What is the London Stock Exchange – MoneyWeek

Sharepricesmovedependingonthelevelofbuyingandsellingactivitybytheunderlyingmarketmakers。

It’sasupplyanddemandgamedrivenbythecompany’sperformance,activities,andmarketnewsingeneral。

Whatareitsorigins?

ItallstartedintheCity’scoffeehousesinthe17thcentury。

Onbehalfofclients,tradersboughtandsoldsharesinjointstockcompaniesthroughjobbers。

Acoregroupof150tradersusedtomeetatJonathan’sCoffeeHouse。

Overthecenturies,tradersbecamebrokers,thecoffeehousebecametheStockExchangeandfinally,jobbersbecamemarket-makers。

Thelate18thcenturywastheturningpoint。

Adedicatedbuildingwasputupin1773andaregulatedexchangewithaformalmembershipestablishedin1801。

Thesystemwascontinuallyrefineduptothe1812DeedofSettlement,whichformedthebasisofoperationsfortheStockExchangeuntilitderegulated。

Havethingschanged?

In1986,deregulationsawtheabolitionofminimumcommissionsandatruecompetitivemarketwasborn。

Thatalsomeantthatbrokerscouldbetraders,traderscouldbebrokersandforeigncompetitorscouldbuybrokersand/ortraders。

Aspartofthismovetoamorecompetitivemarket,theLondonStockExchangebecameapubliclimitedcompanyitself,requiredtodiscloseactivitiesandreporttoshareholders,exactlyliketheotherplcslistedandtradedonit。

Howdoesitwork?

Marketmakersuseseveraldifferenttradingsystems。

SETSisanautomatedorder-matchingsystemforhighlytradedstocks。

SEAQisquotedrivenforsmaller,lessliquidcompanies:interestedbuyersmustcallbrokerstocheckprices。

Thereareacoupleofhybridsinbetween,plusaninternationalorderbookforthemostliquidoverseasshares。

Andtherearealotofthose。

AlthoughtheLSEisacoreLondoninstitutionandinhabitantof‘theSquareMile’,itishighlyinternational。

Threehundredandfiftyforeigncompaniesfrom54differentcountrieshavelistingsontheExchangeandlastyearsixoftheLSE’stenlargestfloatswereoverseascompanies。

Whydoforeignfirmslisthere?

Thereisareasonthatmoreandmorecompaniesarelistingonexchangesawayfromhome。

Tradingcannowtakeplacequiteeasilyacrosscontinentsbecausesomuchisconductedviacomputerandtelephone。

AndastheLSEprovidescompanieswithaccesstooneofthelargestpoolsofcapitalintheworld,itisverypopular。

Currently,43%ofallfirmsthathavecompletedprimaryorsecondarylistingsoutsidetheircountryofnationalityhavechosentheLSE,saysDavidSmithinTheSundayTimes。

London’stimezoneisparticularlyconvenient,asitissandwichedbetweenAsiaandtheUS。

“YoucandealwithbothAmericaandtheFarEastinthesameday,”saysMichaelPetrie,chairmanofBearStearnsInternational。

Whatdoesthefuturehold?

Allthiscross-borderactivity,andtheLSE’slargetradingvolumeandreachbutsmallsizeasacompany,haswhippedupsomethingofabiddingfrenzy。

ThelatestbidhascomefromUStechnologyexchangeNasdaq。

TheNewYorkStockExchange(NYSE)isalsorumouredtobeputtingtogetherabid,followingitsownrecentlisting。

WouldatakeoveroftheLSEbyeitherNasdaqortheNYSEcreateastockexchangesuperpowerthatwoulddominatetheglobalmarketplace?

Possibly,butthereismuchdebateaboutthebenefitsofconsolidatingstockmarkets。

Consolidationmightbringaboutefficienciesandcostsavings,andmayevencreateasingleelectronictradingplatformthatoperatesfromLondon’sopeningat8。

00am(3。

00amNewYorktime)toNewYork’sclosingat4。

00pm(9。

00pmLondontime)。

ButitcouldalsoprovokeinterferencefromUSregulator,theSecuritiesExchangeCommission(SEC)。

IfeitheroftheUSexchangescangettowheretheyneedtobeonprice,theremaystillbemanyoperationalissuestoironoutinordertotakethefirstleaptowardsafunctionalglobalexchange。

ByLouisaMitchell

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