After the Delhi government’s move to impose a stamp duty on trades in equity, commodity and currency segments, market players fear the next state to impose this levy will be West Bengal. The notification is expected this month.

“The imposition of stamp duty by states has become a problem. The concept was to validate a trade; it has been converted into a tax. Within the next few months, almost all states will impose it. An easy source of revenue, it’s mindless application of law,” said a member of the Association of NSE Members of India (Anmi), an association of stock brokers.

Double tax, too
Anmi says the duty amounts to double taxation as the securities transaction tax is collected on these trades from both buyers and sellers. “The basic law which allows states to collect stamp duty on securities trading has to be challenged. Trading costs in India are the highest compared to any other market, only due to statutory costs,” said an Anmi official.Trading volumes in the currency segment crashed 50 per cent on Monday and remained subdued after the Delhi government notification.

Three top Delhi brokers — SMC Global, Globe Capital and Jaypee Capital — almost shut their proprietary trading business in currency from the city. The trio together contributed nearly half the volume in currency out of combined trades of Rs 30,000 crore on the National Stock Exchange and the MCX-SX.

Proprietary trading is done by brokers on their own account, not for any brokerage.

Compared to the normal average daily turnover of over Rs 10,000 crore on NSE and over Rs 18,000 crore on MCX-SX, the turnover was Rs 5,940 crore on NSE and around Rs 11,000 crore on MCX-SX on Monday. On Tuesday, the turnover on NSE was Rs 6,475 crore while MCX-SX saw a turnover of Rs 10,976 crore.

Domino effect
“We had to stop our prop business as it was not viable. Delhi has imposed a tax of Rs 200 on every Rs 1 crore of non-delivery prop trade. We earn a quarter of a paisa on trade. Prop trade in currency is dead,” said B K Sabarwal, director at Jaypee Capital. “In the coming days, the impact of stamp duty will also be felt in commodity trading, which is mainly a volume game. The trading might witness a steep fall of nearly 25 per cent,” said a top Delhi-based broker, who did not want to be named. The jobbing business in equity was already affected by STT. The stamp duty will kill jobbers and arbitrageurs, who play the role of market makers, is the fear.

The shutting of proprietary trade will have a domino effect on currency trading, as spreads between the orders will increase and clients of brokers will not be able to trade. The slump after the Delhi move showed that currency trading was depended on proprietary trades and active participation from hedgers and exporters was limited.

According to the Delhi government notification, proprietary trades will attract a stamp duty of Rs 1,000 for every Rs 1 crore in case of delivery-based transactions and Rs 200 per Rs 1 crore in case of squared-off transactions in the equity cash market. For trades undertaken in the equity futures and options segment, the stamp duty has been fixed at Rs 200 per Rs 1 crore. Forward trading of commodities will attract a duty of Rs 100 per crore. In the western region, stamp duty is imposed by the Maharashtra and Gujarat governments, as do a couple of states in South India.

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