The Securities and Exchange Board of India (SEBI) has issued a significant circular — Circular No. HO/47/11/11(1)2026-MRD-POD3/I/13804/2026 dated June 15, 2026 — overhauling the trading framework for Exchange Traded Funds (ETFs) across Indian stock exchanges. Effective from September 1, 2026, this circular replaces the existing fixed price band structure for most ETFs with a more nuanced dynamic price band mechanism, updates the base price computation methodology, introduces a call auction in the pre-open session for Commodity ETFs (Gold/Silver), and prescribes a revised close-out procedure for Overnight and Liquid ETFs.
The circular is addressed to all Recognized Stock Exchanges, all Recognized Clearing Corporations, all Asset Management Companies of Mutual Funds, and the Association of Mutual Funds in India (AMFI). It has been issued under the powers conferred by Section 11(1) of the SEBI Act, 1992 read with Regulation 51 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018. Signed by Hruda Ranjan Sahoo, General Manager, the circular is available on the SEBI website at www.sebi.gov.in under "Legal Framework – Circulars."
⚡ Key Facts at a Glance
HO/47/11/11(1)
2026-MRD-POD3
Circular Number
Jun 15, 2026
Date of Issue
Sep 1, 2026
Effective From
4 Key Areas
Base Price · Bands · Auction · Close-out
Dynamic Bands
Replaces Fixed ±20%
SMAC
Secondary Market Advisory Committee Recommended
📜 Background — Why SEBI Revamped ETF Trading Norms
Under the existing framework set out in the SEBI Master Circular for Stock Exchanges and Clearing Corporations dated December 30, 2024, individual scrip-wise price bands of up to ±20% apply in rolling settlement for scrips on which derivatives are not available (Paragraph 2.3.1). For scrips on which derivatives are available, dynamic price bands (operating ranges) apply (Paragraph 2.5). These bands are applied on the T-1 day closing price.
For ETFs — covering Equity, Debt, and Commodity categories — the existing rule was blunter: a fixed price band of ±20% on the base price (with Overnight ETFs being an exception at ±5%). Critically, this base price was the T-2 day Net Asset Value (NAV) of the ETF — meaning the price limit was anchored to a value that was already two trading days old. This created two structural problems that the present circular directly addresses:
❌ Problem 1: T-2 NAV Base Price Lag
The base price for ETF price bands was the T-2 day NAV — already 1 full trading day behind the T-1 closing price used for other scrips. This lag meant that in volatile markets, the ETF's tradeable price range could diverge significantly from its real underlying value, creating arbitrage opportunities and price distortions.
❌ Problem 2: Fixed Band Not Aligned with Underlying
A fixed ±20% band for all equity and debt ETFs does not reflect the actual price range of the underlying index or basket. An equity index ETF tracking a highly volatile index and a conservative short-duration debt ETF were treated identically — creating either over-restriction or under-protection depending on market conditions.
The matter was examined by a Working Group of Stock Exchanges, taken up by the Secondary Market Advisory Committee (SMAC) of SEBI, and subjected to public consultation. The resulting framework — which this circular codifies — is a calibrated, category-specific approach to ETF trading controls, effective September 1, 2026.
❌ Old Framework (Pre September 1, 2026)
- Base price = T-2 day closing NAV (1 day stale)
- Fixed price band of ±20% for all equity/debt ETFs
- Fixed price band of ±5% for Overnight ETFs only
- No call auction for Commodity ETFs in pre-open session
- Standard close-out rules for all ETFs including Overnight/Liquid
- Band not aligned with underlying asset price range
✅ New Framework (From September 1, 2026)
- Base price = T-1 day last-30-min VWAP closing price
- Dynamic price bands for Equity + Debt ETFs (initial ±10%, flex to ±20%)
- Fixed ±5% for Overnight ETFs and Liquid ETFs
- Commodity ETFs: dynamic bands with initial ±6%, flexed in +3% steps and no overall cap (special DPL ±9% and extreme‑move relaxations)
- Call auction in pre-open session for Commodity ETFs (Gold/Silver)
- Specific close-out formula for Overnight and Liquid ETFs
- T-1 closing NAV as base price to be implemented by April 1, 2027
📐 Section 4 — New Base Price Norms for ETFs (Paragraph 4 of the Circular)
The base price is the reference price from which price bands are calculated. The circular makes an important transitional change here, with a roadmap to a better long-term standard.
BASE PRICE DETERMINATION — PARAGRAPH 4 (All ETFs)
4.1
Primary Base Price: T-1 Day Last-30-Minute VWAP
The base price shall be the T-1 day closing price, defined as the last 30 minutes of Volume Weighted Average Price (VWAP) of the ETF on the previous trading day. This replaces the older T-2 NAV approach, reducing the lag to just 1 trading day and aligning ETFs more closely with the methodology used for other equity scrips.
4.2
Fallback 1: Last Traded Price (LTP)
If there was no trading in the ETF during the last 30 minutes of T-1 day, the base price shall be the Last Traded Price (LTP) of that day. This ensures that even thinly traded ETFs have a reference price.
Fallback 2: Latest Available Closing NAV
If there was no trade at all on T-1 day, the base price defaults to the latest available closing NAV of the ETF — this is the last resort, used only for completely inactive ETFs.
4.4 — Transition to T‑1 Closing NAV from April 1, 2027
SEBI has asked stock exchanges and asset management companies of mutual funds to jointly
resolve the operational challenges involved in using the T‑1 day closing NAV of ETFs as the
base price, with a target implementation date of 1 April 2027. Until then, the hierarchy in
paragraphs 4.1 and 4.2 (T‑1 VWAP → T‑1 LTP → latest NAV) will continue to operate.
4.3
Corporate Action Adjustment
The base price shall be adjusted for corporate actions (dividends, splits, rights, etc.), if any, to prevent artificial band distortions on ex-dates. This is consistent with the practice for other equity scrips.
4.4
Future Upgrade: T-1 Closing NAV by April 1, 2027
SEBI acknowledges that the ideal base price would be the T-1 day closing NAV (not just the VWAP-based closing price), as NAV more accurately reflects the fair value of the ETF's underlying basket. However, implementing NAV-as-base-price requires operational readiness. Stock Exchanges and AMCs of Mutual Funds are directed to jointly address these operational challenges and implement T-1 closing NAV as the base price by April 1, 2027.
📌 Practical Impact of Base Price Change
Using T-1 VWAP instead of T-2 NAV means the base price reference is now 1 trading day more current. In a market that moves 3% overnight, the old T-2 NAV base would have set the band far from actual fair value — potentially allowing the ETF to trade well outside its true economic range before the band "caught up." The new T-1 VWAP base substantially reduces this gap, improving price integrity for ETF investors.
📊 Section 5 — New Price Band Framework for ETFs (Paragraph 5 of the Circular)
The most substantive change in this circular is the shift from a blunt fixed ±20% band to a category-specific, dynamic band architecture. The circular creates three distinct buckets based on ETF type, each with its own band logic.
5.1 — Equity ETFs and Debt ETFs (Other than Overnight and Liquid ETFs)
PARAGRAPH 5.1 — DYNAMIC PRICE BANDS: EQUITY & DEBT ETFs
5.1.1
Dynamic price bands apply, starting with an initial price band of ±10%. This can be flexed up to ±20% after a cooling-off period. The shift from the old fixed ±20% to a dynamic ±10% (extendable) gives the market a natural circuit breaker while preserving the ability to accommodate genuine large moves.
5.1.2
Cooling-off period: 15 minutes after trades are executed at or above 9.90% (and so on, i.e., at or above the upper limit trigger). During the cooling-off period, trading continues within the prevailing price band — it is not a halt.
Exception — Last 30 minutes of trading: If trades hit the trigger band threshold during the last 30 minutes of the session, the cooling-off period is reduced to 5 minutes to avoid end-of-day disruptions.
5.1.3
After the cooling-off period, the price band is flexed by 5% of the base price (i.e., from ±10% to ±15%, and then from ±15% to ±20%). This flex can happen a maximum of two times in one direction, capping the maximum band at ±20%.
5.1.4
Asymmetric flexing: The price band is flexed only in the direction of the price movement. There is no corresponding adjustment (sliding) of the band on the opposite side. For example, if the upper band is hit and expanded from +10% to +15%, the lower band remains at -10%, not adjusted to -15%.
5.1.5
Cross-exchange uniformity: When the price band for an ETF is flexed on one exchange, the same flexed band automatically applies to all other exchanges where that ETF is listed. This prevents regulatory arbitrage between BSE and NSE for the same ETF.
⚙️ How the Dynamic Band Works — Step-by-Step (Equity/Debt ETF Example)
1
Market opens. ETF starts with ±10% price band on T-1 VWAP base price. Normal trading proceeds.
2
Heavy buying pushes ETF price to +9.90% (or above). Cooling-off period of 15 minutes begins. Trading continues at existing band.
3
After 15 minutes, band is flexed upward by 5%: upper band moves from +10% to +15%. Lower band stays at -10% (no sliding).
4
If price again hits +14.90%, another 15-minute cool-off and then a second flex: upper band moves to +20%. Maximum cap reached.
✓
No further flexing beyond ±20%. Same bands are communicated to all exchanges. Pre-open next day resets to fresh T-1 base.
5.2 — Overnight ETFs and Liquid ETFs
PARAGRAPH 5.2 — FIXED PRICE BAND: OVERNIGHT ETFs & LIQUID ETFs
5.2.1
Overnight ETFs and Liquid ETFs shall continue to have a fixed price band of ±5%. These ETFs invest in very short-duration instruments (overnight lending, liquid fund portfolios) whose NAV changes by tiny amounts daily. A ±5% fixed band is more than sufficient to accommodate any legitimate price movement while preventing manipulation. No dynamic flex mechanism applies to these categories.
Note: Liquid ETFs are now explicitly grouped with Overnight ETFs under the ±5% fixed band regime. This is a clarification over the old rule, which only specified Overnight ETFs as the exception — Liquid ETFs were implicitly treated at ±20%, which was disproportionate to their risk profile. The new circular corrects this.
5.3 — Commodity ETFs (Gold / Silver)
PARAGRAPH 5.3 — DYNAMIC PRICE BANDS: COMMODITY ETFs (Gold/Silver)
5.3.1
Commodity ETFs shall have dynamic price bands with an initial band of ±6% (narrower than equity ETFs, reflecting commodity market volatility norms). The band is flexed by 3% of the base price after each cooling-off period (vs. 5% for equity ETFs).
5.3.2
Special provision for extreme international price movement: If the price movement in international gold/silver markets exceeds the aggregate Daily Price Limit (DPL) of ±9%, the stock exchange may further relax the price band in stages of 3%, with a cooling-off period. When exercising this power, the stock exchange must give appropriate notice to the market with full details and justification.
5.3.3
Cooling-off period: 15 minutes after trades at or above 5.90% (and so on). During this period, trading continues within the prevailing band.
Last-30-minute exception: If the trigger is hit in the last 30 minutes of trading, the cooling-off period is 5 minutes only (same as equity ETFs).
5.3.4
Asymmetric flex (same as equity rule): Band flexed only in the direction of price movement; no corresponding adjustment on the opposite side.
5.3.5
Cross-exchange uniformity: Flexing at one exchange automatically applies to all other exchanges — identical to the equity ETF rule.
5.3.6
Exceptional overnight move provision: In cases where there is extreme price movement in underlying commodities beyond 6% in international markets after domestic exchange trading has closed, the stock exchange may relax the initial price band at the start of the next trading session, by giving appropriate market notice.
5.3.7
No upper or lower cap and no restriction on the number of flexes: Unlike equity ETFs (capped at ±20% after 2 flexes), Commodity ETFs have no ceiling on the band width and no limit on how many times the band can be flexed during a session. This is designed to accommodate extraordinary commodity price moves (e.g., a geopolitical shock driving gold up 15% intraday) without imposing artificial ceilings.
⚠️ Why Commodity ETFs Have Different Band Rules
Gold and silver prices are set globally and trade continuously around the clock on international markets (COMEX, LME, etc.). An Indian gold ETF cannot be isolated from a sudden 8% spike in global gold prices at 3 AM IST. The no-cap, unlimited-flex rule recognises this reality: forcing a commodity ETF to stay within a tight band when its underlying has moved dramatically creates dislocations, triggers arbitrage, and harms retail investors. The mandatory exchange notice requirement provides transparency while preserving market integrity.
🔒 Section 6 — Revised Close-out Procedure for ETFs (Paragraph 6 of the Circular)
The close-out procedure is triggered when a buyer has received delivery in a settlement cycle but the corresponding seller has failed to deliver — the exchange then runs an auction or directly closes out the position at a premium. The circular introduces a category-specific close-out price formula for Overnight and Liquid ETFs.
PARAGRAPH 6 — CLOSE-OUT PROCEDURE
6.1
Close-out Price for Overnight ETFs and Liquid ETFs
A new, dedicated close-out formula applies for these categories. The close-out price shall be the higher of:
Option A
The highest price recorded in that ETF on the exchange in the settlement cycle in which the concerned contract was entered into, up to the date of auction or close-out.
Option B
5% above the latest available closing price at the exchange on the day on which auction offers are called for.
The higher of Option A and Option B becomes the close-out price. This formula is consistent with how close-out pricing works for other scrips under the Master Circular, and provides the non-delivering party a strong incentive not to
default (since the penalty is calibrated to market peaks, not just a flat mark-up).
6.2
Close-out Procedure for All Other ETFs
For all ETFs other than Overnight and Liquid ETFs (i.e., Equity ETFs, Debt ETFs, Commodity ETFs), the existing close-out provisions under Paragraph 2.1 of Chapter 3 of the Master Circular continue to apply unchanged.
6.3
Auction Provisions and Proceeds from Auction/Close-out
The existing provisions on "Auction" (Paragraph 2.2 of Chapter 3 of the Master Circular) and "Proceeds from Auction or Close-out" (Paragraph 2.3 of Chapter 3) continue to apply for all ETFs without modification.
🔔 Section 7 — Call Auction in Pre-open Session for Commodity ETFs (Paragraph 7 of the Circular)
This is a new market structure feature applicable specifically to Commodity ETFs (Gold and Silver). It mirrors the pre-open call auction mechanism already available for equity scrips.
PARAGRAPH 7 — CALL AUCTION IN PRE-OPEN SESSION FOR COMMODITY ETFs
7.1
The Problem: 24/7 Commodity Trading vs. Limited Exchange Hours
The commodities underlying Commodity ETFs (primarily gold and silver) are traded continuously across various international jurisdictions — global spot and futures markets operate around the clock. The corresponding domestic ETFs, however, can only trade during the business hours of Indian stock exchanges. This creates an information gap: significant overnight price movements in international gold/silver markets are not efficiently incorporated into ETF prices at the open of Indian markets.
7.2
The Solution: Pre-open Call Auction for Commodity ETFs
To enable efficient price discovery, SEBI has decided that a call auction in the pre-open session shall be conducted for Commodity ETFs — similar to the mechanism already in place for equity scrips. This pre-open auction session allows buyers and sellers to indicate their desired prices before trading commences, and an equilibrium (clearing) price is discovered mathematically as the price at which order volume is maximised. The ETF then opens at this equilibrium price, reducing the gap between the previous close and the opening price on days of significant overnight commodity moves.
7.3
Mechanism: Same as Existing Equity Pre-open Session (Paragraph 17.1)
The call auction mechanism for Commodity ETFs shall follow the same procedure as prescribed at Paragraph 17.1 of Chapter 1 of the Master Circular. Stock exchanges already operate this system for equity scrips and therefore no new infrastructure is required — it is an extension of existing functionality to a new category.
📌 Why This Matters for Commodity ETF Investors
Without a pre-open session, Commodity ETFs have historically opened with sharp gaps — particularly on days when global gold or silver prices moved significantly overnight. This created uncertainty for retail investors who placed market orders before the open. With the call auction, the opening price is determined through a transparent, order-matching process that reflects all available information at that moment, leading to fairer execution and reduced opening-price volatility.
📅 Applicability & Implementation Checklist
-
Effective date: The revised norms for base price, price bands, pre-open call auction and close-out
apply to all eligible ETFs from the trading day of 1 September 2026.
-
Who must implement: All recognised stock exchanges, recognised clearing corporations and
asset management companies of mutual funds (through their ETFs).
-
Mandatory steps for MIIs (Para 9): put in place systems and controls, amend bye-laws /
rules / regulations wherever required, and disseminate the circular and modified norms to market
participants on their websites.
-
Roadmap for base price (Para 4.4): stock exchanges and AMCs must jointly address operational
issues so that T‑1 closing NAV can be used as the base price for ETFs from 1 April 2027.
📅 Section 8 — Applicability and Implementation Timeline
📆 Key Dates — What Happens When
Jun 15, 2026
SEBI issues circular. Communicated to all Recognized Stock Exchanges, Clearing Corporations, AMCs, and AMFI.
Jun–Aug 2026
Market Infrastructure Institutions (MIIs) to put in place necessary systems, amend bye-laws/rules/regulations, and disseminate information to market participants on their websites.
Sep 1, 2026
All provisions of this circular come into effect. New base price (T-1 VWAP), dynamic price bands, Commodity ETF call auction, and revised close-out norms for Overnight/Liquid ETFs all go live.
Apr 1, 2027
Target date for Stock Exchanges and AMCs to implement T-1 Closing NAV as the base price for ETF price bands (upgrade from the T-1 VWAP introduced in September 2026).
🏛️ Section 9 — Obligations on Market Infrastructure Institutions (Paragraph 9 of the Circular)
All Market Infrastructure Institutions (MIIs) — i.e., stock exchanges, clearing corporations, and AMCs/AMFI — are directed to comply with the following obligations before the September 1, 2026 go-live date:
PARAGRAPH 9 — DIRECTIONS TO MIIs
9.1
System Implementation: Take necessary steps and put in place the technology and operational systems required for implementing the new base price computation (T-1 VWAP), dynamic band flexing logic, cross-exchange band synchronisation, Commodity ETF pre-open call auction mechanism, and the revised close-out calculation for Overnight/Liquid ETFs.
9.2
Regulatory Amendments: Make necessary amendments to relevant bye-laws, rules, and regulations — wherever required — for the implementation of these circular provisions. This includes exchange trading regulations, clearing corporation settlement rules, and AMC operational guidelines.
9.3
Investor Communication: Bring the provisions of this circular to the notice of all
market participants, including investors, and disseminate them on their official websites.
Mutual fund AMCs must also communicate the changes to unitholders of affected ETF schemes.
📊 Section 10 — Impact Analysis: Who Benefits and How
📈 Equity ETF Investors
The shift to a dynamic ±10% initial band with a 15-minute cooling-off period introduces a natural pause during sharp moves, reducing panic-driven exits and extreme intraday price dislocations. Investors benefit from more orderly price discovery.
🥇 Gold / Silver ETF Investors
The pre-open call auction means gold ETFs will open at a price that reflects overnight global moves rather than gapping arbitrarily. The no-cap dynamic band ensures investors can transact fairly even during extraordinary commodity price events.
💧 Liquid / Overnight ETF Investors
The ±5% fixed band is unchanged and now explicitly applies to both categories. The new close-out formula provides a clearer, fairer settlement mechanism in case of delivery failures — protecting buyers who did not receive their ETF units.
🏦 Market Makers & Authorised Participants
Dynamic bands aligned more closely with underlying asset volatility reduce the risk of ETF prices trading at extreme premiums/discounts to NAV. This makes ETF arbitrage (creation/redemption) more efficient and predictable for APs, improving secondary market liquidity.
🏛️ Stock Exchanges
Exchanges must synchronise band flexing across platforms and implement the Commodity ETF pre-open session. The operational burden is moderate — the call auction infrastructure already exists for equities — but inter-exchange communication systems need upgrades for real-time band synchronisation.
🎯 Broader Market Integrity
The T-1 VWAP base price (evolving to T-1 NAV by April 2027) closes the lag that allowed price manipulation via artificial anchoring to a stale NAV. Dynamic bands reduce circuit-breaker-induced liquidity crunches. Overall ETF market quality improves.
📋 Section 11 — Consolidated Before vs. After Summary
✅ Section 12 — Compliance Action Checklist for MIIs and Market Participants
-
✅
Stock Exchanges — Technology Upgrade: Implement T-1 VWAP base price calculation module, dynamic price band engine (with 15-min/5-min cooling-off logic, asymmetric flexing, cross-exchange sync), and Commodity ETF pre-open call auction system by September 1, 2026
-
✅
Clearing Corporations — Close-out Formula: Update settlement systems to apply the new close-out price formula (higher of session-high vs. 5%-above-closing) for Overnight ETF and Liquid ETF delivery failures effective September 1, 2026
-
✅
AMCs of Mutual Funds — Operational Readiness for T-1 NAV: Begin the joint technical working group with stock exchanges to address operational challenges for switching the ETF base price from T-1 VWAP to T-1 closing NAV — target: April 1, 2027
-
✅
Regulatory Amendments: All MIIs must amend their bye-laws, rules, and regulations to incorporate the new price band framework, base price definition, call auction rules for Commodity ETFs, and revised close-out provisions before September 1, 2026
-
✅
Investor Communication: Disseminate circular details on exchange/AMC websites; AMCs should issue scheme-level communications to unitholders of Commodity ETFs (gold/silver) about the new pre-open call auction and dynamic bands
-
✅
Traders and Brokers — Order Strategy Review: Re-assess intraday ETF trading strategies that relied on the old fixed ±20% band; the new dynamic ±10% initial band means orders placed at extreme levels may not fill immediately — the band must flex first through the cooling-off process
-
✅
Commodity ETF Investors: Note the new pre-open session for Gold/Silver ETFs — pre-open orders will now be accepted and matched before the regular market opens, enabling better opening-price execution on days of significant international commodity moves
-
✅
Watch for Further SEBI Updates: The April 1, 2027 NAV-as-base-price transition may require additional SEBI guidance circulars once stock exchanges and AMCs complete their technical readiness assessments
Sources: SEBI Circular No. HO/47/11/11(1)2026-MRD-POD3/I/13804/2026 dated June 15, 2026 | SEBI Master Circular for Stock Exchanges and Clearing Corporations dated December 30, 2024 | Securities and Exchange Board of India Act, 1992 — Section 11(1) | Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 — Regulation 51 |
sebi.gov.in
This article is for informational purposes only and does not constitute legal or investment advice. Verify all details with the official SEBI circular before relying on this content for compliance or trading purposes.
