SEBI's new ETF rules kick in September 7
What's the story
The Securities and Exchange Board of India (SEBI) will implement new trading rules for exchange-traded funds (ETFs) from September 7. The regulator had first announced the changes in a circular dated June 15, detailing how base prices and price bands are determined. The original implementation date was September 1, but it was pushed back by a week to ensure smooth transition after feedback from stock exchanges.
Rule details
Call auction in pre-open session
The new framework introduced by SEBI also includes provisions for a call auction in the pre-open session and a close-out procedure for ETFs.
A call auction is a system where orders are accumulated over a period of time and executed at a price that maximizes trading volume.
The close-out procedure provides guidelines for handling cases where trade obligations can't be settled through regular settlement mechanisms.
Purpose
New rules bring clarity to ETF trading
The new rules are aimed at bringing more clarity and standardization to certain aspects of ETF trading, such as the pre-open session, price bands, and close-out mechanism.
This is especially important given that ETFs trade on stock exchanges like shares, but their underlying portfolios may consist of stocks, bonds, commodities, or other assets.
The exchange-traded nature of these funds means trading and settlement processes need to account for both market orders and underlying assets.