The London Stock Exchange

Early years

The London Stock Exchange is one of the world's oldest, and its history can be traced back over 300 years.

It started out in the coffee houses of 17th century London and soon became the city's most important financial institution. 

The stock exchange assumed its modern form in 1801, when it reopened on a subscription basis and regulated exchange was introduced. A year later, the institution moved into a modern building in Chapel Court.

In 1812, the first codified rule book was created for the exchange, which covered topics such as settlement and default.

Later on in the 19th century, as the UK and global economies enjoyed substantial growth, regional exchanges were opened in Liverpool and Manchester. 

The 20th century

After World War II, the London Stock Exchange enjoyed major growth and it became necessary to move into new accommodation. Work on the new Stock Exchange Tower began in 1967 and the building was opened in 1972.

In 1973, the Monopolies and Mergers Commission ushered the institution into the modern age by recommending that women and foreign-born members be admitted to the floor. The exchange was also amalgamated with the 11 British and Irish regional exchanges, including the Scottish Stock Exchange.

The FTSE 100

Significant changes took place during the 1980s, which saw the launch of the FTSE 100 Index in 1984 by the Financial Times newspaper.

One of the most widely-used stock indices in the world, the FTSE 100 is a group of the hundred most valuable companies that are listed on the LSE. It began at a base level of 1,000 points and now trades at over 6,000 points.

FTSE 100 companies represent about 81 per cent of the entire market capitalisation of the London Stock Exchange. Other commonly-used indices include the FTSE 250 Index and the FTSE 350 Index.

The Big Bang

Perhaps the biggest event to affect the London Stock Exchange was the deregulation of the City in 1986, in what was termed the 'Big Bang'.

Introduced by the Conservative government of Margaret Thatcher, the Big Bang involved the abolition of fixed commission charges and of the distinction between stockjobbers and stockbrokers.

In addition, it witnessed the transition from open-outcry trading to electronic, screen-based trading.

The Big Bang has been credited with making the financial services sector a more meritocratic environment. Previously, the City had been dominated by 'old boy networks' of private school alumni, and Thatcher's government intended to end this elitist system.

As a consequence of the reforms, many of the old firms were taken over by large banks and the regulatory environment changed substantially.

While the initial effect of the reforms was to increase the prominence of the City of London as a major financial centre, it could be argued that the merging of high-street banks with UK investment banks was a major factor in precipitating the 2008 financial crisis.

The Labour government that came to power in the 1990s also adopted a policy of light-touch regulation for financial markets, and this is also likely to have contributed significantly to the 2008 crash.

Tony Blair's government switched the regulation of banks away from the Bank of England to the Financial Services Authority (FSA), which adopted an inadequate approach to supervision.

In relation to the near-collapse of the Royal Bank of Scotland, the FSA admitted the shortcomings of its system of regulation: "This approach reflected widely held, but mistaken assumptions about the stability of financial systems and existed against a backdrop of political pressures for a 'light touch' regulatory regime."

The Blair government's changes were undone by the coalition government, with the Bank of England's Prudential Regulation Authority assuming responsibility for banking supervision, along with the Financial Conduct Authority.

The modern era

The London Stock Exchange is currently one of the largest in the world. In 2007, it purchased the Borsa Italiana (Italian Stock Exchange), forming the London Stock Exchange Group.

It also acquired Mercato Del Titoli di Stato in the same year. This is an electronic fixed income trading market founded in 1988 and helped the exchange to extend its reach throughout Europe.