Sebi Revamps ETF Trading Rules with Dynamic Price Bands Set to Launch in September
On September 1, 2026, the Securities and Exchange Board of India (Sebi) will implement a significant overhaul of the framework governing exchange-traded funds (ETFs), shifting from a static price band system to a dynamic pricing mechanism. Currently, ETFs operate under a fixed price band of 20% based on the net asset value (NAV) from two trading days prior. This existing structure has been criticized for its inability to provide timely and accurate price discovery, causing delays in reflecting real-time movements of underlying assets. The new rules aim to address these challenges by introducing dynamic price bands, which will allow for more responsive pricing in volatile markets.
Under the updated framework, equity and debt ETFs will initially feature a dynamic price band set at 10%, which can expand to 20% after a designated cooling-off period. Additionally, if prices reach the upper threshold during trading, the band can be incrementally widened by 5%. For commodity ETFs focused on gold and silver, the initial price band will be set at 6%, with the potential for staged adjustments of 3% based on market fluctuations and international commodity price behavior. These changes are designed to enhance liquidity and trading efficiency, making the ETF market more responsive to real-time conditions.
Furthermore, the method for establishing ETF base prices will also undergo revision. Instead of relying on a two-day-old NAV, the exchanges will now use the previous day’s closing price, assessed as a volume-weighted average during the final 30 minutes of trading. This critical shift aims to enhance accuracy in price representation on trading days. In scenarios where trading does not occur, the last traded price will be used. Additionally, Sebi has mandated a pre-open call auction session for gold and silver ETFs, aligning local trading with continuous international commodity markets to improve price discovery.
The initiatives introduced by Sebi are largely informed by extensive stakeholder consultations, including recommendations from stock exchanges and the Secondary Market Advisory Committee. By aligning domestic trading mechanisms with global practices, these regulatory changes promise to fortify the ETF landscape in India. Investors should prepare for a more dynamic trading environment, which may optimize their portfolio management strategies as volatility impacts both the equity and commodity segments.
Source: The Economic Times
(Expert Note: This report was prepared by the Wealthova team.)