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Financial Instruments

Volume 689: debated on Tuesday 20 February 2007

My honourable friend the Economic Secretary to the Treasury (Mr Ed Balls) has made the following Written Ministerial Statement.

The Government are today announcing three steps to modernise the tax system to remove obstacles to competition and expand choice in trading financial instruments in the UK. They will allow firms to benefit from the new opportunities offered by liberalisation of financial regulation in the European Union, and specifically from the introduction of the Markets in Financial Instruments Directive (MiFID).

First, from November 2007, the Government will no longer require transactions in shares admitted to trading on a regulated market under MiFID to be reported to that market, or those intermediaries to be members of that market, in order for intermediaries to benefit from stamp duty relief. Currently, relief from stamp duty is available for intermediaries that trade securities listed on the main market of the London Stock Exchange (LSE) only if they are members of the LSE and they report their trades to the LSE. This will allow new providers of transaction reporting services to enter the market more easily. The Government are today publishing draft clauses for consultation in advance of this year's Finance Bill.

Secondly, the Government are announcing that, in addition to shares admitted to trading on a regulated market, they also intend to extend this approach to include shares admitted to trading on a multilateral trading facility (MTF). Currently, in order to benefit from stamp duty relief, intermediaries trading in such securities are required to report transactions to the market on which the securities are admitted to trade. The Government intend to remove this requirement, in order further to extend choice in transaction reporting. However, before proceeding with this proposal, the Government are providing time for the Financial Services Authority to consider fully any possible regulatory implications from this change and will provide an update on progress at the Pre-Budget report.

Thirdly, the Government also propose to modernise the definition of a recognised stock exchange for tax purposes to allow shares traded on other regulated markets under MiFID to benefit from the same tax arrangements that currently apply only to the LSE in the UK. For example, this will allow shares listed by the UK Listing Authority and traded on a regulated market under MiFID to be held in an individual savings account or to meet the listing requirement to be a UK real estate investment trust. The Government will publish draft clauses in advance of this year's Finance Bill.

Taken together, these changes will help expand choice and increase competition in the provision of services to trade financial instruments in the UK.

The Government have been a leading proponent of the need to improve competition and efficiency in Europe's securities markets for three reasons:

first, to ensure that capital markets play their full role in financing the long-term investment needs of the wider economy as efficiently as possible;

secondly, to liberalise the provision of services to trade financial instruments within the EU so that successful firms and financial centres such as London can benefit from these opportunities within the European single market;

thirdly, to ensure that the UK's markets and related services remain competitive internationally.

The Government have supported the introduction of greater competition through MiFID. The UK is the only major financial centre in the European Union to transpose the MiFID by the deadline of 31 January. This gives UK-based financial firms the maximum time to prepare for the impact of the new trading environment.

Today's announcement removes other unnecessary non-regulatory obstacles to greater competition in trading financial instruments by modernising the tax system to bring it closer into line with the liberalised regulatory environment.

These announcements today coincide with an informal meeting of the high level group on City competitiveness, during which senior figures from the UK-based financial services sector met European Commissioners Charlie McCreevy and Neelie Kroes to discuss the future direction of financial services policy in Europe, including developments in trading securities.