
[Federal Register Volume 77, Number 16 (Wednesday, January 25, 2012)]
[Notices]
[Pages 3818-3824]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1522]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66202/January 20, 2012]


Order Making Fiscal Year 2012 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 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\
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    \1\ 15 U.S.C. 78ee.
    \2\ 15 U.S.C. 78ee(b).
    \3\ 15 U.S.C. 78ee(c).
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    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, and in some circumstances, to also make a mid-
year adjustment. On April 29, 2011, the Commission issued an order 
establishing the uniform adjusted rate for fiscal year 2012 and 
beyond.\4\ We noted in that order, however, that if a regular 
appropriation to the Commission for fiscal year 2012 was not enacted by 
October 1, 2011, the new uniform adjusted rate would never go into 
effect and the Commission would need to establish a new uniform 
adjusted rate for fiscal year 2012 pursuant to amendments made to 
Section 31 of Exchange Act by the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (``Dodd-Frank Act'').\5\ Because a regular 
appropriation to the Commission for fiscal year 2012 was not enacted by 
October 1, 2011, the Commission now is required to establish a new fee 
rate for fiscal year 2012 pursuant to the amended provisions of Section 
31 of the Exchange Act.
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    \4\ Exchange Act Rel. No. 34-64373, Order Making Fiscal Year 
2012 Annual Adjustments to the Fee Rates Applicable under Section 31 
of the Securities Exchange Act of 1934 (April 29, 2011).]
    \5\ Prior to amendment by the Dodd-Frank Act, Section 
31(j)(4)(A) of the Exchange Act provided that the fiscal year 2012 
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, 2011, or 30 days after the date on which a regular 
appropriation to the Commission for fiscal year 2012 is enacted.
    Section 991 of the Dodd-Frank Act, however, amended Section 31 
of the Exchange Act effective on the later of October 1, 2011 or the 
date of enactment of an Act making a regular appropriation to the 
Commission for fiscal year 2012. Those amendments are now effective, 
because a regular appropriation to the Commission was enacted on 
December 23, 2011. The amendments require the Commission to make a 
new adjustment to the fee rates applicable under Section 31 for 
fiscal year 2012.
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II. Fiscal Year 2012 Annual Adjustment to the Fee Rate

    The Dodd-Frank Act amendments to Section 31 of the Exchange Act 
establish a new method for annually adjusting the fee rates applicable 
under Sections 31(b) and (c) of the Exchange Act. Specifically, the 
Commission must now 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.\6\ In short, the new fee rate is determined by (1) subtracting 
the sum of fees estimated to be collected during fiscal year 2012 prior 
to the effective date of the new fee rate and estimated assessments on 
securities futures transactions to be collected under Section 31(d) of 
the Exchange Act for all of fiscal year 2012 from an amount equal to 
the regular appropriation to the Commission for fiscal year 2012, 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.
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    \6\ See 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.'').
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    The regular appropriation to the Commission for fiscal year 2012 is 
$1,321,000,000. The Commission estimates that it will collect 
$503,552,340 in fees for the period prior to the effective date of the 
new fee rate and $17,328 in assessments on round turn transactions in 
security futures products during all of fiscal year 2012.\7\ Using a 
methodology for estimating the aggregate dollar amount of sales for the 
remainder of fiscal year 2012 (developed after consultation with the 
Congressional Budget Office and the Office of Management and Budget), 
the Commission estimates that the aggregate dollar amount of sales for 
the remainder of fiscal year 2012 to be $45,419,684,665,277.
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    \7\ 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 sales prior to the effective date of 
the new fee rate.
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    As described above, the uniform adjusted rate is computed by 
dividing the residual fees to be collected of $817,430,332 by the 
estimate of the aggregate dollar amount of sales for the remainder of 
fiscal year 2012 of $45,419,684,665,277. This results in a uniform 
adjusted rate for fiscal year 2012 of $18.00 per million.\8\
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    \8\ Appendix A shows the purely arithmetical process of 
calculating the fiscal year 2012 annual adjustment. The appendix 
also includes the data used by the Commission in making this 
adjustment.
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III. Effective Dates of the Annual Adjustments

    Section 31(j)(4)(A) of the Exchange Act provides that the fiscal 
year 2012 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, 2011, or 60 days after the date on which a regular 
appropriation to the Commission for fiscal year 2012 is enacted. The 
regular appropriation to the Commission for fiscal year 2012 was 
enacted on December 23, 2011, and accordingly, the new fee rates 
applicable under Sections 31(b) and (c) of the Exchange Act will take 
effect on February 21, 2012.

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IV. Conclusion

    Accordingly, pursuant to Section 31 of the Exchange Act,\9\
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    \9\ 15 U.S.C. 78ee(j).
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    It is hereby ordered that the fee rates applicable under Sections 
31(b) and (c) of the Exchange Act shall be $18.00 per million effective 
on February 21, 2012.

    By the Commission.
Elizabeth M. Murphy,
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 2012.\10\ 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 2012. 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 2012 (less the sum of fees to be collected during 
fiscal year 2012 prior to the effective date of the new fee rate and 
aggregate assessments on security futures transactions during fiscal 
year 2012) to the projected aggregate dollar amount of covered sales 
for fiscal year 2012 (less the aggregate dollar amount of covered 
sales prior to the effective date of the new fee rate).
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    \10\ Congress requires that the Commission make a mid-year 
adjustment to the fee rate if four months into the fiscal year it 
determines that its forecasts of aggregate dollar volume are 
reasonably likely to be off by 10% or more.
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    For 2012, 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 November 2011, 
the last month for which the Commission has data on the dollar 
volume of covered sales.\11\
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    \11\ 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 December 23. The first business day 
after this date was December 27. Data for November were due from the 
exchanges on December 14. So the Commission used November 2011 and 
earlier data to forecast volume for December 2011 and later months.
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    The following sections describe this process in detail.

A. Baseline Estimate of the Aggregate Dollar Amount of Covered 
Sales for Fiscal Year 2012

    First, calculate the average daily dollar amount of covered 
sales (ADS) for each month in the sample (November 2001--November 
2011). The monthly aggregate 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 0.0087 and the standard deviation is 0.126. 
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 1.7%.
    Now, use the expected monthly percentage growth rate to forecast 
total dollar volume. For example, one can use the ADS for November 
2011 ($261,614,593,980) to forecast ADS for December 2011 
($265,994,342,797 = $261,614,593,980 x 1.017).\12\ Multiply by the 
number of trading days in December 2011 (21) to obtain a forecast of 
the total dollar volume for the month ($5,585,881,198,747). Repeat 
the method to generate forecasts for subsequent months.
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    \12\ The value 1.017 has been rounded. All computations are done 
with the unrounded value.
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    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 [Delta]t = log (ADSt/
ADSt-1), where log (x) denotes the natural logarithm of 
x.
    3. Calculate the mean and standard deviation of the series 
{[Delta]1, [Delta]2, ... , 
[Delta]120{time} . These are given by [mu] = 0.0087 and 
[sigma] = 0.126, respectively.
    4. Assume that the natural logarithm of ADS follows a random 
walk, so that [Delta]s and [Delta]t are 
statistically independent for any two months s and t.
    5. Under the assumption that [Delta]t is normally 
distributed, the expected value of ADSt/ADSt-1 
is given by exp ([mu] + [sigma]\2\/2), or on average ADSt 
= 1.017 x ADSt-1.
    6. For December 2011, this gives a forecast ADS of 1.017 x 
$261,614,593,980 = $265,994,342,797. Multiply this figure by the 21 
trading days in December 2011 to obtain a total dollar volume 
forecast of $5,585,881,198,747.
    7. For January 2012, multiply the December 2011 ADS forecast by 
1.017 to obtain a forecast ADS of $270,447,413,976. Multiply this 
figure by the 20 trading days in January 2012 to obtain a total 
dollar volume forecast of $5,408,948,279,516.
    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 10/1/11 
through 2/20/12. The projected aggregate dollar amount of covered 
sales for this period is $26,226,684,370,811. Actual and projected 
fee collections at the current fee rate of 0.0000192 are 
$503,552,340.
    2. Estimate the amount of assessments on securities futures 
products collected during 10/1/11 and 9/30/12 to be $17,328 by 
projecting a 1.7% monthly increase from a base of $1,387 in November 
2011.
    3. Subtract the amounts $503,552,340 and $17,328 from the target 
offsetting collection amount set by Congress of $1,321,000,000 
leaving $817,430,332 to be collected on dollar volume for the period 
2/21/12 through 9/30/12.
    4. Use Table A to estimate dollar volume for the period 2/21/12 
through 9/30/12. The estimate is $45,419,684,665,277. Finally, 
compute the fee rate required to produce the additional $817,430,332 
in revenue. This rate is $817,430,332 divided by $45,419,684,665,277 
or 0.0000179973.
    5. Round the result to the seventh decimal point, yielding a 
rate of .0000180 (or $18.00 per million).

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[FR Doc. 2012-1522 Filed 1-24-12; 8:45 am]
BILLING CODE C


