The Securities and Exchange Board of India (SEBI) announced on Friday that it will permit Foreign Portfolio Investors (FPIs) to utilize net funds for same-day cash market trades, rather than having to settle each trade separately. This initiative aims to improve operational efficiency and lower funding costs, particularly during index rebalancing days.
SEBI’s new framework is set to take effect on or before December 31, 2026, as detailed in its circular. Currently, FPIs settle trades with custodians on a gross basis, which results in increased costs stemming from funding and foreign exchange slippages.
Market participants have raised concerns that this gross settlement approach leads to elevated liquidity requirements and operational inefficiencies for FPIs, especially during the crucial periods of index rebalancing. In response, SEBI stated, “To enhance operational efficiency and reduce cost of funding for FPIs, it has been decided to permit net settlement of funds for outright transactions undertaken by FPIs in the cash market.” According to SEBI, “outright transactions” refer to either purchase or sale transactions, but not a combination of both within a settlement cycle.
Netting of funds allows FPIs to use the proceeds from sale transactions conducted on a given day to finance purchase transactions made the same day. This means that FPIs will only need to meet the net fund obligation. Under the new framework, transactions involving only outright sales or outright purchases will be net settled to calculate the net fund obligation for those transactions.
Transactions involving both purchases and sales within the same settlement cycle will not be eligible for netting; these non-outright transactions will continue to be settled on a gross basis. If an outright sale value is lower than that of an outright purchase, the shortfall, along with obligations from non-outright purchases, will be covered by the FPI. Conversely, if the outright sale value exceeds that of the outright purchase, that surplus sale will not offset the obligations for non-outright purchases.
SEBI clarified that the settlement of securities will remain on a gross basis between the FPI and the custodian. Additionally, the Securities Transaction Tax (STT) and stamp duty will continue to be levied on a delivery basis as applicable. This new proposal was approved by the SEBI board last month.
Published on April 24, 2026.
