Exchanges and broker-dealers must pay the SEC fee to the U.S. Treasury to cover expenses of regulating the equities market. These fees are primarily borne by broker-dealers and may be passed on to investors. The Section 31 Transaction Fee, established under the Securities Exchange Act of 1934, is calculated based on the number of shares traded and applies to the sale of stocks (excluding stock purchases).
Basics
The SEC fee, also referred to as the Section 31 Transaction Fee, is a nominal fee imposed on the sale of exchange-listed equities in addition to any brokerage commissions. It is defined in Section 31 of the Securities Exchange Act of 1934. Historically, the fee was calculated as 1% of one three-hundredth of the dollar value of the equities sold. However, since 2007, the fee has been slightly increased to 1% of one eight-hundredth of the dollar value of the equities sold. This fee may ultimately be absorbed by investors.
How Does the SEC Fee Work
The SEC fee is collected from brokerage firms and directed back to the U.S. Treasury. National securities exchanges in the U.S. are also subject to this fee, which is based on the volume of securities sold on their platforms. Broker-dealers may be required to contribute a portion of these fees, often passing the costs on to their clients. The SEC fee serves as funding for the government's oversight of equity dealers and the equities market. It applies to the sale of most equity classes and options but does not affect equity purchases.
The SEC adjusts the fee annually, either increasing or decreasing it to achieve a standardized total transaction fee intake for the year. Occasionally, mid-year adjustments are made as well. If a securities exchange experiences an increase in transaction volume, the fee rate is lowered to ensure each transaction contributes a smaller amount, allowing the exchange to reach its target collectively.
Fee Calculation
The SEC fee varies based on transaction volume. If the volume decreases, each transaction is charged a higher fee to meet the SEC's target intake. However, bonds and other debt instruments are exempt from the SEC fee, which only applies to the sale of stocks.
Recent Fee Adjustments
In spring 2018, the SEC announced a reduction in the fee rate for securities transactions, setting it at $13 per million dollars worth of sales transactions. This adjustment was made due to the higher dollar amounts in qualifying transactions leading up to the announcement. The SEC also mentioned the potential for future fee adjustments in response to notable changes in the number of sales transactions. In August 2021, it was announced that the fee rate for 2022 would be $92.70 per million dollars.
Conclusion
The SEC fee is a nominal fee imposed on the sale of exchange-listed equities. It is designed to help cover the expenses of regulating the equities market and applies to the sale of most equity classes and options. Broker-dealers primarily bear the burden of these fees, which may ultimately be absorbed by investors. The SEC adjusts the fee annually, either increasing or decreasing it to achieve a standardized total transaction fee intake for the year.