Finance Minister Nirmala Sitharaman table the Securities Market Code (SMC) Bill 2025 in the Lok Sabha on Thursday that proposes to merge three existing laws – the Securities Contracts Act (1956), the Securities and Exchange Board of India Act (1992) and the Depositories Act (1996). The Bill will be referred to a standing committee for further discussion.
Proposed for the first time in the Union Budget 2021-22 by Sitharaman, the SMC seeks to remove obsolete and redundant concepts, eliminate duplication of provisions and introduce consistent regulatory procedures for standard processes.
At the same time, it plans to strengthen the regulatory architecture, improve investor protection, and enhance the efficiency and ease of doing business in capital markets.
According to the Bill, the SMC aims to reinforce the powers and governance framework of the Securities and Exchange Board of India (Sebi), referred to as the “Board”, while adopting a principle-based legislative approach.
The SMC follows the same template as the New Income Tax Code, the Reserve Bank of India’s (RBI) recent consolidation of 9,445 circular into 244 master circulars and the Securities and Exchange Board of India’s (Sebi) attempts at simplifying guidelines for brokerage and other market intermediaries.
The key proposals will impact Sebi, market infrastructure institutions (MIIs) and investors.
The number of Board (Sebi) members have been increased from 9 to 15. There are provisions to enable a framework for inter-regulatory co-ordination for listing of other securities and regulatory sandbox to facilitate innovation in financial products, contracts and services. In addition, Sebi will be required to follow a transparent and consultative process when issuing subordinate legislation, undertake periodic reviews of regulations and conduct regulatory impact assessments.
Importantly, the SMC seeks to eliminate conflict of interest by requiring the members to disclose any ‘direct or indirect’ interest while participating in decision-making – an important development after the allegations against former chairperson Madhabi Puri Buch and husband Dhaval Buch led to serious concerns about transparency in Sebi.
Conflict Disclosures and Post-Tenure Curbs
The SMC provides for maintaining a reserve fund by the Board and transferring any surplus to the Consolidated Fund of India, much like the RBI does currently. It also provides for a single adjudication process following appropriate fact-finding, while maintaining an arm’s-length separation between investigation and adjudication and prescribing timelines for investigations and interim orders.
It has also introduced post-tenure restrictions that will bar the Sebi chairperson and members from accepting employment under the Centre or state governments, or with securities market service providers or market participants, for one year after leaving office, without prior government approval.
Sunil Gidwani, Partner- Financial Services, Nangia Group said, “Requiring Board members to disclose “direct or indirect” interests is a vital corporate governance measure. It brings the internal ethics in line with the high standards Sebi demands from listed entities, ensuring “regulatory integrity” isn’t just a buzzword.”
He added that the provision to transfer surplus funds to the Consolidated Fund of India creates a balanced fiscal structure. While the “Board” retains a reserve for operational autonomy, the transfer mechanism ensures public accountability and prevents the idle accumulation of regulatory fees.
Market Integrity
While the proposed law decriminalises certain contraventions of minor, procedural and technical nature into civil penalties, stringent punishment has been prescribed for market abuse. The Code prescribes a maximum jail term of 10 years for market abuse and proposes to include the offence under the Schedule of the Prevention of Money Laundering Act (PMLA), implying that the Enforcement Directorate can initiate investigation in such cases.
However, the legislation also provides that no investigation or inspection for contraventions shall be initiated after eight years from the date of default, except in cases referred by investigating agencies or where the Board believes the matter has systemic implications.
For MIIs and self-regulated organisations or SROs, the SMC provides a consolidated framework for the registration of intermediaries and pooled investment vehicles. It also brings stock exchanges, clearing corporations, and depositories under a unified code. Besides giving them regulatory responsibilities, the proposals include consistent treatment through codified rules and introduces an expert-based adjudication in specific matter. The latter will help in better decision making as subject matter experts will be involved in the process.
For protection of investors, the SMC proposes that Sebi should specify an investor charter that will provide the principles and facilitate their participation in the securities market. The market regulator will also lay down Investor Grievance Redressal Mechanism and direct Securities markets service Providers (SMSPs) & issuers to set up similar such mechanism. Also, one or more officers will be appointed Ombudsperson to redress investor grievances effectively and, in a time bound manner.
Arka Mookerjee, Partner, JSA Advocates & Solicitors said that the SMC marks the consolidation of three key regulations in the Indian securities market will likely help practitioners and the market alike, the details on subordinate legislation, namely the Sebi rules, regulations, circulars and guidelines, will remain to be seen.
He added that the statement of objects marks a shift away from extant securities law views, to “build a principle based legislative framework to reduce compliance burden, improve regulatory governance and enhance dynamism of the technology driven securities markets.