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HK Derivatives Trading To Remain Stamp Duty Exempt

by Mary Swire,, Hong Kong

22 January 2016

Hong Kong's Secretary for Financial Services and the Treasury, K C Chan, has responded to a query concerning the stamp duty exemption for transactions of specified derivatives, including derivative warrants and callable bull/bear contracts.

Chan explained that stamp duty is not imposed on all types of securities transactions in Hong Kong. The Stamp Duty Ordinance (SDO) provides that the buyer and the seller each has to pay a 0.1 percent stamp duty in respect of instruments for transfer of Hong Kong stock. "Hong Kong stock" is defined in the SDO to mean stock, the transfer of which is required to be registered in Hong Kong, including any right, option, or interest in respect of such stock.

Chan pointed out that, if derivative products were settled by physical delivery, share transfers would be involved, and their trading could be subject to stamp duties. Generally, however, the holder of a derivative has no right to the underlying stock, and the cash-settled trading of derivatives is therefore not subject to stamp duty under the SDO.

He also noted that, in order to encourage trading in Hong Kong, transactions in regional derivative warrants that have no more than 40 percent weighting by value in Hong Kong stocks, and also convertible bonds, have been exempted from stamp duty since April 1998.

As it is not common practice in other major international derivative markets to charge stamp duty on the trading of derivative products, Chan stated that Hong Kong must "provide a competitive trading environment, including competitive transaction costs."

TAGS: tax | investment | capital markets | stock exchanges | stamp duty | Hong Kong | tax breaks | alternative investment

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