SEBI Tightens Rules for Non-Benchmark Indices like BankNifty and FinNifty

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.