How did London surpass Wall Street? In part because even in a world of electronic trading, brokers still want to know there is a human being at the other end of their 0’s and 1’s. London’s working hours overlap with those in the U.S., the Middle East and Asia; New York’s don’t. The more significant reason, however, is regulation. In 1986, Margaret Thatcher instituted what’s known as the Big Bang, which blew up centuries of regulations protecting Britain’s old, slow-moving firms. In an instant, the City of London went from a charming, ancient system of legally protected, relatively small institutions to electronic banking, enormous investment conglomerates and millionaires who made their money via speculative bets. Out were the Oxbridge set and oak-paneled rooms. In were ambitious young men with Cockney accents and walls of Bloomberg terminal screens.
More than any specific change in the law, however, the Big Bang signaled that the government wasn’t going to obstruct people from making oodles of money. And so between 1986 and 2002, this lack of regulation, often called the light touch, helped London catch up with New York. Then, after Congress passed the Sarbanes-Oxley reforms in 2002, the balance of power shifted further. Designed to prevent another Enron, this legislation mandated, among other things, numerous reporting requirements that firms complained were expensive and bureaucratic.
U.S.-based companies may have been stuck with this new law, but foreign companies weren’t. They could avoid it by simply listing their stocks in London. And many did just that. From 1996 to 2000, U.S. exchanges captured an average of 74 percent of the total value of global public offerings. In 2007, their share fell to about 14 percent. The trend became so troubling that Mayor Michael Bloomberg, Senator Charles E. Schumer and Treasury Secretary Henry Paulson mounted a push for less of a regulatory burden. In other words, New York wanted to become like London.
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