Intraday Strike Price Structure for Options Trading Under Evaluation by SEBI

According to Moneycontrol, the Securities and Exchange Board of India (SEBI) is considering allowing the introduction of strike prices during trading periods in order to align the structure of contracts with the movements in the market.

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The move will help develop a uniform framework for managing strike prices, which, according to discussions reported by Reuters, are found to be inadequate in the present system, which is rather fragmented.

Introduction of New Strike Prices During Trading Hours

Under the framework that is being developed, SEBI might allow exchanges to introduce new strike prices during trading hours, especially during times of rapid market movements. The purpose would be to make sure that the options contract stays relevant in view of the changes happening in the market.

According to SEBI, during sharp movements in the market, proper strike prices are not available. On the other hand, even old strikes that do not have much relevance to prevailing market prices stay on despite their lack of liquidity.

Uniform Framework Across Segments

The existing regulatory framework primarily covers long-dated index options, while stock, currency, and commodity options follow exchange-specific practices. According to Reuters, this has led to inconsistencies in how strike prices are introduced and managed across different markets.

The proposed changes seek to establish a standardised approach across asset classes, including equity and commodity derivatives. Exchanges would also be required to periodically review their strike price frameworks in consultation with market participants and disclose the rules publicly to improve transparency.

No Disruption To Trading Systems

The framework is expected to be designed in a way that intraday introduction of strike prices does not require system changes for brokers or traders during live market hours, according to discussions cited by Reuters. This is aimed at avoiding operational disruptions.

Rising Derivatives Activity

The introduction of the proposal occurs against the backdrop of increasing volumes of derivatives trading in India. The growing trend of derivatives trading is attributed to heightened participation in options trading. Under such circumstances, the presence of strike prices becomes imperative.

SEBI has discussed the proposal with exchanges, brokers, and other stakeholders, according to Reuters. The regulator has not issued an official response to the proposal so far.

The move, if implemented, would standardise strike price management across exchanges and enable contracts to better reflect real-time market conditions.