Securities Market Code Bill 2025 : UPSC Current Affairs

Description

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Picture Courtesy: THEHINDUBUSINESSLINE

Context

The Securities Markets Code Bill, 2025, introduced in the Lok Sabha in December 2025, is currently under review by the Parliamentary Standing Committee on Finance.

What is the Securities Markets Code Bill 2025?

The Bill, introduced in the Lok Sabha to consolidate and modernize financial regulatory laws, replaces three outdated acts with a single, comprehensive code for capital markets.

Why is the Code Necessary?

Fragmented Legislation: The market is currently governed by three separate laws: the Securities Contracts (Regulation) Act (SCRA), 1956, the SEBI Act, 1992, and the Depositories Act, 1996. This results in regulatory overlaps and inconsistencies.

The Financial Sector Legislative Reforms Commission (FSLRC) had recommended consolidating these laws.

Massive Market Growth: India's market capitalization crossed $5 trillion in 2024, making it the 4th largest globally. The old laws are inadequate to regulate a market of this scale. (Source: Bloomberg)

Surge in Retail Participation: With over 21.6 crore Demat accounts in India as of January 2026, a unified law is essential to protect this large and expanding retail investor base. (Source: AIR)

Technological Disruption: The SCRA, 1956, was enacted before the digital era. The new Code is essential to regulate modern practices like High-Frequency Trading (HFT), Algorithmic Trading, and asset tokenization.

Core Features of the Securities Markets Code Bill

Feature	Key Provisions	Significance
Consolidation of Laws	Repeals the SCRA (1956), SEBI Act (1992), and Depositories Act (1996) into a single unified code.	Eliminates legal overlaps, reduces compliance burdens, and provides a seamless regulatory framework for all securities.
Institutional Strengthening of SEBI	Increases SEBI Board strength from 9 to 15 members. Increases the number of Whole-Time Members (WTMs) from 3 to a minimum of 5.	Addresses capacity constraints highlighted in the IMF Financial Sector Assessment Program (FSAP) Report, equipping SEBI to better regulate the expanding market.
Decriminalisation of Offences	Divides offences into two categories: Category I (Civil): Minor procedural violations (e.g., filing delays) will only attract monetary penalties, not jail time. Category II (Criminal): Serious market abuse like Insider Trading and Front Running remain criminal offences.	Aligns with the Jan Vishwas Act, 2023, to improve ease of doing business and reduce the burden on the judicial system from minor economic offences.
Limitation Period for Investigations	Introduces a strict 8-year limitation period. SEBI cannot initiate any new investigation into an alleged violation after 8 years have passed.	Provides regulatory certainty and finality for businesses, ending the practice of indefinite or open-ended investigations.
Statutory Investor Protection	Mandates SEBI to create a statutory "Investor Charter" defining the rights of investors. Requires intermediaries to set up robust grievance redressal mechanisms.	Formalizes investor rights and ensures timely resolution of complaints, building trust among retail participants.

Way Forward

The Securities Markets Code Bill 2025 needs thorough review, and a stronger Securities Appellate Tribunal (SAT) to align with India's $5 trillion economy goal.

Source: THEHINDUBUSINESSLINE

Attempt Daily Quiz

PRACTICE QUESTION

Q. Which of the following best reflects the principle behind insider trading prohibition?

A) Maximization of corporate profits

B) Protection of minority shareholders only

C) Ensuring informational symmetry in securities markets

D) Restricting foreign investment

Answer: C

Explanation:

The prohibition of insider trading is fundamentally rooted in the principle of market fairness and integrity. By preventing individuals from trading on material, non-public information, regulators aim to ensure that all market participants have equal access to information. This prevents "informational asymmetry," where insiders could gain an unfair advantage over the general public, thereby maintaining investor confidence and market liquidity.

Frequently Asked Questions (FAQs)

The primary objective is to consolidate three fragmented laws (SCRA 1956, SEBI Act 1992, Depositories Act 1996) into a single, modernized legal code to reduce regulatory overlaps and address the needs of India’s $5 trillion economy.

The Securities and Exchange Board of India (SEBI) is the statutory regulatory body for the securities and commodity market in India, established in 1988 and granted statutory powers in 1992. It protects investor interests, promotes development, and regulates the market to ensure fairness, transparency, and the prevention of fraud.

Insider trading is the buying or selling of a public company's securities (stocks or bonds) by individuals who possess material, non-public information about that company. It is illegal when this confidential, price-sensitive information is used for personal gain, violating fiduciary duties and undermining market integrity.