SEBI Relaxes Settlement Norms for FPIs, Introduces Netting of Funds

In a move to enhance efficiency in the securities market, the Securities and Exchange Board of India (SEBI) has permitted Foreign Portfolio Investors (FPIs) to opt for net settlement of funds in select cash market transactions. The framework, which will be implemented by December 31, aims to ease liquidity requirements, lower transaction costs, and streamline operational processes.

Under the revised mechanism, FPIs can net their fund obligations in “outright transactions”—cases where they exclusively buy or sell a particular security within a settlement cycle. This change is expected to significantly reduce the amount of capital required for settlements compared to the earlier gross-based system. The proposal was approved during SEBI’s board meeting held on March 23, following industry consultations.

However, SEBI has maintained certain safeguards. Transactions involving both buying and selling of the same security within a settlement cycle—termed non-outright transactions—will continue to follow the gross settlement method. Additionally, if purchase values exceed sales, FPIs will be required to fund the shortfall, and excess proceeds from sales cannot be used to offset obligations arising from non-outright trades.

The regulator also clarified that securities settlement between FPIs and custodians will remain on a gross basis to ensure robust risk management. Further, statutory levies such as Securities Transaction Tax (STT) and stamp duty will continue to apply on a delivery basis, with no बदलाव under the updated system.