Trading volumes on both the stock exchanges (SEs) dipped by more than 30% on Tuesday, as most jobbers and arbitrageurs kept off the markets. The combined trading volumes of the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) stood at 63.32 crore shares, a far cry from the previous day?s figure of 92.68 crore. Also, volumes on the NSE derivatives segment slipped more than 34%.

The 30-share Sensex saved the day with a marginal loss of 17.82 points, or 0.11%, closing at 15,626.62 points. The broader S&P CNX Nifty had a marginal gain of 5.05 points or 0.11% and closed at 4,739.55 points.

The turnover on the bourses has taken a hit, as jobbing arbitrage and proprietary (prop) trading would be affected by the implementation of the Budget proposal on securities transaction tax (STT). As per the new proposal, the STT paid is going to be treated as any another deductible expenditure against business income.

A memorandum has been submitted to the revenue secretary, ministry of finance, by the Association of NSE Members of India arbitrageurs, on the disallowance of section 88E for assesses claiming business income on stock market transactions.

As per the memorandum, the effective rate of STT for those who claim business income will go up by 66.66% on a post-tax basis should rebate on the STT under this section be replaced by treating STT as business income.

The jobber-arbitrageur-prop segment comprises 90.49% of the markets? turnover, of which around 50% comprises arbitrageurs and jobbers.

Arbitrageurs are those who purchase and sell a security in different markets at the same time to take advantage of a price difference between two different markets, mainly in cash and derivatives markets. Their involvement reduces impact cost for the investor community by providing lower bid-ask spreads, thus, providing enough liquidity for the markets.

Deena Mehta, managing director, Asit C Mehta Investment Intermediates, said: ?It is a lose-lose situation for both, the government and the arbitrageur community. The Budget proposal to disallow deductions under section 88E will result in blatant double taxation for the entire community deriving business income from stock market transactions, with obvious consequences for market volumes and government?s own revenue collection.?

According to Mehta, the government collected STT worth Rs 7,500 crore in 2007 and in 2008 it is expected to reach Rs 9,500 crore.