Sebi Proposes New Rules For Non-Benchmark Indices

Sebi Circulars: The Securities and Exchange Board of India (Sebi) has announced new rules for exchanges with relation to the construction of indices. The regulator announced in a circular on October 30, 2025 that exchanges which have derivative products on non-benchmark indices will need to modify the weights of their constituents.

The readjustment of weights will need to be done in such a manner that a single stock does not dominate the overall weightage of the index. At present, derivative products are traded on non-benchmark indices, such as the BankNifty, Bankex and FinNifty. Non-benchmark indices are generally sectoral or thematic in nature, as they track a specific segment of the market (such as banking or financial services) or a specific market capitalisation segment, such as Midcap. 

What Are Sebi’s New Norms

The norms mentioned by Sebi will also be applicable when exchanges launch new derivative products on non-benchmark indices in the future. Some of the key norms according to which the re-balancing needs to take place include a limit on the number of constituents an index can have. Sebi mentioned in its circular that the number of constituents will be limited to 14, according to the new norms.

Additionally, the weight of the top constituent cannot exceed 20 per cent of the total weightage of the index, and the cumulative weight of the top-three constituents cannot exceed 45 per cent. At present, the top-three constituents of the Bank Nifty make up 62 per cent cumulatively. The market regulator said that the individual weights of all the other constituents must be lower than those of the higher-weighted constituents.

What It Means For Investors

To comply with Sebi’s new rules, the top-three constituents of the Bank Nifty will see a reduction in weightage. Notably, the top-three constituents are HDFC Bank, ICICI Bank, and State Bank of India.

On the other hand, four stocks may be included in the Bank Nifty. These include Yes Bank, Indian Bank, Union Bank, and Bank of India. Sebi has mandated a gradual adjustment in four monthly tranches for the Bank Nifty and has earmarked March 31, 2026 as the deadline for the completion of the readjustment. Notably, the first adjustment will be done in December 2025.

On the other hand, the weight adjustment will be done in a single tranche for FinNifty and Bankex by December 31, 2025, according to the Sebi circular.

The latest announcement by the market regulator follows the events which took place in 2025, such as the alleged manipulation of stock prices by American trading giant, Jane Street. The trading giant manipulated stock prices of some of the index constituents of non-benchmark indices to make massive gains. Sebi’s new norms are expected to lower the risk of manipulation in the trading of derivative products on non-benchmark indices.

The new rules can also potentially reduce concentration risk and prevent potential market manipulation in sectoral or thematic indices, while ensuring accurate and robust reflection of the entire sector or theme that they represent.