: (i) The proportion of the total size at the best price 
represented by the size of its quote, or (ii) 60% of the contracts 
to be allocated if there is only one other Market Maker quotation at 
the NBBO or 40% if there are two or more other Market Maker quotes 
at the NBBO. See MIAX EMERALD Rule 514(g)(1).
    \204\ See MIAX EMERALD Rule 514(g). Further, neither a Primary 
Lead Market Maker nor a Lead Market Maker could be allocated a total 
quantity greater than the quantity they are quoting at the execution 
price, and they will not receive any further allocation of an order 
if they receive a participation entitlement. See id.
    \205\ See MIAX EMERALD Rule 514(g)(2). The rule also provides 
that MIAX EMERALD will review the functioning of this provision 
quarterly to make sure that small size orders do not account for 
more than 40% of the volume executed on MIAX EMERALD.
---------------------------------------------------------------------------

    MIAX EMERALD also permits Electronic Exchange Members \206\ to 
utilize Directed Orders.\207\ A ``Directed Order'' refers to an order 
that an Electronic Exchange Member enters into the Exchange system and 
directs to a particular Lead Market Maker, including a Primary Lead 
Market Maker \208\ (``Directed Lead Market Maker''). The Lead Market 
Maker must have an appointment in the relevant options class to receive 
a Directed Order in that class. A Directed Lead Market Maker may be 
granted a participation entitlement if he or she has a priority quote 
at the NBBO.\209\ The Directed Lead Market Maker participation 
entitlement will only be in effect if the Priority Customer Overlay 
also is in effect and will apply only to any remaining balance after 
Priority Customer orders have first been satisfied.
---------------------------------------------------------------------------

    \206\ An Electronic Exchange Member is the holder of a trading 
permit who is not a Market Maker. See MIAX EMERALD Rule 100.
    \207\ See MIAX EMERALD Rule 514(h).
    \208\ See supra Section III.C.3 (discussing the various 
categories of market makers, including Lead Market Makers).
    \209\ See MIAX EMERALD Rule 514(h). Specifically, the Directed 
Lead Market Maker's participation entitlement will be equal to the 
greater of: (i) The proportion of the total size at the best price 
represented by the size of its quote; (ii) 60% of the contracts to 
be allocated if there is only one other Market Maker quotation at 
the NBBO or 40% if there are two or more other Market Maker quotes 
at the NBBO; or (iii) one contract.
---------------------------------------------------------------------------

    These participation entitlements for Primary Lead Market Makers and 
Directed Lead Market Makers are identical to those that the Commission 
has approved for the MIAX Exchange.\210\ Further, the Commission 
believes that these entitlements are appropriately balanced by the 
obligations imposed on these classes of market makers, as discussed in 
detail above.\211\ In particular, the Commission notes that Primary 
Lead Market Makers and Lead Market Makers are subject to higher quoting 
obligations than other Registered Market Makers who are not eligible to 
receive the aforementioned participation entitlements.\212\ Therefore, 
the Commission believes that the proposed rules regarding participation 
entitlements are consistent with the Act.
---------------------------------------------------------------------------

    \210\ See MIAX Exchange Rules 514(g) (Primary Lead Market Maker 
Participation Entitlements) and 514(h) (Directed Lead Market Maker 
Participation Entitlements).
    \211\ See supra Section III.C.3.b (discussing market maker 
obligations).
    \212\ As discussed above, supra Section III.C.3.b, Primary Lead 
Market Makers must provide continuous two-sided quotes 90% of the 
time in the lesser of 99% of the series, or 100% of the series minus 
one put-call pair, in each class in which the Primary Lead Market 
Maker is assigned. See MIAX EMERALD Rule 604(e)(1). Lead Market 
Makers must provide continuous two-sided quotes 90% of the time in 
90% of the series in each of its appointed classes. See MIAX EMERALD 
Rule 604(e)(2).
---------------------------------------------------------------------------

    MIAX EMERALD proposes to make available order processing and 
matching features, which are based on those features available on MIAX 
Exchange and MIAX PEARL.\213\ MIAX EMERALD's system will automatically 
execute incoming orders/quotes that are executable against orders/
quotes in its system, provided that such incoming orders/quotes will 
not be executed at prices inferior to the NBBO.\214\ MIAX EMERALD Rule 
515 sets forth how the MIAX EMERALD system will handle incoming orders 
that cannot be executed in part or in full. In particular, MIAX EMERALD 
Rule 515 specifies a ``price protection process,'' a Managed Interest 
Process for non-Market Maker orders, a parallel process for handling 
Market Maker orders and quotes, and a Post Only Process, each discussed 
more fully below.
---------------------------------------------------------------------------

    \213\ See infra discussion of MIAX EMERALD's proposed price 
protection process, managed interest process, process for handling 
Market Maker orders and quotes, and process for handling Post-Only 
Orders and Quotes, which are based on substantially similar order 
processing and matching features on MIAX Exchange and MIAX PEARL.
    \214\ See MIAX EMERALD Rule 515(a) and (b).
---------------------------------------------------------------------------

    The MIAX EMERALD system offers a ``price protection'' process for 
non-Market Maker orders.\215\ Price protection prevents an order from 
being executed beyond the price designated in the order's price 
protection instructions (``the price protection limit''). The price 
protection limit is expressed in units of MPV away from the national 
best bid and offer (``NBBO'') at the time of the order's receipt, or 
the MIAX EMERALD Best Bid and Offer (``EBBO'') if the best bid or offer 
on away markets (``ABBO'') is crossing the EBBO.\216\ When triggered, 
price protection will cancel an order or the remaining contracts of an 
order. The MIAX EMERALD system will not execute such orders at prices 
inferior to the current NBBO.\217\
---------------------------------------------------------------------------

    \215\ See MIAX EMERALD Rule 515(c)(1).
    \216\ See MIAX EMERALD Rule 515(c)(1). The Exchange will publish 
a Regulatory Circular setting a minimum and maximum number of MPVs 
away from the NBBO (or EBBO if the ABBO is crossing the EBBO) that a 
market participant may designate for its price protection limit, 
provided that the minimum shall be no less than zero MPVs and the 
maximum shall be no more than 20 MPVs. The Exchange will also set, 
and announce by Regulatory Circular, a default price protection 
limit within 1 to 5 MPVs away from the NBBO (or EBBO if the ABBO is 
crossing the EBBO).
    \217\ See MIAX EMERALD Rule 515(c)(1).
---------------------------------------------------------------------------

    The MIAX EMERALD price protection process is substantially similar 
to that adopted by MIAX Exchange.\218\ The Commission believes that 
this price protection functionality can benefit all market 
participants.
---------------------------------------------------------------------------

    \218\ See MIAX Exchange Rule 515(c)(1).
---------------------------------------------------------------------------

    The Exchange's rules also provide for processes for managing non-
routable orders \219\ for non-Market Makers (``Managed Interest 
Process''), and for Market Maker orders or quotes (``Rule 515(d) 
Process''), that would either lock or cross the current opposite side 
ABBO where the EBBO is inferior to the ABBO (such non-Market Maker 
orders handled under the Managed Interest Process and Market Maker 
orders or quotes handled under the Rule 515(d) Process will, for 
purposes of this Order, be referred to collectively as ``managed orders 
or quotes'').\220\ The MIAX EMERALD

[[Page 67434]]

system will not execute such managed orders or quotes at prices 
inferior to the current NBBO.\221\ The managed order or quote would be 
displayed at one MPV away from the current opposite side ABBO and 
placed on the MIAX EMERALD Book at a price equal to the opposite side 
ABBO.\222\ Should the ABBO price change to an inferior price level, the 
managed order or quote's displayed price will continue to re-price so 
that it is displayed one MPV away from the new ABBO, and the managed 
order or quote's Book price will continuously re-price to lock the new 
ABBO.\223\ Such re-pricing will continue until the managed order or 
quote is fully executed, reaches its limit price, reaches its price 
protection limit, or is cancelled.\224\ During these processes, if the 
Exchange receives a new order or quote on the opposite side of the 
market from the managed order or quote that could be executed, the MIAX 
EMERALD system will immediately execute the remaining contracts to the 
extent possible at the managed order or quote's current booked bid or 
offer price, provided that it does not trade through the current 
NBBO.\225\
---------------------------------------------------------------------------

    \219\ Non-routable orders would include, for example, orders 
marked ``Do Not Route'' or Post-Only orders being handled under the 
Managed Interest Process.
    \220\ See MIAX EMERALD Rules 515(c)(1)(ii) (Managed Interest 
Process for Non-Routable Orders) and 515(d) (Handling of Market 
Maker Orders and Quotes).
    \221\ See id.
    \222\ See MIAX EMERALD Rules 515(c)(1)(ii)(B) and 515(d)(ii). 
See also MIAX Exchange Rule 515(c)(1)(ii) and MIAX PEARL Rule 
515(d)(2) (providing for the same Managed Interest Process) and MIAX 
Exchange Rule 515(d) (providing for the same handling of Market 
Maker orders and quotes).
    \223\ See id.
    \224\ See id.
    \225\ See MIAX EMERALD Rules 515(c)(1)(ii)(C) and 515(d)(iii). 
See also MIAX Exchange Rules 515(c)(1)(ii) and 515(d) and MIAX PEARL 
Rule 515(d)(2)(iii)(A).
---------------------------------------------------------------------------

    The Commission believes that MIAX EMERALD's processes for handling 
managed orders or quotes are consistent with the processes that the 
Commission approved for handling such orders and quotes on MIAX 
Exchange and MIAX PEARL.\226\
---------------------------------------------------------------------------

    \226\ See MIAX Exchange Rules 515(c)(1)(ii) and 515(d) and MIAX 
PEARL Rule 515(d)(2). With regard to the treatment of Post-Only 
Orders and Post-Only Quotes under MIAX EMERALD's processes, the 
Commission believes that the rules are consistent with the treatment 
of Post-Only Orders under MIAX PEARL's managed interest rule and 
rules that have been adopted by other exchanges. See MIAX EMERALD 
Rules 515(c)(1)(ii)(C)(2)-(3) and 515(d)(iii)(2)-(3) and MIAX PEARL 
Rule 515(d)(2)(iii)(B)-(C). See also, e.g., Bats BZX Rule 21.1(h) 
and Securities Exchange Act Release No. 77818 (May 12, 2016), 81 FR 
31283 (May 18, 2016) (SR-BatsBZX-2016-16).
---------------------------------------------------------------------------

    MIAX EMERALD will also have a process for the handling of certain 
Post-Only Orders and Quotes (together, ``Post-Only OQs'') (``POP 
Process'').\227\ The POP Process will apply to Post-Only OQs where the 
limit price of the Post-Only OQ locks or crosses the current opposite 
side EBBO where the EBBO is the NBBO (i.e., locks or crosses an order 
or quote on the MIAX EMERALD Book).\228\ The MIAX EMERALD system will 
display and book such Post-Only OQ one MPV away from the current 
opposite side EBBO.\229\ Should the EBBO price change to an inferior 
price level, the Post-Only OQ's Book price and displayed price would 
continuously re-price to one MPV away from new PBBO until the Post-Only 
OQ is fully executed, reaches its limit price, reaches its price 
protection limit, or is cancelled.\230\
---------------------------------------------------------------------------

    \227\ See MIAX EMERALD Rule 515(i).
    \228\ Non-Market Maker Post-Only Orders that lock or cross the 
current opposite side ABBO and the EBBO is inferior to the ABBO 
would be handled through the Managed Interest Process under Rule 
515(c)(1)(ii) as described above. Market Maker Post-Only OQs that 
lock or cross the current opposite side ABBO and the EBBO is 
inferior to the ABBO would be handled through the process under Rule 
515(d) as described above.
    \229\ See MIAX EMERALD Rule 515(i)(3)(ii).
    \230\ Id.
---------------------------------------------------------------------------

    Under the POP Process, if the Exchange receives a new order or 
quote on the opposite side of the market from the Post-Only OQ that 
could be executed, the MIAX EMERALD system would immediately execute 
the remaining contracts to the extent possible at the Post-Only OQ's 
current booked bid or offer price, provided that it does not trade 
through the current NBBO.\231\ If the Exchange receives a new Post-Only 
OQ on the opposite side of the market from a Post-Only OQ being managed 
under the POP Process, and the new Post-Only OQ locks or crosses the 
Book price of the resting Post-Only OQ, the Exchange will book and 
display the new Post-Only OQ one MPV away from the current opposite 
side EBBO.\232\
---------------------------------------------------------------------------

    \231\ See MIAX EMERALD Rule 515(i)(3)(iii)(A).
    \232\ See MIAX EMERALD Rule 515(i)(3)(iii)(B).
---------------------------------------------------------------------------

    The POP Process under MIAX EMERALD's rules is consistent with the 
POP Process that the Commission approved for MIAX PEARL.\233\
---------------------------------------------------------------------------

    \233\ See MIAX PEARL Rule 515(g).
---------------------------------------------------------------------------

    MIAX EMERALD also proposes to establish certain additional crossing 
and price improvement functionalities based on features available on 
MIAX Exchange. Mechanisms proposed by MIAX EMERALD that are 
substantially the same as those available on MIAX Exchange are: A Price 
Improvement Mechanism (``PRIME'') (which affords the opportunity for 
price improvement above the NBBO after an auction for eligible orders); 
\234\ a PRIME Solicitation Mechanism (which allows members representing 
agency orders the opportunity to cross large size solicited orders 
after an auction); \235\ and a PRIME for Complex Orders (which makes 
the MIAX EMERALD PRIME functionality available for complex 
orders).\236\ These mechanisms are consistent with substantially 
similar mechanisms currently existing on other options exchanges,\237\ 
as well as those offered by MIAX Exchange.\238\
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    \234\ See MIAX EMERALD Rule 515A(a).
    \235\ See MIAX EMERALD Rule 515A(b).
    \236\ See MIAX EMERALD Rule 515A, Interpretations and Policies 
.12.
    \237\ See, e.g., Cboe Rule 6.74A (Automated Improvement 
Mechanism) and Nasdaq PHLX, LLC Rule 1087 (Price Improvement XL).
    \238\ See MIAX Exchange Rule 519A.
---------------------------------------------------------------------------

    MIAX EMERALD will permit the trading of complex orders and quotes 
on the Exchange.\239\ The proposed rule defines the types of complex 
orders and quotes,\240\ and also describes the priority, execution, and 
allocation of complex orders and quotes,\241\ including a managed 
interest process for complex orders.\242\ MIAX EMERALD also proposes 
price and order protection features.\243\ In addition, MIAX EMERALD 
will establish a Complex Auction Process.\244\ MIAX EMERALD's rules 
governing the trading of complex orders and quotes are consistent with 
the complex order rules that the Commission approved for MIAX 
Exchange.\245\
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    \239\ See MIAX EMERALD Rule 518.
    \240\ See MIAX EMERALD Rule 518(a)-(b).
    \241\ See MIAX EMERALD Rule 518(c).
    \242\ See MIAX EMERALD Rule 518(c)(4).
    \243\ See MIAX EMERALD Rule 518, Interpretations and Policies 
.05.
    \244\ See MIAX EMERALD Rule 518(d).
    \245\ See Securities Exchange Act Release No. 79072 (October 7, 
2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26) (approving 
MIAX Exchange's proposed new rules governing the trading of complex 
orders).
---------------------------------------------------------------------------

    The Commission believes that MIAX EMERALD'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,\246\ 
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, or dealers. The Commission also finds that the 
proposed rules are consistent with Section 6(b)(8) of the Act,\247\ 
which requires that the rules of an exchange not impose any burden on

[[Page 67435]]

competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The trading rules of MIAX EMERALD are 
substantially similar to the current trading rules of MIAX Exchange, 
MIAX PEARL, 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.\248\ Therefore, the Commission believes 
that these rules are consistent with the Act.
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    \246\ 15 U.S.C. 78f(b)(5).
    \247\ 15 U.S.C. 78f(b)(8).
    \248\ Many of MIAX PEARL's and MIAX Exchange's rules were 
approved at the time that MIAX PEARL's and MIAX Exchange's 
registration as a national securities exchanges, respectively, were 
granted. See MIAX PEARL Order and MIAX Order, supra note 13.
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5. Section 11(a) of the Act
    Section 11(a)(1) of the Act \249\ 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 discretion 
(collectively, ``covered accounts''), unless an exception applies. 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.\250\
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    \249\ 15 U.S.C. 78k(a)(1).
    \250\ See Letter from Barbara J. Comly, EVP, General Counsel and 
Corporate Secretary, Miami Holdings, to Brent J. Fields, Secretary, 
Commission, and John C. Roeser, Associate Director, Office of Market 
Supervision, Division of Trading and Markets, Commission, dated 
November 30, 2018 (``MIAX EMERALD 11(a) Request Letter'').
---------------------------------------------------------------------------

    Rule 11a2-2(T) under the Act,\251\ 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 the 
transactions on the exchange. To comply with Rule 11a2-2(T)'s 
conditions, a member: (1) Must transmit the order from off the exchange 
floor; (2) may not participate in the execution of the transaction once 
it has been transmitted to the member performing the execution; \252\ 
(3) may not be affiliated with the executing member; and (4) with 
respect to an account over which the member has investment discretion, 
neither the member nor its associated person may retain any 
compensation in connection with effecting the transaction except as 
provided in the Rule.
---------------------------------------------------------------------------

    \251\ 17 CFR 240.11a2-2(T).
    \252\ The member may, however, participate in clearing and 
settling the transaction. See Securities Exchange Act Release No. 
14563 (March 14, 1978), 43 FR 11542 (March 17, 1978) (regarding the 
NYSE's Designated Order Turnaround System (``1978 Release'')).
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    In a letter to the Commission,\253\ MIAX EMERALD requested that the 
Commission concur with its conclusion that MIAX EMERALD members that 
enter orders into the MIAX EMERALD trading system satisfy the 
requirements of Rule 11a2-2(T). For the reasons set forth below, the 
Commission believes that MIAX EMERALD members entering orders into the 
MIAX EMERALD trading system will satisfy the conditions of Rule 11a2-
2(T).
---------------------------------------------------------------------------

    \253\ MIAX EMERALD 11(a) Request Letter, supra note 250.
---------------------------------------------------------------------------

    First, Rule 11a2-2(T) requires that orders for covered accounts be 
transmitted from off the exchange floor. MIAX EMERALD will not have a 
physical trading floor, and the MIAX EMERALD trading system will 
receive orders from members electronically through remote terminals or 
computer-to-computer interfaces. In the context of other automated 
trading systems, 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.\254\ Since the MIAX EMERALD trading system receives 
all orders electronically through remote terminals or computer-to- 
computer interfaces, the Commission believes that the trading system 
satisfies the off-floor transmission requirement.
---------------------------------------------------------------------------

    \254\ See, e.g., Securities Exchange Act Release Nos. 59154 
(December 23, 2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-
48) (order approving proposed rules of BX); 49068, (January 13, 
2004), 69 FR 2775 (January 20, 2004) (establishing, among other 
things, BOX as an options trading facility of Boston Stock Exchange, 
Inc.); 44983 (October 25, 2001), 66 FR 55225 (November 1, 2001) 
(approving the Pacific Exchange, Inc.'s (``PCX'') use of the 
Archipelago Exchange as its equity trading facility); 29237 (May 24, 
1991), 56 FR 24853 (May 31, 1991) (regarding NYSE's Off-Hours 
Trading Facility). See 1978 Release, supra note 252. See also 
Securities Exchange Act Release No. 15533 (January 29, 1979), 44 FR 
6084 (January 31, 1979) (regarding the American Stock Exchange 
(``Amex'') Post Execution Reporting System, the Amex Switching 
System, the Intermarket Trading System, the Multiple Dealer Trading 
Facility of the Cincinnati Stock Exchange, the PCX Communications 
and Execution System, and the Philadelphia Stock Exchange Automated 
Communications and Execution System) (``1979 Release'').
---------------------------------------------------------------------------

    Second, Rule 11a2-2(T) requires that the member not participate in 
the execution of its order once it has been transmitted to the member 
performing the execution. MIAX EMERALD has represented that the MIAX 
EMERALD trading system will at no time following the submission of an 
order allow a member or an associated person of such member to acquire 
control or influence over the result or timing of an order's 
execution.\255\ According to MIAX EMERALD, the execution of a member's 
order is determined solely by what orders, bids, or offers are present 
in the MIAX EMERALD trading system at the time the member submits the 
order and the order priority based on MIAX EMERALD rules.\256\ 
Accordingly, the Commission believes that a MIAX EMERALD member will 
not participate in the execution of its order submitted into the 
trading system.
---------------------------------------------------------------------------

    \255\ See MIAX EMERALD 11(a) Request Letter, supra note 253. 
Members may change or cancel an order or quote at any time before 
the order is executed on the Exchange. See MIAX EMERALD Form 1 
Application, Exhibit E. The Commission has stated that the non-
participation requirement is satisfied under such circumstances, so 
long as such modifications or cancellations are also transmitted 
from off the floor. See 1978 Release, supra note 252 (stating that 
the ``non-participation requirement does not prevent initiating 
members from canceling of modifying orders (or the instructions 
pursuant to which the initiating member wishes orders to be 
executed) after the orders have been transmitted to the executing 
member, provided that any such instructions are also transmitted 
from off the floor'').
    \256\ See MIAX EMERALD 11(a) Request Letter, supra note 253.
---------------------------------------------------------------------------

    Rule 11a2-2(T)'s third condition is that the order be executed by 
an exchange member who is unaffiliated with the member initiating the 
order. The Commission has stated that the requirement is satisfied when 
automated exchange facilities, such as the MIAX EMERALD trading system, 
are used, as long as the design of these systems ensures that members 
do not possess any special or unique trading advantages over non-
members in handling their orders after transmitting them to MIAX 
EMERALD.\257\ MIAX EMERALD has represented that the design of its 
trading 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 EMERALD.\258\ Based on MIAX EMERALD's 
representation, the Commission believes that the MIAX EMERALD trading 
system satisfies this requirement.''
---------------------------------------------------------------------------

    \257\ In considering the operation of automated execution 
systems operated by an exchange, the Commission noted that while 
there is no independent executing exchange member, the execution of 
an order is automatic once it has been transmitted into each system. 
Because the design of these systems ensures that members do not 
possess any special or unique trading advantages in handling their 
orders after transmitting them to the exchange, the Commission has 
stated that executions obtained through these systems satisfy the 
independent execution requirement of Rule 11a2-2(T). See 1979 
Release, supra note 254.
    \258\ See MIAX EMERALD 11(a) Request Letter, supra note 253.
---------------------------------------------------------------------------

    Fourth, in the case of a transaction effected for an account with 
respect to

[[Page 67436]]

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).\259\ MIAX 
EMERALD members trading for covered accounts over which they exercise 
investment discretion must comply with this condition in order to rely 
on the rule's exemption.\260\
---------------------------------------------------------------------------

    \259\ 17 CFR 240.11a2-2(T)(a)(2)(iv). In addition, Rule 11a2-
2(T)(d) requires a member or associated person authorized by written 
contract to retain compensation, in connection with effecting 
transactions for covered accounts over which such member or 
associated person thereof exercises investment discretion, to 
furnish at least annually to the person authorized to transact 
business for the account a statement setting forth the total amount 
of compensation retained by the member in connection with effecting 
transactions for the account during the period covered by the 
statement. See 17 CFR 240.11a2-2(T)(d). See also 1978 Release, supra 
note 252 (stating ``[t]he contractual and disclosure requirements 
are designed to assure that accounts electing to permit transaction-
related compensation do so only after deciding that such 
arrangements are suitable to their interests'').
    \260\ See MIAX EMERALD 11(a) Request Letter, supra note 253.
---------------------------------------------------------------------------

D. Discipline and Oversight of Members

    As noted above, 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.\261\ 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.\262\
---------------------------------------------------------------------------

    \261\ See 15 U.S.C. 78f(b)(1).
    \262\ See id.
---------------------------------------------------------------------------

    MIAX EMERALD's rules codify MIAX EMERALD's disciplinary 
jurisdiction over its members, thereby facilitating its ability to 
enforce its members' compliance with its rules and the federal 
securities laws.\263\ MIAX EMERALD's rules permit it to sanction 
members for violations of its rules and violations of any provision of 
the Act or the rules and regulations promulgated thereunder, 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 EMERALD rules.\264\
---------------------------------------------------------------------------

    \263\ See MIAX EMERALD Rule 1000 (which incorporates by 
reference MIAX Exchange Rule 1000).
    \264\ See id. See also MIAX Exchange Rule 1000, Cboe Rule 
17.1(a), and Nasdaq ISE, LLC Rule 1600(a) (containing similar 
provisions).
---------------------------------------------------------------------------

    MIAX EMERALD's disciplinary and oversight functions will be 
administered in accordance with Chapter X of the MIAX EMERALD rules 
which governs disciplinary actions and which incorporates by reference 
Chapter X of the MIAX Exchange rules. Unless delegated to another SRO 
pursuant to the terms of any effective 17d-2 plan,\265\ MIAX EMERALD 
regulatory staff (including regulatory staff of another SRO that may be 
acting on MIAX EMERALD's behalf pursuant to a regulatory services 
agreement) will, among other things, investigate potential securities 
laws violations and initiate charges pursuant to MIAX EMERALD 
rules.\266\
---------------------------------------------------------------------------

    \265\ See supra Section II.B.3.c (concerning the 17d-2 plans to 
which MIAX EMERALD has committed to join).
    \266\ See MIAX EMERALD Rules 1002 and 1004 (which incorporate by 
reference MIAX Exchange Rules 1002 and 1004, respectively). As noted 
above, MIAX EMERALD has entered into an RSA with FINRA under which 
FINRA will perform certain regulatory functions on behalf of MIAX 
EMERALD. See MIAX EMERALD Rule 1015 (which incorporates by reference 
MIAX Exchange Rule 1015).
---------------------------------------------------------------------------

    Upon a finding of probable cause of a violation within the 
disciplinary jurisdiction of MIAX EMERALD and where further proceedings 
are warranted,\267\ MIAX EMERALD will conduct a hearing on disciplinary 
matters before a professional hearing officer \268\ and two members of 
the Business Conduct Committee \269\ (the ``Panel'').\270\ The MIAX 
EMERALD member (or their associated person) or the MIAX EMERALD 
regulatory staff may petition for review of the decision of the Panel 
by the MIAX EMERALD Board.\271\ Any review would be conducted by the 
MIAX EMERALD Board or a committee thereof composed of at least three 
Directors of the MIAX EMERALD Board \272\ (whose decision must be 
ratified by the MIAX EMERALD Board) and such decision will be 
final.\273\ In addition, the MIAX EMERALD Board on its own motion may 
order review of a disciplinary decision.\274\
---------------------------------------------------------------------------

    \267\ See MIAX EMERALD Rule 1004 (which incorporates by 
reference MIAX Exchange Rule 1004).
    \268\ See MIAX EMERALD Rule 1015, Interpretation and Policy .01 
(which incorporates by reference MIAX Exchange Rule 1015, 
Interpretation and Policy .01).
    \269\ See MIAX EMERALD By-Laws, Article IV, Section 4.7.
    \270\ See MIAX EMERALD Rule 1006 (which incorporates by 
reference MIAX Exchange Rule 1006).
    \271\ See MIAX EMERALD Rule 1010 (which incorporates by 
reference MIAX Exchange Rule 1010).
    \272\ Specifically, the Chairman of the MIAX EMERALD Board, with 
the approval of the Board, shall appoint an Appeals Committee to 
preside over all appeals related to disciplinary and adverse action 
determinations. See note 46 and accompanying text (detailing the 
composition of the Appeals Committee). If the Independent Director 
serving on the Appeals Committee recuses himself or herself from an 
appeal, due to conflict of interest or otherwise, the Independent 
Director may be replaced by a Non-Industry Director for purposes of 
the applicable appeal if there is no other Independent Director able 
to serve as the replacement. See MIAX EMERALD By-Laws, Article IV, 
Section 4.5(d). See also MIAX Exchange Amended and Restated By-Laws, 
Article IV, Section 4.5(d).
    \273\ See MIAX EMERALD Rule 1010 (which incorporates by 
reference MIAX Exchange Rule 1010).
    \274\ See id.
---------------------------------------------------------------------------

    Appeals from any determination that impacts access to MIAX EMERALD, 
such as termination or suspension of membership, will be instituted 
under, and governed by, the provisions in the Chapter XI of the MIAX 
EMERALD Rules which incorporates by reference Chapter XI of the MIAX 
Exchange Rules. MIAX EMERALD's Chapter XI applies to persons 
economically aggrieved by any of the following actions of MIAX EMERALD 
including, but not limited to: (a) Denial of an application to become a 
Member; (b) barring a person from becoming associated with a Member; 
(c) limiting or prohibiting services provided by MIAX EMERALD or 
services of any exchange member.\275\
---------------------------------------------------------------------------

    \275\ See MIAX EMERALD Rule 1100 (which incorporates by 
reference MIAX Exchange Rule 1100). As noted above, MIAX EMERALD has 
entered into a RSA with FINRA under which FINRA will perform certain 
regulatory functions on behalf of MIAX EMERALD. MIAX EMERALD may 
perform some or all of the functions specified in the Chapter XI of 
the MIAX EMERLAD Rules, which incorporates by reference Chapter XI 
of the MIAX Exchange Rules. See supra note 110. See also MIAX 
EMERALD Rule 1106 (which incorporates by reference MIAX Exchange 
Rule 1106).
---------------------------------------------------------------------------

    Any person aggrieved by an action of MIAX EMERALD within the scope 
of Chapter XI may file a written application to be heard within thirty 
days \276\ after such action has been taken.\277\ Applications for 
hearing and

[[Page 67437]]

review will be referred to the Business Conduct Committee, which will 
appoint a hearing panel of no less than three members of such 
Committee.\278\ The decision of the hearing panel made pursuant to 
Chapter XI of the MIAX EMERALD rules is subject to review by the MIAX 
EMERALD Board, either on its own motion within 30 days after issuance 
of the decision, or upon written request submitted by the applicant or 
the President of MIAX EMERALD within 15 days after issuance of the 
decision.\279\ The review would be conducted by the MIAX EMERALD Board 
or a committee of the MIAX EMERALD Board composed of at least three 
directors.\280\
---------------------------------------------------------------------------

    \276\ An applicant may file for an extension of time as allowed 
by the Chairman of the Business Conduct Committee within thirty days 
of MIAX EMERALD's action. An application for an extension will be 
ruled upon by the Chairman of the Business Conduct Committee, and 
his ruling will be given in writing. Rulings on applications for 
extensions of time are not subject to appeal. See MIAX EMERALD Rule 
1101 (which incorporates by reference MIAX Exchange Rule 1101).
    \277\ The application must include: (1) The action for which 
review is sought; (2) the specific reasons for the applicant's 
exception to such action; (3) the relief sought; and (4) whether the 
applicant intends to submit any documents, statements, arguments or 
other material in support of the application, with a description of 
any such materials. See MIAX EMERALD Rule 1101(a) (which 
incorporates by reference MIAX Exchange Rule 1101(a)).
    \278\ See MIAX EMERALD Rule 1102 (which incorporates by 
reference MIAX Exchange Rule 1102). The decision of the hearing 
panel will be made in writing and sent to the parties to the 
proceedings. See MIAX EMERALD Rule 1103(d) (which incorporates by 
reference MIAX Exchange Rule 1103(d)).
    \279\ See MIAX EMERALD Rule 1104(a) (which incorporates by 
reference MIAX Exchange Rule 1104(a)). The MIAX EMERALD Board, or a 
committee of the MIAX EMERALD Board, will have sole discretion to 
grant or deny either request. See id.
    \280\ See MIAX EMERALD Rule 1104(b) (which incorporates by 
reference MIAX Exchange Rule 1104(b)). The MIAX EMERALD Board or its 
designated committee may affirm, reverse, or modify in whole or in 
part, the decision of the hearing panel. The decision of the MIAX 
EMERALD Board or its designated committee would be final, and must 
be in writing and would be sent to the parties to the proceeding. 
See MIAX EMERALD Rule 1104(c) (which incorporates by reference MIAX 
Exchange Rule 1104(c)).
---------------------------------------------------------------------------

    The Commission finds that MIAX EMERALD's proposed disciplinary and 
oversight rules and structure, as well as its proposed process for 
persons economically aggrieved by certain MIAX EMERALD actions, are 
consistent with the requirements of Sections 6(b)(6) and 6(b)(7) of the 
Act \281\ in that they provide fair procedures for the disciplining of 
members and persons associated with members. The Commission further 
finds that the proposed MIAX EMERALD rules are designed to provide MIAX 
EMERALD 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 EMERALD.\282\ The Commission notes that MIAX 
EMERALD's proposed disciplinary and oversight rules and structures are 
similar to the rules of other exchanges.\283\
---------------------------------------------------------------------------

    \281\ 15 U.S.C. 78f(b)(6) and (b)(7), respectively.
    \282\ See Section 6(b)(1) of the Act, 15 U.S.C. 78f(b)(1).
    \283\ See, e.g., ISE Mercury Order, supra note 27, ISE Gemini 
Order, supra note 27, MIAX PEARL Order, supra note 13, and MIAX 
Order, supra note 13.
---------------------------------------------------------------------------

E. Listing Requirements

    MIAX EMERALD does not intend to initially list or trade common 
stock or non-option securities of operating companies but rather 
initially intends only to trade option contracts that meet the options 
listing standards of the Exchange.\284\ MIAX EMERALDS's listing rules, 
including the criteria for the underlying securities of the options to 
be traded, incorporate by reference all of the listing rules of the 
MIAX Exchange, and are substantially similar to the listing standards 
adopted by other options exchanges.\285\
---------------------------------------------------------------------------

    \284\ See MIAX EMERALD Rules Chapter IV (Option Contracts Traded 
on the Exchange) (which incorporates by reference MIAX Exchange 
Chapter IV) and Chapter XVIII (Index Options) (which incorporates by 
reference MIAX Exchange Chapter XVIII).
    \285\ See MIAX Exchange Rules Chapter IV and Chapter XVIII, and 
MIAX PEARL Rules Chapter IV and Chapter XVIII. See also Nasdaq GEMX, 
LLC Rule 500 Series and Rule 2000 Series.
---------------------------------------------------------------------------

    The Commission finds that MIAX EMERALD's proposed initial and 
continued listing rules are consistent with the Act, including Section 
6(b)(5),\286\ 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 EMERALD 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'').\287\ In addition, before beginning operation, 
MIAX EMERALD will need to become a participant in the Options Clearing 
Corporation.
---------------------------------------------------------------------------

    \286\ 15 U.S.C. 78f(b)(5).
    \287\ 15 U.S.C. 78k-1(a)(3)(B).
---------------------------------------------------------------------------

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 EMERALD proposes to incorporate by reference certain MIAX 
Exchange, Cboe, NYSE, and FINRA rules.\288\ Thus, for certain MIAX 
EMERALD rules, MIAX EMERALD members will comply with a MIAX EMERALD 
rule by complying with the referenced MIAX Exchange, Cboe, NYSE, and 
FINRA rules.
---------------------------------------------------------------------------

    \288\ Specifically, MIAX EMERALD proposes to incorporate by 
reference the following MIAX Exchange Rules: Chapter III (Business 
Conduct), Chapter IV (Option Contracts Traded on the Exchange), 
Chapter VII (Exercises and Deliveries), Chapter VIII (Records, 
Reports and Audits), Chapter IX (Summary Suspension), Chapter X 
(Discipline), Chapter XI (Hearings, Review and Arbitration), Chapter 
XIII (Doing Business With the Public), Chapter XIV (Order 
Protection, Locked and Crossed Markets), Chapter XV (Margins), 
Chapter XVI (Net Capital Requirements), Chapter XVII (Consolidated 
Audit Trail Compliance Rule), and Chapter XVIII (Index Options). The 
following rules are cross-referenced in the MIAX Exchange rules: 
MIAX Exchange Rule 1107 (Arbitration) incorporates by reference the 
Rule 12000 Series and Rule 13000 Series of the FINRA Manual and 
FINRA Rule 2268; MIAX Exchange Rule 1321 (Transfer of Accounts) 
cross-references FINRA Rule 11870; MIAX Exchange Rule 1502 (Margin 
Requirements) cross-references the Cboe and NYSE rules concerning 
initial and maintenance margin requirements that may be in effect 
from time to time.
---------------------------------------------------------------------------

    In connection with the proposal to incorporate MIAX Exchange, Cboe, 
NYSE, and FINRA rules by reference, MIAX EMERALD requests, pursuant to 
Rule 240.0-12 under the Act,\289\ 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 EMERALD rules that are effected solely by virtue of 
a change to a cross-referenced MIAX Exchange, Cboe, NYSE or FINRA 
rule.\290\ MIAX EMERALD proposes to incorporate by reference categories 
of rules, rather than individual rules within a category, that are not 
trading rules. In addition, MIAX EMERALD agrees to provide written 
notice to its members whenever MIAX Exchange, Cboe, NYSE or FINRA 
proposes a change to a cross-referenced rule \291\ and whenever any 
such proposed changes are approved by the Commission or otherwise 
become effective.\292\
---------------------------------------------------------------------------

    \289\ 17 CFR 240.0-12.
    \290\ See Letter from Barbara J. Comly, EVP, General Counsel and 
Corporate Secretary, Miami Holdings, to Brent J. Fields, Secretary, 
Commission, dated November 30, 2018.
    \291\ See id.
    \292\ MIAX EMERALD will provide such notice through a posting on 
the same website location where MIAX EMERALD posts its own rule 
filings pursuant to Rule 19b-4(l) under the Act, within the required 
time frame. The website posting will include a link to the location 
on the MIAX Exchange, Cboe, NYSE or FINRA website where MIAX 
Exchange, Cboe, NYSE or FINRA's proposed rule change is posted. See 
id.
---------------------------------------------------------------------------

    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.\293\ The Commission is 
hereby granting MIAX EMERALD's request for exemption, pursuant to 
Section 36 of

[[Page 67438]]

the Act, from the rule filing requirements of Section 19(b) of the Act 
with respect to the rules that MIAX EMERALD proposes to incorporate by 
reference. The exemption is conditioned upon MIAX EMERALD providing 
written notice to MIAX EMERALD members whenever MIAX Exchange, Cboe, 
NYSE or FINRA proposes to change an incorporated by reference rule and 
when the Commission approves any such changes. The Commission believes 
that the exemption is appropriate in the public interest and consistent 
with the protection of investors because it will promote more efficient 
use of 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.
---------------------------------------------------------------------------

    \293\ See, e.g., MIAX PEARL Order and MIAX Order, supra note 13, 
ISE Mercury Order, supra note 27, BATS Order, supra note 13, C2 
Order, supra note 75, Nasdaq Order, supra note 27, and NOM Approval 
Order, supra note 112.
---------------------------------------------------------------------------

V. Conclusion

    It is ordered that the application of MIAX EMERALD for registration 
as a national securities exchange be, and it hereby is, granted.
    It is further ordered that operation of MIAX EMERALD is conditioned 
on the satisfaction of the requirements below:
    A. Participation in National Market System Plans Relating to 
Options Trading. MIAX EMERALD 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. Participation in Multiparty Rule 17d-2 Plans. MIAX EMERALD must 
become a party to the multiparty Rule 17d-2 agreements concerning 
options sales practice regulation and market surveillance, and covered 
Regulation NMS rules;
    C. Participation in the Options Clearing Corporation. MIAX EMERALD 
must become an Options Clearing Corporation participant exchange; and
    D. Participation in the Intermarket Surveillance Group. MIAX 
EMERALD must join the Intermarket Surveillance Group.
    It is further ordered, pursuant to Section 36 of the Act,\294\ that 
MIAX EMERALD 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 EMERALD proposes to incorporate by reference, 
subject to the conditions specified in this order that MIAX EMERALD 
provide written notice to MIAX EMERALD members whenever MIAX Exchange,
---------------------------------------------------------------------------

    \294\ 15 U.S.C. 78mm.
---------------------------------------------------------------------------

    Cboe, NYSE or FINRA proposes to change an incorporated by reference 
rule and when the Commission approves any such changes.

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2018-28179 Filed 12-27-18; 8:45 am]
 BILLING CODE 8011-01-P