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10 September 2006

A Brief History of Financial Markets

Img_0874 Following the “History of Shares” post on 22 August, Corporate Blawg UK decided that some further clarity on Stock Exchanges was required.  Corporate Blawg UK has summarised below the glittering history of the stock exchange:

  • The first stoke brokers were established under Phillip, the Fair, of France (1268-1314).  Phillip was known as "the fair" for his good looks, and not for his brutal persecution of Templars, Jews and Lombards (Italian bankers).  A bit of a control-freak, Phillip found a need to regulate those who dealt in commercial bills of exchange, and those who managed the debts of agricultural communities.
  • In many European countries the stoke exchange is known as the Bourse.  The origin of the Bourse can be traced to the 13th Century when traders gathered to trade in front of the hours of the Van Der Buerse family in Bruges, Belgium.
  • By the mid 13th century Venetian bankers traded in government securities, and in 1351 the Venetian Government outlawed the spread of false rumors which could lower the price of these securities.
  • Antwerp has long been a centre for diamond trading and in 1460 the Antwerp Stock Exchange (1460) was the first to be housed in an official building.  In 1531 the first building was erected that had been designed specifically for the purpose of being a stock and trade exchange.
  • Other centres of commerce popped up in Lyons (1506), Toulouse (1540), Hamburg (1558), and London (1571).
  • In 1602 the Dutch invented the concept of the Join Stock Company, and the Amsterdam Stock Exchange was the first on which shares could be bought and sold, with the shareholder taking a part of the companies profits and losses.
  • In 1773, London stock dealers, who had been meeting informally in coffee houses, excitedly moved into their own building to establish their own exchange.
  • The London Stock Exchange now has more than 2,800 companies, worth over £3,500bn.
  • The biggest three Stock Exchanges are New York ($13 trillion), Tokyo and London.

The Stock Exchange in the UK

The London Stock Exchange (LSE)
is regulated by the Financial Services Authority (FSA) which acts through the UK Listing Authority (UKLA).  Listing securities is regulated through legislation including the Financial Services and Markets Act 2003 and EC Directives, and through internal regulation such as UKLA’s Listing Rules and the LSE's Admission and Disclosure Standards.

            AIM is the LSE's Alternative Investment Market and was launched in 1995 for small or new companies. In 2004 AIM alone accounted for 65% of all Initial Public Offers (IPOs) in Western Europe.  Currently there are more than 1,060 issuers listed on AIM with a combined market capitalisation of £37bn.  AIM companies are not bound by the UK Listing Authority's Listing Rules.

            There are a number of other sub-markets in the UK, and huge variety of markets throughout the world (LandMARK, Euronext.liffe, NASDAQ, Osaka etc) and whichever market is best for a company depends on the sector, the investor-base and the size of investments.  Although geographical proximity is still very central to the market a company will float on, the Sarbanes-Oxley Act has made it much more difficult for small business to raise money on the U.S. capital markets.  The ease with which companies may raise funds, and the reasonable amount of regulation giving invester comfort, is a prime reason for the massive success of the AIM market for overseas companies. As long as it brings in the fees for corporate lawyers, Corporate Blawg UK is happy to see this prosperity continue (unless it means working at weekends).


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