[Federal Register Volume 75, Number 86 (Wednesday, May 5, 2010)]
[Notices]
[Pages 24757-24769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10491]
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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