2014-03575. Order Making Fiscal Year 2014 Annual Adjustments to Transaction Fee Rates

I. Background

Section 31 of the Securities Exchange Act of 1934 (“Exchange Act”) requires each national securities exchange and national securities association to pay transaction fees to the Commission.^[1] Specifically, Section 31(b) requires each national securities exchange to pay to the Commission fees based on the aggregate dollar amount of sales of certain securities (“covered sales”) 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 covered sales transacted by or through any member of the association other than on an exchange.^[3]

Section 31 of the Exchange Act requires the Commission to annually adjust the fee rates applicable under Sections 31(b) and (c) to a uniform adjusted rate.^[4] Specifically, the Commission must adjust the fee rates to a uniform adjusted rate that is reasonably likely to produce aggregate fee collections (including assessments on security futures transactions) equal to the regular appropriation to the Commission for the applicable fiscal year.^[5]

The Commission is required to publish notice of the new fee rates under Section 31 not later than 30 days after the date on which an Act making a regular appropriation for the applicable fiscal year is enacted.^[6] On January 17, 2014, the President signed the Consolidated Appropriations Act of 2014, providing $1,350,000,000 in funds to the SEC for fiscal year 2014.

II. Fiscal Year 2014 Annual Adjustment to the Fee Rate

The new fee rate is determined by (1) subtracting the sum of fees estimated to be collected prior to the effective date of the new fee rate ^[7] and estimated assessments on security futures transactions to be collected under Section 31(d) of the Exchange Act for all of fiscal year 2014 ^[8] from an amount equal to the regular appropriation to the Commission for fiscal year 2014, and (2) dividing the difference by the estimated aggregate dollar amount of sales for the remainder of the fiscal year following the effective date of the new fee rate.

The regular appropriation to the Commission for fiscal year 2014 is $1,350,000,000. The Commission estimates that it will collect $513,805,098 in fees for the period prior to the effective date of the new fee rate and $58,854 in assessments on round turn transactions in security futures products during all of fiscal year 2014.^[9] Using a methodology for estimating the aggregate dollar amount of sales for the remainder of fiscal year 2014 (developed after consultation with the CBO and OMB), the Commission estimates that the aggregate dollar amount of covered sales for the remainder of fiscal year 2014 to be $37,881,618,779,245.

As described above, the uniform adjusted rate is computed by dividing the residual fees to be collected of $836,136,049 by the estimate of the aggregate dollar amount of covered sales for the remainder of fiscal year 2014 of $37,881,618,779,245. This results in a uniform adjusted rate for fiscal year 2014 of $22.10 per million.^[10]

III. Effective Date of the Uniform Adjusted Rate

Under Section 31(j)(4)(A) of the Exchange Act, the fiscal year 2014 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, 2013, or 60 days after the date on which a regular appropriation to the Commission for fiscal year 2014 is enacted.^[11] The regular appropriation to the Commission for fiscal year 2014 was enacted on January 17, 2014, and accordingly, the new fee rates applicable under Sections 31(b) and (c) of the Exchange Act will take effect on March 18, 2014.

IV. Conclusion

Accordingly, pursuant to Section 31 of the Exchange Act,

It is hereby ordered that the fee rates applicable under Sections 31(b) and (c) of the Exchange Act shall be $22.10 per $1,000,000 effective on March 18, 2014.

By the Commission.

Kevin M. O'Neill,

Deputy Secretary.

Appendix A

This appendix provides the formula for determining the annual adjustment to the fee rates applicable under Sections 31(b) and (c) of the Exchange Act for fiscal year 2014. Section 31 of the Exchange Act requires the fee rates to be adjusted so that it is reasonably likely that the Commission will collect aggregate fees equal to its regular appropriation for fiscal year 2014.

To make the adjustment, the Commission must project the aggregate dollar amount of covered sales of securities on the securities exchanges and certain over-the-counter markets over the course of the year. The fee rate equals the ratio of the Commission's regular appropriation for fiscal year 2014 (less the sum of fees to be collected during fiscal year 2014 prior to the effective date of the new fee rate and aggregate assessments on security futures transactions during all of fiscal year 2014) to the estimated aggregate dollar amount of covered sales for the remainder of the fiscal year following the effective date of the new fee rate.

For 2014, the Commission has estimated the aggregate dollar amount of covered sales by projecting forward the trend established in the previous decade. More specifically, the dollar amount of covered sales was forecasted for months subsequent to December 2013, the last month for which the Commission has data on the dollar volume of covered sales.^[12]

The following sections describe this process in detail.

A. Baseline Estimate of the Aggregate Dollar Amount of Covered Sales for Fiscal Year 2014

First, calculate the average daily dollar amount of covered sales (ADS) for each month in the sample (December 2003-December 2013). The monthly total dollar amount of covered sales (exchange plus certain over-the-counter markets) is presented in column C of Table A.

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 0.0082 and the standard deviation is 0.122. 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 1.57%.

Now, use the expected monthly percentage growth rate to forecast total dollar volume. For example, one can use the ADS for December 2013 ($250,727,781,285) to forecast ADS for January 2014 ($254,668,736,673 = $250,727,781,285 × 1.0157).^[13] Multiply by the number of trading days in January 2014 (21) to obtain a forecast of the total dollar volume for the month ($5,348,043,470,127). Repeat the method to generate forecasts for subsequent months.

The forecasts for total dollar volume of covered sales 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 = 0.0082 and σ = 0.122, 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 = 1.0157 × ADS_t-1.

6. For January 2014, this gives a forecast ADS of 1.0157 × $250,727,781,285 = $254,668,736,673. Multiply this figure by the 21 trading days in January 2014 to obtain a total dollar volume forecast of $5,348,043,470,127.

7. For February 2014, multiply the January 2014 ADS forecast by 1.0157 to obtain a forecast ADS of $258,671,636,250. Multiply this figure by the 19 trading days in February 2014 to obtain a total dollar volume forecast of $4,914,761,088,752.

8. Repeat this procedure for subsequent months.

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

1. Use Table A to estimate fees collected for the period 10/1/13 through 3/17/14. The projected aggregate dollar amount of covered sales for this period is $29,529,028,597,158. Actual and projected fee collections at the current fee rate of 0.0000174 are $513,805,098.

2. Estimate the amount of assessments on security futures products collected from 10/1/13 through 9/30/14 to be $58,854 by projecting a 1.57% monthly increase from a base of $4,940 in December 2013.

3. Subtract the amounts $513,805,098 and $58,854 from the target offsetting collection amount set by Congress of $1,350,000,000 leaving $836,136,049 to be collected on dollar volume for the period 3/18/14 through 9/30/14.

4. Use Table A to estimate dollar volume for the period 3/18/14 through 9/30/14. The estimate is $37,881,618,779,245. Finally, compute the fee rate required to produce the additional $836,136,049 in revenue. This rate is $836,136,049 divided by $37,881,618,779,245 or 0.00002207234.

5. Round the result to the seventh decimal point, yielding a rate of .0000221 (or $22.10 per million).

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

Fee rate calculation
a. Baseline estimate of the aggregate dollar amount of sales, 10/01/2013 to 02/28/2014 ($Millions)	26,638,917
b. Baseline estimate of the aggregate dollar amount of sales, 03/01/2014 to 03/17/2014 ($Millions)	2,890,112
c. Baseline estimate of the aggregate dollar amount of sales, 03/18/2014 to 03/31/2014 ($Millions)	2,627,375
d. Baseline estimate of the aggregate dollar amount of sales, 04/01/2014 to 09/30/2014 ($Millions)	35,254,244
e. Estimated collections in assessments on security futures products in fiscal year 2014 ($Millions)	0.059
f. Implied fee rate (($1,350,000,000−$17.40*(a+b) − e) / (c+d)	$22.10

Month	Number of trading days in month	Total dollar amount of sales	Average daily dollar amount of sales (ADS)	Change in natural logarithm of ADS	Forecast ADS	Forecast total dollar amount of sales
Data
(A)	(B)	(C)	(D)	(E)	(F)	(G)
Dec-03	22	2,066,530,151,383	93,933,188,699
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	2,613,808,754,550	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	4,929,155,364,888	234,721,684,042	0.073
Oct-09	22	5,410,025,301,030	245,910,240,956	0.047
Nov-09	20	4,770,928,103,032	238,546,405,152	−0.030
Dec-09	22	4,688,555,303,171	213,116,150,144	−0.113
Jan-10	19	4,661,793,708,648	245,357,563,613	0.141
Feb-10	19	4,969,848,578,023	261,570,977,791	0.064
Mar-10	23	5,563,529,823,621	241,892,601,027	−0.078
Apr-10	21	5,546,445,874,917	264,116,470,234	0.088
May-10	20	7,260,430,376,294	363,021,518,815	0.318
Jun-10	22	6,124,776,349,285	278,398,924,967	−0.265
Jul-10	21	5,058,242,097,334	240,868,671,302	−0.145
Aug-10	22	4,765,828,263,463	216,628,557,430	−0.106
Sep-10	21	4,640,722,344,586	220,986,778,314	0.020
Oct-10	21	5,138,411,712,272	244,686,272,013	0.102
Nov-10	21	5,279,700,881,901	251,414,327,710	0.027
Dec-10	22	4,998,574,681,208	227,207,940,055	−0.101
Jan-11	20	5,043,391,121,345	252,169,556,067	0.104
Feb-11	19	5,114,631,590,581	269,191,136,346	0.065
Mar-11	23	6,499,355,385,307	282,580,668,926	0.049
Apr-11	20	4,975,954,868,765	248,797,743,438	−0.127
May-11	21	5,717,905,621,053	272,281,220,050	0.090
Jun-11	22	5,820,079,494,414	264,549,067,928	−0.029
Jul-11	20	5,189,681,899,635	259,484,094,982	−0.019
Aug-11	23	8,720,566,877,109	379,155,081,613	0.379
Sep-11	21	6,343,578,147,811	302,075,149,896	−0.227
Oct-11	21	6,163,272,963,688	293,489,188,747	−0.029
Nov-11	21	5,493,906,473,584	261,614,593,980	−0.115
Dec-11	21	5,017,867,255,600	238,946,059,790	−0.091
Jan-12	20	4,726,522,206,487	236,326,110,324	−0.011
Feb-12	20	5,011,862,514,132	250,593,125,707	0.059
Mar-12	22	5,638,847,967,025	256,311,271,228	0.023
Apr-12	20	5,084,239,396,560	254,211,969,828	−0.008
May-12	22	5,611,638,053,374	255,074,456,972	0.003
Jun-12	21	5,121,896,896,362	243,899,852,208	−0.045
Jul-12	21	4,567,519,314,374	217,500,919,732	−0.115
Aug-12	23	4,621,597,884,730	200,939,038,467	−0.079
Sep-12	19	4,598,499,962,682	242,026,313,825	0.186
Oct-12	21	5,095,175,588,310	242,627,408,967	0.002
Nov-12	21	4,547,882,974,292	216,565,855,919	−0.114
Dec-12	20	4,744,922,754,360	237,246,137,718	0.091
Jan-13	21	5,079,603,817,496	241,885,896,071	0.019
Feb-13	19	4,800,663,527,089	252,666,501,426	0.044
Mar-13	20	4,917,701,839,870	245,885,091,993	−0.027
Apr-13	22	5,451,358,637,079	247,789,028,958	0.008
May-13	22	5,681,788,831,869	258,263,128,721	0.041
Jun-13	20	5,623,545,462,226	281,177,273,111	0.085
Jul-13	22	5,083,861,509,754	231,084,614,080	−0.196
Aug-13	22	4,925,611,193,095	223,891,417,868	−0.032
Sep-13	20	4,959,197,626,713	247,959,881,336	0.102
Oct-13	23	5,928,804,028,970	257,774,088,216	0.039
Nov-13	20	5,182,024,612,049	259,101,230,602	0.005
Dec-13	21	5,265,283,406,995	250,727,781,285	−0.033
Jan-14	21				254,668,736,673	5,348,043,470,127
Feb-14	19				258,671,636,250	4,914,761,088,752
Mar-14	21				262,737,453,660	5,517,486,526,869
Apr-14	21				266,867,177,850	5,604,210,734,855
May-14	21				271,061,813,310	5,692,298,079,518
Jun-14	21				275,322,380,320	5,781,769,986,729
Jul-14	22				279,649,915,197	6,152,298,134,326
Aug-14	21				284,045,470,544	5,964,954,881,430
Sep-14	21				288,510,115,513	6,058,712,425,783

Footnotes

1.  15 U.S.C. 78ee.

2.  15 U.S.C. 78ee(b).

3.  15 U.S.C. 78ee(c).

4.  In some circumstances, the SEC also must make a mid-year adjustment to the fee rates applicable under Sections 31(b) and (c).

5.  15 U.S.C. 78ee(j)(1) (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 such fiscal year, is reasonably likely to produce aggregate fee collections under [Section 31] (including assessments collected under [Section 31(d)]) that are equal to the regular appropriation to the Commission by Congress for such fiscal year.”).

6.  15 U.S.C. § 78ee(g).

7.  The sum of fees to be collected prior to the effective date of the new fee rate is determined by applying the current fee rate to the dollar amount of covered sales prior to the effective date of the new fee rate. The exchanges and FINRA have provided data on the dollar amount of covered sales through December 31, 2013. To calculate the dollar amount of covered sales from that date to the effective date of the new fee rate, the Division is using the same methodology it developed in consultation with the Congressional Budget Office (“CBO”) and the Office of Management and Budget (“OMB”) to estimate the dollar amount of covered sales in prior fiscal years. An explanation of the methodology appears in Appendix A.

8.  The Division is using the same methodology it has used previously to estimate assessments on security futures transactions to be collected in fiscal year 2014. An explanation of the methodology appears in Appendix A.

9.  The estimate of fees to be collected prior to the effective date of the new fee rate is determined by applying the current fee rate to the dollar amount of covered sales prior to the effective date of the new fee rate.

10.  Appendix A shows the purely arithmetic process of calculating the fiscal year 2014 annual adjustment. The appendix also includes the data used by the Commission in making this adjustment.

11.  15 U.S.C. 78ee(j)(4)(A).

12.  To determine the availability of data, the Commission compares the date of the appropriation with the date the transaction data are due from the exchanges (10 business days after the end of the month). If the business day following the date of the appropriation is equal to or subsequent to the date the data are due from the exchanges, the Commission uses these data. The appropriation was signed on January 17, 2014. The first business day after this date was January 21, 2014. Data for December were due from the exchanges on January 15. So the Commission used December 2013 and earlier data to forecast volume for January 2014 and later months.

13.  The value 1.0157 has been rounded. All computations are done with the unrounded value.