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Can Government Employees trade in the stock market? This is a question that might have passed through the minds of every government employee. Especially for the ones looking for an alternate source of income besides their salary. It is very well known that depending solely on your salary is not advisable. Let it be for building wealth or securing your financial future. But as we all know, government employees are prevented from taking part in certain income-generating activities by law. But what are those activities? Is stock trading included in that list? Let us find out!
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Introduction
‘Can Government Employees trade in the stock market?’ is a very popular question asked to finance experts, trading gurus and several trading forums. But people often discuss this subject in a way that makes it appear complicated to newcomers. And instead of getting the right answers or clarification for any doubt involving this, you get a load of legal jargon. Let us find some real answers to the question ‘Can Government Employees trade in the stock market?’
Can Government Employees Trade in the Stock Market?
1: What is a stock?
If we answer this question plain and simple. No! government employees cannot trade in the stock market. If you are a government employee you can make long-term investments in the stock market but trading frequently is prohibited. In the guidelines trading refers to the process of constantly purchasing stocks and other commodities, speculating and then selling them to get profits.
So, the gist of the law is that a government employee can invest in commodities as long as you do it through certified brokers and is doing it as a long-term investment. You are not allowed to frequently buy and sell the shares as this is considered to be speculative trading and is banned by law.
Silver Lining? While active stock trading is restricted, government employees are allowed to invest in mutual funds. This offers a more regulated and less speculative avenue for investment, and many government employees prefer this option.
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Know moreWhat Are the Restrictions for Government Employees to Trade in Stock Market?
The law governing this subject is the Central Civil Services (Conduct) Rules, 1964. Some of the important parts of the guidelines are to be described below.
Rule 16
Rule 16 of the Central Civil Service (Conducts) Rules, 1964 lays forth the legal guidelines for any activity on the stock exchanges by employees of the Government. The sub-rules of the rule 16 are provided below.
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Sub-rule 1
Sub-rule 1 prohibits government personnel from participating in speculative trading on the stock market. Frequent purchases or sales of shares, stocks, or other investments will be considered speculation under this sub-rule.
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Sub-rule 2
This sub-rule states that relatives and others operating on behalf of the government employee must have a similar attitude against speculative trading in the stock market. It is also recommended that those specified in this guideline abstain from all speculative activity.
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Sub-rule 3
This rule states that if a question comes up about whether a transaction should be evaluated by the criteria outlined in sub-rule (1) or sub-rule (2), the Government must be notified.
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Sub-rule 4
This Rule prohibits government employees from getting into financial obligations with individuals or organizations they interact with while performing their jobs. This entails lending or borrowing money from businesses and individuals in exchange for interest or other non-monetary rewards.
Rule 35: Sub-Rule 1
Government employees are prohibited from speculating in stocks, shares, or other investments; however, this subrule does not apply to occasional investments made through stockbrokers or other individuals who are legally permitted, licensed, or who have received a certificate of registration from the appropriate authorities.
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Rule 40
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Sub-Rule 1
No employee of the government may make any investments that might dishearten him or hurt his ability to perform his official duties, nor may he allow any member of his family or anybody acting on his behalf to make any such investments. Any acquisition of shares from the quotas designated for company directors or their relatives and colleagues will be considered an investment that could potentially discredit a government servant for this purpose.
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Sub-Rule 2
No employee of the government who is involved in the process of determining the price of an IPO or follow-up IPO of shares of a Central Public Sector Enterprise may apply for shares in the IPO or follow-up IPO of that Central Public Sector Enterprise directly, through a member of his family, or any other person acting on his behalf.
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Sub-Rule 3
If a dispute arises over whether a particular transaction falls under the purview of sub-rule (1) or sub-rule (2), the Government’s judgment will be final.
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Sub-Rule 4
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Point 1
- No Government employee shall, save in the ordinary course of business with a bank or a public limited company, either themselves or through any relatives or any other individual acting on his behalf, (a) lend or borrow or deposit money, as a principal or an agent to, or from or with, any person or firm or private limited company within the local confines of his authority or with whom he is likely to have official contacts or otherwise place themselves under any monetary obligation to such person or firm or private limited company; or
- (b) lend money to any person at interest or in a manner whereby return in money or kind is priced or compensated; Provided that a Government employee may, give to, or accept from a member of family or a personal friend, a purely temporary loan of a small amount without charging any interest, or run a credit account with a bona fide tradesman or make an early payment to his private employee; Provided further that nothing in the point 1 of this sub-rule shall affect in respect of any transaction took part into by a Government employee with the previous permission of the Government.
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Point 2
- When a Government employee is assigned or transferred to a job position of such a nature that would involve them in the violation of the provisions of sub-rule 2 or sub-rule 4, they shall straightaway report the settings to the stipulated authority and shall afterwards act in agreement with such direction as may be given by such authority.
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How to Trade Responsibly When You Are a Government Employee?
All these rules and regulations, and the restrictions they create will most often lead people to confused. They might even drop the entire ambition of becoming an investor or trader. However, a government employee can always be a part of the stock market if they closely follow the guidelines. Some of them are provided below.
- Conflict of Interest: It is strictly forbidden to use private information for one’s benefit.
- Investment Limits: To preserve financial balance, stay within the boundaries established by your government for your position.
- Ethical Aspects: Please refrain from insider trading!
- Perform Research: It is essential to have a deep understanding of the business and the industry.
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The Intention of Rules
The purpose of creating and enforcing this rule is to prevent government personnel from gaining an unfair advantage. These rules prevent them from abusing the power that comes with their position. The rule also seeks to prevent the misuse of insider information. Government employees may obtain access to many such info in the usual course of their employment.
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Know moreChanges in the 7th Pay Commission
According to an order issued by the Personnel Ministry, the Centre has raised the over-26-year-old monetary limit on disclosure of employees’ investments in stocks and mutual funds to six months of their basic wage.
The Income Limit
The previous regulations required Group ‘A’ and ‘B’ executives to provide this information if there were any transactions in shares, securities, debentures, mutual fund schemes, etc. totalling more than Rs 50,000 in a given calendar year. The top limit for employees in Groups “C” and “D” was Rs 25,000.
The Department of Personnel and Training (DoPT) recently released a circular informing members of the Annual Information System (AIS) that if their stock or share investment surpasses six months’ basic pay in a given calendar year, they must notify the designated authority. The information must be turned in by January 31st of the following year. Accordingly, AIS members are free to invest any sum below their six months’ worth of base income without notifying the appropriate authorities.
Intention
The DoPT stated in the circular dated March 20, 2023, that by Rule (14(1)) of the AIS (Conduct) Rules, 1968, “an intimation may be sent in the enclosed Proforma to the prescribed authority every year, if the total transactions in stock, share, or other investments etc. exceed six months’ basic pay of Government servant during a calendar year (to be submitted by 31st January of the subsequent year),” to enable the administrative authorities to keep a watch over transactions in any stock, share, or other investments etc. in respect of members of All India Services (AIS).
The AIS member will also have to notify the authority if an individual transaction exceeds two months’ basic salary. The 7th Pay Commission’s recommendations form the basis for the wages given to AIS members.
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In a nutshell…
The stock market can be a partner for government personnel in the complex game of finance and bureaucracy. They can surf the waves of financial growth if they exercise caution. They have to follow the rules and have a broad investment portfolio. Read everything carefully and understand the basics of trading as opposed to being a government employee. The prospect of earning fortunes can make people go blind easily.
So, my word to government employees is that it’s time to open your financial manual. Let us discover the fascinating world outside of the office.
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Know moreFrequently Asked Questions
If something prohibited is necessary to be done, where may a government employee report it?
When a Government employee is assigned or transferred to a position that requires him to violate the terms of the sub-rules listed above, he must promptly notify the situation to the appropriate authority and then comply with any order issued by that authority.
Can a government employee provide a loan using official contacts or connect people?
If he or she lends funds to someone at interest or in a method that charges or pays a return in cash or kind, this is not permitted. A public official, on the other hand, may give or accept a short-term loan of a small amount without interest from a relative or close friend, maintain a credit account with a legitimate tradesman, or offer a pay advance to his private employee.
However, none of these sub-rules apply to any activity carried out by a public official with the Government’s prior sanction.
Is it permissible for government workers to purchase stock from promoters?
The short explanation is that government workers are not permitted to purchase stock from promoters. According to regulation 40(i), no government employee may make an investment that would interfere with or affect his ability to carry out his official duties, nor may he let a member of his family or someone acting on their behalf make such an investment.
Because of this, purchasing stocks from portfolios intended for directors of companies, or their spouses and partners, would be regarded as an investment that could cause the government employee difficulty.
Can a government personnel obtain a loan using official contacts or connecting people?
The answer is “no.” According to the Central Civil Services (Conduct) Rules, 1964, as a primary or representative, they are not permitted to lend, borrow, or deposit funds to, from, or with any individual, organization, or private limited corporation within his local government or with whom he is likely to have official connections or to assume any monetary responsibility for such individual, organisation, or private limited entity.
Is it possible for a government employee to conduct business with a bank or public limited company?
The regulation states that no employee of the government may do business directly with a bank or a public limited company, or through a family member or another person acting on their behalf.
Is it possible for a government employee to apply for the initial public offering?
You may apply for the IPO, yes. But you are not allowed to participate in the same company’s price-fixing procedure. Rule 40(ii) states that no government employee participating in the price-setting phase of an initial public offering or follow-up public offering of stocks by a Central Public Sector Entity may request to be allocated shares in the initial public offerings or subsequent public offerings of a government business enterprise, either directly or through a family member or another person acting on their behalf.
