Securities Markets Code, 2025: What Is New In the Government's Proposed Overhaul of Capital Markets Law

The Central government on Thursday introduced the Securities Markets Code, 2025 in the Lok Sabha, proposing a single, consolidated law to govern India's securities markets. The proposed bill repeals the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, and the Depositories Act, 1996.

Beyond consolidation, It also introduces introduces several substantive changes to existing regulatory mechanism 

Expanded Definition of 'Securities'

One of the major changes under the code is the expansion of the statutory definition of “securities.”

Securities, at present, are defined under section 2 of SCRA and is adopted by the SEBI Act. Under Clause 2(zi) of the proposed bill, the definition is expanded to expressly include hybrid instruments, electronic gold receipts, zero-coupon zero-principal instruments, and onshore rupee bonds issued by multilateral institutions.

It also introduces the concept of an “other regulated instrument,” creating an enabling framework for coordination between SEBI and other sectoral regulators such as the RBI in relation to the issuance, holding, listing, and trading of such instruments.

Limitation Period For SEBI Investigations

For the first time, the code introduces a statutory limitation period for regulatory action. Under Clause 16, SEBI cannot order inspection or investigation after eight years from the date of the alleged default or contravention. Exceptions are provided for cases involving systemic market impact or references from investigating agencies. Earlier securities laws did not prescribe any such time bar.

Separation Of Investigation and Adjudication

It mandates a strict separation between investigative and adjudicatory functions of the regulator. As per Clause 17 of the proposed bill, no person can be appointed as an adjudicating officer if they were involved in the inspection or investigation of the same matter. It also prohibits such officers from handling interim or settlement applications in cases where they had prior involvement. 

Time-Bound Investigations, Orders

The code introduces timelines for regulatory actions. Investigations as per Clause 13 of the Bill are required to be completed within 180 days, subject to extension by a whole-time member. Interim orders under Clause 27 are ordinarily valid for 180 days, with extensions permitted only through approval by a designated group of SEBI's leadership, and capped at a further period of two years.

Disgorgement Codified

Although disgorgement is normally ordered by SEBI to set right unlawful enrichment, the code gives it a statutory recognition. Under Clause 25, adjudicating officers may direct disgorgement equivalent to unlawful gains. The Board is also expressly empowered to use such amounts for restitution to affected investors, where losses are directly attributable to the violation and beneficiaries are identifiable.

Decriminalisation of Minor and Procedural Defaults

Another change under the proposed bill is the decriminalization of several minor and procedural contraventions, which were earlier punishable as criminal offenses under the securities laws. Under the earlier framework, minor failures such as non-furnishing of information, delay in filings, failure to redress investor grievances, or non-compliance with procedural directions could, in some cases, attract prosecution. 

It reclassifies many defaults as mere civil violations, making them punishable through monetary penalties (Clauses 97 to 102) rather than criminal prosecution. The focus is shifted away from imprisonment towards proportionate monetary penalties for minor procedural lapses

However, it retains criminal liability for serious market misconduct such as fraud, market manipulation, insider trading, and other offenses. These offenses continue to attract stringent penalties, including higher monetary sanctions and prosecution before special courts.

Expansion of SEBI Board

The code also makes changes to the composition of the Securities and Exchange Board of India. Under the SEBI Act, 1992, the Board comprised a Chairman and up to eight Members, including two ex officio government nominees and at least three whole time Members. The proposed code expands this structure.

Under Clause 4 of the Bill, the Board will now consist of a Chairperson and up to fifteen Members, with a requirement that at least five Members be whole-time Members.

It further requires the Central Government to endeavor to appoint at least three members with expertise in securities markets, a qualification that was not expressly mandated under the earlier law.

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