[Senate Report 107-3]
[From the U.S. Government Publishing Office]
107th Congress Report
1st Session SENATE 107-3
_______________________________________________________________________
Calendar No. 20
COMPETITIVE MARKET SUPERVISION
ACT OF 2001
__________
R E P O R T
of the
COMMITTEE ON BANKING, HOUSING,
AND URBAN AFFAIRS
UNITED STATES SENATE
to accompany
S. 143
March 14, 2001.--Ordered to be printed
__________
U.S. GOVERNMENT PRINTING OFFICE
89-010 WASHINGTON : 2001
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
PHIL GRAMM, Texas, Chairman
RICHARD C. SHELBY, Alabama PAUL S. SARBANES, Maryland
ROBERT F. BENNETT, Utah CHRISTOPHER J. DODD, Connecticut
WAYNE ALLARD, Colorado TIM JOHNSON, South Dakota
MICHAEL B. ENZI, Wyoming JACK REED, Rhode Island
CHUCK HAGEL, Nebraska CHARLES E. SCHUMER, New York
RICK SANTORUM, Pennsylvania EVAN BAYH, Indiana
JIM BUNNING, Kentucky ZELL MILLER, Georgia
MIKE CRAPO, Idaho THOMAS R. CARPER, Delaware
JOHN ENSIGN, Nevada DEBBIE STABENOW, Michigan
JON S. CORZINE, New Jersey
Wayne A. Abernathy, Staff Director
Steven B. Harris, Democratic Staff Director and Chief Counsel
Linda L. Lord, Chief Counsel
Geoffrey C. Gradler, Financial Economist
Dean V. Shahinian, Democratic Counsel
George E. Whittle, Editor
(ii)
C O N T E N T S
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Page
Introduction..................................................... 1
History of the Legislation....................................... 1
Background....................................................... 2
Purpose and Scope of the Legislation............................. 4
Section-by-Section Analysis of S. 143: ``Competitive Market
Supervision Act of 2001''...................................... 6
Section 1. Short Title....................................... 6
Section 2. Reduction in Registration Fees; Elimination of
General Revenue Component.................................. 6
Section 3. Reduction in Merger and Tender Fees;
Reclassification as Offsetting Collections................. 7
Section 4. Reduction in Transaction Fees; Elimination of
General Revenue Component.................................. 7
Section 5. Adjustment to Fee Rates........................... 7
Section 6. Comparability Provisions.......................... 7
Section 7. Effective Date.................................... 8
Regulatory Impact Statement...................................... 8
Congressional Budget Office Cost Estimate........................ 8
Changes in Existing Law.......................................... 14
(iii)
Calendar No. 20
107th Congress Report
SENATE
1st Session 107-3
======================================================================
COMPETITIVE MARKET SUPERVISION ACT OF 2001
_______
March 14, 2001.--Ordered to be printed
_______
Mr. Gramm, from the Committee on Banking, Housing, and Urban Affairs,
submitted the following
R E P O R T
[To accompany S. 143]
The Committee on Banking, Housing, and Urban Affairs, to
which was referred the bill (S. 143) to amend the Securities
Act of 1933 and the Securities Exchange Act of 1934 to reduce
securities fees in excess of those required to fund the
operations of the Securities and Exchange Commission, to adjust
compensation provisions for employees of the commission, and
for other purposes, having considered the same, reports
favorably thereon with an amendment in the nature of a
substitute and recommends that the bill as amended do pass.
INTRODUCTION
On March 1, 2001, the Senate Committee on Banking, Housing,
and Urban Affairs met in legislative session and marked up and
ordered to be reported S. 143, the Competitive Market
Supervision Act of 2001, a bill to amend the Securities Act of
1933 and the Securities Exchange Act of 1934 to reduce
securities fees in excess of those required to fund the
operations of the Securities and Exchange Commission, to adjust
compensation provisions for employees of the Commission, and
for other purposes, with a recommendation that the bill do
pass, with an amendment in the nature of a substitute. The
Committee reported the bill favorably by voice vote.
HISTORY OF LEGISLATION
The Competitive Market Supervision Act of 2001, S. 143, is
the culmination of more than three years worth of work by the
Committee in addressing the problem of excess securities user
fees collected by the Securities and Exchange Commission (SEC,
or Commission). During the first session of the 106th Congress,
on Wednesday, March 24, 1999, a hearing was held by the
Subcommittee on Securities on the need to reduce the excess of
user fees. Testimony was received from the Honorable Arthur
Levitt, Chairman, Securities and Exchange Commission; Marc
Lackritz, President, Securities Industry Association; Lee
Korins, President and Chief Executive Officer, Security Traders
Association; Arthur Kearney, Chairman, Security Traders
Association; and Robert W. Seijas, Executive Vice President of
Fleet Specialists and Co-President of the Specialists
Association.
The full committee conducted a legislative hearing in New
York on February 28, 2000, on S. 2107, the Competitive Market
Supervision Act of 2000. Testimony was received from SEC
Chairman Arthur Levitt; J. Patrick Campbell, Chief Operating
Officer and Executive Vice President, Nasdaq-Amex Market Group
Inc.; Keith Helsby, Senior Vice President and Chief Financial
Officer, New York Stock Exchange; Hardwick Simmons, President
and Chief Executive Officer, Prudential Securities Inc.;
Leopold Korins, President and Chief Executive Officer of the
Security Traders Association; and Robert Seijas, Executive Vice
president, Fleet Specialists, and Co-President, Specialists
Association.
On July 13, 2000, the Committee met in legislative session
to mark up the Competitive Market Supervision Act of 2000 (S.
2107). The Committee by voice vote reported the bill as amended
to the Senate for consideration.
Building on the momentum established during the last
Congress, the Competitive Market Supervision Act of 2001 (S.
143) was introduced on January 22, 2001. On February 14, 2001,
the Committee on Banking, Housing, and Urban Affairs conducted
a legislative hearing on S. 143, the Competitive Market
Supervision Act of 2001. Testimony was received from the
Honorable Laura Unger, Acting Chairman, Securities and Exchange
Commission; Mr. Robert Fagenson, Vice Chairman, Van Der Moolen
Specialists, on behalf of the Specialist Association; Marc
Lackritz, President, Securities Industry Association; Mr. James
E. Burton, Chief Executive Officer, California Public Employees
Retirement System (CalPERS); Mr. Leopold Korins, President and
Chief Executive Officer, Security Traders Association; Mr.
Robert Forney, Chief Executive Officer, Chicago Stock Exchange.
On March 1, 2001, the Committee met in legislative session
to mark up the Competitive Market Supervision Act of 2001 (S.
143). During mark up the Committee considered only one
amendment. Chairman Gramm and Senator Schumer offered an
amendment in the form of a substitute that provided for
technical changes to the legislation. The amendment was
accepted by voice vote, and the Committee, by voice vote,
reported the bill as amended to the Senate for consideration.
BACKGROUND
Origins of securities fees
Since its creation, the Commission has collected
securities-related fees. Section 6(b) of the Securities Act of
1933 imposed fees on the registration of securities at a rate
equal to one one-hundredths percent of the offering price. In
1965, registration fee rates were increased to one fiftieth
percent. These fees were deposited in the Treasury as general
revenue. Section 31 of the Securities Exchange Act of 1934
imposed fees on transactions of exchange-traded securities at a
rate equal to one five-hundredths percent of the aggregate
amount of sales. This fee rate was later increased to one
three-hundredths percent, and, like the registration fees, were
deposited in the Treasury as general revenue. The 1983
Securities Exchange Act Amendments (Public Law 98-38; June 6,
1983) imposed general revenue fees on mergers, proxy
solicitations, and other activities to the extent registration
fees were not already imposed, at a rate equal to one fiftieth
percent of the value of the securities involved. The Commodity
Futures Modernization Act of 2000 (Public Law 106-554; December
21, 2000) created Section 31(e) of the Securities Exchange Act
of 1934. This section applied an initial $0.02 per round turn
assessment on transactions involving narrow based and single
stock securities futures products, which subsequently drops to
$0.0075 per transaction after 2006.
Paragraph (1) of Section 6(b) states that registration fees
``are designed to recover the costs to the government of the
securities registration process,'' while subsection (a) of
Section 31 states that transaction fees ``are designed to
recover the costs to the government of the supervision and
regulation of securities market and securities professionals.''
However, since the fees were all deposited as general revenues,
resources to operate the Commission had to be provided in
annual appropriations acts. Beginning in fiscal year 1990, and
continuing though FY 1997, annual appropriations acts contained
language increasing registration fee rates to one twenty-ninth
percent, with the amount of fees in excess of the one fiftieth
percent rate credited as offsetting collections. By imposing
new fees and dedicating them to offsetting appropriations for
the Commission, the appropriations acts effectively reduced the
amount of direct appropriations for the Commission, the
appropriations acts effectively reduced the amount of direct
appropriations required to fund the Commission.
The National Securities Markets Improvement Act of 1996
To balance the goals of providing sufficient resources to
the Commission and minimizing taxation of investment, Congress
enacted the National Securities Markets Improvement Act of 1996
(NSMIA). This legislation began a gradual reduction in
registration fee rates from the equivalent of one twenty-ninth
percent in FY 1997 to one fiftieth percent in FY 2006, with a
further reduction to one one-hundred-fiftieth percent in FY
2007 and thereafter. In addition, NSMIA set up a reduction in
transaction fee rates, which remain at one three-hundredth
percent through FY 2006 and then drop to one eight-hundredth
percent in FY 2007 and thereafter.
Accompanying this reduction in fee rates was a reallocation
of fees credited as offsetting collections. Registration fees
credited as offsetting collections would slowly be phased out
(leaving only general revenue registration fees), while
transaction fees would for the first time be applied to last-
reported-sale securities traded primarily on the national
market systems, with these new transaction fees credited as
offsetting collections. Using projections of securities market
activities available at the time, total fee collections were
expected to fall from $711 million in FY 1997 to $351 million
in FY 2007. In the words of the Joint Explanatory Statement of
the NSMIA conference report, ``It is the intent of the Managers
that at the end of the applicable ten year period, the SEC
collect in fees a sum approximately equal to the cost of
running the agency.''
Since the time NSMIA was signed into law on October 11,
1996, there has been an unexpected surge in securities market
activity, with growth in share values and trading volumes far
outstripping the projections that guided NSMIA's authors.
Nasdaq transaction fees alone were expected to row at a 5
percent annual rate. Instead, these fees have grown more than
500 percent in just three years, and are now projected by some
to grow at an annual rate of 15 percent according to the Office
of Management and Budget, and at an annual rate of 25 percent
according to the Congressional Budget Office (CBO).
Registration fees on exchange-traded securities transactions
have also grown enormously and are now running at double the
levels projected at the time of NSMIA. Thus, while the goal of
NSMIA was to have fee collections approximately equal the cost
to the Government of securities regulation, in actuality the
Commission is projected tocollect nearly six hundred percent of
the SEC's budget in fees in FY 2001. Moreover, while projections at the
time of the enactment of NSMIA showed a significant share of total fees
being allocated to offsetting collections, the bulk of these offsetting
collections would be reclassified as general revenues if the Nasdaq
Stock Market ceases to be a national market system and becomes a
national stock exchange.
PURPOSE AND SCOPE OF LEGISLATION
Reduction of securities user fees
The original objective of the user fees collected by the
SEC was to provide a funding source for the Government's
securities regulation. However, increases in stock market
volume and valuation have generated revenues that far surpass
what is needed to operate the agency. For example, aggregate
fee revenue fee revenue in FY 2000 was $2.27 billion while the
SEC's budget totaled $368 million. The latest CBO projections
predict that this imbalance will worsen even further, with
total SEC fee revenues increasing to nearly $4.3 billion by FY
2006. The Committee believes that, rather than user fees, these
revenues have become taxes on savings and investment in order
to fund general government operations. In the Committee's view,
the excess collections of Section 31 fees are simply a tax that
lowers the returns of every investor who buys stock, owns a
mutual fund, or plans to use Individual Retirement Accounts,
401(k) plans, or pensions to retire. Furthermore, excess
Section 6(b) fees are particularly harmful since these taxes
are imposed at the beginning of the investment cycle,
subtracting from the economy monies that could be leveraged
into several times their value to finance companies' efforts to
spur growth, employment, and wealth creation.
Section 2 of the reported legislation amends Section 6(b)
of the Securities Act of 1933 to lower registration fee rates.
In addition, this section eliminates the general revenue
portion of the registration fee. The offsetting collection rate
is set at $67 per $1 million of securities registered for FY
2002-06, and at $33 per $1 million for FY 2007 and thereafter.
Section 3 reduces merger and tender fee rates in Section
13(e)(3) and Section 14(g) of the Securities Exchange Act of
1934 from one fiftieth percent under current law to $67 per $1
million of securities involved for the period FY 2002-06, and
reduces rates further to $33 per $1 million for FY 2007 and
thereafter, and all fees are also reclassified from general
revenues to offsetting collections. The Committee realize the
importance of harmonizing the fee registration, and merger and
tender fee rates so as to provide no distortions or inject any
unintended incentives into the managerial decision as to when a
merger should occur.
Under Section 4, all transactions included in Section 31 of
the Securities Exchange Act of 1934 are consolidated, with the
same fee rate applied to each as an offsetting collection.
Transaction fees in any particular fiscal year will be set in
appropriations acts at a rate estimated to collect the target
dollar amount set in Section 4 for that year. The target dollar
amount is calculated to approximate the amount of fees
collected from equities and options transactions, so that, when
combined with anticipated securities futures assessments, and
registration and merger/tender fees, total offsetting
collections will equal the offsetting collections projected to
be produced by NSMIA. If current projections prove accurate,
this will reduce transaction fee rates by about 40 percent.
Authority of SEC to adjust to fee rates
Given the difficulty in predicting fee revenues, the
Committee realizes the importance of providing a framework that
ensures full funding for the SEC. Therefore, Section 5 of this
legislation provides the SEC with the authority to adjust fee
rates to ensure that the agency is fully funded in the event
that reductions in market valuations or volume bring about
revenues below the legislative targets. In addition, Section 5
requires the agency to lower fee rates when fees are projected
to bring in revenues that are in excess of the cap on total fee
collections laid out in the bill. To provide a safeguard
against misuse of the authority granted in Section 5, the
legislation requires the agency to report to Congress before it
exercises any authority to adjust fees.
It is important to emphasize that this makes no transfer of
any legislative authority to the SEC. Congress sets out the
total amount in fees to be collected and the initial rates
designed to collect that total. The SEC is merely delegated the
duty to adjust fee rates in order to avoid collecting
significantly more or less than the totals set by Congress in
law.
The Commission has informed the Committee of the
desirability of an up-front appropriation which will provide
full funding of the agency's Fiscal Year activities and
operations. Without an up-front appropriation, the Commission
could face a cash flow problem since the exchanges and the
National Association of Securities Dealers (NASD) only pay
Section 31 fees twice a year, on March 15 and September 30. The
Commission is unable to spend the September 30 payment of
Section 31 fees until it is actually received, and is therefore
reliant on fees carried over from the prior fiscal year.
Accordingly, the Committee encourages the Appropriations
Committee to consider up-front appropriations to ensure that
the Commission will be able to operate without interruption
during the year.
SEC pay comparability
Section 6 amends the Securities Exchange Act of 1934 to
permit the Commission to adjust base rates of compensation for
all of its employees outside the Civil Service's General
Schedule (GS). Under existing law, the SEC may do so only for
its economists. The provisions allow parity among the SEC and
Federal banking agency compensation programs. An amendment also
is made to the Federal Deposit Insurance Act to bring the SEC
within the consultation and information-sharing requirements of
other agencies mentioned at 12 U.S.C. 1833b with respect to
rates of employee compensation. A further technical amendment
to section 1833b deletes references to entities that have been
abolished.
Although the Committee believes in the need to provide
parity of compensation to the SEC, the legislation does not
require the SEC to institute such changes.
This is not to be interpreted as an entitlement or any form
of mandatory spending requirement. The authority is permissive,
and any increased spending the agency might seek in connection
with this provision would have to be provided through the
authorization and appropriations process. In testimony last
year before the Congress, then SEC Chairman ArthurLevitt stated
that during the past two years, the Commission lost 25 percent of its
attorneys, accountants, and examiners.\1\ This year's testimony by
Acting Chairman Laura Unger noted that over the last two fiscal years
the Commission has lost 30 percent of its attorneys, accountants, and
examiners. Further, last year SEC records reflected an overall staff
attrition rate of 13 percent, ``nearly twice the government-wide
average . . .'' \2\ The most recent data shows that the attrition rate
for the agency edged up to just under 14 percent in FY 2000.
---------------------------------------------------------------------------
\1\ Testimony of Chairman Arthur Levitt, before the Committee on
Banking, Housing, and Urban Affairs, United States Senate, February 28,
2000, p. 5.
\2\ Id., p. 5.
---------------------------------------------------------------------------
The legislation assures that reductions, if any, in the
base pay of an SEC employee represented by a labor organization
with exclusive recognition in accordance with Chapter 71 of
Title 5 of the United States Code, result from negotiations
between such organization and SEC management, rather than by
reason of the enactment of this amendment.
SECTION-BY-SECTION ANALYSIS
Section 1. Short title
Designates this title as the ``Competitive Market
Supervision Act of 2001.''
Section 2. Reduction in registration fees; elimination of general
revenue component
Registration fee rates in Section 6(b) of the Securities
Act of 1933 (15 U.S.C. 77f(b)) are reduced. The general revenue
portion of the registration fee is eliminated. The offsetting
collection rate is set at $67 per $1 million of securities
registered for FY 2002-2006, and at $33 per $1 million for FY
2007 and thereafter.
Section 3. Reduction in merger and tender fees; reclassification as
offsetting collections
Section 3 reduces merger and tender fee rates in Section
13(e)(3) and Section 14(g) of the Securities Exchange Act of
1934 (15 U.S.C. 78m(e)(3) and 78n(g), respectively) from one
fiftieth percent under current law, to $67 per $1 million of
securities involved for the period FY 2002-2006, and reduces
rates further to $33 per $1 million for FY 2007 and thereafter.
All fees are reclassified from general revenues to offsetting
collections.
Section 4. Reduction in transaction fees; elimination of general
revenue component
Under this section, all transactions included in Section 31
of the Securities Exchange Act of 1934 are consolidated and
designated as offsetting collections. Transaction fees on
options and equity securities in any particular fiscal year
will be set at the same rate in appropriations acts so as to
collect the target dollar amount set for that year. The target
dollar amount is calculated to approximately the amount, when
combined with anticipated securities futures assessments, and
registration and merger/tender fee, that will approximately
equal the offsetting collections anticipated to be produced
under current law.
Section 5. Adjustment to fee rates
The Commission is given authority to increase or decrease
transaction fee rates after the first half of the fiscal year
if projections show that either the cap or floor for total fee
collections will be breached. To provide a safeguard against
misuse of the authority granted in Section 5, the legislation
requires the agency to report to Congress before it exercises
any authority to adjust fees.
Section 6. Comparability provisions
Section 6(a) amends Section 4(b) of the Securities Exchange
Act of 1934 (15 U.S.C. 78d(b)) to authorize, but not require,
the SEC to compensate its employees according to a scale
outside the Federal Government's General Schedule (GS) rates.
Pursuant to this authority, the SEC may provide additional
compensation and benefits to its employees on the same
comparable basis as do the agencies referred to under Section
1206(a) of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (12 U.S.C. 1833b). Such agencies
include the Federal banking agencies, the National Credit Union
Administration, the Federal Housing Finance Board, and the Farm
Credit Administration. The amendment ensures that reductions,
if any, in base pay for an employee of the SEC represented by a
labor organization with exclusive recognition in accordance
with Chapter 71 of Title 5 of the United States Code, result
from negotiations between such organization and SEC management,
rather than by reason of the enactment of this amendment.
In establishing and adjusting schedules of compensation and
benefits for its employees outside of GS rates, Section 6(b)
requires the SEC to inform the heads of the agencies mentioned
above and must seek to maintain comparability with such
agencies regarding compensation and benefits. There is nothing
in the bill that requires setting compensation outsides of GS
rates, and there is no entitlement or mandated spending
envisioned either explicitly or implicitly. A technical change
is made to strike from Section 1206(a) the reference to the
Thrift Depositor Protection Oversight Board of the Resolution
Trust Corporation, which was abolished on December 31, 1995.
Section 6(c) provides certain conforming amendments to Title 5
of the United States Code to reflect changes made under
subsection (a).
Section 7. Effective date
In general, the bill becomes effective October 1, 2001.
However, the authorities provided by Section 13(e)(3)(D),
Section 14(g)(1)(D), Section 14(g)(3)(D), and Section 31(d) of
the Securities Exchange Act of 1934, as so designated by this
title shall not apply until October 1, 2002.
Regulatory Impact Statement
In accordance with Paragraph 11(g), rule XXVI of the
Standing Rules of the Senate, the Committee makes the following
statement regarding the regulatory impact of the bill.
The bill dramatically lowers user fees on securities
transactions and registrations, as well as mergers and tender
offerings. The reduction of these fees lowers the cost of
savings and investment for consumers, and reduces fee burden on
businesses that raise capital in the securities markets.
According to the Congressional Budget Office's January 2001
baseline, beginning in FY 2002, the savings to investors and
issuers from this bill are expected to be $8.9 billion over
five years, and $14 billion over ten years.
Section 6 provides the SEC with authority to compensate its
employees according to a scale outside of the Federal
Government's General Schedule rates. This compensation parity
provision will result in no increase in regulatory burden.
Neither does it necessitate any increase in the SEC budget,
since the increase is not mandatory. That is to say, the SEC
would exercise this authority on a discretionary basis within
the context of funds made available to the Commission by
Congress through the normal authorization and appropriations
process.
Congressional Budget Office Cost Estimate
Senate rule XXVI, Section 11(b) of the Standing Rules of
the Senate, and Section 403 of the Congressional Budget
Impoundment and Control Act, require that each committee report
on a bill containing a statement estimating the cost of the
proposed legislation, which was prepared by the Congressional
Budget Office. The Congressional Budget Office Cost Estimate
and its Estimate of Costs of Private-Sector Mandates, both
dated March 14, 2001, are hereby included in this report.
The Committee notes that the Congressional Budget Office
finds, as the Committee intended, that ``the fee-related
provisions of S. 143 would have no significant effect on the
total fees that are recorded as offsetting collections''
available for appropriations purposes.
U.S. Congress,
Congressional Budget Office,
Washington, DC, March 14, 2001.
Hon. Phil Gramm,
Chairman, Committee on Banking, Housing, and Urban Affairs, U.S.
Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 143, the Competitive
Market Supervision Act of 2001.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Ken Johnson
(for federal costs), Susan Sieg Tompkins (for the state and
local impact), and Jean Talarico (for the private-sector
impact).
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
S. 143--Competitive Market Supervision Act of 2001
Summary: S. 143 would adjust the fees and assessments that
the Securities and Exchange Commission (SEC) is authorized to
collect for registrations, mergers, and transactions of
securities. Under current law, some of those fees and
assessments are recorded in the budget as governmental receipts
(revenues), and some are recorded as offsetting collections
that are credited against discretionary appropriations for the
SEC. The bill would reclassify all SEC fees and assessments as
offsetting collections, reduce the fee rates, and require that
total collections fall between a lower limit and an upper
limit. If implemented, S. 143 would reduce the total amount of
SEC fees from an estimated $2.5 billion in fiscal year 2001 to
about $1.1 billion in 2002. CBO estimates that enacting S. 143
would reduce governmental receipts by $1.5 billion in 2002 and
by $8.9 billion over the 2002-2006 period. Because S. 143 would
affect governmental receipts, pay-as-you-go procedures would
apply. Although the bill would change the rates of certain SEC
fees that are treated as offsetting collections, CBO estimates
that the net budgetary effect of these changes would not be
significant, relative to CBO's current baseline estimates.
The bill also would authorize the SEC to increase
employees' compensation and benefits to make them comparable to
agencies that regulate banking, such as the Federal Deposit
Insurance Corporation (FDIC) and the National Credit Union
Administration (NCUA). Implementing the bill's compensation-
related provisions would cost about $59 million in 2002 and
$347 million over the 2002-2006 period, assuming the
appropriation of the necessary amounts.
S. 143 contains no intergovernmental mandates as defined in
the Unfunded Mandates Reform Act (UMRA) and would impose no
costs on state, local, or tribal governments. S. 143 would
impose a private-sector mandate on the national securities
exchanges and the national securities association. CBO
estimates that the direct cost of the mandate would be below
the annual threshold established by UMRA for private-sector
mandates ($109 million in 2000, adjusted for inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 143 is shown in Table 1. The costs of
this legislation fall within budget function 370 (commerce and
housing credit).
TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF S. 143
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------
2001 2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
CBO baseline estimate of net SEC spending:
Estimated authorization level \1\............... -594 0 0 0 0 0
Estimated outlays............................... -620 -156 -54 -62 -86 -97
Proposed changes:
Estimated authorization level................... 0 65 69 71 73 75
Estimated outlays............................... 0 59 69 71 73 75
Net SEC spending under S. 143:
Estimated authorization level \1\............... -594 65 69 71 73 75
Estimated outlays............................... -620 -97 15 9 -13 -22
CHANGES IN REVENUES
Estimated revenues.................................. 0 -1,547 -1,601 -1,750 -1,919 -2,097
----------------------------------------------------------------------------------------------------------------
\1\ The 2001 level is the estimated net amount appropriated for that year: the gross SEC appropriation for 2001
was $423 million.
Basis of estimate
CBO estimates that implementing the compensation-related
provisions of S. 143 would increase the gross spending of the
SEC by $347 million over the 2002-2006 period, subject to
future appropriations acts. We estimate that enactment of the
bill would reduce revenues by $1.5 billion in 2002 and by $8.9
billion over the 2002-2006 period by eliminating those SEC fees
and assessments that are currently recorded in the budget as
revenues. Although the bill would restructure the SEC fees that
are recorded as offsetting collections, CBO estimates that the
net effect of the bill on these collections would be
insignificant, relative to CBO's current baseline estimates of
such offsetting collections.
Spending subject to appropriation
S. 143 would allow the SEC to adjust the compensation it
offers to its employees. Also, the bill would restructure the
fees the agency is authorized to charge as an offset to its
discretionary appropriations. CBO estimates that this
restructuring should not significantly change the amount of
such fees projected to be collected under our baseline
assumptions.
Changes in Gross Spending.--Currently, SEC employees fall
into two compensation categories: those subject to the pay
scales of the civil service system, and those whose salaries
have been adjusted to equal the amounts received by similar
employees in the securities industry. S. 143 would authorize
the SEC to raise the pay of both types of employees to a level
commensurate with the compensation offered by federal banking
regulatory agencies. Based on information from the SEC and
several of the banking-related agencies, CBO estimates that
implementing this provision of the bill would cost $59 million
in 2002 and $347 million over the 2002-2006 period, assuming
the appropriation of the necessary amounts.
Changes in Offsetting Collections.--S. 143 would
restructure all four types of SEC collections: registration
fees, merger and tender fees, assessments on the trading of
single stock futures, and transaction fees (see Table 2). The
bill also would establish an upper and lower limit on the total
amount of offsetting collections the SEC may collect in any
year. Based on historical information from the securities
industry on the number and type of securities registered and
traded, and the likelihood that offsetting collections would
exceed the upper limit that would be established by the bill,
CBO estimates that the fee-related provisions of S. 143 would
have no significant effect on the total fees that are recorded
as offsetting collections (relative to CBO's baseline).
Transaction fees.--Under current law, the SEC collects 1/
300th of a percent of the aggregate dollars traded through
national securities exchanges, national securities
associations, brokers, and dealers. The fee rate will decline
to 1/800th of a percent for 2007 and thereafter. Currently,
fees collected from national securities associations are
recorded as offsetting collections, while fees from other
sources are recorded as revenues.
Under the bill, all transactions fees would be classified
as offsetting collections. Furthermore, the bill would require
that the transaction fee rate be established at the beginning
of each fiscal year so that transaction fee collections in a
given fiscal year will equal a target amount. For a given year,
the target amount would be equal to a figure specified in the
bill, minus the estimated assessments on trades of single stock
futures that would be collected by the SEC in that year.
TABLE 2.--SEC FEES UNDER CBO'S BASELINE ESTIMATES AND S. 143
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------
2001 2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
SEC fees under CBO's January 2001 baseline:
Transactions fees............................... 1,370 1,627 1,887 2,284 2,712 3,189
Registration fees............................... 1,024 980 953 912 958 999
Merger fees..................................... 84 89 93 97 99 100
Assessments on single stock futures............. 0 1 1 2 2 2
-----------------------------------------------------------
Total......................................... 2,478 2,697 2,934 3,295 3,771 4,290
SEC fee collections under S. 143:
Transaction fees................................ 1,370 843 1,020 1,218 1,502 1,821
Registration fees............................... 1,024 275 280 292 313 335
Merger fees..................................... 84 30 31 32 33 33
Assessments on single stock futures............. 0 1 1 2 2 2
-----------------------------------------------------------
Total......................................... 2,478 1,149 1,332 1,544 1,850 2,191
Changes:
Transaction fees................................ 0 -784 -867 -1,066 -1,210 -1,368
Registration fees............................... 0 -705 -673 -620 -645 -664
Merger fees..................................... 0 -59 -62 -65 -66 -67
Assessments on single stock futures............. 0 0 0 0 0 0
-----------------------------------------------------------
Total changes................................. 0 -1,548 -1,602 -1,751 -1,921 -2,099
----------------------------------------------------------------------------------------------------------------
S. 143 also would require that the SEC adjust the
transaction fee rate during the year so that total SEC fee
collections (including fees for registrations, mergers, and
transactions, and assessments for trades of single stock
futures) would not fall below a specified minimum amount of
collections, nor exceed a specified maximum amount of
collections. The bill would set the minimum amount equal to the
SEC's 2002 appropriation, adjusted annually for changes in
inflation, or equal to the amount authorized to be appropriated
for the SEC in a given year, whichever is greater. S. 143 would
set the maximum amount of collections at a level that is 10
percent above the January 2001 CBO baseline estimate for total
SEC collections for fiscal years 2002 through 2011. For fiscal
years 2012 and thereafter, the bill would set the ceiling equal
to the amount authorized to be appropriated for the SEC.
Taking into account the provisions that would establish a
target level, as well as minimum and maximum levels of fees,
CBO estimates that implementing S. 143 would yield $843 million
in 2002 from such fees. By comparison, under our current
baseline assumptions, CBO estimates $989 million in offsetting
collections from transaction fees in 2002. (Under current law,
we also estimate revenues of $638 million in 2002 from
transaction fees.)
Registration fees.--Under current law, the SEC collects a
fee on the registration of securities. The current registration
fee is $200 per $1 million of the maximum aggregate price for
securities that are proposed to be offered during the 2002-2006
period. After 2006, the fee drops to $67 per $1 million of the
maximum aggregate price for securities that are proposed to be
offered. These fees are recorded as governmental receipts
(revenues). Current law also requires, subject to
appropriation, that the SEC charge an additional registration
fee of $39 per $1 million of the maximum aggregate price for
securities that are proposed to be offered in 2002. Under
current law, this added registration fee gradually declines
after 2002, until it ends at the end of 2005. These additional
fees are recorded as offsetting collections.
S. 143 would eliminate all registration fees that are
recorded as governmental receipts and would set fees that are
recorded as offsetting collections at $67 per $1 million of the
maximum aggregate price for securities that are proposed to be
offered during the 2002-2006 period. The bill also would change
the registration fees for 2007 and thereafter to $33 per $1
million of the maximum aggregate price for securities that are
proposed to be offered. CBO estimates that under the bill the
SEC would collect $275 million in registration fees in 2002,
subject to appropriation. By comparison, we estimate that under
the CBO baseline the SEC would collect a total of $980 million
in registration fees in 2002 ($820 million that would be
recorded as revenues and $160 million in offsetting
collections).
Merger and tender fees.--Under current law, the SEC charges
a merger fee equal to $200 per $1 million of the value of
securities proposed to be purchased as part of a merger. These
current fees are also currently recorded as revenues. S. 143
would eliminate the current merger fee and establish a new one
that would be recorded as an offsetting collection at the rate
of $67 per $1 million of the aggregate value of securities
proposed to be purchased during the 2002-2006 period. The bill
also would establish merger fees for 2007 and thereafter at the
rate of $33 per $1 million of the aggregate value of securities
proposed to be purchased as part of a merger. CBO estimates
that under S. 143 the SEC would collect about $30 million in
merger fees in 2002, subject to appropriation. By comparison,
under the CBO baseline, we estimate that merger fees would
total $89 million in 2002.
Assessments on transactions of single stock futures.--The
Commodity Futures Modernization Act of 2000 allowed individuals
to begin trading futures on individual stocks. The act also
established an assessment on these trades equal to 2 cents per
transaction through 2006 and 0.75 cents per transaction for
2007 and thereafter. These assessments are currently recorded
as governmental receipts (i.e., revenues). Under CBO's
baseline, we project that these assessments will total $1
million in 2002.
S. 143 would reclassify those assessments that are recorded
as receipts and would treat them as offsetting collections
subject to annual appropriation acts. The rates on these
assessments would remain the same as under current law. CBO
estimates that, under S. 143, the SEC would collect $1 million
in assessments on trading of single stock futures in 2002 and
$8 million over the 2002-2006 period.
Summary.--CBO's January 2001 baseline includes estimated
offsetting collections for the SEC totaling about $1.15 billion
in 2002, rising to $2.2 billion in 2006. We estimate the change
in the fee rates paid for registrations, mergers, and
transactions, and the reclassification of all SEC fees as
offsetting collections would have no significant net effect on
the offsetting collections received by the SEC (relative to our
baseline projections).
Revenues
S. 143 would eliminate or reclassify all fees and
assessments on registrations, mergers, and transactions that
are currently recorded as revenues. CBO estimates that S. 143
would reduce revenues by $8.9 billion over the 2002-2006
period, and by $14.0 billion over the 2002-2011 period.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The
changes in governmental receipts that are subject to pay-as-
you-go procedures are shown in Table 3. For the purposes of
enforcing pay-as-you-go procedures, only the effects in the
current year, the budget year, and the succeeding four years
are counted.
TABLE 3.--ESTIMATED IMPACT OF S. 143 ON DIRECT SPENDING AND RECEIPTS
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays........................... Not applicable
Changes in receipts.......................... 0 -1,547 -1,601 -1,750 -1,919 -2,097 -921 -933 -1,009 -1,087 -1,176
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated impact on State, local, and tribal governments:
S. 143 contains no intergovernmental mandates as defined in
UMRA and would impose no costs on state, local, or tribal
governments.
Estimated impact on the private sector: S. 143 would
require each national securities exchange and the national
securities association to file monthly with the SEC an estimate
of fees and assessments that they are required to pay. Based on
information from government and industry sources, CBO estimates
that the direct cost of the mandate would be below the annual
threshold established by UMRA for private-sector mandates ($109
million in 2000, adjusted for inflation).
Estimate prepared by: Federal costs: Ken Johnson and Erin
Whitaker, impact on State, local, and tribal governments: Susan
Sieg Tompkins, impact on the private sector: Jean Talarico.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis; Roberton C. Williams, Deputy
Assistant Director for Tax Analysis.
CHANGES IN EXISTING LAW
In the opinion of the Committee, it is necessary to
dispense with the requirement of Section 12 of rule XXVI of the
Standing Rules of the Senate in order to expedite the business
of the Senate.