New Delhi

Marketsregulator Sebi introduced a revised framework for exchange traded funds (ETFs), including new norms for determining base prices, dynamic price bands and a pre-open call auction mechanism for ETFs, aimed at improving price discovery and investor protection. 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. 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.