The Impressive TimesNew Delhi – The Securities and Exchange Board of India (Sebi) is considering revisions to the framework governing exchange-traded funds (ETFs) to better align trading with real-time market conditions and reduce risks associated with price adjustments. Sources within the mutual fund industry revealed that Sebi is reviewing the methodology used for determining base prices and price bands for ETFs.
Currently, ETF base prices are calculated using the T-2-day Net Asset Value (NAV), resulting in a one-day lag between the actual NAV and the applied price band. Corporate actions like stock splits and dividends also require manual adjustments, increasing the risk of errors. To address these issues, Sebi proposes shifting the base price calculation to the previous day’s NAV (T-1-day), which is published by 11 PM, well before the next day’s market opening.
Additionally, Sebi is exploring the introduction of dynamic price bands for different types of ETFs:
Equity & Index ETFs: Initial price band of ±10%, extendable to ±20% after a 15-minute cooling-off period, with a maximum of two flexing events per session.
Commodity ETFs: Initial band of ±6%, adjustable in stages of 3% based on international market movements, up to ±20%.
Liquid & Overnight ETFs: Fixed band of ±5% due to low volatility.
The dynamic system is expected to prevent abrupt price swings while providing flexibility for genuine market movements. According to industry sources, an analysis of ETF price variations between April 2024 and March 2025 showed that over 99.5% of ETFs moved within ±10% of their previous close, while liquid and overnight ETFs mostly fluctuated within ±5%.
If implemented, these changes will align ETFs closer to market rates, reduce pricing errors, and introduce a structured mechanism to handle volatility, similar to the dynamic circuit breakers already in place for equity and index derivatives. Sebi is expected to conduct further consultations with stakeholders before issuing final guidelines.
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