The “Big Bang” was the sweeping deregulatory overhaul of the London Stock Exchange that took effect 40 years ago this coming week, on Monday, 27 October 1986. The Big Bang reforms were part of a programme of financial liberalisation pushed through by the Conservative government under Margaret Thatcher. They led to the transformation of the City over subsequent years and decades, making it more open, more competitive, more international and much richer. The reforms were driven by the realisation that the City had to change and modernise in order to survive and prosper – and they resulted in a radical and permanent cultural shift.
What did Margaret Thatcher change?
First, fixed commissions were abolished, meaning brokers were allowed to compete on price when it came to fees. Second, the centuries-old “single capacity” distinction between brokers and “jobbers” (market-making intermediaries) disappeared, allowing brokerage firms to become “dual capacity” stockbrokers and “stockjobbing” market makers, licensed to act both for clients and as dealers trading on their own account. Third, foreign ownership rules were relaxed, opening the way for major international banks to enter the market and/or buy existing British brokers. And fourth, the trading floor itself was transformed, with the old system of face-to-face dealing and “open outcry” trading (shouted prices) replaced by electronic systems. That allowed more business to be conducted more quickly, with greater volumes and across a wider range of markets. And all these big changes took place over a single weekend.
Did the Big Bang work?
Yes. In the short term the changes led to a surge in the volume of trading in UK equities and an influx of international banks into London. Traditional British stockbroking and market-making firms, often organised as partnerships, were bought up by much larger American, European and Japanese banks – a takeover boom that paved the way for London’s growth into a financial centre to rival New York. Competition increased, transaction costs fell and market liquidity improved. At the same time, salaries for traders and investment bankers soared as institutions competed for scarce talent. In the longer term, the reforms drove a broader expansion far beyond stock trading, as the internationalisation of the City strengthened its position as a major centre for foreign exchange, international banking, bonds, derivatives, asset management and specialist insurance.
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Was the Big Bang a success?
Broadly, yes. The UK’s expanded financial sector generated well-paid finance jobs, vast pipelines of business for lawyers, accountants and consultants, and substantial tax revenues. It attracted overseas investment and enhanced Britain’s international influence. The Big Bang reforms threw out old rules that meant bank bosses had to work from offices within ten minutes’ walk of the Bank of England, paving the way for the City’s eastern outpost at Canary Wharf. The regulatory revolution also boosted the democratisation and demystification that made it far easier for ordinary punters to access investment for a sensible cost. No Big Bang, no MoneyWeek. At the same time, the Big Bang undoubtedly helped entrench a model of British economic success, and uneven economic geography, that has always had its critics – that of a world-class financial centre sitting awkwardly alongside a broader economy characterised by persistently low levels of investment and productivity. Others argue that the deregulation and internationalisation of finance in the 1980s and 1990s sowed the seeds for the global financial crisis of 2007-2009.
How is the City of London doing now?
Pretty well. Famously, London has suffered a slump in initial public offerings on the stock exchange since the last flotation boom in 2021. By market capitalisation, the London stock market is now, at best, sixth in the world – though on some calculations, it’s not even in the top ten. But doom-mongers should remember that stock trading is far from being the City’s only suit, says David Smith in The Sunday Times. London leads in other financial sectors – notably foreign-exchange trading, interest-rate derivatives and speciality insurance – where no other centre comes close. Across a range of metrics and specialisms, it comes a very close second to New York and remains – post-Brexit – the “undisputed financial capital of Europe, with no other continental financial centre in the top ten”.
Is there any need to panic?
The City retains many core strengths that mean its pre-eminence is likely to persist: language, legal system, depth in accounting and consulting services, communication facilities and handy time zone (between Asia and America), diversity of markets and their infrastructures, diversity of counterparties, and institutional tradition, combined with continuing regulatory evolution. Important, too, is the diverse talent pool of people who would rather live in London than in Frankfurt or Amsterdam. Brexit knocked London’s appeal as a place to float businesses, but in lots of other ways the City looks like “it’s getting its mojo back” after a few years of uncertainty, says The Economist. Overall, the UK has the same number of people working in financial services now – about 1.1 million – as it did in 2017, accounting for a slightly bigger chunk of GDP (8% rather than 7%). As for the City (where the “EU decided not to take an axe to Europe’s financial plumbing after all”), some 225,000 people worked in finance in 2024 – 36,000 more than in 2019. Another 181,000 worked in related fields such as law and accountancy, up by 51,000 over the same period. If that’s what decline looks like, it’s a decline worth celebrating.
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