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May 31, 2000

Traders Cynical About Section 31 Fee Relief

By William Hoffman

Relief from excessive Section 31 transaction fees has never been closer. That was the view of most speakers at the Security Traders Association's Congressional Conference in Washington.

Yet some Wall Street trading pros wondered if their best hope for relief this year wasn't in fact slipping away.

"They all seemed to say the same thing about Section 31," said Alan Katz, a senior equity trader at Merrill Lynch Asset Management in Plainsboro, N.J.

"They all seemed to be hedging themselves to some extent," Katz added in an interview at the conclusion of the recent conference in Washington. "Everyone's saying they're for [Section 31 fee relief], but I think there's a little credibility problem there."

There was one prominent exception. Alone among the members of Congress speaking, Rep. Eliot Engel (D-N.Y.) told listeners, "I don't know that anything is going to pass this year. I don't think we're going to pass much of anything of substance this year."

Congressional Solidarity

Other traders and trading executives at the STA conference echoed Katz's statements. The consensus seemed to be that congressional representatives wanted to help fee relief proponents, without hurting their re-election efforts.

Sen. Charles Schumer (D-N.Y.), describing himself as "a balanced budget Democrat," led the charge. "We have a great chance of moving this bill now," he asserted.

He called Sen. Phil Gramm's fee-reducing Competitive Market Supervision Act (S. 2107) "Gramm-Schumer," because of his co-sponsorship. "Because Sen. Gramm and I are on it," he added, "it won't get involved in a partisan brawl."

Sen. Rod Grams (R-Minn.) estimated Section 31 relief could save investors $19 billion over the next 10 years. Grams said fee relief's biggest hurdle is the precarious balancing of the federal budget. "But we think we can overcome that," he said. (The budget is generally agreed to be in actual, as opposed to accounting, surplus.)

Potential Pitfalls

Yet other speakers highlighted potential pitfalls. Rep. Mike Oxley (R-Ohio), chairman of the House subcommittee on finance and hazardous materials, noted that Rep. John Dingell (D-Mich.), ranking minority member of the House Commerce Committee, denounced Section 31 relief as a direct assault on school lunch program budgets. Anytime the House Appropriations Committee is faced with surrendering revenues from the government's general fund, Oxley said, "It is a difficult lift."

"It's a potentially easy issue to demagogue if you don't know the facts," Oxley said. On the other hand, he said supportive comments by Securities and Exchange Commission Chairman Arthur Levitt should help the fee relief cause. (Levitt has promised salary hikes for SEC staff in Gramm's bill.)

Of the proposals competing for attention on Capitol Hill, Engel singled out Rep. Vito Fossella's (R-N.Y.) original H.R. 1256 as the most difficult to administer. Engel said Fossella's proposal, of a sliding cap on total Section 31 fees collected for the SEC, would have hit hardest those traders who paid fees early in the year. It might also have exempted traders later in the year once the cap had been reached.

Fossella's bill is now being reconciled with H.R. 2441, by Rep. Rick Lazio (R-N.Y.). It reduces the fee from 1/300th of one percent of the value of a trade to 1/500th of one percent.