Securities and Exchange Board of India permits net settlement of funds for Foreign Portfolio Investors’ outright cash market trades

The Securities and Exchange Board of India (SEBI) has issued a circular permitting Foreign Portfolio Investors (FPIs) to net settle funds for certain cash market transactions, partially relaxing the existing approach under which FPI obligations are met on a gross basis at the custodian level. The change is intended to reduce liquidity needs, funding costs linked to forex slippage, and operational frictions identified by market participants. Netting will apply only to “outright transactions”, meaning an FPI has either a purchase or a sale (but not both) in a security within a settlement cycle. Securities where the FPI has both buy and sell transactions in the same settlement cycle are excluded from netting and will continue to be settled on a gross basis; excess value from outright sales cannot be used to offset non-outright purchase obligations. Settlement of securities will continue on a gross basis between the FPI and custodian, and Securities Transaction Tax and stamp duty will continue to be charged on a delivery basis. Custodians and the Custodians and Designated Depository Participants Standards Setting Forum will formulate implementation standards in consultation with stakeholders, and FPIs, custodians and other relevant entities are instructed to make system changes. The framework must be implemented on or before December 31, 2026.