London Stock Exchange

What is a stock exchange? How does it work? What’s it for? And what on earth has it got to do with a cup of coffee or a hot chocolate!

Well, about 500 years ago, London and a city in Belgium called Antwerp, were two of the main diamond trading centres in the world. Merchants would meet regularly to buy and sell, and it wasn’t long before they decided to trade in other things, like stock (cattle, for instance), shares in businesses and commodities – sugar, beet, wheat and so on.

It all went so well that, in 1566, Sir Thomas Gresham set up an Exchange at Threadneedle Street (same place as the Bank of England!). This soon became the centre of the country’s trading, and in 1571, Elizabeth I named it the Royal Exchange.

In 1698, John Castaing, a broker, or trader, decided to set up the first proper ‘exchange’ … in a coffee house - Jonathan’s, a well known meeting place at the time. Lloyds Bank started in a coffee house, too. They obviously drank a lot of coffee and chocolate then!

By 1773, and following a major fire in the City, a group of 150 brokers formed a ‘club’ and built a new exchange in Sweetings Alley; on the ground floor they had the trading room and upstairs - you guessed it - the coffee house. It was briefly called New Jonathan’s, but soon became known as The Stock Exchange and in 1801, the first regulated exchange was born.

Much of the dealing was confirmed by a hand shake, and a trader’s promise was as good as a contract. It’s no surprise that when the Exchange received its Coat of Arms in 1923, its motto was “Dictum Meum Pactum” (My Word Is My Bond). This premise continues today.

The basis of what went on then, continues today, only on computers, and at much higher speed, which started in 1997. The Stock Exchanges enable a company to raise the money it needs to grow by selling its shares to others. Buyers are confident that the companies listed on the exchanges are as sound as they can be, as the exchanges are regulated.

However, there are risks to investing in shares – they can go up and down, and this doesn’t always depend upon how well or badly the company itself is doing. Conditions in the world, the weather or war can all affect prices of shares. The London Stock Exchange is one of the world’s premiere exchanges.