India's STT hike cuts futures volume
- India raised the securities transaction tax on equity futures and options from October 1, 2024, increasing trading costs across National Stock Exchange contracts. - The futures tax rate rose to 0.02% from 0.0125%, while options climbed to 0.10% from 0.0625%, lifting sell-side costs materially. - Later volume declines were also driven by Securities and Exchange Board of India curbs, not tax alone. (nseindia.com)
India’s securities transaction tax increase took effect on October 1, 2024, raising the cost of selling equity futures and options on Indian exchanges. (nseindia.com) The National Stock Exchange told members the futures tax rate rose to 0.02% from 0.0125%, and the options rate rose to 0.10% from 0.0625%, after the Finance Act, 2024 received assent on August 16, 2024. (nseindia.com) For futures traders, broker Zerodha calculated that the lower exchange transaction charge only partly offset the tax move, leaving a net cost increase of 0.00735%, or ₹735 per crore of turnover on the sell side. (zerodha.com) The tax change landed as New Delhi and regulators were trying to cool a derivatives market that had exploded in size, especially in index options used heavily by retail traders. (economictimes.indiatimes.com) (mstock.com) But the sharp slowdown that followed in late 2024 was not a clean tax story. November turnover was also hit by Securities and Exchange Board of India rules that limited weekly expiries and raised minimum contract sizes in index derivatives. (economictimes.indiatimes.com) In November 2024, futures turnover on the National Stock Exchange fell 8.3% month on month to ₹1.71 lakh crore from ₹1.87 lakh crore in October, while options turnover dropped nearly 16% to ₹333.4 lakh crore. (economictimes.indiatimes.com) The Department of Economic Affairs reported that equity derivatives market turnover on the National Stock Exchange fell 27.37% month on month in November 2024. (dea.gov.in) National Stock Exchange chief Ashishkumar Chauhan said on November 5, 2024 that the bourse expected a “substantial decrease” in derivatives volume after the new framework, and analysts cited estimates of a 40% drop. (financialexpress.com) That means claims that a roughly one-third drop in Indian futures activity came from the securities transaction tax alone overstate the evidence. The tax raised costs, but the biggest volume shock arrived alongside a broader regulatory reset of the futures and options market. (nseindia.com) (economictimes.indiatimes.com) (dea.gov.in)
