Proprietary trading also takes a pinch; turnover dips 40%

Rajalakshmi Sivam | Updated on November 22, 2017


‘Fewer arbitrage opportunities in the market with the high transaction tax'

Stock brokers, investment banks and other institutions that trade in the market on their own account have reduced their stock market activity in the last two years.

Such trades are classified as proprietary trading by both the exchanges. There is a sharp decline in both gross as well as net turnover from these accounts.

Sharp decline

In 2011, proprietary turnover (gross) recorded in the BSE was Rs 2.75-lakh crore, down from Rs 4.91-lakh crore in 2010 and Rs 6.05-lakh crore in 2009. The share of proprietary trades in the total turnover at BSE has dropped from 16 per cent in 2009 to 12 per cent in 2010 and just 9 per cent in 2011. Net investment by these investors in the stock market in 2011 was Rs 692 crore, down 70 per cent from Rs 2,348 crore in the previous year.

The spokesperson for the National Stock Exchange also says that there has not been great enthusiasm from proprietary investors over the last two years and their turnover as a percentage of the total volume (in cash) has remained more or less the same on the NSE.

Reasons for about-turn

The tough time that stock market intermediaries have been facing could be one of the reasons for this decline, say market observers. According to the spokesperson of a leading broking house whose stock is listed, falling proprietary investments “is mainly because most of the stock broking companies are doing badly at the operating level and also because there are very less arbitrage opportunities to trade in the market with the high STT.”

Securities transaction tax (STT) was increased to 0.125 per cent from 0.1 per cent in 2006. In the recent Budget this tax has been reduced to 0.1 per cent again.

In 2009, just as the market was picking up from lows and there was a perk-up in investor sentiments, proprietary investors too were very active in the market. They were actually ahead of clients in identifying market crash and were able to exactly time their entry and exit with the market.

In fact, between April and June 2009 the total turnover of the proprietary segment exceeded the turnover of domestic institutions.

But, as the overall trading activity dipped, the stock broking and other investment advisory companies took a hit on revenues. This could have made them reduce their direct trading in stocks through proprietary accounts.

Published on March 28, 2012

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