SEBI tweaks norms to boost liquidity

In order to improve the liquidity of ETF shares on the exchange platform, SEBI has decided that direct trades with AMCs will be allowed for ₹25 crore and above.

However, the threshold will not be applicable to market makers and will be reviewed periodically, SEBI said in a circular on Monday.

Direct redemption

Investors can also approach the AMC directly for redemption of ETF units above ₹25 crore without any exit charge, if the closing price of ETF units is discounted by more than ₹25 crore. one percent of the end-of-day net asset value for seven continuous trading days or no ETF quotes are available on the exchange for three consecutive trading days.

AMCs must repurchase the units if the total size of the exchange offering is less than half the size of the daily creation units, averaged over seven consecutive trading days, he added. The provision of the circular will come into effect from July 1, he said.

SEBI has also enabled mutual funds to launch Equity Linked Savings Schemes (ELSS) as passively managed funds based on an index that includes the top 250 companies by market capitalization. However, a fund house can have either an active or a passive ELSS, but not both. Most new-age fund companies can opt for passively managed ELSS funds.

Gets the thumbs up

Radhika Gupta, Managing Director and Chief Executive Officer, Edelweiss Asset Management Ltd, said in a tweet: “SEBI’s new Passive Fund Circular features some fantastic changes that will enhance transparency, liquidity and innovation. In particular, regulations on debt liabilities are a big plus for this rapidly growing category. »

SEBI has also established guidelines on how ETFs and index funds of passive debt funds should be managed to ensure they reflect the underlying index.

The minimum subscription during the offering of new debt funds and other ETFs/index funds will be ₹10 crore and ₹5 crore, respectively.

Market makers

The AMC can also bring the initial fund for the creation of units and then transfer it to market makers or other investors, he said.

All direct trades in ETF shares by market makers with AMCs will be at the intraday net asset value based on the actual execution price of the underlying portfolio; swing pricing will not apply to debt ETFs.

An ETF’s indicative net asset value based on the current market value of its portfolio during trading hours must be continuously disclosed on exchanges, SEBI said.

The portfolio of debt ETFs and index funds must be rebalanced within seven calendar days if the constituents of the index change. In the event that a security’s rating is downgraded below the index’s rating criteria, the portfolio should be rebalanced within 30 days, he said.

Published on

May 23, 2022

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