The government is likely to soon introduce the much-anticipated Unified Securities Markets Code (SMC), consolidating four key legislation governing the country's financial markets.
The SMC will replace the SEBI Act, 1992; Depositories Act, 1996; Securities Contracts (Regulation) Act (SCRA), 1956; and the Government Securities Act, 2007, according to a person familiar with the development.
"The Finance Ministry's consultations with SEBI have been completed, and the Bill is currently at the drafting stage in the legislative department. Inter-ministerial consultations on the draft Cabinet note have also concluded, signaling the imminent rollout of the new code, the source told Moneycontrol.
The SMC was proposed by Finance Minister Nirmala Sitharaman in the Union Budget for 2021-22. It is aimed at streamlining regulations, easing compliance burdens, and improving the overall business environment for market participants. According to the person cited earlier, the Bill is now in its final stage and will be vetted by the law ministry. Cabinet approval is also likely to be sought soon.
A Modernised Regulatory Framework
"The unified SMC will consolidate four laws into a single code, modernising India's securities market and making it more efficient and attractive for both domestic and global investors. SEBI had initially suggested several changes, all of which have been incorporated into the draft," the source said.
The code aims to reduce the number of sections, particularly where the SCRA and Depositories Act overlap, further simplifying the regulatory landscape.
Once the SMC bill is passed in Parliament, the four existing Acts will be repealed. The government's focus on simplifying regulations will boost investor confidence in the financial market landscape, he said.
"Given the complexity and breadth of the SMC, this vetting process by the law ministry may take additional time to address any issues of legal interpretation or potential conflict with existing legislation," Kunal Sharma, Partner in law firm Singhania & Co., told Moneycontrol.
"The timeline will be subject to prioritisation by the government and other legislative obligations. The actual implementation will depend on how quickly the government can establish the necessary regulatory framework and SEBI can adjust its internal mechanisms to comply with the new code. Thus, the rollout of the SMC with an efficient legislative process could become operational by 2025, providing a modern, consolidated legal structure for India's capital markets," Sharma added.
Benefits of the SMC
Regulatory simplification: By consolidating four laws into one, the SMC will reduce legal complexity, making it easier for market participants, including businesses and investors, to navigate regulations. This harmonisation will eliminate conflicts between different laws, providing a clearer governance structure.
Lower compliance costs: The unified code will streamline processes, reducing the administrative and compliance burden on companies operating in financial markets. This, in turn, will improve operational efficiency and lower costs.
Improved ease of doing business: The single regulatory framework will facilitate smoother market operations, eliminating redundancies and creating a more business-friendly environment. This aligns with the government's broader agenda of enhancing India's ease of doing business.
"The proposed Securities Markets Code (SMC) aims to modernise securities markets laws in India, promote ease of doing business as well as foster investor confidence. While this will be a welcome move for the market and investors both domestically and internationally, the proof of the pudding, as they say, is in the eating. It would be essential for the government to provide for the separation of powers among multiple regulators, efficient enforcement mechanism, clarity on aspects to be determined through delegated legislation, as well as a roadmap to achieving the same," Rutu Gandhi, Partner, Cyril Amarchand Mangaldas, told Moneycontrol.
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