by Jim Toes
President & CEO, STA
Beginning today, the rate on Section 31a fees used to finance the SEC’s appropriated annual budget will be $0.00. This all-time low rate will remain in effect until October 1 and most likely will continue through year-end or longer.
In an April 8 announcement, the SEC explained that it expects to have collected its entire FY25 appropriation of $2.188 billion before May 14, so no further collections are needed for the current fiscal year. The current higher-than-average Section 31a transaction fee rate of $27.80 per million (the highest fee rate since 2007) and the high dollar trading volumes are likely the key reasons for the high collection amounts.
In the past, STA has criticized the funding model for the SEC and the attempts by Congress to correct it. For example, in 2001, during a period of record trading volumes, corporate filings, and IPO registrations, total fees collected by the SEC far exceeded its annual budget of $423 million. A significant portion of this over-collection — between $1.2 billion and $1.5 billion — came from Section 31a fees, which are charged exclusively on equity transactions and paid by the entity or individual investor initiating the trade.
Recognizing the disproportionate financial burden placed on issuers, investors, and market participants, Congress passed the Investor and Capital Markets Fee Relief Act of 2002. The legislation reduced overall fees, setting the Section 31a rate at $15 per million — down from $33 per million — and restructured the payment policies and procedures to prevent over-collections while still ensuring the SEC remained adequately funded. In doing so, Congress effectively restored balance to the agency’s funding model.
But then the Dodd-Frank Act came along in 2010, which significantly increased the SEC’s responsibilities, including additional asset classes, and shifted 100% of the responsibility for funding the SEC to entities and investors that pay Section 31a fees when buying or selling equities, while other fees that previously contributed to funding the SEC were directed to the general Treasury. In short, the mechanism for funding the SEC was narrowed rather than broadened to offset the costs of regulating other asset classes and activities.
One provision of the Dodd-Frank Act* requires the SEC to assess by March 1 of each fiscal year whether a mid-year adjustment to the Section 31a fee rate is necessary to ensure total collections align with the agency’s annual appropriation — ultimately landing us in the situation we’re in today. So, while we remain critical of the SEC’s narrow and inequitable funding model, we’ll give the mid-year adjustment some credit: it’s the one mechanism that spares equity investors and market participants from being overcharged and over-burdened, any more than they already are.