The Securities and Exchange Board of India (SEBI) has changed the rules for exchange-traded funds (ETFs). The new rules will change the way exchanges set ETF base prices, daily price limits, pre-open auctions and close-out prices.
The changes were first set to start from September 1, 2026. SEBI has now moved the date to September 7, 2026, after feedback from stock exchanges. All other parts of the June 15, 2026 circular remain unchanged.
For most investors, these changes will not alter the basic purpose of an ETF. But they can affect the price at which an investor can buy or sell ETF units, especially on days when markets move sharply.
Why has SEBI changed the ETF rules?
An ETF trades on a stock exchange, much like a normal share. At the same time, it represents a basket of assets such as stocks, bonds, gold or silver.
Until now, equity, debt and commodity ETFs had a fixed 20% price band. This means an ETF could usually move up or down by as much as 20% from its base price in one day.
The base price was based on the ETF’s NAV from two trading days earlier, known as T-2 NAV.
This created a problem when the value of the assets behind an ETF changed very fast. A two-day-old NAV could be far away from the ETF’s current market value. As a result, the price limit could sometimes restrict normal price movement.
SEBI’s new framework aims to make the base price more relevant and the price bands more flexible.
The base price will use a more recent market price
One of the biggest changes is the way SEBI will calculate the ETF base price.
From September 7, the base price will mainly use the previous day’s closing market price. The exchange will calculate this price through the volume-weighted average price, or VWAP, during the final 30 minutes of the previous trading day.
This means trades with higher volume have more influence on the final reference price.
If there are no trades during the final 30 minutes, the exchange will use the ETF’s last traded price from that day.
If the ETF does not trade at all during the previous day, the latest available closing NAV will become the base price.
This change should reduce cases where an old NAV creates an unrealistic price limit.
SEBI has also said that stock exchanges and mutual fund houses should work towards a later move to the T-1 closing NAV as the base price. The target date for this next stage is April 1, 2027.
Equity and debt ETFs will start with a 10% band
The second major change concerns price bands.
For equity and debt ETFs, except Liquid and Overnight ETFs, the initial price band will become 10% above and 10% below the base price.
The earlier system had a fixed 20% band.
If the ETF reaches the edge of the 10% band, the exchange will not immediately allow a move to 20%. Instead, a cooling-off period will apply.
The normal cooling-off period will be 15 minutes. After that period, the price band can widen by 5 percentage points, but only on the side where the ETF price is moving.
This process can take place twice in the same direction. That allows the band to move from 10% to 15% and then to 20%.
If the trigger comes during the final 30 minutes of the market session, the cooling-off period will be only five minutes.
Importantly, the cooling-off period does not mean that all trade stops. Investors can still buy and sell within the existing price range. The restriction applies to prices beyond the current limit.
What does this mean for investors?
Consider an ETF with a base price of ₹100.
Under the new system, its first price range will be ₹90 to ₹110.
If its price reaches the upper limit, the exchange will start the cooling-off process. After the required period, the upper limit can rise by 5 percentage points to ₹115.
If the ETF again reaches that level, another cooling-off period can allow the upper limit to rise to ₹120.
The same process can apply on the downside.
This system gives the ETF more room to respond to a genuine market move, but it does not allow a sudden jump from a 10% limit to a 20% limit.
For investors, this can provide more protection against unusual price moves. However, on a very volatile day, an investor may have to wait before an order can execute at a price outside the current band.
Gold and silver ETFs get separate rules
Gold and silver ETFs will have a different price-band system.
Their initial price band will be 6% above and 6% below the base price.
If the ETF reaches the edge of that band, the limit can expand by 3 percentage points after the cooling-off period.
Unlike equity and debt ETFs, there is no fixed limit on the number of times the price band can expand during the day.
This is important because gold and silver prices can move sharply in global markets while Indian exchanges are closed.
SEBI has also allowed exchanges to widen the limits further in exceptional cases if international gold or silver prices move beyond the total domestic price limit after Indian markets close.
Gold and silver ETFs will get a pre-open auction
Another important change will affect the start of the market day.
Gold and silver ETFs will enter the pre-open call auction from September 7.
The reason is simple. Gold and silver trade across global markets even when Indian exchanges are closed. Their prices can therefore change a lot before Indian investors get a chance to trade their ETF units.
Under the call auction system, buy and sell orders will first collect during the pre-open period. The exchange will then find a price at which the largest possible quantity can match. That price becomes the opening price.
This can help create a more orderly opening price instead of relying on a small first trade.
The pre-open session itself remains from 9:00 AM to 9:15 AM. Gold and silver ETFs will now take part in this process, while other ETFs such as equity, debt, Liquid and Overnight ETFs will continue to start regular trade at 9:15 AM.
Liquid and Overnight ETFs remain different
Not every ETF will get the new dynamic price-band system.
Liquid ETFs and Overnight ETFs will continue to have a fixed 5% price band.
So, investors in these products will not see the same 10% initial band that applies to most equity and debt ETFs.
SEBI has also changed the close-out rule
The new framework also covers cases where an ETF seller fails to deliver the units and the exchange cannot obtain them through an auction.
For Overnight and Liquid ETFs, the close-out price will be the higher of two values.
One will be the highest price at which the ETF traded on the exchange during the relevant settlement cycle up to the auction or close-out date.
The other will be 5% above the latest available closing price on the day when auction offers are called.
For other ETFs, the existing close-out rule will continue. The close-out amount will be the higher of 20% above the closing price or the highest price during the settlement period.
What should ETF investors do?
For a long-term investor, the new rules do not change the basic reason for holding an ETF. But they do make the actual buy or sell process more important.
Investors should pay attention to the ETF’s market price and, where available, its indicative NAV, or iNAV. This is especially useful for gold and silver ETFs, where global prices can change a lot before the Indian market opens.
It is also wise to use limit orders, especially for ETFs with low trading volume. A market order can sometimes execute at an unexpected price when the spread is wide or the ETF faces a sharp price move.
Investors should also remember that a price band is not a measure of fair value. A 10% band does not mean that an ETF is worth 10% more or less. It only sets the range within which its exchange price can move at that point in the session.
The larger picture
SEBI’s new ETF framework is mainly about better price discovery and smoother market activity.
The move from T-2 NAV to a more recent market-based reference price should make the daily limits more relevant. The dynamic bands should give exchanges a way to deal with both normal and sharp price moves. The new call auction for gold and silver ETFs should also help create a better opening price after large global moves.
For most long-term ETF investors, there is no need to change their investment plan just because these rules start on September 7.
However, the rules matter when an investor places an order. A basic understanding of the new bands, the base price and the pre-open process can help investors avoid surprises.
The key change is simple: SEBI is moving ETFs away from one fixed price-limit system and towards a more flexible system that reacts to recent market prices and large price moves.
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