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It is the eve of the Big Bang and on the floor of the London Stock Exchange gentlemen stockbrokers from firms such as Seligman Harris, Phillips & Drew, Capel Cure Myers and Quilter & Co give orders to jobbers who make the trades. The jobbers – many of them East End boys employed by Akroyd & Smithers, Wedd Durlacher, Pinchin Denny, Smith Brothers, Bisgood Bishop and Charles Pulley – record each transaction by hand in their books.
To today’s young stockbroker, the description of the trading floor in the early 1980s seems like an account from a very distant past. The company names are consigned to the history books. The term “jobber” has been replaced with that of “market maker”, much of whose role is now done electronically. And, most importantly, the Big Bang in 1986 removed the separation between the stockbroking and market-making functions. Combined with the abolition of exchange controls and corporation tax cuts by Margaret Thatcher’s government, it paved the way for London to become a truly international centre again.
“The past 30 years have been the most concentrated period of change the City of London has ever seen,” says James Fleming, chief executive of Arbuthnot Latham, a private bank. As the City looks ahead to the next 30 years, it is worth keeping this in mind.
The near-term future of the City is inextricably linked with politics. The rise of the UK Independence Party and continental European nationalist parties in this year’s European elections have played into the hands of eurosceptics, who argue that Britain would be better off outside the EU. A referendum on Britain’s EU membership looks likely.
Beyond this there has also been concern that London’s political influence was waning in Europe after the retirement of key allies such as Liberal Democrat MEP Sharon Bowles, who chaired the economics and financial committee, the main forum for negotiating City regulation and holding the European Central Bank to account. The appointment earlier this month of Lord Hill to oversee the financial sector in the EU has, however, been well received in the City.
London’s future as a financial centre is intrinsically linked to whether it stays in the EU, says Phillip Souta, head of UK public policy at Clifford Chance, one of the “magic circle” of big UK law firms. “If we are still a member of the EU, the City will be in the most advantageous position it could possibly occupy. If we’re not in the EU, it would become a very different proposition,” he says.
Then it would depend on what “out” looked like, says Souta – whether Britain clinched deals similar to those won by Switzerland, Norway or Turkey.
Much financial market activity in the EU is concentrated in the UK. London is not only the UK’s financial centre – it is Europe’s too.
“Foreign direct investment comes to the UK not just for its benign trading environment but because it has full access to the EU markets through its passporting system,” Souta adds. “In 30 years’ time there could be no passports and a single, highly liquid European capital market. If the UK is outside that, it risks turning into a large offshore centre. London would have to go through a Doctor Who-like regeneration.”
A change in London’s accommodating stance on foreign direct investment or immigration could pose a threat to its competitiveness, says Chris Cummings, chief executive of TheCityUK, a lobby group for the financial services sector. “We have a very open market for foreign direct investment that gives us a good bargaining chip in other parts of the world. London has built a reputation of being open to immigration at different levels,” he says.
Meanwhile, Nigel Farage, leader of Ukip, has advocated a five-year ban on immigrants settling in the UK and wants the UK to leave the EU. Then in May, Labour’s shadow business secretary Chuka Umunna threatened to block the proposed £63bn takeover of pharmaceuticals group AstraZeneca by its US rival Pfizer, if the party wins the general election. The deal subsequently fell through.
The City is in the midst of a raft of new regulation, from curbs on bankers’ bonuses to structural changes such as the ring-fencing of retail and investment banking operations. On the one hand, banks are facing stricter capital requirements. On the other, they are being urged to lend more to small and medium-sized businesses, the lifeblood of the UK economy.
The business of equity research is undergoing a big structural change after the Financial Conduct Authority endorsed European proposals to stop banks charging investors for research out of sharedealing commissions.
All of these could lessen London’s competitiveness.
“Asia is looking at London and New York quizzically: the moment you regulate the golden goose out of there, they’ll be there to pick up the pieces,” says David Buik, a market commentator at stockbroker Panmure Gordon.
Once other emerging economies, such as countries in Africa, start complying with universal corporate governance and business culture, they could also pose a threat, Buik adds.
Xavier Rolet, chief executive of the London Stock Exchange, believes that in 30 years there will be greater global regulatory harmony: “Prudential and financial conduct regulations will substantially harmonise and lead to a gradual globalisation and integration of standards and of the financial supervision process across various key North American, European and Asian markets.”
This will play into the development and further automation of processes, says Rolet: “The next 30 years will be about the automation of financial information disclosure as well as the primary capital-raising process.”
Developments are also taking place in working practices, following scientific progress and a series of deaths among finance workers that has raised questions about stress levels and the way employees are treated. Thirty years ago it was unheard of to visit the gym in the middle of the working day, but now the merits of physical exercise are undisputed and it has become ubiquitous.
Beyond physical exercise, some in the traditionally conservative City are turning to meditation, which has gained some legitimacy. Many believe the practice can bring greater clarity and improve performance.
An increasing number of City institutions – such as KPMG, Goldman Sachs and the Bank of England – have presented “mindfulness” to staff in seminars.
Might City offices one day be equipped with dedicated meditation pods and areas? Tara Swart, a neuroscientist and business coach, predicts still more surprising developments. “Cognitive enhancement – both from natural and less conventional sources – is gaining more attention, as people realise the role that sleep, exercise and diet, plus supplementation, play in memory and concentration,” she says.
“It is only a matter of time before pharmaceutical companies come up with legal performance-enhancing drugs for the workplace.”
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