MoF Introduced A Bill On The Securities Markets Code, 2025 In Lok Sabha To Consolidate Securities Laws.

The Securities Markets Code, 2025 was introduced in the Lok Sabha by the Ministry of Finance ("MoF") on 18.12.2025 as Bill No. 200 of 2025 ("Draft Code").¹ The Draft Code proposes to repeal and consolidate the Securities Contracts (Regulation) Act, 1956, SEBI Act, 1992 and the Depositories Act, 1996 into a single securities market legislation. The Draft Code has been referred to the Standing Committee on Finance.

The key changes proposed by the Draft Code are as follows:

1. SEBI's governance: The maximum strength of SEBI to be increased to up to 15 members. The Draft Code requires the Central Government to endeavour to appoint members with experience in securities markets. Members are required to disclose direct and indirect interests, including those of family members. The Chairperson and whole-time Members of SEBI are subject to a cooling-off period before accepting employment with securities market service providers or market participants. The Central Government is empowered to remove a Member who acquires interests likely to prejudice the discharge of functions.
2. Separation of Investigation, Interim Action and Adjudication: The Draft Code mandates separation between inspection or investigation and for passing of interim orders and adjudication. A person who has conducted inspection or investigation in a matter cannot pass interim orders or act as adjudicating officer in the same matter. Further, the Draft Code specifies that the officers who may pass interim orders and the circumstances in which such orders may be issued. Interim orders are valid for 180 days and may be extended up to a maximum of 2 years.
3. Investigation Timelines and Limitation Period: Investigations are required to be completed within 180 days from the date of the investigation order. Any extension requires reasons to be recorded and approval of the concerned whole-time Member. The Draft Code introduces an outer limitation period of 8 years for initiation of inspections or investigations from the date of contravention, except for matters having systemic impact or referred by investigating agencies.
4. Adjudication and Penalty Determination: The Draft Code specifies factors to be considered by adjudicating officers while passing final orders, including nature and seriousness of contravention, unlawful gain or loss, market impact, duration, and conduct of the noticee. SEBI may call for records within 30 days of the adjudicating officer's order and enhance the penalty or directions, provided no appeal has been filed and an opportunity of hearing is given.
5. Criminal Liability for Specified Offences Only: Imprisonment is retained only for specified offences, including insider trading, market manipulation, fraudulent and unfair trade practices, obstruction of investigations, and wilful non-compliance with interim or final orders of SEBI or adjudicating officers.
6. Ombudsperson for Investor Grievance Redressal: The Draft Code provides for designation of Ombudspersons by SEBI to redress investor grievances. Investors must first approach the grievance redressal mechanism of the concerned issuer or intermediary. The Ombudsperson may order compliance, refund of amounts, or payment of damages. Orders of the Ombudsperson are binding on the parties.
7. Expanded Definition of "Securities": The definition of securities has been expanded to expressly include hybrid instruments, convertible instruments, derivatives, units of pooled investment vehicles, electronic gold receipts, bullion contracts, instruments issued in IFSCs and other instruments as may be notified. Furthermore, the Draft Code introduces defined terms such as "market participants" (including issuers and investors) and "securities market service providers", which include intermediaries, Market Infrastructure Institutions ("MIIs") and self-regulatory organisations, thereby clarifying the regulatory perimeter and scope of obligations.
8. MIIs: The Draft Code embeds requirements relating to ownership limits, cross-holding restrictions, demutualisation and governance of stock exchanges, clearing corporations and depositories. MIIs are required to frame bye-laws with prior SEBI approval and public consultation, subject to specified exceptions. SEBI may direct modification of bye laws or frame bye-laws where institutions fail to do so.
9. Regulatory Sandbox and Inter-Regulatory Coordination: The Draft Code expressly empowers SEBI to establish regulatory sandboxes for securities market products, services or contracts, subject to conditions specified by regulations. Where products fall under the jurisdiction of other regulators, exemptions or modifications must be made in consultation with such regulators.
10. Special Courts, Compounding and Recovery: The Draft Code provides for establishment or designation of Special Courts for trial of offences under the Draft Code. Courts may take cognizance only on a written complaint by SEBI or authorised persons. Certain offences may be compounded, subject to prescribed conditions. The Draft Code also provides a detailed mechanism for recovery of penalties, disgorgement amounts and amounts payable under Ombudsperson orders.
11. Investment Vehicles and Depository-Related Clarifications: The Draft Code provides clarity on the scope of investment vehicles, including pooled investment vehicles, and expressly recognises the title of beneficial owners over securities held with depositories. Depository records are recognised as conclusive evidence of title, subject to the provisions of the Draft Code.

Footnote

1 Securities Markets Code, 2025.

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