SEBI Revises ETF Trading Norms, Introduces Dynamic Price Bands For Equity, Debt and Commodity ETFs

The Securities and Exchange Board of India (SEBI) on Monday revised the trading framework for Exchange Traded Funds (ETFs) by linking ETF price bands to the previous day's closing price and introducing dynamic price bands for equity, debt and commodity ETFs.

SEBI observed that the existing ETF framework involved a one-day lag in determining the base price and that the fixed price bands were not commensurate with movements in the underlying assets.

Accordingly, based on recommendations of the Secondary Market Advisory Committee and stakeholder consultations, it prescribed revised norms for determination of base price, price bands, call auctions in the pre-open session and close-out procedures for ETFs.

For determining ETF price bands, SEBI has prescribed that the base price will initially be the previous day's closing price, calculated using the last 30 minutes' Volume Weighted Average Price.

Where there is no trade during the last 30 minutes, the Last Traded Price will be used, while the latest available Net Asset Value (NAV) will be used where there is no trade on the previous trading day.

SEBI has also directed stock exchanges and asset management companies to jointly address the operational challenges for implementing a T-1 day closing NAV-based system from April 1, 2027.

SEBI has introduced dynamic price bands for Equity and Debt ETFs, with an initial price band of ±10%, which may be flexed up to 20% after a cooling-off period.

However, Overnight ETFs and Liquid ETFs will continue to be subject to a fixed price band of ±5%.

For Commodity ETFs (Gold/Silver), SEBI has prescribed an initial dynamic price band of ±6%, which may be relaxed in stages after cooling-off periods.

Stock exchanges may further relax these limits in exceptional circumstances involving extreme movements in international commodity prices, with appropriate notice to the market.

SEBI has further decided that a call auction in the pre-open session shall be conducted for Commodity ETFs (Gold/Silver) to facilitate discovery of the equilibrium price before commencement of trading.

The regulator has also changed the close-out mechanism for Overnight and Liquid ETFs. Under the revised framework, the close-out price will be the higher of the highest price recorded in the ETF up to the date of auction or close-out, and 5% above the latest available closing price on the day auction offers are called for.

The revised framework will take effect from September 1, 2026.