Sebi to set up a panel to suggest changes to SCRA

The Securities and Exchange Board of India (Sebi) plans to form an expert committee to suggest changes to the 67-year-old Securities Contract Regulation Act (SCRA), two people with direct knowledge of the matter said.

The changes are expected to be made to simplify the law and weed out redundant provisions. Several changes will be discussed for various aspects of the Act, including Sebi’s penalty powers and the regulatory framework for market institutions, according to the people.

SCRA is a key legislation under which Sebi and the stock exchanges derive various operational powers. Over the years, the Act has been amended several times to accommodate newer positions since it was passed by Parliament in 1956. From a derivatives market perspective, SCRA is a crucial law as it defines the basic rules for such contracts.

Sebi functions under two types of laws: rules and regulations. Rules, such as the Sebi Act, are enacted by Parliament and can only be amended by it. On the other hand, Sebi, in its role as a markets regulator, issues regulations that can be revised internally. SCRA falls under the category of rules that can be amended only by Parliament.

An email sent to a spokesperson for Sebi remained unanswered till the time of going to press.

“Based on the expert committee report, Sebi will recommend to the government possible tweaks for SCRA,” one of the two people cited above said, requesting anonymity. “There are a lot of redundant provisions in SCRA that will be taken up by the committee. Also, there is a discussion going on about enhanced criminal prosecution powers for Sebi—this issue is also likely to be examined by the committee.”

SCRA provides the framework for Sebi to impose penalties and initiate criminal proceedings for market violations. Sebi has powers akin to a civil court to issue directions and impose monetary penalties on wrongdoers. However, if Sebi wants to prosecute someone under criminal law, it has to go through regular criminal courts. While Sebi has sparingly used the provision, preferring to punish violators through penalties, discussions are now ongoing to enhance its powers in this regard, said the person cited above.

The central government has initiated a comprehensive revamp of all outdated laws to improve the ease of doing business in India. On one front, the government plans to repeal 1,500 obsolete laws, as announced last year. On the other, the government is replacing some of the old laws with newer rules.

For instance, the government revamped the Foreign Exchange Management Act (FEMA) rules two years ago. The Sebi Act, passed by Parliament in 1992, is also in the process of revamping.

Even Sebi has followed a similar trend of replacing older rules with newer ones more suitable for current-day markets. Sebi has already revamped regulations pertaining to insider trading rules, fraudulent trade practices and foreign portfolio investors, among others.

“The compliance rules around stock exchanges in SCRA would need a lot of changes. These rules were introduced during a time when India had dozens of regional stock exchanges, but now the scenario is very different,” said the second person, also declining to be named. “Even in derivative contracts, rules would need tweaks as we witness newer kinds of regulatory challenges emerging on that front.”

Subsequent to the publication of this story, the market regulator said in a statement that: “Sebi has neither formed nor has considered formation of any such committee for review of the Securities Contracts (Regulation) Act, 1956, and there are no ongoing discussions for any enhanced prosecution powers for Sebi.”