Union Finance Minister Nirmala Sitharaman.
| Photograph Credit score: PTI
Finance Minister Nirmala Sitharaman on July 23 proposed to extend the speed of securities transaction tax (STT) on futures and choices (F&O) commerce to discourage retail traders’ participation within the dangerous instrument.
“It’s proposed to extend the charges of STT on the sale of an choice in securities from 0.0625% to 0.1% of the choice premium, and on sale of a futures in securities from 0.0125% to 0.02% of the worth at which such futures are traded,” she mentioned within the Union Price range speech.
This got here after the Financial Survey flagged considerations over rising retail traders’ curiosity in spinoff buying and selling. The survey acknowledged that speculative commerce has no place in a growing nation.
It additionally identified that the sharp enhance in retail investor participation in F&O buying and selling is probably going pushed by people’ playing instincts.
“Derivatives buying and selling holds the potential for outsized positive factors. Thus, it caters to people’ playing instincts and might increase revenue if worthwhile. These issues are doubtless driving energetic retail participation in derivatives buying and selling,” based on the Financial Survey 2023-24.
Lately, Sebi chief Madhabi Puri Buch additionally cautioned traders in opposition to heavy bets on F&O. Earlier than that, Ms. Sitharaman and Chief Financial Adviser V, Anantha Nageswaran flagged the rising threat of F&O buying and selling for retail traders.
F&O buying and selling continues to develop in recognition, and market specialists consider that that is pushed by the potential for revenue and the rising buying and selling volumes. Consultants mentioned traders who lack understanding or threat urge for food ought to keep away from derivatives buying and selling.
The phase’s recognition is clear from its large development, with the month-to-month turnover within the F&O phase reaching ₹8,740 lakh crore in March 2024, in comparison with ₹217 lakh crore in March 2019.
On the similar time, the typical day by day turnover within the fairness money phase was ₹1 lakh crore, whereas the F&O phase noticed a median day by day turnover of about ₹330 lakh crore.
Futures and Choices buying and selling includes contracts that derive their worth from an underlying asset, equivalent to shares or commodities. Futures contracts obligate the client and vendor to transact at a predetermined future date and worth, whereas choices give the holder the proper, however not the duty, to purchase or promote the asset at a set worth inside a selected interval.
These monetary devices are used for hedging dangers, speculating on worth actions, and arbitraging worth variations. Nonetheless, they arrive with important dangers, together with leverage threat and market volatility, which might result in substantial losses.
Futures and Choices buying and selling is basically being utilised as a speculative device for fast income within the inventory market. Nonetheless, the truth is that the majority retail traders are dropping cash.
A research by the Securities and Trade Board of India (Sebi) revealed that 89 per cent of particular person merchants within the fairness F&O phase suffered losses, with common losses of Rs 1.1 lakh in FY22.
Moreover, there was an exponential enhance within the F&O phase participation through the pandemic, with the whole variety of distinctive particular person merchants rising by over 500% from 7.1 lakh in FY19 to 45.24 lakh in FY21, the research famous.
Earlier, Buch acknowledged that the capital markets regulator is “compelled” to warn in opposition to speculative bets within the F&O phase as a result of it has develop into a “macro subject”, affecting the broader economic system now.
Family monetary financial savings are going into the speculative bets, belying the expectations of getting used for capital formation, and the youth is dropping tonnes of cash in such trades, she acknowledged.
Final month, the Sebi board authorized stricter norms for the entry of particular person shares within the derivatives phase. The proposal is geared toward removing shares with constantly low turnover from the F&O phase of the bourses.
