Informist, Monday, Aug. 18, 2025

--SEBI issues consultation paper on non-benchmark index F&O eligibility norm

NEW DELHI – The Securities and Exchange Board of India Monday issued a consultation paper on implementation of the eligibility criteria for derivatives contracts on non-benchmark indices based on prudential norms specified by the market regulator in a circular on May 29. SEBI said the stock exchanges affected by the circular have proposed the option of weight adjustment in existing indices to comply.

SEBI has, therefore, proposed a glide path-based operationalisation of prudential norms eligibility criteria for derivatives contracts on non-benchmark indices. In the revised eligibility criteria for derivatives on non-benchmark indices, SEBI had specified that there should be a minimum of 14 constituents, the top constituent's weight should not be above 20%, the combined weight of the top three constituents should be below 45%, and individual weights of all other constituents must be lower than those of the higher-weighted constituents in a descending weight structure.

SEBI had set the effective date for the revised criteria as Nov. 3. For BSE and National Stock Exchange of India, the non-benchmark equity indices having derivatives contracts based on them include BSE's Bankex, and NSE's Nifty Bank, and Nifty Financial Services.

Currently, some of these indices, on which derivatives contracts are currently available, do not meet SEBI's revised criteria. SEBI said in the consultation paper that as per the BSE, only Bankex index, which has 10 constituents, was affected by the new criteria, while NSE said the Nifty Bank index with 12 constituents, and Nifty Financial Services with 20 constituents, stand to get affected by the new criteria.

SEBI said the stock exchanges evaluated two alternatives - to offer derivatives on new non-benchmark indices which meet the new criteria, or to adjust the number of constituents and their weights in existing non-benchmark indices. Both the NSE and the BSE gave their preference for the adjustment alternative.

Index funds and exchange traded funds which track the affected indices would have to buy or sell existing index constituents when the weights and number gets adjusted to comply with the revised criteria. SEBI has, therefore, proposed a few modalities of glide path for weight adjustment. For the Nifty Financial Services index, SEBI has proposed weight adjustment to be carried out in single tranche since the ETF corpus tracking that index was low at around INR 5.11 billion as on Jun. 30.

But in the case of the Nifty Bank index, the ETF corpus tracking it was large at around INR 342.51 billion. SEBI said "it may be desirable to carry out the weight/constituent adjustment in multiple tranches preferably through four tranches over a period of four months." SEBI has invited public comments on the consultation paper by Sept. 8. End

Reported by Rajesh Gajra

Edited by Avishek Dutta

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