Big Bang – 30 years on
30 years ago today, the City of London went through the biggest change in its lengthy history – Big Bang. It was the result of legislation introduced by the Thatcher Government to deregulate the stock market to ensure the City modernised to compete with New York, Tokyo and Hong Kong (then its biggest rivals) whilst staying ahead of its European rivals.
Few at the time could have envisaged that these events were the catalyst that led to the spectacular rise of London as not only the leading global financial centre, but arguably the world’s greatest City. Nor that the changes that enabled risk averse high street banks to own risk taking investment banks would arguably enable the Global Financial Crisis of 2008 and the near bankrupting of the UK banking system.
The four principal changes introduced by Big Bang in the stock market were to remove the straightjacket of restrictive practices that had hampered the City’s growth (much as the Thatcher Government swept away trade union restrictive practices):
- the abolition of fixed commissions (enabling competition in share trading)
- the abolition of single capacity (enabling institutions to operate as both agent and principal when trading shares and bonds)
- the abolition of single ownership (enabling financial institutions such as banks to acquire stock market firms and to create the so called ‘investment banks’)
- the abolition of the restriction on foreign ownership (enabling international banks to buy British stock market firms)
It also coincided with the time that technology advances were killing off open outcry trading in favour of electronic trading; the market makers (or jobbers as they had been known) moved from the floor of the stock exchange to sit alongside their new stockbroking colleagues on the same floor of the huge new skyscrapers that mushroomed in the City and Canary Wharf.
So it was, that as a young stockbroker at W Greenwell & Co I arrived at the offices off Cheapside on the morning of 27 October 1986. The stockbroking firms had typically until this point been partnerships with highly traditional structures – under the new rules Greenwells had been acquired by Samuel Montagu, a merchant bank then owned by the Midland Bank (which was later acquired by HSBC) enriching its partners. That golden generation of stockbrokers were highly fortunate to have been in the right place at the right time – albeit the lowly junior broker participated as well, doubling one’s pay in the space of 18 months enabling one to get on the property ladder at a young age compared to nowadays!
I recall the day itself being rather uneventful and unmemorable. The new arrangements went smoothly if a little awkwardly. With the benefit of hindsight however, little did one realise the immense upheavals that would unfold in the coming years and decades; the fortunes of the newly created investment banks waxed and waned violently (leading to this correspondent losing his job twice in three years) and the risk taking and leverage at the heart of the investment bank business models became integral to how high street banks operated.
The lesson perhaps is not to be fearful of such violent change – there are winners and losers in all periods of change, with upheavals as institutions and economies wax and wane. Brexit is arguably the Big Bang of the current generation – only this time it effects the whole country, not just the jeunesse doree of the City of London. One hopes that the new opportunities that are presented by the revolution that is sweeping away the ancien regime can exceed what was on offer before without leaving too many worse off along the way. Time will only tell if history repeats itself whilst the law of unintended consequences is avoided this time.