FinMin unveils draft Securities Markets Code Bill to boost SEBI transparency, cut compliance
New Delhi: The Finance Ministry’s proposed Securities Markets Code Bill — aimed at a principle based legislative framework to reduce compliance burdens and enhance regulatory governance — emphasizes transparency in Securities and Exchange Board of India (SEBI) operations, including increasing its board’s membership and enlisting independent members.
The board strength is proposed to be increased to a maximum of 11 members from current 9, and would include a provision of three independent members. To avoid any conflict of interest, the cooling off period for future employment for the chairperson and whole-time members is being raised to two years.
It also requires a member to disclose any ‘direct or indirect’ interest concerning the subject matter of the board meeting and refrain from participation where such interests exist.
The proposed bill, initiated in June 2024, seeks to replace three existing securities laws — Securities Contract (Regulation) Act, 1956; SEBI Act, 1992; and Depositories Act, 1996 — and aims to create a modern regulatory framework that enhances investor protection, promotes capital formation, and improves market efficiency.
The consolidation is being carried out as existing securities laws are outdated, with many overlapping provisions. The bill reduces the total number of sections from 226 to 142 and decreases the rule-making powers of the central government.
The bill also establishes a clear separation between investigation and enforcement functions, ensuring that officials involved in investigations cannot serve as adjudicating officers in related matters. It also sets specific timelines for investigations and outlines a streamlined adjudication process.
It categorizes contraventions into minor and serious violations, with minor transgressions attracting civil penalties and serious defilements criminal penalties. It standardizes settlement procedures and allows for lesser penalties to encourage compliance.
As a major reform, the SMC bill incorporates the principle of codifying a transparent and consultative regulation making process by mandating that rules be made by the “collective body” of the members of SEBI, preceded by a mandatory public consultation process specifying the objects and reasons of the proposed regulation.
Investor protection is also expected to be enhanced by mandating the SEBI to create an investor charter and establish a grievance redressal mechanism, including the appointment of an Ombudsperson.
