What is a Stock Exchange?
A stock exchange is a marketplace that enables the buying and selling of shares in publicly listed companies. Whilst the concept of what a stock exchange is has remained consistent throughout history, how they operate has evolved considerably over time. In this post we explain what the London Stock Exchange is and how it has evolved into the Exchange we know today.
The history of the London Stock Exchange
Its origins can be traced back to the 17th century. Stock brokers would gather in London coffee houses to buy and sell shares.
The London Stock Exchange was formally established in 1801 and began enlisting members. The Exchange provided physical facilities across the UK for members to buy and sell shares.
Following a period of growth throughout the 20th century operations were centralised in London with the establishment of the Stock Exchange Tower in 1972.
In 1986 deregulation of the UK stock market opened up huge possibilities for new investors to access the market and become shareholders. It also saw a move away from open out-cry trading. This was where traders would shout and use hand signals to carry out trades. Instead, the use of technology was introduced. The deregulation is often called the “big bang” of the stock market.
Today, it’s headquarters are in Paternoster Square, having re-located there in 2004.
The London Stock Exchange Group, the company that manages the Exchange was formed in 2007 following a merger between the London Stock Exchange and the Milan Stock Exchange (Borsa Italiana). The group state they employ 4500 people globally.
Nearly all trading is carried out electronically now, in contrast to the days of the past. The Exchange hosts and manages the technology that allows this to happen.
How big is the Exchange?
The London Stock Exchange is one of largest in the world. The Exchange is home to over 2000 companies with a total market value of approximately £4 trillion. The market value for each company is calculated by multiplying the share price by the number of shares issued.
According to London Stock Exchange Group data, 272.6 million trades were made in 2018 at an eye-watering total trade value of £1.4 trillion. That equates to an average of 750,000 trades per day.
The primary markets traded on the London Stock Exchange
There are two primary markets that provide access to shares of the 2000+ companies listed on the Stock Exchange.
There are approximately 1200 companies listed on the Main Market with a total share value of £3.9 trillion. The Main Market contains the larger companies including those part of the FTSE index.
Alternative Investment Market
There are around 900 companies listed on the AIM with a total market value of over £100 billion. Companies listed on AIM are typically smaller, earlier stage companies.
The figures will fluctuate a little as companies enter and exit the markets. If you are interested we’ve compiled some additional interesting facts about the UK stock market.
How the London Stock Exchange works
The Stock Exchange provides a mechanism for companies to raise capital to fund their business. The process of a company listing their shares on the exchange for the first time is often called an Initial Public Offer (IPO) or Floating.
The London Stock Exchange allows companies from around the world to list, not just UK companies. Actually, over 50 countries are represented in total. The exchange provides a mechanism for people around the world to trade shares in the companies listed on it.
In addition, the Stock Exchange provides information such as share prices and regulatory news. There are certain announcements that companies listed on the stock market are obliged to publish. These include details of trades in the company made by directors, changes to positions of the board of directors and financial updates.
It is worth mentioning that the Exchange also allows investors to trade more complex financial products beyond shares.
A simple explanation
The London Stock Exchange provides a facility for companies to issue shares to raise funds for their business. The Stock Exchange acts as a marketplace for investors to buy and sell the shares the companies have issued.
If you’re keen to learn more make sure you check out the rest of our website or grab a copy of our free Beginner’s Guide to Investing in the Stock Market.
Data Source: London Stock Exchange. Data correct at 2 June 2019.
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