SEBI Allows FPIs to Net Same-Day Cash Trades, Slashing Costs
Synopsis
SEBI has allowed Foreign Portfolio Investors to net same-day cash market transactions, a landmark reform that slashes funding costs and forex slippage — especially during index rebalancing. The framework, effective by December 31, 2026, marks a major step in modernizing India's capital market microstructure and boosting its appeal to global institutional investors.
Key Takeaways
SEBI on April 25, 2025 permitted Foreign Portfolio Investors (FPIs) to net funds for same-day cash market transactions , reducing gross settlement burdens.
FPIs can now use sale proceeds to fund same-day purchases , meeting only the net fund obligation instead of settling each trade individually.
The netting facility applies only to outright transactions ; trades involving both buying and selling the same security in a settlement cycle are excluded .
Settlement of securities between FPIs and custodians will continue on a gross basis ; only fund flows are netted under the new rules.
STT and stamp duty remain applicable on a delivery basis and are unaffected by the netting framework.
The framework must be fully implemented by December 31, 2026 , giving market infrastructure institutions time to adapt systems.
Mumbai, April 24, 2025 — India's Securities and Exchange Board of India (SEBI) has granted Foreign Portfolio Investors (FPIs) a significant operational relief by permitting them to net funds for same-day cash market transactions. The new framework, announced on Friday, April 25, allows FPIs to offset sale proceeds against purchase obligations on the same trading day, requiring them to meet only the net fund obligation rather than settling each trade independently. The move is designed to reduce funding costs and eliminate operational inefficiencies, especially during high-volume index rebalancing periods.
What the New SEBI Framework Entails
Under the revised netting mechanism, FPIs can apply proceeds from outright sale transactions in the cash market on a given day to fund outright purchase transactions executed on the same day. This eliminates the need to arrange full gross funding for each individual trade, significantly reducing intraday liquidity pressure.
The regulator has clearly defined "outright transactions" as either a purchase or a sale in a security within a single settlement cycle — but not both. This distinction is critical: if an FPI both buys and sells the same security within the same settlement cycle, those transactions are excluded from netting and must continue to be settled on a gross basis, consistent with current practice.
SEBI has mandated that the framework be implemented on or before December 31, 2026, giving custodians and market infrastructure institutions adequate time to upgrade their systems.
Why This Matters: The Problem With Gross Settlement
Currently, FPIs settle trades with custodians on a gross basis, meaning every buy and sell transaction is independently funded and settled. This approach creates significantly elevated liquidity requirements, increases foreign exchange (forex) slippage, and inflates operational costs for large institutional investors.
The pain is most acute on index rebalancing days — periodic events when global benchmark indices like MSCI or FTSE adjust their constituent stocks. On such days, FPIs execute a surge of simultaneous buy and sell orders, and the gross settlement requirement forces them to arrange massive short-term funding, often at unfavorable forex rates. Market participants have flagged these inefficiencies to SEBI for years, and this circular represents a long-awaited regulatory response.
Key Conditions and Safeguards in the Netting Rules
The SEBI circular lays out precise conditions to prevent misuse of the netting facility. If the value of outright sales is lower than outright purchases, the FPI must fund the residual amount along with all non-outright purchase obligations from its own resources. This ensures the netting benefit does not create uncovered settlement risk.
Conversely, if outright sales exceed outright purchases, the surplus proceeds cannot be used to offset non-outright purchase obligations. This ring-fencing prevents FPIs from leveraging the netting mechanism beyond its intended scope.
Importantly, while fund settlement can be netted, the settlement of securities between the FPI and its custodian will continue to occur on a gross basis. Additionally, statutory levies including Securities Transaction Tax (STT) and stamp duty will continue to be calculated and applied on a delivery basis, leaving the tax framework unchanged.
Broader Market Impact and Who Benefits
The netting framework is expected to make Indian equity markets more attractive to large global institutional investors who currently factor in high operational costs when deciding on allocation to Indian stocks. By reducing funding friction, SEBI is effectively lowering the cost of doing business for FPIs, which could support deeper foreign participation in Indian markets.
This reform also aligns India more closely with international market standards, where netting is a common feature in developed financial markets. Notably, this move comes amid a broader SEBI push to modernize market microstructure, following recent reforms in derivatives settlement, T+0 settlement pilots, and enhanced margin frameworks.
Critics and market observers will, however, watch closely to ensure that the netting facility does not inadvertently reduce transparency in FPI trading patterns, a concern that has periodically surfaced in regulatory discussions around participatory notes (P-Notes) and beneficial ownership disclosures.
Implementation Timeline and Next Steps
SEBI has set a firm implementation deadline of December 31, 2026 for all relevant market participants, including custodian banks, clearing corporations, and depositories, to operationalize the netting framework. Market infrastructure institutions are expected to release detailed operational guidelines in the coming months.
With FPI inflows into Indian equities remaining a key driver of market sentiment and Nifty 50 valuations, this structural reform could have meaningful long-term implications for India's capital market competitiveness in the Asia-Pacific region. Stakeholders will await further circulars from SEBI detailing the technical specifications for custodian-level implementation.
Point of View
Singapore, and Tokyo for global institutional capital. For too long, FPIs have absorbed avoidable costs from India's gross settlement architecture, costs that quietly eroded returns and nudged allocation decisions away from Indian equities. What's notable is the timing: this reform arrives as India courts inclusion in more global bond and equity indices, and as FPI flows remain a critical stabilizer for the rupee and market sentiment. The December 2026 deadline gives the ecosystem time to adapt, but the real test will be whether custodians and clearing corporations execute without creating new compliance grey zones around the outright-versus-non-outright distinction.
NationPress
2 May 2026
Frequently Asked Questions
What has SEBI allowed FPIs to do with same-day cash market trades?
SEBI has permitted Foreign Portfolio Investors to net funds for same-day cash market transactions, allowing sale proceeds to offset purchase obligations on the same day. This means FPIs only need to fund the net difference rather than settling each trade on a gross basis.
When will SEBI's FPI netting framework be implemented?
SEBI has mandated that the new netting framework be implemented on or before December 31, 2026. All relevant market participants including custodian banks and clearing corporations must operationalize the system by this deadline.
What transactions are excluded from SEBI's new netting facility for FPIs?
Transactions where an FPI both buys and sells the same security within the same settlement cycle are excluded from netting and must continue to be settled on a gross basis. Only outright purchase or outright sale transactions — not both in the same security — qualify for netting.
Will STT and stamp duty change under the new SEBI FPI netting rules?
No, Securities Transaction Tax (STT) and stamp duty will continue to apply on a delivery basis and remain unchanged under the new framework. SEBI has clarified that only fund settlement is being netted, not the tax obligations.
Why did SEBI introduce the FPI cash market netting framework?
SEBI introduced the netting framework to reduce operational inefficiencies, lower funding costs, and minimize forex slippage for FPIs, particularly during index rebalancing periods when trade volumes surge. Market participants had long flagged the high liquidity burden imposed by the existing gross settlement system.
