Securities Markets Code 2025:
Unlisted Trading & Listing Reform Explained
Introduction:
A New Chapter for Indian Capital Markets
India's financial markets are on the cusp of a structural transformation. The Securities Markets Code 2025 ā a sweeping legislative proposal ā aims to consolidate, modernise, and expand the country's securities laws. At its heart is one particularly headline-grabbing proposal: enabling the trading of shares in unlisted companies.
For most people, the phrase 'unlisted company' might sound technical or even mysterious. But the idea is actually straightforward, and its implications ā for ordinary investors, for growing businesses, and for India's broader economy ā are enormous.
This article breaks down everything you need to know about the Securities Markets Code 2025, its unlisted trading proposal, and what it could mean for the pre-IPO market ecosystem, all in plain, simple language.
What Is the Securities Markets Code 2025?
The Securities Markets Code 2025 is a proposed law that seeks to consolidate multiple existing securities-related statutes in India into a single, unified legal framework. Currently, India's securities market is governed by a patchwork of laws ā including the Securities Contracts (Regulation) Act, 1956 (SCRA), the Depositories Act, 1996, and certain parts of the SEBI Act ā each passed at different points in time with varying terminologies and frameworks.
The Code proposes to:
ā¢ Replace and consolidate outdated securities laws into one coherent statute
ā¢ Modernise regulatory definitions and frameworks to reflect current market realities
ā¢ Introduce new provisions that enable market expansion ā most notably, trading in unlisted securities
ā¢ Streamline the listing and de-listing process for companies
ā¢ Strengthen investor protection and grievance redressal mechanisms
Why Consolidation Matters
Imagine navigating traffic in a city where every road has a different set of rules written by different committees decades apart. That is what operating in India's current securities law environment can feel like for market participants. A unified code removes ambiguity, reduces compliance costs, and makes the legal framework more accessible ā to businesses, investors, and regulators alike.
The Core Proposal:
Trading in Unlisted Companies
The most significant and transformative proposal in the Securities Markets Code 2025 is the enabling of formal, regulated trading in the shares of unlisted companies. To understand why this is important, it helps to understand the current state of unlisted share trading in India.
How Unlisted Shares Are Traded Today
Right now, trading in unlisted shares is not illegal ā but it happens in a grey, unregulated market. Buyers and sellers transact directly, often through intermediaries or platforms operating without full regulatory oversight. Prices are not transparent, settlement is largely informal, and investors have limited legal recourse if something goes wrong.
The key problems with the current unlisted shares market include:
ā¢ Lack of price discovery ā there is no centralised, transparent mechanism to determine fair value
ā¢ Counterparty risk ā buyers and sellers rely on trust, not regulated settlement systems
ā¢ Limited access ā only well-connected individuals or institutional investors typically participate
ā¢ Absence of regulatory oversight ā SEBI has limited jurisdiction over these transactions
ā¢ Fraud risk ā without oversight, fraudulent share certificates and misleading disclosures are real risks
What the Code Proposes to Change
The Securities Markets Code 2025 proposes to create a formal, regulated framework for trading unlisted securities. This would mean:
ā¢ Designated platforms or exchanges where unlisted shares can be bought and sold in a structured manner
ā¢ Price transparency ā trades would be recorded and visible, enabling genuine price discovery
ā¢ Regulated intermediaries ā brokers, depositories, and custodians operating under SEBI's framework
ā¢ Standardised settlement ā similar to how listed shares settle through clearing corporations
ā¢ Disclosure requirements ā companies whose shares are traded would need to maintain minimum disclosures
Listing Reform:
What Is Changing?
Beyond unlisted trading, the Securities Markets Code 2025 also proposes significant reforms to the listing process itself ā both making it easier for companies to list and tightening standards for those that do.
Key Listing Reform Proposals
1. Simplified Listing Criteria
The Code may introduce tiered listing requirements, allowing smaller, high-growth companies to list on appropriate segments of recognised exchanges without meeting the full disclosure and financial thresholds required of large corporations. This is aimed at bringing more companies ā particularly SMEs and startups ā into the formal public market ecosystem.
2. Faster Listing Timelines
Current regulations require a minimum number of days between IPO closing and listing. Reforms proposed could shrink this window significantly, improving capital efficiency for companies and reducing price uncertainty risk for IPO applicants.
3. Enhanced Disclosure Norms
For unlisted companies whose shares trade on designated platforms, the Code proposes basic but standardised disclosure requirements ā annual financials, material event updates, and management information ā giving investors a minimum information baseline they currently lack entirely.
4. Streamlined De-listing
The Code also looks to simplify the de-listing process ā the mechanism by which a listed company removes its shares from a stock exchange. Currently, de-listing is complex and often results in prolonged litigation. A cleaner process benefits both companies and minority shareholders.
What This Means for the Investment Ecosystem
The Securities Markets Code 2025's proposals, if enacted, could have far-reaching consequences for multiple groups within India's financial ecosystem. Here is how different participants may be affected:
For Growing Companies
Startups and private businesses that are not yet ready for a full IPO could access a wider pool of capital through regulated unlisted trading platforms. This may reduce dependence on a small group of venture capital firms and allow organic price discovery for their shares.
For Retail Investors
The proposal, if implemented with appropriate safeguards, could eventually expand access to investment opportunities that were previously available only to wealthy individuals or institutions. However, unlisted companies also carry higher risks than listed entities, and any broadened access would need to be accompanied by robust investor education frameworks.
For Institutional Investors
Mutual funds, insurance companies, and pension funds that currently have limited ability to invest in unlisted securities could gain new, regulated avenues for portfolio diversification if the Code enables formal unlisted markets.
For Intermediaries
Stock brokers, depositories, investment banks, and compliance professionals stand to benefit from expanded market activity. New platforms serving the unlisted segment would create demand for services across the intermediary value chain.
For the Broader Economy
A more efficient capital market ā one that channels savings to productive businesses at earlier stages of their growth ā supports job creation, innovation, and economic development. India's ambition to become a USD 5 trillion economy depends in part on a deep, well-functioning capital market that supports businesses at every stage.
Disclaimer:
This is written for educational and informational purposes only. Nothing here constitutes investment advice or a recommendation to buy or sell securities. All data is sourced from publicly available information. Investments in securities markets are subject to market risks ā please read all offer documents carefully before investing.
