New Strikes In Real Time: SEBI Eyes Smarter Options Chains For Better Liquidity And Hedging

Regulatory intent and market context.

The proposals aim to establish a mechanism that allows for the dynamic addition of new strike prices in equity and index derivatives as the underlying changes, especially in volatile sessions. The move is an explicit indication by SEBI that these changes should not involve any changes in live systems for brokers and it is a move towards an exchange driven solution that is operationally light.

The proposed framework for the introduction of strikes.

The draft framework would allow exchanges to offer more flexible options to add more strike prices in the same direction as the underlying security or index during the day. This would help to maintain the options ladders more full at the money and near the money levels, improve hedging and limit the bid ask spreads as markets trend intraday.

Operational Impact On Brokers And Participants

The proposed changes should be made in a manner which does not necessitate changes in the systems of stock brokers or participants during the live market operations, SEBI has clarified. This may involve centralised exchange side configurations, pre-defined templates or automated strike generation logic that integrates easily with the existing front end and risk management systems.

Key Highlights

• Intraday introduction of new options strike prices is proposed by SEBI.
• New strikes to be aligned with direction of underlying price movement
• A tool to enhance liquidity and hedging efficiency in options.
• Regulator warns brokers and participants not to make any live system changes.

Sources: SEBI, NSE, Money Control The Hindu Business Line, Economic Times