New unified code to overhaul India’s securities market rules

Finance Minister Nirmala Sitharaman on Thursday tabled the Securities Markets Code 2025 Bill in the Lok Sabha to consolidate and simplify India’s numerous securities rules, enhance the accountability of regulatory officials, and improve grievance redressal.

The proposed code merges the Securities and Exchange Board of India (Sebi) Act, 1992, the Depositories Act, 1996 and the Securities Contracts (Regulation) Act, 1956 into a unified statute. The government seeks to modernize regulation, strengthen investor protection and enable capital mobilisation at a scale aligned with the needs of a fast-growing economy, according to the legislation.

The Bill has been referred to the parliamentary standing committee on finance led by BJP lawmaker Bhartruhari Mahtab.

Currently, several provisions related to the securities market are spread across different acts and circulars. “There were too many laws and circulars. Now this has been consolidated. It was the need of the hour to make laws simpler and clearer,” said Akshaya Bhansali, managing partner at Mindspright Legal.

Conflict of interest

The bill introduces provisions to increase the accountability of regulatory officials with fresh conflict of interest disclosures.

Sebi board members will be required to disclose any direct or indirect interest in matters under discussion at board meetings. Such disclosures will be recorded in the proceedings of the meeting and the officer will have to recuse themselves from such discussions, according to the Bill. The code also empowers the Centre to remove a Sebi official if, in its opinion, the person has acquired financial or other interests that are likely to prejudice the discharge of their functions.

Sebi had constituted a high-level committee in March to tighten disclosure and recusal norms for all Sebi officials, especially senior members.

This came after conflict-of-interest allegations involving Madhabi Puri Buch, who served as Sebi chairperson until February. In August 2024, US-based short-seller Hindenburg Research alleged, among other things, that Buch and her husband had undisclosed interests in entities incorporated in Bermuda and Mauritius that were purportedly linked to the Adani Group. The Buchs and the Adani Group denied the allegations.

Legal experts said these rules were the need of the hour.

“Conflict of interest provisions have been made explicit. It increases the accountability on board members. There’s more scope to increase transparency of disclosures made by the members," said Sidharth Kumar, senior associate, BTG Advaya.

Curbing probe delays

The Bill also addresses long-standing industry concerns about delayed enforcement by introducing a clear limitation period. It restricts Sebi from initiating inspections or investigations after eight years from the date of a default, except in specific circumstances.

“We have seen show-cause notices being issued five years after the violation happened. This does not hold in front of the SAT (Securities Appellate Tribunal),” said Bhansali. “The code provides a stringent timeline for investigation.”

Investor protection

The proposed code also provides statutory backing to an investor ombudsperson framework, empowering Sebi to designate one or more officers to receive and redress investor grievances. Under the proposed system, investors must first attempt resolution through existing grievance redressal mechanisms for up to 180 days.

If that doesn’t help, they may approach the ombudsperson within a defined time window. The ombudsperson will have certain powers of a civil court, though any order passed will not prevent Sebi from taking separate action under the code.

"Ombudsperson provisions introduced in SMC will give more teeth to the SCORES mechanism. It will make the process of investor complaint resolution more effective," said Kumar.

Other proposals

The code also gives a formal legislative backing to Sebi’s regulatory sandbox, allowing the regulator to create a controlled environment for testing new products, contracts and services in the securities markets. While sandbox frameworks have existed earlier through circulars and policy documents, the new law empowers Sebi to grant exemptions or modifications through regulations, subject to safeguards.

The revised framework also promotes inter-regulatory actions by allowing instruments regulated by other authorities to be issued, held and listed through depositories and stock exchanges, subject to regulatory approval. Sebi may permit such listings in consultation with other regulators, with trading, clearing and settlement governed by the code and prescribed conditions. Such inter-regulatory actions, especially in enforcement, were prevalent in practice but were never spelled out in law.

There are several provisions in the code that codify practices that Sebi had already been following, giving them a firmer legal footing. The Bill bars the same officer from acting as both investigating officer and adjudicating officer in a case, maintaining an arm’s-length separation between investigation and adjudication. It also defines timelines for investigations and interim orders, aimed at ensuring time-bound completion of enforcement proceedings.

The enforcement framework is further strengthened through a principles-based penalty regime. Adjudicating officers will be required to ensure that any order is proportionate to the default or contravention committed, taking into account factors such as the nature and seriousness of the violation, its duration and frequency, past conduct, unlawful gains and losses caused to investors.

While the code decriminalizes minor, technical and procedural contraventions by moving them to a civil penalty framework, it retains stringent punishment for serious market abuse such as fraud and manipulation.

"Adjudication provisions have been streamlined and made more logical. Grey areas related to procedure and powers of SEBI raised by SAT and the Supreme Court have been addressed," said Kumar.