The Indian securities market has experienced significant evolution over the past few decades, driven by economic liberalization, technological innovation, and changing global financial trends. The Securities and Exchange Board of India (SEBI), as the key regulatory body, has played a central role in maintaining market integrity, protecting investor interests, and ensuring orderly development. In recent times, SEBI has shifted toward a more deregulatory stance to promote efficiency and reduce unnecessary compliance.

For instance, SEBI has allowed stockbrokers to directly participate in the government securities (G-Secs) market through a separate business unit (SBU), an initiative aimed at deepening market access and flexibility. Additionally, SEBI introduced new investment opportunities as SEBI has approved a new asset class for high-risk investors, allowing asset management companies to offer strategies like long-short equity with a minimum investment of one million rupees.

A major push in this direction is the Jan Vishwas 2.0 program, aimed at decriminalizing minor regulatory offenses and improving ease of doing business. This article explores these deregulatory efforts, particularly Jan Vishwas 2.0, and evaluates their implications for the Indian securities market and broader economic landscape.

Background of the Topic
The push for regulatory reform in the Indian securities market stems from several emerging challenges. With growing complexity in financial instruments, rapid digital transformation, and rising retail investor participation, traditional regulatory frameworks often fall short. Over-regulation can stifle innovation and inflate compliance costs, whereas under-regulation risks systemic instability.

SEBI's challenge is to strike the right balance.
Recent reforms reflect this balancing act. SEBI on Friday relaxed the rules governing financial disincentives imposed on Market Infrastructure Institutions (MIIs) and individuals for omissions and commissions leading to technical glitches, showing its attempt to address operational issues without harsh penal consequences. Furthermore, to ease foreign investment inflow, SEBI decided to exempt additional disclosure requirements for FPIs having more than 50 per cent of their India equity assets under management in a single corporate group, subject to certain conditions.

The appointment of custodians has also been mandated for larger funds to ensure oversight, SEBI has mandated the appointment of custodians for Category II and I AIFs with a corpus exceeding Rs 500 crore. These changes indicate a shift from a punitive model to a facilitative one, aligning regulation with investor confidence and business efficiency.

Research Objectives:

• To examine the background and rationale for SEBI's deregulatory initiatives.
• To analyze the key features and provisions of the Jan Vishwas 2.0 program as it relates to securities law.
• To assess the potential impact of deregulation on market efficiency, compliance costs, and investor protection.
• To identify the potential risks and challenges associated with deregulation.
• To offer recommendations for further reforms to enhance the Indian securities market.

This research focuses on SEBI's deregulatory initiatives in the Indian securities market, with a particular emphasis on the Jan Vishwas 2.0 program. The study covers a range of topics, including the rationale for deregulation, the scope of reforms, the potential impact on various stakeholders, and the challenges and opportunities associated with implementation. The analysis is based on a review of relevant laws, regulations, case laws, and academic literature.

Research Methodology

This research employs a combination of doctrinal and empirical research methods. The doctrinal research involves a systematic analysis of relevant laws, regulations, case laws, and policy documents to understand the legal framework governing the Indian securities market and SEBI's role in regulating market activities. The empirical research involves an analysis of existing literature, reports, and data to assess the impact of deregulation on market efficiency, compliance costs, and investor protection.

Literature Review

Previous research has examined various aspects of the Indian securities market, including the role of SEBI in regulating market activities, the impact of financial sector reforms, and the challenges of corporate governance. For example:

• Jaspreet Kaur investigated investors' perceptions of investor protection measures taken by the government of India and SEBI.
• Madan Lal Bhasin analyzed the audit committee mechanism in improving corporate governance.
• Venugopal Setty, T.M. Rangaswamy, and K. N. Subramanya explored data mining applications for stock market performance.
   

While previous research has provided valuable insights into the Indian securities market, there are several gaps in the existing literature:

• Limited research focused on SEBI's deregulatory initiatives and their market impact.
• A need for more research on the Jan Vishwas 2.0 program and its implications for securities law.
• Lack of comprehensive assessments of the benefits and risks of deregulation.
• Need for more research on the role of technology in promoting and regulating the securities market.
   

Legislative Framework

The Indian securities market is primarily governed by two key legislations:

• The Securities and Exchange Board of India Act, 1992: Establishes SEBI as the regulatory authority. Key sections:
  • Section 11: Protects investor interests, regulates market.
  • Section 11B: Empowers SEBI to issue directions for investor protection.
• The Companies Act, 2013: Defines corporate legal structure. Important sections:
  • Section 40: Public offers must obtain stock exchange permission.
  • Section 68: Allows buyback of securities.
  • Section 56: Governs transfer and transmission of securities.

SEBI Regulations

SEBI formulates regulations and guidelines to ensure fair practices, prevent fraud, and promote transparency. These regulations include:

• Registration and regulation of market intermediaries (e.g., brokers, investment advisors)
• Issuance and listing of securities
• Trading and settlement of securities
• Prevention of insider trading and other market abuses
• Corporate governance and disclosure requirements

Discussion of Key Legal Principles Related to the Topic

• Investor Protection: Safeguarding against fraud and manipulation.
• Market Efficiency: Ensuring prices reflect all available information.
• Transparency: Providing timely and accurate information.
• Fairness: Equal treatment of all market participants.
• Proportionality: Regulations proportionate to the risks addressed.

Case Law Analysis

• SEBI v. Classic Credit Ltd.: Clarified SEBI's authority and the retrospective nature of procedural amendments.
• SEBI v. Shriram Mutual Fund: Addressed penalties for mutual fund broker dealings exceeding limits.
• Satyam Computer Services Ltd.: Highlighted need for strong corporate governance after major fraud.

Interpretation of Judicial Precedents

Judicial precedents clarify SEBI regulations and their scope. Courts interpret and apply securities laws, shaping market practices and ensuring consistency with legal principles.

Trends in Court Rulings

Recent rulings show stronger emphasis on:

• Investor protection
• Corporate governance
• SEBI's authority to regulate market conduct

Comparative Analysis

A comparative view across countries:

• United States (SEC): Emphasizes investor protection and enforcement despite market complexities.
• United Kingdom (FCA): Post-Brexit flexibility with focus on market integrity.
• Singapore (MAS): Balances innovation and regulation using integrated approaches.

 

Discussion & Findings:

• Progress: SEBI has developed a comprehensive set of regulations addressing various aspects of the securities market, including the registration of market intermediaries and the prevention of insider trading. Recent initiatives, such as the formation of a committee to review conflict-of-interest provisions, demonstrate SEBI's commitment to enhancing transparency and accountability within its operations.
   
• Challenges: Despite these advancements, SEBI faces significant challenges in enforcement. Resource constraints, including limited financial and legal resources, impede its ability to conduct thorough investigations and surveillance across the vast and complex market landscape. Legal proceedings are often subject to delays, reducing the deterrent effect of enforcement actions.
   
• Complexity of Enforcement: The application of securities laws in practice is complex, with SEBI encountering difficulties in detecting and prosecuting sophisticated market abuses. High-profile cases, such as the Adani-Hindenburg controversy and the NSE Algo scam, underscore the challenges in addressing sophisticated forms of market manipulation.
   
• Need for Cooperation: Effective enforcement requires greater cooperation between SEBI, law enforcement agencies, and other regulatory bodies. Enhanced collaboration can improve the effectiveness of enforcement efforts and contribute to a more robust regulatory environment.

Problems and Challenges

Several weaknesses in the current legal system pose challenges for regulating the Indian securities market. These include:

• Overlapping Jurisdictions: The overlapping jurisdictions of different regulatory bodies can create confusion and uncertainty.
• Lengthy Legal Processes: Lengthy legal processes can delay enforcement actions and undermine investor confidence.
• Limited Resources: Limited resources can constrain SEBI's ability to effectively monitor and regulate market activities.
• Lack of Expertise: A lack of expertise in certain areas, such as cybersecurity and digital assets, can hinder SEBI's ability to address emerging risks.
   

Issues Faced in Implementation

Several issues are faced in implementing securities laws and regulations in India. These include:

• Compliance Costs: High compliance costs can burden businesses and discourage investment.
• Lack of Awareness: A lack of awareness among investors about their rights and responsibilities can make them vulnerable to fraud.
• Enforcement Challenges: Enforcement challenges can undermine the credibility of the regulatory framework.
• Technological Changes: Rapid technological changes can create new challenges for regulators.
   

Recommendations for Change

To enhance the effectiveness of securities regulation in India, the following reforms are proposed:

• Streamlining Regulatory Processes: Simplifying and digitizing regulatory procedures to reduce compliance costs and improve efficiency. Recent initiatives by SEBI, such as the reduction of the timeline for rights issues from 317 days to 23 days, exemplify efforts to expedite capital-raising processes for companies.
• Strengthening Enforcement Mechanisms: Enhancing enforcement tools to deter fraud and protect investors. SEBI's recent formation of a committee to review conflict of interest provisions for its members and officials aims to improve transparency and accountability within the regulatory body.
• Enhancing Investor Education: Promoting investor awareness through educational programs and resources. SEBI's initiatives to facilitate ease of doing business for listed entities, as outlined in its December 2024 circular, include measures to improve investor engagement.
• Promoting Technological Innovation: Encouraging the adoption of technology to improve market efficiency and transparency. SEBI's efforts to implement blockchain-backed trade protections and audio-visual public disclosures reflect its commitment to integrating technology into market operations.

Suggestions to Improve Legal Processes

To improve legal processes related to securities law, the following suggestions are offered:

• Establishing Specialized Courts: Creating specialized courts to expedite the resolution of securities law cases. This would address the complexity and volume of cases, ensuring timely justice.
• Promoting Alternative Dispute Resolution: Encouraging the use of alternative dispute resolution mechanisms, such as arbitration and mediation, to reduce the burden on traditional courts and provide quicker resolutions.
• Enhancing Cooperation among Regulatory Bodies: Fostering collaboration between SEBI, law enforcement agencies, and other regulatory bodies to improve enforcement efforts. Recent developments, such as SEBI's review of provisions for members' conflict of interest, highlight the need for coordinated regulatory actions.
• Investing in Technology: Allocating resources towards technological advancements to improve the efficiency and effectiveness of regulatory oversight. SEBI's initiatives to implement blockchain-backed trade protections and audio-visual public disclosures are steps in this direction.

Conclusion
This research has delved into SEBI's deregulatory initiatives and the Jan Vishwas 2.0 program, analyzing their potential impacts on the Indian securities market. The findings suggest that while deregulation can reduce compliance costs and enhance market efficiency, it also poses risks such as increased market volatility and potential for fraudulent activities. Therefore, SEBI must strike a balance between promoting market efficiency and safeguarding investor interests.

The Indian securities market is dynamic and continually evolving. SEBI plays a pivotal role in maintaining market integrity, safeguarding investor interests, and fostering sustainable growth. As the market becomes more complex and technology-driven, SEBI must adapt its regulatory framework to address emerging challenges and opportunities. This necessitates a flexible and forward-looking approach to regulation, emphasizing innovation, investor protection, and sustainable economic development.

As SEBI Chairperson Madhabi Puri Buch aptly stated, Earlier, the regulator took steps to protect client securities and now we are protecting investors' cash. This will ensure we have zero systemic risk. This statement underscores SEBI's commitment to proactive reforms aimed at mitigating systemic risks and enhancing investor confidence. By continuously evolving its regulatory strategies, SEBI strives to create a more resilient and transparent securities market that can effectively respond to the dynamic financial landscape.

References:

• https://m.economictimes.com/markets/stocks/news/sebi-relaxes-financial-disincentives-norms-for-technical-glitches-restricts-it-to-market-infrastructure-institutions/articleshow/113527854.cms?utm_
• https://www.reuters.com/world/india/india-clears-rules-passive-fund-houses-introduces-new-asset-class-2024-09-30/?utm_
• https://www.business-standard.com/markets/news/ease-of-doing-biz-market-regulator-sebi-to-relax-certain-norms-for-fpis-124031501223_1.html?utm_
• https://m.economictimes.com/markets/stocks/news/sebi-relaxes-additional-disclosure-norms-for-fpis-with-few-riders/articleshow/108654065.cms
• https://www.zeebiz.com/market-news/news-sebi-allow