Expert committee recommends removal of STT in F&O segment

Govt invites comments from public on the report by 6 October

A Standing Council of Experts set up by the previous government to assess international competitiveness of Indian financial sector has suggested removal of Securities Transaction Tax (STT) in the futures & options (F&O) segment. The committee has also suggested removal of stamp duty for cash settled products such as index derivatives since there is no delivery of the underling taking place. At present, STT is pay payable on all sell transactions on F&O segment. It is 0.01% of the traded price of futures and 0.017% on options premiums. A 0.125% STT is payable on the settlement price by the buyer of an option that is exercised. Stamp duty at 0.002% is applicable on the notional amount of options expiring in-the-money and on selling futures.

The committee has also recommending expanding the list of permissible securities as collateral in the F&O segment and removal of restrictions on participation of domestic financial institutions in the F&O segment. It has also suggested setting up of a committee to rationalize position limits and margins across all financial market segments. The committee has also suggested allowing stock exchanges to take decisions about margins, position limits, trading time and product innovation in the F&O segment, with suitable monitoring by Securities & Exchange Board of India (Sebi). This will provide operational flexibility to Indian bourses and enable them to strive for competitiveness. The Singapore stock exchange is the main competitor for Nifty index derivatives. In 2013, the open interest (OI) of Nifty futures at SGX was almost twice that at NSE.

Among the other suggestions are rationalizing the regulatory position on Participatory Notes (PNs), moving towards FATF-compliant customer due diligence (CCD) disclosure for PNs and establishing a working group for common clearing among exchange traded products viz. equity, equity derivatives and currency derivatives.

The committee has also suggested making exchange traded index derivatives in India accessible to all foreign participants that meet the FATF CDD requirements. The committee has also suggested implementing FATF CDD requirements for a non-resident to trade on equity derivatives in India. This will reduce their registration and compliance burden. The committee has also suggested eliminating the regulatory uncertainty about treaty benefits under the proposed GAAR. The committee has also suggested a shift towards a residence-based taxation regime over the longer term. It has also recommended setting up an expert committee for creating an onshore OTC market for equity derivatives in India.

Besides equity derivatives markets, the committee has come out with a number of recommendations on how to increase the international competitiveness of Indian currency and commodity derivatives markets in India. The finance ministry has invited comments from the public on the report by 6 October 2015. The government will take a view on the recommendations of the Standing Council after public/stakeholder consultations.

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