STSM111030 - Derivatives: introduction: what is a derivative market

While a stock exchange is an exchange or market place permitting its members to trade stocks and shares, other markets exist specifically covering the writing and trading of derivatives on assets other than stocks and shares.

For example:

• Commodity Derivatives Market - covers derivative contracts written on commodities such as metals (e.g. gold, platinum and copper), energy (e.g. crude oil, electricity, natural gas and petroleum), livestock and agricultural products (sometimes known as soft commodities)
• Currency Market - covers derivative contracts written on price movements in global currencies;
• Stock Indices Market - covers derivative contracts on price movements of leading stock exchange indices (e.g. FTSE 100) or sectors (e.g. biotechnology)

As derivative trading on these markets or exchanges does not involve settlement of ‘stock or marketable securities’ (Stamp Duty) or ‘chargeable securities’ (Stamp Duty Reserve Tax), there are no stamp taxes implications.

There is, however, one derivative market that can have stamp taxes implications. This is the Equity Derivative Market which allows members to write and trade derivative contracts based on the underlying price or value of stocks and shares. Equity Derivative Markets include Turquoise (operated by the London Stock Exchange Group) and ICE Future Europe