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

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Quiz of the week 21-27 November
Economy

Quiz of the week 21-27 November

Test your recollection of the events of the last seven days with MoneyWeek's quiz of the week.
27 Nov 2020
Are central banks about to start targeting house prices?
House prices

Are central banks about to start targeting house prices?

New Zealand’s finance minister has suggested expanding the remit of its central bank to include an oversight of house prices. John Stepek explains why…
27 Nov 2020
27 November 1924: Macy’s first Thanksgiving Day parade
This day in history

27 November 1924: Macy’s first Thanksgiving Day parade

On this day in 1924, New York department store Macy's held its first Thanksgiving Day parade. It would soon become a city institution, kicking off the…
27 Nov 2020

Most Popular

The next 20 years: five new technologies on the horizon
Global Economy

The next 20 years: five new technologies on the horizon

What will everyday life be like in two decades’ time? Matthew Partridge peers into his crystal ball.
12 Nov 2020
This week’s rally in value stocks is just the beginning
Value investing

This week’s rally in value stocks is just the beginning

The arrival of a vaccine this week saw huge gains in the markets and investors switching out of big-tech growth stocks and into “value” stocks in more…
13 Nov 2020
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
13 Nov 2020