I. Introduction
The Securities Markets Code Bill, 2025 was introduced in the Lok Sabha on 18 December by Finance Minister Nirmala Sitharaman. The Bill seeks to repeal and subsume three foundational statutes governing India’s securities markets: the Securities and Exchange Board of India Act, 1992, the Securities Contracts (Regulation) Act, 1956, and the Depositories Act, 1996.
The stated objective of the Code is to create a single, unified, technology-agnostic legal framework for modern securities markets, replacing what policymakers have repeatedly described as a “fragmented and amendment-heavy” regime. The drafting of the Code follows years of informal consultations, internal SEBI committees, and earlier policy signals advocating consolidation, particularly after the expansion of derivatives, electronic settlement systems, algorithmic trading, and cross-border listings.
However, unlike some earlier codification exercises, the Bill was introduced without a pre-legislative consultation paper or a White Paper placed in the public domain. This has attracted criticism from market participants and legal scholars, who argue that a reform of this magnitude required deeper deliberation and wider stakeholder participation.
In view of the magnitude of structural overhaul it seeks to bring in, the Code must be assessed not merely as a technical consolidation exercise, but as a re-imagining of securities regulation, with significant implications for regulatory power, due process, and market governance.
II. Key Changes from the Old Regime
A. From Fragmented Statutes to a Unified Regulatory Code
Under the pre-2025 regime, Indian securities markets were governed by three primary statutes enacted at different historical moments: the Securities Contracts (Regulation) Act, 1956 (SCRA) with a focus on contracts and exchanges; the Securities and Exchange Board of India Act, 1992 (SEBI Act) establishing the regulator; and the Depositories Act, 1996 governing dematerialisation and settlement infrastructure. Each statute was supplemented by a voluminous body of subordinate legislation and guidelines, producing interpretive complexity, regulatory overlaps, and compliance burdens for market participants.
The new Code subsumes these statutes into a single consolidated legislative framework, eliminating statutory silos and bringing contracts, markets, settlement, intermediaries, and enforcement under one umbrella. This consolidation aim responds to persistent calls from practitioners and policymakers for a more coherent regime that aligns with global “code” driven systems and reduces interpretive friction across overlapping enactments.
The effect of this structural unification is both legal and practical: it reduces duplication and potential conflicts between legal instruments, clarifies the scope of regulatory power, and offers a single reference statute for enforcement and adjudication.
B. Expansion and Formalisation of SEBI’s Statutory Powers
Under the old SEBI Act, statutory powers to inspect books, conduct investigations, and impose interim directions existed, but many enforcement modalities were fleshed out largely through regulations and internal SEBI procedural rules. The Code, by contrast, embeds these powers squarely within the statute and articulates a clear enforcement architecture encompassing inspection, investigation, adjudication, interim measures, disgorgement, and settlement. This shift enhances legal certainty and insulates enforcement action from challenges based on lack of statutory authority and jurisdiction.
However, critics highlighted in media commentary have raised concerns about the scope and intensity of these powers. For example, provisions enabling search, seizure, freezing of assets, and prolonged interim orders have been questioned on grounds of procedural safeguards and proportionality, with some arguing they risk due process deficits under Article 21 of the Constitution due to broad thresholds and significant enforcement discretion.
C. Enforcement Architecture
One of the most persistent critiques of the earlier regime was that SEBI effectively combined investigative, prosecutorial, and adjudicatory functions within the same institutional framework. While the Securities Appellate Tribunal provided an external appellate check, first-instance adjudication remained internal.
The Code does not materially alter this arrangement. Adjudicating officers continue to be designated by the Board, interim orders may be issued prior to final adjudication, and settlement mechanisms operate within the same regulatory ecosystem. However, the Code does articulate an arm’s-length separation between inspection/investigation and adjudication proceedings by introducing a requirement disqualifying any person who is involved in an investigation from adjudication on the same matter.
It also introduces timelines to encourage time-bound enforcement processes. For investigations, there is now an outer limit of six months unless exigent circumstances require this limitation period to be waived in writing by a whole-time member. This represents progress over the earlier regime, where internal allocation rules and timelines were governed largely by SEBI’s own regulations and practice rather than statute.
D. Shift from Entity-Based to Function-Based Regulation
Another notable departure from the earlier framework is the Code’s move towards function-based regulation. Under the old regime, regulatory obligations often depended on formal classifications (stock broker, depository participant, asset management company), each governed by distinct provisions and regulations.
The Code reorganises this approach by focusing on the role performed in the securities markets. This aligns Indian securities law with global regulatory trends and better accommodates platform-based, technology-driven market models.
E. Statutory Recognition of Modern Market Realities
The Code reflects a forward-looking adaptation to technological change and global market practices. While earlier statutes were repeatedly amended to accommodate derivatives, dematerialisation, electronic settlement, and complex instruments, the Code integrates these realities into its core structure. Electronic records, digital platforms, settlement finality, and regulatory sandbox provisions are now embedded directly in the statute.
This marks a qualitative shift from a reactive amendment-driven model to a proactive legislative design. The Code is consciously technology-agnostic and forward-looking, reducing dependence on constant statutory revision. This approach aligns India’s securities regulation more closely with international best practices.
F. Decriminalisation and Enforcement Philosophy
The Code takes an explicit stance on decriminalisation and proportionality. Under legacy law, certain procedural contraventions could attract criminal sanctions, impeding ease of doing business. The Code recalibrates this approach by categorising contraventions into two broad categories: minor procedural lapses and substantive market abuses. Technical violations of the first category, that are violations of prohibition of fraudulent and unfair practices, are decriminalised and subject to civil penalties. The second category of serious offenses of market abuse that affect market integrity and affect public interest adversely attract higher penalties and, in some cases, may be treated as offenses.
This shift aligns with global trends toward civil enforcement for technical breaches and punitive measures for conduct that undermines market integrity. It seeks to balance investor protection with reduced compliance burden, particularly for intermediaries and emerging market participants.
G. Elevation of Investor Protection to Statutory Status
Under the earlier regime, investor protection mechanisms such as grievance redressal systems, investor charters, and ombudsman-like structures were largely creatures of regulation and policy. The Code elevates several of these mechanisms to statutory status, most notably through the introduction of a statutory Investor Charter and a formal Ombudsperson framework.
This represents a shift in legislative priorities, signalling that investor protection is not merely an adjunct to market regulation but a core statutory objective. This institutional recognition of investor rights strengthens procedural fairness and may improve public confidence in market regulation.
However, the coexistence of grievance redressal mechanisms with SEBI’s enforcement powers also raises questions about overlap, coordination, and procedural clarity.
H. Member Accountability and Inter-Regulatory Coordination
The Code introduces expanded disclosure norms for conflict of interest and stricter ethics standards for Board members, including restrictions on post-service employment in regulated entities. Such reforms respond to concerns about regulatory independence and credibility, factors that were less directly addressed in legacy statutes.
Furthermore, the Code incorporates an enabling framework for inter-regulatory coordination, facilitating smoother cooperation between SEBI and other financial regulators on matters such as listing of “other regulated instruments” and interoperability of market platforms. This is consistent with the increasingly interconnected nature of financial markets.
III. Gaps and Unresolved Concerns
Although the Bill succeeds in consolidating disparate statutes and modernising the statutory vocabulary for twenty-first century markets, it leaves several important gaps that are likely to have an impact on how the law plays out for the practitioners and regulated entities. Broadly speaking, these gaps fall into three categories: (a) institutional and constitutional safeguards around enforcement and adjudication; (b) accountability, delegation and democratic oversight; and (c) substantive lacunae in dealing with technological change, competition, and cross-border risk.
First, the Code effectively preserves the long-standing problem of a regulator that investigates, prosecutes and decides in the first instance. While consolidation clarifies powers, it does not supply an independent adjudicatory mechanism or meaningful procedural insulation for subjects of enforcement. From an administrative law perspective, this raises classic concerns of impartiality and fair hearing: the institutional proximity of investigator and adjudicator creates both actual and perceived risks of bias, and the availability of pre-emptive interim orders risks curtailing rights (including property and reputational interests) before a full hearing has occurred.
Second, the Code amplifies the role of delegated legislation without concomitant parliamentary or procedural checks. By design, many key definitions, thresholds, and operational rules are to be set by regulations, bye-laws, and subsidiary instructions. While delegation is inevitable in technically complex fields, the Code’s combination of broad normative regulation with little mandatory requirements for pre-legislative consultation, regulatory impact assessment, or parliamentary review dilutes democratic accountability. Delegated instruments will not merely fill in detail, they will authoritatively shape market access, compliance costs, and even the contours of private rights. The risk is not only over-centralisation of expertise in the executive branch but also regulatory drift when politically sensitive or economically important decisions are made through administrative fiat.
Third, the Code leaves several modern regulatory challenges under-addressed. Data privacy and cybersecurity obligations for market infrastructure institutions and intermediaries are mentioned only obliquely. This is despite the fact that the architecture of digital trading, custodial services, and cloud-based record-keeping makes robust data governance central to stability and trust.
Similarly, while the Code recognises technological innovation via sandboxes and broad definitions, it does not set clear guardrails for algorithmic trading, automated market-making, or high-frequency trading, which are areas where market failures can be abrupt and systemic.
Cross-border coordination is another weak point: the Code expands the perimeter of regulation but offers limited procedural clarity on information-sharing, extraterritorial enforcement, or treatment of foreign intermediaries, thereby creating legal uncertainty for cross-border capital flows.
Finally, the Code’s insistence on strong regulatory powers is not matched by proportionality safeguards. Penalty schedules, disgorgement rules and the criminalisation of certain conduct risk being applied in ways that are excessive relative to culpability, particularly for small intermediaries and start-ups.
The new Ombudsperson mechanism and investor charter, while helpful, do not yet squarely address access to speedy, affordable remedies for small investors or provide clear coordination rules with criminal or civil avenues. Taken together, these gaps produce a regulatory design that is powerful and coherent but insufficiently constrained.
IV. Lack of Transition Clarity
While the Code formally repeals the three Acts, it does not set out a clear migration framework governing the continuity of existing registrations, approvals, and recognitions. Intermediaries, market infrastructure institutions, and investment vehicles are left uncertain as to whether legacy licences will automatically continue, require revalidation, or be subject to modification under newly prescribed conditions.
This ambiguity extends to ongoing investigations, adjudication proceedings, settlement processes, and appeals initiated under the old regime. In the absence of explicit savings or transitional provisions, questions arise regarding the applicable procedural law, penalty thresholds, and enforcement standards, particularly where the Code consolidates and strengthens regulatory powers. The heavy reliance of the Code on delegated legislation further compounds the problem: repeal of the earlier statutes without simultaneous issuance of corresponding regulations risks creating an interregnum in which compliance obligations lack clear legal footing.
From a commercial perspective, securities markets are embedded in dense contractual arrangements (like listing agreements, depository arrangements, and clearing contracts) that reference the existing statutory framework. Uncertainty over how these references operate post-repeal increases transactional risk and may chill market activity during the transition period. Experience with earlier repeal-and-reenactment exercises suggests that such gaps often translate into prolonged litigation, as courts are called upon to determine the survival of accrued rights and the prospective or retrospective application of new procedures. In confidence-driven markets, the absence of clear transition rules undermines regulatory predictability.
V. What Lies Ahead
The Securities Markets Code, 2025 is neither a mere consolidation exercise nor an unqualified reform success. It represents a decisive shift towards centralised, code-based financial regulation, suited to complex, technology-driven markets.
These developments are likely to strengthen market integrity and global confidence in India’s capital markets. However, the Code also amplifies concerns around concentration of regulatory power, reliance on delegated legislation, procedural fairness in enforcement, and the absence of clear transition mechanisms.
The transition from the old regime must be stabilised through clear savings and migration rules that protect existing registrations, contracts, and ongoing proceedings. Procedural safeguards, particularly around investigation, interim measures, and adjudication, should be strengthened through regulations that emphasise proportionality, reasoned decision-making, and timely review.
Delegated legislation must be accompanied by meaningful consultation and transparency to mitigate democratic and accountability concerns. Regulatory sandboxes and innovation frameworks should be paired with baseline consumer-protection and risk-mitigation standards. Additionally, periodic statutory review of the Code’s operation in the form of a Regulatory Impact Assessment or a similar exercise should be institutionalised to ensure that the law and regulators stay realistic, up-to-date, and accountable.
If implemented with these correctives, the Securities Markets Code, 2025 has the potential to become a durable, future-ready foundation for India’s securities markets rather than merely a powerful instrument of regulatory control.
Whether the Code becomes a coherent constitutional charter for India’s capital markets or a case study in regulatory concentration will depend not on its text alone, but on how restraint, transparency, and institutional accountability are practiced in its implementation.
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