New Delhi, May 14 -- The Securities and Exchange Board of India (Sebi) on Thursday proposed removing the "close-to-the-money" (CTM) category in commodity options contracts as part of a wider clean-up of derivatives regulations aimed at simplifying trading and reducing compliance burdens for exchanges.

In a consultation paper, the markets regulator said the CTM mechanism makes option exercise procedures more complex for market participants and creates uncertainty for option sellers. Sebi added that most leading global commodity exchanges do not follow the CTM framework.

Currently, commodity options classify contracts into in-the-money (ITM), out-of-the-money (OTM) and close-to-the-money (CTM) categories. Sebi has proposed eliminating the...