The Securities Markets Code, 2025 Bill, tabled in Parliament last week, is legal housekeeping with a forward-looking impact. The Code makes the powers of the capital markets regulator — Securities and Exchange Board of India (Sebi) — cleaner and harder to challenge procedurally, explains V Shunmugam.
What’s behind this new Code?
THREE OLD LAWS—the Sebi Act, the Securities Contracts (Regulation) Act, and the Depositories Act—have been stitched into one Securities Markets Code. No new product announced, no trading rule changed, no headline reform. But anyone who has dealt with Sebi enforcement, exchange governance, or product approvals knows the real issue was never the absence of power—it was where that power came from.
In recent years, some high-profile Sebi enforcement orders shook markets when announced, only to be stayed or diluted later. The Code addresses this not by making the regulator harsher, but by making its powers cleaner and procedurally robust.
Is this the end of ad-hoc circulars?
CIRCULARS WILL NOT disappear. Indian markets are too dynamic for that. But the Code reduces the need for creative interpretation. Sebi often had to stretch older provisions to cover modern realities—algo trading, complex derivatives, and integrated clearing risks. By incorporating settled practices into statute, the Code lowers the likelihood that enforcement actions are undone due to procedural challenges.
For investors and intermediaries, this means fewer moments of “big announcement today, legal uncertainty tomorrow.”
Solving fundamental ambiguity
FOR YEARS, EXCHANGES wanted to launch power derivatives. Sebi and the Central Electricity Regulatory Commission had to approach the Supreme Court to withdraw a prior lawsuit to enable progress. The Code strengthens the position that once a derivative is traded on recognised market infrastructure, it falls within the securities market framework, even if the underlying asset is regulated elsewhere.
This does not automatically launch new products—but it reduces turf wars and regulatory no-man’s lands. The same applies to currency and interest rate derivatives, where RBI–Sebi coordination drives the markets.
Effect on market infrastructure institutions
MARKET INFRASTRUCTURE INSTITUTIONS (MIIs)—exchanges, clearing corporations, and depositories—operate as first-line supervisors, with Sebi as the final authority. Earlier laws did not fully anticipate this role. The Code places MIIs on a clearer statutory footing, particularly around surveillance, data usage, and supervisory technology.
When exchanges halt trading, change margin norms, or flag manipulation, affected participants often challenge these actions legally. Clear statutory backing reduces the scope for such actions being questioned as “beyond mandate.”
For investors, this strengthens confidence that market plumbing will not fail under legal stress.
Reversal of Sebi orders by SAT
MANY SAT reversals are not about guilt or innocence—they concern process, proportionality, and statutory authority. Orders often fail because the legal scaffolding was weak, not because misconduct didn’t occur. The Code strengthens this scaffolding, clarifying investigation initiation, penalty grounding, and proportionality assessment.
Durable enforcement, rather than aggressive enforcement, is better investor protection.
What’s there for retail investors?
INVESTOR PROTECTION MECHANISMS—grievance redressal, compensation funds, and enforcement against mis-selling—already existed, but were often buried in regulations and schemes. The Code does not reinvent these tools; it anchors them firmly in statute.
When an intermediary collapses or is suspended, investors need clarity on asset segregation, claim priority, and resolution timelines. The Code improves legal certainty, clearly distinguishing between market losses (investor risk) and losses due to misconduct or failure (regulatory responsibility).
Overall impact
THE SMC is legal housekeeping with long-term impact. By resolving fragmentation across three Acts and multiple amendments, it provides a transparent, coherent legal framework. As markets mature, predictability and legal certainty matter as much as regulation itself.
For investors, it means more durable outcomes. For intermediaries, fewer grey areas. For global capital, greater jurisdictional certainty and enforceability. The Code lays the foundation for the next phase of India’s capital market growth.