The Securities and Exchange Board of India (SEBI) has proposed a uniform framework for introducing and managing strike prices of options contracts across exchanges, including a mechanism for intraday addition of new strike prices during periods of heightened volatility.
The move is aimed at ensuring “predictability and availability of options contracts in case of heightened intraday volatility for ease of trading in the derivatives segment,” the regulator said.
Under the proposal, stock exchanges will be required to put in place a comprehensive framework covering the introduction of a minimum number of in-the-money and out-of-the-money options contracts, daily review of strike availability and removal of contracts far away from prevailing market prices.
SEBI has proposed that exchanges should have a provision to introduce new strike prices for options contracts intraday during market hours, in the direction of price movement in the underlying. Such intraday introduction of strike prices would not require changes in the systems of stock brokers or market participants during live market operations.
A strike price is the fixed level at which an options contract can be exercised. Strike intervals have a bearing on trading activity of market participants in terms of availability of trading products for the participants. “These products need to be loaded in the trading applications / portals of stock brokers on a daily basis and thus, also have a bearing on the systems of stock brokers,” SEBI said in a draft paper, inviting public comments by June 15.
“In case of significant intraday volatility, resulting in price movement beyond the farthest available strike price, the market participants could be inconvenienced because of unavailability of options contracts around prevailing price.”
The framework will apply across equity, currency and commodity derivatives segments, though exchanges will have flexibility to decide operational details such as strike intervals and the minimum number of contracts based on liquidity and participation in each segment.
At present, SEBI’s regulatory framework primarily covers long-dated index options, while other segments, including stock, currency and commodity options, follow exchange-specific practices, leading to differences in how strike prices are introduced and managed.
SEBI has proposed discontinuing the existing clause in its December 2024 master circular on stock exchanges and clearing corporations once the new framework is operationalised.