Under the revised framework, the top constituent’s weight cannot exceed 20%, while the combined weight of the top three stocks must be capped at 45%.
The new norms, issued through a circular under Section 11 of the SEBI Act, apply to popular non-benchmark indices, including BANKNIFTY, BANKEX, and FINNIFTY.
SEBI has also introduced a minimum constituent requirement, mandating that each of these indices must comprise at least 14 stocks to qualify for derivative trading. This is expected to make the indices more diversified and reflective of the underlying sector or theme.
In line with the new rules, exchanges have been directed to rebalance the weights of the existing constituents.
For BANKEX and FINNIFTY, full compliance is required in a single tranche by December 31, 2025. BANKNIFTY, however, has been allowed a phased implementation approach spread across four monthly intervals, with a final deadline of March 31, 2026.To ensure a smooth transition, SEBI has mandated that the weights of top constituents be reduced gradually rather than abruptly. Exchanges must also provide timely communication to market participants about the rebalancing and related changes.The circular forms part of SEBI’s broader objective to enhance the robustness, transparency, and fairness of index-linked derivatives. By enforcing minimum constituent requirements and capping weightages, the regulator seeks to lower systemic concentration, prevent over-reliance on a few stocks, and improve investor protection in the derivatives market.
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