Change at the Exchange: The Causes and Effects of Deregulation

Abstract

THE Securities Acts Amendments of 1975 instructed the Securities and Exchange Commission (SEC) to outlaw fixed brokerage rates on the New York Stock Exchange (NYSE) and to eliminate some other anticompetitive rules. Until then the price agreements had been enforced by the SEC. These amendments eliminated pricing practices that had prevailed for 180 years. They were passed after ten years of political struggle among the NYSE, the Department of Justice, and the SEC. Academics had long criticized the SEC's toleration of fixed NYSE brokerage rates.1 They contended that the fixed commission rates were supracompetitive and that the price umbrella restricted trading, enriched brokers, and fostered economic inefficiency. In other words, they said, the NYSE was a cartel, and the SEC its enforcement arm. The few recent studies documenting some of the effects of the NYSE deregulation sup-