The government has taken a major step towards simplifying India’s capital market regulations by introducing the Securities Market Code (SMC) Bill 2025 in the Lok Sabha. Tabled by Finance Minister Nirmala Sitharaman, the Bill proposes to merge three cornerstone laws—the SEBI Act, the Securities Contracts (Regulation) Act and the Depositories Act—into one consolidated framework aimed at improving regulatory clarity, investor protection and ease of doing business.
First proposed in the Union Budget 2021–22, the SMC seeks to modernise securities regulation by scrapping obsolete provisions, removing overlaps and standardising regulatory processes across the market ecosystem. The Bill will now be referred to a standing committee for detailed examination.
At its core, the SMC adopts a principle-based legislative approach, giving greater flexibility to regulators while strengthening the governance and oversight powers of the Securities and Exchange Board of India (Sebi), referred to in the Bill as the “Board”. The move mirrors recent consolidation efforts such as the new Income Tax Code and the RBI’s rationalisation of thousands of circulars into a smaller set of master directions.
A key institutional change proposed is the expansion of Sebi’s board strength from nine to 15 members. The Bill also introduces a formal framework for inter-regulatory coordination, regulatory sandboxes to encourage innovation in financial products, and mandatory regulatory impact assessments. Sebi will be required to follow a transparent and consultative process while issuing regulations and to periodically review them.
Significantly, the SMC addresses conflict-of-interest concerns by mandating disclosure of any direct or indirect interest by board members during decision-making. This provision assumes importance amid recent debates around governance standards at the market regulator. The Bill also introduces post-tenure restrictions, barring the Sebi chairperson and members from taking up government roles or employment with market entities for one year after demitting office, unless approved by the Centre.
On enforcement, the Code decriminalises minor procedural lapses, shifting them to a civil penalty regime. At the same time, it prescribes stringent punishment for serious market abuse, including a jail term of up to 10 years. Market abuse offences will also be brought under the Prevention of Money Laundering Act, enabling probes by the Enforcement Directorate. However, investigations will generally be time-barred after eight years, except in systemic or agency-referred cases.
For market infrastructure institutions such as stock exchanges, clearing corporations and depositories, the SMC provides a unified registration and regulatory framework. It also proposes expert-led adjudication in select matters to improve decision-making quality.
Investor protection is another key pillar. The Bill mandates an investor charter, a structured grievance redress mechanism and the appointment of ombudspersons to ensure time-bound resolution of complaints.
Legal experts say the SMC could significantly reduce compliance complexity, though its real impact will depend on how Sebi frames subordinate regulations under the new Code.