Mumbai, March 25 (NationPress) The anticipated increase in Securities Transaction Tax (STT) on derivatives, set to be implemented on April 1, is projected to have a minimal short-term effect on trading activities, while the long-term market dynamics are expected to remain relatively stable, according to experts.

Experts highlighted that the hike in STT will elevate trading expenses, especially for retail investors and high-frequency traders, which could result in a temporary reduction in futures and options (F&O) volumes.

“Increased transaction costs may deter retail participation initially, although historical trends indicate that trading activity usually rebounds after an initial decline,” market analysts stated.

Simultaneously, the overall derivatives market is anticipated to stay robust, with shifts in trading preferences rather than a prolonged drop in volumes.

“Historical data shows that regulatory changes have not significantly affected overall market activity, even as participants may modify their strategies to mitigate costs,” they added.

As of March, the total volume of index options contracts reached 234 crore, compared to 259 crore in November 2025, 299 crore in December 2025, and 356 crore in January 2026, before slightly decreasing to 355 crore in February.

Experts also mentioned that the rise in futures trading expenses could steer participants towards options-based strategies.

“Traders may increasingly turn to options structures, such as synthetic positions, to achieve futures exposure while incurring lower tax costs,” they noted.

Furthermore, brokerage firms may experience temporary revenue pressures due to lower volumes and reduced commissions, while foreign investor involvement in derivatives might slightly decrease, favoring long-only strategies.

In contrast, the government is anticipated to benefit from increased tax revenues without significantly disrupting the overall market framework.

The government has adjusted the STT on futures and options in the Union Budget for 2026–27, effective from the new fiscal year starting April 1, 2026.

The tax on futures contracts has been raised to 0.05 percent from 0.02 percent, while the STT on options premiums and exercise has been increased to 0.15 percent and 0.125 percent, respectively. This decision aims to mitigate excessive speculation in the derivatives market, particularly among retail investors.

Concerns have heightened in recent years, with regulatory reports revealing that over 90 percent of retail participants face losses in F&O trading.