2019-18618. Order Making Fiscal Year 2020 Annual Adjustments to Registration Fee Rates

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 specified proxy solicitations and statements in corporate control transactions.^[3] These provisions require the Commission to make annual adjustments to the applicable fee rates.

II. Fiscal Year 2020 Annual Adjustment to Fee Rates

Section 6(b)(2) of the Securities Act requires the Commission to make an annual adjustment to the fee rate applicable under Section 6(b).^[4] 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.^[5]

Section 6(b)(2) sets forth the method for determining the annual adjustment to the fee rate under Section 6(b) for fiscal year 2020. 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 2020], is reasonably likely to produce aggregate fee collections under [Section 6(b)] that are equal to the target fee collection amount for [fiscal year 2020].” That is, the adjusted rate is determined by dividing the “target fee collection amount” for fiscal year 2020 by the “baseline estimate of the aggregate maximum offering prices” for fiscal year 2020.

Section 6(b)(6)(A) specifies that the “target fee collection amount” for fiscal year 2020 is $705,000,000. Section 6(b)(6)(B) defines the “baseline estimate of the aggregate maximum offering prices” for fiscal year 2020 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 2020] 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 2020, the Commission is using a methodology that has been used in prior fiscal years and that was developed in consultation with the Congressional Budget Office and Office of Management and Budget.^[6] Using this methodology, the Commission determines the “baseline estimate of the aggregate maximum offering price” for fiscal year 2020 to be $5,429,883,452,897. Based on this estimate, the Commission calculates the fee rate for fiscal 2020 to be $129.80 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.

III. Effective Dates of the Annual Adjustments

The fiscal year 2020 annual adjustments to the fee rates applicable under Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of the Exchange Act will be effective on October 1, 2019.^[7]

IV. Conclusion

Accordingly, pursuant to Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of the Exchange Act,^[8]

It is hereby ordered that the fee rates applicable under Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of the Exchange Act shall be $129.80 per million effective on October 1, 2019.

By the Commission.

Jill M. Peterson,

Assistant Secretary.

Appendix A

Congress has established a target amount of monies to be collected from fees charged to issuers based on the value of their registrations. This appendix provides the formula for determining such fees, which the Commission adjusts annually. Congress has mandated that the Commission determine these fees based on the “aggregate maximum offering prices,” which measures the aggregate dollar amount of securities registered with the 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 2020, 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 July 2019, 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 2020

First, calculate the aggregate maximum offering prices (AMOP) for each month in the sample (July 2009-July 2019). 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 July 2009 to July 2019.

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 Δ_t = log(AAMOP_t)−log(AAMOP_t−1). This approximates the percentage change.

5. Estimate the first order moving average model Δ_t = α + βe_t−1 + e_t, where e_t 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 Δ_t. The forecast error is expressed as e_t = Δ_t−α−βe_t−1. The model can be estimated using standard commercially available software. Using least squares, the estimated parameter values are α = 0.00585851 and β = 0.88811274.

6. For the month of August 2019 forecast Δ_{t = 8/2019} = α + βe_{t = 7/2019}. For all subsequent months, forecast Δ_t = α.

7. Calculate forecasts of log(AAMOP). For example, the forecast of log(AAMOP) for October 2019 is given by FLAAMOP_{t = 10/2019} = log(AAMOP_{t = 7/2019}) + Δ_{t = 8/2019} + Δ_{t = 9/2019} + Δ_{t = 10/2019}.

8. Under the assumption that e_t is normally distributed, the n-step ahead forecast of AAMOP is given by exp(FLAAMOP_t + σ_n²/2), where σ_n denotes the standard error of the n-step ahead forecast.

9. For October 2019, this gives a forecast AAMOP of $20.703 billion (Column I), and a forecast AMOP of $476.161 billion (Column J).

10. Iterate this process through September 2020 to obtain a baseline estimate of the aggregate maximum offering prices for fiscal year 2020 of $5,429,883,452,897.

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 10/01/19 and 9/30/20 to be $5,429,883,452,897.

2. The rate necessary to collect the target $705,000,000 in fee revenues set by Congress is then calculated as: $705,000,000 ÷ $5,429,883,452,897 = 0.000129837.

3. Round the result to the seventh decimal point, yielding a rate of 0.0001298 (or $129.80 per million).

Table A—Estimation of Baseline of Aggregate Maximum Offering Prices

[Fee rate calculation]

a. Baseline estimate of the aggregate maximum offering prices, 10/01/19 to 09/30/20 ($Millions)	5,429,883
b. Implied fee rate ($705 Million/a)	$129.80

Month	Number of trading days in month	Aggregate maximum offering prices, in $millions	Average daily aggregate max. offering prices (AAMOP) in $millions	log(AAMOP)	Log (change in AAMOP)	Forecast log(AAMOP)	Standard error	Forecast AAMOP, in $millions	Forecast aggregate maximum offering prices, in $millions
(A)	(B)	(C)	(D)	(E)	(F)	(G)	(H)	(I)	(J)
Jul-09	22	185,187	8,418	22.854
Aug-09	21	192,726	9,177	22.940	0.086
Sep-09	21	189,224	9,011	22.922	−0.018
Oct-09	22	215,720	9,805	23.006	0.085
Nov-09	20	248,353	12,418	23.242	0.236
Dec-09	22	340,464	15,476	23.463	0.220
Jan-10	19	173,235	9,118	22.933	−0.529
Feb-10	19	209,963	11,051	23.126	0.192
Mar-10	23	432,934	18,823	23.658	0.533
Apr-10	21	280,188	13,342	23.314	−0.344
May-10	20	278,611	13,931	23.357	0.043
Jun-10	22	364,251	16,557	23.530	0.173
Jul-10	21	171,191	8,152	22.822	−0.709
Aug-10	22	240,793	10,945	23.116	0.295
Sep-10	21	260,783	12,418	23.242	0.126
Oct-10	21	214,988	10,238	23.049	−0.193
Nov-10	21	340,112	16,196	23.508	0.459
Dec-10	22	297,992	13,545	23.329	−0.179
Jan-11	20	233,668	11,683	23.181	−0.148
Feb-11	19	252,785	13,304	23.311	0.130
Mar-11	23	595,198	25,878	23.977	0.665
Apr-11	20	236,355	11,818	23.193	−0.784
May-11	21	319,053	15,193	23.444	0.251
Jun-11	22	359,727	16,351	23.518	0.073
Jul-11	20	215,391	10,770	23.100	−0.418
Aug-11	23	179,870	7,820	22.780	−0.320
Sep-11	21	168,005	8,000	22.803	0.023
Oct-11	21	181,452	8,641	22.880	0.077
Nov-11	21	256,418	12,210	23.226	0.346
Dec-11	21	237,652	11,317	23.150	−0.076
Jan-12	20	276,965	13,848	23.351	0.202
Feb-12	20	228,419	11,421	23.159	−0.193
Mar-12	22	430,806	19,582	23.698	0.539
Apr-12	20	173,626	8,681	22.884	−0.813
May-12	22	414,122	18,824	23.658	0.774
Jun-12	21	272,218	12,963	23.285	−0.373
Jul-12	21	170,462	8,117	22.817	−0.468
Aug-12	23	295,472	12,847	23.276	0.459
Sep-12	19	331,295	17,437	23.582	0.305
Oct-12	21	137,562	6,551	22.603	−0.979
Nov-12	21	221,521	10,549	23.079	0.476
Dec-12	20	321,602	16,080	23.501	0.422
Jan-13	21	368,488	17,547	23.588	0.087
Feb-13	19	252,148	13,271	23.309	−0.279
Mar-13	20	533,440	26,672	24.007	0.698
Apr-13	22	235,779	10,717	23.095	−0.912
May-13	22	382,950	17,407	23.580	0.485
Jun-13	20	480,624	24,031	23.903	0.322
Jul-13	22	263,869	11,994	23.208	−0.695
Aug-13	22	253,305	11,514	23.167	−0.041
Sep-13	20	267,923	13,396	23.318	0.151
Oct-13	23	293,847	12,776	23.271	−0.047
Nov-13	20	326,257	16,313	23.515	0.244
Dec-13	21	358,169	17,056	23.560	0.045
Jan-14	21	369,067	17,575	23.590	0.030
Feb-14	19	298,376	15,704	23.477	−0.113
Mar-14	21	564,840	26,897	24.015	0.538
Apr-14	21	263,401	12,543	23.252	−0.763
May-14	21	403,700	19,224	23.679	0.427
Jun-14	21	423,075	20,146	23.726	0.047
Jul-14	22	373,811	16,991	23.556	−0.170
Aug-14	21	405,017	19,287	23.683	0.127
Sep-14	21	409,349	19,493	23.693	0.011
Oct-14	23	338,832	14,732	23.413	−0.280
Nov-14	19	386,898	20,363	23.737	0.324
Dec-14	22	370,760	16,853	23.548	−0.189
Jan-15	20	394,127	19,706	23.704	0.156
Feb-15	19	466,138	24,534	23.923	0.219
Mar-15	22	753,747	34,261	24.257	0.334
Apr-15	21	356,560	16,979	23.555	−0.702
May-15	20	478,591	23,930	23.898	0.343
Jun-15	22	446,102	20,277	23.733	−0.166
Jul-15	22	402,062	18,276	23.629	−0.104
Aug-15	21	334,746	15,940	23.492	−0.137
Sep-15	21	289,872	13,803	23.348	−0.144
Oct-15	22	300,276	13,649	23.337	−0.011
Nov-15	20	409,690	20,485	23.743	0.406
Dec-15	22	308,569	14,026	23.364	−0.379
Jan-16	19	457,411	24,074	23.904	0.540
Feb-16	20	554,343	27,717	24.045	0.141
Mar-16	22	900,301	40,923	24.435	0.390
Apr-16	21	250,716	11,939	23.203	−1.232
May-16	21	409,992	19,523	23.695	0.492
Jun-16	22	321,219	14,601	23.404	−0.291
Jul-16	20	289,671	14,484	23.396	−0.008
Aug-16	23	352,068	15,307	23.452	0.055
Sep-16	21	326,116	15,529	23.466	0.014
Oct-16	21	266,115	12,672	23.263	−0.203
Nov-16	21	443,034	21,097	23.772	0.510
Dec-16	21	310,614	14,791	23.417	−0.355
Jan-17	20	503,030	25,152	23.948	0.531
Feb-17	19	255,815	13,464	23.323	−0.625
Mar-17	23	723,870	31,473	24.172	0.849
Apr-17	19	255,275	13,436	23.321	−0.851
May-17	22	569,965	25,908	23.978	0.657
Jun-17	22	445,081	20,231	23.730	−0.247
Jul-17	20	291,167	14,558	23.401	−0.329
Aug-17	23	263,981	11,477	23.164	−0.238
Sep-17	20	372,705	18,635	23.648	0.485
Oct-17	22	173,749	7,898	22.790	−0.858
Nov-17	21	377,262	17,965	23.612	0.822
Dec-17	20	281,126	14,056	23.366	−0.245
Jan-18	21	593,025	28,239	24.064	0.698
Feb-18	19	353,182	18,589	23.646	−0.418
Mar-18	21	685,784	32,656	24.209	0.563
Apr-18	21	367,569	17,503	23.586	−0.624
May-18	22	543,840	24,720	23.931	0.345
Jun-18	21	477,967	22,760	23.848	−0.083
Jul-18	21	327,710	15,605	23.471	−0.377
Aug-18	23	347,239	15,097	23.438	−0.033
Sep-18	19	259,874	13,678	23.339	−0.099
Oct-18	23	300,814	13,079	23.294	−0.045
Nov-18	21	447,767	21,322	23.783	0.489
Dec-18	19	276,130	14,533	23.400	−0.383
Jan-19	21	495,624	23,601	23.885	0.485
Feb-19	19	372,166	19,588	23.698	−0.186
Mar-19	21	604,813	28,801	24.084	0.385
Apr-19	21	267,737	12,749	23.269	−0.815
May-19	22	476,892	21,677	23.800	0.531
Jun-19	20	399,178	19,959	23.717	−0.083
Jul-19	22	359,438	16,338	23.517	−0.200
Aug-19	22					23.689	0.320	20,435	449,575
Sep-19	20					23.695	0.322	20,568	411,370
Oct-19	23					23.701	0.324	20,703	476,161
Nov-19	20					23.707	0.326	20,838	416,753
Dec-19	21					23.713	0.328	20,974	440,445
Jan-20	21					23.719	0.330	21,110	443,317
Feb-20	19					23.724	0.332	21,248	403,713
Mar-20	22					23.730	0.334	21,387	470,505
Apr-20	21					23.736	0.336	21,526	452,048
May-20	20					23.742	0.338	21,666	433,330
Jun-20	22					23.748	0.340	21,808	479,772
Jul-20	22					23.754	0.342	21,950	482,901
Aug-20	21					23.760	0.344	22,093	463,957
Sep-20	21					23.765	0.345	22,237	466,983

Footnotes

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. 77f(b)(2). 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 fee collection amount” specified in Section 6(b)(6)(A) for that fiscal year.

5.  15 U.S.C. 78m(e)(4) and 15 U.S.C. 78n(g)(4).

6.  Appendix A explains how we determined the “baseline estimate of the aggregate maximum offering price” for fiscal year 2020 using our methodology, and then shows the arithmetical process of calculating the fiscal year 2020 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 2020.

7.  15 U.S.C. 77f(b)(4), 15 U.S.C. 78m(e)(6) and 15 U.S.C. 78n(g)(6).

8.  15 U.S.C. 77f(b), 78m(e) and 78n(g).