From stronger SEBI, post-tenure curbs to ED probe: What’s in Securities Markets Code Bill, 2025

Union Finance Minister Nirmala Sitharaman on Thursday introduced the Securities Markets Code Bill, 2025 in the Lok Sabha, seeking to consolidate decades-old capital markets laws into a single framework.

The proposed law would merge the Securities and Exchange Board of India (SEBI) Act, 1992, the Depositories Act, 1996 and the Securities Contracts (Regulation) Act, 1956 into a unified code governing India’s securities markets.

Why does govt want a single securities markets code?

According to the Statement of Objects and Reasons circulated among Members of Parliament, the Securities Markets Code, 2025 seeks to “rationalise and consolidate” existing provisions and provide a modern regulatory framework for investor protection and capital mobilisation in line with the needs of India’s fast-growing economy.

The government said the overhaul was needed as the existing laws were enacted decades ago and no longer fully aligned with evolving market practices, latest developments in technology and the changing character of securities markets

The Bill endeavours to establish a principle-based legislative framework to reduce compliance burden, improve regulatory governance and enhance the dynamism of technology-driven securities markets.

It also simplifies legal language by removing obsolete and redundant concepts, eliminating duplication of provisions and introducing consistent regulatory procedures for standard processes, according to the government.

The single securities markets code was first proposed in the Union Budget 2021-22, when Sitharaman announced the plan to consolidate the SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007 into a rationalised single securities market code.

How does it strengthen investor protection?

With regard to investor protection, it said, the Code seeks to strengthen this and promote investor education and awareness, and ensure effective and time-bound redressal of investor grievances.

It enables effective and prompt resolution of investor grievances by introducing the concept of an Ombudsperson as a comprehensive platform for redressal of any unresolved grievances.

The Bill bars trading while in possession of material non-public information and prohibits the dissemination of false or misleading information to manipulate securities prices.

What powers does SEBI get?

The Code empowers the Board to establish a regulatory sandbox to facilitate innovation in financial products, contracts and services. It also provides an enabling framework for inter-regulatory coordination for listing of other regulated instruments.

SEBI would be required to follow a transparent and consultative process when issuing subordinate legislation, undertake periodic reviews of regulations and conduct regulatory impact assessments.

"The Code seeks to eliminate conflict of interest by requiring the Members of the 'Board' to disclose any 'direct or indirect' interest while participating in decision-making," it said.

The Bill comes in the backdrop of allegations raised in August 2024 against then SEBI chairperson Madhabi Puri Buch and her husband, Dhaval Buch, over alleged undisclosed offshore investments linked to the Adani Group.

The Bill also provides for maintaining a reserve fund by the Board and transferring any surplus to the Consolidated Fund of India. It streamlines adjudication by providing 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.

What about enforcement and penalties?

The proposed law decriminalises certain contraventions of minor, procedural and technical nature into civil penalties to facilitate the ease of doing business and to reduce the compliance burden.

"The civil penalties are anchored to unlawful gains or losses caused with a view to ensuring appropriate and adequate response to the gravity of the contraventions. It promotes standardisation in quantifying unlawful gains and losses to investors and fosters objectivity in undertaking enforcement actions like penalty imposition," it said.

At the same time, stringent punishment has been prescribed for market abuse to safeguard market integrity.

The Bill 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). This means the Enforcement Directorate can initiate investigation in such cases.

It also introduces post-tenure restrictions, barring 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.

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.

What objections have been raised?

During the introduction of the Bill in the Lok Sabha, DMK member Arun Nehru said the legislation went beyond consolidation and “fundamentally alters the balance” between the legislature, executive and regulator, warning of regulatory overreach and dilution of due process.

Congress member Manish Tewari argued that the Bill resulted in an unconstitutional fusion of legislative, executive, investigative and adjudicatory powers in a single authority, violating the doctrine of separation of powers. He also flagged concerns over search, seizure and attachment provisions, over-delegation to self-regulatory bodies and the functioning of tribunals.

What did the government say in response?

Sitharaman said the issues raised were matters for detailed discussion and debate by the Standing Committee, to which the Bill would be referred. She asserted that none of the objections related to the legislative competence of the government to introduce the Bill and urged the House to allow its introduction.

The Securities Markets Code Bill, 2025 was subsequently introduced and is expected to be examined by the standing committee before being taken up for further debate in parliament.