Sebi seeks views on the restructuring of sectoral indices for safer derivatives

India’s market regulator has proposed stricter norms for sectoral and thematic indices used in derivatives, which each index should be based on broadly to ensure that no single share dominates it. This would eliminate concentration risks, making stocks safer for investors. On May 29, the Securities and Exchange Board of India (Sebi) revealed norms stating that each index should have at least 14 shares to make it broadly based and that no single stock can be more than 20% of the index. In addition, the weight of the top three stocks on the index is covered at 45%, with the remaining ingredients after a falling weight order. According to a consultation document issued on Monday about the implementation of the eligibility criteria for derivatives on non-bus market indices based on the 29 May turnover, the market participants notified that the use of existing non-bank market indices for derivatives on the prescription of new indexes for them benefits a diversification Funds (ETF) or index funds, to vary the sound index to TEX to Trade Funds (ETF) or index) ecosystems made by the market, built around these indices and to prevent disruptions in derivative contracts linked to these indices. As a result, two alternatives have arrived. The first one includes introducing new indices that meet the norms and list of derivatives, while keeping old indices directly. The second option includes reworking existing indices by changing ingredients and/or weights to meet the new norms. BSE Ltd has concluded that only the Bank Bex index (10 ingredients) is affected, as no ETFs/index funds detect it. It preferred the latter alternative in a single shot for comfort. The National Stock Exchange (NSE) also chose the latter alternative after concluding that two of its indexes would be affected -the Nifty Bank index (12 ingredients; ETF assets under management of approximately £ 34,251 crore from June 30) and Nifty Financial Services (20 ingredients; ETF AUM AOD almost £ 511). The market regulator asked if Nifty Financial Services, which has a smaller ETF AUM of approximately £ 511, can be fulfilled in a single tranche. For Nifty Bank, which has a much larger ETF AUM of about £ 34,251 crore, the newspaper sets a phased transition over four monthly parts to make flow disappear and adapt orderly. Under the phased plan, any new voters will be added in the first tranche. The top three ingredients will be led by the fourth Tranche to target weights; At each step, only the excess over the shells would be checked and the reduction of the remaining tranches was evenly distributed, with a monthly recalibration for price movements. Any weight cut from the top names will be redistributed over the other ingredients, while maintaining the prescribed concentration lyme and falling weight structure. Sebi searched for comments until September 8 about whether exchanges should choose to adjust existing indices (second option), rather than starting new ones to meet the norms. If so, whether Nifty Financial Services must pass into a single tranche, given the relatively little ETF AUM. The Sebi also invited views on whether Nifty Bank should follow a four-month slide with a four-month slide each month with iterative recalibration.