Big Bang (financial markets)

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The phrase Big Bang, used in reference to the sudden deregulation of financial markets, was coined to describe measures including the abolition of the distinction between stockjobbers and stockbrokers on the London Stock Exchange by the United Kingdom government in 1986.

This change in the rules of the London Stock Exchange occurred on 27 October 1986. Big Bang (never "the Big Bang") was so called because the abolition of fixed commission charges precipitated a complete alteration in the structure of the market. One of the biggest alterations to the market was the change from open-outcry to electronic, screen-based trading.

Other reforms were enacted at the same time, and it was the aggregation of the measures plus the expected increase in market activity that led to the event being called Big Bang.

In Britain, 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 overregulation, and the dominance of elitist old boys' networks, and that the solution lay in the free market doctrines of unfettered competition and meritocracy.

The effects of Big Bang were dramatic, although not quite as intended. London's place as a financial capital was decisively strengthened, to the point where it is arguably the world's most important banking centre. An economic boom created a new class of nouveau riche that has persisted for two decades, and the boom expanded beyond the City into new developments in the Docklands/Canary Wharf area. However, the institutions profiting from this boom were largely foreign--including the very US investment banks that the reforms were intended to compete with. In fact, the two largest and most profitable banks in London are Citigroup and Bank of America.

Some critics have also charged that the deregulation, and the atmosphere that it created, were responsible for such scandals as the Barings collapse, although others argue the opposite, that the failure to completely disestablish the old boys' networks was to blame.

Subsequent similar actions, such as the deregulation of the Japanese financial markets in 2001, have analogously also been tagged with the phrase Big Bang.