Charles Schwab cut commissions in half when fixed fees ended

For 183 years, brokers on the New York Stock Exchange operated under a fixed, non-negotiable commission schedule dating back to the 1792 Buttonwood Agreement, guaranteeing every brokerage the same fee regardless of how efficiently it operated or how much service it actually provided. Prompted partly by Justice Department antitrust pressure, the SEC formally adopted Rule 19b-3 in January 1975, ending fixed commissions effective 1 May 1975, a date the industry came to call 'May Day.'

Most established full-service brokerages, whose entire cost structure and profit model assumed guaranteed commission income, responded to the coming deregulation by preparing to compete on service and prestige while raising or maintaining fees wherever they could. Charles Schwab, running a modest brokerage founded in 1971, made the opposite bet: he signed up for the SEC's discount-brokerage pilot program ahead of the deregulation.

Cut commissions in half and sold access, not advice, targeting self-directed investors; incumbents couldn't match without cannibalizing their advisory business.

Full-service brokers couldn't match Schwab's low prices without cannibalizing their high-margin advisory business.

Schwab targeted self-directed investors who didn't want to pay for advice they didn't use.

The stripped-down model with salaried staff removed incentives to churn trades, keeping costs low.

Being early gave Schwab years to build the discount segment before incumbents could respond.

When regulation disrupts your revenue model, look for a new underserved segment and build a stripped-down offer incumbents can't match without cannibalizing themselves.

On May 1, 1975 the SEC ended fixed commissions; Schwab cut fees roughly in half and grew into the largest US discount brokerage. Became the founding case of the discount brokerage industry, credited with democratizing stock market access for individual investors and cited as a standard example of a deregulation event creating room for an entirely new business model rather than just price competition within the old one.