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January 1, 1999

Section 31 Bandwagon Picks Up More Steam:A New Effort for Transaction Relief Is Planned by New Yo

By Jeffrey L. Winograd

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  • Section 31 Bandwagon Picks Up More Steam:A New Effort for Transaction Relief Is Planned by New Yo

A bill to reduce the amount of revenue raised in so-called Section 31 transaction fees is expected to be introduced in the House of Representatives as early as this month.

Amid reports of past tension among securities-industry activists on the same issue, Traders Magazine has learned that Rep. Michael Forbes (R.-N.Y.) and Rep. Sue Kelley (R.-N.Y.) plan to introduce the bill. It will seek to reduce the fees charged on each stock transaction from 1/300th of one percent to 1/600th of one percent.

At the moment, it is not clear who will lead the fight on the securities-industry side, but it seems certain the Security Traders Association, which led a Section 31 Coalition last year, will take an active role.

Although outgoing STA President John Tognino is joining the National Association of Securities Dealers, he remains an enthusiastic supporter of a relief bill.

In early December, Tognino huddled with Section 31 lobbyists at the law firm of Williams & Jensen, as well as with industry allies, during a day-long series of meetings.

While Tognino's action left little doubt that the STA wants to remain the industry leader on the issue, there are rumors that the Securities Industry Association might assume the lead instead. An SIA official dismissed the suggestion, saying only that the organization was just beginning to consider its legislative priorities in 1999.

NYSE Discontent?

Meanwhile, reports have circulated that the New York Stock Exchange was dissatisfied with how last year's Section 31 relief campaign was conducted. According to a source, NYSE Chairman Richard Grasso expressed concern that a proposal to have a cap on fees, instead of an outright fee reduction, was more favorable to the dealer market. The Section 31 Coalition unsuccessfully tried to have such a bill attached to the 1998 Omnibus Appropriations Bill.

"The NYSE favored a fee reduction because it is easier to administer than a cap, and it doesn't penalize those who trade later in the year," the source explained.

A spokesman for the NYSE declined to comment for this story. Tognino did not return telephone calls seeking comment.

A bill to reduce the size of Section 31 fees, by an amount similar to what is reportedly pending in their upcoming bill, was introduced last summer by Forbes and Kelley.

The bill was endorsed in August by ten major securities markets, including the NASD and the NYSE, which was a member of the Section 31 coalition.

But fast-moving events in Congress soon changed the course of history.

By September, the Forbes-Kelley proposal was playing second fiddle to a bill that would have capped annual Section 31 collections. The prime mover of that bill was Rep. Gerald Solomon (R-N.Y.), the then chairman of the House Rules Committee.

Over the next month, Solomon was able to get the entire House Republican leadership, except then House Speaker Newt Gingrich, to sign on as co-sponsors. Solomon, however, was being stymied by House Commerce Committee Chairman Thomas Bliley (R-Va.).

Undeterred, Solomon crafted a compromise bill for a one-year cap on fees aimed at giving Bliley time to hold committee hearings.

At this point, sources said the NYSE was informed that a fee cap, rather than a fee reduction, would favor Nasdaq traders over NYSE specialists.