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The phrase Big Bang, used in reference to the sudden deregulation of
financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs In economics Economics () is the social science that studies how people interact with value; in particular, the Produc ...
s, was coined to describe measures, including abolition of fixed commission charges and of the distinction between stockjobbers and stockbrokers on the
London Stock Exchange London Stock Exchange is a stock exchange in the City of London The City of London is a City status in the United Kingdom, city, Ceremonial counties of England, ceremonial county and local government district that contains the historic cent ...
and change from open-outcry to electronic, screen-based trading, effected by
British Prime Minister The prime minister of the United Kingdom is the head of government The head of government is either the highest or second highest official in the executive branch of a sovereign state, a federated state, or a self-governing colony, auton ...
Margaret Thatcher Margaret Hilda Thatcher, Baroness Thatcher, (; 13 October 19258 April 2013) was a British who served as Prime Minister of the United Kingdom from 1979 to 1990 and Leader of the Conservative Party (UK), Leader of the Conservative Pa ...

Margaret Thatcher
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 , type = Non-ministerial government department Non-ministerial government departments (NMGDs) are a type of Departments of the Government of the United Kingdom, department of the Government of the United Kingdom that deal with matters for which ...
against the London Stock Exchange under the Restrictive Trade Practices Act 1956. 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 In economics Economics () is the social science that studies how people interact with value; in particular, the Produc ...
. 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.


Consequences

The effects of Big Bang were dramatic, with London's place as a financial capital decisively strengthened, to the point where it is arguably the world's most important financial centre. The boom resulted in the relocation of institutions into new developments in the nearby Isle of Dogs area, particularly that of Canary Wharf. Although the "Big Bang" eased stock market transactions there is a debate in the UK about how far it affected the 2007–2012 global financial crisis. In 2010, Nigel Lawson, Thatcher's Chancellor of the Exchequer, Chancellor at the time of Big Bang, appeared on the radio programme ''Analysis (radio programme), Analysis'' to discuss the banking reform. He explained that the 2007–2012 global financial crisis was an unintended consequence of the "Big Bang". He said that UK investment banks were previously very cautious, as they operated with their own money, but after merging with major retail banks, the depositors' savings were put at risk, and according to the programme this led U.S. banks to follow suit. In 2011 former British Prime Minister Gordon Brown expressed regret at not implementing tougher regulations during his tenure of chancellor between 2007 and 2010, 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

* The 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