The Securities Market Code Bill, introduced in the Lok Sabha on Thursday, proposes a sweeping overhaul of India’s securities law framework, including expanding the Securities and Exchange Board of India (Sebi) board to up to 15 members from the current nine, strengthening governance norms and enhancing investor protection, PTI reported.The Bill seeks to reinforce Sebi’s regulatory mechanism by providing a more transparent and consultative process for issuing subordinate legislation. It also introduces new grounds for the removal of board members, including cases where a member acquires financial or other interests that could prejudice the discharge of official duties.Under the proposed law, Sebi board members will be required to disclose any “direct or indirect” interest, including interests held by family members, related to matters under consideration in board meetings. Members with such interests must refrain from participating in related deliberations.The Bill grants Sebi additional responsibilities, including periodic review of its own performance, assessment of the proportionality and effectiveness of regulations, and a greater focus on capacity building, research and studies. Sebi will also be required to lay down guiding principles for implementing the new Code.One code to replace three lawsThe proposed legislation seeks to consolidate and replace three existing securities laws — the Securities Contracts (Regulation) Act, 1956; the Sebi Act, 1992; and the Depositories Act, 1996. The Bill has been referred to a Standing Committee for further consultation.According to the Statement of Objects and Reasons, the Code aims to create a principle-based legislative framework that reduces compliance burden, improves regulatory governance and supports technology-driven securities markets.Delegation, sandbox and innovationTo enable more effective regulation, Sebi will be empowered to delegate certain registration-related functions to market infrastructure institutions and self-regulatory organisations. The Bill also allows the Sebi board to establish a regulatory sandbox to encourage innovation in financial products, contracts and services.The Code strengthens investor protection, promotes investor education and awareness, and ensures time-bound grievance redressal, including through an ombudsperson mechanism. Investors will also be able to engage more directly with Sebi’s rule-making through public consultations, making the regulatory process more inclusive.While some defaults are proposed to be decriminalised, the Bill provides a range of civil actions such as warnings and directions. Penalty powers have been streamlined, with fines linked to the gains made or losses caused due to violations.The legislation also introduces mechanisms to ensure better coordination between Sebi and other financial regulators, including a structured Memorandum of Understanding (MoU) framework for information sharing and clear division of responsibilities.Commenting on the Bill, partner (financial services) at Nangia Group, Sunil Gidwani said mandatory disclosure of “direct or indirect” interests by Sebi board members is a crucial corporate governance step.“The provision to transfer surplus funds to the Consolidated Fund of India creates a balanced fiscal structure. While the board retains a reserve for operational autonomy, the transfer mechanism ensures public accountability and prevents the idle accumulation of regulatory fees,” he said, PTI quoted him as saying.
