India's Securities Code Overhaul: How a New Bill Aims to Transform Capital Markets

The proposed Code seeks to merge the Securities Contracts (Regulation) Act, 1956, the SEBI Act, 1992, and the Depositories Act, 1996 into a single, unified statute.

Government Sources said a need was felt to provide a modern statutory framework for investor protection and capital mobilization.

They said that by enabling participatory approach and consultative regulation making, the intention is also to create more awareness and draw in more new participants.

The sources said that the Securities Markets Code 2025 is a major milestone, a review of this scale in securities markets is happening for the first time which will facilitate access to the investor and enhance capital mobilisation at a scale, commensurate with the emerging needs of the fast-growing Indian economy.

The Securities Markets Code seeks to establish a principle-based legislative framework aimed at reducing compliance burdens, strengthening regulatory governance, and supporting the growth of technology-driven securities markets, thereby promoting ease of doing business.

To ensure clarity and uniformity, the Code simplifies legal language by removing redundant concepts, eliminating overlapping provisions, and introducing consistent regulatory procedures across standard market processes, the government sources told.

The Bill proposes to strengthen SEBI's regulatory capacity by expanding the Board from nine to up to fifteen members, while mandating a transparent and consultative approach for issuing subordinate legislation, they added.

To enhance credibility and integrity in decision-making, the Code introduces strict conflict-of-interest norms, requiring Board members to disclose any direct or indirect interests and to recuse themselves where conflicts arise.

The enforcement framework is streamlined by providing for a single adjudication process following an appropriate fact-finding exercise, with a clear arm's-length separation between investigation and adjudication. Timelines for investigations and interim orders are also prescribed to ensure time-bound and predictable regulatory action, sources said.

As a significant reform, the Code decriminalises minor, procedural, and technical violations, converting them into civil defaults. Criminal liability is restricted to serious offences such as market abuse, non-compliance with quasi-judicial orders, and non-cooperation during investigations.

Investor protection is further strengthened through measures to promote investor education, awareness, and time-bound grievance redressal, including the introduction of an Ombudsperson mechanism.

The Code also empowers SEBI to establish a Regulatory Sandbox to encourage innovation in financial products, contracts, and services, while creating a framework for inter-regulatory coordination to enable seamless listing of other regulated instruments, the sources said.

The Finance Minister proposed sending Securities Markets Code (SMC) Bill, 2025 to Standing Committee for further examination.

- ANI