“London has done well from Big Bang because barriers to competition were dismantled and London attracted a large concentration of competitive talent and capital from all over the world”, writes Sir Nicholas Goodison, chairman of London Stock Exchange, 1976-88.
Sir Nicholas believes that London can keep its place at the top if it remembers the lessons of Big Bang and its aftermath. “Regulation must be as light as is compatible with nurturing trust”, writes Sir Nicholas in the Financial Times, and “regulators must be prepared for coping with major risks that might damage London’s reputation.”
Can London need keep its place at the top? Has London got the regulatory mix right? What do you miss most about the City 20 years ago? Sir Nicholas answers your questions below.
What global position do you think the London Stock Exchange would be in today if Big Bang had never occurred? Was the City in danger of becoming irrelevant?
Dick Sawyer, Kent, UK
Sir Nicholas Goodison: I am not very good at “What if’ questions. But I think the Stock Exchange would have been largely bypassed by the big international dealers and would have become irrelevant.
There would still (I think) have been a lot of business going on in London, but I suspect that the international houses would not have seen London as so essential to their affairs. New York would have gained, and possibly one or more of the continental centres. There would have been something of a regulatory crisis because at the time the Stock Exchange was the central regulatory body and the business would have been dispersed beyond its market.
With the high and consistent performance of the LSE do you think that it is in danger of facing another Big Bang? If so what measures can we take to combat it?
Natasha, London, UK
Sir Nicholas Goodison: There won’t be another event like the ‘Big Bang’ of 1986. The circumstances are not and will not be the same. Future changes will be all to do with government policies and competition, including the competitive use of rapid changes in technology. More evolution than explosion.
What, if anything, do the new firms have in common with the City of 1986?
Jim Fuss, Derbyshire, UK
Sir Nicholas Goodison: You would still recognise the firms that specialise in looking after private clients. Their people still look after their clients personally, although many of them now charge fees for their services and try to persuade clients to have their shares registered in nominee names for convenience (incidentally, I think the law should be changed to oblige companies to send all information to shareholders who have their shares in nominee names and to enfranchise them).
As for the bigger firms they have changed a lot. You would recognise the desks and their computer screens but the ways of transacting business, the instruments in which they deal, the sizes of transactions, the massive advances in the technology (both information and communication) have transformed the business.
And most of them are now parts of large international well capitalised banks or securities houses. Perhaps the thing that has changed least is the reliance on people, and the very competitive nature of the business.
With the benefit of hindsight, what would you have done differently in the lead-up to Big Bang?
Kate Morrison, Cardiff, UK
Sir Nicholas Goodison: I would like to have done it a bit earlier, which I think would have been possible without the restriction of the Restrictive Practices Court case. So I wish that earlier Secretaries of State or Gordon Borrie had been willing to negotiate. But I cannot swear that I would have got the reforms through at an earlier date - there is something to be said for the Doctrine of Ripe Time.
Are there any risks in allowing so many foreign companies to dominate the UK’s critical financial services sector?
Carl Moran, Durham, UK
Sir Nicholas Goodison: Not many. The obvious risk is that for one reason or another the foreign owner might decide to move the business elsewhere. But if London plays its cards well (see my article) I cannot see that happening. I believe that we should welcome foreign investment in the UK. It increases the tempo of the economy.
London and the UK economy have benefited enormously from the influx of foreign businesses into London. Incidentally no one ‘dominates’ the financial services industry. The many businesses involved don’t act in concert, they are too busy competing with each other. We must keep it that way.
What do you believe are the main challenges facing the regulator in controlling risk in the financial services sector whilst maintaining the ‘feather-light touch’ and supporting competitiveness?
Tom Stephens, London, UK
Sir Nicholas Goodison: A regulator can never be on top of the daily business of a financial company. So the biggest challenges are two -
• Ensuring that each regulated company has refined risk modelling and controls (see today’s FT leader) and checking reasonably regularly that they are working.
• Understanding the possibilities of systemic risk, which I mentioned in my article, and being prepared for its possible effects.
Can you explain why since the Big Bang, UK industry - particularly manufacturing and high technology - has collapsed whereas in the US it has flourished?
Dick Winchester, Aberdeenshire, UK
Sir Nicholas Goodison: I don’t think this is anything to do with Big Bang. It is to do with the comparative costs of production and the need to be near the most promising markets.
UK manufacturers who produce very high quality products - pump makers for example - have surmounted the problems of a high cost economy because overseas buyers have wanted their quality products. It is much more difficult for a UK producer of commodity products which can be made cheaper elsewhere.
Does London need to make any specific overtures to Chinese and Indian companies looking to list?
Sir Nicholas Goodison: The London Stock Exchange puts quite a lot of effort into marketing its listing in the east. There have been several flotations in London as a result. Its AIM market has been particularly successful in attracting companies from many parts of the developing world. London has attracted more overseas listings than other centres. You are of course right to identify China and India as very promising markets for the Stock Exchange.
You mentioned the importance of London’s cultural institutions. What more should the finance community do to support and promote these?
Matthew Tilbrook, Cambridge, UK
Sir Nicholas Goodison:
I mentioned it because London is an amazing cultural centre - concerts, opera, ballet, theatre, art galleries, museums, and not least the Royal Parks - and I am sure that this is a major factor in making London a good place to be. The arts need money to flourish. Many arts enterprises already receive a lot from private donors, inclusing companies - I am sure for example that the many rich temporary exhibitions would simply not happen without private support, and government money has not been enough (nor will it ever be) to cater for the needs of museums or the performing arts. As for the Royal Parks, one of the great glories of London, they are having to damage their ‘countryside’ with sponsored events in order to raise money.
So I believe that it is up to private donors to be even more generous than in the past. Many companies already do a lot. I am sure there are many of the new personal rich who could do a lot more to put back some of their extraordinary wealth to the community in this way. They should seek out opportunities, get involved as sponsors, advisors, trustees, donors.
At the moment, Korea is undergoing a process of deregulating the financial market by consolidating the seven acts into one (Capital Consolidation Act). What do you believe is the most important factor in deregulation on regulators as well as the market?
Yoon-Jae Shin, Seoul, South Korea
Sir Nicholas Goodison: This is a difficult one for me, because I am not familiar with the Korean scene. But in general regulation mustn’t be too prescriptive, it mustn’t stifle innovation and competition. It should consist of minimum rules and principles and put great reliance on the practitioners doing an efficient job in controlling risk and behaving properly while checking regularly that they are doing so.
The risk is that countries reduce their regulatory requirements in competition with other countries, in order to attract the business. Clearly it is a disaster if standards drop in this way. But I think people recognise that a market will not be trusted if its standards drop - and trust is the basis of securities business.
As for the market, the stock market itself must provide the most efficient and timely service if it is to survive, which means the best technology - if it doesn’t the business will simply go offshore, and the practitioners must do the same, for the same reason.