New securities code leaves investors exposed

A missing statutory purpose and a flawed grievance architecture could erode investor trust

- M S SAHOO & SUMIT AGRAWAL

India’s securities markets are now firmly in the retail era. Millions of first-time investors participate through digital platforms, mutual funds, and retirement-linked products. For them, trust in the regulatory framework is not an abstraction; it is the condition that makes participation possible. The Securities Markets Code Bill, 2025, (Code) must, therefore, be viewed through the prism of investor protection.

The Code is an ambitious attempt to consolidate three securities laws into a single, modern statute. By merging multiple legacy enactments, it seeks to reduce fragmentation, eliminate overlaps, and simplify regulatory processes. These are commendable legislative policy goals. But they cannot substitute for the substantive objectives of the legislation.

Parliament enacts laws to achieve defined public purposes. These purposes are typically reflected in the preamble of the statute and elaborated in the Statement of Objects and Reasons. The Code, however, articulates no substantive objective beyond consolidation and amendment. In doing so, it misses the foundational objectives embedded in the laws it seeks to replace.

One of the statutes being subsumed is the Securities and Exchange Board of India (Sebi) Act, 1992, which established India's first modern regulator. The Act’s preamble stated its purpose — to protect the interests of investors in securities. The articulation was deliberate: It recognised that investor confidence, especially among retail investors, is critical for a credible securities market. While the Code retains investor protection within Sebi’s mandate, it no longer articulates it as the statute’s animating purpose.