In a significant regulatory move, SEBI has introduced detailed eligibility norms for derivatives trading on existing Non-Benchmark Indices (NBIs) such as BankNifty, FinNifty, and Bankex. This circular aims to bolster market integrity by reducing concentration risk and improving the diversification of indices underlying derivative products.
NBIs have gained prominence as they represent sectoral and thematic segments beyond the traditional benchmark indices like NIFTY 50. However, their previous construction allowed dominant stocks to disproportionately influence the index, making the derivatives market vulnerable to price manipulation and systemic risk. To mitigate these concerns, SEBI’s new norms require each eligible index to have at least 14 constituent stocks, with the weight of the largest stock capped at 20%, and the combined weight of the top three stocks not exceeding 45%. Additionally, the constituent weights must follow a descending order to preserve proportional representation.
The circular mandates stock exchanges to implement these eligibility criteria on existing NBIs with derivatives within a stipulated timeframe. For major indices like Bankex and FinNifty, compliance will be achieved in a single tranche. In contrast, changes to BankNifty will occur gradually over four monthly phases, allowing asset managers adequate time for orderly portfolio rebalancing and minimizing market disruption.
This measured approach reflects SEBI’s commitment to enhancing transparency and reducing market manipulation risks while supporting the sustainable growth of India’s derivatives ecosystem. By strengthening diversification and capping concentration risks, SEBI aims to create more stable, representative indices that better serve investors and market participants.