The Big Bang, a package of London Stock Exchange reforms that was implemented 40 years ago today, got off to a stuttering start. SEAQ, the system which shared real-time price information on computer screens, collapsed under the weight of data requests within minutes of markets opening. There was the frisson of nervous schadenfreude with which Brits greet innovation failures, but then the system recovered and was working as intended within a few days. The introduction of screen-based price information was probably the most visible yet least significant aspect of the Big Bang, which transformed the City of London, and the capital as a whole, more than many expected.
By the late 1970s, London’s stock market was seen as something of a financial backwater. Exchange controls (limits on how much currency could be exported) made international trading expensive and financial innovations (such as “eurobond” loans) were traded outside the Stock Exchange. The situation did not look sustainable. Conservative Party chairman Cecil Parkinson, who had experience auditing City firms, described the Stock Exchange as “a very autocratic organisation, which had more in common with a gentleman’s club than a central securities market”.
The accusation of clubbishness was in many ways well-made. The Stock Market had limited access to membership and maintained a strict delineation between stockbrokers, who advised and took orders from private and institutional clients, and stock jobbers, who bought and sold on brokers’ behalf in the face-to-face mêlée of the trading floor. Minimum commission levels ensured viability for insiders and restrictions on foreign ownership kept outsiders out.
The City could feel like Pall Mall too. Financier John Craven described lunches at the dining room at the bank Hambros: “Partners would drift in and out. There was wine and port and no business talked at all. It was the atmosphere of a languid country house lunch on a Sunday.” Women were largely patronised or excluded, and connections were prized above qualifications. Parkinson recalls a fellow MP criticising a firm’s partners: “He thought it was scandalous that they were all actuaries and chartered accountants…and none of them had been to Eton either.”
The Conservative government elected in 1979 abolished exchange controls within months of taking office, putting London’s stock market in direct competition with other world exchanges, and took up an Office of Fair Trading (OFT) case against the Stock Exchange’s restrictive practices, despite entreaties to drop it. Eventually, in 1983, Sir Nicholas Goodison, the suave and learned chair of the Stock Exchange, did a deal with Parkinson (by then Trade and Industry Secretary), to phase out minimum commission, to allow jobbers and brokers to merge, and to relax rules on foreign ownership. In exchange, the government would have the OFT drop its case. October 1986 was set as the date for the “Big Bang” introduction of the new measures.
The deal was controversial. The OFT was furious and Labour deputy leader Roy Hattersley (who had been the minister responsible when their investigation started) condemned “government of the City for the City and, by far too large an extent, by the City”. To outsiders, the changes may have looked technical or even cosmetic, but their impact went deep. One result was a flurry of mergers and takeovers: brokers and jobbers merged (as the end of minimum commission made smaller firms less viable), and American, European and Japanese banks swept in to establish a toehold in London.
Many of the old guard cashed in their chips: financiers talked of catching Concorde to New York, collecting an eye-wateringly large cheque over lunch, then flying back to London to celebrate over dinner, before moving out to enjoy early retirement in large country houses. And as financial services employment boomed, London started attracting people from across Europe, the USA and Asia.
1986 was the first year since 1939 that London’s population grew, though demographers argued that it was probably just a temporary blip in response to the Big Bang. As the Thatcher government’s privatisation programme got underway and popular share ownership began to spread, financial markets emerged from bowler-hatted obscurity to acquire a sheen of glamour, celebrated in the Yuppie Handbook and in TV shows such as Capital City.
The arrival of US bankers set up a culture clash. Bond trader turned author Michael Lewis wrote that the “Europeans had a reputation, probably exaggerated, of sleeping late, taking long liquid lunches, and stumbling through their afternoons… One New York trader referred to them as ‘Monty Python’s Flying Investment Bankers’.” But, Lewis admitted, London was far from a hardship posting by 1985, when he was sent over here: the capital’s shops, housing, cultural scene and – increasingly – its restaurants made it a popular destination.
In her satirical play Serious Money, which opened at the Royal Court in 1987 and played to full houses of the very City bankers it lampooned, Caryl Churchill’s characters sing London’s praises, contrasting it with the perilous New York and culturally distant east Asia: “I go to the theatre, I don’t get mugged, I have classy friends, and I go to see them in the country at weekends.”
As American bankers and American salaries (often four times higher than those of their London counterparts) began to arrive in London, the money flowed into property as well as conspicuous consumption of champagne and other intoxicants. London housing saw price rises of 30 per cent in 1987, and both salaries and house prices had pulled away from the rest of the country by the end of the decade.
Recruitment in the City began to change. Qualifications started to count, pushing out not only the “well-dressed gents of often modest intellectual means” who gravitated towards stockbroking (to quote one who got away), but also the sharper-witted and -elbowed traders, many of whom came from the East End with minimal academic credentials, moving seamlessly from market trading to market making on the floor at 125 Old Broad Street.
The trading floor itself was initially kept open in case automated systems failed or proved unpopular, but was swiftly deserted. The speed of change surprised the older generation. “I thought all the information you needed was on the floor,” said one. “Eye contact, sweat, movement. I was horrified. Absolutely shattered. It had been a great club.”
But, although online quotation systems meant you no longer needed to be in the same building or even in the same city as the market in which you were dealing, the Big Bang strengthened rather than weakened London’s gravitational pull. Bankers still wanted to cluster together, to share expertise, to poach each other’s staff and to do the deals that still meant meeting face-to-face.
There was a more localised problem however. Banks wanted large floorplate offices where traders and brokers could see each other (“so it was easier for us to talk to them, and for them to bollock us”, in the words of one broker), with plenty of space between floors for cabling. But the 1984 City of London Plan envisaged precisely the opposite, resisting proposals to amalgamate sites or change uses.
City planning chair Michael Cassidy quickly saw the problem, and ordered a rapid plan review. Nonetheless, some firms moved out of the City’s core as demand for office space surged, to Broadgate, to Victoria, and to Canary Wharf, the City’s great rival in the 1980s, which was quick to proclaim its ambition to build “Wall Street on Thames”.
The ebullience of the Big Bang was quickly checked. It was followed by a sharp stock market crash in 1987, waves of redundancies in the City, soaring interest rates and a recession that plunged many London householders into negative equity (owing more in mortgages than their house could be sold for).
Nonetheless, the Big Bang’s impact lasted. Along with the abandonment of capital controls, it cemented London’s position as a global financial hub, rather than one focused primarily on allocating UK capital to UK enterprises. Whether this was a good or bad thing can be debated, of course. So can the extent to which the regulatory changes of 1986 enabled the economic dominance of finance, fuelled soaring house prices and widening inequality, and seeded a huge financial crisis 20 years later.
But London was changed and changed forever. It was not just a result of the Big Bang, but the reforms marked an inflection point in London’s evolution from a post-imperial backwater to a destination of choice, as 50 years of population decline slowed and then went into reverse. Alongside bankers, accountants and consultants came artists, designers and TV producers, fostering the rich variety of restaurants, nightclubs, consultancies, galleries and shops that would accelerate growth and boost London’s profile in the decades to come.
