Sometimes, market stress reveals gaps in trading rules. On February 1, 2026, silver ETFs slipped into sharp discounts (to their NAV) and repeatedly hit lower circuits amid heavy selling. The episode exposed the limitations of the existing price-band mechanism at the exchanges and highlighted the need for more current reference prices and better-calibrated trading limits that reflect real-time market conditions.

Less than two weeks later, on February 13, SEBI released a consultation paper titled “Review of provisions related to Base Price and Price Bands for Exchange Traded Funds” (https://tinyurl.com/sebietf2026), seeking public comments on these issues. They can affect the price at which you are able to buy or sell during volatile sessions.

The consultation paper focusses on two questions: what price should exchanges use as the daily reference point, and what circuit limits should apply to ETFs?

To understand the proposals, it is important to first grasp three key concepts: NAV, iNAV and closing price.

An ETF effectively has two price references. NAV, or Net Asset Value, represents the actual value of what the ETF holds. For example, a Nifty ETF’s NAV reflects the value of its underlying Nifty stocks in the same proportion. NAV is calculated by the fund house at the end of the day and is typically published late at night, around 11 PM. In the case of commodity ETFs with derivative exposure, NAV may even be disclosed the following morning by 9 AM. NAV is therefore considered the fundamental value of the ETF’s holdings.

iNAV, or indicative NAV, is an intraday estimate of the ETF’s NAV. It is published during market hours and keeps updating based on live prices of the underlying assets. It gives investors a live estimate (not the final NAV) of the ETF’s underlying value.

Closing price is the actual traded price of the ETF on the exchange. This price is determined by demand and supply. It reflects premiums or discounts to NAV, liquidity conditions and investor sentiment. Unlike NAV, which is calculated, the closing price is discovered in the market. On exchanges, the official closing price is usually based on a weighted average of trades in the last 30 minutes.

Structural constraints

Currently, exchanges determine ETF price bands using the T-2 day (two trading days earlier) closing NAV. In simple terms, if today is Wednesday, the trading limits may still be based on Monday’s NAV. Exchanges also apply a fixed price band of ±20 per cent on the base price for equity, debt, gold and silver ETFs, while Overnight ETFs investing in TREPs operate with a ±5 per cent band.

This practice introduces a lag. Using T-2 NAV means the reference can be stale when markets move sharply. If markets move sharply on Tuesday, Wednesday’s trading limits remain anchored to older data. This can compress the effective trading range or create a disconnect between prevailing market prices and regulatory guardrails.

For example, the Nippon India Silver ETF’s NAV was ₹359 on January 29, 2026, and that value was used as the base price for the circuit filter on February 1. This set the allowable trading range at ₹287 to ₹431 (±20 per cent). In other words, the trading band was being calculated from an older, higher reference point, even though market prices had already moved lower. As selling intensified, the ETF repeatedly hit the lower circuit. The existing circuit framework left too little room for fresh price discovery, so SEBI and the exchanges allowed an exception. They used the T-1 (previous trading day) traded price of ₹316 as the revised base price, which reset the band to ₹252.5 to ₹379. This gave the market a more workable range and allowed trading to continue. A similar pattern was seen in other silver ETFs as well.

Proposals on base price

SEBI has proposed four possible base-price options for day T:

1.    Previous day’s closing traded price,

2.    Previous day’s closing NAV (if available in time),

3.   Average iNAV in the last 30 minutes, or

4.  Latest available iNAV on T-1.

Arun Sundaresan, Head – ETF, Nippon Life India Asset Management, prefers using the T-1 closing price over NAV. ETFs today have grown significantly in terms of AUM and trading volumes. ETFs, like stocks, undergo price discovery on exchanges. If an ETF is trading at a premium or discount, that reflects genuine demand and supply. Anchoring limits to an older NAV may fail to capture this market dynamics, Sundaresan adds.

However, using the closing price may not be ideal for ETFs with thin trading volumes. Limited trades near market close can distort the final price and may not accurately reflect fair value.

Those who favour NAV argue that it represents the underlying fundamental value of the assets. However, the T-1 day NAV is typically published late in the night, and may not be available early enough for exchanges to set the next day’s bands.

On the other hand, iNAV (either the latest number or the average of the last 30 minutes) is similar to NAV in that it reflects the indicative value of the underlying assets. But it may not capture genuine demand and supply dynamics in the secondary market, including premiums, discounts and liquidity conditions.

Over the long term, the T-1 closing price may offer a better anchor for trading, as it reflects the previous day’s market-discovered close.

Revised circuit limits

The second major proposal relates to price bands. At present, most ETFs operate with a fixed ±20 per cent band. SEBI has proposed a tiered framework.

For equity and debt ETFs, the initial band would be ±10 per cent. If breached, trading would pause for 15 minutes (or 5 minutes in the last half hour). The band could then be relaxed in 5 per cent increments, up to a maximum of ±20 per cent in a day. For gold and silver ETFs, the initial band would be ±6 per cent, with 15-minute cooling-off periods and subsequent relaxations in 3 per cent increments, again capped at ±20 per cent. Overnight ETFs would continue with the existing ±5 per cent band.

The idea is to slow sudden moves without freezing trading for the day.

However, there is another view. Hemen Bhatia, ED & CEO of Angel One AMC, argues that there should be no price band for equity ETFs whose underlying indices have futures. For instance, Nifty 50 index futures and cash market stocks do not have such bands. Similarly, gold and silver are traded globally without price limits. If the underlying asset has no restriction, imposing limits on the ETF may not be necessary. That view supports free price discovery, but regulators may still prefer guardrails for ETFs with uneven liquidity.

Takeaways

For retail investors, these changes do not alter what your ETF owns or how it tracks its benchmark. Instead, they affect how the ETF behaves during volatile sessions. The regulator aims to reduce distortions caused by outdated reference prices and to manage extreme movements in a more orderly manner. Particularly for gold and silver ETFs, where global prices move overnight, the revised framework could improve alignment between domestic trading and international trends.

Published on February 21, 2026