What Is the SEC Fee?
The SEC fee is a nominal fee attached to the sale of exchange-listed equities, above and beyond any associated brokerage commissions, that may ultimately be absorbed by investors. The SEC fee is defined as Section 31 of the Securities Exchange Act of 1934 and is thus often referred to as the Section 31 Transaction Fee.
Since its introduction until 2007, the SEC fee was 1% of one three-hundredth of the dollar value of the equities sold. But after 2007, the fee was slightly increased to 1% of one eight-hundredth of the dollar value of the equities sold.
- The SEC fee is a small fee that securities exchanges and broker-dealers must pay the U.S. Treasury, to help offset the governmental costs associated with regulating the equities market.
- Most of the SEC fees are mainly shouldered by broker-dealers, who, in turn, may pass the costs along to investors.
- Because the SEC fee is a provision under Section 31 of the Securities Exchange Act of 1934, it is often referred to as the Section 31 Transaction Fee.
- The fee is based on the volume of shares traded and applies to the sale of stocks, but not the purchase of stocks.
Understanding the SEC Fee
The proceeds of the SEC fee are collected from the brokerage firms and are eventually funneled back 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 over their platforms.
These exchanges may require broker-dealers to pay a portion of those fees. In many cases, broker-dealers saddled with these added costs, in turn, pass the fiscal burden onto their investment clients.
Why the SEC Fee Is Paid by Exchanges and Brokerages
This SEC fee provides the necessary capital for the government to cover the costs involved in regulating equity dealers and the equities market. Specifically, this fee applies to the sale of most classes of equities and equity-related options but does not impact the purchase of equities in any way.
The SEC annually adjusts the SEC fee, by either increasing or decreasing that figure. On rarer occasions, the SEC makes mid-year adjustments. In any case, the purpose of the adjustments is to standardize the SEC’s total transaction fee intake in a given year. For example, if a securities exchange's transaction volume increases, the SEC will decrease the fee rate, due to the fact that each transaction must now contribute a smaller amount, in order for the exchange to collectively hit its target.
Contrarily, if transaction volume decreases, each transaction must consequently be charged a higher fee to enable the SEC to take in that same target amount.
The SEC fee applies to the sale of stocks, but bonds and other debt instruments are never subject to this fee.
A Case of an Actual Fee Adjustment
In spring 2018, the SEC announced that the fee rates applicable to most securities transactions would be set at $13 per million dollars worth of sales transactions. This change represented a reduction in the fee rate for that year. According to the SEC, this adjustment partially stemmed from significantly higher dollar amounts in the preceding months for qualifying transactions.
The SEC stated that further fee reductions or increases may occur in the future if there is a notable deviation on the number of sales transactions.