SEBI revises ETF trading norms, introduces dynamic price bands

The Securities and Exchange Board of India (SEBI) has issued a new framework for exchange-traded funds (ETFs), revising norms related to base price determination, price bands, pre-open call auctions and close-out procedures.

The regulator said the changes are aimed at addressing issues arising from the one-day lag in ETF base prices and the mismatch between existing price bands and movements in underlying assets.

Under the new framework, the base price for ETFs will be the previous day's closing price, calculated as the last 30-minute volume weighted average price (VWAP). If no trades occur during the last 30 minutes, the last traded price will be used. If there are no trades on the previous day, the latest available net asset value (NAV) will serve as the base price.

SEBI said stock exchanges and mutual fund houses should work towards using the previous day's closing NAV as the base price from 1 April 2027.

For equity ETFs and debt ETFs, excluding overnight and liquid ETFs, SEBI has introduced dynamic price bands. The initial price band will be set at 10% and can be expanded up to 20% after a 15-minute cooling-off period if prices hit the upper or lower thresholds.

The regulator said the revised norms were finalised after recommendations from stock exchanges, discussions in SEBI's Secondary Market Advisory Committee and feedback received through public consultation.

The new framework is intended to improve price discovery, align ETF trading mechanisms more closely with underlying asset movements and enhance market efficiency.