Document ID: SEC-2011-0634-0001
Agency: sec
Document Type: Notice
Title: Fiscal Year 2012 Annual Adjustments to the Fee Rates
Posted Date: 2011-05-06T04:00Z

[Federal Register Volume 76, Number 88 (Friday, May 6, 2011)]
[Notices]
[Pages 26324-26331]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-10964]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64373/April 29, 2011]

Order Making Fiscal Year 2012 Annual Adjustments to Section 31 
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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    The Investor and Capital Markets Fee Relief Act (``Fee Relief 
Act'') \4\ amended Section 31 of the Exchange Act to require the 
Commission to make annual adjustments to the fee rates applicable under 
this section 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.\5\
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    \4\ Public Law 107-123, 115 Stat. 2390 (2002).
    \5\ 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 2012 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)(1),\6\ which currently is $19.20 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.\7\ 
Section 31(j)(3) requires the Commission to make one final adjustment 
for fiscal year 2012.\8\
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    \6\ 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, Rel. No. 33-9122 (April 29, 2010), 75 FR 24757 
(May 5, 2010).
    \7\ 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.
    \8\ The final adjustment for fiscal year 2012 is designed to 
adjust the fee rate in 2012 and subsequent years so that, when 
applied to the aggregate dollar volume of sales for fiscal year 
2012, it is reasonably like to produce total fee collections under 
Section 31 equal to the ``target offsetting collection amount'' for 
fiscal year 2011. Note, however, that Section 31 will be amended by 
the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(``Dodd-Frank Act'') effective on the later of October 1, 2011 or 
the date of enactment of an Act making a regular appropriation to 
the Commission for fiscal year 2012. Once the amendments become 
effective, the Commission will be required to make a new adjustment 
to the fee rates under Section 31 for fiscal year 2012 and 
subsequent fiscal years.
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    Section 31(j)(3) specifies the method for determining the annual 
adjustment for fiscal year 2012. 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 2012, is reasonably likely to 
produce aggregate fee collections under [Section 31] in

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fiscal year 2012 (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 2012 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 2012, 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.\9\ Using 
this methodology, the Commission calculates the baseline estimate of 
the aggregate dollar amount of sales for fiscal year 2012 to be 
$85,673,432,736,834. Based on this estimate, and an estimated 
collection of $27,453 in assessments on security futures transactions 
under Section 31(d) in fiscal year 2012, the uniform adjusted rate for 
fiscal year 2012 is $15.10 per million.\10\
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    \9\ Appendix A explains how we determined the ``baseline 
estimate of the aggregate dollar amount of sales'' for fiscal year 
2012 using our methodology, and then shows the purely arithmetical 
process of calculating the fiscal year 2012 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 2012.
    \10\ The calculation of the adjusted fee rate assumes that the 
current fee rate of $19.20 per million will apply through October 
31, 2012, due to the operation of the effective date provision 
contained in Section 31(j)(4)(A) of the Exchange Act.
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III. Effective Dates of the Annual Adjustments

    Section 31(j)(4)(A) of the Exchange Act provides that the fiscal 
year 2012 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, 2011, or 30 days after the date on which a regular 
appropriation to the Commission for fiscal year 2012 is enacted.
    It is important to note, however, that Section 991 of the Dodd-
Frank Act amends Section 31 of the Exchange Act effective on the later 
of October 1, 2011 or the date of enactment of an Act making a regular 
appropriation to the Commission for fiscal year 2012. Once, the 
amendments become effective, new lapse in appropriations provisions 
will apply such that, if a regular appropriation to the Commission for 
fiscal year 2012 is not enacted on or before October 1, 2011, the new 
fee rates will not become effective until 60 days after the date such a 
regular appropriation is enacted.
    Moreover, once the amendments to Section 31 become effective, the 
Commission will be required to make a new adjustment to the fee rates 
under Section 31 for fiscal year 2012. The new fee rates will be 
determined no later than 30 days after the date on which an Act making 
a regular appropriation to the Commission for fiscal year 2012 is 
enacted,\11\ and they will become effective on the later of October 1, 
2011 or 60 days after the date such a regular appropriation is enacted.
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    \11\ In the event an Act making a regular appropriation to the 
Commission for fiscal year 2012 is enacted more than 30 days prior 
to October 1, 2011, the Commission will need to defer making a new 
adjustment until October 1, 2011, because the amendments requiring 
the new adjustment will not be effective until that date.
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    As a result of these amendments, if a regular appropriation to the 
Commission for fiscal year 2012 is not enacted on or before October 1, 
2011, the fee rate adjustments under this order will never become 
effective. Rather the fee rate adjustments for fiscal year 2012 will be 
determined in accordance with the amendments to Section 31 made by the 
Dodd-Frank Act and will become effective 60 days after the date such a 
regular appropriation is enacted.

IV. Conclusion

    Accordingly, pursuant to Section 31 of the Exchange Act,\12\
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    \12\ 15 U.S.C. 77f(b), 78m(e), 78n(g), and 78ee(j).
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    It is hereby ordered that, if a regular appropriation to the 
Commission for fiscal year 2012 is enacted on or before October 1, 
2011, the fee rates applicable under Sections 31(b) and (c) of the 
Exchange Act shall be $15.10 per million effective on the later of 
October 1, 2011, or 30 days after the date on which a regular 
appropriation to the Commission for fiscal year 2012 is enacted.

    By the Commission.
Cathy H. Ahn,
Deputy 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 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.\13\ 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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    \13\ 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 2012, 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 2011, 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 2012

    First, calculate the average daily dollar amount of sales (ADS) for 
each month in the sample (March 2001--March 2011). 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 0.0074 and the standard deviation is 0.123. 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 
1.5%.
    Now, use the expected monthly percentage growth rate to forecast 
total dollar volume. For example, one can use the ADS for March 2011 
($282,580,668,926) to forecast ADS for April 2011 ($286,849,029,708 = 
$282,580,668,926 x 1.015).\14\ Multiply by the number of trading days 
in April 2011 (20) to obtain a forecast of the total dollar volume for 
the month ($5,736,980,594,157). Repeat the

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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] = 0.0074 and 
[sigma] = 0.123, 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 April 2011, this gives a forecast ADS of 1.015 x 
$282,580,668,926 = $286,849,029,708. Multiply this figure by the 20 
trading days in April 2011 to obtain a total dollar volume forecast of 
$5,736,980,594,157.
    7. For May 2011, multiply the April 2011 ADS forecast by 1.015 to 
obtain a forecast ADS of $291,181,863,773. Multiply this figure by the 
21 trading days in May 2011 to obtain a total dollar volume forecast of 
$6,114,819,139,242.
    8. Repeat this procedure for subsequent months.

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

    1. Use Table A to estimate fees collected for the period 10/1/11 
through 10/31/11. The projected aggregate dollar amount of sales for 
this period is $6,590,802,501,369. Projected fee collections at the 
current fee rate of 0.0000192 are $126,543,408.
    2. Estimate the amount of assessments on securities futures 
products collected during 10/1/11 and 9/30/12 to be $27,453 by 
projecting a 1.5% monthly increase from a base of $1,960 in March 2011.
    3. Subtract the amounts $126,543,408 and $27,453 from the target 
offsetting collection amount set by Congress of $1,321,000,000 leaving 
$1,194,429,139 to be collected on dollar volume for the period 11/1/11 
through 9/30/12.
    4. Use Table A to estimate dollar volume for the period 11/1/11 
through 9/30/12. The estimate is $79,082,630,235,466. Finally, compute 
the fee rate required to produce the additional $1,194,429,139 in 
revenue. This rate is $1,194,429,139 divided by $79,082,630,235,466 or 
0.0000151036.
    5. Round the result to the seventh decimal point, yielding a rate 
of .0000151 (or $15.10 per million).
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[FR Doc. 2011-10964 Filed 5-5-11; 8:45 am]
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