Assignment LSE

‘London Stock Exchange’
LONDON STOCK EXCHANGE
An Assignment Paper
submitted in the partial fulfilment
for the award of PGDBM (FM)
By
Commander Sangram Dey
Shri Prabhat Kumar
Shri Kumar Shivam
Participants PGDBM (FM) 2009-11
Under The Guidance Of
Dr Sangeeta Chabra
Professor (Financial Management)
National Institute of Financial Management
November 2009
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CONTENTS
Section Subject Pages
ABSTRACT 3
I INTRODUCTION 4
HISTORY
II 5 - 11
• The Takeover Attempt
ORGANISATION
• Core Areas of Business
III 12 - 18
• The Management
• The Source – Art n Technology
FUNCTIONS
• Issuer Services
• Trading Services
• Information Services
IV 19 - 35
• Post Trading Services
• Prices and Indices
• Listing Guidelines
• Indian Companies at LSE
V CONCLUSION 36 - 37
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ABSTRACT
The London Stock Exchange is at the heart of the global

financial market and is home to some of the largest, most
successful and dynamic companies in the world. From
conducting its business in the coffee houses of 17th century
London, the Exchange is one of the world’s oldest stock
exchanges. The Exchange has built on a long history of
integrity, expertise and market knowledge to become the
world's most international stock exchange with around 3,500
companies from over 75 countries admitted to trading on its
markets. In October 2007 the Exchange merged with Borsa
Italiana, creating Europe's leading diversified exchange
business, London Stock Exchange Group.
The London Stock Exchange has four core areas: namely

Equity markets that enables companies to raise capital, Trading
services for trading in a range of securities, Information
Services which provides real-time financial information and
Derivatives which was created in 2003 to bring the cash equity
and derivatives markets closer together. In broader sense, the
Exchange is actually divided into two parts. The first part is the
Main Market, for which companies need at least three years of
audited accounts to become members. The second part of the
exchange is the Alternative Investment Market (AIM) for those
shares that do not want a full listing on the main market.
There are 30 Indian companies listed at London Stock

Exchange. The latest listing were Tata Steel, Tata Power and
Suzlon Energy on 27-28 July 2009.
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INTRODUCTION
1. During the days of the British Empire, the UK

economy was the largest in the world and the first to
industrialise. Although it has declined in significance since, the
UK is still the sixth largest economy in the world by purchasing
power parity. It is a member of the G7, the European Union and
the OECD (Organisation for Economic Cooperation and
Development). The UK Economy is one of the most globalised
economies in the world and The City of London is considered
the largest financial center in the world.
2. The recent financial crisis has highlighted the importance

of counterparty risk management and the benefits of the
simplicity and safety of exchange trading and central
counterparty guarantees. At a time of great uncertainty and
increasing competition from alternative trading venues, neutral,
well regulated exchanges like London Stock Exchange have
demonstrated their value, withstanding market turmoil and
continuing to provide liquid, price forming and transparent
trading services. The London Stock Exchange has very clear its
objectives and the Mission Statements of the Group states:-
(a) Facilitate access to capital for companies of all sizes,

from any sector, from anywhere in the world.
(b) Provide a wide range of products that enable investors

to share in wealth creation opportunities across asset
classes and the world.
(c) Drive market efficiency to lower the cost of capital for

companies and the cost of trading and investment.
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HISTORY
3. The London Stock Exchange history is proof that from

something small, a huge giant can be built. It can trace its
history back more than 300 years and is the oldest stock
exchange in the world. Starting life in the coffee houses of 17th
century London, the Exchange quickly grew to become the
City’s most important financial institution. Over the centuries
following, the Exchange has consistently led the way in
developing a strong, well-regulated stock market and today lies
at the heart of the global financial community.
4. The trade in shares in London began with the need to

finance two voyages: The Muscovy Company's attempt to
reach China and the East India Company voyage to India.
Unable to finance these expensive journeys privately, the
companies raised the money by selling shares to merchants,
giving them a right to a portion of any profits eventually made.
The idea soon caught on and it is estimated that by 1695, there
were 140 joint-stock companies. The trade in shares was
centred around the City's Change Alley in two coffee shops:
Garraway's and Jonathan's. The journey of the present day
London Stock Exchange started from these events. The growth
and various milestones in the course of the Exchange are
illustrated chronologically:-
(a) 1698. John Castaing begins to issue in Jonathan’s

Coffee-house a list of stock and commodity prices called
“The Course of the Exchange and other things”. It is the
earliest evidence of organised trading in marketable
securities in London. In the same year, the stock dealers
are expelled from the Royal Exchange for rowdiness and
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start to operate in the streets and coffee houses nearby,

in particular in Jonathan’s Coffee House in Change Alley.
(b) 1720. The wave of speculative fever known as the

“South Sea Bubble” bursts. Having set up the unprofitable
The South Sea Company nine years previously, the
government hoped to wipe out the large debts
accumulated by offering shares to the public. Shares in
the company, which had started at £128 each at the start
of the year, were soon fetching as much as £1,050 by
June. The bubble inevitably burst, with share prices
plunging to £175, then £124. The incident caused outcry,
forcing the government to pass legislation to prevent
another bubble, and it took a long time for the stock
exchange to recover.
(c) 1748. Fire sweeps through Change Alley,

destroying most of the coffee houses. They are
subsequently rebuilt.
(d) 1761. A group of 150 stock brokers and jobbers

form a club at Jonathan's to buy and sell shares.
(e) 1773. The brokers erect their own building in

Sweeting’s Alley, with a dealing room on the ground floor
and a coffee room above. Briefly known as “New
Jonathan’s”, members soon change the name to “The
Stock Exchange”.
(f) 1801. On 3 March, the business reopens under a

formal membership subscription basis. On this date, the
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first regulated exchange comes into existence in London,

and the modern Stock Exchange is born.
(g) 1802. The Exchange moves into a new building in

Capel Court.
(h) 1812. The first codified rule book is created.
(i) 1836. The first regional exchanges open in

Manchester and Liverpool.
(j) 1845. More speculative fever – this time “Railway

mania” – sweeps the country.
(k) 1854. The Stock Exchange is rebuilt.
(l) 1876. A new Deed of Settlement for the Stock

Exchange comes into force.
(m) 1914. The Great War means the Exchange market

is closed from the end of July until the new year. The
Stock Exchange Battalion of Royal Fusiliers is formed –
1,600 volunteered, 400 never returned.
(n) 1923. The Exchange receives its own Coat of

Arms, with the motto “Dictum Meum Pactum” (My Word is
My Bond).
(o) 1939. The start of World War Two. The Exchange

is closed for 6 days and reopens on 7 September. The
floor of the House closes for only one more day, in 1945
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due to damage from a V2 rocket – trading then continues

in the basement.
(p) 1972. Her Majesty the Queen Elizabeth II opens

the Exchange's new 26-storey office block with its
23,000sq ft trading floor on Threadneedle Street.
(q) 1973. First female members admitted to the

market. The 11 British and Irish regional exchanges
amalgamate with the London exchange.
(r) 1986. Deregulation of the market occured known

as “Big Bang”. Among other things, this deregulation
allowed outside corporations to own member firms,
eliminated voting rights for individual members, and
transformed the face-to-face trading system into one
largely operated over computers and telephones. The
Exchange becomes a private limited company under the
Companies Act 1985.
(s) 1991. The governing Council of the Exchange is

replaced with a Board of Directors drawn from the
Exchange's executive, customer and user base. The
trading name becomes “The London Stock Exchange”.
(t) 1995. Alternative Investment Market (AIM) is

launched – the Exchange’s international market for
growing companies.
(u) 1997. SETS (Stock Exchange Electronic Trading

Service) is launched to bring greater speed and efficiency
to the market. The CREST settlement service is launched.
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(v) 2000. The transfer of role as UK Listing Authority

with HM Treasury to the Financial Services Authority (FSA)
took place. Shareholders vote to become a public limited
company: London Stock Exchange plc.
(w) 2001. The Exchange was listed on its own Main

Market in July. 200th anniversary celebrations begun.
(x) 2003. EDX London, a new international equity

derivatives business, in partnership with OM Group was
created. Proquote Limited, a new generation supplier of
real-time market data and trading systems was acquired.
(y) 2004. The Exchange moved to brand new

headquarters in Paternoster Square, close to St Paul's
Cathedral. It was officially opened by Queen Elizabeth
II once again, accompanied by The Duke of Edinburgh, on
27 July 2004. The new building contains a specially
commissioned dynamic sculpture called "The Source", by
artists Greyworld.
(z) 2007. The London Stock Exchange merges with

Borsa Italiana, creating London Stock Exchange Group.
THE TAKEOVER ATTEMPT
5. In December 2005, the London Stock Exchange rejected a

£1.6 billion takeover offer from Macquarie Bank. The London
Stock Exchange described the offer as "derisory", a sentiment
echoed by shareholders in the exchange. Shortly after
Macquarie withdrew its offer, the London Stock Exchange
received an unsolicited approach from NASDAQ valuing the
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company at £2.4 billion. This too it duly rejected. NASDAQ later

pulled its bid, and less than two weeks later on 11 April 2006,
struck a deal with London Stock Exchange largest
shareholder, Ameriprise Financial's Threadneedle Asset
Management unit, to acquire all of that firm's stake, consisting
of 35.4 million shares, at £11.75 per share. NASDAQ also
purchased 2.69 million additional shares, resulting in a total
stake of 15%. While the seller of those shares was undisclosed,
it occurred simultaneously with a sale by Scottish Widows of
2.69 million shares. The move was seen as an effort to force
the Exchange to the negotiating table, as well as to limit the
Exchange's strategic flexibility.
6. Subsequent purchases increased NASDAQ's stake to

25.1%, holding off competing bids for several months. United
Kingdom financial rules required that NASDAQ wait for a period
of time before renewing its effort. On 20 November 2006,
within a month or two of the expiration of this period, NASDAQ
increased its stake to 28.75% and launched a hostile offer at
the minimum permitted bid of £12.43 per share, which was the
highest NASDAQ had paid on the open market for its existing
shares. The London Stock Exchange immediately rejected this
bid, stating that it "substantially undervalues" the company.
7. NASDAQ revised its offer (characterized as an

"unsolicited" bid, rather than a "hostile takeover attempt") on
12 December 2006, indicating that it would be able to complete
the deal with 50% (plus one share) of London Stock Exchange’s
stock, rather than the 90% it had been seeking. The U.S.
exchange did not, however, raise its bid. Many hedge funds had
accumulated large positions within the London Stock Exchange,
and many managers of those funds, as well as Furse, indicated
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that the bid was still not satisfactory. NASDAQ's bid was made
more difficult because it had described its offer as "final",
which, under British bidding rules, restricted their ability to
raise its offer except under certain circumstances.
8. In the end, NASDAQ's offer was roundly rejected by LSE

shareholders. Having received acceptances of only 0.41 per
cent of rest of the register by the deadline on 10 February
2007, Nasdaq's offer duly lapsed. Responding to the news,
Chris Gibson-Smith, the London Stock Exchange’s Chairman,
said: "The Exchange’s strategy has produced outstanding
results for shareholders by facilitating a structural shift in
volume growth in an increasingly international market at the
centre of the world’s equity flows. The Exchange intends to
build on its exceptionally valuable brand by progressing various
competitive, collaborative and strategic opportunities, thereby
reinforcing its uniquely powerful position in a fast evolving
global sector."
9. On Monday, 20 August 2007, NASDAQ announced that it

was abandoning its plan to take over the LSE and subsequently
look for options to divest its 31% (61.3 million shares)
shareholding in the company in light of its failed takeover
attempt. In September 2007, NASDAQ agreed to sell the
majority of its shares to Borse Dubai, leaving the United Arab
Emirates-based exchange with 28% of the LSE.
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ORGANISATION
10. The London Stock Exchange is one of the world’s largest

stock exchange. It is also one of the most well organised
exchanges in the world. The division of line and staff functions
in its management is most noticing. The London Stock
Exchange thrusts in four core areas towards achieving its
objectives.
COAR BUSINESS AREAS
11. Equity Markets. The equity market segment of London

Stock Exchange enables companies from around the world to
raise capital. There are four primary markets operates under
the equity market. They are:-
(a) Main Market
(b) Alternative Investment Market (AIM)
(c) Professional Securities Market (PSM)
(d) Specialist Fund Market (SFM).
12. Trading Services. Trading services segment is a highly

active market for trading in a range of securities, including UK
and international equities, debt, covered warrants, Exchange
Traded Funds (ETFs), Exchange Traded Commodities (ETCs),
reits, fixed interest, Contracts for Difference (CFDs) and
depositary receipts.
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13. Information Services. The London Stock Exchange

provides real-time prices, news and other financial information
to the global financial community. Live financial broadcasts are
transmitted throughout the day from the Exchange's own TV
studios.
14. Derivatives. This segment was more recent only created

in 2003 to bring the cash equity and derivatives markets closer
together. The Exchange is second largest market in Europe for
securitised derivatives and third market in Europe by turnover.
THE MANAGEMENT
15. The calibre and performance of people who matters in the

success of the Exchange are the management and other key
employees. To manage this, the Exchange regularly reviews its
reward and incentive systems to ensure they are competitive,
operates performance appraisal systems and provides executive
development opportunities. Additionally, the Nominations
Committee considers the succession plans for key positions.
The key personnel of the Exchange are:-
(a) Chris Gibson Smith (Chairman). He is also the

chairman of The British Land Company plc and Non-
Executive Director of Qatar Financial Centre Authority. He
is a Trustee of the London Business School. He was
previously Chairman of National Air Traffic Services Ltd
and Director of Lloyds TSB plc.
(b) Angelo Tantazzi (Deputy Chairman and Senior

Independent Director). He has held the position of
Chairman and a Non-Executive Director of Borsa Italiana
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S.p.A. and Prometeia S.p.A.. He is also Vice-Chairman of

the publishing house “Il Mulino”.
(c) Xavier Rolet (Chief Executive). Joined the Board

as a Director on 16 March 2009 and took over as Chief
Executive on 20 May 2009. Prior to this he was CEO of
Lehman in France.
(d) Massimo Capuano (Deputy Chief Executive). He

has been President and CEO Borsa Italiana S.p.A..
Chairman of the World Federation of Exchanges and an
adviser to the Board of the Federation of European
Securities Exchanges.
(e) Doug Webb (Chief Financial Officer). Appointed to

the Board in June 2008. Previously Chief Financial Officer
and Chief Operating Officer, North America.
(f) Baroness Cohen (Non-Executive Director). He

was Vice Chairman of Borsa Italiana S.p.A. before merger.
He has been Non-Executive Chairman of Trillium Partners.
(g) Sergio Ermotti (Non-Executive Director). He has

been Deputy CEO of UniCredit Group, Deputy General
Manager and Head of Markets and Investment Banking at
UniCredit Group.
(h) Oscar Fanjul (Non-Executive Director). He has

been Vice-Chairman of Omega Capital. He is also a Trustee
of the International Accounting Standards Committee
(IASC) Foundation.
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(i) Andrea Munari (Non-Executive Director). He has

been Managing Director of Banca IMI and Morgan Stanley
Fixed Income Division.
(j) Paolo Scaroni (Non-Executive Director). He has

been CEO of ENI S.p.A. and a member of the Board of
Overseers of Columbia University Business School, New
York.
(k) Nigel Stapleton (Non-Executive Director). He has

been Chairman Postal Services Commission. Non-Executive
Director of Samruk Energy and KazPost, Chairman of the
Mineworker’s Pension Scheme.
(l) Robert Webb QC (Non-Executive Director). He

has been Non-Executive Chairman of Autonomy
Corporation plc. Board member of the BBC, Hakluyt Ltd
and Argent Group plc. Formerly Head of Chambers at 5
Bell Yard London.
16. Board of Directors. The Board is the principal

decision making forum for the Company and is responsible to
shareholders for achieving the Group’s strategic objectives and
for delivering sustainable shareholder value. The Board has
adopted a formal schedule of matters specifically reserved to it
including Corporate strategy, Annual budget, Increases or
variations to borrowing facilities, Committing to major capital
expenditure or acquisitions and Dividend policy.
17. Board Committees. A unique feature at London Stock

Exchange is the Board Committees. There are three committees
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in place to monitor the activities and create overall value

addition. They are:-
(a) Remuneration Committee. All members of the

Committee are considered to be independent. The
Committee meets at least twice a year to review and
present recommendations to the Board regarding
remuneration and conditions of service of the Chairman,
Chief Executive and executive directors, including the
grant of entitlements under the Company’s share schemes.
(b) Audit Committee. All members of the Committee

are considered to be independent. The committee is
responsible for audit activities, security arrangements and
governance of the Group.
(c) Nomination Committee. The Committee’s role

is to review the size and structure of the Board,
succession planning and to make recommendations to the
Board on potential candidates for the Board.
18. Internal Control. The Board has overall responsibility

for the system of internal controls. The Board has delegated
responsibility to the Audit Committee for reviewing the Group’s
system of internal control and for regularly monitoring its
effectiveness. The principal features of the Company’s internal
control framework are described under the following headings:-
(a) Delegation of Authority. The Board has
implemented a management structure with defined lines of
responsibility and appropriate delegation of authority.
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(b) Planning and Reporting. The Chief Executives of

London Stock Exchange and Borsa Italiana report to the
Board on key business matters at each meeting. The Chief
Financial Officer reports on financial, HR and investor
relations matters. The Deputy CEO reports on integration.
The Board reviews performance through a comprehensive
financial review process which includes an annual budget
approved by the Board, monthly reporting of financial and
key performance indicators, analysis of variances and
corrective action where required.
(c) Audit Committee. The Board receives regular

reports from the Audit Committee on the effectiveness of
the internal control environment and the risk management
procedures. The Audit Committee also receives reports
from the Group’s external auditors on certain internal
controls and relevant financial reporting matters.
(d) Risk Management. Responsibility for risk

management rests fully with line management. Each
business area is required to maintain a risk register
outlining the key risks it faces and the controls in place to
mitigate these risks. The risk registers are periodically
updated, with the most senior executive in each business
area required to confirm the effectiveness of the controls
in place.
(e) Policies and Procedures. Policies and

procedures have been developed for key business areas
including the Group’s finance function. These are reviewed
and kept up-to-date to meet changing business needs.
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‘THE SOURCE’ – ART n TECHNOLOGY
19. The Source, created by Greyworld, is a symbol of the

Exchange’s place at the centre of London’s financial markets. It
is an innovative application of technology, and a bold and
groundbreaking work of art.
20. The Source stretches eight storeys from the ground floor
to the glass roof of the Exchange’s main entrance atrium. It is
a visual representation of the financial markets in an age when
trading is electronic and physical trading floors are no longer
necessary.
21. The Source marks the opening of the trading markets at

08.00 when the artwork comes to life, spheres begin to
progress up the cables and create a fluid, dynamic sculpture.
Throughout the day, spheres gently move through the atrium,
rising and falling, continuously changing, just like the markets
The Source represents. At the end of the trading day, when the
market closes at approximately 16.30, so The Source reflects
this by reforming into the cube shape at the base of the
structure.
22. The Source is used to highlight important Exchange events

and in particular to welcome new companies onto market, when
a guest will be invited to bring The Source to life and mark the
start of that day’s trading.
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FUNCTIONS
23. There has been considerable restructuring and

consolidation in the exchange industry over the last few years.
This has been driven by the scale economies of exchange
services and the major benefits mergers can bring to
customers, as well as the benefits of diversification and
synergies for shareholders. There remain significant strategic
opportunities for cooperation or combination. Accordingly, the
functions of the Group has become demanding as well as
customer oriented. The functions of the group can be classified
into following four types:-
(a) Issuer Services. Help companies to raise capital

on a choice of markets.
(b) Trading Services. Provide secondary markets

for efficient trading on a wide range of securities.
(c) Information Services. Provide the global financial

community with high quality real-time and historical data.
(d) Post Trade Services. Provide a wide range of

efficient post trade services including clearing, routing,
netting, settlement and custody.
ISSUER SERVICES
24. Companies from around the world join its markets gaining
access to one of the world’s deepest and most liquid pools of
low-cost capital. The London Stock Exchange Group offers
companies a number of benefits including the ability to raise
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money, increase their profile and obtain a market valuation

through a variety of routes. With a choice of four London Stock
Exchange primary markets, UK and international companies of
all types and sizes are able to access the capital they need to
develop their business.
25. Main Market . The London Stock Exchange’s Main Market

is the world’s most international market for the listing and
trading of public equity and debt. Its location at the heart of
the world’s leading financial centre makes it the ideal home to
over 1,600 companies from 60 countries, including many of the
world’s largest, most successful and most dynamic companies.
Underpinned by London’s balanced and globally respected
standards of regulation and corporate governance, the Main
Market is regarded both by investors and companies as the
world’s most prestigious and sophisticated listing and trading
environment. This is why it represents both a badge of quality
for every company listed and traded on it, and an aspiration for
companies worldwide. Companies listed on the Main Market are
as diverse as the locations from which they originate. Main
Market companies come from some 42 sectors and vary widely
in size, covering a spectrum from fledgling growth companies to
global multinationals. The market now has a combined
capitalisation of over £4.3 trillion (US$8.42 trillion). The Main
Market offers a choice of listing options. Equity, debt,
depositary receipts (DRs) plus a range of other security types
may be listed on the Main Market. The Main Market also offers
companies the choice between a primary listing and a
secondary listing. A primary listing requires a company to meet
the highest standards of regulation and disclosure in Europe; it
is not necessarily that company’s first or sole listing. To obtain
a secondary listing a company must meet the standards set by
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the relevant EU directives; such a listing is not inevitably the

issuer’s second listing. The Main Market supports the strategic
ambitions of companies as they evolve. The extensive benefits
provided by the Main Market are supported by its intelligent
and respected framework of regulation and corporate
governance.
26. Alternative Investment Market (AIM). AIM is a

sub-market of the London Stock Exchange, allowing smaller
companies to float shares with a more flexible regulatory
system than is applicable to the Main Market. The AIM was
launched in 1995 and has raised almost £24 billion for more
than 2,200 companies. Flexibility is provided by less regulation
and no requirements for capitalisation or number of shares
issued. Some companies have since moved on to join the Main
Market, although in the last few years, significantly more
companies transferred from the Main Market to the AIM (The
AIM has significant tax advantages for investors, as well as less
regulatory burden for the companies themselves). The AIM has
also started to become an international exchange, often due to
its low-regulatory burden. The independent FTSE
Group maintains three indices for measuring the AIM, which are
the FTSE AIM UK 50 Index, FTSE AIM 100 Index, and FTSE AIM
All-Share Index.
27. AIM is an exchange regulated venue featuring an array of

principles-based rules for publicly held companies. AIM’s
regulatory model is based on a comply-or-explain option that
lets companies that are floated on AIM either comply with AIMs
relatively few rules, or explain why it has decided not to comply
with them. Aside from granting leeway in regards to regulatory
compliance, the Exchange also mandates continuous oversight
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and advice by the issuer's underwriter, referred to as a

Nominated Adviser (Nomad). The role of Nomads is central to
AIM’s regulatory model, as these entities play the role of
gatekeepers, advisers and regulators of AIM companies. In
advising each firm as to which rules should be complied with
and the manner in which existing requirements should be met,
Nomads provide the essential service of allowing firms to abide
by tailor-made regulation, reducing regulatory costs in the
process. Theoretically, Nomads are liable for damages from
tolerating misdemeanours on behalf of their supervised
companies, including the loss of reputational capital. However,
this heavy reliance on Nomads has been criticized as creating a
conflict of interest, since Nomads receive fees from the
companies they purportedly supervise while, in practice,
managing to avoid liability for market misconduct.
28. Because AIM is an exchange regulated market segment, it

escapes most of the mandatory provisions contained
in European Union directives - as implemented in the UK - and
other rules applicable to companies listed in the LSE. AIM
believes self-regulation is pivotal to AIM’s low regulatory
burden: companies seeking an AIM listing are not subject to
significant admission requirements; after admission is granted,
firms must comply with ongoing obligations which are
comparatively lower to the ones that govern the operation of
larger exchanges; and certain corporate governance provisions
are not mandatory for AIM companies. AIM-listed companies
usually are only required to adhere to the corporate governance
requirements of their home jurisdiction, which, as a practical
matter, vary widely.
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29. Another important element of AIM’s model is the

composition of its investor base. Although AIM-listed companies
are not start-ups, most are small and highly risky. This may
prove to be hazardous for unsophisticated investors who lack
both the knowledge and resources to conduct proper inquiries
into a firm’s prospects and activities, or even larger investors
which lack strong internal control and risk management
requirements. As a consequence, AIM’s investor base is largely
composed of institutional investors and wealthy individuals.
30. Professional Securities Market. The Professional

Securities Market was launched on 1 July 2005. It is the
Exchange regulated market for listed debt and depositary
receipt securities. The Professional Securities Market enables
companies to raise capital through the listing of specialist
securities, including debt and depositary receipts, to
professional investors. It accommodates a range of
securities from simple Eurobonds and credit-linked notes to
complex asset-backed issues, high yield bonds and
convertible or exchangeable bonds. This is particularly useful
for professional investors who want to pursue a debt listing.
Many investors can only buy debt instruments that are listed on
a Recognised Investment Exchange.
31. The creation of the Professional Securities Market has

provided an important choice for issuers. Companies wanting to
raise capital, without being restricted in the type or value of
securities they issue, may do so without the additional cost of
following a retail or equity regime. Issuers of debt, convertibles
and DRs are not required to report historical financial
information to IFRS or an EU approved equivalent standard
either in listing documents or as a continuing obligation
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requirement, as the FSA allow these issuers to use their

domestic accounting standards following the implementation of
TD in January 2007.
32. The Professional Securities Market also provides the best

option for those issuers already listed in London, who are
concerned about the impact of both PD and TD going forward.
Companies already listed and admitted to trading on the Main
Market may choose to move to the Professional Securities
Market free of charge, without the need to produce further
listing documentation and without losing their status as
Officially Listed companies.
33. Issuers choosing to admit to the Professional Securities

Market will have their listing particulars approved by the UK
Listing Authority and be admitted to listing, so a key
requirement for investment by funds and institutional investors
will have been met. Investors may also be assured that the
disclosure obligations for listed companies will apply to the
Professional Securities Market, excepting of course the
requirement to report financial information to IFRS. Therefore,
important regulatory information, such as annual reports and
on-going disclosures, will be readily available to investors.
34. The Professional Securities Market is an integral part of

the London Stock Exchange and is operated within the scope of
its status as a Recognised Investment Exchange. This means
that the high regulatory standards currently applied to its
markets, in respect of on-going monitoring and enforcement,
also apply to the Professional Securities Market. The Exchange
works closely with the UK Listing Authority (UKLA) to offer clear
and consistent guidance for issuers and their advisers. This
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working relationship also helps ensure the tight turnarounds

that are so important for debt issuers.
35. Specialist Fund Market. The Specialist Fund Market

is the London Stock Exchange’s dedicated market for specialist
investment funds targeting institutional, professional and highly
knowledgeable investors. It is instrumental in providing capital
raising opportunities to a range of investment funds. The
Specialist Fund Market is a newly created market, dedicated
solely to the growing number of specialist funds. It is
specifically designed around the needs of sophisticated
investment fund structures and their expert investors. By
working with market participants in London and New York, the
Specialist Fund Market has been designed to suit a range of
highly specialised funds, including, (but not limited to):
(a) Private equity funds
(b) Feeder funds
(c) Hedge funds, both single and multi-strategy
(d) Specialist geographical funds
(e) Funds with sophisticated structures or security types
(f) Specialist property funds
(g) Infrastructure funds
(h) Sovereign wealth funds.
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36. The Specialist Fund Market is an EU Regulated Market and

is compliant with the EU’s Financial Services Action Plan
(FSAP). Joining the Specialist Fund Market provides an
invaluable platform for building your profile and visibility
amongst peers and investors alike. It is a market specifically
created to bring alternative asset managers and their investor
audience together. A quotation on the Specialist Fund Market
also provides access to London’s secondary marketplace, with
efficient trading provided by TradElect, an excellent, next
generation trading system.
37. Borsa Italiana. In October 2007 the London Stock

Exchange merged with Borsa Italiana, creating Europe's leading
diversified exchange business, London Stock Exchange Group.
Borsa Italiana offers companies a variety of equity markets:
(a) Blue Chip. For companies with a market

capitalisation of over €1 billion.
(b) STAR. For companies with market capitalisation of

less than €1 billion that voluntarily comply with strict
requirements on liquidity, transparency and corporate
governance.
(c) Standard. Includes all companies with a

capitalisation from €40 million to €1 billion that are not
listed on the STAR segment.
(d) Expandi Market. Is specially designed for small

cap companies and offers simplified admission
requirements and a fast listing process.
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TRADING SERVICES
38. The London Stock Exchange’s range of trading services

give you access to some of Europe’s most liquid securities
markets. More business is transacted daily on our markets than
any other competing execution venue and volumes often exceed
one million trades per day across 25,000 separate securities.
The Exchange provide fast and efficient trading at very low cost
allowing investors and institutions access to equity, bond and
derivatives markets. The Exchange have an unrelenting focus
on market efficiency and growing liquidity.
39. Borsa Italiana and the London Stock Exchange are now
working to integrate our trading systems to bring superior
levels of performance, tradability and access across asset
classes and markets for all customers. The Group is now
number one in Europe:-
(a) by value and volume of equity order book trades
(b) by volume of order book trading of ETFs
(c) electronic government bond market
40. SETS (Stock Exchange Trading Service). SETS is the

Exchange’s flagship electronic order book, trading FTSE100,
FTSE250 and the FTSE Small Cap Index constituents as well as
other liquid securities. The Exchange also operates a modified
version of SETS for the trading of covered warrants and other
structured products. Powered by our world-leading trading
system, TradElect, SETS has experienced exponential growth
1
since its launch in 1997 executing millions of trades a day at

millisecond latencies. Functionally rich with multiple order
types, market maker support all the way up the book and
competitively cleared, SETS is one of the most liquid electronic
order books in Europe.
41. SETSqx (Stock Exchange Electronic Trading Service –

quotes and crosses). SETSqx is the Exchange’s trading
service for less liquid securities. Developed in partnership with
the investment community, SETSqx combines the world leading
order book technology with the best of the Exchange’s existing
non electronically executable market maker quote model.
Participants can enter named and anonymous order types for
trading at four scheduled auctions a day, concentrating liquidity
and increasing the likelihood of execution.
42. SEAQ (Stock Exchange Automated Quoting Service).

SEAQ is the London Stock Exchange’s non-electronically
executable quotation service that allows market makers to
quote prices in AIM securities (not traded on SETS or SETSqx)
as well as a number of fixed interest securities.
43. IOB (International Order Book). The IOB is the

Exchange’s dedicated electronic order book for the automated
trading of depositary receipts. It enables investors to unlock
the potential of some of the world’s fastest growing markets by
offering easy and cost efficient access to developing economies,
particularly the CIS, whilst mitigating some of the currency and
other associated risks of trading the home underlying. With a
single order book similar to SETS, the IOB provides transparent
price formation for DRs allowing investors to take advantage of
1
arbitrage opportunities between the order book and the

underlying market.
44. ITBB (International Bulletin Board). The ITBB is the
Exchange’s electronic order book for securities that are either
secondary listed in London (through the UKLA) or admitted to
trading only, based on a listing outside of the UK. The ITBB
operates both continuous and auction only trading services to
support liquid and less liquid securities whilst allowing
participants the ability to register as market makers in all
securities.
45. EUROSETS. EUROSETS is the Exchange’s electronic

order book for the trading of liquid Dutch securities. Like SETS,
the market operates during normal London trading hours and
participants can register as market makers in all securities.
46. EQS (European Quoting Service). EQS is the

Exchange’s quote driven market making and trade reporting
platform that supports all non-UK, European, Liquid (as defined
by MiFID) equities. Designed to enable firms to meet their pre-
trade transparency and post-trade reporting requirements
under MiFID, EQS also enables market makers to display two-
way quotes.
47. ETR (European Trade Reporting). ETR is the

Exchange’s pan-European trade reporting service that enables
clients to meet their post-trade reporting obligations (as
defined by MiFID) whether trading “on Exchange” or reporting
OTC trades, “off Exchange”. Designed for customers to meet
their requirement for immediate real-time trade reporting with
a backstop of three minutes, members and non-members alike
can report their OTC and off-book trades which are then
1
published real-time to over 100,000 terminals in 150

countries.
INFORMATION SERVICES
48. Every second of the trading day, the Exchange generate

information ranging from data on individual trades and share
price movements to company announcements. The Exchange
supply high quality, real time prices and trading data to
member firms, investors and institutions across the world
creating the transparency and liquidity. Today over one million
terminals receive data from the Group.
49. Connectivity. The Exchange currently offers several

types of connectivity with varying levels of management and
performance. These range from a full host-to-host solution to a
Vendor Access Network connection, these are described below.
50. Extranex. Customers with their own trading and

information systems can connect directly to the Exchange via
Extranex. Extranex provides customers of the Exchange with
dedicated point to point connections for market data and
trading. Extranex is fully supported by the Exchange, providing
the highest reliability and lowest latency connectivity. Extranex
provides a single point of access to support a wide number of
trading and market data services.
51. Member Authorised Connection (MAC). Membership

to the Exchange is the ultimate way to gain direct trading
access to the world's deepest pool of liquidity in UK equity, in
addition to International Depository Receipts and other trading
instruments. However, in some instances membership may not
be suitable for a firm. Member Authorised Connection (MAC) is
1
an alternative way for non member firms to gain direct trading

access to the Exchange via an authorising member firm.
52. Exchange Hosting. Exchange Hosting is a new
connectivity service that provides customers with the fastest
access to the Exchange’s trading and information systems. It
allows member firms to locate their servers within the
Exchange’s own data centre, providing sub-millisecond access
to the Exchange’s matching engine and market data.
53. Network Service Providers (NSP). The Exchange has

extended its network reach globally by partnering with
accredited network partners. NSPs act as carriers of Exchange
information and trading services to its end clients, who contract
with the NSP for provision of network connectivity and sign
agreements directly with the Exchange for access to trading
and information. Customers of NSPs will have service
enablements set up on the Exchange’s trading and information
systems in exactly the same way as a direct Extranex customer.
54. Vendor Access Network providers (VAN). In order to

extend the connectivity options available to our customers, the
Exchange introduced the Vendor Access Network model under
which market data vendors are accredited for the transmission
of secured trading data across their proprietary networks.
Vendor Access Network providers (VANs) provide network
connectivity and pre-conformed application’s through which
clients can interface with the Exchange.
55. Accredited Proximity Hosting. The Exchange is

committed to increasing the speed at which market data is
disseminated, thereby improving market efficiency and
increasing liquidity.
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POST TRADE SERVICES
56. London Stock Exchange Group deliver Europe’s most

efficient post trade services. Post trade services are the engine
room of the Group, ensuring that once a trade has been
executed the security and cash change hands efficiently.
57. Cassa di Compensazione e Garanzia (CC&G). CC & G

acts as a central counterparty eliminating counterparty risk on
trades in Italian cash equities, derivatives and government
bonds. Last year CC&G cleared 74 million contracts in cash
equities and Express II handled €160 billion of contracts on a
daily basis at a settlement rate of 99.7%, well above the
benchmark set by the Bank for international settlement.
58. Monte Titoli. Monte Titoli provides routing, netting and

settlement services. In 2007 Express II, the settlement system
offering straight through processing was recognized as the
lowest cost provider in the eurozone in a benchmarking study
by the European Central Bank.
PRICES AND INDICES
59. London Stock Exchange prices are quoted in pounds and

pence. This may seem a little obvious to mention, but there are
a few exceptions quoted in euro. The most accurate place for
the casual investor to receive his or her London Stock Exchange
prices is in a daily paper. The most highly regarded of these is
obviously the London Financial Times. Companies apply for and
have to pay to be listed in the FT 'London Share Service'.
1
Unless indicated, the price of shares is shown in pence. The

prices are taken at the mid-market at the close of the previous
days business. Mid-market is the price point half way between
the buying and selling price of the share.
60. On the London Stock Exchange 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 biggest 100 companies. 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.
61. 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.
LISTING GUIDELINES
62. Becoming listed on the London Stock Exchange is a

complicated process. The London Stock Exchange listing rules
that must be fulfilled before a company can 'go public' follow.
The process of floating a company and their ongoing regulation
is controlled by the UKLA (UK Listing Authority) which is a part
of the FSA. Directors must sign a listing agreement which
commits the board to high standards of behaviour and reporting
1
levels to shareholders. The directors must prepare a prospectus

(known as listing particulars) to potential investors. At least
25% of the share capital must be in the hands of the public so
that the shares can be actively traded and remain reasonably
liquid. The company should have at least three years of
accounts. The company needs a sponsor (bank, stockbroker or
other professional adviser) to guide and advise and to reassure
the UKLA that the company is of sufficient quality. Once listed
on the London Stock Exchange, the company and directors have
continuing obligations, which include:
(a) Giving the market any price sensitive information as

quickly as possible.
(b) To undertake to disclose information fully and

accurately.
(c) The directors must follow strict guidelines relating to

the buying and selling of their own shares in the company.
63. One of the attractions of the Alternative Investment

Market, AIM, is that these requirements are significantly less
onerous and therefore costly. This helps to attract younger and
more rapidly growing companies to market.
INDIAN COMPANIES AT LSE
64. Indian Companies are preferring to raise capital

through international markets rather than on the
domestic exchanges. The costs of raising funds and
regulatory processes involved are perceived to be much
less overseas as compared to India. Seeking to tap this fast
1
emerging trend of companies raising funds from overseas

markets, the London Stock Exchange is eyeing a large number
of Indian firms to list there with sops like no track-record,
minimum market cap or net positive earnings. There are 30
companies listed at London Stock Exchange. They are as
follows:-
Sr l N o
CONCLUSION
65. The world economy is facing a period of unprecedented

challenge with global GDP expected to decline this year. A
severe dislocation in financial markets has been characterised
by high volatility and risk aversion, very difficult credit market
conditions, declining equity prices and very low interest rates.
In response, the London Stock Exchange Group is seeing
governments and regulators take action to restore confidence in
markets and the banking sector in particular. Equally, the crisis
is highlighting the value and importance of the exchange
business model and the role of regulated equity markets in the
real economy as companies raise record sums. We are working
with relevant authorities to try and ensure regulatory changes
are focused, proportionate and internationally coordinated.
66. While the origins of the current global financial crisis lie in
global macro-imbalances which resulted in very low real
interest rates and a rapid increase of debt, facilitated by OTC
credit market innovations in the banking sector, companies are
1
returning to equity markets to repay debt and strengthen

balance sheets. Across the world, almost $1 trillion has been
raised by companies in the last year. On the Group’s markets a
record £99 billion of further money was raised in the year.
67. There has been considerable restructuring and

consolidation in the exchange industry over the last few years.
This has been driven by the scale economies of exchange
services and the major benefits mergers can bring to
customers, as well as the benefits of diversification and
synergies for shareholders. There remain significant strategic
opportunities for cooperation or combination. The Group’s
partnerships with the Tokyo Stock Exchange, TMX Group and
Oslo Børs are examples of mutually beneficial cooperation
which will bring significant strategic benefits to the Group and
the customers.
68. There are 3,304 companies on the markets of London

Stock Exchange and Borsa Italiana, and it has 47 per cent of
the market capitalisation of the FTSEurofirst 100 which makes
the Group the largest equity exchange business in Europe. With
656 international companies from 72 countries on our markets
in London alone, the Group also remain the international listing
venue of choice. Keeping with the synergy and surging
economic platform of the globe, the vision of the Group has
been very practical and need based i.e. To be the world’s
capital market.

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‘London Stock Exchange’

LONDON STOCK EXCHANGE

Under The Guidance Of

Section Subject Pages

The London Stock Exchange is at the heart of the global

The London Stock Exchange has four core areas: namely

There are 30 Indian companies listed at London Stock

1. During the days of the British Empire, the UK

2. The recent financial crisis has highlighted the importance

(a) Facilitate access to capital for companies of all sizes,

(b) Provide a wide range of products that enable investors

(c) Drive market efficiency to lower the cost of capital for

3. The London Stock Exchange history is proof that from

4. The trade in shares in London began with the need to

(a) 1698. John Castaing begins to issue in Jonathan’s

start to operate in the streets and coffee houses nearby,

(b) 1720. The wave of speculative fever known as the

(c) 1748. Fire sweeps through Change Alley,

(d) 1761. A group of 150 stock brokers and jobbers

(e) 1773. The brokers erect their own building in

(f) 1801. On 3 March, the business reopens under a

first regulated exchange comes into existence in London,

(g) 1802. The Exchange moves into a new building in

(h) 1812. The first codified rule book is created.

(i) 1836. The first regional exchanges open in

(j) 1845. More speculative fever – this time “Railway

(k) 1854. The Stock Exchange is rebuilt.

(l) 1876. A new Deed of Settlement for the Stock

(m) 1914. The Great War means the Exchange market

(n) 1923. The Exchange receives its own Coat of

(o) 1939. The start of World War Two. The Exchange

due to damage from a V2 rocket – trading then continues

(p) 1972. Her Majesty the Queen Elizabeth II opens

(q) 1973. First female members admitted to the

(r) 1986. Deregulation of the market occured known

(s) 1991. The governing Council of the Exchange is

(t) 1995. Alternative Investment Market (AIM) is

(u) 1997. SETS (Stock Exchange Electronic Trading

(v) 2000. The transfer of role as UK Listing Authority

(w) 2001. The Exchange was listed on its own Main

(x) 2003. EDX London, a new international equity

(y) 2004. The Exchange moved to brand new

(z) 2007. The London Stock Exchange merges with

THE TAKEOVER ATTEMPT

5. In December 2005, the London Stock Exchange rejected a

company at £2.4 billion. This too it duly rejected. NASDAQ later

6. Subsequent purchases increased NASDAQ's stake to

7. NASDAQ revised its offer (characterized as an

8. In the end, NASDAQ's offer was roundly rejected by LSE

9. On Monday, 20 August 2007, NASDAQ announced that it

10. The London Stock Exchange is one of the world’s largest

COAR BUSINESS AREAS

11. Equity Markets. The equity market segment of London

(a) Main Market

(b) Alternative Investment Market (AIM)

(c) Professional Securities Market (PSM)

(d) Specialist Fund Market (SFM).

12. Trading Services. Trading services segment is a highly

13. Information Services. The London Stock Exchange

14. Derivatives. This segment was more recent only created

15. The calibre and performance of people who matters in the

(a) Chris Gibson Smith (Chairman). He is also the

(b) Angelo Tantazzi (Deputy Chairman and Senior

S.p.A. and Prometeia S.p.A.. He is also Vice-Chairman of