Sebi eases FPI settlement norms, allows netting of funds in cash market to cut costs, improve efficiency

In a move aimed at enhancing market efficiency and reducing transaction costs for foreign portfolio investors (FPIs), the Securities and Exchange Board of India (Sebi) has introduced a framework allowing net settlement of funds for foreign investors in the cash market.

Currently, FPIs must settle trades on a gross basis at the custodian level, even though custodians themselves net their obligations with clearing corporations. This structure has long been flagged by market participants for creating higher liquidity requirements, forex-related costs, and operational inefficiencies, especially during periods such as index rebalancing.

Addressing these concerns, Sebi has permitted netting of funds for “outright transactions”—defined as transactions involving either only purchases or only sales in a security within a settlement cycle. This means FPIs can offset buy and sell positions across such transactions to arrive at a single net payable or receivable amount, thereby lowering funding needs.

However, transactions involving both buy and sell positions in the same security during a settlement cycle—referred to as non-outright transactions—will continue to be settled on a gross basis. Additionally, excess sale proceeds from outright trades cannot be used to offset obligations arising from such non-outright transactions, ensuring a degree of prudence in the framework.

Importantly, while funds settlement will be netted, securities settlement between FPIs and custodians will continue on a gross basis, and statutory levies such as Securities Transaction Tax (STT) and stamp duty will remain unchanged.

The new framework is expected to reduce funding costs, improve capital efficiency, and streamline settlement operations for foreign investors—potentially making Indian markets more attractive for global capital flows.

Sebi has directed custodians and other stakeholders to update their systems accordingly, with the framework slated for implementation by December 31, 2026.Also read: Hindustan Zinc Q4 Results: Cons PAT surges 68% YoY to Rs 5,033 crore; Rs 11/share dividend declared
The move is part of the regulator’s broader effort to modernise market infrastructure while safeguarding investor interests and ensuring orderly market functioning.

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