Located in London, United Kingdom, the London Stock Exchange (LSE) is one of the oldest and largest stock exchanges in the world. It provides a platform for companies to raise capital and investors to trade shares, bonds, and other securities.
Founded in 1801, the LSE has a rich history of facilitating trade and investment. It has evolved over the centuries, adapting to technological advancements and regulatory changes.
The LSE is today a pivotal institution in global finance, providing a robust platform for trading securities and raising capital. Its rich history, diverse markets, and advanced technologies make it a cornerstone of the financial industry.
Background
The London Stock Exchange was founded on 30 December, 1801, but the history of exchange-trading in London is much longer. In 1571, the English financier Thomas Gresham and the Welsh merchant Richard Clough founded the Royal Exchange in London, with permission from Queen Elizabeth I of England. The Royal Exchange was largely modelled on the Antwerp Bourse, which had opened 40 years earlier.
In 1698, the broker John Castaing started posting prices of stocks, exchange-rates and a few commodity prices in Jonathan’s Coffee-House, which had opened in 1680 and was not far from the Royal Exchange. Dealers who had been expelled from the Royal Exchange due to their rude and rowdy behaviour began gathering at locations near the Royal Exchange, including Jonathan’s Coffee-House and Garraway’s Coffee-House.
The end of the Seven Year´s War in 1763 brought on a period of economic prosperity in England and securities trading boomed. In 1773, roughly 150 brokers formed a club and opened a more formal Stock Exchange in Sweeting´s Alley. The new stock exchange had a set entrace fee, which was later turned into an annual fee. The exchange in Sweeting’s Alley did not have any kind of monopoly on securities trading in London; it was just one of the more notable spots – with the Rotunda of the Bank of England being another one.
In 1801, the exchange in Sweeting’s Alley established a Subscription room. The decision was controversal and during the first trading day, a constable had to be brought in to expell non-members from the trading room.
The exchange needed bigger and better accomodations, and a new building was planned for Capel Court. On 18 May, 1801, William Hammond placed the first foundation stone, and on 30 December “The Stock Exchange” was incised on the entrance of the building.
During the early years of exchange-trading at Capel Court, several instances occurred that made it evident how clear regulations and fundamental laws were lacking. In 1812, the General Purpose Committee confirmed a set of recommendations. These recommendations later served as a basis for the first codified rule book for the exchange.
Key Markets of the LSE
Main Market
The Main Market is the LSE’s flagship market, hosting a range of large, well-established companies from around the world.
Alternative Investment Market (AIM)
AIM is designed for smaller, growth-oriented companies, providing them with access to capital while offering investors opportunities in emerging sectors.
Trading Hours
The LSE operates Monday to Friday, with trading hours typically from 8:00 AM to 4:30 PM UK time. Pre-market and post-market sessions are also available for certain securities.
Technology and Innovation
The LSE utilizes advanced trading technologies to ensure efficient and transparent market operations. It offers various electronic trading platforms and data services to market participants.
Regulatory Framework
The LSE operates under the regulatory oversight of the Financial Conduct Authority (FCA) in the UK, ensuring compliance with financial regulations and standards.
Examples of Notable Indices
FTSE 100
The Financial Times Stock Exchange 100 Index, commonly known as the FTSE 100 Index, is comprised of the 100 largest companies listed on the LSE by market capitalization. It is a key indicator of the performance of the UK stock market.
The nickname of this index is “Footsie”.
The FTSE 100 Index was established by the LSE in 1984 and largely replaced the Financial Times 30 (FT 30) as the most widely used indicator for the UK stock market. The FTSE 100 is reviewed each calender quarter, and this is when companies can be removed or added to the index.
The FTSE 100 Index consists of 32 sectors. As of 31 May, 2024, four of these sectors had a market capitalisation exceeding £200 billion: pharmaceuticals, oil & gas, metals and mining, and banking services. At that point, these four sectors accounted for over 45% of the FTSE 100 market capitalisation.
We can also see that by the end of May 2024, four FTSE 100 companies each had a market cap above £100 billion: Shell, AstraZeneca, HSBC, and Unilever. Together, these four companies accounted for roughly 27% of the FTSE 100 market capitalisation.
FTSE 250
The FTSE 250 Index includes the next 250 largest companies outside the FTSE 100, i.e. the 101st to the 350th company, by market cap, listed on the LSE.
The FTSE 250 Index consists of 38 sectors. As of 31 May, 2024, the four largest ones, by market cap, made up approximately 51% of the index´s total market capitalisation. These sectors were collective investments, investment banking & investment services, hotels and entertainment services, and residential and commercial REIT. All four each had a market cap exceeding £25 billion.
On 31 May, 2024, three FTSE 250 companies had a market cap above £5 billion: the cruise operator Carnival, the multinational mining company Endevour Mining, and the financial service company Hargreaves Lansdown. Combined, these three companies accounted for roughly 7% of the index´s total market capitalisation. ‘
The FTSE 250 Index is reviewed each calender quarter, and this is when companies can be removed or added.
The London Stock Exchange Group plc (LSEG)
The London Stock Exchange is owned by the London Stock Exchange Group plc, also known as LSEG. This corporation also owns LSEG Data & Analytics (formerly Refinitiv), LSEG Technology, and FTSE Russell, and has majority stakes in the clearinghouse LCH and the fintech company Tradeweb.
The London Stock Exchange Group plc was formed in 2007, as the London Stock Exchange acquired Borsa Italiana in an all-share deal that diluted the stakes of existing LSE shareholders while Borsa Italiana shareholders received new shares representing 28% of the enlarged register. In 2021, LSEG sold Borsa Italiana to Euronext.