Economic Survey Views Sebi's Securities Markets Code as Blueprint for Regulatory Reform
The government's Economic Survey for fiscal year 2025-26, tabled in Parliament on Thursday, has positioned the Securities Markets Code (SMC) 2025 as a potential template for regulatory governance that extends far beyond India's capital markets. According to the survey, this unified framework could serve as a model for replication across the country's broader financial and administrative ecosystem, signaling a significant shift in regulatory philosophy.
Consolidating Decades of Legislation into a Unified Framework
Introduced in the Lok Sabha in December 2025, the SMC fulfills a commitment first articulated in the Union Budget for 2022. It consolidates three key pieces of legislation: the Securities Contracts (Regulation) Act of 1956, the Sebi Act of 1992, and the Depositories Act of 1996. This consolidation aims to create a single, cohesive regulatory structure that enhances investor protection, supports capital formation, and aligns with the demands of a rapidly expanding economy.
The government's objective through this Code is to overhaul the existing regulatory architecture, making it more responsive and efficient. By integrating these acts, the SMC seeks to eliminate redundancies and streamline processes, thereby fostering a more robust financial environment.
Core Principles: Transparency, Consultation, Proportionality, and Accountability
The Economic Survey emphasizes that the SMC's foundational principles—transparency, consultation, proportionality, and accountability—could guide the creation of new regulators or the reform of existing ones. "The ultimate test will be how deeply these governance standards embed themselves into everyday regulatory practice and whether they inspire similar transformation across India's regulatory landscape," the survey notes.
These principles are not merely aspirational; they are embedded in specific provisions of the Code. For instance, interim orders, which historically took several years to resolve, are now capped at 180 days, with extensions limited to two years. This change aims to reduce delays and enhance efficiency in regulatory proceedings.
Key Innovations and Enhancements in the SMC
The Code introduces several new norms designed to make the Securities and Exchange Board of India's (Sebi) operations more transparent, efficient, and investor-friendly:
- Investigations and inspections now require written authorization, defined timelines, and recorded reasons for any extensions.
- Enforcement actions must quantify investor harm or unlawful gains, adding a layer of precision to regulatory measures.
- A statute of limitations is introduced, preventing investigations from being initiated more than eight years after an alleged violation, thereby increasing predictability in the system.
Elevating Market Infrastructure Institutions
A notable feature highlighted by the survey is the elevated status of market infrastructure institutions (MIIs), such as stock exchanges, clearing corporations, and depositories. Previously treated as regulated entities, MIIs are now positioned with formal statutory status as bodies performing public functions.
This shift recognizes MIIs as quasi-regulatory bodies that can be delegated powers like intermediary registration, provided they adhere to principles of natural justice, confidentiality, and procedural fairness. Under the SMC, MIIs must be formally registered rather than merely recognized, granting them statutory status and subjecting them to ongoing supervisory and governance requirements.
"Registration confers legal status and establishes accountability mechanisms, including the possibility of supersession in cases where governance fails," the survey explains.
Reinforcing Transparency and Accountability
Transparency is further bolstered through a publicly accessible electronic database of regulations, orders, and instructions under the SMC. Sebi is mandated to conduct periodic impact assessments and performance audits, with results disclosed to the public. Additionally, the Code requires regular reviews of regulatory proportionality and effectiveness, preferably through independent external evaluations—a practice Sebi has already applied to MIIs but will now need to extend to its own operations.
The SMC also mandates an expansion of the Sebi board, increasing the number of members appointed by the central government from nine to 15, with at least five full-time members. This move is intended to enhance accountability within India's primary market regulator.
Current Status and Future Implications
The Code is currently under discussion with the parliamentary standing committee on finance, led by Bharatiya Janata Party lawmaker Bhartruhari Mahtab. Its progression through legislative channels will be closely watched, as its implementation could set a precedent for regulatory reforms across various sectors in India.
By framing the SMC as a blueprint, the Economic Survey underscores its potential to reshape not just capital markets but the entire regulatory fabric of the nation, promoting a culture of efficiency, transparency, and accountability that aligns with global best practices.
