Stock markets are public markets that facilitate the buying and selling of financial assets by market participants, both individuals and institutions. Investors may profit by investing in securities, selling them for a higher price, or earning regular dividends.
To protect the interests of investors and to ensure fair trading of securities, the Ministry of Finance and (SEBI) Securities and Exchange Board of India ,regulate stock market activity. Authorities continue to work for the safety and security of investors, and introduce policies or reforms periodically.
Government policies on the Stock Market
The regulatory frameworks for the stock exchange include a number of rules and policies. Demat services are also available through depositories. Discount stockbrokers offer a digital demat account-opening procedure. Here are a few policies and changes to improve the effectiveness of online trading.
Depository Services for Access to the Stock Market
In 1996, the Indian government introduced a system of Demat Accounts. Online trading based on demat accounts is completely paperless. Companies do not print physical certificates. Dematerialized certificates are stored in demat account if there are old share certificates. The Depository Act of 1996 was implemented by the government to regulate the depository system. To invest in the stock exchange, investors must open a demat (deposit) account with stock brokers who are registered with a central depositories – the NSDL or the CDSL.
Allocation of funds at the client level
SEBI is now required to receive a report from brokers detailing the allocation of funds by client. Brokers cannot use funds from one client to meet margin requirements for another. In August 2022, penalties were already implemented against brokers who failed to maintain adequate working capital. Brokers must allocate funds to clients in the second phase. Brokers will not be allowed to use the funds of customers as collateral for loans.
Stock Investment Tax
Gains on listed equity shares on your demat account will be taxed. The demat account is a place to store your electronic securities. Investors who hold stocks for longer than 12 months will be required to pay tax on the long-term capital gains (LTCG). The rate is 10%. The investor will pay tax on short-term capital gains if the stock is held less than 12 month. If you own unlisted shares and have made investments, the returns will be taxed as a capital gain, regardless of the holding time.
Peak Margin Rule
The new margin rule is now a norm on the stock exchange. Intraday traders must pay 75% of the margin upfront. SEBI created this uniform system to ensure fair and efficient trading. It also limits maximum intraday leverage. And, 80% can be used instantly, while 20% is available the following trading day.
Trading Government Securities on Stock Exchanges
The government encourages the trading of government securities online through a screen-based order-driven trading system at the stock exchanges. Trades are settled by an exchange clearinghouse following the trade matching process. The process is similar to equity trading via depositories.
Government workers cannot engage in speculative trades.
According to Rule 35(1) of the Central Civil Services Rules 1964, government employees are prohibited from making frequent trades in the stock exchange. Multiple and constant trading on the stock exchange is speculative. They are not allowed to engage in trading activities such as short selling, intraday trades, or short-term shares purchases. This will be considered as speculative trade. They can, however, invest in securities over the long-term.
Investors should therefore increase their knowledge of financial matters and understand the impact of government policy on different industries.