Sebi to bourses: Use dynamic price band for currency options

Regulator Sebi today asked stock exchanges to put in place a dynamic price band for cross- currency option contracts, while ensuring that any relaxation in these bands takes into account likely impact of all rate-influencing developments.
The regulator also asked the exchanges to ensure that the mechanism for relaxation of dynamic price bands are not misused by market participants for manipulation in options contracts.
"Stock exchanges shall implement uniform mechanism for computation and relaxation of dynamic price bands for currency options contracts," the Securities and Exchange Board of India (Sebi) said in a circular.
The regulator noted that the exchanges should take into consideration factors such as movement in the underlying price, volatility in the price of the underlying, any news on concerned foreign currency and its likely impact and movement of the price of the underlying at other stock exchanges, among others, while relaxing the price bands.

"Stock exchanges shall implement a dynamic price band mechanism based on theoretical price of contracts to determine price bands for currency options," it said.
Sebi also directed the stock exchanges and clearing corporations to submit proposal to the regulator for approval for the launch of the currency options on Euro-Rupee, Pound Sterling-Rupee and Japanese Yen-Rupee currency pairs.
According to the regulator, the proposal should include the details of contract specifications, risk management framework and surveillance systems, among others.