Sebi's FPI Netting Move Raises Operational Concerns for Custodians

Sebi Approves Net Settlement for FPIs, Puts Indian Custodians on High Alert

Mumbai: The Securities and Exchange Board of India (Sebi) has taken a significant step by approving a shift to net settlement of trades for foreign portfolio investors (FPIs), despite industry calls to make the change optional. This move is set to disrupt the operations of Indian custodians, who will need to adapt to the new system.

The decision by Sebi comes after months of deliberation and is expected to be implemented in the near future. While the exact timeline for the rollout has not been announced, industry insiders believe it will be done by June 30, 2024. The move is aimed at reducing costs and increasing efficiency in the trading process.

Indian custodians, who have been entrusted with the responsibility of holding and managing securities on behalf of their clients, will need to upgrade their systems to accommodate the new settlement process. This may lead to temporary disruptions in their operations, which could have a ripple effect on the entire market.

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The shift to net settlement is expected to benefit FPIs, who will no longer be required to settle trades on a gross basis. Instead, they will be able to net their trades on a daily basis, reducing their costs and increasing their efficiency. However, for Indian custodians, this change may require significant investments in technology and infrastructure.

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In the short term, the transition to net settlement may cause some operational disruptions for Indian custodians. However, in the long term, it is expected to lead to increased efficiency and reduced costs for FPIs, making it a positive development for the Indian capital markets.

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