The Securities and Exchange Board of India (SEBI) has proposed allowing domestic mutual fund schemes to settle cash market trades on a net basis, extending a liquidity-enhancing mechanism previously granted to Foreign Portfolio Investors (FPIs).
📌 Key Structural Highlights & Guidelines:
- Scheme-Level Netting: Net settlement of funds will be strictly permitted at the individual mutual fund scheme level rather than across an entire asset management company (AMC).
- Single-Direction Trades: Transactions eligible for net settlement must be restricted to either buy or sell orders within a given security, preventing cross-directional netting abuse.
- FPI Alignment: Harmonizes domestic asset manager settlement frameworks with rules introduced for foreign portfolio investors earlier this year.
💡 Market Impact & Operational Benefits:
- Reduced Liquidity Friction: Decreases temporary cash capital requirements for mutual funds during market operations.
- Enhanced Settlement Efficiency: Streamlines cash market trade processing across Indian capital markets, freeing up institutional capital and improving execution efficiency for fund managers.