Jared Dillian
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In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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September 30, 2003

Campaign to Block Huge Fees Increases

By Gregory Bresiger

Those firms with large bulletin board business will be hurt by the NASD's large Trading Activity Fee (TAF) increase. That's what members of the Security Traders Association's Trading Issues Committee are telling the SEC and the National Association of Securities Dealers. The STA was firing off a letter to these bodies as Traders Magazine went to press.

"We believe this would have a major adverse impact on those who do a lot of bulletin board business," STA Chairwoman Mary McDermott-Holland, who's a member of the committee, told Traders Magazine.

Last summer, the SEC approved the NASD's request for a hike in the TAF for covered equities. The fee, which was adopted on a pilot basis in 2002, was raised from $0.00005 per share to $0.0001 per share on September 1st. The fee increase, which is part of a rule change, also calls for the maximum charge per trade to be raised from $5 to $10.

The NASD said that TAF is designed to be "revenue neutral" and "better align NASD's regulatory fees with its functions, efforts and costs." However, STA officials contend that the TAF "disproportionally impacts" lower-priced stocks. This, they claim, results in an unfair tax on market makers and other artificial liquidity providers that are trading small stocks listed on the Bulletin Board and Pink Sheets.

The higher TAF, STA officials assert, could increase spreads. And that, they added, could reduce liquidity for these stocks, hurting the capital accumulation process. NASD officials have argued the higher fee is needed because they are receiving lower than expected revenues from TAF.

Market makers and trading firms are not buying this explanation, according to one New York-based securities industry consultant. This expert, Howard Haykin, said firms expect the new TAF fee structure to result in hefty monthly expenses. He added that firms are also not blind to the fact that the NASD has levied "record fines" in a climate of strong trading volumes and more arbitration filings.