STT hike impacts equity derivatives trading, BSE cuts charges to enhance liquidity

The hike in securities transaction tax has impacted the equity derivatives trading volume on NSE even as BSE mitigated the impact by reducing its charges and attracting more trades.

The average daily notional turnover (ADT) in the Futures & Options (F&O) segment of BSE jumped nearly 20 per cent month-on-month in April to ₹269 lakh crore. In contrast, the market leader NSE’s notional ADT fell about 26 per cent to ₹216 lakh crore.

In the options segment, NSE’s total premium turnover declined 28 per cent month-on-month (m-on-m) to ₹12.9 lakh crore, while BSE reported 6 per cent increase to ₹6.63 lakh crore. Additionally, NSE’s average daily premium turnover dropped 35 per cent to ₹61,417 crore, whereas BSE’s remained largely flat at ₹33,150 crore.

BSE’s share in notional F&O turnover rose to 55 per cent in April from 44 per cent in March, while NSE’s share declined to 45 per cent from 56 per cent.

Feroze Azeez, Joint CEO, Anand Rathi Wealth said better liquidity from market-making and a shift in trader behaviour after changes in weekly expiry rules have helped BSE cross 50 per cent market share.

A lot of trading at the retail level is not just about returns, it is also about short-term action and the excitement around markets, so even when costs go up, activity does not immediately drop off substantially. However, tighter RBI leverage norms could still lead to some moderation of 8–10 per cent in volumes, he said.

Despite the shift in trading volumes, NSE continues to dominate the overall options market, holding a 66 per cent share in options premium turnover compared with BSE’s 34 per cent.

The shift in trading was partially due to the lower charges levied by BSE. In futures contracts, NSE charges ₹1.83 per ₹1 lakh, while BSE levies no fee. In options, NSE charges ₹36 per ₹ 1 lakh compared with BSE’s ₹5 per ₹1 lakh on stock options.

The market regulator Sebi’s decision to limit exchanges to have only one weekly expiry has worked in favour of BSE to gain trading interest in the F&O segment.

Since April, STT on futures was increased to 0.05 per cent from 0.01 per cent, while that on options premium and options exercise was raised to 0.15 per cent. Previously STT on the premium was 0.10 per cent and on options exercise it was 0.125 per cent.

Anand James, Chief Market Strategist, Geojit Investments said the impact of increase in STT on F&O has been more on NSE in April, as the number of index option contracts traded in BSE rose. “Though we are not sure if this trend will continue, it will be noteworthy that non-expiry days’ volumes did show improvement in BSE in April,” he said.

Hariprasad K, Research Analyst and Founder, LIvelong Wealth said the lower transaction costs and better product positioning are pulling flows away from the NSE, especially in index derivatives like Sensex.

For retail participants, particularly high-frequency and low-margin traders, the math simply does not work after the STT hike. It is not just a slowdown, but a filtration with weaker hands gradually stepping out, he said.

The launch of Specialised Investment Funds and its flexibility to use derivatives more actively could bring in smarter, strategy-driven flows, he added.