Sec section 31 fee

What Is Sec section 31 fee?

The Sec section 31 fee is a mandatory charge imposed on certain securities sales transactions in the United States, collected by the Securities and Exchange Commission (SEC) through self-regulatory organizations (SROs) like stock exchanges and the Financial Industry Regulatory Authority (FINRA). This fee falls under the broader category of Securities Regulation and serves to recover the costs incurred by the government for supervising and regulating the capital markets and securities professionals. While often appearing on an investor's confirmation slip, the Sec section 31 fee is technically paid by SROs to the SEC, who then pass these transaction costs on to their member broker-dealers, who in turn typically pass them to their customers²⁵, ²⁶.

History and Origin

The foundation for the Sec section 31 fee lies in the Securities Exchange Act of 1934, a landmark piece of legislation enacted during the Great Depression. This Act was a response to the widespread abuses and lack of transparency that contributed to the 1929 stock market crash, aiming to restore public confidence in the financial system. It established the Securities and Exchange Commission (SEC), granting it broad authority to regulate the securities industry, including the power to oversee securities exchanges, brokers, and dealers, and to require important disclosures from publicly traded companies²³, ²⁴.

Section 31 of this Act specifically mandates that SROs pay fees to the SEC based on the volume of securities sold on their markets. These fees are designed to offset the government's costs associated with its oversight functions. The principle is that those who benefit from the regulated markets should contribute to the cost of their supervision, ensuring the integrity and efficiency of trading. The creation of the SEC and the subsequent imposition of fees like the Sec section 31 fee marked a significant shift towards greater government involvement in financial oversight, with the mission to protect investors, maintain fair markets, and facilitate capital formation²².

Key Takeaways

• The Sec section 31 fee is a regulatory charge on certain securities sales, primarily equity securities, collected by the SEC to fund its supervisory activities.
• It is mandated by Section 31 of the Securities Exchange Act of 1934, reflecting the government's commitment to robust financial regulation.
• While passed on to investors, the fee is technically paid by self-regulatory organizations (SROs) and their member broker-dealers to the SEC.
• The fee rate is periodically adjusted by the SEC to align total collections with the agency's annual appropriation from Congress.
• It is a small, per-dollar-value fee, distinct from brokerage commissions or other trading charges.

Formula and Calculation

The Sec section 31 fee is calculated based on the aggregate dollar amount of covered sales of securities. The fee rate, which can fluctuate, is typically expressed as a certain dollar amount per million dollars of sales. The Securities and Exchange Commission adjusts this rate to ensure that the total fees collected align with the agency's annual Congressional appropriation²⁰, ²¹.

The formula for calculating the Sec section 31 fee for a given sale of covered securities is:

Where:

• Aggregate Dollar Amount of Sale: The total monetary value of the securities sold in a transaction.
• Fee Rate: The specific rate set by the SEC, expressed as a decimal (e.g., $0.00002780 for $27.80 per million dollars).

For transactions involving security futures, the fee is assessed on a per-round-turn transaction basis, with a different rate¹⁸, ¹⁹.

Interpreting the Sec section 31 fee

The Sec section 31 fee, though small, is a direct reflection of the cost of market efficiency and investor protection in the U.S. financial system. For investors, it typically appears as a minor line item on their trade confirmation statements when selling exchange-listed securities or options contracts. Its presence signifies that a portion of the transaction value contributes to the operational budget of the SEC, which is responsible for safeguarding investors and ensuring fair and orderly markets.

The fluctuating nature of the Sec section 31 fee rate is also notable. The SEC adjusts this rate based on projected trading volumes to meet its annual funding targets set by Congress¹⁷. If market activity and sales volumes are expected to be high, the per-dollar fee rate may be lowered, as more transactions will contribute to the target. Conversely, if trading volumes are anticipated to be low, the rate may be increased to ensure the SEC still collects its necessary funding. This adjustment mechanism highlights the fee's role as a revenue-generating tool for regulatory oversight, rather than a fixed tax on trading.

Hypothetical Example

Consider an individual, Sarah, who decides to sell 100 shares of XYZ Corp. stock at a price of $50 per share.

1. Calculate the aggregate dollar amount of the sale:
   100 shares * $50/share = $5,000

2. Determine the current Sec section 31 fee rate:
   Let's assume the current Sec section 31 fee rate is $27.80 per million dollars, as stated in a recent advisory¹⁶. This translates to a decimal rate of 0.00002780.

3. Calculate the Sec section 31 fee:
   Fee = $5,000 * 0.00002780 = $0.139

Therefore, Sarah would see a Sec section 31 fee of approximately $0.14 deducted from the proceeds of her stock sale, in addition to any brokerage commissions or other charges. This small amount directly contributes to the funding of the regulatory activities that help oversee the secondary market where her transaction took place.

Practical Applications

The Sec section 31 fee is a fundamental component of the regulatory framework governing securities transactions. Its practical application is observed in several key areas:

• Funding Regulatory Oversight: The primary purpose of the Sec section 31 fee is to provide the SEC with the necessary funds to carry out its mission, which includes protecting investors, maintaining fair markets, and facilitating capital formation¹⁵. These funds support investigations, enforcement actions against market misconduct, and the development and implementation of new rules to address evolving market dynamics.
• Transaction Processing: Broker-dealers and SROs integrate the calculation and collection of the Sec section 31 fee into their trading systems. This ensures that the fee is automatically applied to eligible sales transactions, streamlining the collection process for the Treasury Department.
• Cost of Doing Business: For market participants, particularly broker-dealers, the Sec section 31 fee represents a mandatory cost of doing business in U.S. securities markets. While often passed on to clients, firms must accurately track and remit these fees to the relevant SROs, which in turn pay the SEC¹⁴.
• Economic Impact: Although individual fees are small, the aggregate amount collected from the Sec section 31 fee contributes significantly to the SEC's budget. This helps maintain a well-regulated and liquid securities market, which benefits all participants. The fee applies to sales of most exchange-listed equities and equity-related options.

Limitations and Criticisms

While essential for funding the SEC's operations, the Sec section 31 fee does have certain limitations and implications. One common point of discussion is that the fee is often passed directly to individual investors, meaning that market participants who engage in frequent selling activities will incur higher cumulative costs. Although the individual fee per transaction is minimal, especially for smaller trades, it adds to the overall cost of trading for investors.

Furthermore, the mechanism for adjusting the Sec section 31 fee rate can lead to volatility in the per-transaction charge. As the SEC adjusts the fee rate annually, and sometimes mid-year, to meet its congressional appropriation based on projected aggregate sales volume, investors may experience changes in the fee without direct relation to their individual trading activity¹², ¹³. If market volumes unexpectedly decline, the fee rate per transaction may increase to compensate, effectively shifting a larger per-unit burden onto fewer transactions. Conversely, high trading volumes can lead to a lower per-transaction fee, as recently observed with a planned rate of $0.00 per million dollars for covered sales starting in May 2025 due to expected collections¹¹. This reactive adjustment can sometimes make it challenging for investors and firms to predict precise trading costs.

Sec section 31 fee vs. Trading Activity Fee

The Sec section 31 fee and the Trading Activity Fee (TAF) are both regulatory fees related to securities transactions, but they serve different purposes and are collected by different entities. Confusion often arises because both appear as small charges on brokerage statements.

While both fees are ultimately passed on to investors by broker-dealers, the key distinction lies in their beneficiaries and underlying mandates. The Sec section 31 fee directly supports the federal regulator (SEC), whereas the TAF supports a major self-regulatory organization (FINRA), which oversees broker-dealers and helps ensure market integrity⁷, ⁸.

FAQs

Q: Who actually pays the Sec section 31 fee?

A: While the Sec section 31 fee is often passed on to individual investors and appears on their trade confirmation, it is technically paid by self-regulatory organizations (SROs), such as stock exchanges, to the SEC. These SROs then charge their member broker-dealers a portion of these fees, which the broker-dealers typically recover from their customers when they sell securities⁵, ⁶.

Q: Why does the Sec section 31 fee rate change?

A: The SEC adjusts the Sec section 31 fee rate periodically, usually annually and sometimes mid-year, to ensure that the total amount of fees collected matches the SEC's annual funding appropriation from Congress³, ⁴. If the projected volume of securities sales is high, the per-dollar fee rate may decrease; if sales volume is anticipated to be low, the rate may increase. This ensures the SEC collects the necessary funds regardless of market activity.

Q: Does the Sec section 31 fee apply to both buying and selling securities?

A: No, the Sec section 31 fee generally applies only to the sale of certain covered securities, such as exchange-listed equities and equity options, not to their purchase. This is different from brokerage commissions, which may apply to both buy and sell transactions depending on the broker's fee structure.

Q: How can I find the current Sec section 31 fee rate?

A: The SEC publishes regular "Fee Rate Advisories" on its official website, typically in the "Press Releases" or "Fee Rate Advisories" section. These advisories announce the current and upcoming Sec section 31 fee rates¹, ². This information is publicly accessible and important for understanding compliance requirements.