The London Stock Exchange has grown into arguably the world’s greatest financial market since its birth in a 17th century London coffee house. It’s a place where companies go to raise capital to fund expansion and create jobs, and where investors go in the hope of growing their personal wealth. But how much do you really know about it?
1. A history of growth
By its nature, it’s impossible to say how much an investor will make on the London Stock Exchange, and investments can fall as well as rise. In the years between 1917 and 2016, the average annual return of the FTSE All-Share Index was 7%, but there were significant fluctuations, with positive returns in 65 of those 100 years. This is Money recently reported that if you had invested £10,000 in the average UK savings account in 1986, it would have been worth £28,196 30 years later in 2016. If, on the other hand, you had invested the money into the FTSE All-Share Index and reinvested the dividends, it would have been worth £121,466.
2. Coffee house beginnings
The London Stock Exchange can trace its roots back to Jonathan’s Coffee House in 1698, when a broker called John Castaing began issuing a list of exchange prices for different currencies, stocks and commodities. These included prices for gold, ducats, silver staters and pieces of eight. The Exchange is now home to more than 2,600 companies from 60 countries. Its main market is measured by indexes, including the FTSE 100 index of the largest UK-listed companies, the FTSE 250 index, which is made up of the next largest 250 companies, and the small cap index, comprising those outside the top 350.
3. Playing by the rules
One of the world’s most established financial institutions, London Stock Exchange Group had an income of more than £2,135 million in 2018, up from £1,955 million in 2017. These days there are extensive rules to control trading, but in the early days there was no clear set of regulations. In February 1812, the General Purpose Committee confirmed a set of recommendations, which later became the foundation for the first codified rulebook. These rules were extremely thorough, covering everything from settlement to prohibiting fireworks and footballs in the Exchange.
4. Joining the war effort
The London Stock Exchange has operated through some of the most turbulent periods in British history. The government would have found it impossible to fund the £831 million cost of the Napoleonic Wars without the markets. In 1914, at the start of the First World War, the exchange closed for six months and 1,600 stockbrokers joined up – many never returned. During the Second World War, the exchange remained open despite the constant bombing of the city and only closed for one day, when it was hit by a V2 rocket.
5. Rise of the FTSE 100
Now one of the world’s best-known indexes, the FTSE 100 was launched on 3 January 1984 with a combined value of around £160 billion. Today this figure is over £2 trillion, proof of the significant growth of the UK’s global capital markets. At its launch, the FTSE 100 replaced the first major UK share index, the FT 30 Share and was designed to provide a pioneering real-time index of the largest 100 companies listed on the London Stock Exchange.
6. Starting with a ‘Big Bang’
On 27 October 1986, the ‘Big Bang’ took place. This was the name given to the deregulation of the financial markets in the UK. The New York Stock Exchange had already experienced deregulation just over 10 years before, on 1 May 1975, ‘Mayday’, leaving the London Stock Exchange unable to compete. However, after much resistance, some of which came from the Council of the Stock Exchange who didn’t want to upset the status quo, the financial markets were deregulated by Margaret Thatcher’s government. This rapidly increased the strength and prestige of London and it soon became, perhaps, the world’s most important financial centre.
7. Supporting smaller companies
In 1995, the London Stock Exchange launched the Alternative Investment Market (AIM), its second attempt at a market targeted towards smaller companies that didn’t meet the requirements to be fully listed. AIM has seen 3,600 companies join from across the globe, helping give them access to the capital they need to develop and grow. Today, AIM’s most successful businesses include companies such as Fever-Tree and ASOS. AIM gives investors access to these potentially high-growth stocks and also offers some inheritance tax benefits because many of the companies qualify for business relief.