SEBI's new norms for exchange-traded funds (ETFs) are set to take effect from September 7, covering base price, price bands, pre-open call auctions, and close-out procedures.

For background, ETFs are investment vehicles that trade on stock exchanges like individual stocks and typically track an underlying index or basket of assets. SEBI, the Securities and Exchange Board of India, is India's market regulator responsible for protecting investors and regulating the securities markets. The revised framework, first announced by SEBI, is aimed at improving price discovery and trading mechanisms for ETFs on Indian exchanges.

The changes taking effect from September 7 address four main areas: how the base price of an ETF is determined at the start of a trading session, the price bands that limit how much an ETF's price can move during the day, the conduct of pre-open call auctions, and the procedures for closing out trades.

These mechanics matter to retail investors because they shape the price at which ETF orders actually execute. Because an ETF has two related prices — its market price on the exchange and the value of its underlying holdings — how the base price is set and how tightly price bands operate can affect how far an ETF's trading price may drift from the value of what it holds during a session. Pre-open call auctions, meanwhile, are sessions used by exchanges to absorb early orders and arrive at an opening price, and close-out procedures govern what happens when a trade is not settled as agreed.

The move comes as ETFs have become an increasingly popular low-cost route for Indian investors to gain index exposure, making the quality of on-exchange trading mechanics a growing area of regulatory attention. Market participants will be watching how exchanges implement the revised rules from the effective date.

This article is for informational purposes only and should not be construed as investment advice. Readers should consult certified experts before making any investment decisions.

Source: CNBC-TV18