London Stock Exchange
The London Stock Exchange is one of the oldest and leading stock markets globally. Based in London, United Kingdom, the London Stock Exchange is owned by the London Stock Exchange Group.
Established in 1571, the London Stock exchange enables companies to raise capital by joining the equity market. Different companies of different sizes list on the London Stock Exchange.
For example, the London Stock Exchange operates the Premium Listed Main Market designed for the biggest companies. For instance, Glencore International Plc raised more than $10 billion in May 2011, making it one of the largest IPOs to run and be completed at the exchange.
For small and medium-sized businesses, the London Stock Exchange runs the Alternative Investment Market. These businesses, including startups, join the equity market to become publicly listed and raise capital. As of the second quarter of 2023, more than 1,900 companies were listed on the London Stock Exchange. The main market at the exchange is home to more than 1,300 large companies based in 60 countries worldwide.
How Did the London Stock Exchange Start?
The history of the London Stock Exchange started back in 1698. John Castaing was a broker operating at Jonathan’s Coffee House. This building was a significant meeting place in London between the 17th and 18th centuries. This was the London Stock Exchange’s original site. It is at the coffee house where John posted prices of stocks and commodities. This was the first evidence of an exchange of securities in London. The London Stock Exchange was formed by stockbrokers who were conducting business informally in coffeehouses.
1801 a few members raised funds and started building in Capel Court. They also established rules for the exchange, which they amended several times. By the end of that century, 140 joint stock companies with a net worth of £4.2 million existed.
Fast forward to 1973, the exchange merged with other regional exchanges in Great Britain. By 1986, the exchange operations were reorganized and members introduced the automated price-quotation system.
In July 2001, the London Stock Exchange became a public company listed in its market. Six years later, Borsa Italiana and the London Stock Exchange merged to create the London Stock Exchange Group.
Who Owns the London Stock Exchange?
The London Stock Exchange is owned by the London Stock Exchange Group, a publicly traded company. In 1995, the FTSE Group was created. The London Stock Exchange held a 50% stake in the new establishment. However, by 2011, the London Stock Exchange Group had acquired the training 50% stake.
In 2019, the Shanghai-London Stock Connect created the first cross listing mechanism that enabled investors to invest and access China A shares. International investors could not access the shares from outside China. Its first issue was the Huantai Securities.
How Does the London Stock Exchange Work?
The London Stock Exchange (LSE) works as a marketplace where the suppliers and purchasers of stocks, bonds, and other securities gather to transact. Here’s an overview of how it works:
The stock exchanges provide capital markets to companies who wish to raise money by issuing shares. It entails meeting the required stipulations and duty to disclose.
Securities that have been admitted to the Exchange are also traded on the LSE’s electronic trading facility. The London Stock Exchange`s Main Market is the main trading venue where large established companies are listed. Also, the Alternative Investment Market (AIM) accommodates the smaller, developing companies.
The London Stock Exchange has different types of market participants, such as brokers, market makers, institutional investors, and retail investors. This type of participant interaction involves purchasing and selling securities while brokers work on behalf of clients on trades. Traders can place different orders like market orders executed at the current market price and limit orders filled at a set price or better.
Post execution of a trade, it goes through the clearing and settlement procedures to ensure that securities and funds go to the parties involved. LSE runs its firm, which performs the services of clearing called LCH Ltd, which clears transactions executed by the exchange. LSE offers market data such as real-time prices, trading volumes, as well as other relevant information to the investors, traders, and market players. Such data is vital for making wise investment choices.
The LSE is a prominent actor in the international finance markets attracting investors and issuers from around the globe due to London’s status as an important financial hub. In recent years, the LSE has experienced growth in trading volumes and listings largely due to technological developments, regulatory changes, and the evolution of investor sentiment.
London Stock Exchange is regulated by the UK Financial Conduct Authority ( FCA) which ensures transparent and orderly markets. It must adhere to different regulations and standards so as to keep the market integrity and protect investors.
What Is the Purpose of the London Stock Exchange?
The purpose of the London Stock Exchange is to provide a market or platform where small, medium sized and large corporations can list their shares to raise capital. The London Stock Exchange enables governments and companies to issue shares and bonds to raise capital.
Thousands of traders, from individuals to large financial institutions, can access and trade the shares and bonds. Besides providing a trading floor where traders and international investors can buy and sell shares, the London Stock Exchange also supplies high-quality news, prices, and other information, which helps traders and investors make informed decisions.
In the Main Market, over 1000 companies represent 40 sectors and operate in over 60 countries worldwide. In this market, performance is usually measured by several indexes that track company performance. A good example is the FTSE 100, a global benchmark of Premium-listed companies.
Next, we have AIM, which was launched in 1995. Since then, the market has experienced significant growth, with more than 3,800 companies joining the market to fund their expansion and access equity finance.
In the past 25 years, AIM companies have raised more than £115 billion to support their growth and expansion plans. The majority of these funds came from private investors.
Who Created the London Stock Exchange?
John Castaing created and co-founded the London Stock Exchange. One of the pivotal figures in the development of the London Stock Exchange is John Castaing, a broker and co-founder of The Stock Exchange.
In 1801, Castaing published the first official list of securities and their prices called “Course of the Exchange”. This list brought transparency and credibility to the stock trading process and became an indispensable tool for investors. Castaing’s proposal inaugurated the emergence of the formalized stock exchange.
Sir Thomas Gresham was another notable person who set up the London Stock Exchange. In the 16th century, Gresham, an English merchant and financier, built the Royal Exchange, a building that served as the center. The Royal Exchange was a physical location where merchants would come together and do business, which was the foundation for a formal exchange.
The London Stock Exchange’s creation turned the finance world upside down. It enabled enterprises to get money to expand through sale of shares. The stock market also promoted liquidity as investors could easily buy and sell securities, creating a market for buyers and sellers to trade efficiently.
In addition, the London Stock Exchange contributed to economic expansion and development. It facilitated companies to access a rich pool of investors, the same that gave birth to innovation and entrepreneurship. Stock exchange enabled companies to undertake ambitious projects, thereby fuelling economic growth.
What Are the Trading Hours in the London Stock Exchange?
The trading hours in London Stock Exchange start from 8.00 a to 12.00 pm then 12.02 p to 4.30 pm every week from Monday through Friday. Every day, the London Stock Exchange closes for lunch for two minutes between noon and 12.02 pm.
You ought to know that trading hours at the London Stock Exchange are among the longest worldwide. The total trading time for the exchange is 8 hours and 28 minutes. The majority of other stock exchanges open for between 5 to 7 hours.
Due to the long trading hours at the exchange, there is more volatility as the exchange will receive more news as it remains open. This gives investors and traders more time to adjust their trades.
Additionally, the exchange has extended trading hours. The pre-trading session starts from 5.05 am to 7.50 am, while the post-trading session starts from 4.40 pm to 5.15 pm. During these sessions, traders are usually paired together electronically rather than through trading providers or brokers.
You should know that the exchange is closed on bank holidays and weekends. For example, if Christmas Day or the New Year falls on a Saturday or Sunday, the exchange will automatically close the Friday before or the following Monday.
What Are the Major Exchanges in the London Stock Exchange?
The major exchanges that make up the London Stock Exchange are:
Main Market Exchange
The London Stock Exchange’s Main Market Exchange is the largest, and perhaps the most prestigious, exchange within the London Stock Exchange. It serves as a principal market for the deals of the firms that exist and which are large enough to survive.
To list in this market, companies must satisfy stringent regulatory requirements, including prerequisites, a strong track record, big market capitalization, and compliance with corporate governance. The main function of the Main Market Exchange is to enable companies to raise capital by issuing shares, thereby allowing investors to trade freely in these shares.
Alternative Investment Market (AIM)
The Main Market targets serve existing companies, while the Alternative Investment Market (AIM) fulfills an important role in growing smaller but high-growth companies. AIM gives these companies a platform to raise growth funding to grow and attain success.
AIM is known for its flexibility and relaxed regulation to encourage small and medium enterprises (SMEs) to list on the market. Some really good examples of flourishing companies have joined this MTF due to its achievements and great potential. Then they have been moving to the premium tier.
Professional Securities Market (PSM)
Professional Securities Market (PSM) is a segment of the London Stock Exchange that specializes in the listing of debt securities. Bond issuers- public sector bodies, sovereigns and supranational entities- usually choose the PSM due to its global reach. PSM listings have received due recognition and offer the investors a chance to invest in fixed-income assets by accumulation.
International Order Book (IOB)
The IOB is a unique exchange within LSE which is specialized on the trading of GDRs and ETFs. Through this market, international companies can obtain a piece of the London Stock Exchange without going through the complexities of a full listing. By issuing GDRs, companies are capable of reaching London-based liquidity, and widening their investor base.
What Are the Biggest Crashes on the London Stock Exchange?
The biggest crashes that have shaken the London Stock Exchange are:
The Great Crash of 1929
Our trip starts with the Great Crash of 1929 due to the Wall Street Crash in New York. During the volatility period of the London Stock Exchange, the US market crash resulted in panic and fear in the financial sector. In just a few days, thousands of investors saw their fortune disappear in a sudden market crash, which has never been seen before. The Great Depression started with this crash, affecting both the Atlantic sides, devastating the lives of many, and leaving economies in tatters.
The Black Monday Crash
We fast forward to October 19, 1987 – a day that is now indelibly etched in the memory of traders and investors. On Black Monday, world markets like the London Stock Exchange faced a sharp and surprising fall in share prices. Panic selling caused a chain reaction resulting in a crash that lost £50 billion in hours. The chaos that ensued showed how vulnerable the market is. Speculative trade, as well as the embeddedness of the entire financial system across the world, was a disaster.
The Dot-com Bubble Burst
The road of the London Stock Exchange goes rough as the Dotcom bubble bursts in 2000. Online businesses and excessive speculation quickly drove up the stock values. Nevertheless, investors became aware of the inflated nature of the valuations, and hence, there was a selloff panic. Some heavyweight indices, such as the FTSE 100, dropped, wiping off trillions worth of market cap. This tragedy changed the technology sector and led to closure of numerous brands, therefore investors became doubtful about others.
The 2008 Global Financial Crisis
Finally, we come to the infamous Global Financial Crisis of 2008, the massive collapse triggered by the downfall of Lehman Brothers in the United States. The resultant credit squeeze caused ripples through the global economy, where none was struck harder than finance.
Anxiety, deep concern and despair marked the London Stock Exchange amidst the turmoil as its major players recorded massive losses, thus triggering a downward spiral of this market. Thus, authorities and central banks everywhere had to respond with radical rescue programs meant to stop the system’s collapse and ward off a disastrous crash.
What Was the First Company Traded on the London Stock Exchange?
The first company ever to trade on the London Stock Exchange was the East India Company, thereby marking a new chapter in the world’s history. With its advent, Jonathan Castaing appreciated the magnitude of the transformation the introduction of the trading system would bring about in the finance world.
Built upon the crossroads of Exchange Alley, this spectacular marketplace became the bedrock of centuries of prosperous trading and investment outposts that made London a leading international financial center. In this era, as we walk into the contemporary trading floors, we must recall the foresight and the relentless spirit of people who created the stage for the London Stock Exchange that changed the course of financial history forever.
