The Securities and Exchange Board of India (SEBI), in consultation paper, has proposed introducing price bands for exchange-traded funds (ETFs), particularly focusing on Gold and Silver ETFs. The market regulator put forward these measures in response to sharp fluctuations in global precious metal prices, driven by ongoing macroeconomic uncertainty and geopolitical tensions. These factors have significantly impacted silver ETFs, with some experiencing price declines of more than 20 per cent a few days back in a single day, leading to increased volatility in performance and investor valuations.
Exchange Traded Funds (ETFs), based on equity or debt indices, are market-linked securities traded on stock exchanges. Like MFs, they collect money from investors and invest in ETF, which in turn buy index constituents through basket buying, with same weightage of underlying index. The ETFs can be bought both through direct (based on NAV price) or exchanges (where they will trade like equity). For Gold and Silver ETFs, the underlying is the precious metals. For each ETF investor, the AMC will buy the silver or gold and keep it in vaults by a designated custodian appointed by the fund house.
SEBI’s rationale
The Securities and Exchange Board of India (SEBI) has observed that sudden sharp increases or decreases in global gold and silver prices can significantly disrupt trading in domestic ETFs. These extreme price movements are often fuelled more by speculative activity than by actual underlying fundamentals. To promote market stability and reduce the risk of panic-driven selling or buying, SEBI has proposed the introduction of a calibrated circuit breaker mechanism.
SEBI has proposed an initial price band of 6 per cent, either upward or downward, for Gold and Silver ETFs
If the 6 per cent threshold is breached, trading will be suspended for 15 minutes. The cooling-off period, according to SEBI, allows investors to reassess information and prevents panic-driven trades. After the cooling-off period, the price band may be expanded in increments of 3 per cent, subject to strict monitoring conditions.
If international gold or silver prices move beyond the domestic daily threshold of 9 per cent, exchanges may relax limits in stages of 3 per cent, with a mandatory cooling-off period each time. Nevertheless, under no circumstances can the price of Gold or Silver ETFs move beyond 20 per cent in a single trading day.
Stringent criteria
Further, to prevent misuse of price flexibility, SEBI has also proposed stringent trading criteria before allowing further relaxation beyond certain thresholds: At least 50 trades; Involving 10 Unique Client Codes; participation of three trading members on both buy and sell sides; and, the price band may only be flexed twice in a single trading day, ensuring tight regulatory control.
SEBI has also proposed applying a similar graded price band framework to debt and equity index ETFs. Another proposal involves shifting the reference price for ETFs from the current T-2 day NAV-based system to T-1 day metrics. The objective is to remove the existing one-day lag and align ETF trading more closely with movements in their underlying assets.
No doubt these measures, if implemented, will protect retail investors from extreme swings and improve price discovery but may limit arbitrage opportunities for intra-day traders. However, these framework will have little impact for long-term investors and, in fact, enhance stability in their portfolio valuations.
While free-market advocates oppose any price controls, extreme market conditions can justify decisive regulatory intervention. In time, as retail investors gain a better understanding of the dangers of short-term speculation and increasingly adopt goal-oriented, long-term strategies, regulators may be able to gradually eliminate such measures. Until that shift occurs, caution and close monitoring remain critical.
Published on February 20, 2026