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Joanna Fields
Traders Magazine Online News

Navigating Cybersecurity on a Stretch of "Regulatory Rapids"

In this shared commentary, Aplomb Strategies writes that when considering a firm’s governance structure, a holistic approach makes the most sense.

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April 1, 2004

The Problem With Section 31 Collections

By Editorial Staff

After years of lobbying by the securities industry, there's still more debate over the controversial Section 31 transaction fee, which trading executives said were unnecessarily high before the recent reforms. Now the Securities Industry Association says in a letter to regulators that the SRO's and SEC's collection methods are faulty.

Ernest Pittarelli, the chairman of the SIA Operations Committee, warned of the "long standing problems of reconciling amounts collected by broker dealers from their customers with the amounts due from self-regulatory organizations to the Commission."

How is the problem occurring? SROs pay the fee by assessing member firms based on the aggregate dollar amount of the securities sales transactions on the exchange or by their members. Members pay the fee by passing them on to clients. The SIA says the problem comes from members not raising brokerage charges owed to the SRO to cover the fee. "Rather, they pass the fee on directly to customers by listing the charge on each sales confirmation. Since broker dealers have no alternative but to assess the fee on each separate sales transaction, i.e., on a per transaction basis, broker dealers do not collect amounts identical to that of the SRO's liability to the SEC, which is based on the aggregate dollar amount of securities sale transactions," the SIA letter noted.

Exchanges usually don't independently calculate the aggregate amount of sales fees they owe. So they often have problems reconciling the fees charged by exchanges with the charges assessed by members, the SIA said. The SIA called for "a uniform, auditable method for allocating the fees."