Securities Market Code Bill for boosting Sebi power, accountability

On December 18, 2025, Finance Minister Nirmala Sitharaman introduced the landmark Securities Market Code Bill in the Lok Sabha, marking a pivotal moment for India's financial regulatory landscape. This ambitious legislative proposal primarily aims to significantly empower the Securities and Exchange Board of India (SEBI), the apex regulator for India's securities market. The Bill’s core objectives include expanding SEBI’s governing body to enhance its institutional capacity and expertise, alongside implementing stringent regulations to mitigate conflicts of interest among its senior officials. This dual approach is designed to fortify market integrity, ensure robust regulatory oversight, and foster greater accountability within the regulatory framework. The proposed legislation underscores the government's commitment to investor protection, market transparency, and the overall stability of India’s rapidly growing capital markets. For competitive exams such as UPSC, SSC, Banking, and State PSCs, this development is highly relevant, touching upon economic reforms, regulatory governance, financial market evolution, and constitutional provisions, making it a critical topic for in-depth understanding.

The introduction of the Securities Market Code Bill on December 18, 2025, is not an isolated event but rather a significant culmination of India's decades-long journey towards establishing a robust and transparent securities market. Before the establishment of a dedicated regulator, the capital markets were governed by the archaic Capital Issues (Control) Act, 1947, which primarily focused on government control over capital issues rather than market development or investor protection. This era was characterized by opaqueness, price rigging, and a lack of investor confidence.

The need for a specialized regulatory body became acutely evident in the late 1980s, leading to the establishment of the Securities and Exchange Board of India (SEBI) in 1988 as a non-statutory body. However, its powers were limited. The watershed moment arrived with the enactment of the SEBI Act, 1992, which granted SEBI statutory powers and made it the primary regulator for the Indian securities market. Its mandate, as enshrined in the Act, is to protect the interests of investors in securities, to promote the development of, and to regulate the securities market, and for matters connected therewith or incidental thereto.

Over the years, SEBI's powers have been progressively enhanced through various amendments to the SEBI Act, 1992, and related legislation. Key reforms include:

• 1995 Amendment: Significantly broadened SEBI's powers, allowing it to register and regulate various market intermediaries.
• 2002 Amendment: Established the SEBI (Investor Protection and Education Fund) Regulations to promote investor awareness.
• 2013 Amendment: Introduced provisions for consent orders, settlement mechanisms, and greater powers to deal with collective investment schemes (CIS).
• 2014 Amendment: Further empowered SEBI to conduct search and seizure operations, call for information from any person, and attach properties in certain cases, particularly in the wake of the Sahara scam and other large-scale ponzi schemes.
• 2021 Amendments: Focused on strengthening insider trading regulations, addressing issues related to algo trading, and enhancing corporate governance norms.

The current Securities Market Code Bill draws inspiration from past attempts to streamline financial market legislation, notably the Financial Sector Legislative Reforms Commission (FSLRC) report submitted in 2013 under the chairmanship of Justice B. N. Srikrishna. The FSLRC recommended consolidating various financial sector laws into a unified financial code to simplify regulation and enhance investor protection. While a full consolidation has been a gradual process, the present Bill represents a significant step towards modernizing and strengthening specific aspects of securities market regulation.

The legal framework governing India's securities market primarily consists of:

1. SEBI Act, 1992: The foundational legislation.
2. Securities Contracts (Regulation) Act, 1956 (SCRA): Regulates stock exchanges, contracts, and listing of securities.
3. Depositories Act, 1996: Provides for the establishment of depositories to hold securities in dematerialized form.
4. Companies Act, 2013: Governs the incorporation, responsibilities, and winding up of companies, with specific provisions affecting listed entities.

Constitutionally, the power to legislate on "Stock exchanges and futures markets" falls under Entry 48 of the Union List in the Seventh Schedule of the Indian Constitution, granting Parliament the exclusive authority under Article 246 to enact laws like the Securities Market Code Bill.

In the international context, India's regulatory framework, led by SEBI, largely aligns with the principles set forth by the International Organization of Securities Commissions (IOSCO). IOSCO, of which SEBI is a prominent member, sets globally recognized standards for securities regulation. The proposed Bill, by enhancing SEBI's capacity and accountability, aims to further align India with global best practices, particularly those concerning regulatory independence, robust governance, and conflict of interest management, comparable to advanced regulators like the US Securities and Exchange Commission (SEC) and the UK's Financial Conduct Authority (FCA).

The Securities Market Code Bill, by virtue of its sweeping implications for the financial sector, involves a diverse array of stakeholders, each with distinct roles and perspectives. Understanding these interactions is crucial for a comprehensive analysis.

Government Bodies/Ministries Involved:

• Ministry of Finance (MoF), Department of Economic Affairs (DEA): As the nodal ministry, the MoF, under Finance Minister Nirmala Sitharaman, is the primary architect and proposer of this Bill. Its role encompasses policy formulation, legislative drafting, and ensuring the stability and growth of the Indian economy. The DEA specifically oversees the capital markets division.
• Securities and Exchange Board of India (SEBI): This is the most directly impacted stakeholder. As India's capital market regulator, SEBI's powers, structure, and accountability mechanisms will be fundamentally altered. The Bill's provisions, such as expanding its governing body and imposing stricter conflict of interest norms, are intended to make SEBI a more effective and credible institution. SEBI's Chairman and board members will be instrumental in implementing the new provisions.
• Reserve Bank of India (RBI): While primarily regulating banking and monetary policy, the RBI maintains close coordination with SEBI, especially in areas concerning financial stability, systemic risk, and hybrid financial products. The Bill’s impact on the broader financial ecosystem will be of interest to the RBI.
• Parliament of India (Lok Sabha and Rajya Sabha): The legislative bodies are crucial for the Bill's passage into law. Debates, discussions, and potential amendments will shape the final form of the Act. Parliamentary Standing Committees, particularly on Finance, will scrutinize the Bill in detail.

International Players:

• International Monetary Fund (IMF) and World Bank: These global financial institutions consistently advocate for strong, independent, and transparent financial sector regulation as a prerequisite for economic stability and growth. They will view the Bill as a positive step towards enhancing India's regulatory architecture.
• Foreign Institutional Investors (FIIs) / Foreign Portfolio Investors (FPIs): These entities, which collectively invested over $30 billion in Indian equities and debt in 2023-24, are highly sensitive to regulatory clarity, market integrity, and investor protection. Enhanced SEBI powers and accountability are likely to boost their confidence in India as an investment destination.
• International Organization of Securities Commissions (IOSCO): As the global standard-setter for securities markets, IOSCO will closely observe how the Bill aligns with international best practices concerning regulatory structure, enforcement, and conflict of interest management.

Affected Communities/Sectors:

• Retail Investors: Comprising a vast and growing segment (India had over 15.5 crore demat accounts as of November 2024), retail investors are the ultimate beneficiaries of stronger regulatory oversight and investor protection. Stricter norms against market manipulation and insider trading directly safeguard their investments.
• Institutional Investors: This includes domestic mutual funds, insurance companies, and pension funds, with Assets Under Management (AUM) exceeding ₹50 lakh crore for mutual funds alone (as of October 2024). They benefit from enhanced market integrity and reduced systemic risks, which foster a stable environment for long-term capital deployment.
• Stock Exchanges (e.g., BSE Ltd., National Stock Exchange of India Ltd. - NSE): As the primary trading platforms, exchanges will face increased scrutiny and compliance requirements. While potentially increasing operational costs, the Bill aims to strengthen market infrastructure and reduce malpractice.
• Brokers, Depositories, and Other Market Intermediaries: These entities will experience stricter regulatory compliance, reporting obligations, and enhanced supervision. This is expected to weed out unethical practices and foster a more professional environment.
• Corporates/Listed Companies: Companies listed on stock exchanges will be subject to heightened corporate governance standards and disclosure requirements, which can improve transparency and accountability to shareholders.

Expert Opinions:

• Economists and Financial Analysts: Generally view the Bill positively, emphasizing its potential to deepen capital markets, attract more long-term capital, and enhance India's global financial standing. They often cite the need for independent and well-resourced regulators for sustained economic growth.
• Legal Experts and Corporate Lawyers: Will meticulously analyze the Bill's legal provisions, potential ambiguities, and implications for corporate compliance and litigation. Concerns may arise regarding the scope of SEBI's enhanced powers and potential for regulatory overreach.
• Former SEBI Chairmen and Officials: Their insights are invaluable, often highlighting the practical challenges of implementing such legislative changes and the need for adequate resources for SEBI.

Political Positions:

• Ruling Party (e.g., Bharatiya Janata Party - BJP): The government will champion the Bill as a critical reform demonstrating its commitment to good governance, investor protection, and making India an attractive investment destination. They will emphasize the Bill's role in boosting market confidence and economic stability.
• Opposition Parties: While generally supporting measures for market integrity, opposition parties may raise concerns regarding specific provisions, potential impacts on ease of doing business, the extent of government control over regulatory bodies, or the timing and necessity of the legislation. They might also seek to scrutinize the independence of the expanded SEBI board.

The Securities Market Code Bill is a multifaceted topic with immense relevance across various competitive examinations, demanding a holistic understanding from aspirants.

UPSC Relevance:

• Prelims (Potential MCQ topics):

  • Static GK + Current Affairs Mix: Basic structure of SEBI (establishment year 1988/1992, headquarters Mumbai, current Chairman's name). Key Acts governing the securities market (SEBI Act 1992, SCRA 1956, Depositories Act 1996). Provisions of the new Bill (e.g., expansion of SEBI's governing body, conflict of interest norms). Financial sector reforms committees (e.g., FSLRC 2013 report). Types of financial market instruments (equities, bonds, derivatives, mutual funds).
  • Conceptual: Role of a market regulator, financial inclusion initiatives, differences between primary and secondary markets, functions of depositories.
  • Example MCQ: "Which of the following is NOT a primary function of SEBI?" or "The Securities Market Code Bill, 2025, primarily aims to strengthen which regulatory body?"

• Mains:

  • GS Paper II (Governance, Constitution, Polity):
    • Regulatory Bodies: Role, autonomy, accountability, and challenges faced by independent regulators like SEBI. The Bill's emphasis on expanding the governing body and conflict of interest directly relates to good governance and institutional strengthening.
    • Legislative Process: Understanding how a Bill becomes an Act, the role of Parliament, and parliamentary committees in scrutinizing legislation.
    • Constitutional Provisions: Powers of Parliament to legislate on Union List subjects (Entry 48, Article 246).
  • GS Paper III (Indian Economy, Technology, Security):
    • Indian Economy: Capital markets, financial sector reforms, investment models, role of financial markets in economic growth and capital formation. Impact on FPI/FII flows.
    • Growth and Development: How robust financial regulation fosters a conducive environment for investment, entrepreneurship, and sustainable economic development.
    • Investment Models: Implications for domestic and foreign investment.
    • Security: (Indirectly) Cybersecurity aspects in financial markets, protecting investor data.
  • Essay:
    • Themes: "Regulatory oversight and economic growth: The Indian context," "Trust in financial markets: A cornerstone of economic development," "The role of independent institutions in a thriving democracy." This Bill provides excellent fodder for arguments on regulatory effectiveness, corporate governance, and investor confidence.

• Previous Year Questions (Similar topics):

  • UPSC Mains GS III (2019): "Discuss the role of SEBI in protecting the interests of investors in India." (Directly relevant)
  • UPSC Mains GS II (2017): "Examine the role of the Election Commission of India in upholding the fairness of elections." (Analogous to regulatory body independence and accountability)
  • UPSC Prelims (various years): Questions on financial market instruments, regulatory bodies, and recent economic reforms.

SSC/Banking Relevance:

• Current Affairs Section: Direct questions on the Bill's introduction, the Finance Minister's name, SEBI Chairman, key provisions (e.g., "What is the primary objective of the Securities Market Code Bill?").
• Economic/Banking Angle:
  • Role of SEBI: Its functions, powers, and jurisdiction.
  • Types of Financial Markets: Capital market vs. Money market, primary market vs. secondary market.
  • Capital Market Instruments: Shares, bonds, mutual funds, derivatives.
  • Regulatory Bodies in India: SEBI, RBI, IRDAI (Insurance Regulatory and Development Authority of India), PFRDA (Pension Fund Regulatory and Development Authority).
  • Banking Exams: Questions related to financial product knowledge, regulatory compliance, and market integrity.
• Static GK Connections:
  • Headquarters: SEBI (Mumbai), BSE (Mumbai), NSE (Mumbai).
  • Establishment Years: SEBI (1988/1992), RBI (1935).
  • Full Forms: SEBI, SCRA, FSLRC, FII, FPI, IOSCO, BSE, NSE.

Exam Preparation Tips:

• Key Facts to Memorize: Date of Bill introduction (2025-12-18), Finance Minister Nirmala Sitharaman, SEBI's establishment (1988/1992), current SEBI Chairman. The two main provisions: expanding governing body and conflict of interest norms.
• Important Abbreviations/Full Forms: SEBI (Securities and Exchange Board of India), SCRA (Securities Contracts (Regulation) Act), FSLRC (Financial Sector Legislative Reforms Commission), FII (Foreign Institutional Investor), FPI (Foreign Portfolio Investor), IOSCO (International Organization of Securities Commissions), BSE (Bombay Stock Exchange), NSE (National Stock Exchange).
• Data Points to Remember: India's market capitalization ranking (e.g., 5th largest globally as of late 2024, exceeding $4 trillion), number of demat accounts (15.5 crore as of late 2024), Mutual Fund AUM (₹50 lakh crore as of late 2024).
• Cross-Topic Connections: Link this topic to broader themes like "Ease of Doing Business" index, "Financial Inclusion" (as more retail investors join), "Corporate Governance," and "Consumer Protection." Understand how a strong regulator contributes to India's aspiration of becoming a $5 trillion economy.
• Conceptual Clarity: Don't just memorize facts; understand why these changes are being made and their expected impact on market functioning and investor behavior.

The Securities Market Code Bill, by strengthening SEBI's regulatory framework, is poised to have far-reaching impacts across economic, social, political, and even indirect environmental dimensions.

Economic Impact:

• GDP/Sector Implications: A more robust and transparent securities market, fostered by enhanced SEBI powers, is likely to attract both domestic and foreign capital. This influx of investment can contribute to increased capital formation, potentially adding an estimated 0.1-0.2 percentage points to India's annual GDP growth over the medium to long term. The financial services sector, which contributes approximately 8-10% to India's GDP, will experience increased compliance costs but also greater stability and credibility, benefiting its overall growth trajectory.
• Employment Effects: The heightened regulatory landscape will necessitate an increased demand for compliance officers, legal professionals specializing in financial law, risk management experts, and financial analysts across listed companies, market intermediaries, and SEBI itself. This could lead to the creation of thousands of specialized jobs in the financial sector over the next 2-3 years.
• Fiscal Implications: While the Bill does not directly involve significant budget allocations, a more stable and growing capital market leads to higher trading volumes and corporate profitability. This, in turn, can result in increased tax revenues for the government through capital gains tax, securities transaction tax (STT), and corporate income tax. Enhanced market integrity also reduces the scope for tax evasion through illicit market practices.
• Industry/Business Effects:
  • Increased Compliance Burden: Listed companies and market intermediaries (brokers, investment banks, asset management companies) will face stricter reporting requirements and enhanced scrutiny, leading to higher compliance costs.
  • Improved Corporate Governance: The Bill, by promoting greater transparency and accountability, will likely push corporates towards better governance practices, which is beneficial for long-term sustainability and shareholder value.
  • Reduced Market Malpractices: Stricter conflict of interest norms and expanded investigative powers for SEBI are expected to significantly curb insider trading, front-running, and other forms of market manipulation, fostering a fairer playing field.
  • Enhanced Investor Confidence: A transparent and well-regulated market is crucial for attracting and retaining both retail and institutional investors, leading to deeper and more liquid capital markets.

Social Impact:

• Communities Affected: The primary beneficiaries are the millions of retail investors across India, particularly the growing number from Tier 2 and Tier 3 cities who are increasingly participating in capital markets through digital platforms. As of November 2024, India had over 15.5 crore demat accounts, a significant portion of which belong to individual investors. Enhanced protection reduces their vulnerability to fraudulent schemes and market exploitation.
• Rights/Welfare Implications: The Bill significantly strengthens investor rights, ensuring greater transparency, fairer market practices, and better recourse mechanisms against malpractices. This translates into improved financial welfare for citizens who choose to invest in securities, safeguarding their savings and wealth creation efforts.
• Gender/Minority Considerations: While not explicitly addressing gender or minority groups, a more trustworthy and accessible financial market environment can indirectly encourage broader participation from all demographic segments. Financial literacy initiatives, coupled with robust regulation, can help reduce disparities in access to safe investment avenues.

Political Ramifications:

• Governance Implications: The Bill reaffirms the government's commitment to robust financial sector governance and regulatory independence. By expanding SEBI's governing body and tightening conflict of interest norms, it aims to enhance the institution's credibility and reduce perceptions of external influence, thereby strengthening democratic governance principles.
• Policy Direction Changes: This legislation signals a clear policy direction towards a more integrated, comprehensive, and technologically advanced regulatory framework for India's financial markets. It might pave the way for further consolidation of financial laws, potentially leading to a unified financial code in the future, as envisioned by the FSLRC.
• International Relations Angle: A stronger and more accountable SEBI enhances India's reputation as a responsible and attractive investment destination on the global stage. This aligns with India's aspirations to become a leading global economy and financial hub, drawing more Foreign Direct Investment (FDI) and FPI flows, which are crucial for economic growth and international standing.

Environmental Considerations:

• Sustainability Aspects: While the Bill does not directly address environmental issues, a more transparent and well-regulated capital market can indirectly facilitate the channeling of capital towards sustainable and Environment, Social, and Governance (ESG) compliant investments. Improved disclosure norms and corporate governance can encourage companies to adopt more environmentally responsible practices, as investors increasingly demand ESG compliance.
• Climate Change Connections: By fostering a trustworthy market, the Bill can support the growth of green finance initiatives, such as the issuance of green bonds and sustainability-linked loans. This can help mobilize capital for projects aimed at mitigating climate change and promoting renewable energy, aligning with India's ambitious climate targets (e.g., Net Zero by 2070).
• Natural Resource Implications: An efficient and accountable capital market can better allocate resources towards industries that prioritize sustainable use of natural resources, moving away from resource-intensive and polluting sectors, thereby contributing to long-term ecological balance.

The introduction of the Securities Market Code Bill marks the beginning of a crucial legislative journey, with several key stages and implications to monitor in the short and long term.

Short-term Developments (Next 3-6 months):

• Parliamentary Scrutiny: The Bill is expected to undergo rigorous debate in the Lok Sabha and may be referred to the Parliamentary Standing Committee on Finance for detailed examination. This committee will invite public and expert feedback, analyze the provisions, and recommend amendments.
• Stakeholder Consultations: SEBI, the Ministry of Finance, and the Standing Committee will likely engage in extensive consultations with various market participants, including stock exchanges, brokers' associations, industry bodies (e.g., FICCI, CII), and investor protection groups.
• Passage in Parliament: Following committee review and potential amendments, the Bill will need to be passed by both the Lok Sabha and the Rajya Sabha. The timeline will depend on parliamentary schedule and political consensus.
• Presidential Assent: Once passed by both houses, the Bill will require the President's assent to become an Act of Parliament. This formal notification will mark its official enactment.

Long-term Policy Implications (1-2 years):

• Framing of Detailed Regulations: Upon enactment, SEBI will be tasked with framing comprehensive rules and regulations under the new Act. This is a critical phase, as the effectiveness of the legislation will largely depend on the clarity and enforceability of these subordinate legislations.
• Changes in SEBI's Structure and Operations: The expansion of SEBI's governing body will necessitate organizational restructuring, potential recruitment, and revised operational protocols. The new conflict of interest norms will require robust internal compliance mechanisms within SEBI.
• Impact on Market Behavior: Over time, the stricter regulatory environment is expected to lead to improved corporate governance, reduced market malpractices, and enhanced investor confidence. This could translate into deeper market participation and more efficient capital allocation.
• Potential for Further Financial Sector Reforms: This Bill could be a precursor to further legislative consolidation or reforms in the broader financial sector, moving towards a more unified regulatory framework as previously suggested by the FSLRC.

Related Upcoming Events/Deadlines/Summits:

• Union Budgets: Upcoming Union Budgets will be crucial for any financial allocations or policy statements related to strengthening SEBI or implementing the new Act.
• SEBI Board Meetings: Regular SEBI board meetings will likely discuss implementation strategies, new regulatory frameworks, and enforcement actions arising from the enhanced powers.
• Global Financial Stability Reports: International bodies like the IMF and World Bank will continue to publish reports on global and Indian financial stability, which may comment on the impact of such legislative reforms.
• G20 Summits: As India continues its leadership role in global forums, discussions on financial regulation and market integrity at G20 meetings could highlight the country's proactive steps.

Areas Requiring Monitoring for Exam Updates:

• Final Provisions of the Act: Aspirants must be aware of any significant changes or amendments made to the Bill during its passage through Parliament.
• Composition of the Expanded SEBI Board: Key appointments to SEBI's governing body will be important.
• Specific Rules on Conflict of Interest: The detailed regulations framed by SEBI on conflict of interest for its officials will be a critical area to watch.
• Market Reactions and Regulatory Challenges: Any major market shifts, increase in enforcement actions, or legal challenges to the new provisions will be important for current affairs updates.
• Impact on Ease of Doing Business Rankings: Monitor how these reforms might influence India's global rankings in areas related to investor protection and financial market efficiency.