Sebi extends deadline for changes in bank indices used for derivatives trading

The Securities and Exchange Board of India (Sebi) has extended the deadline for stock exchanges to meet new eligibility rules for trading derivatives on non-benchmark indices such as Nifty Bank, Bankex and FinNifty.

As per Sebi's May 29, 2025, circular, indices used for derivatives trading must follow certain norms: they must have at least 14 companies, no single company should have a weight of more than 20 per cent and the top three companies together should not exceed 45 per cent of the index. The index must also follow a clear descending order of weights.

To meet these rules, the capital market regulator instructed stock exchanges to adjust the composition and weights of the companies in their existing indices instead of creating new ones.

For BSE's Bankex and NSE's FinNifty, the adjustments will be made in one step. However, for NSE's Nifty Bank, the changes will happen gradually over four months. This phased approach aims to avoid sudden movements in the market and allow funds tracking Nifty Bank to rebalance smoothly.

Sebi explained that in each phase, the weights of the largest companies will be reduced step by step until they meet the required limits. Any weight reduced from the top companies will be distributed among the smaller ones that meet the norms.

The new deadlines are now December 31, 2025, for Bankex and FinNifty, and March 31, 2026, for Nifty Bank.

Sebi has directed stock exchanges to notify market participants in advance, make necessary amendments to their bye-laws and systems, and ensure full compliance within the stipulated timelines.

The regulator said the move is aimed at protecting investors, maintaining fairness and ensuring that the derivatives market functions in an orderly and transparent way.