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Order Making Fiscal Year 2019 Annual Adjustments to Transaction Fee Rates

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Start Preamble

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]

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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 February 15, 2019, the President signed into law the Consolidated Appropriations Act, 2019, which includes total appropriations of $1,712,091,000 to the SEC for fiscal year 2019.

II. Fiscal Year 2019 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 2019 [8] from an amount equal to the regular appropriation to the Commission for fiscal year 2019, and (2) dividing by the estimated aggregate dollar amount of covered sales for the remainder of the fiscal year following the effective date of the new fee rate.[9]

As noted above, the Consolidated Appropriations Act, 2019, includes total appropriations of $1,712,091,000 to the Commission for fiscal year 2019.[10] The Commission estimates that it will collect $740,970,262 in fees for the period prior to the effective date of the new fee rate and $23,127 in assessments on round turn transactions in security futures products during all of fiscal year 2019. Using the methodology described in Appendix A, the Commission estimates that the aggregate dollar amount of covered sales for the remainder of fiscal year 2019 to be $46,958,135,950,927.

The uniform adjusted rate is computed by dividing the residual fees to be collected of $971,097,612 by the estimated aggregate dollar amount of covered sales for the remainder of fiscal year 2019 of $46,958,135,950,927; this results in a uniform adjusted rate for fiscal year 2019 of $20.70 per million.[11]

III. Effective Date of the Uniform Adjusted Rate

Under Section 31(j)(4)(A) of the Exchange Act, the fiscal year 2019 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, 2018, or 60 days after the date on which a regular appropriation to the Commission for fiscal year 2019 is enacted.[12] The regular appropriation to the Commission for fiscal year 2019 was enacted on February 15, 2019, and accordingly, the new fee rates applicable under Sections 31(b) and (c) of the Exchange Act will take effect on April 16, 2019.

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 $20.70 per $1,000,000 effective on April 16, 2019.

Start Signature

By the Commission.

Eduardo A. Aleman,

Deputy Secretary.

End Signature

Appendix A

This appendix provides the methodology for determining the annual adjustment to the fee rates applicable under Sections 31(b) and (c) of the Exchange Act for fiscal year 2019. 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 2019.

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 (“OTC”) markets over the course of the year. The fee rate equals the ratio of the Commission's regular appropriation for fiscal year 2019 (less the sum of fees to be collected during fiscal year 2019 prior to the effective date of the new fee rate and aggregate assessments on security futures transactions during all of fiscal year 2019) 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 2019, 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 January 2019, the last month for which the Commission has data on the dollar volume of covered sales.[13]

The following sections describe this process in detail.

A. Baseline Estimate of the Aggregate Dollar Amount of Covered Sales for Fiscal Year 2019

First, calculate the average daily dollar amount of covered sales (“ADS”) for each month in the sample (December 2008-January 2019). The monthly total dollar amount of covered sales (exchange plus certain OTC markets) is presented in column C of Table A.

Next, model the monthly change in the natural logarithm of ADS as a first order autoregressive process (“AR(1)”), including monthly indicator variables to control for seasonality.

Use the estimated AR(1) model to forecast the monthly change in the log level of ADS. These percent changes can then be applied to obtain forecasts of the total dollar volume of covered sales. The following is a more formal (mathematical) description of the procedure:

1. Begin with the monthly data for total dollar volume of covered sales (column C). The sample spans ten years, from December 2008-January 2019.[14] Divide each month's total dollar volume 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 Δ LN ADS (shown in column E) as the log growth rate of ADS, that is, the difference between the natural logarithm of ADS in month t and its value in the prior month.

3. Estimate the AR(1) model

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with Dtm representing monthly indicator variables, yt representing the log growth rate in ADS (Δ LN ADS), and εt representing the error term for month t. The model can be estimated using standard commercially available software. The estimated parameter values are β = −0.2692 and α1 - α12 as follows:

α1 (JAN) = 0.0386, α2 (FEB) = 0.0773, α3 (MAR) =−0.0251, α4 (APR) =−0.0565, α5 (MAY) = 0.0279, α6 (JUN) = 0.0042, α7 (JUL) =−0.0918, α8 (AUG) =−0.0039, α9 (SEP) = 0.0560, α10 (OCT) = 1.0594, α11 (NOV) =−0.0117, α12 (DEC) =−0.0069. The root-mean squared error (RMSE) of the regression is 0.1037.

4. For the first month calculate the forecasted value of the log growth rate of ADS as

For the next month use the forecasted value of the log growth rate of the first month to calculate the forecast of the next month. This process iterates until a forecast is generated for all remaining months in the fiscal year. These data appear in column F.

5. Assuming that the regression error in the AR(1) model is normally distributed, the expected percentage change in average daily dollar volume from month t−1 to month t is then given by the expression exp (β yt−1 + ½ σ2) −1, where denotes the root mean squared error of the regression (RMSE).

6. For instance, for February 2019, using the β parameter and the α parameter (for February) above, and the change in the log-level ADS from January, 2019, we can estimate the change in the log growth in average daily sales as β yJan + αFeb = ((−0.2692 × −0.2311) + 0.0773) = +0.1395 This represents the estimated change in log average daily dollar volume for February 2019 relative to January 2019. To estimate the percent change in average daily sales from January 2019 to February 2019, use the formula shown in Step 5, above: exp (+0.1395 + ½ 0.10372)−1 = +0.1559. Apply this estimated percent change in ADS to the ADS for January 2019 to estimate the ADS for February 2019 as $379,079,268,750 × (1 + 0.1559) = $438,192,488,788. Multiply this by the 19 trading days in February 2019 to obtain a total dollar volume forecast of $8,325,657,286,963.

7. For March 2019, proceed in a similar fashion. Using the estimates for February 2019 along with the β parameter and the α3 parameter (for March) to generate a forecast for the one-month change in the log level of average daily sales. Convert the estimated log change in average daily sales to estimated percent change in ADS as in step 6, above to obtain a forecast ADS of $413,789,951,878. Multiply this figure by the 21 trading days in March 2019 to obtain a total dollar volume forecast of $8,689,588,989,442.

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 October 1, 2018 through April 15, 2019. The projected aggregate dollar amount of covered sales for this period is $56,997,712,431,458. Actual and projected fee collections at the current fee rate of $13.00 per million are $740,970,262.

2. Estimate the amount of assessments on security futures products collected from October 1, 2018 through September 30, 2019. First, calculate the average and the standard deviation of the change in log average daily sales, in column E, for the 120 months ending January 2019. The average is 0.004038 and the standard deviation is 0.111345. These are used to estimate an average growth rate in ADS using the formula (0.004038 + ½ 0.1113452)−1. This results in an average monthly increase of 1.029%. Apply this monthly increase to the last month for which single stock futures' assessments are available, which was $1,701.13, for January 2019. Estimate all subsequent months in fiscal year 2019 by applying the growth rate to the previously estimated monthly value, and sum the results. This totals $23,126.73 for the entire fiscal year.

3. Subtract the amounts $740,970,262 and $23,127 from the target off-setting collection amount set by Congress of $1,712,091,000, leaving $971,097,612 to be collected on dollar volume for the period April 16, 2019 through September 30, 2019.

4. Use Table A to estimate dollar volume for the period April 16, 2019 through September 30, 2019. The estimate is $46,958,135,950,927. Finally, compute the fee rate required to produce the additional $971,097,612 in revenue. This rate is $971,097,612 divided by $46,958,135,950,927 or 0.00002068007.

5. Round the result to the seventh decimal point, yielding a rate of 0.0000207 (or $20.70 per million).

This table summarizes the estimates of the aggregate dollar amount of covered sales, by time period. The figures in this table can be used to determine the new fee rate.

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

[Fee rate calculation]

a. Baseline estimate of the aggregate dollar amount of sales, 10/01/2018 to 03/31/2019 ($Millions)52,599,495
b. Baseline estimate of the aggregate dollar amount of sales, 04/01/2019 to 04/15/2019 ($Millions)4,398,217
c. Baseline estimate of the aggregate dollar amount of sales, 04/16/2019 to 04/30/2019 ($Millions)3,998,379
d. Baseline estimate of the aggregate dollar amount of sales, 05/01/2019 to 09/30/2019 ($Millions)42,959,756
e. Estimated collections in assements on security futures products in fiscal year 2019 ($Millions)0.023
f. Implied fee rate (($1,712,091,000 − $13.00 * (a + b) − e)/(c + d)$20.70
MonthNumber of trading days in monthTotal dollar amount of salesAverage daily dollar amount of sales (ADS)Δ LN ADSForecast Δ LN ADSForecast average daily dollar amount of salesForecast total dollar amount of sales
(A)(B)(C)(D)(E)(F)(G)(H)
Dec-08225,176,041,317,640235,274,605,347#N/A
Jan-09204,670,249,433,806233,512,471,690−0.00752
Feb-09194,771,470,184,048251,130,009,6870.07274
Mar-09225,885,594,284,780267,527,012,9450.06325
Apr-09215,123,665,205,517243,984,057,406−0.09212
May-09205,086,717,129,965254,335,856,4980.04155
Jun-09225,271,742,782,609239,624,671,937−0.05958
Jul-09224,659,599,245,583211,799,965,708−0.12343
Aug-09214,582,102,295,783218,195,347,4180.02975
Sep-09214,929,155,364,888234,721,684,0420.07301
Oct-09225,410,025,301,030245,910,240,9560.04657
Nov-09204,770,928,103,032238,546,405,152−0.03040
Dec-09224,688,555,303,171213,116,150,144−0.11273
Jan-10194,661,793,708,648245,357,563,6130.14088
Feb-10194,969,848,578,023261,570,977,7910.06399
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Mar-10235,563,529,823,621241,892,601,027−0.07821
Apr-10215,546,445,874,917264,116,470,2340.08790
May-10207,260,430,376,294363,021,518,8150.31807
Jun-10226,124,776,349,285278,398,924,967−0.26541
Jul-10215,058,242,097,334240,868,671,302−0.14480
Aug-10224,765,828,263,463216,628,557,430−0.10607
Sep-10214,640,722,344,586220,986,778,3140.01992
Oct-10215,138,411,712,272244,686,272,0130.10187
Nov-10215,279,700,881,901251,414,327,7100.02713
Dec-10224,998,574,681,208227,207,940,055−0.10124
Jan-11205,043,391,121,345252,169,556,0670.10424
Feb-11195,114,631,590,581269,191,136,3460.06532
Mar-11236,499,355,385,307282,580,668,9260.04854
Apr-11204,975,954,868,765248,797,743,438−0.12732
May-11215,717,905,621,053272,281,220,0500.09020
Jun-11225,820,079,494,414264,549,067,928−0.02881
Jul-11205,189,681,899,635259,484,094,982−0.01933
Aug-11238,720,566,877,109379,155,081,6130.37925
Sep-11216,343,578,147,811302,075,149,896−0.22727
Oct-11216,163,272,963,688293,489,188,747−0.02884
Nov-11215,493,906,473,584261,614,593,980−0.11497
Dec-11215,017,867,255,600238,946,059,790−0.09063
Jan-12204,726,522,206,487236,326,110,324−0.01103
Feb-12205,011,862,514,132250,593,125,7070.05862
Mar-12225,638,847,967,025256,311,271,2280.02256
Apr-12205,084,239,396,560254,211,969,828−0.00822
May-12225,611,638,053,374255,074,456,9720.00339
Jun-12215,121,896,896,362243,899,852,208−0.04480
Jul-12214,567,519,314,374217,500,919,732−0.11455
Aug-12234,621,597,884,730200,939,038,467−0.07920
Sep-12194,598,499,962,682242,026,313,8250.18604
Oct-12215,095,175,588,310242,627,408,9670.00248
Nov-12214,547,882,974,292216,565,855,919−0.11363
Dec-12204,744,922,754,360237,246,137,7180.09120
Jan-13215,079,603,817,496241,885,896,0710.01937
Feb-13194,800,663,527,089252,666,501,4260.04360
Mar-13204,917,701,839,870245,885,091,993−0.02721
Apr-13225,451,358,637,079247,789,028,9580.00771
May-13225,681,788,831,869258,263,128,7210.04140
Jun-13205,623,545,462,226281,177,273,1110.08501
Jul-13225,083,861,509,754231,084,614,080−0.19620
Aug-13224,925,611,193,095223,891,417,868−0.03162
Sep-13204,959,197,626,713247,959,881,3360.10211
Oct-13235,928,804,028,970257,774,088,2160.03882
Nov-13205,182,024,612,049259,101,230,6020.00514
Dec-13215,265,282,994,173250,727,761,627−0.03285
Jan-14215,808,700,114,288276,604,767,3470.09822
Feb-14196,018,926,931,054316,785,627,9500.13564
Mar-14216,068,617,342,988288,981,778,238−0.09186
Apr-14216,013,948,953,528286,378,521,597−0.00905
May-14215,265,594,447,318250,742,592,729−0.13289
Jun-14215,159,506,989,669245,690,809,032−0.02035
Jul-14225,364,099,567,460243,822,707,612−0.00763
Aug-14215,075,332,147,677241,682,483,223−0.00882
Sep-14215,507,943,363,243262,283,017,2970.08180
Oct-14237,796,638,035,879338,984,262,4300.25653
Nov-14195,340,847,027,697281,097,211,984−0.18725
Dec-14226,559,110,068,128298,141,366,7330.05887
Jan-15206,185,619,541,044309,280,977,0520.03668
Feb-15195,723,523,235,641301,238,065,034−0.02635
Mar-15226,395,046,297,249290,683,922,602−0.03566
Apr-15215,625,548,298,004267,883,252,286−0.08169
May-15205,521,351,972,386276,067,598,6190.03009
Jun-15226,005,521,460,806272,978,248,218−0.01125
Jul-15226,493,670,315,390295,166,832,5180.07815
Aug-15216,963,901,249,270331,614,345,2030.11643
Sep-15216,434,496,770,897306,404,608,138−0.07907
Oct-15226,592,594,708,082299,663,395,822−0.02225
Nov-15205,822,824,015,945291,141,200,797−0.02885
Dec-15226,384,337,478,801290,197,158,127−0.00325
Jan-16196,696,059,796,055352,424,199,7920.19428
Feb-16206,659,878,908,747332,993,945,437−0.05671
Mar-16226,161,943,754,542280,088,352,479−0.17302
Apr-16215,541,076,988,322263,860,808,968−0.05968
May-16215,693,520,415,112271,120,019,7670.02714
Jun-16226,317,212,852,759287,146,038,7620.05743
Jul-16205,331,797,261,269266,589,863,063−0.07428
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Aug-16235,635,976,607,786245,042,461,208−0.08428
Sep-16215,942,072,286,976282,955,823,1890.14386
Oct-16215,460,906,573,682260,043,170,175−0.08444
Nov-16216,845,287,809,886325,966,086,1850.22595
Dec-16216,208,579,880,985295,646,660,999−0.09763
Jan-17205,598,200,907,603279,910,045,380−0.05470
Feb-17195,443,426,609,533286,496,137,3440.02326
Mar-17236,661,861,914,530289,646,170,1970.01094
Apr-17195,116,714,033,499269,300,738,605−0.07283
May-17226,305,822,460,672286,628,293,6670.06236
Jun-17226,854,993,097,601311,590,595,3460.08350
Jul-17205,394,333,070,522269,716,653,526−0.14432
Aug-17236,206,204,906,864269,834,995,9510.00044
Sep-17205,939,886,169,525296,994,308,4760.09590
Oct-17226,134,529,538,894278,842,251,768−0.06307
Nov-17216,289,748,560,897299,511,836,2330.07151
Dec-17206,672,181,323,001333,609,066,1500.10782
Jan-18217,672,288,677,308365,347,079,8720.09088
Feb-18198,725,420,462,639459,232,655,9280.22871
Mar-18218,264,755,011,030393,559,762,430−0.15432
Apr-18217,490,308,402,446356,681,352,497−0.09839
May-18227,242,077,467,179329,185,339,417−0.08022
Jun-18217,936,783,802,579377,942,085,8370.13812
Jul-18216,807,593,326,456324,171,110,784−0.15347
Aug-18237,363,115,444,274320,135,454,099−0.01253
Sep-18196,781,988,459,996356,946,761,0520.10884
Oct-182310,133,514,480,998440,587,586,1300.21052
Nov-18218,414,847,862,204400,707,041,057−0.09488
Dec-18199,075,221,733,736477,643,249,1440.17563
Jan-19217,960,664,643,749379,079,268,750−0.23112
Feb-19190.1395438,192,488,7888,325,657,286,963
Mar-1921−0.0627413,789,951,8788,689,588,989,442
Apr-1921−0.0397399,837,948,5798,396,596,920,153
May-19220.0386417,801,508,0309,191,633,176,654
Jun-1920−0.0062417,455,061,4098,349,101,228,188
Jul-1922−0.0901383,542,454,0218,437,933,988,469
Aug-19220.0204393,541,847,3738,657,920,642,210
Sep-19200.0505416,158,371,4818,323,167,429,618
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Footnotes

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

Back to Citation

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.”).

Back to Citation

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 January, 2019. To calculate the dollar amount of covered sales from February, 2019 to the effective date of the new fee rate, the Commission is using the methodology described in the Appendix A of this order.

Back to Citation

8.  The Commission is using the same methodology it has used previously to estimate assessments on security futures transactions to be collected in fiscal year 2019. An explanation of the methodology appears in Appendix A.

Back to Citation

9.  To estimate the aggregate dollar amount of covered sales for the remainder of fiscal year 2019 following the effective date of the new fee rate, the Commission is using the methodology described in Appendix A of this order.

Back to Citation

10.  The Consolidated Appropriations Act, 2019 includes an appropriation of $1,674,902,000 for necessary expenses for the Commission and an appropriation of $37,189,000 for costs associated with relocation under a replacement lease for the Commission's New York regional office facilities. The act provides that “for purposes of calculating the fee rate under section 31(j) of the [Exchange Act] for fiscal year 2019, all amounts appropriated [to the Commission in the act] shall be deemed to be the regular appropriation to the Commission for fiscal year 2019.”

Back to Citation

11.  Appendix A shows the process of calculating the fiscal year 2019 annual adjustment and includes the data used by the Commission in making this adjustment.

Back to Citation

12.  15 U.S.C. 78ee(j)(4)(A).

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13.  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 February 15, 2019. The first business day after this date was February 19, 2019. Data for January 2019 were due from the exchanges on February 14, 2019. As a result, the Commission used January 2019 and earlier data to forecast volume for February 2019 and later months.

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14.  Because the model uses a one period lag in the change in the log level of average daily sales, two additional months of data are added to the table so that the model is estimated with 120 observations.

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BILLING CODE 8011-01-P

[FR Doc. 2019-04800 Filed 3-14-19; 8:45 am]

BILLING CODE 8011-01-C