SEBI to Review FPI Settlement Norms and Intermediary Reforms at Key Board Meeting

The Securities and Exchange Board of India (SEBI) is set to hold a crucial board meeting on Monday to deliberate on a wide-ranging agenda. One of the key items on the agenda is a proposal to ease fund settlement norms for Foreign Portfolio Investors (FPIs), along with changes to regulatory frameworks for market intermediaries.

A significant proposal on the table is to allow FPIs to net funds for same-day cash market trades, instead of settling each transaction individually. Under the current system, FPIs must settle equity cash market trades on a gross basis, funding each purchase independently of any sales, even on the same day. The new proposal, known as 'netting of funds,' would permit FPIs to use proceeds from same-day sales to offset purchase obligations, thus requiring them to meet only the net payable amount.

This move is aimed at enhancing operational efficiency and reducing the cost of funding for FPIs, particularly on index rebalancing days. It is also expected to minimize forex-related costs arising from timing mismatches between inflows and outflows. The proposal follows concerns that the current gross settlement system imposes additional funding requirements on FPIs for at least one extra day, increasing transaction costs.

In addition to FPI-related reforms, the board will review a series of governance and regulatory proposals. This will be the fifth board meeting chaired by SEBI Chairman Tuhin Kanta Pandey since he assumed office on March 1, 2025. The board will consider a comprehensive overhaul of the 'fit and proper person' criteria for market intermediaries, enhancing procedural clarity and fairness. One of the proposals includes abolishing the reference to the initiation of winding-up proceedings as a disqualification, ensuring that only a final winding-up order is considered while assessing a person's fitness and propriety.

The regulator is also looking to explicitly include the right to a hearing in the rules. Although the practice of giving a reasonable opportunity to be heard already exists, it is proposed to be clearly stated in the rules to remove any procedural ambiguity.

Moreover, the board will take up ease-of-doing business proposals related to real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). Another significant agenda item is the consideration of a report submitted by a high-level panel on conflict of interest and transparency. The panel's report proposes comprehensive reforms to bring in greater transparency through enhanced disclosure and a 'zero-tolerance' culture to address conflicts of interest among top officials of SEBI.

These reforms are expected to streamline the regulatory framework, improve market efficiency, and enhance the overall business environment for investors and market participants.