The regulator said the changes address issues arising from the one-day lag in ETF base prices and fixed price bands that do not adequately reflect movements in the underlying assets.
New base price calculation
Under the revised framework, an ETF‘s base price will be determined using the previous trading day’s closing price, calculated as the volume-weighted average price (VWAP) of trades executed during the last 30 minutes of the session.
If no trades take place during that period, the last traded price of the day will be used. In the absence of any trade during the session, the latest available closing net asset value (NAV) will serve as the base price.
SEBI said stock exchanges and asset management companies will work towards using the T-1 day closing NAV as the base price from April 1, 2027, subject to operational readiness.
Dynamic price bands introduced
For equity and debt ETFs, excluding overnight and liquid ETFs, SEBI has prescribed dynamic price bands with an initial limit of ±10%. These limits can be expanded up to ±20% after a cooling-off period.
The cooling-off period will be 15 minutes when prices move 9.90% or more from the base price and five minutes if such movement occurs during the final 30 minutes of trading.
Overnight and liquid ETFs will continue to operate with a fixed price band of ±5%.
New mechanism for gold and silver ETFs
For commodity ETFs tracking gold and silver, SEBI has introduced dynamic price bands with an initial limit of ±6%. The bands can be widened in stages of 3% after a cooling-off period depending on market movements.
Also Read: SEBI proposes uniform price bands for stocks listed on multiple exchanges
Unlike equity ETFs, there will be no upper or lower cap on these price bands and no restriction on the number of times they can be expanded during a trading session.
SEBI has also introduced a pre-open call auction mechanism for commodity ETFs to facilitate better price discovery, given that gold and silver trade in international markets beyond domestic trading hours.
The regulator has also revised close-out norms for overnight and liquid ETFs. The new framework will come into effect from September 1.
