London Stock Exchange

London Stock Exchange
Type	Stock Exchange
Location	London, United Kingdom
Founded	1801
Owner	London Stock Exchange Group
Key people	Christopher S. Gibson-Smith, (Chairman) Xavier Rolet, (CEO)
Currency	GBX
No. of listings	2,713 (July 2010)[1]
MarketCap	US$2.4 trillion (June 2010)
Indexes	FTSE 100 Index FTSE 250 Index FTSE 350 Index FTSE SmallCap Index FTSE All-Share Index
Website	londonstockexchange.com

Paternoster Square. The LSE occupies the building that takes up much of the right side of this picture.

The London Stock Exchange is a stock exchange located in London, United Kingdom. As of end-June 2010, the Exchange had a market capitalisation of US$2.4 trillion, making it the fourth largest stock exchange in the world and the largest in Europe.^[2]

The Exchange was founded in 1801 and its current premises are situated in Paternoster Square close to St Paul's Cathedral in the City of London. The Exchange is part of the London Stock Exchange Group.

About the Exchange

Origin of share trading

The trade in shares in London began with the need to finance two voyages: The Muscovy Company's attempt to reach China via the White Sea north of Russia, and the East India Company voyage to India and the east. The trading in the stocks of the second company began in 1688.

Unable to finance these expensive journeys privately, the companies raised the money by selling shares to merchants, giving them a right to a portion of any profits eventually made.

Exchange

The idea soon caught on (one of the earliest was the Earl of Bedford's scheme to drain The Fens). It is estimated that by 1695, there were 140 joint-stock companies. The trade in shares was centred around the City's Change Alley in two coffee shops: Garraway's and Jonathan's. The broker, John Castaing, published the prices of stocks and commodities called The Course of the Exchange and other things in these coffee shops.

Licensing of brokers

In 1697, a law was passed to "restrain the number and ill-practice of brokers and stockjobbers" following a number of insider trading and market-rigging incidents. It required all brokers to be licensed and to take an oath promising to act lawfully.

The South Sea Bubble

The Change Alley exchange thrived. However, it suffered a setback in 1720.

Much excitement was caused by the South Sea Company, stoked by brokers, the company's owner John Blunt and the government. Having set up the unprofitable company nine years previously, the government hoped to wipe out the large debts accumulated by offering shares to the public.

Shares in the company, which had started at £128 each at the start of the year, were soon fetching as much as £1,050 by June. The bubble inevitably burst, with share prices plunging to £175, then £124.

The incident caused outcry, forcing the government to pass legislation to prevent another bubble, and it took a long time for the stock exchange to recover.

Coat of Arms

The Exchange received its own Coat of Arms in 1923. Its motto is dictum meum pactum, "My word is my bond".^[3]

IRA bomb

On 20 July 1990 a bomb planted by the IRA exploded in the men's toilets behind the visitors' gallery. The area had already been evacuated and nobody was injured.^[4] The long term trend towards electronic trading had been reducing the Exchange's status as a visitor attraction and, although the gallery reopened, it was closed permanently in 1992.

Location

Threadneedle Street and Capel Court

Former LSE premises in Threadneedle Street

LSE reception

Jonathan's burnt down in 1748, and this, plus dissatisfaction with the overcrowding in the Alley, made the brokers build a New Jonathan's on Threadneedle Street, as well as charging an entrance fee. The building was soon renamed the Stock Exchange, only to be renamed again as the Stock Subscription Room in 1801, with new membership regulations.

However, this too proved unsatisfactory, and the Exchange moved to the newly built Capel Court in the same year. The Exchange had recovered by the 1820s, bolstered by the growth of the railways, canals, mining and insurance industries (there were, however, problems with stags and dividend payments). Regional stock exchanges were formed across the UK. Bonds (or gilt-edged securities) also began to be traded.

The London Stock Exchange Tower

The former Stock Exchange Tower, based in Threadneedle Street/Old Broad Street was opened by Queen Elizabeth II in 1972 and housed the Trading Floor where traders would traditionally meet to conduct business. This became largely redundant with the advent of the Big Bang on 27 October 1986, which deregulated many of the Stock Exchange's activities. It eliminated fixed commissions on security trades and allowed securities firms to act as brokers and dealers. It also enabled an increased use of computerised systems that allowed dealing rooms to take precedence over face to face trading.

Paternoster Square

In July 2004, the London Stock Exchange moved from Threadneedle Street to Paternoster Square (EC4) close to St Paul's Cathedral, still within the "Square Mile" (the City of London).

It was officially opened by Queen Elizabeth II once again, accompanied by The Duke of Edinburgh, on 27 July 2004.

Pursuit of LSE by prospective merger partners

Nasdaq

In December 2005, the London Stock Exchange rejected a £1.6 billion takeover offer from Macquarie Bank. The London Stock Exchange described the offer as "derisory", a sentiment echoed by shareholders in the Exchange. Shortly after Macquarie withdrew its offer, the LSE received an unsolicited approach from NASDAQ valuing the company at £2.4 billion. This too it rejected. NASDAQ later pulled its bid, and less than two weeks later on 11 April 2006, struck a deal with LSE's largest shareholder, Ameriprise Financial's Threadneedle Asset Management unit, to acquire all of that firm's stake, consisting of 35.4 million shares, at £11.75 per share.^[5] NASDAQ also purchased 2.69 million additional shares, resulting in a total stake of 15%. While the seller of those shares was undisclosed, it occurred simultaneously with a sale by Scottish Widows of 2.69 million shares.^[6] The move was seen as an effort to force LSE to the negotiating table, as well as to limit the Exchange's strategic flexibility.^[7]

Subsequent purchases increased NASDAQ's stake to 25.1%, holding off competing bids for several months.^[8][9][10] United Kingdom financial rules required that NASDAQ wait for a period of time before renewing its effort. On 20 November 2006, within a month or two of the expiration of this period, NASDAQ increased its stake to 28.75% and launched a hostile offer at the minimum permitted bid of £12.43 per share, which was the highest NASDAQ had paid on the open market for its existing shares.^[11] The LSE immediately rejected this bid, stating that it "substantially undervalues" the company.^[12]

NASDAQ revised its offer (characterized as an "unsolicited" bid, rather than a "hostile takeover attempt") on 12 December 2006, indicating that it would be able to complete the deal with 50% (plus one share) of LSE's stock, rather than the 90% it had been seeking. The U.S. exchange did not, however, raise its bid. Many hedge funds had accumulated large positions within the LSE, and many managers of those funds, as well as Furse, indicated that the bid was still not satisfactory. NASDAQ's bid was made more difficult because it had described its offer as "final", which, under British bidding rules, restricted their ability to raise its offer except under certain circumstances.

In the end, NASDAQ's offer was roundly rejected by LSE shareholders. Having received acceptances of only 0.41% of rest of the register by the deadline on 10 February 2007, Nasdaq's offer duly lapsed.^[13] Responding to the news, Chris Gibson-Smith, the LSE's chairman, said: "The Exchange’s strategy has produced outstanding results for shareholders by facilitating a structural shift in volume growth in an increasingly international market at the centre of the world’s equity flows. The Exchange intends to build on its exceptionally valuable brand by progressing various competitive, collaborative and strategic opportunities, thereby reinforcing its uniquely powerful position in a fast evolving global sector."^[14]

On 20 August 2007, NASDAQ announced that it was abandoning its plan to take over the LSE and subsequently look for options to divest its 31% (61.3 million shares) shareholding in the company in light of its failed takeover attempt.^[15] In September 2007, NASDAQ agreed to sell the majority of its shares to Borse Dubai, leaving the United Arab Emirates-based exchange with 28% of the LSE.^[16]

Products & Services

The London Stock Exchange has four core areas:

• Equity markets: enables companies from around the world to raise capital. There are four primary markets:
  • The Main Market.
  • AIM, established in 1995 for smaller companies.^[17]
  • The Professional Securities Market, for raising capital through debt securities or depositary receipts.^[18]
  • The Specialist Fund Market, "designed purely for the needs of highly specialised investment entities seeking institutional, professional and highly knowledgeable investors."^[19]
• Trading services: market for trading in a range of securities, including UK and international equities, debt, covered warrants, exchange traded funds (ETFs), Exchange Traded Commodities (ETCs), reits, fixed interest, contracts for difference (CFDs) and depositary receipts.
• Information Services: the London Stock Exchange provides real-time prices, news and other financial information.
• Derivatives: the Exchange manages EDX London, a contributor to derivatives business created in 2003 with an aim of bringing the cash equity and derivatives markets closer together.

Technology

The original LSE trading platform, based on Microsoft's .NET framework, was developed by Microsoft and Accenture. Microsoft used the LSE software as an example of the supposed superiority of Windows over Linux in the "Get the Facts" campaign, claiming that the LSE system provided "five nines" reliability. For Microsoft, LSE was a good combination of a highly visible exchange and yet a relatively modest IT problem.^[20] After suffering extended downtime and unreliability^[21][22] the LSE announced in 2009 that it was planning to switch to Linux in 2010.^[23][24]

Hours

Normal trading sessions are from 08:00 to 16:30 every day of the week except Saturdays, Sundays and holidays declared by the Exchange in advance.^[25]

Levels

As at 31 July 2010, the Exchange listed 2,713 companies,^[1] consisting of:

• UK Main Market: 1,114
• International Main Market: 327
• AIM: 1,222
• Professional Securities Market (PSM): 44
• Specialist Fund Market (SFM): 6

See also

• London Stock Exchange Group plc
• Exchange Alley
• Chi-X
• Borsa Italiana
• Market maker
• Alternative Investment Market
• List of stock exchanges
• Mandatory quote period
• PSQ Analytics

References

Further reading

• Michie, R. C. (1999). The London Stock Exchange: A History. Oxford: Oxford University Press. ISBN 0198295081. 

External links

• London Stock Exchange website
• London Stock Market general information
• European Value Report

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