Union Finance Minister Nirmala Sitharaman on Thursday introduced the Securities Markets Code (SMC) Bill, 2025 in the Lok Sabha, moving a step closer to rewriting the legal framework that governs India’s securities markets.
The SMC Bill aims to merge three major laws governing the securities ecosystem into a single code. While the government argues that the move will simplify regulation and strengthen investor protection, opposition members have flagged concerns about excessive powers being concentrated in one regulatory body.
The Bill was referred to the department-related parliamentary standing committee for detailed scrutiny. THE WEEK unpacks what the bill entails.
The rationale
India’s securities laws are spread across multiple Acts enacted decades apart, each written for a different stage of market development. The Securities Contracts (Regulation) Act dates back to 1956, the Depositories Act to 1996, and the SEBI Act to 1992. According to experts, this has resulted in overlapping provisions and duplicated enforcement powers.
The idea of consolidating these laws into a single securities market code was first announced in the Union Budget 2021–22. The government argues that a unified framework is now necessary to keep pace with fast-growing, technology-driven financial markets and to reduce the compliance burden on businesses and intermediaries.
According to the Bill’s Statement of Objects and Reasons, the aim is to simplify legal language, remove outdated concepts, eliminate duplication, and create uniform procedures across the securities market. The government says this will improve ease of doing business while making regulation more consistent and predictable.
Strengthening market regulator
A central feature of the Bill is the strengthening of Securities and Exchange Board of India, which remains the primary regulator under the new Code. The Bill expands the SEBI Board from the current nine members to a maximum of 15, allowing for a broader mix of expertise.
It also introduces stricter conflict-of-interest rules. Board members will be required to disclose any direct or indirect financial interests, including those of family members, and recuse themselves from decision-making where such interests exist. A new ground for removal has been added if a member acquires interests that could prejudice their functions.
The Bill mandates a transparent and consultative process for making regulations, requiring public consultation and periodic review of regulatory impact.
It also codifies a transparent and consultative regulation-making process, mandating public consultation for regulations, rules and bylaws issued by SEBI, market infrastructure institutions and the central government.
Penalties and enforcement
One of the significant shifts proposed is the decriminalisation of minor offences. The Code separates violations into categories, limiting criminal liability to serious offences such as market abuse, non-compliance with regulatory orders, and obstruction of investigations.
Procedural, technical, and minor violations will attract civil penalties rather than criminal prosecution. The government argues that this will reduce fear-driven compliance and encourage participation in capital markets.
Another key feature is the restructuring of enforcement mechanisms. The Code provides for an arm’s-length separation between fact-finding exercises such as inspections and investigations and quasi-judicial adjudication.
It lays down timelines for investigations and interim orders to ensure time-bound enforcement. The Bill also streamlines adjudication by providing for a single adjudication process following an appropriate fact-finding exercise.
Investor protection
The sources argued that the new Bill has positioned investor protection as a central theme. The Code gives statutory backing to an Investor Charter, laying down principles for safeguarding investor interests and promoting participation in securities markets.
It strengthens grievance redressal by providing for a time-bound mechanism under SEBI’s supervision and introduces an Ombudsperson to handle unresolved complaints. The Investor Protection and Education Fund also receives statutory recognition, allowing restitution to affected investors and funding for education and awareness initiatives.
Innovation and market coordination
To support innovation, the Bill allows SEBI to establish a Regulatory Sandbox, where new financial products, services, and contracts can be tested in a controlled environment. This is intended to help markets adapt to new technologies without exposing investors to untested risks.
The Code also creates an enabling framework for inter-regulatory coordination, allowing smoother listing of instruments regulated by other financial authorities and improving interoperability among market infrastructure institutions such as stock exchanges, clearing corporations, and depositories.
Objections
As the Bill was introduced in Lok Sabha, DMK MP Arun Nehru and Congress MP Manish Tewari opposed it, arguing that it delegates excessive powers to a single regulator and weakens the principle of separation of powers. They described the proposed framework as an example of over-centralisation.
