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The London Stock Exchange (LSE) is a stock exchange located in London, England. Founded in 1801, it is one of the largest stock exchanges in the world, with many overseas listings as well as UK companies.
Its current premises are situated in Paternoster Square close to St Paul's Cathedral.
The trade in shares in London began with the need to finance two voyages: The Muscovy Company's attempt to reach China via the White Sea north of Russia, and the East India Company voyage to India and the east. Unable to finance these costly journeys privately, the companies raised the money by selling shares to merchants, giving them a right to a portion of any profits eventually made.
The idea soon caught on (one of the earliest was the Earl of Bedford's scheme to drain the fens). It is estimated that by 1695 there were 140 joint-stock companies. The trade in shares was centered around the City's Change Alley in two coffee shops: Garraway's and Jonathan's. The broker John Castaing published the prices of stocks and commodities called The Course of the Exchange and other things in these coffee-shops. In 1697 a law was passed to 'restrain the number and ill-practice of brokers and stockjobbers' following a number of insider trading and market-rigging incidents. It required all brokers to be licensed and to take an oath promising to act lawfully.
The Change Alley exchange thrived. However, it was to suffer a set-back in 1720. Much excitement was caused by the South Sea Company, stoked by brokers, the company's owner John Blunt and the government. Having set up the unprofitable company nine years previously the government hoped to wipe out the large debts accumulated by offering shares to the public. Shares in the company, which had started at £128 each at the start of the year, were soon fetching as much as £1050 by June. The bubble inevitably burst, with share prices plunging to £175, then £124. The incident caused outcry, forcing the government to pass legislation to prevent another bubble, and it took a long time for the stock exchange to recover.
Jonathan's burnt down in 1748, and this, plus dissatisfaction with the overcrowding in the Alley, made the brokers build a New Jonathan's on Threadneedle Street, as well as charging an entrance fee. The building was soon renamed the Stock Exchange, only to renamed again as the Stock Subscription Room in 1801, with new membership regulations. However, this too proved unsatisfactory, and the exchange moved to the newly built Capel Court in the same year. The exchange had recovered by the 1820s, bolstered by the growth of the railways, canals, mining and insurance industries (there were, however, problems with stags and dividend payments). Regional stock exchages were formed across the UK. Bonds (or gilt-edged securities) also began to be traded.
The former Stock Exchange Tower, based in Threadneedle Street/Old Broad Street was opened by Queen Elizabeth II in 1972 and housed the Trading Floor where traders would traditionally meet to conduct business. This became largely redundant with the advent of the Big Bang on 27 October 1986, which deregulated many of the Stock Exchange's activities. It eliminated fixed commissions on security trades and allowed securities firms to act as brokers and dealers. It also enabled an increased use of computerised systems that allowed dealing rooms to take precedence over face to face trading.
On July 20, 1990 a bomb planted by the IRA exploded in the men's toilets behind the visitors' gallery. The area had already been evacuated and nobody was injured.[1] The long term trend towards electronic trading had been reducing the Exchange's status as a visitor attraction and although the gallery reopened it was closed permanently in 1992.
In July 2004 the London Stock Exchange moved from Threadneedle Street to Paternoster Square (EC4) close to St Paul's Cathedral, still within the "Square Mile" (the City of London). It was officially opened by Queen Elizabeth II once again, accompanied by The Duke of Edinburgh, on 27 July 2004. The new building contains a specially commissioned dynamic sculpture called "The Source", by artists Greyworld.
In December of 2005, the London Stock Exchange rejected a £1.6 billion takeover offer from Macquarie Bank. The LSE described the offer as "derisory." It then received a bid in March of 2006 for £2.4 billion from NASDAQ, which was also rejected by the LSE. NASDAQ later pulled its bid, and less than two weeks later on April 11, 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.[2] 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.[3] The move was seen as an effort to force LSE to negotiate either a partnership or eventual merger, as well as to block other suitors such as NYSE Group, owner of the New York Stock Exchange.[4]
Subsequent purchases increased NASDAQ's stake to 25.1%, holding off competing bids for several months.[5][6][7] United Kingdom financial rules required that NASDAQ wait for a period of time before renewing its effort. On November 20, 2006, within a month or two of the expiration of this period, NASDAQ increased its stake to 28.75% and relaunched a formal tender 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.[8] On prior occasions, NASDAQ had been spurned by LSE chief Clara Furse, and this time elected to go directly to the board of the London exchange. LSE's options had diminished by this time as two of the three most likely competing bidders, NYSE Group and Euronext, were close to finalizing their own merger, while Deutsche Börse, the third, had dropped out of the contest.[8] The LSE immediately rejected this bid, stating that it "substantially undervalues" the company.[9]
NASDAQ revised its offer (characterized as an "unsolicited" bid, rather than a "hostile takeover attempt") on December 12, 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. One fund manager, echoing the sentiments of many of the rest of LSE's stockholders, stated "It's not a bad price, but the LSE's board tells us it is worth more and I am inclined to agree with them at the moment." NASDAQ's bid was made more difficult due to British bidding rules, which restricted their ability to raise its offer except under certain circumstances, though currency hedging had partially protected NASDAQ against the British pound's 3% value increase (relative to the dollar) during the bidding process.[10]
NASDAQ's was unable to increase its stake beyond 30% by the deadline on 10th February 2007 and therefore the offer was rejected.[11] However a 30% stake in LSE will make a rival takeover bid unlikely to succeed.
The LSE is broken down into the Main Market and Alternative Investments Market (AIM), as well as EDX London (which handles derivatives). The independent FTSE Group maintains a series of indices for measuring the LSE, including the FTSE 100 Index, FTSE 250 Index, and FTSE 350 Index.