London Stock Exchange facts for kids
| London Stock Exchange | |
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Quick facts for kids
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| Paternoster Square.jpg | |
| Type | Stock exchange |
| Location | [[City of London]], England, United Kingdom |
| Founded | 30 December 1801 |
| Owner | London Stock Exchange Group |
| Key people | |
| Currency | Sterling (most primary listings; stock prices are quoted in pence rather than pounds) |
| No. of listings | 1,918 issuers |
| MarketCap | USD$3.18 trillion (as of August 2023[update]) |
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The London Stock Exchange (LSE) is a famous place in the City of London, England, where people buy and sell shares of companies. It is one of the world's oldest and largest stock exchanges. As of 2023, the total value of all companies trading on the LSE was about $3.18 trillion.
The LSE is located in Paternoster Square, near St Paul's Cathedral. Since 2007, it has been part of the London Stock Exchange Group (LSEG). The LSE is the most valuable stock exchange in Europe. Many people in the UK have invested in stocks and shares through exchanges like the LSE.
Contents
History of the LSE
Early Beginnings in Coffee Houses
Before the LSE, people traded at the Royal Exchange. It was opened by Queen Elizabeth I in 1571. However, stockbrokers were not allowed there because they were considered rude.
So, in the 17th century, stockbrokers met in coffee houses. One popular spot was Jonathan's Coffee-House. Here, a broker named John Castaing started listing prices for goods and exchange rates in 1698. This was one of the first organized ways to track prices.
Later, this trading moved to Garraway's coffee house. Auctions were sometimes done "by inch of candle," meaning they lasted as long as a candle burned. As more companies formed, trading grew. This was the start of organized trading in London.
Moving to the Royal Exchange
After the Great Fire of London destroyed the Royal Exchange, it was rebuilt in 1669. This was a step towards a more modern stock market. The Royal Exchange housed both brokers and merchants.
To control trading, a law was passed in 1697. It set a limit on the number of licensed brokers. This led some traders to move to the streets, especially in 'Exchange Alley'. Parliament tried to stop this street trading.
People also worried about "bubbles," where company values rose quickly then crashed. A new rule was made to prevent companies from forming without proper approval.
The First Stock Exchange Building
After the Seven Years' War (1756–1763), trading at Jonathan's Coffee House became very busy. In 1773, Jonathan and 150 other brokers formed a club. They opened a new, more formal "Stock Exchange" in Sweeting's Alley.
Traders paid a fee to enter and trade securities. However, trading also happened in the Bank of England. To stop dishonest dealings, they decided to charge higher fees. This led to the idea of annual fees and turning the Exchange into a "Subscription room."
In 1801, the Subscription room became London's first regulated exchange. A new, larger building was planned at Capel Court. The foundation stone was laid on May 18, and the building was finished on December 30. It was officially named "The Stock Exchange."
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First Rule Book and Growth
In its early years, the Capel Court trading had no clear rules. In 1812, the General Purpose Committee created the first rule book. It covered important topics like how trades were settled and what happened if someone couldn't pay.
With new rules and more trading, the Exchange became a key part of London's financial life. The government even used the Exchange to raise money for wars against Napoleon.
Global and Regional Trading
After the war, foreign lending grew, especially to countries like Brazil and Peru. The Exchange's Foreign Market allowed traders to deal with international companies. This led to foreign securities being traded throughout the Exchange.
Other British cities like Liverpool and Manchester also grew. In 1836, both cities opened their own stock exchanges. Stock prices sometimes jumped by 10% or even 30% in a week. However, there were also "busts," like the "Spanish panic" in 1835.
Before the World Wars
By 1853, the Exchange was too crowded. It was expanded several times, and then a whole new building was planned. In 1854, a new brick building was ready, offering much more space.
Later in the 1800s, new inventions like the telephone, ticker tape, and telegraph changed how the Exchange worked. These technologies made trading much faster.
First World War Impact
When World War I started in 1914, the London Stock Exchange was hit hard. People feared that banks would demand their loans back, causing prices to surge. The Exchange was closed from late July until the New Year to prevent a financial panic.
When it reopened in January 1915, trading had strict rules, like cash-only transactions. Many members left the Exchange during the war. In 1923, the Exchange received its own coat of arms with the motto Dictum Meum Pactum, meaning "My Word is My Bond."
Second World War Impact
In 1937, the Exchange planned for a new war, fearing air raids. They thought about moving to Denham, but it never happened. On September 1, 1939, the Exchange closed, and two days later, World War II was declared. Unlike the first war, it reopened quickly on September 7.
During the war, air raids were a big concern. On December 29, 1940, incendiary bombs hit the Exchange floor, but the fires were put out quickly. Trading was mostly done over the phone to keep people safe. The Exchange only closed one more day during the war, in 1945, due to a V-2 rocket attack. Trading continued in the basement.
Post-War Changes
After the wars, the stock market boomed in the late 1950s. This led to plans for a new building, the Stock Exchange Tower. This tall, 26-story building opened on November 8, 1972, by Queen Elizabeth II. It had a large trading floor.
In 1973, big changes happened. Women and foreign-born members were allowed to trade. Also, the London Stock Exchange merged with eleven other British and Irish exchanges. This led to the creation of a new role: Chief Executive Officer. In 1991, the governing Council was replaced by a Board of Directors, and the trading name became "The London Stock Exchange."
The FTSE 100 Index (pronounced "Footsie 100") was launched in 1984. It tracks the performance of the 100 largest companies listed on the Exchange.
IRA Bombing
On July 20, 1990, a bomb exploded in the men's toilets behind the visitors' gallery. The area had been evacuated, so no one was hurt. The explosion damaged the building. Because of this and the rise of electronic trading, the visitors' gallery was permanently closed in 1992.
"Big Bang" of 1986
A huge change happened in 1986, called the "Big Bang." This was when the UK financial markets were suddenly de-regulated. It ended fixed fees for trading and changed how stockbrokers and stockjobbers worked. Trading also moved from shouting orders on the floor to electronic, screen-based trading.
In 1995, the Exchange launched the Alternative Investment Market (AIM) for growing companies. Two years later, the Electronic Trading Service (SETS) was launched, making trading faster.
The 21st Century LSE
In 2000, the LSE became a public company, London Stock Exchange plc. Its role as the UK Listing Authority was transferred to the Financial Services Authority.
In 2003, EDX London was created for trading international company shares. The Exchange also bought Proquote Limited, which provides real-time market data.
The old Stock Exchange Tower became less important after the "Big Bang" because computers replaced face-to-face trading. In 2004, the LSE moved to a new headquarters in Paternoster Square.
In 2007, the LSE merged with Borsa Italiana, Italy's stock exchange. This created the London Stock Exchange Group (LSEG). The Group's main office is in Paternoster Square.
In 2011, protesters from Occupy London tried to occupy Paternoster Square. However, police stopped them because the square is private property. The protesters then moved to St Paul's Cathedral.
On April 25, 2019, Extinction Rebellion activists blocked the entrances of the LSE. They were protesting the financial industry's impact on the world. They were later arrested.
In March 2022, the LSE stopped trading in shares of Russian companies. This happened after the 2022 Russian invasion of Ukraine.
What the LSE Does
The LSE has two main markets where companies trade: the Main Market and the Alternative Investment Market.
Main Market
The Main Market is for large companies. Over 1,300 big companies from 60 countries trade here. The FTSE 100 Index is the main index for the 100 largest UK companies on this market.
Alternative Investment Market (AIM)
The Alternative Investment Market (AIM) is for smaller, growing companies. These companies, including new businesses and those backed by venture capital, use AIM to get money for growth. AIM is a flexible market with a simpler process for companies to list their shares.
Types of Securities Traded
Many different types of financial products can be traded on the LSE. These include:
- Shares of companies (called common stock)
- Bonds, which are like loans to companies or governments
- Derivatives, which are financial contracts
- Exchange-traded funds (ETFs)
- Debt securities, another type of loan
- Exchange-traded commodities (ETCs)
- Structured products
- Covered warrants
- Global depositary receipts (GDRs)
- Gilt-edged securities, which are UK government bonds
After a Trade (Post Trade)
The London Stock Exchange Group also helps with clearing and settlement services. This happens through its Italian part, Borsa Italiana, using CC&G and Monte Titoli.
CC&G (Cassa di Compensazione e Garanzia) is like a central helper that makes sure trades are completed correctly. It covers different types of assets in the Italian markets. Monte Titoli (MT) handles the steps before and after a trade, like keeping records and managing assets. It works with over 400 banks and brokers.
Technology Used
The LSE uses its own trading platform called Millennium Exchange. It runs on Linux.
Before this, they used a platform called TradElect. It was based on Microsoft technology. However, TradElect had problems with downtime. So, in 2009, the LSE decided to switch to Linux. The change to MillenniumIT technology was completed in 2011.
The LSEG also provides high-tech systems for over 40 other organizations and exchanges. These systems help with trading, checking the market, and post-trade services. They also offer network connections and quality testing.
The LSE allows shares to be listed in different currencies. Most shares are in British Pounds (GBP), but some are in Euros (EUR) or US Dollars (USD).
Mergers and Acquisitions
Past Merger Attempts
In 2000, the LSE almost merged with the Deutsche Börse, Germany's stock exchange, but it didn't happen.
In 2007, the LSE agreed to merge with Borsa Italiana. This created a big exchange group in Europe called the London Stock Exchange Group (LSEG). Both companies remained separate legal entities. One goal was to expand Borsa Italiana's clearing services to other European markets.
Also in 2007, the combined Group gained control of Mercato dei Titoli di Stato (MTS), a bond trading platform. This helped the LSE offer more services for European fixed income markets.
In 2009, the LSEG bought Turquoise (TQ), another European trading platform.
In 2020, the LSE agreed to sell Borsa Italiana (including MTS) to Euronext for €4.3 billion. Euronext completed this purchase in April 2021.
In 2022, Microsoft bought a small part of the London Stock Exchange Group. This was part of a ten-year deal for cloud services.
NASDAQ Bids
In 2005, the LSE turned down a £1.6 billion offer from Macquarie Bank, calling it too low. Soon after, NASDAQ, a US stock exchange, offered £2.4 billion, but the LSE also rejected this.
NASDAQ then bought shares in the LSE, becoming its largest shareholder. They slowly increased their ownership. In November 2006, NASDAQ made a hostile offer to buy the LSE. The LSE again rejected it, saying the offer was too low.
NASDAQ revised its offer in December 2006 but did not raise the price. Many investors felt the offer was still not good enough. In the end, LSE shareholders rejected NASDAQ's offer.
In August 2007, NASDAQ gave up its plan to take over the LSE. They decided to sell their shares. In September 2007, NASDAQ sold most of its shares to Borse Dubai, an exchange based in the United Arab Emirates.
Proposed Merger with TMX Group
In February 2011, the London Stock Exchange Group announced a plan to merge with the Toronto-based TMX Group, which owns the Toronto Stock Exchange. This would have created a very large combined company.
However, in June 2011, the LSE Group announced they were ending the merger. They couldn't get enough support from TMX Group shareholders, even though LSE shareholders approved it.
Opening Times
The main trading sessions on the LSE's orderbook (SETS) are from 8:00 AM to 4:30 PM local time. This is every day except Saturdays, Sundays, and holidays.
Here is the detailed schedule:
- Trade reporting: 7:15 AM–7:50 AM
- Opening auction: 7:50 AM–8:00 AM
- Continuous trading: 8:00 AM–4:30 PM
- Closing auction: 4:30 PM–4:35 PM
- Order maintenance: 4:35 PM–5:00 PM
- Trade reporting only: 5:00 PM–5:15 PM
There are also special auction periods (SETQx) for less traded securities. These auctions happen at 8:00 AM, 9:00 AM, 11:00 AM, 2:00 PM, and 4:35 PM.
The LSE observes holidays like New Year's Day, Good Friday, Easter Monday, and various Bank Holidays. If a holiday falls on a weekend, the next working day is observed instead.
Arms
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See also
In Spanish: Bolsa de Londres para niños
- List of stock exchanges
- List of stock exchanges in the Commonwealth of Nations
- List of stock exchanges in the United Kingdom, the British Crown Dependencies and United Kingdom Overseas Territories
- Stock Exchange forgery 1872–73
- TAURUS (share settlement)
Images for kids
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The London Stock Exchange office interior at Paternoster Square.
