Finance Minister Nirmala Sitharaman on Thursday presented a landmark piece of legislation in the Lok Sabha, the Securities Markets Code 2025 Bill, aimed at overhauling India's capital markets regulatory framework. The bill seeks to consolidate multiple existing laws, enhance the accountability of market regulators, and establish a more robust system for addressing investor grievances.
The proposed code will merge three key statutes: the Securities and Exchange Board of India (SEBI) Act, 1992, the Depositories Act, 1996, and the Securities Contracts (Regulation) Act, 1956 into a single, unified law. The government's objective is to modernize regulation, strengthen safeguards for investors, and facilitate capital mobilization at a scale required by India's rapidly expanding economy.
The bill has now been referred to the parliamentary standing committee on finance, which is chaired by BJP leader Bhartruhari Mahtab, for detailed scrutiny.
Key Reforms: Accountability and Conflict of Interest
A significant focus of the new code is on increasing transparency and accountability among regulatory officials. It introduces stringent conflict of interest disclosure requirements for SEBI board members. Members will be mandated to disclose any direct or indirect interest in matters discussed during board meetings, with such disclosures recorded in the official proceedings. The concerned official must then recuse themselves from those discussions.
Furthermore, the legislation empowers the central government to remove a SEBI official if it believes the individual has acquired financial or other interests that could negatively impact their official duties. This move follows recent controversy, including allegations in August 2024 by US short-seller Hindenburg Research against former SEBI chairperson Madhabi Puri Buch, which she and the Adani Group denied. SEBI had already formed a committee in March to tighten disclosure norms.
Legal experts have welcomed these provisions. "Conflict of interest rules are now explicit, increasing accountability. There is greater scope to enhance transparency in disclosures by board members," noted Sidharth Kumar, a senior associate at BTG Advaya.
Curbing Delays and Strengthening Investor Redressal
The bill addresses a long-standing industry complaint about delayed enforcement actions by introducing a clear limitation period. SEBI will be restricted from initiating inspections or investigations eight years after the date of a default, barring specific exceptions. This aims to prevent situations where show-cause notices are issued years after an alleged violation.
On investor protection, the code provides statutory backing to an investor ombudsperson framework. SEBI can designate officers to receive and resolve grievances. Investors must first attempt resolution through existing mechanisms for up to 180 days before approaching the ombudsperson within a set timeframe. The ombudsperson will possess certain powers of a civil court, though their orders won't prevent SEBI from taking separate legal action.
"The ombudsperson provisions will give more teeth to the SCORES mechanism and make investor complaint resolution more effective," added Kumar.
Modernization and Streamlined Enforcement
The legislation also formally empowers SEBI's regulatory sandbox through law, allowing the creation of a controlled environment to test new market products and services. While sandbox frameworks existed via circulars, the code allows SEBI to grant regulatory exemptions with safeguards.
It promotes inter-regulatory coordination by permitting instruments regulated by other authorities to be listed on stock exchanges, subject to approval. The enforcement framework is strengthened with a principles-based penalty regime, requiring adjudicating officers to ensure penalties are proportionate to the violation. The code also mandates the separation of investigative and adjudicating roles in a case and defines timelines for probes and interim orders.
While minor technical breaches are decriminalized, moving to a civil penalty framework, the code retains strict punishment for serious market abuses like fraud and manipulation. "Adjudication provisions have been streamlined. Grey areas related to SEBI's procedure and powers have been addressed," concluded Kumar.
The introduction of the Securities Markets Code 2025 represents the most comprehensive attempt in decades to simplify and future-proof India's securities market regulations, aligning them with the ambitions of a $5 trillion economy.
