About the London Stock Exchange

Thursday, January 7, 2010

The London Stock Exchange is the most important exchange in Europe and one of the largest in the world. It lists over 3,000 companies and with 350 of the companies coming from 50 different countries, the LSE is the most international of all exchanges.

The London Stock Exchange is comprised of two different stock markets: the Main Market and the Alternative Investment Market (AIM). The Main Market is solely for established companies with high performance, and the listing requirements are strict. Approximately 1,800 of the LSE's company listings trade on the Main Market, and the total market capitalization is over 3,500 billion. The Alternative Investment Market on the other hand trades small-caps, or new enterprises with high growth potential. Over 1,060 companies list on this market, with a total capitalization of 37 billion.

The LSE is completely electronic, but different shares are traded on different systems. Highly liquid shares are traded using the SETS automated system on an order driven basis. This means that when a buy and sell price match, an order is automatically executed. For securities that trade less regularly, the London Stock Exchange implements the SEAQ system, where market makers keep the shares liquid. These market makers are required to hold shares of a specific company and set the bid and ask prices, ensuring that there is always a market for the stock.

The LSE also has a new and growing exchange for equity derivatives called EDX London, created in 2003. In 2004, EDX traded an average of 382,599 contracts per day. Its aim is to become the leading derivatives market in the world.

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