Sebi Board to Review Proposed Changes to FPI Settlement Norms and Intermediary Regulations in Upcoming Meeting
The Securities and Exchange Board of India (Sebi) is set to convene its board meeting on Monday, where it will address several significant proposals aimed at enhancing the operational framework for foreign portfolio investors (FPIs) and market intermediaries. A key focus will be on easing fund settlement norms for FPIs, allowing them to net funds for same-day cash market trades. Additionally, the board will review governance reforms and consider measures to improve the ease of doing business in the investment sector.
Proposed Changes for Foreign Portfolio Investors
One of the most notable proposals on the agenda is the introduction of a netting mechanism for FPIs. Currently, FPIs must settle equity cash market trades on a gross basis, which requires them to fund each purchase transaction independently of sales, even when both occur on the same day. The proposed change would allow FPIs to offset their purchase obligations with proceeds from same-day sales, meaning they would only need to meet the net payable amount. This adjustment is expected to enhance operational efficiency and reduce funding costs, particularly during index rebalancing days. Furthermore, it aims to alleviate forex-related costs that arise from timing mismatches between inflows and outflows, addressing concerns that the existing gross settlement mechanism imposes additional financial burdens on FPIs.
Revisions to Market Intermediary Regulations
In addition to the proposals for FPIs, Sebi’s board will review significant changes to the regulatory framework governing market intermediaries. A comprehensive overhaul of the “fit and proper person” criteria is under consideration, which seeks to improve procedural clarity and fairness in the assessment process. Notably, the proposed changes may eliminate the reference to the initiation of winding-up proceedings as a disqualification criterion, allowing only final winding-up orders to be considered when determining an individual’s suitability. This shift aims to create a more equitable evaluation process for market intermediaries.
Moreover, Sebi plans to formally codify the right to a hearing within its rules. While the practice of providing a reasonable opportunity for individuals to be heard already exists, this proposal seeks to remove any procedural ambiguity by explicitly including this right in the regulatory framework.
Enhancing Business Environment for Investment Trusts
The board meeting will also address proposals aimed at improving the ease of doing business for real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). These initiatives are part of Sebi’s broader strategy to foster a more conducive environment for investment in these sectors, which have gained popularity among investors in recent years. By streamlining regulations and reducing barriers, Sebi hopes to attract more investment into these trusts, ultimately benefiting the overall market.
Addressing Conflicts of Interest
Another critical item on the agenda is a report from a high-level panel focused on conflict of interest and transparency within Sebi. The panel has recommended extensive reforms designed to enhance disclosure norms and promote a culture of “zero tolerance” towards potential conflicts of interest involving senior Sebi officials. This initiative reflects Sebi’s commitment to maintaining integrity and transparency in its operations, ensuring that the regulatory body upholds the highest standards of accountability. The outcomes of this meeting could have far-reaching implications for the regulatory landscape in India’s financial markets.
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