Inside Big Bang: The chaotic October morning that created the modern City
Shortly before 8am, as Sir Nicholas Goodison surveyed the floor of the Exchange crowded with foreign television crews and curious journalists, he was a little apprehensive.
After so much hype about the possibilities of what had been termed Big Bang, and difficult negotiations with Margaret Thatcher’s ministers, and efforts to persuade the more conservative elements in the City that the revolution was really necessary, Goodison, the chairman of the London Stock Exchange, and his team were about to find out if the new computing systems would work when real trading started.
The coming revolution meant the end of “open-outcry”, that is face to face trading, although some firms had asked to keep places on the physical floor because they were sceptical that trading would switch to terminals. The division between jobbers (holding the stock, taking risk, making the market) and brokers (buying and selling on behalf of clients) was also for the chop. Fixed commissions were for the chop too. Along with new technology came rapidly expanding foreign banks that for the first time had been allowed to buy up the traditional British partnerships used to dominating the Square Mile.
The Stock Exchange before Big Bang (Source: Getty)
The culmination was the launch on one day in October 1986, with the media watching. Had the IT team in which Goodison had put so much faith to deliver the most widely advertised change in the City of London’s long history done its job properly?
On the floor of the Exchange that Monday morning, some of the journalists – shepherded by the Stock Exchange’s head of press Luke Glass – were waiting to find out the answer while explaining to each other why they were there. Sheila McVicar of the Canadian Broadcast Corporation said that it was obvious Toronto would be interested in Big Bang because Canadian financiers (living in the long shadow of New York) were keen to plug into the new global market. There was also interest in the implications for class-conscious Britain, she said. Canadians wanted to see “how bowler-hatted gentlemen with rolled umbrellas who lived stable lives with their dogs in the country” would adapt to the computer era.
A producer for the West German TV station, ARD, explained that he and his crew had almost not made it along to watch Big Bang. The previous day – on Sunday – a British tabloid had exposed the Tory politician and novelist Jeffery Archer. The order from Germany was that the ARD crew should drop plans to cover the Stock Exchange in London to go after a seemingly bigger bang, namely the story of Archer handing over money to a prostitute in Victoria Station and resigning as deputy chairman of the Conservative party all the while proclaiming his innocence. Archer pledged to sue for libel. His denial echoed down the decades, triggering a chain of events that took him many years later to prison for perjury. The man from ARD decided wisely to ignore the demand from Germany to switch attention to Archer and turned up at the Stock Exchange on the Monday morning regardless. “Knowing what I do about news editors I decided to go ahead anyway in case they changed their mind and asked for the pictures,” he said. This was to prove a sensible decision, considering what happened next.
As the journalists prattled and poked their noses around the hexagonal trading positions on the Exchange floor they were watched from the sidelines by traders waiting to get on with it, some of them impatient and annoyed at the presence of the media. They did not have long to wait. The computers warmed up, feeding information back to the offices of firms around the City and at 8am the market opened formally. For almost 15 minutes all was well. Then it started to go wrong.
The hexagonal trading positions (Source: Getty)
John Scannell, the chief engineer, was in one of the operation rooms. He later described the system becoming overloaded with requests from curious firms eager to try it out: “Eight o’clock comes and the systems all come up. And we’re looking at the page response request and it goes up to 1.7m immediately which is a little bit bloody worrying. Then it crept up to sort of 2m, 3m, and 4m. What’s going on? This is quarter past eight. Then it got to 5m, then everything is going berserk. Bells, and whistling, and ringing, and popping and banging.”
At 8.25am one of the systems, Teletext Output of Prices Information by Computer (Topic), was approaching full capacity. At 8.29, more warning lights came on and the much vaunted Seaq system went down. Seaq, the Stock Exchange Automated Quotation, was the new part of the system that was supposed to supply almost instantaneous, accurate prices to brokers, many positioned in the new, enormous trading floors built in offices across the City and beyond. Sitting in front of computers at new, expensive trading positions, they would do their deals with each other on the telephone, all fed by a continuous perfect stream of information in real time. That was the theory and already it wasn’t working. It looked to the watching media as though the revolution had gone phut and splat instead of bang. It was all rather embarrassing and very British.
Goodison decided that the best approach was not to panic. Far better to deploy some good old fashioned dry English humour when the journalists gathered around him demanding an explanation for the difficulties. There was too much strain on the system, he told them, because every trader carried away with the novelty was trying it out. “If you put a new monkey or dodo in the zoo,” he said, “people will queue up to see it.”
For the sceptics, among the old hands suspicious of the claims made for Big Bang, use of the term dodo – a bird doomed because it could not fly – sounded highly appropriate. How could computer screens with flashing lights and bleeping terminals ever be more effective than the City’s old-style stockbrokers and jobbers, often acquainted for years, looking each other straight in the eye and drawing on intuition and decades of experience? Here, on day one, was proof that the revolution was a flop. The computers had crashed.
A new breed of City worker (Source: Getty)
Outside London, where the sister exchanges were hooked up to the mothership in the City, confusion reigned among stockbrokers looking at blank screens. In the Stock Exchange Tower in London, parts of the system would work for a few minutes and then get overloaded again. The computer engineers, led valiantly by George Hayter, battled throughout the day, introducing patches and doing the equivalent of turning off the computer and turning it back on again. There were mocking headlines in the next day’s newspapers, inevitably. “Computer snafu derails London’s new Stock system,” was how the Los Angeles Times put it. The technical problems looked like a classic British balls-up, involving a heath-robinson contraption resting on little more than the high hopes of gentlemen amateurs.
Such sniggering cynicism was deeply unfair. Hayter and his team were skilled professionals working under pressure who had devised something that stood a good chance of working, once the initial embarrassment faded and the TV crews disappeared. By the close of business on day one they had stabilised the situation. One of the brokers, Martin Pope of Hoare Govett, shrugged off the difficulties and gave the classic City response that could have been uttered for centuries: “We had a good day, we made money. That’s what it’s all about.”
By the end of the week the computer systems were functioning with only a few restrictions. Seaq started to work in harmony with Topic, and the volume and speed of trading grew rapidly. Like one of the first successful flying machines, bumping along the ground before only slowly gaining a little height and then beginning an ascent, they were up and away.
The positions, the old booths on the floor of the Exchange, were not needed either. Goodison went down to look a few days after launch and the place was deserted because the brokers were all back at their offices with their colleagues, using screens and doing business by telephone. The old floor would not be needed.
Big Bang had not brought the house down after all. It had cleared the way for an ambitious new computerised era in which trading volumes rose 17 times in the course of a decade and London became once again a great, global financial hub to rival New York. Big Bang meant the City was ready for the future.
This is an extract from from Crash, Bang, Wallop: The inside story of London’s Big Bang and a financial revolution that changed the world, by Iain Martin, published recently by Sceptre (£25).