IR 45                    29 November 1994

             FINANCIAL MARKETS: STOCK LENDING

The  Chancellor proposes in his Budget to make changes  to
the  tax treatment of approved stock lending arrangements and  sale
and      repurchase transactions (repos). The changes will take
effect from Royal Assent.

Where  collateral for approved stock lending  arrangements
is provided in the form of cash, and the lender  receives
interest on the cash collateral without deduction  of  tax and  passes
it on in   full to the borrower,  he  will  get relief  for the
interest he pays and will be able  to  pay it without deduction of tax.

Anomalies in the application of existing legislation  to
repos will also be addressed.

The  Chancellor's intention is to enable those lenders who
prefer cash as collateral to take a more active  part  in the
market.

                          DETAILS

1.     Stock  lenders  commonly  require  some   form   of
collateral for the loan of their stock. This can  take  a variety of
forms but cash offers the best security and  is widely  preferred,
especially overseas. At  present  there are tax difficulties with the
use of     cash.

2.    The  main problem is the obligation for  any  yearly
interest   on the cash collateral to be paid under deduction of  tax.
There can  also be circumstances in  which  other interest arising may
not be eligible for relief.

3.    These  problems will be removed for  approved  stock
lending arrangements where the lender receives interest on the cash
collateral without deduction of tax and passes it on  in
full to the borrower. Any stock lending fee must be separately
identified.

4.    The  anomalies  which will be  removed  concern  the
application  of the accrued income scheme and  legislation
dealing with  bond  washing to repos.  At  present,  even though
the  effect of a repo is to  leave  the  economic benefit  of the
security with the original seller,  double charges  to  tax or double
reliefs can  arise  because  the legislation  is  triggered  both  by
the  sale and   the repurchase.

                     NOTES FOR EDITORS

1.     Stock   lending  is  an  important  mechanism   for
supporting the  liquidity of the  securities  and  equity markets.  It
enables    stock to be  borrowed  to  meet  an obligation to sell to a
third party.

2.    The  disposals  and  acquisitions  which  arise  are
ignored for tax purposes if the stock lending arrangements are
approved.

3.    Removal  of  the  anomalies in  the  application  of
existing legislation  to repos will  ensure  that  double charges and
double   reliefs do not arise.