Stock lending arrangements
An exemption from stamp duty and SDRT currently exists for market makers, securities dealers and financial institutions that enter into stock lending and repo arrangements, and the collateral positions associated with them. No charge to stamp duty will arise on a document of transfer, nor will a charge arise to SDRT on any associated agreement to transfer securities in these situations. However, this exemption may be withdrawn where there is no subsequent return of stock by the borrower in a lending arrangement, or the purchaser in a repo arrangement. Furthermore, where the lender used part or all of the collateral provided by the borrower or purchaser under a stock lending or repo arrangement respectively to replace those securities lent but not returned, a corresponding charge to stamp duty and SDRT arose in the hands of the lender on the replacement purchases.
New rules, first announced in the PBR and introduced in the 2009 Budget, have relaxed the clawback of the stock lending and repo exemptions and the stamp tax exposure for the lender on the purchase of replacement securities. There is no longer a charge to stamp duty or SDRT where there is no return of stock as a result of the borrower or purchaser becoming insolvent, on or after 1 September 2008. In addition, the stamp duty and SDRT charges imposed on the lender replacing securities deemed lost by virtue of the insolvent borrower or purchaser party in a stock lending or repo arrangement, are also removed.
The exemptions originally announced in the pre-Budget Report represent a welcome clarification in relation to the non-return of stock and collateral, and are a sensible and proportionate response to the issues faced by those required to re-align their portfolios, as highlighted in particular by the collapse of Lehman Brothers in mid September last year.
