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April 1, 2000

Gramm Move to Reduce Transaction Fees

By William Hoffman

Proponents of Section 31 fee relief have had their hopes buoyed by the introduction of the Competitive Market Supervision Act by Senate Banking Committee Chairman Phil Gramm (R.-Texas).

"This is a real improvement," said Lee Korins, president of the Security Traders Association. "It's the first time in my memory that the SEC, in the person of [chairman] Arthur Levitt, has come out in favor of one of the approaches."

In prepared testimony to a committee hearing in New York City, Levitt said, "We look forward to working toward this bill's passage through a reasoned and inclusive dialogue with you and other interested parties."

Nerve Center

Gramm's S. 2107 would also reduce fee rates on securities registration, and on mergers and tenders, to $67 per $1 million valuation through 2006, and $33 per $1 million thereafter.

Gramm told securities industry leaders at the hearing, "I never come to Wall Street, I never come to the financial markets in New York City, that I don't become acutely aware that this is the nerve center of American capitalism. And knowing what capitalism has meant to America and the world, to me this is a holy place."

Securities industry leaders have complained that Section 31 transaction fees are levied in amounts far in excess of regulators' needs. The fees are ostensibly collected to support functions of the Securities and Exchange Commission. In fact, the fees are turned over to the federal Treasury's general fund and then reallocated by Congress to the SEC and other federal programs.

Levitt noted in his testimony that Section 31 fees alone will raise $486 million (of nearly $2 billion collected through various SEC fees) in fiscal 2001, toward an agency budget of $423 million. Korins calls the amount "unconscionable... This is no longer a fee. It's an out-and-out tax."

Getting a Break

James Spellman, a spokesman for the Securities Industry Association, applauded Gramm's bill for addressing other securities fees as well. "In our view, by reducing these fees, we could save investors $7.9 billion over five years, and $14.4 billion over 10 years," Spellman said, adding, "Of course, it's imperative that the SEC be fully funded."

Korins said he expects Gramm's sponsorship will carry weight with other members in moving fee reductions through Congress. Yet he also expects Congress will insist that lost fee revenues be made up. Those lost fees would include sums now collected in excess of SEC budget needs.

Spellman noted that this debate will take place against the backdrop of election year plans for a projected federal budget surplus, and efforts to ensure a sustainable Social Security program.

White House

President Clinton has not indicated whether he will support fee reduction. Spellman said he'll be watching the Office of Management and Budget for a signal of Clinton's intent.

"There is broadening support on the Hill" for fee reduction, Spellman said, while warning "it's too early to say" whether proponents can carry the day.

"We are more optimistic this year than we've been in a few years," Korins said. "Though, as I've always said, when money goes to Washington, it's tough to get it back."