ETFs (Exchange Traded Funds) are funds that track an index, debt basket, or commodity like gold, and trade on the stock exchange like shares. They let investors buy diversified exposure in a single click. In recent months, Indian markets (particularly commodities like ๐จ๐ฐ๐ญ๐ฅ ๐ข๐ฏ๐ฅ ๐ด๐ช๐ญ๐ท๐ฆ๐ณ) have witnessed heightened volatility, once again bringing ETF market mechanics into focus.
Against this backdrop, Securities and Exchange Board of India (SEBI)‘s consultation paper dated February 13, 2026, proposes important changes to how ETF price bands and base prices are determined.
Currently, exchanges apply price bands to ETFs using the T-2 day closing Net Asset Value (NAV) as the base price. In an instrument that trades intraday and mirrors real-time benchmarks, a two-day reference lag creates distortions, increases operational dependency on manual corporate action adjustments, and can weaken alignment between ETF prices and underlying assets.
Securities and Exchange Board of India (SEBI) now proposes shifting the base/reference price to a more contemporaneous metric, such as the T-1 closing price (last 30-minute weighted average), T-1 closing NAV (if available), thereby reducing pricing lag and improving accuracy.
Equally significant is the proposed move away from the existing flat +20% price band (and +5% for Overnight ETFs). Data analysis for AprilโDecember 2025 shows that over 99% of equity and debt ETF movements were within 10%, and most commodity ETFs stayed within 9โ10%. A uniform +20% band, therefore, appears misaligned with actual volatility. The proposed framework introduces calibrated guardrails:
(๐) ๐๐ช๐ฎ๐ข๐ญ๐ฒ/๐๐๐๐ญ ๐๐๐ ๐ฌ: Initial ยฑ10% band, flexing up to ยฑ20% with cooling-off periods and liquidity thresholds.
(๐) ๐๐จ๐ฅ๐/๐๐ข๐ฅ๐ฏ๐๐ซ ๐๐๐ ๐ฌ: Initial ยฑ6% band, flexing in 3% stages, aligned with aggregate DPL norms.
(๐) ๐๐ฏ๐๐ซ๐ง๐ข๐ ๐ก๐ญ ๐๐๐ ๐ฌ: Continue at ยฑ5%.
From a regulatory standpoint, this will provide better price discovery, reduced arbitrage mismatches, and volatility controls proportionate to underlying assets. Implementation mechanics, particularly flexing triggers and liquidity conditions, will determine effectiveness. But directionally, this is a meaningful evolution in ETF regulation.
Comments on the consultation paper may be submitted to Securities and Exchange Board of India (SEBI) by March 06, 2026. Readers may also share their views at info@regstreetlaw.com.