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The first section of this chapter looks at the internationalization of the London securities market over the period from 1850 to 1914. This was influenced both by transferable securities becoming commonplace for governments and businesses around the world, and by the transformation of communications with the development of the telegraph and then the telephone. These developments necessitated increased capacity to cope with the growing volume of securities traded, which included expansion of the trading floor, increasing membership, and the attraction of new people into the profession of stockbroking. The second section looks at the accompanying changes in the organizational and physical structure of the London Stock Exchange. The remaining sections look specifically at the expansion of membership, relationships and rivalry within the Stock Exchange, and the relationship of the Exchange to the money and capital (securities) markets.

The first section of this chapter outlines the growing threats to the London Stock Exchange through the 1970s, including the ability of its members to block new proposals by the Council of the Stock Exchange, the investigation by the Monopolies Commission into the various restrictive practices of the Stock Exchange, relations with and attitude of the government, the formation of the Council of the Securities Industry (CSI), which was to take over responsibility for the Stock Exchange and other components of the securities market. The second section of the chapter discusses the limited responses of the Stock Exchange to these threats. The next two sections discuss technology and competition (from computerized trading systems), and change among the members (mergers, which resulted in a disproportionately large number of large firms as members, and a loss in numbers of jobbers). The last section looks at market opportunities––domestic corporate securities, government debt securities, loss of the foreign securities, traded options, the collapse of the securities market in 1974, and the by‐now limited role of the money market.

This chapter discusses the lead up to the ‘Big Bang’ and its effects––the Big Bang refers to the abolition of fixed commissions and the single capacity on 27 October 1986, both of which had been at the centre of London Stock Exchange thinking for most of the twentieth century, and certainly since 1945. This move followed the abolition of exchange controls in 1979, and the associated far‐reaching changes on the securities market. The path from one to the other is traced, including the loss of the Stock Exchange's monopoly position within the securities market in January 1986. The new ways and roles that the Stock Exchange was forced to adopt during the early 1980s are described, including its merger with ISRO (International Securities Regulatory Organisation), its failure to merge with LIFFE (London International Financials Futures Exchange), expansion of securities traded on SEAQ (Stock Exchange Automated Quotations) international, and its opening of membership to global players. The last section of the chapter discusses further changes to the Stock Exchange that occurred to reflect the completely changed nature of its membership, including alterations in the degree of control and supervision exercised, and the ending of the Compensation Fund.

The Big Bang described in the last chapter appeared to have answered the doubts over the future of the London Stock Exchange, but from the late 1980s onwards into the 1990s, it both waned in importance within the British financial system and faced increasing competition from rival foreign stock exchanges. This chapter discusses the reasons for this, starting in the first section with relations with government, since one uncertainty was the level of freedom from government control that the Stock Exchange was to enjoy. With the disappearance of the Stock Exchange's quasi‐official status in the 1990s, there still remained doubts over the role that it had to play in the area of securities market supervision, and the next section of the chapter discusses this situation, the effect of the changing nature of its membership, the disaster over settlement services (the replacement of the successful TALISMAN (Transfer Accounting and Lodgement for Investors, Stock Management for Jobbers) by TAURUS (Transfer and Automated Registration of Uncertificated Stock) and the subsequent failure of TAURUS), and the eventual successful replacement of the SEAQ (Stock Exchange Automated Quotations) trading system by the SEQUENCE trading system from 1993 onwards. The third section of the chapter looks at the provision of the market, and the fact that with the proposed introduction of specialists or sole traders in 1992, the Stock Exchange had once again been brought to the attention of the Office of Fair Trading; competition was also forcing a re‐examination of the way the Stock Exchange's market was organized, and this resulted in the introduction in 1997 of order‐driven trading in the form of SETS (Stock Exchange Trading Service); this section also looks at the abandonment of the traded options market to LIFFE (London International Financials Futures Exchange) and of any pretensions to the futures market, the decline of the USM (Unlisted Securities Market) and its replacement by AIM (Alternative Investment Market), negotiations with various foreign stock markets, and the changing investment environment. The last part of the chapter looks specifically at the changing membership of the Stock Exchange.

Although the London Stock Exchange had begun to review its rules and regulations from September 1916 onwards, there was very little planning to meet the problems and competition likely to be faced in the post‐First World War world. Despite all the changes inside and outside the Stock Exchange that had taken place since August 1914, there was only a limited recognition that these had more than temporary consequences. This chapter discusses the resultant challenges and opportunities in the period between the two wars. There are three sections, which look at the legacy of war, the organization of the Stock Exchange, and membership. The next chapter looks at the changing market place over the same period.

This chapter look at the decline of the London Stock Exchange during the 1950s. The first part discusses the ways that the Stock Exchange raised money to enable it to survive in the early 1950s, relations between it and the government (which were conducted informally through confidential exchanges between the Governor of the Bank of England and the Chairman of the Stock Exchange), the restoration of option dealing, and the use of the Stock Exchange by the government to police activities regarding securities. The second part discusses the policing of the members of the Stock Exchange, and the third discusses the growing competition from the provincial stock exchanges, closer integration with the London‐based North American brokerage houses, and the Stock Exchange's lack of concern with international business. The last section looks at money and capital (securities) markets in the face of the decline of the Stock Exchange over the 1950s.

This chapter addresses the continuing decline and failure of the London Stock Exchange to adjust to change during the 1960s, when the government rather than the market continued to be the major influence over the way it developed. The first section of the chapter discusses relations with the government. The next discusses relations with the members––where the desire was to create a level playing field for both members and non‐members, and now became an equal desire to ensure that all members had both the training and the capital to enable them to play an active role in the market, whilst not posing a threat to others; however, the members themselves were hostile to the admission of both women and foreigners, both of whom were keen to become members. The third section of the chapter discusses continuing competition with provincial and foreign stock exchanges, and the failure of the London Stock Exchange to capture or retain foreign business. The last section looks at money and capital (securities) markets in the 1960s.

The first part of this chapter discusses the efforts by the London Stock Exchange to survive and prosper post‐war under continuing government control, and to try to avoid direct Treasury supervision of the securities market––or even nationalization. Steps towards a peacetime operation are outlined––they were slow and had to be arranged in direct consultation with the government. The second part of the chapter describes the various post‐war institutional changes in the Stock Exchange in the light of the slowly emerging arrangement whereby it was trusted with responsible management of the securities market within a framework set by the (nationalized) Bank of England, and ultimately determined by the Treasury and government. The last part of the chapter looks at the declining importance of the Stock Exchange as the global securities market began to bypass London, as a result of the combined influence of both exchange controls and the Stock Exchange's own restrictive practices on international business; it was also unable to capitalize on its established domestic securities position.

As a successor to the previous chapter, which looked at organizational change in the London Stock Exchange between the two World Wars, this one looks at the changing market place over the same period. The first part of the chapter discusses competition from British provincial stock exchanges, from international arbitrage, and from North American and continental banks. The second part looks at the money market, and the last looks at the capital (securities) market and reduced international market.

The first section of this chapter traces the development of the organization of the London Stock Exchange from 1801 to 1851. The new ability to enforce the rules and regulations that increasingly governed the conduct of business in the securities market and the change in nature of the securities market that occurred––essentially it became a closed market––are discussed. The development of the rules and regulations, and operational mechanisms are outlined. The second section looks at the securities market itself during the same period, describing its growing importance within the entire British financial system (including financing the National Debt), the switch to foreign securities in 1822, and the gradual convergence of interest between the Foreign Funds Market and the Stock Exchange proper during the 1830s. Finally, the changes resulting from the railway mania of the 1840s are described, which resulted in the appearance of numerous provincial stock exchanges and a fundamental extension to the British securities market.

The first part of this chapter discusses the institutional response of the London Stock Exchange to the long‐expected outbreak of the Second World War––a response that, unlike that to the First World War, had been planned. The various aspects discussed include the planning and operation of the agreements made between the Exchange and the Treasury and the Bank of England (which ceded ultimate power to the Treasury, and ultimately led to a post‐war compromise on the relative power of the government and Exchange over the securities market) and plans to physically relocate to the Denham film studios (subsequently abandoned). The rest of the chapter discusses the effects of the war on membership and the new rules on rebates, and competition––aspects covered include North American brokerage houses in London, foreign business, the market for domestic securities, provincial stock exchanges, country jobbing, the Stock Exchange ban on account trading, Treasury refusal to give permission for markets in various issues, and securities values.

This chapter looks at the change from a dominant position of the London Stock Exchange before the First World War, to its severely diminished position after it. The Stock Exchange emerged from the war as a fundamentally different institution, as a result of internal changes in rules and regulations, changes forced upon it (including government intervention) and the different world within which it now operated; and there was no guarantee that the conditions that had allowed it to acquire such a central position would ever reappear. The chapter traces these developments in three sections, which discuss the outbreak of war, the effects of war, and money and capital (securities) markets.

The first part of this chapter examines the early history of the London securities market, which can be traced back to the sixteenth century. The second part looks at the organization and development of this market. Within London, a definite location can be found as early as the 1690s (in the Royal Exchange and its environs), and the existence of stockbrokers can be traced to 1700. The development of the organized market is outlined up to 1801, when the institution of the London Stock Exchange formally came into existence––as the Stock Subscription Room––on 3 March 1801. This event was finally precipitated by the French Revolution of 1789, the resultant fall of the Paris Stock Exchange in 1793, and the occupation of Amsterdam (another centre of finance) in 1795.

Britain is treated separately because it had a different institutional starting point in the securities sector, reformed earlier and then influenced the other three countries, and followed a specific ‘British reform path’. Between the mid-1960s and the early 1980s, despite pressures from transnational technological and economic developments, traditionalists in the London Stock Exchange successfully fought to retain their inheritance. However, the position changed greatly after the early 1980s. The LSE was transformed from a private British club into a listed company open to takeover. Reversing decades of self-regulation, powers were delegated to new independent financial regulatory authorities. Reforms were led by British state actors. They were triggered for domestic reasons, but thereafter, international factors became important, as British policy makers became concerned about regulatory competition from the US, and selectively used US reforms to justify changes. The chapter therefore shows the importance of US policies in the strategies of domestic policy makers and their legitimation of reforms.

Pre-World War I momentum in favour of diffusion of share ownership was sustained up to 1939. On the sell side, pressure to pay dividends, generational considerations, the periodic availability of generous exit terms, and capital-raising for mergers all continued to provide incentives to unwind control. Aspects of income tax and estate tax combined with taxation of profits and periodic economic slumps to do likewise. On the buy side, the signalling properties of dividends, the investment returns shares delivered and surges in investor optimism all continued to fortify demand for shares. Reduced scope for overseas investment and improved protection from stock exchange regulation and intermediaries organizing share offerings provided a further boost. Despite these trends and despite a bias in favour of passivity among new investors, the available empirical evidence indicates a full divorce between ownership and control remained the exception to the rule up to 1940.

This chapter presents five case studies of various situations in which the governance structure of different exchanges has been at issue. A summary of the transformation (‘companization’) of the Stockholm Stock Exchange (SSE) into a for-profit firm is provided first. Next, a members' referendum that proposed to turn the Chicago Board of Trade (CBT) into a for-profit organization which was defeated is discussed. In the third part, a referendum that failed to transform the governance structure of the Chicago Mercantile Exchange (CME) is described. In the fourth part, the establishment of Stockbrokers Botswana (SBB) and the Botswana Stock Exchange (BSE) is outlined. Finally, a debate at the beginning of 1996 about the governance of the London Stock Exchange (LSE) is examined.