Securities and Exchange Board of India (SEBI) has proposed the Securities and Exchange Board of India (Procedure for making, amending, and reviewing of Regulations) Regulations, 2024, aiming to formalize its practices for pre-legislative consultation, rule issuance, and periodic review. While SEBI has consistently demonstrated transparency and stakeholder engagement through committees, public consultations, and the publication of Board decisions, these practices are not legally mandated. Codifying them into regulation will enhance governance, ensure consistency, and align with judicial expectations, as highlighted by the Supreme Court in the Cellular Operators Association of India v. TRAI case. The proposal includes mandatory public consultations with a 21-day comment period, provisions for urgent regulations, exemptions for non-substantive matters, and a framework for periodic reviews to maintain regulatory relevance. SEBI draws inspiration from domestic and international regulatory bodies like TRAI, CCI, and the U.S. SEC, which already mandate transparency and public engagement. The draft regulations aim to set a standard for legislative excellence in the financial sector, ensuring consistency, reducing procedural challenges, and addressing the dynamic needs of the securities market. These proposed changes are subject to Board approval and will require consequential amendments to existing SEBI orders to be implemented effectively.
Securities Exchange Board of India
Proposed Securities and Exchange Board of India (Procedure for making, amending and reviewing of Regulations) Regulations, 2024 to formalize the process of pre-legislative consultation, issuance and review of Regulations by SEBI.
1. Objective
This Memorandum seeks the approval of the Board for issuance of the proposed Securities and Exchange Board of India (Procedure for making, amending and reviewing of Regulations) Regulations, 2024 for codifying the procedure of public consultation and issuance and review of regulations by SEBI.
2.Background
2.1. Transparency, accountability, and stakeholder participation are fundamental principles of modern regulatory governance. As a statutory body, SEBI’s legislative powers involve making of regulations, issuing circulars, general orders etc. to develop and regulate the securities markets effectively.
2.2. While SEBI has demonstrated a strong commitment to stakeholder engagement and transparency, these practices though institutionalised have not been codified into law. Mandating such processes in a statutory instrument like Regulation would set a benchmark for excellence in legislative drafting in the financial sector in India.
2.3. This Memorandum outlines the rationale, comparative practices and proposed Regulations to formalize process for pre-legislative consultation, issuance and review of regulations in the securities market.
3. Current regulation-making practices in SEBI
3.1. SEBI has consistently adopted robust practices to ensure transparency in its regulation-making process. Key elements of the same include:
- Stakeholder engagement: Committees with diverse stakeholder representation deliberate on the proposed regulations.
- Public consultation: Consultation Papers are published on SEBI’s website for public comments.
- Publication of Board Decisions: Post-board decisions, agenda papers (excluding confidential information) are uploaded on SEBI’s website for dissemination.
3.2. While these measures reflect SEBI’s intent to uphold transparency, there is no statutory requirement mandating such practices. Codifying these processes into a regulation would enhance their legitimacy, sustainability and would be a further step in the direction of good governance.
4. Need for a Formalized Regulation
4.1. Enhancing Transparency and Governance:
While SEBI has voluntarily adopted transparency measures and institutionalized these practices, a dedicated regulation would reduce reliance on discretionary decisions.
4.2. Judicial Expectations:
The Supreme Court of India in the case of Cellular Operators Association of India v. Telecom Regulatory Authority of India1, emphasized on the importance of a transparent and reasoned process in subordinate legislation-making. Formalizing such processes would ensure compliance with these judicial expectations.
4.3. Consistency Across Regulations:
A codified framework would ensure uniformity across the consultation and issuance processes for regulations, providing clarity to stakeholders and minimizing the risk of challenges based on procedural lapses.
4.4. Addressing Emerging Market Needs:
The dynamic nature of securities markets demands periodic review of existing regulations. A structured process of review with specified guidelines would ensure uniformity of approach.
5. Relevant Provisions in Other Regulatory Enactments
5.1. Practices of Financial Regulators in India:
The Insolvency and Bankruptcy Board of India, International Financial Services Centres Authority and Pension Fund Regulatory and Development Authority have regulations in place for issuance of regulations, including provisions for public consultation and periodic reviews. Copies of the aforesaid regulations are enclosed as Annexures-A, B and C respectively.
5.2. Provisions in other Key Regulatory Enactments in India:
Several other Indian regulators, such as Telecom Regulatory Authority of India (TRAI), Competition Commission of India (CCI), Food Safety and Standards Authority of India (FSSAI) and Airports Economic Regulatory Authority of India (AERA), have statutory mandates to ensure transparency and public consultation. The relevant provisions on the same are indicated below:
- Telecom Regulatory Authority of India Act, 1997: Section 11(4) of the Act provides that TRAI shall ensure transparency while exercising its powers and discharging its functions.
- Competition Act, 2002: Vide the Competition (Amendment) Act, 2023, Section 64A has been inserted in the Competition Act, 2002 which inter alia mandates CCI to publish draft of its proposed regulations for public comments. The aforesaid provision also mandates periodic review of regulations by CCI.
- Food Safety and Standards Act, 2006: Section 18(2)(d) of the Act provides that while framing regulations or specifying standards, FSSAI shall ensure that there is direct or indirect open and transparent public consultation.
- Airports Economic Regulatory Authority of India Act, 2008: Section 13(4) of the Act provides that Authority shall ensure transparency while exercising its powers and discharging its functions inter-alia by holding stakeholder consultation, making reasoned and documented decisions.
5.3. Best Practices of International Regulators:
- S. Securities and Exchange Commission (SEC): U.S. Administrative Procedure Act mandates notice-and-comment rule making for subordinate legislation. The aforesaid Act is followed by SEC in its rule making process.
- Financial Conduct Authority (FCA) in the United Kingdom: Section 138 I of the Financial Services and Markets Act 2000 mandates FCA to inter alia publish draft of the proposed rules.
6. Proposed Framework
6.1. It is observed that different institutions/regulators, both domestic and global, while being driven by their unique nature of objectives and functions, are guided by the underlying principle of seeking public comments in their legislation making process. It is accordingly proposed that SEBI may also make regulations for codifying the requirement of public consultation in policy formulation and for the process governing the framing, amending and review of its regulations.
6.2. Accordingly, a draft of the proposed regulations is prepared for the consideration and approval of the Board and placed at Annexure-D.
6.3. Key Components of the Proposed Regulation inter alia include the following:
- Public consultation: Mandatory publication of proposed changes in the policy, except in emergencies, for public comments. Providing period of 21 calendar days to public for its comments and feedback.
- Legal anchor of Regulations: Specifying the statutory provision that enables the issuance of the proposed regulations in the public consultation document.
- Periodic reviews: Framework for regular review of regulations to ensure relevance and effectiveness and providing for guiding factors for taking up such review exercise.
- Urgent regulations: Provision for urgent issuance of regulations with justification for bypassing consultation requirements or shortening the period of consultation.
- Exemptions: Exemption to the following matters from the applicability of the proposed regulations:
(i) internal organizational matters of the Board, including those governing the conduct of its meetings, administration, and service conditions of its officers and employees;
(ii) regulations that only relate to procedural requirements or that which in the opinion of the Board does not result in any substantive policy changes;
(iii) any amendment to the proposed regulations; and
(iv) proposals for which public comments have already been sought or received or to those regulations which are approved by the Board but notyet notified, prior to the coming into force of these regulations.
- Savings provision: Specifically providing a Savings Clause in the proposed regulations clarifying that the proposed regulations shall not affect the existing regulations that are in force.
6.4. Consequential amendments to the Securities and Exchange Board of India (Delegation of Statutory and Financial Powers) Order, 2019:
6.4.1. To implement the provisions of regulations 6 and 9(b) of the proposed Securities and Exchange Board of India (Procedure for making, amending and reviewing of Regulations) Regulations, 2024, delegation may be provided by way of insertion in Part-A, Chapter VI of the Securities and Exchange Board of India (Delegation of Statutory and Financial Powers) Order, 2019 as given below:
[The amended Securities and Exchange Board of India (Delegation of Statutory and Financial Powers) Order, 2019 shall be published after following due process]
7. Proposals for consideration and approval of the Board:
7.1. The Board is requested to consider and approve the proposals mentioned at paragraphs 6.2 and 6.4.
7.2. The Board is also requested to authorize the Chairperson to take consequential or incidental steps to give effect to the decisions of the Board.
Annexure-A
The regulations made by Insolvency and Bankruptcy Board of India are available on its website at www.ibbi.gov.in
Annexure-B
The regulations made by International Financial Services Centres Authority are available on its website at www.ifsca.gov.in
Annexure-C
The regulations made by Pension Fund Regulatory and Development Authority are available on its website at www.pfrda.org.in
Annexure-D
(Amendments shall be notified after following the due process)
Notes:
1 Civil Appeal No. 5017 of 2016, Decision Date: May 11, 2016.
Source: SEBI Board Meeting Dated: Wednesday 18th December 2024
