Sherrille D. Akin Co. LLC, lawyers in Westerville, OH, Ohio

Section 31 or SEC Transaction Fees

Under Section 31 of the Securities Exchange Act of 1934, 15 U.S.C.S. ? 78ee, the Securities and Exchange Commission recovers costs of regulating securities markets and transactions. Section 31 fees, which exceeded $1 billion in 2004, are "designed to recover the costs to the Government of the supervision and regulation of securities markets and securities professionals, and costs related to such supervision and regulation, including enforcement activities, policy and rulemaking activities, administration, legal services, and international regulatory activities." 15 U.S.C.S. ? 78ee(a).

Section 31 fees are imposed by the Securities and Exchange Commission on self-regulatory organizations such as the national stock exchanges and NASDAQ based on the aggregate dollar amount of sales of securities through the exchanges. While the fees are not charged by the Commission to investors, the self-regulatory organizations typically pass the charges on to their broker-dealer members, who in turn pass the charges on to their investor customers. It has been determined in judicial decisions that whether the charges are considered a fee or a tax, the charges may be passed on by the self-regulatory organizations. It also has been decided that there is no private right of action for investors provided in Section 31 to contest the legality of the fees being passed on by those organizations.

The Commission is obligated to review annually (and in some instances semi-annually) the rate at which transaction fees are imposed on self-regulatory organizations so that the amount of funding needed to cover the expense of government regulation of the securities industry is matched to the sums raised by the fees. Thus, as the total dollar volume of transactions anticipated by the Commission rises, the transaction fee will decline, and as the volume of transactions declines, the transaction fee will rise.

Section 31 also requires imposition of fees on transactions in securities futures. However, such charges are termed assessments rather than fees. Assessments are charged per "round turn" transaction or combined purchase and sale of a futures contract. Unlike fees, assessment charges are not adjusted periodically to account for projected market volume.

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