SEBI to Review FPI Settlement Norms and Intermediary Reforms in Upcoming Board Meeting
The Securities and Exchange Board of India (SEBI) board is scheduled to convene on Monday to deliberate on a comprehensive agenda. Key topics include proposals to ease fund settlement norms for Foreign Portfolio Investors (FPIs) and reforms to the regulatory frameworks for market intermediaries, according to sources familiar with the matter.
A critical item on the agenda is a proposal to allow FPIs to net funds for same-day cash market trades, instead of settling each trade individually. Under the current system, FPIs must settle equity cash market trades on a gross basis, funding each purchase transaction independently of any sale transactions, even on the same day.
Sebi has proposed permitting “netting of funds,” which would allow FPIs to use proceeds from same-day sales to offset purchase obligations, thereby requiring them to meet only the net payable amount. This move aims to enhance operational efficiency and reduce the cost of funding for FPIs, especially 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.
This will be the fifth board meeting chaired by Sebi Chairman Tuhin Kanta Pandey since he assumed office on March 1, 2025. Apart from FPI-related reforms, the board will review a series of governance and regulatory proposals. These include a comprehensive overhaul of the “fit and proper person” criteria for market intermediaries, to enhance procedural clarity and fairness.
Sebi is considering a proposal to abolish the reference to the initiation of winding-up proceedings as a disqualification. Instead, only a final winding-up order, and not the mere initiation of proceedings, will be considered while assessing whether a person is fit and proper.
Additionally, the regulator is 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 has been proposed to be clearly stated in the rules to remove any procedural ambiguity.
The board will also 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 regulator will discuss the panel's report, which proposes comprehensive reforms to bring in transparency through greater disclosure and a “zero-tolerance” culture to address conflict of interest of top officials of Sebi.
