Source: BS
Context:
The Securities Markets Code, 2025 (SMC 2025) is a major consolidation and simplification exercise in India’s securities regulation framework. The Code has been referred to the Parliamentary Standing Committee on Finance for detailed scrutiny.
What the SMC 2025 Replaces
The Code subsumes three existing laws:
- Securities Contracts (Regulation) Act, 1956
- Securities and Exchange Board of India Act, 1992
- Depositories Act, 1996
Together, these laws regulate securities markets, exchanges, depositories, and establish Securities and Exchange Board of India (SEBI) and the Securities Appellate Tribunal (SAT).
Key Changes and Provisions
1. Composition & Governance of SEBI
- SEBI’s board strength increased from 9 to 15 members
- Provision for up to six independent, part-time members, aimed at bringing external expertise
- Expanded conflict-of-interest definition, covering direct and indirect interests, including those of family members
- Central government empowered to remove SEBI members if conflicts adversely affect SEBI’s functioning
2. Investigation & Adjudication
- Investigating and adjudicating officers must be:
- Whole-time SEBI members (including Chairperson), or
- SEBI officers
- Adjudicators cannot be involved in prior investigations of the same case
- Eight-year limitation period introduced for initiating investigations from the date of alleged offence
- Exception: cases with systemic market impact or those referred by investigating agencies
3. Penalties & Criminal Provisions
- Shift towards monetary penalties for several contraventions
- Imprisonment retained for serious offences, including:
- Non-compliance with SEBI or adjudicating officer orders
- Market abuse such as insider trading, fraud, price manipulation, and dealing in securities using unpublished price-sensitive information (UPSI)
4. Linkage with PMLA
- Market abuse offences may be brought under the Prevention of Money Laundering Act (PMLA)
- This enables investigation by the Enforcement Directorate (ED)
5. Market Infrastructure Institutions (MIIs)
The Code formally recognises Market Infrastructure Institutions (MIIs), including:
- Stock exchanges
- Clearing corporations
- Depositories
- Any new category notified by the Centre
MIIs may:
- Frame bye-laws to ensure non-discriminatory access, interoperability, and prevention of market abuse
- Be delegated powers by SEBI for registration of intermediaries or specific investor classes
6. Investor Protection
- Mandatory investor grievance redress mechanisms
- SEBI empowered to appoint an ombudsperson
- Provision for an Investor Charter to strengthen investor rights and transparency
Assessment
- Positives:
- Streamlined and unified legal framework
- Broader conflict-of-interest safeguards
- Clearer timelines for investigations
- Stronger investor protection architecture
- Concerns:
- Significant concentration of powers with SEBI
- Need for clearer checks and balances to ensure regulatory accountability
