Can London remain a top financial centre?
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The ‘Big Bang’ deregulation of the City of London in October 1986 didn’t appear to amount to very much at the time, says Dan Roberts in The Sunday Telegraph. It boiled down to no more than a series of largely technical changes, including a move to screen-based share trading and the end of fixed share commissions with a view to stimulating competition and volumes. But the move, which blew open the doors of the London Stock Exchange (LSE) – deemed “an undercapitalised Old Boys’ Club” by the then-trade minister Cecil Parkinson – accelerated the “internationalisation of the City” and put London in pole position to benefit from the era of globalisation that followed. This, combined with a relatively light regulatory regime, has meant London has long rivalled New York as the world’s pre-eminent financial centre.
It’s already doing well enough to prompt New York mayor Michael Bloomberg to pay consultants $600,000 for advice on fending off the City. London is the top market for foreign-exchange dealing and also leads the world in commodities trading. Its hedge-fund industry is rapidly catching up with New York’s and London has had a 26% share of the global initial public offerings market this year, compared to New York’s 6.5%. In 2001, the respective figures were under 9% and almost 60%.
It has come as a “rude shock” to the US that it is no longer “automatically the market of choice”, says Anthony Hilton in the Evening Standard.
Hence US efforts to buy out the competition – witness the interest in
the LSE from Nasdaq – emboldened by the knowledge that America is “far too protectionist” to countenance bids in the opposite direction.
Meanwhile, treasury secretary Hank Paulson is examining the impact of tough post-Enron regulation that has deterred firms from listing in America. But the main problem for the US over the past few years has been its foreign policy, which has sent the petrodollars of Russia and the Middle East London’s way, according to Jeremy Warner in The Independent. It seems unlikely Paulson and Mayor Bloomberg will be able to change the fact that New York is no longer trusted with these. Still, London needs to get organised now that America’s fighting back, says Hilton. With the City so disparate that it can’t speak with one voice, the UK treasury will have to keep a close eye on the situation. “The City is a splendid money machine, but it needs its friends and must never be taken for granted.”
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