[Senate Report 107-3]
[From the U.S. Government Publishing Office]




107th Congress                                                   Report
 1st Session                     SENATE                           107-3
_______________________________________________________________________

                                     

                                                        Calendar No. 20




                    COMPETITIVE MARKET SUPERVISION


                              ACT OF 2001

                               __________

                              R E P O R T

                                 of the

                     COMMITTEE ON BANKING, HOUSING,

                           AND URBAN AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                                 S. 143


                                     


                                     

                 March 14, 2001.--Ordered to be printed

                               __________


                    U.S. GOVERNMENT PRINTING OFFICE
89-010                      WASHINGTON : 2001




            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      PHIL GRAMM, Texas, Chairman

RICHARD C. SHELBY, Alabama           PAUL S. SARBANES, Maryland
ROBERT F. BENNETT, Utah              CHRISTOPHER J. DODD, Connecticut
WAYNE ALLARD, Colorado               TIM JOHNSON, South Dakota
MICHAEL B. ENZI, Wyoming             JACK REED, Rhode Island
CHUCK HAGEL, Nebraska                CHARLES E. SCHUMER, New York
RICK SANTORUM, Pennsylvania          EVAN BAYH, Indiana
JIM BUNNING, Kentucky                ZELL MILLER, Georgia
MIKE CRAPO, Idaho                    THOMAS R. CARPER, Delaware
JOHN ENSIGN, Nevada                  DEBBIE STABENOW, Michigan
                                     JON S. CORZINE, New Jersey

                   Wayne A. Abernathy, Staff Director
     Steven B. Harris, Democratic Staff Director and Chief Counsel
                      Linda L. Lord, Chief Counsel
                Geoffrey C. Gradler, Financial Economist
                 Dean V. Shahinian, Democratic Counsel
                       George E. Whittle, Editor

                                  (ii)




                            C O N T E N T S

                              ----------                              
                                                                   Page

Introduction.....................................................     1
History of the Legislation.......................................     1
Background.......................................................     2
Purpose and Scope of the Legislation.............................     4
Section-by-Section Analysis of S. 143: ``Competitive Market 
  Supervision Act of 2001''......................................     6
    Section 1. Short Title.......................................     6
    Section 2. Reduction in Registration Fees; Elimination of 
      General Revenue Component..................................     6
    Section 3. Reduction in Merger and Tender Fees; 
      Reclassification as Offsetting Collections.................     7
    Section 4. Reduction in Transaction Fees; Elimination of 
      General Revenue Component..................................     7
    Section 5. Adjustment to Fee Rates...........................     7
    Section 6. Comparability Provisions..........................     7
    Section 7. Effective Date....................................     8
Regulatory Impact Statement......................................     8
Congressional Budget Office Cost Estimate........................     8
Changes in Existing Law..........................................    14

                                 (iii)
                                                        Calendar No. 20
107th Congress                                                   Report
                                 SENATE
 1st Session                                                      107-3

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



 
               COMPETITIVE MARKET SUPERVISION ACT OF 2001

                                _______
                                

                 March 14, 2001.--Ordered to be printed

                                _______
                                

 Mr. Gramm, from the Committee on Banking, Housing, and Urban Affairs, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 143]

    The Committee on Banking, Housing, and Urban Affairs, to 
which was referred the bill (S. 143) to amend the Securities 
Act of 1933 and the Securities Exchange Act of 1934 to reduce 
securities fees in excess of those required to fund the 
operations of the Securities and Exchange Commission, to adjust 
compensation provisions for employees of the commission, and 
for other purposes, having considered the same, reports 
favorably thereon with an amendment in the nature of a 
substitute and recommends that the bill as amended do pass.

                              INTRODUCTION

    On March 1, 2001, the Senate Committee on Banking, Housing, 
and Urban Affairs met in legislative session and marked up and 
ordered to be reported S. 143, the Competitive Market 
Supervision Act of 2001, a bill to amend the Securities Act of 
1933 and the Securities Exchange Act of 1934 to reduce 
securities fees in excess of those required to fund the 
operations of the Securities and Exchange Commission, to adjust 
compensation provisions for employees of the Commission, and 
for other purposes, with a recommendation that the bill do 
pass, with an amendment in the nature of a substitute. The 
Committee reported the bill favorably by voice vote.

                         HISTORY OF LEGISLATION

    The Competitive Market Supervision Act of 2001, S. 143, is 
the culmination of more than three years worth of work by the 
Committee in addressing the problem of excess securities user 
fees collected by the Securities and Exchange Commission (SEC, 
or Commission). During the first session of the 106th Congress, 
on Wednesday, March 24, 1999, a hearing was held by the 
Subcommittee on Securities on the need to reduce the excess of 
user fees. Testimony was received from the Honorable Arthur 
Levitt, Chairman, Securities and Exchange Commission; Marc 
Lackritz, President, Securities Industry Association; Lee 
Korins, President and Chief Executive Officer, Security Traders 
Association; Arthur Kearney, Chairman, Security Traders 
Association; and Robert W. Seijas, Executive Vice President of 
Fleet Specialists and Co-President of the Specialists 
Association.
    The full committee conducted a legislative hearing in New 
York on February 28, 2000, on S. 2107, the Competitive Market 
Supervision Act of 2000. Testimony was received from SEC 
Chairman Arthur Levitt; J. Patrick Campbell, Chief Operating 
Officer and Executive Vice President, Nasdaq-Amex Market Group 
Inc.; Keith Helsby, Senior Vice President and Chief Financial 
Officer, New York Stock Exchange; Hardwick Simmons, President 
and Chief Executive Officer, Prudential Securities Inc.; 
Leopold Korins, President and Chief Executive Officer of the 
Security Traders Association; and Robert Seijas, Executive Vice 
president, Fleet Specialists, and Co-President, Specialists 
Association.
    On July 13, 2000, the Committee met in legislative session 
to mark up the Competitive Market Supervision Act of 2000 (S. 
2107). The Committee by voice vote reported the bill as amended 
to the Senate for consideration.
    Building on the momentum established during the last 
Congress, the Competitive Market Supervision Act of 2001 (S. 
143) was introduced on January 22, 2001. On February 14, 2001, 
the Committee on Banking, Housing, and Urban Affairs conducted 
a legislative hearing on S. 143, the Competitive Market 
Supervision Act of 2001. Testimony was received from the 
Honorable Laura Unger, Acting Chairman, Securities and Exchange 
Commission; Mr. Robert Fagenson, Vice Chairman, Van Der Moolen 
Specialists, on behalf of the Specialist Association; Marc 
Lackritz, President, Securities Industry Association; Mr. James 
E. Burton, Chief Executive Officer, California Public Employees 
Retirement System (CalPERS); Mr. Leopold Korins, President and 
Chief Executive Officer, Security Traders Association; Mr. 
Robert Forney, Chief Executive Officer, Chicago Stock Exchange.
    On March 1, 2001, the Committee met in legislative session 
to mark up the Competitive Market Supervision Act of 2001 (S. 
143). During mark up the Committee considered only one 
amendment. Chairman Gramm and Senator Schumer offered an 
amendment in the form of a substitute that provided for 
technical changes to the legislation. The amendment was 
accepted by voice vote, and the Committee, by voice vote, 
reported the bill as amended to the Senate for consideration.

                               BACKGROUND

Origins of securities fees

    Since its creation, the Commission has collected 
securities-related fees. Section 6(b) of the Securities Act of 
1933 imposed fees on the registration of securities at a rate 
equal to one one-hundredths percent of the offering price. In 
1965, registration fee rates were increased to one fiftieth 
percent. These fees were deposited in the Treasury as general 
revenue. Section 31 of the Securities Exchange Act of 1934 
imposed fees on transactions of exchange-traded securities at a 
rate equal to one five-hundredths percent of the aggregate 
amount of sales. This fee rate was later increased to one 
three-hundredths percent, and, like the registration fees, were 
deposited in the Treasury as general revenue. The 1983 
Securities Exchange Act Amendments (Public Law 98-38; June 6, 
1983) imposed general revenue fees on mergers, proxy 
solicitations, and other activities to the extent registration 
fees were not already imposed, at a rate equal to one fiftieth 
percent of the value of the securities involved. The Commodity 
Futures Modernization Act of 2000 (Public Law 106-554; December 
21, 2000) created Section 31(e) of the Securities Exchange Act 
of 1934. This section applied an initial $0.02 per round turn 
assessment on transactions involving narrow based and single 
stock securities futures products, which subsequently drops to 
$0.0075 per transaction after 2006.
    Paragraph (1) of Section 6(b) states that registration fees 
``are designed to recover the costs to the government of the 
securities registration process,'' while subsection (a) of 
Section 31 states that transaction fees ``are designed to 
recover the costs to the government of the supervision and 
regulation of securities market and securities professionals.'' 
However, since the fees were all deposited as general revenues, 
resources to operate the Commission had to be provided in 
annual appropriations acts. Beginning in fiscal year 1990, and 
continuing though FY 1997, annual appropriations acts contained 
language increasing registration fee rates to one twenty-ninth 
percent, with the amount of fees in excess of the one fiftieth 
percent rate credited as offsetting collections. By imposing 
new fees and dedicating them to offsetting appropriations for 
the Commission, the appropriations acts effectively reduced the 
amount of direct appropriations for the Commission, the 
appropriations acts effectively reduced the amount of direct 
appropriations required to fund the Commission.

The National Securities Markets Improvement Act of 1996

    To balance the goals of providing sufficient resources to 
the Commission and minimizing taxation of investment, Congress 
enacted the National Securities Markets Improvement Act of 1996 
(NSMIA). This legislation began a gradual reduction in 
registration fee rates from the equivalent of one twenty-ninth 
percent in FY 1997 to one fiftieth percent in FY 2006, with a 
further reduction to one one-hundred-fiftieth percent in FY 
2007 and thereafter. In addition, NSMIA set up a reduction in 
transaction fee rates, which remain at one three-hundredth 
percent through FY 2006 and then drop to one eight-hundredth 
percent in FY 2007 and thereafter.
    Accompanying this reduction in fee rates was a reallocation 
of fees credited as offsetting collections. Registration fees 
credited as offsetting collections would slowly be phased out 
(leaving only general revenue registration fees), while 
transaction fees would for the first time be applied to last-
reported-sale securities traded primarily on the national 
market systems, with these new transaction fees credited as 
offsetting collections. Using projections of securities market 
activities available at the time, total fee collections were 
expected to fall from $711 million in FY 1997 to $351 million 
in FY 2007. In the words of the Joint Explanatory Statement of 
the NSMIA conference report, ``It is the intent of the Managers 
that at the end of the applicable ten year period, the SEC 
collect in fees a sum approximately equal to the cost of 
running the agency.''
    Since the time NSMIA was signed into law on October 11, 
1996, there has been an unexpected surge in securities market 
activity, with growth in share values and trading volumes far 
outstripping the projections that guided NSMIA's authors. 
Nasdaq transaction fees alone were expected to row at a 5 
percent annual rate. Instead, these fees have grown more than 
500 percent in just three years, and are now projected by some 
to grow at an annual rate of 15 percent according to the Office 
of Management and Budget, and at an annual rate of 25 percent 
according to the Congressional Budget Office (CBO). 
Registration fees on exchange-traded securities transactions 
have also grown enormously and are now running at double the 
levels projected at the time of NSMIA. Thus, while the goal of 
NSMIA was to have fee collections approximately equal the cost 
to the Government of securities regulation, in actuality the 
Commission is projected tocollect nearly six hundred percent of 
the SEC's budget in fees in FY 2001. Moreover, while projections at the 
time of the enactment of NSMIA showed a significant share of total fees 
being allocated to offsetting collections, the bulk of these offsetting 
collections would be reclassified as general revenues if the Nasdaq 
Stock Market ceases to be a national market system and becomes a 
national stock exchange.

                    PURPOSE AND SCOPE OF LEGISLATION

Reduction of securities user fees

    The original objective of the user fees collected by the 
SEC was to provide a funding source for the Government's 
securities regulation. However, increases in stock market 
volume and valuation have generated revenues that far surpass 
what is needed to operate the agency. For example, aggregate 
fee revenue fee revenue in FY 2000 was $2.27 billion while the 
SEC's budget totaled $368 million. The latest CBO projections 
predict that this imbalance will worsen even further, with 
total SEC fee revenues increasing to nearly $4.3 billion by FY 
2006. The Committee believes that, rather than user fees, these 
revenues have become taxes on savings and investment in order 
to fund general government operations. In the Committee's view, 
the excess collections of Section 31 fees are simply a tax that 
lowers the returns of every investor who buys stock, owns a 
mutual fund, or plans to use Individual Retirement Accounts, 
401(k) plans, or pensions to retire. Furthermore, excess 
Section 6(b) fees are particularly harmful since these taxes 
are imposed at the beginning of the investment cycle, 
subtracting from the economy monies that could be leveraged 
into several times their value to finance companies' efforts to 
spur growth, employment, and wealth creation.
    Section 2 of the reported legislation amends Section 6(b) 
of the Securities Act of 1933 to lower registration fee rates. 
In addition, this section eliminates the general revenue 
portion of the registration fee. The offsetting collection rate 
is set at $67 per $1 million of securities registered for FY 
2002-06, and at $33 per $1 million for FY 2007 and thereafter. 
Section 3 reduces merger and tender fee rates in Section 
13(e)(3) and Section 14(g) of the Securities Exchange Act of 
1934 from one fiftieth percent under current law to $67 per $1 
million of securities involved for the period FY 2002-06, and 
reduces rates further to $33 per $1 million for FY 2007 and 
thereafter, and all fees are also reclassified from general 
revenues to offsetting collections. The Committee realize the 
importance of harmonizing the fee registration, and merger and 
tender fee rates so as to provide no distortions or inject any 
unintended incentives into the managerial decision as to when a 
merger should occur.
    Under Section 4, all transactions included in Section 31 of 
the Securities Exchange Act of 1934 are consolidated, with the 
same fee rate applied to each as an offsetting collection. 
Transaction fees in any particular fiscal year will be set in 
appropriations acts at a rate estimated to collect the target 
dollar amount set in Section 4 for that year. The target dollar 
amount is calculated to approximate the amount of fees 
collected from equities and options transactions, so that, when 
combined with anticipated securities futures assessments, and 
registration and merger/tender fees, total offsetting 
collections will equal the offsetting collections projected to 
be produced by NSMIA. If current projections prove accurate, 
this will reduce transaction fee rates by about 40 percent.

Authority of SEC to adjust to fee rates

    Given the difficulty in predicting fee revenues, the 
Committee realizes the importance of providing a framework that 
ensures full funding for the SEC. Therefore, Section 5 of this 
legislation provides the SEC with the authority to adjust fee 
rates to ensure that the agency is fully funded in the event 
that reductions in market valuations or volume bring about 
revenues below the legislative targets. In addition, Section 5 
requires the agency to lower fee rates when fees are projected 
to bring in revenues that are in excess of the cap on total fee 
collections laid out in the bill. To provide a safeguard 
against misuse of the authority granted in Section 5, the 
legislation requires the agency to report to Congress before it 
exercises any authority to adjust fees.
    It is important to emphasize that this makes no transfer of 
any legislative authority to the SEC. Congress sets out the 
total amount in fees to be collected and the initial rates 
designed to collect that total. The SEC is merely delegated the 
duty to adjust fee rates in order to avoid collecting 
significantly more or less than the totals set by Congress in 
law.
    The Commission has informed the Committee of the 
desirability of an up-front appropriation which will provide 
full funding of the agency's Fiscal Year activities and 
operations. Without an up-front appropriation, the Commission 
could face a cash flow problem since the exchanges and the 
National Association of Securities Dealers (NASD) only pay 
Section 31 fees twice a year, on March 15 and September 30. The 
Commission is unable to spend the September 30 payment of 
Section 31 fees until it is actually received, and is therefore 
reliant on fees carried over from the prior fiscal year. 
Accordingly, the Committee encourages the Appropriations 
Committee to consider up-front appropriations to ensure that 
the Commission will be able to operate without interruption 
during the year.

SEC pay comparability

    Section 6 amends the Securities Exchange Act of 1934 to 
permit the Commission to adjust base rates of compensation for 
all of its employees outside the Civil Service's General 
Schedule (GS). Under existing law, the SEC may do so only for 
its economists. The provisions allow parity among the SEC and 
Federal banking agency compensation programs. An amendment also 
is made to the Federal Deposit Insurance Act to bring the SEC 
within the consultation and information-sharing requirements of 
other agencies mentioned at 12 U.S.C. 1833b with respect to 
rates of employee compensation. A further technical amendment 
to section 1833b deletes references to entities that have been 
abolished.
    Although the Committee believes in the need to provide 
parity of compensation to the SEC, the legislation does not 
require the SEC to institute such changes.
    This is not to be interpreted as an entitlement or any form 
of mandatory spending requirement. The authority is permissive, 
and any increased spending the agency might seek in connection 
with this provision would have to be provided through the 
authorization and appropriations process. In testimony last 
year before the Congress, then SEC Chairman ArthurLevitt stated 
that during the past two years, the Commission lost 25 percent of its 
attorneys, accountants, and examiners.\1\ This year's testimony by 
Acting Chairman Laura Unger noted that over the last two fiscal years 
the Commission has lost 30 percent of its attorneys, accountants, and 
examiners. Further, last year SEC records reflected an overall staff 
attrition rate of 13 percent, ``nearly twice the government-wide 
average . . .'' \2\ The most recent data shows that the attrition rate 
for the agency edged up to just under 14 percent in FY 2000.
---------------------------------------------------------------------------
    \1\ Testimony of Chairman Arthur Levitt, before the Committee on 
Banking, Housing, and Urban Affairs, United States Senate, February 28, 
2000, p. 5.
    \2\ Id., p. 5.
---------------------------------------------------------------------------
    The legislation assures that reductions, if any, in the 
base pay of an SEC employee represented by a labor organization 
with exclusive recognition in accordance with Chapter 71 of 
Title 5 of the United States Code, result from negotiations 
between such organization and SEC management, rather than by 
reason of the enactment of this amendment.

                      SECTION-BY-SECTION ANALYSIS

Section 1. Short title

    Designates this title as the ``Competitive Market 
Supervision Act of 2001.''

Section 2. Reduction in registration fees; elimination of general 
        revenue component

    Registration fee rates in Section 6(b) of the Securities 
Act of 1933 (15 U.S.C. 77f(b)) are reduced. The general revenue 
portion of the registration fee is eliminated. The offsetting 
collection rate is set at $67 per $1 million of securities 
registered for FY 2002-2006, and at $33 per $1 million for FY 
2007 and thereafter.

Section 3. Reduction in merger and tender fees; reclassification as 
        offsetting collections

    Section 3 reduces merger and tender fee rates in Section 
13(e)(3) and Section 14(g) of the Securities Exchange Act of 
1934 (15 U.S.C. 78m(e)(3) and 78n(g), respectively) from one 
fiftieth percent under current law, to $67 per $1 million of 
securities involved for the period FY 2002-2006, and reduces 
rates further to $33 per $1 million for FY 2007 and thereafter. 
All fees are reclassified from general revenues to offsetting 
collections.

Section 4. Reduction in transaction fees; elimination of general 
        revenue component

    Under this section, all transactions included in Section 31 
of the Securities Exchange Act of 1934 are consolidated and 
designated as offsetting collections. Transaction fees on 
options and equity securities in any particular fiscal year 
will be set at the same rate in appropriations acts so as to 
collect the target dollar amount set for that year. The target 
dollar amount is calculated to approximately the amount, when 
combined with anticipated securities futures assessments, and 
registration and merger/tender fee, that will approximately 
equal the offsetting collections anticipated to be produced 
under current law.

Section 5. Adjustment to fee rates

    The Commission is given authority to increase or decrease 
transaction fee rates after the first half of the fiscal year 
if projections show that either the cap or floor for total fee 
collections will be breached. To provide a safeguard against 
misuse of the authority granted in Section 5, the legislation 
requires the agency to report to Congress before it exercises 
any authority to adjust fees.

Section 6. Comparability provisions

    Section 6(a) amends Section 4(b) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78d(b)) to authorize, but not require, 
the SEC to compensate its employees according to a scale 
outside the Federal Government's General Schedule (GS) rates. 
Pursuant to this authority, the SEC may provide additional 
compensation and benefits to its employees on the same 
comparable basis as do the agencies referred to under Section 
1206(a) of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (12 U.S.C. 1833b). Such agencies 
include the Federal banking agencies, the National Credit Union 
Administration, the Federal Housing Finance Board, and the Farm 
Credit Administration. The amendment ensures that reductions, 
if any, in base pay for an employee of the SEC represented by a 
labor organization with exclusive recognition in accordance 
with Chapter 71 of Title 5 of the United States Code, result 
from negotiations between such organization and SEC management, 
rather than by reason of the enactment of this amendment.
    In establishing and adjusting schedules of compensation and 
benefits for its employees outside of GS rates, Section 6(b) 
requires the SEC to inform the heads of the agencies mentioned 
above and must seek to maintain comparability with such 
agencies regarding compensation and benefits. There is nothing 
in the bill that requires setting compensation outsides of GS 
rates, and there is no entitlement or mandated spending 
envisioned either explicitly or implicitly. A technical change 
is made to strike from Section 1206(a) the reference to the 
Thrift Depositor Protection Oversight Board of the Resolution 
Trust Corporation, which was abolished on December 31, 1995. 
Section 6(c) provides certain conforming amendments to Title 5 
of the United States Code to reflect changes made under 
subsection (a).

Section 7. Effective date

    In general, the bill becomes effective October 1, 2001. 
However, the authorities provided by Section 13(e)(3)(D), 
Section 14(g)(1)(D), Section 14(g)(3)(D), and Section 31(d) of 
the Securities Exchange Act of 1934, as so designated by this 
title shall not apply until October 1, 2002.

                      Regulatory Impact Statement

    In accordance with Paragraph 11(g), rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
statement regarding the regulatory impact of the bill.
    The bill dramatically lowers user fees on securities 
transactions and registrations, as well as mergers and tender 
offerings. The reduction of these fees lowers the cost of 
savings and investment for consumers, and reduces fee burden on 
businesses that raise capital in the securities markets. 
According to the Congressional Budget Office's January 2001 
baseline, beginning in FY 2002, the savings to investors and 
issuers from this bill are expected to be $8.9 billion over 
five years, and $14 billion over ten years.
    Section 6 provides the SEC with authority to compensate its 
employees according to a scale outside of the Federal 
Government's General Schedule rates. This compensation parity 
provision will result in no increase in regulatory burden. 
Neither does it necessitate any increase in the SEC budget, 
since the increase is not mandatory. That is to say, the SEC 
would exercise this authority on a discretionary basis within 
the context of funds made available to the Commission by 
Congress through the normal authorization and appropriations 
process.

               Congressional Budget Office Cost Estimate

    Senate rule XXVI, Section 11(b) of the Standing Rules of 
the Senate, and Section 403 of the Congressional Budget 
Impoundment and Control Act, require that each committee report 
on a bill containing a statement estimating the cost of the 
proposed legislation, which was prepared by the Congressional 
Budget Office. The Congressional Budget Office Cost Estimate 
and its Estimate of Costs of Private-Sector Mandates, both 
dated March 14, 2001, are hereby included in this report.
    The Committee notes that the Congressional Budget Office 
finds, as the Committee intended, that ``the fee-related 
provisions of S. 143 would have no significant effect on the 
total fees that are recorded as offsetting collections'' 
available for appropriations purposes.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 14, 2001.
Hon. Phil Gramm,
Chairman, Committee on Banking, Housing, and Urban Affairs, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 143, the Competitive 
Market Supervision Act of 2001.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Ken Johnson 
(for federal costs), Susan Sieg Tompkins (for the state and 
local impact), and Jean Talarico (for the private-sector 
impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

S. 143--Competitive Market Supervision Act of 2001

    Summary: S. 143 would adjust the fees and assessments that 
the Securities and Exchange Commission (SEC) is authorized to 
collect for registrations, mergers, and transactions of 
securities. Under current law, some of those fees and 
assessments are recorded in the budget as governmental receipts 
(revenues), and some are recorded as offsetting collections 
that are credited against discretionary appropriations for the 
SEC. The bill would reclassify all SEC fees and assessments as 
offsetting collections, reduce the fee rates, and require that 
total collections fall between a lower limit and an upper 
limit. If implemented, S. 143 would reduce the total amount of 
SEC fees from an estimated $2.5 billion in fiscal year 2001 to 
about $1.1 billion in 2002. CBO estimates that enacting S. 143 
would reduce governmental receipts by $1.5 billion in 2002 and 
by $8.9 billion over the 2002-2006 period. Because S. 143 would 
affect governmental receipts, pay-as-you-go procedures would 
apply. Although the bill would change the rates of certain SEC 
fees that are treated as offsetting collections, CBO estimates 
that the net budgetary effect of these changes would not be 
significant, relative to CBO's current baseline estimates.
    The bill also would authorize the SEC to increase 
employees' compensation and benefits to make them comparable to 
agencies that regulate banking, such as the Federal Deposit 
Insurance Corporation (FDIC) and the National Credit Union 
Administration (NCUA). Implementing the bill's compensation-
related provisions would cost about $59 million in 2002 and 
$347 million over the 2002-2006 period, assuming the 
appropriation of the necessary amounts.
    S. 143 contains no intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA) and would impose no 
costs on state, local, or tribal governments. S. 143 would 
impose a private-sector mandate on the national securities 
exchanges and the national securities association. CBO 
estimates that the direct cost of the mandate would be below 
the annual threshold established by UMRA for private-sector 
mandates ($109 million in 2000, adjusted for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 143 is shown in Table 1. The costs of 
this legislation fall within budget function 370 (commerce and 
housing credit).

                                 TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF S. 143
----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                     -----------------------------------------------------------
                                                        2001      2002      2003      2004      2005      2006
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION

CBO baseline estimate of net SEC spending:
    Estimated authorization level \1\...............      -594         0         0         0         0         0
    Estimated outlays...............................      -620      -156       -54       -62       -86       -97
Proposed changes:
    Estimated authorization level...................         0        65        69        71        73        75
    Estimated outlays...............................         0        59        69        71        73        75
Net SEC spending under S. 143:
    Estimated authorization level \1\...............      -594        65        69        71        73        75
    Estimated outlays...............................      -620       -97        15         9       -13       -22

                                               CHANGES IN REVENUES

Estimated revenues..................................         0    -1,547    -1,601    -1,750    -1,919    -2,097
----------------------------------------------------------------------------------------------------------------
\1\ The 2001 level is the estimated net amount appropriated for that year: the gross SEC appropriation for 2001
  was $423 million.

Basis of estimate

    CBO estimates that implementing the compensation-related 
provisions of S. 143 would increase the gross spending of the 
SEC by $347 million over the 2002-2006 period, subject to 
future appropriations acts. We estimate that enactment of the 
bill would reduce revenues by $1.5 billion in 2002 and by $8.9 
billion over the 2002-2006 period by eliminating those SEC fees 
and assessments that are currently recorded in the budget as 
revenues. Although the bill would restructure the SEC fees that 
are recorded as offsetting collections, CBO estimates that the 
net effect of the bill on these collections would be 
insignificant, relative to CBO's current baseline estimates of 
such offsetting collections.
            Spending subject to appropriation
    S. 143 would allow the SEC to adjust the compensation it 
offers to its employees. Also, the bill would restructure the 
fees the agency is authorized to charge as an offset to its 
discretionary appropriations. CBO estimates that this 
restructuring should not significantly change the amount of 
such fees projected to be collected under our baseline 
assumptions.
    Changes in Gross Spending.--Currently, SEC employees fall 
into two compensation categories: those subject to the pay 
scales of the civil service system, and those whose salaries 
have been adjusted to equal the amounts received by similar 
employees in the securities industry. S. 143 would authorize 
the SEC to raise the pay of both types of employees to a level 
commensurate with the compensation offered by federal banking 
regulatory agencies. Based on information from the SEC and 
several of the banking-related agencies, CBO estimates that 
implementing this provision of the bill would cost $59 million 
in 2002 and $347 million over the 2002-2006 period, assuming 
the appropriation of the necessary amounts.
    Changes in Offsetting Collections.--S. 143 would 
restructure all four types of SEC collections: registration 
fees, merger and tender fees, assessments on the trading of 
single stock futures, and transaction fees (see Table 2). The 
bill also would establish an upper and lower limit on the total 
amount of offsetting collections the SEC may collect in any 
year. Based on historical information from the securities 
industry on the number and type of securities registered and 
traded, and the likelihood that offsetting collections would 
exceed the upper limit that would be established by the bill, 
CBO estimates that the fee-related provisions of S. 143 would 
have no significant effect on the total fees that are recorded 
as offsetting collections (relative to CBO's baseline).
    Transaction fees.--Under current law, the SEC collects 1/
300th of a percent of the aggregate dollars traded through 
national securities exchanges, national securities 
associations, brokers, and dealers. The fee rate will decline 
to 1/800th of a percent for 2007 and thereafter. Currently, 
fees collected from national securities associations are 
recorded as offsetting collections, while fees from other 
sources are recorded as revenues.
    Under the bill, all transactions fees would be classified 
as offsetting collections. Furthermore, the bill would require 
that the transaction fee rate be established at the beginning 
of each fiscal year so that transaction fee collections in a 
given fiscal year will equal a target amount. For a given year, 
the target amount would be equal to a figure specified in the 
bill, minus the estimated assessments on trades of single stock 
futures that would be collected by the SEC in that year.

                          TABLE 2.--SEC FEES UNDER CBO'S BASELINE ESTIMATES AND S. 143
----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                     -----------------------------------------------------------
                                                        2001      2002      2003      2004      2005      2006
----------------------------------------------------------------------------------------------------------------
SEC fees under CBO's January 2001 baseline:
    Transactions fees...............................     1,370     1,627     1,887     2,284     2,712     3,189
    Registration fees...............................     1,024       980       953       912       958       999
    Merger fees.....................................        84        89        93        97        99       100
    Assessments on single stock futures.............         0         1         1         2         2         2
                                                     -----------------------------------------------------------
      Total.........................................     2,478     2,697     2,934     3,295     3,771     4,290
SEC fee collections under S. 143:
    Transaction fees................................     1,370       843     1,020     1,218     1,502     1,821
    Registration fees...............................     1,024       275       280       292       313       335
    Merger fees.....................................        84        30        31        32        33        33
    Assessments on single stock futures.............         0         1         1         2         2         2
                                                     -----------------------------------------------------------
      Total.........................................     2,478     1,149     1,332     1,544     1,850     2,191
Changes:
    Transaction fees................................         0      -784      -867    -1,066    -1,210    -1,368
    Registration fees...............................         0      -705      -673      -620      -645      -664
    Merger fees.....................................         0       -59       -62       -65       -66       -67
    Assessments on single stock futures.............         0         0         0         0         0         0
                                                     -----------------------------------------------------------
      Total changes.................................         0    -1,548    -1,602    -1,751    -1,921    -2,099
----------------------------------------------------------------------------------------------------------------

    S. 143 also would require that the SEC adjust the 
transaction fee rate during the year so that total SEC fee 
collections (including fees for registrations, mergers, and 
transactions, and assessments for trades of single stock 
futures) would not fall below a specified minimum amount of 
collections, nor exceed a specified maximum amount of 
collections. The bill would set the minimum amount equal to the 
SEC's 2002 appropriation, adjusted annually for changes in 
inflation, or equal to the amount authorized to be appropriated 
for the SEC in a given year, whichever is greater. S. 143 would 
set the maximum amount of collections at a level that is 10 
percent above the January 2001 CBO baseline estimate for total 
SEC collections for fiscal years 2002 through 2011. For fiscal 
years 2012 and thereafter, the bill would set the ceiling equal 
to the amount authorized to be appropriated for the SEC.
    Taking into account the provisions that would establish a 
target level, as well as minimum and maximum levels of fees, 
CBO estimates that implementing S. 143 would yield $843 million 
in 2002 from such fees. By comparison, under our current 
baseline assumptions, CBO estimates $989 million in offsetting 
collections from transaction fees in 2002. (Under current law, 
we also estimate revenues of $638 million in 2002 from 
transaction fees.)
    Registration fees.--Under current law, the SEC collects a 
fee on the registration of securities. The current registration 
fee is $200 per $1 million of the maximum aggregate price for 
securities that are proposed to be offered during the 2002-2006 
period. After 2006, the fee drops to $67 per $1 million of the 
maximum aggregate price for securities that are proposed to be 
offered. These fees are recorded as governmental receipts 
(revenues). Current law also requires, subject to 
appropriation, that the SEC charge an additional registration 
fee of $39 per $1 million of the maximum aggregate price for 
securities that are proposed to be offered in 2002. Under 
current law, this added registration fee gradually declines 
after 2002, until it ends at the end of 2005. These additional 
fees are recorded as offsetting collections.
    S. 143 would eliminate all registration fees that are 
recorded as governmental receipts and would set fees that are 
recorded as offsetting collections at $67 per $1 million of the 
maximum aggregate price for securities that are proposed to be 
offered during the 2002-2006 period. The bill also would change 
the registration fees for 2007 and thereafter to $33 per $1 
million of the maximum aggregate price for securities that are 
proposed to be offered. CBO estimates that under the bill the 
SEC would collect $275 million in registration fees in 2002, 
subject to appropriation. By comparison, we estimate that under 
the CBO baseline the SEC would collect a total of $980 million 
in registration fees in 2002 ($820 million that would be 
recorded as revenues and $160 million in offsetting 
collections).
    Merger and tender fees.--Under current law, the SEC charges 
a merger fee equal to $200 per $1 million of the value of 
securities proposed to be purchased as part of a merger. These 
current fees are also currently recorded as revenues. S. 143 
would eliminate the current merger fee and establish a new one 
that would be recorded as an offsetting collection at the rate 
of $67 per $1 million of the aggregate value of securities 
proposed to be purchased during the 2002-2006 period. The bill 
also would establish merger fees for 2007 and thereafter at the 
rate of $33 per $1 million of the aggregate value of securities 
proposed to be purchased as part of a merger. CBO estimates 
that under S. 143 the SEC would collect about $30 million in 
merger fees in 2002, subject to appropriation. By comparison, 
under the CBO baseline, we estimate that merger fees would 
total $89 million in 2002.
    Assessments on transactions of single stock futures.--The 
Commodity Futures Modernization Act of 2000 allowed individuals 
to begin trading futures on individual stocks. The act also 
established an assessment on these trades equal to 2 cents per 
transaction through 2006 and 0.75 cents per transaction for 
2007 and thereafter. These assessments are currently recorded 
as governmental receipts (i.e., revenues). Under CBO's 
baseline, we project that these assessments will total $1 
million in 2002.
    S. 143 would reclassify those assessments that are recorded 
as receipts and would treat them as offsetting collections 
subject to annual appropriation acts. The rates on these 
assessments would remain the same as under current law. CBO 
estimates that, under S. 143, the SEC would collect $1 million 
in assessments on trading of single stock futures in 2002 and 
$8 million over the 2002-2006 period.
    Summary.--CBO's January 2001 baseline includes estimated 
offsetting collections for the SEC totaling about $1.15 billion 
in 2002, rising to $2.2 billion in 2006. We estimate the change 
in the fee rates paid for registrations, mergers, and 
transactions, and the reclassification of all SEC fees as 
offsetting collections would have no significant net effect on 
the offsetting collections received by the SEC (relative to our 
baseline projections).
            Revenues
    S. 143 would eliminate or reclassify all fees and 
assessments on registrations, mergers, and transactions that 
are currently recorded as revenues. CBO estimates that S. 143 
would reduce revenues by $8.9 billion over the 2002-2006 
period, and by $14.0 billion over the 2002-2011 period.
    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 
changes in governmental receipts that are subject to pay-as-
you-go procedures are shown in Table 3. For the purposes of 
enforcing pay-as-you-go procedures, only the effects in the 
current year, the budget year, and the succeeding four years 
are counted.

                                          TABLE 3.--ESTIMATED IMPACT OF S. 143 ON DIRECT SPENDING AND RECEIPTS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                By fiscal year, in millions of dollars--
                                              ----------------------------------------------------------------------------------------------------------
                                                2001    2002      2003      2004      2005      2006      2007      2008      2009      2010      2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays...........................                                                Not applicable
Changes in receipts..........................      0    -1,547    -1,601    -1,750    -1,919    -2,097      -921      -933    -1,009    -1,087    -1,176
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated impact on State, local, and tribal governments: 
S. 143 contains no intergovernmental mandates as defined in 
UMRA and would impose no costs on state, local, or tribal 
governments.
    Estimated impact on the private sector: S. 143 would 
require each national securities exchange and the national 
securities association to file monthly with the SEC an estimate 
of fees and assessments that they are required to pay. Based on 
information from government and industry sources, CBO estimates 
that the direct cost of the mandate would be below the annual 
threshold established by UMRA for private-sector mandates ($109 
million in 2000, adjusted for inflation).
    Estimate prepared by: Federal costs: Ken Johnson and Erin 
Whitaker, impact on State, local, and tribal governments: Susan 
Sieg Tompkins, impact on the private sector: Jean Talarico.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis; Roberton C. Williams, Deputy 
Assistant Director for Tax Analysis.

                        CHANGES IN EXISTING LAW

    In the opinion of the Committee, it is necessary to 
dispense with the requirement of Section 12 of rule XXVI of the 
Standing Rules of the Senate in order to expedite the business 
of the Senate.

                                
