U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49332 / February 27, 2004]

Order Making Fiscal 2004 Mid-Year Adjustment to the Fee Rates Applicable Under Sections 31(b) and (c) of the Securities Exchange Act of 1934

I. Background

Section 31 of the Securities Exchange Act of 1934 ("Exchange Act") requires each national securities exchange and national securities association to pay transaction fees to the Commission.1 Specifically, Section 31(b) requires each national securities exchange to pay to the Commission fees based on the aggregate dollar amount of sales of certain securities transacted on the exchange.2 Section 31(c) requires each national securities association to pay to the Commission fees based on the aggregate dollar amount of sales of certain securities transacted by or through any member of the association other than on an exchange.3

Sections 31(j)(1) and (3) require the Commission to make annual adjustments to the fee rates applicable under Sections 31(b) and (c) for each of the fiscal years 2003 through 2011, and one final adjustment to fix the fee rates for fiscal year 2012 and beyond.4 Section 31(j)(2) requires the Commission, in certain circumstances, to make a mid-year adjustment to the fee rates in fiscal 2002 through fiscal 2011.5 The annual and mid-year adjustments are designed to adjust the fee rates in a given fiscal year so that, when applied to the aggregate dollar volume of sales for the fiscal year, they are reasonably likely to produce total fee collections under Section 31 equal to the "target offsetting collection amount" specified in Section 31(l)(1) for that fiscal year.6 For fiscal 2004, the target offsetting collection amount is $1,028,000,000.7

Congress established the target offsetting collection amounts in the Investor and Capital Markets Fee Relief Act ("Fee Relief Act") by applying reduced fee rates to the Congressional Budget Office's ("CBO") January 2001 projections of dollar volume for fiscal years 2002 through 2011.8 In any fiscal year through fiscal 2011, the annual, and in certain circumstances, mid-year adjustment mechanisms will result in additional fee rate reductions if the CBO's January 2001 projection of dollar volume for the fiscal year proves to be too low, and fee rate increases if the CBO's January 2001 projection of dollar volume for the fiscal year proves to be too high.

II. Determination of the Need for a Mid-Year Adjustment in Fiscal 2004

Under Section 31(j)(2) of the Exchange Act, the Commission must make a mid-year adjustment to the fee rates under Sections 31(b) and (c) in fiscal year 2004 if it determines, based on the actual aggregate dollar volume of sales during the first five months of the fiscal year, that the baseline estimate ($25,918,721,642,549) is reasonably likely to be 10% (or more) greater or less than the actual aggregate dollar volume of sales for fiscal 2004.9 To make this determination, the Commission must estimate the actual aggregate dollar volume of sales for fiscal 2004.

Based on data provided by the national securities exchanges and the national securities association that are subject to Section 3110, the actual aggregate dollar volume of sales during the first four months of fiscal 2004 was $8,654,590,961,38711. Using these data and a methodology for estimating the aggregate dollar amount of sales for the remainder of fiscal 2004 (developed after consultation with the CBO and the OMB),12 the Commission estimates that the aggregate dollar amount of sales for the remainder of fiscal 2004 to be $22,548,401,329,881. Thus, the Commission estimates that the actual aggregate dollar volume of sales for all of fiscal 2004 will be $31,202,992,291,268.

Because the baseline estimate of $25,918,721,642,549 is more than 10% less than the $31,202,992,291,268 estimated actual aggregate dollar volume of sales for fiscal 2004, Section 31(j)(2) of the Exchange Act requires the Commission to issue an order adjusting the fee rates under Sections 31(b) and (c).

III. Calculation of the Uniform Adjusted Rate

Section 31(j)(2) specifies the method for determining the mid-year adjustment for fiscal 2004. Specifically, the Commission must adjust the rates under Sections 31(b) and (c) to a "uniform adjusted rate that, when applied to the revised estimate of the aggregate dollar amount of sales for the remainder of [fiscal 2004], is reasonably likely to produce aggregate fee collections under Section 31 (including fees collected during such 5-month period and assessments collected under [Section 31(d)]) that are equal to [$1,028,000,000]."13 In other words, the uniform adjusted rate is determined by subtracting fees collected prior to the effective date of the new rate and assessments collected under Section 31(d) during all of fiscal 2004 from $1,028,000,000, which is the target offsetting collection amount for fiscal 2004. That difference is then divided by the revised estimate of the aggregate dollar volume of sales for the remainder of the fiscal year following the effective date of the new rate.

The Commission estimates that it will collect $622,904,612 in fees for the period prior to the effective date of the mid-year adjustment14 and $23,900 in assessments on round turn transactions in security futures products during all of fiscal 2004. Using the methodology referenced in Part II above, the Commission estimates that the aggregate dollar volume of sales for the remainder of fiscal 2004 following the effective date of the new rate will be $17,307,204,075,317. Based on these estimates, the uniform adjusted rate is $23.40 per million of the aggregate dollar amount of sales of securities.15

This fee rate is substantially lower than the current fee rate of $39.00 per million, but it is still higher than the fee rate in effect upon to the enactment of the Fee Relief Act. The fee rate remains above the initial fee rate as a direct consequence of the decline in the aggregate dollar amount of sales of securities in fiscal 2004 compared to the CBO's January 2001 projection of the aggregate dollar amount of sales for fiscal 2004. The aggregate dollar amount of sales of securities subject to Section 31 fees is illustrated in Appendix A.

IV. Effective Date of the Uniform Adjusted Rate

Section 31(j)(4)(B) of the Exchange Act provides that a mid-year adjustment shall take effect on April 1 of the fiscal year in which such rate applies. Therefore, the exchanges and the national securities association that are subject to Section 31 fees must pay fees under Sections 31(b) and (c) at the uniform adjusted rate of $23.40 per million for sales of securities transacted on April 1, 2004, and thereafter until the annual adjustment for fiscal 2005 is effective.16

V. Conclusion

Accordingly, pursuant to Section 31 of the Exchange Act,

IT IS HEREBY ORDERED that each of the fee rates under Sections 31(b) and (c) of the Exchange Act shall be $23.40 per $1,000,000 of the aggregate dollar amount of sales of securities subject to these sections effective April 1, 2004.

By the Commission.

J. Lynn Taylor
Assistant Secretary

Appendix A


Endnotes


http://www.sec.gov/rules/other/34-49332.htm


Modified: 02/27/2004