Securities Market Code being designed

With the passage of time, things have been changing fast, in fact very fast. With the Union Budget 2021 announcements, wheels have been set in motion for a consolidated framework to deal with securities laws under a single Securities Market Code (Code).

In a move to rationalise and eliminate overlapping and outdated laws, the proposed Code would intend to consolidate the provisions of the SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and the Government Securities Act, 2007. 

Neither the FM’s Budget Speech nor the fine print in the Budget contains any details on the contents of such unified Code, though, the underlying intent seems to consolidate the legislations into a modern law and avoid regulatory entanglement.

At this stage however, an optimistic outlook guides us to suggest that a properly drafted Code for the securities and capital market framework once effectuated would reduce compliance costs, friction between the stakeholders, avoid multiple regulators and provide policy clarity to investors, thereby allowing India to ascend on ease of business ladder­­­. 

SEBI, an offshoot of early 90’s reform-era, has acted as the watchdog to monitor key aspects of the capital market transactions with regard to equity, debt, commodities and derivatives along with a large number of investment vehicles such as mutual funds and foreign investors.

Over the years, more regulatory oversight functions were developed by SEBI. Integration of Forward Markets Commission in 2015 was another example. Budget 2021 has separately announced that SEBI shall take over the governance of gold spot exchange and a newly introduced form of investment vehicle, 'Pooled Investment Vehicle' within its regulatory fold. 

There is already a buzz amongst stakeholders in view of the announcements of consolidation of the legislations as to whether there would be a complete overhaul of these laws into a renewed Code, making SEBI the Super Regulator.

It would be interesting to note whether the proposed Code will carry demarcation of powers of SEBI to avert perils of regulatory proliferation and associated potential for turf battles. This is particularly important considering that the Supreme Court (in the context of SEBI versus IRDAI battle over unit-linked insurance plans) issued a clarion call back in 2010 towards a revamp of financial regulations, possibly hinting at the formation of a super-regulator by the Central Government.

Recommendations for a super-regulator which unifies regulatory bodies, strengthening the financial sector and promoting financial inclusiveness were also made by Justice BN Srikrishna headed Financial Sector Legislative Reforms Commission in 2014. More recently, regulatory overlaps seem to have arisen between SEBI and NFRA in penalizing quality lapses by auditors and audit firms. 

Interestingly, the management and regulation of government securities (G-Secs) currently lies with the Reserve Bank of India (RBI), whereas trading of G-Secs along with other financial instruments on the stock exchanges is regulated by SEBI. Bringing the Government Securities Act under an umbrella with the SEBI Act and SCRA, which are the regulatory foothold of SEBI, poses potential overlap of powers yet again, this time between SEBI and RBI. 

The unified Code can therefore be an avenue for clarification of regulatory jurisdiction of these agencies. Further, the unified Code coupled with the Investor Charter (which is a separate announcement made by the Finance Minister in this very Budget speech) presents an opportunity to instill confidence in domestic and foreign investors, through customization of laws to provide for a flexible approach to international equity investing in response to changing market opportunities.