Sebi may allow FPIs to settle net value of cash market trades

Mumbai: The Securities and Exchange Board of India (Sebi) would take up a slew of proposals at its Monday board meeting, including one that allows foreign portfolio investors (FPIs) to settle the net value of their cash market trades instead of gross transactions. This seeks to slash costs and encourage overseas commitments amid record outflows.

Sebi is also likely to review the 'fit and proper' criteria for market intermediaries, such as stockbrokers, people in the know told ET. The review pertains to disqualification norms for key managerial persons and directors.

At present, individuals in key roles face automatic disqualification if an FIR or charge sheet is filed in an economic offence case. The regulator intends to scrap this automatic trigger, offering relief to executives facing allegations that are yet to be proven in court.

"Currently, mere filing of a criminal complaint triggers disqualification for key personnel, even before any guilt is established," said Aditya Joby, senior associate at Joby Mathew & Associates. "This can unfairly damage careers and livelihoods. Moving to conviction-stage disqualification better reflects the presumption of innocence in Indian law. The challenge will be how this interacts with the proposed Securities Market Code and delays in Sebi's special court, which can still affect individuals in the interim."

The regulator also plans to ease rules for alternative investment funds (AIFs) seeking to wind up schemes and surrender registration, helping funds stuck due to unresolved legal or tax issues.

"Sebi's proposal to allow netting will ease liquidity pressures for FPIs and reduce forex costs, particularly on days where securities have to be bought and sold for rebalancing purposes," said Rajesh Gandhi, partner at Deloitte. " This is another step taken by Sebi to ease norms for FPIs and provide regulatory ease to enable greater flow of capital to India."

At present, FPIs are required to trade on a delivery basis, meaning transactions must result in the actual exchange of securities and cash, with no netting or same-day offset.

All trades are settled on a gross basis through custodians, requiring full pay-in for both buys and sells. For instance, an FPI buying shares of A worth ₹100 crore and selling an equal amount of shares of B must still fund the purchase and deliver the securities before receiving cash and shares in settlement.

Sebi noted that this pay-in obligation of ₹100 crore leaves the FPI underinvested for at least a day, as funds cannot be netted against sale proceeds.

Dhaval Jariwala, partner at P N D J & Associates, added that netting would cut FPI funding costs with minimal operational challenges. FPIs withdrew over ₹71,746 crore from Indian equities this month (up to March 17), according to ETIG data.

At the meeting, the Sebi board will also discuss a proposal to allow InvITs (Infrastructure investment trusts) to continue holding investments in SPVs (special purpose vehicles) after a project's concession period ends, widen the pool of liquid mutual funds for parking surplus funds, and permit privately listed InvITs to invest up to 10% of assets in under-construction or greenfield projects.

The regulator may also reduce the minimum investment in social impact funds from ₹2 lakh to ₹1,000 to encourage small investors to back social projects.