The Securities and Exchange Board of India (Sebi) has issued a significant consultation paper on February 13, 2026, targeting a comprehensive overhaul of the pricing framework for Exchange-Traded Funds (ETFs). The proposal aims to synchronize ETF trading with real-time market dynamics by addressing structural lags and rigid price constraints. Addressing the Base Price Lag A primary concern highlighted by the regulator is the current use of **T-2 day closing Net Asset Value (NAV)** as the base price for setting daily trading ranges. This two-day lag often causes ETF price bands to become disconnected from the actual value of underlying assets, particularly during volatile sessions. To rectify this, Sebi has proposed shifting the base price calculation to **T-1 day data**. Three specific alternatives are under consideration: the volume-weighted average price from the last 30 minutes of T-1, the average indicative NAV (iNAV) from that same period, or the T-1 closing NAV where operationally feasible. Precision in Price Bands The existing framework applies a uniform **±20% price band** across most ETF categories. However, market data analyzed between April and December 2025 revealed that **99.8%** of equity and debt ETF movements remained within a **10%** range. For commodity-based funds, **98%** of movements stayed within **9%**. Sebi notes that the flat 20% limit is often excessively wide and does not accurately reflect the volatility profile of the underlying assets. Segment-Specific Proposals The regulator is moving toward a more granular, graded approach to circuit filters: * **Gold and Silver ETFs:** Proposed initial bands of **±6%**, which can be flexed up to **±20%** following 15-minute cooling-off periods. This follows recent volatility in precious metals in late January 2026. * **Overnight ETFs:** These will maintain tighter **±5%** bands given their low-volatility nature. * **Equity and Debt ETFs:** Transitioning toward graded bands that better align with the 10% movement threshold observed in the majority of trades. Operational Efficiency and Market Growth The proposed shift to T-1 data is also expected to reduce the need for manual adjustments related to corporate actions like dividends or bonuses. Currently, manual intervention in T-2 calculations increases the risk of operational errors. This regulatory push comes as the Indian ETF market shows massive expansion. Trading turnover surged from **₹51,101 crore** in FY20 to **₹3.83 lakh crore** in FY25. As of early 2026, the sector manages nearly **₹8.75 lakh crore** across approximately **260 funds**. By narrowing spreads and ensuring prices track underlying assets more closely, the regulator seeks to protect investors from "fat-finger" trades and price manipulation while supporting the market's continued liquidity. The public and stakeholders have until **March 6, 2026**, to submit comments on these proposals.