In a landmark move to modernize India's financial regulatory landscape, the government introduced the Securities Markets Code (SMC) Bill, 2025 in Parliament on Thursday, December 20, 2025. This comprehensive legislation aims to overhaul decades-old rules, creating a unified, principle-based framework for the securities market.
Consolidating Three Laws into One Code
The core objective of the Bill is to consolidate, rationalize, and replace three existing securities laws that have governed the market for years. These are the Securities Contracts (Regulation) Act, 1956 (SCRA), the Securities and Exchange Board of India Act, 1992 (SEBI Act), and the Depositories Act, 1996. Legal experts have long pointed out overlapping and redundant provisions across these acts, which have struggled to keep pace with technological evolution and the growing complexity of modern markets.
"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," said Vaibhav Kakkar, Senior Partner at Saraf and Partners. "The consolidation should reduce interpretative conflicts and provide greater legal certainty to regulated entities."
Key Reforms and Enhanced Powers
The Bill introduces significant changes across several fronts, focusing on regulatory governance, ease of compliance, and investor protection.
Empowering and Expanding SEBI
The markets regulator, SEBI, is set to receive enhanced powers and a revamped structure. The Code proposes to increase the number of SEBI board members from the current total of 9 to 15 members. The new board will comprise a chairperson, two members from the Central Government dealing with finance and the Companies Act, 2013, one officer from the Reserve Bank of India (RBI), and 11 other members, including at least five whole-time members.
To ensure integrity, the Bill empowers the government to remove a SEBI Board member if they acquire any financial interest likely to prejudice their functions or if convicted of an offence involving moral turpitude. It also mandates stricter disclosure of 'conflict of interest', requiring members to reveal any direct or indirect interest, including those of family members, and abstain from related decisions.
Easing Compliance and Decriminalising Minor Lapses
In a major relief for market participants, the SMC categorizes contraventions into two buckets. The first category, involving violations of prohibitions against fraudulent and unfair practices, will not attract criminal liability and will be subject only to civil penalties. The second category, termed 'market abuse', covers graver violations that affect market integrity and public interest; these may attract both civil penalties and be treated as criminal offences.
"This recalibration reflects a proportionate enforcement philosophy and should materially reduce the compliance burden on market participants while preserving deterrence for egregious misconduct," added Kakkar.
A Stronger Shield for Investors
Investor protection gets a substantial boost under the new Code. For the first time, it statutorily mandates SEBI to specify an 'Investor Charter'. It also requires Securities Markets Service Providers (SMSPs) and issuers to set up grievance redressal mechanisms.
A pivotal introduction is the creation of an independent Ombudsperson within SEBI to redress investor grievances in a time-bound manner, separating this function from the enforcement wings. Furthermore, the Code provides investors an opportunity to engage in SEBI's regulation-making process through public consultations.
Streamlining for Regulated Entities and Market Infrastructure
The Bill proposes a consolidated framework for registering intermediaries and pooled investment vehicles. It brings key market infrastructure institutions (MIIs) like stock exchanges, clearing corporations, and depositories under a single code, reducing fragmentation. SEBI is also empowered to delegate parts of its registration functions to MIIs and Self-Regulatory Organisations (SROs) for more effective oversight.
The legislation also fosters better inter-regulatory coordination. SEBI, in consultation with other regulators, can make regulations for seamless listing of 'other regulated instruments' and ensure interoperability among MIIs, which is expected to improve the investment climate and promote market making.
Aligning with Global Best Practices
The Securities Markets Code Bill, 2025, incorporates international standards in regulatory governance, accountability, and transparency. It introduces measures like regulatory impact assessments and ensures an arm's length separation between fact-finding and adjudication processes.
"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.
The tabling of this Bill represents the most significant rewrite of Indian securities market laws in over three decades, aiming to create a future-ready, robust, and investor-friendly ecosystem.
