The Futures Industry Association (FIA), a global body representing brokers and derivatives market participants, has backed the Securities and Exchange Board of India’s (Sebi’s) proposal to introduce a framework for strike prices of options contracts, while also suggesting safeguards to protect positions with open interest and measures to reduce operational complexity.
The association has suggested minimum common standards and minimum strike floors for implementation across exchanges.
“While exchanges should retain flexibility to calibrate strike intervals by segment and product, there should be clear minimum requirements prescribed for the number of in-the-money and out-of-the-money strikes to be made available,” notes the response from FIA, submitted to Sebi.
In May, Sebi had floated a consultation paper proposing a framework governing the introduction and ongoing management of strike prices for options contracts, the highest volume-generating segment of the equities market.
The proposed measures include rules for introducing options contracts to ensure the availability of a minimum number of in-the-money and out-of-the-money (OTM) contracts, daily reviews of strike availability around prevailing market prices to maintain trading continuity, and periodic removal of strike prices that are significantly away from prevailing market levels.
The proposal followed concerns that sharp intraday swings in underlying assets can push prices beyond the farthest available strike price, leaving traders without suitable options contracts to hedge or take positions.
A strike price refers to the predetermined price at which an options trader has the right, but not the obligation, to buy or sell the underlying security. A strike interval refers to the gap between two strike prices and is designed to balance product availability with market liquidity.
In its response to Sebi, the association supported the proposal to introduce new strikes intraday in the direction of price movement, but raised concerns on the removal of strike prices.
“If a strike is purged, disabled, removed or otherwise made unavailable while open interest remains, participants may be left with exercise or expiry as the only practical means of exit, which may be inefficient or inappropriate depending on market conditions and the participant’s risk management needs,” it noted.
FIA emphasised the importance of maintaining a sufficient number of strikes around the at-the-money level to support effective price discovery and hedging. It cautioned that overly restrictive frameworks could impair trading strategies and reduce market efficiency. At the same time, it supported measures that avoid excessive proliferation of illiquid strike prices, suggesting a balanced approach between availability and liquidity.
The industry body also highlighted the need for operational simplicity and automation in the introduction of new strikes. It recommended that any additions to strike prices should be disseminated through existing, standardised exchange mechanisms such as FIX protocols, binary feeds, and contract master files. This, it said, would ensure seamless integration into trading systems without requiring manual intervention, thereby reducing operational risks and complexity.
Further, FIA backed the idea of a periodic review of the strike price framework but suggested formalising it into an annual process involving industry stakeholders. Such a review would help assess whether the framework remains appropriate under evolving market conditions and across different products.
