ETF Trading Rules Revised: What Investors Need to Know About SEBI Norms

Mumbai, Sept 8: The Securities and Exchange Board of India (SEBI) has implemented revised trading norms for exchange-traded funds (ETFs) from September 7, 2026, after extending the original September 1 deadline. The changes cover base-price calculation, price bands, cooling-off periods, pre-open call auctions and close-out procedures for ETFs based on equity, debt and commodities. 

The regulator introduced the changes to address the one-day lag in the existing ETF base price and align ETF price bands more closely with movements in their underlying assets. 

T-1 VWAP Replaces T-2 NAV to Set ETF Base Prices 

Under the earlier framework, ETFs used their T-2 day Net Asset Value (NAV) as the base price for applying price bands. SEBI has now moved to a T-1 day closing price, calculated using the ETF’s last 30 minutes’ Volume Weighted Average Price (VWAP). 

The circular provides a fallback mechanism when an ETF does not trade during the final 30 minutes of T-1 day. In that case, the Last Traded Price (LTP) of T-1 day will become the base price. 

If the ETF records no trade at all on T-1 day, exchanges will use the latest available closing NAV as the base price. The base price will also undergo adjustments for applicable corporate actions. 

SEBI has further directed stock exchanges and asset management companies to address operational challenges and implement T-1 closing NAV as the base price from April 1, 2027. 

10% Starting Bands Give Equity and Debt ETFs More Flexibility 

For equity ETFs and debt ETFs, excluding Overnight ETFs and Liquid ETFs, SEBI has replaced the earlier fixed price-band framework with dynamic price bands. The revised framework starts with an initial price band of ±10%. The band can subsequently widen to ±20% after the prescribed cooling-off period. 

A 15-minute cooling-off period will apply after trades take place at or above 9.90% and at subsequent thresholds. Trading can continue during the cooling-off period, but only within the prevailing price band. 

After the cooling-off period, the exchange can flex the band by 5% of the base price, subject to the prescribed limits. The mechanism allows the price band to widen progressively rather than applying the full range immediately. 

The revised structure therefore replaces the earlier fixed ±20% framework for these ETFs with an initial ±10% dynamic band that can expand in stages. 

5% Fixed Bands Continue for Overnight and Liquid ETFs 

SEBI has kept a separate framework for Overnight ETFs and Liquid ETFs. These ETFs will continue to have a fixed ±5% price band. Unlike equity and debt ETFs covered by the dynamic-band framework, their price bands will not move through the staged widening mechanism prescribed for other ETFs. 

The distinction means that the revised rules do not apply one common price-band structure across all ETF categories. Instead, SEBI has specified different mechanisms based on the type of ETF. 

6% Gold and Silver ETF Bands Can Widen Without a Cap 

Commodity ETFs based on Gold and Silver will have an initial price band of ±6% under the revised framework. 

The band can be flexed by 3% of the base price after the prescribed cooling-off period. A 15-minute cooling-off period applies after trades are executed at or above 5.90% and at subsequent thresholds. If such a trigger occurs during the last 30 minutes of the trading session, the cooling-off period will be 5 minutes. 

Unlike equity and debt ETFs, Gold and Silver ETFs do not have an upper limit on the number of permitted price-band flexes during the session. The exchange can also further relax the band in stages if international commodity prices move beyond the aggregate Daily Price Limit (DPL) of ±9%, subject to the prescribed conditions and market notice. 

The additional flexibility also covers exceptional situations in which an extreme international commodity-price movement occurs after domestic ETF trading has closed. 

Pre-Open Auction Adds a New Opening Mechanism For Commodity ETFs 

SEBI has also introduced a call auction in the pre-open session for Gold and Silver ETFs. The regulator noted that the underlying commodities trade continuously across international jurisdictions, while domestic ETFs trade only during the operating hours of Indian stock exchanges. 

The pre-open call auction will therefore facilitate discovery of an equilibrium price before regular trading begins. 

The mechanism will follow the procedure prescribed under Paragraph 17.1 of Chapter 1 of the SEBI Master Circular for Stock Exchanges and Clearing Corporations. 

Close-Out Rules Change For Overnight and Liquid ETFs 

The revised framework also introduces a specific close-out price mechanism for Overnight ETFs and Liquid ETFs. For these ETFs, the close-out price will be the higher of two values. The first will be the highest price recorded in the ETF on the exchange during the settlement in which the concerned contract was entered into, up to the auction or close-out date. 

The second will be 5% above the latest available closing price on the exchange on the day auction offers are called. 

For other ETFs, the existing close-out provisions under Paragraph 2.1 of Chapter 3 of the SEBI Master Circular will continue to apply. Existing provisions relating to auctions and the handling of auction or close-out proceeds under Paragraphs 2.2 and 2.3 will also continue for all ETFs. 

September 7 Replaces September 1 as the Effective Date 

SEBI originally scheduled the revised ETF provisions to take effect from September 1, 2026. However, through its August 28, 2026 circular, the regulator extended the implementation timeline following feedback from stock exchanges. SEBI said the extension would help ensure the smooth implementation of the revised provisions. 

The rules therefore came into effect from September 7, 2026. SEBI has confirmed that all other provisions of its June 15 circular remain unchanged. The regulator has also directed market infrastructure institutions to put the required systems in place, amend relevant bye-laws, rules and regulations where necessary, and notify market participants and investors about the changes through their websites. 

Revised Rules Change ETF Trading Without Changing NAV 

The revised framework changes how exchanges determine ETF base prices and manage trading ranges during the session. T-1 closing-price data now forms the starting point, while different price-band mechanisms apply to equity, debt, Overnight, Liquid, Gold and Silver ETFs. 

The framework also introduces a pre-open call auction for Gold and Silver ETFs and changes the close-out mechanism for Overnight and Liquid ETFs. The separate provisions collectively replace the earlier ETF framework that relied on T-2 NAV and fixed price bands. 

SEBI’s revised ETF rules took effect on September 7, 2026, covering base prices, dynamic price bands, cooling-off periods, commodity ETF pre-open auctions and close-out procedures. The framework initially uses T-1 closing-price data, while SEBI plans to move to T-1 closing NAV as the base price from April 1, 2027, after exchanges and asset management companies address the required operational challenges. 

Source 

• https://www.sebi.gov.in/legal/circulars/jun-2026/norms-for-base-price-price-bands-call-auction-in-pre-open-session-and-close-out-procedure-for-exchange-traded-funds-etfs-_102121.html 
• https://www.sebi.gov.in/legal/circulars/aug-2026/extension-of-timeline-for-implementation-of-provisions-of-sebi-circular-dated-june-15-2026-on-norms-for-base-price-price-bands-call-auction-in-pre-open-session-and-close-out-procedure-for-exchange-_104094.html