Why is it in News?
- Finance Minister Nirmala Sitharaman tabled the Securities Market Code Bill, 2025 in the Lok Sabha.
- Referred to the Standing Committee on Finance.
- Implements a reform announced in Union Budget 2021–22 to modernise India’s securities market regulation.
Relevance
GS III – Economy
- Capital markets and financial regulation
- Investor protection and market efficiency
- Ease of doing business
GS II – Polity & Governance
- Regulatory institutions (SEBI)
- Parliamentary oversight and delegated legislation
- Separation of powers concerns
What is the Securities Market Code Bill, 2025?
- A consolidation and rationalisation law for securities markets.
- Seeks to unify three major legislations:
- Securities Contracts (Regulation) Act, 1956
- SEBI Act, 1992
- Depositories Act, 1996
- Objective:
- Provide a single, coherent regulatory framework
- Enhance investor protection
- Enable capital mobilisation at scale
- Reduce regulatory fragmentation
Rationale for the Bill
- Existing framework:
- Multiple overlapping laws
- Procedural complexity
- Inconsistent enforcement provisions
- Global context:
- Need for agile capital markets
- Alignment with modern regulatory best practices
- Policy logic:
- Ease of doing business + effective deterrence
Key Provisions of the Bill
1. Consolidation of Securities Laws
- Replaces three separate Acts with one unified Code.
- Benefits:
- Legal clarity
- Reduced compliance duplication
- Faster adjudication and enforcement
2. Expansion of SEBI Board
- SEBI strength increased:
- From 9 members → 15 members
- Composition:
- Chairperson
- 2 Central Government nominees (ex-officio)
- 1 RBI nominee (ex-officio)
- 11 other members
- At least 5 whole-time members
- Current situation:
- Only 3 whole-time members
- Objective:
- Strengthen institutional capacity
- Improve sectoral expertise and oversight
3. Conflict of Interest Disclosure
- Mandatory disclosure of:
- Direct or indirect interests by SEBI Board members.
- Intended outcome:
- Institutional integrity
- Transparency in decision-making
- Reduced regulatory capture risk
4. Decriminalisation of Minor Violations
- Shifts “minor, procedural, technical” violations:
- From criminal prosecution → civil penalties
- Criminal liability retained only for serious market abuse:
- Insider trading
- Trading on material non-public information
- Rationale:
- Faster enforcement
- Reduced compliance burden
- Business-friendly regulatory environment
5. Civil Penalties Framework
- Introduces civil penalties for:
- Unlawful gains or losses
- Aligns punishment with:
- Proportionality principle
- Economic harm caused
6. Limitation on Inspections
- No inspection allowed if:
- 8 years have passed since the date of contravention.
- Purpose:
- Legal certainty
- Protection from indefinite regulatory exposure
- Concern:
- Potential weakening of long-term enforcement in complex frauds
Expert Assessment
- Legal experts view changes as:
- “Minor, procedural, and technical”
- Aimed at balancing:
- Speedy adjudication
- Effective deterrence
Political & Constitutional Concerns Raised
Opposition’s Objections
- Raised by:
- DMK MP Arun Nehru
- Congress MP Manish Tewari
- Argument:
- Excessive powers concentrated in SEBI
- Violates the principle of separation of powers
- Risk of over-centralised regulatory authority
Government’s Response
- Finance Minister:
- Defended referral to Standing Committee
- Opened scope for parliamentary scrutiny and refinement
Critical Analysis
Strengths
- Simplifies securities regulation.
- Improves regulatory efficiency.
- Reduces fear of criminalisation for genuine compliance lapses.
- Strengthens SEBI’s institutional capacity.
Concerns
- Over-centralisation of power in SEBI.
- Eight-year inspection bar may:
- Hinder investigation of long-running market manipulation.
- Increased SEBI strength without:
- Parallel accountability mechanisms.
Broader Significance
Economic
- Supports:
- Capital market deepening
- Startup and MSME fund-raising
- Long-term infrastructure financing
Governance
- Reflects shift from:
- Punitive regulation → trust-based compliance
- Tests balance between:
- Regulatory autonomy
- Parliamentary oversight
