A ‘Big Bang’ in the City

During my five decades in payments, it is not surprising to have experienced a number of significant payment related events that happened in London’s ‘Square Mile’ – you may have already watched my ‘City Payments Trip’ video or my recollections of walking to work on the 26 April 1993.

My time in The City covered events such as Nick Leeson’s role in the downfall of Barings (1995), the Bearer Bond robbery in Nicholas Lane (1990), Big Bang (1986), Black Monday (1987), the introduction of the Euro (1999), Black Wednesday (1992), the end of the Town Clearing (1995), the first year of CHAPS (1984).

On the 27 October 1986 the City switched from traditional face-to-face share dealing to electronic trading which helped it outpace its European competitors and become a magnet for international banks.

This newsletter provides a brief explanation of the seismic event (‘Big Bang’) and explains my (very small) contribution to the event that happened on the 27 October 1986 and changed the City forever.

The invention of Essex

I’ve just finished reading ‘The Invention of Essex: The making of an English County’ by Tim Burrows. Tim’s book reveals that Essex has been the stage for some of England’s most enduring national stories.

Essex is where the peasants revolted in 1381 and where the Empire Windrush landed in 1948; the birthplace of TOWIE and the supposed sanctuary of London’s working class and is still regarded as the heartland of Thatcherism and Brexit.

Doing very well

Chapter 7 of Tim’s book, ‘Doing Very Well’, reflects my family’s experience – escaping London to, what was then, a rural market town in 1973 and subsequently providing easy commuter access back to the City for a teenager embarking on a fledgling career in banking and payments that started in 1985 and has, so far, spanned five decades.

Tim’s book summarises the opportunity I seized as a teenager with these words:

Suddenly it didn’t matter as much if you had been to the right school (I certainly had not). City firms could no longer afford just to take people from Oxbridge or old Etonians to work. People who came from council estates who had that instinct for making money – this was their opportunity.

Tim Burrows, The Invention of Essex.

Big Bang

Conveniently my teenage arrival in the City and onto the payments scene coincided with the run up to an event called the ‘Big Bang’.

A single paragraph in ‘The Invention of Essex’ illustrates how a teenager who had grown up on an Essex council estate, became part of a changing social mix in the City and had the opportunity to be part of a seismic event in the history of the Square Mile:

In his editorial, Simon Heffer1 wrote how Essex man had ‘transformed the social mix in the Square Mile’ and the ‘Big Bang’, as it became known, scaled up the City to become more outward facing and less beholden to the clique of wealthy financiers that had long held sway, making it easier for those outside of the fraternity to join the London Stock Exchange. Foreign financial operations moved in, often as a reaction to restrictions in their own countries, resulting in huge influxes of capital. The reforms meant an end to the cosy cartel of British financial firms and the volume of dealing ballooned.

Tim Burrows, The Invention of Essex.

What was the Big Bang?

In 1986 the BBC published this (rather dated) Big Bang news report:

In addition to the switch from traditional face-to-face share dealing to electronic trading there were three key elements to the Big Bang revolution:

Abolishing minimum fixed commissions on trades
Ending the separation between those who traded stocks and shares and those who advised investors
Allowing foreign firms to own UK brokers.

City traders were previously strictly divided into two; jobbers and brokers. Brokers liaised with clients and then gave their orders to jobbers who did the actual trading, face-to-face in “open outcry”, on the exchange floor.

By ending fixed commissions Big Bang allowed more competition; by ending the separation of dealers and advisors it allowed mergers and take-overs; and by allowing in foreign owners it opened London’s market to international banks.

Coupled with the new magic of electronic trading, the City jumped from the 19th Century to the threshold of the 21st.

Crucially for the subsequent development of London as an international financial centre, the Big Bang produced a free-for-all, as brokers, jobbers and the City’s traditional merchant banks merged.

Some were bought by UK clearing banks but many more were snapped up by much bigger US, European and Japanese banks.

The 300 member firms of the stock exchange had all been domestic – but within a year 75 were foreign-owned. With this came electronic trading, cutting costs as the competition increased. The jobbers vanished and the trading floor became deserted.

Feel like Venice and work like New York

The Big Bang also changed the geography of London. Until then the Bank of England had insisted that all of London’s banks had to be within 10 minutes’ walking distance of the governor’s office so, it was said, in a crisis he could summon the lords of finance to his parlour with half an hour’s notice.

On the day of Big Bang an advertisement in the Financial Times promised a new financial centre, three miles to the east of the City at Canary Wharf, which would “feel like Venice and work like New York”.

My contribution to the Big Bang

Understanding value dates, certainty of fate and “good money” were not an issue in my early years in payments:

CHAPS was less than a year old and offered same day value (albeit with a form of revocability until 12noon the next business day (pre-RTGS).
a magic ‘T’ after the Sort Code (20-32-53T) on a Bankers Payment promised same day fate and value.
I could even get same day value in US dollars if you placed the money with my US correspondent (BBI New York, account number 1444006) before 3pm UK time).

A couple of days before the 27 October 1986 ‘Big Bang’ day I was asked to run a small operation that had been set up in a corner of ‘The Podium’. Whilst this might sound grand it was, in effect, two desks in corner of a poorly built extension added to the side of a grotesque tower block on the intersection between Fenchurch Street, Gracechurch Street and Lombard Street, EC3 (building to the right of the Nat West Tower (now Tower 42) in the above picture).

As a fresh faced teenage payments person I don’t really recall knowing anything about ‘Big Bang’ or have any understanding about how the events of the 27 October 1986 would change forever the way the City operated.

This was a pre-internet age, you had to pay for the Evening Standard on the way home (I couldn’t afford the expense) and this was a period where, as a lowly bank clerk, you did what they were told to do without any great understanding of why you were performing the tasks that had been assigned to you.

I soon learned that my job was to break cardinal payment rules. I was to provide same day, good value to funds that had yet to achieve certainty of fate and I had to do this fully in the knowledge that value and fate would not actually be achieved until the cheque clearing cycle had been achieved some days hence.

Let me explain – the new trading environment delivered as part of Big Bang meant that our customers (London correspondent banks) were now due to receive large sums of money as settlement of trades from stock brokers who were used to settling their obligations with a humble cheque.

A cheque not a Bankers Payment with a fancy ‘T’ proudly displayed after the Sort Code at the top right hand corner of the cheque – this meant paying out the money before value was achieved, before certainty of fate was known and at the very start of the cheque processing cycle.

This broke all the rules of payment processing that had been instilled into me.

The afternoon of the 27 October 1986 was certainly exciting – Bank Messengers returned from their ‘Walks’ (probably via the Swan Tavern or the Lamb) and handed over a stack of cheques made out for very large sums of money and I then broke all the rules and treated them as ‘good money’ and with ‘certainty of fate’.

After a few days the ‘Big Bang’ desk was quietly moved off to another part of the bank and I rejoined the safer world of CHAPS and Bankers Payments.

Whilst I can only claim a small part in the ‘Big Bang’s’ transformation of the City I take great pride in being part of the start of a changing social mix in the City and my contribution to a seismic event in the history of the Square Mile.

A strange coincidence

Fascinatingly, to me at least, the words quoted from Tim Burrows book are printed on page 168.

The number 168 featured prominently in my early payments career as 168 Fenchurch Street (or ‘168’ or ‘168LFEN’) was the location of grey tower block housing the head office of Barclays Bank International where I started my career in banking and payments.