STT queers pitch in options trade

Securities transaction tax (STT) continues to be a deterrent for options trading despite the National Stock Exchange (NSE) easing brokerage norms.

Members said though the exchange has asked members to charge brokerage on the premium and not on the strike price from this month, STT continues to be levied on the strike price.

As per a NSE circular, trading members should "charge brokerage for options contracts on the premium at which the option contract was bought or sold and not on the strike price. Brokerage on options contracts shall not exceed 2.5 per cent of the premium amount or Rs 100, whichever is higher."

This would mean that if an option contract for a stock currently traded at Rs 100 was bought at a premium of Rs 10, earlier the investor was required to pay brokerage for the strike price of Rs 110.

While as per the rationalised structure, investors are required to pay brokerage only on the premium of Rs 10, they still need to pay STT for the strike price of Rs 110.

"This is illogical. If the government indeed wants to push the options segment, the STT should also be on the premium amount," said a dealer. STT on the sale side is fixed at 0.017 per cent.

In the derivatives segment, the daily turnover in futures segment is over Rs 25,000 crore, while the turnover in options is about Rs 2,500-2,800 crore.

Vijay Singhania, president of the Association of NSE Members of India, said the association had requested before the authorities concerned on the need to bring down STT on par with the rationalised structure. He felt that the new structure was very complicated and difficult for the members to execute.

"The expenditure in options is similar to stock futures. When an investor sells options, and if the price goes up, there is no requirement of mark-to-margin. But if the price comes down, we need to keep mark-to-margin," he explained.

Kirit Somaiya of the Investor Grievance Forum, however, was of the view that the derivatives segment encouraged day traders. He felt that the government should discourage speculative trading by tightening the rules in F&O segment, so that small investors stayed away from derivatives.