SEBI 20% Price for Gold and Silver ETFs: In the last one month, gold and silver prices have moved up and down very fast. Because of this, exchange traded funds linked to these metals have also shown big price swings. Now the market regulator Securities and Exchange Board of India has stepped in with a new plan to control this sharp movement.
SEBI has suggested putting a price band of +/-20% on gold and silver ETFs. This means the price of these funds will not be allowed to rise or fall beyond 20% in a single trading day. The idea is to stop extreme price jumps and crashes.
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In its consultation paper titled “Review of provisions related to Base Price and Price Bands for Exchange Traded Funds (ETFs)”, SEBI explained the proposal clearly. It said, “There will be an initial price band of +6%, which may be flexed up to + 20% during the trading day, subject to a cooling-off period,”. This rule will first allow only 6% movement. If needed, the limit can slowly be increased to 20% after a short pause in trading.
SEBI has asked retail investors, traders and other market participants to share their views on this paper. People can send comments on the proposal till March 6.
Curretnly, many ETFs use the closing Net Asset Value from two trading days earlier as the base price. This is called T-2 NAV. Because of this, there is a one day gap in pricing. When markets are calm, this delay may not matter much..
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SEBI wants to change this system. It has proposed shifting from T-2 NAV to T-1 NAV. This means the previous day’s closing value will be used.
If the first price band gets fully used during the day then the trading will stop for 15 minutes. After this cooling off period, the band can be increased by 3% as well. For equity and debt index ETFs, SEBI has proposed an initial price band of +10%, which can go up to +20% in one day. It also said, “The single-day maximum variation of +20% would be applicable,”. For overnight TREPs, the current price band of +/-5% will continue without change.
Price bands, also called upper and lower circuits, are limits fixed by stock exchanges like Bombay Stock Exchange and National Stock Exchange of India. These limits control how much a stock or ETF can rise or fall in one day. The upper circuit is the highest price it can reach. The lower circuit is the lowest price it can drop to.
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