The regulator had introduced the framework in a June 15 circular covering the base price, price bands, call auction in the pre-open session and close-out procedure for ETFs.
SEBI extended the deadline on August 28 following feedback from stock exchanges.
The regulator said the move was intended to ensure smooth implementation of the new provisions. The substantive provisions of the June circular remain unchanged.
What are the new ETF rules?
The framework lays down specific norms for how ETFs will be handled during the trading process, including how their base price and price bands are determined.
It also introduces provisions relating to a call auction during the pre-open session. A call auction is a mechanism in which orders are collected during a specified period and then matched at a price that facilitates the maximum possible trading.
SEBI has also specified a close-out procedure for ETFs. This provides a framework for dealing with situations where obligations arising from trades cannot be completed through the normal settlement process.
Why has SEBI introduced these norms?
ETFs trade on stock exchanges like shares, while their underlying portfolios may consist of stocks, bonds, commodities or other assets. Their exchange-traded nature means that trading and settlement processes need to account for both market orders and the underlying assets.
The June circular seeks to bring greater clarity and standardisation to certain aspects of ETF trading, including the pre-open session, price bands and close-out mechanism.
What does the September 7 date mean for investors?
For investors, the key point is that the new framework will apply from September 7.
SEBI has directed stock exchanges, clearing corporations and other market infrastructure institutions to put the necessary systems in place and make any required changes to their rules and regulations.
They have also been asked to inform market participants, including investors, about the provisions.
The regulator has not changed the other provisions of its June 15 circular through the August 28 update. The latest circular only extends the implementation timeline.
