SEBI to set up a panel to suggest changes to SCRA

SEBI to set up a panel to suggest changes to SCRA

Subject :Economy

Section: Capital Market

In News: 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)

Key Points:

• 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.
• 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. For recommending changes to the SCRA an expert committee is to be set up.
• The purpose of changes:
  • 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
  • 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
  • With regards to the derivatives market, SCRA is a crucial law as it defines the basic rules for such contracts. There is a need to update the rules in derivative contracts, as we witness newer kinds of regulatory challenges emerging on that front.
  • 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.
  • Sebi has sparingly used the provision, preferring to punish violators through penalties, discussions are now ongoing to enhance its powers in this regard.
• Reform push agenda:
  • The central government has initiated a comprehensive revamp of all outdated laws to improve the ease of doing business in India.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 in 2022.
  • 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.
• SEBI regulation reforms:
  • 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.