May Day

DEFINITION of 'May Day'

On May 1, 1975, the stock market changed forever. Commonly referred to as May Day, this date allowed brokerages to charge varying commission rates. Prior to this change, all brokerages charged the same price for stock trades. This was the first time in 180 years that trading fees would be set by market competition, instead of a fixed price.

BREAKING DOWN 'May Day'

Prior to the May Day changes, brokers charged a fixed rate commission for all traders, with no regard to the size of the trade. Small-time investors paid a high percentage of potential profits in fees and commissions. Total commission costs were in the hundreds of dollars range prior to May Day. Brokers risked being expelled if they charged a lower costs to investors.

Prior to May Day, the New York Stock Exchange actually shut down one day a week. A boom to the stock market in 1968 led to brokers not being able to keep up with demand. This caused the New York Stock Exchange to be shut down every Wednesday for brokers to catch up. The U.S. Securities and Exchange Commission (SEC) announced in 1973 that it would eliminate fixed commissions.

The May Day passage was controversial and saw two sides to the debate. New York Stock Exchange chairman James Needham was against changing the commission structure. The NYSE even threatened to sue the SEC if it went through with the change. Brokers were also against it as it would cut down on their overall commissions. Some brokers even referred to the SEC as the Soviet Economic Committee.

May Day is believed to have led to the creation of discount stock brokers. As commission prices fell, brokers offered a new trading service that had lower rates but didn’t offer advice to individual investors. This led to the creation of discount brokers and gave rise to a new do-it-yourself investor class that could research on their own and pay lower fees for their trades.

Charles Schwab founded his namesake company in 1971. The company began offering discounted stock trades on May 1, 1975. The Charles Schwab Corporation became one of the first discount brokerages, offering lower commissions than most competitors. This included lower fees for less investment advice from stock advisors.

Other discount brokers started to pop up as a result. The May Day deregulation of commission fees also paved the way for the online discount brokerages we know today. Many investors are able to do their own research or get advice from other mediums and execute stock trades on their own through a discount broker.

RELATED TERMS
  1. Do-It-Yourself (DIY) Investing

    An investment strategy where individual investors choose to build ...
  2. Full-Service Broker

    A broker that provides a large variety of services to its clients, ...
  3. Commission

    A service charge assessed by a broker or investment advisor in ...
  4. Discount Broker

    A stockbroker who carries out buy and sell orders at a reduced ...
  5. Broker

    1. An individual or firm that charges a fee or commission for ...
  6. Sortino Ratio

    A modification of the Sharpe ratio that differentiates harmful ...
Related Articles
  1. Investing Basics

    Muriel Siebert: Female Finance Pioneer

    Muriel Siebert has blazed many paths for investors, but is especially relevant as the first woman to sit on the NYSE.
  2. Options & Futures

    Don't Let Brokerage Fees Undermine Your Returns

    Smart investors don't give away more money than necessary in commissions and fees. Find out how to save.
  3. Options & Futures

    Brokers and Online Trading

    How do you find the right broker for your investment needs? Start by reading our broker tutorial.
  4. Markets

    What to Look for From The Fed

    Once again it is time for the U.S. Federal Reserve (Fed) Board of Governors meeting, and the market is eager to see what they have to say.
  5. Chart Advisor

    Sector Headwinds Buffeting First Solar (FSLR, TAN)

    First Solar has entered a new downtrend after failing to break out above two-year resistance.
  6. Chart Advisor

    Better Buy: Home Depot or Lowe's? (HD, LOW)

    Home Depot and Lowe’s have risen to resistance levels that could yield fresh trend advances.
  7. Chart Advisor

    3 Short Sales in the Apple Ecosystem (AAPL, SWKS)

    Deteriorating sentiment should offer profitable short sales on the key Apple suppliers.
  8. Chart Advisor

    Amazon Levels to Watch After Earnings (AMZN)

    An Amazon rally above 650 after earnings should open the door to a test of the bull market high.
  9. Chart Advisor

    Nasdaq-100 Weakness Waving Red Flags (QQQ, SPY)

    The Nasdaq-100 is lagging blue chip and small cap indices, signaling a bearish divergence that could end the recovery wave.
  10. Fundamental Analysis

    Alcoa vs. BHP Billiton: Which Is Better for My Portfolio?

    Obtain an up-to-date overview of BHP Billiton and Alcoa, Inc., two key players for investors seeking exposure to the aluminum market to consider.
RELATED FAQS
  1. What are the advantages and disadvantages of mutual funds?

    Mutual funds are currently the most popular investment vehicle and provide several advantages to investors, including the ... Read Answer >>
  2. Where do investors tend to put their money in a bear market?

    A bearish market is traditionally defined as a period of negative returns in the broader market to the magnitude of between ... Read Answer >>
  3. How can I prevent commissions and fees from eating up my trading profits?

    First off, understand that there is no universal system regarding trading commissions charged by brokerage firms. Some charge ... Read Answer >>
  4. What's the difference between a load and no-load mutual fund?

    A mutual fund is simply a large group of people who lump their money together for a management company to invest. And, like ... Read Answer >>
  5. How often should I rebalance my retirement account?

    Learn how to rebalance your retirement portfolio as you age, and how to redistribute profits from outperforming funds to ... Read Answer >>
  6. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center