Stockbrokers’ Mayday

The stock market had once been Wall Street’s greatest source of revenues.  Commissions were fat, fixed, and nonnegotiable.  Each time a share changed hands, some broker somewhere took out a handsome fee for himself, without necessarily doing much work.  A broker was paid twice as much for executing a two-hundred-share order as for a one-hundred-share order, even though the amount of work in either case was the same.  The end of fixed stock brokerage commissions had come on May 1, 1975-called Mayday by stockbrokers-after which, predictably, commissions collapsed.  Investors switched to whichever stockbroker charged them the least.  As a result, in 1976, revenues across Wall Street fell by some six hundred million dollars.  The dependable money machine broke down.

-Michael Lewis, Liar’s Poker, page 62

Though it wasn’t too helpful to stockbrokers, the deregulation of the brokerage industry helped bring down fees and ultimately allowed people of more humble means to own common stocks.  Some brokerage firms did benefit from the change, like the disruptive enfant terrible Charles Schwab.  Schwab was the posterboy for discount brokerages and reigned supreme all the way up until brokerage fees took another fantastic fall toward zero with the advent of electronic trading over the internet.

No comments yet.

Leave a comment