In the book the Square Mile Plender and Wallace examine the critical changes that have taken place, assess the far-reaching effect on the financial institutions and draw conclusions for the future of the city itself.

They suggested that one of the reasons there were so many buyers of broking and jobbing firms was that the buyers were taking out an option, or making a down payment, on the right to whatever was likely to be profitable in the new deregulated climate.

Most of the buyers’ thinking seems defensive: if one bank bought a broker or jobber, had to ask whether they could afford to be without some players in the market had clearly defined objectives. These included the acquisition of experienced management or a strong position in a given area of the market, others swept along without making realistic appraisals of the risks involved.

Warburg’s competitors argued that its comprehensive merger of a merchant bank, two brokers and a jobber involved an investment in good will well in excess of £100 million and amounted to what the Americans refer to as ‘betting the bank’ – that is, risking the future of the whole business on one throw of the dice.

Neither the government nor the Bank of England publicly admits to having encouraged individual firms towards particular parents. The official line of the Government was that they wishes to see an established a number of strong British investment houses capable of taking on the international competition.

Stockbrokers and stock-jobbers fell into the arms of every conceivable kind of financial, British and foreign, ranging from clearing banks to insurance.

There came a point in 1984 when announcements about pending alliances were being put out almost by the week. Events started to impose logic of their own. Simon and Coates, a medium-sized firm well-known for its equity research and its business in the Unlisted Securities market originally had not wished to tie up with anyone.

At the start they considered staying away from the action and even contemplated going public on the stick market to bring in new capital. But as the number of merger announcements multiplied and the revolution became all-embracing, the independence option simply became untenable.

Michael Prog, one the city’s most prominent analysts argued that there was no satisfactory answer to the question of how Simon and Coate would perform if its peers were all part of some mega corporation backed by billions of dollars.

The last independent broker might stand to make a lot of money he said but that was not a strategy on which the company could afford to gamble.

Even some of the biggest firms which had hoped to remain independent, such as Philip and Drew, came reluctantly to the same conclusion and joined the rush.

The outcome was that every major Stock Exchange firm had been accounted for bar one: Cazenove. Such was the firm’s strength in corporate finance; where its ability to distribute shares in even the most indigestible issue was legendary, that splendid isolation remained an option that the firm could afford to keep open.

The hunt for other people’s customers will be very competitive, where the boundary between city and non-city will become more burred. Recognising the need to recoup their heavy costs, the favoured approach was to begin pumping more products through their branch networks.

It is anticipated that the dominant species will inevitably prove to be the international conglomerate no longer thinking of itself as just a bank but as a global holding company covering the spectrum of markets in financial services.

Plender and Wallace, P. (1985) The Square Mile, Century Publishing, London.

Cazenove alone retained its independence, sensing that clients would be more comfortable without conflicts of interest. Over thirty large London-based groups (about half foreign owned) have the ability to deal extensively in domestic and internal securities.

All the leading jobbers (and most of the smaller ones) were destined to join the dealing arms of large financial conglomerates. Similarly, 19 of the top 20brokers provided the requisite brokerage facilities.

With the prospect of this intense competition primarily for institutional business, the value of the private client list suddenly was being re-considered by many London firms, and as a result they have acquired interests in several provincial broking firms, for example, Charterhouse Japhet in the Liverpool firm Tilney.

One of the most interesting developments has been the formation of Allied Provincial Services. Having turned down individual offers, they decided to pool their resources, which are considerable.

They handle over a billion pounds of private client money. Provincial firms operated on a dual capacity basis long before single capacity was imposed on them when the federation came in 1965.

Several have indicated that they will make markets in local stocks, but on a bargain matching basis: this will not require the injection of large outside capital, and it will avoid uncomfortable problems with conflicts of interest.

One of the most noticeable effects of Big Bang was the change from face-to-face contact on the trading floor to market making on screens with bargains completed by phone. This has given rise to large open areas of floor space suitably endowed with the most modern communications technology.

The larger firms had dealing rooms to accommodate 300-400 dealers. The sums involved were large, but for the most part they were deferred payments – “golden handcuffs” – to tie them to their parent for a few years. Many may find the restraints abrupt; the loss of independence may result in a loss of competitive edge. An executive is not quite the same as a partner.

Here in the book W.A. Thomas also sets about giving a full account of the Big Bang covering the main changes as well as their effects on the market.

He begins by describing the conditions preceding the Big Bang when in 1983 it was thought that the changes would serve to instil competition between member firms, with its effects confined largely to the exchange. It was also thought that changes in member firm structure would be inevitable, with firms merging and several disappearing in the competitive battle.

However, it is apparent that much more was in store. The realisation that competitive conditions would require considerable injections of capital provided opportunities for large financial institutions to acquire a foothold in the security industry, which soon mushroomed to dozens of offers of alliances to member firms.

At the end of this process, financial institutions saw the prospect of being able to offer security business as part of their general financial services. When it became apparent in 1983 that a 29.9% ‘trade investment’ in member firms could be turned in the near future into a full subsidiary, the search for suitable partners began in earnest. The structure of the industry was destined to be recast.

They needed additional capital to meet the new competitive conditions, undertake market making, and for the attempt to rival the activities of the international securities houses – but generally large sums of capital only come with the surrender of control.

This basic need for capital on the part of the member firms coincided with drive among many financial institutions to diversify their activities by adding security dealing and broking.

The choices were to buy a big broker and/or a jobber, buy a medium-sized firm and build on it, or decide to go it alone and build up gradually. Few seemed to have the patience for the latter route.

By the end of 1984 virtually all the top brokers had formed alliances with various institutions, and all the leading jobbers were similarly linked. Over 70 alliances had been formed by May 1986.

While domestic financial institutions were well in the fore, it was also evident that a number of overseas interests had been equally active, all eager to participate in the opportunity to secure a presence in a major international market.

Thomas W.A. (1986) The Big Bang, Philip Allan Publishers, Oxford.