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Informist, Friday, Jan. 16, 2026

 

AHMEDABAD - The Securities and Exchange Board of India on Friday floated a consultation paper which proposes to allow netting of funds for cash market transactions undertaken by foreign portfolio investors. Once approved and implemented, this step could see FPIs require lesser funds to trade in the Indian equity market.

 

SEBI has proposed allowing netting of funds in "outright transactions", which means buying or selling of different securities in a particular settlement cycle. If implemented, this would allow FPIs to use sales proceed from the same day to fund purchases they make on the same day, instead of arranging cash for the full purchase value upfront, thereby significantly reducing costs. Netting of intraday transactions in the same securities have been proposed to be excluded from this measure, and they are expected to be confirmed on a gross basis as per the current norms, SEBI said in the consultation paper.

 

The market regulator said the move is aimed at easing liquidity pressure, improve operational efficiency, and reduce funding costs on high-volume trading days as index rebalancing for the FPIs. On the day of index rebalancing, there are generally large inflows and outflows in index constituents and the cost of funding the same increases significantly, the paper states. 
The custodians and clearing corporations will continue to manage settlement risk, the paper states. At present, FPIs are required to settle all cash market transactions on a gross basis at the custodian level, even if purchases and sales of equivalent value are executed on the same day. While custodians settle their obligations with clearing corporations on a net basis, FPIs must separately fund purchases and deliver securities sold, resulting in higher temporary liquidity requirements.

 

SEBI said this structure is intended to reduce funding pressure without increasing the risk of market manipulation or excessive intra-day trading by FPIs. As for the risk of transaction rejection due to issues with purchase or sale transactions, the regulator maintained that it already exists under the current framework.

 

The market regulator also clarified that the proposal is limited to netting of funds and does not envisage netting of securities. The settlement of securities shall continue to be carried out on gross basis between FPI and custodians.

Accordingly, securities transaction tax and stamp duty shall continue to be charged on a delivery basis.

 

SEBI has invited public comments on the proposal, including on the suggested safeguards to address potential operational and settlement risks, by Feb. 6.  End

Reported by Sunil Raghu

Edited by Ashish Shirke

 

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