MUMBAI, Feb 13 (Reuters) - India's markets regulator proposed rule changes on Friday to how exchange-traded funds are priced, aiming to narrow gaps between ETF prices and the value of their underlying securities.
ETFs in the country currently trade within a fixed plus or minus 20% price band based on the net asset value (NAV) from two days earlier (T-2), while the price band for underlying stocks is set using the previous day's prices.
The Securities and Exchange Board of India said this fixed band "may not reflect the volatility of the underlying" and can result in ETF trading ranges that are "excessively wide" relative to the underlying basket.
To address the distortion, the regulator proposed using the indicative NAV from the previous trading day to calculate ETF price bands and replacing the fixed limit with a dynamic price band.
For gold and silver ETFs, SEBI proposed removing the fixed bands entirely, with limits instead aligned with daily price limits applicable for derivatives contracts.
"Considering the recent high volatility in gold and silver prices in the domestic/international market, the existing price bands for gold/silver ETFs had become inadequate to ensure alignment of their market prices with the underlying assets," SEBI said.
Because gold and silver trade globally throughout the day, but their ETFs trade only during market hours, SEBI also proposed introducing a separate pre-open session to help determine their prices.
(Reporting by Jayshree P Upadhyay; Editing by Tasim Zahid)
