Mumbai, Feb. 13 -- India's markets regulator has proposed replacing the T-2 day closing net asset value (NAV) used as the base price for exchange-traded funds (ETFs) with a more current T-1 NAV to remove the one-day lag that can misalign price bands with prevailing market conditions, particularly during periods of volatility.

In a consultation paper issued on Friday, the Securities and Exchange Board of India (Sebi) said the existing framework creates structural inefficiencies. Since ETF NAVs typically change between T-1 and T-2, using the older reference price introduces an inherent lag in determining the trading range.

To address this, the regulator has proposed shifting to T-1 day data as the base price. It has suggested three possib...