In a big blow to futures and options (F&O) traders, Finance Minister Nirmala Sitharaman has hiked the securities transactions tax (STT) on the sales of options and futures by up to 25 per cent, each. However, the industry participants said that the increased cost of trading does not bode well for professional traders.
As per the new rules, STT on selling options has been increased to 0.062 per cent from 0.05 per cent. It means option sellers will have to pay Rs 6,200 STT on a turnover of Rs 1 crore, which was Rs 5,000 earlier. This hints at an increase of 24 per cent.
The finance ministry has also hiked STT on the sale of futures from 0.01 per cent to 0.0125 per cent. Putting it simpler, traders will now have to pay STT of Rs 1,250 on Rs 1 crore of turnover while selling futures.
Market participants believe that trading volumes may also decline in the short term after the hike as the markets currently are highly volatile. However, a few experts suggest that high-frequency traders and those selling options on a regular basis will get affected the most.
STT hike will Impact Sentiment of Traders: Share India
Market experts said that the hike will impact traders and those who are willing to adopt trading as a full-time profession. The recent increase in the new age investors gave a strong push to equity trading volumes, markets and the economy in a volatile period.
The Indian trading mechanism has now shifted from traditional to technology-based trading platforms. Earlier where traders and investors were using traditional trading systems, now they are using algo based trading systems where orders are executed in less than a second, said Sachin Gupta, CEO at Share India Securities.
“Fast trading systems are now becoming a need for traders and investors. The introduction of higher STT will impact the sentiments of traders and investors who want to make a full-time career in the stock market. In recent years we observed that many professionals like CAs, lawyers, doctors, and engineers are making it a full-time career option,” he said.
The rising cost of F&O trade will impact the sentiments of tech-savvy youth. This may lower the volume as we saw at the time when the government increased the CTT, resulting in commodity trading volumes decreasing drastically, Gupta added.
More pressure in an already expensive market: Tradeplus
The increase in STT could dampen the enthusiasm of emerging derivative traders and potentially lead to a drop in volumes and liquidity while promoting the already existing menace of dabba trading, said some other analysts.
This increase in STT will only add to the already high cost of transactions on Futures & Options trades. Transaction costs in India are considerably higher than other markets due to the combined impact of STT, GST, stamp duty, exchange charges, and applicable capital gain and income tax, said SK Hozefa, CEO at Tradeplus.
“India’s F&O traders face a double blow with NSE scrapping the ‘do not exercise’ facility and the recent rise in securities transaction tax on F&O trading. This may dent morale and negatively impact F&O trade volume as Hedging costs will also increase, for those selling options regularly being the most affected,” he said.
Dent for frequent traders: Master Capital
This hike will mostly impact the volumes churned by High-Frequency Traders (HFT). More than 90 per cent of volume in Indian Market originates from Scalpers, Arbitrage houses and HFT firms, said Arvinder Singh Nanda, Senior Vice President, Master Capital Services
Rise in STT on F&O trading is going to further dent the morale of high-frequency F&O traders that will in turn have a negative impact on F&O trade volume, thereby increasing the spread for retail investors, he said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)
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