Capital market regulator Securities and Exchange Board of India (SEBI) has launched a consultation paper with a proposal to introduce stricter norms for non-benchmark indices. Stating that the broad-based rule will apply to derivatives indices, the regulator has proposed that a minimum of 14 stocks be required for such indices with the weightage per stock restricted to a maximum of 20 per cent.
The proposed norms will require exchanges to make their non-benchmark derivative indices broader and less concentrated.
The regulator has proposed various limits and thresholds in order to achieve this.
Let’s look at these proposals in detail.
SEBI has proposed that the total weightage of the top three stocks in an index cannot exceed 45 per cent, while the remaining stocks must be arranged in a descending order.
In order to implement the new guidelines, the market regulator has given two options to exchanges. They can either create new indices or modify their existing indices.
Exchanges BSE and NSE have maintained that there is no need for new indices to be introduced, meaning that their existing gauges can be modified to comply with the proposed changes.
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Which indices are set to be impacted by SEBI’s proposed rules?
The changes, as proposed in the SEBI consultation paper, are set to impact BSE’s BANKEX, and NSE’s Nifty Bank and Nifty Financial Services indices.
NSE has suggested changing index weights in tranches to align the indices with the proposed rules.
This way, according to the bourse, no disruption will be caused to the investor.
SEBI invites public comments till September 8
The market regulator has invited public comments on the consultation paper till September 8.
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