Futures and Options investors are dealt one tough hand after another. The latest challenge option sellers face is a hike in the Securities Transaction Tax (STT) on the sale of futures and options by 25% each. The announcement was made by Finance Minister Nirmala Sitharaman while presenting amendments to the Finance bill 2023 on March 24 in the Lok Sabha.
Under the new regulations, Futures and Option sellers will have to pay Rs 6,200 as STT on a turnover of Rs 1 crore against the previous fee of Rs 5,000. Traders selling futures will attract an STT of Rs 1,250 against the previous STT of RS 1,000 for every Rs 1 crore turnover.
Nikhil Kamath, Co-founder of Zerodha shared a tweet quantifying the new STT. According to Kamath, if a trader were to buy and sell 10 lots of Nifty futures, the trader will have to pay Rs 855 in STT or 1.7 points per lot. Hence for the 10 lots, the trader will have to capture 17 points of a Nifty move just to cover the STT charges. Adding other charges such as exchange charges, stamp duty, GST, brokerage and Sebi charges, the trader has to capture 30 Nifty points a day to cover the costs of 10 trades per day.
The STT rate hike is the second news impacting option traders. Earlier in the week, NSE announced that it was cancelling the ‘Do Not Exercise’ facility letting brokers exercise ‘close to money’ option strikes on behalf of their clients, reducing the risk around the physical settlement. With these new changes, it remains to see the percentage of traders that can remain profitable in the F&O sector. According to Sebi data, 9 out of 10 traders lose money on F&O trades. With the window for profitability decreasing, it remains to see if NSE can continue to hold its status as the world's largest derivative market.
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