NSE hopes Modi government will reconsider STT hike on derivatives
What's the story
India's leading stock exchange, the National Stock Exchange (NSE), is hopeful that the government will reconsider its decision to raise the securities transaction tax (STT) on index and single-stock futures. The change was announced in the recent Budget announcement. "The increase in STT is seen as a negative for index and single stock futures, particularly because these instruments are usually used by long-term investors for hedging," said Sriram Krishnan, the Chief Business Development Officer at NSE.
Market dynamics
Futures are primarily used by institutional investors
Futures contracts are agreements to buy or sell an asset at a predetermined price and date. They are typically used by institutional investors to hedge against potential losses in their portfolios. However, due to the costs involved in taking positions via futures, these instruments aren't usually preferred by traders. NSE had a whopping 99.8% market share in equity futures as of December-end 2025.
Volume concerns
Previous STT hikes didn't hurt trading volumes
When asked about the potential impact of the STT hike on trading volumes, Krishnan said previous hikes haven't really hurt volumes. He hinted that the market could absorb this upcoming increase too. Finance Minister Nirmala Sitharaman had announced a 150% hike in STT on futures sold by 5p per rupee, effective April 1 from the existing 2p on notional volumes.
Options impact
Options trading also impacted by the STT hike
The STT hike also impacts options trading, which sees more participation from traders. The tax was hiked by 50% to 15p per rupee from 10p per rupee on sellers, based on premium turnover (traded value). Unlike futures where the tax is levied on total contract or notional value, this change directly impacts the cost of trading in options.
Past changes
Previous budget also raised STT on futures
The government had previously raised the STT on futures to 2p per rupee from a little over 1p, effective October 2024. This was announced in the Budget for FY25 presented after the general elections. When asked about losing market share in index options, Ashishkumar Chauhan, the MD and CEO of NSE said, "In terms of competition taking market share, broadly that cycle is over."
Revenue source
Derivatives dominate NSE's revenue streams
Derivatives are the biggest contributors to NSE's revenues. For example, equity options (premium turnover-based) contributed a whopping 77% of NSE's standalone transaction fees of ₹3,006 crore in Q3. Equity futures contributed another 11% while equity cash accounted for the rest. This clearly shows how important these instruments are to the exchange's overall financial performance.