SEBI sets timeline for adjustment in Bank Nifty, FinNifty and Bankex for derivative indices trading

SEBI sets timeline for adjustment in Bank Nifty, FinNifty and Bankex for derivative indices trading 

Market regulator Securities and Exchange Board of India (SEBI) has issued the implementation plan for exchanges to comply with the new eligibility norms for derivatives on Non-Benchmark Indices (NBIs) such as BANKNIFTY, BANKEX, and FINNIFTY. SEBI circular issued on Thursday, stated that exchanges must complete adjustments for BANKNIFTY by March 31, 2026, while BANKEX and FINNIFTY must achieve compliance by December 31, 2025.

The move aims to ensure that derivatives are based on well-diversified indices and to prevent excessive concentration in a few large stocks. As per the circular, exchanges are required to adhere to the prudential norms specified in SEBI’s directive, which mandate that indices used for derivatives must have a minimum of 14 constituents, a maximum 20 percent weight for the top constituent, a combined 45 percent cap for the top three constituents, and a descending weight structure. These measures are designed to make index-based derivatives more balanced and representative of the underlying sector or theme.

Following a public consultation and recommendations from the Secondary Market Advisory Committee (SMAC), SEBI decided that compliance should be achieved through adjustments to the constituents and weights of existing indices, rather than through the creation of new indices.

Accordingly, the regulator has directed that BSE’s BANKEX and NSE’s FINNIFTY align with the prudential norms in a single tranche, while NSE’s BANKNIFTY will undergo a phased rebalancing process over four months to ensure orderly adjustment of funds tracking the index.

The circular illustrates that for BANKNIFTY, the weight of the top constituent would be reduced gradually. For example, if the top stock currently holds 28 percent weight, it will be trimmed to 20 percent over four tranches, with recalibration at each stage based on price movements and market dynamics. Excess weights from top constituents will be redistributed among smaller stocks within prudential limits.

Stock exchanges and clearing corporations have been instructed to put in place appropriate systems, provide advance intimation to market participants, and amend bye-laws and rules as needed.