The Big Bang silenced the FX traders

TODAY marks the 25th anniversary of the Big Bang – the deregulatory measures put in place on 27 October 1986 by Margaret Thatcher’s government – measures that changed the landscape of the UK’s financial sector forever. According to Tony Moulange, senior business development manager for Colt, the Big Bang flipped the status quo on its head. When the regulations preventing stockbrokers from acting as market makers were abolished, it moved the City away from being a quote driven market towards being an order driven market. Moulange says that the Big Bang changed the dynamics of the square mile. Whereas for centuries, one’s word was one’s bond, the deregulation swept out a lot of the old-boy networks. Unencumbered by the Glass-Steagall act on British soil, the City saw an influx of US firms and US ways of doing business.

But how did the big bang affect the forex industry? Currency trading only really came into being around 1978 when previously pegged currencies were allowed to float – this change triggered seven years after Nixon came off the gold standard. As a result, the FX market was not structurally changed by the deregulation. But it was affected nonetheless. Neal Kimberly, an FX analyst for Thompson-Reuters, was a forex trader in 1986: “In essence the Big Bang hit the equity market more than it did us. The big merchants like Baring Brothers, NM Rothschild, Kleinwort Benson and Schroder Wagg all sailed on – though their presence was arguably enhanced by a ride in their ancillary forex flows caused by the greater freedoms the Big Bang gave them.”

One of the biggest changes that the Big Bang brought with it was a switch from the open outcry trading pits to electronic trading, drastically changing the way that traders operated – orders were accompanied by a click of a mouse instead of screaming and gesticulating in the trading pit: “Trading pre-electronic systems was certainly more fun,” says Nick Beecroft, senior markets consultant for Saxo Bank. “At busy times, big forex dealing rooms would become cacophonous, with traders begging their colleagues to ‘call out’ for covering prices at they made quotes in large amounts to customers.” Beecroft adds that this was of course a recipe for excitement, but also for hilarious mistakes, practical jokes and general mayhem.

So, as the Square Mile faces a barrage of regulations – from both Whitehall and Brussels – was the Big Bang the zenith of market freedom for the City? “Freedom has massively diminished for some markets, and some deserved this,” says Beecroft. “But the largely honest, $4 trillion a day forex market is in many senses largely unchanged – just quieter!”