Market regulator Securities and Exchange Board of India (SEBI) has proposed a comprehensive framework for the introduction and ongoing management of strike prices in options contracts to ensure trading continuity during periods of sharp intraday market volatility.
In a
consultation paper issued on Monday, the market regulator said significant fluctuations in underlying asset or futures prices can push market movements beyond the farthest available strike price, creating inconvenience for market participants due to the absence of options contracts around prevailing market levels.
A strike price is the predetermined price at which an options contract can be exercised. Inadequate availability of strike prices close to prevailing market prices can make it difficult for traders and investors to find suitable contracts during sharp market movements.
To address the issue, SEBI has proposed that all stock exchanges put in place a transparent and comprehensive framework governing the introduction and management of strike prices for options contracts across equity, currency and commodity derivatives segments.
Under the proposal, exchanges would be required to maintain a minimum number of in-the-money and out-of-the-money options contracts around prevailing market prices. Exchanges would also need to carry out daily reviews of strike price availability to ensure trading continuity for market participants.
The regulator has further proposed a mechanism to introduce new strike prices in the direction of market movement during trading hours. According to SEBI, such intra-day additions of strike prices should not require changes in the systems of stockbrokers or market participants during live market operations.
The consultation paper stated that exchanges should also periodically review and remove strike prices that are significantly away from prevailing market levels to improve operational efficiency.
SEBI said the operationalisation of the framework, including rules on strike intervals, the number of contracts to be issued, and the use of wider strike intervals for strikes far from prevailing market prices, would remain at the discretion of individual stock exchanges, depending on liquidity and participation across different market segments.
The regulator has also proposed that stock exchanges publish the framework on their websites and review it periodically in consultation with market participants.
According to SEBI, the move is aimed at improving ease of doing business in the derivatives segment while ensuring predictability and availability of options contracts during periods of heightened volatility.
The proposed framework would replace the existing provision under Clause 2.1.7.3 of Chapter 5 of SEBI’s Master Circular on Stock Exchanges and Clearing Corporations dated 30 December 2024.
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