Shares of Bombay Stock Exchange (BSE) fell sharply on Sunday’s special Budget Day trade, even hitting the lower circuit of 10% after Finance Minister Nirmala Sitharaman made a few key announcements, notably hiking the Securities Transaction Tax (STT) on derivatives trades.
As part of the proposal, which is aimed at curbing speculative trading in the high-volume futures and options (F&O) segment, STT on futures will be raised from 0.02% to 0.05%. The impact on options is even more pronounced, with tax on option premiums set to increase from 0.1% to 0.15% while the STT on the exercise of options will rise from 0.125% to 0.15%.
Investors were quick to react to the news, sending shares of BSE on a downward spiral. The stock fell as much as 10% following the announcement, hitting the lower circuit, as the nearly 150% increase in the tax rate for futures could significantly dampen liquidity and affect the profitability of high-frequency traders and retail participants.
Shares of BSE are currently trading at Rs 2,517, accounting for a drawdown of 10% compared to Friday’s closing price of Rs 2,797.
The STT hike follows previous regulatory concerns expressed by the Securities and Exchange Board of India (SEBI) regarding the rising participation of retail investors in the risky F&O segment.
By increasing the cost of trade, the government aims to align equity derivative taxation with other financial instruments and encourage more long-term, delivery-based investment.
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