Sebi Board to Deliberate on Key Reforms for Foreign Investors and Market Intermediaries
The Securities and Exchange Board of India (Sebi) board is scheduled to convene a crucial meeting on Monday to deliberate on a comprehensive agenda featuring significant proposals. According to sources familiar with the matter who spoke to news agency PTI, the agenda includes measures to ease fund settlement norms for foreign portfolio investors (FPIs) and substantial changes to the regulatory frameworks governing market intermediaries.
Proposal to Allow Netting of Funds for FPIs
A central proposal before the Sebi board involves permitting FPIs to net funds for same-day cash market trades, rather than settling each transaction individually. Under the existing regulatory framework, FPIs are mandated to settle equity cash market trades on a gross basis. This requires them to fund each purchase transaction independently, even if corresponding sale transactions occur on the same trading day.
Sebi has put forward a proposal to allow "netting of funds," which would enable foreign portfolio investors to utilize proceeds from same-day sales to offset their purchase obligations. Consequently, FPIs would only be required to meet the net payable amount. This strategic move is primarily aimed at improving operational efficiency and substantially reducing the cost of funding for these investors, particularly on critical index rebalancing days. It is also anticipated to help minimize foreign exchange-related costs that arise from timing mismatches between fund inflows and outflows.
The proposal follows persistent industry concerns that the current gross settlement mechanism imposes additional funding requirements on FPIs for at least one extra day, thereby unnecessarily inflating overall transaction costs. This upcoming meeting will mark the fifth board gathering chaired by Sebi Chairman Tuhin Kanta Pandey since he assumed office on March 1, 2025.
Overhaul of Governance and Regulatory Frameworks
Beyond the FPI-related reforms, the Sebi board is set to review several pivotal governance and regulatory proposals. A key focus area is a comprehensive overhaul of the "fit and proper person" criteria applicable to market intermediaries. The objective, as per sources, is to enhance procedural clarity and ensure greater fairness in the assessment process.
As part of the proposed changes, Sebi is considering the abolition of references to the initiation of winding-up proceedings as an automatic disqualification. The new approach would ensure that only a final winding-up order is taken into account while evaluating whether an individual or entity qualifies as fit and proper.
Furthermore, the regulator is looking to explicitly codify the right to a hearing within its official rules. While the practice of providing a reasonable opportunity to be heard already exists informally, the proposal seeks to formally enshrine this provision in the regulatory text. This step is intended to remove any procedural ambiguity and reinforce principles of natural justice.
Additional Agenda Items and Ease of Doing Business
In addition to these measures, the board is expected to consider several ease-of-doing business proposals specifically relating to real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). These proposals aim to streamline processes and attract more investment into these critical sectors.
Another significant agenda item is the discussion of a report submitted by a high-level panel focused on conflict of interest and transparency. The panel has proposed wide-ranging reforms designed to enhance disclosure norms and foster a "zero-tolerance" culture to address potential conflicts of interest involving top Sebi officials, the sources added. These reforms are part of a broader effort to bolster institutional integrity and public trust in the capital markets regulator.
