The Financial Big Bang 30 Years On: The Times Have A-Changed

How the deregulation of London's capital markets structure in 1986 has led to large amounts of regulation in 2016.

big-bang

Thirty years on from the financial "Big Bang" that deregulated the UK markets, John considers what change has meant to the industry and how there’s still much uncertainty to deal with.

Bob Dylan recorded the iconic song The Times They Are a-Changin' in October 1963 and 53 years later, it is just as relevant as it was back then. It was another October, however, that introduced a seismic change to the capital markets; this one in 1986 with the advent of what has come to be known as the financial "Big Bang."

October 27 marks the 30th anniversary of the deregulation of the UK securities market, whereby Margaret Thatcher's government allowed the City of London to compete on a much stronger platform, while also shifting away from the open-outcry trading pits.

The Big Bang of 1986 led to significant changes to the market structure, which paved the way for electronification, the acquisition of traditional banking institutions by foreign buyers and the creation of the UK regulatory body, the Financial Services Authority (now the Financial Conduct Authority).

Fast forward to today and the world is a very different, and some would say scarier, place; the London Stock Exchange is immersed in merger talks with Deutsche Börse, Brexit dominates the European landscape with its numerous worst-case-possible scenarios, and open-outcry trading is now all but extinct as electronic platforms have taken root.

In short, the events of 30 years ago created the market environments that exist today, although there are definitely some outcomes that could not have been foreseen when Thatcher made her move.

It undoubtedly paved the way for the asset management community to strengthen its position and invest in electronic trading practices, but the attitudes toward regulatory measures has gone in completely the other direction, thanks in part to that rise of electronification as new trading methods came to market.

Now we are in the position where new regulations are a regular occurrence as global authorities seek to react to, and prevent a repetition of, the 2008 meltdown—an unintended result of the deregulation that created the "too big to fail" banks. This trend isn't going to stop anytime soon; in fact, it will probably only be exacerbated by the introduction of new technologies such as distributed ledgers, which has already caused a number of regulatory-minded conversations.

Looking forward, it is hard to see what the capital markets will look like in a few years' time, let alone another 30, as Brexit could lead to a second Big Bang through the departure of large banks to mainland Europe, ruining London's status as one of the world's leading financial centers.

What is certain is that change is coming, for both the UK and international capital markets; perhaps Bob Dylan will one day write an iconic song after it. He is the Nobel Laureate for Literature after all.

Side Notes
• Speaking of the Nobel Prize for Literature, how Haruki Murakami has yet to be awarded the honor is absolutely beyond my comprehension.

• I know we are all upset about Reading FC's exit from the EFL Cup last night, but let's try and focus on Saturday's game against Nottingham Forest.

• Events! Yes, it's the time of year when we at Waters are gearing up for two of our biggest European events of the year. Next week is the Buy-Side Technology Awards 2016, closely followed by the European Trading Architecture Summit 2016 on November 17, so keep an eye out for coverage on WatersTechnology coming soon.

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