[Federal Register Volume 77, Number 16 (Wednesday, January 25, 2012)]
[Notices]
[Pages 3818-3824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-1522]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66202/January 20, 2012]
Order Making Fiscal Year 2012 Annual Adjustments to Transaction
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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Section 31 of the Exchange Act requires the Commission to annually
adjust the fee rates applicable under Sections 31(b) and (c) to a
uniform adjusted rate, and in some circumstances, to also make a mid-
year adjustment. On April 29, 2011, the Commission issued an order
establishing the uniform adjusted rate for fiscal year 2012 and
beyond.\4\ We noted in that order, however, that if a regular
appropriation to the Commission for fiscal year 2012 was not enacted by
October 1, 2011, the new uniform adjusted rate would never go into
effect and the Commission would need to establish a new uniform
adjusted rate for fiscal year 2012 pursuant to amendments made to
Section 31 of Exchange Act by the Dodd-Frank Wall Street Reform and
Consumer Protection Act (``Dodd-Frank Act'').\5\ Because a regular
appropriation to the Commission for fiscal year 2012 was not enacted by
October 1, 2011, the Commission now is required to establish a new fee
rate for fiscal year 2012 pursuant to the amended provisions of Section
31 of the Exchange Act.
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\4\ Exchange Act Rel. No. 34-64373, Order Making Fiscal Year
2012 Annual Adjustments to the Fee Rates Applicable under Section 31
of the Securities Exchange Act of 1934 (April 29, 2011).]
\5\ Prior to amendment by the Dodd-Frank Act, Section
31(j)(4)(A) of the Exchange Act provided 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.
Section 991 of the Dodd-Frank Act, however, amended 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. Those amendments are now effective,
because a regular appropriation to the Commission was enacted on
December 23, 2011. The amendments require the Commission to make a
new adjustment to the fee rates applicable under Section 31 for
fiscal year 2012.
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II. Fiscal Year 2012 Annual Adjustment to the Fee Rate
The Dodd-Frank Act amendments to Section 31 of the Exchange Act
establish a new method for annually adjusting the fee rates applicable
under Sections 31(b) and (c) of the Exchange Act. Specifically, the
Commission must now adjust the fee rates to a uniform adjusted rate
that is reasonably likely to produce aggregate fee collections
(including assessments on security futures transactions) equal to the
regular appropriation to the Commission for the applicable fiscal
year.\6\ In short, the new fee rate is determined by (1) subtracting
the sum of fees estimated to be collected during fiscal year 2012 prior
to the effective date of the new fee rate and estimated assessments on
securities futures transactions to be collected under Section 31(d) of
the Exchange Act for all of fiscal year 2012 from an amount equal to
the regular appropriation to the Commission for fiscal year 2012, and
(2) dividing the difference by the estimated aggregate dollar amount of
sales for the remainder of the fiscal year following the effective date
of the new fee rate.
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\6\ See 15 U.S.C. 78ee(j)(1) (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 such fiscal year, is reasonably likely to
produce aggregate fee collections under [Section 31] (including
assessments collected under [Section 31(d)]) that are equal to the
regular appropriation to the Commission by Congress for such fiscal
year.'').
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The regular appropriation to the Commission for fiscal year 2012 is
$1,321,000,000. The Commission estimates that it will collect
$503,552,340 in fees for the period prior to the effective date of the
new fee rate and $17,328 in assessments on round turn transactions in
security futures products during all of fiscal year 2012.\7\ Using a
methodology for estimating the aggregate dollar amount of sales for the
remainder of fiscal year 2012 (developed after consultation with the
Congressional Budget Office and the Office of Management and Budget),
the Commission estimates that the aggregate dollar amount of sales for
the remainder of fiscal year 2012 to be $45,419,684,665,277.
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\7\ The estimate of fees to be collected prior to the effective
date of the new fee rate is determined by applying the current fee
rate to the dollar amount of sales prior to the effective date of
the new fee rate.
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As described above, the uniform adjusted rate is computed by
dividing the residual fees to be collected of $817,430,332 by the
estimate of the aggregate dollar amount of sales for the remainder of
fiscal year 2012 of $45,419,684,665,277. This results in a uniform
adjusted rate for fiscal year 2012 of $18.00 per million.\8\
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\8\ Appendix A shows the purely arithmetical process of
calculating the fiscal year 2012 annual adjustment. The appendix
also includes the data used by the Commission in making this
adjustment.
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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 60 days after the date on which a regular
appropriation to the Commission for fiscal year 2012 is enacted. The
regular appropriation to the Commission for fiscal year 2012 was
enacted on December 23, 2011, and accordingly, the new fee rates
applicable under Sections 31(b) and (c) of the Exchange Act will take
effect on February 21, 2012.
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IV. Conclusion
Accordingly, pursuant to Section 31 of the Exchange Act,\9\
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\9\ 15 U.S.C. 78ee(j).
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It is hereby ordered that the fee rates applicable under Sections
31(b) and (c) of the Exchange Act shall be $18.00 per million effective
on February 21, 2012.
By the Commission.
Elizabeth M. Murphy,
Secretary.
Appendix A
This appendix provides the formula for determining the annual
adjustment to the fee rates applicable under Sections 31(b) and (c)
of the Exchange Act for fiscal year 2012.\10\ Section 31 of the
Exchange Act requires the fee rates to be adjusted so that it is
reasonably likely that the Commission will collect aggregate fees
equal to its regular appropriation for fiscal year 2012. To make the
adjustment, the Commission must project the aggregate dollar amount
of covered sales of securities on the securities exchanges and
certain over-the-counter markets over the course of the year. The
fee rate equals the ratio of the Commission's regular appropriation
for fiscal year 2012 (less the sum of fees to be collected during
fiscal year 2012 prior to the effective date of the new fee rate and
aggregate assessments on security futures transactions during fiscal
year 2012) to the projected aggregate dollar amount of covered sales
for fiscal year 2012 (less the aggregate dollar amount of covered
sales prior to the effective date of the new fee rate).
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\10\ 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 the aggregate dollar
amount of covered sales by projecting forward the trend established
in the previous decade. More specifically, the dollar amount of
covered sales was forecasted for months subsequent to November 2011,
the last month for which the Commission has data on the dollar
volume of covered sales.\11\
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\11\ To determine the availability of data, the Commission
compares the date of the appropriation with the date the transaction
data are due from the exchanges (10 business days after the end of
the month). If the business day following the date of the
appropriation is equal to or subsequent to the date the data are due
from the exchanges, the Commission uses these data. The
appropriation was signed on December 23. The first business day
after this date was December 27. Data for November were due from the
exchanges on December 14. So the Commission used November 2011 and
earlier data to forecast volume for December 2011 and later months.
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The following sections describe this process in detail.
A. Baseline Estimate of the Aggregate Dollar Amount of Covered
Sales for Fiscal Year 2012
First, calculate the average daily dollar amount of covered
sales (ADS) for each month in the sample (November 2001--November
2011). The monthly aggregate dollar amount of covered sales
(exchange plus certain over-the-counter markets) is presented in
column C of Table A.
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 0.0087 and the standard deviation is 0.126.
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 1.7%.
Now, use the expected monthly percentage growth rate to forecast
total dollar volume. For example, one can use the ADS for November
2011 ($261,614,593,980) to forecast ADS for December 2011
($265,994,342,797 = $261,614,593,980 x 1.017).\12\ Multiply by the
number of trading days in December 2011 (21) to obtain a forecast of
the total dollar volume for the month ($5,585,881,198,747). Repeat
the method to generate forecasts for subsequent months.
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\12\ The value 1.017 has been rounded. All computations are done
with the unrounded value.
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The forecasts for total dollar volume of covered sales 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] = 0.0087 and
[sigma] = 0.126, 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
= 1.017 x ADSt-1.
6. For December 2011, this gives a forecast ADS of 1.017 x
$261,614,593,980 = $265,994,342,797. Multiply this figure by the 21
trading days in December 2011 to obtain a total dollar volume
forecast of $5,585,881,198,747.
7. For January 2012, multiply the December 2011 ADS forecast by
1.017 to obtain a forecast ADS of $270,447,413,976. Multiply this
figure by the 20 trading days in January 2012 to obtain a total
dollar volume forecast of $5,408,948,279,516.
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 2/20/12. The projected aggregate dollar amount of covered
sales for this period is $26,226,684,370,811. Actual and projected
fee collections at the current fee rate of 0.0000192 are
$503,552,340.
2. Estimate the amount of assessments on securities futures
products collected during 10/1/11 and 9/30/12 to be $17,328 by
projecting a 1.7% monthly increase from a base of $1,387 in November
2011.
3. Subtract the amounts $503,552,340 and $17,328 from the target
offsetting collection amount set by Congress of $1,321,000,000
leaving $817,430,332 to be collected on dollar volume for the period
2/21/12 through 9/30/12.
4. Use Table A to estimate dollar volume for the period 2/21/12
through 9/30/12. The estimate is $45,419,684,665,277. Finally,
compute the fee rate required to produce the additional $817,430,332
in revenue. This rate is $817,430,332 divided by $45,419,684,665,277
or 0.0000179973.
5. Round the result to the seventh decimal point, yielding a
rate of .0000180 (or $18.00 per million).
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[FR Doc. 2012-1522 Filed 1-24-12; 8:45 am]
BILLING CODE C