Securities Fees and SEC Pay Parity: H.R. 1088 and S. 143

CRS Report for Congress
Securities Fees and SEC Pay Parity
Mark Jickling
Specialist in Public Finance
Government and Finance Division
Sellers of corporate stock, companies that issue new stocks and bonds, and bidders
in corporate takeovers all pay fees to the Securities and Exchange Commission (SEC).
These fees were enacted to fund the SEC, but the amount of fees collected in recent
years has far exceeded the SEC’s budget. (In FY2000, the SEC collected $2.27 billion
in fees, while the agency’s budget was $377 million.) Legislation enacted by the 107th
Congress (P.L. 107-123, H.R. 1088) reduced securities fees by lowering the percentage
rates of some fees and by setting annual caps on the amounts collected by others. The
law also included “pay parity” provisions that allow the SEC to raise salaries for certain
employees to levels comparable to the salaries of federal bank examiners, but the 107th
Congress adjourned before funds for this purpose were appropriated. This report
provides background and analysis of the securities market fee and pay parity legislation
enacted in the 107th Congress. It will not be updated further.
Securities Transaction Fees: Background
Since the 1930s, the securities laws have imposed fees on certain transactions in
securities markets. The principal fees are:
!Section 6(b)1 registration fees, paid by corporations when they register
new stocks and bonds for sale to investors.
!Section 312 transaction fees, paid by sellers of corporate stock on the
stock exchanges and the Nasdaq market. (Bonds and other debt
securities are exempt).

1 Of the Securities Act of 1933.
2 Of the Securities Exchange Act of 1934.
Congressional Research Service ˜ The Library of Congress

!Fees on mergers and tender offers, which are bids to acquire publicly-
traded corporations through purchase of their stock.3
P.L. 107-123 reduced the basic rate of the 6(b) fees from $200 per $1 million in
securities sold, or 1/50th of 1 percent, to $92 per $1 million. The Section 31 fee rate was
reduced from 1/300th of 1% to $12 per million in stock sales. The new law also includes
dollar figures called "target offsetting collection amounts" for both Section 31 and 6(b)
fees for fiscal years 2002 through 2011. The SEC is required to adjust the basic rates for
those fees to make it "reasonably likely" that collections would equal the target amounts.
The basic fee rate for merger and tender offers was reduced from $200 to $92 per
million, and will be adjusted annually to the same level as the 6(b) fees.
In March 2002, the SEC began issuing fee rate advisories, adjusting the rates to
achieve the target amounts. On October 18, 2002, the rates were set for FY22003 as
follows: $30.10 per million in stock sales (Section 31 fee) and $92 per million for the 6(b)
and merger and tender offer fees.
Table 1 below shows the amounts collected in FY2000, by type of fee.
Table 1. Securities Transaction Fees Collected in FY2000
(in millions of dollars)
Type of FeeTotal
Section 31 (stock sales)1,090.1
Section 6(b) (new issues)1,102.9
Mergers & tender offers78.3
Source: Securities and Exchange Commission.
Table 2 shows estimates of collections under the old fee schedule and the new rates
established by P.L. 107-123. The figures depend on Congressional Budget Office (CBO)
estimates of future stock prices and the volume of securities market transactions, which
are extremely difficult to predict. If the stock, bond, and merger markets underperform
the CBO estimates, fee collections (under the old law, where rates were fixed) might have
been significantly lower than the CBO’s forecasts. (The forecasts were made in early

2001, before the worst of the recent stock market price declines.)

3 Pursuant to Sections 13(e)(3) and 14(g) of the Securities Exchange Act of 1934.

Table 2. Estimated Collections of Securities Fees,
Under P.L. 107-123 and the Former Fee Schedules:
Fiscal Years 2002-2011
(All figures in millions of dollars)
Old LawCurrent Law (P.L. 107-123)
Fiscal YearCBO Fee Collections EstimatedChange From Old
Forecast Collections Law
2002 2,872 1,212 -1,660
2003 3,188 1,309 -1,879
2004 3,523 1,525 -1,998
2005 3,958 1,827 -2,131
2006 4,444 2,172 -2,272
2007 2,079 1,141 -938
2008 2,124 1,177 -947
2009 2,373 1,368 -1,005
2010 2,641 1,566 -1,075
2011 2,939 1,797 -1,142
Tot a l s 30,141 15,094 -15,047
Source: Calculated by CRS using April 2001 baseline forecasts by the
Congressional Budget Office (CBO).
Congress addressed the issue of the SEC fee “surplus” in 1996. The National
Securities Markets Improvement Act of 1996 (NSMIA, P.L. 104-290) reduced the Section

6(b) and Section 31 fees, and enacted further reductions to take effect in fiscal 2007.

According to the conference report, NSMIA’s intent was “to reduce over time the fees
collected by the [SEC]” and to ensure “that at the end of the applicable 10 year period, the4
SEC collects in fees a sum approximately equal to the cost of running the agency.”
However, following the enactment of NSMIA, stock market prices and trading
volumes soared (as did the value of new securities offered for sale) and giant corporate
mergers occurred at a record pace. The CBO in 2001 projected that the amounts collected

4 U.S. Congress. House. National Securities Markets Improvement Act of 1996: Joint
Explanatory Statement of the Committee of Conference. House Con. Report 104-864. p. 40.

would continue to grow until NSMIA’s final reductions of fee rates take effect in fiscal


The case for lowering the fees was based on considerations of fairness. Since the
fees were enacted to fund the SEC, supporters of fee reduction argued that securities
market participants should be expected to pay the cost of federal regulation of the market,
but not more. In this view, the surplus over the SEC budget is an unwarranted tax on
capital formation and savings – user fees have become taxes that lower investment returns
and subtract from business spending on new productive capacity and jobs. Opposition to
fee reduction was based on general fiscal principles. The Clinton administration opposed
fee reduction legislation in the 106th Congress,5 on the grounds that there were higher
budgetary priorities than lowering fees paid by investors and the securities industry.
Congressional Action to Reduce Fee Collections
In the 107th Congress, House and Senate passed separate securities fee reduction
bills. On March 22, 2001, S. 143 passed the Senate by unanimous consent. On June 14,
2001, H.R. 1088 passed the House by recorded vote: 404 - 22. (S. 143 proposed different
reductions in the individual fees, but the overall impact on total fee collections would
have been approximately equal to the House bill.) The Senate passed H.R. 1088 without
amendment by Unanimous Consent on December 20, 2001, and it was signed into law on
January 16, 2002.
SEC Pay Parity
P.L. 107-123 also includes provisions that permit the SEC to raise salaries for certain
of its employees to the levels of federal bank examiners, whose pay exceeds the normal
civil service scale by a considerable margin. The law directs the SEC to consult with the
bank regulators to ensure that this pay parity is maintained.
The SEC has argued that pay parity is necessary to allow it to attract and retain
qualified personnel. The agency complains that it suffers from a very high rate of
employee turnover because of the high salaries available in the securities industry.
The Office of Personnel Management (OPM) opposed the pay parity provisions
because of concerns about the fragmentation of personnel systems and adverse effects on
the portability of federal employees. In a May 15, 2001 letter to Chairman Dan Burton of
the House Government Reform Committee, OPM noted that in March 2001 it approved
special pay rates for SEC lawyers, accountants, and examiners. The letter recommended
that the pay parity provisions not be enacted until the effectiveness of these special pay
rates can be assessed, and also called for more study of the SEC pay situation. Chairman
Burton stated that the SEC pay raises should not be enacted without a broad review of the
effects on the civil service system.

5 Transaction Fee Measure Clears House Commerce Committee. Securities Regulation & Law
Report, v. 32, October 16, 2000. p. 1405.

Latest Developments
Estimates of the cost of granting pay parity raises to SEC employees are in the range
of $60-80 million. The Senate version of the FY2002 Commerce-State-Justice
appropriations legislation provided $60 million for this purpose, but this provision was not
adopted in conference. (The SEC’s FY2002 budget was set at $437.9 million.)
The Administration’s FY2003 budget requested $466.9 million for the SEC, not
enough to fully fund pay parity. In the wake of the Enron scandal, Congress passed the
Sarbanes-Oxley accounting reform legislation (P.L. 107-204), which included a provision
authorizing appropriations of $776 million for the SEC in FY2003. However, at the endth
of the 107 Congress, no appropriation for the SEC had been enacted, leaving the agency
operating under a continuing resolution at FY2002 budget levels.