Author: Kashish Ali, III year of B.A.,LL.B(Hons.) From Faculty of Law, Jamia Millia Islamia University, Delhi.
The existence of multiple legislations with respect to the financial sector has caused more incertitude than the legislators would have ever fathomed. To overcome the same, a Single Securities Code was introduced by the Finance Minister wherein a comprehensive code for the four most fundamental laws pertaining to the financial sector viz SEBI Act 1992, Depositories Act 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2006 was proposed. The author here makes an analysis of the Single Securities code, if introduced with both its pros and cons.
Though SEBI as the market regulator is bestowed with the responsibility of implementing these acts, on several past occasions, courts were compelled to interpret the effect of these acts on one another, thus, making it complicated. Also, the implementation of numerous legislation for every facet of the capital market frequently results in duplication and conflict as was also seen in dematerialized shares; in which experts needed to refer to diverse acts to make sure regulatory compliance.
Indeed, a unified code would enhance the operational efficiencies in terms of bringing down the turnaround time in matter of regulatory approvals. It may also offer investor community at large and market intermediaries with improved clarity in terms of the legalities of certain matters as, primarily, it will avoid a conflicting scenario. Secondly, it will also boost efficiency from an administrative point of view which would thereon enhance the ease of regulating quotient and simultaneously curtail the need for SEBI to expand its claws across securities and commodities markets. Also, it is high time that with changing times, draconian laws are also scrapped off and is replaced by a modern framework resulting in having a lean code, which is a lot in sync with the current ecosystem, thereby, unification of four laws into single would not only make the laws more cohesive, but will additionally be appropriate for the present era as some were introduced as early as 1956. This would also give the policy makers an opportunity to address all the current ambiguities within the regulatory framework and introduce provisions which may be presently missing.
Additionally, a single code would also offer massive operational efficiency to the regulator is already over-burdened with the task of regulating different forms of securities viz equity, commodity, currency, interest rate and stock exchanges, which give a mercantilism platform for government and private sector bonds as well. Moreover, unification of the securities market code would mean that Government Securities are also included which would augment the credibleness of government’s borrowings and the foreign capital flow in the country. Thus, if a comprehensive code is enforced; it will make compliances more efficient, transparent and enforcement of regulations simpler, thereby, lessening litigation. One code will also lead to overhauling of Securities Contract Regulation Act streamlining multiple laws, guidelines, ordinances and regulations.
Nevertheless, as SEBI (an outcome of early 90’s reform-era) acts as a watchdog to observe key aspects of the capital market transactions along with an enormous variety of investment vehicles like foreign investors and mutual funds, there's probability that the consolidation of the legislation right into a renewed Code may elevate the position of SEBI from a watchdog to that of a Super Regulator. It is important to consider that Supreme Court in case of SEBI vs IRDAI conflict over unit-linked insurance plans issued a clarion decision back in 2010 towards a revamp of financial laws, probably hinting on the formation of a super-regulator through the Central Government. Further, more recently, regulatory overlaps appear to have arisen between NFRA (National Financial Reporting Authority) and SEBI in penalizing quality lapses through audit corporations and auditors.
Also, the management and regulation of government securities presently lies with the Reserve Bank of India whereas trading of Government Securities along with other financial instruments on the stock exchanges is regulated by SEBI, thereby, including the Government Securities Act under the same umbrella with the SEBI Act and Securities Contracts (Regulation) Act, 1956, which is the regulative foothold of SEBI, poses potential overlap of powers between RBI and SEBI once again. However, while drafting a Single Code the clarification of regulatory jurisdiction of these agencies could be conquered and addressed.
Thus, it can be observed that there are numerous overlapping regulations and interpretations of different acts that require tweaks and amendments which could be easily attained by implementing a Consolidated Code that would also help in creating a modern financial law. Additionally, it will provide ease of operations for businesses and enhance confidence of investors thereby, leading to an overall flourishment of the securities market as well.
This initiative to introduce a unified code is a sign of wonderful things to come and a welcome step forward since it shows that the government and SEBI are committed to enhance the capital market ecosystem by strengthening the laws.