CIRCULAR
HO/(1)2026-AFD-POD2/I/10157/2026 April 24, 2026
To,
1. All Registered Foreign Portfolio Investors
2. All Registered Custodians
3. All Recognised Clearing Corporations
4. All Recognised Stock Exchanges
5. All Registered Stock Brokers through Recognised Stock Exchanges
Dear Sir / Madam,
Subject: Framework for net settlement of funds for transactions done by Foreign
Portfolio Investors (FPIs) in cash market
1. SEBI’s Master Circular for Stock Exchanges and Clearing Corporations dated
December 30, 2024 inter-alia stipulates that no institutional investor shall be
allowed to do day trading, i.e., square off their transactions intra-day. Thus, all
transactions carried out by FPIs are required to be grossed at custodians’ level and
obligations are fulfilled by FPIs on a gross basis. The custodians, however, settle
their deliveries on a net basis with the Clearing Corporations (CCs).
2. Representations were received from market participants highlighting that the gross
settlement of transactions results in additional liquidity requirements, increased
funding costs due to forex slippage and operational inefficiency for FPIs,
particularly during days of index rebalancing.
3. Accordingly, with an objective to enhance operational efficiency and reduce cost of
funding for FPIs, it is decided to permit net settlement of funds for outright
transactions undertaken by FPIs in cash market. For the purpose of this circular,
‘outright transactions’ shall mean either a purchase or a sale transaction, but not
both, in a security in a settlement cycle undertaken by an FPI.
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4. The framework for netting of funds for transactions undertaken by FPIs in cash
market shall be as follows:
a) FPI transactions in securities with only outright sell or outright purchase shall
be net settled to arrive at net fund obligation for such outright transactions.
Transactions in securities having both purchase and sale transactions in a
settlement cycle shall be excluded from netting. Such non-outright transactions
shall continue to be settled by FPI as per the current procedure, i.e. on gross
basis.
b) In case value of outright sale is less than the value of outright purchase, the
residual amount along with non-outright purchase obligations shall be funded
by the FPI. However, if value of outright sale exceeds the value of outright
purchase, the excess outright sale shall not be adjusted towards non-outright
purchase obligations.
c) An illustration of the FPI obligations as per current practice and new mechanism
is placed at Annexure A.
5. Further, it is clarified that settlement of securities shall continue to be carried out
on gross basis between FPI and custodian. Also, Securities Transaction Tax (STT)
and stamp duty shall continue to be charged on delivery basis.
6. Accordingly, the provisions stated at Para 4 of Annexure 3 of Chapter 1 (Trading)
of SEBI’s Master Circular for Stock Exchanges and Clearing Corporations dated
December 30, 2024 shall stand modified to the extent specified herein.
7. The implementation standards shall be formulated by the Custodians and
Designated Depository Participants Standards Setting Forum (CDSSF), after
consulting the relevant stakeholders.
8. Custodians, FPIs and all relevant stakeholders are advised to make necessary
changes in their systems to effect the changes specified above.
9. The provisions of this circular shall be implemented on or before December 31,
2026.
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10. This Circular is issued in exercise of the powers conferred under Section 11(1) of
the Securities and Exchange Board of India Act, 1992 read with Regulation 44 of
SEBI (Foreign Portfolio Investors) Regulations, 2019 to protect the interest of
investors in securities and to promote the development of, and to regulate the
securities market.
11. This Circular is available at www.sebi.gov.in under the link “Legal ---Circulars”.
Yours faithfully,
Manish Kumar Jha
Deputy General Manager
Tel no. +91-22-26449219
Email: manishkj@sebi.gov.in
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Annexure A
Illustration of obligations of FPI as per current practice and new mechanism
1. Consider an example wherein on a particular day, an FPI has bought 10 shares of
stocks A and B worth 1000 each and sold 20 shares of stocks B and C worth 2000
each. For the sake of simplicity, it is assumed that all the transactions are on
account of the said FPI, and the custodian clears the transactions of only this single
FPI. All transactions are assumed to be confirmed. The example is summarised in
the table given below:
Stock Buy Quantity Buy Value Sell Quantity Sell Value
A 10 1000 0 0
B 10 1000 20 2000
C 0 0 20 2000
2. The obligations of FPI under the current practice and new mechanism is as under:
2.1. Current Practice (Gross Settlement):
a) All the transactions of the FPI are settled on a gross basis with the custodian.
b) The custodian, however, settles its obligations on a net basis with the
Clearing Corporation (CC).
c) Accordingly, in the example given above, the pay-in and pay-out obligations
of FPI towards the custodian and of custodian towards CC are given below:
i. Obligation of FPI towards custodian
Pay-in Pay-out
Funds 2000 4000
Securities Stock B: 20 Stock A: 10
Stock C: 20 Stock B: 10
ii. Obligation of custodian towards CC
Pay-in Pay-out
Funds 0 2000
Securities Stock B: 10 Stock A: 10
Stock C: 20
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iii. Pictorial depiction of the obligations of FPI, custodian and CC is given below:
₹2000
₹4000 ₹2000
FPI Custodian CC
B:20 B:10
C:20 C:20
A:10 A:10
B:10
2.2. New Mechanism (Netting of funds):
a) The transactions in securities with only outright sell or outright purchase shall
be netted to arrive at a net fund obligation for outright transactions.
b) In the instant example, there is an outright purchase in stock A and an
outright sale in stock C, therefore, they shall be netted to arrive at a net fund
obligation for outright transactions.
c) Since stock B involves both purchase and sale under the same settlement
cycle, it shall be settled as per the existing practice of gross settlement.
d) The excess outright sell value (on account of netting of funds for stocks A
and C) shall not be adjusted towards non-outright buy obligations.
e) Further, the manner of settlement between custodian and CC shall remain
unchanged.
f) Accordingly, in the example given above, the pay-in and pay-out obligations
of FPI towards the custodian and of custodian towards CC are given below:
i. Obligation of FPI towards custodian
Pay-i n Pay-out
Funds 1000 3000
Securities Stock B: 20 Stock A: 10
Stock C: 20 Stock B: 10
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ii. Obligation of custodian towards CC
Pay-in Pay-out
Funds 0 2000
Securities Stock B: 10 Stock A: 10
Stock C: 20
iii. Pictorial depiction of the obligations of FPI, custodian and CC is given
below:
₹1000
₹3000 ₹2000
FPI Custodian CC
B:20 B:10
C:20 C:20
A:10 A:10
B:10
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