FPIs call for margin netting and centralised documentation process

Foreign portfolio investors (FPIs) have urged the Securities and Exchange Board of India (Sebi) to allow netting of margin to reduce currency movement and lower forex costs.

 

The suggestions came during a panel discussion at the Global Fintech Fest, attended by a Sebi official and leading industry participants.

 

Apart from margin netting, market participants sought a rethink on the securities lending and borrowing framework, streamlined know-your-customer (KYC) processes, and a centralised documentation repository for custodians and FPIs.

 

In recent months, Sebi has introduced several measures to ease FPI onboarding, including Swagat-FI — a single-window platform — and simplified registration norms for investors focusing solely on Indian government bonds.

 

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“A lot has been done for FPIs, like introducing a common contract note. Now the next step could be net margin. Can we actually reduce inflow and outflow of currency? Because there is a huge cost,” said Kaku Nakhate, chief executive officer (CEO) – India, Bank of America.

 

Responding to the proposal, Aparna Thyagarajan, Sebi’s chief general manager, noted that while certain FPIs have made representations on margin netting, the regulator must balance potential risks.

 

“We could look at netting, but the key is how we balance type 1 and type 2 errors. It also depends on the Reserve Bank of India’s comfort level — how much bank money would actually be permitted for such netting, and whether there are any price-volume considerations from Sebi’s perspective,” she said.

 

Currently, the equity cash market operates on a T+1 settlement cycle, with delivery against each individual trade. This means trades are settled and treated separately, adding to operational flows.

 

Simon Williams, managing director and Asia-Pacific (ex-Japan) head of government affairs and public policy at BlackRock, suggested that the regulator adopt a trusted central source for FPI documentation.

 

“Allowing custodians — who represent FPIs in India — to store and access documents in a secure central repository would create significant efficiency,” he said.

 

Janak Dalal, head of securities services, Deutsche Bank India, called for greater standardisation and transparency in FPI processes, including a real-time tracker for FPI applications to attract more investors and give them greater operational control.

 

The Sebi official highlighted ongoing work to enhance centralised access for FPIs via the India Market Access Portal.