Impinging upon regulator's autonomy

The proposal to cap Sebi’s spending and route its surplus to the government is a bad idea

- AJAY TYAGI

In the recently concluded Winter Session of Parliament, the government introduced the Securities Markets Code, 2025, Bill to consolidate and amend the laws relating to the securities markets.

This column focuses on Clause 124 of the Bill, which deals with the transfer of the Securities and Exchange Board of India’s (Sebi’s) annual surplus general fund to the Consolidated Fund of India (CFI).

So, what in a nutshell is the proposed change to the existing provisions? What are the inflows into and outflows from this fund? The fees and charges levied by Sebi on market infrastructure institutions, regulated entities, and market participants constitute the inflows to this fund. The fund is utilised to meet the expenditure, both revenue and capital, of the regulator. The regulator's annual budget is approved by its board. This is how a financially autonomous institution is expected to work.

Now, according to the proposed amendment, the statute hard codes the ceiling of the regulator’s annual funding requirement, with the balance of the fund accruing to the CFI. The relevant excerpts from Clause 124 say:

“...(3) The Board shall constitute a reserve fund and twenty-five per cent of the annual surplus of the General Fund in any financial year shall be credited to such reserve fund which shall not exceed the total of annual expenditure of the preceding two financial years.

(5) After crediting the portion of the annual surplus under subsection (3), the remaining annual surplus of the General Fund for that financial year shall be credited to the Consolidated Fund of India...”