The Securities Markets Code, 2025 seeks to modernise India’s capital market regulation by consolidating the Securities Contracts (Regulation) Act, 1956, the SEBI Act, 1992, and the Depositories Act, 1996 into a single, principle-based framework. The Code strengthens the regulatory role of Securities and Exchange Board of India, decriminalises minor procedural violations, enhances investor protection through a statutory Investor Charter and Ombudsperson, and improves oversight of market infrastructure institutions. By reducing regulatory fragmentation and aligning with global best practices, the Code aims to boost investor confidence, ease compliance, deepen capital markets, and support India’s long-term economic growth.
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In a major overhaul of the Indian securities market regulations, the Securities Markets Code (SMC), 2025 was tabled in Parliament. The Bill is a comprehensive framework aimed at strengthening investor protection, easing the compliance burden, improving regulatory governance and promoting ease of doing business in the country.
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Must Read: Securities and Exchange Board of India (SEBI) | Stock Market Regulation in India | |
Securities Contracts (Regulation) Act, 1956: The Securities Markets Code Bill, 2025 proposes to repeal the Securities Contracts (Regulation) Act, 1956, which earlier governed the recognition and regulation of stock exchanges and securities contracts, by subsuming all exchange-related and trading provisions into a single, unified regulatory framework under the Code.
Securities and Exchange Board of India Act, 1992: The Bill seeks to replace the Securities and Exchange Board of India Act, 1992, which established the powers and functions of the market regulator, by incorporating and rationalising these provisions within the Code while simultaneously strengthening the governance, accountability, and enforcement role of Securities and Exchange Board of India.
Depositories Act, 1996: The Securities Markets Code Bill, 2025 also aims to repeal the Depositories Act, 1996, which regulated the dematerialisation and electronic settlement of securities, by bringing depositories, clearing corporations, and stock exchanges under a common legal umbrella to reduce regulatory fragmentation.
Regulatory consolidation and legal clarity: The primary objective of the Securities Markets Code Bill, 2025 is to consolidate multiple, overlapping securities laws into a single, coherent framework in order to eliminate ambiguities, reduce interpretative conflicts, and provide greater legal certainty to market participants.
Strengthening the role of the regulator: Another key objective is to empower and modernise the functioning of Securities and Exchange Board of India by improving its governance structure, enhancing accountability, and equipping it with proportionate and effective enforcement powers suited to the complexity of modern financial markets.
Ease of compliance and doing business: The Bill aims to reduce the compliance burden on regulated entities by decriminalising minor and technical violations, adopting a graded penalty structure, and shifting from a punishment-heavy regime to a facilitative and proportionate regulatory approach.
Enhanced investor protection and participation: An important objective of the move is to strengthen investor confidence by statutorily incorporating an Investor Charter, establishing independent grievance redressal through an Ombudsperson mechanism, and enabling greater investor participation in the regulation-making process.
Improving market efficiency and infrastructure: The Code seeks to create an integrated regulatory framework for stock exchanges, clearing corporations, and depositories, thereby improving operational efficiency, reducing institutional fragmentation, and strengthening the resilience of market infrastructure institutions.
Better inter-regulatory coordination: The Bill also aims to facilitate seamless coordination between financial sector regulators, including SEBI and the Reserve Bank of India, to address regulatory overlaps, promote interoperability of platforms, and support innovation in financial markets.
Alignment with global best practices: Finally, the objective of the Securities Markets Code Bill, 2025 is to align India’s securities regulation with international best practices by introducing measures such as regulatory impact assessment, transparent rule-making, and separation of adjudicatory and investigative functions.
Regulatory and institutional Impact: India’s securities regulation was earlier governed by 3 separate Acts and 1000+ subordinate regulations, often leading to regulatory overlap and litigation.
Impact: By consolidating these laws, the SMC reduces interpretative conflicts and strengthens the institutional capacity of Securities and Exchange Board of India through improved board governance, conflict-of-interest norms, and clearer enforcement architecture.
Economic and market Impact: India’s market capitalisation crossed USD 4.5 trillion in 2024, but corporate bond markets remain underdeveloped at ~18% of GDP, compared to 40–50% in developed economies.
By easing compliance and reducing criminal liability for minor lapses, the SMC incentivises more listings, bond issuances, and participation by MSMEs and startups.
Investor confidence and social Impact: SEBI receives 1.5–2 million investor complaints annually, with delays in resolution being a persistent concern.
Statutory backing to the Investor Charter and creation of an independent Ombudsperson improve trust, grievance redressal, and retail participation.
Ease of doing business and corporate Impact: India ranked 63rd in Ease of Doing Business (World Bank, last ranking), with regulatory complexity cited as a constraint for capital market activity.
Decriminalisation of technical violations reduces compliance fear, litigation costs, and regulatory risk for corporates and intermediaries.
Transition and implementation Challenges: The shift from three separate legislations to a single Securities Markets Code may create short-term uncertainty for market participants, as intermediaries, issuers, and investors will need time to realign compliance systems, internal processes, and contractual arrangements with the new legal framework.
Regulatory capacity and institutional readiness: Although the Code strengthens the role of Securities and Exchange Board of India, effective implementation will require enhanced regulatory capacity, skilled manpower, and technological infrastructure to supervise a more integrated and complex market ecosystem.
Risk of over-centralisation of powers: The expanded powers granted to SEBI, including delegation of functions to Market Infrastructure Institutions and Self-Regulatory Organisations, raise concerns about excessive regulatory concentration, which may reduce checks and balances if not accompanied by strong accountability mechanisms.
Ensuring proportionate enforcement: While decriminalisation of minor violations is a positive step, there remains a challenge in clearly distinguishing between technical lapses and serious market abuse, as inconsistent enforcement could dilute deterrence or create perceptions of regulatory leniency.
Global alignment and capital flow volatility: Although aligned with international best practices, frequent changes in global financial conditions may test the flexibility of the Code, and overly rigid regulations could affect foreign portfolio investment flows during periods of market stress.
Securities Markets Code (SMC), 2025: The government has introduced the Securities Markets Code, 2025 to consolidate the Securities Contracts (Regulation) Act, 1956, the SEBI Act, 1992, and the Depositories Act, 1996 into a single, principle-based law aimed at improving regulatory clarity, easing compliance, and strengthening investor protection.
Strengthening of the market regulator: Through legislative and regulatory changes, the government has enhanced the governance, powers, and accountability of Securities and Exchange Board of India, including board restructuring, conflict-of-interest norms, graded penalties, and improved enforcement mechanisms.
Decriminalisation of minor violations: As part of the broader ease-of-doing-business agenda, the government has decriminalised minor and technical lapses in securities regulation, shifting towards civil penalties while retaining strict action against serious offences such as fraud and market manipulation.
Investor protection and confidence-building measures: The government has institutionalised the Investor Charter, strengthened the SCORES grievance redressal platform, introduced an independent Ombudsperson mechanism, and mandated time-bound resolution of investor complaints to enhance trust in capital markets.
Strengthening market infrastructure institutions (MIIs): By bringing stock exchanges, clearing corporations, and depositories under a unified regulatory framework, the government has improved governance standards, risk management, and systemic stability of institutions that are critical to market functioning.
Corporate bond market development initiatives: To deepen capital markets, the government has supported reforms such as rationalisation of stamp duty, introduction of electronic book platforms (EBPs), enhanced disclosure norms, and credit enhancement mechanisms to promote the corporate bond market.
The Securities Markets Code, 2025 marks a significant step toward modernising India’s capital market framework by consolidating multiple securities laws into a single, coherent and principle-based code. By strengthening the regulatory role of Securities and Exchange Board of India, decriminalising minor violations, enhancing investor protection, and aligning regulation with global best practices, the Code seeks to balance market integrity with ease of doing business. Its effective implementation can deepen capital markets, boost investor confidence, and support India’s aspiration to emerge as a globally competitive financial hub.
Source: Indian Express
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Practice Question Q. How does the Securities Markets Code, 2025 aim to balance investor protection with ease of doing business? Evaluate. (250 words) |
The Securities Markets Code, 2025 is a comprehensive legislation that consolidates India’s existing securities laws into a single, principle-based framework to regulate capital markets more effectively.
It replaces the Securities Contracts (Regulation) Act, 1956, the SEBI Act, 1992, and the Depositories Act, 1996
The earlier laws were enacted at different times and had overlapping provisions, leading to regulatory fragmentation, legal ambiguity, and compliance complexity in an increasingly technology-driven securities market.
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