The Securities Markets Code Bill 2025: Reform or Overreach?
On December 19, 2025, the Union Finance Minister tabled the Securities Markets Code Bill in the Lok Sabha, aiming to unify three key legislations governing India's financial markets—the Securities Contracts (Regulation) Act, 1956, Securities and Exchange Board of India (SEBI) Act, 1992, and The Depositories Act, 1996. If passed, this Bill would represent India's first major attempt at codifying and streamlining its fragmented securities regulations since SEBI was established more than three decades ago. Among its provisions: expanding the SEBI Board from nine to fifteen members, decriminalising procedural violations, and introducing limits on regulatory inspections. But beneath its surface, the Bill reveals tensions that call into question the balance between ambition and caution in India’s securities governance framework.
Breaking Precedent: SEBI’s Elevated Role
At the core of this Bill lies a profound shift: the concentration of powers within SEBI. The regulator—which already controls rule-making under Sections 11 and 12 of the SEBI Act—will gain expanded powers under this future Code. Legislative (the power to draft regulations), executive (enforcement and investigation), and adjudicatory (ability to impose penalties) functions will converge under a single institutional umbrella. This blurs institutional separations designed to ensure accountability. Adding to this centralisation is the reconstituted SEBI Board, which will feature greater government involvement through two Central Government-appointed officials and an ex-officio RBI member. While the addition of five new whole-time members expands expertise, critics argue it risks politicising decision-making rather than insulating the regulator from vested interests.
Most strikingly, procedural violations deemed “minor” will now attract civil penalties instead of criminal charges. SEBI estimates this could reduce pending cases by up to 24%, creating bandwidth for tackling serious offences like insider trading and market manipulation. Yet critics fear slackened scrutiny; procedural violations often involve nuanced lapses in transparency that can still harm smaller investors disproportionately. Are lawmakers underestimating the ripple effects of scaled-back enforcement?
Mechanics of Codification: The Devil in the Detail
Legislative consolidation is no easy feat. The Bill proposes sweeping codification to resolve ambiguities in how various securities laws intersect—a long-standing issue flagged by both the Ministry of Corporate Affairs and legal scholars. Yet concerns persist about excessive delegation to subordinate legislation. Critical definitions, including “securities,” “exemptions,” and “penalties,” have been left vague, allowing regulators unchecked discretion in operationalising reforms. SEBI’s own history with delegated powers under Section 11 of the SEBI Act underscores the risks. In 2020, SEBI’s contentious move to penalise mutual funds for “administrative inefficiencies” exposed gaps in rule clarity, forcing the Supreme Court’s intervention.
One bold provision—the eight-year limitation on inspections—attempts to curb regulatory overreach. This offers procedural certainty to entities resisting retrospective probes but may inadvertently shield long-hidden violations. Resolving disputes dating back decades, such as the 2002 UTI scam which surfaced after prolonged inaction, could become nearly impossible under this clause.
Numbers vs. Claims: Where the Vision Falters
According to Finance Ministry statements, the consolidated Code seeks to bolster India’s aspirations of becoming a $5 trillion economy by simplifying capital market operations and incentivising investor participation. Yet some data points don’t align fully with this optimism. The Indian capital market still lags in retail penetration; only 6% of Indians directly invest in equities, compared to nearly 55% of households in the United States. While SEBI has made strides in digital accessibility, its track record on addressing retail grievances under existing frameworks remains patchy. Further, the Bill’s decriminalisation push coincides with SEBI collecting record penalties worth ₹2,250 crore over just 2023-24, suggesting procedural penalties are far from rare—and not necessarily negligible.
Another question the numbers raise revolves around enforcement. SEBI’s Annual Report for 2024-25 shows a pending backlog of 3,500 cases, calling into question whether procedural streamlining will meaningfully expedite dispute resolution. Critics of the eight-year inspection cap cite this enforcement bottleneck as evidence that regulatory infrastructure—not timelines—needs deeper restructuring.
Global Governance Models: Lessons from South Korea
India’s approach to securities governance under the Bill sharply diverges from the South Korean model. In 2018, South Korea’s Financial Services Commission established an independent adjudicatory division to separate enforcement and punitive powers from regulatory oversight. This diffused concentration of authority, reducing accusations of institutional bias while preserving the regulator’s credibility. The Securities Market Code, by contrast, moves in the opposite direction—granting SEBI unilateral discretion without comparable checks.
Consequently, the spectre of regulatory capture looms large. SEBI’s expanded powers under the Bill may leave it more vulnerable to pressures from corporates, particularly in cases likely to attract media scrutiny. South Korea’s principles-based regulation offers valuable lessons on the importance of insulating adjudicatory frameworks from enforcement functions—a gap India cannot afford to overlook as it scales its financial footprint.
Uncomfortable Questions Worth Asking
Two overriding concerns merit further scrutiny. First, does this codification process neglect India’s highly uneven state-level enforcement capacities? SEBI relies heavily on state agencies during fraud investigations—a source of persistent friction given limited local skillsets. Without parallel state capacity-building measures, codification risks becoming purely symbolic. Second, decriminalisation shifts focus away from individual accountability in cases of procedural lapses. What kind of signal does this send about investor protection? Retail investors—usually the biggest victims of compliance gaps—might have less recourse under a civil penalty model, where monetary fines rather than deeper investigations dominate resolutions.
Finally, parliamentary oversight emerges as an area of critical weakness. By relegating core provisions to subordinate legislation, the Bill sidelines lawmakers from substantive securities policymaking. This mirrors a troubling trend observed in recent Governance Acts, where legislative details increasingly rest on discretionary executive Rules, diluting democratic accountability.
- Q1: The Securities Markets Code Bill 2025 consolidates which of the following legislations?
- Securities Contracts (Regulation) Act, 1956
- Securities and Exchange Board of India Act, 1992
- The Depositories Act, 1996
- All of the above
- Q2: Which major provision in the Securities Markets Code 2025 specifically targets "ease of doing business"?
- Decriminalisation of minor procedural violations
- Expansion of SEBI Board to 15 members
- Eight-year limitation on inspections
- None of the above
Practice Questions for UPSC
Prelims Practice Questions
- By placing rule-making, enforcement/investigation, and penalty-imposition within SEBI, the Bill tends to reduce functional separation among key governance roles.
- By converting minor procedural violations from criminal charges to civil penalties, the Bill aims to lower pendency and reallocate capacity towards serious offences.
- By imposing an eight-year limitation on inspections, the Bill necessarily strengthens detection of long-hidden violations through time-bound scrutiny.
Which of the above statements is/are correct?
- Leaving core definitions and exemptions vague can increase the scope of subordinate legislation and expand regulatory discretion in operationalising reforms.
- A limitation period for inspections can provide certainty against retrospective probes, but may also constrain the ability to act on violations that surface late.
- Past controversies involving SEBI’s delegated powers show that vagueness in rules can be resolved only through criminal prosecution rather than judicial review.
Which of the above statements is/are correct?
Frequently Asked Questions
How does the Securities Markets Code Bill 2025 change the institutional balance within securities regulation in India?
The Bill envisages a stronger SEBI by further concentrating legislative, executive, and adjudicatory functions within a single regulator. This convergence can streamline action, but it also blurs institutional separation meant to enhance checks, transparency, and accountability in market governance.
What are the implications of expanding and reconstituting the SEBI Board under the Bill?
The Board is proposed to expand from nine to fifteen members, adding five new whole-time members to broaden expertise. At the same time, increased government involvement through two Central Government-appointed officials and an ex-officio RBI member raises concerns about politicisation and reduced insulation from vested interests.
Why is the decriminalisation of ‘minor’ procedural violations contested, despite claims of reducing pendency?
The Bill shifts ‘minor’ procedural violations from criminal charges to civil penalties, with SEBI estimating up to a 24% reduction in pending cases. Critics argue that procedural lapses can involve meaningful transparency failures that may disproportionately harm small investors, so lighter treatment could weaken deterrence.
How does the proposed eight-year limitation on regulatory inspections affect enforcement and investor protection?
An eight-year cap on inspections is designed to curb retrospective probes and provide procedural certainty to regulated entities. However, it may also shield long-concealed violations and make it harder to resolve disputes that surface late, such as cases that emerge after prolonged inaction.
What concerns arise from codifying three laws into one Code with respect to delegated legislation and definitional clarity?
While consolidation aims to resolve long-standing ambiguities in how securities laws intersect, the Bill leaves key definitions like ‘securities,’ ‘exemptions,’ and ‘penalties’ vague. This can increase reliance on subordinate legislation and expand regulatory discretion, a risk highlighted by past controversies that required judicial intervention.
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