SEC cuts fees for trades and registration filings

WASHINGTON — As a result of rising securities trading volumes, the Securities and Exchange Commission is cutting the fees it charges for trades and registration filings by more than 50% for the remainder of the fiscal year that ends Sept. 30. The fee reduction is the largest one since the Investor and Capital Markets Fee Relief Act of 2002 revised the formula under which the SEC sets the fees to finance its operations. Now that a spending measure for the remainder of fiscal 2007 has been enacted, transaction fees that must be paid to the SEC when equity securities are sold have dropped more than 50% to $15.30 per million dollars of trades, from $30.70. By the middle of next month, fees charged for registrations of securities, proxy solicitations and other items will drop more than 71% to $30.70 per million dollars of the market value of the security, from $107. Under the lowered rates, the so-called Section 31 trading fees are expected to total about $881 million for fiscal 2007, while the registration fees are expected to be about $214 million. The $1.1 billion total is expected to surpass the $878 million budgeted to fund the agency in fiscal 2007. The remainder is used to fund general government spending. ‘Fair price’ “The commission gets full funding, and the industry pays a fair price for it,” said John Giesea, president and chief executive of the Security Traders Association in New York, which represents individual traders. The reduction in trading costs alone will be large for the biggest Wall Street firms. Major brokerage companies spend as much as $100 million a year on trading fees, said David Franasiak, a principal of Washington law firm Williams & Jensen PLLC, who represents the STA in Washington. “Market participants are trading more as the cost of trading has dropped,” he said. Innovations in U.S. markets such as electronic communications networks and other alternative trading forums have reduced trading costs, and trading has increased due to derivatives, exchange traded funds and other new products, Mr. Franasiak said. “There’s been such a revolution in trading cost structure in the marketplace due to competition that that results in a larger volume of trades,” he said. “You can raise the same amount of money at a lower rate.” Trading volumes on the New York Stock Exchange rose 11% last year from the level in 2005, according to Eric Ryan, spokesman for NYSE Group Inc. of New York. In addition to firms that engage directly in securities trades, institutional investors such as mutual funds and big pension funds also will be big beneficiaries of the reduction, which should be passed on to investors, Mr. Franasiak said. Regular evaluations The fee structure is evaluated by the SEC every six months as the commission projects the amount of trading volume and the number of registration statements expected to be filed, according to spokesman John Heine. The fees then are adjusted to approximate the amount of money needed to fund the SEC’s operations. Prior to passage of the 2002 law, the SEC had charged fees set by the original Securities Exchange Act In the bull market of the 1990s, the fee revenue collected began to exceed considerably the budget of the SEC as trading volumes increased. The 2002 law brought the fee formula more in line with the amount needed to pay for the SEC. Although the fees have risen since 2002 due to the bear market that followed the bursting of the technology “bubble,” they were adjusted downward starting in 2005 as the market improved and trading picked up. The administration has requested $906 million for the SEC in the fiscal 2008 budget, which hasn’t yet been acted on by Congress. The enforcement budget is the largest item in the SEC’s budget at $321 million in the fiscal 2008 request. The SEC’s office of compliance inspections and examinations, which is responsible for examining investment advisory and broker- age firms, is slated to receive the second-largest amount, $213 million. The administration is requesting $126 million for the SEC’s division of corporation finance, $45 million for the division of investment management and $44 million for the division of market regulation, the three major divisions of the commission that set policies for mutual funds, and investment advisory and brokerage firms.