How proposed Securities Markets Code Bill 2025 sets to consolidate securities laws

What does the new Bill replace?

The Securities Markets Code Bill, 2025 proposes to consolidate, rationalize and replace three securities laws- SCRA, SEBI Act and the Depositories Act. These three acts, enacted decades ago, have many overlapping and redundant provisions. With evolving regulatory practices, development in technology and changing character of markets growing in scale and complexity, it was required to review these legacy laws. Budget 2021 announced to consolidate and rationalise these Acts into a Single Securities Markets Code (SMC).

“This legislative consolidation marks a deliberate shift from the current regime of multiple, often overlapping statutes and subordinate legislation toward a coherent, principle-based framework. The consolidation should reduce interpretative conflicts and provide greater legal certainty to regulated entities,” said Vaibhav Kakkar, Senior Partner at Saraf and Partners.

Significant measures

1. 01

   For SEBI

   The Bill empowers the government to remove a SEBI Board member if they acquire any financial or other interest that is likely to prejudice their official functions. A SEBI board member can be removed if they have been convicted and sentenced to imprisonment for an offence which involves moral turpitude.

   The Code seeks to eliminate conflict of interest by requiring the Members of the ‘Board’ to disclose any ‘direct or indirect’ interest while participating in decision-making.

   It proposes to increase the number of SEBI board members from the current 9 to 15. The regulator’s board will comprise a chairperson, two members from the Central Government dealing with finance and the administration of the Companies Act, 2013, one officer from the Reserve Bank of India, and 11 other members, of whom at least five will be whole-time members.

2. 02

   Ease of compliance

   SMC has bucketed the contraventions into two separate categories. The first category of contraventions are violations of prohibition of fraudulent and unfair practices, which will not attract criminal liability. This category of contraventions has been effectively decriminalized and will only attract civil penalties.

   The second category of contraventions called ‘market abuse’ are graver violations that affect market integrity and affect public interest adversely. Such contraventions shall in addition to attracting civil penalties may also be treated as an offence.

   “This recalibration reflects a proportionate enforcement philosophy and should materially reduce the compliance burden on market participants while preserving deterrence for egregious misconduct,” said Kakkar.

3. 03

   For investors

   To protect investors and facilitate their participation in the securities market, the Code mandates that SEBI will specify an ‘investor charter’. The market regulator will lay down Investor Grievance Redressal Mechanism and direct Securities Markets Service Providers (SMSPs) and issuers to set up similar such mechanisms. The SMC also empowers SEBI to designate one or more of its officers as Ombudsperson to redress investor grievances effectively and in a time bound manner.

   It provides an opportunity to investors to engage with SEBI’s regulation-making process through participation in public consultations, promoting a more inclusive and transparent regulatory environment.

4. 04

   For regulated entities

   The SMC has proposed a consolidated framework for the registration of intermediaries and pooled investment vehicles. It also brings stock exchanges, clearing corporations, and depositories under a single code, thereby reducing fragmentation and complexity.

   The Bill empowers SEBI to delegate parts of its registration functions to Market Infrastructure Institutions (MIIs) and Self-Regulatory Organisations (SROs) to facilitate more effective regulation.

5. 05

   Coordination among regulators

   The Bill provides an enabling framework for inter-regulatory coordination, wherein SEBI in consultation with other regulatory authority, may make regulations to enable a seamless process for listing of ‘other regulated instruments’ and to ensure better coordination among Market Infrastructure Institutions (MIIs) in terms of interoperability of any platform. This will improve the investment climate and promote market making.

International Best Practices

The Bill introduces global best practices in areas like regulatory governance, accountability, and transparency, and measures such as regulatory impact assessment. It has provisions for arm’s length separation between fact-finding and adjudication processes, Ombudsperson mechanism for investor grievance mechanism, Inter-regulatory coordination mechanism.

“The Code moves the legislation forward with enhanced penalties, increased transparency and more effective adjudication mechanism balanced with enhanced scope for the regulator to bring about innovations in the securities market. The crystallisation of various legislations into a comprehensive code is also a welcome move,” said Paras Parekh, Partner at CMS INDUSLAW.