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Why India loves trading in options? My thread.
It is not because Indians understand the options better than anyone in the world but a convoluted cost structure around different statutory charges and the way it is levied between two instruments - futures and options.
It is not because Indians understand the options better than anyone in the world but a convoluted cost structure around different statutory charges and the way it is levied between two instruments - futures and options.
If cost structure is not corrected in time, we are going to see futures contract further getting marginalised. It will further reduce to less than 5% as stock options gain momentum. No where in the world, options trade as heavily as in India, in relative terms.
So what's wrong with futures?
Nothing in product design or specification, but the statutory cost. In case of futures, all statutory cost is levied on notional value but in case of options, on premium amount, which is exchanges between buyer & seller. @andymukherjee70 @ananthng
Nothing in product design or specification, but the statutory cost. In case of futures, all statutory cost is levied on notional value but in case of options, on premium amount, which is exchanges between buyer & seller. @andymukherjee70 @ananthng
For ex - if one buys a Nifty futures contract, he/she has to pay all kinds of statutory cost (stamp duty, STT, exchange turnover tax, SEBI fees) on notional value (75*12000 = 9 lacs), where as in options on premium value (75 * 300 option premium for 12000 CE Dec expiry = 22500)
See the difference in cost which a trader has to entail, while having to make a choice between futures and options (9 lacs vs 22.5k). This is the single most reason why options are so popular in India. @dmuthuk @tapak7 @amitmantri @Iamsamirarora @Sanjay__Bakshi @shyamsek
Futures as an instrument is going to further marginalized unless the way statutory charges levied on futures is changed and made applicable on MTM only, or otherwise.
In case of options, statutory charges are levied only on cash flow between buyer and seller (premium), but in futures on entire notional value. I wrote few days back giving example of stamp duty. @MashraniVivek @invest_mutual
@varinder_bansal https://twitter.com/meandmarkets/status/1206416731138396160?s=20
@varinder_bansal https://twitter.com/meandmarkets/status/1206416731138396160?s=20
Just a thought: Why is it so, that in off-shore, which is more advanced than India, in both NIFTY and INR, it is futures only which gets traded and not options. The answer can be found in early part of this tread.
In fact, this distorted cost structure (statutory charges) on futures is another reason for our markets to gets exported to off-shore centres, besides restrictive trading hours and position limits.
GST @18% on financial services is another big drag. Show me one country where such a high tax is levied on fin. services (broking) & that on derivatives txns. No wonder we have our products - NIFTY & INR thriving in off-shore. @SushilModi @FinMinIndia @Anurag_Office @PMOIndia
Policy makers are not able to see how govt can benefit even if 50% of the off-shore volume shifts to India, by creating additional jobs in financial industry, higher revenue thru other levies (stamp duty, STT etc) and auxiliary services like advisory, custody services etc.
Having such a high GST on financial services is like being penny wise, pound foolish. Let higher volume pass thru Indian shores and enjoy the benefit. It is like having your cake and eat it too.
https://twitter.com/meandmarkets/status/1194121369971150854?s=20
@sanjeevsanyal @SubramanianKri @palakshahJourno
https://twitter.com/meandmarkets/status/1194121369971150854?s=20
@sanjeevsanyal @SubramanianKri @palakshahJourno
Sorting above issues is a much better & cleaner way to create a sustainable long term liquid & deep financial market in India than allowing short cuts like intra-day leverage on derivatives, convoluted statutory charges etc. @SEBI_India @vikramlimaye @ashishchauhan @deepakshenoy
So just to recap my thoughts:
1) Stat. charges, esp stamp duty & STT only on cash flow in case of futures.
2) Longer trading hours
3) Lower GST on fin services
4) Policy certainty around taxes, and
5) OI large enough that FPIs have economic incentive to come to India.
1) Stat. charges, esp stamp duty & STT only on cash flow in case of futures.
2) Longer trading hours
3) Lower GST on fin services
4) Policy certainty around taxes, and
5) OI large enough that FPIs have economic incentive to come to India.
What to avoid by a pole barge?
1) Short-cuts like intra-day leverage on derivatives.
@SEBI_India has to understand this is not the way to develop derivatives mkt in India. In this, it is retail investors which is becoming the product themselves. @monikahalan @dhirendra_vr
1) Short-cuts like intra-day leverage on derivatives.
@SEBI_India has to understand this is not the way to develop derivatives mkt in India. In this, it is retail investors which is becoming the product themselves. @monikahalan @dhirendra_vr
Hopefully few of us find the merit in argument and take it to logical conclusion. A vibrant and liquid financial market is good for everyone. @OfficialAnmi @bbfIndia @NSEIndia @BSEIndia @FinMinIndia @SEBI_India @PMOIndia @RBI @ianuragthakur @cbic_india @DasShaktikanta
