May Day (Brokerage Deregulation)
On May 1, 1975, the U.S. Securities and Exchange Commission mandated the deregulation of the brokerage industry. The mandate abolished high fixed fees for trading stocks and allowed market competition to dictate commissions. Charles Schwab, founder of his namesake company, was one of the pioneers of the discount brokerage industry.
Deregulation eventually gave rise to online trading--introduced by Schwab in 1996--which revolutionized the discount brokerage industry. Today, some of the major players in discount brokerage include:
Discount brokerage has become a highly competitive industry, and as a result, the average price per trade has dropped dramatically. Schwab, for instance, charged $60 per trade in 1998 but only $14 in 2006. Traditional retail bank powerhouses Bank of America and Wells Fargo introduced free trades to a segment of its retail banking clients. It is estimated that about one-third of Bank of America's clients will qualify. The entrance of the retail banks are expected to further drive trading commission prices down, as Bank of America has banking relationships with half of all U.S. households. Wells Fargo has similar penetration in retail banking.