Commentary

Jos Schmidt
Traders Magazine Online News

Reducing the Regulatory Burden on Public Companies, Yes Please But...

In this commentary, NEO's Jos Schmidt discusses regulatory requirements and needs in the Canadian equity markets.

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August 31, 1999

After Recess, Tango Over the SEC Budget

By William Hoffman

The House and Senate conferees return from their August recess to reconcile Securities and Exchange Commission appropriations bills that set widely differing budgets for the regulatory agency.

The House bill, H.R. 2670, provides $324 million for the SEC in fiscal year 2000. The Senate bill, S. 1217, asked for $370.8 million. The SEC requested $351 million.

Senate Appropriations Committee Chairman Judd Gregg (R-N.H.) reportedly wanted a bigger SEC budget so the agency could crack down on stock fraud over the Internet.

Tight Budgets Blamed

House staffers have been quoted as blaming tight budgets on congressional spending caps negotiated as part of the 1997 balanced budget agreement.

Neither Gregg nor House Appropriations Committee staff was available for further comment.

But Lawrence Harris, a finance and economics professor at the University of Southern California in Los Angeles, said the SEC budget needs adequate funding.

"You can't have it both ways," Harris declared. "You can't complain that we're not enforcing the law and then not pay for the work to be done."

Total fee collections by the SEC hit $1.76 billion in fiscal 1998, so the agency is collecting plenty of money. But, as Harris and others note, since all SEC fees go into the Treasury's general fund, there is no link between the SEC's budget and the fees SEC collects from traders and other market participants.

Section 31 Relief

Why should traders care? Well, there is the question of relief on Section 31 fees levied on their stock trades.

But is the same enthusiasm found this spring in corners of the House for transaction fee relief still there? Yes, according to Craig Donner, press secretary to Rep. Vito Fossella (R-N.Y.).

Fossella's bill, H.R. 1256, which would cap the annual amount of transaction fees the SEC could collect, now has about 50 co-sponsors in the House. The House Commerce subcommittee on Finance and Hazardous Materials held a hearing July 27 on "The Impact of Market Volatility on Securities Transaction Fees," featuring Fossella's legislation. The congressman is optimistic that the bill will be voted out of committee this year, Donner said.

Donner also pointed out that the congressman's bill contains an escape clause: If fee collections fall short of the commission's budget needs, the fee limitations could be increased to abate the shortfall.

That's not likely to happen: Fee collections continue to swell as more Americans join the bull market. Since Congress controls the SEC budget and disposes of the fees the SEC collects, it could avoid Fossella's escape clause simply by reducing the agency's budget if fee collections shrink.

The agency's budget is unlikely to be reduced, however, Donner said. "I think there's a consensus in Congress that the SEC provides an important oversight function," he said, "and I think there's a commitment to fully funding the SEC so they can provide that oversight."