MUMBAI: The Securities and Exchange Board of India (Sebi) is set to soon release proposals on netting of foreign portfolio investor (FPI) trades and norms for a closing auction framework, Sebi chairman Tuhin Kanta Pandey said on Friday.
“I think the consultation paper (on netting) will be out very, very soon,” Pandey said at Samvad, a symposium on security markets hosted by Sebi. “We are looking at closing auction session very closely and I should presume that the circular will be out soon, possibly today.”
Pandey had first flagged the regulator’s intent to introduce a closing auction mechanism and examine netting of FPI trades in November.
At present, FPIs must settle each buy and sell transaction separately, even when trading the same stock within a single day. This gross-settlement requirement means investors must fully fund every purchase and deliver shares for every sale, significantly increasing funding needs and transaction costs. Allowing netting would remove a key operational constraint for large global investors and could make Indian markets more attractive to institutional capital.
A closing auction mechanism, meanwhile, determines a stock’s final closing price by aggregating buy and sell orders into a single price at the end of the trading session. The framework is intended to curb end-of-day volatility, improve price discovery, and facilitate execution of large trades through a structured session after continuous trading ends.
The market regulator is also pushing to deepen India’s corporate bond market, with a particular focus on retail participation.
“In terms of education and awareness regarding corporate bonds at the retail level, certainly it is largely missing and therefore, we need to have something like Mutual funds sahi hai campaign to go around and also make people educated about what it entails to invest in bonds,” Pandey said.
Last week, Pandey said Sebi is also examining the introduction of bond derivatives, which would be a first for India.
On capital gains taxation and the disparity between equity and debt, Pandey said the issue lies with the central government.
“There is a differential in taxation treatment and that is something which certainly may be under consideration. The Finance ministry will take a view,” Pandey said.
Capital gains taxation currently differs sharply between equity and debt investments. Equity is treated as short term if held for up to 12 months and long term thereafter. Short-term equity gains are taxed at 15%, while long-term gains exceeding ₹1 lakh in a financial year are taxed at 10% without indexation.
In contrast, most debt mutual funds lost long-term capital gains benefits after the April 2023 tax changes, with gains now taxed at the investor’s applicable income tax slab irrespective of holding period, making equities relatively more tax efficient for long-term investors.
