Rules of Stock Market Trading

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While investing and trading in the stock market gives you an opportunity to make huge profits, you also have to abide by some rules of stock market trading that make these practices fair. 

These rules are implemented by the Securities and Exchange Board of India (SEBI) which is the body that regulates the entire trading activities in the stock market

Rules of Stock Marekt

Now before discussing the rules let’s consider some of the basics of trading. Trading is of two types – 

Delivery trading and Intraday trading and the rules are applied to both of them in different manners.

  • Delivery trading allows you to keep your stocks and other financial assets with yourself for a long time ( starting with at least more than one day while you can keep them for as long as you wish to ).
  • While in Intraday trading, you have to buy and sell your stocks within the same day. This is why it is also called Day trading. 

Having a demat account is the most basic necessity if you want to trade in the stock market. You can’t proceed with delivery trading without having a demat account as all your stocks are stored in this account once you buy them. 

Now on the basis of the type of trade, let’s discuss the rules in each category in detail:

Delivery Trading Rules

As discussed, delivery trading is buying and holding stocks in the demat account, so the basic rule of doing delivery trade in the Indian stock market is to follow the defined rules for:

  • Opening a demat account
  • Settlement of Trade

Demat Account Rules

As per SEBI, an individual who is 18 years or above are eligible to open a demat account with any of the registered depository participants. There are certain rules of trading in the stock market as mentioned below:

  1. Person less than 18 years can open a minor demat account.
  2. The person must have a valid PAN card and Aadhar card.
  3. The aadhar card must be linked with the mobile number.
  4. He/she has to pay the applicable Account maintenance charges.
  5. One can open multiple demat accounts but only one account with a respective stockbroker.
  6. There can be more than 1 holder of the demat account.

T+1 Settlement Rule

In delivery trading, when you buy a share, it doesn’t get credited to your demat account on the very same day. Similarly, when you sell a share, you don’t get the market value of the sold share credited into your account on the same day. The completion of such transactions takes time and this is called settlement. 

  • At the very beginning, the settlement time was marked at T+3 which meant it took 3 working days to receive either the shares or money into your account after placing a buy or sell order. 
  • In 2003, SEBI changed it to T+2. 
  • This settlement period has now been changed to T+1 in February 2022. 

According to this change, now shares or funds will be credited to the accounts of concerned parties at the end of next trading session after placing the buy or sell order. 

However, this change is supposed to be carried out in a phased manner and in ascending order where the bottom 100 stocks in terms of Market value is going to be introduced to T+1 settlement first followed by the next 500 stocks up in the ranking and so on. 

The whole transition is supposed to be completed by January 2023. The settlement of the stocks before their allotted transition phase will take 2 business days only. The stock market holidays are not counted.  


Intraday Trading Rules

Other than delivery trading, the other kind of trade is intraday trading. Here the rules of stock market trading specifically for intraday trading like time to square off the position and availing the margin benefits from the stockbroker.

Let’s discuss these rules of stock market trading in detail.

Intraday Square Off Rules

You can do intraday trading between 9:15 AM to 3:15 PM, now between this trading session you can place multiple trades, but as per the intraday trading rule one has to close all the intraday trading positions (square off position) before the market closes.

Failing to do so, one has to pay the penalty fees as charged by their stockbroker.

Now Different stockbrokers have different square off time the detail of which is given in the table below:

 

Make sure you square off all your intraday position to avoid any kind of penalty or additional charges.


SEBI Intraday Margin Rule

Margin trading allows an investor to buy those securities that they can’t afford to buy by paying just a part of the value of shares. Using the margin, trader can buy shares of higher values. 

For example, if your stockbroker allows 10% margin trading then you can buy the shares worth ₹ 1 lakh by paying only ₹ 10,000 in the forms of cash or shares and these are kept as collateral while the stockbroker funds your loan. 

The margin is settled once the position is squared off. 

In 2020, SEBI tweaked the old margin rule and made some changes to it which were not taken too well by the trading community. 

  • Earlier collecting upfront margin in margin trading wasn’t compulsory but now the investors need to pay a 20% cash amount of the total amount of shares they want to purchase upfront as the margin loan in equity trading.
  • The same is 50% in the case of Future & Options. 
  • Earlier, the investors could have given Power of Attorney (PoA) to the brokers upon their consent to execute transactions on their behalf but now that provision has been removed by SEBI. 

BTST Rules

BTST stands for Buy Today Sell Tomorrow and almost all the stockbrokers in India provide this facility. Here you get the chance to buy today and sell tomorrow by booking the desirable profit.

However, the rules of the BTST trade is almost similar to the delivery trading but when it comes to the transaction cost, how these charges are applicable on BTST trade.

As per the rules of stock market trading, before June 2021, there are no DP charges for BTST trade, this is because the bought shares used to get delivered by clearing corporation in the broker’s pool as they were supposed to be sold again in day trading through EPI. This meant the broker used to receive all the dividends and bonuses since the securities were stored in its account.

To save the broker from all the hassle, SEBI introduced a new rule on 2nd June 2021 according to which the securities are now credited to and debited from the trader’s demat account through EPI (Early Pay In) and not from the broker’s pool. 

Since the change in rules, every client has to pay DP charges in BTST depending on the stockbroker. Different stockbrokers have different DP charges

The DP charges are levied on a per scrip basis which means no matter how many shares you sell if you sell shares of one company in a day, you will be charged only for that. 

In general, it varies from broker to broker and can be as low a ₹10 to ₹35 per scrip per day


Stock Market Timing

Among all the listed rules of stock market trading, the most important is to consider the timing of the stock market. Especially if you are an intraday trader, you need to be aware of the stock market opening and closing as you will have to buy and sell your shares on the same day before the business hours of the market are over. 

The normal working hours of the Indian stock market are between 9:15 AM to 3:30 PM irrespective of the exchange you have decided to trade on. Also, the timings remains same for every stockbroker app.

For example, if you opt for Angel One to trade then the Angel One trading time will conform with the stock market timings. So, you need to be aware of any changes in stock market timings on special occasions or holidays.

However, there are pre-opening sessions and post-closing sessions that go from 9 AM to 9:15 AM and 3:30 PM to 4 PM respectively. 

The stock market is closed every Saturday and Sunday of the week along with the stock market holidays. 

For commodity and currency traders, these timings differ and the details of these are given in the table below.

 


Trading Rules for Government Employees 

There are different trading rules for government employees in the stock market. If you are a government employee, you are not allowed to trade in the stock market on a frequent basis. 

  • According to rule no 35(1) of the Central Civil Service (Conduct) Rules, 1964, government employees can’t become a part of speculative trading. Intraday trading can be considered an example of speculative trading. 
  • However, they can indulge in occasional trading through a stockbroker or any authorized person. 
  • No government employee is allowed to buy shares out of the quota that is reserved for Directors of Companies or their friends and associates and if someone violates that rule, they are going to lose their jobs.
  • A government employee is allowed to be involved in the price fixation of IPOs or follow up public offering of shares unless they, their family members or any person on their behalf is not involved in the allotment of shares. 

Also there are a few more rules of stock market trading for government employees:

  • A group A and group B Government employee needs to intimate to the government if their total transaction in a calendar year through the stock market exceeds ₹ 50,000.
  • The same for Group C employees is ₹25,000
  • As per the 2011 amendment of the Central Civil Service (Conduct) Rules, 1964, a government employee also needs to intimate if their total transaction exceeds their two-months basic pay. 

Conclusion

SEBI, as a regulatory body brings new rules as well as makes some changes to the existing rules to ensure all the parties involved in the trading are benefited equally without any bias. The change in the T+2 settlement rule to T+1 and the introduction of a new margin rule are two latest examples of it. 

The investors, as well as the brokers, have to adhere to these stock market trading rules to create a trading environment that suits everyone. 

Even though these rules seem a bit complex to understand at first, they are not really that difficult and we hope we helped you make a better understanding of these rules through this article. 


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