Mumbai, Aug. 27 -- The Securities and Exchange Board of India's latest mechanism for determining the closing prices of certain stocks through a single equilibrium-price auction, replacing the final volume-weighted average price (VWAP), is creating a pricing challenge for exchange-traded funds (ETFs).

Sebi's 3 August closing auction session (CAS), as of now, covers only 213 derivative-traded stocks. These stocks stop continuous trading at 3:15pm, while others continue trading until 3:30pm. For ETFs holding both, this is creates a mismatch in the prices used to value their underlying portfolios.

As a result, the indicative net asset value (iNAV), which reflects the real-time value of an ETF's holdings and, for equity ETFs, must be updated...