[House Report 114-505]
[From the U.S. Government Publishing Office]


114th Congress    }                                     {       Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                     {      114-505

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



 
       SECURITIES AND EXCHANGE COMMISSION OVERPAYMENT CREDIT ACT

                                _______
                                

 April 19, 2016.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

       Mr. Hensarling, from the Committee on Financial Services, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 1975]

      (Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1975) to amend the Securities Exchange Act of 
1934 to require the Securities Exchange Commission to refund or 
credit excess payments made to the Commission, having 
considered the same, report favorably thereon without amendment 
and recommend that the bill do pass.

                          Purpose and Summary

    Under Section 31 of the Securities Exchange Act of 1934 
('34 Act), national securities exchanges and other self-
regulatory organizations (collectively, SROs) owe proportional 
transaction fees to the Securities and Exchange Commission 
(SEC) for the cost of supervising and regulating such 
transactions. On April 22, 2015, Representatives Gregory Meeks 
and Randy Hultgren introduced H.R. 1975, the ``Securities and 
Exchange Commission Overpayment Credit Act,'' which allows SROs 
to offset previous Section 31 overpayments against future 
Section 31 fees, under a 10-year statute of limitations.
    Some SROs have overpaid Section 31 fees out of an abundance 
of caution, rather than risk an enforcement action for 
underpayment. The SEC, however, has not refunded these 
overpayments; as it has interpreted the '34 Act as not granting 
it the authority to refund any such overpaid fees.

                  Background and Need for Legislation

    Under Section 31 of the '34 Act, SROs owe proportional 
transaction fees to the SEC for the cost of supervising and 
regulating such transactions. In 2008, the Chicago Stock 
Exchange discovered it had overpaid $154,048 for 2007 Section 
31 fees. Similarly, in 2014, NASDAQ discovered it had overpaid 
almost $750,000 for 2013 Section 31 fees. These exchanges 
overpaid out of an abundance of caution, rather than risk an 
enforcement action for underpayment.
    The SEC, however, has not refunded these overpayments. The 
SEC has kept these overpayments because the SEC has interpreted 
the '34 Act as not granting the SEC the authority to refund the 
overpayment of Section 31 fees. On May 15, 2013, in a letter to 
Financial Services Committee Chairman Hensarling, SEC Chair 
Mary Jo White included a series of legislative proposals, 
supported by her fellow Commissioners, for the Committee's 
consideration, including a proposal to allow the SEC to refund 
Section 31 overpayments,
    In the letter, Chair White noted that, ``We recommend that 
the Commission be permitted to effect refunds by allowing an 
SRO to offset previous Section 31 overpayments against future 
Section 31 payments . . . This would clarify that the 
Commission has the authority to follow this approach to effect 
such refunds as an alternative to using appropriated 
funds.''\1\
---------------------------------------------------------------------------
    \1\Letter from SEC Chair Mary Jo White to Chairman Jeb Hensarling 
(May 15, 2013).
---------------------------------------------------------------------------
    At an April 29, 2015 Capital Markets and Government 
Sponsored Enterprises Subcommittee hearing, Mr. Tom Quaadman of 
the U.S. Chamber of Commerce's Center for Capital Markets 
Competitiveness testified that:

          Although the SEC makes at least annual adjustments to 
        the Section 31 fee rate, entities need to do a fair bit 
        of projecting what their responsibility will be for a 
        given time period. SROs and the national exchanges are 
        therefore caught in a bit of a Catch-22 when it comes 
        to Section 31 fees. If they underpay the required 
        amount, they are subject to enforcement action by the 
        SEC. If they overpay the amount, there is no way for 
        them to be refunded or to have the overpayment amount 
        credited against future payments. This legislation 
        would provide a degree of certainty for SROs and 
        exchanges by allowing such overpayments to be credited 
        against future Section 31 responsibilities. Since these 
        payments are often passed on to the investing public, 
        allowing for such credits would ultimately benefit 
        investors who trade in the public markets.

                                Hearings

    The Committee on Financial Services held a hearing on April 
29, 2015, titled ``Legislative Proposals to Enhance Capital 
Formation and Reduce Regulatory Burdens,'' at which this matter 
was examined.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
May 20, 2015, and ordered H.R. 1975 to be reported favorably to 
the House without amendment by a recorded vote of 57 yeas to 0 
nays (recorded vote no. FC-37), 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. An 
amendment offered by Representative Meeks was not agreed to by 
a recorded vote of 24 yeas to 33 nays (recorded vote no. FC-
36). The second and final record vote in Committee was a motion 
by Chairman Hensarling to report the bill favorably to the 
House without amendment. That motion was agreed to by a 
recorded vote of 57 yeas to 0 nays (recorded vote no. FC-37), a 
quorum being present.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 1975 
will remedy the SEC's inability to provide refunds or credit 
for previous overpayments of Section 31 fees by statutorily 
obligating the SEC to allows the SROs to offset previous 
Section 31 overpayments against future Section 31 fees, under a 
10-year statute of limitations.

   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 adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        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 Estimates

    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, August 31, 2015.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1975, the 
Securities and Exchange Commission Overpayment Credit Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 1975--Securities and Exchange Commission Overpayment Credit Act

    Summary: H.R. 1975 would require the Securities and 
Exchange Commission (SEC) to provide a credit to national 
securities exchanges that overpay fees and assessments to the 
agency by offsetting future payments by the affected exchanges.
    CBO estimates that enacting H.R. 1975 would increase direct 
spending by $12 million over the 2016-2025 period; therefore, 
pay-as-you-go procedures apply. Enacting H.R. 1975 would not 
affect revenues.
    Under current law, the SEC is authorized to collect fees to 
offset its annual appropriation; therefore, assuming 
appropriation action consistent with that authority, CBO 
estimates that implementing the bill would have a negligible 
effect on net discretionary spending.
    H.R. 1975 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments.
    If the SEC increases fees to offset the costs of 
implementing the bill, H.R. 1975 would increase the cost of an 
existing mandate on private entities required to pay those 
fees. Based on information from the SEC, CBO estimates that the 
incremental cost of the mandate, if any, would fall well below 
the annual threshold for private-sector mandates established in 
UMRA ($154 million in 2015, adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary effect of H.R. 1975 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  By fiscal year, in millions of dollars--
                                                   -----------------------------------------------------------------------------------------------------
                                                     2016    2017    2018    2019    2020    2021    2022    2023    2024    2025   2016-2020  2016-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING
 
Estimated Budget Authority........................       7       1       1       1       1       1       1       1       1       1          9         12
Estimated Outlays.................................       7       1       1       1       1       1       1       1       1       1          9         12
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: Components may not sum to totals because of rounding. CBO estimates that implementing H.R. 1975 would have an insignificant effect on net
  discretionary costs.

    Basis of estimate: For this estimate, CBO assumes that H.R. 
1975 will be enacted early in fiscal year 2016.

Direct spending

    H.R. 1975 would require the SEC to reduce future fees and 
assessments paid by a national securities exchange by the 
amount of any overpayment of such fees that an exchange 
identifies within 10 years of the overpayment. Current law 
requires the SEC to make periodic adjustments to the rates that 
associations and exchanges must pay, but does not have a 
current mechanism to compensate exchanges for the overpayments 
of fees and assessments. Lowering current collections by the 
amount of a previous overpayment would be similar to providing 
a refund, which would be considered direct spending. Based on 
information from the SEC, CBO estimates that enacting H.R. 1975 
would increase direct spending by $12 million over the 2016-
2025 period. That amount includes $6 million in overpayments 
that have been identified by the agency over the past 10 years 
plus an estimated $0.6 million per year in credits for 
overpayments over the 2016-2025 period. In fiscal year 2014, 
the SEC collected about $1.3 billion in fees that would be 
covered under H.R. 1975.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown in the 
following table.

          CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 1975 AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON FINANCIAL SERVICES ON MAY 20, 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  By fiscal year, in millions of dollars--
                                                   -----------------------------------------------------------------------------------------------------
                                                     2016    2017    2018    2019    2020    2021    2022    2023    2024    2025   2016-2020  2016-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               NET INCREASE IN THE DEFICIT
 
Statutory Pay-As-You-Go Impact....................       7       1       1       1       1       1       1       1       1       1          9         12
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Components may not sum to totals because of rounding.

    Estimated impact on state, local, and tribal governments: 
H.R. 1975 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: If the SEC 
increases fees to offset the costs of implementing the bill, 
H.R. 1975 would increase the cost of an existing mandate on 
private entities (including national securities exchanges and 
associations) required to pay those fees. The amount of fees 
collected would depend on the level of future appropriations. 
Based on information from the SEC, CBO estimates that the 
incremental cost of the mandate, if any, would fall well below 
the annual threshold for private-sector mandates established in 
UMRA ($154 million in 2015, adjusted annually for inflation).
    Estimate prepared by: Federal Costs: Susan Willie; Impact 
on State, Local, and Tribal Governments: Melissa Merrell; 
Impact on the Private Sector: Logan Smith.
    Estimate approved by: H. Samuel Papenfuss, Deputy 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.

                  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 the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 1975 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 1975 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 1975 contains no directed 
rulemaking.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 1975 as the ``Securities and 
Exchange Commission Overpayment Credit Act.''

Section 2. Refunding or crediting overpayment of Section 31 fees

    This section requires the SEC to allow SROs to offset 
previous Section 31 overpayments against future Section 31 
fees, under a 10-year statute of limitations.

         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 (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

                    SECURITIES EXCHANGE ACT OF 1934



           *       *       *       *       *       *       *
TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *


SEC. 31. TRANSACTION FEES.

  (a) Recovery of Costs of Annual Appropriation.--The 
Commission shall, in accordance with this section, collect 
transaction fees and assessments that are designed to recover 
the costs to the Government of the annual appropriation to the 
Commission by Congress.
  (b) Exchange-Traded Securities.--Subject to subsection (j), 
each national securities exchange shall pay to the Commission a 
fee at a rate equal to $15 per $1,000,000 of the aggregate 
dollar amount of sales of securities (other than bonds, 
debentures, other evidences of indebtedness, security futures 
products, and options on securities indexes (excluding a 
narrow-based security index)) transacted on such national 
securities exchange.
  (c) Off-Exchange Trades of Exchange Registered and Last-Sale-
Reported Securities.--Subject to subsection (j), each national 
securities association shall pay to the Commission a fee at a 
rate equal to $15 per $1,000,000 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, other evidences of 
indebtedness, security futures products, and options on 
securities indexes (excluding a narrow-based security index)) 
registered on a national securities exchange or subject to 
prompt last sale reporting pursuant to the rules of the 
Commission or a registered national securities association.
  (d) Assessments on Security Futures Transactions.--Each 
national securities exchange and national securities 
association shall pay to the Commission an assessment equal to 
$0.009 for each round turn transaction (treated as including 
one purchase and one sale of a contract of sale for future 
delivery) on a security future traded on such national 
securities exchange or by or through any member of such 
association otherwise than on a national securities exchange, 
except that for fiscal year 2007 and each succeeding fiscal 
year such assessment shall be equal to $0.0042 for each such 
transaction.
  (e) Dates for Payments.--The fees and assessments required by 
subsections (b), (c), and (d) of this section shall be paid--
          (1) on or before March 15, with respect to 
        transactions and sales occurring during the period 
        beginning on the preceding September 1 and ending at 
        the close of the preceding December 31; and
          (2) on or before September 25, with respect to 
        transactions and sales occurring during the period 
        beginning on the preceding January 1 and ending at the 
        close of the preceding August 31.
  (f) Exemptions.--The Commission, by rule, may exempt any sale 
of securities or any class of sales of securities from any fee 
or assessment imposed by this section, if the Commission finds 
that such exemption is consistent with the public interest, the 
equal regulation of markets and brokers and dealers, and the 
development of a national market system.
  (g) Publication.--The Commission shall publish in the Federal 
Register notices of the fee or assessment rates applicable 
under this section for each fiscal year not later than 30 days 
after the date on which an Act making a regular appropriation 
to the Commission for such fiscal year is enacted, together 
with any estimates or projections on which such fees are based.
  (h) Pro Rata Application.--The rates per $1,000,000 required 
by this section shall be applied pro rata to amounts and 
balances of less than $1,000,000.
  (i) Deposit of Fees.--
          (1) Offsetting collections.--Fees collected pursuant 
        to subsections (b), (c), and (d) for any fiscal year--
                  (A) shall be deposited and credited as 
                offsetting collections to the account providing 
                appropriations to the Commission; and
                  (B) except as provided in subsection (k), 
                shall not be collected for any fiscal year 
                except to the extent provided in advance in 
                appropriation Acts.
          (2) General revenues prohibited.--No fees collected 
        pursuant to subsections (b), (c), and (d) for fiscal 
        year 2002 or any succeeding fiscal year shall be 
        deposited and credited as general revenue of the 
        Treasury.
  (j) Adjustments to Fee Rates.--
          (1) Annual adjustment.--Subject to subsections 
        (i)(1)(B) and (k), for each fiscal year, the Commission 
        shall by order adjust each of the rates applicable 
        under subsections (b) and (c) for such fiscal year to a 
        uniform adjusted rate that, when applied to the 
        baseline estimate of the aggregate dollar amount of 
        sales for such fiscal year, is reasonably likely to 
        produce aggregate fee collections under this section 
        (including assessments collected under subsection (d) 
        of this section) that are equal to the regular 
        appropriation to the Commission by Congress for such 
        fiscal year.
          (2) Mid-year adjustment.--Subject to subsections 
        (i)(1)(B) and (k), for each fiscal year, the Commission 
        shall determine, by March 1 of such fiscal year, 
        whether, based on the actual aggregate dollar volume of 
        sales during the first 5 months of such fiscal year, 
        the baseline estimate of the aggregate dollar volume of 
        sales used under paragraph (1) for such fiscal year is 
        reasonably likely to be 10 percent (or more) greater or 
        less than the actual aggregate dollar volume of sales 
        for such fiscal year. If the Commission so determines, 
        the Commission shall by order, no later than March 1, 
        adjust each of the rates applicable under subsections 
        (b) and (c) for such fiscal year to a uniform adjusted 
        rate that, when applied to the revised estimate of the 
        aggregate dollar amount of sales for the remainder of 
        such fiscal year, is reasonably likely to produce 
        aggregate fee collections under this section (including 
        fees collected during such five-month period and 
        assessments collected under subsection (d) of this 
        section) that are equal to the regular appropriation to 
        the Commission by Congress for such fiscal year. In 
        making such revised estimate, the Commission shall, 
        after consultation with the Congressional Budget Office 
        and the Office of Management and Budget, use the same 
        methodology required by subsection (l).
          (3) Review.--In exercising its authority under this 
        subsection, the Commission shall not be required to 
        comply with the provisions of section 553 of title 5, 
        United States Code. An adjusted rate prescribed under 
        paragraph (1) or (2) and published under subsection (g) 
        shall not be subject to judicial review.
          (4) Effective date.--
                  (A) Annual adjustment.--Subject to 
                subsections (i)(1)(B) and (k), an adjusted rate 
                prescribed under paragraph (1) shall take 
                effect on the later of--
                          (i) the first day of the fiscal year 
                        to which such rate applies; or
                          (ii) 60 days after the date on which 
                        an Act making a regular appropriation 
                        to the Commission for such fiscal year 
                        is enacted.
                  (B) Mid-year adjustment.--An adjusted rate 
                prescribed under paragraph (2) shall take 
                effect on April 1 of the fiscal year to which 
                such rate applies.
  (k) 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 (as 
offsetting collections) the fees and assessments under 
subsections (b), (c), and (d) at the rate in effect during the 
preceding fiscal year, until 60 days after the date such a 
regular appropriation is enacted.
  (l) Baseline Estimate of the Aggregate Dollar Amount of 
Sales.--The baseline estimate of the aggregate dollar amount of 
sales for any fiscal year is the baseline estimate of the 
aggregate dollar amount of sales of securities (other than 
bonds, debentures, other evidences of indebtedness, security 
futures products, and options on securities indexes (excluding 
a narrow-based security index)) to be transacted on each 
national securities exchange and by or through any member of 
each national securities association (otherwise than on a 
national securities exchange) during such fiscal year as 
determined by the Commission, after consultation with the 
Congressional Budget Office and the Office of Management and 
Budget, using the methodology required for making projections 
pursuant to section 257 of the Balanced Budget and Emergency 
Deficit Control Act of 1985.
  (m) Transmittal of Commission Budget Requests.--
          (1) Budget required.--For fiscal year 2012, and each 
        fiscal year thereafter, the Commission shall prepare 
        and submit a budget to the President. Whenever the 
        Commission submits a budget estimate or request to the 
        President or the Office of Management and Budget, the 
        Commission shall concurrently transmit copies of the 
        estimate or request to the Committee on Appropriations 
        of the Senate, the Committee on Appropriations of the 
        House of Representatives, the Committee on Banking, 
        Housing, and Urban Affairs of the Senate, and the 
        Committee on Financial Services of the House of 
        Representatives.
          (2) Submission to congress.--The President shall 
        submit each budget submitted under paragraph (1) to 
        Congress, in unaltered form, together with the annual 
        budget for the Administration submitted by the 
        President.
          (3) Contents.--The Commission shall include in each 
        budget submitted under paragraph (1)--
                  (A) an itemization of the amount of funds 
                necessary to carry out the functions of the 
                Commission.
                  (B) an amount to be designated as contingency 
                funding to be used by the Commission to address 
                unanticipated needs; and
                  (C) a designation of any activities of the 
                Commission for which multi-year budget 
                authority would be suitable.
  (n) Overpayment.--If a national securities exchange or 
national securities association pays to the Commission an 
amount in excess of fees and assessments due under this section 
and informs the Commission of such amount paid in excess within 
10 years of the date of the payment, the Commission shall 
offset future fees and assessments due by such exchange or 
association in an amount equal to such excess amount.

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