Harold Wilson once observed that ‘a week is a long time in politics’. It can be equally telling in the world of finance. The most spectacular stock-market collapse of the postwar period took place within the space of the few days surrounding a weekend in late October 1987. By contrast there are instances of institutional change being very gradual. For example, a broker from the pre-First World War market transplanted to the floor of the Stock Exchange in the early 1980s would have felt entirely at home with the prevailing organisation and practices. Change here has been concentrated into the last two decades, the 1986 Big Bang being followed by further adjustments in response to internal and global financial developments. Changes in the role of the market in meeting the financing needs of British industry over the past fifty years have also been of an evolutionary kind.

Before looking at these changes it might be useful to set the pattern of investment finance in a more general framework. In promoting economic growth one important role of the financial system is to facilitate the transfer of savings from surplus sectors of the economy, generally the personal sector, to those in deficit, usually the corporate and public sectors. There are two ways in which funds can be channelled. First, there is the direct route whereby deficit units offer liabilities (bonds or equities) in the primary market, and institutional mechanisms have evolved for this purpose.