Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey announced a fresh round of policy and market-structure reforms at the SEBI Samvad 2026 symposium on Friday, aimed at sustaining capital formation and reducing friction for market participants. The comprehensive reform agenda comes as capital markets assume a larger role in funding India's economic growth.

Regulatory Philosophy and Key Focus Areas

Pandey outlined SEBI's regulatory philosophy of "rigorous in standards, but reasonable in processes," emphasizing the need to enable growth while safeguarding market integrity. The regulator's strategic focus encompasses four primary areas:

Regulatory Review and Modernization

SEBI is conducting a comprehensive review of key regulations to make them more coherent and contemporary. The review covers listing obligations, settlement norms, and frameworks governing mutual funds and stock brokers. Recent and ongoing measures include recommending changes to minimum public shareholding thresholds and timelines, particularly for large issuers.

For companies accessing capital markets, SEBI has introduced practical flexibilities. These include facilitating compliance with lock-in norms even when shares are pledged and allowing founders to retain certain ESOPs post-listing without compromising disclosure standards. "Access to capital must be efficient and predictable," Pandey emphasized.

Debt Market Development and Foreign Investment

Deepening market depth, especially in debt markets, remains a priority for the regulator. SEBI has lowered thresholds under the electronic book mechanism and expanded its scope to include Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

For foreign portfolio investors, SEBI is implementing significant reforms:

Expanding Market Participation

Pandey highlighted that expanding participation remains critical to sustaining market growth. SEBI has redesigned distributor incentives to encourage onboarding of first-time investors from smaller towns and increase participation by women. The regulator has also eased Know Your Customer (KYC) norms for non-resident Indians and is considering greater use of shared KRA data to reduce repetitive documentation requirements.

These reforms reflect SEBI's commitment to creating a more accessible and efficient capital market ecosystem while maintaining robust regulatory standards and investor protection measures.

The Securities and Exchange Board of India (Sebi) has proposed permitting netting of funds for cash market transactions by Foreign Portfolio Investors (FPIs), a move aimed at reducing funding costs and improving operational efficiency, particularly during high-volume trading days such as index rebalancing. The regulator has invited public comments until February 6, 2026.

Current Settlement Framework Challenges

Under the existing system, FPIs are required to bring in full funds for purchases irrespective of sales on the same day, even though custodians eventually settle their obligations with clearing corporations on a net basis. This results in higher liquidity requirements and funding costs for investors, often leaving FPIs "underinvested" for at least a day.

Sebi illustrated the problem with an example: "Suppose an FPI has purchased stock A worth ₹100.00 crore and sold stock B worth ₹100.00 crore. The FPI would still need to make available ₹100.00 crore towards the purchase," adding that the amount could otherwise have been adjusted against sale proceeds. The issue becomes more pronounced during index rebalancing, when FPIs typically see large simultaneous inflows and outflows, with funding costs increasing significantly.

Proposed Netting Mechanism

Under the proposal, FPIs would be allowed to use sale proceeds from cash market transactions on a given day to fund purchases executed on the same day, thereby meeting only their net fund obligation instead of settling all trades on a gross basis. The proposed netting of funds refers to using proceeds from sale transactions to fund purchase transactions executed by an FPI on the same day.

The regulator has specified that only "outright" transactions, where an FPI has either a buy or a sell position in a security in a settlement cycle, but not both, will be eligible for fund netting. Trades involving both buy and sell positions in the same security will continue to be settled on a gross basis, effectively excluding intra-day round-tripping from the benefit.

Implementation Framework and Safeguards

Sebi has outlined specific scenarios for fund obligations. If the value of outright sell transactions does not exceed outright buy transactions, the residual amount, along with non-outright buy obligations, would be funded by the FPI. However, if outright sell value exceeds outright buy value, the excess outright sell amount would not be adjusted towards non-outright buy obligations.

The regulator acknowledged concerns raised by custodians and clearing corporations, including the risk of higher trade rejections and increased settlement risk. Sebi emphasized that robust safeguards already exist, stating: "Necessary safeguards by way of default waterfall mechanism, Core Settlement Guarantee Fund (Core SGF), etc., have been put in place." The regulator noted that netting could actually reduce the likelihood of fund-related trade rejections.

Market Impact and Regulatory Changes

Sebi clarified that securities settlement would continue on a gross basis between FPIs and custodians, ensuring that Securities Transaction Tax (STT) and stamp duty would continue to be charged on a delivery basis. There would be no change in the settlement process between custodians and clearing corporations.

The proposal will require amendments to regulatory frameworks issued by Sebi and the Reserve Bank of India, with custodians required to upgrade systems to support the new framework. If implemented, the regulator said the move would lower funding costs for FPIs without increasing market risk, as non-outright transactions would continue to be settled on a gross basis to prevent undue market influence.