An introduction to the London Stock Exchange
The London Stock Exchange (LSE) was founded in 1801 and today is the largest stock exchange in Europe. The LSE operates two primary markets: the Main Market and the Alternative Investment Market (AIM). The Main Market is home to over 1,600 listed companies with a combined market capitalization of around £1 trillion. Today it operates as a subsidiary of Deutsche Boerse AG, which itself has been listed on the Frankfurt Stock Exchange since 2000. The LSE works with numerous banks and clearing corporations to provide a global trading platform for its members, including some of Europe’s largest firms such as BP, Shell, HSBC, GlaxoSmithKline, and Vodafone.
How the exchange functions
The London Stock Exchange provides a means by which companies can raise capital in order to fund their business. When a company lists its shares on the exchange for the very first time, the process is referred to as a Floating, or more commonly, an Initial Public Offer (IPO). The LSE enjoys a global reach and thus doesn’t just list UK companies. Instead, it allows countries from all over the world to list and currently houses more than 50 in total. Thus, the exchange allows for a global investment audience to partake in its markets, including those interested in trading UK shares on FTSE 100 companies. The exchange offers people around the world the mechanisms by which to trade shares in the various companies listed on it. In addition, the London Stock Exchange keeps all investors and/or interested parties up to date by way of regulatory news and share prices. Companies listed on the stock market are obliged to make certain key announcements, and these include financial updates, changes to board positions, and the details of trades made by company directors. The exchange also allows investors to go beyond traditional share price practices and thus also condones more complex financial products.
The exchange consists of two primary markets which provide investors and traders access to the shares of over 1,600 listed companies. These markets are as follows:
- Main Market: Consisting of roughly 1,200 listed companies, the Main Market sports a value to the total of £3.9 trillion. The Main Market is home to several stock markets with companies encompassing close to 40 various sectors. A listing on the Main Market means that companies have access to tremendous amounts of capital and real-time pricing. In addition, a listing on the Main Market also means access to capital found in the FTSE UK Index Series, loads of media coverage, regular announcements, and research.
- Alternative Investment Market: The AIM houses roughly 900 listed companies equating to a total market value exceeding £100 billion. The AIM’s rules for getting listed are less stringent and thus if a company wants to get listed on it, will pay less in order to do so. Historically, the AIM was home to smaller companies, although nowadays some of the biggest AIM companies boast market values running well into the hundreds of millions of pounds. Generally, figures on this market tend to fluctuate due to the rate of company exits and entries.
The London Stock Exchange provides governments and companies the world over with the means to issue securities like bonds and shares in order to raise capital and expand business interests. Thanks to a global footprint consisting of over 50 countries, those securities can be accessed and traded by thousands of investors around the globe, varying from private individuals to sizeable financial organizations.