[Federal Register Volume 74, Number 42 (Thursday, March 5, 2009)]
[Notices]
[Pages 9644-9648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-4738]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59477/February 27, 2009]


Order Making Fiscal Year 2009 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 to 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 to the 
Commission fees based on the aggregate dollar amount of sales of 
certain securities transacted by or through any member of the 
association other 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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    Sections 31(j)(1) and (3) require 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 year 2012 and beyond.\4\ 
Section 31(j)(2) requires the Commission, in certain circumstances, to 
make a mid-year adjustment to the fee rates in fiscal years 2002 
through 2011.\5\ 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 
Section 31(l)(1) for that fiscal year.\6\ For fiscal year 2009, the 
target offsetting collection amount is $1,023,000,000.\7\
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    \4\ 15 U.S.C. 78ee(j)(1) and (j)(3).
    \5\ 15 U.S.C. 78ee(j)(2).
    \6\ 15 U.S.C. 78ee(l)(1).
    \7\ Id.
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II. Determination of the Need for a Mid-Year Adjustment in Fiscal 2009

    Under Section 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 year 2009 if it determines, based on the actual aggregate 
dollar volume of sales during the first five months of the fiscal year, 
that the baseline estimate $113,703,210,464,919 is reasonably likely to 
be 10% (or more) greater or less than the actual aggregate dollar 
volume of sales for fiscal year 2009.\8\ To make this determination, 
the Commission must estimate the actual aggregate dollar volume of 
sales for fiscal year 2009.
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    \8\ The amount $113,703,210,464,919 is the baseline estimate of 
the aggregate dollar amount of sales for fiscal year 2009 calculated 
by the Commission in its Order Making Fiscal 2009 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) of the Securities 
Exchange Act of 1934, Rel. No. 33-8916 (May 2, 2008), 73 FR 25795 
(May 7, 2008).
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    Based on data provided by the national securities exchanges and the 
national securities association that are subject to Section 31,\9\ the 
actual aggregate dollar volume of sales during the first four months of 
fiscal year 2009 was $24,218,758,303,585.\10\ Using these data and a 
methodology for estimating the aggregate dollar amount of sales for the 
remainder of fiscal year 2009 (developed after consultation with the 
Congressional Budget Office and the OMB),\11\ the Commission estimates 
that the aggregate dollar amount of sales for the remainder of fiscal 
year 2009 to be $42,139,232,747,921. Thus, the Commission estimates 
that the actual aggregate dollar volume of sales for all of fiscal year 
2009 will be $66,357,991,051,506.
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    \9\ The Financial Industry Regulatory Authority, Inc. 
(``FINRA'') and each exchange is required to file a monthly report 
on Form R31 containing dollar volume data on sales of securities 
subject to Section 31. The report is due on the 10th business day 
following the month for which the exchange or association provides 
dollar volume data.
    \10\ Although Section 31(j)(2) indicates that the Commission 
should determine the actual aggregate dollar volume of sales for 
fiscal 2009 ``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, 
2009. Dollar volume data on sales of securities subject to Section 
31 for February 2009 will not be available from the exchanges and 
FINRA for several weeks.
    \11\ See Appendix A.
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    Because the baseline estimate of $113,703,210,464,919 is more than 
10% greater than the $66,357,991,051,506 estimated actual aggregate 
dollar volume of sales for fiscal year 2009, Section 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

    Section 31(j)(2) specifies the method for determining the mid-year 
adjustment for fiscal 2009. 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 year 2009, is reasonably 
likely to produce aggregate fee collections under Section 31 (including 
fees collected during such 5-month period and assessments collected 
under Section 31(d)) that are equal to $1,023,000,000.'' \12\ 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 year 2009 from 
$1,023,000,000, which is the target offsetting collection amount for 
fiscal year 2009. That difference 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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    \12\ U.S.C. 78ee(j)(2). 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 2009 until March 15, the 
Commission will not ``collect'' any fees in the first five months of 
fiscal 2009. See 15 U.S.C. 78ee(e). However, the Commission believes 
that, for purposes of calculating the mid-year adjustment, Congress, 
by stating in Section 31(j)(2) that the ``uniform adjusted rate * * 
* is reasonably likely to produce aggregate fee collections under 
Section 31 * * * that are equal to [$1,023,000,000],'' 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 $190,542,394 in fees 
for the period prior to the effective date of the mid-year adjustment 
\13\ and $8,640 in assessments on round turn transactions in security 
futures products during all of fiscal year 2009. Using the methodology 
referenced in Part II above, the Commission estimates that the 
aggregate dollar volume of sales for the remainder of fiscal year 2009 
following the effective date of the new rate will be 
$32,332,563,584,044. This amount reflects more recent information on 
the dollar amount of sales of securities than was available at the time 
of the setting of the initial fee rate for fiscal year 2009, and 
indicates a significant reduction in sales. Based on these estimates, 
and employing the mid-year adjustment mechanism established by statute, 
the uniform adjusted rate is $25.70 per million of the aggregate dollar 
amount of sales of securities.\14\ The aggregate

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dollar amount of sales of securities subject to Section 31 fees is 
illustrated in Appendix A.
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    \13\ This calculation is based on the assumption that the mid-
year adjustment will go into effect on April 1, 2009 pursuant to 
Section 31(j)(4)(B) of the Exchange Act. However, see the discussion 
below regarding the actual effective date of the mid-year 
adjustment.
    \14\ The calculation is as follows: ($1,023,000,000-
$190,542,394--$8,640)/$32,332,563,584,044 = $0.0000257467. Round 
this result to the seventh decimal point, yielding a rate of $25.70 
per million.
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IV. Effective Date of the Uniform Adjusted Rate

    Section 31(j)(4)(B) of the Exchange Act provides that a mid-year 
adjustment shall take effect on April 1 of the fiscal year in which 
such rate applies. However, it is possible that the effective date will 
be delayed this fiscal year because of the lapse of appropriation 
provision in Section 31(k) of the Exchange Act. That section provides 
that, if on the first day of the fiscal year a regular appropriation to 
the Commission has not been enacted, the Commission shall continue to 
collect fees at the rate in effect during the preceding fiscal year, 
until 30 days after the date such a regular appropriation is enacted. 
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 $25.70 per million for sales of 
securities transacted on the later of (i) April 1, 2009, or (ii) 30 
days after the date on which a regular appropriation to the Commission 
for fiscal year 2009 is enacted. This fee rate will remain in place 
until the fee rate for fiscal year 2010 takes effect.\15\
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    \15\ Section 31(j)(1) and Section 31(g) of the Exchange Act 
require the Commission to issue an order no later than April 30, 
2009, adjusting the fee rates applicable under Sections 31(b) and 
(c) for fiscal 2010. These fee rates for fiscal 2010 will be 
effective on the later of October 1, 2009 or thirty days after the 
date of enactment of the Commission's regular appropriation for 
fiscal 2010.
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V. Conclusion

    Accordingly, pursuant to Section 31 of the Exchange Act,\16\
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    \16\ 15 U.S.C. 78ee.
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    It is hereby ordered that each of the fee rates under Sections 
31(b) and (c) of the Exchange Act shall be $25.70 per $1,000,000 of the 
aggregate dollar amount of sales of securities subject to these 
sections, effective on the later of (i) April 1, 2009, or (ii) 30 days 
after the date on which a regular appropriation to the Commission for 
fiscal year 2009 is enacted.

    By the Commission.
Elizabeth M. Murphy,
Secretary.

Appendix A

    A. Baseline estimate of the aggregate dollar amount of sales.
    First, calculate the average daily dollar amount of sales (ADS) for 
each month in the sample (January 1999-January 2009). The data obtained 
from the exchanges and FINRA are presented in Table A. The monthly 
aggregate dollar amount of sales from all exchanges and FINRA is 
contained in column C.
    Next, calculate the change in the natural logarithm of ADS from 
month-to-month. The average monthly change in the logarithm of ADS over 
the entire sample is 0.007 and the standard deviation 0.130. Assume the 
monthly percentage change in ADS follows a random walk. The expected 
monthly percentage growth rate of ADS is 1.6 percent.
    Now, use the expected monthly percentage growth rate to forecast 
total dollar volume. For example, one can use the ADS for January 2009 
($233,508,979,959) to forecast ADS for February 2009 ($237,184,035,788 
= $233,508,979,959 x 1.016).\17\ Multiply by the number of trading days 
in February 2009 (19) to obtain a forecast of the total dollar volume 
for the month ($4,506,496,679,977). Repeat the method to generate 
forecasts for subsequent months.
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    \17\ The value 1.016 has been rounded. All computations are done 
with the unrounded value.
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    The forecasts for total dollar volume are in column G of Table A. 
The following is a more formal (mathematical) description of the 
procedure:
    1. Divide each month's total dollar volume (column C) by the number 
of trading days in that month (column B) to obtain the average daily 
dollar volume (ADS, column D).
    2. For each month t, calculate the change in ADS from the previous 
month as [Delta]t = log (ADSt/ADSt-1), 
where log (x) denotes the natural logarithm of x.
    3. Calculate the mean and standard deviation of the series 
{[Delta]1, [Delta]2, * * *, 
[Delta]120{time} . These are given by [mu] = 0.007 and 
[sigma] = 0.130, respectively.
    4. Assume that the natural logarithm of ADS follows a random walk, 
so that [Delta]s and [Delta]t are statistically 
independent for any two months s and t.
    5. Under the assumption that [Delta]t is normally 
distributed, the expected value of ADSt/ADSt-1 is 
given by exp ([mu] + [sigma]2/2), or on average 
ADSt = 1.016 x ADSt-1.
    6. For February 2009, this gives a forecast ADS of 1.016 x 
$233,508,979,959 = $237,184,035,788. Multiply this figure by the 19 
trading days in February 2009 to obtain a total dollar volume forecast 
of $4,506,496,679,977.
    7. For March 2009, multiply the February 2009 ADS forecast by 1.016 
to obtain a forecast ADS of $240,916,931,086. Multiply this figure by 
the 22 trading days in March 2009 to obtain a total dollar volume 
forecast of $5,300,172,483,900.
    8. Repeat this procedure for subsequent months.
    B. Using the forecasts from A to calculate the new fee rate.
    1. Determine the actual and projected aggregate dollar volume of 
sales between 10/1/08 and 3/31/09 to be $34,025,427,467,462. Multiply 
this amount by the fee rate of $5.60 per million dollars in sales 
during this period and get an estimate of $190,542,394 in actual and 
projected fees collected during 10/1/08 and 3/31/09.
    2. Estimate the amount of assessments on security futures products 
collected during 10/1/08 and 9/30/09 to be $8,640 by summing the 
amounts collected through January of $3,096 with projections of a 1.6% 
monthly increase in subsequent months.
    3. Determine the projected aggregate dollar volume of sales between 
4/1/09 and 9/30/09 to be $32,332,563,584,044.
    4. The rate necessary to collect the target $1,023,000,000 in fee 
revenues is then calculated as: ($1,023,000,000-$190,542,394 -$8,640)/
$32,332,563,584,044 = 0.0000257467.
    5. Round the result to the seventh decimal point, yielding a rate 
of 0.0000257000 (or $25.70 per million).
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 [FR Doc. E9-4738 Filed 3-4-09; 8:45 am]
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