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NSE Eases OTR Rules for Options Trading, New Norms Effective April 6

The National Stock Exchange has revised the order-to-trade ratio framework for equity derivatives options, significantly relaxing the norms. The new rules, effective April 6, exempt orders placed within +/-40% of the last traded price or Rs 20, a major widening from the previous 0.75% band. The changes align with a SEBI circular and provide a specific carve-out for algorithmic orders from designated market makers. The framework is designed to monitor excessive order placement and ensure orderly market functioning.

Key Points: NSE Revises Order-to-Trade Ratio for Equity Options

  • Wider OTR exemption band for options
  • No change for futures & cash segments
  • Algo orders by market makers excluded
  • Framework aims for orderly markets
  • Follows SEBI circular and SMAC advice
2 min read

OTR norms eased for equity options, effective from April 6

NSE relaxes OTR norms for equity options, widening exemption band to +/-40% of LTP. Changes effective April 6 per SEBI guidelines.

"orders placed within a range of (+/-)40 per cent of the last traded price... will be exempt - National Stock Exchange"

Mumbai, April 4

The National Stock Exchange has revised the order-to-trade ratio framework for the equity derivatives options segment, with the changes set to come into effect from April 6, in line with SEBI guidelines issued earlier this year.

Under the revised criteria, orders placed within a range of (+/-)40 per cent of the last traded price (LTP) of the options premium or (+/-)Rs 20, whichever is higher, will be exempt from the framework for imposing penalties on high OTR.

This marks a significant relaxation compared to the earlier norm, under which only orders within 0.75 per cent of the LTP were excluded from OTR computation, resulting in a relatively narrow exemption band.

The exchange also clarified that no changes have been made to the OTR framework for the equity derivatives futures segment and the cash segment. In these segments, orders entered or modified within 0.75 per cent of the LTP will continue to remain exempt from OTR calculations.

As per the SEBI circular issued earlier in February, algorithmic orders placed by designated market makers for market-making activities will not be considered in the computation of OTR, providing a specific carve-out within the framework.

The OTR metric tracks the ratio of total orders placed, including modifications and cancellations, to the number of trades executed by a trading member.

It is used by exchanges to monitor excessive order placement and ensure orderly market functioning.

The changes follow representations from stock exchanges, consultations with market participants and recommendations of the SEBI's Secondary Market Advisory Committee (SMAC).

In addition, a mock trading session for the revised functionality was conducted on March 14.

The NSE said all existing penal charges, actions and other modalities under the OTR framework, as specified in earlier circulars, will remain unchanged.

- IANS

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Reader Comments

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Priya S
As a retail options trader, I appreciate this. The old rule felt like it was penalizing us for trying to get a better price. Now we can modify orders more freely without worrying about hitting the OTR limit. Good to see regulators listening to market participants.
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Rohit P
While the relaxation is good, I hope this doesn't lead to a flood of frivolous orders just outside the LTP, creating artificial queues. The ₹20 floor is a smart addition for higher premium options. The carve-out for market makers is crucial for smooth functioning.
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Sarah B
Interesting change. The differential treatment for options vs. futures/cash segments makes sense given the different volatility profiles. Shows a more nuanced approach to regulation. The mock trading session was a good practice to ensure a smooth rollout.
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Karthik V
Finally some sense! The earlier norm was from a different era of trading. With algorithmic trading and high volatility, a 0.75% band was impractical. This will reduce compliance headaches for many brokers and prop desks. Good for market depth.
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Michael C
A respectful criticism: While easing norms is good, communication to the end retail investor could be better. Most small traders won't understand what OTR is. Exchanges should run simple explainer videos or articles in regional languages about how this affects them.
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