The Securities and Exchange Board of India (SEBI) Chairman has directed stock exchanges to develop comprehensive technology development plans covering both 5-year and 10-year periods. This regulatory directive represents a significant step toward systematic technological advancement in India's capital market infrastructure.

Regulatory Directive Details

The SEBI Chairman's announcement establishes mandatory requirements for exchanges to create structured technology roadmaps. These plans must encompass both medium-term (5-year) and long-term (10-year) technological development strategies.

Strategic Technology Planning

The directive emphasizes the importance of forward-looking technology planning in the financial markets sector. Exchanges will need to align their technological capabilities with evolving market demands and regulatory expectations. This structured approach to technology development aims to enhance operational efficiency and market infrastructure resilience.

Market Infrastructure Enhancement

SEBI's mandate reflects the regulator's focus on strengthening India's capital market technology backbone. The requirement for dual-timeline planning ensures both immediate technological improvements and long-term strategic positioning. This comprehensive planning approach is expected to drive innovation and maintain competitive standards across exchange operations.

The regulatory directive underscores SEBI's commitment to modernizing India's financial market infrastructure through systematic technology advancement and strategic planning initiatives.

The Securities and Exchange Board of India (SEBI) may postpone implementing a revised penalty structure for order-to-trade ratio (OTR) violations, opting instead for further review at a later stage, according to sources familiar with the discussions. The potential delay comes in response to industry feedback expressing concerns about proposed penalty increases that could lead to higher trading costs and reduced liquidity in the options segment.

Proposed Changes to OTR Computation

SEBI plans to transition to a premium-based OTR computation system for options trading. Under this new framework, only orders placed beyond 40.00 per cent of the option premium or ₹20.00, whichever is higher, would be included in OTR calculations. This represents a significant departure from the current system, where orders placed within approximately 0.75 per cent of the last traded price (LTP) are exempt from OTR penalties.

The existing threshold for options is calculated using strike price plus LTP, which industry participants note often creates an excessively wide band that permits substantial order placement without penalty consequences.

Steep Penalty Increases Under Review

The proposed penalty structure includes substantial increases across all violation categories. The following table illustrates the dramatic changes being considered:

However, sources indicate that these revised penalty slabs linked to the new framework may not be implemented at this stage due to ongoing concerns about their severity.

Industry Concerns and Implementation Challenges

One person familiar with the matter noted that while there is broad agreement on refining OTR calculations for options, consensus has not been reached regarding the severity of the revised penalties. Industry sources have highlighted that the substantial jump in penalties could disproportionately impact active options strategies, particularly market-making and hedging activities.

An industry representative suggested that a phased implementation approach would be more appropriate, allowing stakeholders to understand the impact of the computation changes before potentially adjusting penalties further. This measured approach could help balance regulatory objectives with market functionality.

Regulatory Framework Development

SEBI has been working on revising the OTR computation method for option contracts and penalty structure since last year but has yet to release a draft paper. The regulator has already abandoned proposals to use theoretical prices, such as Black-Scholes models, as proxies for LTP in illiquid contracts following objections regarding complexity and transparency concerns.

Earlier discussions included examining a model based on approximately 0.75 per cent of the LTP alone, but this approach also faced criticism for disproportionately inflating OTR in low-premium contracts. Data analysis conducted by SEBI for two trading days showed heavy concentration of option contracts in very low price buckets, making percentage-based thresholds particularly sensitive to market conditions.

Market Maker Exemptions

The revised proposal recommends excluding orders placed by designated market makers from OTR calculations, acknowledging their essential role in providing continuous bid-ask quotes to enhance market liquidity rather than generate trades. This exemption recognizes the distinct function market makers serve in maintaining orderly markets and ensuring adequate liquidity for all participants.