Sebi defers rollout of common contract note for FPIs to July

The Securities and Exchange Board of India has deferred the rollout of the common contract note (CCN) for foreign portfolio investors to 1 July, two months after the earlier deadline of 30 April.

The CCN seeks to consolidate trade details across exchanges into a single document to boost transparency, streamline processes, and lower costs, bringing FPIs on par with retail investors who already receive unified notes.

In the current system, FPIs receive separate notes for trades executed on BSE and the National Stock Exchange.  

However, several global custodians and FPI representatives had flagged challenges in aligning their systems to the new format, as Mint reported on 23 April. Their concerns ranged from reconciliation complexities to the risk of trades being misclassified as hand delivery in case of mismatches—an outcome that attracts regulatory penalties.

In a circular issued on 29 April, the National Stock Exchange said the revised compliance timeline followed directions from the market regulator.

While the CCN was scheduled to go live in August 2024, Sebi had extended the deadline to April this year. The latest deferral comes amid rising operational concerns, even as FPIs broadly support the reform in principle.

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The main pain points

India has over 11,000 registered FPIs, who collectively held around 17% of the country’s listed equities as of December. Any disruption to their trading infrastructure could have wider implications for market sentiment and liquidity.

One of the key pain points remains trade confirmation. After market hours, brokers send electronic contract notes (ECNs) to local custodians, while FPIs simultaneously route trade instructions through global custodians. The local custodian must reconcile both sets of records and confirm the trade with the clearing corporation.

If there’s a mismatch, the custodian withholds confirmation, pushing the trade into the hand delivery category—bypassing the clearing corporation and triggering penalties. Market participants fear that under the CCN regime, even small mismatches across exchanges could complicate settlements.

Unlike retail trades, which brokers can settle directly with clearing corporations, institutional flows involve multiple intermediaries. This makes the reconciliation process inherently more complex and prone to errors.

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