[Federal Register: May 7, 2004 (Volume 69, Number 89)]
[Notices]
[Page 25632-25646]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07my04-105]
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SECURITIES AND EXCHANGE COMMISSION
[Release Nos. 33-8418; 34-49634/April 30, 2004]
Order Making Fiscal Year 2005 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 on transactions in specified
securities to the Commission.\4\
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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\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).
\5\ Pub. L. 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). Paragraph 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 2005 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
Paragraph 6(b)(5) of the Securities Act requires the Commission to
make an annual adjustment to the fee rate applicable under paragraph
6(b) of the Securities Act in each of the fiscal years 2003 through
2011.\7\ In those same fiscal years, paragraphs 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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Paragraph 6(b)(5) sets forth the method for determining the annual
adjustment to the fee rate under Section 6(b) for fiscal year 2005.
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 2005], is reasonably
likely to produce aggregate fee collections under [Section 6(b)] that
are equal to the target offsetting collection amount for [fiscal year
2005].'' That is, the adjusted rate is determined by dividing the
``target offsetting collection amount'' for fiscal year 2005 by the
``baseline estimate of the aggregate maximum offering prices'' for
fiscal year 2005.
Paragraph 6(b)(11)(A) specifies that the ``target offsetting
collection amount'' for fiscal year 2005 is $570,000,000.\8\ Paragraph
6(b)(11)(B) defines the ``baseline estimate of the aggregate maximum
offering price'' for fiscal year 2005 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 2005] as determined by the Commission, after
consultation with the Congressional Budget Office and the Office of
Management and Budget. * * *''
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\8\ Congress determined the target offsetting collection amounts
by applying reduced fee rates to the CBO's January 2001 projections
of the aggregate maximum offering prices for fiscal years 2002
through 2011. In any fiscal year through fiscal year 2011, the
annual adjustment mechanism will result in additional fee rate
reductions if the CBO's January 2001 projection of the aggregate
maximum offering prices for the fiscal year proves to be too low,
and fee rate increases if the CBO's January 2001 projection of the
aggregate maximum offering prices for the fiscal year proves to be
too high.
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To make the baseline estimate of the aggregate maximum offering
price for fiscal year 2005, 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 2004
annual adjustment. Using this methodology, the Commission determines
the ``baseline estimate of the aggregate maximum offering price'' for
fiscal year 2005 to be $4,842,692,718,337.\9\ Based on this estimate,
the Commission calculates the annual adjustment for fiscal 2005 to be
$117.70 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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\9\ Appendix A explains how we determined the ``baseline
estimate of the aggregate maximum offering price'' for fiscal year
2005 using our methodology, and then shows the purely arithmetical
process of calculating the fiscal year 2005 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 2005.
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III. Fiscal Year 2005 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 paragraph 31(j)(2), which currently is $23.40 per
million of the aggregate dollar amount of sales of specified securities
transacted on the exchange.\10\ Similarly, Section 31(c) requires each
national securities association to pay the Commission a fee at the same
adjusted rate on the
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aggregate dollar amount of sales of specified securities transacted by
or through any member of the association otherwise than on an exchange.
Paragraph 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.\11\
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\10\ Order Making Fiscal 2004 Mid-Year Adjustment to the Fee
Rates Applicable Under Sections 31(b) and (c) of the Securities
Exchange Act of 1934, Rel. No. 34-49332 (February 27, 2004), 69 FR
10278 (March 4, 2004).
\11\ The annual adjustments, as well as the mid-year adjustments
required in specified circumstances under paragraph 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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Paragraph 31(j)(1) specifies the method for determining the annual
adjustment for fiscal year 2005. 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 2005], 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 2005].''
Paragraph 31(l)(1) specifies that the ``target offsetting
collection amount'' for fiscal year 2005 is $1,220,000,000.\12\
Paragraph 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 2005] as determined by the
Commission, after consultation with the Congressional Budget Office and
the Office of Management and Budget. * * *''
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\12\ Congress determined the target offsetting collection
amounts by applying reduced fee rates to the CBO's January 2001
projections of dollar volume for fiscal years 2002 through 2011. In
any fiscal year through fiscal year 2011, the annual and, in
specified circumstances, mid-year adjustment mechanisms will result
in additional fee rate reductions if the CBO's January 2001
projection of dollar volume for the fiscal year proves to be too
low, and fee rate increases if the CBO's January 2001 projection of
dollar volume for the fiscal year proves to be too high.
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To make the baseline estimate of the aggregate dollar amount of
sales for fiscal year 2005, 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.\13\ Using
this methodology, the Commission calculates the baseline estimate of
the aggregate dollar amount of sales for fiscal year 2005 to be
$37,902,443,515,254. Based on this estimate, and an estimated
collection of $61,356 in assessments on securities futures transactions
under section 31(d) in fiscal year 2005, the uniform adjusted rate is
$32.90 per million.\14\
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\13\ Appendix B explains how we determined the ``baseline
estimate of the aggregate dollar amount of sales'' for fiscal year
2005 using our methodology, and then shows the purely arithmetical
process of calculating the fiscal year 2005 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 2005.
\14\ The calculation of the adjusted fee rate assumes that the
current fee rate of $23.40 per million will apply through October
31st due to the operation of the effective date provision contained
in subparagraph 31(j)(4)(A) of the Exchange Act.
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IV. Effective Dates of the Annual Adjustments
Subparagraph 6(b)(8)(A) of the Securities Act provides that the
fiscal year 2005 annual adjustment to the fee rate applicable under
section 6(b) of the Securities Act shall take effect on the later of
October 1, 2004, or five days after the date on which a regular
appropriation to the Commission for fiscal year 2005 is enacted.\15\
Subparagraphs 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.\16\
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\15\ 15 U.S.C. 77f(b)(8)(A).
\16\ 15 U.S.C. 78m(e)(8)(A) and 78n(g)(8)(A).
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Subparagraph 31(j)(4)(A) of the Exchange Act provides that the
fiscal year 2005 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, 2004, or thirty days after the date on which a
regular appropriation to the Commission for fiscal year 2005 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,\17\
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\17\ 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 Securities Act and sections 13(e) and 14(g) of the Exchange
Act shall be $117.70 per million effective on the later of October 1,
2004, or five days after the date on which a regular appropriation to
the Commission for fiscal year 2005 is enacted; and
It is further ordered that the fee rates applicable under sections
31(b) and (c) of the Exchange Act shall be $32.90 per million effective
on the later of October 1, 2004, or thirty days after the date on which
a regular appropriation to the Commission for fiscal year 2005 is
enacted.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
Appendix A
With the passage of the Investor and Capital Markets Relief Act,
Congress has 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 SEC 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 2005, 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 2004, 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 2005
First, calculate the aggregate maximum offering prices (AMOP)
for each month in the sample (March 1994-March 2004). 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 1994 to March 2004. There are 4 months in the
sample for which the data are omitted because of the impact of
extraordinary events (e.g., the 1995 government shutdown).
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).
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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- [beta]t-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]=0.01112 and [beta] = 0.76742.
6. For the month of April 2004, forecast
[Delta]t = 4/04 = [alpha] + [eszett]e = 3/04.
For all subsequent months, forecast [Delta]t =[alpha].
7. Calculate forecasts of log(AAMOP). For example, the forecast
of log(AAMOP) for June 2004 is given by FLAAMOP t = 6/04
= log(AAMOP t = 3/04) + [Delta]t = 4/04 +
[Delta]t = 5/04 + [Delta]t = 6/04.
8. Under the assumption that et is normally
distributed, the n-step ahead forecast of AAMOP is given by
exp(FLAAMOPt + [sigma]n2/2), where
[sigma]n denotes the standard error of the n-step ahead
forecast.
9. For June 2004, this gives a forecast AAMOP of $16.8 Billion
(Column I), and a forecast AMOP of $368.9 Billion (Column J).
10. Iterate this process through September 2005 to obtain a
baseline estimate of the aggregate maximum offering prices for
fiscal year 2005 of $4,842,692,718,337.
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 10/1/04 and 9/30/05 to be
$4,842,692,718,337.
2. The rate necessary to collect the target $570,000,000 in fee
revenues set by Congress is then calculated as: $570,000,000 /
$4,842,692,718,337 = 0.00011770 (or $117.70 per million.).
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Appendix B
With the passage of the Investor and Capital Markets Relief Act,
Congress has 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.\1\ 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 the Nasdaq 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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\1\ Congress requires that the Commission make a mid-year
adjustment to the fee rate if 4 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 2005, 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 2004, 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 2005
First, calculate the average daily dollar amount of sales (ADS)
for each month in the sample (March 1994-March 2004). The data
obtained from the exchanges and the NASD are presented in Table B.
The monthly aggregate dollar amount of sales (exchange plus Nasdaq)
is contained in column E.
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 0.014 and the standard deviation 0.118.
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 2.2 percent.
Now, use the expected monthly percentage growth rate to forecast
total dollar volume. For example, one can use the ADS for March 2004
($114,370,494,465) to forecast ADS for April 2004 ($116,834,236,575
= $114,370,494,465 x 1.022) \2\. Multiply by the number of trading
days in April 2004 (21) to obtain a forecast of the total dollar
volume for the month ($2,453,518,968,084). Repeat the method to
generate forecasts for subsequent months.
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\2\ The value 1.022 has been rounded. All computations are done
with the unrounded value.
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The forecasts for total dollar volume are in column I of Table
A. The following is a more formal (mathematical) description of the
procedure:
1. Divide each month's total dollar volume (column E) by the
number of trading days in that month (column B) to obtain the
average daily dollar volume (ADS, column F).
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 [sigma] = 0.014 and
[sigma] = 0.118, 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] + 22), or on
average ADSt = 1.022 x ADSt-1.
6. For April 2004, this gives a forecast ADS of 1.022 x
$114,370,494,465 = $116,834,236,575. Multiply this figure by the 21
trading days in April 2004 to obtain a total dollar volume forecast
of $2,453,518,968,084.
7. For May 2004, multiply the April 2004 ADS forecast by 1.022
to obtain a forecast ADS of $119,351,052,035. Multiply this figure
by the 20 trading days in May 2004 to obtain a total dollar volume
forecast of $2,387,021,040,703.
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 10/1/04
through 10/31/04. The projected aggregate dollar amount of sales for
this period is $2,788,214,479,378. Projected fee collections at the
current fee rate of 0.0000234 are $65,244,219.
2. Estimate the amount of assessments on securities futures
products collected during 10/1/04 and 9/30/05 to be $61,356 by
projecting a 2.2% monthly increase from a base of $3,884 in March
2004.
3. Subtract the amounts $65,244,219 and $61,356 from the target
offsetting collection amount set by Congress of $1,220,000,000
leaving $1,154,694,425 to be collected on dollar volume for the
period 11/1/04 through 9/30/05.
4. Use Table B to estimate dollar volume for the period 11/1/04
through 9/30/05. The estimate is $35,114,229,035,876. Finally,
compute the fee rate required to produce the additional
$1,154,694,425 in revenue. This rate is $1,154,694,425 divided by
$35,114,229,035,876 or .0000328839.
5. Consistent with the system requirements of the exchanges and
the NASD, round the result to the seventh decimal point, yielding a
rate of .0000329 (or $32.90 per million).
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[FR Doc. 04-10399 Filed 5-6-04; 8:45 am]
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