Market regulator SEBI has proposed a significant overhaul of the trading framework for Gold and Silver Exchange Traded Funds (ETFs), aiming to reduce the gap between ETF market prices and the value of their underlying bullion. The move comes amid heightened volatility in global and domestic precious metal prices, which has exposed limitations in the current pricing mechanism.
Under the proposal, the existing fixed price band—currently set at ±20% of the T-2 Net Asset Value (NAV)—will be replaced with a dynamic price band. SEBI believes the present system fails to reflect real-time market movements and often allows ETFs to trade at wide premiums or discounts to their underlying gold and silver holdings.
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Indicative NAV to drive new price bands
The regulator has suggested linking ETF price bands to the previous trading day’s indicative NAV, rather than a two-day-old NAV. This change is expected to keep ETF trading ranges closer to the actual value of the underlying metals, improving price discovery and transparency for investors.
Separate pre-open session proposed
Since gold and silver trade almost round the clock in international markets while Indian ETFs trade only during market hours, SEBI has proposed a dedicated pre-open session. This mechanism would help adjust opening prices in line with overnight global movements, reducing sharp gaps and early-session volatility.
Why the change is needed
Recent sharp swings in bullion prices have highlighted inefficiencies in the fixed-band structure. The mismatch between ETF prices and underlying asset values has created abnormal arbitrage opportunities, often benefiting institutional players while leaving retail investors exposed to mispricing.
SEBI noted that the current static bands do not accurately capture the volatility of the underlying commodities and can result in unnecessarily wide trading ranges.
Likely impact on investors
If implemented, the proposed framework is expected to:
- Keep ETF prices closer to actual gold and silver values,
- Improve price discovery,
- Reduce large opening price gaps,
- Curb unusual arbitrage opportunities, and
- Enhance overall market efficiency and transparency.
However, a dynamic band could also lead to higher intraday volatility, meaning short-term traders may need stricter risk management strategies.
Next steps
SEBI has invited feedback from market participants before finalising the rules. If approved, this would mark the most significant structural change in the trading of commodity-linked ETFs in India, making pricing more market-driven and aligned with global bullion trends.
The proposal comes at a time when gold and silver are regaining prominence as safe-haven assets and ETF-based investing in precious metals continues to grow among Indian investors.
About the author – Rehan Khan is a law student and legal journalist with a keen interest in cybercrime, digital fraud, and emerging technology laws. He writes on the intersection of law, cybersecurity, and online safety, focusing on developments that impact individuals and institutions in India.
