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Notice

Order Making Fiscal Year 2009 Mid-Year Adjustment to the Fee Rates Applicable Under Sections 31(b) and (c) of the Securities Exchange Act of 1934

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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 2009, the target offsetting collection amount is $1,023,000,000.[7]

II. Determination of the Need for a Mid-Year Adjustment in Fiscal 2009

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 2009 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 $113,703,210,464,919 is reasonably likely to be 10% (or more) greater or less than the actual aggregate dollar volume of sales for fiscal year 2009.[8] To make this determination, the Commission must estimate the actual aggregate dollar volume of sales for fiscal year 2009.

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 2009 was $24,218,758,303,585.[10] Using these data and a methodology for estimating the aggregate dollar amount of sales for the remainder of fiscal year 2009 (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 2009 to be $42,139,232,747,921. Thus, the Commission estimates that the actual aggregate dollar volume of sales for all of fiscal year 2009 will be $66,357,991,051,506.

Because the baseline estimate of $113,703,210,464,919 is more than 10% greater than the $66,357,991,051,506 estimated actual aggregate dollar volume of sales for fiscal year 2009, 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 2009. 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 2009, 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 $1,023,000,000.” [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 2009 from $1,023,000,000, which is the target offsetting collection amount for fiscal year 2009. 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 $190,542,394 in fees for the period prior to the effective date of the mid-year adjustment [13] and $8,640 in assessments on round turn transactions in security futures products during all of fiscal year 2009. Using the methodology referenced in Part II above, the Commission estimates that the aggregate dollar volume of sales for the remainder of fiscal year 2009 following the effective date of the new rate will be $32,332,563,584,044. 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 2009, 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 is $25.70 per million of the aggregate dollar amount of sales of securities.[14] The aggregate Start Printed Page 9645dollar 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. However, it is possible that the effective date will be delayed this fiscal year because of the lapse of appropriation provision in Section 31(k) of the Exchange Act. That section provides that, if on the first day of the fiscal year a regular appropriation to the Commission has not been enacted, the Commission shall continue to collect fees at the rate in effect during the preceding fiscal year, until 30 days after the date such a regular appropriation is enacted. 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 $25.70 per million for sales of securities transacted on the later of (i) April 1, 2009, or (ii) 30 days after the date on which a regular appropriation to the Commission for fiscal year 2009 is enacted. This fee rate will remain in place until the fee rate for fiscal year 2010 takes effect.[15]

V. Conclusion

Accordingly, pursuant to Section 31 of the Exchange Act,[16]

It is hereby ordered that each of the fee rates under Sections 31(b) and (c) of the Exchange Act shall be $25.70 per $1,000,000 of the aggregate dollar amount of sales of securities subject to these sections, effective on the later of (i) April 1, 2009, or (ii) 30 days after the date on which a regular appropriation to the Commission for fiscal year 2009 is enacted.

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By the Commission.

Elizabeth M. Murphy,

Secretary.

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Appendix A

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 1999-January 2009). 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 0.007 and the standard deviation 0.130. Assume the monthly percentage change in ADS follows a random walk. The expected monthly percentage growth rate of ADS is 1.6 percent.

Now, use the expected monthly percentage growth rate to forecast total dollar volume. For example, one can use the ADS for January 2009 ($233,508,979,959) to forecast ADS for February 2009 ($237,184,035,788 = $233,508,979,959 × 1.016).[17] Multiply by the number of trading days in February 2009 (19) to obtain a forecast of the total dollar volume for the month ($4,506,496,679,977). 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 Δt = log (ADSt/ADSt−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 = 0.007 and σ = 0.130, respectively.

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

5. Under the assumption that Δt is normally distributed, the expected value of ADSt/ADSt−1 is given by exp (μ + σ2/2), or on average ADSt = 1.016 × ADSt−1.

6. For February 2009, this gives a forecast ADS of 1.016 × $233,508,979,959 = $237,184,035,788. Multiply this figure by the 19 trading days in February 2009 to obtain a total dollar volume forecast of $4,506,496,679,977.

7. For March 2009, multiply the February 2009 ADS forecast by 1.016 to obtain a forecast ADS of $240,916,931,086. Multiply this figure by the 22 trading days in March 2009 to obtain a total dollar volume forecast of $5,300,172,483,900.

8. Repeat this procedure for subsequent months.

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

1. Determine the actual and projected aggregate dollar volume of sales between 10/1/08 and 3/31/09 to be $34,025,427,467,462. Multiply this amount by the fee rate of $5.60 per million dollars in sales during this period and get an estimate of $190,542,394 in actual and projected fees collected during 10/1/08 and 3/31/09.

2. Estimate the amount of assessments on security futures products collected during 10/1/08 and 9/30/09 to be $8,640 by summing the amounts collected through January of $3,096 with projections of a 1.6% monthly increase in subsequent months.

3. Determine the projected aggregate dollar volume of sales between 4/1/09 and 9/30/09 to be $32,332,563,584,044.

4. The rate necessary to collect the target $1,023,000,000 in fee revenues is then calculated as: ($1,023,000,000−$190,542,394−$8,640)÷$32,332,563,584,044 = 0.0000257467.

5. Round the result to the seventh decimal point, yielding a rate of 0.0000257000 (or $25.70 per million).

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Footnotes

4.  15 U.S.C. 78ee(j)(1) and (j)(3).

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8.  The amount $113,703,210,464,919 is the baseline estimate of the aggregate dollar amount of sales for fiscal year 2009 calculated by the Commission in its Order Making Fiscal 2009 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. 33-8916 (May 2, 2008), 73 FR 25795 (May 7, 2008).

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9.  The Financial Industry Regulatory Authority, Inc. (“FINRA”) and each exchange is 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 the month for which the exchange or association provides dollar volume data.

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10.  Although Section 31(j)(2) indicates that the Commission should determine the actual aggregate dollar volume of sales for fiscal 2009 “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, 2009. Dollar volume data on sales of securities subject to Section 31 for February 2009 will not be available from the exchanges and FINRA for several weeks.

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11.  See Appendix A.

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12.  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 2009 until March 15, the Commission will not “collect” any fees in the first five months of fiscal 2009. 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 [$1,023,000,000],” 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.

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13.  This calculation is based on the assumption that the mid-year adjustment will go into effect on April 1, 2009 pursuant to Section 31(j)(4)(B) of the Exchange Act. However, see the discussion below regarding the actual effective date of the mid-year adjustment.

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14.  The calculation is as follows: ($1,023,000,000−$190,542,394—$8,640)/$32,332,563,584,044 = $0.0000257467. Round this result to the seventh decimal point, yielding a rate of $25.70 per million.

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15.  Section 31(j)(1) and Section 31(g) of the Exchange Act require the Commission to issue an order no later than April 30, 2009, adjusting the fee rates applicable under Sections 31(b) and (c) for fiscal 2010. These fee rates for fiscal 2010 will be effective on the later of October 1, 2009 or thirty days after the date of enactment of the Commission's regular appropriation for fiscal 2010.

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17.  The value 1.016 has been rounded. All computations are done with the unrounded value.

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BILLING CODE 8011-01-P

[FR Doc. E9-4738 Filed 3-4-09; 8:45 am]

BILLING CODE 8011-01-C