Introduction to the Securities Markets Code (SMC) Bill, 2025
In a landmark move aimed at revolutionizing the regulatory landscape of India’s capital markets, the Centre has introduced the Securities Markets Code (SMC) Bill, 2025 in the Lok Sabha. Spearheaded by Finance Minister Nirmala Sitharaman, this proposed legislation targets critical reforms to enhance the operational efficiency of the capital market regulator, SEBI. By setting clear definitions around regulatory enforcement and offering predictable timelines for investigations, the Bill seeks to eliminate the prolonged regulatory uncertainties that often plague market participants.
An Overview of the Proposed Legislation
At the core of the SMC Bill 2025 is the intent to replace three existing laws: the Securities Contracts (Regulation) Act, 1956; the SEBI Act, 1992; and the Depositories Act, 1996. These will be consolidated into a single legislative framework aimed at simplifying the regulation of India’s capital markets. The Bill has been forwarded to a parliamentary standing committee for detailed analysis and deliberation.
Statutory Eight-Year Limitation on Investigations
One of the most compelling features of the SMC Bill is its establishment of an eight-year statutory limit on inspections and investigations initiated by SEBI. This provision stipulates that SEBI cannot initiate an investigation for actions occurring more than eight years prior, providing much-needed legal clarity for companies and intermediaries entangled in legacy transactions. It’s essential to note, however, that exceptions exist for matters that could have systemic implications for the securities market.
Time-Bound Enforcement: A Transformative Approach
The SMC Bill 2025 introduces a robust framework for time-bound enforcement, aiming to enhance the efficiency of SEBI’s investigative processes. Key provisions include:
- SEBI is mandated to complete investigations within a strict timeline of 180 days.
- Any delays must be formally recorded, outlining specific reasons for the extended timelines.
- Time extension requests must receive approval from a whole-time member of SEBI.
Moreover, the legislation caps the validity of interim orders at 180 days unless exceptional circumstances merit an extension, which can last up to a maximum of two years. This structure sets a clear standard for timely resolutions, benefitting both regulators and market players.
Relief for Institutions: Navigating Legacy Cases
Market analysts view the eight-year statutory cap as a significant windfall for institutions that have long lived under the specter of unresolved regulatory actions. It liberates organizations from the burden of indefinite scrutiny, fostering a more conducive environment for business operations. The expected outcome is a boost in investor confidence as they perceive the regulatory framework as one that adapts to the realities of market dynamics while ensuring accountability.
Restructuring SEBI’s Financial Management
Significant reforms also extend to SEBI’s financial management under the SMC Bill. The proposed changes require:
- The compulsory allocation of 25% of SEBI’s annual surplus into a designated reserve fund.
- This reserve fund is earmarked exclusively for covering the operational expenses of the regulator.
- The remaining surplus will be funneled to the Consolidated Fund of India.
Given reports estimating SEBI’s current general fund at ₹3,000–4,000 crore, these financial reforms aim to bolster SEBI’s operational integrity and autonomy.
Ombudsman-Led Grievance Redressal Mechanism
To enhance investor protection, the SMC Bill establishes an Ombudsman-led grievance redressal mechanism. SEBI will thus be empowered to appoint officials as Ombudsman to handle investor complaints. They will be instrumental in receiving, examining, and resolving grievances, a shift from the previous handling through SEBI’s SCORES platform.
This new structure, however, raises concerns. Investors are required to initially seek resolution via the service provider’s internal grievance mechanisms within 180 days. Should the appeal remain unresolved, they can then approach the Ombudsman within 30 days. Experts caution that this could lead to an influx of cases transitioning to the Ombudsman, placing additional demands on the Securities Appellate Tribunal (SAT).
Assessing SEBI’s Authority: A Point of Contention
A pressing conversation surrounding the SMC Bill involves whether it dilutes SEBI’s regulatory powers. Regulatory experts assert that the Bill does not curtail SEBI’s authority; rather, it better delineates the scope and timeframe for its actions, ultimately enhancing transparency and accountability. The anticipated result is a regulatory environment marked by structure and predictability, allowing SEBI to act decisively where systemic market threats are present.
Navigating a New Era in Capital Markets
As India’s capital market evolves, the SMC Bill stands at the forefront of transformative reform. While it promises to clarify and strengthen the regulatory framework, it also invites scrutiny and discussion among stakeholders. By combining streamlined enforcement mechanisms with robust investor protections, the SMC Bill, if enacted, could redefine the operational dynamics of India’s capital markets, making them more efficient and accessible for both domestic and international investors.
