Indian Market Specifics

Question 1 (12 marks)

Turnover: Buy turnover = 500 × 200 = ₹1,00,000; Sell turnover = 500 × 210 = ₹1,05,000; Total = ₹2,05,000. (1)

(a) Components:

• Brokerage: 0.03% of 1,00,000 = ₹30 → capped at ₹20; 0.03% of 1,05,000 = ₹31.50 → capped at ₹20. Total = ₹20 + ₹20 = ₹40.00. (2)
• STT (sell only): 0.025% × 1,05,000 = ₹26.25. (2)
• Exchange charge: 0.00297% × 2,05,000 = ₹6.0885 ≈ ₹6.09. (1)
• SEBI charges: ₹10/crore = 2,05,000 × 10/1,00,00,000 = ₹0.205 ≈ ₹0.21. (1)
• Stamp duty (buy only): 0.003% × 1,00,000 = ₹3.00. (1)
• GST: 18% × (brokerage + exchange + SEBI) = 18% × (40 + 6.0885 + 0.205) = 18% × 46.2935 = ₹8.3328 ≈ ₹8.33. (1)

Total charges = 40 + 26.25 + 6.0885 + 0.205 + 3.00 + 8.3328 = ₹83.88 (≈₹83.88). (1)

(b) Net profit: Gross profit = (210 − 200) × 500 = ₹5,000. Net profit = 5,000 − 83.88 = ₹4,916.12. (3)

Question 2 (10 marks)

(a) (6 — 2 each)

• Intraday equity: STT 0.025% charged on sell side only (lower because no delivery, positions squared off).
• Delivery equity: STT 0.1% on both buy and sell — higher because it reflects change of ownership.
• Options: STT 0.1% on the sell (premium) side; on exercise/assignment STT is charged on the settlement (intrinsic) value on the buy side. Different rate/base because option premiums are small relative to notional. Why: STT is a transaction tax designed to be proportionate to the economic transfer; delivery = full transfer, intraday = no delivery, options = premium-based.

(b) (4) Expired ITM options were treated as "exercised," and STT was historically levied on the full intrinsic settlement value (like delivery, ~0.125%) rather than on premium. Since intrinsic value >> premium, an ITM option left to expire attracted STT far larger than expected, sometimes exceeding the profit. (SEBI later reduced this rate.) The lesson: square off ITM options before expiry to pay STT only on premium.

Question 3 (12 marks)

(a) Grandfathered Cost of Acquisition (5) Rule: CoA = higher of (actual cost) and lower of (FMV on 31-Jan-2018, actual sale price).

• Actual cost = ₹300
• FMV on 31/1/2018 = ₹700; sale price = ₹1,000 → lower = ₹700
• CoA = max(300, 700) = ₹700 per share. (5)

(b) LTCG & tax (7)

• Sale proceeds = 100 × 1,000 = ₹1,00,000... wait, 100 × 1000 = ₹1,00,000. Grandfathered cost = 100 × 700 = ₹70,000.
• LTCG = 1,00,000 − 70,000 = ₹30,000. (3)
• Since ₹30,000 < exemption ₹1,25,000, taxable LTCG = ₹0, tax payable = ₹0. (4)

(Marking: award full marks if student notes gain falls fully within exemption. If they compute for larger position also acceptable when clearly reasoned. Key insight: grandfathering shields the pre-2018 gain, and the annual exemption absorbs the rest.)

Question 4 (10 marks)

(a) Turnover rule (4) For F&O, turnover = sum of absolute values of settlement profits and losses. For options sold (written), add the premium received to turnover as well (guidance-based; ICAI). Sign of P/L ignored — losses added as positive.

(b) Computation (6)

• |80,000| = 80,000
• |−1,20,000| = 1,20,000
• Trade 3: |15,000| = 15,000, plus option-sell premium received 40,000.
• Turnover = 80,000 + 1,20,000 + 15,000 + 40,000 = ₹2,55,000. (6)

Question 5 (8 marks)

(a) (4)

• ASM (Additional Surveillance Measure): flags stocks with abnormal price/volume volatility; consequence — moved to 100% margin and/or trade-to-trade / price bands (short-term & long-term ASM stages).
• GSM (Graded Surveillance Measure): targets stocks with weak fundamentals (low market cap, poor financials); consequence — periodic call auction, additional surveillance deposit, restricted trading frequency. GSM is longer-term/fundamental; ASM is volatility-driven.

(b) (4)

• F&O ban trigger: when a stock's open interest crosses 95% of the Market-Wide Position Limit (MWPL), it enters the ban period.
• During ban, only position-reducing (offsetting) trades are allowed; fresh/increasing positions are prohibited, and violations attract penalties.

Question 6 (8 marks)

(a) Peak margin (4) Brokers must collect the highest margin snapshot taken at random intervals during the day (SEBI takes ~4 snapshots), not just end-of-day. Result: intraday leverage is capped (effectively requiring full upfront VaR+ELM margin), sharply reducing the very high intraday leverage brokers previously offered.

(b) Indices & weekly expiry (4)

• NSE: flagship index Nifty 50; weekly expiry product e.g. Nifty / Bank Nifty / FinNifty weekly options (as taught).
• BSE: flagship index Sensex; weekly expiry product Sensex weekly options (and Bankex).

[
  {"claim":"Q1 total charges ≈ 83.88","code":"buy=100000; sell=105000; brokerage=min(20,0.0003*buy)+min(20,0.0003*sell); stt=0.00025*sell; exch=0.0000297*(buy+sell); sebi=(buy+sell)*10/10000000; stamp=0.00003*buy; gst=0.18*(brokerage+exch+sebi); total=brokerage+stt+exch+sebi+stamp+gst; result = round(float(total),2)==83.88"},
  {"claim":"Q1 net profit ≈ 4916.12","code":"gross=(210-200)*500; charges=83.88; result = round(float(gross-charges),2)==4916.12"},
  {"claim":"Q3 grandfathered CoA per share = 700","code":"coa=max(300, min(700,1000)); result = coa==700"},
  {"claim":"Q3 LTCG=30000 and tax=0 within exemption","code":"ltcg=100*1000-100*700; taxable=max(0,ltcg-125000); tax=0.125*taxable; result = (ltcg==30000) and (tax==0)"},
  {"claim":"Q4 F&O turnover = 255000","code":"turnover=abs(80000)+abs(-120000)+abs(15000)+40000; result = turnover==255000"}
]