When Alasdair Haynes walked onto the market floor of the London Stock Exchange to start a new week one morning exactly 30 years ago today, he was greeted by an eerie sight.
The 26-year old, who worked in traded options for stock jobbing firm Pinchin Denny, was accustomed to the usual hustle and bustle of the trading floor. But on Monday October 27, 1986, the LSE had suddenly become a “ghost town”.
“We were one corner of the London Stock Exchange,” Haynes, who now runs share trading venue Aquis Exchange, recalls of his time working at the exchange in traded options.
“Ninety percent of [the LSE] was filled with jobbers’ booths and brokers all walking around and the runners running around.
“And then we all walked in on the Monday morning and there was the traded options markets and there was just nobody else there.”
The silence, perhaps somewhat paradoxically given its name, had been caused by the Big Bang, the raft of financial market reforms under Margaret Thatcher that took effect that day.
By breaking the cartel that had dominated the exchange and opening up London to international firms, the sudden deregulation caused by the Big Bang laid the foundations that have helped to propel London into a global powerhouse for finance.
As Haynes witnessed first hand, the introduction of electronic trading, another Big Bang measure, also transformed the stock exchange, with face-to-face dealings abandoned in favour of using computers and telephones, a move that led to the closure of the LSE’s trading floor.
It exploded business, everywhere – derivatives, corporate finance, deals, IPOs.David Buik
But as the City celebrates the thirtieth anniversary of those landmark reforms today, it does so under a cloud.
The vote in June to leave the European Union has sparked fears across the Square Mile and in Canary Wharf that London’s status as a financial hub is under threat.
Many are concerned that the foreign firms that flooded into the City following the Big Bang will soon start to move jobs and operations to the Continent, to protect themselves should Brexit result in the UK losing access to the EU’s enormous single market for financial services.
The current feeling of unease is in marked contrast to the exhilaration that swept London back in 1986.
“It was unbelievably exciting, I can’t tell you how exciting it was,” says David Buik, a veteran of the City who started his career at the age of 18 in 1962 and now works as a market commentator for stockbroker Panmure Gordon.
“It exploded business, everywhere – derivatives, corporate finance, deals, IPOs. Anything you care to mention it absolutely exploded.”
For Humphrey Percy, who at the time worked as a managing director at the global fixed income division of what was then Barclays de Zoete Wedd, the Big Bang sparked a cultural shift in the City.
“There was a streamlining of markets, there was much greater capital coming in, and overnight markets became more professional,” he says.
The groundwork for the Big Bang was laid in 1979, when Mrs Thatcher abolished foreign-exchange controls, a move that made the City more outward-facing.
But the fuse for the 1986 revolution was lit four years after that, when following the 1983 election Nicholas Goodison, the chairman of the stock exchange, offered to Cecil Parkinson, the secretary of state for trade and industry, to deregulate the City instead of facing a restrictive practices trial.
The result was a host of measures that broke the vice-like grip on business exerted by traditional firms, which until then had dominated British finance.
Fixed commissions on trades were scrapped and electronic trading was brought in. The so-called “single capacity” system, which had kept brokers separate from jobbers, who made markets in stocks, was abandoned, enabling banks to own both and become “dual capacity” firms.
For the first time, foreign companies were also allowed to own British brokers, a move that combined with the other reforms sparked a wave of overseas takeovers that did much to change to the culture of the City as more aggressive US firms expanded their presence in London.
Pinchin Denny, the firm where Haynes worked, was among those firms that was soon swallowed up by an overseas buyer. At the time of the Big Bang it was owned by Morgan Grenfell, but by 1989 its parent had been bought by Germany’s Deutsche Bank.
Three decades later, however, and the City is now worried that Brexit threatens so much of what the Big Bang helped to create.
The major concern is that the decision to leave the EU will lead to UK jobs being lost to European cities such as Paris and Frankfurt, or further afield to other hubs such as New York or Hong Kong.
One of the main headaches caused by Brexit is the possible loss of passporting rights. Passports allow UK-based banks, fund managers and insurers to sell their services freely across the EU, and for firms based on the Continent to do business in Britain.
They give companies in the City unfettered access to Europe, and if the UK opts for a so-called hard Brexit – leaving the single market – those rights will be lost.
Passporting has allowed big US banks and Asian firms to use London as their base for their entire European operations.
The fear is that if the UK Government does not negotiate a palatable alternative to the passporting system that will continue to give UK-based businesses access to the single market, those large foreign firms will shift some of their British operations elsewhere, reversing the internationalisation of the City that the Big Bang galvanised.
Another worry is the threat to London’s status as the centre for the clearing of euro-denominated financial products following Brexit. Currently, some $570bn of euro-denominated derivatives are cleared everyday, making it a huge market.
London leads the industry because the world’s biggest clearinghouse, LCH, is based in the capital and controlled by the LSE.
But the European Central Bank wants the industry to shift to the Continent, and other financial centres such as New York are also considered serious candidates to take over clearing when the UK leaves the EU.
London has built an infrastructure, and it has taken 30 years to build that infrastructureAlasdair Haynes
However, while some pro-EU financiers believe that the City renaissance caused by the Big Bang could be ended by Brexit, others are not so sure. If anything, the sweeping deregulation that came in 30 years ago could play an important role in protecting London’s position once Britain exits Europe, they argue.
“London has built an infrastructure, and it has taken 30 years to build that infrastructure,” says Haynes of Aquis.
By spurring the development of the City, the Big Bang has been key to ensuring the financial services industry has grown deep roots in London, which will be difficult to pull up.
“There isn’t another European city right now that has that type of infrastructure to cope with what is going on in the City,” continues Haynes. “Could that change? Yes of course it could, people can build it but it’s not going to be built overnight.”
The changes sparked by the Big Bang have “cemented and made it extremely difficult and sticky to move business out of London”.