F&O trading to become costlier from tomorrow

F&O trading to become costlier from tomorrow

Trading in equity derivatives is set to become more expensive from April 1.

The change comes after the government and Reserve Bank of India (RBI) announced measures aimed at curbing speculation.

These include higher taxes on futures and options trading as well as stricter lending rules for brokers.

The changes are likely to increase trading costs and reduce volumes, especially among retail traders.

STT on futures, options to increase substantially

In its Budget for 2026-27, the government has hiked the securities transaction tax (STT) on futures from 0.02% to 0.05%. The move marks a whopping 150% increase.

For options, STT on premiums and exercise will both increase from 0.1% and 0.12% to 0.15%.

Meanwhile, RBI's stricter lending rules for capital market intermediaries such as brokers will require all credit facilities to be fully secured with 100% collateral.

Volumes in equity derivatives may drop by 15-20%

Ankur Jhaveri, MD & CEO of Institutional Equities at JM Financial Institutional Securities, said the STT hike and stricter RBI lending norms are aimed at curbing speculative intensity.

However, he warned that such a broad-based approach will inevitably raise entry barriers and increase friction across the entire ecosystem.

He also predicted that volumes in equity derivatives could drop by 15-20%, thereby increasing impact costs in the cash market.

Derivatives volumes could drop by up to 30%

Dhiraj Relli, MD and CEO at HDFC Securities, said the biggest impact of the STT hike will be on retail traders.

He estimated that derivatives volumes could drop by around 20% for retail participants and nearly 30% when including proprietary traders.

Brokers have also noted that the futures segment is likely to see sharper cuts in trading activity due to the STT increase.

Proprietary traders will now need 100% collateral for bank guarantees

RBI's tighter norms are aimed at reducing banks' loans to brokers and proprietary traders, thereby increasing their cost of capital.

Roop Bhootra, Whole-time Director at Anand Rathi Share and Stock Brokers, said the higher tax is likely to increase trading, arbitrage and hedging costs which may impact the overall cost and liquidity in derivatives.

He added that these regulations will reduce leverage for proprietary traders who now need 100% collateral for bank guarantees.