It Takes an Act of Congress!:
Anatomy of The Competitive Market Supervision Act of 2001

by Sharon Rockey, Contributing Writer

While all of Washington is abuzz with speculation about President Bush's hefty proposed tax cuts, a lesser-known cost-cutting bill has been working its way up through the ranks and getting attention on the congressional floor. This one is aimed at excessive fees imposed by the Securities and Exchange Commission (SEC). Entitled "The Competitive Market Supervision Act of 2001", the bill's primary purpose is to reduce the surcharges associated with the securities industry -- and that means savings for all investors.

Here is the probing question that started the bill rolling: "Is the SEC dipping too deeply into our pockets?"
The answer becomes clear once you understand how the SEC is funded.

Every time a new stock is issued the SEC collects a surcharge. Same goes for each time you buy or sell a stock whether individually or through a mutual fund. The surcharges, officially known as Section 31 fees, made perfect sense back in 1933 when the laws regarding these surcharges were initially enacted. They covered the day-to day operational expenses and the costs of SEC's regulatory oversight.

Through the years, the fees collected have been relatively in-line with the SEC budget. But since the democratization of the securities market in the early 1990's and the resulting surge of market activity, the amount of fees collected has skyrocketed. In fact, as far back as 1983, investors and the securities industry have paid up to four times more in fees than it took to cover SEC costs. Now things are so out of balance, in year 2000, a whopping $2.3 billion was collected to cover a budget of only $377 million. That's a 600% surplus!

What happens to the surplus dollars? They get rolled into the overall federal budget and investors unwittingly end up contributing money to other activities like defense and medical research. These expenditures may be necessary, but it was never intended that Section 31 fees be spent in this manner and it's taking unfair advantage of investors.

While most of the securities industry supports the idea of a well-funded SEC and believe that adequate financial resources are essential for regulatory oversight, investor protection, and for recruiting and retaining staff, they also recognize that the excessive revenue amounts to a needless tax on investors and middle-class citizens trying to provide for their families' futures.

On January 25, 2001, Senate committee chairman Phil Gramm (R-TX) and Sen. Charles Schumer (D-NY) reintroduced The Competitive Market Supervision Act of 2001, a bipartisan securities bill which proposes to finally amend the long-standing Securities Act of 1933 and the Securities Exchange Act of 1934. It only took 68 years, but at least now somebody is paying attention.

This latest generation of the bill (S.143), is similar to the one Gramm introduced in February, 2000. The earlier version was folded into another measure to fund the departments of Justice, Commerce and State and was eventually dropped during budget negotiations between the Congress and the Clinton administration.

Now it's back and if passed, would save investors $14 billion over the next ten years. And since 87% of all Section 31 fees are paid by investors, they will be the ones to receive the bulk of the benefits, whether a small individual investor or through a multi-million dollar mutual fund.

The SEC is in full support of this legislation, not only because it still provides for adequate funding of its operations, but also because of one additional item that sweetens the deal -- it allows them to bring the pay scale for their employees to a level comparable with other financial regulators and this increases the likelihood of recruiting and retaining quality people.

On February 14, 2001, Laura S. Unger, Acting Chair of the SEC gave testimony to the Committee on Banking, Housing and Urban Affairs, United States Senate. "The proposed [act] achieves meaningful reductions in fee rates in a comprehensive manner." she said. "It significantly reduces the burden of excess fees not only on investors and the nation's securities markets, but also on the capital-raising process."

Commenting on the disparity of salaries for SEC employees versus other institutions in the industry, she added, "This disparity is a significant drain on morale. It is difficult to explain to SEC staff why they should not be paid at comparable levels, especially when they are conducting similar oversight, regulatory and examination activities."

Unger's full testimony is worth reading and can be found at:
www.sec.gov/news/testimony/ts012001.htm

And if you enjoy sifting through pages of paragraphs and subparagraphs of legalize, the first version of this bill is posted at:
www.senate.gov~banking/docs/reports/secfee.htm

Meanwhile, to save you the trouble, here's a quick overview:

* S.143 , Competitive Market Supervision Act of 2001 - A Summary of Provisions

Securities Fees Reductions:

• Lowers user fee revenues by capping amount collected
• Reduces all securities user fees - registration, transaction, and merger/tender fees

Savings to Investors:

• Will save investors about * $8 billion over 5 years, and $14 billion over 10 years.
  *According to recent CBO estimates with new soon to be released estimates expected to predict even greater savings.
• Savings will benefit everyone who buys stock, owns a mutual fund, or will use IRAs, 401(k) plans or pension plans to retire

Guaranteed Floors and Ceilings:

• Legislation guarantees 100% funding of SEC by allowing temporary fee increases if collections fall below appropriated SEC budget.
• Legislation guarantees that fees will not exceed caps by requiring temporary fee reductions if collections exceed caps by more than 5%.

Pay Parity for the SEC:

• The SEC pay structure would be changes to match that being used by institutions such as the Federal Reserve Board, Federal Deposit Insurance Corp. etc.
• In 1999 the SEC lost 13% of its employees, an attrition rate nearly twice that of overall government. The new pay structure would help retain top staff.

(*source of S.143 , A Summary of Provisions : Senate Banking Committee Documents Online - 107th Congress)

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