Big Bang (financial markets)

The phrase Big Bang, used in reference to the sudden deregulation of financial markets, was coined to describe measures, including abolition of fixed commission charges and of the distinction between and on the and change from open-outcry to electronic, screen-based trading, effected by Margaret Thatcher in 1986.

The Big Bang was the result of an agreement in 1983 by the Thatcher government and the London Stock Exchange to settle a wide-ranging anti-trust case that had been initiated during the previous government by the Office of Fair Trading against the London Stock Exchange under the Restrictive Trade Practices Act 1956. These restrictive practices included the London Stock Exchange's rules establishing fixed minimum commissions, the 'single capacity' rule (which enforced a separation between brokers acting as agents for their clients on commission and jobbers who made the markets and theoretically provided liquidity by holding lines of stocks and shares on their books), the requirement that both brokers and jobbers should be independent and not part of any wider financial group, and the stock exchange's exclusion of all foreigners from stock exchange membership.

The day the London Stock Exchange's rules changed on 27 October 1986 was dubbed the "Big Bang" because of the increase in market activity expected from an aggregation of measures designed to alter the structure of the financial market.

The effect of the Big Bang led to significant changes to the structure of the financial markets in London. The changes saw many of the old firms being taken over by large banks both foreign and domestic and would lead in the following years to further changes to the regulatory environment that would eventually lead to the creation of the Financial Services Authority.

In the UK, Big Bang became one of the cornerstones of the Thatcher government's reform programme. Prior to these reforms, the once-dominant financial institutions of the City of London 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 claimed that the two problems behind the decline of London banking were over-regulation and the dominance of elitist old boy networks and that the solution lay in the free market doctrines of competition and .

...
Wikipedia