SEBI Sets New Rules for Derivatives on Non-Benchmark Indices, BANKNIFTY Rebalancing to Be Done in Phases Till March 2026 [Read Circular]

The Securities and Exchange Board of India ( SEBI ) issued a circular dated October 30, 2025, announcing the implementation of new eligibility rules for derivatives based on Non-Benchmark Indices (NBIs). These norms are designed to make market indices more balanced, diversified, and less dependent on a few large companies.

The new framework will impact popular indices such as BANKNIFTY, BANKEX, and FINNIFTY, which are widely tracked by investors and used for trading derivatives on Indian stock exchanges.

According to SEBI, stock exchanges must ensure that any index used for derivative trading has a minimum of 14 constituent stocks. The regulator has also fixed limits on the weightage of individual companies within the index.

The largest stock’s weight cannot exceed 20 percent, and the combined weight of the top three stocks must not be more than 45 percent. All other stocks in the index must have progressively smaller weights to maintain a descending structure.

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SEBI explained that these rules will prevent over-reliance on a few large stocks and will make derivative products more representative of the broader market. Exchanges were earlier asked to submit their compliance plans to SEBI within 30 days of the May 29, 2025, circular that first introduced these prudential norms.

SEBI has set specific timelines for compliance to ensure a smooth transition and avoid sudden market changes. For BANKEX (traded on BSE) and FINNIFTY (traded on NSE), the adjustments will be made in one step by December 31, 2025.

For BANKNIFTY (traded on NSE), SEBI has allowed a phased implementation over four months, ending by March 31, 2026. The regulator explained that this gradual approach would allow mutual funds and passive investment schemes that track these indices to rebalance their portfolios in an orderly manner.

The circular directs all stock exchanges and clearing corporations to modify their systems, notify market participants in advance, and make necessary changes to their by-laws and procedures. SEBI stated that these measures have been issued under its powers to protect investor interests and ensure a fair, transparent, and stable derivatives market.

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