STSM115020 - Derivatives: warrants - stamp implications: secondary trading of a warrant

Stamp Duty

Where, before expiry:

• the rights under a UK company registered warrant underlying ‘stock or marketable securities’ (section 122 Stamp Act 1891) are transferred and purchased; then
• a 0.5% Stamp Duty charge may arise under Paragraphs 1 to 3 Schedule 13 Finance Act 1999 calculated by reference to the amount or value of consideration paid for the transfer.

The reason for a charge is that an instrument of transfer may be required to be completed and executed where the legal and beneficial rights to the warrant previously registered in the legal name of the seller are acquired by the new purchaser.

Stamp Duty Reserve Tax (SDRT)

Whether a 0.5% SDRT charge under section 87 Finance Act 1986 arises on any agreement to transfer rights under a warrant (before exercise or expiry of the warrant) covering ‘chargeable securities’ (as defined in s99 FA86) to another person for consideration in money or money’s worth depends on the following:

• If the terms of the UK company registered warrant provide only for a cash settlement upon exercise no SDRT charge arises;
• If the terms of the UK company registered warrant provide, upon exercise, for shares in the company to be delivered or vested on settlement, a charge to SDRT may arise. This is because the transfer of rights giving the new purchaser an opportunity to acquire stocks or shares will represent a chargeable security for SDRT per s99(3)(c) FA86.

However the SDRT charge is cancelled where the transfer of a share warrant underlying UK registered company stocks and shares is effectively settled by the execution of an instrument of transfer which is impressed with any relevant 0.5% Stamp Duty or a Stamp Duty exemption/relief applies (s92/FA86).