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Securities and Exchange Board of India
CIRCULAR
SEBI/HO/IMD/DOF2/P/CIR/2022/69 May 23, 2022
To
All Recognized Stock Exchanges/
All Clearing Corporations/
All Depositories/
All Custodians/
All Mutual Funds/
All Asset Management Companies (AMCs)/
All Trustee Companies/ Boards of Trustees of Mutual Funds/
All Registrar and Transfer Agents (RTAs)/
Stock Brokers cum Market Makers/
Association of Mutual Funds in India (AMFI)
Dear Sir/ Madam,
Subject: Circular on Development of Passive Funds
1. Considering the emergence of passive funds i.e. Exchange Traded Funds (ETFs) and
Index Funds as an investment product for retail investors globally and various
advantages of passive investing like transparency, diversification, lower cost vis-à-vis
active funds, a need was felt to review the regulatory framework for passive funds in
India. In this regard, a Working Group (WG) was constituted with representation from
various stakeholders in the passive funds’ domain like AMCs, Mutual Fund Trustees,
Stock Brokers, Market Makers, Stock Exchanges, Clearing Corporations, Industry
Expert, etc.
2. The recommendations of the Working Group and the feedback received from the
industry were deliberated in the Mutual Funds Advisory Committee (MFAC).
Considering the recommendations of MFAC, the following have been decided:
I. Norms for Debt Exchange Traded Funds (Debt ETFs)/ Index Funds
Debt ETFs/ Index Funds could be based on indices comprising of
(a) Corporate Debt Securities (Corporate debt indices); or
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Securities and Exchange Board of India
(b) Government Securities (G-sec), t-bills and/or State Development Loans (SDLs)
(G-sec indices); or
(c) A combination of Corporate Debt Securities and G-sec/t-bills/SDLs (Hybrid debt
indices).
The detailed provisions in this regard are given below:
A. Debt ETFs/ Index Funds: Index Constitution
For Debt ETFs/ Index Funds, the AMCs shall ensure the following:
i. Constituents of the index are aggregated at issuer level for the purpose of
determining investment limits for single issuer, group, sector, etc.
ii. Constituents of the index shall have a defined credit rating and defined
maturity and the same shall be specified in the index methodology.
iii. Rating of the constituents of the index shall be of investment grade and
above.
iv. Constituents of the index should have adequate liquidity and diversification
(other than for the portion of indices comprising of G-sec and/or SDLs) at
issuer level.
v. Constituents of the index shall be periodically reviewed (at least on half-
yearly basis).
vi. Debt ETFs/ Index Funds shall replicate the underlying debt index. The
portfolio of ETF/Index Funds shall be considered to be replicating the index
subject to meeting the requirements specified at paragraph 2(I) [B, C & D]
below.
vii. Single issuer limit for debt indices shall be as follows:
a) For an index with at least 80% weight of corporate debt securities, single
issuer limit shall be as under:
1. In respect of AAA rated securities, a single issuer shall not have more
than 15% weight in the index.
2. In respect of AA rated securities, a single issuer shall not have more
than 12.5% weight in the index.
3. In respect of A and below rated securities, a single issuer shall not
have more than 10% weight in the index.
b) For a hybrid index (comprising both corporate debt securities and G-sec
/SDL) with up to 80% weight of corporate debt securities,
1. In respect of AAA rated securities, a single issuer shall not have more
than 10% weight in the index. However, for AAA rated securities of
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Securities and Exchange Board of India
PSU and AAA rated securities of PFI issuers the said limit shall be
15%.
2. In respect of AA rated securities, a single issuer shall not have more
than 8% weight in the index.
3. In respect of A and below rated securities, a single issuer shall not
have more than 6% weight in the index.
c) For an index based on G-Sec and SDLs, single issuer limit shall not be
applicable.
viii. The index shall not have more than 25% weight in a particular group
(excluding securities issued by Public Sector Units (PSUs), Public Financial
Institutions (PFIs) and Public Sector Banks (PSBs)). For the purpose of this
provision, ‘group’ shall have the same meaning as defined in paragraph
B(3)(b) of SEBI Circular No.SEBI/HO/IMD/DF2/CIR/P/2016/35 dated
February 15, 2016.
ix. The index shall not have more than 25% weight in a particular sector
(excluding G-sec, t-bills, SDLs and AAA rated securities issued by PSUs,
PFIs and PSBs). However, this provision shall not be applicable for sectoral
or thematic debt indices.
x. AMCs shall ensure that the updated constituents of the indices and
methodology for all their Debt ETFs/ Index Funds are available on their
respective websites at all points of time. Further, the historical data with
respect to constituents of the indices since inception of schemes shall also
be disclosed on their website.
xi. To start with, AMFI shall issue a list of debt indices for launching of debt
ETFs/ Index Funds. The list shall be issued by AMFI within 1 month from the
date of issuance of this circular.
B. Corporate Debt ETF/Index Funds: Debt ETFs/ Index Funds based on Index
of Corporate Debt Securities
Debt ETFs/ Index Funds based on index comprising of only corporate debt
securities shall be considered to be replicating the underlying debt index
provided:
i. Investment in securities of issuers accounting for at least 60% of weight in the
index, represents at least 80% of net asset value (NAV) of the ETF/ Index
Fund.
ii. At no point of time the securities of issuers not forming part of the index
exceed 20% of NAV of the ETF/ Index Fund.
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Securities and Exchange Board of India
iii. At least 8 issuers from the underlying index form part of the portfolio of the
ETF/ Index Fund.
iv. The investment in various securities are aggregated at issuer level for the
purpose of exposure limits.
v. The exposure limit to a single issuer by the ETF/ Index Fund shall be as
under:
a) For AAA rated securities, exposure to a single issuer by the ETF/ Index
Fund shall not have more than 15% weight in the portfolio.
b) For AA rated securities, exposure to a single issuer by the ETF/ Index
Fund shall not have more than 12.5% weight in the portfolio.
c) For A and below rated securities, exposure to a single issuer by the ETF/
Index Fund shall not have more than 10% weight in the portfolio.
vi. Total exposure of the ETF/ Index Fund in a particular group (excluding
investments in securities issued by PSUs, PFIs and PSBs) shall not exceed
25% of NAV of the scheme. For the purpose of this provision, ‘group’ shall
have the same meaning as defined in paragraph B(3)(b) of SEBI Circular
No.SEBI/HO/IMD/DF2/CIR/P/2016/35 dated February 15, 2016.
vii. Total exposure of the ETF/ Index Fund in a particular sector (excluding G-sec,
t-Bills, SDLs and AAA rated securities issued by PSUs, PFIs and PSBs) shall
not exceed 25% of the NAV of the scheme. However, this provision shall not
be applicable for schemes based on sectoral or thematic debt indices.
viii. The Macaulay Duration (hereinafter referred as “duration”) of the portfolio of
the ETF/ Index Fund replicates the duration of the underlying index within a
maximum permissible deviation of +/- 10%.
In case of Target Maturity (or Target Date) ETFs/ Index Funds, the following
norms for permissible deviation in duration shall apply:
a) For portfolio with residual maturity of greater than 5 years: Either +/- 6
months or +/- 10% of duration, whichever is higher.
b) For a portfolio with residual maturity of up to 5 years: Either +/- 3 months
or +/- 10% of duration, whichever is higher.
c) However, at no point of time, the residual maturity of any security forming
part of the portfolio shall be beyond the target maturity date of the ETF/
Index Fund.
ix. The rating wise weightage of debt securities in the portfolio of ETF/ Index
Fund replicates the underlying index. However, greater allocation of up to
10% of the portfolio may be made to higher rated debt securities.
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Securities and Exchange Board of India
x. Rebalancing Period:
For rebalancing the portfolio of the ETF/ Index Fund, the following norms shall
apply:
a) In case of change in constituents of the index due to periodic review, the
portfolio of ETF/ Index Funds be rebalanced within 7 calendar days.
b) In case the rating of any security is downgraded to below the rating
mandated in the index methodology (including downgrade to below
investment grade), the portfolio be rebalanced within 30 calendar days.
c) In case the rating of any security is downgraded to below investment
grade, the said security may be segregated in accordance with SEBI
Circular No.SEBI/HO/IMD/DF2/CIR/P/2018/160 dated December 28, 2018
on “Creation of segregated portfolio in mutual fund schemes”.
C. G-sec ETF/Index Fund: Debt ETFs/ Index Funds based on G-sec, t-bills and
SDLs
G-sec ETFs/ Index Funds shall be considered to be replicating the underlying
index, provided:
i. The duration of the portfolio of ETF/ Index Fund replicates the duration of the
underlying index within a maximum permissible deviation of +/- 10%.
ii. ETFs/Index Funds replicating a Constant Maturity index may invest in
securities with residual maturity within +/- 10% of maturity range of the index.
iii. In case of Target Maturity (or Target Date) ETFs/ Index Funds, the following
norms for permissible deviation in duration shall apply:
a) For portfolio with residual maturity of greater than 5 years: Either +/- 6
months or +/- 10% of duration, whichever is higher.
b) For a portfolio with residual maturity of up to 5 years: Either +/- 3 months
or +/- 10% of duration, whichever is higher.
c) However, at no point of time, the residual maturity of any security forming
part of the portfolio shall be beyond the target maturity date of the ETF/
Index Fund.
D. Hybrid Debt ETF/ Index Fund - Debt ETFs/ Index Funds based on a Hybrid
Index of Corporate Debt Securities and G-Sec/t-bills/SDLs
Hybrid Debt ETFs/ Index Funds shall be considered to be replicating the
underlying index, provided:
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Securities and Exchange Board of India
i. For ETF/ Index Fund based on an index comprising of more than 80% weight
for corporate debt securities, the provisions mentioned at paragraph 2(I)(B)
above shall be followed.
ii. For ETF/ Index Fund based on an index comprising of up to 80% weight of
corporate debt securities, the provisions mentioned at paragraph 2(I)(B)
above, apart from clauses (iii) and (v), shall apply on the portion of the
portfolio comprising of corporate debt securities. Further, the exposure limit
to a single issuer by the ETF/ Index Fund shall be as under:
a) For AAA rated securities, exposure to a single issuer by the ETF/ Index
Fund shall not have more than 10% weight in the portfolio. However, for
AAA rated securities of PSU and AAA rated securities of PFI issuers the
said limit shall be 15%.
b) For AA rated securities, exposure to a single issuer by the ETF/ Index
Fund shall not have more than 8% weight in the portfolio.
c) For A and below rated issuances, exposure to a single issuer by the ETF/
Index Fund shall not have more than 6% weight in the portfolio.
iii. For the portion of the portfolio of the ETF/ Index Fund comprising of G-sec/t-
bills/SDLs, the provisions mentioned at paragraph 2(I)(C) above shall apply.
E. At all points of time, positioning of the ETF/ Index Fund in the Potential Risk
Class (PRC) matrix shall be in the same cell as that of positioning of the index in
the PRC matrix.
F. Any transactions undertaken in the scheme portfolio of ETF/ Index Fund in order
to meet the redemption and subscription obligations shall be done while
ensuring that post such transactions replication of the portfolio with the index is
maintained at all points of time.
G. The existing norms for Debt ETFs/ Index Funds issued vide SEBI Circular No.
SEBI/HO/IMD/DF3/CIR/P/2019/147 dated November 29, 2019 shall be
rescinded with effect from the date of implementation of this circular.
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Securities and Exchange Board of India
II. Norms for Market Making Framework for ETFs
A. AMC shall appoint at least two Market Makers (MMs), who are members of the
Stock Exchanges, for ETFs to provide continuous liquidity on the stock exchange
platform. MM shall transact with AMC only in multiples of creation unit size.
B. The AMC shall have an approved policy regarding market making in ETFs based
on the framework for market making as provided at Annexure A.
C. AMCs shall facilitate in-kind creation and redemption of units of ETFs (including
Debt ETFs) by MMs on a best effort basis.
D. Incentive for MMs
i. Incentives, if any, to MMs shall be charged to the scheme within the maximum
permissible limit of TER.
ii. A transparent incentive structure for the MMs shall be put in place, and the
incentives shall, inter alia, be linked to performance of the MMs in terms of
generating liquidity in units of ETFs. The relevant data regarding trading
volume, bid-ask spread in units of ETFs, and such other information as may
be required to formalize performance based incentive structure, shall be
obtained from the stock exchanges.
iii. Stock Exchanges may also incentivize the MMs through Liquidity
Enhancement Schemes (LES) as per the applicable provisions.
iv. There should be necessary checks and balances and adequate disclosure of
the principles of incentive structure on the website of the AMCs and also in the
Scheme information Documents (SIDs) of ETFs.
v. There shall be proper audit trail for scheme wise incentives.
E. Market Making Settlement Process for domestic Equity ETFs
In order to make the market making process less capital intensive, it has been
decided that net settlement between cash leg of transactions in units of ETF by
the MM and consequent transaction in underlying basket by the ETF shall be
implemented. In this regard, the following has been decided:
i. MMs shall be permitted to transact in the basket of securities underlying the
ETF against equivalent transactions in units of ETFs and transfer the net
obligation of such transactions to the ETF for unit creation or redemption.
The AMCs shall be allowed to create or redeem units of ETFs without upfront
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Securities and Exchange Board of India
payment of 100% value of such units or upfront delivery of such units by the
MMs, respectively.
ii. The above mechanism shall be permitted subject to equivalent transactions
in units and underlying basket for the same settlement cycle and confirmation
of both the legs by the Custodian.
iii. For the above mechanism,
a. ETFs shall be allowed to buy or sell their own units, without the same
forming part of the asset allocation of the scheme.
b. Provisions of clause B(1)(i)(2)(c) of SEBI Circular No.SEBI/HO/IMD/DF2/
CIR/P/2020/253 dated December 31, 2020 shall not be applicable.
c. The transactions by the MM in the underlying basket shall be excluded for
the purpose of computation of aggregate purchase or sale of securities
through any broker as required under regulation 25(7)(a) and (b) of SEBI
(Mutual Funds) Regulations, 1996.
iv. Facilitation of the above mechanism for equity ETFs shall be at the discretion
of the AMC.
v. The detailed operational guidelines in this regard, shall be issued by AMFI in
consultation with Clearing Corporations within 1 month from the date of
issuance of this Circular. The Clearing Corporations shall ensure that the
necessary systems are in place to enable the netting mechanism.
vi. The AMC shall ensure that at no point of time, the above mechanism shall
increase the risk of the ETF.
III. Investor Education and Awareness Charges
A. In partial modification to paragraph F of SEBI Circular No.CIR/IMD/DF/21/2012
dated September 13, 2012, the following have been decided:
i. The charges applicable for investor education and awareness initiatives from
ETFs/ Index Funds shall be 1bps of daily net assets of the scheme.
ii. Fund of Funds (FoFs) investing more than 80% of its NAV in the underlying
domestic funds shall not be required to set aside 2bps of the daily net assets
towards investor education and awareness initiatives.
B. AMCs and AMFI shall carry out focused investor education and awareness
initiatives for passive funds.
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Securities and Exchange Board of India
IV. Direct transaction in ETFs through AMCs
A. In order to enhance liquidity in units of ETFs on stock exchange platform, it has
been decided that direct transaction with AMCs shall be facilitated for investors
only for transactions above a specified threshold. In this regard, to begin with
any order placed for redemption or subscription directly with the AMC must be of
greater than INR 25 Cr. The aforesaid threshold shall not be applicable for MMs
and shall be periodically reviewed.
B. Further, as in terms of SEBI Circular No. SEBI/HO/IMD/IMD-
I/DOF5/P/CIR/2021/0606 dated July 30, 2021, all direct transactions in units of
ETFs by MMs or other eligible investors (as per paragraph A above) with AMCs
shall be at intra-day NAV based on the actual execution price of the underlying
portfolio, the following has been decided:
i. The provisions of SEBI Circular No.SEBI/HO/IMD/IMD-II
DOF3/P/CIR/2021/631 dated September 29, 2021 on "Swing pricing
framework for mutual fund schemes” shall not be applicable to Debt ETFs.
ii. The requirement of “cut-off” timing for NAV applicability as prescribed by SEBI
from time to time shall not be applicable for direct transaction with AMCs in
ETFs by MMs and other eligible investors.
V. Tracking Error and Tracking Difference
A. Tracking Error (TE)
i. The tracking error i.e. the annualized standard deviation of the difference in
daily returns between the underlying index or goods and the NAV of the ETF/
Index Fund (other than Debt ETFs/ Index Funds) based on past one year
rolling data shall not exceed 2%. In case of unavoidable circumstances in the
nature of force majeure, which are beyond the control of the AMCs, the
tracking error may exceed 2% and the same shall be brought to the notice of
Trustees with corrective actions taken by the AMC, if any.
ii. For ETFs/ Index Funds in existence for a period of less than one year,
the annualized standard deviation shall be calculated based on available
data.
iii. All ETFs/ Index Funds (including Debt ETFs/ Index Funds), shall disclose the
tracking error based on past one year rolling data, on a daily basis, on the
website of respective AMCs and AMFI.
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Securities and Exchange Board of India
B. Tracking Difference (TD)
i. Along with tracking error, tracking difference i.e. the annualized difference of
daily returns between the index or goods and the NAV of the ETF/ Index
Fund shall also be disclosed on the website of the AMC and AMFI, on a
monthly basis, for tenures 1 year, 3 year, 5 year, 10 year and since the date
of allotment of units.
ii. For Debt ETFs/ Index Funds the annualized tracking difference averaged
over one year period shall not exceed 1.25%. In case the average annualized
tracking difference over one year period for Debt ETFs/ Index Funds is higher
than 1.25%, the same shall be brought to the notice of trustees with
corrective actions taken by the AMC, if any.
C. In view of the above, paragraph 9 of SEBI Circular No.
SEBI/HO/IMD/DF2/CIR/P/2021/668 dated November 24, 2021, stands modified.
VI. Valuation by Fund of Funds (FoFs) investing in ETFs
A. The closing price of the units of ETFs on Stock Exchange shall be used for
valuation by FoFs investing in such ETFs.
VII. Disclosure of indicative Net Asset Value (iNAV)
A. iNAV of an ETF i.e. the per unit NAV based on the current market value of its
portfolio during the trading hours of the ETF, shall be disclosed on a continuous
basis on the Stock Exchange(s), where the units of these ETFs are listed and
traded and shall be updated in the following manner:
i. For Equity ETFs, within a maximum time lag of 15 seconds from underlying
market.
ii. For Debt ETFs, at least four times a day i.e. opening and closing iNAV and at
least two times during the intervening period with minimum time lag of 90
minutes between the two disclosures.
iii. For ETFs on Gold or Silver, based on the latest available data for Gold or
Silver. Accordingly, iNAV disclosed for Gold or Silver ETFs may either be static
or dynamic depending upon the availability of the underlying price.
iv. For ETFs on international indices, based on the latest available data regarding
the portfolio of the ETF. Accordingly, iNAV disclosed for international ETFs
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Securities and Exchange Board of India
may either be static or dynamic depending on the intersection in trading hours
of domestic and overseas markets.
v. For disclosure of iNAV, AMCs and Stock Exchanges shall develop suitable
mechanism for data sharing.
VIII. Liquidity window for Investors of ETFs with AMCs
A. Investors can directly approach the AMC for redemption of units of ETFs, for
transaction of upto INR 25 Cr. without any exit load, in case of the following
scenarios:
i. Traded price (closing price) of the ETF units is at discount of more than 1%
to the day end NAV for 7 continuous trading days, or
ii. No quotes for such ETFs are available on stock exchange(s) for 3
consecutive trading days, or
iii. Total bid size on the exchange is less than half of creation units size daily,
averaged over a period of 7 consecutive trading days.
B. In case of the above scenarios, applications received from investors for
redemption up to 3.00 p.m. on any trading day, shall be processed by the AMC
at the closing NAV of the day.
C. The above instances shall be tracked by the AMC on a continuous basis and in
case if any of the above mentioned scenario arises, the same shall be disclosed
on the website of AMC.
IX. Rebalancing period for Equity ETFs/ Index Funds
A. In case of change in constituents of the index due to periodic review, the
portfolio of equity ETF/ Index Funds be rebalanced within 7 calendar days.
B. Any transactions undertaken in the scheme portfolio of ETF/ Index Fund in order
to meet the redemption and subscription obligations shall be done while
ensuring that post such transactions replication of the portfolio with the index is
maintained at all points of time.
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Securities and Exchange Board of India
X. Disclosure Norms for ETFs/ Index Funds
A. The debt and equity ETFs/ Index Funds shall disclose the following on monthly
basis:
i. Name and exposure to top 7 issuers and stocks respectively as a percentage
of NAV of the scheme
ii. Name and exposure to top 7 groups as a percentage of NAV of the scheme.
iii. Name and exposure to top 4 sectors as a percentage of NAV of the scheme.
B. Change in constituents of the index, if any, shall be disclosed on the AMC
website on the day of change.
XI. Other Provisions
A. Minimum subscription amount during New Fund Offer (NFO)
i. In partial modification to paragraph 2(a) of SEBI Circular No.Cir/
IMD/DF/15/2014 dated June 20, 2014, it has been decided that the minimum
subscription amount at the time of New Fund Offer (NFO) for Debt ETFs/ Index
Funds and other ETFs/ Index Funds shall be INR 10 Cr. and INR 5 Cr.
respectively.
ii. Alternative to launch of NFO for ETFs, the AMC may contribute the initial fund
for unit creation. Subsequently, the AMC can transfer the units of such ETFs to
MMs or other investors, subject to compliance with all applicable provisions for
launch of ETFs.
B. Equity Linked Saving Scheme (ELSS) in Passive Fund Category
In partial modification to Clause III (a) of SEBI Circular
No.SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 06, 2017 on
“Categorization and Rationalization of Mutual Fund Schemes”, it has been
decided that mutual funds can launch either of the following ELSS scheme in
open ended Scheme Category, subject to compliance with guidelines on Equity
Linked Saving Scheme, 2005 notified by Ministry of Finance:
i. Active ELSS Scheme - In terms of Clause A(10) of Annexure to the above
mentioned SEBI Circular dated October 06, 2017 under “Equity Schemes”
category or;
ii. Passive ELSS Scheme (through Index Fund) - In terms of Clause E(1) of
Annexure to the above mentioned SEBI Circular dated October 06, 2017
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Securities and Exchange Board of India
under “Other Schemes” category. The passive ELSS scheme shall be
based on one of the indices comprising of equity shares from top 250
companies in terms of market capitalization.
C. Nomenclature of ETFs/ Index Funds
i. In order to have proper understanding and clarity for investors, the
nomenclature for ETFs/ Index Funds shall include the name of the underlying
index or goods.
ii. Further, for ETFs, after listing of the units, the scrip code of such ETFs shall
also be disclosed in the nomenclature at all places.
3. Applicability: The provisions of this Circular shall come into force with effect from July
01, 2022 and shall also be applicable to all existing ETFs/ Index Funds.
4. This circular is issued in exercise of the powers conferred under Section 11 (1) of the
Securities and Exchange Board of India Act 1992, read with the provision of Regulation
77 of SEBI (Mutual Funds) Regulation, 1996 to protect the interests of investors in
securities and to promote the development of, and to regulate the securities market.
Yours faithfully,
Hruda Ranjan Sahoo
Deputy General Manager
Tel no.: 022-26449586
Email: hrsahoo@sebi.gov.in
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Securities and Exchange Board of India
Annexure A
Guidelines regarding the Market Making Framework
1.0 Market Making in ETFs
The following broad points shall be considered while designing the market making
framework in ETFs:
1.1 Obligations of AMC: Obligations shall, inter-alia, include:
i. AMCs to enter into agreement with at least two Market Makers (MMs) for each ETF.
ii. AMCs may select MMs based on various criteria including experience in the capital
market, capital adequacy, net worth, infrastructure, volume of business, etc.
1.2 Obligations and responsibilities of a Market Maker: Obligations shall, inter-alia,
include:
i. Quote: MM shall be mandated to provide a two-way quote during such minimum
time frame for which the MM may be required to make market. MM shall guarantee
execution of orders at quoted price and quantity for quotes given by it.
ii. Minimum timeframe: The minimum time frame for which the MM is required to
make the market shall be 75% of the time during market hours of a trading day.
Further, MM shall also be mandated to be present in the Best Buy/Sell order/quote
for e.g. top 5 buy/sell order/quote.
1.3 Information to be collected from Stock Exchanges: AMCs to collect the following
information from SEs on daily basis:
i. Total quantity traded by the MM in a particular ETF and its % trade to total quantity
traded in the market of that ETF.
ii. Minimum, Maximum and Median prices at which the MM has executed the trades.
iii. Minimum, Maximum and Median spread at which the MM has provided the quotes.
1.4 Compensation of MM: The issue of compensation is to be decided between the
AMC and the MM. It may have recourse to factors such as trading volume, bid-ask
spread in units of ETFs, and such other information as may be required to formalize
performance based incentive structure.
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