Introduction
The study aims to discuss stock markets and its importance. One example of a stock market is the London stock exchange. The study aims to give a background of the London stock exchange and some of the parts of its history. In the discussion of the London Stock Exchange the reliability and efficiency of the said market will be given focus so that appropriate conclusions and recommendations can be formulated.
Stock Market/ Stock Exchange
Stock Market is an organized market for buying and selling financial instruments, including stocks, options, and futures. Most stock exchanges have specific locations where commissioned, or paid, intermediaries called brokers conduct trading or buying and selling stocks. Stocks are not always traded on a stock exchange. Some are traded over the counter, without a specific central trading location. Major stock exchanges in the United States include the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX), both in New York City. Nine smaller regional stock exchanges also operate in Boston, Massachusetts; Cincinnati, Ohio; Chicago, Illinois; Los Angeles, California; Miami, Florida; Philadelphia, Pennsylvania; Salt Lake City, Utah; San Francisco, California; and Spokane, Washington. In addition, most of the world’s industrialized nations have stock exchanges. Among the larger international exchanges are those in London, England; Paris, France; Milan, Italy; Hong Kong, China; and Tokyo, Japan.
Stock exchanges serve important roles in national economies. They encourage investment by providing places for buyers and sellers to trade securities, stocks, bonds, and other financial instruments. Companies issue stocks and bonds to obtain capital to expand their business. Stock exchanges also encourage investment in other ways. They protect investors by upholding rules and regulations that ensure buyers will be treated fairly and receive exactly what they pay for. Stocks are shares of ownership in companies. People who buy a company’s stock are entitled to dividends, or shares of any profits. A company can list its stock on only one major stock exchange, though options on its stock may be traded on another. Each exchange establishes requirements that a company must meet to have its stock listed. The different exchanges tend to attract different kinds of companies. Smaller exchanges typically trade the stock of small, emerging businesses, such as high-tech companies. In the United States, the AMEX lists small to medium-sized businesses, including many oil and gas companies. The NYSE primarily lists large, established companies. Exchanges also support state-of-the-art technology and the business of brokering, which both help traders to buy and sell securities quickly and efficiently.
In the 1980s and 1990s stock exchanges have achieved new levels of market efficiency through their increased use of fast and inexpensive computers. Computer networks have also allowed exchanges to connect to each other, both within countries and internationally. Electronic exchanges have fostered the growth of an open, global securities market. Although the overall value of the U.S. stock market has increased substantially since 1946, occasional recessions have occurred during recent decades. In 1987 the stock market experienced a brief, but major crash, marked by a more than a 20 percent decline; over one day’s trading, in the S & P index of stock prices. Markets in other countries have experienced periods of severe decline as well. The market in Tokyo, for instance, plummeted over a period from the end of 1989 to late 1990. The Nikkei index of the TSE declined almost 50 percent during that period. The Japanese government instituted reforms in response to the exchange’s poor performance. 1965).
London Stock Exchange
As both a market and an institution the London Stock Exchange occupied a central position within the British financial system. As Britain was such a key component of the world economy from 1700 the result was to make the London Stock Exchange central to the operation of the international financial system, for much of the period. Throughout its history the prime function of the London Stock Exchange, as an organized market for existing securities, has been downplayed because of its association with speculation. Instead of trying to investigate the causes and consequences of this constant buying and selling, the assumption is made that, because it is rooted in the individual’s desire to sell not produce for a profit, it does not perform a function within the wider economy. Consequently, the existence of the London Stock Exchange can only be justified by attributing to it the activities of others, such as those issuing securities and the use government and business made of the finance so obtain. The motto of the London Stock Exchange which is My Word is My Bond could only be true in an organized and regulated market, where failure to honor a sale or purchase could and did result in a fine, suspension, or expulsion.
The history of the London Stock Exchange, divides into five distinct periods. The first begins in the late seventeenth century and culminates in the mid-1820s. During those years the Stock Exchange emerged as a distinct entity within the securities market, providing an organized forum for the trading of mainly UK government debt rather than corporate stocks and bonds. The second period sees the London Stock Exchange emerge as one of the central institutions of both the British and the world economy.The third period covered an era from the beginning of the First World War in 1914 to the start of another in 1939, with the virtual collapse of the international economy in between. Within the space of those 25 years, the achievements of the past two centuries were largely lost or reversed. The London Stock Exchange was returned to a position where the National Debt dominated trading, and its precise relations to the money and capital markets were uncertain In the fourth period, covering the years from the Second World War until the 1980s the London Stock Exchange retreated almost entirely from its international role. Instead, it found a new role for itself as the semi-official regulator of the domestic securities market.
The final period began in the 1970s and is still continuing today. After appearing to consolidate its control over the domestic securities market, by merging with the provincial stock exchanges in 1973, the London Stock Exchange gradually lost the role it had gained after the Second World War. Attacks by the government on restrictive practices, criticism from the rest of the City for its charges and practices, and growing competition from non-members aided by rapid changes in communications and the ending of exchange controls, left the Stock Exchange without the support it required to resist change (Michie 1999). In the eighteenth century the London securities market had no formal organization and concerned itself with dealing in UK government debt, or proxies for, with most of the activity driven by the short-term considerations of the money market. In the late twentieth century the London Stock Exchange was a highly organized market place for the stocks and shares of British and foreign companies, with most activity driven by the short and long term interests of institutional investors.
Type of market London Stock Exchange is
Corporations issue new securities in the primary market as opposed to the secondary market, where securities are bought and sold, usually with the help of investment bankers. In the primary market, corporations receive the proceeds of stock sales. Thereafter, they are not involved in the trading of stocks. Owners of stocks trade them on a stock exchange in the secondary market. In the secondary market, investors, not companies, earn the profits or bear the losses resulting from their trades. Stock exchanges encourage investment by providing this secondary market. By allowing investors to sell securities, exchanges increase the safety of investing. London Stock Exchange has both functions of primary and secondary market. The said stock exchange has already traded over 15,000 securities on the primary and secondary markets it has. Through the use of the multiple markets more investors and companies will be encouraged to trade since they can make use of the market that will give benefits to them.
How efficient the market is
The efficiency of the market is measured through its ability to be competitive and ability to withstand competition. The London Stock Exchange may switch its clearing business from a British company to a subsidiary of Germany’s Deutsche Boerse, its rival and one-time merger candidate. The London Stock Exchange is trying to cut transaction costs and improve the efficiency of its share clearing operations, and it worries that this merger might hurt its ability to compete. Clearing is the behind-the-scenes process for transferring ownership in the trading of shares and bonds. The London exchange is believed to be talking with at least two other possible alternatives to the London Clearing House: The Depository Trust & Clearing Corp., which provides clearing and settlement services for shares and bonds traded in the United States, and Euroclear, a settlement company based in Brussels and Paris. The London exchange has taken no final decision and is still talking with the London Clearing House about their joint business prospects.
Deutsche Boerse’s Eurex is a candidate to replace its current clearing counterpart, the London Clearing House Ltd. The London Clearing House is in the process of merging with Clearnet, a business owned by Europe’s Euronext stock exchange. Clearnet’s parent, Euronext, beat out the London Stock Exchange in a 2001 takeover battle for the London International Financial Futures and Options Exchange. Euronext is joint operator of stock markets in Paris, Brussels and Amsterdam. Eurex is jointly owned by Deutsche Boerse, for which it provides clearing services, and SWX Swiss Exchange. Consolidation of Europe’s markets suffered a setback in September 2000, when the London Stock Exchange abandoned a planned merger with the Deutsche Boerse to fight off a hostile takeover attempt by Sweden’s OM Gruppen. Backers of the doomed Anglo-German merger had envisioned it as the potential core of a single European exchange and a precursor to an alliance with the NASDAQ Stock Market in the United States. This move of the London Stock exchange means that the market may have problems that it has difficulty in solving. Through the assistance of other financial institutions the London stock market tried to solve its problems and maintain its operations. This shows that the said stock market is not anymore efficient. This shows how weak the said stock market has become over the years. The stock market having lost some of its efficiency can be given solution by it reconstructing its image and improving its services. Through proper planning, coordination, and assistance of the other financial institution the efficiency of the London stock market can be returned.
How reliable the market is
For any institution to be considered reliable by its consumers gives a boost on its image and market value. Reliability is seen in the dependability and honesty of a firm not only among the business community but its clients as well. Reliability can also be seen in the way an institution is being trusted by its environment. Although the London stock exchange has lost some of its efficiency its reliability is still there. One problem any institutions, governments, consumer faces is fraud. Fraud is a way of gaining unfair advantage over people through deception. This stock market is free from fraud; it has a dedication to maintain an image of honesty and openness. As mentioned in the company’s corporate and social responsibility the company strives for openness and honesty in all of its business dealings and treat their consumers, shareholders, and employees as valued partners in the business. The said stock exchange makes sure that it keeps its corporate and social responsibility. Having the mentioned mandate of responsibility helps the stock market govern itself in maintaining a good relationship and a transparent relationship with their clients. Through the mandate of responsibility the stock market prevents fraud from happening and it gives reasons for fraud not to be committed. For the company being reliable is important for them since it brings recognition from the business community and increase in the number of clients. Another thing that the London stock exchange use to maintain its freedom from fraud is its motto of my word is my bond. Through the motto the company reassures that it will maintain a sense and principle of honesty and transparency in all of the transaction it engages in.
Conclusion
Stock Market is an organized market for buying and selling financial instruments, including stocks, options, and futures. One example of a stock market is the London stock exchange. As both a market and an institution the London Stock Exchange occupied a central position within the British financial system. The motto of the London Stock Exchange which is My Word is My Bond. The London stock exchange has already traded over 15,000 securities on the primary and secondary markets it has. The said stock market is not anymore efficient and the said stock market has become weaker over the years. This stock market is free from fraud; it has a dedication to maintain an image of honesty and openness. It uses a mandate of corporate and social responsibility and its motto to prevent itself from engaging in fraudulent transactions and improve the efficiency it possesses.
Recommendations
Any member of an organization can be tempted to commit fraud even if there are certain measures to prevent it. To strengthen the measures to prevent fraud the London stock exchange can use methods like conducting honesty tests for its employees, having stricter penalties to those who will be caught committing fraud, and engaging employees in seminars or other activities that can help employees minimize their tendency to commit fraud. The London stock exchange can conduct honesty tests to everyone employed by the institution to see how honest and transparent they are. This will also foresee the level of occurrence fraud can be committed. Through this method the group of employees that can likely commit fraud can be predicted. The London stock exchange can impose stricter penalties on those employees caught committing fraud. Stricter penalties include longer days of suspension, direct termination without any warning and many others. Through this lesser employees might be tempted to commit fraud. The London stock exchange can engage employees in seminars or other activities that can help employees minimize their tendency to commit fraud. These activities can help an employee realize the negative effects to clients and to the image of the company of committing fraud. These methods increase the awareness of the employees and help them conquer the temptation of committing fraud.
The stock exchange can continuously improve its efficiency by improving the processes and techniques it uses. The more advanced and updated their processes are the more it can be efficient and ready for any problems that they encounter. Another way for the stock market to improve its efficiency is through continuously upgrading the technologies it has and adapting it to the modern world. Through this they can give services much better and much quicker. Moreover the stock exchange can improve its efficiency by giving more training to the employees at the same time providing them possible solutions to small problems they might encounter. The improvement of the way the employees perform their duty can be a big boost to improving the efficiency of the stock market.
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