London Stock Exchange: history of creation

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:47

The London Stock Exchange is Europe's oldest existing stock exchange. In addition, it is famous for its internationality: according to 2004 data, it included 340 companies from 60 countries. Despite the fact that there are 21 more exchanges in the UK, the London one remains the most popular. We will tell you about it in this article.

Structure

The London Stock Exchange consists of three main markets: official, non-registered securities and alternative investments.

• Official market. The largest segment, intended for firms with a certain history of existence and significant capital. It has two divisions: for international companies and for domestic ones.
• Unregistered securities market. Appeared in 1980 to provide services to small firms. Unfortunately, this experiment was unsuccessful, and due to low liquidity, this market was canceled in the early 90s.
• The market for alternative investments. Originated in mid-1995 to servicesmall firms. There were no special requirements for new candidates in terms of the minimum history of the company and the number of shares already put into circulation. The minimum capital requirement has also been lowered. But the liberalization of 1997 led the London Stock Exchange to tighten its listing rules.

History

From the beginning of the 16th century, securities were traded in coffee houses or on the streets. In 1566, Thomas Gresham, who arrived from Holland, offered to build a separate room for these purposes. He stated that he would do it at his own expense, but demanded that local residents and the government find a suitable territory. With the collected amount of money in the amount of 3,500 pounds, the necessary piece of land was purchased. In 1570, the opening of the Royal Exchange took place.

New Exchange

Unfortunately, the Great Fire of London destroyed it, and the new building was rebuilt only in 1669. A gallery was also organized, consisting of 200 seats for rent. The brought goods were stored in the basement of the building. In 1698, brokers were expelled from the exchange building for obscene behavior (annoyance and noise). Jonathan's coffee house was chosen for negotiations and conclusion of deals. At the same time, the first price lists for securities appeared. After 50 years, Jonathan's coffee house repeated the fate of the very first stock exchange - it burned down. However, visitors restored the building on their own. In 1773, brokers built a new building not far from the coffee house, christening it "New Jonathan" (later the name was changed to "Stockexchange").

Exchange in the 20th century

The First World War significantly crippled European stock markets. The London Stock Exchange was the last to close and a year later (in 1915) it resumed its work. To ensure security, a battalion of riflemen from among volunteers was formed. There were 400 people in total. One in four died on the battlefield. By the 1960s, the number of operations and personnel had expanded so much that the management of the exchange decided to build a new 26-story building. The construction lasted 12 years, and in 1972 the Queen of England herself opened the new building.

In 1987, the stock exchange underwent a radical transformation. The most significant of them were: the transfer of physical trades to electronic ones (SEAQ system), the abolition of the minimum commission limit, the permission for exchange members to combine brokerage and dealer functions. Thanks to the SEAQ electronic system, brokers did not have to go to the floor to trade. They could do it in their office.

By the end of 1997, the London Stock Exchange quotes were completely transferred to electronic format. Computer trading system SETS has increased the speed of transactions and overall efficiency.

London Base Metal Exchange

Founded during the Industrial Revolution in 1877. Now the London Non-ferrous Metals Exchange is considered the most important European trading center. It has come a long way from simple to forward (and then futures)deals. All this allows consumers and producers of industrial metals to absorb possible losses and hedge risks in case of price fluctuations. Trades can be made in options, futures and cash.

The Stock Exchange is located in the old Plantation House and still preserves many traditions of the past. The operating room is made in the form of a circle, which determines the "circular membership" of the participants in trading operations. Despite the advent of electronic systems, transactions are still concluded by shouting. The same is true for metal prices. The London Stock Exchange at Plantation House has a special "sign language" that brokers use during a rush to avoid confusing orders given and received.

Gold Market

There is also a precious metal traded on the London Stock Exchange - gold. It has always stood apart in this institution. Representatives of five firms gather in a separate room to carry out bidding. The lead chairman proposes the price, and the "five" expresses their willingness to make deals. After all agreements and approvals, fixed prices are announced, at which contracts will be concluded. Copper is bought and sold according to a similar scheme. The London Metal Exchange is certainly one of the most famous British financial institutions. But there are three other institutions worth mentioning separately.

London Oil Exchange

Until 1970, the energy market was quite stable. But as a result of the oil embargo (1973-1974), the formationOPEC and the Arab-Israeli war oil producers have lost control of prices. Therefore, in the early 80s. The International Petroleum Exchange was founded in London. The main reason for its appearance is the increased volatility of oil prices. And the non-standard location was explained by the increase in oil production in the North Sea region.

The exchange offers both options on unleaded gasoline, gas oil, oil, and futures contracts. Its main feature is the possibility of exchanging a cash market position for a futures position, provided that this exchange takes place during non-working hours. The second feature is a long working day (until 20:15). This schedule allows brokers to enter into arbitrage contracts with the US.

British Options and Futures Exchange

Initially, it had a completely different name: the London Mercantile Exchange. This institution is a market for commodity derivatives and agricultural products of the United Kingdom. Of course, in terms of volume and size, it is significantly inferior to its foreign counterparts (for example, the Chicago Stock Exchange), but this absolutely does not prevent a significant share of transactions in Europe.

This exchange appeared in the middle of the 20th century on the basis of "terminal associations" that conducted futures transactions for several product lines. Later, it absorbed almost all local markets, and even took part of the markets from the B altic colleagues (derivatives for ship freight and potatoes). Prices on the London Options and Futures Exchange are quite favorable. It is possible to concludedeals in both conventional (barley, wheat, pork, etc.) and colonial goods (soybeans, sugar, coffee).

International Options and Futures Exchange

In Britain there is a separate options market, but it works mainly with Sweden. Transactions on a wide range of assets are conducted on the International Exchange of Options and Futures.

Until 1992, these transactions were handled by the floor of the London Stock Exchange. Then everything was moved to a building on Cannon Street. The largest part of the products of this exchange is related to bonds and credit instruments, and a certain part of the transactions concerns stock futures contracts.

The English stock index FTSE 100 is actively traded on the International Exchange. Its important feature is the ability to work with both European and American options. Until recently, it had the status of the best exchange in Europe in terms of technical equipment.

The International Options and Futures Exchange is Britain's central derivatives market and provides high liquidity for Japanese, US, German and Italian bonds. But, unlike US institutions, it does not deal in currency derivatives contracts.

Once upon a time, stock exchanges began with informal meetings in the places where transactions were made. Now they have become formalized financial institutions offering clients a wide range of different services. As development progressed, rigid settlement systems and strict rules appeared that minimized risks.participants.

Most UK stock exchanges still don't make significant profits. Their liability is limited to ordinary guarantees (sometimes in the form of securities). The cleaning operations of these institutions are handled by the London Clearing House. It is she who provides guarantees from the insurance fund. At the end of 2000, it was £150m.

Conclusion

Now the London Stock Exchange is one of the five largest institutions of this type in the world. There are traded shares of 300 companies from 60 countries. If we consider Russian firms, the papers of Lukoil, Gazprom and Rosneft are in the greatest demand. Since 2005, the exchange has launched trading in options and futures on the RTS index.