19-Aug-2025      17:18

Sebi invites public feedback on eligibility norms for non-benchmark index derivatives

In a consultation paper released yesterday (August 18), the Securities and Exchange board of India (SEBI) has sought comments from the public comments on a proposal for implementing eligibility criteria for non-benchmark indices.

This is being done with the aim of preventing concentration of derivatives indices in a few stocks, the markets regulator said.

In its May circular, Sebi stipulated that non-benchmark indices eligible for derivatives must include at least 14 constituents, with a cap of 20% on the largest stock and 45% on the top three combined. Additionally, constituent weights must be arranged in descending order.

To comply with these norms, SEBI has proposed two approaches have - either launch new indices that meet the requirements while allowing existing ones to continue, or modify existing indices by adjusting their constituents and weights.

BSE has one such index, BANKEX, comprising 10 constituents. Since no exchange-traded funds (ETFs) track it, the exchange prefers to adjust the weights directly.

NSE manages two indices ' Nifty Bank, comprising 12 stocks with ETF assets under management (AUM) of Rs 34,251 crore, and Nifty Financial Services, with 20 constituents and Rs 511 crore in AUM. Within these indices, stock weights vary significantly, ranging from as high as 29-33% to as low as 0.4-2%.

Following consultations with mutual funds and industry stakeholders, NSE has also endorsed making adjustments to the existing indices to minimise disruption, safeguard liquidity, and preserve the benchmarks' brand identity.

However, given the significant ETF exposure, the exchange has suggested a phased, four-stage glide path for Nifty Bank over four months, while adjustments in Nifty Financial Services could be carried out in one tranche.

The market regulator has sought public comments till 08 September 2025 on whether existing indices should be adjusted instead of creating new ones and, if so, on the modalities of such adjustments.

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