Order Code RS20204
Updated April 3, 2002
CRS Report for Congress
Received through the CRS Web
Securities Fees and SEC Pay Parity:
H.R. 1088 and S. 143
Mark Jickling
Specialist in Public Finance
Government and Finance Division
Summary
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 the fees by lowering the percentage rates
of some fees and by setting annual caps on others. CRS Report RS20953 analyzes the
impact on collections through FY2011 – the new law is estimated to reduce collections
by about $1.5 billion per year, on average. 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 funds for this purpose have not yet been
appropriated. This report, which will be updated to reflect legislative developments,
provides background and analysis of the securities market fee and pay parity issues.
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

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! Fees on mergers and tender offers, which are bids to acquire publicly-
traded corporations through purchase of their stock.3
P.L. 107-123 reduces 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.
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 Fee
Total
Section 31 (stock sales)
1,090.1
Section 6(b) (new issues)
1,102.9
Mergers & tender offers
78.3
Totals
2,271.3
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 could be significantly lower than the CBO’s forecasts.
3 Pursuant to Sections 13(e)(3) and 14(g) of the Securities Exchange Act of 1934.

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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 Law
Current Law (P.L. 107-123)
Fiscal Year
CBO Fee Collections
Estimated
Change 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
Totals
30,141
15,094
-15,047
Source: Calculated by CRS using April 2001 baseline forecasts by the
Congressional Budget Office (CBO).
Background
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, the
SEC collects in fees a sum approximately equal to the cost of running the agency.”4
However, since the enactment of NSMIA, stock market prices and trading volumes
have soared (as has the value of new securities offered for sale) and giant corporate
mergers have occurred at a record pace. The Congressional Budget Office (CBO) projects
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.

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that the amounts collected will continue to grow until NSMIA’s final reductions of fee
rates take effect in fiscal 2007.
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 can properly be asked 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
Both House and Senate passed securities fee reduction bills. On March 22, 2001,
S.143 passed the Senate by unanimous consent. (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.) On June 14, 2001, H.R. 1088 passed the House
by recorded vote: 404 - 22. H.R. 1088 passed the Senate without amendment by
Unanimous Consent on December 20, 2001, and 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 has 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.

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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 FY 2002 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 FY 2003 budget requested $466.9 million for the SEC, not
enough to fully fund pay parity. In the wake of the Enron scandal, the Chairman and
ranking member of the House Financial Services Committee have introduced bills (H.R.
3764 and H.R. 3818) that would authorize appropriations for the SEC of $700 million and
$876 million, respectively. These bills intend to allow greater SEC scrutiny of corporate
accounting practices, but presumably pay parity funds could be found in the general
increase.

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