Almost five years ago, a single sentence tucked into finance minister (FM) Nirmala Sitharaman’s Budget speech of February 2021 should have reshaped India’s capital market regulation: “I propose to consolidate the provisions of the SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007 into a rationalised single Securities Markets Code.”
Then came complete silence. No white paper. No draft legislation. No consultation. Nothing that would normally accompany a reform of this scale.
That silence finally broke on 22nd November, when the Securities Market(s) Code Bill, 2025 (SMC Bill) was quietly listed for introduction in the winter session of Parliament which began on 1st December. As I write this column on 15th December, the text of the Bill is still not in the public domain. Whether this long-overdue overhaul will finally see the light of day or be pushed back yet again, remains an open question.
The logic behind a securities markets code is straightforward and has been evident ever since the Securities and Exchange Board of India (SEBI) came into existence around 1990 and was given statutory backing in 1992. India’s capital market has since grown exponentially in scale, complexity and technological sophistication, while the legal framework governing it remains fragmented across statutes drafted decades apart, for very different market realities.
For instance, the Securities Contracts (Regulation) Act (SCRA) dates back to 1956, an era of open outcry trading floors, physical share certificates and no market regulator. Oversight of stock exchanges was then with the ministry of corporate affairs (MCA). When SEBI was set up in 1992, SCRA ought to have been subsumed into the new regulator’s statute. But MCA and the finance ministry bureaucrats, unwilling to surrender powers, ensured that this never happened. This did not change even in the past two decades, although the same minister has presided over the finance ministry as well as MCA for well over a decade. In 1992, GV Ramakrishna, SEBI’s finest chairman, chose pragmatism and thought it better for SEBI to get its statutory teeth rather than fight over regulatory turf.
The Depositories Act, enacted in 1996, was an even stranger creature. Drafted and piloted by SEBI, it nevertheless ensured that depositories would not be fully under the regulator’s control. Its principal architect, CB Bhave, went on to become managing director of the first depository, the National Securities Depository Limited (NSDL). With strong backing from SEBI, India adopted mandatory dematerialisation for secondary market trading, a transformative reform that allowed NSDL to become a near-monopoly for many years. Meanwhile, although titled Depositories Act, the Act’s structure allowed NSDL to quickly expand into activities well outside SEBI’s regulatory perimeter, creating an organisation that was indispensable to the financial system yet not fully accountable to any single regulator.
By the mid-2000s, the consequences of this fragmented oversight were already visible. NSDL was running the Tax Information Network for the income-tax department, dematerialising National Savings Certificates and Kisan Vikas Patras, acting as record-keeper for the National Pension System, handling warehousing receipts for commodity exchanges, maintaining the National Skills Registry for NASSCOM, and later became a technology partner for the GST (goods and services tax) information utility. These systemically important functions spanning taxation, savings, pensions and commodities were entirely outside SEBI’s jurisdiction. It created what I had described as a regulatory fog in which no single authority had a full view of risks, controls or conflicts. (Read: NSDL's spreading electronic tentacles)
This had tangible consequences. NSDL’s failure to detect DSQ Software’s chicanery, where promoter Dinesh Dalmia issued 50% additional capital to make good a delivery shortfall arising from speculative excesses in the Calcutta Stock Exchange exposed serious holes in supervision. This was followed by the multiple application scam in initial public offers (IPOs), forcing incremental changes in NSDL, rather than a fundamental rethink. Over time, both NSDL and CDSL shifted several non-core activities into wholly-owned subsidiaries with separate regulatory frameworks. But this structural clean-up did not resolve the core problem -- depositories and their subsidiaries are variously answerable to the Reserve Bank of India (RBI), SEBI, the insurance regulator and others, with no single regulator responsible for holistic oversight of systemic risk, data security or conflicts of interest.
The failure to consolidate the Depository Act under SEBI was evident two decades ago; but successive governments only tinkered with the rules. Jurisdictional overlaps, conflicting definitions and regulatory gaps remained a feature of India’s market architecture. It is against this backdrop that SMC assumes importance.
Will Things Change?
Will the finance ministry now deliver statutory reform that genuinely meets its stated objectives of reducing duplication, streamlining compliance, eliminating obsolete provisions and improving ease of doing business? At present, there is no way of knowing. There is no draft Bill; no explanatory memorandum; and no white paper setting out what will be retained, what will be discarded and how the transition will be managed.
The delay is all the more striking, given that the broader debate on financial sector law reform is not new. In 2013, at the height of the United Progressive Alliance’s (UPA’s) controversial second term, the financial sector legislative reforms commission (FSLRC) proposed sweeping reforms that re-imagined the financial and regulatory architecture. It recommended replacing 60 laws and creating a unified Indian Financial Code that included all five financial regulators. The report was too ambitious, disruptive and threatened established regulatory fiefdoms.
This was probably because those drafting process itself was dominated by people connected with the National Stock Exchange (NSE) which had already grown into powerful and dominant monopoly (Read: Absolute Power). It was further marred by multiple dissent notes from members. A change in government in 2014 ensured that most of its recommendations were quietly shelved.
What has survived from that exercise is the modest idea of consolidating securities market laws. Even that has taken five years to move from a Budget announcement to Parliament’s legislative calendar.
What We Still Don't Know
As always, the devil lies in the details. There is still no clarity on whether the Government Securities Act, 2007 will, indeed, be folded into the new Code, as originally proposed, or how such a merger would alter oversight of the government bond market. There is no public explanation of how ongoing investigations, enforcement actions and adjudication proceedings under existing statutes will be transitioned. Nor is there any indication of how SEBI’s expanded authority will be balanced with checks, appeal mechanisms or external oversight.
These questions may be addressed if the Bill is referred to the Parliament’s standing committee on finance for detailed scrutiny. That process, at least in theory, will allow stakeholder submissions and some questions. But even that procedural safeguard cannot obscure another discomforting issue that continues to be studiously avoided by the government.
SEBI has just emerged from one of the most damaging controversies in its existence, involving allegations of conflict of interest against its former chairperson. The government chose to protect her and allow her to complete her term, but the episode raised serious questions about its code of conduct, board oversight and governance standards. One might have expected that a consolidation of statutes to give greater powers to SEBI would be preceded by a hard look at the market regulator’s accountability structures.
Instead, a key internal reform remains unfinished. A revamped Code to address conflicts of interest among board level officials has still not been adopted, although a report has been submitted. There is also no signal that the finance ministry intends to strengthen parliamentary scrutiny of the regulator, enhance transparency around enforcement, or introduce independent oversight commensurate with SEBI’s expanding remit.
Concentrated power demands concentrated accountability and the promise of reform without addressing this issue falls short of its stated objective. Giving SEBI more powers without fixing governance issues does not inspire confidence, especially when it is frequently pulled up by the courts for regulatory overreach.
A modern capital market needs a coherent legal framework and a regulator that is demonstrably accountable and transparently supervised. Without that, the Securities Markets Code is just another exercise in legislative tinkering, but will fall short of what India’s investors need.
SEBI -- at this point -- doesn't deserve to exist. Why are people obsessed with power instead of governance? SEBI wants sadomasochism without boundaries. Power is a helluva drug.
And our legal system is a joke. We need a hard reset -- nuke every single law and build from scratch. There are simply too many legal workarounds that enables parties to go to courts and waste tax payer money.
SEBI is chasing fininfluencers only. Big trading firms control the market. Look at options premium closely. Option premium moves ahead of underlying. This is wrong practice. Underlying must drives premium in option. They first create option position and then drive underlying to their benefit. Jane Street is gone but the practice is still there intact
I have no problem with finfluencers if they add good value to consumers in good faith. In fact, we need more of these folks. It's good for the market, it's good for consumers. Some of it might be misleading, but that's the whole point and where fiduciaries step in. Instead, SEBI has destroyed the fiduciary profession -- this is my beef with SEBI. And they have no shame or repentance.
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And our legal system is a joke. We need a hard reset -- nuke every single law and build from scratch. There are simply too many legal workarounds that enables parties to go to courts and waste tax payer money.