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The Big Bang: London's Financial Transformation

Explore the impact of the 1986 deregulation on London's financial center, from changes in trading practices to the rise of a new financial class.

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The Big Bang: London's Financial Transformation

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  1. The Big Bang Tara Slobe Holly Morrison Karen Yarcho Kate Lindsay

  2. Description • Changes to the organization and practices to Britain’s financial center • Sudden deregulation swept through London Stock Exchange • Took place October 27, 1986

  3. Description • Prior to the “Big Bang”: • Membership to stock exchange was limited • Decline of status of British Securities Market • Technological development and the expansion of transactions were occurring

  4. Description • The “Big Bang” brought about the following: • Merged functions of jobber and broker • Introduced negotiated commission rates • Allowed banks and financial companies to own brokers/jobbers • Changed from open-outcry to electronic, screen-based trading

  5. Description • The “Big Bang” also brought about: • Market expansion • People of lower classes to participate

  6. The Big Bang: Role of London as a Financial Center Too much regulation in the market!! Margaret Thatcher: -British politician who served as Prime Minister -Believed London banking had two problems: 1)Overregulation 2) Domination of ‘Old Boy’s Networks’ -The Big Bang became the cornerstone of Thatcher’s reform program.

  7. BB’s Role of a financial center… • Strengthened London’s place as a financial capital… - created a new class of ‘nouveau rich’ - Boom expanded beyond the city

  8. Big Bang’s Contributions • Deregulation of the Markets • Less intimidation for prospective traders • Abolished fixed minimum commissions • Substantially increased market activity

  9. Growth of Market post BB *£100,000 in October 1986 would now be worth… 339% increase!! 333% increase!! 48% increase

  10. Margaret’s Vision: • London will capture the market of internationally traded securities • Equity securities from large Co’s • Debt securities from Govt’s • Leads to market integration of securities brokerage and other financial activities… with London being in the center!!

  11. Advantages from Big Bang • London’s place as a financial capital - arguably the world’s most important banking centre • Economic boom created a new class of “nouveau riche” • Brought on new ways of trading shares

  12. Advantages from Big Bang • City expanded from its former boundaries around the old “square mile” and redrew the capital’s skyline • Hedge-fund managers and private-equity firms have gravitated farther west to posh Mayfair and St James's, helping to drive up office rents there and keeping trendy restaurants busy

  13. Advantages from Big Bang • Heathrow Airport is bursting at the seams, handling nearly 70m passengers a year when it was designed for 45m • Far more foreign banks than any other financial centre and has the biggest slice of the foreign-exchange market • A turning point in the city’s post-war history • The city became more of a meritocracy

  14. “There is just no comparison now between the city’s standing today and 20 years ago. London wouldn’t be in this position without Big Bang.” -David Lascelles

  15. Disadvantages of the Big Bang • Negative/dishonest atmosphere • Speculation that the new era caused scandals such as the Collapse of the Barings Bank

  16. Disadvantages of the Big Bang • Two more rules were added in the late 1980’s to help out after the deregulation – not necessarily a disadvantage, but important to note. Its argued that these rules are meant to favour Londoners over others such as the U.S. • Markets that dealt with corporate shares were not obligated to trade with one another • The time frame as to when trades had to be reported changed

  17. Disadvantages of the Big Bang • Deregulation favours big companies and market giants • Institutions that benefited from this change were foreign. • Ex. US banks benefited even though it was supposed to help London compete with them.

  18. Post the Big Bang • “New money” class created • Property Boom. New developments in Docklands/Canary Wharf area • Growth of specialist work force • London is more competitive in foreign banking

  19. Post the Big Bang • Bottom Line: London is a much stronger financial center as a result of the deregulation

  20. Discussion • What do you think might have happened if the Big Bang had not occurred? • What if the markets had never been deregulated? • Do you remember why they call it the “Big Bang?” • Are there any more reasons why its called the Big Bang?

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