SEBI panel for securities transaction tax cut on options

India Infoline News Service | Mumbai |

The Study proposed that the STT on protective-put and hedged-call positions should be reduced to give boost to the option market

A study by Development Research Group (DRG) under the Securities and Exchange Board of India has suggested the reduction of Securities Transaction Tax on options trading for the purpose of protecting losses.

The Study titled, “Impact of Increased Derivatives-Trading in India on the Price-Discovery Process”, is co-authored by Prof Banikanta Mishra, Dr Sarat Malik and Laltu Pore.

The study found that spot-market has been dominating the futures and option markets and that the dominance of futures market over options has diminished after the increase in STT. The Study proposed that the STT on protective-put and hedged-call positions should be reduced to give boost to the option market.

The objective of the study is to examine whether the introduction of financial derivatives led to better price-discovery (PD) in India. Using synchronous daily spot, futures, and option price on Nifty and ten randomly selected stocks, it has been found that, while the spot-market is increasing its dominance over futures and options, the futures market’s dominance over option-market has drastically fallen following the increase in STT.

Further, this study is the first one to analyze individual stock-options in India. While the derivatives and spot markets exhibit a long-term relation, the present study found the existence of long-term relationship between futures and options on individual stocks, something none had hitherto studied.




 

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