SEBI Consultation Paper on Review of Base Price and Price Bands for ETFs

The Securities and Exchange Board of India (SEBI) has issued a consultation paper titled Review of provisions related to Base Price and Price Bands for Exchange Traded Funds. The objective is to seek public comments on proposed changes related to base price determination and price bands for ETFs

This review aims to improve alignment between ETF prices and their underlying assets while addressing operational challenges.

What Are ETFs

An Exchange Traded Fund is a mutual fund scheme that invests in securities in the same proportion as an index. The units of ETFs are mandatorily listed and traded on stock exchanges

Currently, Asset Management Companies are permitted to launch passive ETFs under the following categories

• Equity ETFs
• Debt ETFs including Liquid and Overnight ETFs
• Commodity ETFs such as Gold ETFs and Silver ETFs

ETFs are traded like individual securities and are subject to price bands.

Current Framework for Price Bands and Base Price

At present

• Individual securities have price bands of up to 20% either way
• Scrips with derivatives are excluded from such bands
• Market wide circuit breakers of 10%, 15% and 20% are triggered based on index movement
• These bands are applied on T - 1 closing price level

In case of ETFs

• A fixed price band of +/- 20% is applied
• Overnight ETFs investing only in TREPs have a +/- 5% band
• The base price is taken as T - 2 day closing Net Asset Value instead of T - 1 closing NAV or price  as in case of index and individual scrips.

Why SEBI Is Reviewing ETF Base Price and Price Bands

1. One Day Lag in Base Price

The use of T - 2 NAV creates an inherent lag of one trading day since ETF NAVs differ between T - 1 and T - 2

2. Manual Adjustments for Corporate Actions

Corporate actions such as bonus and dividends effective on T - 1 are manually adjusted in T - 2 NAV. This increases the risk of errors and omissions

3. Misalignment with Underlying Volatility

The fixed +/- 20% price limit may not match the actual allowed price movement of the underlying asset, since that movement is calculated based on the previous day’s closing price.

4. Excessively wide trading range

The current rule allows all ETFs (except Overnight ETFs) to move up to 20% up or down, no matter what asset or index they track. However, this fixed limit may not properly match how much the underlying asset is allowed to move or how volatile it is. As a result, the ETF’s allowed price range could sometimes be much wider than the movement of the asset it is based on.

Proposed Changes to Base Price for ETFs

The base price on T Day may be one of the following

• Closing price of ETFs on T - 1 day which is the weighted average traded price of the last 30 minutes
• Average indicative NAV of the last 30 minutes on T - 1 day
• Closing NAV of T - 1 day (if available)

Analysis of ETF Price Movements

SEBI conducted daily close to previous close variation analysis for the period April 1, 2025, to December 31, 2025

• More than 99.8% of ETFs in the equity and debt segment had maximum movement less than or equal to 10%

• More than 98% of Gold and Silver ETFs had maximum movement less than or equal to 9%

• For Overnight/TREPs based ETFs maximum variation ranged between - 5% to + 5%

Proposed structure for Equity and Debt Index ETFs

• Initial price band of +/- 10%. If required, this limit can be increased to 20% during the trading day, but only after a cooling-off period.
• Once the initial price limit is reached, trading will pause for a cooling-off period
• 15 minutes if this happens before the last 30 minutes of trading, or
• 5 minutes if it happens during the last 30 minutes of trading.
•  After the cooling-off period, the price limit will be increased by 5%. This increase can happen a maximum of two times in a single day.
• The total price movement allowed in a single day cannot exceed 20%.
• One of the requirements to increase the price limit is that there must be at least 50 trades, involving 10 different client codes (UCCs) and 3 different trading members on both the buying and selling sides, at or above 9.90%, and similar levels.

Proposed structure for Commodity ETFs Gold and Silver

• Single day maximum variation capped at plus 20 percent
• Initial price band of +/- 6%. If needed, this limit can be increased up to 20% during the trading day, but only after a cooling-off period.
• Once the 6% limit is reached, there will be a 15-minute cooling-off period. After that, the price limit will be increased by 3%.
• If international markets move more than the total daily price limit of 9%, the exchange may further increase the limit in steps of 3%, with a 15-minute cooling-off period each time.
• However, the total price movement allowed in a single day cannot exceed 20%.

Key Questions Raised by SEBI

SEBI has invited public comments on the following

• Which base price method should be adopted for T Day
• Whether stakeholders agree with the revised price band structure
• Whether the upper limit of +/- 20% for commodity ETFs should be removed in line with commodity derivative contracts
• Whether a separate pre-open session should be introduced for commodity-based ETFs
• Any other suggestions on the consultation paper

Public comments can be submitted until March 6, 2026