The action that forever altered investing

Today, more Americans own stocks than have Netflix subscriptions. But Wall Street wasn’t always so open—until May Day that is.

On May 1, 1975, the Securities and Exchange Commission changed the rules—which for the first time allowed investment firms to set their own rates and introduced the idea of negotiated commissions.

The Wall Street Journal has called it “perhaps the most transformative event on Wall Street since 1792.” And yet many of today’s retail investors may not even realize how far the industry has come in terms of lowering fees while increasing available services and information. Before May Day, participation in the stock market was largely limited to wealthy individuals who could afford to pay the non-negotiable commissions that financial services firms charged to broker the purchase of ordinary stocks and mutual funds. 

The price-fixing monopoly dated back more than 180 years, stemming from an agreement forged by the two dozen brokers who built the New York Stock Exchange. Legend has it that the group made a pact to charge around 0.25% per trade, work only with one another, and disallow trades below a certain dollar threshold.

In response to the May Day ruling, many competitive wirehouse firms chose to increase commissions for individuals while lowering them for institutions. But Chuck Schwab, then 37, dropped fees by more than 50%—and effectively expanded choice and access to investing for all Americans. He also catapulted his firm to success with a disruptive new business model that paid brokers a salary—rather than commissions—and put clients’ goals first.

That “crazy” growth came from Main Street investors—ordinary Americans who could suddenly benefit from the long-term potential growth accessible through a diverse portfolio that included stocks. 

Fifty years after May Day, there’s been no shortage of changes on Wall Street: The Dow’s value has ballooned 40-fold. Orders are placed online rather than by phone. So-called discount brokers have become major players in the market. Fractional-share trading has opened even more doors. And trading volume has skyrocketed. Meanwhile, fees to invest in the stock market have continued to fall for individuals and institutional investors.

Charles Schwab & Co. Inc. no longer charges fees for trading most stocks, exchange-traded funds, or options online. The company eliminated those fees in 2019 (prompting many of its competitors to do the same) as another way for us to honor its founder’s dedication to making trading more accessible. 

For many brokers, the name for May Day was in part a reference to the international nautical distress call—which aligned with their belief the industry’s profits were analogous to a sinking ship. In hindsight, the day marked a turning point that was anything but a disaster: It began the advent of the individual investor. 

To honor the 50th anniversary of the occasion, Schwab has established this May 1 as the inaugural National Investing Day—a day for people to reimagine what it means to be an investor.

While the market may be showing volatility, uncertainty is not new. And it is important to remember behind every trade and every call to Schwab's service team is a person who is watching the headlines and considering our clients next best financial decision.

Chuck saw all people as potential investors, regardless of where they are in their financial journey. Investing can unlock financial freedom, and—thanks to Chuck’s bold move 50 years ago—everyone has access to the key.