A stock trader’s wish list and the finance minister’s expectations in an election year

Derivatives traders provide much-desired liquidity and an efficient price discovery mechanism that results in tighter bid/ask spreads on market quote screens.

Budgets are special occasions for market participants, not so much in terms of their impact on the evolution of prices as in the number of wishes from the wish list formulated by market participants that the Minister of Finance will satisfy .

The pre-election budget is the most special of all. This is the time when the wishlist author has the highest probability that “seek and thou shalt get” will come true. With an eternal welling in my heart, behold:

1) STT/CTT: Stock market transaction tax (STT) is simply the biggest expense incurred by a trader. Often the market maker, scalper or soil specialist makes a little more money than the STT paid! While I don’t want to blame the government for its slice of the pie, the treatment of STT itself could make all the difference for traders.

Representative image. AFP.

When it was introduced, the STT was imposed as an advance tax and not as a levy. What is the difference? If the trader has an income/loss year below the taxable level, the STT as withholding tax will be refunded, as will your withholding tax (TDS). If the finance minister can keep the STT constant but turn it into an advance tax, the trading community would have plenty to cheer about.

2) The derivatives segment of the market must be made even more dynamic, in a regulated, controlled and organized manner. All advanced capital markets have, at some point, experimented with restrictions on certain market activities (temporary ban on short selling, limitation of derivatives, raising margin barriers, etc.), but have reverted to some sort a laissez-faire system (minimal control) of exchanges. .

Derivatives are definitely steroid injections. But we cannot wish them. Derivatives traders provide the much-desired liquidity and efficient price discovery mechanism that results in tighter bid/ask spreads on market quote screens. Based on current exchange turnover, if bid/offer spreads were to widen by just two prices, inefficiency in price discovery would take hundreds of thousands of rupees out of traders’ pockets each year. , would reduce trading volumes, turnover taxes, stamp duties and even employment.

Instead of raising the barriers to entry of derivatives trading, redouble your efforts to educate market participants about the pitfalls of leverage.

3) Long-term investments scientifically create wealth. Short-term trading is an art form. Unfortunately, in India we tend to look at short-term trading with a yellow eye. We call it “gambling”, “speculation” and a variety of unflattering names. However, Western markets recognize it as an art and organize competitions, championships that give respectability to the profession.

It would be wonderful if our education in the financial markets included live trading lessons in the classrooms, so that our boys and girls could fly the tricolor at the international trading championships held regularly abroad. Think of it as the Himalayan Rally once held in India, India would not just be a tourist destination but a commercial championship destination. Currency inflows could be substantial. The USA have understood this aspect and are leading the pack, it is time for India to catch up.

4) Indian capital markets now go far beyond equities. We also have raw materials and currencies. Unfortunately, the bond market continues to lag. Should this market be revived, investors would have a tremendous additional opportunity to invest their capital.

What could be better than sovereign obligations when it comes to security, reliability and trust? Allowing state governments and municipal corporations to raise funds via bonds (municipal bonds) would allow citizens to proactively participate in the nation-building process. Municipal corporations could spend the additional amounts to improve basic amenities and infrastructure such as roads, bridges, public toilets and the public transportation system. It would also reduce the strain on central government finances by a significant margin.

5) A society is only as human as it takes care of its elderly citizens. Unfortunately for senior citizens, they are financially unsustainable and the hardest hit by real effective inflation rates. It would be great if the tax exemption threshold was raised for each taxpayer, but the increase must be much higher for seniors and even higher for super seniors (80 years and over).

Realistically, how many taxpayers over 80 exist in the country? Giving them a generous extra inch of leeway would be a very welcome measure.

While we’re at it, can you consider exemption from STT, Commodity Transaction Tax (CTT), Securities Transaction Tax, Stamp Duty, Securities Turnover Fee and Exchange Board of India (SEBI) and exit charges in mutual funds for senior and super senior citizens please?

6) A substantial amount of our precious foreign exchange reserves are spent on bullion. Gold exchange-traded funds (ETFs) have been a welcome breath of fresh air. We now have broad and sector indices in the ETF basket, but silver ETFs still remain elusive.

ETFs would be an ideal situation in which investor appetite is sated and the government is frugal with currency outflows. Given that broadening commodity markets are on the anvil, can we also get the ball rolling for industrial metals ETFs?

7) Online payments have helped expand capital markets. However, not everyone can bank online. Investors who rely on check payments must wait two business days to use their own funds. The process of cashing checks, preferably the same day, must be put in place as soon as possible. Investor participation will increase significantly.

8) To implement physical delivery of equity futures and options (F and O), it is important that the equity lending and borrowing facility is made simple and fast. Lenders of shares to short sellers should be treated separately by income tax authorities when calculating capital gains. This will make the F and O exchanges deeper and wider over time.

I hope the Minister of Finance will consider as many of the above requests as possible.

(The author runs Bhambwani Securities Pvt Ltd and is the author of “A Traders Guide to Indian Commodity Markets”)

Follow full coverage of the Union Budget 2019-20 here.

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