“And as the first piece of public testimony with the New York Stock Exchange, I remember asking Bob Bishop, ‘Do you have a fixed commission?’ He said, ‘Yes.’ I said, ‘Do you give it away?’ He said, ‘Yes.’ I said, ‘What’s fixed about it? You’re rebating it.'”
No issue called into question the effectiveness of the NYSE as a self-regulatory organization more than the persistence of the fixed minimum commission rates that had been at the heart of the NYSE’s mission since the Buttonwood Agreement.
Fixed commissions supposedly kept unscrupulous competitors from undermining the market. But, in a highly structured market protected by regulation, they did little but tamp down competition, raise costs to customers, and provide additional evidence of regulatory capture. In 1965 and again in 1968, the SEC studied the matter and detailed a host of market distortions created by fixed rates, such as brokers competing on services rather than price and “give-ups” (the splitting of rates among members) endemic among institutional brokers. But nothing was done by the SEC.38
In a landmark November 1970 speech, Haack himself called for the unfixing of commission rates. It was a largely symbolic gesture since Haack’s boss, chairman Bernard Lasker, was the head of a specialist firm. The NYSE continued to fend off big changes by making smaller ones, combining the offices of president and chairman, reducing the number of board members from 33 to 20, and drawing up plans to link with other exchanges through a “consolidated tape.”39
By the time the consolidated tape went up in 1976, however, the unthinkable had happened. The back office crisis had convinced Congress and the SEC that only competition could provide the NYSE with the impetus required to restructure itself in order to effectively handle record high volume levels and institutional business. Beginning in 1971, the SEC imposed negotiated rates on very large trades, lowering the ceiling every year thereafter. On May 1, 1975, commission rates became fully competitive, energizing the market almost precisely as advocates had predicted that it would.40