This page provides some of useful London Stock Exchange information to help a beginner understand things a little better.
The London Stock Exchange is the oldest major financial market in the world but it is now no longer the largest. In March 2005, there were over 2,500 companies quoted on the London Stock Exchange market including over 300 from outside the UK.
Such age and grandeur means that for many corporations, it is an honour and a sign of 'arrival' to be listed in London. There are a number of truly global companies that maintain market listings in more than one location for the extra liquidity provided. HSBC is a great example of this.
To be granted permission to be listed on the stock market, companies must satisfy certain conditions (in advance of a listing)
and then others on an ongoing basis. For example, companies must have a
trading record of at least three years before they can obtain a listing.
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There are currently two different trading procedures:
SEAQ is the Stock Exchange Automated Quotation System and is a quote-driven
system. Market makers compete, transacting amongst themselves and
dealing with the public through brokers (also known as dealers). Trading
is done by phone.
SETS is the Stock Exchange Electronic Trading Service and is an order-driven system. It allows brokers to post orders and trade automatically through an electronic order book. This eliminated the market makers role. SETS is limited to FTSE 100 stocks and some FTSE 250 shares.
The London Stock Exchange is commonly known for trading in UK equities, but is also a market for international shares, gilts (debt issued by the UK government - so safe that it is known as 'gilt edged'), corporate and local authority bonds (different types of debt securities), derivatives (traded by merchant banks), Eurobonds (a favourable tax situation makes London the premier Eurobond market in Europe), warrants and covered warrants (a time sensitive form of corporate stock ownership).
With such a wide range of huge markets, 'The City' or 'Square Mile' as the area is known is massivley important on a global financial scale. When the interlinked and globalised nature of modern finance is considered, London is a vital part of everyone's finances!
In fact, whatever the market capitalisation of the FTSE market when compared to others, it would be easy to argue that London is second only to New York in terms of financial importance.
A book published in 2011, called Treasure Islands by Nicholas Shaxson suggests that because of Great Britain's history and the size and scale of the Commonwealth, London is a central hub in global finance.
The network of nations and tax havens around the world that feed funds for investment into London is actually very impressive! Islands such as Jersey, Guernsey, the Isle of Man, from what Shaxson feels is the inner circle of this financial web. Outer links include Cyprus, Malta, the Caymans and British Virgin Islands. With such funnels as these sending funds into the UK and London for use, the London Stock Exchange will remain a powerful force for years to come.
Needless to say, these flows of money, a developed home economy and an English speaking workforce have made London a magnet for the large American and global investment banks.
The FTSE Index
The FTSE Group calculates over 60,000 indices covering 48 countries and all major asset classes, but of course, they are most famous for their London Stock Exchange FTSE Index of the biggerst 100 companies.
Every listed share receives a weighting in the index and this weighting relates to a number of factors. In general, market cap is the main factor. This means that firms such as Vodafone and BP make up very large parts of the movement of the top 100 index and the FTSE All Share.
In fact, depending on current values (which are obviously always moving) the shares of the FTSE 100 index usually make up over 80% of the total value of the listed shares on the London Stock Exchange! In other words, as interesting as it may be to watch the 250 index or concentrate on the FTSE Fledgling, all the action is in the top 100 companies.
If you would like to see how the LSE FTSE Index is performing and what shares are currently in the prestigious 100 list, just click on this link to go to the Bloomberg market movers page.
All index constituents are free float adjusted in accordance
with the London stock exchange FTSE index rules, to reflect the actual
availability of stock in the market for public investment.
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Each constituent weighting is adjusted to reflect restricted
shareholdings and foreign ownership to ensure an accurate representation
of investable market capitalisation.
How heavy is heavy
The first index was the FT 30 which began at a starting point of 100 in 1935. It is also known as the FT Ordianry Share Index. It contains 30 of the UK's largest quoted companies and is calculated as a geometric mean. The FT 30 is mainly made up of industrial firms which means that it isn't very representative of the UK economy or stock market.
The top 100 companies actually lean very heavily towards just a few key sectors of the UK economy. Anyone that knows the UK will realise that these include oil (BP and Shell are both members), finance (HSBC, Barclays, Lloyds and others) and utilities (Centrica, the providers of water, gas and electricity) are some of the mainstays.
In fact, the FTSE 100, "The City" and the south east of England are all quite reliant on the impact that finance has on the UK economy. Some estimates put the total number of people employed by banks and in finance in London at over 250,000 in 2011. While this may not necessarily sound like a large number for such a large city, many of these people have significant earning potential and have an impact on property prices and many other areas of society.
This means that the UK economy is very heavily dependent upon financial services. Therefore, when something good or bad happens to financial markets, London is usually impacted in some way or other.
FTSE also offer a range of other indices to give global values and many other things. For example:
All-World Index Series,
Global Equity Index Series,
Global Islamic Index Series,
Global Sector Index Series,
Global Small Cap Index Series,
Global Style Index Series,
Gold Mines Index Series,
Multinationals Index Series,
Watch List Index Series
Global Bond Index Series,
UK Gilts Index Series
To read more, please follow these links:
Learn More About The London Stock Exchange
London Stock Exchange History
LSE Alternative Investment Market
London Stock Exchange Liquidity
London Stock Exchange Listing Rules
London Stock Exchange SETS
London Stock Exchange Stockbrokers
London Stock Exchange Stockbroker Charges