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SEBI Eyes Real-Time ETF Pricing for Fairer Markets
4 Jan
Summary
- SEBI may use previous day's iNAV for ETF price bands.
- Current T-2 NAV method causes data lag and operational issues.
- New ±10% to ±20% flexible band may replace fixed 20%.
The Securities and Exchange Board of India (SEBI) is exploring a change to the pricing mechanism for exchange-traded funds (ETFs). Sources indicate SEBI might permit the use of the latest available indicative net asset value (iNAV) from the previous trading day (T-1) to set price bands. This proposal aims to eliminate the current one-day lag associated with using T-2 day net asset values (NAV), which can lead to mismatches with underlying securities.
Currently, ETFs face a static ±20% price band based on a T-2 NAV. This contrasts with individual stocks and indices, which use T-1 closing prices. Exchanges have noted practical difficulties with the current T-2 NAV system, especially concerning corporate actions, as AMFI data can be delayed. Using iNAV, calculated from real-time underlying security prices, is seen as a more operationally feasible solution.
Further changes to the price band structure itself are also under consideration. SEBI may introduce an initial ±10% band that could flex up to ±20% based on the underlying index's movement, subject to a cooling-off period. This initiative seeks to align ETF pricing more closely with market realities and reduce computational errors.
