[Federal Register Volume 67, Number 85 (Thursday, May 2, 2002)]
[Notices]
[Pages 22126-22140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-10932]
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SECURITIES AND EXCHANGE COMMISSION
[Release Nos. 33-8095 and 34-45842/April 29, 2002]
Order Making Fiscal 2003 Annual Adjustments to the Fee Rates
Applicable Under Section 6(b) of the Securities Act of 1933 and
Sections 13(e), 14(g), 31(b) and 31(c) the Securities Exchange Act of
1934
I. Background
The Commission collects fees under various provisions of the
securities laws. Section 6(b) of the Securities Act of 1933
(``Securities Act'') requires the Commission to collect fees from
issuers on the registration of securities.\1\ of the Securities
Exchange Act of 1934 (``Exchange Act'' requires the Commission to
collect fees on certain repurchases of securities.\2\ Section 14(g) of
the Exchange Act requires the Commission to collect fees on proxy
solicitations and statements in corporate control transactions.\3\
Fiscally, sections 31(b) and (c) of the Exchange Act require the
Commission to collect fees from national securities exchanges and
national securities associations, respectively, on transactions.\4\
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\1\ 15 U.S.C. 77f(b).
\2\ 15 U.S.C. 78m(e).
\3\ ,15 U.S.C. 78n(g).
\4\ 15 U.S.C. 77ee(j)(1) and (j)(3). Section 31(d) of the
Exchange Act also requires the Commission to collect assessments
from national securities exchanges and national securities
associations for round turn transactions on security futures.
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On January 16, 2002, the President signed the Investor and Capital
Markets Fee Relief Act (``Fee Relief Act''). \5\ The Fee Relief Act
reduced that fee rates applicable under section 6(b) of the Securities
13(e), 14(g), 31(b) and 31(c) of the Exchange Act. The Fee Relief Act
also amended these sections to require the Commission to make annual
adjustments to the fee rates applicable under these sections for each
of the fiscal years 2003 through 2011, and one final adjustments to fix
the fee rates under these sections for fiscal year 2012 and beyond.\6\
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\5\ Pub. L. No. 107-123, 115 Stat. 2390 (2002).
\6\ See 15 U.S.C. 77f(b)(5), 77f(b)(6), 78m(e)(5), 78m(e)(6),
78n(g)(6), 78n(g)(5) 78ee(j)(1), and 78ee(j)(3). Paragraph 31(j)(2)
of the Exchange Act, 15 U.S.C. 78ee(j)(2), also requires the
Commission, in certain circumstances, to make a mid-year adjustment
to the fee rates under Sections 31(b) and (c) of the Exchange Act in
fiscal 2002 through fiscal 2011.
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II. Fiscal 2002 Annual Adjustment to the Fee Rates Applicable Under
Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of
the Exchange Act
Paragraph 6(b)(2) of the Securities Act requires an issuer to pay
to the Commission a fee at an initial rate of $92 per million of the
maximum aggregate offering price at which securities are proposed to be
offered. This same fee rate applies to certain repurchases of
securities under section 13(e) of the Exchange Act and proxy
solicitations and statements in corporate control transactions under
section 14(g) of the Exchange Act.
Paragraph 6(b)(5) of the Securities Act requires the Commission to
make an annual adjustment to the fee rate applicable under paragraph
6(b)(2) of the Securities Act in each of the fiscal years 2003 through
2011.\7\ In those same fiscal years, paragraphs 13(e)(5) and 14(g)(5)
of the Exchange Act require the Commission to adjust the fee rates
under Sections 13(e) and 14(g) to a rate that is equal to the rate that
is applicable under Section 6(b). In other words, the annual adjustment
to the fee rate under section 6(b) of the Securities Act also sets the
annual adjustment to the fee rates under sections 13(e) and 14(g) of
the Exchange Act.
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\7\ The annual adjustments are designed to adjust the fee rate
in a given fiscal year so that, when applied to the aggregate
maximum offering price at which securities are proposed to be
offered for the fiscal year, it is reasonably likely to produce
total fee collections under Section 6(b) equal to the ``target
offsetting collection amount''specified in Section 6(b)(11)(A) for
that fiscal year.
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Paragraph 6(b)(5) specifies the method for determining the annual
adjustment to the fee rate Section 6(b) for fiscal 2003. Specifically,
the Commission must adjust the fee rate under Section 6(b) to a ``rate
that, when applied to the baseline estimate of the aggregate maximum
offering prices for [fiscal year 2003], is reasonable likely to produce
aggregate fee collections under [Section 6(b)] that are equal to the
target offsetting collection amount for [fiscal 2003].'' That is, the
adjusted rate is determined by dividing the ``target offsetting
collection amount'' for fiscal 2003 by the ``baseline estimate of the
aggregate maximum offering prices'' for fiscal 2003.
Paragraph 6(b)(11)(A) specifies that the ``target offsetting
collection amount'' for fiscal 2003 is $435,000,000.\8\ Paragraph
6(b)(11)(B) defines the ``baseline estimate of the aggregate maximum
offering price'' for fiscal 2003 as the ``baseline estimate of the
aggregate maximum offering price at which securities are proposed to be
offered pursuant to registration statements filed with the Commission
during [fiscal 2003] as determined by the Commission, after
consultation with the Congressional Budget Office and the Office of
Management and Budget. * * *
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\8\ Congress determined the target offsetting collection amounts
by applying reduced fee rates to the CBO's January 2001 projection
of the aggregate maximum offering prices for fiscal years 2002
through 2011. In any fiscal year through fiscal 2011, the annual
adjustment mechanism will result in additional fee reductions if the
CBO's January 2001 projection of the aggregate maximum offering
prices for the fiscal year proves to be too low, and fee rate
increases if the CBO's January 2001 projection of the aggregate
maximum offering prices for the fiscal year proves to be too high.
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Using a methodology developed in consultation with the
Congressional Budget Office (``CBO'') and Office of Management and
Budget (``OMB''), the Commission determines the ``baseline estimate of
the aggregate maximum offering price'' for fiscal 2003 to be
$5,379,329,602,021.\9\ Based on this estimate, the Commission
calculates the annual adjustment for fiscal 2003 to be $80.90 per
million. This adjusted fee rate applies to section 6(b) of the
Securities Act, as well as to sections 13(e) and 14(g) of the Exchange
Act.
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\9\ Appendix A explains how we determined the ``baseline
estimate of the aggregate maximum offering price'' for fiscal 2003
using our methodology, and then shows the purely arithmetical
process of calculating the fiscal 2003 annual adjustment based on
that estimate. The appendix includes the data used by the Commission
in making its ``baseline estimate of the aggregate maximum offering
price'' for fiscal 2003.
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III. Fiscal 2003 Annual Adjustment to the Fee Rates Applicable
Under Sections 31(b) and (c) of the Exchange Act
Section 31(b) of the Exchange Act requires each national securities
exchange to pay the Commission a fee at a rate, as adjusted by our
order pursuant to paragraph 31(j)(2), of $30.10 per million of the
aggregate dollar amount of sales of certain securities transacted on
the exchange.\10\ Similarly, Section 31(c) requires each national
securities association to pay the Commission a fee at the same adjusted
rate on the aggregate dollar amount of
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sales of certain securities transacted by or through any member of the
association otherwise than on an exchange. Section 31(j)(1) 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.\11\
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\10\ Exchange Act Release No. 45489 (March 1, 2002), 67 FR 10239
(March 6, 2002).
\11\ The annual adjustments, as well as the mid-year adjustments
required in certain circumstances under paragraph 31(j)(2) in fiscal
2002 through fiscal 2011, 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 Section 31(l)(1) for
that fiscal year.
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Paragraph 31(j)(1) specifies the method for determining the annual
adjustment for fiscal 2003. Specifically, the Commission must adjust
the rates under Sections 31(b) and (c) to a ``uniform adjust rate that,
when applied to the baseline estimate of the aggregate amount of sales
for [fiscal 2003], is reasonably likely to produce aggregate fee
collections under [Section 31] (including assessments collected under
[Section 31(d)]) that are equal to the target offsetting collection
amount for [fiscal 2003].''
Paragraph 31(1)(1) specifies that the ``target offsetting
collection amount'' for fiscal 2003 is $849,000,000.\12\ Paragraph
31(1)(2) defines the ``baseline estimate of the aggregate dollar amount
of sales'' as ``the baseline estimate of the aggregate dollar amount of
sales of securities * * * 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
[fiscal 2003] as determined by the Commission, after consultation with
the Congressional Budget Office and the Office of Management and
Budget. * * *''
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\12\ Congress determined the target offsetting collection
amounts by applying reduced fee rates to the CBO's January 2001
projections of dollar volume for fiscal years 2002 through 2011. 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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To make the baseline estimate of the aggregate dollar amount of
sales for fiscal year 2003, the Commission is using the same
methodology it developed in consultation with the CBO and OMB for
making projections of dollar volume for purposes of the fiscal 2002
mid-year adjustment.\13\ Using this methodology, the Commission
calculates the baseline estimate of the aggregate dollar amount of
sales for fiscal 2003 to be $33,158,519,250,001. Based on this
estimate, and an estimated collection of $450,000 in assessments on
securities futures products in fiscal 2003,\14\ the uniform adjusted
rate is $25.20 per million.\15\
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\13\ Appendix B explains how we determined the ``baseline
estimate of the aggregate dollar amount of sales'' for fiscal 2003
using our methodology, and then shows the purely arithmetical
process of calculating the fiscal 2003 annual adjustment based on
that estimate. The appendix also includes the data used by the
Commission in making its ``baseline estimate of the aggregate dollar
amount of sales'' for fiscal 2003.
\14\ This estimate is based on the CBO's August 2001 estimate of
Section 31(d) collections in fiscal 2003, adjusted to reflect the
Fee Relief Act's reduction in the Section 31(d) assessment.
\15\ As explained in Appendix B, the calculation of the adjusted
fee rate assumes that the current fee rate of $30,10 per million
will apply through October 31st due to the operation of the
effective date provision contained in subparagraph 31(j)(4)(A) of
the Exchange Act.
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VI. Effective Dates of the Annual Adjustments
Subparagraph 6(b)(8)(A) of the Securities Act provides that the
fiscal 2003 annual adjustment to the fee rate applicable under section
6(b) of the Securities Act shall take effect on the later of October 1,
2002, or five days after the date on which a regular appropriation to
the Commission for fiscal 2003 is enacted.\16\ Subparagraphs
13(e)(8)(A) and 14(g)(8)(A) of the Exchange Act provide for the same
effective date for the annual adjustment to the fee rates applicable
under section 13(e) and 14(g) of the Exchange Act.\17\
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\16\ 15 U.S.C. 77f(b)(8)(A).
\17\ 15 U.S.C. 78m(e)(8)(A) and 78n(g)(8)(A).
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Subparagraph 31(j)(4)(A) of the Exchange Act provides that the
fiscal 2003 annual adjustments to the fee rates applicable under
section 31(b) and (c) of the Exchange Act shall take effect on the
later of October 1, 2002, or thirty days after the date on which a
regular appropriation to the Commission for fiscal 2003 is enacted.
V. Conclusion
Accordingly, pursuant to section 6(b) of the Securities Act and
sections 13(e), 14(g) and 31(j) of the Exchange Act,\18\
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\18\ U.S.C. 77f(b), 78m(e), 78n(g), and 78ee(j).
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It is hereby ordered that the fee rates applicable under section
6(b) of the Securities Act and sections 13(e) and 14(g) of the Exchange
Act shall be $80.90 per million effective on the later of October 1,
2002, or five days after the date on which a regular appropriation to
the Commission for fiscal 2003 is enacted; and
It is further ordered that the fee rates applicable under sections
31(b) and (c) of the Exchange Act shall be $25.20 per million effective
on the later of October 1, 2002, or thirty days after the date on which
a regular appropriation to the Commission for fiscal 2003 is enacted.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
Appendix A
A. Baseline Estimate of the Aggregate Maximum Offering Prices for
Fiscal Year 2003 Subject to Securities Act Section 6(b)
First, calculate the aggregate maximum offering prices (AMOP)
for each month in the sample (March 1992-March 2002). Next,
calculate the percentage change in the AMOP from month-to-month.
Model the monthly percentage change in AMOP as a first order
moving average process. The moving average approach allows one to
model the effect that an exceptionally high (or low) observation of
AMOP tends to be followed by a more ``typical'' value of AMOP.
Use the estimated moving average model to forecast the monthly
percent change in AMOP. These percent changes can then be applied to
obtain forecasts of the monthly aggregate maximum offering prices.
The following is a more formal (mathematical) description of the
procedure:
1. Begin with the monthly data for AMOP. The sample spans ten
years from March 1992 to March 2002. There are 6 months in the
sample for which the data are not used because of the impact of
extraordinary events (e.g., the 1995 government shutdown).
2. Divide each month's AMOP (column C) by the number of trading
days in that month (column B) to obtain the average daily AMOP
(AAMOP, column D).
3. For each month t, the natural logarithm of AAMOP is reported
in column E.
4. Calculate the change in log(AAMOP) from the previous month as
t = log(AAMOPt) -
log(AAMOPt-1). This approximates the percentage change.
5. Estimate the first order moving average model
t = + et-1 +
et, where et denotes the forecast error for
month t. The forecast error is simply the difference between the
one-month ahead forecast and the actual realization of
t. The forecast error is expressed as
et = t - -
et-1. The model can be estimated using standard
commercially available software such as SAS or Eviews. Using least
squares, the estimated parameter values are = 0.01292 and
= -0.78083.
6. For the month of April 2002, forecast
t=4/02 = +
et=3/02. For all subsequent months, forecast
t = .
7. Calculate forecasts of log(AAMOP). For example, the forecast
of log(AAMOP) for June 2002 is given by FLAAMOPt=6/02 =
log(AAMOPt=3/02) + t=4/02 +
t=5/02 + t=6/02.
8. Under the assumption that et is normally
distributed, the n-step ahead forecast of AAMOP is given by
exp(FLAAMOPt + n2/2),
where n denotes the standard error of the n-step
ahead forecast.
9. For June 2002, this gives a forecast AAMOP of $18.5 Billion
(Column I), and a forecast AMOP of $369.9 Bilion (Column J).
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10. Iterate this process through September 2003 to obtain a
baseline estimate of the aggregate maximum offering prices for
fiscal year 2003 of $5,379,329,602,021.
B. Using the Forecasts From A To Calculate the New Fee Rate.
1. Using the data from Table A1, estimate the aggregate maximum
offering prices between 10/1/02 and 9/30/03 to be
$5,379,329,602,021.
2. The rate necessary to collect the target $435,000,000 in fee
revenues is then calculated as: $435,000,000
$5,379,329,602,021 = 0.00008090.
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APPENDIX B
A. Baseline Estimate of the Aggregate Dollar Amount of Sales Subject to
Exchange Act Sections 31(b) and 31(c)
First, calculate the average daily dollar amount of sales (ADS) for
each month in the sample (March 1992-March 2002). The date obtained
from the exchanges and Nasdaq are presented in Table B1. The monthly
aggregate dollar amount of sales (exchange plus Nasdaq) is contained in
column E.
Next, calculate the percentage change in the ADS from month-to-
month. The average monthly percentage growth of ADS over the entire
sample is 0.017 and the standard deviation is 0.111. Assuming the
monthly percentage change in ADS follows a random walk, calculating the
expected monthly percentage growth rate for the full sample is
straightforward. The expected monthly percentage growth rate of ADS is
2.4 percent.
Now, use the expected monthly percentage growth rate to forecast
the aggregate dollar amount of sales. For example, one can use the ADS
for March 2002 ($97,678,101,212) to forecast ADS for April 2002
($100,007,442,449 = $97,678,101,212 x 1.024). Multiply by the number
of trading days in April 2002 (22) to obtain a forecast of the
aggregate dollar amount of sales for the month ($2,200,163,733,884).
Repeat the method to generate forecasts for subsequent months.
The forecasts for aggregate dollar amount of sales are in column I
of Table B1. The following is a more formal (mathematical) description
of the procedure:
1. Divide each month's aggregate dollar amount of sales (column E)
by the number of trading days in that month (column B) to obtain the
average daily dollar volume (ADS, column F).
2. For each month t, calculate the change in ADS from the previous
month as t = log (ADSt-1), where log (x)
denotes the natural logarithm of x.
3. Calculate the mean and standard deviation of the series
{1, 2, . . .,
120}. These are given by = 0.017 and
= 0.111, respectively.
4. Assume that the natural logarithm of ADS follows a random walk,
so that s and t are
statistically independent for any two months s and t.
Under the assumption that t is normally
distributed, the expected value of ADSt/ADSt-1 is
given by exp ( + \2\/2), or on average
ADSt = 1.024 x ADSt-1.
6. For April 2002, this gives a forecast ADS of 1.024 x
$97,678,101,212 = $100,007,442,449. Multiply this figure by the 22
trading days in April 2002 to obtain an aggregate dollar amount of
sales forecast of $2,200,163,733,884.
7. For May 2002, multiply the April 2002 ADS forecast by 1.024 to
obtain a forecast ADS of $102,392,331,762. Multiply this figure by the
22 trading days in May 2002 to obtain an aggregate dollar amount of
sales forecast of $2,252,631,298,774.
8. Repeat this procedure for subsequent months.
B. Using the Forecasts From A To Calculate the New Fee Rate
1. Use Table B1 to estimate fees collected for the period 10/1/02
through 10/31/02. The projected aggregate dollar amount of sales for
this period is $2,649,542,136,536. Projected fee collections at the
current fee rate of 0.00003010 are $79,751,218.
2. Assume collections of $450,000 in assessments on securities
futures products in fiscal 2003. This estimate is based on the CBO's
August 2001 estimate of Section 31(d) collections in fiscal 2003,
adjusted to reflect the Fee Relief Act's reduction in the Section 31(d)
assessments.
3. Subtract the amounts $79,751,218 and $450,000 from the target
offsetting collection amount of $849,000,000, leaving $768,798,782 to
be collected on dollar volume for the period 11/1/02 through 9/30/03.
4. Use Table B1 to estimate dollar volume for the period 11/1/02
through 9/30/03. The estimate is $30,508,977,113,465. Finally, compute
the fee rate required to produce the additional $768,798,782 in
revenue. This rate is $768,798,782 divided by $30,508,977,113,465 or
0.0000251991.
5. Consistent with the system requirements of the exchanges and the
NASD, round the result to the seventh decimal point, yielding a rate of
$25.20 per million.
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[FR Doc. 02-10932 Filed 4-29-02; 2:49 pm]
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