The revised norms on securities transaction tax (STT) in the Budget, which is going to be treated as any other deductible expenditure against business income, has left many arbitrageurs and jobbers to skip jobs due to lesser profit margins but taxation norms for these market participants in some of the best stock exchanges globally depict a different picture. The issue also assumes also significance as the budgetary proposals are expected to be cleared next week in both the houses of the Parliament.
Market makers, as they are called in the overseas markets, enjoy special concessions along with different taxation structures in lieu of providing liquidity to the stock markets. To put the things in prespective, the Hong Kong Stock Exchange (HKSE), the third biggest stock Exchange in Asia, the stamp duty is levied at 0.1% on the value of the transaction and special stamp duty concessions are available for the market makers.
Special treatments to the market making community is also given to provide liquidity to some cash products, including derivative warrants, equity linked instruments, pilot programme securities and exchange traded funds on the HKSE.
Rajesh Baheti, director, Crosseas Capital Services, said, ?More than 30% of the trading volumes are driven by the market makers (arbitrageurs and Jobbers) in Indian markets and STT implication post budget will not only be felt on these people but also on the entire market. Further across the global exchanges, market makers are given special privileges in terms of taxations in order to boost liquidity while in India we are going in the reverse direction?Further, on the HKSE, market makers in the stock option segment enjoy discounts to the exchange fees of up to 70%. Moreover they are also granted stamp duty exemption by the government on securities transactions resulting from their hedging activities originated from the market making activities in the stock option segment.
At the recently concluded workshop on India-Hong Kong Financial Co-operation, a delegate from the HKSE said, ?Arbitraguers and jobbers do the task of providing liquidity to the markets by lowering the bid-ask spread thus reducing the impact cost on the transactions. Whenever a new product is launched or an already existing product is facing dearth of liquidity, market makers are the first one to be approached in order to increase liquidity to that product?.
However a senior official of the National Stock Exchange (NSE) denied that arbitrageurs and jobbers are not that significant to the Indian markets by saying ?The nuances of the Indian markets are different from other markets in the world and Indian markets were never centered around market makers?.
Arbitragers along with investors and hedgers do constitute a major part of the markets and lack of participation from either of these segments would lead to lack of liquidity in the markets, which would indirectly lead to increase in the impact cost, he added.
It may be mentioned here that in protest of the new STT norms proposed n the budget, the arbitrageurs and jobbers went on a one day strike on April 1, leading the trading volumes on the Indian bourses to dip by more than 30%.
But one of the senior market participants is of the view that the budget proposal has come as a bodily blow to the already moribund regional stock exchanges (SEs) where more than 50% of the volumes is driven by the arbitrageurs and the jobbers and these SEs will further face a dearth of liquidity and they would eventually perish.