A stock market is a public market that encourages issuing company shares and facilitates buying and selling various financial assets to market participants (individuals and institutions). Investors can profit from investing in securities and selling them at an increased price or earn in the form of regular dividends.
The Ministry of Finance, the (SEBI) Securities and Exchange Board of India and the RBI (Reserve Bank of India) regulate the stock market activities to protect investors’ interests and ensure the fair exchange of securities. The authorities keep working for the safety of investors and bring policies or reforms from time to time.
Government Policies on the Stock Market
Regulatory frameworks concerning the stock market include numerous rules and policies. It includes the demat services with depositories, also. Now demat account opening procedure is completely digital with reputed discount stockbrokers. Here are some policies and amendments to make the online trading system more effective
- Depository Services to Access the Stock Market
The government of India introduced the Demat Account system in 1996. No paperwork is involved in the online trading system based on a demat account. Companies do not issue physical certificates. If there were old share certificates with the investors, they were dematerialized and stored in demat accounts. To regulate the depository system, the government implemented the Depository Act of 1966. Investors need to open a demat account to invest in the stock market with the stockbrokers registered with a central depository – the NSDL and the CDSL.
- Client-level allocation of funds
Under the new government rules, brokers are instructed to report individual client-level allocation of funds to the SEBI. The brokers cannot use one customer’s funds for another’s margin requirements. Penalties for brokers have already been implemented for not maintaining adequate working capital requirements in Aug 2022. In the second phase, brokers must provide a client-level allocation of funds. The brokers will not be able to pledge the customer’s funds illegally like collateral against loans.
- Stock Investment Taxation
Gains from listed equity shares in your demat account are taxable. Demat account meaning is storage for your electronic securities. If you hold the stocks for more than 12 months, the investors need to pay taxes on long-term capital gain (LTCG) of @10%. If the stocks are held for less than 12 months, then the returns will be taxed as short-term capital gain (STCG) as per the applicable slab rate to the investor. If you have investments in unlisted shares, returns will be taxed under the head ‘Capital Gain’, irrespective of the holding period.
- Peak Margin Rule
In the fourth phase of peak margin rules, the new margin rule has become a new norm in the stock market. Intraday traders will have to pay a 75% upfront margin. SEBI has created this uniform and equitable system for an efficient and fair trading system. Also, a cap on maximum intraday leverages. And, 80% of the sale amount can be used immediately, but 20% will be available on the next trading day.
- Trading of Government Securities on Stock Exchanges
To encourage participation in government securities, the government allows trading of government securities through an order-driven and online screen-based trading system of the stock exchanges. The trades are settled through an exchange clearing house following the trade matching system. It is the same process on the exchanges like equity trading through depositories.
- Government employees cannot be involved in speculative trading.
Government employees are not allowed to make frequent trading in the stock market, following Rule 35(1), Central Civil Services (Conduct) Rules, 1964. Multiple and consistent trading activities on the stock market are a form of speculative trading. They cannot be involved in any trading activity of short selling, intraday trading, and short-term share purchases. It will be considered speculative trading. However, they can invest in securities for the long term.
Thus, investors should increase their financial knowledge and interpret the impacts of government policies on different industries.