Crackdown On Conflicts Of Interest: Sebi Updates Integrity Rules For Its Members

The Securities and Exchange Board of India (Sebi) released a new code of conduct for its top leadership on July 15. The new code seeks to introduce stringent norms which specify exactly what board members are permitted to invest in and what they must strictly avoid.  

While the guidelines govern Whole Time Members (WTMs) and Part Time Members (PTMs) of Sebi’s board, the overarching goal revolves around protecting the integrity of the broader financial markets.

What Do Sebi's New Rules Say

The newly introduced guidelines outline rigorous restrictions on the financial activities which Sebi’s members can undertake. The market regulator mentioned in its code that the new rules have been adopted to enhance public trust.

"This Code has been adopted voluntarily by the Securities and Exchange Board of India (hereinafter referred to as 'Board') in its meeting held on 19th June 2026 to ensure that Members of the Board conduct in a manner that does not compromise the ability of the Board to accomplish its mandate and also to enhance public trust in the ability of Members to discharge their responsibilities in a fair and transparent manner," Sebi said.

The regulations define what constitutes restricted financial activities for the board members and outline investments that are not permitted for Sebi board members.

"Investment in equity; Investment in any instrument convertible into equity; and Investment or trading in derivatives of equity or commodity," Sebi said.

However, officials are allowed to invest in professionally managed pooled investment vehicles (like mutual funds) as well as units of Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs). However, a Whole Time Member’s investment in products managed by a single Sebi-regulated entity cannot exceed 25 per cent of their total financial investment cost.However, Sebi added that officials who already owned these restricted assets before taking office will be provided specific pathways to resolve the issue to prevent bias.

"At the time of joining the Board, a whole-time member may choose any of the following options with respect to non-permitted investment held by him, namely: Liquidate the non-permitted investment; Freeze the non-permitted investment till the time of completion of his tenure with the Board," Sebi said.

Additionally, they can also submit a formal insider trading plan to the Office of Ethics and Compliance to systematically sell the assets. And they can sell the assets during their tenure without a formal plan, but only after obtaining prior official approval.The code also explicitly restricts officials from accepting favours or hospitality that could sway their judgment.

"WTM shall not solicit or accept any gift from any person with whom the WTM is likely to have official dealings either directly or indirectly," Sebi said.

To prevent insider trading through the demat accounts of family members, the code bans family members from making any new investments in direct equities, convertible instruments, or derivatives during the member’s official tenure. On the other hand, family members are allowed to hold onto any non-permitted investments they already owned before the official joined, and they can choose to sell them at any time.

A Sebi member’s spouse is permitted to receive and dispose of equity if it is part of an Employee Stock Option Plan (ESOP) from their independent corporate employer. Additionally, family members can invest in the broader market if they use a completely independent, discretionary Portfolio Management Service (PMS) where the fund manager acts without their input.

The new rules also mandate that Whole Time Members of Sebi have to fully disclose their family details, relatives, professional interests from the past three years, immovable properties, and liabilities upon joining, annually by April 30th, and within one month of leaving the board.

Any transaction in financial assets by a member or their family that exceeds two times the member's monthly basic pay must be reported within a month.  The details of immovable properties held by Whole Time Members will be actively made public by the compliance office.

Why Has Sebi Introduced New Rules For Members

The new code has been introduced to enhance transparency, prevent market manipulation, and mitigate any potential conflict of interest within the regulatory body. By instituting a digital system to record conflicts of interest and mandating formal recusals, the regulator aims to systematically prevent officials from participating in regulatory decisions where they have financial stakes.

How These New Rules Affect Retail Investors

For retail investors, the new code seeks to deliver long-term benefits. Retail participation in the market is built around trust and transparency. As investors seek to invest in a fair, transparent, and strictly regulated ecosystem which protects them from market manipulation. By prohibiting top officials of the market regulator from trading in equities and derivatives, Sebi ensures that those with access to unpublished price-sensitive information cannot use it for personal gains.

By doing so, the market watchdog levels the playing field for the retail investor by ensuring that the rules governing market manipulation and insider trading are applied to the rule makers themselves.

Additionally, the mandatory disclosure of assets and professional interests by the board members means that regulatory decisions are less likely to be influenced by hidden corporate ties.