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The proposed Securities Markets Code, 2025, aims to unify three major financial laws to improve regulatory transparency. While it seeks to modernize Sebi's governance, the proposal has sparked discussion on the eight-year investigation window and the structure of performance reviews, which directly affect corporate and investor sentiment.
What Happened
The Indian government has introduced the Securities Markets Code, 2025 (SMC), a major legislative proposal designed to simplify and unify three key existing laws: the Securities Contracts (Regulation) Act of 1956, the Sebi Act of 1992, and the Depositories Act of 1996. The core objective is to modernize the regulatory framework, bringing greater transparency, accountability, and better governance to the Securities and Exchange Board of India (Sebi).
Why This Matters For Investors
Regulatory changes are fundamental to the stock market because they define the rules of the game. A more efficient and transparent regulator helps build trust, which can attract more capital into the markets. When the rules are clearer and the regulator is more accountable, companies operate with more certainty. However, investors often watch for "regulatory overhang," which happens when new rules create uncertainty or when investigation processes remain unclear for too long, potentially impacting company valuations and stock performance.
The Debate on Accountability and Reviews
The SMC introduces a mandate for Sebi to periodically review its own performance and the effectiveness of its regulations. This is a step toward making the regulator more accountable. However, there is ongoing discussion about how these reviews should be conducted. Some suggest that internal evaluations could lead to conflicts of interest. To ensure transparency, there are calls for these reviews to be handled by independent, third-party entities, similar to how market infrastructure institutions are audited. Additionally, there are suggestions to designate senior Sebi officials as Key Managerial Personnel (KMP) to improve the clarity of authority and decision-making, mirroring corporate governance standards applied to listed companies.
The Investigation Timeline Issue
A critical point of discussion is the proposed eight-year window for starting investigations into market entities. For businesses and their shareholders, an investigation that hangs over a company for nearly a decade creates significant uncertainty. Many market participants argue that this period is excessively long and could hinder the ease of doing business. The suggestion is to reduce this window to five years or less to provide faster resolution. Furthermore, there is a push to encourage "rectification" rather than immediate adjudication—meaning that if a minor, unintentional deficiency is found, the company should be given a chance to fix it before the regulator launches a full-scale legal proceeding.
Modernizing Regulatory Scope
As the market becomes more digital, the SMC also aims to modernize regulatory reach. The proposal acknowledges that Sebi needs to regulate intermediaries effectively. There is an argument that the code should also establish clear principles for overseeing critical technology and telecom providers that form the backbone of modern digital financial infrastructure. Ensuring these tech providers are held to high standards is vital for maintaining market stability.
What Investors Should Track
Investors should monitor the progression of this code, particularly the final wording on investigation timelines and the mechanisms for regulatory performance reviews. The final rules will dictate how quickly disputes are resolved and how much regulatory clarity companies will have. Keep an eye on any official clarifications or amendments that address these concerns, as they will signal the government's approach to balancing strict enforcement with the ease of doing business for listed entities.