Proprietary derivatives trading share shrinks after STT hike, shows data

Higher STT rates squeezed arbitrage margins in April, reducing proprietary trading activity in India's equity derivatives market

The share of proprietary trading in the equity derivatives segment moderated in April as the hike in the Securities Transaction Tax (STT) increased breakeven costs for arbitrage activities undertaken by brokers on their own books. According to NSE Market Pulse data, the share of proprietary trading in equity futures (notional turnover) fell to 28.3 per cent in April from 32.7 per cent in March. Meanwhile, the share in the index options segment (premium turnover) declined from 49.3 per cent to 46.4 per cent during the same period.

 

Participation by foreign investors in the equity futures segment surpassed that of proprietary traders for the first time, reaching an all-time high of 30.8 per cent. Retail participation also edged higher to 17.6 per cent in April from 15.3 per cent in the previous month.

 

“In the equity options segment (premium turnover), participation patterns also pointed to a moderation in proprietary share amid the implementation of the STT hike,” the report said. 

Effective April 1, STT on futures was increased to 0.05 per cent of traded value from 0.02 per cent earlier. In options, the tax on premium turnover was raised to 0.15 per cent from 0.1 per cent, while the levy on exercised options was increased to 0.15 per cent of intrinsic value from 0.125 per cent. 

The change in market share dynamics points to a broader rebalancing in participation trends. While both proprietary and retail turnover declined in index options, activity in stock options increased, indicating a gradual shift towards stock-specific contracts.