Can you remember the Big Bang? Not the birth of the universe, but the birth twenty years ago of the modern London stock market.
Are you old enough to remember the Big Bang? Not the birth of the universe, but the birth twenty years ago of the deregulated London stock market that we take for granted today.
Demarcation and restrictive practices were not just the preserve of blue-collar trades, but also of the white-collared and bowler-hatted denizens of the stock exchange. After prolonged pressure from Margaret Thatcher's government, and a court case brought by the Office of Fair Trading, the London Stock Exchange
(LSE: LSE)
agreed to a package of changes that were to change the face of the British financial markets.
Four main changes were introduced simultaneously on 27 October 1986:
- Non-members of the exchange, including banks and foreign companies, were allowed to compete for business. This resulted in the demise of British firms such as SG Warburg and BZW, as foreign operators like Deutsche Bank expanded into the UK market;
- Firms could now act as both brokers and jobbers (who were essentially wholesalers), two roles that had previously been kept apart. Jobbers became the 'market makers' we know today, providing liquidity in certain stocks;
- The practice of 'open outcry', where business was transacted in person on the floor of the exchange, was replaced by computerised dealing;
- The system of fixed commissions was abolished. Investors, including the general public, could shop around for the best trading terms, as they do on our discussion boards.
To some extent these changes were a logical consequence of the abolition of foreign exchange controls in 1979. If it was easier and cheaper to trade abroad, why put up with the out-dated methods used at home? Institutions were voting with their feet, with increasing proportions of UK shares being traded in other countries. London had to smarten up its act, but it took considerable political pressure to make that happen.
While efficiency was the objective, competition was the lever used to achieve it. It didn't matter whether those providing the service were local or foreign, as long as the service was provided as effectively as possible.
As a result, staff numbers fell by two-thirds within a few years. Instead of continuing to fall behind other main world markets, London is now the exchange of choice for companies from around the world. Eventually, the LSE became a public company, listed its shares on its own exchange, and became a desirable bid target in its own right. There are many reasons for this, of course, but it would be hard to imagine any of this happening were it not for the changes introduced in 1986.
More stock market history:Twenty Years Of The FTSE 100 | Black Monday | Windfall Winners
