SEBI Proposes Dynamic Price Bands for ETFs, Invites Public Comments

SEBI proposes changes to price bands of ETFs, seeks views on a pre-open session. The Securities and Exchange Board of India (SEBI) on 13 February 2026 published a consultation paper proposing a revision of the mechanism that sets the base price and daily price bands for exchange-traded funds (ETFs).

The regulator said the existing reference (a T-2 NAV) and a uniform ±20% price band can create a lag and excessive divergence between ETF market prices and the value of underlying assets, particularly for commodity-linked ETFs such as gold and silver.

What Exactly Has SEBI Proposed And Why?

SEBI’s draft paper targets two linked issues: the reference/base price used to start ETF trading on a day, and the width and mechanics of intraday price bands.

SEBI notes this framework uses the net asset value (NAV) published two trading days earlier (T-2), while the underlying securities’ price bands are based on more recent prices, which can cause misalignment when markets move sharply.

The consultation paper therefore proposes shifting to more references, for example, the indicative NAV (iNAV) or weighted average traded price from T-1, and replacing a single fixed band with a dynamic band that reflects underlying volatility. SEBI also flagged operational risks from manual corporate-action adjustments under the T-2 approach.

How Would Price Bands And The Pre-Open Session Change In Practice?

For equity/index and debt ETFs, SEBI proposes graded/dynamic price bands rather than a blanket ±20% limit. For gold and silver ETFs, the regulator proposes a distinct approach: an initial narrower band, reported examples include an opening band of ±6% that can be flexed up to ±20% during the session after a cooling-off period, and alignment of limits with derivative daily limits for the underlying commodities.

The draft also suggests a separate pre-open session for commodity ETFs so exchange prices can better absorb continuous global price cues for gold and silver (which trade round-the-clock internationally) before the domestic continuous session opens. Proposed operational details cited include a 15-minute cooling-off window after the initial band is exhausted and incremental band expansion steps (for example, 3% flex increments), measures designed to balance price discovery with market stability.

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What Are The Immediate Next Steps And Likely Market Effects?

SEBI has opened the consultation; comments are to be submitted by 6 March 2026 via its public-comments portal or by email (addresses listed in the paper). After the comment period, the regulator may finalise changes and direct exchanges and market infrastructure participants to modify trading systems, iNAV publication processes and circuit rules.

Market participants, index providers, AMCs, exchanges and brokers will need system, workflow and client-communication changes (iNAV feed frequency, auction/pre-open rules, exchange order-book logic) before implementation.

Analysts and fund managers have already flagged that the move should reduce episodes of ETF mispricing and lower operational risk, but could increase intraday volatility for some commodity ETFs until market participants adapt. Reuters and major Indian business dailies reported the consultation and underlined the regulator’s objective of tighter alignment between traded ETF prices and underlying assets.

Sources:

Time of India

SEBI