SEBI Allows FPIs to Net Same-Day Trades, Cutting Costs and Boosting Efficiency

Under the new framework, FPIs will be allowed to use proceeds from sale transactions in the cash market on a given day to fund their purchase transactions on the same day, thereby requiring them to meet only the net fund obligation instead of settling each trade individually.

Currently, FPIs settle their trades with custodians on a gross basis, which leads to higher liquidity requirements, increased funding costs and foreign exchange slippages.

Market participants have long flagged these issues, especially during index rebalancing days when trading volumes spike, creating operational inefficiencies.

In its circular, SEBI said the framework would be implemented on or before December 31, 2026.

It clarified that the netting facility will apply only to "outright transactions", defined as either a purchase or a sale transaction in a security within a settlement cycle, but not both.

Transactions involving both buying and selling of the same security within a settlement cycle will be excluded from netting and will continue to be settled on a gross basis, as per the current practice.

The regulator further explained that in cases where the value of outright sales is lower than outright purchases, the residual amount along with non-outright purchase obligations will need to be funded by the FPI.

Conversely, if outright sales exceed outright purchases, the surplus cannot be used to offset non-outright purchase obligations.

The market regulator also clarified that while funds can be netted under the new system, the settlement of securities will continue to be carried out on a gross basis between the FPI and the custodian.

Additionally, levies such as Securities Transaction Tax (STT) and stamp duty will continue to apply on a delivery basis.

- IANS