Sebi's Bold Move to Transform Foreign Investment Landscape
The Securities and Exchange Board of India (Sebi) is considering a major regulatory shift that could substantially reduce operational costs for foreign portfolio investors (FPIs). The proposed change would allow FPIs to settle all their equity trades on a net basis at the end of each trading day, moving away from the current system that requires separate settlement for every transaction.
Current System Creates Unnecessary Friction
At present, foreign portfolio investors must settle every buy and sell order individually, even when trading the same stock multiple times during the day. This gross-settlement system forces them to fully fund each purchase and deliver shares for every sale, significantly increasing their funding requirements and transaction costs.
Sebi chairperson Tuhin Kanta Pandey revealed these potential changes during his address at the Goldman Sachs 14th India CIO Conference 2025 on Wednesday. "We are examining whether netting of settlements for trades executed on a single day can be permitted," Pandey stated, emphasizing that this move would streamline operations and reduce costs for FPIs during a period of accelerated overseas outflows.
Comprehensive Reforms to Attract Global Capital
The proposed settlement reform represents just one component of a broader initiative aimed at creating a low-friction environment for foreign investors. Pandey announced that Sebi is progressing toward end-to-end digitization of the FPI registration process, utilizing digital signatures to establish a paperless onboarding system that could reduce approval timelines from months to mere days.
To further enhance service quality, the regulatory body is overseeing the development of a second registration platform by Central Depository Services Ltd, effectively breaking the existing single-platform structure that has dominated the landscape.
The reform initiatives come at a critical juncture for Indian markets. According to data from the National Securities Depository Ltd, India has witnessed a massive surge in FPI outflows, with foreign investors pulling out over ₹1.4 trillion from markets since the beginning of the year. This starkly contrasts with the net inflow of ₹4.27 billion recorded in 2024.
SWAGAT-FI and Other Progressive Measures
Pandey disclosed that Sebi may also introduce the Single Window Automatic & Generalized Access for Trusted Foreign Investors (SWAGAT-FI) framework. This would enable foreign investors operating under the new, eased FPI framework to invest in India through other FEMA-prescribed routes without facing additional compliance burdens.
A standout feature of the SWAGAT initiative allows investors to maintain a single demat account for all securities, whether acquired as an FPI or as a foreign venture capital investor.
"We are engaged with the RBI and the ministry of finance to take forward these initiatives," confirmed the Sebi chairperson, highlighting the collaborative nature of these regulatory improvements.
Despite the growing significance of domestic participation, Pandey reaffirmed that FPIs remain central to India's capital markets. As of September 2025, assets held by custodians on behalf of FPIs stood at $876 billion, with foreign investors holding approximately 17% of listed Indian companies.
Over recent years, Sebi has implemented numerous measures addressing FPI concerns, including a revamped registration module, light-touch regulation for FPIs focusing exclusively on government securities, an expanded anchor investor framework for IPOs, and comprehensive reforms to the block-window framework to enhance liquidity for large institutional trades.
Pandey concluded that the next phase of reforms aims to deliver a "best-in-class" experience for offshore investors, even as domestic inflows continue to grow into a major market force.
