- Sebi Pushes FPIs Toward Net Settlement

The Securities and Exchange Board of India (Sebi) has approved a shift to net settlement of trades for foreign portfolio investors (FPIs), effective 31 December 2026. The move, cleared at Sebi’s March board meeting, aims to reduce funding costs and align India with global settlement practices. However, custodians warn of operational disruption, citing system changes, tighter timelines, and complexities in tax treatment. Current vs. New Framework - Gross settlement (current): FPIs must fund each transaction separately. - Example: Buy and sell ₹100 crore worth of stocks → funds brought in for purchase and separately delivered for sale, even if net cash is zero. - Net settlement (new): Obligations offset; sale proceeds can fund purchases, eliminating inefficiency. - Compresses timelines: trades must be confirmed by evening for next-day settlement. Custodian Concerns - Trades flow through multiple intermediaries: global custodian → local custodian → depositories → clearing corporations. - Late trade changes, common across time zones, harder to accommodate once positions are netted. - Tax treatment adds complexity: e.g., if ₹100 sold and ₹55 bought, only ₹45 net paid; after tax of ₹6, payout is ₹39—difficult to explain to global custodians. - System upgrades required to support both gross and net settlement. Regulatory Safeguards - Netting limited to outright transactions (buy or sell in a security within a cycle). - Taxes like securities transaction tax and stamp duty remain levied on delivery basis. - Long implementation runway provided until 31 December 2026. Industry Views - Custodians prefer gross settlement, citing inefficiency for global custodians. - Some industry participants question timing amid geopolitical volatility. - Sebi insists the change is “the need of the hour,” enhancing efficiency and lowering costs. - FPIs see positives: alignment with international standards makes India more attractive for global capital.