Sebi proposes trade settlement mechanism to cut costs for offshore funds

India's Markets Regulator Proposes Reform to Attract Foreign Investors

The Securities and Exchange Board of India (SEBI) has proposed a significant reform aimed at cutting costs and attracting overseas investors.

According to the consultation paper, the regulator is seeking to allow large foreign investors to settle only the net value of their trades instead of each transaction individually.

• This long-awaited reform is aimed at enhancing operational efficiency and reducing the cost of funding for foreign portfolio investors (FPIs).
• Currently, FPIs often execute multiple buy-and-sell trades in a day and have to settle each transaction separately.
• By allowing netting, these trades can be offset, resulting in only the net position being settled, which reduces costs and funding requirements.

The proposal comes at a time when foreign outflows from India have accelerated, driven by factors such as steep U.S. tariffs, muted corporate earnings, and elevated equity valuations.

As part of its efforts to attract foreign investors, the regulator is planning wide-ranging reforms, including:

• Making India's markets deeper
• Speeding up registrations

These reforms aim to make India a more attractive destination for foreign investors and enhance the country's financial landscape.

• Reduced costs and funding requirements for FPIs
• Enhanced operational efficiency
• Increased attractiveness of India's markets to foreign investors