(Yicai Global) Feb. 24 -- Shares in the Hong Kong Stock Exchange’s operator plummeted as much as 12 percent today after the Special Administrative Region announced it was increasing the tax on all stock transactions. The bourse’s benchmark Hang Seng Index also reflected the investor gloom.

Hong Kong Exchange and Clearing [HKG:0388] closed down 8.78 percent at HKD509 (USD65.63). Earlier in the day it had fallen to HKD491. The Hang Seng Index dropped 2.99 percent to 29,718 points.

In order to increase government revenue, Hong Kong plans to increase the stamp duty rate for stock transactions to 0.13 percent from the current 0.1 percent for both buyer and seller, Financial Secretary Paul Chan said when delivering the 2021-2022 Budget this afternoon.

The government’s increase in the stamp duty rate may reduce the enthusiasm and frequency of trading among investors, undermine any potential room for an increase in exchange revenue and affect the stock performance of HKEX, the exchange said.

“Whilst we are disappointed about the Government’s decision to raise stamp duty for stock transactions, we recognize that such a levy is an important source of Government revenue,” a HKEX spokesperson told Yicai Global.

The Hong Kong bourse, which was the second biggest initial public offering market in the world last year, looks forward to working closely with all its stakeholders to drive the continued success, resiliency, vibrancy and attractiveness of Hong Kong’s capital markets, he added.

The announcement has taken the wind out of the sails of the HKEX which has gained 50 percent in value since Dec. 15 last year and hit a record high of HKD587 (USD75.70) on Feb. 22. The Hang Seng Index has also advanced strongly over the period, but now selling pressure will be even greater.

HKEX’s profit and revenue both hit new records last year, according to the 2020 earnings report it released today. Profit leapt 23 percent to HKD11.5 billion (USD1.5 billion) and revenue jumped 18 percent to HKD19.2 billion (USD2.5 billion).

The trading volume of the Bond Connect, Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs, which allow international and mainland investors to trade bonds or stocks in each other’s markets through their home exchange, almost doubled from 2019 to new highs.

Editors: Tang Shihua, Kim Taylor