Sebi Proposes Fund Netting for FPIs to Ease Cash Market Funding
Sebi Proposes Fund Netting for FPIs to Ease Cash Market Funding
Regulator Sebi proposes allowing FPIs to net same-day purchases and sales, potentially freeing up capital and cutting funding costs in India's cash market.
Regulator Sebi is moving toward a significant reform in how foreign portfolio investors settle their trades. In a consultation paper released on Friday, the market watchdog proposed letting FPIs offset their purchase and sale obligations within the same trading day, shifting away from the current gross settlement system. This change could reduce liquidity strain, lower temporary underinvestment, and cut costs tied to short-term borrowing and foreign exchange movements.
Under the proposed plan, FPIs would be able to use sale proceeds from the same day to meet their purchase obligations, leaving them responsible only for the net amount. This netting would free up capital, especially on heavy trading days such as index rebalancing when large buy and sell orders occur simultaneously. The move would not be applied universally; netting would be permitted only for outright transactions—where an investor buys one security and sells another within the same settlement cycle.
While custodians already settle positions with clearing corporations on a net basis, FPIs still bear the burden of gross settlement. The regulator emphasizes that the netting would reduce the funding burden and could lower short-term borrowing costs, along with forex-related movements tied to funding. Market participants welcomed the idea but cautioned that implementation would require changes to market infrastructure, enhanced risk controls, and governance mechanisms.
The consultation process is open, and industry players will be watching how brokers, custodians, and clearing houses adapt systems to support netting and how safeguards will manage settlement risk. If implemented well, the reform could streamline cash-market operations, align with global trends, and support greater market efficiency in India.
