Order Making Fiscal Year 2008 Annual Adjustments to the Fee Rates Applicable Under Section 6(b) of the Securities Act of 1933 and Sections 13(e), 14(g), 31(b), and 31(c) of the Securities Exchange Act of 1934, 25809-25823 [07-2194]

Download as PDF Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices least 80% of its total assets in component securities and investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of its Underlying Index. Applicants expect that each New Fund will have a tracking error relative to the performance of its respective Underlying Index of less than 5 percent. 5. Applicants state that a New Fund will comply with the federal securities laws in accepting a deposit of a portfolio of securities designated by the Adviser to correspond generally to the price and yield of the New Fund’s Underlying Index (‘‘Deposit Securities’’) 2 and satisfying redemptions with portfolio securities of the New Fund (‘‘Fund Securities’’), including that the Deposit Securities and Fund Securities are sold in transactions that would be exempt from registration under the Securities Act.3 6. Applicants state that the New Funds will operate in a manner identical to the operation of the existing series of the Trusts in the Prior Order, except as specifically noted by applicants (and summarized in this notice), and will comply with all of the terms, provisions and conditions of the Prior Order, as amended by the present application. Applicants believe that the requested relief continues to meet the necessary exemptive standards. pwalker on PROD1PC71 with NOTICES Future Relief 7. Applicants also seek to amend the Prior Order to modify the terms under which the Trusts may offer additional series in the future based on other securities indices (‘‘Future Funds’’). The Prior Order is currently subject to a condition that does not permit applicants to register the shares of any Future Fund by means of filing a posteffective amendment to a Trust’s 2 Applicants state that a cash-in-lieu amount will replace any ‘‘to-be-announced’’ (‘‘TBA’’) transaction that is listed as a Deposit Security of any New Fund. A TBA transaction is a method of trading mortgagebacked securities where the buyer and seller agree upon general trade parameters such as agency, settlement date, par amount and price. The actual pools delivered generally are determined two days prior to the settlement date. The amount of substituted cash in the case of TBA transactions will be equivalent to the value of the TBA transaction listed as a Deposit Security. 3 In accepting Deposit Securities and satisfying redemptions with Fund Securities that are restricted securities eligible for resale pursuant to rule 144A under the Securities Act, New Funds will comply with the conditions of rule 144A, including in satisfying redemptions with such rule 144A eligible restricted Fund Securities. The prospectus for a New Fund will also state that an authorized participant that is not a ‘‘Qualified Institutional Buyer,’’ as defined in rule 144A under the Securities Act, will not be able to receive, as part of a redemption, restricted securities eligible for resale under rule 144A. VerDate Aug<31>2005 18:36 May 04, 2007 Jkt 211001 registration statement or by any other means, unless applicants have requested and received with respect to such Future Fund, either exemptive relief from the Commission or a no-action letter from the Division of Investment Management of the Commission, or if the Future Fund could be listed on a national securities exchange (‘‘Exchange’’) without the need for a filing pursuant to rule 19b–4 under the Exchange Act. 8. The order would amend the Prior Order to delete this condition. Any Future Funds will (a) be advised by the Adviser or an entity controlled by or under common control with the Adviser; (b) track Underlying Indices that are created, compiled, sponsored or maintained by an entity that is not an affiliated person, as defined in section 2(a)(3) of the Act, or an affiliated person of an affiliated person, of the Adviser, the Distributor, the Trusts or any SubAdviser or promoter of a Future Fund, and (c) comply with the respective terms and conditions of the Prior Order, as amended by the present application. 9. Applicants believe that the modification of the future relief available under the Prior Order would be consistent with sections 6(c) and 17(b) of the Act and that granting the requested relief will facilitate the timely creation of Future Funds and the commencement of secondary market trading of such Future Funds by removing the need to seek additional exemptive relief. Applicants submit that the terms and conditions of the Prior Order have been appropriate for the existing series of the Trusts and would remain appropriate for Future Funds. Applicants also submit that tying exemptive relief under the Act to the ability of a Future Fund to be listed on an Exchange without the need for a rule 19b–4 filing under the Exchange Act is not necessary to meet the standards under sections 6(c) and 17(b) of the Act. Applicants’ Condition Applicants agree that any amended order granting the requested relief will be subject to the same conditions as those imposed by the Prior Order, except for condition 1 to the Prior Order, which will be deleted. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Florence E. Harmon, Deputy Secretary. [FR Doc. E7–8598 Filed 5–4–07; 8:45 am] BILLING CODE 8010–01–P PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 25809 SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting FEDERAL REGISTER CITATION OF PREVIOUS ANNOUNCEMENT: [To be Published]. Closed meeting. 100 F Street, NE., Washington, STATUS: PLACE: DC. DATE AND TIME OF PREVIOUSLY ANNOUNCED MEETING: Tuesday, May 8, 2007 at 2 p.m. Time change. The closed meeting scheduled for Tuesday, May 8, 2007 at 2 p.m. has been changed to Tuesday, May 8, 2007 at 12:30 p.m. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact the Office of the Secretary at (202) 551–5400. CHANGE IN THE MEETING: Dated: May 2, 2007. Florence E. Harmon, Deputy Secretary. [FR Doc. E7–8649 Filed 5–4–07; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release Nos. 33–8794; 34–55682] Order Making Fiscal Year 2008 Annual Adjustments to the Fee Rates Applicable Under Section 6(b) of the Securities Act of 1933 and Sections 13(e), 14(g), 31(b), and 31(c) of the Securities Exchange Act of 1934 April 30, 2007. I. Background The Commission collects fees under various provisions of the securities laws. Section 6(b) of the Securities Act of 1933 (‘‘Securities Act’’) requires the Commission to collect fees from issuers on the registration of securities.1 Section 13(e) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) requires the Commission to collect fees on specified repurchases of securities.2 Section 14(g) of the Exchange Act requires the Commission to collect fees on proxy solicitations and statements in corporate control transactions.3 Finally, Sections 31(b) and (c) of the Exchange Act require national securities exchanges and national securities associations, respectively, to pay fees to the 1 15 U.S.C. 77f(b). U.S.C. 78m(e). 3 15 U.S.C. 78n(g). 2 15 E:\FR\FM\07MYN1.SGM 07MYN1 25810 Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices Commission on transactions in specified securities.4 The Investor and Capital Markets Fee Relief Act (‘‘Fee Relief Act’’) 5 amended Section 6(b) of the Securities Act and Sections 13(e), 14(g), and 31 of the Exchange Act to require the Commission to make annual adjustments to the fee rates applicable under these sections for each of the fiscal years 2003 through 2011, and one final adjustment to fix the fee rates under these sections for fiscal year 2012 and beyond.6 pwalker on PROD1PC71 with NOTICES II. Fiscal Year 2008 Annual Adjustment to the Fee Rates Applicable Under Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of the Exchange Act Section 6(b)(5) of the Securities Act requires the Commission to make an annual adjustment to the fee rate applicable under Section 6(b) of the Securities Act in each of the fiscal years 2003 through 2011.7 In those same fiscal years, Sections 13(e)(5) and 14(g)(5) of the Exchange Act require the Commission to adjust the fee rates under Sections 13(e) and 14(g) to a rate that is equal to the rate that is applicable under Section 6(b). In other words, the annual adjustment to the fee rate under Section 6(b) of the Securities Act also sets the annual adjustment to the fee rates under Sections 13(e) and 14(g) of the Exchange Act. Section 6(b)(5) sets forth the method for determining the annual adjustment to the fee rate under Section 6(b) for fiscal year 2008. Specifically, the Commission must adjust the fee rate under Section 6(b) to a ‘‘rate that, when applied to the baseline estimate of the aggregate maximum offering prices for [fiscal year 2008], is reasonably likely to produce aggregate fee collections under [Section 6(b)] that are equal to the target offsetting collection amount for [fiscal 4 15 U.S.C. 78ee(b) and (c). In addition, Section 31(d) of the Exchange Act requires the Commission to collect assessments from national securities exchanges and national securities associations for round turn transactions on security futures. 15 U.S.C. 78ee(d). 5 Pub. L. No. 107–123, 115 Stat. 2390 (2002). 6 See 15 U.S.C. 77f(b)(5), 77f(b)(6), 78m(e)(5), 78m(e)(6), 78n(g)(5), 78n(g)(6), 78ee(j)(1), and 78ee(j)(3). Section 31(j)(2) of the Exchange Act, 15 U.S.C. 78ee(j)(2), also requires the Commission, in specified circumstances, to make a mid-year adjustment to the fee rates under Sections 31(b) and (c) of the Exchange Act in fiscal years 2002 through 2011. 7 The annual adjustments are designed to adjust the fee rate in a given fiscal year so that, when applied to the aggregate maximum offering price at which securities are proposed to be offered for the fiscal year, it is reasonably likely to produce total fee collections under Section 6(b) equal to the ‘‘target offsetting collection amount’’ specified in Section 6(b)(11)(A) for that fiscal year. VerDate Aug<31>2005 18:36 May 04, 2007 Jkt 211001 year 2008].’’ That is, the adjusted rate is determined by dividing the ‘‘target offsetting collection amount’’ for fiscal year 2008 by the ‘‘baseline estimate of the aggregate maximum offering prices’’ for fiscal year 2008. Section 6(b)(11)(A) specifies that the ‘‘target offsetting collection amount’’ for fiscal year 2008 is $234,000,000.8 Section 6(b)(11)(B) defines the ‘‘baseline estimate of the aggregate maximum offering price’’ for fiscal year 2008 as ‘‘the baseline estimate of the aggregate maximum offering price at which securities are proposed to be offered pursuant to registration statements filed with the Commission during [fiscal year 2008] as determined by the Commission, after consultation with the Congressional Budget Office and the Office of Management and Budget * * *.’’ To make the baseline estimate of the aggregate maximum offering price for fiscal year 2008, the Commission is using the same methodology it developed in consultation with the Congressional Budget Office (‘‘CBO’’) and Office of Management and Budget (‘‘OMB’’) to project aggregate offering price for purposes of the fiscal year 2007 annual adjustment. Using this methodology, the Commission determines the ‘‘baseline estimate of the aggregate maximum offering price’’ for fiscal year 2008 to be $5,959,775,433,491.9 Based on this estimate, the Commission calculates the fee rate for fiscal 2008 to be $39.30 per million. This adjusted fee rate applies to Section 6(b) of the Securities Act, as well as to Sections 13(e) and 14(g) of the Exchange Act. III. Fiscal Year 2008 Annual Adjustment to the Fee Rates Applicable Under Sections 31(b) and (c) of the Exchange Act Section 31(b) of the Exchange Act requires each national securities 8 Congress determined the target offsetting collection amounts by applying reduced fee rates to the CBO’s January 2001 projections of the aggregate maximum offering prices for fiscal years 2002 through 2011. In any fiscal year through fiscal year 2011, the annual adjustment mechanism will result in additional fee rate reductions if the CBO’s January 2001 projection of the aggregate maximum offering prices for the fiscal year proves to be too low, and fee rate increases if the CBO’s January 2001 projection of the aggregate maximum offering prices for the fiscal year proves to be too high. 9 Appendix A explains how we determined the ‘‘baseline estimate of the aggregate maximum offering price’’ for fiscal year 2008 using our methodology, and then shows the purely arithmetical process of calculating the fiscal year 2008 annual adjustment based on that estimate. The appendix includes the data used by the Commission in making its ‘‘baseline estimate of the aggregate maximum offering price’’ for fiscal year 2008. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 exchange to pay the Commission a fee at a rate, as adjusted by our order pursuant to Section 31(j)(2),10 which currently is $15.30 per million of the aggregate dollar amount of sales of specified securities transacted on the exchange. Similarly, Section 31(c) requires each national securities association to pay the Commission a fee at the same adjusted rate on the aggregate dollar amount of sales of specified securities transacted by or through any member of the association otherwise than on an exchange. Section 31(j)(1) requires the Commission to make annual adjustments to the fee rates applicable under Sections 31(b) and (c) for each of the fiscal years 2003 through 2011.11 Section 31(j)(1) specifies the method for determining the annual adjustment for fiscal year 2008. Specifically, the Commission must adjust the rates under Sections 31(b) and (c) to a ‘‘uniform adjusted rate that, when applied to the baseline estimate of the aggregate dollar amount of sales for [fiscal year 2008], is reasonably likely to produce aggregate fee collections under [Section 31] (including assessments collected under [Section 31(d)]) that are equal to the target offsetting collection amount for [fiscal year 2008].’’ Section 31(l)(1) specifies that the ‘‘target offsetting collection amount’’ for fiscal year 2008 is $892,000,000.12 Section 31(l)(2) defines the ‘‘baseline estimate of the aggregate dollar amount of sales’’ as ‘‘the baseline estimate of the aggregate dollar amount of sales of securities * * * to be transacted on each national securities exchange and by or through any member of each national securities association (otherwise than on a national securities 10 Order Making Fiscal Year 2007 Annual Adjustments to the Fee Rates Applicable under Section 6(b) of the Securities Act of 1933 and Sections 13(e), 14(g), 31(b) and 31(c) of the Securities Exchange Act of 1934, Rel. No. 33–8681 (April 28, 2006), 71 FR 26132 (May 3, 2006). 11 The annual adjustments, as well as the midyear adjustments required in specified circumstances under Section 31(j)(2) in fiscal years 2002 through 2011, are designed to adjust the fee rates in a given fiscal year so that, when applied to the aggregate dollar volume of sales for the fiscal year, they are reasonably likely to produce total fee collections under Section 31 equal to the ‘‘target offsetting collection amount’’ specified in Section 31(l)(1) for that fiscal year. 12 Congress determined the target offsetting collection amounts by applying reduced fee rates to the CBO’s January 2001 projections of dollar volume for fiscal years 2002 through 2011. In any fiscal year through fiscal year 2011, the annual and, in specified circumstances, mid-year adjustment mechanisms will result in additional fee rate reductions if the CBO’s January 2001 projection of dollar volume for the fiscal year proves to be too low, and fee rate increases if the CBO’s January 2001 projection of dollar volume for the fiscal year proves to be too high. E:\FR\FM\07MYN1.SGM 07MYN1 Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices exchange) during [fiscal year 2008] as determined by the Commission, after consultation with the Congressional Budget Office and the Office of Management and Budget * * *.’’ To make the baseline estimate of the aggregate dollar amount of sales for fiscal year 2008, the Commission is using the same methodology it developed in consultation with the CBO and OMB to project dollar volume for purposes of prior fee adjustments.13 Using this methodology, the Commission calculates the baseline estimate of the aggregate dollar amount of sales for fiscal year 2008 to be $78,732,152,559,457. Based on this estimate, and an estimated collection of $18,017 in assessments on security futures transactions under Section 31(d) in fiscal year 2008, the uniform adjusted rate for fiscal year 2008 is 11.00 per million.14 IV. Effective Dates of the Annual Adjustments Section 6(b)(8)(A) of the Securities Act provides that the fiscal year 2008 annual adjustment to the fee rate applicable under Section 6(b) of the Securities Act shall take effect on the later of October 1, 2007, or five days after the date on which a regular appropriation to the Commission for fiscal year 2008 is enacted.15 Section 13(e)(8)(A) and 14(g)(8)(A) of the Exchange Act provide for the same effective date for the annual adjustments to the fee rates applicable under Sections 13(e) and 14(g) of the Exchange Act.16 Section 31(j)(4)(A) of the Exchange Act provides that the fiscal year 2008 annual adjustments to the fee rates applicable under Sections 31(b) and (c) of the Exchange Act shall take effect on the later of October 1, 2007, or 30 days after the date on which a regular appropriation to the Commission for fiscal year 2008 is enacted. of October 1, 2007, or five days after the date on which a regular appropriation to the Commission for fiscal year 2008 is enacted; and It is further ordered that the fee rates applicable under Sections 31(b) and (c) of the Exchange Act shall be $11.00 per million effective on the later of October 1, 2007, or 30 days after the date on which a regular appropriation to the Commission for fiscal year 2008 is enacted. By the Commission. Nancy M. Morris, Secretary. Appendix A With the passage of the Investor and Capital Markets Relief Act, Congress has, among other things, established a target amount of monies to be collected from fees charged to issuers based on the value of their registrations. This appendix provides the formula for determining such fees, which the Commission adjusts annually. Congress has mandated that the Commission determine these fees based on the ‘‘aggregate maximum offering prices,’’ which measures the aggregate dollar amount of securities registered with the Commission over the course of the year. In order to maximize the likelihood that the amount of monies targeted by Congress will be collected, the fee rate must be set to reflect projected aggregate maximum offering prices. As a percentage, the fee rate equals the ratio of the target amounts of monies to the projected aggregate maximum offering prices. For 2008, the Commission has estimated the aggregate maximum offering prices by projecting forward the trend established in the previous decade. More specifically, an ARIMA model was used to forecast the value of the aggregate maximum offering prices for months subsequent to March 2007, the last month for which the Commission has data on the aggregate maximum offering prices. The following sections describe this process in detail. Accordingly, pursuant to Section 6(b) of the Securities Act and Sections 13(e), 14(g), and 31 of the Exchange Act,17 It is hereby ordered that the fee rates applicable under Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of the Exchange Act shall be $39.30 per million effective on the later A. Baseline Estimate of the Aggregate Maximum Offering Prices for Fiscal Year 2008 First, calculate the aggregate maximum offering prices (AMOP) for each month in the sample (March 1997–March 2007). Next, calculate the percentage change in the AMOP from month to month. Model the monthly percentage change in AMOP as a first order moving average process. The moving average approach allows one to model the effect that an exceptionally high (or low) observation of AMOP tends to be followed by a more ‘‘typical’’ value of AMOP. 13 Appendix B explains how we determined the ‘‘baseline estimate of the aggregate dollar amount of sales’’ for fiscal year 2007 using our methodology, and then shows the purely arithmetical process of calculating the fiscal year 2007 annual adjustment based on that estimate. The appendix also includes the data used by the Commission in making its ‘‘baseline estimate of the aggregate dollar amount of sales’’ for fiscal year 2007. 14 The calculation of the adjusted fee rate assumes that the current fee rate of $15.30 per million will apply through October 31, 2007, due to the pwalker on PROD1PC71 with NOTICES V. Conclusion VerDate Aug<31>2005 18:36 May 04, 2007 Jkt 211001 PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 25811 Use the estimated moving average model to forecast the monthly percent change in AMOP. These percent changes can then be applied to obtain forecasts of the total dollar value of registrations. The following is a more formal (mathematical) description of the procedure: 1. Begin with the monthly data for AMOP. The sample spans ten years, from March 1997 to March 2007. 2. Divide each month’s AMOP (column C) by the number of trading days in that month (column B) to obtain the average daily AMOP (AAMOP, column D). 3. For each month t, the natural logarithm of AAMOP is reported in column E. 4. Calculate the change in log(AAMOP) from the previous month as Dt = log (AAMOPt) ¥ log(AAMOPt–1). This approximates the percentage change. 5. Estimate the first order moving average model Dt = a + bet–1 + et, where et denotes the forecast error for month t. The forecast error is simply the difference between the one-month ahead forecast and the actual realization of Dt. The forecast error is expressed as et = Dt ¥ a ¥ bt–1. The model can be estimated using standard commercially available software such as SAS or Eviews. Using least squares, the estimated parameter values are a = 0.00781 and b = ¥0.76766. 6. For the month of April 2007 forecast Dt = 4/07 = a + bet = 3/07. For all subsequent months, forecast Dt = a. 7. Calculate forecasts of log(AAMOP). For example, the forecast of log(AAMOP) for June 2007 is given by FLAAMOP t = 6/07 = log(AAMOP t = 3/07) + D t = 4/07 + Dt = 5/07 + Dt = 6/07. 8. Under the assumption that et is normally distributed, the n-step ahead forecast of AAMOP is given by exp(FLAAMOPt + sn2/2), where sn denotes the standard error of the nstep ahead forecast. 9. For June 2007, this gives a forecast AAMOP of $21.2 Billion (Column I), and a forecast AMOP of $444.9 Billion (Column J). 10. Iterate this process through September 2008 to obtain a baseline estimate of the aggregate maximum offering prices for fiscal year 2008 of $5,959,775,433,491. B. Using the Forecasts From A to Calculate the New Fee Rate 1. Using the data from Table A, estimate the aggregate maximum offering prices between 10/1/07 and 9/30/08 to be $5,959,775,433,491. 2. The rate necessary to collect the target $234,000,000 in fee revenues set by Congress is then calculated as: $234,000,000 ÷ $5,959,775,433,491 = 0.00003926 (or $39.30 per million.). BILLING CODE 8010–01–P operation of the effective date provision contained in Section 31(j)(4)(A) of the Exchange Act. 15 15 U.S.C. 77f(b)(8)(A). 16 15 U.S.C. 78m(e)(8)(A) and 78n(g)(8)(A). 17 15 U.S.C. 77f(b), 78m(e), 78n(g), and 78ee(j). E:\FR\FM\07MYN1.SGM 07MYN1 VerDate Aug<31>2005 Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices 18:36 May 04, 2007 Jkt 211001 PO 00000 Frm 00077 Fmt 4703 Sfmt 4725 E:\FR\FM\07MYN1.SGM 07MYN1 EN07MY07.051</GPH> pwalker on PROD1PC71 with NOTICES 25812 VerDate Aug<31>2005 18:36 May 04, 2007 Jkt 211001 PO 00000 Frm 00078 Fmt 4703 Sfmt 4725 E:\FR\FM\07MYN1.SGM 07MYN1 25813 EN07MY07.052</GPH> pwalker on PROD1PC71 with NOTICES Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices VerDate Aug<31>2005 Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices 18:36 May 04, 2007 Jkt 211001 PO 00000 Frm 00079 Fmt 4703 Sfmt 4725 E:\FR\FM\07MYN1.SGM 07MYN1 EN07MY07.053</GPH> pwalker on PROD1PC71 with NOTICES 25814 VerDate Aug<31>2005 18:36 May 04, 2007 Jkt 211001 PO 00000 Frm 00080 Fmt 4703 Sfmt 4725 E:\FR\FM\07MYN1.SGM 07MYN1 25815 EN07MY07.054</GPH> pwalker on PROD1PC71 with NOTICES Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices VerDate Aug<31>2005 Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices 18:36 May 04, 2007 Jkt 211001 PO 00000 Frm 00081 Fmt 4703 Sfmt 4725 E:\FR\FM\07MYN1.SGM 07MYN1 EN07MY07.055</GPH> pwalker on PROD1PC71 with NOTICES 25816 VerDate Aug<31>2005 18:36 May 04, 2007 Jkt 211001 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 E:\FR\FM\07MYN1.SGM 07MYN1 25817 EN07MY07.056</GPH> pwalker on PROD1PC71 with NOTICES Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices 25818 Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices BILLING CODE 8010–01–C Appendix B With the passage of the Investor and Capital Markets Relief Act, Congress has, among other things, established a target amount of monies to be collected from fees charged to investors based on the value of their transactions. This appendix provides the formula for determining such fees, which the Commission adjusts annually, and may adjust semi-annually.18 In order to maximize the likelihood that the amount of monies targeted by Congress will be collected, the fee rate must be set to reflect projected dollar transaction volume on the securities exchanges and certain over-the-counter markets over the course of the year. As a percentage, the fee rate equals the ratio of the target amounts of monies to the projected dollar transaction volume. For 2008, the Commission has estimated dollar transaction volume by projecting forward the trend established in the previous decade. More specifically, dollar transaction volume was forecasted for months subsequent to March 2007, the last month for which the Commission has data on transaction volume. The following sections describe this process in detail. A. Baseline Estimate of the Aggregate Dollar Amount of Sales for Fiscal Year 2008 First, calculate the average daily dollar amount of sales (ADS) for each month in the sample (March 1997–March 2007). The monthly aggregate dollar amount of sales (exchange plus certain over-the-counter markets) is presented in column C of Table B. pwalker on PROD1PC71 with NOTICES 18 Congress requires that the Commission make a mid-year adjustment to the fee rate if four months into the fiscal year it determines that its forecasts of aggregate dollar volume are reasonably likely to be off by 10% or more. VerDate Aug<31>2005 18:36 May 04, 2007 Jkt 211001 Next, calculate the change in the natural logarithm of ADS from month to month. The average monthly percentage growth of ADS over the entire sample is 0.014 and the standard deviation 0.115. Assuming the monthly percentage change in ADS follows a random walk, calculating the expected monthly percentage growth rate for the full sample is straightforward. The expected monthly percentage growth rate of ADS is 2.1%. Now, use the expected monthly percentage growth rate to forecast total dollar volume. For example, one can use the ADS for March 2007 ($238,343,650,750) to forecast ADS for April 2007 ($243,433,544,609 = $238,343,650,750 × 1.021).19 Multiply by the number of trading days in April 2007 (20) to obtain a forecast of the total dollar volume for the month ($4,868,670,892,189). Repeat the method to generate forecasts for subsequent months. The forecasts for total dollar volume are in column G of Table B. The following is a more formal (mathematical) description of the procedure: 1. Divide each month’s total dollar volume (column C) by the number of trading days in that month (column B) to obtain the average daily dollar volume (ADS, column D). 2. For each month t, calculate the change in ADS from the previous month as Dt = log (ADSt / ADSt–1), where log (x) denotes the natural logarithm of x. 3. Calculate the mean and standard deviation of the series {D1, D2, * * * D120}. These are given by µ = 0.014 and s = 0.115, respectively. 4. Assume that the natural logarithm of ADS follows a random walk, so that Ds and Dt are statistically independent for any two months s and t. 5. Under the assumption that Dt is normally distributed, the expected value of ADSt/ 19 The value 1.021 has been rounded. All computations are done with the unrounded value. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 ADSt-1 is given by exp (µ + s2/2), or on average ADSt = 1.021 × ADSt–1. 6. For April 2007, this gives a forecast ADS of 1.021 × $238,343,650,750 = $243,433,544,609. Multiply this figure by the 20 trading days in April 2007 to obtain a total dollar volume forecast of $4,868,670,892,189. 7. For May 2007, multiply the April 2007 ADS forecast by 1.021 to obtain a forecast ADS of $248,632,134,545. Multiply this figure by the 22 trading days in May 2007 to obtain a total dollar volume forecast of $5,469,906,959,979. 8. Repeat this procedure for subsequent months. B. Using the Forecasts From A to Calculate the New Fee Rate 1. Use Table B to estimate fees collected for the period 10/1/07 through 10/31/07. The projected aggregate dollar amount of sales for this period is $6,355,786,096,164. Projected fee collections at the current fee rate of 0.0000153 are $97,243,527. 2. Estimate the amount of assessments on securities futures products collected during 10/1/07 and 9/30/08 to be $18,017 by projecting a 2.1% monthly increase from a base of $1,150 in March 2007. 3. Subtract the amounts $97,243,527 and $18,017 from the target offsetting collection amount set by Congress of $892,000,000 leaving $794,738,456 to be collected on dollar volume for the period 11/1/07 through 9/30/08. 4. Use Table B to estimate dollar volume for the period 11/1/07 through 9/30/08. The estimate is $72,376,366,463,293. Finally, compute the fee rate required to produce the additional $794,738,456 in revenue. This rate is $794,738,456 divided by $72,376,366,463,293 or 0.0000109806. 5. Round the result to the seventh decimal point, yielding a rate of .0000110 (or $11.00 per million). BILLING CODE 8010–01–P E:\FR\FM\07MYN1.SGM 07MYN1 VerDate Aug<31>2005 18:36 May 04, 2007 Jkt 211001 PO 00000 Frm 00084 Fmt 4703 Sfmt 4725 E:\FR\FM\07MYN1.SGM 07MYN1 25819 EN07MY07.057</GPH> pwalker on PROD1PC71 with NOTICES Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices VerDate Aug<31>2005 Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices 18:36 May 04, 2007 Jkt 211001 PO 00000 Frm 00085 Fmt 4703 Sfmt 4725 E:\FR\FM\07MYN1.SGM 07MYN1 EN07MY07.058</GPH> pwalker on PROD1PC71 with NOTICES 25820 VerDate Aug<31>2005 18:36 May 04, 2007 Jkt 211001 PO 00000 Frm 00086 Fmt 4703 Sfmt 4725 E:\FR\FM\07MYN1.SGM 07MYN1 25821 EN07MY07.059</GPH> pwalker on PROD1PC71 with NOTICES Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices VerDate Aug<31>2005 Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices 18:36 May 04, 2007 Jkt 211001 PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 E:\FR\FM\07MYN1.SGM 07MYN1 EN07MY07.060</GPH> pwalker on PROD1PC71 with NOTICES 25822 Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices and executed in penny increments. Such orders would no longer be permitted to be executed at split prices. [FR Doc. 07–2194 Filed 5–4–07; 8:45 am] BILLING CODE 8010–01–C III. Discussion SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55683; File No. SR–ISE– 2006–77] Self-Regulatory Organizations; International Securities Exchange, LLC; Order Granting Approval to Proposed Rule Change, as Modified by Amendment No. 1, Relating to Penny Increments for Block Mechanism Orders April 30, 2007. I. Introduction On December 13, 2006, the International Securities Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to allow orders to be entered into the Block Mechanism in penny increments and to receive executions in penny increments. On March 19, 2007, the Exchange filed Amendment No. 1 to the proposed rule change. The proposed rule change was published for comment in the Federal Register on March 27, 2007.3 The Commission received no comment letters on the proposal. This order approves the proposed rule change as modified by Amendment No. 1. II. Description of the Proposal The Exchange currently offers a Block Mechanism for the execution of singlesided, block-sized orders.4 The Block Mechanism exposes orders of at least 50 contracts to all ISE members for three seconds, giving members an opportunity to respond with contra-side trading interest for their own account or on behalf of their customers.5 Currently, orders may be entered and executed using the Block Mechanism at the standard 5 and 10 cent increments and at ‘‘split prices’’ (2.5 cents for options trading in 5 cent standard increments and 5 cents for options trading in 10 cent standard increments). The Exchange proposes to amend ISE Rule 716 to allow these orders to be entered 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 55493 (March 20, 2007), 72 FR 14315. 4 See ISE Rule 716(c). 5 Supplementary Material .03 to ISE Rule 716 prohibits members from entering Responses for the account of an options market maker from another options exchange. This is the only limitation regarding who may enter Responses. pwalker on PROD1PC71 with NOTICES 2 17 VerDate Aug<31>2005 18:36 May 04, 2007 Jkt 211001 After careful review of the proposal, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.6 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,7 which requires, among other things, that the rules of an exchange be designed to prevent fraudulent and manipulative acts, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Specifically, the Commission believes that the proposed rule change is consistent with the Act because it will provide greater flexibility in the pricing of block-size orders and enhanced opportunities for block-size orders to receive price improvement. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,8 that the proposed rule change (SR–ISE–2006– 77), as modified by Amendment No. 1, be, and hereby is, approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.9 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–8597 Filed 5–4–07; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55678; File No. SR– NASDAQ–2007–044] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Increase the Nasdaq Trading Rights Fee April 27, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 6 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 7 15 U.S.C. 78f(b)(5). 8 15 U.S.C. 78s(b)(2). 9 17 CFR 200.30–3(a)(12). PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 25823 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 25, 2007, The NASDAQ Stock Market LLC (‘‘Nasdaq’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared substantially by Nasdaq. Nasdaq filed the proposal pursuant to Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) 4 thereunder, as establishing or changing a member due, fee, or other charge, which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Nasdaq proposes to increase the monthly trading rights fee paid by Nasdaq members. Nasdaq will implement this proposed rule change on May 1, 2007. The text of the proposed rule change is available at Nasdaq, http://www.nasdaq.com, and the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Nasdaq included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Nasdaq is increasing its monthly trading rights fee, which is assessed on all Nasdaq members, from $200 to $500 per month. The fee had initially been set at a level to ease the transition of the Nasdaq Market Center’s status as a facility of the NASD to a facility of a new self-regulatory organization (‘‘SRO’’). Now that Nasdaq has an established membership base, Nasdaq believes that the fee increase is 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 2 17 E:\FR\FM\07MYN1.SGM 07MYN1

Agencies

[Federal Register Volume 72, Number 87 (Monday, May 7, 2007)]
[Notices]
[Pages 25809-25823]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-2194]


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SECURITIES AND EXCHANGE COMMISSION

[Release Nos. 33-8794; 34-55682]


Order Making Fiscal Year 2008 Annual Adjustments to the Fee Rates 
Applicable Under Section 6(b) of the Securities Act of 1933 and 
Sections 13(e), 14(g), 31(b), and 31(c) of the Securities Exchange Act 
of 1934

April 30, 2007.

I. Background

    The Commission collects fees under various provisions of the 
securities laws. Section 6(b) of the Securities Act of 1933 
(``Securities Act'') requires the Commission to collect fees from 
issuers on the registration of securities.\1\ Section 13(e) of the 
Securities Exchange Act of 1934 (``Exchange Act'') requires the 
Commission to collect fees on specified repurchases of securities.\2\ 
Section 14(g) of the Exchange Act requires the Commission to collect 
fees on proxy solicitations and statements in corporate control 
transactions.\3\ Finally, Sections 31(b) and (c) of the Exchange Act 
require national securities exchanges and national securities 
associations, respectively, to pay fees to the

[[Page 25810]]

Commission on transactions in specified securities.\4\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 77f(b).
    \2\ 15 U.S.C. 78m(e).
    \3\ 15 U.S.C. 78n(g).
    \4\ 15 U.S.C. 78ee(b) and (c). In addition, Section 31(d) of the 
Exchange Act requires the Commission to collect assessments from 
national securities exchanges and national securities associations 
for round turn transactions on security futures. 15 U.S.C. 78ee(d).
---------------------------------------------------------------------------

    The Investor and Capital Markets Fee Relief Act (``Fee Relief 
Act'') \5\ amended Section 6(b) of the Securities Act and Sections 
13(e), 14(g), and 31 of the Exchange Act to require the Commission to 
make annual adjustments to the fee rates applicable under these 
sections for each of the fiscal years 2003 through 2011, and one final 
adjustment to fix the fee rates under these sections for fiscal year 
2012 and beyond.\6\
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    \5\ Pub. L. No. 107-123, 115 Stat. 2390 (2002).
    \6\ See 15 U.S.C. 77f(b)(5), 77f(b)(6), 78m(e)(5), 78m(e)(6), 
78n(g)(5), 78n(g)(6), 78ee(j)(1), and 78ee(j)(3). Section 31(j)(2) 
of the Exchange Act, 15 U.S.C. 78ee(j)(2), also requires the 
Commission, in specified circumstances, to make a mid-year 
adjustment to the fee rates under Sections 31(b) and (c) of the 
Exchange Act in fiscal years 2002 through 2011.
---------------------------------------------------------------------------

II. Fiscal Year 2008 Annual Adjustment to the Fee Rates Applicable 
Under Section 6(b) of the Securities Act and Sections 13(e) and 14(g) 
of the Exchange Act

    Section 6(b)(5) of the Securities Act requires the Commission to 
make an annual adjustment to the fee rate applicable under Section 6(b) 
of the Securities Act in each of the fiscal years 2003 through 2011.\7\ 
In those same fiscal years, Sections 13(e)(5) and 14(g)(5) of the 
Exchange Act require the Commission to adjust the fee rates under 
Sections 13(e) and 14(g) to a rate that is equal to the rate that is 
applicable under Section 6(b). In other words, the annual adjustment to 
the fee rate under Section 6(b) of the Securities Act also sets the 
annual adjustment to the fee rates under Sections 13(e) and 14(g) of 
the Exchange Act.
---------------------------------------------------------------------------

    \7\ The annual adjustments are designed to adjust the fee rate 
in a given fiscal year so that, when applied to the aggregate 
maximum offering price at which securities are proposed to be 
offered for the fiscal year, it is reasonably likely to produce 
total fee collections under Section 6(b) equal to the ``target 
offsetting collection amount'' specified in Section 6(b)(11)(A) for 
that fiscal year.
---------------------------------------------------------------------------

    Section 6(b)(5) sets forth the method for determining the annual 
adjustment to the fee rate under Section 6(b) for fiscal year 2008. 
Specifically, the Commission must adjust the fee rate under Section 
6(b) to a ``rate that, when applied to the baseline estimate of the 
aggregate maximum offering prices for [fiscal year 2008], is reasonably 
likely to produce aggregate fee collections under [Section 6(b)] that 
are equal to the target offsetting collection amount for [fiscal year 
2008].'' That is, the adjusted rate is determined by dividing the 
``target offsetting collection amount'' for fiscal year 2008 by the 
``baseline estimate of the aggregate maximum offering prices'' for 
fiscal year 2008.
    Section 6(b)(11)(A) specifies that the ``target offsetting 
collection amount'' for fiscal year 2008 is $234,000,000.\8\ Section 
6(b)(11)(B) defines the ``baseline estimate of the aggregate maximum 
offering price'' for fiscal year 2008 as ``the baseline estimate of the 
aggregate maximum offering price at which securities are proposed to be 
offered pursuant to registration statements filed with the Commission 
during [fiscal year 2008] as determined by the Commission, after 
consultation with the Congressional Budget Office and the Office of 
Management and Budget * * *.''
---------------------------------------------------------------------------

    \8\ Congress determined the target offsetting collection amounts 
by applying reduced fee rates to the CBO's January 2001 projections 
of the aggregate maximum offering prices for fiscal years 2002 
through 2011. In any fiscal year through fiscal year 2011, the 
annual adjustment mechanism will result in additional fee rate 
reductions if the CBO's January 2001 projection of the aggregate 
maximum offering prices for the fiscal year proves to be too low, 
and fee rate increases if the CBO's January 2001 projection of the 
aggregate maximum offering prices for the fiscal year proves to be 
too high.
---------------------------------------------------------------------------

    To make the baseline estimate of the aggregate maximum offering 
price for fiscal year 2008, the Commission is using the same 
methodology it developed in consultation with the Congressional Budget 
Office (``CBO'') and Office of Management and Budget (``OMB'') to 
project aggregate offering price for purposes of the fiscal year 2007 
annual adjustment. Using this methodology, the Commission determines 
the ``baseline estimate of the aggregate maximum offering price'' for 
fiscal year 2008 to be $5,959,775,433,491.\9\ Based on this estimate, 
the Commission calculates the fee rate for fiscal 2008 to be $39.30 per 
million. This adjusted fee rate applies to Section 6(b) of the 
Securities Act, as well as to Sections 13(e) and 14(g) of the Exchange 
Act.
---------------------------------------------------------------------------

    \9\ Appendix A explains how we determined the ``baseline 
estimate of the aggregate maximum offering price'' for fiscal year 
2008 using our methodology, and then shows the purely arithmetical 
process of calculating the fiscal year 2008 annual adjustment based 
on that estimate. The appendix includes the data used by the 
Commission in making its ``baseline estimate of the aggregate 
maximum offering price'' for fiscal year 2008.
---------------------------------------------------------------------------

III. Fiscal Year 2008 Annual Adjustment to the Fee Rates Applicable 
Under Sections 31(b) and (c) of the Exchange Act

    Section 31(b) of the Exchange Act requires each national securities 
exchange to pay the Commission a fee at a rate, as adjusted by our 
order pursuant to Section 31(j)(2),\10\ which currently is $15.30 per 
million of the aggregate dollar amount of sales of specified securities 
transacted on the exchange. Similarly, Section 31(c) requires each 
national securities association to pay the Commission a fee at the same 
adjusted rate on the aggregate dollar amount of sales of specified 
securities transacted by or through any member of the association 
otherwise than on an exchange. Section 31(j)(1) requires the Commission 
to make annual adjustments to the fee rates applicable under Sections 
31(b) and (c) for each of the fiscal years 2003 through 2011.\11\
---------------------------------------------------------------------------

    \10\ Order Making Fiscal Year 2007 Annual Adjustments to the Fee 
Rates Applicable under Section 6(b) of the Securities Act of 1933 
and Sections 13(e), 14(g), 31(b) and 31(c) of the Securities 
Exchange Act of 1934, Rel. No. 33-8681 (April 28, 2006), 71 FR 26132 
(May 3, 2006).
    \11\ The annual adjustments, as well as the mid-year adjustments 
required in specified circumstances under Section 31(j)(2) in fiscal 
years 2002 through 2011, are designed to adjust the fee rates in a 
given fiscal year so that, when applied to the aggregate dollar 
volume of sales for the fiscal year, they are reasonably likely to 
produce total fee collections under Section 31 equal to the ``target 
offsetting collection amount'' specified in Section 31(l)(1) for 
that fiscal year.
---------------------------------------------------------------------------

    Section 31(j)(1) specifies the method for determining the annual 
adjustment for fiscal year 2008. Specifically, the Commission must 
adjust the rates under Sections 31(b) and (c) to a ``uniform adjusted 
rate that, when applied to the baseline estimate of the aggregate 
dollar amount of sales for [fiscal year 2008], is reasonably likely to 
produce aggregate fee collections under [Section 31] (including 
assessments collected under [Section 31(d)]) that are equal to the 
target offsetting collection amount for [fiscal year 2008].''
    Section 31(l)(1) specifies that the ``target offsetting collection 
amount'' for fiscal year 2008 is $892,000,000.\12\ Section 31(l)(2) 
defines the ``baseline estimate of the aggregate dollar amount of 
sales'' as ``the baseline estimate of the aggregate dollar amount of 
sales of securities * * * to be transacted on each national securities 
exchange and by or through any member of each national securities 
association (otherwise than on a national securities

[[Page 25811]]

exchange) during [fiscal year 2008] as determined by the Commission, 
after consultation with the Congressional Budget Office and the Office 
of Management and Budget * * *.''
---------------------------------------------------------------------------

    \12\ Congress determined the target offsetting collection 
amounts by applying reduced fee rates to the CBO's January 2001 
projections of dollar volume for fiscal years 2002 through 2011. In 
any fiscal year through fiscal year 2011, the annual and, in 
specified circumstances, mid-year adjustment mechanisms will result 
in additional fee rate reductions if the CBO's January 2001 
projection of dollar volume for the fiscal year proves to be too 
low, and fee rate increases if the CBO's January 2001 projection of 
dollar volume for the fiscal year proves to be too high.
---------------------------------------------------------------------------

    To make the baseline estimate of the aggregate dollar amount of 
sales for fiscal year 2008, the Commission is using the same 
methodology it developed in consultation with the CBO and OMB to 
project dollar volume for purposes of prior fee adjustments.\13\ Using 
this methodology, the Commission calculates the baseline estimate of 
the aggregate dollar amount of sales for fiscal year 2008 to be 
$78,732,152,559,457. Based on this estimate, and an estimated 
collection of $18,017 in assessments on security futures transactions 
under Section 31(d) in fiscal year 2008, the uniform adjusted rate for 
fiscal year 2008 is 11.00 per million.\14\
---------------------------------------------------------------------------

    \13\ Appendix B explains how we determined the ``baseline 
estimate of the aggregate dollar amount of sales'' for fiscal year 
2007 using our methodology, and then shows the purely arithmetical 
process of calculating the fiscal year 2007 annual adjustment based 
on that estimate. The appendix also includes the data used by the 
Commission in making its ``baseline estimate of the aggregate dollar 
amount of sales'' for fiscal year 2007.
    \14\ The calculation of the adjusted fee rate assumes that the 
current fee rate of $15.30 per million will apply through October 
31, 2007, due to the operation of the effective date provision 
contained in Section 31(j)(4)(A) of the Exchange Act.
---------------------------------------------------------------------------

IV. Effective Dates of the Annual Adjustments

    Section 6(b)(8)(A) of the Securities Act provides that the fiscal 
year 2008 annual adjustment to the fee rate applicable under Section 
6(b) of the Securities Act shall take effect on the later of October 1, 
2007, or five days after the date on which a regular appropriation to 
the Commission for fiscal year 2008 is enacted.\15\ Section 13(e)(8)(A) 
and 14(g)(8)(A) of the Exchange Act provide for the same effective date 
for the annual adjustments to the fee rates applicable under Sections 
13(e) and 14(g) of the Exchange Act.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 77f(b)(8)(A).
    \16\ 15 U.S.C. 78m(e)(8)(A) and 78n(g)(8)(A).
---------------------------------------------------------------------------

    Section 31(j)(4)(A) of the Exchange Act provides that the fiscal 
year 2008 annual adjustments to the fee rates applicable under Sections 
31(b) and (c) of the Exchange Act shall take effect on the later of 
October 1, 2007, or 30 days after the date on which a regular 
appropriation to the Commission for fiscal year 2008 is enacted.

V. Conclusion

    Accordingly, pursuant to Section 6(b) of the Securities Act and 
Sections 13(e), 14(g), and 31 of the Exchange Act,\17\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 77f(b), 78m(e), 78n(g), and 78ee(j).
---------------------------------------------------------------------------

    It is hereby ordered that the fee rates applicable under Section 
6(b) of the Securities Act and Sections 13(e) and 14(g) of the Exchange 
Act shall be $39.30 per million effective on the later of October 1, 
2007, or five days after the date on which a regular appropriation to 
the Commission for fiscal year 2008 is enacted; and
    It is further ordered that the fee rates applicable under Sections 
31(b) and (c) of the Exchange Act shall be $11.00 per million effective 
on the later of October 1, 2007, or 30 days after the date on which a 
regular appropriation to the Commission for fiscal year 2008 is 
enacted.

    By the Commission.
Nancy M. Morris,
Secretary.

Appendix A

    With the passage of the Investor and Capital Markets Relief Act, 
Congress has, among other things, established a target amount of 
monies to be collected from fees charged to issuers based on the 
value of their registrations. This appendix provides the formula for 
determining such fees, which the Commission adjusts annually. 
Congress has mandated that the Commission determine these fees based 
on the ``aggregate maximum offering prices,'' which measures the 
aggregate dollar amount of securities registered with the Commission 
over the course of the year. In order to maximize the likelihood 
that the amount of monies targeted by Congress will be collected, 
the fee rate must be set to reflect projected aggregate maximum 
offering prices. As a percentage, the fee rate equals the ratio of 
the target amounts of monies to the projected aggregate maximum 
offering prices.
    For 2008, the Commission has estimated the aggregate maximum 
offering prices by projecting forward the trend established in the 
previous decade. More specifically, an ARIMA model was used to 
forecast the value of the aggregate maximum offering prices for 
months subsequent to March 2007, the last month for which the 
Commission has data on the aggregate maximum offering prices.
    The following sections describe this process in detail.

A. Baseline Estimate of the Aggregate Maximum Offering Prices for 
Fiscal Year 2008

    First, calculate the aggregate maximum offering prices (AMOP) 
for each month in the sample (March 1997-March 2007). Next, 
calculate the percentage change in the AMOP from month to month.
    Model the monthly percentage change in AMOP as a first order 
moving average process. The moving average approach allows one to 
model the effect that an exceptionally high (or low) observation of 
AMOP tends to be followed by a more ``typical'' value of AMOP.
    Use the estimated moving average model to forecast the monthly 
percent change in AMOP. These percent changes can then be applied to 
obtain forecasts of the total dollar value of registrations. The 
following is a more formal (mathematical) description of the 
procedure:
    1. Begin with the monthly data for AMOP. The sample spans ten 
years, from March 1997 to March 2007.
    2. Divide each month's AMOP (column C) by the number of trading 
days in that month (column B) to obtain the average daily AMOP 
(AAMOP, column D).
    3. For each month t, the natural logarithm of AAMOP is reported 
in column E.
    4. Calculate the change in log(AAMOP) from the previous month as 
[Delta]t = log (AAMOPt) - 
log(AAMOPt-1). This approximates the percentage change.
    5. Estimate the first order moving average model 
[Delta]t = [alpha] + [beta]et-1 + 
et, where et denotes the forecast error for 
month t. The forecast error is simply the difference between the 
one-month ahead forecast and the actual realization of 
[Delta]t. The forecast error is expressed as 
et = [Delta]t - [alpha] - 
[beta]t-1. The model can be estimated using standard 
commercially available software such as SAS or Eviews. Using least 
squares, the estimated parameter values are [alpha] = 0.00781 and 
[beta] = -0.76766.
    6. For the month of April 2007 forecast 
[Delta]t = 4/07 = [alpha] + [beta]et = 3/07. 
For all subsequent months, forecast [Delta]t = [alpha].
    7. Calculate forecasts of log(AAMOP). For example, the forecast 
of log(AAMOP) for June 2007 is given by FLAAMOP t = 6/07 
= log(AAMOP t = 3/07) + [Delta] t = 4/07 + 
[Delta]t = 5/07 + [Delta]t = 6/07.
    8. Under the assumption that et is normally 
distributed, the n-step ahead forecast of AAMOP is given by 
exp(FLAAMOPt + [sigma]n2/2), where 
[sigma]n denotes the standard error of the n-step ahead 
forecast.
    9. For June 2007, this gives a forecast AAMOP of $21.2 Billion 
(Column I), and a forecast AMOP of $444.9 Billion (Column J).
    10. Iterate this process through September 2008 to obtain a 
baseline estimate of the aggregate maximum offering prices for 
fiscal year 2008 of $5,959,775,433,491.

B. Using the Forecasts From A to Calculate the New Fee Rate

    1. Using the data from Table A, estimate the aggregate maximum 
offering prices between 10/1/07 and 9/30/08 to be 
$5,959,775,433,491.
    2. The rate necessary to collect the target $234,000,000 in fee 
revenues set by Congress is then calculated as: $234,000,000 / 
$5,959,775,433,491 = 0.00003926 (or $39.30 per million.).
BILLING CODE 8010-01-P

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[[Page 25818]]


BILLING CODE 8010-01-C

Appendix B

    With the passage of the Investor and Capital Markets Relief Act, 
Congress has, among other things, established a target amount of 
monies to be collected from fees charged to investors based on the 
value of their transactions. This appendix provides the formula for 
determining such fees, which the Commission adjusts annually, and 
may adjust semi-annually.\18\ In order to maximize the likelihood 
that the amount of monies targeted by Congress will be collected, 
the fee rate must be set to reflect projected dollar transaction 
volume on the securities exchanges and certain over-the-counter 
markets over the course of the year. As a percentage, the fee rate 
equals the ratio of the target amounts of monies to the projected 
dollar transaction volume.
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    \18\ Congress requires that the Commission make a mid-year 
adjustment to the fee rate if four months into the fiscal year it 
determines that its forecasts of aggregate dollar volume are 
reasonably likely to be off by 10% or more.
---------------------------------------------------------------------------

    For 2008, the Commission has estimated dollar transaction volume 
by projecting forward the trend established in the previous decade. 
More specifically, dollar transaction volume was forecasted for 
months subsequent to March 2007, the last month for which the 
Commission has data on transaction volume.
    The following sections describe this process in detail.

A. Baseline Estimate of the Aggregate Dollar Amount of Sales for 
Fiscal Year 2008

    First, calculate the average daily dollar amount of sales (ADS) 
for each month in the sample (March 1997-March 2007). The monthly 
aggregate dollar amount of sales (exchange plus certain over-the-
counter markets) is presented in column C of Table B.
    Next, calculate the change in the natural logarithm of ADS from 
month to month. The average monthly percentage growth of ADS over 
the entire sample is 0.014 and the standard deviation 0.115. 
Assuming the monthly percentage change in ADS follows a random walk, 
calculating the expected monthly percentage growth rate for the full 
sample is straightforward. The expected monthly percentage growth 
rate of ADS is 2.1%.
    Now, use the expected monthly percentage growth rate to forecast 
total dollar volume. For example, one can use the ADS for March 2007 
($238,343,650,750) to forecast ADS for April 2007 ($243,433,544,609 
= $238,343,650,750 x 1.021).\19\ Multiply by the number of trading 
days in April 2007 (20) to obtain a forecast of the total dollar 
volume for the month ($4,868,670,892,189). Repeat the method to 
generate forecasts for subsequent months.
---------------------------------------------------------------------------

    \19\ The value 1.021 has been rounded. All computations are done 
with the unrounded value.
---------------------------------------------------------------------------

    The forecasts for total dollar volume are in column G of Table 
B. The following is a more formal (mathematical) description of the 
procedure:
    1. Divide each month's total dollar volume (column C) by the 
number of trading days in that month (column B) to obtain the 
average daily dollar volume (ADS, column D).
    2. For each month t, calculate the change in ADS from the 
previous month as [Delta]t = log (ADSt / 
ADSt-1), where log (x) denotes the natural logarithm of 
x.
    3. Calculate the mean and standard deviation of the series 
{[Delta]1, [Delta]2, * * * 
[Delta]120{time} . These are given by [mu] = 0.014 and 
[sigma] = 0.115, respectively.
    4. Assume that the natural logarithm of ADS follows a random 
walk, so that [Delta]s and [Delta]t are 
statistically independent for any two months s and t.
    5. Under the assumption that [Delta]t is normally 
distributed, the expected value of ADSt/ADSt-1 
is given by exp ([mu] + [sigma]\2\/2), or on average ADSt 
= 1.021 x ADSt-1.
    6. For April 2007, this gives a forecast ADS of 1.021 x 
$238,343,650,750 = $243,433,544,609. Multiply this figure by the 20 
trading days in April 2007 to obtain a total dollar volume forecast 
of $4,868,670,892,189.
    7. For May 2007, multiply the April 2007 ADS forecast by 1.021 
to obtain a forecast ADS of $248,632,134,545. Multiply this figure 
by the 22 trading days in May 2007 to obtain a total dollar volume 
forecast of $5,469,906,959,979.
    8. Repeat this procedure for subsequent months.

B. Using the Forecasts From A to Calculate the New Fee Rate

    1. Use Table B to estimate fees collected for the period 10/1/07 
through 10/31/07. The projected aggregate dollar amount of sales for 
this period is $6,355,786,096,164. Projected fee collections at the 
current fee rate of 0.0000153 are $97,243,527.
    2. Estimate the amount of assessments on securities futures 
products collected during 10/1/07 and 9/30/08 to be $18,017 by 
projecting a 2.1% monthly increase from a base of $1,150 in March 
2007.
    3. Subtract the amounts $97,243,527 and $18,017 from the target 
offsetting collection amount set by Congress of $892,000,000 leaving 
$794,738,456 to be collected on dollar volume for the period 11/1/07 
through 9/30/08.
    4. Use Table B to estimate dollar volume for the period 11/1/07 
through 9/30/08. The estimate is $72,376,366,463,293. Finally, 
compute the fee rate required to produce the additional $794,738,456 
in revenue. This rate is $794,738,456 divided by $72,376,366,463,293 
or 0.0000109806.
    5. Round the result to the seventh decimal point, yielding a 
rate of .0000110 (or $11.00 per million).
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[FR Doc. 07-2194 Filed 5-4-07; 8:45 am]
BILLING CODE 8010-01-C