A parliamentary committee has proposed key amendments to the Securities Markets Code Bill, including limiting the regulator's power to define new criminal offenses. The move aims to bring more clarity to market rules while keeping the controversial requirement for SEBI to transfer surplus funds to the government.
Detailed Coverage
The Parliamentary Standing Committee on Finance has proposed significant revisions to the draft Securities Markets Code (SMC) Bill, a move that could redefine how Indian financial markets are regulated. The committee’s recommendations seek to balance the powers of the Securities and Exchange Board of India (SEBI) with the need for clear legislative oversight.
Limits on Criminal Enforcement
One of the most notable recommendations is the deletion of Clause 93(g), a provision that would have allowed the regulator to independently widen the scope of what constitutes a criminal offense. The committee argued that the power to define new criminal acts should rest solely with Parliament, not the regulator. By recommending that all acts punishable by criminal penalties be clearly listed within the Code, the committee aims to prevent uncertainty for market participants. This change seeks to ensure that serious market abuses are handled through established legal frameworks rather than open-ended administrative discretion.
SEBI Financials and Surplus Transfer
While the committee suggested various reforms, it retained the contentious requirement that forces SEBI to transfer a portion of its annual surplus to the Consolidated Fund of India. Under the proposed bill, 25% of the surplus will be moved to a reserve fund, with a cap linked to two years of operating expenses. This remains a point of debate among experts, as it raises questions about whether regulatory fees should be used to fund government coffers or strictly kept for market supervision. According to recent financial data for FY25, SEBI reported a total income of ₹2,712.4 crore against expenses of ₹1,278.3 crore. The income growth was driven by fees and charges totaling ₹2,334 crore, reflecting increased market activity compared to the previous year's collection of ₹1,851.48 crore.
Strengthening Regulatory Clarity
Beyond criminal provisions, the committee pushed for a revised preamble to the bill. This update is designed to explicitly state that the Code’s core mission is to protect investors and foster market development. Additionally, the panel introduced clearer guidelines for investigations, specifying that investigation notices should generally be issued to the targeted individual, with exceptions made only in cases where there is a risk of evidence tampering. The committee also set a 120-day timeline for the ombudsperson to address investor grievances, aiming to streamline the dispute resolution process.
These recommendations now set the stage for further legislative review. For investors and market entities, the final shape of the bill will be important, as it defines the boundaries of regulatory authority and the stability of the rules governing listed companies and intermediaries.