Bank Nifty, FinNifty, Bankex: Ajay Garg explains SEBI’s revised derivatives norms

Ajay Garg, CEO of SMC Global Securities on Monday said SEBI’s updated prudential framework will enforce stricter diversification norms before stock exchanges are allowed to introduce derivatives on non-benchmark indices such as Bankex, FinNifty and even Bank Nifty. The revised rules call for a minimum of 14 constituents in an index, while capping the weight of the top stock at 20 per cent and limiting the combined weight of the top three to 45 per cent. Advertisement

Garg noted that current thresholds are more relaxed. In Nifty Bank, for instance, no single constituent may exceed 33 per cent and the top three together can go up to 62 per cent.

As of October 31, HDFC Bank has about 28 per cent weight, making it a disproportionately large influence on index performance. Under SEBI’s new f