Everything about The London Stock Exchange totally explained
The
London Stock Exchange or
LSE is a
stock exchange located in
London,
England,
United Kingdom. Founded in
1801, it's one of the largest stock exchanges in the world, with many overseas listings as well as British companies. The LSE is part of the
London Stock Exchange Group plc.
Its current premises are situated in
Paternoster Square close to
St Paul's Cathedral in the
City of London.
History
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.
Unable to finance these costly 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 centered 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 set-back 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.
Threadneedle Street and Capel Court
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.
Coat of Arms
It received its own
Coat of Arms in 1923. Its motto is
dictum meum pactum, "My word is my bond".
The 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.
IRA bomb
On
July 20,
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. 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.
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. The new building contains a specially commissioned dynamic sculpture called "The Source", by artists
Greyworld.
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 LSE 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 duly rejected. NASDAQ later pulled its bid, and less than two weeks later on
April 11,
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. 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. The move was seen as an effort to force LSE to the negotiating table, as well as to limit the LSE's strategic flexibility.
Subsequent purchases increased NASDAQ's stake to 25.1%, holding off competing bids for several months. United Kingdom financial rules required that NASDAQ wait for a period of time before renewing its effort. On
November 20,
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. The LSE immediately rejected this bid, stating that it "substantially undervalues" the company.
NASDAQ revised its offer (characterized as an "unsolicited" bid, rather than a "hostile
takeover attempt") on
December 12,
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 per cent of rest of the register by the deadline on
10 February,
2007, Nasdaq's offer duly lapsed
(External Link
). 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."
On Monday,
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. 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.
Structure
The London Stock Exchange has four core areas:
Equity markets - enables companies from around the world to raise the capital they need to grow. The Exchange offers a choice of four primary markets; Main Market,
Alternative Investment Market (AIM), Professional Securities Market (PSM) and Specialist Fund Market (SFM).
Trading services - a highly active and efficient market for trading in a wide 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.
Market data information - The London Stock Exchange provides high-quality, real-time prices, news and other financial information to the global financial community.
Derivatives - The derivatives business is a pioneering diversification beyond our core equity markets. A major contributor to our derivatives business is EDX London, created in 2003 to bring the cash equity and derivatives markets closer together.
Levels
Downtime
On 7th November 2007 LSE had a 40 minute outage. The LSE stated this was due to "connectivity issues".
Further Information
Get more info on 'London Stock Exchange'.
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