Securities Market Code Bill introduced in Lok Sabha: Here are major proposed reforms

The language of the Code has been simplified to remove obsolete and redundant concepts, to eliminate duplication of provisions, to incorporate consistent regulatory procedures for standard processes, and to ensure a uniform and streamlined framework of Securities Laws, it said.

Here are major proposed reforms in the Bill:

Governance:

Reform 1. The number of Members of SEBI Board is proposed to be increased up to 15 from current provision of 9 members under the SEBI Act.

Reform 2. New ground for removal of member if he has acquired any financial or other interests that are likely to prejudice his function.

Reform 3. It requires a member to disclose any ‘direct or indirect’ interest [including such interest of family members concerning the subject matter of the Board meeting and refrain from participation where such interests exist.

Reform 4: Enhancements in the Powers and Functions of SEBI: SEBI is granted with additional functions like reviewing its performance and functioning, and the proportionality and effectiveness of its regulations, new progressive features such as capacity building of its employees and research, periodic study. SEBI is required to lay down principles for guiding the implementation of the Code.

Reform 5. SMC incorporates the principle of codifying a transparent and consultative regulation making process. Public Consultation by SEBI, MIIs and Central Government is mandatory.

Reform 6. SMC codifies the principle to maintain arm’s-length separation between its fact-finding exercise like inspection or investigation and enforcement actions like issuance of show-cause notice and adjudication etc.

Ease of compliance and Ease of doing business

Reform 7. Decriminalisation of Securities Laws: SMC has bucketed the contraventions into two separate categories. The first category of contraventions are violations of prohibition of fraudulent and unfair practices, which shall not attract criminal liability. This category of contraventions has been effectively decriminalized and shall only attract civil penalties. The second category of contraventions called ‘market abuse’ are graver violations that affect market integrity and affect public interest adversely. Such contraventions shall in addition to attracting civil penalties may also be treated as an offence.

Reform 8. Strengthening Market Infrastructure Institutions (MIIs): SMC recognizes the concept of ‘MIIs’, which includes stock exchanges, clearing corporations and depositories. New category of MIIs can be notified by Central government.

Reform 9. The MIIs are empowered to make bye-laws in line with current market practices and principles laid down under SMC which ensure non-discriminatory access to its services, minimize market abuse, ensure interoperability with other MIIs and foster transparency.

Reform 10. Further, to facilitate effective regulation, SEBI has been empowered to delegate some part of its registration function to Market Infrastructure Institutions and Self-Regulatory Organizations.

Reform 11. Regulatory Sandbox: The proposed Bill provides an enabling provision for the Board to establish a Regulatory Sandbox to facilitate innovation in financial products, contracts & services.

Investor Protection:

Reform 12. Anchor for the Investor Charter: SEBI to specify an ‘investor charter’, for the protection of investors and to facilitate their participation in the securities markets. The ‘investor charter’, will provide the principles for protection of investors and facilitating their participation in the securities markets and other matters concerning the investors.

Reform 13. Strengthen Grievance Redressal Mechanism: The Code provides for SEBI to lay down Investor Grievance Redressal Mechanism and direct Securities markets service Providers (SMSPs) & issuers to set up similar such mechanism.

Reform 14. SMC empowers SEBI to designate one or more of its officers as Ombudsperson to redress investor grievances effectively and in a time bound manner.

Inter-Regulatory Coordination

Reform 15. To enhance investment climate and market making, the Code provides an enabling framework for inter-regulatory coordination, wherein SEBI in consultation with other regulatory authority concerned may make regulations to enable a seamless process for listing of ‘other regulated instruments’ and to ensure better coordination among Market Infrastructure Institutions (MIIs) in terms of interoperability of any platform.