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The Futures Industry Association (FIA) has supported SEBI's proposal for managing options strike prices but cautioned that removing strikes with active 'open interest' could force traders into inefficient exits. This regulatory move aims to improve trading continuity during market volatility in India’s high-volume derivatives segment.
What Happened
The Futures Industry Association (FIA), a global organization representing brokers and market participants, has expressed support for the Securities and Exchange Board of India's (SEBI) proposed framework for managing options strike prices. In May 2026, SEBI released a consultation paper aiming to standardize how strike prices—the pre-agreed prices at which options contracts are exercised—are introduced, reviewed, and removed by stock exchanges. The regulator's goal is to ensure that traders always have access to relevant contracts, especially during sharp market swings when prices move rapidly beyond existing strike levels. While the FIA has welcomed the initiative as a step toward operational efficiency, it has provided crucial feedback regarding the risks of removing existing strike prices too aggressively.
Why This Matters For Investors
Options trading is the largest volume segment in the Indian equity market, with millions of retail and institutional participants. A strike price is essential because it determines the potential profit or loss of a trade. Currently, when market prices fluctuate significantly, some options contracts can become redundant, while others may be needed. SEBI’s proposal seeks to ensure that exchanges dynamically introduce new strike prices and remove outdated ones. The FIA’s main concern is that if an exchange decides to remove a strike price that still has 'open interest'—a term for the total number of options contracts held by traders that have not yet been closed—it could cause problems. If that strike is removed, traders holding those positions might be left with no choice but to square off their positions prematurely or hold them until expiry in a way that may not align with their original strategy. The FIA is urging the regulator to ensure that no strike is removed if it could disrupt these existing positions.
Strengthening Market Standards
Beyond the caution regarding open interest, the FIA has recommended that SEBI should establish common, minimum standards for strike price management across all exchanges, including the National Stock Exchange (NSE) and BSE. The association suggests that while exchanges should retain flexibility to calibrate strike intervals based on the specific product or market segment, there must be clear, prescribed minimums for the number of 'in-the-money' and 'out-of-the-money' contracts available at any given time. This would ensure that price discovery remains efficient and hedging remains accessible for traders regardless of which exchange they are using. The FIA also advocated for operational simplicity, suggesting that any new additions or removals of strike prices should be managed through standardized, automated exchange mechanisms to avoid technical complexities for brokers and participants.
How Investors May Read This
For active traders and investors in the derivatives segment, this development highlights a shift toward a more structured and responsive market environment. The regulator is effectively trying to reduce the 'liquidity gaps' that often occur during high-volatility trading sessions. If implemented as the FIA suggests, these rules could provide a more predictable trading environment where traders are less likely to face unexpected disruptions due to the sudden unavailability of strike prices. Investors should view this as a potential improvement in market infrastructure that prioritizes continuity and hedging efficiency over the current fragmented approach.
What Investors Should Track
The next important monitorable is the final circular from SEBI. Investors and market participants should watch for how the regulator addresses the FIA’s concerns regarding open interest. A key detail to look for in the final rules will be whether SEBI introduces 'grandfathering' provisions—rules that protect existing contracts from being impacted by the removal of a strike price—or if it requires exchanges to allow all open positions to reach maturity before a strike is fully decommissioned. Continued updates on these operational guidelines will be vital for understanding how the derivatives ecosystem evolves in the coming months.