The Securities and Exchange Board of India (SEBI) released a consultation paper on 25 May 2026 titled Ease of Doing Business Framework for Strike Prices of Options Contracts. The paper, forming the third part in a series on Exchange Traded Derivatives, proposes changes to how strike prices in options contracts are introduced and managed across Indian exchanges. It also seeks to standardize strike price rules across asset classes and allow exchanges to introduce new strike prices during live trading hours. SEBI has invited public comments on the proposals through its official portal.
Why this matters
- It proposes a uniform strike price framework across exchanges and asset classes.
- It may allow new strike prices to be introduced during live market hours.
- It simplifies commodity options by removing the CTM mechanism for Options in Goods.
🔴 Quick Summary — What You Need to Know
THE PROBLEM
During volatile sessions, relevant strike prices are unavailable while irrelevant far-OTM strikes remain listed — limiting hedging and creating market inefficiency.
THE PROPOSAL
SEBI proposes a uniform framework for strike prices in options contracts, including intraday introduction of new strike prices, removal of the CTM mechanism for commodity options, and standardised rules across asset classes.
WHO IS AFFECTED
All options traders (retail & institutional), stock exchanges (NSE, BSE, MCX), clearing corporations, brokers, compliance teams, and F&O market participants.
🏛️ Section 1 — Understanding the Basics: What Is a Strike Price and Why Does It Matter?
Before unpacking SEBI's proposals, it is essential to understand the building blocks of this consultation paper.
1A. What Is a Strike Price?
A strike price (also called the exercise price) is the fixed price at which the buyer of an options contract has the right — but not the obligation — to buy (in a call option) or sell (in a put option) the underlying asset. It is the most fundamental parameter of any options contract. For example, if Nifty is trading at 24,000 and a trader buys a Nifty Call Option with a strike price of 24,200, the trader profits only if Nifty rises above 24,200 before expiry.
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IN THE MONEY (ITM)
Strike price is favourable relative to current market price. Has intrinsic value. Automatically exercised at expiry.
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AT THE MONEY (ATM)
Strike price equals the current market price. Most actively traded. Highest time value.
❌
OUT OF THE MONEY (OTM)
Strike price is unfavourable. No intrinsic value. Cheaper premium. Expires worthless if not reached.
1B. What Is the Current Framework?
The present regulatory framework for strike prices in India is fragmented and inconsistent. SEBI's existing rules for strike prices primarily cover long-dated index options — products like Nifty or Bank Nifty monthly contracts. Stock options, currency options, and commodity options each follow exchange-specific practices, with no uniform rule across NSE, BSE, MCX, or NCDEX. This has led to a situation where:
- Some exchanges allow new strike prices to be added during live trading hours; others do not.
- The range and interval of strike prices varies widely across asset classes and exchanges.
- Traders face different market structures depending on which product or exchange they use.
1C. What Is the "Close to the Money" (CTM) Series?
The Close to the Money (CTM) series is a concept specific to Options in Goods (physical delivery commodity options). CTM options are the ATM strike and the three strikes immediately above and three immediately below it — a total of seven strikes around the market price. CTM options require explicit instruction from the buyer to be exercised (unlike regular ITM options, which are automatically exercised). SEBI removed CTM for Options on Futures in 2022, but retained it for Options in Goods — and this paper proposes to remove it from the remaining category as well.
⚠️ Section 2 — The Core Problem: What Is Broken in the Current System?
SEBI's consultation paper identifies three distinct categories of problems with the existing strike price framework that justify regulatory intervention.
⛓️ The Chain of Problems in the Current Strike Price Framework
Market Moves Sharply Intraday
Nifty, Bank Nifty or a commodity price moves 1–3% in an hour. The relevant ATM and near-ATM strikes shift dramatically — but exchanges cannot add new strikes during live trading under the current system.
Relevant Strike Prices Are Unavailable
Traders who want to hedge at the new market level have no options contract to buy or sell at the relevant price. The gap between the market price and the nearest available strike is too wide for efficient hedging.
Old, Illiquid Strikes Clog the Order Book
Simultaneously, far OTM strike prices from earlier in the session remain listed with zero or near-zero volume. These stale strikes add clutter and create confusion, reducing overall market quality.
Inconsistency Across Exchanges and Asset Classes
NSE, BSE, MCX, and NCDEX each follow different strike price rules for equities, commodities, and currencies. The absence of a uniform national framework means the same underlying risk is managed differently depending on which market a trader uses.
Retail Traders Bear the Cost
A SEBI study found that over 90% of individual traders incurred net losses in F&O. Poor strike price availability during volatile sessions forces traders to use suboptimal hedges or accept wider bid-ask spreads — directly contributing to losses.
📊 Market Context
According to the NSE Derivatives Report for March 2026, average daily turnover in index options stood at ₹40–50 lakh crore — making India one of the world's largest options markets by volume. Despite this scale, the regulatory framework governing strike prices has not kept pace with market growth. SEBI's intervention is therefore both timely and structurally necessary.
📋 Section 3 — SEBI's Proposals: A Detailed Breakdown
The consultation paper proposes several distinct changes. Each addresses a specific gap in the current framework and is supported by SEBI's own analysis and, in some cases, recommendations from advisory committees.
Proposal 1 — Intraday Introduction of New Strike Prices
This is the centrepiece proposal. SEBI proposes allowing stock exchanges to introduce new strike prices during live trading hours — a significant departure from the existing system where strike price series for a contract expiry are typically set at the start of the trading day or when the contract is first listed.
Proposal 2 — Standardised Strike Price Framework Across All Exchanges
SEBI proposes replacing the current patchwork of exchange-specific strike price rules with a single, uniform national framework applicable to all recognised stock exchanges and commodity derivatives exchanges. This will cover:
📈 Equity Derivatives
Index options (Nifty, Bank Nifty, Sensex) and stock options will follow unified strike price introduction rules with clear intervals based on underlying price levels.
🌾 Commodity Derivatives
Gold, silver, crude oil, agricultural commodities — all will be covered under the same framework. Separate MCCD chapters (2, 3, 4, 5, 6, 7, 8, 10) are being updated accordingly.
💱 Currency Derivatives
Currency options (USD-INR, EUR-INR, etc.) will be integrated into the standardised strike price framework for the first time under a unified national rule.
📊 Indices on Commodities
Options on commodity indices (covered in MCCD Chapters 7 and 8) will also be updated to reflect the new strike price management framework.
Proposal 3 — Removal of Close to the Money (CTM) Series for Options in Goods
This is a technically significant change for commodity derivatives participants. SEBI proposes to delete the CTM (Close to the Money) exercise mechanism for Options in Goods — a concept where the seven strike prices nearest to the market price require explicit instruction from buyers to be exercised. The Commodity Derivatives Advisory Committee (CDAC) has already endorsed this change.
🔍 Why Is CTM Being Removed?
Global Practice: No major international commodity exchange uses the CTM concept. Leading global exchanges use only ITM (automatic exercise) and OTM (expires worthless) — a simpler, more transparent model.
Seller Risk: CTM options introduce uncertainty and price risk for option sellers, who cannot predict whether the buyer will exercise or not — making risk management more complex.
Buyer Complexity: Buyers must actively track and submit exercise instructions for CTM options, adding operational burden and risk of missed exercises — particularly for retail participants unfamiliar with the mechanism.
Already Removed for Futures Options: SEBI removed CTM for Options on Futures in 2022 as CTM strikes were not being exercised and had no material impact on brokerages. Retaining it only for Options in Goods creates an anomalous inconsistency.
Proposal 4 — Rationalisation of the Product Advisory Committee (PAC)
SEBI also proposes to introduce flexibility in PAC (Product Advisory Committee) composition. The current rule mandates a fixed composition of PAC members — including representatives from trade associations, farmers/FPOs, warehousing/assaying sector, independent experts, financial sector, and exchanges. SEBI proposes that if a particular category of stakeholder is not available for a specific commodity, the exchange may seek an exemption from the PAC Chairman, rather than being held in non-compliance. This is a direct ease of doing business measure — particularly relevant for niche or cash-settled commodity contracts where some stakeholder categories are structurally absent.
Proposal 5 — Streamlined Contract Expiry Change Procedures
SEBI proposes to simplify the procedures for changing contract expiry dates during sudden market closures (for example, when markets are closed due to a national emergency or unforeseen event). Currently, the process involves multiple approvals and procedural steps that can cause operational uncertainty. The revised framework will provide clear, pre-approved protocols to manage expiry changes smoothly without disrupting open positions.
Proposal 6 — Removal of Obsolete and Redundant Norms
The consultation paper proposes to discontinue a range of obsolete provisions, including:
Proposal 7 — Periodic Review and Public Disclosure of Strike Price Rules
SEBI proposes that exchanges will be required to periodically review their strike price frameworks in consultation with market participants and publicly disclose the rules on their websites. This is a transparency measure aimed at ensuring that traders — including retail investors — can clearly understand what strike prices will be available, under what conditions new ones will be added, and what the intervals will be at different market levels.
🗺️ Section 4 — The Structural Overhaul: From Scattered Rules to a Unified Framework
Beyond the specific proposals, this consultation paper is part of a broader structural exercise — the consolidation and modernisation of India's derivatives regulatory architecture. The approach involves three distinct structural changes:
🔀
ENTITY-WISE SEPARATION
Separate Master Circulars for Exchanges and Clearing Corporations — currently combined in a single document, causing role confusion.
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COMMODITY MERGER
Merging the Master Circular for Commodity Derivatives (MCCD) into the main Exchange Master Circular for a single, unified direction framework.
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CIRCULAR INCORPORATION
All SEBI circulars issued after January 31, 2026 will be incorporated into the revised master circular, ensuring no provisions fall through the gap.
⚖️ Section 5 — Legal Framework: Which Rules Are Being Changed?
⚖️ Legal & Regulatory Framework
This consultation paper operates under the following legal and regulatory instruments:
📌 Note: This is still a consultation paper — not a final circular. The proposals will become binding only after SEBI analyses public comments and issues a final circular. Market participants have the opportunity to submit their views via SEBI's public comments portal.
📊 Section 6 — Impact Analysis: Who Is Affected and How?
🔍 Section 7 — What This Means in Plain Language
If you are an options trader — retail or professional — here is what this consultation paper means for your day-to-day trading, once finalised:
✅ What Gets Better
- New strikes appear during the session when Nifty/BankNifty moves 1–2% sharply
- You can hedge at or near the actual market price, not just the nearest pre-listed strike
- Consistent options experience whether trading equity, commodity, or currency options
- Option chains are cleaner — fewer irrelevant far-OTM strikes cluttering the screen
- Commodity options become simpler — no CTM exercise instruction required
⚠️ What to Watch
- New strike prices mid-session can change the risk profile of existing positions
- Liquidity on newly introduced intraday strikes may be thin initially
- Final rules on strike intervals and introduction triggers are yet to be specified
- This is still a consultation paper — final circular may differ from proposals
- Commodity options exercise mechanism changes need active awareness before expiry
🗓️ Section 8 — Timeline and Next Steps
📅 Process Timeline
May 25, 2026 — Consultation Paper Released
SEBI publishes the consultation paper on ease of doing business framework for strike prices of options contracts. Public comments portal opens.
Upcoming (Typically 21 Days) — Public Comment Deadline
Market participants — exchanges, brokers, traders, industry bodies — are invited to submit comments/views/suggestions via the SEBI public comments portal. This is a meaningful opportunity to shape the final rules.
Post-Comment Period — SEBI Review and Deliberation
SEBI analyses all public comments, consults with exchanges and clearing corporations, and deliberates on final norms — often through its advisory committees and board.
Final Circular — Binding Rules Come into Force
SEBI issues the final circular modifying the MSECC and MCCD master circulars, replacing all applicable provisions up to the cut-off date. Exchanges implement the new framework within the prescribed timeline.
❓ Section 9 — Frequently Asked Questions (FAQ)
❓ What is the main purpose of this SEBI consultation paper?
The consultation paper seeks public comments on a proposed uniform framework for strike prices in options contracts — covering how new strike prices are introduced (including intraday), the intervals between strikes, the removal of the CTM mechanism in commodity options, and the standardisation of these rules across all asset classes and all exchanges in India. It is part of SEBI's broader Ease of Doing Business initiative for Market Infrastructure Institutions (MIIs).
❓ Will brokers need to change their systems when new strike prices are added intraday?
SEBI's proposal specifically contemplates that the intraday strike price introduction mechanism will be designed such that broker systems will not require modifications during live trading. This is a key design constraint of the proposal — the operational continuity of brokers is explicitly protected. However, brokers will need to ensure their client-facing option chain displays dynamically update to show newly added strikes.
❓ What is CTM (Close to the Money) and how does its removal affect commodity options traders?
CTM (Close to the Money) is a special category of options — specifically the ATM strike and three strikes immediately above and below it — that, for Options in Goods (physical delivery commodity options), requires the buyer to actively submit an exercise instruction at expiry. Without this instruction, CTM options are not exercised even if they are in the money. After the proposed removal, all ITM options will be automatically exercised (as they are in most other options markets globally), simplifying the exercise process significantly for commodity options traders.
❓ This is called a "consultation paper" — does that mean the rules are already in force?
No. A consultation paper is a pre-decisional document. The proposals described in it are not yet binding. SEBI first invites public comments, reviews them, and then issues a final circular that modifies the master circulars. Only after the final circular is issued do the rules become legally binding on exchanges, clearing corporations, and market participants. The timeline between consultation paper and final circular typically ranges from a few weeks to a few months.
❓ Which master circulars will be changed by these proposals?
Two master circulars will be modified: (1) Master Circular for Stock Exchanges and Clearing Corporations (MSECC) dated December 30, 2024 — specifically Chapter 5 on Exchange Traded Derivatives; and (2) Master Circular for Commodity Derivatives Segment (MCCD) dated August 04, 2023 — Chapters 2, 3, 4, 5, 6, 7, 8, and 10. The revised rules will replace all applicable provisions up to January 31, 2026 for stock exchanges including commodity derivatives exchanges.
❓ Can I submit my comments on this consultation paper?
Yes. SEBI has invited public comments from all stakeholders — traders, exchanges, brokers, industry bodies, and any member of the public. Comments can be submitted at SEBI's official public comments portal: sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do. Given the significance of these proposals for options market structure, participation in the consultation process is an important opportunity for industry stakeholders.
❓ How does this fit with SEBI's earlier derivatives reforms (F&O reforms of 2024–25)?
SEBI has been progressively tightening and then rationalising the F&O framework since 2024. Earlier reforms (from the July 2024 consultation paper) introduced measures like minimum contract size increase to ₹15 lakh, weekly expiry rationalisation to one per exchange, upfront options premium collection, and intraday position limit monitoring. This 2026 consultation paper is complementary — it focuses on improving market structure and reducing friction (ease of doing business) rather than tightening risk controls. Together, the two directions form a coherent regulatory vision: stronger risk management for traders, combined with a more efficient and consistent market structure.
📌 Conclusion
SEBI's consultation paper on the Ease of Doing Business Framework for Strike Prices of Options Contracts is a structurally significant step in the evolution of India's derivatives market regulation. By proposing intraday strike price introduction, a uniform national framework across all asset classes, removal of the archaic CTM mechanism, and consolidation of overlapping master circulars, SEBI is addressing real market inefficiencies that affect hundreds of millions of options transactions daily. The proposals reflect a clear regulatory philosophy: reduce complexity, increase consistency, and ensure that the regulatory framework keeps pace with the scale and sophistication of India's derivatives market.
Market participants — particularly options traders, exchanges, and brokers — should carefully review the proposals, assess their operational and strategic implications, and consider submitting comments to SEBI before the public comment deadline. This consultation paper represents a genuine opportunity for the industry to shape rules that will govern India's ₹40–50 lakh crore daily options market for years to come.
⚠️ DISCLAIMER
This article is published for educational and informational purposes only and should not be construed as legal, financial, or investment advice. The proposals discussed are based on the consultation paper dated May 25, 2026 and are not yet in force. Final rules may differ from the proposals described. Readers are advised to refer to the official SEBI consultation paper and seek professional advice as appropriate. All market data cited is sourced from publicly available SEBI and NSE reports.
