How the Securities Markets Code Bill Impacts Securities Regulation in India

📋 Impact Snapshot: Securities Markets Code 2025

The Securities Markets Code 2025 streamlines Indian regulation by consolidating the SCRA (1956), SEBI Act (1992), and Depositories Act (1996). Key reforms include decriminalizing technical violations into civil penalties, establishing an 8-year investigation limit, and reintroducing the Ombudsperson for 180-day grievance resolution. This “One Rulebook” approach modernizes digital trading while enhancing investor protection.

One Market, One Rulebook: Three Acts Consolidated in One Code

The calendar year of 2025 witnessed monumental developments in the Indian regulatory and legislative landscape. Attempt was made to consolidate and streamline fragmented sector-specific laws into a cohesive and uniform code. This is indicated in consolidation of several central laws into four Labour Codes on i) wages, (ii) industrial relations, (iii) social security, and (iv) occupational safety, health and working conditions. The Reserve Bank of India has reorganised and simplified various regulations to consolidate 9000+ scattered directions, circulars, and guidelines into 244 Master Directions. The Income-Tax (No.2) Bill, 2025 has been proposed to simplify the language of the existing legislations and remove redundant provisions. In the same spirit of reform, the Securities Markets Code, 2025[1] has been introduced before the Lok Sabha to consolidate and amend all securities market regulations (the “Bill”). The Bill is currently under examination by the Standing Committee.

The Bill proposes to repeal and replace the:

• Securities Contracts (Regulations) Act, 1956,
• the Securities and Exchange Board of India Act, 1992, and
• the Depositories Act, 1996.

To implement the concept of “One Market, One Rulebook” and maintain the agenda of investor protection, market development and market regulation, the securities law is being reshaped and modernized.

Market development

India’s securities market today is evolving rapidly and a reform was required to align with the evolving regulatory practices, latest developments in technology and the changing character of securities markets. Trading is increasingly digital, financial products have become more complex, and the rise of technology-driven intermediaries has introduced new regulatory risks.

To address these, the Bill has proposed:

• Complete dematerialisation[2] of securities and other regulated instruments in a dematerialized fungible form.
• To facilitate innovation, a regulatory sandbox[3] is to be established that will look into the development and testing of new financial products, contracts, and services in a controlled environment.
• The definition of Intermediary has been kept open ended to accommodate the developments in the securities market and flexible to accommodate new types of market participants.[4]

Investor Protection

Investor protection remains at the core of the Bill which provides for laying down principles and measures for protecting investors and facilitating their participation in the securities markets.[5]

To ensure redressal of grievances, the Bill has reintroduced the Ombudsperson. Investors can approach the Ombudsperson for deficiencies in services of a securities markets service provider, with assured resolution within 180 days.[6] Additionally, the Securities and Exchange Board of India (“SEBI”) is at liberty to initiate independent action despite an Ombudsperson’s order.[7] Aggrieved parties also have the option to approach the Supreme Court.

How does the Bill impact Fintech and Market Development?

The Bill aims to build a principle based legislative framework to reduce compliance burden, improve regulatory governance and enhance dynamism of the technology driven securities markets. The Bill has redefined the functions of the SEBI and introduced explicit governance obligations –

• Mandatory disclosure by Members of direct or indirect interest[8] while participating in decision making.

• A transparent and consultative process for issuing any subordinate legislation [9].
• Periodic review of existing regulations for their proportionate and effective implementation.[10]
• All penalties collected under the Bill are credited to the Consolidated Fund of India.[11]
• The SEBI has the authority to inspect a securities markets service provider, a market participant and associated persons when it believes issuer has been indulging in fraudulent/ unfair practices or market abuse.[12]
• The SEBI now has power to investigate transactions believed to be detrimental to the investors or the securities markets through an Investigating Officer.[13]
• Limitation has been imposed on inspection and investigation and they must be conducted within eight years of the default or contravention.
• The Bill has clearly defined acts which adversely affect the integrity of the market and are categorised as market abuse. These include engaging in insider trading, dealing in securities while in possession of material or non-public information, placing any order in securities while directly or indirectly in possession of information which is not publicly available.

Restructuring Penalty Framework

To reduce the compliance burden, the penalty framework has been restructured to limit imprisonment to serious misconduct while procedural and technical violations are treated as civil defaults with monetary penalties. Imprisonment is retained for market abuse, failure to comply with orders/directions of Investigating Officer and Adjudicating Officer.

Penalty must be assessed by considering the amount required to be disgorged and any aggravating and mitigating circumstances. The Bill has introduced the concept to disgorgement to rectify unlawful gains and restore the noticee to its pre-contravention position. Penalties are to be imposed to ensure effective deterrence. When both actions are undertaken, the adjudicating officer must harmonise the total monetary liability to serve these distinct objectives.

To reinforce the specialised adjudicatory framework, Civil court jurisdiction is expressly barred for matters covered under the Bill. In an interesting move, the Central Government can supersede the SEBI and take over all its powers and functions and reconstruct it by fresh appointment.[14]

Conclusion

The Bill has been criticised for concentrating excessive power on the SEBI, diluting due diligence and contravening the doctrine of separation of power. The success of the Bill will rest on SEBI’s ability to exercise its power with restraint and within the limitations that may be imposed by the Centre.

To stay updated on further development of this Bill and other regulatory changes, please connect with us at getintouch@lexplosion.in or leave your details in our contact us form.

Authored by: Namrata Deashi

Co-Authored by: Amiya Mukherjee

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[1] https://prsindia.org/files/bills_acts/bills_parliament/2025/Securities_Markets_Code,2025.pdf

[2] Clause 55

[3] Clause 128

[4] Clause 34(3)

[5] Clause 71, 11

[6] Clause 74

[7] Clause 78

[8] Clause 8

[9] Clause 39

[10] Clause 11, 147

[11] Clause 112

[12] Clause 12

[13] Clause 13-16

[14] Clause 131, 132, 133, 127