[Federal Register Volume 76, Number 88 (Friday, May 6, 2011)]
[Notices]
[Pages 26324-26331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-10964]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64373/April 29, 2011]
Order Making Fiscal Year 2012 Annual Adjustments to Section 31
Fee Rates
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\
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\1\ 15 U.S.C. 78ee.
\2\ 15 U.S.C. 78ee(b).
\3\ 15 U.S.C. 78ee(c).
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The Investor and Capital Markets Fee Relief Act (``Fee Relief
Act'') \4\ amended Section 31 of the Exchange Act to require the
Commission to make annual adjustments to the fee rates applicable under
this section for each of the fiscal years 2003 through 2011, and one
final adjustment to fix the fee rates under these sections for fiscal
year 2012 and beyond.\5\
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\4\ Public Law 107-123, 115 Stat. 2390 (2002).
\5\ See 15 U.S.C. 77f(b)(5), 77f(b)(6), 78m(e)(5), 78m(e)(6),
78n(g)(5), 78n(g)(6), 78ee(j)(1), and 78ee(j)(3). Section 31(j)(2)
of the Exchange Act, 15 U.S.C. 78ee(j)(2), also requires the
Commission, in specified circumstances, to make a mid-year
adjustment to the fee rates under Sections 31(b) and (c) of the
Exchange Act in fiscal years 2002 through 2011.
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II. Fiscal Year 2012 Annual Adjustment to the Fee Rates Applicable
Under Sections 31(b) and (c) of the Exchange Act
Section 31(b) of the Exchange Act requires each national securities
exchange to pay the Commission a fee at a rate, as adjusted by our
order pursuant to Section 31(j)(1),\6\ which currently is $19.20 per
million of the aggregate dollar amount of sales of specified securities
transacted on the exchange. Similarly, Section 31(c) requires each
national securities association to pay the Commission a fee at the same
adjusted rate on the aggregate dollar amount of sales of specified
securities transacted by or through any member of the association
otherwise than on an exchange. Section 31(j)(1) requires 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.\7\
Section 31(j)(3) requires the Commission to make one final adjustment
for fiscal year 2012.\8\
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\6\ Order Making Fiscal Year 2011 Annual Adjustments to the Fee
Rates Applicable under Section 6(b) of the Securities Act of 1933
and Sections 13(e), 14(g), 31(b) and 31(c) of the Securities
Exchange Act of 1934, Rel. No. 33-9122 (April 29, 2010), 75 FR 24757
(May 5, 2010).
\7\ The annual adjustments, as well as the mid-year adjustments
required in specified circumstances under Section 31(j)(2) in fiscal
years 2002 through 2011, 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.
\8\ The final adjustment for fiscal year 2012 is designed to
adjust the fee rate in 2012 and subsequent years so that, when
applied to the aggregate dollar volume of sales for fiscal year
2012, it is reasonably like to produce total fee collections under
Section 31 equal to the ``target offsetting collection amount'' for
fiscal year 2011. Note, however, that Section 31 will be amended by
the Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') effective on the later of October 1, 2011 or
the date of enactment of an Act making a regular appropriation to
the Commission for fiscal year 2012. Once the amendments become
effective, the Commission will be required to make a new adjustment
to the fee rates under Section 31 for fiscal year 2012 and
subsequent fiscal years.
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Section 31(j)(3) specifies the method for determining the annual
adjustment for fiscal year 2012. Specifically, the Commission must
adjust the rates under Sections 31(b) and (c) to a ``uniform adjusted
rate that, when applied to the baseline estimate of the aggregate
dollar amount of sales for fiscal year 2012, is reasonably likely to
produce aggregate fee collections under [Section 31] in
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fiscal year 2012 (including assessments collected under [Section
31(d)]) that are equal to the target offsetting collection amount for
fiscal year 2011.''
Section 31(l)(1) specifies that the ``target offsetting collection
amount'' for fiscal year 2011 is $1,321,000,000. Section 31(l)(2)
defines the ``baseline estimate of the aggregate dollar amount of
sales'' as ``the baseline estimate of the aggregate dollar amount of
sales of securities * * * to be transacted on each national securities
exchange and by or through any member of each national securities
association (otherwise than on a national securities exchange) during
fiscal year 2012 as determined by the Commission, after consultation
with the Congressional Budget Office and the Office of Management and
Budget . * * *''
To make the baseline estimate of the aggregate dollar amount of
sales for fiscal year 2012, the Commission is using the same
methodology it developed in consultation with the CBO and OMB to
project dollar volume for purposes of prior fee adjustments.\9\ Using
this methodology, the Commission calculates the baseline estimate of
the aggregate dollar amount of sales for fiscal year 2012 to be
$85,673,432,736,834. Based on this estimate, and an estimated
collection of $27,453 in assessments on security futures transactions
under Section 31(d) in fiscal year 2012, the uniform adjusted rate for
fiscal year 2012 is $15.10 per million.\10\
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\9\ Appendix A explains how we determined the ``baseline
estimate of the aggregate dollar amount of sales'' for fiscal year
2012 using our methodology, and then shows the purely arithmetical
process of calculating the fiscal year 2012 annual adjustment based
on that estimate. The appendix also includes the data used by the
Commission in making its ``baseline estimate of the aggregate dollar
amount of sales'' for fiscal year 2012.
\10\ The calculation of the adjusted fee rate assumes that the
current fee rate of $19.20 per million will apply through October
31, 2012, due to the operation of the effective date provision
contained in Section 31(j)(4)(A) of the Exchange Act.
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III. Effective Dates of the Annual Adjustments
Section 31(j)(4)(A) of the Exchange Act provides that the fiscal
year 2012 annual adjustments to the fee rates applicable under Sections
31(b) and (c) of the Exchange Act shall take effect on the later of
October 1, 2011, or 30 days after the date on which a regular
appropriation to the Commission for fiscal year 2012 is enacted.
It is important to note, however, that Section 991 of the Dodd-
Frank Act amends Section 31 of the Exchange Act effective on the later
of October 1, 2011 or the date of enactment of an Act making a regular
appropriation to the Commission for fiscal year 2012. Once, the
amendments become effective, new lapse in appropriations provisions
will apply such that, if a regular appropriation to the Commission for
fiscal year 2012 is not enacted on or before October 1, 2011, the new
fee rates will not become effective until 60 days after the date such a
regular appropriation is enacted.
Moreover, once the amendments to Section 31 become effective, the
Commission will be required to make a new adjustment to the fee rates
under Section 31 for fiscal year 2012. The new fee rates will be
determined no later than 30 days after the date on which an Act making
a regular appropriation to the Commission for fiscal year 2012 is
enacted,\11\ and they will become effective on the later of October 1,
2011 or 60 days after the date such a regular appropriation is enacted.
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\11\ In the event an Act making a regular appropriation to the
Commission for fiscal year 2012 is enacted more than 30 days prior
to October 1, 2011, the Commission will need to defer making a new
adjustment until October 1, 2011, because the amendments requiring
the new adjustment will not be effective until that date.
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As a result of these amendments, if a regular appropriation to the
Commission for fiscal year 2012 is not enacted on or before October 1,
2011, the fee rate adjustments under this order will never become
effective. Rather the fee rate adjustments for fiscal year 2012 will be
determined in accordance with the amendments to Section 31 made by the
Dodd-Frank Act and will become effective 60 days after the date such a
regular appropriation is enacted.
IV. Conclusion
Accordingly, pursuant to Section 31 of the Exchange Act,\12\
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\12\ 15 U.S.C. 77f(b), 78m(e), 78n(g), and 78ee(j).
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It is hereby ordered that, if a regular appropriation to the
Commission for fiscal year 2012 is enacted on or before October 1,
2011, the fee rates applicable under Sections 31(b) and (c) of the
Exchange Act shall be $15.10 per million effective on the later of
October 1, 2011, or 30 days after the date on which a regular
appropriation to the Commission for fiscal year 2012 is enacted.
By the Commission.
Cathy H. Ahn,
Deputy Secretary.
Appendix A
With the passage of the Investor and Capital Markets Relief Act,
Congress has, among other things, established a target amount of monies
to be collected from fees charged to investors based on the value of
their transactions. This appendix provides the formula for determining
such fees, which the Commission adjusts annually, and may adjust semi-
annually.\13\ In order to maximize the likelihood that the amount of
monies targeted by Congress will be collected, the fee rate must be set
to reflect projected dollar transaction volume on the securities
exchanges and certain over-the-counter markets over the course of the
year. As a percentage, the fee rate equals the ratio of the target
amounts of monies to the projected dollar transaction volume.
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\13\ Congress requires that the Commission make a mid-year
adjustment to the fee rate if four months into the fiscal year it
determines that its forecasts of aggregate dollar volume are
reasonably likely to be off by 10% or more.
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For 2012, the Commission has estimated dollar transaction volume by
projecting forward the trend established in the previous decade. More
specifically, dollar transaction volume was forecasted for months
subsequent to March 2011, the last month for which the Commission has
data on transaction volume.
The following sections describe this process in detail.
A. Baseline Estimate of the Aggregate Dollar Amount of Sales for Fiscal
Year 2012
First, calculate the average daily dollar amount of sales (ADS) for
each month in the sample (March 2001--March 2011). The monthly
aggregate dollar amount of sales (exchange plus certain over-the-
counter markets) is presented in column C of Table B.
Next, calculate the change in the natural logarithm of ADS from
month to month. The average monthly percentage growth of ADS over the
entire sample is 0.0074 and the standard deviation is 0.123. Assuming
the monthly percentage change in ADS follows a random walk, calculating
the expected monthly percentage growth rate for the full sample is
straightforward. The expected monthly percentage growth rate of ADS is
1.5%.
Now, use the expected monthly percentage growth rate to forecast
total dollar volume. For example, one can use the ADS for March 2011
($282,580,668,926) to forecast ADS for April 2011 ($286,849,029,708 =
$282,580,668,926 x 1.015).\14\ Multiply by the number of trading days
in April 2011 (20) to obtain a forecast of the total dollar volume for
the month ($5,736,980,594,157). Repeat the
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method to generate forecasts for subsequent months.
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\14\ The value 1.015 has been rounded. All computations are done
with the unrounded value.
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The forecasts for total dollar volume are in column G of Table A.
The following is a more formal (mathematical) description of the
procedure:
1. Divide each month's total dollar volume (column C) by the number
of trading days in that month (column B) to obtain the average daily
dollar volume (ADS, column D).
2. For each month t, calculate the change in ADS from the previous
month as [Delta]t = log (ADSt/ADSt-1),
where log (x) denotes the natural logarithm of x.
3. Calculate the mean and standard deviation of the series
{[Delta]1, [Delta]2, * * *,
[Delta]120{time} . These are given by [mu] = 0.0074 and
[sigma] = 0.123, respectively.
4. Assume that the natural logarithm of ADS follows a random walk,
so that [Delta]s and [Delta]t are statistically
independent for any two months s and t.
5. Under the assumption that [Delta]t is normally
distributed, the expected value of ADSt/ADSt-1 is
given by exp ([mu] + [sigma]\2\/2), or on average ADSt =
1.015 x ADSt-1.
6. For April 2011, this gives a forecast ADS of 1.015 x
$282,580,668,926 = $286,849,029,708. Multiply this figure by the 20
trading days in April 2011 to obtain a total dollar volume forecast of
$5,736,980,594,157.
7. For May 2011, multiply the April 2011 ADS forecast by 1.015 to
obtain a forecast ADS of $291,181,863,773. Multiply this figure by the
21 trading days in May 2011 to obtain a total dollar volume forecast of
$6,114,819,139,242.
8. Repeat this procedure for subsequent months.
B. Using the Forecasts From A to Calculate the New Fee Rate
1. Use Table A to estimate fees collected for the period 10/1/11
through 10/31/11. The projected aggregate dollar amount of sales for
this period is $6,590,802,501,369. Projected fee collections at the
current fee rate of 0.0000192 are $126,543,408.
2. Estimate the amount of assessments on securities futures
products collected during 10/1/11 and 9/30/12 to be $27,453 by
projecting a 1.5% monthly increase from a base of $1,960 in March 2011.
3. Subtract the amounts $126,543,408 and $27,453 from the target
offsetting collection amount set by Congress of $1,321,000,000 leaving
$1,194,429,139 to be collected on dollar volume for the period 11/1/11
through 9/30/12.
4. Use Table A to estimate dollar volume for the period 11/1/11
through 9/30/12. The estimate is $79,082,630,235,466. Finally, compute
the fee rate required to produce the additional $1,194,429,139 in
revenue. This rate is $1,194,429,139 divided by $79,082,630,235,466 or
0.0000151036.
5. Round the result to the seventh decimal point, yielding a rate
of .0000151 (or $15.10 per million).
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[FR Doc. 2011-10964 Filed 5-5-11; 8:45 am]
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