STSM117080 - Derivatives: introduction to futures and forwards: issue of a futures or forwards contract

Stamp Duty

Transactions undertaken by members of an investment exchange are usually agreed verbally and the futures and forwards contracts confirming the verbal agreements are not regarded as stampable documents upon which Stamp Duty is payable.

Accordingly where an equity futures or forwards contract in respect of underlying securities (i.e. stocks and shares within the meaning of “stock or marketable securities” per section 122 Stamp Act 1891) is issued or granted, no Stamp Duty charge would be expected to arise on this agreement.

If the futures or forwards agreement is later settled by way of a written instrument, then a Stamp Duty charge may arise at that point (see STSM117100).

Stamp Duty Reserve Tax (SDRT)

The issue of an equity futures or forwards contract relating to underlying ‘chargeable securities’ (as defined in sections 99(3) and 99(4) Finance Act 1986) that is only capable of being settled by the delivery of the underlying securities can represent an agreement to transfer for the purposes of a 0.5% SDRT charge under s.87(1) & (6) FA86.

The charge on the contract/agreement arises irrespective of when and how settlement occurs.

In respect of an equity forwards contract, a 0.5% SDRT charge may arise when the contract/agreement becomes unconditional. This is normally the date under the terms of the contract when the share price of the underlying securities is fixed.

See STSM999999 (Glossary) for the meaning of ‘equity’.