SEBI sets implementation timeline for derivatives on BANKNIFTY, BANKEX, FINNIFTY

The capital markets regulator, the Securities and Exchange Board of India (SEBI), on Thursday, October 30, released guidelines for stock exchanges for the introduction of derivatives on non-benchmark indices, such as BANKEX, FINNIFTY, and BANKNIFTY.

SEBI said stock exchanges must adjust the composition and weights of existing non-benchmark indices.

The circular said that, in addition to the existing eligibility criteria for derivatives on indices, stock exchanges shall follow prudential norms before introducing derivatives on non-benchmark indices (NBI), which the market regulator had introduced in a separate circular on May 29.

These norms state that the indices should have a minimum of 14 constituents, the weight of the top constituents being less than or equal to 20%, and the combined weight of the top three constituents being no more than 45%. It also said that the individual weight of all the other constituents on the index should be lower than that of the higher-weighted constituents, which means following a descending weight structure.

For BSE’s BANKEX and NSE’s FINNIFTY, the changes must be implemented in a single phase by December 31, 2025. For NSE’s BANKNIFTY, adjustments will be made in four monthly phases and completed by March 31, 2026, to ensure an orderly rebalancing of index-tracking funds, it added.

For BANKNIFTY, which will make adjustments in four tranches, the new constituents will be added to the index in the first phase, and by the end of the fourth phase, the top three constituents will have a target weight.

“In each adjustment, the weight of the top 3 constituents would be checked, and if the weights are beyond the prudential norms, the excess would be targeted for reduction equally over the remaining tranches,” the circular added.

The move is aimed at boosting market efficiency, enhancing representation of the banking and financial sectors, and giving more diverse trading and investment opportunities.

According to the circular, exchanges are required to comply with the prudential norms specified in SEBI's directive.

The regulator has asked stock exchanges and clearing corporations to update their systems, notify market participants in advance, and ensure compliance by the given timelines.