The Big Bang

Tara SlobeHolly MorrisonKaren YarchoKate Lindsay

Description

• Changes to the organization and practices to Britain’s financial center

• Sudden deregulation swept through London Stock Exchange

• Took place October 27, 1986

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

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

Description

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

The Big Bang: Role of London as a Financial CenterMargaret Thatcher:-British politician who served as Prime Minister

-Believed London banking had two problems:1)Overregulation2) Domination of ‘Old Boy’s Networks’

-The Big Bang became the cornerstone of Thatcher’s reform program.

Too much regulation

in the market!!

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

Big Bang’s Contributions

Deregulation of the MarketsLess intimidation for

prospective tradersAbolished fixed minimum

commissionsSubstantially increased

market activity

Growth of Market post BB

UK property

Oil Gold 0

50,000100,000150,000200,000250,000300,000350,000400,000450,000

19862006

*£100,000 in October 1986 would now be worth…339%

increase!!333%

increase!!

48% increase

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!!

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

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

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

“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

Disadvantages of the Big Bang

• Negative/dishonest atmosphere

• Speculation that the new era caused scandals such as the Collapse of the Barings Bank

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

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.

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

Post the Big Bang

•Bottom Line: London is a much stronger financial center as a result of the deregulation

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?