In the Budget 2021 speech, the Finance Minister announced a proposal “to consolidate the provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007 into a rationalized single Securities Markets Code.” When implemented, this would represent a significant step in the modernization of securities regulation in India.
In my column in BloombergQuint, I set out a wish list for the features that such a proposed Code ought to contain. First, it must address issues of territoriality, by which the current fragmentation surrounding financial market regulation (with multiple regulations and multiple regulators) must be addressed. It would be hard to eliminate regulatory turf wars altogether, but their effects can be mitigated. Second, the Code must aim for longevity. Rather than operate as a quick fix to resolve immediate problems, it ought to be designed as an enduring legislative mechanisms.
Third, given the overarching nature of the Code, a substantial part of the regulatory framework is likely to be determined by subordinate legislation enacted by the securities regulator. In this regard, transparency in the process of regulation-making is of utmost importance, which will also enable greater levels of acceptability and compliance. Fourth, and finally, any legislation must be accompanied by enhancements in efficacy of the enforcement mechanisms. This would require capacity building efforts to shore up the quality and quantity of the regulator’s resources. In all, while the proposal towards a single securities markets code is welcome, the Government has its task cut out in devising the design for such a code and in outlining the steps towards accomplishing the same.