DEFINITION of SEC Fee
The SEC fee is a nominal fee that was created by the Securities Exchange Act of 1934 to be an additional transaction cost attached to the selling of exchange-listed equities. This fee is usually listed as a separate fee, independent of any associated brokerage commissions or fees. The SEC fee is more formally known as the Section 31 transaction fee in reference to Section 31 of the Securities Exchange Act of 1934.
Up until 2007, the fee is 1% of one three-hundredth of the dollar value of the equities sold. After 2007, the fee will be 1% of one eight-hundredth of the dollar value of the equities sold.
BREAKING DOWN SEC Fee
The proceeds of the SEC fee are collected from the brokerage firms and are eventually returned to the U.S. Treasury. National securities exchanges in the U.S. must also pay this transaction-based fee, which in their case is derived from the volume of securities sold through their markets. The rules for respective securities exchanges may require broker-dealers to pay a portion of the fees. In turn, those broker-dealers might put the burden of the fees on their customers by passing along those costs. Brokerages might also choose special instances where they will not pass the SEC fee on to their customers.
Why the SEC Fee Is Paid by Exchanges and Brokerages
This fee provides the necessary capital for the government to pay for the costs involved in the SEC's regulation of equity dealers and the equities market. Notably, this fund only applies to the selling of most classes of equities and equity-related options. Debt instruments, such as bonds, are not charged this fee. The SEC fee is not applied to the purchase of stocks – only to the selling side of the transaction.
Section 31 requires fee rates to be adjusted by the SEC at regular intervals, annually and sometimes midyear, with the potential for increases and decreases. The intent of the adjustments is to make the SEC’s total collection of transaction fees in a given year as close as possible to the regular annual appropriation to the commission that is granted by Congress. In spring 2018, for example, the SEC announced that the fee rates applicable to most securities transactions would be set at $13 per million dollars.
This was a reduction in the fee rate for fiscal year 2018 that the SEC said partially stemmed from significantly higher dollar amounts in the preceding months for qualifying transactions. The SEC went on to say that if there would be a deviation from the levels at the time on the dollar amount for covered sales transactions, reductions or increases on the fee rate could be necessary.