Thirty years on: How Thatcher’s Big Bang revolutionised the Square Mile

Big Bang was concocted outside the Square Mile in Whitehall’s corridors of power, triggered by the head of the competition watchdog, Lord Borrie.

The Labour peer — who only died at the end of September — had accused the exchange of acting like a cartel.

In the old days, brokers would physically go down to the Stock Exchange to buy and sell shares for clients. They would do this by haggling with a market maker, known as a jobber, who acted much like a bookmaker does, quoting different prices for the shares.

Typically a broker would get paid a fixed fee to buy or sells shares or gilts or arrange a loan. Although there were dozens of brokers in the City, the market operated as a giant monopoly.

“It was incredibly uncompetitive,” says David Buik, a market veteran who’s worked in the City since 1962. “No one would undercut anyone else.”

Emboldened by then-prime minister Margaret Thatcher’s rebuke to establishment officials, Borrie threatened to sue the LSE unless changes were made. A peace settlement orchestrated between Borrie and LSE chairman Sir Nicholas Goodison paved the way for the monopoly to be smashed.

The LSE agreed completely to dismantle the age-old system through which shares were bought and sold and abolish fixed commissions paid to the broker. Fund manager Paul Mumford worked at a broker called Nivison and was at the coal face during the change.

“It completely changed my life,” he says. “I’d been a stockbroker for 25 years and Big Bang changed everything. Commissions were smashed, I thought the future looked bleak. I decided to jump over the fence and move into fund management and Big Bang was the start of it all.”

Along with the abolition of fixed commissions, Big Bang also triggered a mergers and acquisitions boom in the City as US investment banks swarmed in to take advantage of the new rules.

City stockbrokers used to operate as partnerships, with a cadre of partners controlling the firm via their equity stakes. This partnership model meant City brokers were normally smaller in size than traditional banks.

“There was lots of self-regulation and a much greater sense of responsibility,” says Numis founder Oliver Hemsley. “If they were to be successful they had to live or die by their colleagues’ decisions and that mattered to their profits. It was more of a clubby atmosphere but that was not necessarily a good thing: there was more complacency. There’s more competition now.”

Big Bang permitted these brokers to become incorporated entities, sweeping away the clubby partnerships and making them easier to be sold.

It also permitted brokers to merge with jobbers, creating a one-stop shop for trading.

Very few senior partners, many near retirement, coud resisted deep-pocketed investors.

Hoare Govett, for example was sold to California-based Security Pacific in the months after Big Bang. Rowe & Pitman was bought by Mercury Securities — also owned British merchant bank Warburg. Only Cazenove, thought to be the Queen’s stockbroker, remained independent (it succumbed to JPMorgan in 2004).

But the US invasion wasn’t all plain sailing. “Initially there was a big culture clash with the foreign buyers,” Pollock says. “Most of the American firms when they bought a broker thought they’d bought a bank and didn’t really understand that they had bought a corporate relationship. They were in at 7 o’clock and not going out for lunch.”

This was at odds with the bon viveur culture of the time. One worker at Hoare Govett had the nickname “split-second” because that was the amount of time you had to catch him between getting back for lunch and the markets closing at 4.30.

The final piece of the jigsaw was one we are still living with today: the move from face-to-face open outcry trading to electronic systems. The most tangible change in the days after Big Bang was how stock prices could now be viewed on screen, using a system called Seaq. It took some time to get used to.

“One of my colleagues on the desk started asking for price and size for an order and didn’t realise it was on his screen — what he was saying had become obsolete,” says fund manager Terry Smith. “It did produce a culture shock and a different kind of work ethic.”

Buik says: “Open outcry was there one day and gone the next. Human outcry was gone and it was nerds looking at screens. It was a little unnerving.”

The alarm clocks are set earlier, but, with Brexit on the horizon, the money men may yet be scrambling to adapt again.