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In the Midst of Revolution: The SEC, 1973-1981

Foundation for Renewal

Mayday

"1. Have you an on-going committee of marketing and operational senior management to establish overall policy?
2. Have you a written plan for setting rates after May 1, 1975?
3. Have you analyzed your costs by type of order through your system?
4. Have you developed profitability rates for your customers?
5. Have you decided to ‘unbundle' commissions?
6. Do you plan to charge hard dollars for research?
7. Have you decided on what your firm's ultimate role in the securities industry will be?"

- Questions from February 6, 1975 SEC Checklist for Mayday '75

On January 23, 1975, the SEC formally adopted rule 19b-3, ending all fixed commission rates charged to non-member investors, effective on May 1st. SEC Chairman Garrett stated, "For the first time in almost 200 years, the rates of commission that brokers charge to public customers …will not be determined by exchange rules. Market forces will operate to set these prices and there may be variances from firm to firm."(16)

The securities industry lobby had fought hard to keep Congress from passing HR 5050, which mandated the end of the fixed commission system. The industry argued on one hand that Congress should allow the industry to fix the problem; and on the other, that without specific Congressional approval, the SEC should not act administratively on an issue of clear importance to Congress.

Nevertheless, Congress would adopt the legislation mandating the end of fixed commission rates, and the New York Stock Exchange announced within days that it would accept the SEC ruling.(17) The SEC had won an important fight, but in so doing, it had been influenced by increasing pressure from Congress, which began asserting regulatory power over the securities industry in its own right.

The SEC remained in a quandary on what constituted a reasonable rate of return for the securities industry. This issue became even more important as the SEC moved from a model of using disclosure to protect market integrity and investor confidence, to a model that required the SEC to regulate aspects of market organization and operation.

Eugene Rotberg, Chief Counsel of the SEC Office of Policy Planning, demonstrated the difficulty in assessing a rate of return using standard accounting measures. He argued that securities firms were differentiated, some small, others with large numbers of members and much capital. The fixed commission rates which the firms had used to strengthen their bottom line were often inconsistent determinants of the rate of return for the firms.(18)

The SEC's consideration of how to evaluate profit in the securities industry, and what the role of the SEC should be in regulating the rate structure of the industry in order to promote competition while at the same time protecting the profitability of securities firms, would soon create new difficulties for SEC regulation.

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Related Museum Resources

Papers

January 9, 1975

"Thoughts on Approaching 'Mayday'" - Address by SEC Commissioner A.A. Sommer, Jr. to the Securities Regulation Institute

[transcript] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

January 15, 1975

Petition from the American Institute Counselors, Inc. to the U.S. Congress against the U.S. Securities and Exchange Commission

[image] (pdf) (Courtesy of the Gerald R. Ford Library)

January 22, 1975

"Capital Markets at the Crossroads" - Address by SEC Chairman Ray Garrett, Jr. to the Economic Club of New York

[transcript] (pdf) (Courtesy of Harvey L. Pitt)

January 28, 1975

"Assuring the Economic Viability of the Securities Industry" - Address by SEC Chairman Ray Garrett, Jr. to the ABA 56th National Trust Conference

[transcript] (pdf) (Courtesy of Harvey L. Pitt)

February 4, 1975

"Biting the Bullet" - Address by SEC Commissioner A.A. Sommer, Jr. to the Cleveland Chartered Financial Analysts Group

[image] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

February 5, 1975

Memo from Andrew Steffan, SEC to Milton Friedman with notes for President Ford's speech to the New York Society of Security Analysts

[image] (pdf) (Courtesy of the Gerald R. Ford Library)

February 6, 1975

Memorandum from SEC Commissioner A.A. Sommer, Jr. with assessment checklist for Mayday 1975

[transcript] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

February 7, 1975

Memo from Geoff Shepard to Philip Buchen advising against SEC request to include Securities Act Amendments in State of the Union message

[transcript] (pdf) (Courtesy of the Gerald R. Ford Library)

February 10, 1975

"The State of the Street" - Remarks by James J. Needham, New York Stock Exchange, Inc. before the Young Presidents' Organization

[image] (pdf) (All rights are owned exclusively by NYSE Euronext (copyright) 2009 NYSE Euronext. All Rights Reserved, courtesy New York Stock Exchange Archives)

February 10, 1975

Memo from Ken Lazarus to Philip Buchen on Securities Exchange Act Amendments

[image] (pdf) (Courtesy of the Gerald R. Ford Library)

March 18, 1975

"Keep Your Eye on the Donut" - Address by SEC Commissioner A.A. Sommer, Jr. to the National Association of Accountants

[transcript] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

March 20, 1975

"Approaching May Day," Address by Lee A. Pickard, Director, SEC Division of Market Regulation, to The Bond Club of Buffalo

[transcript] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

April 15, 1975

"Zero Minus Sixteen and Counting," Address by SEC Commissioner John R. Evans to Security Traders Association of Connecticut

[image] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

May 14, 1975

"Have We Learned Anything?" - Remarks by SEC Commissioner A.A. Sommer, Jr. to the Investment Company Institute

[image] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

May 15, 1975

"Can the SEC Help Capital Markets?" - Remarks by SEC Commissioner A.A. Sommer, Jr. to The Conference Board

[image] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

May 15, 1975

"The New Breath of Competition" - Remarks by SEC Commissioner A.A. Sommer, Jr. to the Seminar on the Analysis of Securities Prices

[image] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

May 15, 1975

"Truth or Consequences," Address by SEC Commissioner John R. Evans to the Securities Cooperative Enforcement Conference

[image] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

May 16, 1975

Letter from Carl L. Shipley to SEC Commissioner John R. Evans on "Truth and Consequences"

[image] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

May 20, 1975

Statement of Ray Garrett, Jr., Chairman, before the Subcommittee on State, Justice and Commerce, the Judiciary and Related Agencies, House Committee on Appropriations, for SEC activities and financial requirements

[transcript] (pdf) (Courtesy of Harvey L. Pitt)

May 22, 1975

"The Stepchild" - Speech by SEC Commissioner A.A. Sommer, Jr. to PLI

[transcript] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

May 23, 1975

Letter from SEC Chairman Ray Garrett, Jr. to President Ford on reducing agency costs

[image] (pdf) (Courtesy of the Gerald R. Ford Library)

May 27, 1975

"Interim Reflections on Mayday" - Remarks by SEC Commissioner A.A. Sommer, Jr. to the Maryland Securities Bar Club

[image] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

May 28, 1975

"Negotiated Rates: The Initial Experience" - Address by SEC Chairman Ray Garrett, Jr. to the New York Society of Security Analysts

[image] (pdf) (Government Records)

May 28, 1975

"Proper Regulation Requires Understanding and Communication," Address by SEC Commissioner John R. Evans to Western Stock Transfer Association

[image] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

June 12, 1975

Memorandum from the SEC Office of Economic Research to the Commission regarding Distribution of Volume Among Exchanges during the month of May (1975)

[image] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

June 13, 1975

"A Keynote Address - Of Sorts" - Address by SEC Commissioner A.A. Sommer, Jr. to the ABA Federal Regulation of Securities Committee Symposium

[image] (pdf) (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

December 1, 1975

SEC Report to Congress on the Effect of the Absence of Fixed Rates of Commissions

[image] (pdf) (Courtesy of the Library of Congress)

Oral Histories

14 May 2007

Eugene Rotberg

With Dr. Kenneth Durr

• audio (mp3)
• edited transcript (pdf)