Response from the HKSFPA Regarding the 2023/24 Budget
Release Date: 2023-02-22
February 22, 2023
Response from the Hong Kong Securities and Futures Professionals Association Regarding the 2023/24 Budget
The Hong Kong SAR Government's 2023/24 Budget, announced on February 22, proposed various measures aimed at fostering economic development. However, the lack of a review and adjustment to the current stamp duty rate on stock transactions has been a significant source of disappointment for our association. As an industry representative, we reiterate our request for the government to immediately review the existing stamp duty on stock transactions and lower the rate, or even completely abolish it, in order to benefit the industry and enhance the long-term competitiveness of Hong Kong's stock market.
Furthermore, our association opposes the proposal in point 91 of the Budget, which explores arrangements for the market to continue operating during adverse weather conditions. As previously expressed in a July 2021 interview with the CEO of HKEX, Mr. Nicolas Aguzin, our association expressed opposition to the idea of maintaining market operations during adverse weather. Our then-Director of Industrial Relations, Mr. Mofiz Chan, raised valid concerns about the practical implications, such as the ability of clients to unwind their positions if they cannot deposit funds into their banks, and the feasibility of conducting business for only a partial day or one day less. We believe this issue warrants further consideration by the relevant Secretary.
Our association has several concerns regarding employees reporting to work in adverse weather conditions, including: 1) the adequacy of public transportation support, 2) insurance coverage for employees who may encounter accidents or injuries while commuting, 3) government support for securities firms' trading and mobile systems, and 4) contingency measures for HKEX and securities firms in the event of disrupted communication lines.
Since the Hong Kong government increased the stamp duty rate on stock transactions from 0.10% to 0.13% in July 2021, the trading volume of the Hong Kong stock market has clearly decreased. According to HKEX data, the total trading volume in Hong Kong stocks in 2022 was HK$30.7 trillion, a 25.4% decrease compared to 2021. This not only caused the government's original plan to increase stamp duty revenue to backfire, but also further deteriorated the already underperforming Hong Kong stock market, leading to a sustained market downturn – a short-sighted move by the government.
Compared to major stock markets such as Japan and the United States, which do not levy stamp duty on stock transactions, and the global trend of reducing transaction costs, the Hong Kong government has ignored the voices of the local industry and continued to maintain the stamp duty on stocks. Currently, Hong Kong is one of the stock markets with the highest transaction costs in the region, with both buyers and sellers having to pay stamp duty separately, which severely undermines the overall competitiveness of the Hong Kong stock market. Furthermore, the stamp duty on stocks also imposes a significant transaction cost on investors, particularly high-frequency traders. The government's continued collection of stamp duty will undoubtedly suppress the already low proportion of quantitative and high-frequency trading activities in the Hong Kong market, negatively affecting the overall trading volume.
The government's increase in stamp duty on stocks over the past two years has led to a significant drop in stock trading volume, combined with a weak market sentiment, which has severely impacted the Hong Kong securities industry and even affected the livelihoods of practitioners. Many industry practitioners have switched careers, and securities firms have also closed down successively. According to the data, HKEX received notices from 50 securities firms to cease operations in 2022, compared to only 17 in 2021. So far this year (as of February 21), HKEX has also received notices from 6 securities firms to cease operations, and it is expected that the industry will continue to see a wave of closures this year.
Therefore, our association strongly urges the Hong Kong SAR government to immediately review the stock transaction costs and lower the stamp duty rate, or even abolish the stamp duty on stocks. This will not only help improve the operating environment for local small and medium-sized securities firms and increase their survival rate, but also significantly reduce the overall transaction costs for investors, stimulate overall market trading, promote market development, and enhance the competitiveness of Hong Kong's stock market compared to other major stock markets.
Mofiz Chan
Chairman
Hong Kong Securities and Futures Professionals Association