The changes in the trading arrangement for ETFs, or Exchange-Traded Funds, in India will now come into effect six days later than the previously fixed date. SEBI has extended the deadline for implementing the new ETF trading framework from 1 September to 7 September 2026. This decision has been taken after feedback received from the stock exchange, so that the necessary system changes and operational preparations required to implement the new rules can be completed.
SEBI’s new framework is focused on improving the price discovery and trading process of ETFs. In it, rules related to the base price of ETFs, price bands, pre-open call auction and close-out procedure have been changed.
Let us understand in detail what changes SEBI has made in the rules of ETF trading, why the deadline has been extended and what it means for investors.
What’s Happening?
SEBI had introduced the new framework for ETF trading in the circular of 15 June 2026, which was earlier to be implemented from 1 September. Now its effective date has been made 7 September. That is, stock exchanges, clearing corporations and other market infrastructure institutions will get six additional days to make the necessary changes in systems and processes.
According to SEBI, the decision to extend the deadline has been taken on the basis of feedback received from the stock exchange. Exchanges, clearing corporations, mutual fund houses and AMFI have been asked to complete system changes, amend bylaws as required and inform market participants including investors about it.
Major Change in the Base Price of ETFs
The most important part of the new framework is the change related to the base price of ETFs. In the existing arrangement, T-2 NAV was used for the price band. This could create a difference between the market price of the ETF and its underlying assets.
Now the base price of the ETF will be determined on the basis of the closing price of the previous trading day. For this, the volume-weighted average price of the last 30 minutes of trading will be used. If there is no trading of the ETF in this period, the last traded price will be taken as the base. On the other hand, if there has been no trade in the ETF on T-1, the most recent available closing NAV will be used.
In addition, exchanges and AMCs will move towards T-1 closing NAV from 1 April 2027. This change has been made with the objective of helping keep the market price of the ETF closer to the value of its underlying assets.
Changes in Price Bands and Pre-Open Auction
Under the new rules, price bands will also be changed for different ETF categories. In equity ETFs and most debt ETFs, there will initially be a dynamic price band of plus or minus 10%. After the cooling-off period, it can be increased in a phased manner up to plus or minus 20%.
On the other hand, for overnight and liquid ETFs, a fixed price band of plus or minus 5% will continue. In the case of gold and silver ETFs, there will be no fixed limit for increasing the price band during the day. For these, a pre-open call auction will also be started, so that the overnight changes in the international bullion market can be better included in the opening price of the ETF.
SEBI has also made changes in the close-out procedure of overnight and liquid ETFs. Overall, the new framework is focused on strengthening price discovery in ETF trading and reducing situations such as sudden halt in trading.
What Does This Mean for Investors?
The change is focused on creating better alignment between the market price of the ETF and the value of its underlying assets rather than giving any immediate big benefit to investors. The new base price arrangement and changed price bands can help in reducing unnecessary differences in ETF prices and improving the arbitrage process.
SEBI’s one-week extension gives market participants additional time to prepare for the new trading framework, while no change has been made in the main rules. In the long term, its objective is to make the price discovery and trading of ETFs more systematic.
What’s Next?
The framework coming into effect from 7 September is not just a change in date, but will bring changes in several important parts of ETF trading. SEBI’s focus is on strengthening price discovery, trading efficiency and market mechanism.
In the coming phase, system changes, bylaw amendments and preparation of market participants will remain important. Especially, the move towards T-1 closing NAV from 1 April 2027 will take the pricing arrangement of ETFs further. In this way, SEBI’s new framework is an important step in the direction of creating better alignment between the market price of ETFs and the value of underlying assets.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
Investments in the securities market are subject to market risks. Read all related documents carefully before investing.
