Saturday, February 17, 2007

An SEC Filing Fee Reduction Designed to Benefit Shareholders?

The SEC has announced drastic reductions in the filing fees. The fee cuts that will go into effect next week and are significant: fees to register securities with the Commission will be reduced by 71.3 percent, and fees on securities transactions will be reduced by 50.2 percent.

OK, that is nice, and I suppose it is good to see the government reducing fees. But I am puzzled by this quotation, and the headline of the press release, as above:


"The investors who bear the burden of these SEC fees deserve this relief," said SEC Chairman Christopher Cox. "It will mean that more of their hard earned savings will be available for important needs such as education, health care, and retirement — and less will be diverted to Washington."


At first I thought this was a joke, but it's not. Investors are going to keep more of their hard earned savings because the SEC has cut filing fees for public companies? I usually support the Commission, and always support reduced government fees, but does anyone seriously believe that a reduction in corporate filing fees is going to go to shareholders? The savings are going to remain in the corporate coffers, is going to be used to pay salary, bonuses, back-dated options, whatever. That money is not going to the shareholders.

Now, I understand that part of the reduced fee is in the Section 31 fee, what we commonly call the "SEC Fee" on a securities transaction. You have seen it on your confirmation slips. It is actually a pass through - the SEC charges the exchanges a fee to recoup costs, the exchange charges the brokerage firms, and the firms charge the customers. Those fees are annually adjusted, and as volume goes up, the fee goes down.

Part of the reduction is in the Section 31 fees; about 15 million of the $700 million, and I suppose one could argue that the 15 million is going back to investors. Great. How many securities transactions are conducted in the United States? Of those millions and millions of transactions how many are made by individual investors? Tell me again how this is helping investors? The reduction is 15 million dollars in fees, divided by....how many Americans purchase securities? Here sir, here is 5 cents, please use it to pay for your education, health insurance and retirement.

On the other side of the coin, since when is the SEC so flush with money that it can reduce its fees by 70%? I am by no means intimately familiar with where the SEC's budget comes from, but at the end of the day, the money comes from us - me, and you and those shareholders that Chairman Cox is talking about.

But the SEC answers that question - "The adjusted fee rates will not affect the amount of funding available to the Commission." OK, let me see. We are going to reduce SEC fees by $700 million dollars, and the SEC's funding is going to remain the same.

Alrighty then, I give up. Who is going to pay the $700 million that those fees are now adding to the funding, and where is it going to come from?

I smell a tax increase.

The SEC does not have enough money to do its job. It can't keep up with its function, and is falling behind. Is the government also reducing its budget to keep up with the loss in income? Or are we just going to continue to underfund the Commission?

Or are we going to raise taxes to cover the filing fee shortfall?

Someone explain this to me.
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