Finance Minister Nirmala Sitharaman presented a landmark piece of legislation in the Lok Sabha on Thursday, aiming to overhaul India's securities market regulatory framework. The proposed Securities Markets Code (SMC) Bill seeks to consolidate existing laws, grant enhanced powers to the Securities and Exchange Board of India (Sebi), and introduce significant procedural reforms.
Key Objectives and Structural Changes
The bill has been referred to the parliamentary standing committee on finance for a detailed review. A primary goal is to create a unified, comprehensive law by merging three major acts: the Securities Contracts (Regulation) Act of 1956, the Sebi Act of 1992, and the Depositories Act of 1996. This consolidation is designed to eliminate redundancy and align regulations with contemporary market practices.
One of the most notable structural changes is the expansion of the Sebi board. The bill proposes to increase its strength from the current nine members to fifteen members. This move also includes provisions to eliminate potential conflicts of interest within the board itself, aiming for greater governance and transparency.
Decriminalization and Enhanced Enforcement Powers
In a significant shift, the SMC Bill focuses on decriminalizing a host of minor violations. According to officials, criminal liability will be restricted to serious offenses such as major market abuse, non-cooperation with Sebi investigations, and failure to comply with Sebi's orders. Lesser infractions will be subject to civil penalties and actions, reducing the compliance burden on market participants.
To bring certainty to the enforcement process, the legislation mandates strict timelines. It requires that any investigation by the regulator must be initiated within eight years from the date a law is violated. Furthermore, it sets deadlines for completing investigations and issuing interim orders, ensuring a more time-bound regulatory process.
Focus on Investor Protection and Market Ease
The bill places a strong emphasis on safeguarding investors and simplifying market operations. It introduces an investor charter that stakeholders must adhere to and formally incorporates investor education into the legal framework. For the first time, the National Institute of Securities Markets (NISM) will receive statutory recognition under the SMC to conduct training, certification, and research.
In a move toward greater regulatory transparency, the code mandates public consultation for all binding instruments issued by Sebi, including regulations and instructions. This consultative approach will also apply to rules made by the government under the new code and by-laws issued by Market Infrastructure Institutions (MIIs).
The introduction of the SMC Bill follows closely on the heels of Sebi's own regulatory updates. Just a day earlier, the Sebi board approved replacing the 1992 Stock Brokers Regulations and proposed major amendments to the 1996 Mutual Funds Regulations. Together, these steps signal a concerted effort to modernize India's financial market ecosystem, reduce compliance costs, and strengthen investor confidence.
