Retail investors should cheer Big Bang anniversary
As the 27 October 2016 marks the 30th anniversary of the ‘Big Bang’ in UK Financial Markets Richard Stone, Chief Executive at The Share Centre, gives his thoughts on the impact of this historical event:
The Big Bang was one of the flagship changes brought about by the Government of Margaret Thatcher and her chancellor Nigel Lawson. The two main changes that the Big Bang brought about were the abolition of minimum commissions and the abolition of the requirement that the roles of broker and agent should be kept separate (single capacity).
These changes took place against a backdrop of dramatic technological change which has continued to this day and amidst the raft of Government privatisations which marked out the Thatcher Governments of the 1980s. This included British Telecom, British Steel, Rolls Royce, National Express, the Water and Electricity companies, British Gas and the National Grid amongst others. Almost all of which took place after the Big Bang had occurred.
The aggregation of activities, in particular the ending of the single capacity requirements, led to a boom in financial services, the development of the Isle of Dogs and Canary Wharf and changed the landscape of London literally as well as in terms of the firms which operated there. It also heralded an end of the open trading floors which had operated in the city at the London Stock Exchange and its predecessors for nearly 200 years.
Fundamentally the changes brought about by Big Bang enabled London to gain and build a position as the world’s leading centre for financial services, markets and trading. With the combination of systems, infrastructure, regulation and tax, London has been able to maintain that position.
Retail investment
Retail investors should cheer the anniversary of the Big Bang particularly loudly for the changes it brought about, combined with the advances in technology over the subsequent 30 years, as it has facilitated the growth of retail investment and ease of access to the markets.
Many of the retail brokers today, Barclays Stockbrokers, Hargreaves Lansdown, The Share Centre and others, did not exist in October 1986 and were born out of the changes enabled by the Big Bang. Such changes are the development of the Internet and the encouragement of retail investor participation through the large scale privatisations of the 1980s and 1990s.
These advances have freed up the market, enabled easy low cost access for everyone with a plethora of providers and tools now available facilitating access to the market for individuals regardless of wealth or experience. The stockmarket is no longer the preserve of a privileged few but is accessible to all – and the roots of that can be found in the Big Bang.
From a corporate perspective there have been benefits too, as through opening up distribution and share ownership, access to capital became easier. Companies could raise capital in London more simply and from a more diverse range of investors. This led to the development of the AIM market and a flourishing capital markets sector.
This position is very different to continental Europe where retail broking markets are typically dominated by 2 or 3 large providers, often subsidiaries of the major banks, and company funding as well as retail investor The next participation, is much more heavily focused on debt and corporate bonds rather than equity.
Technology
Today the challenge is all about technology. Latency, the speed with which computers can communicate to place trades, is critical as just being the smallest fraction of a second quicker can lead to an advantage which scaled over large trade volumes or values can result in sizeable profits. Technology is also key for the retail market and continues to develop.
Advances in payment technologies and mobile platforms are just two of the more recent developments which are further enabling retail investors to access markets, trade and monitor their investments.
The next 30 years will undoubtedly see dramatic further changes although it is difficult to conceive that the changes will be as significant as those which arose from the Big Bang.
Commenting on the Big Bang anniversary Richard Stone, Chief Executive of The Share Centre, said:
“30 years ago London experienced a seismic change courtesy of the Big Bang. It is difficult to underestimate the impact the changes made then have had on our financial services sector. In addition to changing the landscape of the City and enabling London to become and remain the preeminent global financial services centre, the changes also opened up the markets to retail investors.
“Firms such as ours [The Share Centre] can trace their roots back to the Big Bang and the changes it heralded. Combined with changes in technology, regulation, taxation and government privatisations, participation in stock markets is now possible for everyone regardless of wealth or experience. Low cost providers such as The Share Centre enable people to take control of their financial futures building a pot of investments to help underpin the financial security of them and their families.
“Looking forward, technology remains key to the evolution of retail investor participation as firms look to make the process of investment as simple and easy as possible.
“The challenges for retail investors now are greater than ever with an ageing population and government austerity driving the need for individuals to make increased provision for their own financial security, all at a time when real incomes have been, and are likely to continue to be, under pressure. The role retail brokers have to play is critical in enabling personal investors to access the markets easily and at low cost.
“The Share Centre has campaigned hard for retail investors over the last 25 years, on issues such as Stamp Duty (removed for AIM shares), AIM shares being allowed into ISAs and shareholder rights for holders in nominees (Part 9 of the Companies Act 2006). We will continue to do so arguing strongly to ensure that post-Brexit regulation is more proportionate for retail investors and that investment markets remain open and accessible for all.”