SEBI revises ETF price band framework, introduces dynamic limits and pre-open auction for commodity ETFs

The regulator said the changes are aimed at addressing “the issues involved due to a lag of 1 trading day in the base price of ETFs and the fixed price band of ETFs not being commensurate with the price range of the underlying”.

Under the new framework, the base price for ETFs will be the previous day's closing price, calculated as the last 30 minutes' volume-weighted average price (VWAP) of the ETF, SEBI said in its circular.

In cases where no trading takes place during the last 30 minutes, the last traded price of the day will be used. If there is no trade on the previous day, the latest available closing net asset value (NAV) will serve as the base price.

SEBI said stock exchanges and asset management companies (AMCs) would work towards implementing T-1 day closing NAV as the base price from April 1, 2027, after addressing operational challenges.

The changes have been made considering the operational challenges in the usage of T-1 day closing NAV of the ETFs as the base price.

Equity and debt ETFs

For equity ETFs and debt ETFs, excluding overnight and liquid ETFs, SEBI has prescribed dynamic price bands with an initial range of plus or minus 10%, which can be expanded up to 20% after a cooling-off period.

The cooling-off period will be 15 minutes when prices reach or exceed 9.90% from the base price and five minutes if such movement occurs during the last 30 minutes of trading. The price band can be widened by 5% of the base price on up to two occasions in one direction.

Overnight ETFs and liquid ETFs will continue to have a fixed price band of plus or minus 5%.

Commodity ETFs

For commodity ETFs tracking gold and silver, SEBI has introduced dynamic price bands with an initial limit of plus or minus 6%. The band may be expanded in stages of 3% after a cooling-off period, depending on market movements.

The regulator said there would be no upper or lower cap on the price bands for commodity ETFs and no restriction on the number of times the limits can be expanded during a trading session.

SEBI has also decided to introduce a call auction in the pre-open session for commodity ETFs to facilitate efficient price discovery, given that the underlying commodities trade across international markets beyond domestic trading hours.

The regulator further revised close-out norms for overnight and liquid ETFs. The close-out price will be either the highest price recorded in the ETF during the relevant settlement period up to the auction or close-out date, or 5% above the latest available closing price on the day auction offers are invited, whichever is higher.

The new provisions will come into effect from September 1.