Securities Markets Code, 2025: How it can create a future-ready regulatory framework

The Securities Markets Code, 2025 is envisaged to streamline the regulatory framework governing the securities markets. A transactional framework is essential in a market that is inherently highly regulated. The Code has been introduced in Parliament and referred to a Parliamentary Committee for its views. In the previous part, I outlined the provisions that capital market participants would like to see changed in the Code. In this article, I focus on some new steps that can be considered.

Legislation is a long and intensive process, and legislation is not reviewed frequently. It is therefore important that any comprehensive exercise anticipates future trends and creates a regulatory framework that can respond to them. India’s capital markets are poised to become one of the top five globally. To support the growth and governance of such a large market, we need a robust code that enables simplicity, speed and ease of transaction execution. In this regard, I offer a few suggestions.

First, the proposed code does not introduce sufficient innovation. It does not adequately provide for new tools or new types of transactions. For example, listings without offers are not considered. Currently, a company can list only by offering existing shares or by issuing new ones. However, sometimes a company does not need new capital, and existing shareholders may not want to sell their holdings. There should be a mechanism that allows companies to list without an offer. This will improve governance, increase liquidity and expand the market.

Second, there is the case of creating a trading platform for unlisted companies. Currently, securities can only be traded when a company makes a public offer and is listed. There may be situations where a company needs limited trading access rather than a full list. A regulated platform for such trading will facilitate liquidity, enable transparent price discovery and expand market participation. This is a practical idea that deserves consideration within the code.

Third, electronic voting for shareholder meetings, while effective in theory, presents some implementation challenges. In particular, the power given to portfolio managers to vote on behalf of multiple investors may lead to results that may not fully reflect individual shareholder preferences. The introduction of this code provides an opportunity to review the voting system to ensure that voting results are fair, transparent and consistent with the principles of shareholder democracy.

Another important aspect is the role of market infrastructure institutions. The Code continues to assign a quasi-regulatory role to stock exchanges and depositories despite their status as commercial entities. This creates multiple levels of approval, requiring market participants to seek approval from these institutions before approaching the Securities and Exchange Board of India. For greater efficiency and regulatory certainty, there should be a single regulatory authority, with these bodies focusing on operational and enforcement responsibilities.

Finally, it is important to recognize the evolution of the Securities and Exchange Board of India, which recently celebrated its 38th foundation day. It is now a well-established and mature regulator. The Code should formally recognize it as the sole regulator for listed companies. Currently, listed companies interact with multiple authorities including SEBI, Market Infrastructure Organizations, Competition Commission of India, Ministry of Corporate Affairs and in some cases the National Company Law Tribunal. This multiplicity often leads to delays in corporate actions such as restructuring, mergers, demergers and minority squeeze outs. Given the central role of shareholder approvals and the existing review processes, it would be efficient to have final approval for such matters only with SEBI.

It is a timely and necessary objective to formulate a securities market code that reflects the needs of the next phase of growth in India’s capital markets. The effort should go beyond current needs and create a framework that is ready for the next phase of evolution.

(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)