Zerodha’s Nithin Kamath calls for lower STT, higher leverage to boost trading volumes in cash, futures

Zerodha’s Nithin Kamath requires decrease STT, increased leverage to spice up buying and selling volumes in money, futures

Securities Transaction Tax (STT) is the most important tax that merchants pay to the federal government and is way increased than the brokerage charges they earn, Zerodha Founder and CEO Nithin Kamath said on his official X deal with on Thursday. He lamented that the brokerage earned by Zerodha is decrease than the STT it collects from customers.

Kamath also highlighted how STT is instantly linked to buying and selling volumes on the exchanges. He famous that if STT had been lowered for money and futures, and intraday leverage had been elevated, buying and selling volumes would seemingly rise.

“Securities Transaction Tax (STT) is the biggest tax that traders pay, and it’s much higher than brokerage fees. At Zerodha, the STT we collect and pass on to the government is higher than the brokerage we earn,” the tweet said.

“Trading volumes are highly sensitive to the STT. The level of STT also affects whether traders trade more in cash equities, futures, or options. There’s a lot of concern that Indian options volumes have exploded; I don’t think it would be a stretch to say that STT is a big factor in this,” Kamath added.

He additional explained that constructive regulatory tweaks have helped develop the derivatives section. One such transfer was shifting the STT levy on choices from the contract worth to the premium quantity.
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“Until 2008, the STT on options was based on contract value, making it impossible for anyone to trade options. After that, STT was charged on the premium, and options became more cost-effective compared to futures, and volumes shot up,” Kamath said.”By the way, the idea of @zerodhaonline came about when the STT for options was brought down to a premium value. The bet was that people would trade more options. It did play out the way we had thought it would.,” the tweet said additional.Also Read: Does Zerodha cost clients for investing in shares, ETFs or mutual funds? Nithin Kamath solutions

STT has had a notable influence on money and futures segments as a result of its levy on the whole transaction worth, in contrast to choices, the place it’s charged only on the premium, Kamath said.

“We’ve had several STT changes over the years. This has had a more significant impact on cash and futures than on options because STT was on premium value, and on cash/futures, it was on total value. And yes, the introduction of weekly expiry and restriction on intraday leverage for stocks added a lot of fuel to the fire of option trading volumes,” Kamath said.

Kamath expressed hope that if STT is lowered for money and futures and intraday leverage is elevated (from the current minimal of 20% to the degrees seen in futures), buying and selling volumes would rise.

“So yeah, I wish we had no STT, but I guess that’s not a solution.

But if STT were brought down for cash and futures and intraday leverage were increased (from the minimum 20% now to as much as futures), I think the trading volumes in cash and futures would automatically go up,” Kamath said, calling it a a lot better technique to extend money/futures volumes than to cut back buying and selling volumes in choices.

Also Read: Zerodha’s demat market share shrinking, says founder Nithin Kamath. How is it coping?

(Disclaimer: Recommendations, options, views and opinions given by the specialists are their very own. These don’t symbolize the views of the Economic Times)

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