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London Stock Exchange (LSE)

The London-based stock market

What is the London Stock Exchange (LSE)?

The London Stock Exchange (LSE), which is based in London, the United Kingdom, is one of the leading stock markets in the world. Owned by the London Stock Exchange Group, the LSE was established in 1571, making it one of the oldest stock exchanges in the world. The LSE’s market capitalization is estimated at US$4.59 trillion as of April 2018.

 

London Stock Exchange

 

In October 2007, the London Stock Exchange merged with Milan Stock Exchange (Borsa Italiana) and created the London Exchange Group. The London-based group is a stock exchange and financial information company that owns MillenniumIT, Russell Indexes, FTSE International, and Exactpro. It also owns majority stakes in LCH and MTS. It also operates in North America, Italy, France, and Sri Lanka.

 

Primary Markets

The London Stock Exchange enables companies to join the equity market to raise capital and increase their profile, as well as gain access to market valuation. Companies of different sizes can list on the LSE as the bourse runs several markets for listing. It also offers different ways to raise capital.

For instance, international companies can list their shares and depositary receipts on the exchange. In 2004, the LSE began operating in Hong Kong, allowing it to tap over 200 companies in the Asia-Pacific region.

The LSE operates the Premium Listed Main Market. It is designed for the biggest companies and follows a Super Equivalence method, which states that the London Stock Exchange’s criteria and UK Listing Authority’s conditions must be met. In May 2011, Glencore International Plc raised $10 billion at admission, making it one of the largest IPOs completed on the LSE.

For small and medium-sized enterprises, the London Stock Exchange operates the Alternative Investment Market (AIM). Different businesses such as startups join AIM to gain access to growth capital. It is classified as a Multilateral Trading Facility, and its simpler admission process makes it easier for companies to join the market and become publicly listed.

For international companies outside of the European Union, the LSE runs the Depositary Receipt scheme where a depository bank-issued certificate, which is used to buy shares of foreign companies, creates a security on the local exchange that is backed by those shares.

 

Specialized Markets

 

1. Professional Securities Market

The Professional Securities Market operates as a Recognized Investment Exchange, which is responsible for raising capital through the issuance of specialist debt securities or depositary receipts to investors.

 

2. Specialist Fund Market

The Specialist Fund Market is an EU Regulated Market, which means that securities that are admitted to the market are eligible for most investor mandates. It is designed only for institutional and highly knowledgeable investors.

 

Secondary Markets

Stocks, bonds, derivatives, debt securities, exchange-traded funds, structured products, covered warrants, global depositary receipts, as well as gilt-edged securities, are also available for trading on the London Stock Exchange.

 

Related Readings

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Investing: A Beginner’s Guide
  • Initial Public Offering (IPO)
  • Trading Mechanisms
  • Types of Markets – Dealers, Brokers and Exchanges

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