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
2026-MRD-POD3
📜 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:
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.
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.
- 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
- 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.
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)
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.
5.2 — Overnight ETFs and Liquid ETFs
5.3 — Commodity ETFs (Gold / Silver)
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).
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.
🔔 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.
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
🏛️ 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:
📊 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
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.
