To revive retail investor interest in the equity market in the wake of the recent volatility, stock exchanges have sought a review of the Securities Transaction Tax (STT). They have also requested the Finance Ministry to help in reducing the compliance cost of transactions.
These views were aired at a meeting called by the Finance Ministry on Thursday with major domestic stock exchanges, attended by BSE, NSE, MCX SE and United Stock Exchange representatives and senior SEBI officials.
Sources said stock exchanges felt that since STT, introduced in 2004, was only on equities, it was giving an advantage to commodity markets. They said STT, along with short-term capital gains tax, cut down profits, which in turn discouraged retail investors. Hence, any reduction will bring down the cost of transaction for investors. STT is levied on sale and purchase of equity (both in cash and derivatives) besides equity-oriented mutual funds. The rate of STT varies from 0.017 per cent to 0.125 per cent.
On the compliance cost, sources said the exchanges argued that compliance cost consisted of Central and State taxes as well as brokerage and fee for the exchanges. They claimed that 55 per cent of the total compliance cost were Central & State taxes, 44 per cent was brokerage and other fee. The exchanges only get the remaining 1 per cent.
With the reduction in compliance cost, it would be easy for the exchanges to incentivise the retail investors, sources added.
After the meeting, exchange officials told reporters that various ways to increase retail participation and make the cash market more attractive were discussed. “We discussed different products including Third Part Warrant and Foreign Indices base products,” said Mr Ravi Narain, MD and CEO, NSE.
Exchanges also reported to the government that there was no settlement problem in the wake of the recent market volatility. Mr Madhu Kanan, CEO, BSE, said. “We have not seen any settlement problem. All infrastructures are working seamlessly.” BSE's competitor NSE held a similar view.
After the downgrade of US, the benchmark index BSE Sensex witnessed over a 1,000 point volatility in just three trading sessions between August 5 and August 9. The rating agency, Standard & Poor's downgraded US rating from ‘AAA' to ‘AA+'.