Legislators consider reducing fees for all sorts of stock transactions, but critics say it could weaken securities fraud enforcement--among other complaints.
The Investor and Capital Markets Fee Relief Act would reduce the fees that companies and investors pay to the government for all sorts of stock transactions. Supporters say it would reduce the amount of fees paid by $14 billion over the next 10 years.
The House and the Senate have already approved different versions of the act, which they will work on reconciling when they return after Labor Day.
While most of the fee reductions will apply to corporations and institutional investors, individual investors will get a break too, albeit a tiny one.
The U.S. Securities and Exchange Commission currently collects fees on every equity sold over an exchange. The legislation would lower the rate from 1/300th of one percent to $15 per $1 million of the dollar amount of securities transacted. So the fee on a $100 transaction would drop from .003 cent to .0015 cent.
That's probably not enough to register with the average investor, but the bill's sponsors estimate that the "average American family" could save as much as $1,300 over their lifetime with the elimination of these fees. Of course, that figure depends on how much stock trading the family does.
The fees were initially instituted back in the 1930s and were designed to pay for the SEC. But with the increases in the amount and value of the stock markets, the fees have swelled far beyond what it takes to keep the SEC going.
This fiscal year, the fees are expected to raise an estimated $2.5 billion, roughly 600 percent more than the SEC's $422 million budget, according to Rep. Vito Fossella, R-N.Y., a sponsor of the bill.
"The fees hinder productivity, limit investment and reduce the efficiency of the markets. Over time, they have grown into a massive tax on investors and capital and a nearly $2 billion drag on the markets," he said in a statement.
The bills target three sets of fees: Section 31 fees, assessed when stock is sold; Section 14 fees, assessed on businesses when they file merger and tender offers; and 6(b) registration fees, assessed when companies register with exchanges.
Will it hurt or help?
Not surprisingly, the legislation has won widespread support on Wall Street, but some critics note that the fee cuts could hurt the SEC's efforts to curb securities fraud.
"American investors are charged many times the amount needed to fund the market regulation provided by the Securities and Exchange Commission," Nasdaq Stock Market CEO Hardwick Simmons wrote in a letter to Congress. "This tax on investment amounts to billions of dollars of excess fee collections."
The legislation has the support of the White House and is essentially a shoo-in for passage once Congress returns from its summer holiday.
The administration has taken issue with a provision in the bills that would raise the salaries of SEC employees, a move that the sponsors say will help the commission retain employees leaving for higher-paying jobs on Wall Street.
The White House has advocated dealing with all government pay issues together, as opposed to an agency-by-agency basis.
And some have complained that the extra money may be sorely missed.
Rep. John LaFalce, D-N.Y., had argued for a smaller reduction in the fees, saying that the government was also using the money to fund the FBI and the Justice Department, and that if anything, the SEC needs more money to pay for additional enforcement.
"I think the SEC budget and the Justice Department and FBI budget dealing with securities should be beefed up at least 200 (percent) to 300 percent in order to protect the American investor, who is in the marketplace today far, far greater than the investor has ever been at any point in America's history," he said during a congressional debate on the issue. "Unfortunately, (the bill) will preclude the type of effective enforcement that I believe we need."