What Is May Day?
The stock market changed forever on May 1, 1975, a date commonly referred to on Wall Street as May Day. This was the date when brokerages were first allowed to set their own commission rates rather than charging a set price for stock trades.
It was the first time in 180 years that trading fees would be set by marketplace competition instead of a fixed price.
- Beginning on May 1, 1975, the SEC mandated that brokerages would negotiate their commissions instead of charging a fixed commission.
- The change was highly favorable to small investors and individual investors.
- The policy contributed to the success of discount brokers and, more recently, the introduction of commission-free stock trading at online discount brokers.
Understanding May Day
Prior to the May Day changes, brokers charged a fixed-rate commission for all traders, regardless of the size of the trade.
That meant that small investors paid a high percentage of their potential profits in fees and commissions, Brokers risked being expelled if they charged a lower price to any investors.
The Securities and Exchange Commission's move to deregulate trading fees was controversial. Then-New York Stock Exchange Chair James Needham opposed changing the fee structure, citing the securities industry's struggle to recover from an earnings slump. (Earlier, as a member of the Securities and Exchange Commission (SEC), he had expressed skepticism that such a move would drive brokers out of business.)
Brokers opposed the move as it would cut down on their overall commissions. Some even referred to the SEC as the Soviet Economic Committee.
May Day's Aftermath
May Day opened the way to the creation of discount stock brokers. As commission prices fell, brokers began offering new trading services that charged lower rates but didn’t offer advice to investors.
The creation of discount brokers gave rise to a new do-it-yourself-investor class who conducted their own research and paid lower fees for their trades.
Among those leading the way was Charles Schwab, who founded his namesake company in 1971. The Charles Schwab Corp. began offering discounted stock trades in September of 1975. Other discount brokers followed, paving the way for the online discount brokerages we use today.
Discount brokers have flourished In the years since May Day 1975, but the number of competitors soared with the introduction of online trading.
A retail investor can open a trading account with a dollar—although the minimum deposits vary by broker—and trade stocks for free. Most charge small fees for transactions in other assets such as mutual funds.
Discount brokers don't typically offer personal investment advice, yet many have expanded their services to offer online coaching and make financial advisors available via online chat and phone to answer investors' questions.
Charting packages and fundamental research are also provided by most discount brokers, although it is the job of the investor to sift through the information and make their own trading decisions.
May Day has other meanings in other contexts:
- "Mayday" is the international voice-signal distress call for a life-threatening emergency, coined in 1921 at a London airport with much French traffic for its similarity to the French phrase m'aider (translation: help me).
- May Day, or May 1, is International Workers' Day, a holiday celebrating laborers that is officially observed in many countries. (The U.S. instead celebrates Labor Day on the first Monday of September.)
Examples of Commission Structures Following May Day
Commission-free trading of stocks became common around 2019, as online brokers entered a price war amid stiff competition. At least 10 online brokers now offer commission-free stock trades.
Most have some limits to that deal, and many charge a commission on trades of some assets such as mutual funds and options. They also offer premium services for a fee.
Anyone signing up for a new service should check for hidden fees. Stock trades may be free but there might be, for example, an inactivity fee, charged if a client doesn't make any trades within a specified time frame.
Most discount brokers provide a trading platform, charting functionality, fundamental research, news, and online help. Before choosing a broker, look for a demo account to assess the functionality and any costs of trading.