STT Hike and Cooling Volatility Contribute to Decline in Index Options Volumes
Securities Transaction Tax Hike Weighs on Index Options Trading Volumes
The recent hike in Securities Transaction Tax (STT) is having a significant impact on trading volumes in the most popular derivatives product: index options. The average daily premium turnover (ADPT) for index options, specifically Nifty and Sensex, has seen a decline to a combined ₹90,044 crore across the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) during the 16 trading sessions leading up to 25 May.
While market volatility remains higher than pre-war levels, it has started to moderate recently, contributing to the dampening of turnover. The higher tax burden, resulting from the STT hike, appears to be a major factor in the decline of trading volumes in index options.
Investor Takeaway
Investors should be cautious of the impact of the STT hike on trading volumes in index options.
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