SEBI proposes netting of funds for FPI transactions, Pg18

Key Highlights:

• SEBI proposed allowing netting of funds for FPI transactions in the cash market to enhance operational efficiency and reduce funding costs.
• Netting of funds involves using sale proceeds to fund purchase transactions by an FPI on the same day, requiring them to fulfill only the net fund obligation.
• The proposal focuses on outright transactions, where an FPI either purchases or sells a security, but not both, in a specific settlement cycle.

Detailed Insights:

• Currently, FPIs in India must transact in securities based on taking and giving delivery, and are not allowed to do day trading.
• All transactions are currently grossed at the custodians' level, requiring investors to fulfill obligations on a gross basis, which this proposal seeks to change.
• Allowing netting could reduce the need for large fund transfers, potentially lowering transaction costs and improving ease of doing business for FPIs.
• The consultation paper suggests that only transactions with either outright sale or outright purchase will be netted to determine the net fund obligation.

Key Concepts Involved:

• FPI (Foreign Portfolio Investor): An investor who invests in the financial assets of a country without taking direct control.
• Netting of Funds: Offsetting purchase and sale transactions to determine the net amount of funds required.
• Outright Transaction: A transaction involving either a purchase or a sale of a security, but not both, in a settlement cycle.