Securities Markets Code 2025: Is it the Long-Awaited Silver Bullet?

[Devashish is a student at Amity Law School, Noida.]

The Indian securities market has experienced notable growth over the past decades, necessitating amendments that have consistently been addressed through circulars and notifications. In response to these ample patchworks, the Hon’ble Finance Minister Nirmala Sitharaman introduced a landmark shift in securities regulations since 1991. She presented the Securities Markets Code 2025 Bill (SMC) in the Lok Sabha on 18 December 2025. SMC is a proposed comprehensive statute intended to integrate and replace the three foundational legislations: the Securities and Exchange Board of India Act 1992 (SEBI Act), the Securities Contracts (Regulation) Act 1956 (SCR Act), and the Depositories Act 1996. The adoption of this code was motivated by overlapping regulations, differing procedures, and archaic concepts that fail to govern technology-driven markets. SMC is not merely a technical change; it is a structural transformation.

Key Features Affecting the Securities Market

The SMC promises to serve as a fundamental statute within the securities market of India. It has integrated various regulations and aims at the transformation of the market.

• Consolidated framework: The SMC integrates and repels the three fundamental acts into a unified code. It removes the regulatory fragmentation, ensuring clarity, uniformity, and efficiency in regulation. It reduces the compliance and strengthens market integrity. The focus should be on what the code restructures, rather than on what it eliminates.

• Strengthening SEBI governance: The Securities and Exchange Board of India (SEBI) remains the supreme regulator. SMC has increased the strength of the SEBI and further tightened the duties of its members, including the mandatory disclosure of direct and indirect interests and recusal in case of conflicts. The code delineates the processes of investigation, adjudication, and interim orders, thereby aligning precisely with the principles of natural justice.

• Investor protection: It may be the most positive reformation. SMC formulates an investor charter. It establishes a systematic investor grievance redressal mechanism featuring an Ombudsperson endowed with civil court authority. Retail investors have access to timely remedies. It also concentrates on disgorgement, restitution, and settlement of proceedings.

• Reformation of market infrastructure institutions (MIIs): SMC sets uniform standards for the registration and regulation of MIIs. It has also granted powers to MIIs to make bye-laws with prior approval of the SEBI.

• Establishment of regulatory sandbox: The SMC allows SEBI to establish a regulatory sandbox for innovation and experimentation of a new product, contract or service in the securities market.

Impact on Primary Issuance and Initial Public Offerings

Primary issuances and initial public offerings (IPOs) require scrutiny by SEBI; hence, the provisions incorporated in the SMC will have a substantial influence on future primary issuances and IPOs of companies.

• Unification of public issue and listing frameworks: The SMC serves as a unified code for the public issuance and listing of securities, thus eliminating the several securities laws that govern the public issuance and listing procedure. The SEBI Act, the SCR Act, the Depositories Act 1996, and their associated regulations resulted in repetitive approvals. Hence, the SMC repeals them and establishes a consolidated code. Issuers and intermediaries are no longer needed to navigate many statutes for compliance; all obligations will stem from a primary statute.

• Enhanced retail investor participation: The investor charter and appointment of an Ombudsperson to address grievances ensure retail investor protection and secure participation in the capital markets. The Ombudsperson has the authority to impose sanctions for violations of its orders.

• Time-bound investigations: The SMC mandates that investigations be concluded within 180 days. This provides relief to issuers in the pre-listing phase and is essential to prevent extended enforcement actions from hindering capital raising projects.

• Mandatory dematerialisation: The dematerialisation of securities is no longer a depository compliance requirement. The SMC mandates every security to be in dematerialised and fungible form. All IPO-bound companies and prospective investors must maintain their securities in dematerialised form. The contravention of this provision attracts statutory penalties ranging from a minimum of INR 10 lakhs to a maximum of INR 1 crore.

• Safeguards against market manipulation: The SMC strengthens prohibitions against fraudulent practices and market abuse. It enhances punishments and the creation of special courts for expedited trials.

Regulatory Criticisms of the Code

• Over-regulatory delegation to SEBI: SEBI has been empowered with excessive delegation to regulate public issues, listing, disclosures, etc. The SMC has been silent on regulatory accountability as it has barred the jurisdiction of the civil court. A regulation gains legitimacy not solely from authority, but from trust, which is maintained through accountability.

• Latent Rule 19 and 19A: Rule 19 and 19A of the Securities Contracts (Regulation) Rules 1957 (SCR Rules), which require at least 25% of securities to be offered to the public during an IPO and mandate that listed companies maintain public shareholding of at least 25%, respectively, are latent in the code. Although the SMC addresses public shareholding norms, it does not directly specify a threshold like the SCR Rules. It is difficult for issuer and merchant bankers to rely on statutory certainty, as it can be changed through circulars and notifications.

• Ineffective statute of limitation: The code establishes a strict limitation period, preventing the Board from commencing any inspection or investigation after 8 years from the date of default. Extensive primary market frauds, such as the 2006 IPO scam, may entail intricate benami networks or multi-tiered shell corporations that require over a decade to completely disentangle. A rigid 8-year limitation may confer ‘statutory immunity’ upon clever fraudsters capable of evading detection for that duration. The SMC provides an exception for ‘systemic impact’ or ‘investigating agency referrals’, although the word ‘systemic impact’ remains undefined in the code, resulting in subjective interpretation by the SEBI. The code shall specify that the limitation period commences from the ‘date of discovery’ instead of the ‘date of default’ for significant market abuse like insider trading, fraudulent IPO allocations, etc.

• Decriminalisation or weakened deterrence: The SMC decriminalises small and technical infractions, transitioning them to a civil penalty framework overseen by internal officials. In the primary market, inaccuracies in the Prospectus or the omission of significant related party transactions are frequently characterised as technical lapses. In the context of a multi-billion dollar IPO, a civil penalty of less than INR 100 crore may be regarded merely as a transaction cost. SMC preserves imprisonment for market abuse, although it permits civil penalties for ‘providing false statements’ or ‘failing to maintain records’, which are fundamental to an IPO diligence. The code shall associate the penalty directly with a percentage of the total issue size for IPO-related violations, ensuring that the financial deterrence is commensurate with the capital raised.

Lessons from Global Markets

• United States of America: The Securities and Exchange Commission in the United States wields significant authority, yet it does not engage in the prosecution of criminal cases. The Department of Justice manages criminal proceedings. This division safeguards personal freedom and inhibits any single authority from exercising total control.

• United Kingdom: Strong enforcement is complemented by a well-established tribunal appeal culture under the Financial Services and Markets Act 2000. Regulatory rulings in financial services may be contested via established tribunal structures, including the Upper Tribunal system, highlighting the necessity for enforcement authority to be accompanied by accessible and credible review processes.

• Japan: The Financial Instruments and Exchange Act 1948 delineates investigation and surveillance from administrative decision-making, thereby mitigating the risk of a single entity functioning as investigator, prosecutor, and adjudicator.

Evidence from other nations demonstrates that robust regulators are acknowledged solely when their authority is counterbalanced by autonomous review systems. Throughout all these securities markets, the message is uniform that the regulatory authority is permissible solely when accompanied by independent evaluation, procedural equity, functional separation, and transparency. In this context, the SMC may possess appropriate reform objectives; yet, its accountability framework seems inadequate.

Concluding Remarks

The SMC signifies a progressive initiative to update India’s securities market by consolidating different acts into a single statute. If successfully adopted, the code will rewrite the securities market in India, redefining legislation, enforcement, and the investor experience. By ironing out the grey zones during the Parliamentary reviews, this code could serve, as it has promised, as the backbone of India’s securities market for generations.