Document ID: SEC-2010-0663-0001
Agency: sec
Document Type: Notice
Title: Order Making Fiscal Year 2011 Annual Adjustments to the Fee Rates Applicable under the Securities Act of 1933, etc.
Posted Date: 2010-05-05T04:00Z

[Federal Register: May 5, 2010 (Volume 75, Number 86)]
[Notices]               
[Page 24757-24769]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05my10-146]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release Nos. 33-9122; 34-62005/April 29, 2010]

 
Order Making Fiscal Year 2011 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

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\ Section 13(e) of the 
Securities Exchange Act of 1934 (``Exchange Act'') requires the 
Commission to collect fees on specified 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\ Finally, Sections 31(b) and (c) of the Exchange Act 
require national securities exchanges and national securities 
associations, respectively, to pay fees to the Commission on 
transactions in specified securities.\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. 78ee(b) and (c). In addition, Section 31(d) of the 
Exchange Act requires the Commission to collect assessments from 
national securities exchanges and national securities associations 
for round turn transactions on security futures. 15 U.S.C. 78ee(d).
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    The Investor and Capital Markets Fee Relief Act (``Fee Relief 
Act'') \5\ amended Section 6(b) of the Securities Act and Sections 
13(e), 14(g), and 31 of the Exchange Act 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 
adjustment to fix the fee rates under these sections for fiscal year 
2012 and beyond.\6\
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    \5\ Public Law 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)(5), 78n(g)(6), 78ee(j)(1), and 78ee(j)(3). Section 31(j)(2) 
of the Exchange Act, 15 U.S.C. 78ee(j)(2), also requires the 
Commission, in specified circumstances, to make a mid-year 
adjustment to the fee rates under Sections 31(b) and (c) of the 
Exchange Act in fiscal years 2002 through 2011.
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II. Fiscal Year 2011 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

    Section 6(b)(5) of the Securities Act requires the Commission to 
make an annual adjustment to the fee rate applicable under Section 6(b) 
of the Securities Act in each of the fiscal years 2003 through 2011.\7\ 
In those same fiscal years, Sections 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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[[Page 24758]]

    Section 6(b)(5) sets forth the method for determining the annual 
adjustment to the fee rate under Section 6(b) for fiscal year 2011. 
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 2011], is reasonably 
likely to produce aggregate fee collections under [Section 6(b)] that 
are equal to the target offsetting collection amount for [fiscal year 
2011].'' That is, the adjusted rate is determined by dividing the 
``target offsetting collection amount'' for fiscal year 2011 by the 
``baseline estimate of the aggregate maximum offering prices'' for 
fiscal year 2011.
    Section 6(b)(11)(A) specifies that the ``target offsetting 
collection amount'' for fiscal year 2011 is $394,000,000. Section 
6(b)(11)(B) defines the ``baseline estimate of the aggregate maximum 
offering price'' for fiscal year 2011 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 year 2011] as determined by the Commission, after 
consultation with the Congressional Budget Office and the Office of 
Management and Budget * * *.''
    To make the baseline estimate of the aggregate maximum offering 
price for fiscal year 2011, the Commission is using the same 
methodology it developed in consultation with the Congressional Budget 
Office (``CBO'') and Office of Management and Budget (``OMB'') to 
project aggregate offering price for purposes of the fiscal year 2010 
annual adjustment. Using this methodology, the Commission determines 
the ``baseline estimate of the aggregate maximum offering price'' for 
fiscal year 2011 to be $3,394,310,932,374.\8\ Based on this estimate, 
the Commission calculates the fee rate for fiscal 2011 to be $116.10 
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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    \8\ Appendix A explains how we determined the ``baseline 
estimate of the aggregate maximum offering price'' for fiscal year 
2011 using our methodology, and then shows the purely arithmetical 
process of calculating the fiscal year 2011 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 year 2011.
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III. Fiscal Year 2011 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 Section 31(j)(2),\9\ which currently is $16.90 per 
million of the aggregate dollar amount of sales of specified securities 
transacted on the exchange. 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 sales of specified 
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.\10\
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    \9\ Order Making Fiscal 2010 Mid-Year Adjustment to the Fee 
Rates Applicable Under Sections 31(b) and (c) of the Securities 
Exchange Act of 1934, Rel. No. 34-61605 (March 1, 2010), 75 FR 9964 
(March 4, 2010).
    \10\ The annual adjustments, as well as the mid-year adjustments 
required in specified circumstances under Section 31(j)(2) in fiscal 
years 2002 through 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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    Section 31(j)(1) specifies the method for determining the annual 
adjustment for fiscal year 2011. Specifically, the Commission must 
adjust the rates under Sections 31(b) and (c) to a ``uniform adjusted 
rate that, when applied to the baseline estimate of the aggregate 
dollar amount of sales for [fiscal year 2011], 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 year 2011].''
    Section 31(l)(1) specifies that the ``target offsetting collection 
amount'' for fiscal year 2011 is $1,321,000,000. Section 31(l)(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 year 2011] as determined by the Commission, after consultation 
with the Congressional Budget Office and the Office of Management and 
Budget * * *.''
    To make the baseline estimate of the aggregate dollar amount of 
sales for fiscal year 2011, the Commission is using the same 
methodology it developed in consultation with the CBO and OMB to 
project dollar volume for purposes of prior fee adjustments.\11\ Using 
this methodology, the Commission calculates the baseline estimate of 
the aggregate dollar amount of sales for fiscal year 2011 to be 
$69,588,660,831,911. Based on this estimate, and an estimated 
collection of $17,950 in assessments on security futures transactions 
under Section 31(d) in fiscal year 2011, the uniform adjusted rate for 
fiscal year 2011 is $19.20 per million.\12\
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    \11\ Appendix B explains how we determined the ``baseline 
estimate of the aggregate dollar amount of sales'' for fiscal year 
2011 using our methodology, and then shows the purely arithmetical 
process of calculating the fiscal year 2011 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 year 2011.
    \12\ The calculation of the adjusted fee rate assumes that the 
current fee rate of $16.90 per million will apply through October 
31, 2011, due to the operation of the effective date provision 
contained in Section 31(j)(4)(A) of the Exchange Act.
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IV. Effective Dates of the Annual Adjustments

    Section 6(b)(8)(A) of the Securities Act provides that the fiscal 
year 2011 annual adjustment to the fee rate applicable under Section 
6(b) of the Securities Act shall take effect on the later of October 1, 
2010, or five days after the date on which a regular appropriation to 
the Commission for fiscal year 2011 is enacted.\13\ Sections 
13(e)(8)(A) and 14(g)(8)(A) of the Exchange Act provide for the same 
effective date for the annual adjustments to the fee rates applicable 
under Sections 13(e) and 14(g) of the Exchange Act.\14\
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    \13\ 15 U.S.C. 77f(b)(8)(A).
    \14\ 15 U.S.C. 78m(e)(8)(A) and 78n(g)(8)(A).
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    Section 31(j)(4)(A) of the Exchange Act provides that the fiscal 
year 2011 annual adjustments to the fee rates applicable under Sections 
31(b) and (c) of the Exchange Act shall take effect on the later of 
October 1, 2010, or 30 days after the date on which a regular 
appropriation to the Commission for fiscal year 2011 is enacted.

V. Conclusion

    Accordingly, pursuant to Section 6(b) of the Securities Act and 
Sections 13(e), 14(g), and 31 of the Exchange Act,\15\
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    \15\ 15 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

[[Page 24759]]

Securities Act and Sections 13(e) and 14(g) of the Exchange Act shall 
be $116.10 per million effective on the later of October 1, 2010, or 
five days after the date on which a regular appropriation to the 
Commission for fiscal year 2011 is enacted; and
    It is further ordered that the fee rates applicable under Sections 
31(b) and (c) of the Exchange Act shall be $19.20 per million effective 
on the later of October 1, 2010, or 30 days after the date on which a 
regular appropriation to the Commission for fiscal year 2011 is 
enacted.

    By the Commission.
Elizabeth M. Murphy,
Secretary.

Appendix A

    With the passage of the Investor and Capital Markets Relief Act, 
Congress has, among other things, established a target amount of 
monies to be collected from fees charged to issuers based on the 
value of their registrations. This appendix provides the formula for 
determining such fees, which the Commission adjusts annually. 
Congress has mandated that the Commission determine these fees based 
on the ``aggregate maximum offering prices,'' which measures the 
aggregate dollar amount of securities registered with the Commission 
over the course of the year. In order to maximize the likelihood 
that the amount of monies targeted by Congress will be collected, 
the fee rate must be set to reflect projected aggregate maximum 
offering prices. As a percentage, the fee rate equals the ratio of 
the target amounts of monies to the projected aggregate maximum 
offering prices.
    For 2011, the Commission has estimated the aggregate maximum 
offering prices by projecting forward the trend established in the 
previous decade. More specifically, an ARIMA model was used to 
forecast the value of the aggregate maximum offering prices for 
months subsequent to March 2010, the last month for which the 
Commission has data on the aggregate maximum offering prices.
    The following sections describe this process in detail.

A. Baseline Estimate of the Aggregate Maximum Offering Prices for 
Fiscal Year 2011

    First, calculate the aggregate maximum offering prices (AMOP) 
for each month in the sample (March 2000-March 2010). 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 total dollar value of registrations. 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 2000 to March 2010.
    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 
[Delta]t = log (AAMOPt)--
log(AAMOPt-1). This approximates the percentage change.
    5. Estimate the first order moving average model 
[Delta]t = [alpha] + [beta]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 
[Delta]t. The forecast error is expressed as 
et = [Delta]t-[alpha]-[beta]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 [alpha] =-0.0034456 and [beta] =-0.78509.
    6. For the month of April 2010 forecast 
[Delta]t = 4/10 = [alpha] + [beta]et = 3/10. 
For all subsequent months, forecast [Delta]t = [alpha].
    7. Calculate forecasts of log(AAMOP). For example, the forecast 
of log(AAMOP) for June 2010 is given by FLAAMOP t = 6/10 
= log(AAMOPt = 3/10) + [Delta]t = 4/10 + 
[Delta]t = 5/10 + [Delta]t = 6/10.
    8. Under the assumption that et is normally 
distributed, the n-step ahead forecast of AAMOP is given by 
exp(FLAAMOPt + [sigma]n\2\/2), where 
[sigma]n denotes the standard error of the n-step ahead 
forecast.
    9. For June 2010, this gives a forecast AAMOP of $13.4 Billion 
(Column I), and a forecast AMOP of $295.9 Billion (Column J).
    10. Iterate this process through September 2011 to obtain a 
baseline estimate of the aggregate maximum offering prices for 
fiscal year 2011 of $3,394,310,932,374.

B. Using the Forecasts From A to Calculate the New Fee Rate

    1. Using the data from Table A, estimate the aggregate maximum 
offering prices between 10/1/10 and 9/30/11 to be 
$3,394,310,932,374.
    2. The rate necessary to collect the target $394,000,000 in fee 
revenues set by Congress is then calculated as: $394,000,000 / 
$3,394,310,932,374 = 0.00011608.
    3. Round the result to the seventh decimal point, yielding a 
rate of 0.0001161 (or $116.10 per million).

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Appendix B

    With the passage of the Investor and Capital Markets Relief Act, 
Congress has, among other things, established a target amount of 
monies to be collected from fees charged to investors based on the 
value of their transactions. This appendix provides the formula for 
determining such fees, which the Commission adjusts annually, and 
may adjust semi-annually.\16\ In order to maximize the likelihood 
that the amount of monies targeted by Congress will be collected, 
the fee rate must be set to reflect projected dollar transaction 
volume on the securities exchanges and certain over-the-counter 
markets over the course of the year. As a percentage, the fee rate 
equals the ratio of the target amounts of monies to the projected 
dollar transaction volume.
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    \16\ Congress requires that the Commission make a mid-year 
adjustment to the fee rate if four months into the fiscal year it 
determines that its forecasts of aggregate dollar volume are 
reasonably likely to be off by 10% or more.
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    For 2011, the Commission has estimated dollar transaction volume 
by projecting forward the trend established in the previous decade. 
More specifically, dollar transaction volume was forecasted for 
months subsequent to March 2010, the last month for which the 
Commission has data on transaction volume.
    The following sections describe this process in detail.

A. Baseline Estimate of the Aggregate Dollar Amount of Sales for Fiscal 
Year 2011

    First, calculate the average daily dollar amount of sales (ADS) 
for each month in the sample (March 2000-March 2010). The monthly 
aggregate dollar amount of sales (exchange plus certain over-the-
counter markets) is presented in column C of Table B.
    Next, calculate the change in the natural logarithm of ADS from 
month to month. The average monthly percentage growth of ADS over 
the entire sample is 0.0025 and the standard deviation is 0.124. 
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 1.0%.
    Now, use the expected monthly percentage growth rate to forecast 
total dollar volume. For example, one can use the ADS for March 2010 
($241,886,611,540) to forecast ADS for April 2010 ($244,367,079,739 
= $241,886,611,540 x 1.010) \17\ Multiply by the number of trading 
days in April 2010 (21) to obtain a forecast of the total dollar 
volume for the month ($5,131,708,674,527). Repeat the method to 
generate forecasts for subsequent months.
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    \17\ The value 1.010 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 
B. 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] = 0.0025 and 
[sigma] = 0.124, 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 
= 1.010 x ADSt-1.
    6. For April 2010, this gives a forecast ADS of 1.010 x 
$241,886,611,540 = $244,367,079,739. Multiply this figure by the 21 
trading days in April 2010 to obtain a total dollar volume forecast 
of $5,131,708,674,527.
    7. For May 2010, multiply the April 2010 ADS forecast by 1.010 
to obtain a forecast ADS of $246,872,984,330. Multiply this figure 
by the 20 trading days in May 2010 to obtain a total dollar volume 
forecast of $4,937,459,686,603.
    8. Repeat this procedure for subsequent months.

B. Using the Forecasts From A To Calculate the New Fee Rate

    1. Use Table B to estimate fees collected for the period 10/1/10 
through 10/31/10. The projected aggregate dollar amount of sales for 
this period is $5,455,658,813,145. Projected fee collections at the 
current fee rate of 0.0000161 are $92,200,634.
    2. Estimate the amount of assessments on securities futures 
products collected during 10/1/10 and 9/30/11 to be $17,950 by 
projecting a 1.0% monthly increase from a base of $1,316 in March 
2010.
    3. Subtract the amounts $92,200,634 and $17,950 from the target 
offsetting collection

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amount set by Congress of $1,321,000,000 leaving $1,228,781,416 to 
be collected on dollar volume for the period 11/1/10 through 9/30/
11.
    4. Use Table B to estimate dollar volume for the period 11/1/10 
through 9/30/11. The estimate is $64,133,002,018,766. Finally, 
compute the fee rate required to produce the additional 
$1,228,781,416 in revenue. This rate is $1,228,781,416 divided by 
$64,133,002,018,766 or 0.0000191599.
    5. Round the result to the seventh decimal point, yielding a 
rate of .0000192 (or $19.20 per million).
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[FR Doc. 2010-10491 Filed 5-4-10; 8:45 am]
BILLING CODE 8011-01-P