Sebi drives a consultation document on prudential standards for derivatives on non-benchmarkes

Markets Regulator Sebi published an advisory book on Monday about the implementation of new suitability standards for derivatives in non-benchmarkes. The article follows a circular of 29 May that obliged stricter prudential rules to ensure that such indices remain broad and not overly concentrated.

According to the circular, non-benchmark indices with derivatives, at least 14 components must have, with the weight of the top component of 20% and the combined weight of the top three limited to 45%. Weights must also follow a falling order between voters.

Stock fairs have evaluated two options: alternative A – Start new indices that meet the criteria while continuing existing and alternative B – adjust the component structure and weights of existing indices.

BSE, who performs the Bankex index with 10 components and no ETF tracking, has preferred alternative B, chosen to adjust weights and components in one go.

NSE, on the other hand, has two affected Indices – Nifty Bank (12 voters, RS 34,251 CRORE AUM in ETFs) and Nifty Financial Services (20 voters, RS 511 CRORE AUM).

After consultation with investment funds and Amfi, NSE has also preferred alternative B, but has recommended a Phased Glide-Path approach to prevent disruptions, in particular given the large Aum in Nifty Bank ETF. Under the proposed Glidepad, adjustments in constituent weights would be made in a maximum of four monthly tranches, warning for a player and an orderly transition.

Sebi has now invited comments from stakeholders about whether adjusting existing indices is the right approach and about the modalities of such weight adjustments. The deadline for submitting comments is 8 September via Sebi’s Online Portal (link here) or via e -mail.