Thursday, May 04, 2006

SEC Cuts Fees -- Will It Matter?

Yesterday, the SEC gleefully issued a press release entitled, “SEC Announces Billion Dollar Fee Cut to Benefit Investors.” Well happy day!  But will it matter?

I got my hopes up on this one, anticipating something that would cause commissions to drop even further. After all, the SEC clearly said that they didn’t want the brokers to pocket these cuts in fees.  The cuts happened to benefit investors!  It’s right there in the title!

With the help of several of my contacts in the online brokerage industry, I learned that the fees in question are currently quite small, and just get eaten by most brokers.  One of the fees, called a Section 31 fee, is charged to the seller of a security (stock or option) at the rate of $30.70 per million dollars.  So if you went out tomorrow and unloaded $100,000 of stock, the SEC Section 31 fee would amount to $3.07.  In October, that fee will drop to $15.30 per million, or $1.53 for our hypothetical $100,000. 


The other piece of the fee cut involves registration fees for new issues and other actions related to IPOs (Section 6(b), Section 13(e) and Section 14(g)), which is dropping from $107.00 per million dollars in sales to $30.70.  That may affect new offerings, but it’s unclear how much it will cut costs. 

I’m disappointed by the headline the SEC used to trumpet these fee cuts.  My first reaction was, “Hey, there’s got to be a great story here!” But after a little digging around, and a very informative phone call from Tom Sosnoff of thinkorswim—Thanks, Tom!—I learned that there’s not much of a story. 

Posted by twcarey on 05/04 at 11:20 AM
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