A Securities and Exchange Commission (SEC) fee is a small fee attached to sales of certain types of securities to help cover the costs of administering the SEC. Although known as the SEC fee, the fee is actually not levied or administered by the SEC on consumers; instead, it is a charge on markets and regulatory organizations that is passed on to individual traders through their brokers and dealers. The amount of the SEC fee varies, but is usually very low.
Transactions subject to an SEC fee are known as Section 31 transactions, after the section of the Securities Exchange Act of 1934 that provides for this fee. Under the legislation that created the SEC, the organization is allowed to collect a small percentage of the sales of equities, and to use this money for administrative costs. Acting as a regulatory agency, the SEC reviews a wide variety of activities on financial markets and has the authority to pass and enforce regulations. The money collected finances the SEC's activities.
Regulatory authorities from within the industry, like the Financial Industry Regulatory Authority (FINRA) are obliged to pay the SEC, as are individual markets like the New York Stock Exchange. These entities pass the fee on to brokers and dealers making trades, and they add the SEC fee to transactions to cover the cost of the fee. The SEC adjusts the fee periodically in accordance with the number of transactions taking place, to collect an appropriate amount of money under Section 31.
This fee is extremely marginal; for example, in 2007, it was 1% of 1/800 of each dollar. People making very large transactions might notice the SEC fee, but for most people, the amount is so negligible that it is not a cause for concern. By distributing the cost across numerous transactions, the fee is kept low enough to avoid penalizing investors making sales, while still allowing for the collection of enough funds to meet the needs of the SEC.
When people make securities transactions, they can obtain a list of associated fees from their brokers to use in estimating the costs of the transaction. Brokers are required to disclose fees and policies up front when people open accounts and can provide additional information on request form investors. Keeping this information in a safe place for future reference is recommended so investors are not surprised by the fees assessed when transactions go through.
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Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.