SEBI to Revolutionize Options Trading: New Framework Aims to Prevent Gaps During Volatility

SEBI to Revolutionize Options Trading: New Framework Aims to Prevent Gaps During Volatility​

The Securities and Exchange Board of India (SEBI) has released a critical consultation paper outlining a comprehensive framework to stabilize and streamline the handling of options strike prices across the derivatives segment. The move aims to drastically improve market accessibility and ease of doing business, particularly when the market experiences high intraday volatility.

This proposal seeks to ensure that market participants always have readily available options contracts, even if prices move dramatically during trading hours. The objective is to tackle the operational bottlenecks that currently arise when strike price availability falls out of sync with prevailing market prices.

SEBI Targets Options Strike Price Predictability​

The core focus of the consultation paper is improving the predictability and availability of options strikes. SEBI recognizes that the current system, while having existing rationalization frameworks, can leave traders inconvenienced.

Currently, if a significant intraday price movement causes the prevailing market price to exceed the farthest available strike price, market participants may face operational hurdles. This unavailability of contracts around the current price poses a real impediment to continuous trading activity.

The regulatory goal is thus to establish broad modalities for the introduction and ongoing management of these strike prices. Crucially, the framework must enable the intraday introduction of new options strikes directly in the direction of the underlying price movement.

Key Proposals for Options Market Streamlining​

To achieve continuity and operational efficiency, SEBI has put forth several detailed proposals for all stock exchanges to adopt. These proposals mandate a cohesive and forward-looking approach to options contract listing.

The new comprehensive framework must govern the rules for introducing options contracts to maintain a minimum number of both In-The-Money and Out-of-The-Money contracts. Furthermore, it mandates a daily review process to check the availability of strike prices around the market’s prevailing price.

Another key mechanism proposed is the daily review to systematically purge or eliminate existing strike prices that are excessively far away from the current market price. These rules are designed to ensure that options contracts are relevant to where the market is actively trading.

Ensuring Operational Continuity Across Segments​

A central pillar of the SEBI proposal is maintaining the system’s efficiency. The introduction of new strike prices intraday must not require system changes or major operational overhauls for stock brokers or market participants during live trading.

This proposed framework is not limited to one asset class. SEBI explicitly states that it must be applicable across all segments, including equity, currency, and commodities. While the core rules apply universally, the guidelines for implementation can be tailored by exchanges based on the specific liquidity and participation level of any given sub-segment.

The operationalization of this framework will require individual stock exchanges to formulate their rules and formulae. SEBI advises that these exchanges publish the finalized framework on their respective websites and commit to periodic review through consultation with market participants.

Public Consultation and Next Steps​

SEBI has opened the floor for expert opinion, inviting public comments on the proposals outlined in the consultation paper. This ensures that the final regulations are practical and address real-world trading concerns.

Market participants are urged to submit their suggestions by June 15, 2026. Comments can be submitted through the designated online web-based form. Alternative submissions via email are also provided for those experiencing technical difficulties accessing the portal.

The implementation of this framework, once finalized, will streamline the handling of options contracts, aiming for a more continuous, predictable, and robust derivatives market environment across India.