Securities Markets Code 2025 Tabled in Lok Sabha: What the New Law Changes
Finance Minister Nirmala Sitharaman on Thursday tabled the Securities Markets Code (SMC), 2025, in the Lok Sabha, marking one of the most significant reforms in India’s capital market regulatory framework in nearly three decades. The proposed legislation seeks to consolidate, rationalise, and replace three cornerstone securities laws while simultaneously strengthening governance norms, regulatory oversight, and investor protection.
The Bill replaces the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, and the Depositories Act, 1996. Beyond consolidation, the Code introduces substantive changes that redefine how the Securities and Exchange Board of India (SEBI) is structured, how conflicts of interest are handled, and how enforcement is carried out.
Power to Remove SEBI Board Members for Conflict of Interest
One of the most closely watched provisions of the Securities Markets Code is the empowerment of the regulator to remove a SEBI Board member for non-compliance or conflict of interest. Under the proposed law, a board member may be removed if they acquire any financial or other interest that is likely to prejudice the discharge of their official duties.
The Code goes a step further by mandating detailed disclosure requirements. Board members must disclose any direct or indirect interest, including interests held by family members, in matters that come up for discussion during board meetings. Where such interests exist, members are required to recuse themselves from deliberations.
This provision aims to address long-standing concerns around regulatory capture and perceived conflicts within market oversight bodies. By codifying disclosure and recusal requirements, the Bill seeks to enhance transparency and trust in regulatory decision-making.
Expanded Composition and Strength of the SEBI Board
The proposed Code significantly expands the size of the SEBI Board. The board strength will increase from the current nine members to fifteen members. Under the new structure, the board will consist of 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 eleven other members.
Of these eleven members, at least five will be whole-time members, strengthening SEBI’s operational capacity. The larger board is intended to bring in broader expertise, reduce concentration of authority, and improve governance through more diverse representation.
However, the effectiveness of this expanded board will depend on how appointments are made and whether independence is maintained in practice, not just on paper.
Consolidation of Three Securities Laws Into a Single Code
A core objective of the Securities Markets Code is simplification. By merging three separate laws into a single legislative framework, the government aims to reduce overlap, eliminate inconsistencies, and make compliance easier for market participants.
Legal experts believe this consolidation will benefit practitioners, intermediaries, and regulated entities by offering a more coherent legal structure. However, as pointed out by Arka Mookerjee, Partner at JSA Advocates & Solicitors, much will depend on how subordinate legislation evolves.
Rules, regulations, circulars, and guidelines issued by SEBI will continue to play a critical role, and their alignment with the Code will determine whether simplification truly materialises.
Decriminalisation of Securities Law Violations
Another major feature of the Securities Markets Code is the proposed decriminalisation framework. The Bill classifies contraventions into two broad categories.
The first category includes violations related to fraudulent and unfair trade practices. These will not attract criminal liability under the Code, marking a shift away from criminal prosecution as the default enforcement tool.
The second category, termed “market abuse,” covers more serious violations that harm market integrity and public interest. These contraventions may attract civil penalties and, in certain cases, could still be treated as offences.
This tiered approach reflects a global trend towards proportionate regulation, where enforcement action is calibrated based on the severity and impact of violations.
Delegation of Regulatory Functions to MIIs and SROs
The Bill empowers SEBI to delegate certain registration and regulatory functions to Market Infrastructure Institutions (MIIs) and Self-Regulatory Organisations (SROs). This move is aimed at improving regulatory efficiency and allowing SEBI to focus on supervision, enforcement, and policy formulation.
Delegation to MIIs and SROs could help streamline processes, reduce regulatory bottlenecks, and encourage industry participation in standard-setting. However, it also raises questions around oversight and accountability, making robust checks and balances essential.
Stronger Investor Protection Framework
Investor protection forms a central pillar of the proposed Code. SEBI will be mandated to specify an investor charter designed to safeguard investor interests and promote informed participation in the securities markets.
The Code also requires SEBI to establish an Investor Grievance Redressal Mechanism and empowers it to direct market intermediaries and issuers to put in place similar systems. This creates a more structured and enforceable framework for handling investor complaints.
By embedding investor protection directly into the statute, the Code strengthens SEBI’s hand in ensuring fair treatment and transparency.
Enabling Inter-Regulatory Coordination and Market Development
To improve the overall investment climate, the Securities Markets Code provides an enabling framework for inter-regulatory coordination. SEBI, in consultation with other regulators, may frame regulations to facilitate seamless listing of “other regulated instruments.”
The Code also seeks to enhance coordination among Market Infrastructure Institutions, including interoperability across platforms. This could support innovation, improve liquidity, and promote market-making activities across asset classes.
What the Securities Markets Code Means for India’s Capital Markets
The Securities Markets Code, 2025 represents more than a legislative clean-up exercise. It reshapes the balance between regulation, governance, and enforcement in India’s capital markets.
By tightening conflict-of-interest norms, expanding SEBI’s board, decriminalising certain violations, and strengthening investor protection, the Code aims to modernise market regulation while aligning with global best practices.
However, the true impact of the Code will only become clear once subordinate legislation is notified and enforcement practices evolve. Much will depend on how SEBI exercises its enhanced powers and whether regulatory discretion is matched with accountability.
For investors, intermediaries, and issuers alike, the Code signals a move towards a more structured, transparent, and institutionally robust securities market framework.
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