When regulators write criminal laws

The Securities Markets Code Bill assures delegation of procedure and detail, but also permits delegation of criminalisation.

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The Securities Markets Code Bill, 2025 (Code), currently under examination by the Standing Committee, promises a modern and streamlined framework for securities regulation. Among its most welcome features is decriminalising securities market misconduct. Yet the promise is undermined by a provision that allows the Securities and Exchange Board of India (Sebi) to expand the category of criminal conduct through regulation. The result is a striking paradox: Parliament reduces the scope of criminal law while empowering the regulator to enlarge it.

Clause 93 of the Code prohibits "market abuse". Clauses 93(a) to 93(f) identify six categories of conduct as market abuse: Insider trading, fraudulent schemes to deceive investors, trading on material non-public information, disseminating false or misleading information to influence markets, market manipulation through abuse of position, and frontrunning ahead of substantial impending transactions. These are indeed serious forms of misconduct.

Whether one agrees with every aspect of their formulation, they share an important characteristic: Parliament itself has chosen to define them.

The difficulty lies in Clause 93(g), which extends market abuse to "such other activities as may be specified by regulations which adversely affect the integrity of the securities markets". This is not merely a power to fill in details. It authorises Sebi to determine what additional conduct shall constitute market abuse. Since market abuse is the sole category of securities-market misconduct that remains criminal under the Code, the practical effect is that Sebi may expand the scope of criminal liability through subordinate legislation.