The Securities Markets Code 2025: From a Fragmented Regime to a Unified Regulatory Vision

[Ananya and Vvanshika are students at National Law University Odisha.]

One of the most important changes in the capital-market regulation in India in recent decades is the Securities Markets Code 2025 (SMC). The SMC was presented in the Lok Sabha on 18 December 2025 and aims to repeal and replace three major statutory instruments, namely the Securities Contracts (Regulation) Act 1956 (SCRA), the Securities and Exchange Board of India Act 1992 (SEBI Act) and the Depositories Act 1996 (Depositories Act) and incorporates them into one, comprehensive and modern code. 

The intention to have a single securities markets code was first expressed in the Union Budget 2021-22, when the Finance Minister declared the government plan to rationalise provisions of SCRA, SEBI Act, Depositories Act, and Government Securities Act 2007 into a single SMC. It was premised on the vision that a consolidated code would eliminate overlapping regulations and would create a more predictable and consistent regulatory environment for both the market participants and regulators. The existing SMC reflects the initial vision, with the integration of separate statutes improving regulatory transparency with enhanced compliance.

Against this backdrop of the significant legislative changes in the SMC, this article will critically analyse these reforms and evaluate their implications for market participants and regulators. It looks at the re-definition of the word securities and re-structuring of the governance system of SEBI. The article also assesses the functionality of the new investor grievance-redressal system, based on an Ombudsperson mechanism, aimed at protecting the interests of investors. In addition, it examines the introduction of limitation periods on inspections and investigations. Finally, it evaluates enhanced powers and responsibilities of market infrastructure institutions (MIIs).

Redefining “Securities” under SMC

The SMC has essentially redefined the term securities by broadening its ambit substantially. The SCRA originally set out the definition of securities, which has long been used by the SEBI Act; however, this has frequently led to overlaps in jurisdiction and interpretation. The SMC now aims to remove this disintegrated framework by creating a single definition under Clause 2(zi). The revised definition broadens the scope of securities to explicitly cover hybrid securities, electronic gold certificates, zero-coupon, zero-principal securities, and onshore rupee bonds sold by multilateral institutions.

The redefinition has profound implications for regulators and issuers. At the regulatory level, it will help SEBI to promote regulatory clarity and deliver jurisdictional certainty in the regulation of new and complex financial products. It will also enable SEBI to deal effectively with financial innovation in a technology-neutral manner. For issuers, the reform will bring more certainty in regulations. However, a broader ambit of securities can also increase compliance expenses for issuers and intermediaries operating in new instruments, which can slow down innovation.

Restructuring SEBI’s Governance Framework

One of the most significant reforms presented by the SMC is the overall expansion of SEBI’s Board under Clause 4. Under the SEBI Act, the Board included the Chairperson and 8 members (including Government and RBI nominated members). The SMC has now increased the Board size to a maximum of 15 members including the Chairperson, two Central Government nominees, one ex-officio RBI nominee and eleven members. In addition, the SMC provides a conflict-of-interest norm, which is more stringent, requiring members to report their direct and indirect interests, as well as those of their family, and empowers the removal of members, whose interests can undermine the performance of official responsibilities.  

This reformation of SEBI’s governance structure will improve the institutional capability of the Board and its decision making quality. The Board will be in a better place to discuss complicated matters that require specialised knowledge by increasing the number of subject-matter experts. Moreover, a larger Board would facilitate the creation of specialised committees, which will enhance the strategic focus on sectoral issues. However, such enlargement of the Board can undermine the timely achievement of consensus, delaying immediate regulatory responses.  

Statutory Grievance Redressal and the Ombudsperson Framework

The SMC also revamps the grievance-redressal system for investors by creating the office of the Securities Market Ombudsperson under Clause 73. The current SEBI Complaints Redress System is primarily a grievance-routing system, but the newly proposed Ombudsperson framework is a quasi-adjudicatory body, authorized to pass binding awards. The SMC also empowers SEBI to create a holistic investor grievance-redressal system which mandates regulated intermediaries and service providers to design internal grievance systems.  

This framework provides a more convenient and efficient substitute to arbitration or litigation for retail investors, especially in situations where there is a technical problem or a ban on issuing securities. On the regulatory side, the Ombudsperson system removes the administrative load of SEBI, thus allowing more focus on other market risks and systemic defaults. To intermediaries and other market participants, the system increases accountability and offers better grievance-redress mechanisms. However, the large number of active investors, combined with poor staffing and delays inherent in the process, can potentially enable the flaws of the current regime to remain, thus undermining the effectiveness of the Ombudsperson structure.

Empowerment of MIIs  

The SMC has strengthened the position of MIIs by officially establishing them as “first-level regulators”. It provides them with the power to frame bye-laws that best reflect market practice in current circumstances. It also authorises SEBI to delegate the power to conduct inspections and impose penalties for operational and compliance violations to MIIs. This is in contrast to the past regime where the MIIs just acted as facilitators and were supposed to direct enforcement action to SEBI thus adding to delay.

The SMC promotes the integrity of operations and reduces systemic risk by authorising MIIs to make prompt decisions. This enables SEBI to concentrate on larger market related integrity issues leaving the day-to-day compliance and enforcement responsibilities on MIIs. However, providing MIIs with regulatory powers may create the risk of conflict of interest, which further requires SEBI to ensure MIIs’ independent functioning while retaining investors’ confidence in a self-regulated system. 

Statutory Limitation Periods and Time-Bound Investigations

Another structural change includes the introduction of statutory limitations periods on investigations and enforcement actions of SEBI, bridging the long-standing gap in the securities regulatory framework. For the first time in the securities market, the SMC introduces a proper timeline for regulatory actions. SEBI is now barred from taking any regulatory action after eight years of the alleged default or contravention, or even initiating any inspections or investigations with regard to the defaults.  Further, every inquiry should be concluded within 180 days. Moreover, any Interim orders passed by SEBI will only stand valid for 6 months but can be extended to a maximum of two years with the permission of senior board members.  

The introduction of statutory limitation periods increases predictability for the market participants, while promoting continuous interaction in the market. This eight year limitation period is consistent with similar timelines under the Income-tax Act 1961 and Companies Act 2013 making uniform implementation of policy and lowering the compliance cost. The time-bound investigations allow SEBI to focus on efficiency in enforcement and concentrate on financial fraud. However, shorter timelines may allow complex financial frauds to escape the regulatory oversight, since they often hatch in secrecy, emerging only after several years of concealment. 

Conclusion  

The SMC is a forward-looking move in the modernisation of the capital market regulation India. It goes beyond codifying the various disparate statutes in one instrument and instead attempts to effect a structural redefined securities laws. The SMC can be viewed as the foundation to a more stable and investor-focused market, which, when carried out properly, will provide innovation and sustainability. However, its eventual success will be determined by strong implementation, institutional capacity and control to meet any conflict that may arise. The SMC, if implemented properly, has the ability to significantly improve the transparency and credibility of securities markets in India.