A majority of jobbers and arbitrageurs in the stock market, often known as market makers due to their ability to generate high liquidity, are all set to discontinue their business from April 1 as a consequence of the government's decision to treat the securities transaction tax (STT) like any other deductible expenditure against the business income. | |
| If sources are to be believed, it is likely that this breed of market players would go on an indefinite strike if the new STT regime is made applicable from the next month. |
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| Jobbers and arbitrageurs are of the view that it would no more be viable for them to carry on with their business as they would not be able to claim tax rebate against STT. |
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| Nirmal Agarwal, president, Association of National Stock Exchange Members of India (ANMI), a body representing brokers, informed that jobbers and arbitrageurs would not trade anymore on their proprietary books from the next month, even while they would carry on with their other clients' business. |
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| Arbitrageur are those who purchase and sell the same security at the same time in different markets to take advantage of a price difference between the two different markets, mainly the cash and the derivatives markets. |
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| A jobber trades in a particular stock, mainly in the cash market. They thrive on short-term volatility and treat income from such transactions as business income. |
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| Dina Mehta, director, Asit C Mehta Stock Broking, and former member of the Code of Ethics Committee of the Securities and Exchange Board of India (Sebi), said, "The government is subjecting brokers to double taxation by not allowing STT to be set off against the income tax." |
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| The changes to the income tax rule related to STT were proposed in the recently announced Union Budget 2008. However, brokers want finance minister P Chidambaram to bring back the rebate on STT and a representation in this regard was made by ANMI. |
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| Mehta is of the view that nearly 30 per cent of the volume in the market is generated by arbitrageurs and jobbers and markets will be seriously affected if this section of players is out of the market. |
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| Finance ministry officials, however, said the rebate on STT was being misused by some players as artificial volumes were being created in the market just to generate STT. |
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| Earlier, brokerage houses used jobbers and arbitrageur to trade on broking firms' proprietary account books. These trades were done on profit-sharing plus the costs. So there were no brokerage charges. But it generated STT. |
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| Brokerage houses set the STT off against their business income after they bought the position and made marginal profits and got away by paying less income tax as rebate was allowed against STT. |
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| Also, in certain cases, stock brokers had a pair of dealers appointed to conduct artificial trades. While this practice generated STT, it pushed up volumes on stock bourses too. |
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| To close this loophole, the Budget proposed that STT paid would be treated like any other deductible expenditure against the business income. |
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| A section of stock brokers is of the view that exit of arbitrageurs and jobbers will have no significant impact on the markets as the new stock lending and borrowing scheme to be introduced from the next month will create enough depth and liquidity in markets. |
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