Under the revised framework, the weight of the top stocks should not exceed 20%, while the combined weight of the top three stocks should be limited to 45%.
The new norms, issued through a circular under Section 11 of the SEBI Act, apply to popular non-benchmark indices including BANKNIFTY, BANKEX and FINNIFTY.
SEBI has also introduced a minimum constitution requirement, which stipulates that each of these indices must contain at least 14 stocks to be eligible for derivatives trading. This is expected to make the indices more diversified and reflective of the underlying sector or theme.
In accordance with the new rules, the exchanges aim to rebalance the weights of the existing constituents.
BANKEX and FINNIFTY require full compliance in a single tranche by December 31, 2025. However, BANKNIFTY has allowed a phased implementation approach, spread over four monthly intervals, with a final deadline of March 31, 2026. To ensure a smooth transition, SEBI has mandated that the weights of key components be reduced gradually rather than abruptly. Exchanges must also provide timely communication to market participants about the rebalancing and related changes. The circular is part of SEBI’s broader objective to increase the robustness, transparency and fairness of index-linked derivatives. By enforcing minimum component requirements and limiting weightings, the regulator aims to reduce system concentration, prevent over-reliance on a few stocks and improve investor protection in the derivatives market.
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