SEBI proposes new rules to keep options trading smooth during sharp market swings – Firstpost

India’s capital markets regulator, Securities and Exchange Board of India, has proposed a fresh set of rules aimed at ensuring smoother options trading during periods of sharp market volatility, as it seeks to standardise derivatives practices across exchanges and improve market stability.

In a consultation paper released on Monday, the regulator proposed changes to the framework governing options strike prices — the pre-agreed levels at which options contracts can be bought or sold — across equity, currency and commodity derivatives markets.

The proposals come at a time when India’s booming derivatives market has drawn increased regulatory scrutiny amid concerns over excessive retail participation and uneven trading practices across exchanges.

Under the proposed framework, exchanges would be required to ensure that traders always have sufficient strike price options available both above and below prevailing market prices, particularly during sudden market movements.

SEBI said exchanges should conduct daily reviews of available strike prices and remove contracts that are significantly away from current market levels. At the same time, exchanges would also need to introduce new strike prices in real time whenever markets move sharply, allowing traders to continue executing strategies without disruption.

The regulator noted that under the current system, traders often struggle to find suitable options contracts when markets move beyond the range of available strike prices during volatile trading sessions.

“Suitable strike prices may not be available during sharp movements in the underlying asset price,” the regulator said in the proposal paper, adding that the changes are intended to improve operational efficiency and enhance trading continuity.

The move is also aimed at harmonising practices between India’s two largest stock exchanges — National Stock Exchange of India and BSE — which currently follow different methodologies for introducing and discontinuing strike prices in derivatives contracts.

India has emerged as one of the world’s largest derivatives markets in recent years, driven by a surge in retail trading activity and rapid growth in weekly options contracts. However, regulators have increasingly moved to tighten oversight of the segment after studies showed that a majority of retail traders were suffering losses in high-frequency options trading.