FIA backs Sebi's glide path proposal for non-index derivative rules

The Futures Industry Association (FIA), a derivatives trade body, has backed market regulator’s proposal to have a glide path for implementation of new rules pertaining to non-benchmark equity indices.

 

In a letter to the Securities and Exchange Board of India (Sebi), FIA urged the regulator to adopt “Alternative B” of its August consultation paper, a route that would let existing indices be re-weighted and tweaked instead of having two separate indices forderivatives trading and for exchange traded funds (ETFs).

 

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

 

 

For the BSE’s Bankex index, FIA has said, a one-step realignment is justified because the gauge is not widely tracked by ETF and index-fund.

 

Meanwhile, for the Nifty Bank and Nifty Financial Services indices, FIA has recommended a four-month, multi-tranche adjustment as a large number of ETFs and index funds track these indices.

 

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

 

To comply with the new framework, the weightages of heavyweights HDFC Bank and ICICI Bank are required to be cut sharply. The new rules are part of Sebi’s broader derivatives market overhaul, aimed at reducing concentration risks and enhancing index integrity.

 

To smoothen the transition and avoid market dislocation, Sebi last month proposed a “glide path,” allowing rebalancing in phases over several months instead of a one-time adjustment. The regulator is collating market feedback on the approach it should take.