City welcomes extension of relief on stamp duty

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The Independent Online
The Chancellor yesterday surprised the City by extending stamp duty relief from market-makers to all intermediaries handling share deals on behalf of investors.

The move is expected to be broadly tax neutral, but the City hopes it is the first step towards complete abolition of stamp duty, which currently raises pounds 1.3bn a year.

The move was made on the recommendation of the Securities and Investments Board, which had been asked to examine the future of stamp duty relief in the light of the Stock Exchange's move to a new trading system.

At present, only market-makers obtain the relief, but their role is changing in the new trading system. Sir Andrew Large, chairman of SIB, said the plans would provide a level playing field among a wider range of firms.

The initial cost of extending the relief is expected to be small because so few intermediaries other than market-makers at present buy shares to hold. The duty from higher volumes of trading with investors is expected to cover the cost of relief to the Government.

SIB suggested that regional equity brokers might start holding blocks of shares to sell on to clients once they get the relief, while London broker dealers may find it economic to begin writing stock options.

There could also be a big boost for stock borrowing, where investors' holdings are used temporarily to boost the liquidity of dealing firms. The Chancellor said such transfers would also be relieved from stamp duty.

Chris Salter, managing director of UK equity trading at SBC Warburg, said: "It is a very positive move for London and should be seen as a move towards full abolition of stamp duty in line with Paris and Frankfurt."

Richard Kilsby, director of market services at the Stock Exchange, called it a "workable and solid framework" to support the new trading services. Stephen Wilson, executive director of Tradepoint, the Exchange's new rival, said it would "help improve liquidity in the London financial markets and enable more investors to trade on Tradepoint".

Two key areas to be sorted out are the definition of an intermediary, and the maximum period for which stock can be held to qualify for relief. Mr Kilsby said the market view was that 30 days was too tight. He believed dealers in stocks outside the FT-SE 100 may also need a longer period.

As a quid pro quo, the Stock Exchange is to increase the number of deals published immediately from 75 to more than 85 per cent by immediate publication of all protected trades once they are completed, instead of a one-hour delay. The present 75 per cent compares with 50 per cent in January.

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