Beyond consolidation

SECURITIES MARKET CODE A LOGICAL STEP FOR ORDERLY DEVELOPMENT, BUT NEED FUTURE-PROOF FRAMEWORK

- SANDEEP PAREKH

ABOUT TWO MONTHS ago, the government introduced the much-awaited Securities Market Code (SMC), 2025, now being scrutinised by the Parliamentary Standing Committee on Finance. The SMC consolidates scattered laws into one coherent statute, eliminates redundancies, and represents a forward-looking approach to securities regulation. While it incorporates lessons from three decades of market evolution, it falls short on certain structural aspects, which are discussed in this article.

Segregation of functions

The Supreme Court and various commissions and committees have repeatedly noted that the Securities and Exchange Board of India (Sebi) is a unique regulator in as much as it performs legislative, executive, and judicial functions. Ordinarily, the arms performing these functions are separate and independent. At Sebi, however, the lines between these functions are entirely blurred. While a nominal segregation exists, personnel performing these functions are not truly ring-fenced. The SMC’s attempt to restrict investigative personnel from enforcement roles provides a more granular internal firewall, but these functions still reside within a single institutional hierarchy where personnel remain fungible. Moreover, such measures already exist and have not proven sufficient.

The segregation required must be deeply structural, not merely procedural. The SMC should restructure the regulator so that the institutional framework itself ensures ring-fencing. The divide between regulator, investigator, and judge should not be mere best-practice guidance, it should be hard law.