Source: ET
Context:
The Securities and Exchange Board of India (SEBI) has introduced new norms for exchanges that list derivative products on non-benchmark indices such as BankNifty, Bankex, and FinNifty, to prevent concentration risk and reduce chances of index manipulation.
Objective of the New Rules
- The move aims to ensure that no single stock dominates an index on which derivatives (futures and options) are traded.
- SEBI’s regulatory intent is to create fair, diversified, and less manipulable indices, following concerns raised in the Jane Street case, where index constituents were allegedly manipulated for derivative trading profits.
Applicability
- Applies to non-benchmark indices (e.g., BankNifty, FinNifty, Bankex) that already have derivative products listed.
- Will also apply to any future non-benchmark indices on which exchanges plan to launch derivative contracts.
- Benchmark indices such as Nifty and Sensex are not covered under these new rules.
New Structural Norms for Non-Benchmark Indices
- Minimum Constituents: At least 14 stocks must be included in the index.
- Top Stock Cap: The largest constituent cannot have more than 20% weight.
- Top Three Cap: The combined weight of the top three constituents must not exceed 45%.
- These measures ensure greater diversification and reduce market manipulation risks.
Implementation Timeline and Glide Path
- Bankex (BSE) and FinNifty (NSE): Must comply by December 31, 2025.
- BankNifty (NSE): Given an extended glide path up to March 31, 2026, to allow orderly rebalancing of assets under management (AUM) tracking the index.
- The transition will be executed in multiple tranches, with adjustments made gradually to meet prudential norms for top constituents.
