Trends in Institutional Commission Costs Following Deregulation: Evidence From the USA

7 Pages Posted: 23 Sep 2008 Last revised: 29 Jul 2011

See all articles by Robert O. Edmister

Robert O. Edmister

Bowling Green State University - Department of Finance; University of Mississippi - School of Business Administration

Ralph A. Walkling

Drexel University - Lebow College of Business

Date Written: 1985

Abstract

Deregulation of common stock brokerage commissions occurred in the United States on 1 May 1975, when the Securities and Exchange Commission prohibited the New York Stock Exchange from setting minimum brokerage rates for member firms. Prior to this time, brokerage charges for common stock transactions had been set for all traders by a mutual agreement. With the advent of negotiated commissions, competition led to dramatic structural shifts in commission pricing particularly for institutional traders. The purpose of this research is to examine the effect on portfolio diversification costs resulting from a changing commission rate schedule. The commission schedule is estimated with actual commission cost information for over 28,000 transactions executed by institutional investors (bank trust departments) during the two years following the advent of negotiated commissions. This large sample of transactions, for a number of traders and securities, provides clear evidence that diversification of institutional portfolios became costless with respect to commissions following deregulation.

Suggested Citation

Edmister, Robert O. and Walkling, Ralph August, Trends in Institutional Commission Costs Following Deregulation: Evidence From the USA (1985). Journal of Business Finance & Accounting, Vol.12, pp. 553-559, 1985. Available at SSRN: https://ssrn.com/abstract=918073

Robert O. Edmister (Contact Author)

Bowling Green State University - Department of Finance ( email )

Business Administration 201
Bowling Green, OH 43403
United States

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States
610-232-7470 (Phone)

Ralph August Walkling

Drexel University - Lebow College of Business ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
(215) 895-4920 (Phone)
(215) 895-6119 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
19
Abstract Views
522
PlumX Metrics