Reg Hoare looks back at the radical changes to financial market structures and regulation which were introduced in the 1986 ‘Big Bang’. He spells out their significance and their lessons for today’s new changes.
Thirty years ago last October, the City of London went through the biggest change in its lengthy history – Big Bang. It was the result of legislation introduced by the Thatcher government to deregulate the stock market and modernise the City to compete with New York, Tokyo and Hong Kong (then its biggest competitors) whilst staying ahead of its European rivals.
Few at the time could have envisaged that these events were the catalyst for the spectacular rise of London as not only the leading global financial centre, but arguably the world’s greatest city. Nor that the changes that enabled risk-averse high street banks to own risk-taking investment banks would arguably enable the global financial crisis of 2007/8 and the near demise of the UK banking system.
The four principal changes to stock market practice introduced by Big Bang removed the straightjacket of restrictive practices that had hampered the City’s growth (much as the Thatcher government swept away trade union restrictive practices):
It also coincided with the time that technology advances were killing off open outcry trading in favour of electronic screen-based trading; the market makers (or jobbers as they had been known) moved from the floor of the Stock Exchange to sit alongside their new stockbroking colleagues on the same floor of the huge new skyscrapers that mushroomed in the City and Canary Wharf. Funnily enough, as a young equity salesman at the time, I recall the day itself (27 October 1986) being rather an anti-climax!
Far worse for those used to the comfortable pre-Big Bang equity market lifestyle, was that stock market opening hours were widened to enable a much longer trading day, 8.00 to 16.30, rather than the old 9.30 to 15.30. This enabled trading in London to overlap with the close of trading in the Far East at the beginning of the day, and the opening of trading in the US at the close of the day – ensuring that the concept of the 24-hour trading day became reality. And to make matters worse for all participants, RNS began operating from 7.00 (no one had consulted me as to whether this was convenient!).
Tools of the trade
Technicological advance also brought with it death by PowerPoint – Microsoft launched every CFO’s favourite results presentation prop in 1990 – finally we were all able to ditch those pesky 35mm slide shows that always got in the wrong order despite the fact you’d checked them, or those clunky overhead projector acetates which reminded one of geography lessons at school in the 1970s. And then came the corporate and investor relations website bringing more responsibilities and work.
The revolution also heralded other changes that followed swiftly in order to create a modern stock market – principally that of increasing regulation. And with each new crisis (whether Barings in 1995 or the global financial crisis in 2007/8), successive governments (and the EU) have added more layers of regulation and supervision to ensure the holy trinity of market confidence, financial stability and consumer protection are sustained.
The biggest regulatory changes over the last 30 years that have most affected the role of the IR community have arguably been:
Three decades of regulatory tinkering is due to climax in 2018 with the introduction of MiFID II – the culmination of a long period of regulatory change in the relationship between corporate brokers and fund managers. This is changing the landscape of corporate access and analyst research for ever (and not necessarily in a good way for issuers let alone analysts, as research coverage has already started to dwindle).
All this change has of course been the reason why the investor relations industry has evolved to become the significant profession that it is today; it used to be sufficient for a combination of the finance team and company secretariat to manage results and continuing obligations; now most companies over £1bn market cap, and increasingly many below, require an IR department to manage their issuer commitments (as well as a full bench of advisers) and navigate the regulations and technology.
The lesson perhaps is not to be fearful of such violent change – it presents opportunities and challenges for our profession, requiring it to become more professional whilst ensuring it is placed at the very heart of corporate management. And now we have another challenge, namely Brexit, arguably the Big Bang of the current generation. Only time will tell if history repeats itself and it heralds further seismic change, not to mention unintended consequences, for the investor relations profession.
Reg Hoare is a managing director of MHP Communications.
Published: 4 April, 2017