The Securities and Exchange Board of India (SEBI) is reworking how the order-to-trade ratio (OTR) is computed for options, with plans to shift from a strike-price-linked model to one based on option premiums, people familiar with the matter said.
Under the revised framework, only orders beyond ±40 per cent of the option premium, or ₹20, whichever is higher, would count towards OTR. The method is expected to tighten scrutiny for liquid, high-premium contracts while giving more flexibility for low-premium or illiquid contracts.
OTR measures the ratio of total orders, including modifications and cancellations, to actual trades executed by an algorithmic trading member over a given period. The metric is designed to discourage bulk orders that distort prices or clog exchange systems.
Approach shift
Earlier this year, SEBI had considered calculating OTR for options based on orders placed beyond ±0.75 per cent of the last traded price (LTP), instead of the current method of linking it to both the strike price and LTP. But feedback from industry groups raised concerns that this would unfairly inflate OTR counts in low-premium contracts.
In April, the regulator studied the OTR data for option contracts across two trading days under different scenarios and found that a large share of contracts were concentrated in very low-price buckets.
“If strike price plus LTP of the option contracts is used, it gives a very large band for placing orders that don’t count towards OTR,” said an industry source.
The revised proposal instead ties the ratio to premiums, ensuring that only orders significantly away from the option price are considered.
The flat ₹20 minimum ensures that small contracts are not unfairly penalised for minor price movements. An e-mail query sent to the regulator seeking comment went unanswered.
Contract liquidity
Orders from designated market makers may also be excluded, “as they only provide continuous bid and ask quotes to build liquidity in contracts, and are not responsible for the trades undertaken by counterparties,” said another source.
SEBI was also considering using theoretical prices as a proxy for LTP in contracts that remain untraded for a period through models such as Black-Scholes. However, SEBI decided to drop it after industry participants raised concerns over the complexity, transparency and fairness of using such modelled prices.
The proposal to change the computation method is expected to go through industry committees again for the final go ahead, and will also include higher penalty slabs linked to OTR breaches.
SEBI will be increasing the penalty for a daily OTR between 50 and 250 orders per trade to 10 paise from 2 paise per order.
The next slab, between 250 and 500, may rise from 10 paise to 20 paise; 500–1,000 could go from 15 paise to 25 paise; 1,000–2,000 from 20 paise to 50 paise; and above 2,000 from 25 paise to 75 paise.
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Published on September 28, 2025