The Securities and Exchange Board of India (SEBI) has proposed a comprehensive framework to introduce and manage option contracts strike prices across all market segments. According to the latest consultation paper, this initiative aims to enable smoother trading during market volatility by improving predictability and availability of option strikes. The proposal covers all segments including equity, currency, and commodities, addressing current market inefficiencies where sharp swings in underlying assets lead to unavailability of contracts around prevailing prices for traders. Under the proposed framework, stock exchanges will be required to put in place a comprehensive mechanism for introducing and reviewing option strike prices across all segments, ensuring better contract availability across different price levels.
The proposal addresses significant gaps in the current regulatory structure. As reported by The Financial Express, currently, there is only one regulatory mechanism dealing with the rationalisation of strike intervals for long-dated index options, while stock exchanges follow separate frameworks to manage strike intervals. This fragmented approach has created inconsistencies in option contract availability during volatile market conditions. The regulator has identified that sharp swing in the underlying asset leads to unavailability of contracts around the prevailing price for traders, necessitating the proposed standardized framework. The proposed norms would replace the existing clause related to rationalisation of strike intervals under SEBI's master circular on stock exchanges and clearing corporations issued in December 2024.
SEBI's consultation paper outlines several key measures to enhance option trading efficiency. According to the proposal, the regulator plans to introduce rules for introducing options to cover minimum number of in-the-money and out-of-the-money contracts, ensuring better contract availability across different price levels. The framework includes daily review of availability of strike prices around prevailing market price and periodic elimination of contracts that are far away from the spot price. Additionally, the regulator proposes zero-disruption intraday option strike prices that will be introduced during market hours in the direction of price movement in the underlying asset. A key feature of the proposal is the ability to introduce fresh strike prices intraday in the direction of market movement without requiring brokers or market participants to make system-level changes during live trading hours.
The proposed framework includes specific operational requirements for market participants. As reported by The Financial Express, if implemented, stock exchanges will publish such framework on their website and review the framework periodically in consultation with market participants. The regulator notes that rule and formulae may differ across segments depending on liquidity and participation levels, allowing for segment-specific adaptations based on market conditions. SEBI has proposed giving exchanges operational flexibility in deciding strike intervals, the number of contracts to be introduced and whether wider intervals should be maintained for strikes far away from prevailing prices. The consultation period for public comments on this proposal is set to close by June 15, 2026.
