Derivative Volumes Slide: Regulatory Curbs and STT Hike Squeeze Market Activity

• Derivative trading volumes have significantly declined due to tighter regulatory measures and a recent increase in Securities Transaction Tax (STT).
• Regulatory interventions over the past year, including fewer weekly expiries, higher lot sizes, and stricter margin requirements, aimed to curb speculative trading.
• Derivative volumes on the National Stock Exchange (NSE) fell nearly 40% from June 2024 peaks, while BSE's derivative turnover has nearly doubled from a smaller base.
• The STT hike primarily impacts high-frequency traders and large trading books, increasing pressure on low-risk, low-return strategies.
• Experts suggest that sustained recovery in derivative volumes depends on improved market conditions and a trending market, especially an upward trend.

Why It Matters: Tighter regulations and STT hike are reducing derivative volumes, particularly affecting high-frequency traders.