F&O satta is very risky…how can govt stay silent: Nirmala Sitharaman on STT hike

Finance Minister Nirmala Sitharaman on Sunday defended a sharp increase in securities transaction tax on futures and options, arguing that the government could not remain silent as speculative ‘satta’ in derivatives is inflicting heavy losses on small retail investors, even as markets sell off brokers and stock swaps on fears that higher costs would chill activity in one of the world’s busiest F&O markets.The Union Budget 2026 has more than doubled the STT on futures and increased levies on options by as much as 50%, a move that the government said was aimed at correcting excesses in the derivatives segment and managing systemic risks. The measures, announced earlier in the day, triggered a sharp sell-off in broker and exchange stocks during Sunday’s special live trading session, highlighting concerns that higher transaction costs could hit volumes and liquidity.

‘Satta’ under the microscope

“We are only touching the futures and options segment. No one has increased transaction fees elsewhere. Speculation, what we call ‘satta’ in Hindi, is very risky and many people with limited resources are facing heavy losses. The nominal increase in STT is purely to discourage excessive speculation. We respect market activity, but the government cannot ignore the losses faced by small investors. This tax is just one element to support that policy. How the rest of the market is regulated is up to the market regulator,” it said Sitharaman said in a statement. to the press after her budget speech.Announcing the changes in Parliament, the Finance Minister said: “I propose to increase the STT on futures from the current 0.02 percent to 0.05 percent. It is proposed to increase the STT on the option premium and exercise of options to 0.15 percent from the current interest rates of 0.1 percent and 0.125 percent respectively.”

The government said the increase was intended “to achieve a reasonable course correction in the F&O segment of the capital market and generate additional revenue for the government”.

The Tax department identifies systemic risks

Finance Ministry Secretary Arvind Shrivastava said the changes targeted derivatives only, without increasing transaction costs elsewhere in the market.

“The only change that has been made in STT is on futures and options. All other STT rates remain the same. The primary purpose of increasing tax rates on STT is that there is a perception that when you look at the volume of futures and options transactions, whether you compare it to the size of GDP or the size of the underlying securities market, it falls largely into the realm of heavy speculation, resulting in losses for small retail, uncomplicated investors,” he said.

Shrivastava added that “the government’s intention is to discourage speculative tendencies,” describing the increase as a step to “essentially address the systemic risk in the derivatives markets.” “Even after this increase, however, STT’s rates will remain modest compared to the number of transactions taking place there,” he said.

Real estate agents and stock exchanges are taking a hit

Markets reacted quickly to the higher tax on derivatives trading. Shares of BSE, Groww (Billionbrains Garage Ventures) and Angel One fell as much as 13.5% during Sunday’s special live weekend trading session.

BSE shares fell 8% at the end of the trading day, while Angel One fell 8.6%, on concerns that higher duties on derivatives trading could dampen activity in a segment that has become a key profit driver for exchanges and retail brokers.

Vishad Turakhia, Chief Executive of Equirus Securities, said BSE generated 60% of its revenue from equity derivatives in the first half of FY26, while Angel One generated 75% of its brokerage revenue from F&O in the ninth month of FY26. Nuvama Wealth is also likely to be affected: asset services account for about 23% of revenue and revenue is linked to derivatives business.

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Higher costs, lower volumes?

Market participants warned that the cumulative increase in the STT could increase impact costs for traders and reduce liquidity in the derivatives market.

Shripal Shah, Managing Director and Chief Executive of Kotak Securities, said: “The steep rise in STT on futures and options, on top of last year’s rise, is likely to increase impact costs for traders, hedgers and arbitrageurs. This could cool derivatives activity and lead to a reduction in volumes. The intention appears to be volume moderation rather than revenue maximization as any potential revenue gain could be offset by lower derivatives volumes.”

Vedant Gupte, founder and CEO of Trackk, said: “The STT hike on futures is certainly creating friction for traders, potentially straining liquidity and raising the bar for institutional efficiency. It is a short-term headwind that explains the current volatility.”

Consequences for foreign investors

The higher STT is also expected to weigh on foreign investor flows into portfolios in the short term, especially among derivatives-oriented and high-frequency strategies.

Aakash Shah, technical research analyst at Choice Equity Broking, said the increase in tax on securities transactions in futures and options is “likely to have a marginal negative impact on foreign investor flows into portfolios in the near term, especially for high-frequency and derivatives-oriented global funds”. Noting that FPIs had already seen equity outflows of over Rs 41,000 crore by January 2026, due to global risk sentiment, higher US bond yields and currency pressures, he said higher transaction costs further reduce after-tax returns for short-term foreign investors.

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