Sebi revamps ETF trading rules, introduces dynamic price bands from September

Markets regulator Sebi has introduced a new framework for exchange traded funds (ETFs), replacing the existing fixed price band mechanism with dynamic price bands for most ETF categories and changing the method used to determine their base price.The new rules will come into effect from September 1, 2026, according to a circular issued by the regulator on Monday.At present, ETFs are subject to a fixed 20% price band based on the net asset value (NAV) from two trading days earlier.

SEBI said the existing framework creates challenges because of the one-day lag in price discovery and because the fixed bands do not adequately reflect movements in the underlying assets.Under the revised framework, equity ETFs and debt ETFs, excluding overnight and liquid ETFs, will have an initial dynamic price band of 10%, which can be expanded up to 20% after a cooling-off period.

The price band will be widened by 5% increments if prices hit the upper threshold during trading.Commodity ETFs tracking gold and silver will have an initial price band of 6%, which can be expanded in stages of 3% depending on market conditions and international commodity price movements.Sebi has also changed the methodology for determining ETF base prices.

Instead of using the T-2 NAV, exchanges will use the previous day's closing price, calculated as the volume-weighted average price during the last 30 minutes of trading.

If there is no trade during that period, the last traded price will be used.

In the absence of any trading, the latest available NAV will serve as the base price.The regulator said stock exchanges and mutual funds should work towards using the previous day's closing NAV as the base price from April 1, 2027.In another key change, Sebi has mandated a pre-open call auction session for gold and silver ETFs to improve price discovery, given that the underlying commodities trade continuously across international markets while domestic ETFs trade only during Indian market hours.The regulator said the changes were based on recommendations from stock exchanges, the Secondary Market Advisory Committee and feedback received during public consultation. ...