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Twenty five years ago I asked the then chairman of the Stock Exchange, Sir Nicholas Goodison, what was the point of Big Bang. He answered, without hesitation, deviation or repetition, that the point was to preserve the central market.
Well in that it certainly failed. Preserving the central market to Goodison meant preserving the Stock Exchange as the centre for UK equity share trading and price formation.
Today, however, the Exchange is under attack as never before from independently owned trading platforms and from the dark pools, which in essence are stock exchanges for a closed-user group of investment bankers' favoured clients.
The London Stock Exchange accounts for only about half the volume of equity market dealing in the leading companies of the FTSE 100.
Its share prices still act as a reference price for the other trading venues, but it is increasingly unclear how long it will be before the tail wags the dog, if indeed it does not do so already.
And in anticipation the Exchange today is seeking new sources of revenue, in particular by pushing a financial market variant of sex tourism, offering the prestige of London listings to all sorts of companies round the world who in earlier times would never have imagined they would be eligible to participate in such delights. It is all a far cry from the world of 25 years ago.
That said, technology and telecommunications rather than Big Bang has driven the change in the Stock Exchange business model and arguably Goodison's efforts kept the Exchange at the centre of City life for a lot longer than if he had done nothing. The reform certainly has delivered on the wider objective, to equip London so it could become the centre for international securities trading, which was then still in its infancy.
The problem is not that it failed in its objective but that it brought unforeseen costs, the consequences of which we have yet to manage. Before Big Bang the City was a place where occasionally there was a problem when honest firms employed dishonest people. Today that is reversed.
The chronic problem in the City is institutionalised dishonesty, people behaving with as much integrity as is possible but having to live in an environment which puts the firms' interests before those of the customer, and seeks on a daily basis to separate the customer from as much of his money as it can get away with. Today's problem is honest people in dishonest firms.
In other words the huge casualty of the past 25 years have been ethics. The rule change at Big Bang which allowed securities firms to be both agent and principal, to trade for the client and to trade against them, to act as the buyer and as the seller, has changed the whole nature of the securities markets. Long-term relationships have been replaced by transactional relationships. In Philip Augur's well-observed phrase, marriage has been replaced with a succession of one-night stands.
Long-term investment has been displaced by short-term trading, with a huge increase in volatility and instability in financial markets. Products are invented, sold and traded not because they are of any use to the end client -often the opposite - but simply because the house can make a profit. Finance, the whole purpose of which is to be the servant of the real economy, has become an end in itself.
As the financial sector has grown in wealth and power it has grown in arrogance. Bankers first bribed, then bullied, and now largely ignore politicians and what started as a gulf in incomes has turned into a gulf in values, a huge disconnect between what the financial world thinks of itself and what the rest of the world thinks of it.
This has serious long-term implications for the health of democracy and democratic capitalism in this country, because ultimately if the people and, through them, the politicians feel they no longer have a stake in the system then they will not support it. The protest thus far is inarticulate and unfocussed.
But while there may be just a few dozen people camped around St Paul's, if the nation were forced to choose between them and the bankers, those in the tents would get the vote. That should give the top people in the City pause for thought, but one wonders if it will.
Big Bang's anniversary is therefore a time for celebration and reflection. celebration because the reforms drove the City to re-establish itself as the world's leading financial centre with all the benefits of employment, wealth and tax receipts which that has entailed for the country; reflection because success and prosperity are not sustainable without trust and respect, and too much of that has been lost in recent times.
Only when trust and respect have been rebuilt, only when the City has rediscovered its moral touchstone so that the client comes first, not occasionally but in every single transaction, can Big Bang truly be deemed to have been a success. Right now it is a work in progress.
Reader views (2)
I'm afraid I wont be celebrating. My invitation to the Big Bang Reunion is still in my Inbox. In truth the experiment failed a long time ago and those with experience of the old market are more often than not privately aggrieved that the concerns of many of the old members, many of whom are long deceased, were ignored by Thatcher, Parkinson and Council members like Goodison who sold their souls to the devil back then. Big Bang Part Two is nearly here and I regret to say more hypocrisy is festering in the guise of RDR and such like.
- Richard Hoblyn FCSI, on the outer fringes of the Square Mile, 31/10/2011 15:00
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Tremendous stuff! Prior to Big Bang the City may not have been perfect but those who worked within the City had at least some moral, business and basic values towards those that contributed to its existence. During the past 20 years or so all basic moral values have been thrown out the window in the pursuit of short term gain. Year by year conflicts have grown and year by year those that have trusted the City have been let down for the pursuit of profit today rather than income and profit tomorrow. There can never have been a worse choice of partner for the ordinary folk who contribute to the well being of the country than the myriad of owners from near and far that have integrated, conflicted and sought successfully to control our destiny with scant thought for the ultimate implications of their selfishness and greed. I say bring back the people and let's go stand on the steps of the City institutions! Anthony is right to call the City to order and ask the question. " Where are you now"?
I fear the City is too busy looking for its next killing!
- Peter Webb, Chelmsford England, 27/10/2011 22:57
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