Ministry : Ministry of Finance (SEBI)

Revision of Order-to-Trade Ratio _OTR_ framework

Subject : ministry of finance

Revision of Order-to-Trade Ratio (OTR) Framework for Stock Exchanges

The Securities and Exchange Board of India (SEBI) has updated the regulatory framework governing high order-to-trade ratios (OTR) for algorithmic trading, introducing targeted exemptions to support market liquidity and efficiency, particularly in equity options and market-making activities.

Key Points

• Equity options orders within ±40% of the Last Traded Price (LTP) or ±INR 20, whichever is higher, are now exempt from OTR-based penalties, recognizing the unique pricing dynamics of options contracts.
• Algorithmic orders placed by Designated Market Makers (DMMs) for market-making purposes are excluded from OTR computation, aiming to encourage liquidity provision without regulatory disincentive.
• The existing exemption for orders within ±0.75% of LTP in other segments remains, now explicitly coexisting with the new, broader exemption for equity options.
• The revised framework applies to both cash and derivative segments, including liquidity enhancement schemes, but now carves out DMM activity from penalty calculations.
• Stock exchanges must amend their bye-laws and regulations accordingly and disseminate the changes to all market participants by the implementation date of April 06, 2026.
• The decision follows stakeholder consultations and recommendations from SEBI’s Secondary Market Advisory Committee, reflecting ongoing efforts to balance market integrity with innovation.

Tailoring OTR Rules to Enhance Market Liquidity and Fairness

SEBI’s revision of the OTR framework marks a calibrated regulatory shift that acknowledges the operational realities of algorithmic trading in options and market-making. By exempting certain orders from penalty calculations, the regulator seeks to reduce unintended disincentives for liquidity-providing activities while maintaining surveillance over potentially abusive order-to-trade behavior. The move reflects a responsive, evidence-based approach to market regulation, aligning rule design with product-specific trading dynamics. With implementation set for April 2026, exchanges and trading members must adapt systems and compliance protocols to the updated norms.