Sebi Plans New Framework for FPI Trading and Closing Auctions

Overview Securities and Exchange Board of India (Sebi) is gearing up to unveil proposals regarding the netting of foreign portfolio investor (FPI) trades and a new closing auction framework. Sebi chairman Tuhin Kanta Pandey shared these insights during a symposium on security markets, indicating that the consultation paper on netting will be released imminently.

Key Developments

• Pandey mentioned that the consultation paper on netting is expected to be out very soon, possibly even today. This move aims to streamline the trading process for FPIs, who currently face a gross-settlement requirement for each transaction.
• The introduction of a closing auction mechanism is also on the table, which would help determine a stock's final closing price more effectively. This could enhance market efficiency and attract more institutional capital.
• Currently, FPIs must settle each buy and sell transaction separately, which increases their funding needs and transaction costs. Allowing netting could alleviate these operational constraints, making Indian markets more appealing to global investors.

Business Impact These proposed changes could significantly improve the trading environment for FPIs, potentially leading to increased investment in Indian markets. By reducing transaction costs and funding requirements, Sebi's initiatives might enhance liquidity and market participation.

Market Context As these developments unfold, market participants are closely watching how these regulatory changes will impact trading dynamics. The anticipation around the consultation paper reflects a broader interest in improving market infrastructure.

Industry Context The move comes as part of Sebi's ongoing efforts to modernize the Indian securities market, which has seen increasing participation from foreign investors. The regulatory landscape is evolving to meet the needs of a more globalized investment environment.

Looking Ahead Investors and market analysts will be keen to see the details of the consultation paper and how quickly Sebi can implement these changes.