Some Trends in Security Trading Procedures

From the NYSE’s inception in 1792 until the 1970s, the vast majority of all stock trading occurred on the Exchange and was conducted by member firms. The NYSE established a set of minimum brokerage commission rates, and no member firm could charge a commission lower than the set rate. This was a monopoly pure and simple. However, on May 1, 1975, the Securities and Exchange Commission (SEC), with strong prodding from the Antitrust Division of the Justice Department, forced the NYSE to abandon its fixed commissions. Commission rates declined dramatically, falling in some cases as much as 95 percent from former levels.

These changes were a boon to the in the investing public, but not to the brokerage industry. Several “full-service” brokerage houses went bankrupt, and others were forced to merge with stronger firms. The number of brokerage house has declined from literally thousands in the 1960s to a much smaller number of large, strong, nationwide companies. Many of which are units of diversified financial service corporations. Deregulation has also spawned a number of “discount brokers”. Some of which are affiliated with commercial banks mutual fund investment companies³. There has also been a rise in “third market” activities. Where large financial institutions trade both listed and unlisted stocks among themselves on a 24-hour basis. Buyers and sellers in this market are located all around the globe-New York. Scan Francisco, Tokyo, Singapore, Zurich, and London-and this makes the 24-hour trading day a necessity. The exchanges have resisted extending their trading hours because it would inconvenience members, but competition will eventually force all major exchanges to operate around the clock. Today, institutional investors, and even some individuals, can trade by computer at any time, day or night.