The introduction of the Securities Markets Code Bill, 2025 in Parliament last week marks one of the most far-reaching overhauls of India’s capital market regulatory architecture in decades, as the government moves to consolidate multiple legacy laws into a single, principle-based framework aimed at modernising market oversight. However, while the Bill enhances the powers of the Securities and Exchange Board of India (SEBI), the expanded authority without commensurate accountability measures risks concentrating regulatory power without sufficient oversight, a criticism long voiced by market observers and revisited in the context of the new legislation (Read:
SEBI’s Power To Grow: But Who Will Watch the Watchdog?).
Finance minister Nirmala Sitharaman tabled the Bill in the Lok Sabha, proposing to merge the Securities Contracts (Regulation) Act, 1956, the SEBI Act, 1992, and the Depositories Act, 1996 into a single Securities Markets Code (the Code). The Bill has been referred to the parliamentary standing committee on finance for detailed review, with the government stating that consolidation is necessary to eliminate overlaps and align the legal framework with technology-driven markets.
Yet critics point to a fundamental lacuna in the reform process: unlike transformational legislation in other sectors, there has been no white paper, draft consultation or explanatory memorandum published in advance of introduction, leaving key stakeholders uncertain about how expanded regulatory powers will be balanced with safeguards against misuse. This has revived
long-standing concerns about SEBI’s governance and oversight mechanisms, especially given past controversies involving alleged conflicts of interest at senior levels of the regulator.
The Bill proposes to strengthen SEBI’s governance by expanding its board from nine to 15 members, including additional whole-time members (WTMs) and representatives of the Union government and Reserve Bank of India (RBI). It also tightens conflict-of-interest norms by extending disclosure requirements to family interests. These changes are intended to bolster the regulator’s expertise and independence.
Under the proposed Code, contraventions will be classified into lesser violations, which would be decriminalised and subject to civil penalties, and serious misconduct, defined as market abuse, that may attract both civil and criminal action. The Bill also introduces time limits for investigations and interim orders, aiming to reduce the uncertainty that prolonged enforcement actions have historically imposed on market participants.
Investor protection has been given explicit statutory backing through provisions that were earlier implemented largely through regulations or administrative directions. The Code formally incorporates an investor charter, mandates standardised grievance redressal mechanisms and reintroduces the SEBI ombudsperson, an institution that was repealed in 2023, providing investors with an independent forum for time-bound resolution of unresolved complaints.
Another notable feature is the emphasis on inter-regulatory coordination. The Code provides explicit legal recognition to cooperation among regulators to facilitate the listing of other regulated instruments and improve inter-operability among market infrastructure institutions (MIIs). This is intended to support innovation, improve liquidity and create a more seamless investment environment.
However, the expansion of SEBI’s statutory powers has also drawn political and policy scrutiny. During the introduction of the Bill, Opposition members, including Dravida Munnetra Kazhagam's (DMK’s) Arun Nehru and Congress leader Manish Tewari, raised concerns that the Code concentrates excessive authority in a single regulator. FM Sitharaman responded that these issues could be examined in detail by the standing committee.
Beyond legislative design, regulatory capacity remains a key question. While the Code significantly strengthens SEBI’s formal powers, market experts caution that effective implementation will depend on whether the regulator simultaneously invests in building a deeper, more specialised internal cadre. Without adequate human resources and institutional capacity, the risk remains that expanded powers could strain enforcement and oversight rather than improve them.
Despite these reforms, analysts question whether the Bill goes far enough to strengthen SEBI’s accountability, a point emphasised by
Moneylife's managing editor, Sucheta Dalal, in her recent column. She notes that the consolidation initiative, first announced in Budget 2021–22, progressed quietly with limited public transparency or debate ahead of its introduction. There has been no public draft Bill or explanatory documentation detailing how existing investigations under legacy laws will transition into the new regime or how expanded powers will be checked by external oversight mechanisms.
Ms Dalal also highlights past incidents that have exposed gaps in India’s regulatory architecture, especially the failure to consolidate depository regulation under SEBI which historically allowed systemically important entities such as National Securities Depository Ltd (NSDL) to operate across critical infrastructure areas without unified oversight. This fragmentation contributed to oversight failures in multiple episodes of market misconduct, underscoring the need not just for consolidated statutory authority but also for robust mechanisms to monitor and regulate the regulator itself.
Perhaps most resonant with investors and commentators is the concern that expanding SEBI’s statutory powers without strengthening its accountability structures may simply concentrate power without enhancing investor confidence.
As Ms Dalal pointed out, SEBI has recently emerged from controversy involving allegations of conflict of interest at senior levels and its key internal governance reforms remain incomplete. Giving SEBI greater reach without accompanying reforms in parliamentary scrutiny, transparency of enforcement actions and independent oversight could fall short of protecting investor interests in a market of growing complexity, she wrote.
Proponents of the Bill, including the Union ministry of finance (MoF), counter that the parliamentary committee review process will allow for stakeholder consultation and detailed scrutiny of these issues. They assert that consolidating the law into a single code will reduce duplication, improve legal clarity and enhance India’s attractiveness as a destination for global capital.
The parliamentary review process is now expected to shape the final contours of a law that could influence market conduct, investor confidence and regulatory governance for decades to come.
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