The Securities and Exchange Board of India (Sebi) has proposed a broad framework for the introduction and management of strike prices in options contracts to ensure trading continues during periods of heightened market volatility.
In a consultation paper issued on Monday, the market regulator said exchanges should put in place a comprehensive mechanism governing the introduction, review and removal of option strike prices across derivatives segments including equity, currency and commodities.
A strike price is the predetermined price at which an options contract gives the buyer the right to buy or sell the underlying asset.
Sebi said existing regulatory provisions only cover rationalisation of strike intervals for long-dated index options, while exchanges currently follow their own frameworks for strike management. Strike intervals, the regulator said, directly affect trading activity and also influence the operational systems of brokers, which need to load contracts into trading applications daily.
“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,” Sebi said in the draft paper.
Raj Shah, co-founder and executive director at EPP Securities, said, “For traders, the proposal can improve execution efficiency, pricing accuracy and hedging flexibility, as they may not have to rely on strikes that are too far in or out of the money. It could also support better liquidity concentration around actively traded strikes, leading to smoother price discovery and potentially tighter bid-ask spreads.”
“The proposal could also help exchanges manage liquidity more efficiently by concentrating activity around relevant strikes instead of maintaining a large number of inactive contracts,” he added.
New strikes during market hours
The regulator has proposed that exchanges maintain a minimum number of in-the-money and out-of-the-money option contracts and conduct daily reviews to ensure sufficient strike availability around the prevailing market price. Exchanges would also be required to periodically eliminate strike prices that significantly differ from the current market level.
A key proposal in the paper is allowing exchanges to introduce new strike prices during market hours in the direction of movement in the underlying asset or futures contract. The regulator said such intraday additions should not require any changes to broker systems or participant infrastructure during live trading sessions.
The operational rules—including strike intervals, the number of contracts to be issued, and whether wider intervals should be maintained for strikes farther from the prevailing market price—will remain at the discretion of exchanges. The framework, however, will need to be published on exchange websites and reviewed periodically in consultation with market participants.
Sebi has invited public comments on the proposals until 15 June.
