Public feedback invited by SEBI on eligibility norms for non-benchmark index derivatives
Public feedback invited by SEBI on eligibility norms for non-benchmark index derivatives
The SEBI has proposed two approaches to comply with these norms: either launch new indices that meet the requirements while allowing existing ones to continue, or modify existing indices by adjusting their constituents and weights.
The Securities and Exchange Board of India (SEBI), in a consultation paper, has sought comments from the public on a proposal for implementing eligibility criteria for non-benchmark indices. The objective is to prevent concentration of derivatives indices in a few stocks, SEBI stated.
In its May circular, SEBI stipulated that non-benchmark indices eligible for derivatives must:
- Include at least 14 constituents
- Cap the largest stock at 20%
- Cap the top three stocks combined at 45%
- Arrange constituent weights in descending order
To comply with these norms, SEBI has proposed two approaches: either launch new indices that meet the requirements while allowing existing ones to continue, or modify existing indices by adjusting their constituents and weights.
Currently, the BSE has one such index, BANKEX, comprising 10 constituents. Since no exchange-traded funds (ETFs) track it, the exchange prefers to adjust the weights directly. The NSE manages two indices: Nifty Bank, comprising 12 stocks with ETF assets under management (AUM) of Rs 34,251 crore, and Nifty Financial Services, with 20 constituents and Rs 511 crore in AUM. Within these indices, stock weights vary significantly, ranging from 29-33% to as low as 0.4-2%.
After consultations with mutual funds and industry stakeholders, NSE has permitted adjustments to the existing indices to minimize disruption, safeguard liquidity, and preserve the benchmarks' brand identity. Given the critical ETF exposure, the exchange has suggested a phased, four-stage ‘glide path’ for Nifty Bank over four months, while adjustments in Nifty Financial Services could be carried out in one tranche.
SEBI has sought public comments till September 8, 2025, on whether existing indices should be adjusted instead of creating new ones, and if so, on the modalities of such adjustments.
