Lower transaction costs due to lower taxation will likely result in Singapore emerging as the destination of choice for trading in Nifty options, suggest some experts.
The Singapore Exchange, which is expected to start trading in Nifty options in February, may very well see a significant portion of volumes moving overseas.
Lower transaction costs due to lower taxation will likely result in Singapore emerging as the destination of choice for trading in Nifty options, suggest some experts.
Options are a type of contract which gives the buyer the right but not the obligation to buy a security at a certain price.
For the privilege of being able to do so, option sellers or writers, are paid a premium.
They are a more popular product than futures since unlike the latter, the downside is restricted to this premium.
The securities transaction tax, a levy of 0.125% on the value of all share market transactions in India, is expected to cause investors to prefer taking their positions in Singapore.
“This should lead to large scale shifting of index options volumes to SGX, given that STT is not applicable on SGX,” said a report from Edelweiss Capital, noting that STT has been a ‘major irritant’ for foreign institutional investors.
In the December series, the Nifty roll over was seen at 61% as against an average of 75-78% indicating that a lot of roll overs are taking place in the OTC market, according to analysts.
The SGX is starting options based on the Nifty after entering into an agreement with the National Stock Exchange. Trading is expected to start as early as February subject to regulatory approval.
The exchange is currently trading in Nifty futures and has close to a tenth of the turnover on the NSE.
Index options account for the majority of trading volume on the NSE comprising 64.4% of the average daily turnover on the exchange during last December.
In April-November 2010, the government collected Rs4,373 crore by way of STT.
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