The Securities Markets Code, 2025

 The Securities Markets Code, 2025 consolidates and amends the laws relating to securities markets, specifically repealing and integrating the Securities and Exchange Board of India Act, 1992, the Securities Contracts (Regulation) Act, 1956, and the Depositories Act, 1996. Under this new legal framework, the Securities and Exchange Board of India (SEBI), hereafter referred to as "the Board," serves as the primary regulatory authority.

Establishment and Composition

The Board is deemed to have been established and incorporated under this Code, maintaining its head office in Mumbai. Its composition includes:

• A Chairperson.
• Two members from the Central Government Ministry dealing with Finance and the Companies Act (ex officio).
• One member from the Reserve Bank of India (ex officio).
• Eleven other members, of whom at least five must be whole-time members.

Members must be persons of ability, integrity, and standing with expertise in securities markets or disciplines like law, finance, and technology. To ensure integrity, members must disclose any direct or indirect interest in matters coming before the Board and recuse themselves from such deliberations. Furthermore, the Chairperson and whole-time members are subject to a one-year "cooling-off" period, during which they cannot accept employment with securities market service providers without Central Government approval.

Powers and Functions

The Board’s core mandate is to protect the interests of investors and promote the development and regulation of the securities market. Its extensive powers include:

• Registration and Regulation: Registering and regulating market infrastructure institutions (stock exchanges, clearing corporations, depositories), intermediaries, and self-regulatory organisations.
• Information Gathering: The Board can call for information from any person, bank, or financial institution relevant to inspections or investigations. While doing so, it possesses the powers of a civil court regarding summoning persons and the discovery of documents.
• Enforcement: It has the authority to order inspections and investigations when there are reasonable grounds to believe transactions are detrimental to investors or that the Code has been contravened.
• Regulatory Sandbox: The Board may establish a regulatory sandbox to facilitate the development of new products, contracts, or services.

Adjudication and Administrative Separations

The Code emphasizes a separation of functions to ensure regulatory governance. The Board can designate officers to act as adjudicating officers to handle defaults, but it prohibits persons involved in the initial inspection or investigation from acting as adjudicators in the same matter.

Key enforcement powers include:

• Interim Orders: The Board may pass interim orders during pending investigations if it believes investor interests are at risk.
• Settlement: It has the power to settle administrative and civil proceedings through a consultative committee.
• Disgorgement and Restitution: The Board can direct the disgorgement of unlawful gains and, notably, provide restitution to affected investors from these funds.

Regulatory Process and Transparency

The Code seeks to strengthen the Board's mechanism by requiring a transparent and consultative process for issuing regulations.

• Regulations: The Board must publish draft regulations for public comment before notification.
• Subsidiary Instructions: The Chairperson or whole-time members can issue "subsidiary instructions" to clarify ambiguities or lay down procedural requirements ancillary to regulations.
• Periodic Review: The Board is mandated to periodically review its regulations for proportionality and effectiveness.

Financial and Oversight Framework

The SEBI General Fund continues under the Code, receiving all grants, fees, and charges. The Board must maintain a reserve fund (not exceeding two years of annual expenditure), and any remaining annual surplus must be credited to the Consolidated Fund of India. Additionally, the Board and its members are deemed public servants.

The Central Government retains oversight through the power to issue directions on questions of policy. In extreme cases involving grave emergencies or persistent default by the Board, the Central Government has the power to supersede the Board for a period not exceeding six months.

The Securities Markets Code, 2025 establishes a consolidated and modernized enforcement framework designed to protect investors and maintain market integrity while reducing the compliance burden for minor infractions. Drawing from the sources, the enforcement mechanisms are structured into several stages: inspection, investigation, adjudication, and recovery.

1. Inspection and Investigation

The Board (SEBI) is empowered to inspect securities markets service providers and market participants to ensure compliance. If there are reasonable grounds to believe the Code has been contravened or that transactions are detrimental to investors, an Investigating Officer (IO) is appointed.

• Powers of Investigation: The IO has the powers of a civil court regarding summoning persons, examining them under oath, and the discovery of documents.
• Search and Seizure: If there is an apprehension that records may be destroyed or falsified, the IO may apply to the Special Court for an order to search premises and seize relevant books and records.
• Timelines: Investigations are generally expected to be completed within one hundred and eighty days, though extensions may be granted by a whole-time Member of the Board.

2. Adjudication and Separation of Functions

A key feature of the Code is the separation of investigative and judicial functions to ensure regulatory governance.

• Designation of Adjudicating Officers (AO): The Board designates AOs to conduct hearings, but it strictly prohibits any person involved in the initial inspection or investigation of a matter from acting as the AO for that same case.
• Adjudication Process: The AO issues a show cause notice and, after considering the reply and evidence, can either dismiss the notice or pass a final order.
• Factors for Penalty: When determining the severity of an order, the AO considers factors such as the deterrent effect, the seriousness of the impact on market integrity, the duration of the default, and the amount of unlawful gains made.

3. Specific Enforcement Actions

The Code provides the Board and AOs with a versatile "toolkit" of sanctions:

• Interim Orders: These can be passed during a pending investigation to prevent the destruction of evidence or to protect investor interests; they are valid for up to 180 days and can be extended to two years.
• Directions and Warnings: The AO may issue directions such as suspending trading, restraining persons from accessing the market, or attaching bank accounts for up to ninety days during adjudication.
• Cease and Desist: Orders can be issued to stop a person from committing or causing a contravention.
• Disgorgement and Restitution: The AO can order the disgorgement of an amount equivalent to unlawful gains. Notably, the Board may then provide restitution to affected investors from these disgorged funds.
• Settlement: Persons may apply to settle proceedings through a consultative committee, which allows for the resolution of administrative and civil matters upon payment of a settlement amount.

4. Penalties and Offences

The Code decriminalizes minor, technical, or procedural defaults into civil penalties while maintaining criminal punishments for severe acts like market abuse.

• Civil Penalties: For many defaults, the penalty is linked to quantifiable gains or losses (often three times the amount) or a daily fine for continuing defaults.
• Criminal Punishment: Non-compliance with Board orders or committing market abuse (such as insider trading) can lead to imprisonment for up to ten years or substantial fines up to twenty-five crore rupees.

5. Recovery and Judicial Oversight

• Recovery of Amounts: If a person fails to pay penalties or disgorgement amounts, a Recovery Officer can attach and sell movable or immovable property, attach bank accounts, or arrest and detain the person in prison. These recovery actions have precedence over most other claims.
• Appeals: Any person aggrieved by an order of the AO or the Board may appeal to the Securities Appellate Tribunal (SAT) within forty-five days. Further appeals on questions of law can be made to the Supreme Court.
• Special Courts: The Central Government establishes Special Courts to provide for the speedy trial of criminal offences under the Code.

The Securities Markets Code, 2025 classifies various participants under the umbrella of "market entities," primarily categorizing them as Market Infrastructure Institutions (MIIs), Intermediaries, Self-Regulatory Organisations (SROs), and Market Participants (issuers and investors). The sources provide a detailed framework for their registration, governance, and operational obligations.

1. Market Infrastructure Institutions (MIIs)

MIIs are foundational to the market and include stock exchanges, clearing corporations, and depositories.

• Registration: No person can operate as an MII without being registered with the Board. The Board notifies every grant of registration, which takes effect from the date of notification.
• Ownership and Management: MIIs must be companies limited by shares and demutualized, meaning ownership and management are segregated from trading or clearing rights. They must have diversified ownership, with limits on equity shareholding by members and specific classes of persons. Governing boards must meet "fit and proper" criteria and include independent members.
• Bye-laws: MIIs are empowered to make bye-laws (subject to Board approval) to regulate contracts, risk management (e.g., margins, circuit breakers), and the conduct of their members.

2. Intermediaries

The Code identifies a broad list of 22 specific types of intermediaries, including:

• Asset management companies (AMCs).
• Stock brokers and trading members.
• Credit rating agencies.
• Depositories and depository participants.
• Investment advisers and portfolio managers.

Registration is mandatory for any person to carry on business as an intermediary. Their primary role is to facilitate or provide services related to the issue, sale, purchase, or dealings in securities. The Board also has the power to notify new categories of intermediaries as needed for market development.

3. Market Participants: Issuers and Investors

• Issuers: Defined as persons who make or propose to make an issue of securities that are listed or to be listed. They must fulfill eligibility criteria and comply with requirements specified by the Board before offering securities to the public. Issuers must also comply with listing agreements and disclosure requirements regarding corporate governance and financial results.
• Investors: The Board may specify certain classes of investors that must be registered to carry on investment activities. The Code also mandates the creation of an Investor Charter to protect their interests and facilitate participation.

4. Other Regulated Entities

• Self-Regulatory Organisations (SROs): These are formed and promoted by intermediaries or investors. They must be registered with the Board, and their governing norms—which cover internal management and member agreements—require Board approval.
• Pooled Investment Vehicles: These include funds established for investment schemes, such as mutual funds, alternative investment funds (AIFs), REITs, and InvITs. The Code clarifies that these vehicles, whether trusts or otherwise, are eligible to borrow and issue debt securities.

5. Obligations and Governance

All securities markets service providers (MIIs, intermediaries, and SROs) have a general obligation to:

• Make fair disclosures of information at specified frequencies.
• Invest money collected from investors only in the manner and period specified by regulations.
• Provide investor grievance redressal mechanisms.

The Central Government retains a significant oversight role, including the power to supersede the governing board of an MII or SRO if it is in the interest of trade or the public. Furthermore, MIIs and SROs are required to maintain confidentiality of regulatory data and commercially sensitive information.

Under the Securities Markets Code, 2025, securities operations encompass the end-to-end lifecycle of a security—from issuance and listing to trading, settlement, and beneficial ownership. The sources outline a framework focused on dematerialization, finality of settlement, and structured market access.

Market Access and Dealing

The sources specify that dealing in securities on a Market Infrastructure Institution (MII) is strictly regulated:

• Mandatory Membership: No person may deal in securities on an MII unless admitted as a member, a client of a member, or a principal.
• Principal Disclosures: When a member acts as a principal in a contract with a non-member, they must secure the person's consent and explicitly disclose their role as a principal in the agreement.
• Legality of Contracts: Every contract for the sale or purchase of securities must be entered into through members of a stock exchange to be considered legal, unless specifically exempted by the Central Government.

Dematerialization and Holding

The Code mandates a shift toward an entirely electronic environment for holding securities:

• Fungible Form: All securities or regulated instruments held by a depository must be dematerialized and fungible.
• Compulsory Allotment: Issuers must allot securities only in dematerialized form. While physical holders can continue to hold previously issued certificates, they must dematerialize them before any sale or transfer.
• Dematerialization Process: This involves surrendering physical certificates to the issuer, who cancels them and informs the depository to credit the person as the beneficial owner.
• Conclusive Title: The records of a depository serve as conclusive proof of title for the transferee.

Netting and Settlement

The operational efficiency of the market relies on the clearing and settlement process:

• Clearing and Settlement: Clearing involves transmitting and reconciling payment obligations, while settlement is the final completion of delivery and payment.
• Finality and Irrevocability: A settlement (whether gross or net) is final and irrevocable as soon as the money or assets are determined, regardless of whether they have been physically paid yet.
• Insolvency Protection: The Code ensures that if a member becomes insolvent, it does not affect a settlement that has already become final. Clearing corporations also have precedence over other claims and attachments when recovering dues from the collaterals of a defaulting member.

Listing and Disclosure Operations

Issuers are subject to rigorous operational requirements to maintain market transparency:

• Eligibility and Permission: No security can be offered to the public or listed unless the issuer meets eligibility criteria and receives permission from the stock exchange.
• Continuous Compliance: Once listed, issuers must comply with listing agreements and disclosure requirements covering corporate governance, financial results, and risk management.
• Delisting: Securities can be delisted voluntarily by the issuer or compulsorily by the exchange for continued contravention of listing conditions.

Depository and Pledging Operations

• Pledge and Hypothecation: Beneficial owners can create a pledge or hypothecation of their dematerialized securities with the depository's approval. The entry in the depository’s records is conclusive proof of such a pledge.
• Rights of Owners: While the depository is the "registered owner" for transfer purposes, it holds no voting rights; all rights, benefits, and liabilities remain with the beneficial owner.

Investor Grievance Redressal

Operational integrity includes a mechanism for when services fail:

• Grievance Redressal: Service providers and issuers must maintain an investor grievance redressal mechanism.
• Ombudsperson: If a grievance is not resolved within 180 days, an investor can file a complaint with a Board-designated Ombudsperson. The Ombudsperson has the power to award damages and direct the return of fees.

The Securities Markets Code, 2025 establishes a multi-tiered legal and appellate framework designed to ensure regulatory accountability, provide for the speedy trial of offences, and protect the rights of aggrieved parties through structured appeal processes.

The Securities Appellate Tribunal (SAT)

The Tribunal previously established under the SEBI Act, 1992, is deemed to be the Securities Appellate Tribunal for this Code.

• Composition and Benches: It consists of a Presiding Officer and a determined number of Judicial and Technical Members. Benches must include at least one Judicial and one Technical Member (except in cases of vacancies where a Judicial Member and the Presiding Officer may sit).
• Appellate Jurisdiction: Any person aggrieved by an order of the Board, an adjudicating officer, the Ombudsperson, or a Market Infrastructure Institution (MII) may prefer an appeal to the Tribunal. This includes issuers aggrieved by a stock exchange's refusal to list or decision to delist securities.
• Timelines and Procedures: Appeals must be filed within forty-five days of receiving the order, though the Tribunal may entertain late appeals for sufficient cause. The Code mandates that the Tribunal endeavor to dispose of appeals within six months.
• Legal Representation: A party may appear in person or be represented by advocates, chartered accountants, company secretaries, or cost accountants.
• Powers: While guided by the principles of natural justice rather than the strict Code of Civil Procedure, the Tribunal possesses the powers of a civil court regarding summoning persons, receiving evidence on affidavits, and reviewing its own decisions.

Appeals to the Supreme Court

Decisions of the Tribunal can be further challenged by filing an appeal with the Supreme Court. Such appeals must be filed within sixty days and are limited strictly to questions of law arising out of the Tribunal's order.

Special Courts and Criminal Proceedings

For criminal offences under the Code, such as market abuse or failure to comply with orders, the legal framework utilizes Special Courts.

• Speedy Trial: The Central Government establishes these courts (consisting of a Sessions Judge or Additional Sessions Judge) to provide for the speedy trial of offences.
• Cognizance: No court can take cognizance of an offence under the Code except on a written complaint by the Board or an authorized officer.
• Appeals and Revision: The High Court retains the power of appeal and revision over the Special Courts, treating them as Courts of Session.
• Compounding of Offences: Offences not punishable with "imprisonment only" may be compounded by the Tribunal or the court where proceedings are pending, provided the Board is given an opportunity to be heard.

Administrative and Civil Safeguards

• Bar of Jurisdiction: The Code explicitly bars the jurisdiction of civil courts from entertaining suits or proceedings regarding matters that the Board, adjudicating officer, or Tribunal are empowered to determine. No injunctions can be granted by any court against actions taken under the Code.
• Statute of Limitations: The Board is generally prohibited from initiating an inspection or investigation after eight years from the date of the alleged default or contravention, except in cases of systemic impact or referral by other agencies.
• Rectification of Orders: Adjudicating officers, the Board, and Recovery Officers have the power to rectify errors apparent on the face of the record within thirty days, provided they do not modify the substantive part of the order.
• Protection of Action in Good Faith: No legal proceeding lies against the Central Government, the Board, or its officers for actions done in good faith under the Code.

The Securities Markets Code, 2025 establishes a comprehensive set of prohibitions to maintain market integrity, prevent systemic risks, and protect investors. These prohibitions range from market conduct and fraudulent practices to operational restrictions on contracts and professional conduct.

1. Prohibition of Fraudulent and Unfair Practices

Under the Code, no person is permitted to directly or indirectly engage in practices that deceive or defraud the market. Specific prohibitions include:

• Manipulative Devices: Using or employing any manipulative or deceptive device or contrivance in connection with the issue, sale, or purchase of securities.
• Artifice to Defraud: Employing schemes or devices intended to defraud investors or the public in connection with listed or proposed-to-be-listed securities.
• Falsification of Records: Making false or fraudulent entries in records, or the willful omission of material statements in reports required under the Code.
• Unauthorized Control: Acquiring control of a company or equity share capital beyond specified percentages in contravention of Board regulations.

2. Prohibition of Market Abuse

The Code categorizes certain "grave acts" as market abuse, which are subject to stringent criminal and civil consequences. Prohibited activities include:

• Insider Trading: Engaging in trade while in possession of material non-public information or communicating such information to others in violation of the Code.
• Price Manipulation: Publishing false or misleading information to artificially inflate, depress, or cause fluctuations in the price, supply, or demand of securities.
• Abuse of Position: Utilizing one's professional or market position to create a false impression of market activity or price.
• Front-Running: Placing orders while in possession of non-public information regarding a substantial impending transaction in securities or derivatives.

3. Contractual and Operational Prohibitions

The Code strictly regulates how and where securities can be traded to ensure transparency:

• Illegal Contracts: Contracts for the sale or purchase of securities are generally illegal if they are entered into otherwise than between or through members of a stock exchange, unless specifically exempted by the Central Government.
• Unregistered Performance: Organizing or assisting an entity that provides facilities for the performance of contracts in securities without registration is prohibited.
• Restricted Dealing: No person may deal in securities through a Market Infrastructure Institution (MII) unless they are admitted as a member, a client of a member, or a principal.
• Public Solicitation: The Board has the power to prohibit the public issue of any prospectus, offer document, or advertisement that solicits money from the public if it deems it necessary to protect investor interests.

4. Professional and Institutional Restrictions

To prevent conflicts of interest and ensure regulatory integrity, the Code imposes several professional prohibitions:

• Cooling-off Period: The Chairperson and whole-time members of the Board are prohibited from accepting employment with any securities markets service provider or market participant for one year after leaving office, unless they receive prior approval from the Central Government.
• Depository Voting Rights: While a depository is the "registered owner" for transfer purposes, it is prohibited from exercising voting rights or any other rights associated with the securities it holds; these rights remain with the beneficial owner.
• Integrity of Data: The Code prohibits unauthorized access, modification, or destruction of regulatory data in system databases, as well as the introduction of computer viruses to disrupt trading.

5. Enforcement of Prohibitions

When these prohibitions are breached, the Code provides for several enforcement actions:

• Cease and Desist: Adjudicating officers may pass orders requiring a person to cease and desist from committing or causing a contravention of the Code.
• Criminal Punishment: Market abuse and failure to comply with Board orders are punishable by imprisonment for up to ten years or fines up to twenty-five crore rupees.
• Compounding Restrictions: Offences involving market abuse that are punishable with "imprisonment only" cannot be compounded, ensuring that severe violations are prosecuted to the full extent of the law.