Nasdaq BX, Inc., an options exchange operated by Nasdaq, Inc., has filed a proposed rule change with the Securities and Exchange Commission to delay the implementation of its 'Ouch to Trade Options' or OTTO protocol. The filing, designated as SR-BX-2025-028, was submitted on November 19, 2025, and published in the Federal Register on December 5, 2025. This delay pushes back the operative date of rules adopted in a prior filing, SR-BX-2024-048, from on or before December 20, 2025, to on or before the second quarter of 2027. The proposal became effective immediately under Section 19(b)(3)(A) of the Securities Exchange Act of 1934, as it does not significantly affect investor protection or impose burdens on competition. The SEC is now soliciting comments from interested parties until December 26, 2025. This development highlights ongoing adjustments in exchange technology deployments, reflecting the need to balance innovation with operational stability in the options trading landscape.
Background on OTTO Protocol
The OTTO protocol, a proprietary system developed by Nasdaq, Inc., is designed to facilitate order entry and execution on the BX options market. As outlined in the original filing SR-BX-2024-048, published in the Federal Register on December 2, 2024, OTTO would enable participants and their sponsored customers to connect to the exchange for sending and receiving messages related to orders, auction orders, and responses. Key features include options symbol directory messages, system event notifications such as the start of trading hours, trading action alerts like halts and resumes, execution reports, order messages, risk protection triggers, auction notifications, responses, and post-trade allocation messages. Unlike the Financial Information eXchange or FIX protocol, OTTO does not support routing capabilities, focusing instead on direct interaction with the BX trading system.
The BX options market operates as an automated system for order execution and trade reporting, as defined in BX Options Rule 1, Section 1(a)(59). This includes services for executing transactions in option series, submitting locked-in trades for clearing, transmitting last-sale reports to the Options Price Reporting Authority, and providing monitoring tools for participants. OTTO was intended to enhance these functionalities by offering an alternative protocol for market participants. The rules for OTTO were adopted as effective but not operative in SR-BX-2024-048, with Nasdaq BX planning to announce the implementation date via an Options Trader Alert.
Purpose of the Proposed Delay
Nasdaq BX cites the need for additional time to code and test the OTTO functionality as the primary reason for the delay. The exchange notes that this extension is necessary due to concurrent technology migrations on other Nasdaq-affiliated markets. These migrations likely involve updates to trading platforms, risk management systems, or data feeds across Nasdaq's network of exchanges, which include equity and options venues. By postponing OTTO's rollout to on or before Q2 2027, BX aims to ensure thorough testing and integration, minimizing potential disruptions to market operations.
The filing emphasizes that the exchange will notify participants of the exact implementation date through an Options Trader Alert at least 30 days in advance. This approach aligns with standard practices for exchange rule changes, providing transparency and preparation time for market participants. No changes to the substantive rules of OTTO are proposed, only an adjustment to the timeline for making them operative.
Statutory Basis and Regulatory Compliance
Nasdaq BX asserts that the delay is consistent with Section 6(b) of the Securities Exchange Act of 1934, which requires exchanges to promote just and equitable principles of trade, remove impediments to a free and open market, and protect investors and the public interest. Specifically, the proposal furthers Section 6(b)(5) by allowing sufficient time for development and testing, thereby enhancing the reliability of the trading system. The exchange argues that rushing implementation amid other projects could introduce risks, and the delay mitigates this without altering the protocol's core benefits.
On competition, BX states that the delay imposes no undue burden, as OTTO will not be available to any participant until the new date, maintaining a level playing field. The filing qualifies for immediate effectiveness under Rule 19b-4(f)(6), as it meets criteria for not significantly impacting investor protection or competition. This streamlined process is common for non-controversial changes, such as implementation timelines, and allows the SEC to solicit comments post-filing.
Implications and Perspectives
The delay could have short-term effects on market participants who anticipated using OTTO for options trading on BX. Firms relying on advanced protocols for high-speed order entry might need to continue using existing systems like FIX, potentially affecting efficiency or strategy deployment. In the long term, a well-tested OTTO could improve market liquidity and execution quality, benefiting the broader options ecosystem. However, repeated delays in exchange technology rollouts, as seen in other Nasdaq initiatives, raise questions about resource allocation and project management in a competitive exchange environment.
Different stakeholders offer varied views. Exchange operators like Nasdaq emphasize operational prudence to avoid system failures, which could erode trust. Regulators, including the SEC, prioritize investor protection and market stability, viewing delays as preferable to hasty implementations. Market participants, such as broker-dealers and traders, may express frustration over postponed innovations but appreciate the focus on reliability. No formal comments were received on the original OTTO filing, but this delay opens a new window for input, potentially influencing future adjustments.
In conclusion, Nasdaq BX's decision to delay OTTO underscores the complexities of integrating new trading technologies amid broader infrastructure updates. Key takeaways include the exchange's commitment to thorough testing and regulatory compliance. Looking ahead, potential next steps involve the SEC reviewing any submitted comments and possibly instituting proceedings if concerns arise. Ongoing debates may center on balancing innovation timelines with risk management, as well as the role of proprietary protocols in fostering competition among options exchanges. Challenges could include adapting to evolving market demands or addressing any unforeseen technical issues during the extended development period.
