Regulating the regulators: Assessing regulation-making frameworks in India's financial sector

by Natasha Aggarwal and Renuka Sane.

Indian regulators, like the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), routinely wield quasi-legislative powers. For example, Section 30 of the Securities and Exchange Board of India Act, 1992 empowers the SEBI Board to make regulations. According to its 2024-25 annual report, SEBI issued 104 consultation papers, 61 amendments to its regulations, one new set of regulations, 14 master circulars, and 154 "policy measures." Such regulatory interventions can significantly influence markets and affect economic outcomes. Yet the processes by which regulators design, consult on, and review delegated legislation have been fragmented and, in large part, left to each regulator's discretion.

Traditional safeguards on delegated legislation in India, i.e., parent statutes requiring regulations to be laid before Parliament, prior publication requirements under the General Clauses Act, 1897, and judicial review, provide important accountability functions, but do not regulate the internal process by which a regulator formulates its regulations. They do not require a regulator to identify the problem warranting intervention, weigh alternatives, or assess costs and benefits.

In 2013, the Financial Sector Legislative Reforms Commission proposed provisions to govern regulation-making and, through the Financial Sector Development Council Resolution of 24 October 2013, financial sector regulators agreed to comply with these procedures. Since then, six financial sector regulators (the Insurance Regulatory and Development Authority of India (IRDAI), Insolvency and Bankruptcy Board of India (IBBI), International Financial Services Centres Authority (IFSCA), Pension Fund Regulatory and Development Authority (PFRDA), SEBI and RBI) have each adopted some form of instrument governing how they make regulations, ranging from non-binding concept notes to regulations. More recently, the Economic Survey (2024-25) recommended strengthening regulatory impact assessment; the Securities Markets Code, 2025 proposes statutorily mandating public consultation and periodic review at SEBI; and in March 2026 the Standing Committee on Finance recommended a mandatory regulatory impact assessment framework for the IBBI.

In this backdrop, our paper, 'Regulating the regulators: Assessing regulation-making frameworks in India's financial sector', evaluates the regulation-making frameworks adopted by these six regulators against three principles of good regulation-making - consultation, evidence-based regulation-making, and periodic review - and then assesses a randomly selected 2025 consultation paper issued by each regulator against indicators derived from these principles and from each regulator's own framework.

We find that while all six financial regulators have adopted some form of instrument, these instruments vary considerably in legal form, substantive scope, and analytical ambition. Regulators operating under more demanding frameworks are more likely to clearly identify the regulatory problem in their consultation documents. However, this relationship is not linear: stronger frameworks do not consistently produce stronger performance on more analytically demanding requirements. No regulator, including those whose frameworks expressly require it, included a cost-benefit analysis in its consultation paper, and no regulator assessed available alternatives to direct regulation. Every regulator failed to comply with at least one of its own procedural requirements.

Indian legal frameworks

From 2016 onwards, Indian regulators have progressively formalised how they make their own regulations: IRDAI led the way with a concept note in 2016, followed by IBBI in 2018, IFSCA in 2021, and PFRDA in 2024. In 2025, IFSCA issued an updated and expanded framework for making regulations and subsidiary instructions, SEBI adopted regulations for making, amending, and reviewing regulations, and RBI opted for a non-binding policy framework rather than enforceable regulations.

While all regulators now subject regulation-making to some framework, they diverge along two axes: legal form and substantive scope. On legal form, IBBI, PFRDA, IFSCA, and SEBI have adopted regulations, signalling a commitment to enforceable constraints; RBI and IRDAI, by contrast, have adopted non-binding approaches, suggesting either a desire to retain discretion or a reluctance to subject internal processes to enforceable standards. On scope, PFRDA's framework is narrowly confined to the making of regulations; IBBI, SEBI and IRDAI expand this to include amendments; IFSCA moves further by bringing "subsidiary instructions" within its fold; and RBI adopts the broadest scope, extending its framework to directions, guidelines, notifications, and other instruments. In this context, IFSCA stands out as the strongest: it uses binding regulations, rather than non-binding frameworks, to govern its regulation-making process, and their applicability extends beyond regulations and amendments to subsidiary instructions.

On consultation specifically, most regulators (IRDAI, IFSCA, SEBI, RBI and IBBI) make public consultation mandatory, typically for a minimum of 21 days; PFRDA alone makes it optional, albeit with a longer 30-day window. IRDAI, IFSCA, IBBI and PFRDA publish stakeholder comments and provide responses to them, while SEBI and RBI provide responses but do not publish comments, limiting external visibility into the range of views considered.

On evidence-based regulation-making, the picture is fragmented: IRDAI and IFSCA require both a problem statement and a statement of regulatory intent; SEBI requires only regulatory intent; PFRDA and IBBI require a problem statement but not regulatory intent. Only RBI's framework requires an impact assessment, and only PFRDA and IBBI mandate cost-benefit analysis.

On periodic review, IBBI has the most frequent cycle (three years), followed by IFSCA (five years) and RBI (five to seven years); SEBI and PFRDA require review but specify no timeline, and IRDAI's concept note is silent on review altogether.

Evaluation of consultation papers

We evaluated one randomly selected 2025 consultation paper (for IRDAI, an exposure draft) issued by each regulator, against indicators drawn from the principles of good regulation-making and from each regulator's own framework. Notably, the RBI did not issue a formal consultation paper in the relevant period; the document evaluated for RBI is a circular proposing amendments to its directions, reflecting a broader pattern of the RBI using directions and circulars to make substantive regulatory changes.

The IRDAI Exposure Draft states the objective of its proposal and describes the key features of the framework, but does not clearly explain the problem it seeks to address, does not consider alternative approaches to regulation, and does not include a cost-benefit or impact analysis.

The IBBI Discussion Paper, for each of its three proposals, includes a statement of the problem, a proposed solution, and the draft regulation, but does not identify and assess available alternatives to direct regulation, does not include a cost-benefit analysis, and does not comply with the IBBI Regulations' requirement of an economic analysis, guidance from international standard-setting bodies, or the statutory provision enabling the proposed regulations.

The IFSCA Consultation Paper does not comply with any of the principles of good regulation-making, other than relying on market data as evidence of growth; it refers to fund management entities facing unspecified "operational hassles" without elaborating on what these are, and does not specify the statutory provision enabling the amendments or include guidance from international standard-setting bodies, both required under its own regulations.

The PFRDA Consultation Paper performs comparatively better: it identifies the problem to be addressed, assesses how existing frameworks contribute to the problem, and relies on evidence. However, it does not identify and assess available alternatives to direct regulation or include a cost-benefit analysis, and does not comply with several of its own regulations; it does not specify the statutory provision enabling the proposed regulations, attach a draft of the proposed regulations, include the required economic analysis, include guidance from international standard-setting bodies, or specify the manner of implementation.

The SEBI Consultation Paper does not comply with any of the principles of good regulation-making other than identifying the problem to be addressed; it does not assess how existing regulations contribute to the problem, identify alternatives, or include a cost-benefit analysis, an outcome that closely mirrors the design of SEBI's own framework, which requires only a statement of regulatory intent.

The RBI Circular likewise does not comply with any of the principles other than a rather broad articulation of the problem, and does not comply with the RBI Policy because it does not specify the statutory provision enabling the proposed regulations, or include an impact analysis or guidance from international standard-setting bodies.

Analysis

The results reveal a gap between the formal existence of regulation-making frameworks and their actual operationalisation in consultation documents. There are failures at two levels: compliance with general principles of good regulation-making and compliance with each regulator's own procedural requirements.

More broadly, regulators operating under more developed procedural frameworks, particularly IBBI and PFRDA, which explicitly require problem identification, perform better on basic problem-definition indicators. Both clearly identify the regulatory problem, and PFRDA goes further by examining whether existing regulations contribute to it. In contrast, SEBI and RBI, whose frameworks impose minimal analytical obligations, produce consultation documents that are largely limited to statements of regulatory intent, with little substantive justification. Second, there is inconsistent articulation of the regulatory problem, even at a basic level. While some regulators - such as IBBI, PFRDA, SEBI, and RBI - identify a problem, others (notably IRDAI and IFSCA) fail to do so clearly. Even where a problem is identified, it is often thinly specified and not linked to evidence or to failures in the existing regulatory framework.

However, stronger frameworks do not necessarily translate into stronger performance on more analytically demanding requirements. Despite formal mandates, both IBBI and PFRDA fail to include the economic analysis required by their own regulations. IBBI omits cost benefit analysis, while PFRDA fails to provide economic analysis, draft regulations, international benchmarking, and implementation details. No regulator assesses alternatives to direct regulation or conducts a cost benefit analysis. The absence is uniform and not explained by framework design alone: even regulators whose own frameworks require economic analysis (IBBI, PFRDA, and RBI) fail to provide it. Their universal absence suggests that regulators do not treat regulation as one option among many, but as the default response. As a result, consultation processes are narrowed: stakeholders are invited to comment on how to regulate, but not whether regulation is justified in the first place. This significantly weakens accountability and the quality of regulation-making.

Moreover, every regulator, without exception, fails to comply with at least one of its own procedural requirements. The most consistent gap is the failure to specify the statutory provision enabling the proposed regulation - a basic transparency requirement met only by IRDAI. This omission raises concerns about the legal legitimacy of the proposed regulation, as stakeholders are not informed of the source of regulatory authority. IBBI omits the economic analysis mandated by its framework. PFRDA fails to include draft regulations, economic analysis, implementation guidance, and international benchmarks. IFSCA omits both the problem statement and international benchmarks required under its framework. RBI, similarly, does not provide the impact analysis or international benchmarking contemplated by its policy. These are not merely formal deficiencies. The absence of draft regulatory text, as in the case of PFRDA, prevents stakeholders from engaging with the legal substance of the proposal, limiting consultation to broad regulatory intent. The absence of economic or impact analysis means that the regulatory choice cannot be independently assessed.

Across all six regulators, consultation papers ostensibly function as instruments for presenting pre-determined regulatory proposals, rather than as vehicles for reasoned, evidence-based decision-making.

Reforms

We propose five reforms: (i) legislative amendments to parent statutes that clearly define the scope of regulators' quasi-legislative powers and the processes governing their exercise; (ii) regulatory impact assessment should be made mandatory and comprehensive; all consultation papers should be required to identify the problem or market failure to be addressed, assess whether existing regulations contribute to it, consider available alternatives including non-intervention, and include a cost-benefit analysis; (iii) constituting Regulations Advisory Committees of domain experts, legal scholars and market participants at all regulators; (iv) requiring periodic review of regulations at defined intervals with a clear methodology specifying which regulations are to be reviewed, against what criteria, and within what timeframe; and (v) leveraging technology (for instance, dashboards tracking active consultations and regulators' responses, and automated tools that flag missing elements in consultation papers before publication).

The authors are researchers at TrustBridge Rule of Law Foundation.

Envisioning the INR as a floating exchange rate

by Rounak Hande, Rajeswari Sengupta and Ajay Shah.

The Question

A central question in macroeconomic policy is the exchange rate regime. In the long-run, India's economic strategy should move to a combination of inflation targeting, floating exchange rate and an open capital account. In more than three decades since the economic reforms of 1991, only one of these milestones has been achieved--RBI today is an inflation targeting central bank. For IT to be fully effective, it must be accompanied by a floating exchange rate. However, we in India are used to the idea that the RBI actively intervenes in the FX market to stabilise the USD/INR rate. It is important to ask, What might a genuine floating exchange rate look like if the RBI did not intervene? In other words, If RBI were to the USD/INR what SEBI is to the Nifty, what would that world look like?

When it comes to government price controls on commodities, e.g. wheat, there is a ready way to visualize what a reformed India would look like: the Indian price of wheat would be the world price of wheat. But what about the exchange rate? If the required reforms took place, and we got to a market determined rupee, what would it be like? In this article, we present a reasonable depiction of what the exchange rate regime would be like, if the RBI did nothing on the currency market. This also helps us understand how much currency volatility Indian firms and households need to prepare for if the RBI were absent from the market.

The period of INR as a float

When we look back into India's history, we find that there was one period when trading by the RBI on the currency market dropped to near zero levels. We treat this as a natural experiment to gain insights into what the INR would look like without government control. Our first task is to establish the start and end dates of that period.

We start with three long time-series graphs: (i) RBI's spot market trading volume in USD, (ii) RBI's spot market trading volume relative to reserve money, and (iii) RBI's open position on the currency forward market.

Figure 1: The long time-series of spot price trading volume by RBI, in billion USD

Figure 2: The long time-series of spot price trading volume by RBI, expressed as per cent of M0.

Figure 3: The long time-series of the RBI's currency forward position, in billion USD.

In all these graphs, we can spot one remarkable period, from June 2009 to October 2011, where an important reform of the exchange rate regime took place, and the RBI stepped out of the currency market. Let's zoom into that period. To obtain greater clarity, we focus on the period from June 2006 to October 2014, adding three years to each side.

Figure 4: Spot price trading volume by RBI, in billion USD (June 2006 to Oct 2014).

Figure 5: Spot price trading volume by RBI, expressed as per cent of M0 (June 2006 to Oct 2014).

Figure 6: RBI's currency forward position, in billion USD (June 2006 to Oct 2014).

In these pictures, we see a middle period -- 28 months from June 2009 to October 2011 -- when currency trading by the RBI was very low. The RBI's trading volume in these months was not always 0. In choosing these endpoints, we set a limit where the RBI's gross monthly trading volume stayed below 1 percent of M0.

Examining the characteristics of this period gives us insights into what a floating exchange rate in India might look like.

Characteristics of the INR as a float

In this section we describe the characteristics of the INR in the period from June 2009 to October 2011. For the sake of comparison, we use the methodology described in Sengupta and Shah (2026) to establish the dates of two other exchange rate regimes. We will now focus on three such regimes:

• The natural experiment of the INR as a float: 1st June 2009 to 31st October 2011.
• The recent period of a tight USD peg : 1st September 2023 to 16th December 2024.
• The present exchange rate regime: 27th December 2024 to 28th August 2026 (latest available data).

For each of these periods, we examine (a) The volatility of the USD/INR rate (b) The parameter estimates obtained from the exchange rate regression (see Google colab notebook associated with Sengupta and Shah (2026)) and (c) Deviations from market efficiency as seen in variance ratios.

Metric	Float (June 2009–Oct 2011)	The USD peg (Sept 2023–Dec 2024)	Current ERR (Dec 2024–Aug 2026)
Volatility:
USD/INR vol (%)	7.40	1.43	4.98
The exchange rate regression:
USD	0.66***	0.89***	0.79***
EUR	0.20**	0.05	0.11
JPY	-0.15**	-0.01	-0.08
GBP	0.04	0.05	0.25
R-sq	0.75	0.98	0.76
RSE	0.77	0.18	0.67
Variance ratio tests:
VR(5), daily	0.99	0.67	0.96
p value	0.82	0.03	0.61
VR(4), weekly	1.07	0.64	0.76
p value	0.93	0.03	0.14

We summarise our findings as:

• In the popular discourse on the INR, a lot of attention is given to the raw USD/INR volatility. At present, it is running at 4.98 percent. During the period of the USD-peg, it had fallen to 1.43 percent. We see that under the float, it was 7.4 percent. In other words, if the RBI did not intervene in the currency markets, the USD/INR volatility that the economy could experience is around 7-7.5 percent. Later in the article, we speculate on how things might work out if the INR were to return to a float under the present conditions and we argue that the volatility could be lower.

  The numbers also suggest that during the current exchange rate regime (27th December 2024 to 28th August 2026), the machinery of the RBI's currency policy seems to have delivered only a small decline in volatility of about 2.4 percentage points on an annualised basis.

• In the exchange rate regression, during the period of the USD peg, the USD coefficient was statistically significant with a value of 0.89, and no other currency was significant. At present, the USD coefficient has come down to 0.79, but still, none of the other currencies have statistically significant coefficients.

  In contrast, during the period of INR float, the USD coefficient was smaller at 0.66, and other currencies were significant too. This suggests that the Indian economic engagement with the outside world is not merely with the US. In the float period, USD, EUR and JPY were all statistically significant, with coefficients of 0.66, 0.2 and -0.15. This gives us an undistorted sense of the currencies that matter for the Indian economy.

• Another important statistic from the exchange rate regression is the residual standard deviation (or RSE, residual standard error). It shows the size of the prediction error of the exchange rate regression. A lower RSE means the model fits the data well. Therefore, during the period of the USD peg, the residual standard deviation was only 0.18. In contrast, under the INR float the RSE was 0.77. In the current regime, the RSE stands at 0.67.

• In the exchange rate regression, during the period of the USD peg, the R-squared was 0.98. A high R-squared value implies that almost all of the variation in the INR was accounted for by the currencies in the regression model. At present, the R-squared has fallen to 0.76. During the INR float, the R-squared had a very similar value, 0.75. In other words, despite active trading by the RBI in the currency market in the present period, there is not much of a difference in the R-squared.

  This yields insights into deciphering a floating exchange rate regime from the data. A floating exchange rate does not necessarily mean an R-squared value close to 0. It means that the central bank does not intervene and lets the exchange rate respond freely to market forces. In a floating regime, the R-squared value can still be high because it reflects the natural, underlying co-movement of the rupee with major currencies of the world (and not just the USD) under conditions of globalisation. India is deeply interconnected with these countries through trade and financial flows, and is exposed to the same global shocks. Some co-movement is therefore entirely consistent with a genuine float.

• The variance ratio test is a simple tool to examine serial correlations. A floating exchange rate is expected to be an efficient market, with no discernible serial correlation, and no exploitable profit opportunities for trading based on time-series characteristics. This does work out correctly in the float period. In the daily data, the 5-period variance ratio was 0.99, and indistinguishable from 1, whereas in the weekly data, the 4-period variance ratio was 1.07 and indistinguishable from 1. Under the USD peg, the two variance ratios were 0.67 and 0.64, with statistically significant deviations from non-forecastability. In the present arrangement, the variance ratio at 4 weeks is away from 1.

A useful variant of the exchange rate regression, introduced in Kumar et. al. (2020), differentiates between the USD coefficient when faced with a USD appreciation vs. a depreciation thereby highlighting asymmetric intervention by the RBI. We now turn to these estimates.

Metric	Float (June 2009–Oct 2011)	The USD peg (Sept 2023–Dec 2024)	Current (Dec 2024–Aug 2026)
USD (App)	0.52***	0.87***	0.68***
USD (Dep)	0.83***	0.91***	0.88***
EUR	0.20***	0.05	0.12
JPY	-0.15***	-0.01	-0.09
GBP	0.04	0.05	0.24
R-sq	0.77	0.98	0.77
RSE	0.74	0.18	0.66

During the period of the USD peg, it is not surprising to see statistically significant values of the USD coefficient close to 1, for both USD appreciation and USD depreciation. This makes sense because when the RBI is pegging the INR to the USD, it is expected that currency interventions would take place on both sides of the market, regardless of which way the USD is moving. In the present exchange rate regime, the INR responds more strongly to a USD depreciation (with a coefficient of 0.88) than it does to a USD appreciation (with a coefficient of 0.68). This implies that the RBI now intervenes asymmetrically, letting the INR move more freely when the USD appreciates (i.e. the INR depreciates) but managing the INR more when the USD depreciates (i.e. the INR appreciates). This is consistent with existing studies documenting the RBI's asymmetric intervention patterns (Patnaik and Sengupta, 2022). RBI prefers buying dollars (preventing INR appreciation) over losing reserves (preventing INR depreciation).

Interestingly however, we find asymmetric coefficients in the floating period too, with a response of 0.83 when the USD depreciates but a coefficient of 0.52 when it appreciates. This is puzzling because in a float, there should be no asymmetry between these coefficients, both of which should be equally low. Further research is therefore required to understand the market-based sources of this asymmetry.

Conclusion

In the strategic view of macroeconomic policy, the long-run answer for India lies in graduating from one milestone -- inflation targeting -- to two more milestones -- a floating exchange rate and an open capital account.

At every stage in the journey of Indian economic reforms, the prospect of getting the government out of price determination has raised alarms in the minds of some people. When the proposals to remove price controls for steel or cement were made, there was shock and unhappiness in the minds of many people. These things are often easier done than said, because the price system works rather well. It solves the resource allocation problem, and prices move continuously in a way that provides good incentives to private persons.

In this article we have shown one tangible period, of 883 days, in which the RBI stayed away from the currency market and there was a genuine floating exchange rate. This period can be utilised for many other research projects. Using the insights from this period, we are now able to offer a thumb rule to judge the extent of government management of the exchange rate in India in terms of three numbers. For example, we can compare the values observed today of (i) the USD/INR volatility of 4.98 percent, (ii) the USD coefficient of 0.79, and (iii) the RSE of 0.67 vs. the values observed during the float: (i) the USD/INR volatility of 7.4 percent, (ii) the USD coefficient of 0.66, and (iii) the RSE of 0.77. This gives us a sense of how much government control of the exchange rate is present today.

This natural experiment, of a country that graduated to a floating exchange rate and then retreated from it, gives us insights on how to interpret the estimates from the exchange rate regression and the toolchain of Zeileis et. al (2010).

Looking into the future, when economic policy reforms take place in India, we believe the USD/INR volatility under a true floating exchange rate will be lower than this value of 7.4 percent, for two reasons:

1. There is one important difference between the float period of 2009-2011 and the future: Inflation Targeting. That RBI movement to a floating exchange rate was incomplete because it was not accompanied by inflation targeting. In some sense, that was a particularly unfortunate event as the rupee lost its nominal anchor during that period. In the future, things will be better because now the nominal anchor is 4 percent CPI inflation.
2. Another important difference concerns the liquidity of the USD/INR spot and derivatives markets. In the 2009-2011 period of INR float, these markets were less developed. We estimate that in that period, the total turnover(onshore and offshore) was about USD 40 billion per day. By now, things have improved, with a huge increase in INR activity outside India. Now the total turnover (onshore and offshore) is about USD 140 billion per day. This bigger market delivers greater stability. Hence, we can speculate that in the future, things will be better in terms of USD/INR volatility.

References

Kumar, S H, Balasubramaniam, V, Patnaik, I and Shah, A (2020), "Who cares about the Renminbi?", Working Paper, December 2020.

Patnaik, Ila and Rajeswari Sengupta (2022) "Analyzing India's Exchange Rate Regime", India Policy Forum, National Council of Applied Economic Research, vol. 18(1), pages 53-85.

Sengupta, R and Shah, A (2026), "Words and deeds in the Indian exchange rate", The Leap Blog, May 19, 2026.

Zeileis, A, Shah A, and Patnaik, I (2010) "Testing, monitoring, and dating structural changes in exchange rate regimes", Computational Statistics & Data Analysis, Volume 54, Issue 6.

Rounak Hande and Ajay Shah are researchers at XKDR Forum, Mumbai and Rajeswari Sengupta is a researcher at IGIDR, Mumbai.

The curious case of definition and adjudication of front running in India

by Natasha Aggarwal, Amol Kulkarni and Bhavin Patel.

One of the core legislative mandates of the Securities and Exchange Board of India (SEBI) is to prohibit fraudulent and unfair trade practices (FUTP) relating to securities markets. A practice commonly classified as FUTP is front running. It is generally understood as a set of two trades or positions: first, a trade or position taken in advance of a large order, and second, a squaring off of the initial trade or position after the large order, to benefit from the price movement it causes.

SEBI issued the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (the PFUTP Regulations) to deter and sanction front running and other FUTPs.

Neither the SEBI Act nor the PFUTP Regulations define front running. SEBI has, however, defined it elsewhere: in guidelines, glossaries, master circulars and consultation papers, and in a number of adjudicatory orders.

In our working paper, Front running: The law and enforcement of an ill-defined violation, we set out the legal elements that a violation under the PFUTP Regulations requires: fraud, manipulation and unfair trade practice. These elements should inform any definition of front running. We find that the characteristics of front running laid down by SEBI in its other regulatory instruments and adjudicatory orders are inconsistent with these legal requirements.

Through an empirical study of 33 SEBI adjudicatory orders on front running between 2019 and 2024, we show that SEBI's enforcement practice is also disconnected from the codified law, and does not engage with its key requirements.

This proliferation of inconsistent definitions and interpretations causes a range of problems:

• It creates confusion, and weakens the certainty and predictability of the law.
• It gives the regulator untrammelled discretion in deciding whether a violation has taken place.
• It raises concerns about separation of powers: the boundary between the regulator's law-making and adjudicatory functions is erased and re-drawn erratically, at cost to the integrity of each function.

The result is a lack of doctrinal clarity about what front running means, and a set of conflicting articulations of the violation with no clear grounding in the codified law.

We suggest that the term be defined clearly, either in the parent statute or in the PFUTP Regulations. There is now a nearly three-decade history of enforcement, which should be enough to identify the ingredients of this violation.

The Securities Markets Code Bill, 2025 (the SMC) is an opportunity to write such a definition into the parent law. This would take the power to define the violation away from the regulator, restore the integrity of SEBI's separate functions, and meet the requirements of separation of powers. In its present form, though, the SMC may fall short: we show the gaps and confusions that remain in its treatment of fraud, and its failure to define fraudulent or unfair trade practice, or front running, explicitly.

Part of the problem may lie in the absence of separation of powers within SEBI. The regulator can write subordinate legislation, investigate alleged violations, and adjudicate and sanction them, all without a strict separation between its quasi-legislative, investigative and adjudicatory arms.

This may incentivise SEBI to write broad, all-encompassing regulations in its quasi-legislative capacity, and then to widen their scope further to suit its quasi-judicial needs.

The regulator might defend this by pointing to the constantly changing methods used by fraudsters. International experience suggests otherwise: methods change, but the key constituents of securities fraud stay broadly constant.

In India, a lasting solution may require Parliament, not SEBI acting under its delegated powers, to define terms such as front running in the parent legislation.

Front running is only one example of an inconsistently defined and adjudicated practice within the broader category of FUTP. There are likely others. This points to the need for a wider review of how fraud, manipulation and unfair trade practice are defined and adjudicated under Indian securities law, with the aim of achieving consistency and certainty in interpretation and enforcement.

References

Front running: The law and enforcement of an ill-defined violation, TrustBridge working paper.

SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, Securities and Exchange Board of India.

Securities Markets Code Bill, 2025, Bill No. 200 of 2025.

Natasha Aggarwal, Amol Kulkarni and Bhavin Patel are researchers at TrustBridge Rule of Law Foundation.