Big Bang (financial markets)
Encyclopedia
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
of financial markets, was coined to describe measures, including abolition of fixed commission charges and of the distinction between stockjobber
Stockjobber
Stockjobbers were institutions that acted as market makers in the London Stock Exchange. Prior to "Big Bang" in 1986, every stock traded on the Exchange passed through a jobber's book, where they acted as intermediaries between stockbrokers, who were in turn not permitted to be market makers...
s and stockbrokers
Stock broker
A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...
on the London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
and change from open-outcry
Open outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
to electronic, screen-based trading
Electronic trading
Electronic trading, sometimes called etrading, is a method of trading securities , foreign exchange or financial derivatives electronically...
, enacted by the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
government in 1986. The day the London Stock Exchange's rules changed, 27 October 1986, was dubbed the "Big Bang" because of the increase in market activity expected from an aggregation of measures designed to precipitate a complete alteration in the structure of the market.
Policy
In the UK, Big Bang became one of the cornerstones of the ThatcherMargaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...
government's reform programme. Prior to these reforms, the once-dominant financial institutions of the City of London
City of London
The City of London is a small area within Greater London, England. It is the historic core of London around which the modern conurbation grew and has held city status since time immemorial. The City’s boundaries have remained almost unchanged since the Middle Ages, and it is now only a tiny part of...
were failing to compete with foreign banking. While London was still a global centre of finance, it had been surpassed by New York, and was in danger of falling still further behind.
Thatcher's government
Premiership of Margaret Thatcher
The Premiership of Margaret Thatcher began on 4 May 1979, with a mandate to reverse the UK's economic decline and to reduce the role of the state in the economy...
claimed that the two problems behind the decline of London banking were overregulation and the dominance of elitist old boy network
Old boy network
An old boy network, or society, can refer to social and business connections among former pupils of male-only private schools. British public school students were traditionally called "boys", thus graduated students are "old boys"....
s and that the solution lay in the free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
doctrines of unfettered competition and meritocracy
Meritocracy
Meritocracy, in the first, most administrative sense, is a system of government or other administration wherein appointments and responsibilities are objectively assigned to individuals based upon their "merits", namely intelligence, credentials, and education, determined through evaluations or...
.
Consequences
The effects of Big Bang were dramatic, with London's place as a financial capital decisively strengthened, to the point where it is arguably the world's most important financial centre even to the present day. An economic boom created a new class of nouveau richeNouveau riche
The nouveau riche , or new money, comprise those who have acquired considerable wealth within their own generation...
that has persisted for two decades, and the boom expanded beyond the City into new developments in the Isle of Dogs
Isle of Dogs
The Isle of Dogs is a former island in the East End of London that is bounded on three sides by one of the largest meanders in the River Thames.-Etymology:...
area, particularly that of Canary Wharf. Deregulation stimulated financial innovation and enabled new entrants to provide services.
Some critics have charged that the deregulation, and the atmosphere that it created, were responsible for such scandals as the Barings
Barings Bank
Barings Bank was the oldest merchant bank in London until its collapse in 1995 after one of the bank's employees, Nick Leeson, lost £827 million due to speculative investing, primarily in futures contracts, at the bank's Singapore office.-History:-1762–1890:Barings Bank was founded in 1762 as the...
collapse, although others argue the opposite, that the failure to disestablish the old boys' networks completely was to blame.
In May 2011, The Guardian's economic editor, Larry Elliot, wrote: "There is a simple reason why output is still 4% below its peak and growing only slowly: the debt-driven model of economic growth deployed in the 25 years from the financial deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
of the 1980s to the bank run at Northern Rock
Northern Rock
Northern Rock plc is a British bank, best known for becoming the first bank in 150 years to suffer a bank run after having had to approach the Bank of England for a loan facility, to replace money market funding, during the credit crisis in 2007. Having failed to find a commercial buyer for...
no longer delivers."
Similar events
Subsequent similar actions, such as the deregulation of the JapanJapan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
ese financial markets in 2001, have analogously also been tagged with the phrase Big Bang.