Commentary

John Turney
Traders Magazine Online News

Foreign Exchange Infrastructure: Yesterday, Today and Tomorrow

In this exclusive to Traders Magazine, John Turney, Global Head of Outsourced FX at Northern Trust, discusses the evolution of the fx infrastructure and what is to come.

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August 31, 1998

Senate Supports Emerges for 31(a) Relief

By Jeffrey L. Winograd

Is widespread relief on so-called 31(a) transaction fees finally imminent? At press time, Sen. Lauch Faircloth (R-N.C.) was preparing to file a companion bill to the House Savings and Investment Act of 1998, a bill H.R. 4120 cosponsored by Rep. Gerald Solomon (R-N.Y.) and Rep. Robert Menendez (D-N.J.) that seeks to cap 31(a) fees.

Faircloth, who chairs the Senate Banking, Housing and Urban Affairs Subcommittee on Financial Institutions and Regulatory Relief, planned to file his bill by Labor Day, Jim Hyland, his legislative director, told Traders Magazine.

Buoyed by the early-August decision of more than 30 congressmen including three top Republican leaders and several liberal Democrats to sign on as co-sponsors, House Rules Committee Chairman Solomon said his bill to provide relief from the Nasdaq transaction fees will likely gain the approval of the House this month.

Cap Fees

The House bill would cap annual collections of transaction fees assessed on sell trades and registrations of Nasdaq and exchange-listed stocks. A similar cap would apply to fees collected on off-exchange trades of last-reported securities. For example, in fiscal year 1999, fee collections on trades and registrations would likely be limited to $150 million, and fees for off-exchange trades would be held to $120 million.

According to Solomon, in fiscal year 1997, total Securities and Exchange Commission collections from all sources grew by 324 percent of its appropriated budget authority, and 382 percent of its requested budget.

Solomon is convinced he has avoided what could now be the one major obstacle to the bill compliance with congressional balanced-budget rules. That means fee reductions must be accompanied by offsetting spending cuts or revenue increases.

"The bill was designed not to require a revenue offset," said an industry source familiar with Solomon's plans.

At press time, Solomon's staff was putting the finishing touches on a request to the Congressional Budget Office for budget scoring of the bill.

The Solomon and Menendez bill has other valuable allies.

Frank Zarb, chairman and chief executive of the National Association of Securities Dealers, has declared his full support for the Solomon bill. He said the legislation would offer more flexibility than current law, "by ensuring that large increases in the dollar volume of trading does not trigger larger than intended collection."

Much to the delight of Solomon, and certainly noticed by Faircloth, Washington's anti-tax crowd and many of its state affiliates have rallied behind the bill. The National Taxpayers Union declared its support for H.R. 4120 hard on the heels of support from Americans for Tax Reform.

Zarb picked up the taxation theme in a recent letter of support for the bill. He noted that the original intent of the fees was to recoup the cost of SEC regulation, and that "the substantial excess being collected operates as a tax on investors and market professionals."