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September 30, 1998

Section 31 Relief Is on Shaky Ground

By Jeffrey L. Winograd

A high-stakes campaign by the Security Traders Association and other industry participants to reduce the amount of money raised under Section 31 transaction fees seemed unlikely to succeed as the current Congressional session winded down.

At presstime, only a handful of days were left on the legislative calendar with lawmakers' attention focused on more pressing matters than Section 31 relief, among them Congressional elections, President Clinton's threatened impeachment, appropriations bills and tax cuts.

However, at least one dogged lawmaker was still waging a battle for relief.

Rep. Gerald Solomon (R-N.Y.), chairman of the House Rules Committee, was pressing his Republican colleagues who serve on a Senate-House securities-litigation, reform-legislation conference committee to add Section 31 cuts to the conference report.

Solomon, who was awaiting a Congressional Budget Office analysis, told Traders Magazine he would score his proposal as revenue neutral. He felt this would give him the ammunition needed to convince his Congressional colleagues about the wisdom of adding Section 31 language.

Even so, two Republican members of the conference committee, who requested anonymity, said in mid-September that Section 31 relief was doomed in their conference. They declined to elaborate.

The problem, explained David Franasiak a partner at Washington-based law firm Williams & Jensen, retained by a Section 31 coalition of 40 members, comprising the STA, U.S. stock exchanges and others is the scope of the Senate-House conference. Adding Section 31 to the bill would make it subject to a point of order on the Senate floor. "No one wants to be seen as jeopardizing or actually bringing it [securities-litigation reform] down," Franasiak said.

Solomon said his fall-back position would be the addition of Section 31 provisions to the Republican's $80 billion tax-cut bill, which was expected to sail smoothly through the House.

He would first have to sell the idea to House Ways and Means Committee Chairman Rep. Bill Archer (R-Texas), however. Even if Solomon is successful, the tax bill faces an uncertain future in the Senate, and President Clinton has already threatening to veto it.

Unfortunately for traders, 1998 may have been the most opportune time for getting Congress to act on fee cuts.

"There really is a small window of opportunity," Franasiak said. "It will be twice as hard to get relief next year when the fix will be much more costly. It's going to cost revenue because of our peculiar budget-scoring rules."

Section 31 fees and registration fees, which are meant to fund the Securities and Exchange Commission, are now said to exceed the agency's budget by some 324 percent. "[All of this money] is certainly not going to the SEC," Franasiak quipped. This explains why the appropriators on Capitol Hill are opposed to the Solomon and Menendez bill, he added.

Securing Solomon's support proved to be a notable political accomplishment for the STA.

From that point, the STA lobbying began to make noticeable headway because Solomon proved to be as good as his word. He filed Section 31 legislation, the Savings and Investment Relief Act of 1998, and enlisted Rep. Robert Menendez (D-N.J.), whose district includes Jersey City's Wall Street community, as his primary co-sponsor.

But the STA did not rest on its laurels. It was able to get every member of the House Republican leadership, with the exception of House Speaker Rep. Newt Gingrich (R-Ga.), who does not customarily co-sponsor legislation, to sign on to the Solomon and Menendez bill. The bill eventually found 55 co-sponsors, including a number of liberal Democrats.

Meanwhile, the U.S Chamber of Commerce and the National Federation of Independent Businesses declared their support for the Solomon and Menendez bill. Even the tax-reform crowd, including Americans for Tax Reform and Citizens for a Sound Economy, jumped on board. "These are groups that normally don't get involved in securities issues," Fransasiak noted.

Despite the strong possibility that relief will be not provided soon, political analysts note the money spent fighting Section 31 fees won't be wasted. The view is that when other issues are brought to lawmakers' attention, Capitol Hill will be aware that the trading community has clout.