Silver, Gold ETFs Prices See Sharp Swings, SEBI Proposes ETF Price Band Policy; What Does It Mean for You?

Silver, Gold ETFs: Following sharp swings in precious metal prices over the past month, exchange-traded funds (ETFs) linked to gold and silver have witnessed heightened volatility. Amid high volatility in the category, the Securities and Exchange Board of India (SEBI) has proposed introducing price bands and circuit filters for these ETFs. The market regulator has suggested imposing a +/-20% price band on gold and silver ETFs to curb extreme price movements.

"There will be an initial price band of +6%, which may be flexed up to + 20% during the trading day, subject to a cooling-off period," read SEBI's comment on silver, gold ETF in its Consultation Paper titled 'Review of provisions related to Base Price and Price Bands for Exchange Traded Funds (ETFs)'.

SEBI has invited comments from retail investors, market participants and other stakeholders on its consultation paper. While the proposed measures may take some time to be implemented, here's a detailed look at what the regulator has suggested, and what it means for investors.

What Are Key SEBI Proposals On ETFs?

-SEBI has proposed to put +/- 20% price bands on gold and silver ETFs. As per SEBI's consultation paper, there will be an initial price band of +/- 6%, which may be increased up to +/-20% during the trading day, subject to cooling off period.

-SEBI has also proposed how how exchange-traded funds are priced, aiming to cut timing gaps that affect investors. The proposal suggests moving from a T-2 day closing net asset value base price to a T-1 NAV, so ETF price bands reflect fresher data.

-At present, many ETFs use a closing NAV from two trading days earlier as the base reference. This method can leave a one-day delay in the system. During calm phases the gap may seem minor, but sharp market moves can make those bands look out of sync.

-As per SEBI's proposal, after exhausting the initial price band, there will be a cooling-off period of 15 minutes, and the price band can be flexed by 3%.

-For equity/debt index ETF, the consultation paper has proposed that there will be an initial price band of +10%, which may be flexed upto +20% during the trading day, subject to a cooling-off period. "The single-day maximum variation of +20% would be applicable," he added.

-For overnight TREPs, the existing "price band of +/-5% may be continued.

Public can access the SEBI consultation paper by clicking here, and provide comments on the proposal by March 6.

What is Price Band, Circuit Limits?

Price bands including upper and lower circuits for stocks, and equities in other categories, are fixed by stock exchanges (BSE or NSE). These limits restrict maximum daily price movements to curb volatility. The upper circuit (sometimes also attributed as upper price band) as the highest price and entity can rise to, whereas, lower circuit is the lowest it can fall.

What SEBI's ETF Price Band Policy Would Mean For Investors?

Implementation of SEBI proposals regarding ETFs would ensure lower volatility in their prices and may save investors from a massive spikes and crashes during a single day session.