SEBI Board to Take Up FPI Fund Netting Proposal, Review Governance Rules Today

Now the Securities and Exchange Board of India (SEBI) is holding a high-stakes board meeting today, March 23, 2026. This is the fifth meeting under the leadership of Chairman Tuhin Kanta Pandey. Currently, the primary focus is on easing capital flows for foreign investors. The board will discuss a major proposal to allow “netting of funds” for Foreign Portfolio Investors (FPIs). Therefore, the regulator aims to reduce the financial pressure on global funds trading in Indian markets.

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At a Glance:

• Key Proposal: Shift from gross settlement to “netting of funds” for FPIs.

• The Goal: Lower transaction costs and ease liquidity pressure.

• Governance Focus: Overhaul of “fit and proper person” criteria for intermediaries.

• Transparency: Discussion on a high-level panel report on conflict of interest.

• Ease of Business: New measures for REITs and InvITs on the table.

Table of Contents:

• FPI Settlement Reform: From Gross to Net

• Why FPIs Need Fund Netting Now

• Governance Overhaul: The “Fit and Proper” Rule

• Transparency and Conflict of Interest Report

• New Rules for REITs and InvITs

• Common Questions Answered

FPI Settlement Reform: From Gross to Net

Now the current settlement system for foreign investors is under fire. Currently, FPIs must follow a “gross settlement” framework. This means they must fund every purchase separately. Even if they sell shares the same day, they cannot use those proceeds immediately.

So SEBI wants to permit “netting of funds.” This change would allow FPIs to use money from same-day sales to cover new purchases. Thus, they would only pay the net difference at the end of the day. Therefore, this move could significantly boost liquidity in the cash market.

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Why FPIs Need Fund Netting Now

Now the timing of this proposal is critical. High-volume days, such as index rebalancing, often force FPIs to arrange massive amounts of extra cash. Therefore, the gross system adds unnecessary funding costs and forex slippage.

Specifically, investors complain that they remain “underinvested” for at least one extra day. Meanwhile, global competition for capital is heating up. Thus, SEBI hopes this reform will make India a more attractive destination for overseas funds.

Efficiency is the top priority here.

Governance Overhaul: The “Fit and Proper” Rule

Now the board is also reviewing how it judges market participants. Currently, even the start of winding-up proceedings can disqualify an intermediary. SEBI now proposes to drop this strict clause.

So the new rule would focus only on final winding-up orders. This ensures that mere legal initiations do not kill a business prematurely. Also, SEBI plans to formally codify the “right to a hearing.” Thus, the regulator wants to bring more fairness and clarity to its disciplinary actions.

Better rules mean a more stable market.

Transparency and Conflict of Interest Report

Now a key item on the agenda is a report from a high-level panel. This panel was tasked with reviewing conflict of interest rules for senior SEBI officials. They have suggested a “zero-tolerance” approach toward ethical breaches.

Specifically, the report proposes stricter asset disclosures for top-tier management. Therefore, the board will decide how to implement these transparency measures. This follows a period of intense scrutiny regarding the regulator’s internal governance.

Trust is the foundation of the market.

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New Rules for REITs and InvITs

Finally, the board will discuss the “ease of doing business” for investment trusts. Both Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are growing in popularity. Currently, they face several operational hurdles.

So SEBI may expand their scope for investing in liquid fund schemes. This would allow them to manage their surplus cash more effectively. Thus, these vehicles could become more profitable for retail investors in the long run.

The market is evolving fast.

Common Questions Answered

What is fund netting for FPIs? It allows foreign investors to use the proceeds from selling shares to buy new shares on the same day, paying only the net difference.

Why is SEBI changing the “fit and proper” rules? To prevent automatic disqualification of brokers or firms based only on the start of legal proceedings.

Who is the current SEBI Chairman? Tuhin Kanta Pandey took charge as the SEBI Chairman on March 1, 2025.

What are index rebalancing days? These are specific days when major global indices (like MSCI) change their stock weightings, leading to massive trading volumes.

How will this affect small investors? While these rules target large funds, they improve overall market liquidity and lower costs, which indirectly benefits everyone.

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End…

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