By Jim Toes
President and CEO, STA

Paul Atkins will soon testify before the Senate Banking Committee for his potential SEC Chair nomination, with no set date. In addition to facing questions on his regulatory philosophy, enforcement priorities, and the SEC’s mandate to protect investors, ensure fair markets, and support capital formation, Atkins will face more specific inquiries.

In this third of a multi-part series about the topics Mr. Atkins will most likely face, we highlight the SEC’s unbalanced funding model and the impact of DOGE on its budget.

DOGE

The Department of Government Efficiency (DOGE), established by President Donald Trump via executive order in January 2025, is temporary government organization led by Elon Musk aimed at cutting federal spending and boosting government efficiency. Unlike a permanent agency, DOGE operates outside traditional bureaucratic structures, tasked with identifying waste, fraud, and abuse across federal departments. Its mission centers on reducing the $6.7 trillion federal budget—initially targeting $2 trillion in cuts.

Since its inception, DOGE has consumed the headlines every day with actions that include terminating federal contracts, grants, jobs and even the U.S. penny production. Now it is turning its attention to the Securities and Exchange Commission and its $2.4 billion budget. DOGE’s impact on the SEC could be significant.

Critics argue that significant cuts could leave investors vulnerable to misconduct by bad actors. Meanwhile, supporters view any reductions as necessary to rein in a regulator they perceive as overly zealous in shaping government policy rather than fulfilling its congressional mandate.

While the SEC’s budget size remains undecided, both sides should agree on a more pressing issue: the SEC’s funding model is flawed. If left unchanged, it could create significant problems for U.S. equity markets.

Budget Scoring: SEC Is Always $0

When the Congressional Budget Office (CBO) evaluates the costs or savings of proposed legislation, it employs a scoring system to help lawmakers assess the fiscal impact before voting.

As DOGE and the administration seek spending cuts to offset tax reductions, reducing the SEC’s budget will have a negligible impact on the scoring outcome. This is because the SEC’s entire annual budget, as appropriated by Congress, is offset by transaction fees paid by investors and industry members—resulting in a net budgetary impact of $0.

SEC Funding Model; Striking the Proper Balance

The funding structure for government agencies is determined by Congress, requiring a careful balance between regulatory needs and market efficiency. Historically, this balance has not always been maintained—particularly in the case of the SEC.

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 31(a) fees, which are charged exclusively on equity transactions and paid by the entity or individual investor initiating the trade.

Recognizing the disproportionate financial burden on issuers, investors, and market participants, Congress passed the Investor and Capital Markets Fee Relief Act of 2002. This legislation reduced overall fees and restructured the payment policy and procedure to prevent over-collections while ensuring the SEC remained adequately funded. In doing so, Congress successfully restored balance to the funding model.

One Asset Class Cannot Bear The Costs For All

Since 2002, financial markets have experienced significant events that led to major congressional legislation, including the 2007 financial crisis, which resulted in the passage of the Dodd-Frank Act of 2010. Dodd-Frank significantly expanded the SEC’s responsibilities, including oversight of derivatives trading, hedge fund registration, and the creation of the Office of Credit Ratings. It also strengthened whistleblower protections and introduced new corporate governance requirements.

At the same time, Dodd-Frank shifted 100% of the SEC’s funding responsibility to revenue generated from Section 31(a) fees. However, while the funding model has remained unchanged since 2010, SEC’s budget has consistently increased year over year.

This growing financial burden on the equity markets is further compounded by the fact that requests for additional SEC funding are often justified by the SEC as having no impact on the federal deficit. As then- Chair Gensler said in his testimony to the Senate Appropriations FSGG Subcommittee, “it’s worth noting the SEC’s funding is deficit-neutral; appropriations are offset by transaction fees.”

Over the past decade we witnessed intense growth and added complexity in our capital markets. More recently, the SEC has taken on a significant role in regulating cryptocurrency markets. While most agree that the growth of crypto necessitates increased oversight, the costs of this expanded regulation continue to be borne solely by the equity markets. This imbalance highlights a fundamental flaw in the SEC’s funding model: a single market participant—the equity markets—continues to shoulder the full cost of a regulator overseeing multiple asset classes.

Creating A More Efficient & Balanced Funding Model

DOGE may or may not lead to significant cuts in the SEC’s budget, but its true value for investors and taxpayers would lie in sparking a fairer, more efficient and balanced funding model—one that places the cost of regulation on the assets being regulated. Ultimately, Congress bears the responsibility of designing a balanced funding model, as it did in 2002. However, it cannot begin drafting legislation without a clear understanding of the SEC’s priorities for the foreseeable future. This will require close coordination with the new SEC Chair, a process we hope begins with Mr. Atkins’ Senate confirmation hearing.

Edition I: Private and Public Equity Markets: A Divergence in Growth
Edition II: Congressional Stock Trading: What Can an SEC Chair Do?