Proposed Transaction Fee on Futures Contracts

Publication Date: April 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

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Abstract:

The Bush Administration has revived a proposal, made by every President since Ronald Reagan but never enacted by Congress, to impose a user fee on trading in the futures markets in order to fund the Commodity Futures Trading Commission (CFTC). Fees paid by other financial market participants already provide funding for the Securities and Exchange Commission (SEC) and the federal banking regulators. To fund the CFTC at the level requested for FY2007 ($127 million) would require a fee of about seven cents on each futures contract and option traded on the exchanges that the CFTC regulates. The futures industry argues that such a fee would be anticompetitive and could divert trading to foreign markets or to the unregulated over-the-counter market. However, it is not clear that a fee of this relatively modest size would have a significant impact on trading decisions in a market where the value of a single contract may rise or fall by hundreds or thousands of dollars in a day. This report summarizes the arguments for and against the proposal and will be updated as legislative developments warrant.