Why in News?

• The Union Finance Minister recently tabled the Securities Markets Code Bill 2025 in the Lok Sabha, as announced earlier in the Union Budget 2021–22. The Bill has been referred to the Standing Committee on Finance for detailed examination.
• It seeks to consolidate, rationalise and modernise India’s securities market laws to enhance investor protection, ease of doing business, and capital mobilisation in a technology-driven financial ecosystem.

What’s in Today’s Article?

• Securities Market in India
• Core Features of the Bill
• Key Challenges and Way Forward
• Conclusion

Securities Market in India:

• It is a vital part of the nation's financial system, facilitating the flow of capital from savers to those who need it for productive investments.
• It is a sophisticated, technology-driven ecosystem regulated primarily by the Securities and Exchange Board of India (SEBI).

Core Features of the Bill:

• Consolidation of securities laws:
  • The Bill replaces three major legislations - the Securities Contracts (Regulation) Act (SCRA), 1956; the SEBI Act, 1992; and the Depositories Act, 1996.
    • SEBI Act, 1992: It established SEBI as an independent statutory body and endowed it with regulatory and enforcement authority.
    • SCRA, 1956: It provides the legal framework for the regulation of stock exchanges and contracts in securities, aiming to prevent undesirable speculation.
    • Depositories Act, 1996: It legalises the electronic (dematerialized) holding and transfer of securities, reducing the risks associated with physical certificates.
  • The objective is to eliminate overlap, duplication, and obsolete provisions and create a uniform securities law framework.
• Expanded and strengthened SEBI board:
  • Board strength increased from 9 to 15
  • Composition - Chairperson, 2 Central Government nominees, 1 RBI nominee (ex-officio), and 11 other members (minimum 5 whole-time members, up from 3).
  • The objective is institutional capacity enhancement and improved regulatory governance.
• Decriminalisation and rationalisation of offences:
  • Minor, procedural and technical violations shifted to civil penalties.
  • Criminal punishment restricted to serious offences such as insider trading and trading on material non-public information.
  • It aligns with ease of doing business and compliance burden reduction.
• Classification of contraventions:
  • Category I – Fraudulent and unfair trade practices - No criminal liability, civil penalties applicable.
  • Category II – “Market Abuse” - Serious violations affecting market integrity and public interest. May attract civil penalties and criminal liability.
• Time limitation on inspection: No inspection permitted if 8 years have elapsed since the date of contravention. It ensures legal certainty and closure.
• Conflict of interest and accountability:
  • Mandatory disclosure of direct and indirect interests, including those of family members.
  • Members must recuse themselves in case of conflict.
  • SEBI empowered to remove board members for non-compliance or conflict of interest.
  • This provision strengthens ethical governance and transparency.
• Investor protection measures:
  • Mandatory investor charter by SEBI.
  • Establishment of investor grievance redressal mechanism.
  • Direction to market intermediaries and issuers to adopt similar mechanisms.
  • It will reinforce trust and retail participation.
• Delegation and regulatory coordination:
  • SEBI is empowered to delegate registration-related functions to Market Infrastructure Institutions (MIIs) and Self-Regulatory Organisations (SROs).
  • Framework for inter-regulatory coordination for listing of “other regulated instruments”, interoperability across market platforms.
  • The provision supports market deepening and innovation.

Key Challenges and Way Forward:

• Opposition raised concerns over:
  • Excessive concentration of powers in SEBI, potential violation of the principle of separation of powers.
  • Government response: Issues can be examined by the Standing Committee on Finance.
• Risk of over-centralisation of regulatory authority: Clear articulation of checks and balances on SEBI’s powers.
• Ambiguity regarding subordinate legislation: Transparent and consultative framing of subordinate legislation (SEBI rules, regulations, circulars).
• Balancing: Faster adjudication with effective deterrence. Capacity building for effective enforcement under the new code.
• Ensuring accountability: While delegating powers to MIIs and SROs. Periodic review to align with evolving fintech and digital markets.

Conclusion:

• The Securities Markets Code Bill 2025 represents a major structural reform aimed at creating a simplified, coherent and future-ready securities regulatory framework.
• While the Bill seeks to balance market efficiency with integrity, its ultimate success will depend on robust parliamentary scrutiny, transparent rule-making, and effective institutional safeguards against regulatory overreach.