STSM042340 | Exemptions and Reliefs: Reliefs: central counterparty clearing relief from stamp duty and SDRT

After the execution of buy and sell orders, transactions are processed. Clearing refers to the management (risk management, transaction monitoring, netting) of a transaction after the matching of a buy and sale trade. More information on clearing and central counterparties (CCPs) can be found in guidance beginning at STSM125010.

To give effect to a purchase of chargeable securities by B from A on a market, there may be a chain of transactions. For example, the securities may be transferred from A to A’s broker to a clearing broker to the CCP to another clearing broker to B’s broker to B.

Overview of clearing relief

Each acquisition in the chain may give rise to an SDRT charge. It may be that intermediary relief (see STSM042050) is available for some of the transactions. The Treasury has the power to make regulations to provide Stamp Duty and SDRT relief for transactions involving investment exchanges, clearing houses and central securities depositories (sections 116 and 117 FA1991).

Where such regulations are made, they provide that no charge will arise (or the charge will be reduced) for certain transactions in the chain, with the aim being that there is effectively a single charge on the final transaction only. The regulations must relate to a prescribed recognised investment exchange and a prescribed recognised clearing house and must prescribe the circumstances which attract relief.

The relevant regulations will need to be consulted to determine what those circumstances are, but they generally refer to transactions made on the relevant market where three conditions must be met:

1. The securities are acquired by a clearing member (or its nominee) or by the clearing service (or its nominee) acting as the CCP.

2. Once those securities have been received, they must be transferred under a matching agreement to another person; and

3. Where the securities are received by a clearing participant, those securities received must be identified as relating to an agreement made solely in relation to the clearing of those securities on behalf of a third party. In some of the regulations, there is instead a requirement that the securities may only be dealt with by a clearing participant who is a party to the agreement in a separate designated account.

Details of regulations made in exercise of the powers under sections 116 and 117 FA1991 can be found at STSM042345.