DB2 LUW is basically compatible with DB2 for z/OS, with some exceptions in DML syntax and functions supported and certain DDL statements that are hardware/operating system specific. Host Compatibility Option tries to address some of the main areas of incompatibility where possible by converting DB2 for z/OS SQL statements to supported DB2 LUW syntax.
Additional compatibility is possible when using DB2 for z/OS database servers via the DB2 Connect product.
For more information on the differences in syntax supported by the various versions of DB2, see IBM's SQL Reference for Cross-Platform Development.