May Day 1975 - The Day the SEC Invented Discount Brokerages
This is a picture of the New York Stock Exchange in 1975. That’s when the SEC abolished fixed trading commissions and invented discount brokerages.
The SEC abolished fixed brokerage commissions on May 1st – ending a 183 year old practice of exchange-mandated commission rates. The market would set the commissions, not the exchange. Rates dropped from $200 or more to as low as $30.
Merrill Lynch approached the Exchange soon-after with a proposal. Merrill was the nation’s largest stockbroker whose clients would often trade in so-called odd-lots, which comprise fewer than 100 shares. Usually, these would pass through floor specialists, who would bundle them in round lots of and execute them on behalf of Merrill Lynch clients. Merrill wanted to execute odd-lot trades between their own clients – off the board.
The price for an exchange seat dropped in one month from $125k to $65k on the news of Merrill’s plan. Carlisle DeCoppett, a one hundred year old specialist in odd lot trading, finished the year, begging to be taken over by the NYSE.
May 1st, 1975 came to be called May Day. It was the culmination of a revolution in the securities industry that began in 1961. Over almost fifteen years, the SEC introduced more disclosure; pressured the NASD into developing the NASDAQ; navigated the “paperwork crisis” of the late 1960s, when the brokerages realized that they had failed to invest in the staff or the automation to keep up with rising trading volumes; and had Don Regan, the CEO of Merrill Lynch, thank them for explaining how the over-the-counter market worked.
