Introduction of Securities Markets Code Bill 2025 in Lok Sabha

Syllabus: GS2/ Governance; GS3/ Economy

Context

• The Union Finance Minister introduced the Securities Markets Code Bill 2025 in the Lok Sabha.

About

• The Bill proposes to consolidate the;
  • Securities Contracts (Regulation) Act, 1956, 
  • Securities and Exchange Board of India (SEBI) Act, 1992, and 
  • The Depositories Act, 1996.

Key Provisions

• Reforms in SEBI’s Composition: The strength of the SEBI Board is proposed to be increased from 9 to 15 members, including the Chairperson. The reconstituted Board will include;
  • The Chairperson.
  • Two officials appointed by the Central Government.
  • One ex-officio member from the Reserve Bank of India.
  • Eleven other members, of whom at least five will be whole-time members. Currently there are three full-time members.
• Members of the SEBI Board are mandated to disclose any direct or indirect interests before participating in decision-making.
• Decriminalisation and Enforcement Framework: The Bill also proposed to decriminalise violations of “minor, procedural and technical nature” into civil penalties to “facilitate the ease of doing business and to reduce the compliance burden.”
  • The Bill would bring “unlawful gains or losses” under civil penalties and limit punishments only to cases such as insider trading or trading while in possession of material or non-public information.
• Limitation on Inspections: In the case of contravention of any rules or provisions of the code, no inspection can be done if eight years had passed from the date of contravention. 

Significance of the Bill

• It endeavours to build a principle-based legislative framework to reduce the compliance burden, improve regulatory governance, and enhance the dynamism of technology-driven securities markets.
• The Bill aims to strengthen investor protection and improve the ease of doing business in the country’s financial markets.
• By consolidating laws and rationalising penalties, it supports India’s objective of becoming a globally competitive financial market.

Concerns of the Bill

• Concentration of Powers in SEBI: The Bill vests legislative (rule-making), executive (enforcement), investigative, and adjudicatory powers in SEBI.
  • Such concentration is seen as violating the principle of separation of powers, which seeks to prevent misuse of authority and ensure institutional checks and balances.
• Delegation of Legislative Functions: Several core policy matters, such as the scope of regulation, registration requirements, penalties, exemptions, and even the definition of “securities”, are left to subordinate legislation (rules and regulations).
• Democratic Accountability: By granting broad discretion to the executive and the regulator, Parliament’s role is reduced to that of an enabling body, rather than a substantive law-making authority.
• Coercive Enforcement Powers: Wide coercive powers such as search, seizure, attachment of property, freezing of bank accounts, and ex-parte interim orders, lacking adequate safeguards.

Way Ahead

• Ensure separation of investigative, enforcement, and adjudicatory functions within SEBI to prevent institutional bias.
• Strengthen parliamentary oversight and accountability through regular reporting.
• Adopt a proportional, risk-based regulatory approach, limiting criminal sanctions to serious market abuse.

Source: AIR