27 October 1986: the City's Big Bang

The deregulation of 1986 – dubbed the ‘Big Bang’ – brought the City into the modern age and helped it become the financial powerhouse it is today.

Before 1986, the City worked rather differently to the way it does today. Old Etonians would roll in from the shires mid-morning, depart shortly after for a civilised lunch and a bottle of very nice Bordeaux at a discreet restaurant somewhere, then hop in a cab to the club for a few snifters of single malt, before being whisked back first-class to London's leafy fringes.

If you wanted to buy a stock, you approached your broker, who placed the order with a “jobber” – cockney barrow-boy types who made the trade on behalf of the public schoolboys. It was all terribly, terribly cosy.

Unfortunately, it wasn't very competitive. London was being left behind as a financial centre by upstarts like New York – Wall Street was making ten times the number of trades that London was, while Frankfurt and Paris were starting to threaten London's position as the main financial centre in Europe.

Things were due a shake-up. And who better to shake things up than Mrs Thatcher? The old boys' network had to go, with regulation slashed to allow competition to flourish.

And so in 1986, the Financial Services Act deregulated the London Stock Exchange. The split between brokers and jobbers was abolished. Overseas firms were allowed to compete, and the rules governing ownership of exchange members were relaxed. Foreign firms rushed to London to set up shop, and there was a flurry of mergers and acquisitions as banks and financial houses vied for supremacy.

The deregulation coincided with the arrival of new technology, which made many of the old practices obsolete. Electronic trading was introduced. Exotic instruments such as derivatives were devised. The days of jobbers shouting and gesticulating across the trading floor were over, as trading was done over the phone or by computer.

London transformed itself into the world's most important financial centre, and its centre of gravity moved east to the brash new glass skyscrapers of Canary Wharf.

But was it all good? There is still much debate about the legacy of the Big Bang. And some claim the relaxed rules directly contributed to the financial crisis of 2008.

Recommended

I wish I knew what hyperinflation was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what hyperinflation was, but I’m too embarrassed to ask

Mention hyperinflation and many of us will think of wheelbarrows full of cash in Weimar Germany. Or, more recently, Zimbabwe or Venezuela. But what ex…
11 May 2021
The return to the old nine-to-five is a matter for business, not government
UK Economy

The return to the old nine-to-five is a matter for business, not government

Should we stay working from home or go back to the office? Whatever we decide, let’s keep Whitehall out of the question, says Matthew Lynn.
9 May 2021
Three lessons from football’s European Super League disaster
Economy

Three lessons from football’s European Super League disaster

Businesses can learn from the failed attempt to create a European Super League, says Matthew Lynn.
2 May 2021
The V-shaped recovery looks to be here at last
Economy

The V-shaped recovery looks to be here at last

The world is certainly not a Panglossian paradise. But the recovery is under way and there is plenty of good news about.
29 Apr 2021

Most Popular

Inflation is taking off in the US and markets really don’t like it
Inflation

Inflation is taking off in the US and markets really don’t like it

US inflation is at its highest for 25 years. Stockmarkets – and tech stocks in particular – have taken the news badly. John Stepek explains why, and w…
13 May 2021
Inheritance tax planning: the rules around gifting
Inheritance tax

Inheritance tax planning: the rules around gifting

There are plenty of legal ways to minimise an inheritance tax bill. Perhaps the simplest is to give away assets to reduce the size of your estate. Dav…
11 May 2021
Is it time to top up on gold? Or should you wait for a better opportunity?
Gold

Is it time to top up on gold? Or should you wait for a better opportunity?

Fears of inflation, money-printing and a global pandemic are all conditions that should drive the gold price higher. But it has been struggling. Domin…
12 May 2021