Context:
The Securities and Exchange Board of India (SEBI) has postponed the implementation of the Common Contract Note (CCN) for Foreign Portfolio Investors (FPIs) to 1 July 2025, extending the deadline by two months due to operational challenges raised by market participants.
Common Contract Note (CCN)
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.
Key Objectives of CCN
- Unification: Combines trade data across BSE and NSE into a single document.
- Transparency: Enhances auditability and reduces data fragmentation.
- Cost Efficiency: Streamlines processes, mirroring the unified contract note system already available to retail investors.
Current System vs Proposed Reform
| Feature | Current Regime | Common Contract Note Regime |
|---|---|---|
| Exchanges | Separate notes for NSE and BSE | Single consolidated note |
| Reconciliation | Per-exchange | Cross-exchange, single note |
| Settlement Chain | FPI → Global Custodian → Local Custodian → Clearing Corp | Same chain, but reconciled across exchanges in one step |
| Penalty Risk | Exists on misclassification (e.g., hand delivery) | Could increase with small mismatches |
Why the Deferral?
- Global custodians and FPI reps flagged several issues:
- Reconciliation mismatches could classify trades as hand delivery, which incurs penalties.
- System incompatibility and parallel flows between brokers and custodians complicate real-time matching.
- Clearing risks if mismatches arise under the unified format due to the multi-intermediary nature of FPI settlements.
Industry Impact
- FPIs hold nearly 17% of India’s listed equities (as of Dec 2024).
- India has over 11,000 registered FPIs.
- Any friction in their trade processing or compliance could:
- Affect market liquidity
- Erode investor confidence
- Potentially disrupt settlement cycles
Broader Context
- SEBI had initially planned CCN rollout in August 2024, then advanced it to April 30, now deferred to July 1.
- While institutional support for CCN remains strong, execution challenges remain.
- Unlike retail trades, FPI transactions involve complex multi-party coordination, increasing error probability.
