2010-4530. Order Making Fiscal Year 2010 Mid-Year Adjustment to the Fee Rates Applicable Under Sections 31(b) and (c) of the Securities Exchange Act of 1934

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]

Sections 31(j)(1) and (3) require 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, and one final adjustment to fix the fee rates for fiscal year 2012 and beyond.^[4] Section 31(j)(2) requires the Commission, in certain circumstances, to make a mid-year adjustment to the fee rates in fiscal years 2002 through 2011.^[5] The annual and mid-year adjustments 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.^[6] For fiscal year 2010, the target offsetting collection amount is $1,161,000,000.^[7]

II. Determination of the Need for a Mid-Year Adjustment in Fiscal 2010

Under section 31(j)(2) of the Exchange Act, the Commission must make a mid-year adjustment to the fee rates under Sections 31(b) and (c) in fiscal year 2010 if it determines, based on the actual aggregate dollar volume of sales during the first five months of the fiscal year, that the baseline estimate $84,822,877,437,603 is reasonably likely to be 10% (or more) greater or less than the actual aggregate dollar volume of sales for fiscal year 2010.^[8] To make this determination, the Commission must estimate the actual aggregate dollar volume of sales for fiscal year 2010.

Based on data provided by the national securities exchanges and the national securities association that are subject to section 31,^[9] the actual aggregate dollar volume of sales during the first four months of fiscal year 2010 was $19,531,642,600,905.^[10] Using these data and a methodology for estimating the aggregate dollar amount of sales for the remainder of fiscal year 2010 (developed after consultation with the Congressional Budget Office and the OMB),^[11] the Commission estimates that the aggregate dollar amount of sales for the remainder of fiscal year 2010 to be $43,755,155,427,595. Thus, the Commission estimates that the actual aggregate dollar volume of sales for all of fiscal year 2010 will be $63,286,798,028,500.

Because the baseline estimate of $84,822,877,437,603 is more than 10% greater than the $63,286,798,028,500 estimated actual aggregate dollar volume of sales for fiscal year 2010, Section 31(j)(2) of the Exchange Act requires the Commission to issue an order adjusting the fee rates under Sections 31(b) and (c).

III. Calculation of the Uniform Adjusted Rate

Section 31(j)(2) specifies the method for determining the mid-year adjustment for fiscal 2010. Specifically, the Commission must adjust the rates under sections 31(b) and (c) to a “uniform adjusted rate that, when applied to the revised estimate of the aggregate dollar amount of sales for the remainder of fiscal year 2010, is reasonably likely to produce aggregate fee collections under section 31 (including fees collected during such 5-month period and assessments collected under section 31(d)) that are equal to $1,161,000,000.” ^[12] In other words, the uniform adjusted rate is determined by subtracting fees collected prior to the effective date of the new rate and assessments collected under section 31(d) during all of fiscal year 2010 from $1,161,000,000, which is the target offsetting collection amount for fiscal year 2010. That difference is then divided by the revised estimate of the aggregate dollar volume of sales for the remainder of the fiscal year following the effective date of the new rate.

The Commission estimates that it will collect $598,633,917 in fees for the period prior to the effective date of the mid-year adjustment and $18,611 in assessments on round turn transactions in security futures products during all of fiscal year 2010. Using the methodology referenced in Part II above, the Commission estimates that the aggregate dollar volume of sales for the remainder of fiscal year 2010 following the effective date of the new rate will be $33,260,374,276,849. This amount reflects more recent information on the dollar amount of sales of securities than was available at the time of the setting of the initial fee rate for fiscal year 2010, and indicates a significant reduction in sales. Based on these estimates, and employing the mid-year adjustment mechanism established by statute, the uniform adjusted rate must be adjusted to $16.90 per million of the aggregate dollar amount of sales of securities.^[13] The aggregate dollar amount of sales of securities subject to Section 31 fees is illustrated in Appendix A.

IV. Effective Date of the Uniform Adjusted Rate

Section 31(j)(4)(B) of the Exchange Act provides that a mid-year adjustment shall take effect on April 1 of the fiscal year in which such rate applies. Therefore, the exchanges and the national securities association that are subject to section 31 fees must pay fees under sections 31(b) and (c) at the uniform adjusted rate of $16.90 per million for sales of securities transacted on April 1, 2010, and thereafter until the annual adjustment for fiscal 2011 is effective.

V. Conclusion

Accordingly, pursuant to Section 31 of the Exchange Act,^[14]

It is hereby ordered that each of the fee rates under sections 31(b) and (c) of the Exchange Act shall be $16.90 per $1,000,000 of the aggregate dollar amount of sales of securities subject to these sections effective April 1, 2010.

By the Commission.

Elizabeth M. Murphy,

Secretary.

`

A. Baseline Estimate of the Aggregate Dollar Amount of Sales

First, calculate the average daily dollar amount of sales (ADS) for each month in the sample (January 2000-January 2010). The data obtained from the exchanges and FINRA are presented in Table A. The monthly aggregate dollar amount of sales from all exchanges and FINRA is contained in column C.

Next, calculate the change in the natural logarithm of ADS from month-to-month. The average monthly change in the logarithm of ADS over the entire sample is 0.004 and the standard deviation 0.125. Assume the monthly percentage change in ADS follows a random walk. The expected monthly percentage growth rate of ADS is 1.2 percent.

Now, use the expected monthly percentage growth rate to forecast total dollar volume. For example, one can use the ADS for January 2010 ($245,357,654,413) to forecast ADS for February 2010 ($248,264,845,054 = $245,357,654,413 × 1.012).^[15] Multiply by the number of trading days in February 2010 (19) to obtain a forecast of the total dollar volume for the month ($4,717,032,056,030). Repeat the method to generate forecasts for subsequent months.

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 Δ_t = log (ADS_t/ADS_t-1), where log (x) denotes the natural logarithm of x.

3. Calculate the mean and standard deviation of the series {Δ₁, Δ₂,* * *, Δ₁₂₀}. These are given by μ = 0.004 and σ = 0.125, respectively.

4. Assume that the natural logarithm of ADS follows a random walk, so that Δ_s and Δ_t are statistically independent for any two months s and t.

5. Under the assumption that Δ_t is normally distributed, the expected value of ADS_t/ADS_t-1 is given by exp (μ + σ²/2), or on average ADS_t = 1.012 × ADS_t-1.

6. For February 2010, this gives a forecast ADS of 1.012 × $245,357,654,413 = $248,264,845,054. Multiply this figure by the 19 trading days in February 2010 to obtain a total dollar volume forecast of $4,717,032,056,030.

7. For March 2010, multiply the February 2010 ADS forecast by 1.012 to obtain a forecast ADS of $251,206,482,379. Multiply this figure by the 23 trading days in March 2010 to obtain a total dollar volume forecast of $5,777,749,094,716.

8. Repeat this procedure for subsequent months.

B. Using the forecasts from A to calculate the new fee rate

1. Determine the aggregate dollar volume of sales between 10/1/09 and 1/14/10 to be $16,715,256,569,641. Multiply this amount by the fee rate of $25.70 per million dollars in sales during this period and get $429,582,094 in actual fees collected during 10/1/09 and 1/14/10. Determine the actual and projected aggregate dollar volume of sales between 1/15/10 and 3/31/10 to be $13,311,167,182,011. Multiply this amount by the fee rate of $12.70 per million dollars in sales during this period and get an estimate of $169,051,823 in actual and projected fees collected during 1/15/10 and 3/31/10.

2. Estimate the amount of assessments on security futures products collected during 10/1/09 and 9/30/10 to be $18,611 by summing the amounts collected through January 2010 of $5,684 with projections of a 1.2% monthly increase in subsequent months.

3. Determine the projected aggregate dollar volume of sales between 4/1/10 and 9/30/10 to be $33,260,374,276,849.

4. The rate necessary to collect the target $1,161,000,000 in fee revenues is then calculated as: ($1,161,000,000−$429,582,094 −$169,051,823−$18,611) ÷ $33,260,374,276,849 = 0.0000169080.

5. Round the result to the seventh decimal point, yielding a rate of 0.0000169000 (or $16.90 per million).

Table A—Estimation of Baseline of the Aggregate Dollar Amount of Sales

[Methodology developed in consultation with the Office of Management and Budget and the Congressional Budget Office]

Fee rate calculation
a. Baseline estimate of the aggregate dollar amount of sales, 10/1/09 to 1/14/10 ($Millions)	16,715,257
b. Baseline estimate of the aggregate dollar amount of sales, 1/15/00 to 3/31/10 ($Millions)	13,311,167
c. Baseline estimate of the aggregate dollar amount of sales, 4/1/00 to 9/30/10 ($Millions)	33,260,374
d. Estimated collections in assessmests on security futures products in FY 2010 ($Millions)	0.019
e. Implied fee rate (($1,161,000,000−0.0000257 × a−0.0000127 × b−d)/c)	$16.90
Data

Month	Number of trading days in month	Aggregate dollar amount of sales	Average daily dollar amount of sales (ADS)	Change in LN of ADS	Forecast ADS	Forecast aggregate dollar amount of sales
(A)	(B)	(C)	(D)	(E)	(F)	(G)
Jan-00	20	3,057,831,397,113	152,891,569,856	−
Feb-00	20	2,973,119,888,063	148,655,994,403	−0.028
Mar-00	23	4,135,152,366,234	179,789,233,315	0.190
Apr-00	19	3,174,694,525,687	167,099,185,562	−0.073
May-00	22	2,649,273,207,318	120,421,509,424	−0.328
Jun-00	22	2,883,513,997,781	131,068,818,081	0.085
Jul-00	20	2,804,753,395,361	140,237,669,768	0.068
Aug-00	23	2,720,788,395,832	118,295,147,645	−0.170
Sep-00	20	2,930,188,809,012	146,509,440,451	0.214
Oct-00	22	3,485,926,307,727	158,451,195,806	0.078
Nov-00	21	2,795,778,876,887	133,132,327,471	−0.174
Dec-00	20	2,809,917,349,851	140,495,867,493	0.054
Jan-01	21	3,143,501,125,244	149,690,529,774	0.063
Feb-01	19	2,372,420,523,286	124,864,238,068	−0.181
Mar-01	22	2,554,419,085,113	116,109,958,414	−0.073
Apr-01	20	2,324,349,507,745	116,217,475,387	0.001
May-01	22	2,353,179,388,303	106,962,699,468	−0.083
Jun-01	21	2,111,922,113,236	100,567,719,678	−0.062
Jul-01	21	2,004,384,034,554	95,446,858,788	−0.052
Aug-01	23	1,803,565,337,795	78,415,884,252	−0.197
Sep-01	15	1,573,484,946,383	104,898,996,426	0.291
Oct-01	23	2,147,238,873,044	93,358,211,871	−0.117
Nov-01	21	1,939,427,217,518	92,353,677,025	−0.011
Dec-01	20	1,921,098,738,113	96,054,936,906	0.039
Jan-02	21	2,149,243,312,432	102,344,919,640	0.063
Feb-02	19	1,928,830,595,585	101,517,399,768	−0.008
Mar-02	20	2,002,216,374,514	100,110,818,726	−0.014
Apr-02	22	2,062,101,866,506	93,731,903,023	−0.066
May-02	22	1,985,859,756,557	90,266,352,571	−0.038
Jun-02	20	1,882,185,380,609	94,109,269,030	0.042
Jul-02	22	2,349,564,490,189	106,798,385,918	0.126
Aug-02	22	1,793,429,904,079	81,519,541,095	−0.270
Sep-02	20	1,518,944,367,204	75,947,218,360	−0.071
Oct-02	23	2,127,874,947,972	92,516,302,086	0.197
Nov-02	20	1,780,816,458,122	89,040,822,906	−0.038
Dec-02	21	1,561,092,215,646	74,337,724,555	−0.180
Jan-03	21	1,723,698,830,414	82,080,896,686	0.099
Feb-03	19	1,411,722,405,357	74,301,179,229	−0.180
Mar-03	21	1,699,581,267,718	80,932,441,320	0.085
Apr-03	21	1,759,751,025,279	83,797,667,870	0.035
May-03	21	1,871,390,985,678	89,113,856,461	0.062
Jun-03	21	2,122,225,077,345	101,058,337,016	0.126
Jul-03	22	2,100,812,973,956	95,491,498,816	−0.057
Aug-03	21	1,766,527,686,224	84,120,366,011	−0.127
Sep-03	21	2,063,584,421,939	98,265,924,854	0.155
Oct-03	23	2,331,850,083,022	101,384,786,218	0.031
Nov-03	19	1,903,726,129,859	100,196,112,098	−0.012
Dec-03	22	2,066,530,151,383	93,933,188,699	−0.065
Jan-04	20	2,390,942,905,678	119,547,145,284	0.241
Feb-04	19	2,177,765,594,701	114,619,241,826	−0.042
Mar-04	23	2,613,809,754,550	113,643,858,893	−0.009
Apr-04	21	2,418,663,760,191	115,174,464,771	0.013
May-04	20	2,259,243,404,459	112,962,170,223	−0.019
Jun-04	21	2,112,826,072,876	100,610,765,375	−0.116
Jul-04	21	2,209,808,376,565	105,228,970,313	0.045
Aug-04	22	2,033,343,354,640	92,424,697,938	−0.130
Sep-04	21	1,993,803,487,749	94,943,023,226	0.027
Oct-04	21	2,414,599,088,108	114,980,908,958	0.191
Nov-04	21	2,577,513,374,160	122,738,732,103	0.065
Dec-04	22	2,673,532,981,863	121,524,226,448	−0.010
Jan-05	20	2,581,847,200,448	129,092,360,022	0.060
Feb-05	19	2,532,202,408,589	133,273,810,978	0.032
Mar-05	22	3,030,474,897,226	137,748,858,965	0.033
Apr-05	21	2,906,386,944,434	138,399,378,306	0.005
May-05	21	2,697,414,503,460	128,448,309,689	−0.075
Jun-05	22	2,825,962,273,624	128,452,830,619	0.000
Jul-05	20	2,604,021,263,875	130,201,063,194	0.014
Aug-05	23	2,846,115,585,965	123,744,155,912	−0.051
Sep-05	21	3,009,640,645,370	143,316,221,208	0.147
Oct-05	21	3,279,847,331,057	156,183,206,241	0.086
Nov-05	21	3,163,453,821,548	150,640,658,169	−0.036
Dec-05	21	3,090,212,715,561	147,152,986,455	−0.023
Jan-06	20	3,573,372,724,766	178,668,636,238	0.194
Feb-06	19	3,314,259,849,456	174,434,728,919	−0.024
Mar-06	23	3,807,974,821,564	165,564,122,677	−0.052
Apr-06	19	3,257,478,138,851	171,446,217,834	0.035
May-06	22	4,206,447,844,451	191,202,174,748	0.109
Jun-06	22	3,995,113,357,316	181,596,061,696	−0.052
Jul-06	20	3,339,658,009,357	166,982,900,468	−0.084
Aug-06	23	3,410,187,280,845	148,269,012,211	−0.119
Sep-06	20	3,407,409,863,673	170,370,493,184	0.139
Oct-06	22	3,980,070,216,912	180,912,282,587	0.060
Nov-06	21	3,933,474,986,969	187,308,332,713	0.035
Dec-06	20	3,715,146,848,695	185,757,342,435	−0.008
Jan-07	20	4,263,986,570,973	213,199,328,549	0.138
Feb-07	19	3,946,799,860,532	207,726,308,449	−0.026
Mar-07	22	5,245,051,744,090	238,411,442,913	0.138
Apr-07	20	4,274,665,072,437	213,733,253,622	−0.109
May-07	22	5,172,568,357,522	235,116,743,524	0.095
Jun-07	21	5,586,337,010,802	266,016,048,133	0.123
Jul-07	21	5,938,330,480,139	282,777,641,911	0.061
Aug-07	23	7,713,644,229,032	335,375,836,045	0.171
Sep-07	19	4,805,676,596,099	252,930,347,163	−0.282
Oct-07	23	6,499,651,716,225	282,593,552,879	0.111
Nov-07	21	7,176,290,763,989	341,728,131,619	0.190
Dec-07	20	5,512,903,594,564	275,645,179,728	−0.215
Jan-08	21	7,997,242,071,529	380,821,051,025	0.323
Feb-08	20	6,139,080,448,887	306,954,022,444	−0.216
Mar-08	20	6,767,852,332,381	338,392,616,619	0.098
Apr-08	22	6,150,017,772,735	279,546,262,397	−0.191
May-08	21	6,080,169,766,807	289,531,893,657	0.035
Jun-08	21	6,962,199,302,412	331,533,300,115	0.135
Jul-08	22	8,104,256,787,805	368,375,308,537	0.105
Aug-08	21	6,106,057,711,009	290,764,652,905	−0.237
Sep-08	21	8,156,991,919,103	388,428,186,624	0.290
Oct-08	23	8,644,538,213,244	375,849,487,532	−0.033
Nov-08	19	5,727,998,341,833	301,473,596,939	−0.221
Dec-08	22	5,176,041,317,640	235,274,605,347	−0.248
Jan-09	20	4,670,249,433,806	233,512,471,690	−0.008
Feb-09	19	4,771,470,184,048	251,130,009,687	0.073
Mar-09	22	5,885,594,284,780	267,527,012,945	0.063
Apr-09	21	5,123,665,205,517	243,984,057,406	−0.092
May-09	20	5,086,717,129,965	254,335,856,498	0.042
Jun-09	22	5,271,742,782,609	239,624,671,937	−0.060
Jul-09	22	4,659,599,245,583	211,799,965,708	−0.123
Aug-09	21	4,582,102,295,783	218,195,347,418	0.030
Sep-09	21	4,929,211,335,509	234,724,349,310	0.073
Oct-09	22	5,410,071,946,836	245,912,361,220	0.047
Nov-09	20	4,770,994,671,867	238,549,733,593	−0.030
Dec-09	22	4,688,780,548,360	213,126,388,562	−0.113
Jan-10	19	4,661,795,433,843	245,357,654,413	0.141
Feb-10	19				248,264,845,054	4,717,032,056,030
Mar-10	23				251,206,482,379	5,777,749,094,716
Apr-10	21				254,182,974,538	5,337,842,465,308
May-10	20				257,194,734,520	5,143,894,690,405
Jun-10	22				260,242,180,205	5,725,327,964,515
Jul-10	21				263,325,734,426	5,529,840,422,940
Aug-10	22				266,445,825,024	5,861,808,150,526
Sep-10	21				269,602,884,912	5,661,660,583,153

Footnotes

1.  15 U.S.C. 78ee.

2.  15 U.S.C. 78ee(b).

3.  15 U.S.C. 78ee(c).

4.  15 U.S.C. 78ee(j)(1) and (j)(3).

5.  15 U.S.C. 78ee(j)(2).

6.  15 U.S.C. 78ee(l)(1).

7.  See id.

8.  The amount $84,822,877,437,603 is the baseline estimate of the aggregate dollar amount of sales for fiscal year 2010 calculated by the Commission in its Order Making Fiscal 2010 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. 33-9030 (April 30, 2009), 74 FR 21018 (May 6, 2009).

9.  The Financial Industry Regulatory Authority, Inc. (“FINRA”) and each exchange are required to file a monthly report on Form R31 containing dollar volume data on sales of securities subject to Section 31. The report is due on the 10th business day following any month in which the exchange or association has covered sales.

10.  Although section 31(j)(2) indicates that the Commission should determine the actual aggregate dollar volume of sales for fiscal 2010 “based on the actual aggregate dollar volume of sales during the first 5 months of such fiscal year,” data are only available for the first four months of the fiscal year as of the date the Commission is required to issue this order, i.e., March 1, 2010. Dollar volume data on sales of securities subject to Section 31 for February 2010 will not be available from the exchanges and FINRA for several weeks.

11.  See Appendix A.

12.  15 U.S.C. 78ee(j)(2). The term “fees collected” is not defined in section 31. Because national securities exchanges and national securities associations are not required to pay the first installment of section 31 fees for fiscal 2010 until March 15, the Commission will not “collect” any fees in the first five months of fiscal 2010. See 15 U.S.C. 78ee(e). However, the Commission believes that, for purposes of calculating the mid-year adjustment, Congress, by stating in section 31(j)(2) that the “uniform adjusted rate * * * is reasonably likely to produce aggregate fee collections under section 31 * * * that are equal to [$1,161,000,000],” intended the Commission to include the fees that the Commission will collect based on transactions in the six months before the effective date of the mid-year adjustment.

13.  The calculation is as follows: ($1,161,000,000−$598,633,917−$18,611)/$33,260,374,276,849 = $0.0000169080. Round this result to the seventh decimal point, yielding a rate of $16.90 per million.

14.  15 U.S.C. 78ee.

15.  The value 1.012 has been rounded. All computations are done with the unrounded value.