Buying Gold ETFs? New trading rules take effect from September 1. What investors should know

Investors in Gold and Silver ETFs could soon see prices that better reflect global commodity movements under a new SEBI framework for exchange-traded funds (ETFs) that takes effect from September 1.

The markets regulator on Monday introduced a revised framework for ETFs, including new norms for determining base prices, dynamic price bands and a pre-open call auction mechanism. The changes are aimed at improving price discovery and investor protection, particularly for commodity ETFs such as gold and silver.

What changes for Gold ETF investors?

SEBI has introduced a pre-open call auction mechanism for commodity ETFs along with dynamic price bands to improve alignment with underlying asset prices.

The regulator said the move is necessary given that “the underlying commodities trade across international markets beyond domestic trading hours”.

Under the revised system, commodity ETFs will have an initial price band of plus or minus 6 per cent, which can be expanded in stages of 3 per cent after a cooling-off period depending on market conditions.

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

The changes aim to ensure that Gold and Silver ETF prices better reflect overnight movements in global commodity markets, reducing the chances of large premiums or discounts during volatile sessions.

Why Sebi is changing the rules

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 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: Dynamic bands introduced

For equity ETFs and non-liquid debt ETFs, SEBI has also moved to a dynamic price band system starting at 10 per cent, which can be widened up to 20 per cent after a cooling-off period.

The regulator said the cooling-off mechanism will be triggered when prices move to or beyond 9.90 per cent from the base price. The pause will last 15 minutes during normal trading hours and five minutes if triggered near market close.

SEBI said the mechanism is intended to ensure “orderly trading and better alignment between ETF prices and underlying assets”.

"By introducing dynamic price bands, a more realistic base price methodology, and a pre-open call auction mechanism, SEBI is directly addressing these inefficiencies. The pre-open auction, in particular, will play a crucial role in better price discovery before regular trading begins, ensuring that early trades are more aligned with global market movements. Additionally, dynamic price bands will allow ETFs to adjust more naturally during volatile conditions, instead of being artificially restricted,"said CFP Shweta Shastri.

"This improves liquidity and reduces the risk of sharp mispricing during market stress. For investors this allows better alignment with underlying asset values, reduced pricing distortions, and a more transparent trading environment. And clearly the execution efficiency is improving," added Shastri.

Liquid and overnight ETFs unchanged

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

Close-out norms revised

SEBI has also revised close-out norms for overnight and liquid ETFs, changing the pricing mechanism used during settlement-related situations to reduce distortions.

The revised framework will come into effect from September 1.

What it means for gold ETF investors

"Overall, this move strengthens investor confidence and brings India’s ETF ecosystem closer to global best practices. Still, Gold and Silver ETFs should be used as part of a long-term portfolio, not as a quick trade. They are useful for diversification and for adding stability, but they should not be treated as a short-term bet on daily price moves," added Shweta Shastri.