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The phrase Big Bang, used in reference to the sudden
deregulation
Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a ...
of
financial market
A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets ...
s, was coined to describe measures, including abolition of fixed commission charges and of the distinction between
stockjobber
Stockjobbers were institutions that acted as market makers in the London Stock Exchange. The business of stockjobbing emerged in the 1690s during England's Financial Revolution. During the 18th century the jobbers attracted numerous critiques from ...
s and
stockbrokers
A stockbroker is a regulated broker, broker-dealer, or registered investment adviser (in the United States) who may provide financial advisory and investment management services and execute transactions such as the purchase or sale of stocks a ...
on the
London Stock Exchange
London Stock Exchange (LSE) is a stock exchange in the City of London, England, United Kingdom. , the total market value of all companies trading on LSE was £3.9 trillion. Its current premises are situated in Paternoster Square close to St Pau ...
and change from
open outcry
Open outcry is a method of communication between professionals on a stock exchange or futures exchange, typically on a trading floor. It involves shouting and the use of hand signals to transfer information primarily about buy and sell order ...
to screen-based
electronic trading
In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products c ...
, effected by UK Prime Minister
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher (; 13 October 19258 April 2013) was Prime Minister of the United Kingdom from 1979 to 1990 and Leader of the Conservative Party (UK), Leader of the Conservative Party from 1975 to 1990. S ...
in 1986.
History
Big Bang was the result of an agreement in 1983 by the Thatcher government and the London Stock Exchange to settle a wide-ranging antitrust case that had been initiated during the previous government by the
Office of Fair Trading
The Office of Fair Trading (OFT) was a non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforced both consumer protection and competition law, acting as the United Kingdom's economic ...
against the London Stock Exchange under the
Restrictive Trade Practices Act 1956
The Restrictive Trade Practices Act 1956 was an act of the Parliament of the United Kingdom intended to enforce competition, and provide an appropriate check on restrictive combines and practices. It required that any agreement between companies ...
. These restrictive practices included the London Stock Exchange's rules establishing fixed minimum commissions, the "single capacity" rule (which enforced a separation between brokers acting as agents for their clients on commission and jobbers who made the markets and theoretically provided liquidity by holding lines of stocks and shares on their books), the requirement that both brokers and jobbers should be independent and not part of any wider financial group, and the stock exchange's exclusion of all foreigners from stock exchange membership.
The day the London Stock Exchange's rules changed on 27 October 1986 was dubbed "Big Bang" because of the increase in market activity expected from an aggregation of measures designed to alter the structure of the
financial market
A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets ...
.
The effect of Big Bang led to significant changes to the structure of the financial markets in London. The changes saw many of the old firms being taken over by large banks both foreign and domestic and would lead in the following years to further changes to the
regulatory environment that would eventually lead to the creation of the
Financial Services Authority
The Financial Services Authority (FSA) was a quasi-judicial body accountable for the financial regulation, regulation of the financial services industry in the United Kingdom between 2001 and 2013. It was founded as the Securities and Investmen ...
.
Consequences
The effects of Big Bang were dramatic, with London's place as a financial capital decisively strengthened, to the point where in 2006 it was arguably the world's most important financial centre.
The
boom
Boom may refer to:
Objects
* Boom (containment), a temporary floating barrier used to contain an oil spill
* Boom (navigational barrier), an obstacle used to control or block marine navigation
* Boom (sailing), a sailboat part
* Boom (windsurfi ...
resulted in the relocation of institutions into new developments in the nearby
Isle of Dogs
The Isle of Dogs is a large peninsula bounded on three sides by a large meander in the River Thames in East London, England, which includes the Cubitt Town, Millwall and Canary Wharf districts. The area was historically part of the Manor, Ham ...
area, particularly that of
Canary Wharf
Canary Wharf is an area of London, England, located near the Isle of Dogs in the London Borough of Tower Hamlets. Canary Wharf is defined by the Greater London Authority as being part of London's central business district, alongside Central Lo ...
.
Although the "Big Bang" eased stock market transactions there is a debate in the UK about how far it affected the
Financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
.
In 2010,
Nigel Lawson
Nigel Lawson, Baron Lawson of Blaby, (born 11 March 1932) is a British Conservative Party politician and journalist. He was a Member of Parliament representing the constituency of Blaby from 1974 to 1992, and served in the cabinet of Margaret ...
, Margaret Thatcher's
Chancellor of the Exchequer
The chancellor of the Exchequer, often abbreviated to chancellor, is a senior minister of the Crown within the Government of the United Kingdom, and head of His Majesty's Treasury. As one of the four Great Offices of State, the Chancellor is ...
at the time of Big Bang, appeared on the BBC Radio Four programme ''
Analysis
Analysis ( : analyses) is the process of breaking a complex topic or substance into smaller parts in order to gain a better understanding of it. The technique has been applied in the study of mathematics and logic since before Aristotle (38 ...
'' to discuss the banking reform.
During the programme, Nigel Lawson is reported as having 'converted to the Glass-Steagall cause' f separating retail banking from investment banking due to concerns of moral hazard (" anksare not going to be as careful and as cautious and as prudent as they should be") and banks being 'Too Big Too Fail' (at taxpayers expense, as seen during the Financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
).
During the programme, the presenter, Edward Stourton says, "Lord Lawson isn't alone in his admission that hrough the 'Big Bang'we walked into the new banking world without really understanding the risks involved" y ending the separation of high street banks and merchant banks Nigel Lawson muses, "I didn't give it a great deal of thought at that time. I'd taken for granted that separation, as by custom and practice we'd had that all those years (we'd always had it), but it was a completely unforeseen consequence of the stock exchange reforms".
John Reed (a former Citigroup banker) says that, “we were simply ignorant of the risks that we were getting into” (from the repeal of Glass-Steagall in 1999). He attributes its repeal (in the United States) as being due to his customers (“big international institutions”) wanting to issue commercial paper, instead of borrowing directly from banks, as well as from the Big Bang, due to “globalised markets” and “inter-connected capital markets” making it difficult when there is one regime in London and a different one in New York.
In 2011 former British Prime Minister
Gordon Brown
James Gordon Brown (born 20 February 1951) is a British former politician who served as Prime Minister of the United Kingdom and Leader of the Labour Party (UK), Leader of the Labour Party from 2007 to 2010. He previously served as Chance ...
expressed regret at not implementing tougher regulations during his tenure of chancellor between 1997 and 2007, responding to "relentless pressure" from the City not to over-regulate.
Similar events
Subsequent similar actions, such as the deregulation of the Japanese financial markets circa 1997, have analogously also been tagged with the phrase Big Bang.
See also
*
Wimbledon Effect
References
{{Economy of the United Kingdom
1986 in economics
1986 in the United Kingdom
Economy of London
Economic liberalization
Economics of regulation
Financial markets
London Stock Exchange
Separation of investment and retail banking