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Securities Markets Code (SMC) Bill, 2025: Explained

29 Dec 2025 GS 3 Economy
Securities Markets Code (SMC) Bill, 2025: Explained Click to view full image

What is the Bill about?

  • The Securities Markets Code Bill, 2025 is a single, consolidated law for India’s securities markets.

  • It aims to:

    • Simplify regulations

    • Strengthen investor protection

    • Reduce compliance burden

    • Improve regulatory governance

The regulator at the centre of the Bill is Securities and Exchange Board of India.

Which laws does it replace?

The Bill merges and replaces three existing laws:

  1. Securities Contracts (Regulation) Act, 1956 (SCRA)

  2. SEBI Act, 1992

  3. Depositories Act, 1996

Why replace them?

  • These laws were enacted decades ago.

  • They had:

    • Overlapping provisions

    • Redundancies

    • Gaps due to technology and market evolution

➡️ A single code reduces confusion and improves legal certainty.

Key changes related to SEBI

(a) Stronger SEBI Board

  • Board size increased from 9 to 15 members

  • Composition includes:

    • Chairperson

    • 2 Central Government members

    • 1 officer from Reserve Bank of India

    • 11 other members (at least 5 whole-time)

(b) Conflict of interest rules

  • Board members must disclose:

    • Direct or indirect interest

    • Including family members’ interests

  • Such members cannot participate in related decisions.

(c) Removal of SEBI members

  • Government can remove a member if:

    • They acquire prejudicial financial interest

    • They are convicted of offences involving moral turpitude

Decriminalisation and compliance easing

Two categories of violations

1. Minor violations

  • Related to fraudulent or unfair practices

  • Decriminalised

  • Punishment: civil penalties only

2. Market abuse

  • Serious violations affecting:

    • Market integrity

    • Public interest

  • Punishment:

    • Civil penalties

    • May also attract criminal liability

➡️ Reflects proportionate regulation: leniency for minor lapses, strictness for serious abuse.

Investor protection measures

(a) Investor Charter

  • For the first time, Investor Charter is part of the law

  • SEBI will specify:

    • Rights of investors

    • Obligations of intermediaries

(b) Ombudsman mechanism

  • Independent Ombudsperson for:

    • Investor grievance redressal

    • Time-bound resolution

  • Separate from enforcement wings.

(c) Public consultation

  • Investors can participate in:

    • SEBI’s rule-making process

  • Improves transparency and inclusiveness.

Market Infrastructure Institutions (MIIs)

What are MIIs?

  • Stock exchanges

  • Clearing corporations

  • Depositories

Changes under SMC

  • All MIIs brought under one unified code

  • SEBI can:

    • Delegate registration functions to MIIs

    • Delegate to Self-Regulatory Organisations (SROs)

➡️ Reduces fragmentation and speeds up regulation.

Coordination among regulators

  • SMC enables inter-regulatory coordination

  • SEBI, in consultation with other regulators, can:

    • Enable seamless listing of other regulated instruments

    • Improve interoperability among MIIs

➡️ Improves investment climate and market efficiency.

Alignment with international best practices

The Bill introduces:

  • Regulatory Impact Assessment

  • Separation of:

    • Fact-finding

    • Adjudication

  • Transparency and accountability norms

  • Independent grievance redressal

Why this Bill is important (exam angle)

Prelims points

  • SMC Bill, 2025 replaces SCRA, SEBI Act, Depositories Act

  • Increases SEBI board strength to 15

  • Introduces statutory Investor Charter

  • Creates Ombudsman for investors

  • Decriminalises minor violations

Prelims Practice MCQs

Q. The Securities Markets Code (SMC) Bill, 2025 seeks to replace which of the following laws?

  1. Securities Contracts (Regulation) Act, 1956

  2. Securities and Exchange Board of India Act, 1992

  3. Depositories Act, 1996

  4. Companies Act, 2013

Select the correct answer using the code below:

(a) 1, 2 and 3 only
(b) 1, 3 and 4 only
(c) 2, 3 and 4 only
(d) 1, 2, 3 and 4

Correct answer: (a)

Explanation:
The Bill consolidates SCRA, SEBI Act and Depositories Act; it does not replace the Companies Act.

Q. With reference to the Securities Markets Code Bill, 2025, consider the following statements:

  1. It introduces a single, principle-based framework for securities regulation.

  2. It aims to reduce interpretative conflicts arising from overlapping statutes.

  3. It abolishes the role of Market Infrastructure Institutions.

Which of the statements given above is/are correct?

(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3

Correct answer: (a)

Explanation:
The Bill strengthens and unifies regulation; it does not abolish MIIs.



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