Securities Markets Code Bill: From SEBI powers to investor rights; 10 mega reforms to reshape India's stock market | Explained

Securities Markets Code Bill: The government has proposed the Securities Markets Code Bill, 2025, a comprehensive overhaul of India's securities laws aimed at modernising the regulatory framework. The proposed legislation seeks to simplify compliance, strengthen SEBI's governance, improve investor protection and promote innovation in the securities market. Here are the 10 major reforms proposed under the Bill.

1. Simpler, Principles-Based Securities Laws

The Bill proposes a principles-based legal framework to reduce the compliance burden and improve regulatory governance. It also simplifies the language of securities laws by removing outdated concepts, eliminating duplicate provisions and introducing uniform regulatory procedures to create a streamlined framework for the capital markets.

2. Major Changes in SEBI's Governance

The proposed Code increases the maximum strength of the SEBI Board from nine to fifteen members. It introduces a new ground for removing Board members if they acquire any financial or other interest that could affect their duties. Board members will also have to disclose direct or indirect conflicts of interest, including those involving family members, and recuse themselves from related discussions.

The Bill also gives SEBI additional statutory responsibilities, including periodic reviews of its own performance, assessing the effectiveness of regulations, promoting research, building employee capacity and issuing guiding principles for implementing the Code.

3. More Transparent Rule-Making

The proposed legislation makes public consultation mandatory before SEBI and Market Infrastructure Institutions frame regulations or bye-laws. It also requires the Central Government to publish draft rules before finalisation, except in specified situations. SEBI will also be allowed to issue circulars and procedural instructions after consulting the appropriate advisory committee wherever necessary.

4. Faster Investigations and Fairer Enforcement

The Bill proposes a statutory 180-day timeline for completing investigations, with extensions permitted on a case-by-case basis. It also bars inspections or investigations after eight years from the date of the alleged violation.

To improve fairness, the Code separates investigation and adjudication functions. Officials involved in inspections, investigations, settlements or interim orders will not be allowed to act as adjudicating officers in the same matter. The Bill also lays down a framework for interim orders, including hearing requirements and validity periods.

5. Major Decriminalisation of Securities Law Violations

One of the biggest reforms is the decriminalisation of most securities law violations to promote ease of doing business and compliance.

Criminal liability will largely be limited to non-compliance with adjudication orders, failure to cooperate with investigating officers and serious market abuse offences that affect market integrity. Fraudulent and unfair trade practices will move to a civil penalty regime, with penalties linked to unlawful gains or losses wherever these can be quantified.

6. Uniform Settlement Framework

The Bill standardises the process for settlement of administrative and civil proceedings before SEBI. It also codifies the framework for compounding offences before the Securities Appellate Tribunal (SAT) or competent courts, bringing greater consistency to enforcement.

7. Stronger Market Infrastructure

The proposed Code introduces a statutory definition of Market Infrastructure Institutions (MIIs), covering stock exchanges, clearing corporations and depositories, while allowing the Central Government to notify additional categories in the future.

It also empowers MIIs to frame bye-laws that promote transparency, interoperability, non-discriminatory access and prevention of market abuse.

8. Stronger Regulatory Coordination

SEBI will be empowered to delegate specified registration functions to Market Infrastructure Institutions and Self-Regulatory Organisations (SROs), which will operate under SEBI-approved norms.

The Bill also provides a framework for better coordination among financial regulators by enabling regulations for the listing of other regulated instruments, holding them through depositories and improving interoperability across market infrastructure.

9. Enhanced Investor Protection

The proposed Code requires SEBI to introduce an Investor Charter aimed at strengthening investor protection and encouraging greater participation in the securities market.

It also mandates the establishment of an Investor Grievance Redressal Mechanism by SEBI and allows the regulator to direct market intermediaries and issuers to establish similar systems. In addition, SEBI may appoint Ombudspersons to handle investor complaints, with appeals against their orders allowed before the Securities Appellate Tribunal.

10. Regulatory Sandbox to Promote Innovation

The Bill empowers SEBI to establish a Regulatory Sandbox to encourage innovation in financial products, contracts and services. The framework is intended to help new ideas and technologies be tested in a regulated environment while supporting the future development of India's capital markets.