The reform of the law on stock transaction fees was a difficult battle, a battle that once looked
like it was becoming a farce. After four years of fits and starts, Congress finally delivered a bill that satisfies the cherished goal of leaders in the trading communities – a bill that over ten years will collectively save trading firms and individual investors an estimated $14 billion in so-called Section 31(a) and related fees. As Traders Magazine went to press, all that remains is the signature of President George W. Bush before the "Investor and Capital Markets Fee Relief Act" (H.R. 1088) – passed by the Senate last month and by the House last June – is enacted into law. (For another look at this issue, turn to The Observer column by Gregory Bresiger, on our website, www. tradersmagazine.com)
This was a battle to overturn what is, in effect, a backdoor tax on stock transactions – a battle that some said took a surprisingly long time in reaching a successful conclusion. The case for reform was clear-cut: The fees were generating more than six times the revenues needed for their intended purpose – funding the operating budget of the Securities and Exchange Commission. That surplus ends up in the U.S general treasury where it can be used to keep Washington occupied with the people's money. The new bill reins in the enormous collections generated by the deceptively small Section 31(a) fees – currently charged at the rate of 1/300th of one percent on a stock transaction. And it also ensures that SEC professional staff are compensated in line with federal officials in other regulatory agencies.
The reform efforts had widespread appeal on both sides of the aisle, but amazingly, each time a bill came tantalizingly close to passage in Congress, it floundered. At one point, this popular legislation nearly died over the issue of SEC pay parity provisions. The Security Traders Association, which took the lead in trying to reform the application of these transaction fees, continued to press its case on Capitol Hill. Still, at its annual Washington conference last year, a succession of powerful lawmakers seemed embarrassed and sounded apologetic for having failed to bring positive news on reform. Indeed, it was now or never. Now because, if Section 31(a) reform had failed again this year, Congress would have likely diverted its attention to other matters of state, including the war efforts overseas and economic stimulus in the faltering economy.
One more setback on reform would not only have risked losing the interest of major and minor media in a matter of equity in the securities markets, but would have probably attracted media cynicism towards the players in this affair. It would have been a demoralizing blow as well to the STA, a group which staked so much energy on this singular issue, starting in the reign of John Tognino, continuing through the leadership of Lee Korins. Now Korins and his successor, John Giesea, and all others involved, can stand proud before the members of the STA's 29 affiliates, emboldened by victory. In the end, it was a great victory (and a welcome New Year's package) for all industry activists, but most especially for the STA. It means that the STA is a more political and powerful force on Wall Street.
John A. Byrne Editor