:::LALKAR GROUP::::

The Securities and Exchange Board of India (SEBI) has extended the implementation timelines for stock exchanges to realign the composition and weights of non-benchmark indices (NBIs) such as BANKNIFTY, FINNIFTY and BANKEX in order to meet its revised eligibility criteria for derivative trading.

The market regulator said the new prudential norms, which mandate a minimum of 14 constituents and cap the top constituent's weight at 20% and the top three combined at 45%, will now come into force in a phased manner.

According to the circular, the compliance deadline for BANKNIFTY has been extended up to 31 March 2026, while BANKEX (BSE) and FINNIFTY (NSE) must align with the criteria by 31 December 2025.

Earlier, SEBI had set 3 November 2025, as the effective date for implementing the new rules, outlined in its 29 May 2025 circular.

The move follows public consultations held on 18 August 2025, and recommendations from the Secondary Market Advisory Committee (SMAC). Stakeholders had raised concerns that abrupt changes in index composition could disrupt passive funds and derivative contracts linked to these indices.

To avoid such market distortions, SEBI has allowed a phased rebalancing approach for BANKNIFTY, to be executed over four monthly tranches. In contrast, BANKEX and FINNIFTY will implement the required adjustments in a single tranche.

The circular provides a detailed illustration of how large constituent weights will be gradually trimmed to meet the new limits. For instance, if a top constituent currently holds 28% weight against the 20% limit, it will be reduced in four equal stages, with weights re-evaluated at each step based on market movements.

SEBI has directed exchanges to ensure 'orderly rebalancing' of assets under management (AUM) tracking these indices and to inform market participants in advance.

Stock exchanges and clearing corporations have also been asked to amend their by-laws and operational frameworks to comply with the revised prudential norms.

The circular aims to protect the interests of investorsin securities and to promote the development of, and to regulate the securities market.