Hong Kong’s capital market has seen remarkable achievement as a preeminent international financial centre. Sound regulation upholds market integrity and investor protection, while strategic access to Mainland China attracts global investors via Hong Kong’s prime gateway. Well-established infrastructure, efficient transaction clearing and settlement systems combined with market depth underpin ongoing success. A diversity of financial products, including equities, bonds, derivatives and exchange-traded funds, welcome a broad investor spectrum, fueling active trading.

An efficient capital market necessitates the integration of different elements that not only streamline trading but also establish market oversight. Activities involving stamp duty have played a pivotal role in the stock trading mechanism in Hong Kong, with the stamp duty itself serving as a fundamental fiscal instrument – a tax levied on various legal documents. In Hong Kong, it is imposed on contract notes for the transfer of any Hong Kong stocks, directly influencing the cost of stock trading and. Despite the dynamic nature of the financial landscape, the Stamp Duty Ordinance (“SDO”), established in 1981, alongside its administrative procedures, has not seen a comprehensive review to reflect the changes in the stock market developments.

Recent initiatives, such as reductions in stamp duty and the introduction of electronic stamping (e-stamping) for selected transactions, have shown a step towards modernisation. However, they do not completely address the full breadth of the evolving market needs or the existing legacy issues within the current framework. The imposition of stamp duty influences various stock market activities, especially those involving stock borrowing and lending, stock collaterals, intermediary functions, jobbing business, and electronic payment of stamp duty.

Industry practitioners strongly believe that Hong Kong’s current legislative framework and administration processes have been a laggard in terms of keeping pace with significant advancements in financial products and services, trading practices, and the increased volume of stock transactions. This discrepancy between legislation and market practices can affect the operational efficiency of participants in Hong Kong’s stock market.

In light of these changes, Hong Kong should adopt a pragmatic approach to modernising and updating its stamp duty legislation. This is essential to maintain the competitiveness of its capital market and to align with international standards. Modernisation efforts can bridge the gap between the current legislative provisions and the evolving financial landscape, streamlining compliance and fostering the development of an innovative and adaptable financial sector in Hong Kong.

To address these challenges, the Financial Services Development Council (“FSDC”) has stablished a dedicated Working Group composed of industry experts. The group aims to gather  market feedback and formulate policy recommendations for the consideration of the Government and other public stakeholders.

Drawing from these insights, the report outlines a comprehensive framework for updating Hong Kong’s stamp duty legislation through three broad approaches. These targeted reforms can mitigate operational inefficiencies, reduce administrative costs, and alleviate operational risks associated with manual processes, reinforcing Hong Kong’s status as a leading global financial centre. They are formulated to maintain Hong Kong’s leading position without significantly impacting stamp duty revenue. The report proposes the policy recommendations around five key areas.

The recommendations in this report are structured around three major themes. The first theme focuses on enhancements building upon the existing mutual market access schemes. The second set of recommendations aims to expand the offshore RMB market’s scope and influence. Lastly, the report outlines potential measures to expedite the development of the RMB ecosystem in Hong Kong.