How shock wave from Big Bang'¨shook up City

In October 1986, trading in the City of London, with the Stock Exchange at its heart, underwent a transformational shift, an event now known as the “Big Bang.”

The 1970s and early 1980s were a very different place at the Stock Exchange. It was a tight knit environment, owned by its members who were mostly brokerage houses across the City. There was a bustling and rowdy trading floor and fixed commissions were in place across all transactions. The result was a reluctance amongst members to allow banks and other financial institutions to get a foothold in the market.

But increasing pressures from the outside world, in particular the Government, pushed it towards reform. Eventually in 1985, the Stock Exchange ruled that outside capital from banks and foreign institutions would be allowed without any restrictions and started dismantling minimum commissions. This was an opportunity for the world’s well capitalised banks to fully enter London brokerage businesses and increase competition in the market.

Within months, international banks and other financial institutions had bought into the once closed shop of UK stockbroking bringing both new capital and a more international outlook to the City that remains to this day. London Stock Exchange participants were also provided with expensive new electronic trading equipment, including a highly sophisticated dealing desk for each person engaged in trading, marketing and research. And in order to house all the new traders and their technology, huge trading floors were needed, leading to a property boom not only in the City but in areas such as Canary Wharf too.

The new trading system in place allowed trades to be executed faster. Prices were quoted on an electronic screen and deals would be fixed either on the floor or by telephone, with prices disseminated via the Stock Exchange Automated Quotation System (SEAQ).

Against the backdrop of innovation at the Stock Exchange, the Government embarked on a series of privatisations which did much to shape the stock market in the 1980s and early 1990s. The first big privatisation was British Telecom in 1984, with the sale of approximately 50 per cent of the business generating £4bn, creating the largest company on the Stock Exchange at the time. The result was that by the end of the 1980s, one in four families owned shares.

In 1984, one of the most well-known and widely used global indices today, the FTSE 100, was created. In 1984, the FT 30, a 30 share index of industrial equities concentrating on the most actively traded shares, not their market capitalisation, was largely superseded by the FTSE 100 Index. This was designed by the Stock Exchange and consisted of an aggregation of the minute by minute share price movements of the 100 largest listed companies.

Suddenly in the space of a few years around 1986, London Stock Exchange was transformed: new participants, trading was computerised and sped up, investor costs slashed and the UK Government was embarking on a policy of de-nationalisation.

It was in October 1986, when the culmination of all these innovations and reforms came together and overnight, the rowdy, bustling trading floor dispersed. The market was changed forever; “Big Bang” had taken place.

London Stock Exchange can trace its history back to 1698 when John Castaing issued a detailed list of market prices from his base at Jonathan’s Coffee House.

The Exchange itself was formed in 1801 and in 1830 the electric telegraph transmitted price information via tickertape. In 1960 the “Enunciator” screen displayed headlines electronically, replacing noticeboards.

It wasn’t until 1973 that the first female members were elected to the Stock Exchange.

In 1984, the FTSE 100 was launched and in 1986, “Big Bang” saw trading move from face-to-face dealings on the market floor to computer and telephone dealings