London Stock Exchange

The Royal Exchange had been founded by English financier Thomas Gresham and Sir Richard Clough on the model of the Antwerp Bourse. It was opened by Elizabeth I of England in 1571.[4][5]

During the 17th century, stockbrokers were not allowed in the Royal Exchange due to their rude manners. They had to operate from other establishments in the vicinity, notably Jonathan's Coffee-House. At that coffee house, a broker named John Castaing started listing the prices of a few commodities, such as salt, coal, and paper, and exchange rates in 1698. Originally, this was not a daily list and was only published a few days of the week.[6]

This list and activity was later moved to Garraway's coffee house. Public auctions during this period were conducted for the duration that a length of tallow candle could burn; these were known as "by inch of candle" auctions. As stocks grew, with new companies joining to raise capital, the royal court also raised some monies. These are the earliest evidence of organised trading in marketable securities in London.

After Gresham's Royal Exchange building was destroyed in the Great Fire of London, it was rebuilt and re-established in 1669. This was a move away from coffee houses and a step towards the modern model of stock exchange.[7]

The Royal Exchange housed not only brokers but also merchants and merchandise. This was the birth of a regulated stock market, which had teething problems in the shape of unlicensed brokers. In order to regulate these, Parliament passed an Act in 1697 that levied heavy penalties, both financial and physical, on those brokering without a licence. It also set a fixed number of brokers (at 100), but this was later increased as the size of the trade grew. This limit led to several problems, one of which was that traders began leaving the Royal Exchange, either by their own decision or through expulsion, and started dealing in the streets of London. The street in which they were now dealing was known as 'Exchange Alley', or 'Change Alley'; it was suitably placed close to the Bank of England. Parliament tried to regulate this and ban the unofficial traders from the Change streets.

Traders became weary of "bubbles" when companies rose quickly and fell, so they persuaded Parliament to pass a clause preventing "unchartered" companies from forming.

After the Seven Years' War (1756–1763), trade at Jonathan's Coffee House boomed again. In 1773, Jonathan, together with 150 other brokers, formed a club and opened a new and more formal "Stock Exchange" in Sweeting's Alley. This now had a set entrance fee, by which traders could enter the stock room and trade securities. It was, however, not an exclusive location for trading, as trading also occurred in the Rotunda of the Bank of England. Fraud was also rife during these times and in order to deter such dealings, it was suggested that users of the stock room pay an increased fee. This was not met well and ultimately, the solution came in the form of annual fees and turning the Exchange into a Subscription room.

The Subscription room created in 1801 was the first regulated exchange in London, but the transformation was not welcomed by all parties. On the first day of trading, non-members had to be expelled by a constable. In spite of the disorder, a new and bigger building was planned, at Capel Court.

William Hammond laid the first foundation stone for the new building on 18 May. It was finished on 30 December when "The Stock Exchange" was incised on the entrance.

London Stock Exchange in 1810

In the Exchange's first operating years, on several occasions there was no clear set of regulations or fundamental laws for the Capel Court trading. In February 1812, the General Purpose Committee confirmed a set of recommendations, which later became the foundation of the first codified rule book of the Exchange. Even though the document was not a complex one, topics such as settlement and default were, in fact, quite comprehensive.

With its new governmental commandments[8] and increasing trading volume, the Exchange was progressively becoming an accepted part of the financial life in the City. In spite of continuous criticism from newspapers and the public, the government used the Exchange's organised market (and would most likely not have managed without it) to raise the enormous amount of money required for the wars against Napoleon.

After the war and facing a booming world economy, foreign lending to countries such as Brazil, Peru and Chile was a growing market. Notably, the Foreign Market at the Exchange allowed for merchants and traders to participate, and the Royal Exchange hosted all transactions where foreign parties were involved. The constant increase in overseas business eventually meant that dealing in foreign securities had to be allowed within all of the Exchange's premises.

Just as London enjoyed growth through international trade, the rest of Great Britain also benefited from the economic boom. Two other cities, in particular, showed great business development: Liverpool and Manchester. Consequently, in 1836 both the Manchester and Liverpool stock exchanges were opened. Some stock prices sometimes rose by 10%, 20% or even 30% in a week. These were times when stockbroking was considered a real business profession, and such attracted many entrepreneurs. Nevertheless, with booms came busts, and in 1835 the "Spanish panic" hit the markets, followed by a second one two years later.

By June 1853, both participating members and brokers were taking up so much space that the Exchange was now uncomfortably crowded, and continual expansion plans were taking place. Having already been extended west, east and northwards, it was then decided the Exchange needed an entire new establishment. Thomas Allason was appointed as the main architect, and in March 1854, the new brick building inspired from the Great Exhibition stood ready. This was a huge improvement in both surroundings and space, with twice the floor space available.

By the late 1800s, the telephone, ticker tape and the telegraph had been invented. Those new technologies led to a revolution in the work of the Exchange.

As the financial centre of the world, both the City and the Stock Exchange were hit hard by the outbreak of World War I in 1914. Due to fears that borrowed money was to be called in and that foreign banks would demand their loans or raise interest, prices surged at first. The decision to close the Exchange for improved breathing space and to extend the August Bank Holiday to prohibit a run on banks, was hurried through by the committee and Parliament, respectively. The Stock Exchange ended up being closed from the end of July until the New Year, causing street business to be introduced again, as well as the "challenge system".

The Exchange was set to open again on 4 January 1915 under tedious restrictions: transactions were to be in cash only. Due to the limitations and challenges on trading brought by the war, almost a thousand members quit the Exchange between 1914 and 1918. When peace returned in November 1918, the mood on the trading floor was generally cowed. In 1923, the Exchange received its own coat of arms, with the motto Dictum Meum Pactum, My Word is My Bond.

In 1937, officials at the Exchange used their experiences from World War I to draw up plans for how to handle a new war. The main concerns included air raids and the subsequent bombing of the Exchange's perimeters, and one suggestion was a move to Denham, Buckinghamshire. This however never took place. On the first day of September 1939, the Exchange closed its doors "until further notice" and two days later World War II was declared. Unlike in the prior war, the Exchange opened its doors again six days later, on 7 September.

As the war escalated into its second year, the concerns for air raids were greater than ever. Eventually, on the night of 29 December 1940, one of the greatest fires in London's history took place. The Exchange's floor was hit by a clutch of incendiary bombs, which were extinguished quickly. Trading on the floor was now drastically low and most was done over the phone to reduce the possibility of injuries.

The Exchange was only closed for one more day during wartime, in 1945 due to damage from a V-2 rocket. Nonetheless trading continued in the house's basement.

Trading floor in 1955

After decades of uncertain if not turbulent times, stock market business boomed in the late 1950s. This spurred officials to find new, more suitable accommodation. The work on the new Stock Exchange Tower began in 1967. The Exchange's new 321 feet (96 metre) high building had 26 storeys with council and administration at the top, and middle floors let out to affiliate companies. Queen Elizabeth II opened the building on 8 November 1972; it was a new City landmark, with its 23,000 sq ft (2,100 m²) trading floor.

The Stock Exchange Tower pictured from atop the National Westminster Tower in 1983.

1973 marked a year of changes for the Stock Exchange. First, two trading prohibitions were abolished. A report from the Monopolies and Mergers Commission recommended the admittance of both women and foreign-born members on the floor. Second, in March the London Stock Exchange formally merged with the eleven British and Irish regional exchanges, including the Scottish Stock Exchange.[9] This expansion led to the creation of a new position of Chief Executive Officer; after an extensive search this post was given to Robert Fell. There were more governance changes in 1991, when the governing Council of the Exchange was replaced by a Board of Directors drawn from the Exchange's executive, customer and user base; and the trading name became "The London Stock Exchange".

FTSE 100 Index (pronounced "Footsie 100") was launched by a partnership of the Financial Times and the Stock Exchange on 3 January 1984. This turned out to be one of the most useful indices of all, and tracked the movements of the 100 leading companies listed on the Exchange.

On 20 July 1990, a bomb planted by the Provisional Irish Republican Army exploded in the men's toilets behind the visitors' gallery. The area had already been evacuated and nobody was injured.[10] About 30 minutes before the blast at 8:49 a.m., a man who said he was a member of the IRA told Reuters that a bomb had been placed at the exchange and was about to explode. Police officials said that if there had been no warning, the human toll would have been very high.[11] The explosion ripped a hole in the 23-storey building in Threadneedle Street and sent a shower of glass and concrete onto the street.[12] The long-term trend towards electronic trading platforms reduced the Exchange's attraction to visitors, and although the gallery reopened, it was closed permanently in 1992.

The biggest event of the 1980s was the sudden de-regulation of the financial markets in the UK in 1986. The phrase "Big Bang" was coined to describe measures, including abolition of fixed commission charges and of the distinction between stockjobbers and stockbrokers on the London Stock Exchange, as well as the change from an open outcry to electronic, screen-based trading.

In 1995, the Exchange launched the Alternative Investment Market, the AIM, to allow growing companies to expand into international markets. Two years later, the Electronic Trading Service (SETS) was launched, bringing greater speed and efficiency to the market. Next, the CREST settlement service was launched. In 2000, the Exchange's shareholders voted to become a public limited company, London Stock Exchange plc. London Stock Exchange also transferred its role as UK Listing Authority to the Financial Services Authority (FSA-UKLA).

EDX London, an international equity derivatives business, was created in 2003 in partnership with OM Group. The Exchange also acquired Proquote Limited, a new generation supplier of real-time market data and trading systems.

Paternoster Square; LSEG occupies the building that takes up much of the right side of this picture.

London Stock Exchange office interior at Paternoster Square

The old Stock Exchange Tower became largely redundant with Big Bang, which deregulated many of the Stock Exchange's activities: computerised systems and dealing rooms replaced face-to-face trading. In 2004, LondonStock Exchange moved to a brand-new headquarters in Paternoster Square, close to St Paul's Cathedral.

In 2007, the London Stock Exchange merged with Borsa Italiana, creating London Stock Exchange Group (LSEG). The Group's headquarters are in Paternoster Square.

The Stock Exchange in Paternoster Square was the initial target for the protesters of Occupy London on 15 October 2011. Attempts to occupy the square were thwarted by police.[13] Police sealed off the entrance to the square as it is private property, a High Court injunction having previously been granted against public access to the square.[14]

The protesters moved nearby to occupy the space in front of St Paul's Cathedral.[15] The protests were part of the global Occupy movement.

On 25 April 2019, the final day of the Extinction Rebellion disruption in London, 13 activists glued themselves together in a chain, blocking the entrances of the Stock Exchange.[16][17] The protesters were all later arrested on suspicion of aggravated trespass.[17]

Extinction Rebellion had said its protesters would target the financial industry "and the corrosive impacts of the ... sector on the world we live in" and activists also blocked entrances to HM Treasury and the Goldman Sachs office on Fleet Street.[18]

Issuer services help companies from around the world to join the London equity market in order to gain access to capital. London Stock Exchange allows companies to raise money, increase their profile and obtain a market valuation through a variety of routes, thus following the firms throughout the whole IPO process.

London Stock Exchange runs several markets for listing, giving an opportunity for different sized companies to list. International companies can list a number of products in London including shares, depositary receipts and debt, offering different and cost-effective ways to raise capital. In 2004, the Exchange opened a Hong Kong office and has attracted more than 200 companies from the Asia-Pacific region.

For the biggest companies exists the Premium Listed Main Market. This operates a Super Equivalence method where conditions of both the UK Listing Authority, as well as London Stock Exchange's own criteria have to be met. The largest IPO on the Exchange was completed in May 2011 by Glencore International plc. The company raised $10 billion(GB£7,646,260,000) at admission, making it one of the largest IPOs ever since foundation.

In terms of smaller SME's London Stock Exchange operates the Alternative Investment Market (AIM). For international companies that fall outside of the EU, it operates the Depository Receipt (DR) scheme as a way of listing and raising capital.

There are also two specialised markets:

Professional Securities Market This market facilitates the raising of capital through the issue of specialist debt securities or depositary receipts (DRs) to professional investors. The market operates under the status as a Recognised Investment Exchange, and by July 2011, it had 32 DRs, 108 Eurobonds and over 350 Medium Term Notes.

Specialist Fund Market Is London Stock Exchange's dedicated market, designed to accept more sophisticated fund vehicles, governance models and security. It is suitable only for institutional, professional and highly knowledgeable investors. The Specialist Fund Market is an EU Regulated Market and thus securities admitted to the market are eligible for most investor mandates providing a pool of liquidity for issuers admitted to the market

The securities available for trading on London Stock Exchange:[19]

• Common stock
• Bonds, including retail bonds
• Derivatives
• Exchange-traded funds
• Debt securities
• Exchange-traded commodities
• Structured products
• Covered warrants
• Global depositary receipts (GDRs)
• Gilt-edged securities

There are two main markets on which companies trade on the LSE:

The main market is home to over 1,300 large companies from 60 different countries. Over the past 10 years over £366 billion has been raised through new and further issues by Main Market companies. The FTSE 100 Index ("footsie") is the main share index of the 100 most highly capitalised UK companies listed on the Main Market.

The Alternative Investment Market is LSE's international market for smaller companies. A wide range of businesses including early-stage, venture capital-backed, as well as more-established companies join AIM seeking access to growth capital. The AIM is classified as a Multilateral Trading Facility (MTF) under the 2004 MiFID directive, and as such it is a flexible market with a simpler admission process for companies wanting to be publicly listed.

There are also several electronic platforms on which the different products trade:

• SETS (Stock Exchange electronic Trading Service) This is the LSE's flagship electronic order book, trading indexed securities (FTSE100, FTSE250, FTSE Small Cap Index constituents, Exchange Traded Funds, Exchange Trading Products, as well as other liquid AIM, Irish, and London Standard listed securities)
• SETSqx (Stock Exchange electronic Trading Services – quotes and crosses) This is a trading platform for securities less liquid than those traded on SETS. This platform combines a periodic electronic auction book four times a day with stand-alone non-electronic quote driven market making.
• SEAQ. This is the LSE's non-electronically executable quotation service that allows market makers to quote prices in AIM securities and the Fixed Interest market.
• International Trading Service
  • IOB: The International Order Book offers easy and cost-efficient access for traders looking to invest in fast-growing economies (for example, in Central and Eastern Europe, Asia and the Middle East) via depositary receipts (DRs). It is based on an electronic order book similar to SETS.
  • European Quoting Service: this enables clients to meet their pre-trade pan-European transparency obligations.
  • A pan-European trade reporting service that enables clients to meet their post-trade reporting obligations whether trading on or off Exchange.
• Derivatives

Trading of derivative products is available on the Turquoise platform (ex EDX London). Products are Norwegian Futures and options on Norwegian single stocks and indices, Russian futures and options on the most liquid IOB Depositary Receipts, Futures, options on the FTSE RIOB index and futures on the FTSE 100. Futures and options on the most liquid European stock underlyings and on European benchmark indices were expected to be launched in Q4 2011 and Q1 2012 subject to Financial Services Authority approval.

• MTS is a fixed income trading electronic platform, trading European government bonds, quasi-government bonds, corporate bonds, covered bonds and repo.[20] MTS provides access to both cash and repo markets, as well as fixed income market data and fixed income indices. It is majority-owned by the London Stock Exchange Group. Shareholding firms also include large international banks such as J.P. Morgan, Deutsche Bank and BNP Paribas.

The largest products offered are:

• MTS BondVision (Dealer-to-client electronic market)
• MTS Cash
• MTS Credit (for euro-denominated, non-government bonds)
• MTS Data
• MTS Indices[21]
• MTS Repo

The Order book for Retail Bonds (ORB), launched in February 2010, offers continuous two-way pricing for trading in UK gilts and retail-size corporate bonds on-exchange. ORB acts as an electronic secondary market for retail investors. 2009 saw highest-ever inflow into bond funds, a net total of £10.7bn, driven almost entirely by retail investors (90% of total), with corporate bonds being the bestselling sector.

ORB offers an open and transparent market model for trading in retail-size. Currently there are five dedicated market makers committed to quoting two-way prices in a range of retail bonds throughout the trading day. New market models means private investors will be able to see prices on-screen and trade in bonds in a similar way as they currently do for shares. This creates a greater efficiency of electronic on-book execution and option to use straight-through-processing to settlement system.

Retail Bonds are driven by cost-effectiveness, simplicity of transaction charging and standardisation of market structure. The key aim of ORB is to increase distribution for bonds by opening up these markets to private investors who may have previously felt excluded from this market. This is by increasing the availability of publication on offer, detailing the risks and benefits involved in Retail Bonds, such as taxation.

New entrants into ORB have been able to raise sufficient funds, such as Places for People who were able to raise capital of £140 million. This portrays the advantage using ORB can have, even for non-bank smaller firms seeking to raise capital.

On 3 May 2000, it was announced that the LSE would merge with the Deutsche Börse; however this fell through.[34]

On 23 June 2007, the London Stock Exchange announced that it had agreed on the terms of a recommended offer to the shareholders of the Borsa Italiana S.p.A. The merger of the two companies created a leading diversified exchange group in Europe. The combined group was named the London Stock Exchange Group, but still remained two separate legal and regulatory entities. One of the long-term strategies of the joint company is to expand Borsa Italiana's efficient clearing services to other European markets.

The following timeline outlines the consolidation through mergers and acquisitions among bourses in the European Union, which has taken place since the 1990s in response to financial harmonisation and liberalisation. Current, independent (parent) exchange companies are shown in colour.

																																									Intercontinental Exchange, Inc.
							New York Stock Exchange, Inc.																													NYSE Euronext, Inc.
																			London Traded Options Market						London International Financial Futures and Options Exchange					Euronext N.V.
																				London International Financial Futures Exchange
											London Commercial Sale Rooms					London Commodity Exchange
	Amsterdam Exchanges N.V. (Amsterdam Bourse)																																									Euronext N.V.
									Bourse de Valeurs Mobilières de Bruxelles S.A. (Brussels Bourse)
				Société des Bourses Françaises S.A. (Paris Bourse)
					Bolsa de Valores de Lisboa e Porto (Lisbon Bourse)
								Irish Stock Exchange
											Oslo Stock Exchange																			Oslo Børs Holding ASA							Oslo Børs VPS Holding ASA
																						Verdipapirsentralen										Verdipapirsentralen ASA
																					VP Securities A/S
										Borsa Italiana S.p.A. (Italian Bourse)																										London Stock Exchange Group plc
			London Stock Exchange plc
																									Statnett Marked AS						Nord Pool Spot AS													Nord Pool AS
																											Nord Pool ASA
																		National Association of Securities Dealers, Inc. (NASD)											NASDAQ								NASDAQ OMX Group, Inc.						Nasdaq, Inc.
													Stockholm Stock Exchange															OM AB				OM HEX AB	OMX AB
															Helsinki Stock Exchange													Helsinki Exchanges Group Plc
																										Tallinn Stock Exchange
																									Riga Stock Exchange
																									Vilnius Stock Exchange
		Copenhagen Stock Exchange
																						Iceland Stock Exchange
																														Armenian Stock Exchange
																									SIX Swiss Exchange AG
												Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. (Spanish Bourses)
														Budapest Stock Exchange																													Budapest Stock Exchange
						Wiener Börse AG (Vienna Stock Exchange)																																Central and Eastern Europe Stock Exchange Group AG									Vienna Stock Exchange
																									Burza cenných papírů Praha, a.s. (Prague Stock Exchange)
																							Ljubljana Stock Exchange
																								Zagreb Stock Exchange
Frankfurter Wertpapierbörse AG (Frankfurt Stock Exchange)																																											Deutsche Börse AG (German Bourse)
																	Centrale de Livraison de Valeurs Mobilières									Cedel International
																															European Energy Exchange
																												Eurex Exchange
																												STOXX
1585	1602	1625	1698	1724	1769	1771	1792	1799	1801	1808	1818	1831	1863	1864	1912	1954	1970	1971	1978	1979	1980	1985	1989	1991	1993	1995	1996	1998	2000	2001	2002	2003	2004	2005	2006	2007	2008	2010	2011	2012	2013	2014	2015	2016	2018	2019	2020	2021

In 2007, after Borsa Italiana announced that it was exercising its call option to acquire full control of MBE Holdings; thus the combined Group would now control Mercato dei Titoli di Stato, or MTS. This merger of Borsa Italiana and MTS with LSE's existing bond-listing business enhanced the range of covered European fixed income markets.

London Stock Exchange Group acquired Turquoise (TQ), a Pan-European MTF, in 2009 and since coupling with MillenniumIT's software, it currently offers the fastest latency of any in Europe. Currently the speed of latency on Turquoise (as measured at the end of August 2011) is 97 microseconds on average for 99.9% of trades. Initially founded by a consortium of nine banks, it is now majority-owned by the London Stock Exchange Group. Currently shareholders include twelve of the leading investment banks.

Turquoise operates a maker-taker fee scheme: 0.30 basis points for aggressive traders and 0.20 rebates for passive traders, providing liquidity. The market share of Turquoise as an MTF has doubled over the past twelve months, from 3% to 6%. There are currently 2,000 securities, across 19 countries that are on Turquoise. Unlike Broker-Dealer Crossing Networks, TQ does not discriminate as to who can trade on their platform.

In December 2005, London Stock Exchange rejected a £1.6 billion takeover offer from Macquarie Bank. 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.[35] 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.[36] The move was seen as an effort to force LSE to the negotiating table, as well as to limit the Exchange's strategic flexibility.[37]

Subsequent purchases increased NASDAQ's stake to 25.1%, holding off competing bids for several months.[38][39][40] 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.[41] The LSE immediately rejected this bid, stating that it "substantially undervalues" the company.[42]

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.[43] 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."[44]

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.[45] 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.[46]

On 9 February 2011, London Stock Exchange Group announced it had agreed to merge with the Toronto-based TMX Group, the owners of the Toronto Stock Exchange, creating a combined entity with a market capitalization of listed companies equal to £3.7 trillion.[47] Xavier Rolet, CEO of the LSE Group at the time, would have headed the new enlarged company, while TMX Chief Executive Thomas Kloet would have become the new firm president. London Stock Exchange Group however announced it was terminating the merger with TMX on 29 June 2011 citing that "LSEG and TMX Group believe that the merger is highly unlikely to achieve the required two-thirds majority approval at the TMX Group shareholder meeting".[48] Even though LSEG obtained the necessary support from its shareholders, it failed to obtain the required support from TMX's shareholders.