Source: Mint
Context:
The Securities and Exchange Board of India (SEBI) has proposed reforms for Exchange Traded Funds (ETFs) to improve pricing accuracy and better manage market volatility.
A consultation paper is open for public comments until 6 March.
What Are ETFs?
- Investment funds traded on stock exchanges like shares.
- Track an index, commodity, or asset basket.
- Value based on Net Asset Value (NAV) of underlying assets.
NAV = Total asset value – expenses ÷ number of units.
Key Proposed Changes
1. Change in Base Price Calculation (Major Reform)
Current system:
- Uses T-2 NAV (two trading days old).
Proposed system:
- Use T-1 data (previous trading day).
Possible reference values:
- Closing market price on T-1
- Average iNAV in last 30 minutes of T-1
- Closing NAV of T-1
➡ Reduces pricing lag.
2. Review of Price Bands
Current price movement limits:
- Most ETFs: ±20% per day
- Overnight ETFs: ±5%
SEBI may:
- Reduce or rationalise price bands.
- Align bands with actual volatility.
3. Commodity ETF Reforms (Gold & Silver)
- Consider removing 20% price band.
- Align with derivative market limits.
- Introduce separate pre-open session for gold and silver ETFs.
Reason:
- Global commodity prices move continuously.
- Indian ETFs trade only during domestic market hours.
