Mumbai, The Securities and Exchange Board of India (SEBI) on Monday proposed a standardised framework for managing strike prices of options contracts to ensure contracts remain available close to prevailing market levels during sharp intraday volatility.
The move is aimed at improving trading continuity and ease of doing business in derivatives markets, the market regulator said in a consultation paper.
A strike price is a pre-determined price at which an options contract can be exercised and inadequate availability of strike prices near the current market level could pose challenges to trading when prices move sharply, as participants will find it difficult to find suitable contracts to trade.
SEBI considers proposing to exchanges to maintain a minimum number of in‑the‑money and out‑of‑the‑money strikes around the market price, conduct daily reviews and introduce new strike prices intraday in the direction of market movements.
Such intraday introduction of strikes prices (i.e. options contracts) will not require changes in the systems of stock brokers or market participants during live market operations.
The operationalisation of new framework shall be at the discretion of individual stock exchanges including whether to keep larger strike intervals for contracts away from prevailing market price, minimum number of options contracts to be issued, etc.
The proposals want stock exchanges to establish a comprehensive and transparent framework governing the introduction and management of strike prices.
“Stock exchanges shall publish such framework on their website and review the framework periodically in consultation with market participants,” the consultation paper said.
Periodic removal of strikes that lie far from current market levels should also be done to improve operational efficiency, SEBI said.
The proposed rules will apply across equity, currency and commodity derivatives segments. The regulator has sought public comments on the proposal until June 15.
