Document ID: SEC-2012-0374-0001
Agency: sec
Document Type: Notice
Title: Order Making Fiscal Year 2012 Mid-year Adjustments to Transaction Fee Rates
Posted Date: 2012-03-07T05:00Z

[Federal Register Volume 77, Number 45 (Wednesday, March 7, 2012)]
[Notices]
[Pages 13663-13668]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-5453]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66495/March 1, 2012]

Order Making Fiscal Year 2012 Mid-Year Adjustments to Transaction 
Fee Rates

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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    Section 31 of the Exchange Act requires the Commission to annually 
adjust the fee rates applicable under Sections 31(b) and (c) to a 
uniform adjusted rate, and in some circumstances, to also make a mid-
year adjustment. The Dodd-Frank Act amendments to Section 31 of the 
Exchange Act establish a new method for annually adjusting the fee 
rates applicable under Sections 31(b) and (c) of the Exchange Act. 
Specifically, the Commission must now adjust the fee rates to a uniform 
adjusted rate that is reasonably likely to produce aggregate fee 
collections (including assessments on security futures transactions) 
equal to the regular appropriation to the Commission for the applicable 
fiscal year.\4\ For fiscal year 2012, the regular

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appropriation to the Commission is $1,321,000,000.\5\ On January 20, 
2012 the Commission issued an order under Section 31(j)(1) of the 
Exchange Act setting the fee rates applicable under Sections 31(b) and 
(c) for fiscal year 2012.\6\
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    \4\ See 15 U.S.C. 78ee(j)(1) (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 such fiscal year, is reasonably likely to 
produce aggregate fee collections under [Section 31] (including 
assessments collected under [Section 31(d)]) that are equal to the 
regular appropriation to the Commission by Congress for such fiscal 
year.'').
    \5\ Id.
    \6\ Order Making Fiscal Year 2012 Annual Adjustments to 
Transaction Fee Rates, Rel. No. 34-66202 (January 20, 2012).
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II. Determination of the Need for a Mid-Year Adjustment in Fiscal 2012

    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 2012 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 $71,646,369,036,088 is reasonably likely to 
be 10% (or more) greater or less than the actual aggregate dollar 
volume of sales for fiscal year 2012.\7\ To make this determination, 
the Commission must estimate the actual aggregate dollar volume of 
sales for fiscal year 2012.
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    \7\ The amount $71,646,369,036,088 is the baseline estimate of 
the aggregate dollar amount of sales for fiscal year 2012 calculated 
by the Commission in its Order Making Fiscal Year 2012 Annual 
Adjustments to Transaction Fee Rates, Rel. No. 34-66202 (January 20, 
2012).
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    Based on data provided by the national securities exchanges and the 
national securities association that are subject to Section 31,\8\ the 
actual aggregate dollar volume of sales during the first four months of 
fiscal year 2012 was $21,401,568,899,359.\9\ Using these data and a 
methodology for estimating the aggregate dollar amount of sales for the 
remainder of fiscal year 2012 (developed after consultation with the 
Congressional Budget Office and the OMB),\10\ the Commission estimates 
that the aggregate dollar amount of sales for the remainder of fiscal 
year 2012 to be $42,485,082,013,879. Thus, the Commission estimates 
that the actual aggregate dollar volume of sales for all of fiscal year 
2012 will be $63,886,650,913,238.
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    \8\ 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.
    \9\ Although Section 31(j)(2) indicates that the Commission 
should determine the actual aggregate dollar volume of sales for 
fiscal 2012 ``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, 
2012. Dollar volume data on sales of securities subject to Section 
31 for February 2012 will not be available from the exchanges and 
FINRA for several weeks.
    \10\ See Appendix A.
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    Because the baseline estimate of $71,646,369,036,088 is more than 
10% greater than the $63,886,650,913,238 estimated actual aggregate 
dollar volume of sales for fiscal year 2012, 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 2012. 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 2012, 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 $1,321,000,000.'' \11\ 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 2012 from 
$1,321,000,000, which is the amount to be collected for fiscal year 
2012. 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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    \11\ 15 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 2012 until March 15, the 
Commission will not ``collect'' any fees in the first five months of 
fiscal 2012. 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 [$1,321,000,000],'' 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 $597,429,581 in fees 
for the period prior to the effective date of the mid-year adjustment 
and $16,425 in assessments on round turn transactions in security 
futures products during all of fiscal year 2012. Using the methodology 
referenced in Part II above, the Commission estimates that the 
aggregate dollar volume of sales for the remainder of fiscal year 2012 
following the effective date of the new rate will be 
$32,330,785,567,489. 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 2012, 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 must be adjusted to $22.40 per million of the 
aggregate dollar amount of sales of securities.\12\ The aggregate 
dollar amount of sales of securities subject to Section 31 fees is 
illustrated in Appendix A.
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    \12\ The calculation is as follows: ($1,321,000,000 - 
$597,429,581 - $16,425)/$32,330,785,567,489 = 0.0000223797. Round 
this result to the seventh decimal point, yielding a rate of $22.40 
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. 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 $22.40 per 
million for sales of securities transacted on April 1, 2012, and 
thereafter until the annual adjustment for fiscal 2013 is effective.

V. Conclusion

    Accordingly, pursuant to Section 31 of the Exchange Act,\13\
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    \13\ 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 $22.40 per $1,000,000 of the 
aggregate dollar amount of sales of securities subject to these 
sections effective April 1, 2012.

    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 2002-January 2012). 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 0.126. 
Assume the monthly percentage change in ADS follows a random walk. 
The expected monthly percentage growth rate of ADS is 1.5 percent.

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    Now, use the expected monthly percentage growth rate to forecast 
total dollar volume. For example, one can use the ADS for January 
2012 ($236,326,110,324) to forecast ADS for February 2012 
($239,879,615,120 = $236,326,110,324 x 1.015).\14\ Multiply by the 
number of trading days in February 2012 (20) to obtain a forecast of 
the total dollar volume for the month ($4,797,592,302,406). Repeat 
the method to generate forecasts for subsequent months.
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    \14\ The value 1.015 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] = 0.126, 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 
= 1.015 x ADSt-1.
    6. For February 2012, this gives a forecast ADS of 1.015 x 
$236,326,110,324 = $239,879,615,120. Multiply this figure by the 20 
trading days in February 2012 to obtain a total dollar volume 
forecast of $4,797,592,302,406.
    7. For March 2012, multiply the February 2012 ADS forecast by 
1.015 to obtain a forecast ADS of $243,486,551,999. Multiply this 
figure by the 22 trading days in March 2012 to obtain a total dollar 
volume forecast of $5,356,704,143,984.
    8. Repeat this procedure for subsequent months.

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

    1. Determine the aggregate dollar volume of sales between 10/1/
11 and 2/20/12 to be $24,520,003,895,923. Multiply this amount by 
the fee rate of $19.20 per million dollars in sales during this 
period and get $470,784,075 in actual and projected fees collected 
during 10/1/11 and 2/20/12. Determine the projected aggregate dollar 
volume of sales between 2/21/12 and 3/31/12 to be 
$7,035,861,449,826. Multiply this amount by the fee rate of $18.00 
per million dollars in sales during this period and get an estimate 
of $126,645,506 in projected fees collected during 2/21/12 and 3/31/
12.
    2. Estimate the amount of assessments on security futures 
products collected during 10/1/11 and 9/30/12 to be $16,425 by 
summing the amounts collected through January 2012 of $5,716 with 
projections of a 1.5% monthly increase in subsequent months.
    3. Determine the projected aggregate dollar volume of sales 
between 4/1/12 and 9/30/12 to be $32,330,785,567,489.
    4. The rate necessary to collect $1,321,000,000 in fee revenues 
is then calculated as: ($1,321,000,000 - $470,784,075 - $126,645,506 
- $16,425) / $32,330,785,567,489 = 0.0000223797.
    5. Round the result to the seventh decimal point, yielding a 
rate of 0.0000224000 (or $22.40 per million).
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[FR Doc. 2012-5453 Filed 3-6-12; 8:45 am]
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