SEBI wants closer to market NAV for ETFs, proposes revamp of base price and price band framework

SEBI wants closer to market NAV for ETFs, proposes revamp of base price and price band framework

• SEBI proposes new base price, price band rules for ETFs
• T-1 based pricing and differentiated price bands suggested
• Public comments on proposals invited until March 6, 2026

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The Securities and Exchange Board of India (SEBI) on Friday proposed comprehensive review of the framework related to base price determination and price bands for Exchange Traded Funds (ETFs), citing concerns over volatility alignment and operational gaps in the current system. Moneycontrol had reported on August 2025 that SEBI is deliberating on such a proposal.

In a consultation paper issued today, the regulator flagged that exchanges presently compute the base price for ETFs using the T-2 day closing Net Asset Value (NAV), unlike equities and indices where price bands are linked to the T-1 closing price. This creates a one-day lag in reference pricing and requires manual adjustments for corporate actions such as dividends and bonuses, increasing the risk of errors.

SEBI has proposed shifting to a T-1-based benchmark for determining the base price on the trading day (T day). The base price may be derived from one of the following: the closing traded price of the ETF weighted average price of the last 30 minutes, the average indicative NAV (iNAV) of the last 30 minutes, the closing NAV of T-1 if available, or the latest available iNAV of T-1.

The regulator has also proposed rationalising the existing uniform ±20% price band applicable to most ETFs (±5% for Overnight ETFs investing in TREPs).

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Based on analysis of trading data between April and December 2025, SEBI observed that over 99.8 percent of equity and debt ETFs recorded single-day movements within 10 percent, while more than 98 percent of gold and silver ETFs saw movements within 9 percent . Accordingly, the Secondary Market Advisory Committee (SMAC) has recommended introducing differentiated initial price bands.

For equity and debt ETFs, an initial ±10 percent band is proposed, with the flexibility to extend it in stages up to ±20 percent, subject to cooling-off periods and minimum trade thresholds.

For gold and silver ETFs, an initial ±6 percent band has been proposed, with staged relaxation in line with the aggregate daily price limit applicable to commodity derivatives. The existing ±5 percent band for Overnight ETFs is proposed to continue.

The review follows heightened volatility in gold and silver prices in late January 2026, when the existing framework was found inadequate to ensure closer alignment between ETF prices and underlying assets.

SEBI has invited public comments on whether the existing ±20 percent upper cap for commodity ETFs should be removed. The regulator has also sought feedback on whether a separate pre-open session should be introduced for commodity-based ETFs to help determine an equilibrium price for trading in their units.

Given that the underlying commodities—gold and silver—trade across international markets throughout the day, while the corresponding ETFs trade only during domestic market hours (9:15 a.m. to 3:30 p.m.), SEBI has asked whether a dedicated pre-open session would enable better price discovery and alignment with global prices. SEBI has sought views on the proposals until March 6, 2026.

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