New Delhi, May 26 -- The recent hike in Securities Transaction Tax (STT) is starting to weigh on trading volumes in the most popular derivatives product: index options. Average daily premium turnover (ADPT) for index options-Nifty and Sensex-fell to a combined Rs.90,044 crore across the NSE and BSE during the 16 trading sessions leading up to 25 May. Though market volatility remains higher than pre-war levels, it has started to moderate recently, joining the higher tax burden in dampening turnover.

While the May figure was 2.1% higher than the corresponding ADPT over 16 sessions in April, it was 13% below the combined ADPT of Rs.1.04 trillion over 16 sessions in March, the last month before the 50% increase in STT to 0.15%, which took ef...