**Executive Summary**
This circular, issued by the Securities and Exchange Board of India (SEBI) on February 04, 2026, announces a revision of the Order-to-Trade Ratio (OTR) framework. The key changes concern exemptions from penalty for high OTR. These provisions come into effect on April 06, 2026.
**Key Points / Main Content**
* **OTR Framework Revision:** Modifications are made to the framework for placing economic disincentives on Stock Exchanges for high OTR of Algorithmic orders by Trading Members (TMs), as described in the Master Circular of December 30, 2024.
* **Equity Option Contracts:** Orders within ±40% of LTP (premium) or ±INR 20, whichever is higher, are exempt from OTR penalty framework.
* **Designated Market Makers:** Algorithmic orders placed by Designated Market Makers for market making activity are not considered in OTR computation.
* **Modification of Master Circular:**
* Orders within ±0.75% of the LTP are exempt from penalty for high OTR, which is maintained in Paragraph 11.2.14.1 of Chapter 2. For equity option contracts, orders within ±40% of LTP (premium) or ±INR 20, whichever is higher, are also exempt from penalty for high OTR.
* The OTR framework applies to orders in the cash and derivative segments, including those under liquidity enhancement schemes. However, algorithmic orders by Designated Market Makers for market making are exempt from penalty for high OTR, which is maintained in Paragraph 11.2.14.2 of Chapter 2.
* **Effective Date:** The provisions of the circular take effect on April 06, 2026.
* **Stock Exchange Obligations:** Stock Exchanges are advised to:
* Amend their bye-laws, rules, and regulations to implement the decision.
* Inform market participants (including TMs) and disseminate the circular on their websites.
**Impact Analysis**
**Stock Exchanges**
* **Impact:** Required to amend relevant bye-laws, rules, and regulations.
* **Action Required:** Implement changes in bye-laws, rules, and regulations; disseminate circular to market participants and on their website.
**Trading Members (TMs)**
* **Impact:** Benefit from revised exemptions for equity option contracts and orders placed by Designated Market Makers.
* **Action Required:** Familiarize themselves with the revised OTR framework and its impact on trading strategies.
**Designated Market Makers**
* **Impact:** Their algorithmic orders for market making are excluded from OTR calculations.
* **Action Required:** Ensure compliance with the revised framework.
Key Entities Referenced
Order-to-Trade Ratio (OTR): The main subject of the circular, pertaining to the framework for placing effective economic disincentive by Stock Exchanges for high order-to-trade ratio of Algorithmic orders placed by Trading Members.
Securities and Exchange Board of India (SEBI): The regulatory body issuing the circular.
Master Circular for Stock Exchanges and Clearing Corporations: Referenced document which this circular modifies.
Securities and Exchange Board of India Act, 1992: Law under which the circular is issued.
Stock Exchanges: Entities to whom the circular is directed and who are responsible for implementing the changes.
CIRCULAR
HO/47/11/16(2)2025-MRD-POD2/I/4113/2026 February 04, 2026
To,
All Recognized Stock Exchanges (except Commodity Derivative Stock Exchanges)
Dear Sir/ Madam,
Sub: Revision of Order-to-Trade Ratio (OTR) framework
1. Para 7.1.2.2, 7.1.2.3, 11.2.14 and 11.2.15 of Chapter 2 of the Master Circular for Stock
Exchanges and Clearing Corporations (‘Master Circular’) dated December 30, 2024,
prescribe the framework for placing effective economic disincentive by Stock
Exchanges for high order-to-trade ratio (OTR) of Algorithmic orders placed by Trading
Members (TMs).
2. Taking into account the representations received from the Stock Exchanges,
deliberations held with the various stakeholders and recommendations of the
Secondary Market Advisory Committee of SEBI, it is decided to carry out the following
modifications in the aforesaid framework:
2.1. For equity option contracts, orders within ±40% of LTP (premium) or ±INR 20,
whichever is higher, shall be exempted from the framework for imposing penalty
for high OTR.
2.2. The Algorithmic orders placed by Designated Market Makers for market making
activity shall not be considered towards computation of OTR.
3. Accordingly, para 11.2.14.1 and 11.2.14.2 of Chapter 2 of the Master Circular, are
modified as under:
“11.2.14.1. Orders placed within the range of ±0.75% of the LTP shall be exempted
from the framework for imposing penalty for high OTR. However, for equity option
contracts, orders placed within the range of ±40% of LTP (premium) or ±INR 20,
Page 1 of 2whichever is higher, shall be exempted from the framework for imposing penalty for
high OTR.
11.2.14.2. OTR framework shall be applicable to the orders placed in the cash
segment and the derivative segment, including the orders placed under the liquidity
enhancement schemes. However, the algorithmic orders placed by Designated
Market Makers for market making activity shall be exempted from the framework for
imposing penalty for high OTR”.
4. The provisions of this circular shall come into effect from April 06, 2026.
5. The Stock Exchanges are accordingly advised to:
5.1. Make necessary amendments to the relevant bye-laws, rules and regulations for
the implementation of the above decision, as may be necessary/applicable.
5.2. Bring the provisions of this circular to the notice of the market participants
(including TMs) and to disseminate the same on their website.
6. This circular is being issued in exercise of powers conferred under Section 11 (1) of
the Securities and Exchange Board of India Act, 1992, read with Regulation 51 of the
Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations)
Regulations, 2018 to protect the interests of investors in securities and to promote the
development of, and to regulate the securities market.
7. This circular is available on SEBI website at www.sebi.gov.in at “Legal → Circulars”.
Yours faithfully,
Sanjay Singh Bhati
Deputy General Manager
Market Regulation Department
Email: ssbhati@sebi.gov.in
Phone number: 022-26449222
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