Good morning, Chairman Grams, Members of the Subcommittee. I am Arthur Kearney,
Chairman of the STA. I also am the Director of Capital Markets and a Member of the Board of
Directors at John G. Kinnard & Co., a Minneapolis investment company. I must say, Mr.
Chairman, that testifying in front of a fellow Minnesotan makes me feel not quite so far from
home. I do appreciate the opportunity to be here, and I just wanted to make a couple of brief
First, I want to stress that excessive Section 31 fees effect all investors not just professional traders. Institutional investors own over 50% of the all the stock traded in the U.S. this means that individuals who own stock indirectly, such as through a mutual fund or pension plan, pay the
bulk of these excessive fees.
Second, I thought that what I might best be able to add here would be some perspective, not as
Chairman of the STA, but as an employer in the regional brokerage and underwriting business.
Our firm trades NASDAQ stocks and underwrites initial public offerings many in the state of
Minnesota. Some of the recent IPOs we have been involved in include Excelsior-Henderson, a
motorcycle manufacturer, and Zomax, an optical media software company. We also make
markets in approximately 175 NASDAQ stocks. Kinnard employs over 350 people.
As Lee pointed out, section 31 fees operate as a gross receipts tax. This means that fees are paid
before federal and state taxes, before salary, and before allocations for overhead. The result is to
magnify the impact on our firm's profitability. Changes in the NASDAQ market which include
increasing costs pressures associated with the new order handling rules, decimalization and year
2000 computer upgrades are already reducing the profitability of NASDAQ market making
activities. Excessive section 31 fees only exacerbate this situation.
Mr. Chairman, excessive section 31 fees negatively impact our trading revenue, and reduced
revenues translate directly into fewer jobs. As a manager, when I am looking at reduced revenue
from section 31 fees, what it means to me is that I can hire one less analyst, one less trader, one
less support staff. Reduced revenues go right to our bottom line, and right to our core business
decisions. It's really that simple. Excessive fees also contribute to reduced liquidity in the
market. The major impact falls on thinly traded stocks in small and start-up companies.
I promised that I would be brief, so I will end by urging Congress reduce the excessive tax on
American investors, and restore SEC transaction fees to their intended purpose: funding the
SEC's regulation and supervision of the securities markets. With that, Mr. Chairman, I thank
you again for this opportunity to appear before you, and I join with Lee in commending you and
Chairman Gramm for your leadership on this important issue.
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