SEBI Permits Net Settlement Mechanism for FPIs in Cash Segment Trades

SEBI has just rolled out a practical update that should make life a lot easier for foreign investors. In a new circular dated April 24, 2026, the regulator introduced net settlement for Foreign Portfolio Investors (FPIs) in the cash segment. Up until now, FPIs were stuck in an inefficient loop. Even though their custodians settled with clearing corporations on a “net” basis (totalling up buys and sells), the FPIs themselves had to settle every single trade individually or on a gross basis. SEBI has now allowed netting of funds for “outright transactions”—i.e., transactions where an FPI either only buys or only sells a security during a settlement cycle.

Key Change Introduced: SEBI has now permitted netting of funds, but only for “outright transactions”, meaning either only buying or only selling a security during a settlement cycle. Not both buy and sell in the same security.

How the New Framework Works: Outright buy and outright sell transactions across different securities can be netted to determine a single net fund obligation
No Netting for Mixed Trades. where both buy and sell occur in the same cycle (non-outright transactions) will continue on gross settlement. If outright sales exceed outright purchases, the surplus cannot be used to offset non-outright purchase obligations. If purchases exceed sales, the net shortfall must be funded by the FPI.

What Remains Unchanged: Continues on a gross basis between FPI and custodian and continues to be levied on a delivery basis. No Change in Net Settlement Between Custodian and Clearing Corporation.

Now (Net System): Outright buys and sells are offset → lower net funding requirement and Example in circular shows funding need dropping from Rs. 2000 to Rs.1000.

Implementation & Compliance: Standards to be formulated by Custodians and DDP Standards Setting Forum (CDSSF) and Market participants must update systems accordingly.
Effective deadline: On or before 31 December 2026.

Why This Matters: This is a structural liquidity reform for FPIs: Reduces cash blockage and funding cost, Minimizes forex exposure due to gross funding, and improves settlement efficiency and
Aligns operational flows closer to actual net exposure. At the same time, SEBI has maintained safeguards by restricting netting only to clean, one-sided trades, ensuring that risk management and settlement integrity remain intact.

To Read Full Circular, Download PDF Given Below.