The Securities and Exchange Board of India (SEBI) has proposed significant changes to the rules governing exchange-traded funds (ETFs). The proposed reforms include dynamic price bands, revised base price calculations, and new auction mechanisms. These changes aim to ensure that ETF prices more accurately reflect the value of the assets they are based on.
Currently, equity, debt, and commodity ETFs operate within a fixed 20% price band, while overnight ETFs have a 5% limit. These limits are determined by a reference price based on the ETF’s net asset value from two trading days earlier. Under the new framework, the base price for ETF trading will be calculated using the previous day’s closing market price, determined by the volume-weighted average price (VWAP) during the final 30 minutes of trading.
SEBI has also called for collaboration between stock exchanges and mutual fund houses to address operational challenges and enable the use of T-1 closing NAV as the base price starting from April 1, 2027. The regulator has proposed replacing the current fixed-band structure with a dynamic price limit mechanism for most ETFs, allowing trading within a 10% band above or below the base price for equity and debt ETFs, with provisions for price band expansions based on trading activity.
