The Securities and Exchange Board of India (SEBI) has put forth a standardized framework for managing strike prices of options contracts to ensure availability near prevailing market levels during sharp intraday volatility. This move aims to enhance trading continuity and facilitate business operations in derivatives markets, as per a consultation paper by the market regulator. Strike prices, predetermined levels at which options contracts can be exercised, are crucial for trading, and insufficient availability near current market levels can hinder trading activities during price fluctuations.
SEBI is contemplating suggesting exchanges to uphold 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 alignment with market movements. The introduction of intraday strike prices, i.e., options contracts, will not necessitate alterations in the systems of stockbrokers or market participants during live market operations. The implementation of this new framework will be left to individual stock exchanges, including decisions on strike intervals, the issuance of options contracts, and more.
The proposals advocate for stock exchanges to establish a transparent and comprehensive framework governing the introduction and management of strike prices. This framework is expected to be published on the exchanges’ websites, subject to periodic reviews in consultation with market participants. SEBI also recommends periodic removal of strikes significantly distant from current market levels to enhance operational efficiency. The proposed rules are set to be applicable across equity, currency, and commodity derivatives segments, with public comments invited until June 15.
