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February 1, 2000

Final Push for Transaction Fee Relief? Legislation May Reduce Section 31's Hidden

By William Hoffman

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  • Final Push for Transaction Fee Relief? Legislation May Reduce Section 31's Hidden

The controversial application of a stock transaction charge, paid twice on some Nasdaq trades, may be finally heading into oblivion.

But don't bet too much on it.

"Coming into this year, I would have given our chances of having a successful passage of [favorable] legislation at 50/50," said Lee Korins, president of the Security Traders Association, speaking about Section 31 fees at a conference in Chicago.

Traders in general, and Nasdaq market makers in particular, argue that as currently arranged, Section 31 fees are unfair. Some market makers say they pay a disproportionate share of the fees because of the large volume of dealer-to-dealer business on Nasdaq. That was not the intention of the authorizing legislation, which has resulted in a huge windfall for the U.S. Treasury.

In Chicago, Korins raised the odds of legislation this year that would reduce the overall burden of Section 31 fees - so-called after the section in securities law authorizing collection - to "60 percent to 65 percent in [our favor]."

"The next 90 to 120 days are crucial in this effort," said Korins, speaking at the same conference, hosted by the Security Traders Association of Chicago. "If we don't get something passed at least in one of the Houses of Congress in that time, then we are probably dead."

Friends in Washington

Korins is counting on friends in Washington. Lawmakers in Congress, spurred by the STA and other Wall Street groups, are considering introducing separate bills in both houses.

Senator Phil Gramm (R-Texas), chairman of the Senate Banking Committee, is weighing feedback on a bill that would include a cap as well as a reduction on transaction fees. Rep. Vito Fossella (R.- N.Y.), who calls the fees a "hidden tax" paid by market makers and other stock traders, is considering the inclusion of a fee reduction in securities reform legislation he is developing. He has support from Rep. Robert Menendez (D.- N.J.).

Rep. Fossella said he plans to send the House Sub Committee on Finance and Hazardous Materials a draft Securities Markets Enhancement Act (SMEA) this spring.

"The goal is to streamline the securities legislation to ensure free and open markets," Fossella said during a telephone interview. Fossella has been meeting with House colleagues, federal and state regulators, stock traders, and broker dealers, he said, to "take a snapshot" of industry and government concerns.

Section 31 fees, mandated by the Securities Exchange Act of 1934, are currently collected at a rate equal to 1/300 of one percent of the aggregate dollar amount of sales of securities. This formula generated nearly $1.8 billion in revenues in 1998, the last year for which complete figures are available, according to the watchdog group, the National Taxpayers Union.

Yet the Securities and Exchange Commission, whose operations are partially funded by Section 31 fees, got a total appropriation from Congress of $315 million that year. The windfall reflected surging stock volume in the bull market.

Currently, the fee is scheduled to be reduced to 1/800th of one percent on aggregate dollar sales of securities starting in fiscal 2007.