SEBI Introduces Dynamic Price Bands for ETFs

ETF trading in India is getting a new set of ground rules. On June 15, 2026, SEBI put out a circular that changes how exchange traded funds are priced, how far their prices can move in a session, how close-outs are handled, and how gold and silver ETFs begin their trading day. The circular has been put together after taking on board recommendations from the Secondary Market Advisory Committee and comments received through public consultation. Everything in it comes into force on September 1, 2026.

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What Did the Old Framework Get Wrong?

To understand why these changes have been made, it helps to look at what the previous rules were built on. The base price for ETFs was taken from the T-2 day NAV, a fund valuation figure that was already two trading days old at the point when it was being used to set price limits. Over that, a flat ±20% band sat uniformly across all equity and debt ETFs, with no mechanism to tighten or widen it depending on what the underlying market was doing.

That combination created a practical problem. When an index or underlying asset moved sharply within a session because of a global macro event or a sudden market development, the ETF's price band had no way of keeping up with it. The reference point anchoring that band was 48 hours old. SEBI's new framework replaces both the stale pricing reference and the rigid uniform band.

How the Base Price Will Be Calculated Going Forward

The base price of an ETF will now come from the previous day's actual market trading. Specifically, it will be the Volume Weighted Average Price from the last 30 minutes of T-1 trading, a figure that is derived from real transactions rather than a fund accounting calculation.

Two contingencies are built in. When there are no trades in the last 30 minutes of T-1, the Last Traded Price of the day takes over as the base. When the ETFs sees no trading at all on T-1, the most recent available closing NAV is used instead. Wherever a corporate action applies, the base price will be adjusted accordingly.

There is also a second-phase target written into the circular. By April 1, 2027, exchanges and Asset Management Companies are expected to have put in place the systems needed to use T-1 closing NAV rather than T-1 VWAP as the base price. NAV is more precise, but getting there requires operational groundwork that the regulator has acknowledged will take time.

Equity and Debt ETFs Move to a Dynamic Band

The flat ±20% price band that previously applied to equity ETFs and debt ETFs other than overnight and liquid ETFs, no longer stands. SEBI has replaced it with a band that moves in response to actual price behaviour during the session.

Every trading day starts with a ±10% band. When a trade goes through at or above 9.90% from the base price, a 15-minute cooling-off period begins. Trading keeps going during this window within the band that applied when the threshold was crossed.  When the cooling-off ends, the band widens by 5 percentage points on the side where the price is moving. That widening can repeat once more in the same direction, which means the band can reach a maximum of ±20% over the course of the session.

The mechanics have a few specific details. Only the side in the direction of the price move gets widened, the opposite end stays fixed. A flexing at one exchange automatically applies across all exchanges where the same ETF is listed. In the last 30 minutes of trading, the cooling-off period drops from 15 minutes to 5 minutes.

Overnight ETFs and Liquid ETFs sit outside this change entirely. Their fixed ±5% band remains in place as before.

Gold and Silver ETFs Get a Separate Set of Rules

Commodity ETFs: gold and silver are covered under a distinct framework rather than being grouped with equity and debt ETFs. Their starting price band is ±6%. After trades cross 5.90% from the base price, a cooling-off period applies and the band can then be widened in 3% increments. The cooling-off timings follow the same pattern: 15 minutes through most of the session, narrowing to 5 minutes in the last half hour.

One provision here has no parallel in the equity ETF rules. Gold and silver trade around the clock in international markets, which means significant price moves can happen after Indian exchanges close. If overnight global movement is large enough to breach the 6% initial band, exchanges are permitted to relax that limit before the session opens on the condition that they issue a proper notice to the market explaining the basis for doing so. There is no ceiling or floor on how wide the band can go for commodity ETFs, and there is no cap on how many times it can be widened in a single session.

Pre-Open Call Auction Now Applies to Gold and Silver ETFs

A pre-open call auction is being introduced for gold ETFs and silver ETFs, modelled on the pre-open session that already runs for equities. The reason is straightforward, because the underlying commodities trade through the night across international venues, the opening price of a gold or silver ETF in India can be well removed from the previous day's close. A structured call auction before the main session gives buyers and sellers a process through which an equilibrium price can be established, which helps reduce disorderly gaps at the open. The process will follow the same mechanism that currently governs pre-open sessions for stocks.

Close-Out Procedure Changes for Overnight and Liquid ETFs

For overnight ETFs and liquid ETFs, the close-out price will be the higher of two figures, either the highest price the ETF recorded on the exchange during the relevant settlement period through to the auction or close-out date, or a level 5% above the latest available closing price on the day when auction offers are called. For every other ETF category, the close-out process laid down in the Master Circular continues to apply without change.

Conclusion

Overall, Securities and Exchange Board of India has shifted ETF trading to a more market-linked and flexible framework. By replacing outdated NAV-based pricing with real-time market prices and introducing dynamic bands, the new system improves price discovery and reduces mispricing. The separate rules for commodity ETFs and the pre-open auction further align ETF prices with global markets. These changes are expected to make ETF trading more efficient, transparent, and responsive to actual market movements.