Finance Minister Nirmala Sitharaman on Thursday introduced in the Lok Sabha the Securities Markets Code, 2025 to unify India’s fragmented financial laws into a single, principle-based framework that streamlines regulation in the securities market. The proposed legislation shifts minor technical violations from criminal to civil penalties to promote “Ease of Doing Business” and expands the SEBI (Securities and Exchange Board of India) board. Additionally, the bill mandates that SEBI Board members disclose any ‘direct or indirect interest’ held by themselves or their family members.
The proposed Code consolidates three old laws — The Securities Contracts (Regulation) Act, 1956 (SCRA), The Securities and Exchange Board of India Act, 1992 (SEBI Act, The Depositories Act, 1996 – for the purpose of streamlining enforcement process and leverage technology to protect investor interests through modern mechanisms like a dedicated Ombudsperson and a Regulatory Sandbox for innovation. Significantly, the proposed Code requires the market regulator to transfer surplus reserves to the Centre, mirroring the existing framework for the RBI.
The proposed law was sent to be examined by a select committee before it gets taken for consideration and passage by both the Houses.
SEBI Board
Under the proposed bill, SEBI board can have 15 members as against the existing nine members, including the Chairman. It enables the appointment of persons with expertise in the securities markets. Enhanced conflict of interest provisions is also provided to maintain regulatory credibility. While the existing law has a provision for a board member to disclose his interest, the new bill includes disclosure of “direct or indirect interest, including the interest of any family member”. The Member shall recuse themselves from all deliberations and decisions of the Board regarding the matter in which they have a conflict of interest.
Transfer of Surplus
According to officials, SEBI has full autonomy to utilise its funds for the purposes of the Code and also retain a reverse fund, which can be utilized as decided by SEBI board. “Only after all the expenses are met and adequate reserve funds are built, surplus funds left, if any, need to be credited to Consolidated Fund of India as unutilized funds in line with financial rules of the central Government,” an official said, explaining that all the books of account of SEBI are audited by the CAG.
Ease of doing business
The bill prescribes mandatory public consultation for all binding instruments issued by SEBI, such as regulations, subsidiary instructions, and also bye-laws issued by Market Infrastructure Institutions (MIIs). “The Government shall also do public consultation while making Rules under this Code,” an official said.
The proposed bill limits criminal liability to serious market abuse, non-cooperation with Investigation process of SEBI and non-compliance with SEBI orders. Other minor offences are decriminalized and only subject to civil action by SEBI. “While on one hand certain defaults have been decriminalized, list of civil actions like warnings and directions are provided under adjudicatory powers,” the official explained. The penalty powers have been streamlined and the quantum of penalties for defaults has been linked to quantification of gains made and losses caused.
The bill also has provisions to streamlines the adjudication procedure and ensures that all quasi-judicial actions are undertaken through a single adjudication process after an appropriate fact-finding exercise. The Code maintains an arm’s length separation between inspection or investigation and adjudication proceedings and defines timelines for investigations and interim orders for a time-bound completion of the enforcement process,” an official said.
Pointers
Reforms for Securities Market
– Unified Framework: Repeals and consolidates the decades-old SCRA, SEBI, and Depositories Acts into a single, modern legislative code.
– Decriminalization: Converts minor procedural lapses into civil penalties to reduce compliance burdens and promote ease of doing business.
– Accountability: Mandates strict conflict-of-interest disclosures for Board members and ensures an “arm’s-length” separation between investigations and adjudication.
– Bucketed contraventions: In the first bucket are violations of prohibition of fraudulent and unfair practices and these do not attract criminal liability, only attract civil penalties. Second, to be called ‘market abuse’ affecting market integrity, public interest adversely and will be treated as an offence
– Investor-Centric Reform: Introduces a specialized Ombudsperson for swift grievance redressal and a Regulatory Sandbox to foster financial innovation.