On October 27th 1986, the City of London was deregulated in what was known as "the Big Bang". Fixed commissions on trading shares were abolished, as was the distinction between taking client orders and executing trades, and the City was opened up and exposed to international competition. This was one of Thatcher's better ideas - prior to the Big Bang, London was dominated by a series of partnerships, and worked on a closed "old school tie" basis. People outside this magic circle found it impossible to break in. As a result, the City stagnated.
In 1985, the London Stock Exchange's turnover was only 1/13th of the then world's No. 1 ranked, New York, and it was only 1/5th of the No. 2 ranked, Tokyo.
Most of the old ossified partnerships didn't survive the fierce competition unleashed, and London became dominated by international firms based in New York, Frankfurt or Zurich.
At the time it wasn't obvious that the reforms would work - the graphs show employment in the City dropping in the early 90's as Major's recession hindered London, but since 1997 the City has not looked back, as the Big Bang reforms were accompanied by New Labour's favourable macroeconomic climate and the sensible light touch regulation of the Financial Services Authority regime introduced by Gordon Brown
As the FT puts it: London is now a truly competitive international financial centre and the people who work in the financial services industry operate in what is probably the nearest thing to a true meritocracy. Nationality and ethnic background are unimportant and employees are as likely to have been educated in Paris, Bombay or St Petersburg as in the UK. “People can be entrepreneurial and they don’t have to be a member of the Accepting Houses Committee [the inner circle of the old City establishment] in order to do business,” says David Verey, deputy chief executive of Lazard in London at the time of Big Bang and now a senior adviser to Blackstone. “But there is also nobody to protect them or bail them out.”
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