What Is Trading Activity Fee?
A trading activity fee is a small charge imposed on the sale of certain securities, primarily designed to fund the regulation and oversight of the financial market. This fee falls under the broader category of securities regulation and is typically collected by Self-Regulatory Organizations (SROs) like stock exchanges and FINRA (Financial Industry Regulatory Authority), who then remit these funds to the Securities and Exchange Commission (SEC) and the U.S. Treasury. Although often passed on to individual investors by their broker-dealer, the direct obligation for the trading activity fee rests with these SROs.
History and Origin
The primary trading activity fee, often referred to as the Section 31 fee, originated with the Securities Exchange Act of 1934. Section 31 of this Act mandates that each Self-Regulatory Organization (SRO) pay the SEC a fee based on the aggregate dollar amount of certain securities sales12. The purpose of these collections is to offset the government's costs associated with supervising and regulating the securities markets and professionals within them11. While the statutory obligation lies with the SROs, they commonly adopt rules requiring their member firms to pay per-transaction charges, which are then often passed through to customers10. The fee rate is not static; the SEC is required to adjust it annually, and sometimes mid-year, to ensure the collected amount aligns with the Commission's appropriated budget8, 9. For instance, recent adjustments have seen the fee rate change to $0.00 per million dollars for most covered sales occurring on or after May 14, 2025, due to sufficient collections for the fiscal year7.
Key Takeaways
- A trading activity fee is a regulatory charge on the sale of securities, primarily to fund market oversight.
- It is mandated by Section 31 of the Securities Exchange Act of 1934 and collected by Self-Regulatory Organizations (SROs).
- While paid by SROs, the fee is typically passed through to investors by their broker-dealers.
- The fee rate is periodically adjusted by the SEC and applies to sales, not purchases.
- It is distinct from a broker's commission or other transaction costs.
Formula and Calculation
The trading activity fee (specifically, the Section 31 fee) is calculated based on the aggregate dollar amount of sales of covered securities. The rate is set periodically by the SEC.
The general formula is:
Where:
- Fee Rate: The per-million-dollar rate determined and announced by the SEC. This rate can change multiple times within a fiscal year6.
- Aggregate Dollar Amount of Sales: The total gross proceeds from the sale of covered securities (e.g., equity shares, option contracts, bonds).
For example, if the fee rate is $27.80 per million dollars, a sale of $100,000 worth of securities would incur a fee of:
Note that for security futures transactions, a separate per-round-turn fee applies5.
Interpreting the Trading Activity Fee
The trading activity fee is a non-negotiable regulatory cost rather than a variable that reflects market conditions or a broker's service. For market participants, understanding this fee primarily involves recognizing that it is an inherent part of selling securities and contributes to the infrastructure of market regulation. Its small size means it rarely significantly impacts an individual's trading decisions, especially for smaller trades. However, for firms engaged in high-volume trading, these regulatory fees can accumulate and become a more substantial consideration. It serves as a funding mechanism for the regulatory bodies responsible for maintaining fair and orderly markets.
Hypothetical Example
Consider an investor, Alex, who decides to sell 500 shares of XYZ Corp. stock at $200 per share.
The total value of the sale is (500 \text{ shares} \times $200/\text{share} = $100,000).
Let's assume the SEC's trading activity fee rate at the time of the sale is $27.80 per million dollars of covered sales.
To calculate the trading activity fee:
- Convert the dollar amount of sales into millions:
( $100,000 / $1,000,000 = 0.1 \text{ million dollars} ) - Multiply by the fee rate:
( 0.1 \text{ million dollars} \times $27.80/\text{million} = $2.78 )
So, Alex would incur a trading activity fee of $2.78 on this sale, in addition to any brokerage commissions or other charges. This fee would typically appear as a separate line item on the trade confirmation statement issued by Alex's broker-dealer. The fee is based on the trading volume of the sale.
Practical Applications
The trading activity fee is a standard component of costs when selling securities in the United States. It is explicitly listed on brokerage statements and trade confirmations, often alongside other regulatory fees or exchange fees. For example, brokerages like Charles Schwab detail "Section 31 Fee" as part of their account fees, explaining that it is assessed by the SEC to exchanges and FINRA, and subsequently passed to their member firms4.
This fee applies to the sale of most exchange-listed securities, including equity, option, and certain bond transactions. It is important for investors to recognize this fee not as a profit center for their broker, but as a pass-through charge designed to support the regulatory framework of the U.S. markets. The collection of this fee helps ensure the solvency and operational capacity of the SEC, enabling its oversight functions in the financial market.
Limitations and Criticisms
While necessary for funding market regulation, the trading activity fee can sometimes be a point of discussion, particularly for high-volume trading operations. Even though the per-transaction amount is minuscule for individual investors, firms engaging in high-frequency trading or those executing millions of trades daily can see these small fees accumulate into significant transaction costs. Some critics argue that any fee, however small, can theoretically impact market liquidity by increasing the cost of making markets, potentially discouraging frequent trading3.
Furthermore, the mechanism by which the SEC adjusts the fee rate based on its appropriated budget means that periods of high trading volume can lead to rapid adjustments in the fee rate, sometimes even reducing it to zero if the target collection amount is met or exceeded mid-year2. This variability, while reflecting the regulatory mandate, can introduce minor uncertainty for financial operations that need to account for all costs.
Trading Activity Fee vs. Transaction Fee
The terms "trading activity fee" and "transaction fee" are often used interchangeably, but they represent distinct concepts in the context of securities trading. A trading activity fee, particularly the Section 31 fee, is a specific regulatory charge levied on the sale of securities, with the primary purpose of funding the operations of the SEC and other market regulators. It is a mandatory, government-mandated charge that is typically passed through to the investor.
In contrast, a transaction fee is a much broader term that encompasses any charge associated with the execution of a trade. This can include, but is not limited to, brokerage commissions, exchange fees, clearing fees, and the aforementioned trading activity fee. Brokerage commissions, for instance, are service charges imposed by a broker-dealer for facilitating a trade. While a trading activity fee is a type of transaction fee, not all transaction fees are trading activity fees. The key distinction lies in the regulatory nature and the specific purpose of the trading activity fee.
FAQs
Q1: Who pays the trading activity fee?
A1: While the direct statutory obligation to pay the trading activity fee (Section 31 fee) rests with Self-Regulatory Organization (SRO)s like stock exchanges and FINRA, they typically pass this cost on to their member broker-dealers, who, in turn, generally pass it on to the investors involved in the sale of securities.
Q2: Does the trading activity fee apply to buying and selling?
A2: No, the primary trading activity fee (Section 31 fee) only applies to the sale of certain securities, not to their purchase.
Q3: How often does the trading activity fee rate change?
A3: The Securities and Exchange Commission (SEC) is statutorily required to adjust the fee rate annually. It can also make mid-year adjustments if necessary to ensure that the collected fees align with the SEC's appropriated budget1.
Q4: Is the trading activity fee the same as a brokerage commission?
A4: No. A brokerage commission is a fee charged by your broker for executing a trade on your behalf. A trading activity fee is a separate, government-mandmandated regulatory fee that is collected on sales of securities to fund market regulation.
Q5: How can I see the trading activity fee I paid?
A5: The trading activity fee will typically appear as a separate line item on the trade confirmation statement provided by your broker-dealer after you sell securities.