Securities laws set for reset as FM introduces Bill for unified code

The Code also attempts to decriminalise certain violations which are procedural or technical in nature into civil penalties

Securities market regulations are set for their biggest overhaul in decades as Finance Minister Nirmala Sitharaman on Thursday introduced the Securities Markets Code (SMC) Bill 2025, a unified regulation that will repeal three existing Acts, in the Lok Sabha. 

The Bill seeks to consolidate and replace the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India (Sebi) Act, 1992, and the Depositories Act, 1996. 

The SMC aims to build a principle-based legislative framework, reduce compliance burden, remove redundant concepts, and incorporate standard processes. 

To improve regulatory certainty, the Bill codifies an arm’s-length separation between Sebi’s fact-finding functions — such as inspections and investigations — and enforcement actions, including the issuance of show-cause notices and adjudication. Timelines have also been prescribed for investigations and interim orders. 

The Bill expands Sebi’s board to up to 15 members, including the chairperson, from the current nine. 

It also mandates disclosure of direct or indirect interests by board members while taking decisions.

 

Further, the Bill formally recognises market infrastructure institutions, including stock exchanges, clearing corporations, and depositories, and also empowers them to frame bye-laws to ensure non-discriminatory access, transparency, interoperability, and minimisation of market abuse.

 

The Bill has been referred to the Parliamentary Standing Committee on Finance, which is expected to submit its report on the first day of the next session of Parliament, the finance minister said. The government had first announced the consolidation in Budget 2021.

 

“At this stage of introduction, we are only making the Bill to be sent over to the standing committee to do a complete review. There are matters that can be extensively debated in the standing committee and none of which pertain to the legislative competence in bringing this Bill,” said the FM, responding to the concerns raised in the Lok Sabha by Opposition leaders on regulatory overreach and excessive powers to one body.

 

The Code also seeks to decriminalise certain violations that are procedural or technical in nature by converting them into civil penalties. However, violations such as market abuse will be treated more seriously, attracting civil penalties and criminal liability.

 

“While the new Code introduces timelines that improve structure, it stops short of delivering finality. With investigations, inspections, interim orders, and reviews all capable of extension, regulated entities may continue to face prolonged uncertainty unless the regulator exercises strong internal discipline,” said Sumit Agrawal, senior partner, Regstreet Law Advisors and former Sebi officer.

 

“The Code materially expands the regulator’s discretionary and interim powers, with a corresponding reduction in scope for an aggrieved to approach SAT or courts. The success of Code will depend less on consolidation logic and more on the proportional, transparent, and restrained exercise of these powers,” he added.

 

Independent counsel Vyapak Desai said the sections on penalties had been significantly altered from a disputes perspective. “Certain clauses are too wide and discretionary, risking varied interpretation and more litigation,” said Desai.

 

Desai argued for wider consultation on the Bill, stating: “There has not been a single public consultation or law commission report on it. It is critical to take stakeholder views on changes that will have a significant impact on an economy of our size.”

 

K C Jacob, partner at Economic Laws Practice (ELP), welcomed the introduction of ombudsperson as a “significant step in strengthening investor protection”.

 

“The government is moving beyond mere grievance tracking to grievance resolution and bridges the gap between a rejected complaint and the complex corridors of a dispute in the Securities Appellate Tribunal,” he said. 

Salient features

• Makes market rules simpler and easier to follow, reducing paperwork for companies
• Introduces an ombudsperson (neutral, impartial official) to help investors settle unresolved complaints faster
• Improves transparency by requiring Sebi to consult stakeholders before making new rules
• Prevents conflicts of interest by requiring Sebi members to declare personal interests before making decisions