Exchanges allow organisations to sell stocks and shares to the public: their purpose is to guarantee fair trading and price information. This may be physical, or an electronic platform. Companies that wish to trade through an exchange are required to produce regular financial reports and audited earnings reports.
Exchanges in the City of London
Entirely screen and phone-based, the London foreign exchange market is the largest in the world, with a daily turnover of $1.9 trillion and 37% of the global market, more than New York and Tokyo combined.
The London Stock Exchange (LSE)
The LSE is one of the world’s major financial markets, primarily trading in a wide range of UK and international bonds and equities. The Main Market is regarded by investors and companies as the world’s most prestigious listing and trading environment. There are three others; the Alternative Investment Market for smaller businesses, the Professional Securities Market for listed debt and depository receipt securities, and the Specialist Fund Market dedicated to specialised investment entities.
The LSE has 604 foreign listed companies; this is more than any other exchange. Some 19% of the global foreign equity market is traded in London. Also one of the leading locations for raising capital, it handled 6% of global issues in 2009 and 7% of initial public offerings (IPOs). 70% of global Eurobond turnover is traded in London.
London International Financial Futures Exchange (Liffe)
Liffe is London’s primary derivatives exchange. Financial derivatives traded include futures and options on shares. Traded commodity derivatives include futures and options on physical products, such as barley, coffee and wheat. Annually, $1.29 billion of contracts are traded on Liffe.
Derivatives contracts are financial instruments which are constructed so that their price movement is related to a specific underlying asset. They tend to be used either for speculative or hedging (protective) purposes. London is the largest global market for interest-rate derivatives with 46% of global turnover; it is also the second largest centre for exchange-traded derivatives.
The IntercontinentalExchange operates exchanges, trading platforms and clearing houses in major financial centres including London; it serves the global markets for agricultural, credit, currency, emissions, energy and equity index markets. ICE Futures Europe is based in London, where it trades half of the world’s crude and refined oil futures. In partnership with the European Climate Exchange (ECX), ICE Futures Europe is the leading electronic exchange for global energy markets. London has a 95% share of the EU Emissions trading scheme.
London Metal Exchange (LME)
This market provides a forum for trading futures contracts for non-ferrous metals, steel and plastics. As a result of this trading, daily prices are ‘discovered’ and published by the Exchange, forming the basis of price negotiations for the physical sale or purchase of metals, steel or plastics worldwide. In 2011, it achieved 120.3 million contracts, with average daily turnover of $46 billion. The LME is a global market with an international membership and with more than 95% of its business coming from overseas. Trading is conducted electronically, by phone, and through short ‘open outcry’ ring-trading sessions where members can conduct business face to face. The LME is the biggest non-ferrous metals exchange in the world.
London is the world’s largest bullion market for gold and gold lending, and with 15% of global trade it is also the largest centre for commodities trading.
Lloyd’s of London
Lloyd’s of London is an insurance market enabling insurance brokers to obtain cover for major risks, for example marine, aviation, professional indemnity, catastrophe and motor insurance. Over 90% of leading UK and US based companies are insured through Lloyd’s; business comes from over 200 countries, including 44% from North America. Although it provides some insurance products suitable for the general public (motor, household and travel), Lloyd’s insurers deal only with authorised insurance brokers. Lloyd’s market is comprised of over 50 managing agents running 80 syndicates that provide the specialist underwriting skills and capital to ensure that claims are met.
Clearing houses ensure that once securities have been traded, assets are transferred between buyers and sellers smoothly and efficiently. This includes trade settlement, collecting and maintaining money held on account, regulating delivery and reporting trading data. Clearing houses also act as third parties to derivatives contracts, acting as a buyer to every clearing member seller and as a seller to every clearing member buyer.
LCH.Clearnet is the leading independent central counterparty clearing house in Europe, serving major international exchanges and platforms, such as the LSE and Liffe.
Euroclear facilitates the clearing and settlement of many international bonds, as well as owning and operating CREST, which is the settlement system used by the LSE for all its transactions.
Clearstream provides similar facilities to CREST on behalf of the Deutsche Börse exachange.