SEBI’s New ETF Proposals

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.