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The Executive Council approved to make the Securities and Futures Commission (Levy) (Securities) (Amendment) Order 2000 ("the Amendment Order").

The Amendment Order seeks to reduce the rate of transaction levy on securities trading, which is payable by both the buyer and the seller, from 0.011% to 0.01%. The Amendment Order will also re-allocate the share of the levy income between the Securities and Futures Commission ("SFC") and the Stock Exchange of Hong Kong Limited ("SEHK") on a 50:50 basis.

"At present, the rate of levy on securities transaction is shared between the SFC and the SEHK in the ratio of 4:7. Out of the SEHK's share of 0.007 percentage point of the levy, 0.001 percentage point is diverted to the Development Reserve to support improvement projects," a spokesman for the Financial Services Bureau explained.

"Given the commercial nature of the Hong Kong Exchanges and Clearing Limited ("HKEx") which wholly owns the SEHK, it is considered no longer appropriate to fund its Development Reserve through a statutory levy. It is therefore proposed that 0.001 percentage point out of the SEHK's share be removed. As a result of this change, the rate of the transaction levy would be reduced from 0.011% to 0.01%."

"The proposal would help to lower the overall transaction costs thus enhancing the competitiveness of the market," he added.

Meanwhile, after the merger, the function of supervision over the exchange participants of the stock exchange (i.e. previous members of the SEHK) has been transferred from SEHK to SFC. It is therefore proposed that 0.001 percentage point out of the SEHK's share of the levy be transferred to the SFC to meet the increase in its operating expenses while offsetting the savings in the SEHK. This change would as a result re-allocate the levy income between the SFC and the SEHK on a 50:50 basis.

The spokesman also said that given the commercial nature of HKEx, it is no longer justifiable for HKEx or its subsidiary SEHK to rely on the statutory levy as a significant source of income in the long term. The Administration has already requested HKEx to start considering the introduction of a fee substitute for the statutory levy. The Administration also welcomed an earlier proposal of the preparatory board of the HKEx to remove the minimum brokerage commission rule by April 1, 2002 and look forward to an early decision by the HKEx Board on this issue.

"The early removal of the minimum commission rule will further contribute to the competitiveness of the Hong Kong market vis-a-vis international competition and is therefore most welcomed. We urge the HKEx Board to make a decision on the proposal as soon as possible," the spokesman added.

The Order will be gazetted tomorrow (April 20) and tabled at the Legislative Council on May 3. Subject to negative vetting by the Council, the Order will take effect on June 12.

End/Wednesday, April 19, 2000

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