The Securities and Exchange Board of India (SEBI) on January 16, 2026, issued a Consultation Paper on proposal to permit netting of funds for transactions done by Foreign Portfolio Investors (FPIs).
SEBI has received feedback regarding review of the current practice in order to enhance operational efficiency and reduce cost of funding for FPIs. It is proposed to permit netting of funds for transactions done by FPIs in cash market. The objective of this consultation paper is to seek comments, views and suggestions from the public on the captioned proposal.
SEBI has received suggestions that the existing gross settlement mechanism for FPI cash market transactions creates additional liquidity requirements and operational inefficiencies, as FPIs must separately fund purchase obligations and deliver securities even when buy and sell values offset each other. This leads to temporary under-investment of funds, foreign exchange slippage, and higher funding costs, especially for FPIs dependent on global custodian credit lines, with the impact being more pronounced during index rebalancing periods involving large inflows and outflows. To address these issues and improve operational efficiency while reducing funding costs, SEBI is considering a review of the current gross settlement framework and the introduction of fund netting, which would allow sale proceeds from the same day to be used to meet purchase obligations, requiring FPIs to settle only the net fund obligation.
The proposed mechanism for such netting of funds is detailed below:
• The transactions in securities with only outright sell or outright purchase shall be netted to arrive at a net fund obligation for outright transactions.
• The transactions in those securities where there are both buy and sell transactions for a given FPI in a particular settlement cycle shall be excluded from netting. Therefore, netting of intra-day transactions in same securities shall be excluded and such non-outright transactions shall continue to be confirmed on gross basis, as per the current procedure.
• Further, if value of outright sell does not exceed the value of outright buy, then the residual amount along with non-outright buy obligations shall be funded by the FPI.
• However, if value of outright sell exceeds the value of outright buy, then excess outright sell shall not be adjusted towards non-outright buy obligations.
Considering the implications of the aforementioned matters on the market participants, public comments are invited on the above-detailed proposal. The comments/ suggestions should be submitted latest by February 06, 2026, through the following link: https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComm
