Regulating Capital Markets: A Comparative Legal Analysis of SEBI and SEC

Abstract

In today’s complex financial ecosystems, robust capital market regulation is critical for safeguarding investor interests, ensuring fair market conduct, and fostering economic growth. India’s securities regulator, the Securities and Exchange Board of India (SEBI), plays a pivotal role in this regard, yet continues to face institutional limitations in areas such as enforcement, accountability, and stakeholder engagement. This paper undertakes a comparative study of SEBI and its American counterpart—the U.S. Securities and Exchange Commission (SEC)—to explore how legal and institutional frameworks shape regulatory performance. Drawing upon administrative law doctrines and the economic analysis of law, the article evaluates how the SEC’s emphasis on regulatory independence, integrated enforcement mechanisms, consultative rulemaking, and performance measurement has contributed to deepening market trust and capital formation. The analysis does not advocate for legal transplantation but rather contextualizes lessons from the SEC experience within India’s socio-legal environment. The article proposes six focused reforms for SEBI: enhancing prosecutorial autonomy, strengthening whistleblower protections, ensuring budgetary independence through a fee-based structure, embedding technology in regulatory functions, formalizing public consultation processes, and instituting performance audits tied to transparency metrics. These reforms aim to transform SEBI into a more agile, credible, and investor-centric regulator. At a time when India is poised to emerge as a global capital hub, aligning SEBI’s architecture with principles of rule of law, economic rationality, and institutional legitimacy is essential. A calibrated reform strategy rooted in comparative insights can help SEBI evolve from a compliance enforcer to a trusted guardian of market integrity and economic stability.