Finshots Daily SEBI wants tighter ETF bands
Feb 17, 2026
A concise walk through how ETFs get priced and why current reference days can leave them out of sync with true value. An explainer on arbitrage, market makers and how they keep prices aligned. A look at SEBI's proposed shift to T-1 pricing, tighter price bands and a short pre-open for commodity funds. A brief discussion of potential benefits and the risks of trading pauses.
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How ETF Pricing And Arbitrage Work
- ETFs have two prices: NAV based on underlying assets and a traded market price set by supply and demand.
- Market makers use arbitrage to close gaps, keeping traded price close to NAV while pocketing profits.
Apple ETF Example
- Imagine an ETF that tracks apples where one kilo costs 100 rupees but market demand pushes the ETF to 105 rupees.
- Market makers sell large quantities of ETF units to bring the price back close to 100 rupees.
T-2 NAV Creates Stale References
- Exchanges currently use a T-2 closing NAV as the reference price while fund houses publish final NAV later in the day.
- This timing mismatch forces manual adjustments and can introduce errors and stale reference prices.