The regulator has proposed to delete the close-to-money (CTM) option series and the corresponding norms for option in goods in case of commodity derivatives.
“There is no concept of CTM on leading international commodity exchanges because the concept of CTM makes the exercise mechanism complex for the trade participants, and they might find it difficult to actually look into the intrinsic costs associated with the CTM options. Since OTM (out of the money) and ITM (in the money) are relatively easy to understand and execute, most of the exchanges offer these two options to market participants,” Sebi said in a discussion paper on Thursday.
The regulator said CTM option introduces uncertainty and price risk for the seller, while the challenge for buyers are that for option in goods, the number of strikers on which margin is imposed increases significantly compared to option in futures.
Sebi has suggested reducing the minimum mandatory product advisory committee (PAC) meeting frequency for non-agricultural commodities from two meetings annually to one meeting a year.
The regulator said exchanges would be permitted to advance the expiry date of running contracts during sudden disruptions such as strikes, festivals or erratic weather conditions with prior approval from the managing director of the exchange, instead of following the current requirement of giving 10 days notice and obtaining PAC approvals.
