Markets Code tabled in Lok Sabha: Key provisions of Bill that allows removal of Sebi Board member over conflict of interest

Under the proposed code, the strength of the SEBI Board will be increased to 15 members from the current provision of nine.

The Bill empowers the removal of a Sebi Board member if they acquire any financial or other interest likely to prejudice the discharge of official functions.

Finance Minister Nirmala Sitharaman on Thursday tabled the Securities Markets Code (SMC), 2025, which replaces three existing laws, in Parliament. The Bill empowers the markets regulator to remove a board member for non-compliance, apart from laying down stricter conflict of interest disclosure requirements.

The Bill empowers the removal of a Sebi Board member if they acquire any financial or other interest likely to prejudice the discharge of official functions. Members will also be required to disclose any direct or indirect interest, including those of family members, in matters under consideration at board meetings and to recuse themselves where such interests exist.

Under the proposed code, the strength of the SEBI Board will be increased to 15 members from the current provision of nine. The board will consist of a chairperson, two members from the Central government dealing with finance and the administration of the Companies Act, 2013, one officer from the Reserve Bank of India, and 11 other members, of whom at least five will be whole-time members.

The Bill seeks to consolidate, rationalise and replace three existing securities laws — the Securities Contracts (Regulation) Act, 1956 (SCRA), the Securities and Exchange Board of India Act, 1992 (SEBI Act) and the Depositories Act, 1996.

Commenting on the Bill, JSA Advocates & Solicitors’ Partner Arka Mookerjee said, “The Securities Market Code marks a consolidation of three key regulations in the Indian securities market — the SCRA, the SEBI Act and the Depositories Act. However, while this consolidation will likely help practitioners and the market alike, the details on subordinate legislation, namely the SEBI rules, regulations, circulars and guidelines, will remain to be seen.”

The SMC proposes the decriminalisation of securities laws, classifying contraventions into two categories. The first category covers violations relating to fraudulent and unfair trade practices, which will not attract criminal liability. The second category, termed “market abuse”, covers graver violations that adversely affect market integrity and public interest. Such contraventions may attract civil penalties and could also be treated as offences.

The Bill empowers SEBI to delegate parts of its registration functions to Market Infrastructure Institutions (MIIs) and Self-Regulatory Organisations (SROs) to facilitate more effective regulation.

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As part of the proposed framework, SEBI will be mandated to specify an investor charter to safeguard investor interests and encourage participation in the securities markets. The code also provides for SEBI to lay down an Investor Grievance Redressal Mechanism and to direct securities market service providers and issuers to establish similar mechanisms.

To improve the investment climate and promote market making, the code provides an enabling framework for inter-regulatory coordination. SEBI, in consultation with other regulators, may frame regulations to enable a seamless process for listing “other regulated instruments” and to ensure better coordination among MIIs, including interoperability across platforms.