[Federal Register Volume 67, Number 44 (Wednesday, March 6, 2002)]
[Notices]
[Pages 10239-10243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5324]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45489/March 1, 2002]


Order Making Fiscal 2002 Mid-Year Adjustment to the Fee Rates 
Applicable Under Sections 31(b) and (c) of the Securities Exchange Act 
of 1934

I. Background

    Section 31 of the Securities Exchange Act of 1934 (``Exchange 
Act'') requires each national securities exchange and national 
securities association to pay transaction fees to the Commission.\1\ 
Specifically, Section 31(b) requires each national securities exchange 
to pay the Commission fees based on the aggregate dollar amount of 
sales of certain securities transacted on the exchange.\2\ Section 
31(c) requires each national securities association to pay the 
Commission fees based on the aggregate dollar amount of sales of 
certain securities transacted by or through any member of the 
association otherwise than on an exchange.\3\
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    \1\ 15 U.S.C. 78ee.
    \2\ 15 U.S.C. 78ee(b).
    \3\ 15 U.S.C. 78ee(c).
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    The Investor and Capital Markets Fee Relief Act (``Fee Relief 
Act'') recently amended Section 31 to change the fee rates applicable 
under Sections 31(b) and (c).\4\ The Fee Relief Act established an 
initial rate of $15 per $1,000,000 of the aggregate dollar amount of 
sales of

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securities, which rate became effective December 28, 2001.\5\
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    \4\ Pub. L. 107-123, 115 Stat. 2390 (2002).
    \5\ 15 U.S.C. 78ee; Fee Relief Act, Pub. L. 107-123, section 11, 
115 Stat. 2390 (2002).
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    Further, the Fee Relief Act requires the Commission to make annual 
adjustments to the fee rates applicable under Sections 31(b) and (c) 
for each of the fiscal years 2003 through 2011, and one final 
adjustment to fix the fee rates for fiscal 2012 and beyond.\6\ The Fee 
Relief Act also requires the Commission, in certain circumstances, to 
make a mid-year adjustment to the fee rates in fiscal 2002 through 
fiscal 2011. The annual and mid-year adjustments are designed to adjust 
the fee rates in a given fiscal year so that, when applied to the 
aggregate dollar volume of sales for the fiscal year, they are 
reasonably likely to produce total fee collections under Section 31 
equal to the ``target offsetting collection amount'' specified in the 
Fee Relief Act for that fiscal year.\7\ For fiscal 2002, the target 
offsetting collection amount is $732,000,000.\8\
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    \6\ 15 U.S.C. 78ee(j)(1) and (j)(3).
    \7\ See 15 U.S.C. 78ee(l)(1).
    \8\ Id.
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    Congress determined the Fee Relief Act's target offsetting 
collection amounts by applying reduced fee rates to the Congressional 
Budget Office's (``CBO'') January 2001 projections of dollar volume for 
fiscal years 2002 through 2011.\9\ In any fiscal year through fiscal 
2011, the annual and, in certain circumstances, mid-year adjustment 
mechanisms will result in additional fee rate reductions if the CBO's 
January 2001 projection of dollar volume for the fiscal year proves to 
be too low, and fee rate increases if the CBO's January 2001 projection 
of dollar volume for the fiscal year proves to be too high.
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    \9\ The target offsetting collection amounts for fiscal 2002 
through 2006 were determined by applying a rate of $15 per million 
to the CBO's projections of dollar volume for those fiscal years. 
The target offsetting collection amounts for fiscal 2007 through 
2011 were determined by applying a rate of $7 per million to the 
CBO's projections of dollar volume for those fiscal years. For 
example, CBO's projection of dollar volume for fiscal 2002 was 
$48,800,000,000,000. See infra, note 10. Applying the initial rate 
under the Fee Relief Act of $15 per million to that projection 
produces the target offsetting collection amount under the Fee 
Relief Act for fiscal 2002 of $732,000,000.
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II. Determination of the Need for a Mid-Year Adjustment in Fiscal 
2002

    Under paragraph 31(j)(2) of the Exchange Act, the Commission must 
make a mid-year adjustment to the fee rates under Sections 31(b) and 
(c) in fiscal 2002 if, based on the actual aggregate dollar volume of 
sales during the first five months of the fiscal year, it determines 
that the amount $48,800,000,000,000 is reasonably likely to be 10% (or 
more) greater or less than the actual aggregate dollar volume of sales 
for fiscal 2002.\10\ To make this determination, the Commission must 
estimate the actual aggregate dollar volume of sales for fiscal 2002.
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    \10\ The amount $48,800,000,000,000 is CBO's January 2001 
projection of dollar volume for fiscal 2002.
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    Based on data provided by the national securities exchanges and the 
national securities association that are subject to Section 31,\11\ the 
actual aggregate dollar volume of sales during the first four months of 
fiscal 2002 was $8,118,639,282,307.\12\ Using these data and a 
methodology for estimating the aggregate dollar amount of sales for the 
remainder of fiscal 2002 (developed after consultation with the CBO and 
the Office of Management and Budget),\13\ the Commission estimates that 
the aggregate dollar amount of sales for the remainder of fiscal 2002 
to be $18,817,006,987,123. Thus, the Commission estimates that the 
actual aggregate dollar volume of sales for all of fiscal 2002 will be 
$26,935,646,269,430.
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    \11\ Each exchange is required to file a monthly report on Form 
R-31 containing dollar volume data on sales of securities subject to 
Section 31 on the exchange. The report is due by the end of the 
month following the month for which the exchange provides dollar 
volume data. The National Association of Securities Dealers, Inc. 
(``NASD'') provides data separately.
    \12\ Although paragraph 31(j)(2) indicates that the Commission 
should determine the actual aggregate dollar volume of sales for 
fiscal 2002 ``based on the actual aggregate dollar volume of sales 
during the first 5 months of such fiscal year,'' data are only 
available for the first four months of the fiscal year as of the 
date the Commission is required to issue this order, i.e., March 1, 
2002. Dollar volume data on sales of securities subject to Section 
31 for February 2002 will not be available from the exchanges and 
the NASD for several weeks.
    \13\ The methodology for forecasting dollar volume is as 
follows. First, the Commission constructs a ten-year monthly time 
series of average daily dollar volume (``ADDV'') for all securities 
transactions subject to Section 31 fees. The Commission then 
calculates the average monthly rate of change in ADDV. To obtain 
ADDV forecasts, the Commission assumes that this rate of change will 
hold through the end of fiscal 2002. Finally, the Commission 
multiplies each month's ADDV forecast by the number of trading days 
in that month to obtain a forecast of total monthly dollar volume. 
Future forecasts will be based on rolling ten-year periods of data.
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    Because $48,800,000,000,000 is more than 10% greater than the 
$26,935,646,269,430 estimated actual aggregate dollar volume of sales 
for fiscal 2002, paragraph 31(j)(2) of the Exchange Act requires the 
Commission to issue an order adjusting the fee rates under Sections 
31(b) and (c).

III. Calculation of the Uniform Adjusted Rate

    Paragraph 31(j)(2) specifies the method for determining the mid-
year adjustment for fiscal 2002. Specifically, the Commission must 
adjust the rates under Sections 31(b) and (c) to a ``uniform adjusted 
rate that, when applied to the revised estimate of the aggregate dollar 
amount of sales for the remainder of [fiscal 2002], is reasonably 
likely to produce aggregate fee collections under Section 31 (including 
fees collected \14\ during such 5-month period and assessments 
collected under [Section 31(d)]) that are equal to [$732,000,000].'' In 
other words, the uniform adjusted rate is determined by subtracting 
fees collected prior to the effective date of the new rate and 
assessments collected under Section 31(d) during all of fiscal 2002 
from $732,000,000, which is the target offsetting collection amount for 
fiscal 2002. That sum is then divided by the revised estimate of the 
aggregate dollar volume of sales for the remainder of the fiscal year 
following the effective date of the new rate.
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    \14\ The term ``fees collected'' is not defined in Section 31. 
Because national securities exchanges and national securities 
associations are not required to pay the first installment of 
Section 31 fees for fiscal 2002 until March 15, the Commission will 
not ``collect'' any fees in the first five months of fiscal 2002. 
See 15 U.S.C. 78ee(e). However, the Commission believes that, for 
purposes of calculating the mid-year adjustment, Congress, by 
stating in paragraph 31(j)(2) that the ``uniform adjusted rate . . . 
is reasonably likely to produce aggregate fee collections under 
Section 31 * * * that are equal to [$732,000,000],'' intended the 
Commission to include the fees that the Commission will collect 
based on transactions in the six months before the effective date of 
the mid-year adjustment.
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    The Commission estimates that it will collect $290,970,371 in fees 
for the period prior to the effective date of the mid-year adjustment 
\15\ and $337,500 in assessments on round turn transactions in security 
futures products during all of fiscal 2002.\16\ Using the methodology 
referenced in Part II above, the Commission estimates that the 
aggregate dollar volume of sales for the remainder of fiscal 2002 
following the effective date of the new rate will be 
$14,626,040,810,789. Based on these estimates, the uniform adjusted 
rate is $30.10 per million.\17\
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    \15\ This calculation is based on applying a fee rate of $33.33 
per million to the actual aggregate dollar volume of sales of 
securities subject to Section 31 prior to December 28, 2001, and a 
fee rate of $15 per million to the projected aggregate dollar volume 
of sales of securities subject to Section 31 from December 28, 2001 
through March 31, 2002.
    \16\ The estimate of $337,500 in assessments on round turn 
transactions in security futures products is based on CBO's August 
2001 estimate for fiscal 2002, revised to reflect the reduced 
assessment amount on round turn transactions under the Fee Relief 
Act, 15 U.S.C. 78ee(d), and the delayed start date for trading in 
security futures products.
    \17\ ($732,000,000-$290,970,371-$337,500)/$14,626,040,810,789 = 
$0.00003013. Consistent with the system requirements of the 
exchanges and the NASD, the Commission rounds this result to the 
seventh decimal point, yielding a rate of $30.10 per million.

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[[Page 10241]]

    The Commission recognizes that this fee rate is substantially 
higher than $15 per million initial fee rate set forth in the Fee 
Relief Act. However, this higher fee rate is a direct consequence of 
the dramatic decline in dollar volume in fiscal 2002 compared to the 
CBO's January 2001 projection of dollar volume for fiscal 2002. The 
recent decline in dollar volume for securities transactions subject to 
Section 31 fees is illustrated in Appendix A.

IV. Effective Date of the Uniform Adjusted Rate

    Subparagraph 31(j)(4)(B) of the Exchange Act provides that a mid-
year adjustment shall take effect on April 1 of the fiscal year to 
which such rate applies. Therefore, the exchanges and the national 
securities association that are subject to Section 31 fees must pay 
fees under Sections 31(b) and (c) at the uniform adjusted rate of 
$30.10 per million for sales of securities transacted on April 1, 2002, 
and thereafter until the annual adjustment for fiscal 2003 is 
effective.\18\
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    \18\ Paragraph 31(j)(1) and Section 31(g) of the Exchange Act 
require the Commission to issue an order no later than April 30, 
2002, adjusting the fee rates applicable under Sections 31(b) and 
(c) for fiscal 2003. These fee rates for fiscal 2003 will be 
effective on the later of October 1, 2002 or thirty days after the 
enactment of the Commission's regular appropriation for fiscal 2003.
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V. Conclusion

    Accordingly, pursuant to Section 31 of the Exchange Act,\19\
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    \19\ 15 U.S.C. Sec. 78ee.
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    It is hereby ordered that the fee rates under Sections 31(b) and 
(c) of the Exchange Act shall be $30.10 per $1,000,000 of the aggregate 
dollar amount of sales of securities subject to these sections 
effective April 1, 2002, and thereafter until the annual adjustment for 
fiscal 2003 is effective.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
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[FR Doc. 02-5324 Filed 3-5-02; 8:45 am]
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