Sebi reviews mechanism of dividend adjustment for stock options

Markets regulator Sebi today reviewed the mechanism of dividend adjustment for stock options and allowed alteration in strike price.

According to the regulator, adjustment in strike price will be carried out in case dividend declared by a company is above 5 per cent of the underlying stocks.

Besides, adjustment in strike price will be done in all other cases of dividend, wherein listed company has sought exemption from the timeline prescribed under listing and disclosure regulations, the Securities and Exchange Board of India (Sebi) said in a circular.

The decision has been taken after several stakeholders had requested to review the framework.

Thereafter, Sebi's secondary market advisory committee, after receiving suggestions from stakeholders, decided to review the mechanism of dividend adjustment for stock options.

Strike price, in market parlance, is the price at which a derivative contract can be exercised. It is mainly used to describe stock and index options.

For call options, the strike price is where the security can be purchased by the option buyer up till the expiration date. For put options, the strike price is the price at which shares can be sold by the option buyer.