[House Hearing, 107 Congress]
[From the U.S. Government Printing Office]




                        SAVING INVESTORS MONEY:
                      REDUCING EXCESSIVE SEC FEES

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                    CAPITAL MARKETS, INSURANCE AND 
                    GOVERNMENT SPONSORED ENTERPRISES

                                 OF THE

                              COMMITTEE ON
                           FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 7, 2001

                               __________

       Printed for the use of the Committee on Financial Services

                            Serial No. 107-3


                   U.S. GOVERNMENT PRINTING OFFICE
70-890                     WASHINGTON : 2001


_______________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Printing 
                                 Office
 Internet: bookstore.gpo.gov Phone: (202) 512-1800 Fax: (202) 512-2550
               Mail: Stop SSOP, Washington DC 20402-0001

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice      BARNEY FRANK, Massachusetts
    Chair                            PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska              MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama              LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware          NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma             KEN BENTSEN, Texas
ROBERT W. NEY, Ohio                  JAMES H. MALONEY, Connecticut
BOB BARR, Georgia                    DARLENE HOOLEY, Oregon
SUE W. KELLY, New York               JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                MAX SANDLIN, Texas
CHRISTOPHER COX, California          GREGORY W. MEEKS, New York
DAVE WELDON, Florida                 BARBARA LEE, California
JIM RYUN, Kansas                     FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama                   JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      CHARLES A. GONZALEZ, Texas
DOUG OSE, California                 STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois               MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin                HAROLD E. FORD, Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania      RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSELLA, New York               JOSEPH CROWLEY, New York
GARY G. MILLER, California           WILLIAM LACY CLAY, Missiouri
ERIC CANTOR, Virginia                STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York       MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania         
SHELLEY MOORE CAPITO, West Virginia  BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio

             Terry Haines, Chief Counsel and Staff Director
            Subcommittee on Capital Markets, Insurance and 
                    Government Sponsored Enterprises

                 RICHARD H. BAKER, Louisiana, Chairman

ROBERT W. NEY, Ohio, Vice Chairman   PAUL E. KANJORSKI, Pennsylvania
CHRISTOPHER SHAYS, Connecticut       GARY L. ACKERMAN, New York
CHRISTOPHER COX, California          NYDIA M. VELAZQUEZ, New York
PAUL E. GILLMOR, Ohio                KEN BENTSEN, Texas
RON PAUL, Texas                      MAX SANDLIN, Texas
SPENCER BACHUS, Alabama              JAMES H. MALONEY, Connecticut
MICHAEL N. CASTLE, Delaware          DARLENE HOOLEY, Oregon
EDWARD R. ROYCE, California          FRANK R. MASCARA, Pennsylvania
FRANK D. LUCAS, Oklahoma             STEPHANIE TUBBS JONES, Ohio
BOB BARR, Georgia                    MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, North Carolina      BRAD SHERMAN, California
STEVEN C. LaTOURETTE, Ohio           GREGORY W. MEEKS, New York
JOHN B. SHADEGG, Arizona             JAY INSLEE, Washington
DAVE WELDON, Florida                 DENNIS MOORE, Kansas
JIM RYUN, Kansas                     CHARLES A. GONZALEZ, Texas
BOB RILEY, Alabama                   HAROLD E. FORD, Jr., Tennessee
VITO FOSSELLA, New York              RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               KEN LUCAS, Kentucky
GARY G. MILLER, California           RONNIE SHOWS, Mississippi
DOUG OSE, California                 JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania      STEVE ISRAEL, New York
MIKE FERGUSON, New Jersey            MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania
MIKE ROGERS, Michigan


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 7, 2001................................................     1
Appendix:
    March 7, 2001................................................    47

                               WITNESSES
                        Wednesday, March 7, 2001

Gramm, Sen. Phil, a U.S. Senator from the State of Texas.........     2
Schumer, Sen. Charles E., a U.S. Senator from the State of New 
  York...........................................................    13
Evans, Scott C., Executive Vice President, TIAA-CREF Investment 
  Management, (Teachers Insurance and Annuities Association-
  College Retirement Equities Fund)..............................    35
Quick, Christopher C., CEO, Fleet Meehan Specialist, Inc., on 
  behalf of The Specialist Association of the New York Stock 
  Exchange.......................................................    37
Toes, James A., Director, Merrill Lynch & Co., Inc., on behalf of 
  the Security Traders Association...............................    38
Unger, Hon. Laura S., Acting Chairman, U.S. Securities and 
  Exchange 
  Commission.....................................................    23

                                APPENDIX

Prepared statements:
    Baker, Hon. Richard H........................................    48
    Oxley, Hon. Michael G........................................    61
    Ackerman, Hon. Gary L........................................    50
    Crowley, Hon. Joseph.........................................    52
    Jones, Hon. Stephanie T......................................    55
    Kelly, Hon. Sue W............................................    57
    Mascara, Hon. Frank..........................................    58
    Menendez, Hon. Robert........................................    59
    Schumer, Sen. Charles E......................................    63
    Velazquez, Hon. Nydia M......................................    62
    Evans, Scott C...............................................    83
    Quick, Christopher C.........................................    87
    Toes, James A................................................    93
    Unger, Hon. Laura S..........................................    66

              Additional Material Submitted for the Record

Kanjorski, Hon. Paul:
    ``Many Holes Weaken Safety Net for Victims of Failed 
      Brokerages,'' New York Times, Sept. 25, 2000...............    97
Evans, Scott C.:
    Written response to questions from Chairman Michael G. Oxley.    86
Unger, Hon. Laura S.:
    Written response to questions from Chairman Michael G. Oxley.    81
Securities Industry Association, prepared statement by Thomas J. 
  Cavalier.......................................................   107
Security Traders Association, written response to questions from 
  Chairman Michael G. Oxley......................................   115
State Teachers Retirement System of Ohio, prepared statement.....   118

 
                        SAVING INVESTORS MONEY:
                      REDUCING EXCESSIVE SEC FEES

                              ----------                              


                        WEDNESDAY, MARCH 7, 2001

             U.S. House of Representatives,
        Subcommittee on Capital Markets, Insurance 
              and Government Sponsored Enterprises,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 9:30 a.m., in 
room 2128, Rayburn House Office Building, Hon. Richard H. 
Baker, [chairman of the subcommittee], presiding.
    Present: Chairman Baker; Representatives Shays, Cox, Royce, 
Lucas of Oklahoma, Barr, Shadegg, Weldon, Fossella, Miller, 
Ose, Ferguson, Hart, Rogers, Kanjorski, Bentsen, Mascara, 
Jones, Capuano, Sherman, Meeks, Inslee, Hinojosa, Lucas of 
Kentucky, Crowley and Israel.
    Also Present: Representatives Oxley and Kelly.
    Chairman Baker. Good morning. I would like to call this 
hearing of the Subcommittee on Capital Markets to order and 
welcome each of you here this morning.
    As an advisory for Members who are present, because of our 
distinguished first panel of witnesses this morning, I have 
counseled with Mr. Kanjorski's staff and with Chairman Oxley 
that we would proceed to receive the testimony of the Senators. 
Should others wish to make opening statements, we would proceed 
to those after the Senators have concluded their testimony and 
before the second panel.
    It would be my intent at that point to make brief remarks, 
recognize Mr. Kanjorski, Chairman Oxley, and Ranking Member 
LaFalce, should he participate this morning, and limit our 
opening statements for that purpose. As we are all aware, we 
have 47 Members and even with 3 minutes per Member we would use 
up most of the morning telling each other hello.
    So I will suggest that if that method is acceptable to all 
present we would proceed accordingly.
    [The prepared statement of Hon. Richard H. Baker can be 
found on page 48 in the appendix.]
    At this time, I am particularly pleased to introduce a very 
good friend and the leader on financial service modernization 
in the Congress and welcome to our first meeting here the 
Chairman of our newly organized Financial Services Committee. 
We now have much more similar jurisdiction, and I am looking 
forward to a long and productive working relationship with you 
and Members of your committee. Welcome, Chairman Gramm.

STATEMENT OF HON. PHIL GRAMM, A U.S. SENATOR FROM THE STATE OF 
                             TEXAS

    Senator Gramm. Mr. Chairman, thank you very much.
    Let me first congratulate you on your chairmanship and Paul 
on being the Ranking Member. I want to congratulate you for 
consolidating financial services jurisdiction in one committee. 
I can assure you it will make my life much easier. And let me 
also say that I look forward to working with each of you as we 
try to make financial services cheaper and more available to a 
larger number of Americans.
    I am happy to have the opportunity today to testify on 
something that seems to me not only imminently reasonable but 
something that every Member of Congress should be supportive of 
and that is our efforts to try to see that we don't take fees 
that were established to fund the SEC and allow those fees to 
become a source of general revenue in Federal Government.
    As you know, Mr. Chairman, today, even though no one 
intended it, we collect six times as much in fees on securities 
transactions, tender fees and fees on the initial offering of 
stocks as we need to fund the Securities and Exchange 
Commission.
    The level of this excessive fee is very large, $14 billion 
over the next 10 years, if we allow the current law to stand. 
People who try to save and invest, accumulate every mutual 
fund, every retirement program, both public and private, in 
America, every person saving for college or for retirement will 
end up paying billions of dollars of fees that no one ever 
intended that they pay and do not serve the purpose for which 
the fees were imposed.
    To give you an idea of the magnitude of these excessive 
fees, if you take the average worker and look at a 45-year 
retirement program, on average that retirement program would 
pay about $1,300 of fees above the level necessary to fund the 
regulation that is required for the markets that they use to 
operate efficiently.
    If that $1,300, instead of being paid in excessive fees, 
were invested, that would mean that the average investor in a 
retirement program, an IRA or 401(k) program over their working 
life could expect about $5,800 of additional funds on their 
retirement, rather than going to the Federal Government in 
these excessive fees. So this is a major issue. I think that 
you can see what a major issue it is when you look at the 
groups that have endorsed the bill in the Senate. Our bill in 
the Senate basically sets up a process to assure that we always 
have enough money to fund the SEC. It guarantees that when we 
are overperforming under our current rate structure the fees be 
dropped; if we are underperforming, the fees be raised. We do 
it in such a way as to hold the appropriators harmless. And so 
the net result is we guarantee a funding source for the purpose 
that the fee was initially adopted but for no other purpose.
    This effort has been endorsed--and I think you are hearing 
from some of these same groups--by TIAA-CREF, which is the 
Nation's largest teacher retirement program. It has been 
endorsed by the American Shareholders Association, by the 
National Treasury Employees Union and by the California Public 
Employee Retirement System, among other groups.
    I believe that it is very important that we adopt this 
bill. We have included in the bill a pay parity provision for 
the SEC. As I am sure this committee is aware, in the recent 
past we have become concerned that financial regulators were 
losing people due to wage increases in the private sector. We 
raised salaries for financial regulators such as the 
Comptroller of the Currency and the Federal Reserve Bank, but a 
similar change was not made with regard to the SEC. As you can 
imagine, the rate of turnover is very high among professional 
people.
    I think it is fair to say that, whether one believes we 
need more regulation or less, that I think there is a very 
strong consensus that we need to have the most qualified 
people, the most able people administering those regulations.
    So that is the essence of the Senate bill. We have passed 
the bill on a voice vote in the Banking Committee. We are going 
to be on campaign finance reform for the next couple of weeks 
in the Senate. But it would be my goal toward the end of this 
month or the beginning of the next month to bring this bill to 
the floor of the Senate where I am hopeful that we will be 
successful.
    So I want to commend this subcommittee for holding this 
hearing. I am very happy to be here. I know you are hearing 
from a lot of people, but if anybody has a question I would be 
very happy to try to answer it.
    Chairman Baker. Thank you, Senator.
    I have been advised that Senator Schumer is on his way. He 
should be here in about 10 minutes. What I would suggest is the 
subcommittee proceed with a few questions. On the Senator's 
arrival, we will recognize him for his statement.
    Senator, I have certainly agreed with your view about the 
need to reduce unwarranted fees--or let's just call this a tax. 
It has no relation any longer to providing for appropriate 
level of operation for the SEC. We should ensure for the 
appropriate level of operation for the SEC, as your legislation 
does. But one other point in discussion of this subject with 
some Members, there have been those who question the timing: 
Why this? Why now?
    In looking back over the performance of the markets over 
the last year, after the decade of extraordinary growth in 
401(k) net worth to most working families--and I would also 
quickly point out that we have investing, at least since 1995, 
people online engaging in $8 trades who are not institutional 
investors investing hundreds of thousands, but working families 
investing a hundred at a time, making provision for their 
child's education, maybe to buy their first home, looking 
forward to their retirement one day. So this very much is a 
consumer-oriented approach.
    Unfortunately, given the events in the larger economy over 
the last year, many of these working families have seen that 
portfolio value drop from 10 percent to maybe a third of value. 
And if we are to unleash this billion-and-a-half dollars of 
unnecessary fee collection, isn't that a logical thing to do to 
promote additional economic growth, perhaps aid in a small way 
in the recovery of those values of those savings of working 
families across the country?
    Senator Gramm. Mr. Chairman, let me say it is interesting 
that you mentioned about the people trading online at very low 
commissions, because Island Ecn, which has been a leader in 
that effort, which has brought down commissions dramatically, 
has told our committee that in analyzing their data that their 
average customer pays more in fees than Island makes in profit. 
So this has become a relevant factor to people who tried.
    I would also caution people that when we are talking about 
big institutional traders, they may be big and they may be 
institutional, but basically they are big because they have 
millions of people's money. And that money belongs to working 
men and women all over America who every day pay these 
transaction fees; and by paying these transaction fees their 
level of investment is lower, their retirement security is 
lower, the hurdle they face in saving enough money to send 
their children to college is higher. So in the end, with the 
biggest institutional investor, with Fidelity, every penny they 
are investing belongs to people in your district, in my State, 
who are trying to meet some of life's goals with this 
investment. And when you are paying six times the fee that is 
required to fund the regulation which you benefit from, then 
you are making that hurdle higher for people.
    I would also say there is one other reason for doing it 
now, and that is the very rapid growth of foreign exchanges. 
And on these foreign exchanges you don't have these transaction 
fees. And what is happening, just to give you an example, we 
invented futures. We had an absolute monopoly on the market. 
Yet now a larger value and volume of futures are traded in 
Germany than traded in the United States because they have 
become very competitive. They have had some regulatory 
advantages; and they have also had some advantages, quite 
frankly, in that they had not built the structure that we had 
built in our exchanges. And, as a result, they are becoming 
very fierce competitors.
    I think there is a competitiveness argument to be made for 
lowering these fees by making American markets more attractive 
not only to American investors but to foreign investors as 
well.
    Chairman Baker. I just wanted to make clear the point some 
would argue this is to benefit Wall Street types. In fact, the 
whole mission we are engaged in here is to help working 
families maintain their money for their own futures; and I 
think sometimes that gets lost in this debate.
    Senator Gramm. Well, if I could say, Wall Street types, as 
you call them, basically are conduits. But the people who are 
actually paying the fees, as is obviously who has endorsed this 
bill, are people who are in the National Treasury Employees 
Union, people who are in the California Public Employee 
Retirement Program. That is where the fees are being paid.
    Chairman Baker. Without doubt.
    Mr. Chairman, given our new rulings around the House, I 
have expired my 5 minutes, and therefore I would recognize Mr. 
Kanjorski.
    Mr. Kanjorski. Thank you, Mr. Chairman.
    Senator, let me put this in perspective. We did make an 
adjustment in 1996, and it was a very fair adjustment that fees 
go to cost. No one, however, could have anticipated the 
explosion of the markets in the last 4 years. This is not 
something that has been planned or thought about as if by 
accident or perhaps by good fortune.
    Do you feel the same support for this bill would exist if 
we separated the pay parity piece from the fee reduction?
    Senator Gramm. Well, I think you would have obviously the 
support of the investing community. I think the two go 
together.
    I think what we are trying to do is to set up a reliable 
system to guarantee a funding source for the SEC. And I think, 
while we are doing that, that guaranteeing that SEC employees 
are competitively paid and we have got a chance to have 
effective regulation, I think the two go together.
    I would say that in 1996 when we passed that old law we 
intended through that law to eliminate excessive fees. And I 
think you are right. No one ever decided they wanted to have 
the excessive fees. It is just that we do have them. The 1996 
law we wrote was a static law which made a one-time adjustment. 
We thought that would fix the problem. It didn't. And the 
approach we have taken is to try to set up a system where 
annually you do an evaluation and adjust the fees.
    Mr. Kanjorski. Although we call this a fee, Chairman Baker 
has referred to it perhaps as a tax. I will accept either one 
as the description. But, if we are going to lose a billion-and-
a-half dollars a year, obtained by charging 33 cents for every 
$10,000 in trading--which does not seem excessive, about the 
cost of a call in a telephone booth--how would you make up for 
the loss of those revenues?
    I find it very difficult to ask this question, because you 
always have a million ways to make budget cuts. But, in all 
seriousness, we are going to lose a billion-and-a-half dollars, 
Senator. What fees are we going to increase? What taxes are we 
going to increase? Where do you see that billion-and-a-half 
dollars coming from?
    Let me suggest several areas that I look at in analyzing 
this issue.
    One, the Securities and Exchange Commission does not have 
what we call CRA. This money very easily could be a potential 
way of funding that type of activity.
    Two, there is a decided disadvantage in the United States 
varying from region to region. We all recognize that one-third 
of our economy falls into a classification of a distressed 
area. In reality, this fee overcharge, if maintained and used 
for other purposes, could clearly fund regional economic 
development in distressed economic communities, including those 
in Texas, Mississippi, and throughout the South.
    Or we could use it for environmental cleanup. A billion-
and-a-half dollars would fund a $30 billion environmental 
cleanup fund for the country. That would help Pennsylvania in a 
very big way. We have a lot of land reclamation needs and 
polluted water as a result of past mining practices. And, \1/
10\ of that fund would be enough to clean up the land in 
Pennsylvania.
    So, while I agree it comes out of a particular category, it 
does not seem to be all that penalizing. I am wondering, rather 
than running on down that road, if it would not be better to 
hold the fee adjustment until we see what happens to the 
overall budget and revenue picture of the Government.
    Senator Gramm. Well, if I may, let me respond by saying 
that basically what you are doing is--I think there are two 
arguments I would like to make. One is, the fee was imposed for 
a specific purpose; and the fee is not now being used for that 
purpose; and I think there is a certain illegitimacy in taking 
a fee that was meant as a user fee and using it for general 
Government.
    The second question is, even if you had decided to do that, 
you would have to ask a question: Is America benefited more by 
expanding economic development programs or funding 
environmental cleanup than it would be advantaged by letting 
literally millions of families do a better job in building up 
their retirement and saving money to send their children to 
college?
    I think that a stronger argument can be made that the 
American society would be benefited--not only was a tax 
collected for this purpose, but that American society would be 
benefited more by letting millions of savers and investors keep 
it than any other purposes that you have mentioned, as 
meritorious as many of them are.
    Finally, let me say that, as we look at where we are today 
in the American economy, it is hard to imagine a better time to 
adjust fees to the funding needs of the agency they were meant 
to fund. In fact, if you can't do it today, when could we ever 
do it? What circumstance that has ever existed in history would 
be more advantageous to us for making the adjustment than 
today?
    Chairman Baker. I am sorry, your time has expired, Paul. I 
will come back to you.
    Mr. Chairman, Mr. Oxley.
    Mr. Oxley. Thank you, Mr. Chairman.
    Welcome, Chairman Gramm; and we look forward to our mutual 
relationship in the jurisdiction of the two committees.
    I want to thank you for your leadership on this issue and 
your leadership in the last Congress getting finally, after all 
those years, financial services modernization passed which 
bears your name along with Chairman Leach and Chairman Bliley. 
It was a pleasure to work with you. Many of the folks in this 
room had a great deal to do with our success, and I think the 
fact that the committee has expanded jurisdiction goes directly 
to our success in passing Gramm-Leach-Bliley, and we are 
excited about that. Obviously, the next step is to deal with 
some of the issues that we have before us, including the rate 
cut for these fees.
    Let me ask you this: You had indicated that you had hoped 
to get the bill to the floor late this month or early April. We 
obviously would like to keep abreast of that progress from the 
Senate and also from our perspective as well. I had some 
discussions with the gentleman from New York beside me here, 
Mr. Fossella, who will be lead sponsor on the legislation; and 
we hope to introduce that bill perhaps as early as next week 
but certainly the week after. But I want you to know that we 
are not slacking off, but we are going to try to keep pace. We 
think that the arguments you made make a great deal of sense 
and that this is a perfect opportunity to pass this needed 
legislation.
    I have no particular question but simply wanted to commend 
you and also your cosponsor, Chuck Schumer--he is, as you are, 
a former Member of this body--for, both of you, for your 
leadership and bipartisanship on this very important issue. I 
yield back.
    Senator Gramm. Thank you, Mr. Chairman. I look forward to 
working with you.
    I think this is something that, obviously, there is a lot 
of work to be done. But I think we can do it.
    I would like to say this is a fee and not a tax. This is a 
user fee which has been not through any effort by Congress to 
do it, but simply because the power of the American economy is 
now used for a purpose that it was never collected. It is 
important that we keep it a fee and not a tax, because by fee 
it is within your jurisdiction. If this were a tax, it would be 
under the jurisdiction of the Ways and Means Committee.
    [The prepared statement of Hon. Michael G. Oxley can be 
found on page 61 in the appendix.]
    Chairman Baker. Thank you, Mr. Chairman.
    Mr. Bentsen.
    Mr. Bentsen. Thank you, Mr. Chairman.
    Mr. Chairman, always good to see you. I have to say as a 
fellow Texan I am proud to see that Wall Street is coming to a 
Texan to get help on this matter.
    Senator Gramm. Well, actually, I went to Wall Street to get 
help on this matter.
    Mr. Bentsen. Senator, I think you are on the right track on 
this bill. But I do have a couple of questions. One is--and 
also I want to say I think, if I understand your testimony, the 
sort of anti-deficiency language, though, in your bill protects 
the functions of the Securities and Exchange Commission, which 
I think we would all agree for investors' sake, we would want 
to make sure that the SEC is not shortchanged in the process.
    You in your bill, as I understand it, you reduce all fees, 
not just the Section 31 transactional fees.
    Senator Gramm. That is right.
    Mr. Bentsen. Can you tell us why you chose to not just 
focus on the base of consumer side but instead on the 
registration fees and merger and acquisition fees?
    Second of all, if you could tell us, you mentioned that 
this the excess fee collection is about $14 billion, I think, 
over 10 years--or projected to be that amount as we are looking 
at--out 10 years on a lot of issues today. I don't know and I 
didn't look for this, but I don't think this is in the 
President's budget blueprint. You may have noticed it. And, if 
not, have you talked with the Office of Management and Budget 
and do you have a read from the Administration of how they feel 
about your legislation?
    Senator Gramm. Well, let me deal with these two points.
    First of all, as I looked at the fees, all three fees are 
ultimately paid for by the saving and investment community. 
Probably the most inefficient fee from an economic point of 
view is an excessive fee that is imposed on the issue of a new 
stock. I mean, that is like taxing seed corn. That really is a 
tax that makes it harder for every small business in America to 
grow and create jobs and become a bigger business, and I felt 
there was a very strong argument for that.
    In mergers, ultimately, the owner, the seller of the one 
stock, the buyer of the other stock is the American public. So 
while we sort of think of those things as being big business, 
from the point of view of the Treasury Employees Labor Union 
and their thrift savings plan, which many of us participate in 
as Federal employees, we are substantial investors in every one 
of those transactions as savers and investors. So we decided in 
the Banking Committee that the way to do it was to do all three 
fees equally.
    Could you do it any other way? You could probably make an 
argument either way. My basic belief was that all of these fees 
ultimately were paid by savers and investors; and, second, that 
they were all excessive if--that we were collecting 6 times as 
much as we needed.
    The second question, I believe the Administration will 
endorse this. I am very reluctant to speak for the new 
Administration, but I believe in the end that they will be 
supportive of reducing these fees.
    Mr. Bentsen. But, at this time, do you know offhand if it 
is assumed in their budget?
    Senator Gramm. I don't know whether it is or not.
    Mr. Bentsen. Thank you.
    Senator Gramm. At some point obviously they will be called 
upon to say whether they support the repeal of the fees. I 
believe they will.
    Mr. Bentsen. Knowing how bashful you are, I am sure you 
will find a way to ask them about it.
    Senator Gramm. Well, I have talked to them about it.
    Mr. Bentsen. I am sure you have.
    Thank you, Mr. Chairman.
    Chairman Baker. Thank you, Mr. Bentsen.
    By time of arrival, the next to be recognized is Mr. 
Fossella.
    Mr. Fossella. Thank you, Mr. Chairman; and thank you for 
your leadership and, in particular, Mr. Oxley as well. And I 
welcome you, Chairman Gramm.
    Other than to add very briefly that I think you hit the 
nail on the head, Chairman Gramm. That is that the moral 
argument of this is often ignored and lost, and that is this 
fee was intended to fund the SEC. The promise and the 
commitment through Congress to the American people and 
investors was for that very purpose.
    And I think trying to work with you and others in the 
Senate and people like Mr. Oxley here is all we are trying to 
do is give a refund to the American people and the investors 
that actually have to pay this fee. We are not saying that we 
want to underfund the SEC. To the contrary, the SEC is going to 
be fully protected and, thus, investors are going to be 
protected.
    In addition, we ask ourselves a very simple question. Do we 
believe that this overpayment to the Federal Treasury is better 
left in the hands of investors, families across America? I 
think Mr. Baker highlighted that. Or do we believe it is better 
spent here in Washington?
    As I see it, the answer is crystal clear, that if we really 
want to keep our economy growing, if we want to make more 
Americans investors, if we want to remove this unnecessary or 
excessive fee, we reduce it in a reasonable way. So I merely 
take this time to thank you, as Mr. Oxley does, for your 
leadership in the Senate. I believe at the end of the day we 
will do this and do what is best in the interest of Americans 
and the investors that have to pay this fee. And I thank you 
for your time.
    Senator Gramm. Thank you.
    Chairman Baker. Mr. Mascara.
    I am sorry. Mr. Crowley is next.
    Mr. Crowley. Thank you, Mr. Chairman. Senator, welcome; and 
thank you for your testimony today.
    Let me applaud you on your bill and Senator Schumer's bill. 
I support your measure.
    My office has been working with Congressman Towns and with 
Congressman Fossella in their markup of their bill. The concern 
that I have, the thing that really separates your bill from 
what I believe is Mr. Fossella's bill, is the issue of pay 
parity for the SEC workers; and I was wondering if you could 
enlighten us as to why you think that is important. I think it 
is important. But why you think it is important, why you think 
it should be included in the House version of the bill.
    Senator Gramm. Well, first of all, the SEC is losing its 
most capable people because the differential between their pay 
at the SEC and the private sector has gotten so large.
    Let me make it clear that the SEC will never be able to 
compete on a monetary basis with the private sector, so we 
don't have anyone working at the SEC or the Fed that doesn't 
want to do that job. Most people could get more in the private 
sector. Some are doing that job to learn skills and become 
credentialized to ultimately go into the private sector, which 
I think is a good thing for both the Government and the private 
sector.
    But we decided in our financial regulators that we wanted 
to increase pay for highly skilled people to try to make it 
possible for the people who wanted to stay at the Fed and the 
Comptroller through supervision to have ability to do that. 
Because the jurisdiction of the committees were different. The 
Banking Committee provided this pay parity for financial 
regulators, but a similar bill was not provided by the Commerce 
Committee. So, as a result, we have got employees, financial 
regulators at the Fed that are making one salary; and then we 
have got people who are doing jobs at the SEC that are at least 
as challenging, but they are making a lower pay grade.
    So this is, in part, simply good Government policy. It is 
partly a matter of equity. Again, nobody intended to give the 
pay parity to people at the Fed and these other financial 
regulators and not to the SEC. It was one of the by-products of 
our old jurisdiction where you had people doing similar type 
work but under jurisdiction of two different committees.
    If you look at the rates at which highly skilled people 
have left the SEC, I don't quite remember that number, but I 
think that the turnover rate was something like 9 percent--13 
percent last year. That was much larger than in the financial 
regulatory agencies, and I believe pay parity is a reason.
    Again, whether you want more regulation or less, we want 
good regulation; and you can't have good regulation without 
having good people.
    Mr. Crowley. Is it your understanding that the industry 
itself supports that measure?
    Senator Gramm. I do understand that.
    Mr. Crowley. Do you have any knowledge as to whether or not 
the industry itself overall would support including pay parity 
in this legislation?
    Senator Gramm. Well, in our bill in the Senate, we had both 
pay parity and the fee reduction; and we had broad support for 
that. I can't speak for industry anymore than I can speak for 
the Administration, but I think at least most people that I 
know in the securities business they would rather have more 
competent people regulating them than less competent people.
    Mr. Crowley. So for the record, Senator, would you like to 
see included in the bill pay parity?
    Senator Gramm. I have it in my bill because I thought it 
fit, and for the record I would prefer it in the final bill.
    Mr. Crowley. Thank you. I yield back the balance.
    Chairman Baker. Thank you, Mr. Crowley.
    Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman.
    Senator, I appreciate you coming to visit with us today. I 
followed you over here.
    Senator Gramm. Oh, this committee is so big it is hard for 
an old person to figure out where people are. OK.
    Mr. Ose. It is equally difficult for a young person, I must 
tell you.
    Senator Gramm. I had to look four rows up. I tell you it 
also is disconcerting to see people sitting on the top row that 
I hardly know. I once was over here, but it has been a while, 
obviously a while.
    Mr. Ose. The only reason I know it is tough for young 
people is Vito told me.
    On the pay parity question, do you have any numbers to 
quantify how much additional funding SEC might need to achieve 
pay parity?
    Senator Gramm. I don't have those numbers with me, but I 
think the SEC is going to--are you going to testify? Since we 
have a perfectly capable person who is being paid to do that, I 
am going to let her tell you, but they do have the numbers and 
will provide them.
    Mr. Ose. In terms of the industry itself, many of the 
intermediaries like Fidelity and others at the end of the day 
they will go into the market and sell their excess or buy the 
short having reconfigured their interior portfolios. Are fees 
collected on the interior transactions?
    Senator Gramm. Yes.
    Mr. Ose. They are.
    The question I have is that if we are collecting one-and-a-
quarter or one-and-a-half billion versus an SEC cost 
requirement of about $380 million a year, your proposal, if I 
read it right, would take the fee or tax charge, however you 
want to assess it, from \1/300\th of 1 percent to \1/500\th of 
1 percent. But it seems to me, if you do the math, you ought to 
go from \1/300\th to \1/900\th of 1 percent; and I am curious 
why we only go a little bit of the way.
    Senator Gramm. I think part of it was in our 1996 law in 
these outyears we are already reducing the rate somewhat. 
Believe me, we have spent a lot of time trying to figure out 
how to do this right since we don't want it to come back 4 
years from now and do it again.
    Second, we have tried to do it so that we don't 
disadvantage our appropriators so that we ended up getting 
opposition that we don't need. I will get somebody to put down 
on one sheet of paper exactly how all the numbers work and give 
them to you.
    Mr. Ose. I would appreciate that.
    My final question is, if I understand the 1996 legislation, 
it was very specific that this fee was designed to cover SEC's 
costs. It was not to cover SEC's costs and CRA or environmental 
remediation and X, Y and Z. Am I correct?
    Senator Gramm. There was no doubt about the fact, A, when 
the fee was first imposed and, B, every time we have changed, 
and including 1996, it has been the clear intent of Congress 
that the fee pay for the SEC's operation under the basic 
argument that the investing public benefits from the regulatory 
process and, therefore, they should pay for it. But no one has 
ever made an argument that I am aware of, that the Congress has 
adopted anyway, that the fee should become a general revenue 
source.
    I would argue--and I don't want to drift off into my old 
days as an economics professor--but if you were going to define 
efficiency of a tax as the most efficient tax is where I take a 
dollar out of your pocket, but I don't change your behavior, so 
you are a dollar poorer and the Government is a dollar richer, 
that would be the most efficient tax. The most inefficient tax 
is a tax where I take a dollar out of your pocket, but in doing 
so, I change your behavior, say the death tax, so that you sell 
your business sooner, you do all kinds of other non-productive 
things so that the cost might be $5 or $6 for every dollar we 
collect.
    I would argue that these fees, while they are justified to 
pay for the SEC, they are a very inefficient way to raise 
money. The cost they impose on society is much higher than the 
money we get. The idea of imposing fees on the issue of new 
stock, a direct tax on sort of the seed corn of the economy, as 
a way of funding the Government, it would be almost the worst 
imaginable tax you could come up with. Yet, through no intent 
by anybody, we have come up with exactly that system; and that 
is what we are trying to fix.
    Chairman Baker. Your time has expired.
    Mr. Israel.
    Mr. Israel. No questions.
    Chairman Baker. Mr. Lucas.
    Mr. Lucas of Kentucky. No questions.
    Chairman Baker. Mr. Hinojosa.
    Mr. Hinojosa. Thank you.
    Senator Gramm. We know that name well where I am from.
    Mr. Hinojosa. Thank you, Senator Gramm. It is a pleasure to 
see you.
    For me, it is a new experience to serve on this Financial 
Services Committee. I am going to pass up this opportunity to 
ask questions. Instead, I think I am going to listen and better 
understand your legislation; and from everything I have heard, 
it seems like a very prudent thing to do. So, up to this point, 
I have no objections.
    Senator Gramm. Thank you, dear friend.
    Chairman Baker. Thank you very much, sir.
    Mr. Ferguson.
    Ms. Hart.
    Mr. Weldon.
    Mr. Weldon. Thank you, Mr. Chairman.
    I just want to go on record as being in support of the fee 
reduction as well as the pay parity. I can readily see how that 
is important.
    Chairman Gramm, I appreciate you coming here and 
testifying.
    There will be arguments made, I think we have had heard 
some this morning, about the revenues and what they could be 
used for, quote, unquote, and that, of course, all those 
arguments always assume sort of a zero sum game, that if the 
Government doesn't get the money then the money is essentially 
lost. I wonder if you could elaborate on that. As I understand 
it, economic theory, that if we don't take that money in, then 
that money is going to be out there in the economy, essentially 
doing good things, creating jobs and in the end producing 
wealth and sending more money back to the Government.
    Senator Gramm. Well, let me say this, that I think the 
debate about Government spending versus taxes is a totally 
legitimate debate when you are debating the tax bill.
    I think on a user fee that the idea that we made a mistake 
when we set the fee in not taking into account the kind of 
economic growth we have experienced and therefore we have had 
this windfall at the expense of schoolteachers in California, 
retired couples in Florida, struggling parents in New York 
City, and therefore, since we have had the windfall that nobody 
ever intended, that now it is our money and therefore we are 
giving up something in having a fee that fits the purpose that 
the fee was adopted, I think that is a debate we ought to be 
having on the tax cut and not on this fee issue.
    The point is, the fee was put in place to fund the SEC and 
not to be a general revenue source. We are collecting six times 
as much as we need by the most conservative estimate; and, in 
doing so, you basically are affecting every saver and every 
investor in America.
    When you bring together the diverse groups that support 
this bill, it is pretty clear that this is basically a grass-
roots effort. And I just--today, with tens of millions of 
Americans increasingly investing their money in mutual funds 
and retirement programs, with--the average American family 3 
years ago had more wealth in its financial assets than it did 
the equity of its home, it seems to me that there is hardly 
anything that is more people oriented than not penalizing 
people that are trying to get ahead and save and invest and 
become owners of wealth.
    In the America of 50 or 100 years ago, only a very small 
number of people could ever benefit from the power of compound 
interest, and they were so greatly disadvantaged--I mean 
advantaged as a result of it. Now ordinary people are getting 
the opportunity, really for the first time, to benefit from it; 
and I don't think that we should be continuing excessive fees 
on them. That is really the argument, I think.
    Mr. Weldon. Thank you, Mr. Chairman. I yield back.
    Senator Gramm. If it is OK, why don't I stop and let 
Senator Schumer testify?
    Chairman Baker. Mr. Chairman, what I suggest--I understand 
Senator Schumer also has some time constraints--that perhaps we 
would recognize the Senator for his remarks; and for the 
Members we will pick up in the order we left with questions at 
that point. So that whoever has been patient and waiting to ask 
their questions, you'll ask either Senator at your choice.
    Chairman Baker. It is a pleasure to welcome you back, 
Senator. As a former colleague on this committee, we look 
forward to working with you in our expanded jurisdiction 
capacity and thank you for coming.

 STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR FROM THE 
                       STATE OF NEW YORK

    Senator Schumer. Thank you, Mr. Chairman; and I would like 
to thank you and Ranking Member Kanjorski for holding this 
hearing today.
    I would like you to know when you come down from New York 
to Washington you know that New York is at many disadvantages 
here in the Capitol. But this is one place where it is not. I 
count five New Yorkers here. And since this bill not only 
benefits America and New York, the financial capital of the 
world, we couldn't have a better forum to start out.
    I would also like to just thank you for getting going 
early. This is another one of--you would be surprised, Mr. 
Chairman. Over in the Senate there are many--or several ongoing 
Gramm-Schumer collaborations, and this is but another.
    Chairman Baker. It is a source of continuing amazement over 
here, I would add.
    Senator Schumer. The Senate changes you in remarkable ways.
    But, actually, Phil said this is really a grass-roots bill; 
and to prove it he brought me along here. Just kidding.
    Anyway, I want to thank you and I want to thank Chairman 
Gramm for his leadership on this issue. It is of great 
importance to investors across the country, big ones and little 
ones and every one in between.
    I am pleased to be working with the Senator to be lead 
Democrat in the effort to reduce the Section 31 and 6(b) fees 
in the Senate. Frankly, Mr. Chairman, I have never been more 
sanguine about our prospects, and starting this bi-cameral 
process early in the legislative cycle optimizes our chances 
for getting this done in Congress.
    As everyone here knows, these fees were enacted to fund the 
SEC as sort of a user fee. No one had any objection to that 
and--like the surcharge on airline tickets. Unfortunately, the 
fees have been--basically fallen out of line with the SEC's 
budget. Because of the democratization of the securities market 
in the 1990's, the volume of trading exploded and so has the 
volume of fees.
    I am sure Phil mentioned the numbers. Based on trading 
volume 40 years ago, Section 31 fees would have been about $3 
million. If fees had only grown with inflation, today they 
would be $17.7 million. But today they are not $17.7 million, 
they are $2.3 billion. That is an annual growth rate of 19 
percent, and it is 600 percent of the SEC's budget.
    Now, Congressman Kanjorski and I would probably like to see 
the SEC's budget go up that much, but I know Mr. Chairman and 
Chairman Gramm would not like to do that. So we think we ought 
to return it to the taxpayers.
    The way the law is currently written, the fee collections 
are used to fund the SEC; the rest becomes part of the overall 
Federal budget. Which means inadvertently this body and our 
body on the other side have passed a tax on investors that goes 
to funding all sorts of other projects and programs. We never 
intended that, and it is about time we undid it, and that is 
why we are here.
    S. 143 will rationalize the process by reducing the fee 
rate, capping the total fees collected; and, at the same time, 
it guarantees the funding that the SEC needs to grow in this 
expanding securities world. Over 10 years it is going to save 
investors $14 billion. And since, according to the SEC, 
investors pay 87 percent of Section 31 fees, all types of 
investors, from the retiree who owns 50 shares of Cisco to the 
mutual fund representing all of us with billions in the market, 
everyone will benefit.
    I don't have to remind this subcommittee nearly 50 percent 
of Americans have direct investment in the stock market. The 
Gramm-Schumer bill provides relief to every single one of them. 
So I would--I think theses issue have been talked about freely. 
I know Senator Gramm has given a great opening statement. So I 
am--instead of taking the committee's time, I am going to ask 
that the rest of my statement be read into the record.
    Chairman Baker. Without objection.
    Senator Schumer. And I am here available for your questions 
until I get a buzz from the Commerce Committee where I have to 
go back to.
    [The prepared statement of Hon. Charles E. Schumer can be 
found on page 63 in the appendix.]
    Chairman Baker. Understanding that, we would quickly 
recognize Mrs. Jones, who is next in line.
    Mrs. Jones. Thank you, Mr. Chairman; and, Senator Gramm, 
Senator Schumer, thank you for coming.
    I have to add a little humor to this. You see, all these 
guys just came on this subcommittee when they don't have a 
chance to sit at the top row. When I started, I was first at 
the bottom corner over there. We used to call it the kids 
table. So they are enjoying sitting at the top of the row.
    I am going to make my question kind of short. I would ask 
both of you to address it.
    The Section 31 fees are apparently the area in which there 
has been the most growth. I think, Senator Schumer, you just 
said that 87 percent of the Section 31 fees are paid by 
consumers. Your bill actually addresses more than Section 31 
fees. If in the other areas the fees have not grown at that 
magnitude, why is it that you propose that those fees be cut as 
well?
    Senator Gramm. Well, let me respond by saying that the 
figure that Chuck used is the figure where people pay the fee 
directly. The fees are paid indirectly by the other 13 percent. 
We just decided to do them across the board because it was the 
simplest way to do it. There is nothing magic about it. We have 
an excess of fees. We could have rearranged the distribution of 
it. But we just thought it was simpler to reduce all the fees 
across the board and keep the same relationship among the three 
fees.
    Senator Schumer. That is--basically, Phil has summed up the 
answer. I mean, our job here is to take this extra several $1.8 
billion or whatever it ends up being and bring it back to where 
it should be to the investor. And if we rearranged all the 
different fee amounts based on income--it is a great question, 
but we thought it would create more complications and get in 
the way of our overall goal. But it is not an irrational thing 
to do. What you suggest is not an irrational thing to do.
    Mrs. Jones. Just as a follow-up, and this is a new area to 
me since this is a new responsibility to me, too, the Banking 
Committee, I am assuming--or I would ask that perhaps whatever 
you have been doing on this issue to assess whether or not in 
the other areas there has been the significant growth and maybe 
we might need some of those dollars for the administration, I 
have no idea, but I would appreciate any information, if you 
don't do it toward some, subsequently it would be----
    Senator Schumer. Congresswoman, my staff informs me--I 
don't know if it is the same exact percentage, but because of 
IPOs and everything else there has been the same dramatic 
growth.
    Mrs. Jones. They are trying to tell you something.
    Senator Schumer. But those may be reduced under the 1996 
act, she reminds me.
    Mrs. Jones. Thank you, Mr. Chairman.
    Chairman Baker. Thank you, Mrs. Jones.
    Next would be Mr. Barr.
    Mr. Barr. Thank you, Mr. Chairman. It is a pleasure to have 
our two colleagues from the Senate here today.
    With regard to the issue of pay parity, I have some real 
concerns about sort of getting into that whole issue. Where we 
would draw the line with any number of Government agencies and 
indeed our military that have a serious problem with pilots 
leaving, attorneys leaving and going into private practice, at 
least in part because of disparities in pay and it being more 
lucrative in the private sector, I don't know that we could 
ever or would ever want to try and reach pay parity, get into a 
bidding war with private industry. There is something very 
special about public service, and certainly we all understand 
and the vast majority of Federal employees that I know and work 
with are men and women of tremendous honor and they make very 
serious sacrifices to serve the public, as all of us do.
    Is an issue of the fee reductions, the fee ratio reductions 
important enough that we should move forward with it even if we 
don't have the pay parity provision in the legislation?
    Senator Gramm. Let me respond by saying that by pay parity 
we mean parity among financial regulators. We have already done 
it for the other financial regulators, and so we were simply 
taking this opportunity where we were adjusting the fees to 
bring all salaries of all financial regulators in the system 
into parity.
    I am for it. I am also for fee reduction. So I learned long 
ago in our business if somebody is voting with you on one 
thing, don't insist that as a condition to do that they vote 
with you on everything, or else Chuck and I wouldn't be sitting 
here together.
    But I would ask you to look at this issue. The concern you 
raise is clearly a valid concern. We are not talking about 
parity with the private sector. Most people who are working for 
the SEC probably could make more money in the private sector, 
but there is no logic to people at the Federal Reserve Bank 
doing a similar kind of job being paid on a different scale, 
and we find ourselves in that unusual circumstance today.
    Senator Schumer. The only thing I would say to the 
Congressman is the parity is aimed at banking regulators who 
are under different types of rulings. The job of being an SEC 
employee is just as difficult, if not--Chairman Levitt--former 
Chairman Levitt and I think Acting Chairperson Unger will be 
here later to talk about the difficulty of finding good people 
in these. And we need them. The SEC regulation system, where 
there has been a broad consensus based on disclosure rather 
than detailed regulation, needs good people there; and we are 
really suffering. So this isn't going to cost that much. It is 
not private versus public, which is opening a whole can of 
worms but, rather, simply equaling our parity to those of the 
banking regulators who run different rules, because there is 
different types of agencies.
    Mr. Barr. OK. Thank you for the clarification. Thank you, 
Senators.
    Chairman Baker. Thank you, Mr. Barr.
    Mr. Meeks.
    Mr. Meeks. Thank you, Mr. Chairman.
    Senator Schumer, let me just ask this very briefly. You 
know, because of the Gramm-Leach-Bliley law, we have separated 
the barriers from banking, insurance and securities. My 
question is this: Banks still operate on the CRA rules and 
regulations, and some have suggested why not take some of the 
excess fees and apply them to funds for economic development 
and environmental restoration, leveling the playing fields with 
the banks as far as the CRA requirements. What do you think 
about that?
    Senator Schumer. I think it is an interesting idea, though 
it is one I would oppose for this reason. The original sort of 
tradeoff with the banks, why they are under more severe forms 
of regulation than say the securities industry, is because they 
got Federal insurance; and still, to this day, people go to 
banks because they know Uncle Sam is there. Recent history has 
proven most people believe it is there, not just for the 
$100,000, but for the whole ball of wax, and history has borne 
that out. Phil and I would probably disagree whether that was 
good or bad, but that has never happened.
    The whole framework of the securities industry, which is 
more entrepreneurial, which is more ``win a lot of money and 
lose a lot of money,'' has never had that Federal insurance. I 
think it would be a terrible idea for both the industry and for 
the country to give them that Federal insurance. They would 
certainly demand it if we extended CRA and other types of 
things which I have been fully supportive of.
    As you know, in Gramm-Leach-Bliley that was our major 
sticking point until we came to an agreement on that. And I 
think it would be a bad idea, because I think it would change 
the whole entrepreneurial nature of the securities industry.
    I support putting in more dollars. I know how good CRA has 
been for the community you represent and for hundreds of 
communities across America and scores across New York, but I 
don't think this would be the right way to do it.
    Mr. Ose. Will the gentleman yield for a follow-up?
    Mr. Meeks. I yield.
    Mr. Ose. I want to go back. I asked earlier about the pay 
period qualification. I scanned Ms. Unger's testimony. It is 
about $70 million to achieve pay parity.
    If I understand correctly, if we opted to do that, that 
would take us from about $380 million in SEC costs annually to 
$450 million, which would still be roughly \1/5\th of what the 
fees are, according to Senator Schumer's testimony.
    I come back to my point that the underlying legislation 
authorizing the fee collection only allowed collection for the 
costs of SEC. Is that correct?
    Senator Gramm. The way it works is that we look at the 
adopted budget of the SEC and we adapt the fee to that. So 
whatever Congress decides in terms of funding for the SEC, that 
will--with a delayed process will determine what the fee will 
be.
    Now, as you know, when we grant pay increases in the 
Federal Government, sometimes we absorb the pay increase and 
sometimes we fully fund it without absorption, and sometimes we 
have a degree of absorption and a degree of funding.
    The decision about funding the SEC will be made by the 
Appropriations Committee, and they will make a decision--
assuming that we grant pay parity, they will make a decision as 
to whether any of it should be absorbed, all of it should be 
absorbed, part of it should be absorbed. But there will be no 
problem in terms of the fee, because the fee will be adjusted; 
and we maintain a cushion in the way we have set it, in any 
case, for a fairly short period of time. So we try to come up 
with a dynamic way of doing it so we are sure, no matter what 
happens to volumes, that we do not end up with this excessive 
collection of fees.
    Mr. Ose. If I understand the math of the proposed 
flexibility, instead of being four or five times what is 
necessary, we get down to one-and-a-half to two times what SEC 
costs are on an annual basis.
    Is that about right?
    Senator Gramm. We have a cushion in the bill of some 40 
percent or something like that.
    Mr. Ose. I thank the gentleman.
    Chairman Baker. Our next Member would be Mr. Fossella.
    Mr. Cox.
    Mr. Cox. Yes, thank you. I want to thank my Senate 
colleagues and betters for attending today and providing your 
testimony.
    Even though, Senator Gramm, I missed your testimony, I----
    Senator Gramm. I could give it again.
    Mr. Cox. You will be providing it.
    Obviously, the central question for us is whether or not to 
conform our House legislation to what you have provided. I know 
we will hear from Chairman Unger that she supports our doing 
that, and I wonder if you can think of any good reason that we 
should not.
    This is not a trick question.
    Senator Gramm. Again, I stated earlier in responding to 
Congressman Barr that we decided to do it this way because it 
made sense to us.
    Mr. Cox. I ask you this question not so much because the 
answer appears obvious, but because if we were to move to 
conference, presumably the whole thing would be conferencible 
and we could do it there.
    Is there any reason to think that moving a bill quickly 
through the committee, as it has been presented to us, might 
get this enacted into law faster?
    Senator Gramm. That is a decision you've got to make. We 
made the decision to do it together because we thought it made 
sense, obviously, because it is in our bill, if we get to 
conference, and I believe we will, it will be conferencible.
    But however you want to do it, again, if somebody is for 
part of something, I am not going to say, don't be with me on 
part of it because you are not with me on the rest of it.
    Mr. Cox. Did you----
    Senator Schumer. Which he doesn't always say on everything.
    Mr. Cox. Did you address in your earlier presentation--I 
apologize if you did--what you expect the Senate timing to be?
    Senator Gramm. I said we passed it out of committee on a 
voice vote. We have legislation pretty well stacked up until 
the last week of this month. My objective is going to be to try 
to get this bill on the floor of the Senate either the last 
week of this month or the first week or two of next month.
    So we are going to try to move forward, and we are working 
hard on it. There is a strong grass-roots base of support.
    The number of beneficiaries of this bill is very, very 
large. My guess is with direct investors, with IRAs and 
401(k)s, we probably have, counting family members, some 200 
million beneficiaries. So it is hard to imagine a bill that 
will touch more lives.
    Granted, it is just a little bit here, a little bit there. 
But as I said, on a retirement program, we are talking about 
$1,300 of excessive fees. If you could invest those fees 
instead of having them taken away and be $5,800, there are not 
many retirees that could not find a use for $5,800.
    Mr. Cox. This has been essentially a love fest today, with 
minor exceptions at the margin. We are obviously all in 
agreement here on the merits of fee reduction and 
rationalization. The only question, it seems to me, that is 
before us is to what extent we try and conform ourselves to 
your overall approach with respect to the pay structure at the 
Securities and Exchange Commission.
    I would certainly urge our subcommittee to do whatever we 
can to do this as quickly as possible so we can have 
legislation before the President as soon as possible.
    I yield to my colleague.
    Mr. Kanjorski. Thank you, Mr. Chairman.
    First----
    Mr. Cox. In fact, even though I was not here for your 
earlier comments, I understand it is not entirely a love fest.
    Mr. Kanjorski. May I make a point? First of all, Senator 
Schumer, you indicated that we have no insurance policy for 
investors. In fact, we have the Securities Investor Protection 
Corporation.
    I would like to offer for the record an article in the New 
York Times Business Section of September 25, 2000. It is a 
rather detailed article and one story involves a case in 
Pennsylvania. Someone invested $100,000 in bonds, and the bonds 
were fraudulently purchased and absconded by the investor and 
it took them 4 years to get their money back. It shows the 
inadequacy of the fund as to how it is operating.
    We need to address this issue. These funds could go to 
correct these sorts of excesses and failures that are out 
there. They could protect the American investors we all talk 
about protecting--not the Wall Street brokers, but ordinary 
investors in our districts. This is the fund that should do it.
    Mr. Chairman, I ask to submit that article for the record.
    Chairman Baker. Without objection, we will put this in the 
record.
    [The information referred to can be found on page 97 in the 
appendix.]
    Senator Schumer. Congressman.
    Mr. Kanjorski. Yes.
    Senator Schumer. I think the best way to protect investors 
is to give the SEC the funds it needs. They will admit to you 
that they don't have those now, and our bill helps do that. Of 
course, SIPC is not a grand scheme of Federal insurance the way 
we have it for----
    Mr. Kanjorski. You mean on the SEC pay scale, bringing it 
up to parity with other financial regulators.
    Senator Schumer. And let them hire the people we need.
    Chairman Baker. We have a couple more Members.
    Let me announce this: We have a vote on the floor. I would 
intend to stay another 10 minutes, with your cooperation. I 
have two Members who have been here most of the morning. I know 
they would like to ask of the Senators before they leave.
    Mr. Cox. In the interest of moving along, Mr. Chairman, I 
yield back the balance of my time.
    Chairman Baker. It has been expired a little while back.
    We have two Members--excuse me, three. We have Mr. Shadegg; 
Mr. Rogers; Mr. Sherman, who just stepped out; and Mrs. Kelly, 
who is not a Member but has been patiently participating this 
morning. If we can, I would like to get those three Members in 
before the clock runs, starting first with Mr. Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman. I will be brief.
    I simply--I guess to join the love fest want to say that on 
behalf of the interests in my district who have looked at this 
legislation and have let me know their sentiments, including, 
at least the figure I have is some 80 million families that 
invest, I think this is legislation that is well overdue. I 
commend you on your efforts and I appreciate you for taking 
your time to come here this morning.
    I yield back the balance of my time.
    Chairman Baker. Thank you, Mr. Shadegg.
    Our next Member is Mr. Rogers.
    Mr. Rogers. Mr. Chairman, I will yield my time.
    Chairman Baker. Mrs. Kelly.
    Mrs. Kelly. Thank you, Mr. Chairman.
    I thank both of you Senators for coming over this morning. 
I appreciate your letting me speak here at the committee today.
    I simply want to ask, you have something in your bill that 
I don't think I have heard discussed. What is the advantage of 
reducing the other fees that are in the bill, the mergers and 
tenders fee and the registration fees? I wonder if you could 
just speak quickly to that.
    Senator Gramm. We made a decision that all three fees have 
grown exponentially and that we wanted to keep them at their 
same relative rate; so reducing one, we would reduce the other.
    I would say the same argument applies; to the degree that 
we incur costs at the SEC in overseeing the issuing of new 
stock, we should collect the amount of fees we need to oversee 
the issuing of new stock and not more. The same is true with 
mergers and tender offers. The fee should reflect the cost of 
overseeing, supervising, and making decisions in those areas.
    I would say also that every one of these fees is ultimately 
paid for by investors, and so I think all the same arguments 
apply. I don't think there is one fee that is more consumer-
oriented than the other.
    I would have to say, from a philosophical point of view, 
which has nothing to do with the fee and its use, I find the 
fee on the issue of new stocks probably the most inefficient 
economically, because it imposes a fee on a transaction that is 
so critical to the American economy, and that is the issue of 
new stock and really the birth of new public companies.
    But we decided not to get into all of that. I think Chuck 
said it well: We were not trying to create problems, we were 
trying to solve problems, and keeping all three of them 
proportional was a way of doing that.
    Mrs. Kelly. I thank you.
    My office just did a little quick calculation. We found 
that if you had a long-term investor that went into the market 
with $1,000 in a mutual fund with the returns matching the 
Standard & Poors 500 in 1950, it would be now worth about half-
a-million dollars; but if you figure in a compounded 2 percent, 
which is conservative, fee, it is only worth $230,000. That is 
a big cut.
    I think that these fees really--I agree with you, I think 
we should maybe take a look at the whole gamut of them.
    Thank you very much. I yield back.
    Chairman Baker. Thank you, Mrs. Kelly.
    Mr. Kanjorski wants one more round before we recess.
    Mr. Kanjorski. It is tough to get into a discussion when 
Senator Gramm and Senator Schumer are on the same side. I do 
not know where we go. We have the whole gamut covered.
    Senator Gramm. When you are outside our spectrum, you are 
pretty far out there on the wings.
    Mr. Kanjorski. You have made a very strong argument here 
for equity and fairness, and that appeals to me. Certainly 
these fees were intended to cover the costs of regulatory 
transactions, but it remains a question as to whether or not we 
can get these fees into balance.
    But if you are going to carry that principle over, Senator 
Gramm, I am still worried about losing $1.5 billion to the 
Treasury. How are we going to make it up? If you are going to 
say that we do not have to make it up, then we have a problem.
    Mr. Schumer, you should take up on this issue. We have a 
lot of trust funds in the United States Government that we have 
been robbing and not using because we need those trust funds to 
cover the budget. When is their day of fairness?
    Let me give you one example, and I ask your assistance on 
it. We have almost $2 billion in the Abandoned Mine Land Fund. 
It has been used to run every other agency of the Government of 
the United States for the last 6 years without any major 
portion of the fund going back to reclaim land. That is what 
the fees paid by the coal operators were to be used for--to 
make up for past bad practices that affect human life and put 
it at risk.
    Do you not think before we give the money back or reduce 
this fund that we should make whole these other funds, and make 
sure that the funds that they are no longer being used for 
general Treasury purposes--which it not what they were created 
for? Where is the equity here?
    Senator Gramm. Let me respond by saying that we really have 
already started doing that. I worked with Senator Byrd on 
trying to fix the problem we had with the Highway Trust Fund, 
where 26 cents out of every dollar of gasoline taxes was not 
going to road construction, was not going to mass transit. We 
fixed that. As a result, every penny of it goes for those 
purposes.
    I believe that we should--with user fees and trust funds, 
that we need to basically have them go for the purposes they 
are created for. This is the one that is under our 
jurisdiction. It is not a trust fund; it is simply a funding 
source.
    We have already done it for the biggest trust fund, which 
was the Highway Trust Fund. I think this is a major step toward 
doing what you are talking about.
    Mr. Kanjorski. So I could anticipate the support of Senator 
Gramm and Senator Schumer in the Senate when we try and make 
whole the Abandoned Mine Land Fund? That it is the right thing 
to do. These $1.2 billion should be paid out to fix this land 
trust fund.
    Senator Schumer. Let me say it is a little bit of a 
different argument in this sense: This is not a trust fund. In 
other words, there is not a whole lot of money sitting here. 
You can argue--if you have a trust fund, where it sits there, 
you can argue it either way--either spend the money on the 
intended purpose or return the money to the taxpayers.
    Mr. Kanjorski. But the reason we have not been able to fix 
this is that if you spend the money on its intended purpose, 
there is a shortfall of revenue in the overall Federal budget. 
This legislation is going to exacerbate that problem. We are 
going to lose $1.5 billion a year of revenue that is now going 
to the United States, so that is less of an opportunity to 
pledge our money to these funds.
    But you are certainly right. I agree with you completely.
    Senator Gramm. These fellows don't own this.
    Senator Schumer. Right. But it is fundamentally not an 
honest way, and I don't mean dishonest in terms of crooked, but 
in terms of telling people what they are paying; when you pass 
a law to do one thing, like the nickel gasoline tax, and then 
it does another, and you at least have to pay, you know--and 
that is not fair, which--the fund you are mentioning, it is the 
same thing.
    Mr. Kanjorski. But we do not have the revenues to pay out 
that fund money. The fact is, I am perfectly agreeable to go 
along with you and be fair on this type of fee arrangement. 
What I am asking for is an equitable commitment from two 
extremely effective Senators to help us be true to the purposes 
of these other funds and to make sure the revenues are there, 
from whatever fair source they come from, to pay out as 
intended by the Congress for the last 20 or 25 years.
    Senator Schumer. I would be very sympathetic to that 
argument.
    Senator Gramm. I would have to say that I think trust funds 
should be used for the purposes they have been collected. Trust 
funds are a little bit different. But within that caveat, I 
think either you ought to lower the fee and collect less, or 
you ought to use the money for the purpose that it was 
collected.
    What we are trying to do here is lower the fee.
    Chairman Baker. If I may interrupt, we are down to about 3 
minutes on the floor.
    I especially want to extend my appreciation to both the 
Senators for being here on our first full hearing of this new 
subcommittee. I think you set a high standard of bipartisan 
cooperation for us to emulate. I appreciate your bold 
leadership.
    And, Senator Gramm, for the record, some may have indicated 
you didn't go far enough in cutting taxes. I want to clear the 
record. This subcommittee will never accuse Senator Gramm of 
not being aggressive enough. Thank you.
    We will stand in recess pending the second panel. We are 
going to go right over and vote and come right back. We will 
have limited opening statements, as promised to Members.
    I would expect to reconvene in about 15 minutes.

    [Recess.]

    Chairman Baker. I would like to reconvene our hearing of 
the Capital Markets Subcommittee.
    Upon consultation with Mr. Kanjorski, we determined that we 
would both submit statements for the record, as well as make it 
permissible for all Members who choose to submit an opening 
statement to do so at any time.
    I am pleased to welcome our next witness, our entire second 
panel, and welcome you here. I know certainly of your 
experience on Capitol Hill and your longstanding service within 
the SEC, and in your capacity as acting director, we look 
forward to your insightful knowledge on this subject, as well 
as others, over the coming months and years, I'm sure.
    So we extend our welcome to you, Ms. Unger.

STATEMENT OF HON. LAURA S. UNGER, ACTING CHAIR, U.S. SECURITIES 
                    AND EXCHANGE COMMISSION

    Ms. Unger. Thank you very much, Chairman Baker, and thank 
you, Ranking Member Kanjorski, and--is there any other Member 
up there--other Members as they come in.
    Chairman Baker. They are on their way. They weren't as 
committed to getting here as Mr. Kanjorski and I, but they are 
on their way.
    Ms. Unger. Thank you for the opportunity to testify here on 
behalf of the SEC regarding fee collections required by the 
Federal securities laws.
    I am also honored to be the first SEC Chairman to appear 
before the Capital Markets Subcommittee of the newly created 
House Financial Services Committee.
    Today the subcommittee examines an issue of considerable 
importance, as you have heard, to our capital markets, the 
current fees the SEC is required to collect. Registration fees, 
transaction fees, and merger and tender offer fees impose 
excessive costs on investors, public companies, and securities 
firms. Although Congress first imposed those fees as a means of 
recovering the cost of securities regulation, the Congressional 
Budget Office today estimates that fee collections this fiscal 
year will total almost $2.5 billion, which is an amount more 
than five times the SEC's current budget.
    The Commission shares the committee's concerns regarding 
these excess collections and believes that there is an 
opportunity for Congress to significantly reduce these fees.
    Crafting a successful fee reduction is technically complex 
and it affects a number of interested parties. Because these 
fees are the source of the SEC's funding, it is also critically 
important to the Commission that the fees be reduced in a way 
that is consistent with full and stable long-term funding for 
the agency. A stable source of long-term funding will ensure 
that the SEC continues to effectively perform its statutory 
mission of protecting investors and maintaining market 
integrity.
    I want to briefly mention four elements that the Commission 
believes are essential to any successful fee reduction, all of 
which is explained in greater detail in the written testimony.
    First, any bill should take into account the difficulty of 
predicting future market conditions. The NSMIA example that you 
talked about a little bit today, or that the Senators talked 
about a little bit today, shows that simply reducing the fees 
and the fee rates will reduce collections only if our markets 
do not exceed current projections. Fees should be reduced in a 
way that leads to more stable and predictable fee collections 
in the future.
    Second, any bill should reduce fees in a manner that 
spreads the cost of regulation among those who benefit from the 
activities of the Commission. By targeting all three types of 
fees the Commission collects, Congress can reduce costs not 
only to investors and other market participants, but also on 
the capital-raising process.
    Third, any bill must be administratively workable for both 
the industry and Government. The current fee collection system 
involves a large number of parties, all of whom will have to be 
able to work with any fee rate reduction mechanism in the 
future.
    Fourth, and above all to the agency, we believe that any 
fee reduction bill must be consistent with full and stable 
long-term funding for the agency.
    This involves two prongs. The first is preserving the 
ability of our appropriators to fund SEC operations out of 
offsetting collections, and the second is ensuring that the 
agency continues to be able to attract and retain qualified 
staff.
    The Senate fee reduction bill that Senators Gramm and 
Schumer described to you ensures that the currently projected 
offsetting collections will be available to our appropriators 
to fund the agency in future years. The Senate bill also 
addresses the SEC's current staffing crisis by giving the 
Commission the much-needed ability to match the pay and 
benefits of our sister regulators at the banking agencies.
    For fiscal year 2000, the attorneys, accountants, and 
examiners at the banking agencies made 24 to 39 percent more 
than their counterparts at the SEC. You can imagine the effect 
that this has had on our staff's morale, not to mention their 
pocketbooks.
    The pay discrepancy between us and the banking regulators 
is particularly illogical in the wake of the historic Gramm-
Leach-Bliley Act. Gramm-Leach-Bliley requires increased 
coordination among financial regulators as they undertake 
examinations of increasingly complex financial services firms.
    More than ever before, Commission staff members are working 
side by side with their banking counterparts and performing 
similar regulatory functions while making substantially less. 
The Commission must be able to attract and retain a high 
caliber of staff to tackle some of the most complex and 
difficult issues it has ever considered.
    No segment of American business has been more transformed 
by the rapid pace of technological change in recent years than 
the securities industry. No less important, our markets today 
are increasingly global, a trend that most expect to accelerate 
in the coming years.
    The demographics of our markets have radically changed as 
we have become a Nation of investors. Twenty years ago, only 
5.6 percent of Americans owned mutual funds. Today some 88 
million shareholders representing 51 percent of U.S. households 
hold $7.4 trillion of mutual funds. This exceeds by about $4 
trillion the amount on deposit at commercial banks. All of 
these developments raise complex and critically important 
challenges that the SEC must be prepared to meet.
    At such a critical time in our market's development, the 
Commission simply cannot afford to suffer a prolonged staffing 
crisis. Alarmingly, our attrition rate is nearly double the 
Government average. Over the last 2 years we have lost 30 
percent of our attorneys, accountants, and examiners, including 
a number of our most experienced and skilled professionals who 
have left to take better-paying jobs. If this trend continues, 
the Commission's mission of protecting investors and 
maintaining the integrity of the market will be seriously 
threatened.
    We would prefer to lift Title V restrictions before a 
crisis arises, as it did for the banking agencies in 1989.
    In conclusion, I want to commend the subcommittee for 
conducting this hearing. We look forward to working with you 
and other interested parties on this issue.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Laura S. Unger can be found 
on page 66 in the appendix.]
    Chairman Baker. Thank you, Ms. Unger. We certainly 
appreciate your appearance here this morning.
    My first question goes to the methodology preferred by the 
Commission with regard to fee reduction itself. I understand 
there are at least a couple of different approaches. One is 
perhaps a little more difficult for the Commission to calculate 
in a timely manner, meaning less than 6 months, when a certain 
trigger might be initiated for fee reductions; the other of 
which may set sort of a cap approach, where it is a fixed 
amount.
    Do you have a recommendation to the subcommittee as to 
which or what manner of adjustment to the fee reduction in 
order to ensure funding of the SEC operations would be 
preferable?
    Ms. Unger. I think that Congress attempted in NSMIA to fix 
the fee schedule and bring it closer in line with the cost of 
regulation.
    The lesson I learned was that the fee schedule needs more 
flexibility. The Senate bills' floor and ceiling provision 
takes into account market growth and the impact that it would 
have on the amount of fees the Commission receives that 
eventually go into the appropriations pot of money.
    The floor and ceiling approach is a difficult but possibly 
workable solution. Right now, the staff is in the process of 
meeting with the industry to find out from the people who would 
actually have to implement this system. First, how workable it 
would be, since they would be the ones collecting the fees. If 
that is going to be problematic for them, and if there is some 
type of recommendation they can make what has been introduced 
in the Senate, we would be happy to work with the Senate staff 
on making those recommended changes.
    Chairman Baker. Well, just my initial observation without 
getting into the detail, it appears on the face of it that the 
Chairman Oxley approach offers some benefits that Senator 
Gramm's approach does not with regard to complexity of 
calculations and certainty of funding. But perhaps I will 
follow that up with a more detailed written analysis and get 
your opinion on that.
    Ms. Unger. We would like simple and certain.
    Chairman Baker. And I am sure, the funding.
    I noted with some interest the fact that now 51 percent of 
U.S. households now engage in some mutual fund investment 
activity.
    Do you have any indication--I notice when the New York and 
American Exchanges close, the number of shares traded during a 
particular day, that does not really represent the number of 
transactions. On a daily basis, what would be the scope of 
responsibility for the SEC's supervision related to the number 
of transactions today, say, versus a decade ago?
    Ms. Unger. I have those numbers; not quite a decade ago, 
but I will give you what I have.
    For 2001, the combined NYSE and NASDAQ average daily share 
volume is 3.5 billion shares a day. In 1996, that same 
calculation was 955 million shares a day. The average daily 
dollar volume for that same period for 2001 is $123 billion per 
day. For 1996 it was only $29 billion per day.
    Chairman Baker. What is of obvious concern to me is the 
individual who trades directly. It is difficult enough in 
understanding broker language and reading the disclosures they 
are required by law to provide the investor, but where the 
investor is acting directly online, the ability to have the 
transparency to understand the risk one is assuming--and I 
think perhaps in the last few years investors almost felt 
guilty in admitting they were not in the market, and a lot of 
people chased the opportunity without truly understanding the 
risk they were encountering.
    To that end, I think having adequate staffing within your 
agency is extremely important, not only on the enforcement 
side, but even on the education side; and providing additional 
transparency of the market to the investors so they understand 
the true risk they face.
    But I don't want to go over my time, because I know there 
are other Members who do have significant interest.
    At this time I recognize Mr. Kanjorski.
    Mr. Kanjorski. Thank you very much, Mr. Chairman.
    Ms. Unger, I called the attention of Mr. Gramm and Mr. 
Schumer to the article that appeared in the New York Times 
Business Section on September 25, 2000, talking about the 
inadequacies of the Securities Investor Protection Corporation 
and the act establishing that entity by Congress.
    Have you had a chance to look into that problem, and if you 
have not, will you take the opportunity to do so? Because there 
are funds here that could flow to the benefit of investors that 
seem to be delayed in their recoveries or contested on their 
recoveries, to their great loss.
    It seems to me that the very limited coverage given by that 
act could be expanded to more closely parallel, as appropriate, 
the positions of the FDIC.
    Ms. Unger. Actually, our Office of Compliance Inspections 
and Examinations, which we call OCIE, is looking into a couple 
of claims that have been made, I would say, in the last year or 
so, and some of the experiences we have had with those claims 
in connection with SIPC.
    So my understanding is that they will be bringing to the 
Commission soon their findings and perhaps some recommendations 
in connection with that whole process.
    Mr. Kanjorski. The article seems to point out that the 
legal fees and the trustees' fees exceed the payments made to 
the investors, and inordinate defenses are put up to inhibit 
the investors from receiving compensation back, as was 
originally intended by Congress.
    If you could you go over the article and do a study, I 
would appreciate it. It seems to me that before we correct this 
fee schedule, we should see if we are adequately protecting 
investors from any fraud and abuse occurring in the securities 
industry, and we should first try and utilize these funds to 
make that whole.
    Ms. Unger. I will take a look at the article and talk with 
the staff people who are working on that.
    Mr. Kanjorski. One other thing. As I understand it, the SEC 
handles the civilian side of enforcement, but if there is fraud 
or abuse or some other activity in the securities industry that 
causes referral to the Justice Department, that expense is not 
borne by this fee effort.
    It would seem to me that we should not only look at civil 
costs involved in the administration of the Securities and 
Exchange Commission, but also the costs incurred by the United 
States Government when referrals are made to the Justice 
Department.
    If these funds only pay for the salary and operational 
costs of the SEC, it means that general taxpayers are paying 
for the administration of the criminal justice system in the 
securities industry. That would not seem to represent a 
fairness to me.
    Ms. Unger. Actually, the fees that were discussed, the 
Section 31 fees and Section 6(b) fees, are statutorily set fees 
that the appropriators changed and continue to change every 
year. The articulated rationale for the fees is to recover the 
cost to the Government of securities regulation.
    We have civil authority, and we have administrative 
authority. We do bring actions involving fraud and violations 
of the Federal securities laws.
    It just so happens that in New York, the Southern District 
and the U.S. attorneys have taken an active interest in white 
collar crime. We often coordinate with those agencies. We give 
them documents; we lend them personnel. So, in fact, we are 
sort of subsidizing that actively; and there is or has been 
some actual funneling of our money to those to combat criminal 
violations.
    Mr. Kanjorski. But would it not be wise for us to do an 
analysis or study of just what the costs are to the Justice 
Department of administering the criminal administration of 
justice in securities fraud?
    I do not think in the Boesky case the SEC paid all the 
costs of that case. Obviously, the Justice Department out of 
their budget paid some of that cost, and their budget comes 
from the general tax revenues of the United States, not from 
these fees.
    It would seem to me if we want to really get accurate here 
and do what Senator Gramm talked about, that is, use the fee to 
really pay for the regulation and enforcement--and when I say 
``enforcement,'' it is both civil and criminal in the 
securities industry--we should allocate a portion of these fees 
to be returned to the Treasury to help offset the general tax 
revenues costs that are going to the Justice Department to 
administer the criminal laws in the securities industry.
    Ms. Unger. I will just make one final point on your issue. 
That is, what we are only talking about is fees right now on 
the capital-raising and transaction costs. We also get a large 
sum of money in terms of disgorgement in our enforcement 
actions. Last year that number was $19 million. That does go 
into the General Treasury Fund.
    Mr. Kanjorski. $19 million?
    Ms. Unger. $19 million.
    Mr. Kanjorski. That is hardly enough to pay for some of 
these extremely expensive cases.
    Ms. Unger. In the case of Boesky, the number we collected 
against him in the most recent action was $30 million. Then 
prior to that I think it was in the area of $100 million. That 
all does go into the General Treasury Fund.
    Mr. Kanjorski. Has anybody made a study, however, of what 
the costs are on criminal enforcement of securities laws or 
other criminal activities that emanate from the securities 
industry?
    Ms. Unger. I am not aware of that.
    Mr. Kanjorski. Would it not be wise to analyze whether a 
portion of these funds should be directed that way, or at least 
not cut? While the benefit here goes to the investor, there is 
a cost to the average American taxpayer who is not a securities 
investor for carrying out the criminal justice system through 
the Department of Justice, as opposed to the SEC.
    Chairman Baker. Let me jump in here. We will be able to 
come back to you, Mr. Kanjorski, but we have a couple of 
Members that I need to get in. Then we will come back.
    Mr. Fossella.
    Mr. Fossella. No, sir.
    Chairman Baker. Mr. Royce.
    Mr. Royce. Thank you, Mr. Chairman.
    I wanted to ask the Chair, if I could, if Ms. Unger could 
explain--we heard the Chairman of the Fed explain that the 
economy was flat, that arguably we are maybe growing at 1 
percent.
    Could you describe how cutting excess SEC user fees might 
help stimulate capital formation and how it might encourage a 
more perfect market, perhaps, by reducing transaction costs to 
come in and out of the market?
    We were talking about the negative savings rates in the 
country. Could you tell us a little bit about how this might 
have a positive impact?
    Ms. Unger. As was noted earlier, the proposal does, or the 
legislation does cut three different kinds of fees: the 
registration fees, merger and tender offer fees, and the 
transaction fees.
    I can talk about each one of those, and Senator Gramm so 
eloquently said how important it was not to have a tax on 
capital formation and not to have unnecessary fees associated 
with that, which has been the case.
    I can tell you the amount of fees we have collected over 
the years for each of those fee categories, depending on the 
marketplace, of course, and it does fluctuate; and the reason I 
think that they want the bill to include all three kinds of 
fees is to have some diversification and stability in the fee 
collections, depending on the marketplace.
    As to the transaction fees, one thing that had not really 
been discussed is that of the full amount of the fee collected, 
about 85 percent of it is paid by the investor. If the 
securities industry reduces the fees accordingly, that amount 
is money that will be going back to investors.
    It is interesting that you should raise the question of 
what stimulates the economy, because in the context of all 
these tax cuts, I have been asking people, what would you do if 
you had a $1,000 tax cut? Would you spend it, save it, or 
invest it? And everybody says, spend it or invest it.
    So I think that is what we are hoping for, when people have 
a little extra money, that they spend it or they invest it. 
That is where the money will probably go. If you look at the 
fees in and of themselves, they are not huge, but when we look 
at the aggregate amount of the fees, it is huge.
    Mr. Royce. Given the aggregate amount of the fees, is it 
more likely people would look differently at how quickly they 
enter or exit the market if they perceived that the cost of 
doing so, the transaction cost, was reduced?
    Ms. Unger. I am not sure I understand the question.
    Mr. Royce. I am just looking at it from the standpoint of 
reducing the cost to the potential investor.
    Ms. Unger. For people who move quickly, maybe intraday or 
short-term investors, you might say, I think those are maybe a 
different category of investors.
    I think when we talk about the number of Americans or the 
American households that own mutual funds, we are talking about 
a longer-term investor. It is probably difficult to predict 
exactly what the impact will be of the fee reduction in terms 
of people's behavior in the marketplace, but I feel pretty 
confident that it will have some type of impact on their 
behavior.
    Mr. Royce. Thank you, Chairwoman Unger.
    Chairman Baker. Thank you, Mr. Royce.
    Mr. Kanjorski, want to take another swing?
    Mr. Kanjorski. On that issue, it is not quite fair to talk 
about the investors, particularly these mutual find investors, 
receiving all this money back, is it? What portion of the 
investors are actually mutual funds?
    Ms. Unger. What portion?
    Mr. Kanjorski. When you talk about 50 percent of the 
American households now having stock holdings, what portion of 
that 50 percent are with mutual funds?
    Ms. Unger. Fifty percent of households own mutual funds. I 
think it is 88 million Americans.
    Mr. Kanjorski. Eighty-eight million?
    Ms. Unger. Right.
    Mr. Kanjorski. What would be the average per year 
contribution to the mutual fund? I do not think it would exceed 
$10,000, would it?
    Ms. Unger. How much does each family invest per year?
    Mr. Kanjorski. It does not exceed $10,000. That would be a 
pretty big investment for the average family.
    Ms. Unger. I think there is probably a broad range in that 
number.
    Mr. Kanjorski. What I am getting at is that we are talking 
here about how much money we are going to save for these 
investors and how we are going to stimulate the market. If 
there are 83 million participants, and the large percentage of 
them invest under $10,000 in a mutual fund, they are going to 
save all of 33 cents a year. As someone said the other day, it 
is not quite the cost of a Coca-Cola.
    This is not a fee reduction that is going to stimulate this 
economy, or have a major effect on returning money to average 
investors or average people. The largest portion of these funds 
will come from the high-investment community in a much 
disproportionate rate to the general population, would you not 
agree?
    Ms. Unger. I think the best argument for this legislation 
is that the statute that provides for recovery of the cost of 
regulation is bringing in far in excess of the cost of 
regulation.
    You heard the numbers today.
    Mr. Kanjorski. No, I agree.
    Ms. Unger. We are talking about five times the amount of 
the budget.
    Mr. Kanjorski. Ms. Unger, I agree. But in reality, if we 
reduce funds coming to the Treasury of $1.5 billion a year, 
that shortfall is going to have to be made up by other means, 
and potentially from the general revenues, paid for by the 
general taxes of the 50 percent of the people who are not 
invested in the securities industry. It is just a matter of 
proportion, you know, who best can afford to pay at this point, 
and what are the benefits that flow.
    If we had to make up the $1.5 billion from all people in 
the United States across the board, would that be quite fair?
    Ms. Unger. I don't see why any investor should have to pay 
beyond the cost of regulation. If you are going to say the 
money is not paying for the cost of regulation----
    Mr. Kanjorski. We are going to lose $1.5 billion. If we 
reduce the fee to actual costs, we are going to lose $1.5 
billion in actual revenue, are we not?
    Ms. Unger. Money that never belonged in the general 
revenue.
    Mr. Kanjorski. Yes, but we are spending that money. It is 
allocated in the President's budget.
    Ms. Unger. I would love to have somebody else give me money 
that I could spend freely, but that is not what the statute was 
intended to provide. The statute was intended to provide an 
offsetting collection for the cost of the SEC's budget for 
regulation.
    Mr. Kanjorski. Of course you are aware that last year we 
attempted to repeal the Spanish-American War luxury tax on 
telephones in this country. Many people have been paying that 
tax for 100 years. It is not quite allocated proportionately 
across the system. First of all, the tax does not go to 
telephone regulation, and it does not go to the Spanish-
American War. It goes to general revenues. We have a lot of 
fees and taxes that do not have attribution in this country.
    Ms. Unger. I should also clarify that the legislation 
doesn't provide for the precise amount of fees to cover the 
exact amount of the budget. There is still some excess that 
will go into the general revenue.
    Mr. Kanjorski. I understand that. But all morning Senator 
Gramm, in particular, was talking about how this is really 
important to the small investors of America. I think in 
response to the last question, you indicated this is going to 
be a stimulus because people are either going to invest this 33 
cents a year, or go out and have a binge spending it and bring 
back our economy.
    In reality, it is almost a nuisance fee or insignificant 
matter to the people that are investors, because they generally 
come from the upper 50th percentile of the American population, 
not the lower 50 percent?
    Ms. Unger. This sounds like a discussion that I probably 
don't want to get too much deeper into because it involves 
ideological differences.
    Mr. Kanjorski. Should we not be looking at some of the 
allocations across the country of who pays for what in the 
system and where we derive funds from?
    What you are doing here is getting very close to the 
concept that everything should pay its own costs. That is 
almost a flat tax concept, in a way, in that you only want to 
take enough money out of the system to pay for the individual 
fees or operations of Government.
    But there are some of us who are wealthier, who get greater 
benefits from Government, and these are just merely ways we 
keep it up.
    Obviously, if I am a billionaire in this country, the 
Defense Department protects my $1 billion of wealth, as opposed 
to my neighbor who has nothing. The Defense Department protects 
much less of his wealth; it protects his person, but not his 
wealth.
    These are just ways of getting revenue, albeit not 
anticipated, because we thought in 1996 we had corrected it. 
But I am not going into that issue, I am going to the issue of 
making up the lost revenues.
    Chairman Baker. If I could, I will get you to give a brief 
response, Ms. Unger, because we have exhausted our time again.
    Mr. Kanjorski. I want a philosophical response.
    Ms. Unger. I think what you are saying is, if you invest in 
the securities markets, you are going to have to pay for some 
other programs because they need money, and if you can afford 
to invest in the securities markets, you can afford to pay for 
part of these programs.
    Mr. Kanjorski. And you say, no, that is not true?
    Ms. Unger. I think there is a serious equity argument.
    Chairman Baker. A subject for this panel to consider over 
lengthy discussions.
    Ms. Unger. I think so.
    Chairman Baker. Mr. Fossella.
    Mr. Fossella. Just for the record, I would get back to what 
I see is the core issue here, and this is the moral argument.
    Let us suppose that Congress in its infinite wisdom 
established by statute a fee of $1 for everybody who wanted to 
use a pencil, and there was an agency that regulated the use of 
pencils to make sure everybody was using them adequately and 
appropriately, and at some point in the future we stopped 
making pencils and producing pencils, but there was still money 
coming into this newly created entity to the tune of, let's 
say, $1 trillion.
    Do we at that point in time say, you know what, we don't 
need this agency anymore, and we don't need this funding 
anymore, because nobody is using pencils anymore? And I think 
if we approach it from that point of view, as opposed to, well, 
we had all this money coming in that we can use for other 
purposes, so let's continue using it for these other purposes, 
I think that would be a silly way of looking at it.
    So if we can just apply a little focus and what are perhaps 
the benefits of sending that money back to the investors who 
ultimately absorb the fee, and what they will do with the 
money, I think that is a positive thing. It depends on your 
view of how that money is actually allocated and the formation 
of capital and how it flows and how liquid the market is.
    But the true focus and purpose of this bill is merely to 
say, do you know what, these things are getting a little out of 
control, we are getting a little bit too much money. We have 
the acting Chair of the SEC before us saying, Congress should 
do something about it. I think if anything--if there is a 
signal that is clearer than that, I don't know if there is one, 
but I think it is refreshing that we have somebody from a 
Federal agency before Congress saying, stop this flow of 
funding to our agency and give it back to the folks who would 
otherwise pay this fee.
    With that, I yield back.
    Chairman Baker. Thank you, Mr. Fossella.
    Mr. Bentsen, did you have a question?
    Mr. Bentsen. Yes. Thank you, Mr. Chairman.
    I apologize for being late, and having to leave the HHS 
Secretary over in another committee.
    The question I had, I had asked Senator Gramm about the 
Senate bill in two areas, one that I have very much of a 
concern about, but I think is OK, but I would like to get your 
comment. That is sort of the anti-deficiency provision that is 
in there with respect to the Commission's functions.
    He seems to feel that his bill is structured in such a way 
that the Commission would not--would hopefully not ever be 
underfunded to meet its needs if there was a fluctuation in the 
collection of fees, probably due to market functions. I think 
that is something that our committee should take into 
consideration as we prepare a House bill.
    The second thing is, his bill, as I mentioned, would reduce 
not just Section 31 fees, but fees on registration, as well as 
mergers and acquisitions. He makes the point that all these 
fees flow through to the consumer one way or the other.
    Does the Commission feel there is that equitable dispersion 
of fees--or do you have a position on that, or do you believe 
that it is really Section 31 fees that affect the investor and 
the investor class, if you will, more so than others?
    You could make an argument--I have no axe to grind here, I 
am trying to get a feel for it. You could, though, make an 
argument that the registration fees are part of the soft costs 
of a transaction, and thus not necessarily passed on to the 
investor as much as the underwriter or the issuer itself, or 
the borrower.
    Of course, Senator Gramm being the classical economist that 
he is, would argue that all those fees get washed out at the 
bottom anyway. But I would like to hear your comments on both 
those items.
    Ms. Unger. For the second part of what you asked, that is, 
reducing all three types of fees that we collect, as I 
mentioned to the Ranking Member, the fees were set by statute, 
and the appropriators have changed that statutory level over 
time in order to make up for these excess funds that have been 
going to fund other programs.
    The Section 6(b) fees were really the fees that were hit 
first in terms of changing the statutory amount. That was the 
initial area where the appropriators made the adjustment.
    The Section 31 fees initially only applied to New York 
Stock Exchange transactions for listed securities. Congress in 
1996 applied those Section 31 fees to include over-the-counter 
transactions, or the NASDAQ securities market.
    So you have an evolving source of these funds over the 
years. Depending on the vigorousness of the IPO market, we 
bring in a lot of Section 6(b) fees in one year. Depending on 
the vigorousness of the trading market, we perhaps bring in a 
lot of Section 31 fees in a particular year. I actually have a 
chart here, with numbers going back to 1980, describing how 
much the fees generated and the fees level for each year.
    Back in 1980, when the registration fees were then set at 
\1/50\th of 1 percent, we received $33 million in fees. For 
1998, which must have been a particularly good year for IPOs, 
we received $1.34 billion. So there is a huge difference 
depending on where the strengths of the economy are.
    So I think it does make sense that we support changing or 
adjusting all of the fees commensurately so that we can have an 
across-the-board cut in the fees.
    The Section 6(b) fees impact the cost of raising capital. 
It is just another line item for what it costs to go into the 
market and raise capital.
    Mr. Bentsen. Should we be concerned at all that there 
sometimes is greater fluctuation in the issuance market than 
there is in the public markets? For instance, steel flow is 
down now, or has been for the last 6 months, and presumed to be 
down for the next 6 months or whatever?
    Ms. Unger. Yes.
    Mr. Bentsen. Is there enough disparity there that you would 
be concerned about the deficiency offsets that any fee 
reduction formula should take that into consideration, or is it 
such a minor deviation that it really would be more trouble 
than it is worth?
    Ms. Unger. Well, CBO makes the projections of what our fee 
revenue will be, for, I think, 3 fiscal years going forward. 
Those fees then become the basis for determining what the 
appropriate level of fees for each of those categories should 
be; and then there are a floor and ceiling built in in case 
those numbers are not met in terms of the amount of offsetting 
collections that will be available for our budget.
    Mr. Bentsen. Thank you.
    Chairman Baker. Your time has expired, Mr. Bentsen.
    Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman.
    I am a little bit curious about something, Ms. Unger. That 
is, typically the fee schedules are implemented by regulation 
and rule for such things. In other words, we give an agency 
direction, and then they come out with rules in the Federal 
Register, what have you.
    Yet, I am told that this underlying legislation in 1996 
specifies \1/300\ths of 1 percent in the fee area. Is that 
correct?
    Ms. Unger. Yes. It does set a specific amount, but going 
back again to the statute, in Section 6(b) and Section 31 is 
where you will find a specific fractional amount to arrive at 
what the fees should be.
    Mr. Ose. So you have no latitude at SEC as to what the 
fee--at this point should----
    Ms. Unger. No, but you do.
    Mr. Ose. We do, but you don't?
    Ms. Unger. Congress does.
    Mr. Ose. Now, the reason I ask that is that it would seem 
to me that in that same area, the very same underlying 
legislation, either the 1996 or the previous, there is a very 
specific connection between the very specific fee and what it 
is to be used for--that is, SEC costs. It is not--it doesn't 
say SEC costs and X, Y, and Z; it says, SEC costs.
    Is that correct?
    Ms. Unger. You will find those fees--the statutes that I 
refer to are part of the Federal securities laws and 
specifically designed to recover the cost to the Government of 
securities regulation.
    Mr. Ose. I am kind of curious how it is we got ourselves in 
a position where, in effect, we have passed a tax law here, and 
we are collecting taxes and using it for some purpose that is 
not authorized under the--are we violating the law here?
    Mr. Baker. Oh, certainly not.
    Ms. Unger. Can you say not? Going back to 1983, people here 
have noticed that we have been bringing in excess fee 
collections and have been looking at that as a way to fund 
other programs.
    We are a part of the Commerce-State-Justice budget because 
we are a law enforcement agency, and so our allocation comes 
out of that pot of money. So it is sometimes difficult for the 
appropriators to not take some of the money, but it has gotten 
so disproportionate.
    Mr. Ose. All right. Let me go on to my next question. To 
the extent that we have imposed fees or taxes in excess of what 
is authorized in the underlying legislation, that is on the 
order of 3 or 4, 5 times, as I understand it, what the 
underlying legislation says we need to cover. In other words, 
we are collecting $2-, $2\1/4\ billion. The underlying costs is 
$370-$380 million. Have I got the basic magnitudes correct?
    Ms. Unger. Well the statutory level for Section 6(b) fees 
was \1/50\th of 1 percent, and it has been raised as high as 
\1/29\th of 1 percent in certain years. Right now it is about 
at \1/40\th of 1 percent.
    Mr. Ose. I am talking about the aggregate number of dollars 
being collected, though.
    Ms. Unger. Right. Actually I do--the numbers as to what we 
collected last year from each of those fees. Is that what you 
are talking about?
    Mr. Ose. In total?
    Ms. Unger. We got $2.27 billion in fees; $78 million came 
from the merger tender offer fees. $1 billion, $103 million 
came from Section 6(b) fees, and $1 billion, $90 million came 
from Section 31 transactions.
    Mr. Ose. And this compares with a projected SEC cost of 
$377----
    Ms. Unger. About $378 million.
    Mr. Ose. $378 million. I just can't----
    Ms. Unger. Well, for this fiscal year it is $423-$422 and 
change.
    Mr. Ose. It is $377-$423.
    Ms. Unger. Still a small number when you compare it to 
$2.27 billion.
    Mr. Ose. I just keep coming back to this question. We have 
very specific authorization for a fee schedule tied to a very 
specific purpose, and yet we are collecting far in excess of 
that and using it for who knows what, and I don't quite 
understand why that is occurring.
    Thank you, Mr. Chairman.
    Chairman Baker. You have a difficult life ahead of you 
looking for logic in Congress, Mr. Ose. I would want to extend 
my appreciation to you for your courtesies and your patience in 
answering our questions today. We look forward to working with 
you in the coming years ahead. Your testimony, as all other 
witnesses', will be made part of the official record and I 
would like to advise all witnesses that we will keep the 
subcommittee record open for approximately 30 days for Members 
who may wish to have some follow-up questions in writing and to 
include your responses into that record.
    I would suggest to our third panel that we will have 
another vote somewhere around the noon hour. If you gentlemen 
would like to come forward and try to get your statements in 
within a roughly 5-minute period each, we could hear all of 
your testimony before we go into that vote, perhaps ask 
questions and try not to detain you further.
    So, with your cooperation, we will initiate this last 
panel. While you are getting situated, I will proceed with the 
appropriate introductions. We have three gentlemen who will be 
heard in this panel. The first is Mr. Scott Evans who is the 
Executive Vice President of the Teachers Insurance and 
Annuities Association, which should not be lost on Members; 
this is an extremely important organization, but in size has 
about $165 billion in equity assets for retirement purposes.
    Our second to be heard from today is Mr. Christopher Quick 
who is the CEO of Fleet Meehan Specialist, who--I have a piece 
of paper on right here--is the Nation's largest financial 
services firm, specialist firm with assets in excess of $181 
billion.
    And our third witness is Mr. James Toes who has been 
involved in the NASDAQ market activities for some 15 years and 
currently is a trading manager at Merrill Lynch, which needs no 
further explanation.
    With that I would like to call on Mr. Evans to start us 
off.

  STATEMENT OF SCOTT C. EVANS, EXECUTIVE VICE PRESIDENT, TIAA-
                   CREF INVESTMENT MANAGEMENT

    Mr. Evans. Thank you, Chairman Baker, Ranking Member 
Kanjorski and Members of the subcommittee. My name is Scott 
Evans, and I am the Executive Vice President of Equity 
Investments at TIAA-CREF. I appreciate the opportunity to 
appear before you today to express our support for the proposed 
improvements to the current system of SEC fee collections. We 
would also like to express our support for an improvement in 
compensation levels for the SEC staff.
    TIAA-CREF, along with other financial organizations and 
associations, has written to Members of the Senate to urge 
their support of Senate bill S. 143 that would remedy the 
current fee inequity. I want to commend the full committee for 
making the reduction of fees charged to securities market 
participants a priority for the 107th Congress, and the 
subcommittee for acting on that priority by holding this 
hearing. In addition, we encourage the House to introduce a 
companion bill as soon as possible.
    With $285 billion in assets under management, TIAA-CREF is 
a leading financial services organization, a major 
institutional investor and one of the world's largest 
retirement systems, with 2.3 million participants at more than 
11,000 educational institutions. We offer our participants a 
broad array of retirement investment options through the 
college retirement equities fund, or CREF, which is regulated 
by the SEC as a 40 Act company, and also the TIAA Real Estate, 
Account, an SEC registrant. The TIAA-CREF group of companies 
also offers mutual funds and non-qualified personal annuities 
to the general public. In addition, we manage tuition saving 
programs in 12 States, and in total we hold equity shares of 
more than 3,000 U.S. companies on behalf of our clients.
    Last year, TIAA-CREF paid over $1.1 million in SEC fees 
assessed on securities transactions. In addition, we have paid 
more than $3.6 million to register securities issued by the 
TIAA-CREF group of companies over the past 5 years. These fees 
represent a tax to our clients, reducing the funds available to 
them to meet their savings and investment goals. Moreover, the 
amount assessed is disproportionate to the SEC's spending 
needs. In fiscal 2001 the SEC is expected to collect $2.47 
billion in fees from participants in the securities markets, 
more than 5 times the $423 million that is appropriated for the 
SEC's operating needs.
    While we support the notion that market participants should 
fund SEC operations through user fees, the current fee levels 
are no longer appropriate. Congress enacted the existing 
structure several years ago when market activity was at much 
lower levels. The situation is very different today, with 
Americans participating much more actively in the securities 
markets. Given this greater level of activity, it is time to 
modify the SEC's fee structure in order to collect revenues 
that are more appropriate to the Agency's operating costs. We 
therefore endorse the effort underway in Congress to reduce the 
various user fees, including registration, transaction and 
merger and tender fees, to a level that is more in line with 
the SEC's funding needs.
    Additionally, we support acting Chair of the Securities and 
Exchange Commission Unger's continued commitment to correcting 
the existing staffing crisis at the SEC. The legislation before 
Congress would help achieve this goal by improving the SEC's 
ability to match the pay and benefits offered by the Federal 
banking agencies. It is important that the SEC be able to 
attract and retain qualified individuals in order to carry out 
the SEC's important oversight responsibility for the securities 
markets and to provide for investor protection and education. 
We know from our experience working with the SEC staff that the 
continuity of personnel is critically important to the 
efficient functioning of this Agency. The legislation pending 
before Congress would help accomplish those goals.
    In closing, I would like to thank the subcommittee again 
for its commitment to reducing excessive fees at the SEC and to 
providing the funding necessary to enable the SEC to compete 
for qualified staff. It has been a privilege to speak with you 
today and I would be happy later to take questions.
    [The prepared statement of Scott C. Evans can be found on 
page 83 in the appendix.]
    Chairman Baker. An excellent free market example of being 
on schedule. Thank you.
    Mr. Quick.

  STATEMENT OF CHRISTOPHER C. QUICK, CHIEF EXECUTIVE OFFICER, 
  FLEET MEEHAN SPECIALIST, INC., ON BEHALF OF THE SPECIALIST 
           ASSOCIATION OF THE NEW YORK STOCK EXCHANGE

    Mr. Quick. Thank you Chairman Baker, Ranking Member 
Kanjorski. I am Christopher Quick, CEO of Fleet Meehan 
Specialist, and a member of the board of directors of the 
Specialist Association of the New York Stock Exchange. I am 
pleased to appear before you to present the Association's views 
on reducing excessive fees collected by the Securities and 
Exchange Commission. My testimony will focus on transaction 
fees commonly known as Section 31 fees imposed by Section 31 of 
the Securities Act of 1934.
    The Specialist Association is comprised of 18 broker-dealer 
firms which include all of the individual specialists of the 
New York Stock Exchange. Our specialists are at the heart of 
the auction market of the world's most active exchange. The 
Exchange's auction trading marketplace is the mechanism through 
which prices of stocks listed on the Exchange are discovered 
and liquidity is provided to buyers and sellers. We coordinate 
orderly trading in our respective specialty stocks. We supply 
liquidity when necessary to proper operation of the market, 
acting as a buyer or seller in the absence of public demand to 
buy or sell in those stocks.
    Over 260 billion shares of stock were traded on the 
Exchange in 2000 in more than 221 million transactions. 
Specialists participated as principal, selling for their own 
accounts, in 13.6 percent of those transactions, paying 
approximately $50 million in Section 31 fees last year, an 
amount we expect to see significantly increase this year. A 
total of $370 million was paid for Section 31 fees in 2000 on 
NYSE transactions by all New York Stock Exchange member firms 
and their customers. Over 86 percent of the transaction fees 
paid on the New York Stock Exchange floor are passed directly 
on to investors.
    Please let there be no misunderstanding. We support 
continued full funding of the SEC, an Agency that has overseen 
our constantly growing, remarkably fair and efficient markets 
that raise new capital and serve the public investor, 
contributing to a worldwide reputation for fairness and 
integrity. What we object to is the misuse of the financing 
mechanism designed to offset the cost of operating the SEC 
through the overcollection of fees and application of the 
proceeds to completely unrelated purposes.
    As things stand, the Section 31 fee cannot be viewed as 
anything but a tax on the sale of securities, a purpose for 
which it was never intended. Although assessed in relatively 
small increments, it is currently set at \1/300\th of 1 percent 
of the total dollar amount of securities sold, the tax is 
creating a drag of over $1 billion per year on capital markets. 
This drag on our markets represents a cost paid by all 
investors, including the huge number of individual participants 
in mutual funds, pension plans and other forms of retirement 
accounts.
    These fees have constantly grown over the years. In fiscal 
1999, the SEC's fee collections from Section 6(b) and Section 
31 fees mushroomed to $1.75 billion. That is, the SEC's 
collections amounted to more than 5 times its $337 million 
budget in 1999. In fiscal 2000, the Agency collected more than 
$2.27 billion, more than 6 times what the Agency needed to fund 
its operation. Also, we expect the Exchange--expect trading 
volume on the Exchange to continue to increase, which in turn 
will have the effect of increasing the Section 31 tax.
    In 1999, average daily trading volume on the Exchange was 
809 million. In 2000 it was over 1 billion, and with 
decimalization now fully implemented, volumes surely will 
increase by a significant amount as it did when the standard 
trading increment was reduced to \1/16\th from \1/8\th.
    We would also be wise to remember that we had the benefit 
of a thriving and competitive bull market for an unprecedented 
number of years. During such times the impact of measures 
placing inappropriate burdens on capital formation, and market 
activity can be softened or blunted. As is often the case with 
respect to ill-advised policy, it is only when the market 
conditions eventually decline and liquidity becomes more scarce 
that the full brunt of a cloaked tax such as the current 
Section 31 fees will be felt by us all. This will be 
particularly true to the extent that the market prices stagnate 
or decline as they have in the last 12 months.
    In conclusion, general tax revenue is the objective of 
other laws but not the securities laws. Congressional action to 
restore the unintended tax represented by the Section 31 fees 
to its original purpose, to fund the operations of the SEC and 
not for any other type of Federal expenditure, is long overdue. 
Reducing excessive SEC fees would save millions of individuals 
money as they try to invest their hard-earned money for the 
future. We urge the subcommittee to move forward with 
legislation to reduce excessive SEC fees. We are committed to 
working with you and the subcommittee regarding this important 
matter.
    The Association is thankful for the opportunity to express 
its views on these fees. Thank you, Mr. Chairman, Ranking 
Member Kanjorski. I would be pleased to respond to any other 
questions.
    [The prepared statement of Christopher C. Quick can be 
found on page 87 in the appendix.]
    Chairman Baker. Thank you Mr. Quick.
    Mr. Toes, welcome.

STATEMENT OF JAMES A. TOES, DIRECTOR, MERRILL LYNCH & COMPANY, 
         ON BEHALF OF THE SECURITY TRADERS ASSOCIATION

    Mr. Toes. Thank you very much. Mr. Chairman, Members of the 
subcommittee. I am pleased today to be testifying before you on 
the issue of securities fees. I am James Toes. I am a Director 
at Merrill Lynch Equity Trading, and I am also President of the 
Security Traders Association of New York, which is an affiliate 
of the Securities Traders Association, on whose behalf I am 
testifying today.
    In 1996 Congress enacted the National Securities Market 
Improvement Act, reforming regulation of the securities and 
mutual funds market. NSMIA also restructured fees imposed by 
the various securities laws, including extension to NASDAQ 
trades of the transaction fees imposed by Section 31 of the 
Securities Exchange Act of 1934. In restructuring the fees, 
Congress intended to ensure a stable source of funding for the 
SEC while also ensuring that the fees did not grow so large 
that they became a de facto tax on savings and investment 
rather than a user fee, which is the very situation we find 
ourselves in today.
    The new structure established by NSMIA was the result of a 
complex compromise worked out between the House and Senate 
authorizers and appropriators, the House Ways and Means 
committee, the Office of Management and Budget, and the SEC 
following years of congressional debate over the new SEC 
funding mechanism. Unfortunately, however, NSMIA has not 
controlled the growth of fees as originally intended. Actual 
fee collections significantly outpaced NSMIA's projections. We 
believe that the reason for this is that the Congressional 
Budget Office and the OMB used conservative estimates of the 
stock market growth which were relied on by Congress in 
drafting NSMIA.
    In fiscal year 2000, actual collections from all sources, 
including Section 31, Section 6(b) and merger and tender fees 
grew to $2.27 billion, over 6 times the SEC's budget of $377 
million. The latest CBO estimates show runaway growth in the 
fees from $2.478 billion in fiscal year 2001 to $3.7 billion in 
fiscal year 2005. In other words, total SEC fees are projected 
to raise $15.2 billion over the next 5 years, while the SEC 
budget will require only a fraction of that amount over the 
same period. Without a change in law, these fees will generate 
$16 billion in excess of what Congress intended in NSMIA, over 
just a 7-year period from fiscal year 2001 to fiscal year 2007.
    Another defect in the NSMIA fee structure is that it fails 
to accommodate for changes in the securities market. For 
example, if and when the NASDAQ's conversion to an exchange is 
completed, the current fee structure will result in a 
redirection to the general fund of a significant portion of the 
fees that are currently made available to fund the SEC. Thus we 
face the possibility of a fee structure generating billions of 
dollars in unanticipated fees while at the same time creating a 
funding crisis at the SEC.
    Clearly, this is not the scenario Congress intended when it 
redesigned the SEC funding structure in 1996 to reduce the 
amount of fee surplus.
    Ultimately, the investing public shoulders the burden of 
these fees. Section 31 fees are a tax on personal savings and 
investment in the form of lower returns, and as more Americans 
invest, more people pay this tax. Indeed the percentage of 
households owning equities has increased from around 32 percent 
in 1989 to over 50 percent in 2000. It is important to note 
that Americans of all incomes are increasing their savings 
through equity ownership. According to the most recent 
statistics, 29 percent of households with incomes between 
$15,000 and $25,000 own stock. Therefore, this tax is paid by 
the smallest as well as the largest market participants.
    Section 31 fees also burden those who participate in 
pension plans, including public pension plans. For example, 
over a 5-year period, many States' public pension plans will 
pay millions of dollars in Section 31 fees. Some examples 
include California, nearly, $18 million; New York, $13 million; 
Ohio, approximately $4.6 million; Pennsylvania, $6.5 million; 
and Texas, over $7 million. At a time when the Government is 
encouraging savings, it is inconsistent for it to levy this tax 
on investment.
    To address the growing burden of the fees, the STA supports 
legislation that reduces fee rates so that they fulfill their 
intended purpose of funding the SEC and are not acting as a tax 
on investment; puts in place an automatic mechanism that will 
limit collections if the original fee rate cut does not reduce 
the actual collections as intended; and creates a safeguard 
that fully protects the amount of collections currently 
projected to be made available to the appropriators including 
the funding necessary for the SEC.
    STA has testified in the Senate in support of Section 143 
which includes the provisions outlined above. We urge the House 
to develop legislation with these characteristics. The Senate 
bill also allows for growth in the SEC budget, including pay 
parity for SEC employees which, by the way, we also support.
    Including the safeguards to prevent overcollections and 
undercollections will ensure that no matter how high or how low 
today's fee projections are, the fees will still collect the 
actual amounts intended by Congress. We should not enact 
legislation only to find ourselves back here in 5 years because 
projections missed their mark or that the market structure 
changes created unintended shortfalls or windfalls in fee 
collections.
    In closing, Mr. Chairman, the STA applauds you for 
scheduling this prompt hearing on an issue of great importance 
to our members across the United States, and I also will be 
happy to answer any questions.
    [The prepared statement of James A. Toes can be found on 
page 93 in the appendix.]
    Chairman Baker. Thank you, Mr. Toes.
    Gentlemen, to facilitate the Members who are here, I am 
going to suspend my questions, and I will follow up in writing 
for you at a later time but would recognize Mr. Kanjorski. I 
fully expect we will have a vote here in the next few minutes 
and I would like to get Members' participation before that 
vote.
    Mr. Kanjorski.
    Mr. Kanjorski. Yes. Can any of you gentlemen tell me 
whether or not there is a fee schedule or a tax on security 
transactions in Germany or Great Britain?
    Mr. Quick. I don't have the answer for that.
    Mr. Kanjorski. You are making a compelling argument. None 
of us are unsympathetic to fee schedules that are set for 
special purposes, and of course your fee schedule, unbeknownst 
to the Congress' wisdom in 1996, now has far exceeded its 
anticipated needs. In effect, it serves as a source of revenue 
for the Government to be used for other purposes. Meaning that 
if we reduce the fee schedule we will get a shortfall of 
somewhere between $1 billion and $1\1/2\ billion a year.
    Assuming that the budget of the United States is absolutely 
balanced, revenues to expenditures, and we are taking into 
consideration the additional income from the overpayment of 
fees that you are making, where would you suggest that we get 
the additional $1 billion or $1\1/2\ billion revenue shortfall 
that would be in existence in a balanced budget situation?
    Mr. Toes. I would suggest just cutting spending.
    Mr. Kanjorski. Well, we are making the assumption this is a 
balanced budget in this new Administration that we are having. 
We are cutting programs to the bone. When the President sends 
up a budget, are we to presume in other words, your answer is 
if we cut revenues then we should just cut expenditures, 
regardless of where that would be? If we had to cut Social 
Security, if we had to cut Medicare, if we had to cut the 
environment expenses, you would just do that?
    Mr. Toes. It is my understanding that we are not asking for 
our money back. We are just asking that, going forward, that we 
just pay a different rate.
    Mr. Kanjorski. Not the money back. Next year, if we grant 
what you are requesting--and I am not suggesting we should not 
do it--we are going to have a shortfall of $1 billion or $1\1/
2\ billion in revenues. My question to you is where should we 
make that up? Should the Congress consider a tax on security 
transactions instead of the fee schedule in order to make up 
the $1\1/2\ billion? This solution would be honest. We would be 
saying we are going to get that revenue out of securities 
transactions instead of out of fee-generated costs.
    Mr. Toes. You are going to have to excuse my naiveness with 
how Congress and Government works, but if you did give us what 
we needed, and therefore you would know that the money would 
not be there, then you wouldn't spend it.
    Mr. Kanjorski. Even if we had the need for it?
    Mr. Toes. Well, you have got me in a corner now.
    Mr. Kanjorski. That is always our problem here. Yes.
    Mr. Evans. Congressman, to me they are two separate 
questions. The first question is we have a user fee that is 
being levied toward securities markets participants to fund the 
SEC so that they can regulate us. That user fee ought to be in 
close proximity to the costs of running the SEC. The second is 
a funding question that refers to general revenue creation, and 
there are many checks and balances to it. I believe it is 
outside of the scope of my testimony here today, but ultimately 
the revenue would have to be made up with increased tax revenue 
or decreased spending. That is the appropriate place for it to 
be considered.
    Mr. Kanjorski. And that is the correct answer. Either 
increase taxes on other people, other than these transactions, 
or decrease the expenditures perhaps on necessity.
    But let me ask you a question. Are you aware of parking 
meters? Do you ever use parking meters?
    Mr. Evans. Yes, sir, we have those in New York.
    Mr. Kanjorski. Well, a parking fee is justified under 
municipal law for traffic control. If you have recently used a 
parking meter, you realize that whether you put in a quarter an 
hour or a dollar an hour, the rental fee for that space far 
exceeds the costs to the Government of that regulation of 
parking. In most municipalities in the country it becomes a 
huge income revenue source. Would it not be proper for every 
American to make the argument that the parking fee per hour 
should be reduced commensurate with the money necessary to fund 
that proportion of the governmental function, and any 
additional funds should not be allowed to be used for any other 
purposes of Government? Is that a logical argument?
    Mr. Evans. If the legislation that enacted the ability to 
charge that parking fee were directly related to the costs, 
then I think you could make a similar argument.
    Mr. Kanjorski. You do not have the right to raise revenues 
in the parking fees. It is only for purposes of police powers, 
for regulation of traffic control.
    Mr. Quick. It sounds like we could privatize parking and do 
an IPO or something. It sounds like a good proposition to me.
    Mr. Kanjorski. You experts have an answer in the private 
market for everything. I appreciate it. I did have a hard 
question here. I do not want to appear that I am unsympathetic 
to using fees as a portion to cover up what is actually a tax, 
and I recognize by collecting this fee in effect we are taxing 
the securities industry, and subsequently their investors, but 
I am pressed with the problem of how we make up for the 
shortfall in revenue.
    Mr. Quick. Well, I would like to go back to 1996 when the 
fees were changed and go back to what we did before then when 
we appropriated the money for the sole purpose of funding the 
Securities and Exchange Commission by the Congressional Budget 
Office. Now, all of a sudden, we find ourselves in a position, 
because of conditions not responsible to anybody in this room, 
that the market and transactions and the dollar volume have 
exploded, that we have created these excess fees, but what we 
have done is we have turned it into a tax which goes into the 
general revenue of the budget, for which it was never intended.
    Mr. Kanjorski. I agree. But let us play a worst case 
scenario game. Rather than go into a soft landing, we in fact 
go into a depression, and the acceleration of the market from 
1996 to 2000 reverses itself but does not reverse itself to 
1995, it goes back to 1950 in sales. So that the fee, even 
under present schedule, is out there, would not be enough to 
generate the revenue needed.
    Mr. Quick. I think the bill itself, as Senator Gramm 
testified earlier, has a 40 percent cushion in it. So I do 
think we are not in danger of violating that 40 percent 
cushion.
    Mr. Kanjorski. So, we can be assured that the market will 
not fall 40 percent?
    Chairman Baker. Mr. Kanjorski, what we do is raise those 
parking fees and have an offset.
    Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman. I want to follow up with 
Mr. Evans on one particular issue that I am a little bit 
confused on. Within the portfolios that TIAA-CREF has, you have 
a zillion different individual people for whom you act as a 
fiduciary on their investment programs. Let's say I am one of 
those, and in the course of a day I want to say all right, I am 
going to call Scott Evans and I am going to change the mix. And 
over the course of that day, of your 373,000--whatever it is--
individual investors, you have 50,000 of them do a similar 
activity.
    At the end of the day, as I understand current industry 
practices, you guys reconfigure your portfolios within the 
overall portfolio itself, shifting stock back and forth to 
balance buys and sells, and to the extent you are short or 
long, you will go into the market and either buy or sell to 
make up the accurate end-of-the-day reconfiguration; is that 
correct?
    Mr. Evans. Roughly, Congressman.
    Mr. Ose. Roughly is about as good as it gets.
    Mr. Evans. We have 2.3 million participants in our pension 
accounts and they can on any given day change the allocation of 
their pension savings that they have invested with us. They 
would put those orders in. We would then take those orders, and 
when the net sales--that is when the sales exceeded the 
purchases--we would sell securities. Then and only then would 
we be assessed the Section 31 tax--I am sorry, Section 31 user 
fee of approximately $33 per million on that transaction. When 
there is a purchase there is no user fee, as I understand it.
    Mr. Ose. The only fees you pay are on the long or short 
portion at the end of the day? You don't pay for the 
intraportfolio movement?
    Mr. Evans. That is not a transaction in the securities 
markets. When a transaction occurs and it is a sale 
transaction, we are assessed a fee under Section 31.
    Mr. Ose. Mr. Chairman, I think we need to clarify this, 
because my understanding of the earlier testimony was that the 
intraportfolio transactions were subjected to the assessment, 
the fee, the tax, whatever you want to call it. So I 
appreciate, I appreciate you clarifying that. I mean, you are 
the practitioner. You ought to know.
    Mr. Evans. We may be referring to different types of 
transactions, but as I understand it, Congressman, when TIAA-
CREF goes to the securities markets and transacts with a third 
party, that is when the user fee is assessed.
    Mr. Ose. Inside the portfolio itself, separate from the 
market, when you balance everything out prior to going into the 
market, those movements are not subject to the tax or the 
assessment. In effect, that is almost a trusteeship, if you 
will?
    Mr. Evans. I don't believe so, Congressman, but the 
question is on a level of detail that I may be mistaken. In 
looking at how the $1.1 million of fees is structured, I 
believe my answer is correct.
    Mr. Ose. All right. Moving on to my second question. I have 
actually taken the time to go back to the 1934 legislation and 
the 1996 legislation, and the reason I did was I wanted to find 
out if embedded in the legislation itself, pursuant to my 
earlier questions, there was an actual description of what the 
purpose of these transaction fees or these registration fees 
is. And I just want to read for the record, if I may, that as 
regards registration fees--this is actual legislation, 
statutory authority: ``A commission shall in accordance with 
this subsection collect registration fees that are designed to 
recover the costs to the Government of the registration 
process.''
    And then in the transaction fees it says virtually the same 
thing, substituting transaction for registration. It does not 
say collect fees for ad infinitum programs outside of the 
jurisdiction of the SEC.
    So we really do have a true problem here in that we are 
assessing America's investing public, the people who provide 
our industry and businesses with capital, a tax that is clearly 
not authorized.
    And with that, Mr. Chairman, I yield back.
    Chairman Baker. Thank you, Mr. Ose.
    Mr. Bentsen.
    Mr. Bentsen. Thank you, Mr. Chairman. I have one question 
and one comment. I am in support of this, but I also sit on the 
Budget Committee, and even though we now have all the money we 
are ever going to need and surpluses as far as the eye can see, 
even though I think it was just 6 short years ago it was 
deficits as far as the eye can see, and even though we know 
these projections will never be wrong and there is no need to 
discount future revenue streams, at least I know you all do, 
but we don't need to do that--that, you know, there shouldn't 
be a problem, but we do kind of have to think where we might 
come up with $14 billion, because this isn't in the President's 
budget, and you start adding $14 billion here and $12 billion 
there and $10 billion there, and pretty soon you get right 
through the contingency. So it is a little bit more difficult 
than you might think, and it is doesn't matter which party you 
are in either.
    But the question is this: The proposal put forth in the 
Senate would--and this is something we are trying to put 
together, a proposal here would, if I understand it, allow sort 
of a 6-month look back or look forward, with the ability to 
make adjustments in the fee structure to ensure that there were 
sufficient funds for the operation of the Commission.
    From your standpoint, does that give you some concerns that 
as market makers or as dealers or as investors that you would 
have to make adjustments, or is it easy enough, particularly 
under the Section 31 fees, that you either have one fee or 
another fee and you just make an adjustment, but is it 
something that the back office can handle or is it an 
administrative nightmare?
    Mr. Evans. From our perspective, the variability of the 
Section 31 fees, in order to continually reassess their 
capability of covering SEC costs, is a practical solution, and 
whether it is $33 per million or $14 per million or whatever 
the fee, it is not a large issue for us administratively. Our 
principal interest is that that fee level is closely aligned 
with the SEC's ability to fully fund themselves, including 
their ability to adequately compensate staff relative to other 
Federal banking agencies.
    Mr. Bentsen. I guess my question is just specifically if we 
tell you it is one thing on January 1 and we come back on June 
1 and tell you it is something else, is that problematic or 
not--or July 1--is that problematic or not?
    Mr. Evans. It could present problems if there are 
retroactive adjustments. If the fee going forward were adjusted 
to compensate, I think that might be a more practical----
    Mr. Bentsen. So would it be better to have just a set 
amount per year and if you are off a little bit you just make 
it up? Would that be your preference as opposed to having----
    Mr. Evans. The more simple the fee, Congressman, the easier 
it is to administrate.
    Mr. Bentsen. Do any of the others have comments on that?
    Mr. Quick. It is a 30-day adjustment in the Senate bill. It 
wouldn't present a problem from a specialist standpoint at all.
    Mr. Bentsen. It would not?
    Mr. Quick. It would not.
    Mr. Bentsen. And what about for Merrill or a dealer?
    Mr. Toes. On Merrill Lynch it wouldn't be a problem. It is 
hard for me to speak for the other broker-dealers, Smith 
Barney, and--but our understanding is that a 30-day would be 
adequate time.
    Mr. Bentsen. So that the back office would be able to work 
it out and adjust it accordingly?
    Mr. Toes. Yes.
    Mr. Bentsen. Thank you, Mr. Chairman.
    Chairman Baker. Thank you, Mr. Bentsen.
    Gentlemen, the record will remain open for 30 days for 
Members to submit additional questions to you in writing and to 
include your responses as part of our official record. I want 
to thank you for your participation and make it clear that 
there is general agreement among many Members that this action 
is indeed appropriate. There is continuing discussion about the 
appropriateness of how the formula is to be implemented, the 
pay parity issue raised by the SEC. There may well be other 
issues that will circle this, but just the assurance from the 
committee to you and other market participants that we believe 
that the assessment is inappropriate and that action should be 
taken by this section of Congress sooner rather than later, and 
your appearance here today has helped us toward that final 
goal.
    Thank you very much. Our hearing is adjourned.
    [Whereupon, at 12:17 p.m., the hearing was adjourned.]

                            A P P E N D I X



                             March 7, 2001

[GRAPHIC] [TIFF OMITTED] T0890.001

[GRAPHIC] [TIFF OMITTED] T0890.002

[GRAPHIC] [TIFF OMITTED] T0890.003

[GRAPHIC] [TIFF OMITTED] T0890.004

[GRAPHIC] [TIFF OMITTED] T0890.005

[GRAPHIC] [TIFF OMITTED] T0890.006

[GRAPHIC] [TIFF OMITTED] T0890.007

[GRAPHIC] [TIFF OMITTED] T0890.008

[GRAPHIC] [TIFF OMITTED] T0890.009

[GRAPHIC] [TIFF OMITTED] T0890.010

[GRAPHIC] [TIFF OMITTED] T0890.011

[GRAPHIC] [TIFF OMITTED] T0890.012

[GRAPHIC] [TIFF OMITTED] T0890.013

[GRAPHIC] [TIFF OMITTED] T0890.014

[GRAPHIC] [TIFF OMITTED] T0890.015

[GRAPHIC] [TIFF OMITTED] T0890.016

[GRAPHIC] [TIFF OMITTED] T0890.017

[GRAPHIC] [TIFF OMITTED] T0890.018

[GRAPHIC] [TIFF OMITTED] T0890.019

[GRAPHIC] [TIFF OMITTED] T0890.020

[GRAPHIC] [TIFF OMITTED] T0890.021

[GRAPHIC] [TIFF OMITTED] T0890.022

[GRAPHIC] [TIFF OMITTED] T0890.023

[GRAPHIC] [TIFF OMITTED] T0890.024

[GRAPHIC] [TIFF OMITTED] T0890.025

[GRAPHIC] [TIFF OMITTED] T0890.026

[GRAPHIC] [TIFF OMITTED] T0890.027

[GRAPHIC] [TIFF OMITTED] T0890.028

[GRAPHIC] [TIFF OMITTED] T0890.029

[GRAPHIC] [TIFF OMITTED] T0890.030

[GRAPHIC] [TIFF OMITTED] T0890.031

[GRAPHIC] [TIFF OMITTED] T0890.032

[GRAPHIC] [TIFF OMITTED] T0890.033

[GRAPHIC] [TIFF OMITTED] T0890.034

[GRAPHIC] [TIFF OMITTED] T0890.035

[GRAPHIC] [TIFF OMITTED] T0890.036

[GRAPHIC] [TIFF OMITTED] T0890.037

[GRAPHIC] [TIFF OMITTED] T0890.038

[GRAPHIC] [TIFF OMITTED] T0890.039

[GRAPHIC] [TIFF OMITTED] T0890.040

[GRAPHIC] [TIFF OMITTED] T0890.041

[GRAPHIC] [TIFF OMITTED] T0890.042

[GRAPHIC] [TIFF OMITTED] T0890.043

[GRAPHIC] [TIFF OMITTED] T0890.044

[GRAPHIC] [TIFF OMITTED] T0890.045

[GRAPHIC] [TIFF OMITTED] T0890.046

[GRAPHIC] [TIFF OMITTED] T0890.047

[GRAPHIC] [TIFF OMITTED] T0890.048

[GRAPHIC] [TIFF OMITTED] T0890.049

[GRAPHIC] [TIFF OMITTED] T0890.050

[GRAPHIC] [TIFF OMITTED] T0890.051

[GRAPHIC] [TIFF OMITTED] T0890.052

[GRAPHIC] [TIFF OMITTED] T0890.053

[GRAPHIC] [TIFF OMITTED] T0890.054

[GRAPHIC] [TIFF OMITTED] T0890.055

[GRAPHIC] [TIFF OMITTED] T0890.056

[GRAPHIC] [TIFF OMITTED] T0890.057

[GRAPHIC] [TIFF OMITTED] T0890.058

[GRAPHIC] [TIFF OMITTED] T0890.059

[GRAPHIC] [TIFF OMITTED] T0890.060

[GRAPHIC] [TIFF OMITTED] T0890.061

[GRAPHIC] [TIFF OMITTED] T0890.062

[GRAPHIC] [TIFF OMITTED] T0890.063

[GRAPHIC] [TIFF OMITTED] T0890.064

[GRAPHIC] [TIFF OMITTED] T0890.065

[GRAPHIC] [TIFF OMITTED] T0890.066

[GRAPHIC] [TIFF OMITTED] T0890.067

[GRAPHIC] [TIFF OMITTED] T0890.068

[GRAPHIC] [TIFF OMITTED] T0890.069

[GRAPHIC] [TIFF OMITTED] T0890.070

[GRAPHIC] [TIFF OMITTED] T0890.071