Futures Industry Association supports SEBI’s proposal for non-index derivative norms

Futures Industry Association supports SEBI’s proposal for non-index derivative norms

The regulator has sought market feedback on the approach to be taken

In a letter to the Securities and Exchange Board of India (SEBI), the Futures Industry Association (FIA), a derivatives trade body, has urged the adoption of ‘Alternative B’ of its August consultation paper.

This would enable existing indices to be re-weighed and tweaked instead of having two separate indices for derivatives trading and exchange-traded funds (ETFs).

Bill Herder, head of Asia-Pacific, FIA, expressed, “This represents a balanced and pragmatic approach that ensures continuity for market participants, reduces operational disruption, and enhances investor confidence in the transition process.”

For the Bombay Stock Exchange (BSE) Bankex index, FIA said that a one-step realignment was justified, as the gauge was not widely tracked by ETFs and index funds.

For the Nifty Bank and Nifty Financial Services indices, FIA recommended a four-month, multi-tranche adjustment as many ETFs and index funds track these.

In May, the market regulator capped the weight of individual constituents in non-benchmark indices (those beyond Sensex and Nifty 50) at 20 percent, while limiting the combined share of the top three constituents to 45 percent. Meanwhile, the Nifty Bank index, with 12 members, falls short of SEBI’s new requirement of at least 14 stocks.

While complying with the new rules, the weightage of HDFC Bank and ICICI Bank will be cut sharply. This is a part of the regulator’s broader derivatives market overhaul to reduce concentration risks and enhance index integrity.

Recently, SEBI proposed a ‘glide path’, allowing rebalancing in phases over several months instead of a one-time adjustment, to smooth the transition and avoid market dislocation.