House Report 106-1034 - FAIRNESS IN SECURITIES TRANSACTIONS ACT

[House Report 106-1034]
[From the U.S. Government Publishing Office]

106th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 106-1034

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

FAIRNESS IN SECURITIES TRANSACTIONS ACT

_______

December 15, 2000.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed

_______

Mr. Bliley, from the Committee on Commerce, submitted the following

R E P O R T

together with

MINORITY VIEWS

[To accompany H.R. 2441]

[Including cost estimate of the Congressional Budget Office]

The Committee on Commerce, to whom was referred the bill
(H.R. 2441) to amend the Securities Exchange Act of 1934 to
reduce fees on securities transactions, having considered the
same, report favorably thereon with an amendment and recommend
that the bill as amended do pass.

CONTENTS

Page
Amendment........................................................ 2
Purpose and Summary.............................................. 2
Background and Need for Legislation.............................. 3
Hearings......................................................... 5
Committee Consideration.......................................... 5
Committee Votes.................................................. 5
Committee Oversight Findings..................................... 9
Committee on Government Reform Oversight Findings................ 9
New Budget Authority, Entitlement Authority, and Tax Expenditures 9
Committee Cost Estimate.......................................... 9
Congressional Budget Office Estimate............................. 9
Federal Mandates Statement....................................... 12
Advisory Committee Statement..................................... 12
Constitutional Authority Statement............................... 12
Applicability to Legislative Branch.............................. 12
Section-by-Section Analysis of the Legislation................... 12
Changes in Existing Law Made by the Bill, as Reported............ 13
Minority Views................................................... 15

The amendment is as follows:
Strike all after the enacting clause and insert the
following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Fairness in Securities Transactions
Act''.

SEC. 2. FEE REDUCTION.

(a) Reductions of Fees.--Section 31 of the Securities Exchange Act of
1934 (15 U.S.C. 78ee) is amended by striking ``\1/300\ of one percent''
each place it appears and inserting ``\1/500\ of one percent''.
(b) Prevention of Shortfalls in Commission Appropriations.--Section
31 of the Securities Exchange Act of 1934 is further amended by adding
at the end the following new subsection:
``(h) Insufficient Fees.--In any year in which the total amount of
fees collected under this section and section 6(b) of the Securities
Act of 1933 (including any balance in the account providing
appropriations to the Commission) are insufficient to provide for the
Commission's budget authority as provided by an appropriation Act, such
appropriation Act may provide that the fee under this section shall be
increased, with all such increased amounts deposited and credited as
offsetting collections to the account providing appropriations to the
Commission.''.

SEC. 3. REVISION OF SECURITIES TRANSACTION FEE PROVISIONS.

Section 31 of the Securities Exchange Act of 1934 (15 U.S.C. 78ee) is
further amended--
(1) in subsection (b), by striking the last sentence;
(2) in subsection (c), by striking the last sentence;
(3) in subsection (d)--
(A) by striking paragraphs (2) and (3); and
(B) by striking the following:
``(d) Off-Exchange Trades of Last-Sale-Reported Securities.--
``(1) Covered transactions.--Each national securities'' and
adding the following:
``(d) Off-Exchange Trades of Last-Sale-Reported Securities.--Each
national securities''; and
(4) by adding after subsection (h) (as added by section 2(b)
of this Act) the following new subsections:
``(i) Deposit of Fees.--
``(1) General revenues.--Fees collected pursuant to
subsections (b), (c), and (d) shall be deposited and collected
as general revenue of the Treasury, except that the amount
deposited and collected as general revenues for any fiscal year
shall not exceed the baseline amount for such fiscal year.
``(2) Offsetting collections.--Fees collected pursuant to
subsections (b), (c) and (d) for any fiscal year in excess of
the baseline amount for such fiscal year--
``(A) shall not be collected or spent for any fiscal
year except to the extent provided in advance in
appropriation Acts; and
``(B) shall be deposited and credited as offsetting
collections to the account providing appropriations to
the Commission.
``(3) Baseline amount.--For purposes of this subsection, the
baseline amount for any fiscal year is the amount projected by
the Congressional Budget Office pursuant to section 257 the
Balanced Budget and Emergency Deficit Control Act of 1985, in
its most recently published report of its baseline projection
before the date of enactment of the Fairness in Securities
Transactions Act, to be collected and deposited as general
revenues pursuant to subsections (b) and (c) of this section as
in effect on the day before the date of enactment of such Act.
``(j) Lapse of Appropriation.--If on the first day of a fiscal year a
regular appropriation to the Commission has not been enacted, the
Commission shall continue to collect fees under subsections (b), (c),
and (d) at the rate in effect during the preceding fiscal year, until
such a regular appropriation is enacted.''.

SEC. 4. EFFECTIVE DATE.

The amendments made by this Act--
(1) shall take effect on October 1, 2000; and
(2) shall cease to be effective on October 1, 2006.

Purpose and Summary

The purpose of H.R. 2441 is to provide monetary relief to
investors and market participants that pay the section 31
transaction fee. The legislation provides an interim rate
reduction until a statutorily mandated reduction becomes
effective in fiscal year 2007.
H.R. 2441, as reported, lowers the transaction fee rate
from \1/300\th of one percent to \1/500\th of one percent
through the end of fiscal year 2006. Because the current
budgetary treatment is different for exchange-traded securities
than for off-exchange-traded securities (transaction fees from
exchange traded securities are deposited as general revenue;
all other transaction revenue is deposited as offsetting
collections), a rate reduction applied equally under current
law would result in a decrease to general revenue to the
Treasury because of the resultant decrease in revenue from
exchange traded securities. In order to remain revenue neutral,
the legislation makes changes to the fee structure. Under
H.R.2441, all transaction fee revenue collected is deposited as
general revenue, except that any amount collected in excess of
the most recently published Congressional Budget Office (CBO)
baseline at the time of enactment is deposited as offsetting
collections.
Based on the March 2000 CBO baseline, preliminary estimates
indicate that the legislation will provide over $460 million in
offsetting collections in fiscal year 2001. This will ensure
that the appropriators will have the funds necessary to meet
the Security and Exchange Commission's (SEC's) budget request
of $423 million.
The legislation also addresses a concern regarding the
conversion of the NASDAQ market to an exchange. Currently,
transaction revenue collected from securities traded through
the NASDAQ is deposited as offsetting collections. However, the
NASDAQ has filed an application to become an exchange, at which
point the fees collected from securities traded on the NASDAQ
would be deposited as general revenue under current law.
Because H.R. 2441 does not differentiate between where the
securities are traded for purposes of depositing and crediting
section 31 transaction fees, the conversion of NASDAQ to an
exchange will not affect the funding structure put in place for
the SEC by the legislation.

Background and Need for Legislation

The Federal Securities laws provide for several types of
fees to be charged for various securities activities. These
fees, which include registration, transaction, and merger and
tender offer fees, are ``user'' fees intended to recover the
government's cost of providing Federal securities regulation
through the Securities and Exchange Commission.
Beginning in the early 1980's, the total revenue collected
by the government from these fees began to exceed the cost of
funding the SEC.
Notwithstanding the surplus being generated by the fees,
Congress authorized increases to the fee rate for securities
registration (which is authorized under section 6 of the
Securities Act of 1933, and is thus sometimes referred to as
the ``section 6(b) fee'') annually beginning in 1990. The
revenue collected above the statutory registration rate was
deposited and credited as ``offsetting collections'' to the
account that provided for appropriations for the SEC. This
eased the budgetary pressure on discretionary spending for
Congressional appropriators by providing them with funds that
they could use outside the limits (caps) imposed by the Budget
Enforcement Act.
As the surplus from the fees began to grow dramatically,
concerns were raised that the user fees had become a revenue-
generating tax--as opposed to being merely a cost recovery
mechanism for SEC regulation--and an unnecessary burden on
capital formation. In 1995, the revenue collected from these
fees was more than double the SEC budget. Because the
appropriations committees were relying on the offsetting
collections to provide a substantial percentage of the revenue
needed to fund the SEC budget each year, and the level of
offsetting collections was never predictable, there were
concerns about the resulting uncertainty in funding the SEC.
Congress addressed this problem by changing the fee and SEC
funding structure in the National Securities Markets
Improvement Act of 1996 (P.L. 104-290) (NSMIA). The fee
provisions in that Act were intended to reduce the total
revenue collected from the fees over time to approximate the
cost to the government of securities market regulation, and to
provide a more stable long-term funding structure for the SEC
by reducing the reliance of the appropriators on fee
collections as a funding mechanism.
NSMIA decreased the registration fee rate incrementally
each year until it returned to the level that existed prior to
the yearly increases in the rate that Congress began to
authorize in 1990. Additionally, the Act authorized the
transaction fee (which is authorized under section 31 of the
Exchange Act, and hence is also called a ``section 31 fee'') to
be extended to off-exchange traded securities. This was done to
eliminate any competitive disparities between exchange-traded
securities, which had always been assessed the fee, and non-
exchange-traded securities, which were not subject to
transaction fees.
Based on the Congressional Budget Office estimates at the
time, it was anticipated the revenue collected and deposited as
offsetting collections, pursuant to the changes under the Act,
would decline and therefore require Congressional appropriators
to gradually increase their appropriation to fully fund the
SEC. The combination of the decreasing 6(b) registration fee
rate and the new application of the section 31 transaction fee
to off-exchange traded securities was estimated to provide
total offsetting collections of $244 million in 1997,
decreasing annually to $141 million in 2006.
In adopting NSMIA, Congress relied upon 1996 CBO baseline
projections for market volume. In fact, actual registration and
transaction volume has exceeded the CBO's estimates by
multiples.For example, in 2000, total fee revenue collected was
$2 billion, while the SEC budget was $377 million. The 1996 projections
estimated total collections of $778 million. Although registration
volume increased significantly, the bulk of the unexpected revenue was
derived from the section 31 fee. The fiscal year 2000 revenue collected
from the transaction fee has more than quadrupled, totaling more than
$1 billion; the 1996 estimates predicted $273 million. The CBO's March
2000 baseline estimates predict that transaction volume will continue
to escalate and generate over $3 billion in 2006. Revenue from
registration fees is estimated to produce an additional $876 million in
2006.
Many Members of Congress agree that the section 31
transaction fee rate, as amended in 1996, was never envisioned
to generate the level of revenue being collected. In 1998,
legislation (H.R. 4213) was introduced to address the problem.
No action was taken on that legislation.
Transaction volume is expected to continue to increase, and
concerns were again raised in the 106th Congress that the
section 31 transaction fees do not reflect their statutory
purpose of a cost recovery fee. Legislation was introduced in
the House to address the problem.

Hearings

The Subcommittee on Finance and Hazardous Materials held
two hearings on H.R. 2441, the Fairness in Securities
Transactions Act on July 27, 1999 and September 28, 1999. The
July 27, 1999 hearing examined the impact of the growth in the
securities markets on transaction fee revenue. The Subcommittee
received testimony from: Mr. William J. Brodsky, Chairman and
C.E.O., Chicago Board Options Exchange; Mr. Andrew Cader,
Senior Managing Director, Spear, Leeds & Kellogg, representing
the Specialist Association of the New York Stock Exchange; Mr.
Steve Nelson, Vice President of Special Projects, Herzog Heine
Geduld, representing the Securities Industry Association; and
Mr. Art Kearney, Director of Equity Capital, John G. Kinnard &
Co., representing the Security Traders Association.
On September 28, 1999, the Subcommittee received testimony
on H.R. 2441 from the following witnesses: The Honorable Rick
Lazio, United States House of Representatives; The Honorable
Robert Menendez, United States House of Representatives; and
Mr. James M. McConnell, Executive Director, Securities and
Exchange Commission.

Committee Consideration

On February 15, 2000, the Subcommittee on Finance and
Hazardous Materials met in open markup session and approved
H.R. 2441 for Full Committee consideration, as amended by a
voice vote. On October 6, 2000, the Full Committee met in open
markup session and ordered H.R. 2441 reported to the House,
amended, by a record vote of 24 yeas and 16 nays, a quorum
being present.

Committee Votes

Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. A
motion by Mr. Bliley to order H.R. 2441 reported to the House,
with an amendment, was agreed to by a record vote of 24 yeas
and 16 nays (Record Vote No. 37). The names of Members voting
for and against follow.
The following amendment was ruled nongermane by the chair--

An amendment in the nature of a substitute by Mr.
Towns, No. 1, crediting all securities transaction fees
collected to the account of the appropriators and
providing the SEC with an exemption from the civil
service pay code.

An appeal of the ruling of the Chair was tabled by a record
vote of 25 yeas and 16 nays (Record Vote No. 36). The names of
Members voting for and against follow.

Committee Oversight Findings

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held legislative and
oversight hearings and made findings that are reflected in this
report.

Committee on Government Reform Oversight Findings

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, no oversight findings have been
submitted to the Committee by the Committee on Government
Reform.

New Budget Authority, Entitlement Authority, and Tax Expenditures

In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee finds that H.R.
2441, the Fairness in Securities Transactions Act, would result
in no new or increased budget authority, entitlement authority,
or tax expenditures or revenues.

Committee Cost Estimate

The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.

Congressional Budget Office Estimate

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:

U.S. Congress,
Congressional Budget Office,
Washington, DC, October 24, 2000.
Hon. Tom Bliley,
Chairman, Committee on Commerce, House of Representatives, Washington,
DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2441, the Fairness
in Securities Transactions Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Ken Johnson.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.

H.R. 2441--Fairness in Securities Transactions Act

Summary: H.R. 2441 would reduce the fees the Securities and
Exchange Commission (SEC) is authorized to collect on
securities transactions conducted through national securities
exchanges, associations, brokers, and dealers. The rate would
be cut from \1/300\th of 1 percent of the aggregate dollars
traded to \1/500\th of 1 percent of the aggregate dollars
traded. Under the bill, all transaction fees collected up to a
certain threshold would be classified as governmental receipts
(that is, revenues). Any transaction fees above this threshold
would be authorized to be collected only to the extent provided
in appropriation acts and would be classified as offsetting
collections (that is, offsets to discretionary spending). The
provisions of H.R. 2441 would be effective from October 1,
2000, through October 1, 2006.
CBO estimates that enacting H.R. 2441 would reduce the
SEC's transaction fees by $478 million in fiscal year 2001 and
by a total of $4 billion over the 2001-2005 period (from $10
billion to about $6 billion).
Table 1 shows the estimated impact of H.R. 2441 on the
SEC's transaction fees, assuming that future appropriation
actions would continue to allow the collection of these fees
consistent with the authorizing statute.
Because the collection of fees from 2002 through 2005 would
be subject to future appropriation action, the reduction
mandated by this bill would be reflected as a loss of
offsetting collections credited against future appropriations
($3.5 billion over the four-year period).
For 2001, the nature of the budgetary impact of this bill
would depend on whether the SEC appropriation would be enacted
before H.R. 2441. If it is, then this bill would affect outlays
from an already-enacted appropriation, which would be
considered a direct spending impact (of $478 million).
Alternatively, if the SEC appropriation were not enacted before
H.R. 2441, the effect of this bill in 2001 would be like that
in the subsequent years--a loss of offsetting collections
credited against future discretionary appropriations.

----------------------------------------------------------------------------------------------------------------
Millions of dollars, by fiscal year--
-------------------------------------------------
2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
CBO Baseline Estimate of SEC Transaction Fees \1\............. 1,303 1,593 1,938 2,346 2,836
SEC Transaction Fees Under H.R. 2441.......................... 825 956 1,163 1,408 1,701
Estimated Change in SEC Transaction Fees...................... -478 -637 -775 -938 -1,135
----------------------------------------------------------------------------------------------------------------
\1\ These estimates are sums of the transaction fees that are classified as governmental receipts and the
transaction fees that are classified as offsetting collections.

For this estimate, we assume H.R. 2441 will be enacted
after a regular 2001 appropriation is in place for the SEC (see
Table 2).
H.R. 2441 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no costs on state, local, or tribal
governments.
Estimated cost to the Federal Government: Table 2 shows the
estimated budgetary impact of H.R. 2441, assuming that the
SEC's appropriation for 2001 is enacted before this bill. The
costs of this legislation fall within budget function 370
(commerce and housing credit).

Estimated Budget Authority.................................... 478 0 0 0 0
Estimated Outlays............................................. 478 0 0 0 0

CHANGES SUBJECT TO APPROPRIATION

Estimated Budget Authority.................................... 0 637 775 938 1,135
Estimated Outlays............................................. 0 637 775 938 1,135
----------------------------------------------------------------------------------------------------------------

Basis of estimate: Under current law, the SEC collects \1/
300\th of a percent of the aggregate dollar value of securities
traded through national securities exchanges, national
securities associations, brokers, and dealers. The fee rate
will decline to \1/800\th of a percent for 2007 and thereafter.
Fees collected from national securities associations are
subject to appropriation action and are recorded as offsetting
collections, while fees from other sources are recorded as
revenues.
H.R. 2441 would reduce the transaction fees to \1/500\th of
1 percent of the aggregate dollar value of securities traded
during the period between October 1, 2000, and October 1, 2006.
Based on historical data on the dollar volume of securities
traded on the major national securities associations and
exchanges, CBO estimates that the aggregate dollar volume of
securities traded will amount to about $39 trillion in 2001 and
about $300 trillion over the 2001-2005 period. On this basis,
CBO estimates that implementing H.R. 2441 would reduce SEC
transaction fees by a total of $4 billion over the 2001-2005
period, relative to the CBO's most recent baseline estimates.
The bill would classify all transaction fees collected up
to a certain threshold as revenues. H.R. 2441 would define that
threshold as the most recent CBO baseline estimate of revenues
from transaction fees. (CBO currently estimates that such
revenues will total $486 million in fiscal year 2001 and $3.5
billion over the 2001-2005 period.) Under the bill, any
transaction fees collected above that threshold would be
recorded as offsetting collections, to the extent provided in
appropriation acts.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in outlays that are subject to pay-as-you-go procedures
are shown in the following table, assuming the SEC
appropriation for 2001 is enacted before H.R. 2441. If not,
this bill would have no pay-as-you-go impact.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
----------------------------------------------------------------------------------------------------------------
Changes in outlays.............. 478 0 0 0 0 0 0 0 0 0
Changes in receipts............. Not applicable
----------------------------------------------------------------------------------------------------------------

Intergovernmental and private sector mandates statement:
H.R. 2441 contains no intergovernmental and private-sector
mandates as defined in UMRA, and would impose no costs on
state, local, or tribal governments.
Estimate prepared by: Federal Costs: Ken Johnson and Mark
Hadley. Revenues: Erin Whitaker. Impact on State, Local, and
Tribal Governments: Shelley Finlayson. Impact on the Private
Sector: Jean Wooster.
Estimate approved by: Robert A. Sunshine, Assistant
Director for Budget Analysis.

Federal Mandates Statement

The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.

Advisory Committee Statement

No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.

Constitutional Authority Statement

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional authority for this legislation is provided in
Article I, section 8, clause 3, which grants Congress the power
to regulate commerce with foreign nations, among the several
States, and with the Indian tribes.

Applicability to Legislative Branch

The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.

Section-by-Section Analysis of the Legislation

Section 1. Short title

This section provides the short title of the legislation,
the ``Fairness in Securities Transactions Act.''

Section 2. Fee reduction

Subsection (a) of section 2 of the legislation provides
that section 31 of the Securities and Exchange Act of 1934
(Exchange Act) is amended to reduce the fee rate from \1/300\th
of one percent to \1/500\th of one percent. This change reduces
the rate until further reductions mandated by statute occur in
fiscal year 2007.
Subsection (b) provides that in any year when total revenue
collected from both registration and transaction fees is
insufficient to provide the Commission's budget authority, the
transaction fee rate under section 31 may be increased through
an appropriation Act.

Section 3. Revision of securities transaction fee provisions

This section amends section 31 of the Exchange Act. The
section adds new subsection (i) which stipulates that revenue
collected pursuant to section 31 be deposited as general
revenue to the Treasury, except that no such amount may exceed
the baseline amount (as defined by H.R. 2441). Fees collected
in excess of the baseline amount will be deposited and credited
as offsetting collection to the account providing
appropriations to the Commission.
The section also defines the baseline amount to be the
amount projected by the Congressional Budget Office in its most
recently published report of the baseline amount before the
date of enactment of the legislation.
Section 3 also modifies section 31(d)(3) to conform to the
new funding scheme. A new subsection (j) provides that, in the
case of a lapse of regular appropriation, the Commission must
continue to collect fees under subsections (b), (c), and (d) of
section 31 at the rate in effect during the preceding fiscal
year until such regular appropriation is enacted.

Section 4. Effective date

Section 4 provides that the changes made by this bill take
effect October 1, 2000 and cease to be effective October 1,
2006.

Changes in Existing Law Made by the Bill, as Reported

In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

SECTION 31 OF THE SECURITIES EXCHANGE ACT OF 1934

SEC. 31. TRANSACTION FEES.

(a) * * *
(b) Exchange-Traded Securities.--Every national securities
exchange shall pay to the Commission a fee at a rate equal to
[\1/300\ of one percent] \1/500\ of one percent of the
aggregate dollar amount of sales of securities (other than
bonds, debentures, and other evidences of indebtedness)
transacted on such national securities exchange, except that
for fiscal year 2007 or any succeeding fiscal year such rate
shall be equal to \1/800\ of one percent of such aggregate
dollar amount of sales. [Fees collected pursuant to this
subsection shall be deposited and collected as general revenue
of the Treasury.]
(c) Off-Exchange Trades of Exchange Registered Securities.--
Each national securities association shall pay to the
Commission a fee at a rate equal to [\1/300\ of one percent]
\1/500\ of one percent of the aggregate dollar amount of sales
transacted by or through any member of such association
otherwise than on a national securities exchange of securities
registered on such an exchange (other than bonds, debentures,
and other evidences of indebtedness), except that for fiscal
year 2007 or any succeeding fiscal year such rate shall be
equal to \1/800\ of one percent of such aggregate dollar amount
of sales. [Fees collected pursuant to this subsection shall be
deposited and collected as general revenue of the Treasury.]
[(d) Off-Exchange Trades of Last-Sale-Reported Securities.--
[(1) Covered transactions.--Each national securities]
(d) Off-Exchange Trades of Last-Sale-Reported Securities.--
Each national securities association shall pay to the
Commission a fee at a rate equal to [\1/300\ of one percent]
\1/500\ of one percent of the aggregate dollar amount of sales
transacted by or through any member of such association
otherwise than on a national securities exchange of securities
(other than bonds, debentures, and other evidences of
indebtedness) subject to prompt last sale reporting pursuant to
the rules of the Commission or a registered national securities
association, excluding any sales for which a fee is paid under
subsection (c), except that for fiscal year 2007, or any
succeeding fiscal year, such rate shall be equal to \1/800\ of
one percent of such aggregate dollar amount of sale.
[(2) Limitation; deposit of fees.--Except as provided
in paragraph (3), no amounts shall be collected
pursuant to subsection (d) for any fiscal year, except
to the extent provided in advance in appropriations
Acts. Fees collected during any such fiscal year
pursuant to this subsection shall be deposited and
credited as offsetting collections to the account
providing appropriations to the Commission.
[(3) Lapse of appropriations.--If on the first day of
a fiscal year a regular appropriation to the Commission
has not been enacted, the Commission shall continue to
collect fees (as offsetting collections) under this
subsection at the rate in effect during the preceding
fiscal year, until such a regular appropriation is
enacted.]

* * * * * * *

(h) Insufficient Fees.--In any year in which the total amount
of fees collected under this section and section 6(b) of the
Securities Act of 1933 (including any balance in the account
providing appropriations to the Commission) are insufficient to
provide for the Commission's budget authority as provided by an
appropriation Act, such appropriation Act may provide that the
fee under this section shall be increased, with all such
increased amounts deposited and credited as offsetting
collections to the account providing appropriations to the
Commission.
(i) Deposit of Fees.--
(1) General revenues.--Fees collected pursuant to
subsections (b), (c), and (d) shall be deposited and
collected as general revenue of the Treasury, except
that the amount deposited and collected as general
revenues for any fiscal year shall not exceed the
baseline amount for such fiscal year.
(2) Offsetting collections.--Fees collected pursuant
subsections (b), (c) and (d) for any fiscal year in
excess of the baseline amount for such fiscal year--
(A) shall not be collected or spent for any
fiscal year except to the extent provided in
advance in appropriation Acts; and
(B) shall be deposited and credited as
offsetting collections to the account providing
appropriations to the Commission.
(3) Baseline amount.--For purposes of this
subsection, the baseline amount for any fiscal year is
the amount projected by the Congressional Budget Office
pursuant to section 257 the Balanced Budget and
Emergency Deficit Control Act of 1985, in its most
recently published report of its baseline projection
before the date of enactment of the Fairness in
Securities Transactions Act, to be collected and
deposited as general revenues pursuant to subsections
(b) and (c) of this section as in effect on the day
before the date of enactment of such Act.
(j) Lapse of Appropriation.--If on the first day of a fiscal
year a regular appropriation to the Commission has not been
enacted, the Commission shall continue to collect fees under
subsections (b), (c), and (d) at the rate in effect during the
preceding fiscal year, until such a regular appropriation is
enacted.

MINORITY VIEWS

Given a flawed process and a flawed bill, all of the
Commerce Committee Democrats opposed this legislation at full
Committee markup. I enthusiastically joined that opposition.
I am a strong supporter of eliminating the excess fees
collected by the SEC over and above its funding needs. Twice
under my leadership, with the cooperation and support of the
Appropriations, Budget, and Ways and Means Committees, the
House passed legislation to provide the SEC with a stable and
assured funding mechanism while also gradually reducing surplus
fee collections to zero. Twice the Senate refused to act on
that legislation or even negotiate with the House. Had that
legislation passed, we would not be having this debate now.
I am a strong supporter of a fully-funded SEC. It would be
foolish to be otherwise, given the large number of American
households invested in the stock market, the dramatic changes
in the structure and functions of the nation's securities
markets, the role the stock market currently plays in our
economic growth, and last but not least, the need to maintain a
strong law enforcement presence to combat the increase in
securities fraud, especially on the Internet.
H.R. 2441, as reported by the Commerce Committee on a 24-16
partisan vote, was opposed by Democrats because it achieves
reductions in fee collections by targeting only the offsetting
collections used by the SEC's appropriators to fund SEC
operations. It makes no attempt to reduce the general revenue
portion of fee collections, which represent approximately 70
percent of total fee collections. The bill increases the risk
that the SEC will face a funding shortfall by giving general
revenue first claim on any fee collections. Under this bill
general revenue is credited with all fee collections until a
general revenue cap is reached. Any collections over the
general revenue cap go to offsetting collections. This
provision has the effect of shifting the risk of any collection
shortfall to offsetting collections. The SEC would thus bear
the brunt of any shortfall, exposing the SEC to the possibility
of an emergency budget situation that could severely affect its
operations.
The House should reject this not-so-veiled Republican
attempt to cripple the SEC by potentially shutting off its
funding.
I also would express disappointment in the Republicans for
blocking consideration of the responsible amendment authored by
Representative Towns, who joins me in these views. The Towns
amendment offered the securities industry the potential of more
fee relief than H.R. 2441, without jeopardizing the SEC's
budget. It also would have given the SEC pay parity with the
federal banking regulatory authorities to address the serious
problems that the SEC is having with recruiting and retaining
highly-qualified staff. Recent press reports indicate that the
Division of Investment Management has lost one-third of its
attorneys. This is an outrageous situation that needs to be
remedied: it undermines both the protection of investors and
the ability of business to get timely response to its filings
with the agency.
I am filing with these views a copy of the letter that
Representatives Towns, Markey, and I wrote to the Democratic
Leadership of Appropriations on this matter and I commend it to
our colleagues on both sides of the aisle.

John D. Dingell.