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Tim Quast
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We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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March 15, 2007

Traders Cheer Section 31 Cut

By Gregory Bresiger

Trading costs just dropped a bit. Section 31 fees have been cut by the regulators some 50 percent, falling to $30.70 per $1 million of transactions on exchanges and OTC business.

"The investors who bear the burden of these fees deserve relief," said Securities and Exchange Commission Chairman Christopher Cox in a prepared statement. However, trading executives said privately that these lower costs aren't necessarily passed on to the individual investor.

The cut, along with a similar drop in other fees applicable to corporate transactions, amount to a $700 million reduction in securities fees, according to the SEC.

Trading groups applauded the cut. "We are pleased that our efforts on behalf of our members resulted in this significant reduction," said John Giesea, president of the 6,000-member Security Traders Association (STA).

The Section 31 fees, which are used to pay the SEC costs of monitoring equity trades, are officially called "SEC Activity Remittances" in exchange reports. These fees have been heading south since 2004 because of brisk trading volumes.

That's when the STA, along with other securities trade groups, lobbied Congress and the SEC. They argued that the SEC was setting the fees at too high a rate. The regulators were generating a windfall through these fees, they said, taking in more money than they needed to carry out their regulatory duties. Congress, the President and the SEC ultimately agreed. And in June 2004, the SEC reformed Section 31 fees.

The new plan required that the SEC set the fees in line with its actual costs. A new calculation method was put in place. Since 2004, there have multiple Section 31 fee reductions. But often the size of the reductions has disappointed traders.

This time the large cut was warmly endorsed by trading groups.