STT hike to have limited impact on F&O activity: Experts

The proposed hike in Securities Transaction Tax (STT) on derivatives, effective April 1, is expected to have only a limited short-term impact on trading activity, with long-term market behaviour likely to remain stable, experts said.

The increase in STT will raise trading costs, particularly for retail investors and high-frequency traders, which could lead to a temporary dip in futures and options (F&O) volumes.

“Higher transaction costs may weigh on retail participation in the near term, though past trends suggest activity usually stabilises after an initial decline,” market experts noted.

Despite the near-term pressure, the derivatives segment is expected to remain resilient. Analysts believe trading preferences may shift rather than volumes witnessing a sustained fall.

“Historical patterns show regulatory changes have not materially impacted overall turnover, although participants tend to adjust strategies to optimise costs,” they added.

Data shows index options volumes have already moderated, with contracts at 234 crore in March so far, compared to 356 crore in January and 355 crore in February.

Experts also said higher costs in futures trading could push participants towards options-based strategies. Traders may increasingly adopt options structures, including synthetic positions, to replicate futures exposure at lower tax costs.

Brokerages may face short-term pressure due to softer volumes and tighter commissions, while foreign investor activity could moderate slightly.

However, the government is likely to benefit from higher tax collections without disrupting the broader market structure. The move aims to curb excessive speculation, especially as over 90 per cent of retail traders incur losses in F&O markets.