Sebi's big move: Common contract note launch set for 30 April, but market players express concerns

The new system, replacing the separate transaction details—documents that detail the price, quantity, and charges of each transaction—currently issued for trades on the BSE and the National Stock Exchange (NSE), is aimed at boosting transparency, cutting costs, and streamlining processes.

It will bring FPIs in line with retail investors, who already receive unified trade notes. At present, FPIs get separate notes for trades on each exchange; the new system will consolidate these into a single document.

While many FPIs and their global custodians support the idea in principle, several are flagging the operational burden of aligning their systems to the new format, even as they grapple with granular disclosure requirements and compliance fatigue.

Though technical in nature, the CCN rollout impacts a major constituency in India’s capital markets. FPIs wield significant influence over both market sentiment and capital flows, making their operational readiness crucial to the success of any regulatory reform.

India is home to over 11,000 registered FPIs, who collectively held around 17% of the country’s listed equities as of 31 December 2024. Their trades represent a sizable share of daily market activity. So far in 2025, they have been net sellers, with outflows touching ₹1.34 trillion as of 22 April, according to NSDL data.

Custodians began trial runs on 7 April to ensure a smooth transition, with the test phase set to conclude today.

A custodian acts as an intermediary between investors and securities issuers, safeguarding investors’ assets and maintaining records of their holdings. A CCN, issued by brokers, consolidates trade information—such as order details, transaction charges, and the weighted average price (WAP) across exchanges—into a single document.

"Custodians are ready for this and for now I don't foresee any deferment of this new format," said an official from one of the 19 custodian entities.

Global custodians include the likes of Citibank, JP Morgan Chase, and Deutsche Bank, while local custodians include Axis Bank, ICICI Bank, and Kotak Mahindra Bank.

To operate in India, FPIs typically use the services of global custodians, who in turn are required to appoint local custodians of securities before making any stock investments. Brokers receive instructions from custodians on behalf of FPIs.

Need for a CCN

First introduced by the Securities and Exchange Board of India (Sebi) in 2004, the contract note format was revised in May 2024 to reflect a single WAP for trades across exchanges. Though originally scheduled for August 2024, the deadline was extended to 30 April.

Sources familiar with Sebi’s position said the regulator is firm on implementing the CCN for institutional investors, which is already in place for individual investors. While Sebi did not respond to Mint’s queries, sources said most FPIs are broadly in favour of the common note format.

“FPIs are in touch with all stakeholders and uniformly welcome the CCN. They see this to access best prices across exchanges seamlessly. While they will want to test the operational implementation initially, in the medium run, they will be big users of CCNs," said one person aware of the development.

A custodian official said the single contract note would not only improve transparency by reflecting the best available price but also lower transaction costs for FPIs.

Also read: Brokers seek time to prepare for same day settlement 

Yet even as the market prepares for the switch, concerns are simmering beneath the surface.

Areas of concern

The rollout of the CCN is adding to a growing list of regulatory shifts that have unsettled global investors operating in India. 

“No other country is imposing such conditions or making so many changes," a spokesperson for FPIs speaking on condition of anonymity said.

Second Street Partners, another spokesperson for FPIs, pointed out, “The entire set of players in the value chain have to make changes to their systems, which can be complicated. Many FPIs may not be keen on this."

One of the key operational concerns is around trade confirmation.

After market hours, the electronic contract note (ECN) is sent by the broker to the local custodian. At the same time, the FPI sends trade instructions to the global custodian, who relays them to the local custodian. The local custodian must then reconcile this with the broker’s ECN and confirm the trade with the clearing corporation—either NSE Clearing or BSE’s ICCL.

In case of a mismatch, the custodian does not confirm the trade. This forces the FPI to settle directly with the broker, classifying it as a hand delivery trade—a workaround that bypasses the clearing corporation and attracts penalties from Sebi.

Market participants are concerned that under the CCN system, even minor mismatches could push trades across both exchanges into the hand delivery category. "Once the common contract note is implemented, how does a broker settle the hand delivery trade and with which exchange, since the CCN doesn’t specify the exchange name?" a market source asked. “There is no clarity on this."

Hand delivery trades sidestep the clearing corporation mechanism that ensures orderly settlement. With multiple intermediaries in FPI trades, the reconciliation process is already complex—and more prone to errors. “On high-volume days, this could lead to significant disruption in the market," another market participant said.

In contrast, for retail investors, brokers can settle trades directly through the clearing corporations. The complexity of institutional flows, however, means even small discrepancies carry greater operational risk.

Trade Delta, another spokesperson for FPIs, said the regulatory pace in India has been overwhelming. “The market has seen far too many changes in recent times," the firm noted, adding that several FPIs have shifted to swap-based exposure in India.

Swap-based exposure refers to a strategy where FPIs sell their onshore holdings and participate in Indian markets through offshore derivatives instruments, such as participatory notes.

The pace of changes, including granular disclosure norms, faster settlement cycles, and ultimate beneficial ownership rules, has triggered regulatory fatigue among global investors. Several have flagged this as a key reason for shifting to alternative investment routes such as swaps.

Carbon Transition Innovation Fund, another FPI, claimed that FPI interest in India has been on the decline for several months now, mainly due to the granular disclosure norms which are very challenging to cope with.

"Also, the geopolitical changes are taking the toll. So, introducing further changes during such a period, and that too making it mandatory, can be detrimental to the Indian market", the fund said.

Sebi's evolving stance

To be sure, under former Sebi chairperson Madhabi Puri Buch, the regulator sharpened its focus on transparency — particularly through ultimate beneficial ownership (UBO) disclosure norms.

In 2023, Sebi mandated detailed disclosures for FPIs with equity assets exceeding ₹25,000 crore in Indian markets. This threshold was later raised to ₹50,000 crore under the recently appointed Sebi chief Tuhin Kanta Pandey.

The rationale, according to Sebi, was a significant rise in cash equity trading volumes between FY23 and FY25. As of end-February, the NSE held a three-month rolling market share of 94.4% in the equity cash segment and 82.8% in equity options, based on premium turnover.

Since assuming office, Pandey has acknowledged the operational hurdles faced by FPIs and expressed openness to rationalising norms.

While Sebi has defended the tightening of these rules as necessary in a growing market, concerns persist that further mandatory reforms could dampen FPI interest in India, especially amid ongoing geopolitical and compliance challenges.

Also read: Mint Explainer: Why Sebi set up a committee to review conflict of interest norms