{"id":54486,"date":"2026-01-22T09:53:09","date_gmt":"2026-01-22T09:53:09","guid":{"rendered":"https:\/\/my.legal500.com\/developments\/?post_type=legal_developments&p=54486"},"modified":"2026-01-22T09:53:32","modified_gmt":"2026-01-22T09:53:32","slug":"the-securities-markets-code-from-fragmentation-to-framework","status":"publish","type":"legal_developments","link":"https:\/\/my.legal500.com\/developments\/thought-leadership\/the-securities-markets-code-from-fragmentation-to-framework\/","title":{"rendered":"THE SECURITIES MARKETS CODE: FROM FRAGMENTATION TO FRAMEWORK"},"content":{"rendered":"

1) INTRODUCTION<\/strong>
\nIndia’s securities markets have undergone a fundamental transformation over the past three decades. What once was a market dominated by physical securities and limited participation has evolved into a sophisticated ecosystem encompassing diverse intermediaries, advanced clearing and settlement institutions, technology-driven platforms, and cross-sector financial products. Yet this remarkable institutional growth has not been matched by a unified legal framework. Instead, securities regulation remains scattered across three aging statutes that have been amended in a piecemeal manner.<\/strong><\/p>\n

<\/p>\n

The Securities Markets Code Bill, 2025 (“SMC” \/ \u201cCode\u201d), introduced in the Lok Sabha
\non December 18, 2025, seeks to address this structural fragmentation. The SMC will consolidate three foundational laws; the Securities Contracts (Regulation) Act, 1956 (“SCRA”), the Securities and Exchange Board of India Act, 1992 (“SEBI Act”), and the Depositories Act, 1996 (“Depositories Act”) into a single, comprehensive statutory code.<\/p>\n

Importantly, the SMC is fundamentally a codification exercise rather than a reformist overhaul. Its dominant objective is not to redesign market behaviour, but to consolidate, harmonize, and statutorily embed regulatory practices. Once enacted, the SMC will replace these three principal Acts, with the aim of unifying India’s securities regulatory landscape.<\/p>\n

2) THE PRE-CODE LANDSCAPE: WHY CONSOLIDATION BECOMES INEVITABLE?
\n(a) The Fragmented Framework
\nIndia’s securities market regulation operates through a layered and compartmentalized framework. The SEBI Act houses the primary powers of the regulator; the SCRA governs market infrastructure and securities contracts; and the Depositories Act regulates the holding, transfer, and settlement of securities in dematerialized form. Over three decades, this fragmentation created predictable problems. Significant aspects of market regulation; listing obligations, disclosure standards, dematerialisation protocols, settlement finality, and investor grievance redressal; came to be governed predominantly through regulations, circulars, and exchange bye-laws rather than statutory law.
\nWhile this approach enables functional growth and regulatory flexibility, it lacks legislative coherence. Enforcement mechanisms remain scattered across different statutes. Key market processes rest on subordinate legislation without clear statutory anchoring, creating interpretative uncertainty and legal ambiguity for market participants.
\n(b) The Scale Challenge
\nThe disconnect between market maturity and legal framework became increasingly apparent as Indian securities markets expanded dramatically. As of March 2025, India\u2019s equity market capitalisation stood at approximately USD 4.8 trillion . This scale shows that a unified statutory foundation is crucial. The fragmented approach is adequate for simpler and smaller markets but might become a bottleneck for complex securities markets.
\n(c) The Rationale Behind Consolidation
\nA unified code would eliminate the interpretative conflicts and regulatory overlaps that arise from three parallel statutes addressing overlapping subject matter. More fundamentally, it would create a single master definition clause for the securities law ecosystem, enabling stakeholders to immediately understand: who is regulated, what is regulated, which regulator has primary authority, and which layer of norms applies.
\nThe SMC represents an acknowledgment that India’s securities markets have matured beyond the point where incremental amendment of legacy statutes is sustainable. Consolidation, rather than continued patchwork amendments, has become a structural necessity.
\n3) STRUCTURAL SHIFTS
\n(a) Institutional Architecture and MIIs
\nThe Securities and Exchange Board of India (\u201cSEBI\u201d) continues as the central regulator, but the institutional map is sharpened . First, stock exchanges, clearing corporations and depositories are brought together as Market Infrastructure Institutions (\u201cMIIs\u201d) under a unified statutory framework for registration, ownership norms, governance and bye laws . What was previously split between the SCRA, Depositories Act and separate SEBI regulations is now housed in one code chapter.
\nSecond, the SMC proposes to expand the board to up to 15 members, with at least 5 whole time members , to deepen capacity and diversify expertise, including in technology intensive areas .
\nThird, SEBI is given an explicit framework to delegate certain functions , such as elements of registration and supervision, to MIIs and recognised self regulatory organisations (\u201cSROs\u201d), subject to principles of fairness, confidentiality and reasoned decision making. This formalises what has often been circular based role sharing.
\nFourth, the Code provides an express basis for inter regulatory coordination, authorising SEBI to enter memoranda of understanding with other regulators and creating mechanisms for joint action in respect of \u201cother regulated instruments\u201d that straddle jurisdictional lines .
\n(b) Reducing Over Reliance on Delegated Legislation
\nThe SMC does not convert all regulations or bye laws into statutory clauses. Instead, it codifies the framework within which they operate:
\n(i) A single, expanded definition of \u201csecurities\u201d , capturing a broad range of instruments including units of investment schemes and certain hybrid products, while carving out instruments that clearly belong to other regulators like any unit linked insurance policy or scrips or any such instrument which provides a combined benefit risk on the life of the persons and investment by such persons governed by the Insurance Act, 1938;
\n(ii) A detailed definition of \u201cintermediary\u201d , listing 21 categories and empowering SEBI to notify more, while explicitly excluding persons carrying out the activities in relation to derivatives, money market instruments, repo, reverse repo, government securities (whether issued by Centre or State) and other specified instruments (\u201cRBI Governed Securities\u201d) of (A) an intermediary facilitating or providing services related to the issue, sale, purchase or any dealings in RBI Governed Securities; and (B) a stock broker charging brokerage, delivering RBI Governed Securities and making payment to the investor ; and
\n(iii) Two integrated concepts, \u201cinvestment scheme\u201d and \u201cpooled investment vehicle\u201d , that bring within SEBI\u2019s perimeter any pooling of funds where investors lack day to day control, regardless of legal form.
\nThe Code also creates a category of \u201cother regulated instruments\u201d to handle borderline products such as RBI Governed Securities, etc. to collaboratively, with other regulators for their listing, issuance, holding and trading , rather than leaving them to case by case circulars. In essence, delegated legislation continues, but within a clearer and more principled statutory envelope.
\n(c) Procedural and Enforcement Safeguards
\nSeveral important processes, which today rely largely on regulations and practice, are given explicit statutory treatment.
\nThe SMC foregrounds public issuance, listing and delisting of securities in the statute itself. It provides, among other things, statutory grounds and procedures for listing and delisting and written reasons for refusal of listing and an opportunity to be heard . This leaves detailed disclosure norms to SEBI regulations but elevates key procedural protections to primary law.
\nThe SMC introduces a 180 day outer limit for completion of investigations , extendable with reasoned orders by a Whole Time Member. It also prohibits anyone involved in inspection or investigation from acting as adjudicating officer in the same matter ; and introduces an 8-year limitation period for initiating inspection or investigation , with carve outs for systemic cases or agency references. This combination of timelines and functional separation gives market participants greater predictability while embedding due process standards into the Code itself.
\nThe SMC gives clear statutory footing to certain off market shareholder arrangements (such as options, tag along and drag along rights) through an integrated exemption framework . Under the SCRA, these arrangements survived on the strength of SEBI notifications and evolving case law; the Code seeks to replace this with a codified rule.
\n(d) Investor Protection and Redress
\nInvestor protection is one of the most visible shifts from a circular heavy regime to a code anchored one. An Investor Charter is specified in the Code, with SEBI empowered to define investor rights and intermediary obligations.
\nTime bound grievance redress is mandated at both intermediary and SEBI levels, with escalation paths . An independent Ombudsperson is created by statute , with civil court like powers to investigate unresolved complaints, award compensation and pass enforceable orders ; non compliance itself becomes a regulatory default. These measures convert what was earlier a policy driven, circular based framework into a more formal, quasi judicial investor redressal architecture.
\n(e) Settlement Finality and Systemic Protection
\nThe SMC moves key protections for clearing corporations from rulebooks into the statute. It recognises settlement finality and netting of obligations at the statutory level , not merely via MII bye laws. It clarifies the priority and enforceability of clearing corporation collateral and settlement obligations, even in the presence of an Insolvency and Bankruptcy Code (\u201cIBC\u201d) moratorium . This brings India closer to global standards for financial market infrastructures .
\n4) IMPACT
\nIf enacted broadly in its current form, the SMC is expected to generate three immediate gains:
\n(a) Simpler Legal Navigation
\nA single definitions clause and unified chapters on intermediaries, MIIs, pooled vehicles and enforcement should reduce the need to reconcile three Acts plus multiple cross references. For issuers, intermediaries and counsel, this translates into clearer statutory signposting.
\n(b) Stronger, More Predictable Enforcement
\nInvestigation timelines, separation between investigation and adjudication, and clearer limitation periods are likely to reduce perceptions of open ended, opaque enforcement processes and align SEBI\u2019s toolkit more closely with global expectations.
\n(c) Global Perspective
\nThe SMC\u2019s design aligns India more closely with international best practice while preserving a strong role for the state. IOSCO\u2019s objectives and principles emphasise clear regulator responsibilities, operational independence with accountability, robust enforcement, and effective oversight of issuers, intermediaries and markets. The SMC supports these by (i) consolidating SEBI\u2019s mandate and powers in a single code; (ii) codifying timelines, separation of functions and limitation periods in enforcement; and (iii) embedding investor protection mechanisms in primary law.<\/p>\n

5) CHALLENGES AND OPEN QUESTIONS
\nThree sets of challenges will determine how transformative the SMC ultimately is.
\n(a) Transition and Grandfathering
\nAny investigations or adjudication initiated immediately before the commencement of the Code will continue to be governed as per the provisions under which the same has been initiated and the Code shall not apply to them.
\n(b) Subordinate Legislation Overhang
\nMany operational details, especially for products and intermediaries, remain delegated to rules, regulations and circulars. While flexibility is necessary, excessive reliance on micro changes could undercut the Code\u2019s promise of stability unless SEBI\u2019s rule making processes remain transparent, consultative and principled.
\n(c) Power and Accountability of SEBI and Delegates
\nThe SMC enlarges SEBI\u2019s powers and board size, while preserving strong Central Government levers such as binding policy directions and supersession in defined circumstances. At the same time, it enables delegation of regulatory tasks to MIIs and SROs. Public expectations on conflict management, transparency and post tenure safety measures have grown over the years. The Code acts like a toolkit for addressing them; its credibility will depend on how effectively it is implemented.<\/p>\n

6) TAKEAWAYS
\nCurrently, fragmented statutory framework leaves room for tweaked interpretation in the operational aspect and dilutes the implementation of the true essence and intent of the regulators. The Code reduces regulatory overlaps by systematically defining the scope associated with each stakeholder involved. It creates a collaborative approach for each intermediary instead of multiple laws approaching the same subject matter from different or possibly conflicting perspective. This gives better protection to market participants and makes the Code a recipe inculcating all the standard steps to be followed in one place. The revised framework of the Code appears to remove the operational arbitrage.<\/p>\n

The statutory Investor Charter, time bound grievance standards and Ombudsperson regime transform investor protection from a circular based aspiration into a codified, enforceable architecture.
\nInvestigation timelines and separation of functions distil years of regulatory and judicial experience into a coherent enforcement chapter that is more legible to courts and globally recognisable to foreign investors.<\/p>\n

If the SMC is enacted and implemented thoughtfully, particularly in the drafting of subordinate legislation and transitional provisions, it can provide India with a modern, unified and globally credible securities law framework, without losing the developmental orientation that has historically shaped SEBI\u2019s role.<\/p>\n

Authors:<\/p>\n

Apurva Kanvinde, Partner \u2013 Juris Corp
\nSmit Parekh, Senior Associate \u2013 Juris Corp
\nSupported by:
\nCharu Chitransh, Trainee \u2013 Juris Corp<\/p>\n

\"\"<\/p>\n

Apurva Kanvinde
\nPartner, Juris Corp
\nEmail: apurva.kanvinde@juriscorp.in<\/p>\n

\"\"
\nSmit Parekh
\nSenior Associate, Juris Corp
\nEmail:
\nsmit.parekh@juriscorp.in<\/p>\n

Disclaimer:
\nThis article is intended for informational purposes only and does not constitute a legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This article is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial \/ quasi-judicial authorities may not take a position contrary to the views mentioned herein.<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-54486","legal_developments","type-legal_developments","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments\/54486","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments"}],"about":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/types\/legal_developments"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/media?parent=54486"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}