Securities Markets Code 2025: Reinventing Market Regulation – Economic Survey 2025-26
The regulation of securities markets is fundamental to maintaining investor confidence and ensuring fair, efficient markets. The Economic Survey 2025-26 discusses ongoing reforms in financial sector regulation, including efforts to consolidate and modernize the legal framework governing capital markets. The Securities Markets Code represents a significant initiative to bring coherence to securities law in India.
The Need for Consolidation
India's securities markets are currently governed by multiple laws enacted at different times. The Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, and the Depositories Act, 1996 form the primary legislative framework. Additionally, regulations, circulars, and orders issued by SEBI create a complex regulatory landscape.
This multiplicity of laws creates several challenges. First, there are overlaps and inconsistencies between different statutes. Second, some provisions have become outdated as markets have evolved. Third, the fragmented framework makes compliance complex for market participants. Fourth, new products and practices may fall into regulatory gaps.
A comprehensive Securities Markets Code aims to consolidate these laws into a single, modern, coherent framework better suited to contemporary markets.
Key Objectives of the Code
While specific provisions depend on the final legislation, the objectives of securities law reform typically include:
Investor Protection: Strengthening provisions against fraud, insider trading, and market manipulation. Clear disclosure requirements ensure investors have information needed for informed decisions.
Market Development: Creating an enabling framework for new products, trading mechanisms, and market infrastructure. Regulatory certainty encourages innovation and investment.
Regulatory Efficiency: Streamlining procedures for approvals, enforcement, and dispute resolution. Reducing regulatory burden while maintaining oversight effectiveness.
Global Standards: Aligning with international best practices as articulated by IOSCO (International Organization of Securities Commissions) and other global bodies.
SEBI's Evolving Role
SEBI, established in 1992, has evolved significantly over three decades. From a regulator primarily focused on primary market issuances, it now oversees a complex ecosystem including stock exchanges, depositories, mutual funds, portfolio managers, investment advisers, credit rating agencies, and more.
Recent years have seen SEBI take on additional responsibilities including regulation of Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and alternative investment funds. The regulator has also played an expanded role in corporate governance, disclosure requirements, and market surveillance.
A comprehensive Securities Markets Code would define SEBI's powers and responsibilities clearly, potentially expanding some while providing clearer boundaries for others.
Investor Protection Mechanisms
The Economic Survey 2025-26's discussion of growing investor participation – 12 crore unique investors – underscores the importance of robust investor protection. Key protection mechanisms include:
Disclosure Requirements: Listed companies must disclose material information that could affect investment decisions. Continuous disclosure ensures markets have current information.
Insider Trading Prohibition: Persons with access to unpublished price-sensitive information cannot trade on that information, ensuring fair treatment of all investors.
Fraud and Manipulation Prevention: Market manipulation techniques like front-running, pump-and-dump schemes, and spoofing are prohibited.
Grievance Redressal: SCORES (SEBI Complaints Redress System) provides an online platform for investor complaints.
Investor Education: SEBI and exchanges conduct investor education programs to improve financial literacy.
Market Infrastructure Regulation
Stock exchanges, clearing corporations, and depositories form the market infrastructure. Their regulation ensures smooth functioning of trading, clearing, and settlement processes.
A consolidated code would address:
Exchange Governance: Ownership structures, board composition, and conflict of interest management at exchanges.
Clearing and Settlement: Risk management frameworks, margin requirements, and default procedures at clearing corporations.
Depositories: Operations, participant regulation, and investor protection at NSDL and CDSL.
Interoperability: Enabling seamless movement of securities between depositories and trading across exchanges.
Enforcement and Penalties
Effective regulation requires strong enforcement. SEBI has quasi-judicial powers to conduct inquiries, issue orders, and impose penalties. A modernized framework would:
Rationalize Penalties: Ensure penalties are proportionate to the severity of violations and provide effective deterrence.
Expedite Proceedings: Reduce time taken for investigations and adjudications through procedural improvements.
Recovery Mechanisms: Strengthen mechanisms for recovering penalties and disgorgement amounts from violators.
Settlement Options: Consent and settlement mechanisms allow expeditious resolution of certain cases.
Technology and Market Evolution
Securities markets have been transformed by technology. Algorithmic trading, high-frequency trading, digital securities, and cryptocurrency-related products present regulatory challenges not contemplated in older laws.
A future-ready Securities Markets Code must:
Enable Innovation: Provide principles-based frameworks that can accommodate new products and technologies.
Manage Risks: Address systemic risks from algorithmic trading, cyber threats, and interconnected market infrastructure.
Ensure Fairness: Prevent technological advantages from creating unfair advantages over retail investors.
UPSC Relevance: Capital Market Regulation
Capital market regulation appears in UPSC in:
- GS-III: Capital markets, SEBI functions, investor protection
- Economy Optional: Detailed study of market regulation
- Current Affairs: Recent regulatory developments
Practice MCQs on Securities Markets - Economic Survey 2025-26
Q1. SEBI was established in:
(a) 1988
(b) 1992
(c) 1996
(d) 2000
Answer: (b) 1992
Q2. The primary law governing securities contracts in India is:
(a) Companies Act
(b) Securities Contracts (Regulation) Act
(c) Banking Regulation Act
(d) RBI Act
Answer: (b) Securities Contracts (Regulation) Act, 1956
Q3. According to Economic Survey 2025-26, India has how many unique investors?
(a) 5 crore
(b) 8 crore
(c) 12 crore
(d) 20 crore
Answer: (c) 12 crore
Q4. SCORES is related to:
(a) Credit rating
(b) Investor grievance redressal
(c) Stock price calculation
(d) Mutual fund ranking
Answer: (b) SEBI Complaints Redress System
Q5. Depositories in India include:
(a) NSDL and CDSL
(b) RBI and SBI
(c) NSE and BSE
(d) SEBI and IRDA
Answer: (a) NSDL and CDSL
Conclusion
Securities market regulation is evolving to keep pace with market development, as the Economic Survey 2025-26's discussion of financial sector reforms indicates. A comprehensive Securities Markets Code that consolidates existing laws, strengthens investor protection, and enables market development would represent a significant step forward. With 12 crore investors participating in markets, the stakes for getting regulation right have never been higher. Balancing innovation with protection, efficiency with oversight, and global integration with domestic priorities will define the success of future regulatory frameworks.