Brokerages move out after Delhi proprietary trade duty

Following the Delhi government’s move to impose stamp duty on proprietary trades in equity, commodity and currency segments, Jaypee Capital, the largest trader and stock broker there, has moved its proprietary trading desk to Haryana and Noida (Uttar Pradesh), according to a top official at the brokerage.

Another top Delhi broker, SMC Global, was exploring a similar option, said an official. An SMC official said they would wait for a few more weeks, as the Association of National Exchange Members of India (Anmi), a trade body of brokers, had petitioned the Delhi government on the subject.

Proprietary trading is done by brokers on their own account, not for any brokerage. A majority of stock brokers in Delhi closed their proprietary trading business after the stamp duty was imposed last month. Before this, Delhi was the biggest hub for proprietary trading in securities and commodities. In fact, nearly half the trading volume in the currency trading segment on the National Stock Exchange (NSE) and the MCX Stock Exchange (MCX-SX) came from Delhi, of which Jaypee Capital accounted for 30 per cent. SMC generated five per cent.

The Delhi government imposed a stamp duty of Rs 200 on every Rs 1 crore trade in the futures and option segment of the securities market. Also, a stamp duty of Rs 100 per Rs 1 crore transaction was imposed on forward trading in commodities. Following this, volumes in the exchange-traded currency segment fell nearly 50 per cent. The combined daily turnover on MCX-SX and NSE was down from around Rs 28,000 to Rs 14,000-15,000 crore.

Proprietary trades in the cash equity segment will attract a stamp duty of Rs 1,000 per Rs 1 crore in case of delivery-based transactions and Rs 200 per Rs 1 crore in case of squared-off transactions.

Jaypee Capital's move is significant, as it is one of the promoters of the United Stock Exchange, which will go live with currency trading from August 31. The exchange will be banking on the brokerage to get liquidity on its platform.

According to Anmi, the stamp duty by states on proprietary trades amounts to double taxation, as the securities transaction tax is also collected on these trades from both buyers and sellers.

In the western region, stamp duty is imposed by Maharashtra and Gujarat. A couple of states in South India also impose such a duty.