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Customer Confirmations: Avoiding the Use of "Section 31" as a Label for Fees
As stated in the June 28, 2004, SEC Release No. 34-49928; File No. S7-05-04:
“The Commission is concerned about the manner in which SROs label the fees that they pass to their members and the manner in which members label the fees passed to their customers. These are not "Section 31 Fees" or "SEC Fees." Section 31 places no obligation on members of covered SROs or their customers, and it is misleading to suggest that a customer or an SRO member incurs an obligation to the Commission under Section 31. Accordingly, the Commission believes that covered SROs and their members should take prompt action to correct any such misperceptions.”
It is the understanding of the SIA that some firms already have changed the language used to label such fees on customer confirmations, while other firms are waiting for additional guidance. The determination regarding the appropriate label for the fee on the customer confirmation is within the discretion of the firm but, as we understand it, firms cannot refer to the fee as a “Section 31 Fee,” “SEC Fee,” or any other variation that implies it is a fee charged by regulators directly to the customer. In this regard, Commission staff has stated that they would not be comfortable with firms referring to this fee as a “Regulatory Fee” or “Reg Fee” because all of the proceeds may not be used to fund regulation. Firms should consider this guidance when changing any language on the customer confirmation.
Commission staff also has stated that they would not take exception to the use of the terms “Transaction Fee” or “Fee,” which are terms that most SIA members prefer. Other labels can be used at the discretion of the individual firm, although SIA recommends consulting with counsel prior to making the applicable change.
