This study investigated the effect of Financial Market Legislation on capital market development in Malawi, with particular attention on the capital market development indices namely Stock Market Capitalization and Stock Market Liquidity. The study estimated two separate empirical models; the first to test the impact of the FML on Stock Market Capitalization and secondly to examine the impact of the FML on Stock Market Liquidity using Autoregressive Distributed Lag Model technique. The impact of the financial market legislation, the Securities Act introduced in 2010 on capital market development was assessed with the aid of a dummy variable. The results revealed that the Act impacted significantly on capital market development in Malawi. However, findings discovered that the variables that represented development of the banking sector interacted negatively with the selected capital market development indicators which implies that the activities of this sector somehow deterred the development of the capital market. The review of available literature indicates that the capital market is a common feature in any modern economy and is reported to promote growth and development of the real sector, and so the findings of this study will provide evidence of the significance of Financial Markets Legislation on the capital market and the economic performance in Malawi.