assignment lse

8/9/2019 Assignment LSE

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London Stock Exchange

LONDON STOCK EXCHANGE

An Assignment Paper

submitted in the partial fulfilment

for the award of PGDBM (FM)

By

Commander Sangram Dey

Shri Prabhat Kumar

Shri Kumar Shivam

Participants PGDBM (FM) 2009-11

Under The Guidance Of

Dr Sangeeta Chabra

Professor (Financial Management)

National Institute of Financial Management

November 2009


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CONTENTS

Section Subject Pages

ABSTRACT 3

I INTRODUCTION 4

II

HISTORY

The Takeover Attempt 5 - 11

III

ORGANISATION

Core Areas of Business

The Management

The Source Art n Technology

12 - 18

IV

FUNCTIONS

Issuer Services

Trading Services

Information Services

Post Trading Services

Prices and Indices

Listing Guidelines

Indian Companies at LSE

19 - 35

V CONCLUSION 36 - 37


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ABSTRACT

The London Stock Exchange is at the heart of the global

f inancial market and is home to some of the largest, most

success ful and dynamic companies in the world. From

conducting its business in the coffee houses of 17th century

London, the Exchange is one o f the world s o ldest s tock

exchanges. The Exchange has bu il t on a long hi story o f

integri ty, expertise and market knowledge to become the

world's most international stock exchange with around 3,500

companies from over 75 countr ies admitted to trading on its

markets. In October 2007 the Exchange merged with Borsa

Ita liana, creat ing Europe's leading d iversi fied exchange

business, London Stock Exchange Group.

The London Stock Exchange has four core areas: namely

Equity markets that enables companies to raise capital, Trading

services for t rading in a range o f securi ties, Information

Services which provides real-time f inancial information and

Derivatives which was created in 2003 to bring the cash equity

and derivatives markets closer together. In broader sense, the

Exchange is actually divided into two parts. The first part is the

Main Market, for which companies need at least three years of

audited accounts to become members. The second part of the

exchange is the Alternative Investment Market (AIM) for those

shares that do not want a full listing on the main market.

There are 30 Indian companies l isted at London Stock

Exchange. The latest l isting were Tata Steel, Tata Power and

Suzlon Energy on 27-28 July 2009.


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INTRODUCTION

1. During the days of the British Empire, the UK

economy was the larges t in the world and the first to

industrialise. Although it has declined in significance since, the

UK is s til l the sixth largest economy in the world by purchasing

power parity. It is a member of the G7, the European Union and

the OECD (Organisation for Economic Cooperation and

Development). The UK Economy is one of the most global ised

economies in the world and The City of London is considered

the largest financial center in the world.

2. The recent f inanc ia l cri si s has h ighl ighted the importance

of counterparty r isk management and the benef its o f the

simplicity and safety of exchange trading and central

counterparty guarantees. At a t ime of great uncertainty and

increasing competition from alternative trading venues, neutral,

wel l regulated exchanges l ike London Stock Exchange have

demonstrated their value, withstanding market turmoil and

continuing to provide l iquid, pr ice forming and transparent

trading services. The London Stock Exchange has very clear its

objectives and the Mission Statements of the Group states:-

(a) Faci li tate access to capital for companies of all s izes,

fromany sector, from anywhere in the world.

(b) Provide a wide range of products that enable investors

to share in wealth creation opportunit ies across asset

classes and the world.

(c) Drive market efficiency to lower the cost of capital for

companiesand the cost of trading and investment.


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HISTORY

3. The London Stock Exchange history is proof that from

something small , a huge giant can be bui lt . It can trace its

h istory back more than 300 years and is the o ldest stock

exchange in the world. Starting life in the coffee houses of 17th

century London, the Exchange quick ly grew to become the

Citys most important f inancial institution. Over the centuries

fo llowing, the Exchange has cons is tently l ed the way in

developing a strong, well-regulated stock market and today lies

at the heart of the global financial community.

4. The trade in shares in London began with the need to

f inance two voyages: The Muscovy Company's attempt to

reach China and the East India Companyvoyage to India.

Unable to f inance these expensive journeys privately, the

companies raised the money by sell ing shares to merchants,

giving them a right to a portion of any profits eventually made.

The idea soon caught on and it is estimated that by 1695, there

were 140 joint-stock companies. The t rade in shares was

centred around the City's Change Al ley in two coffee shops:

Garraway's and Jonathan's. The journey of the present day

London Stock Exchange started from these events. The growth

and var ious milestones in the course of the Exchange are

illustrated chronologically:-

(a) 1698. John Castaing begins to issue in Jonathans

Coffee-house a l ist of stock and commodity prices called

The Course of the Exchange and other things. It is the

ear liest evidence of organ ised t rading in marketable

securit ies in London. In the same year, the stock dealersare expelled from the Royal Exchange for rowdiness and


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start to operate in the streets and coffee houses nearby,

in particular in Jonathans Coffee House in Change Alley.

(b) 1720. The wave of speculative fever known as theSouth Sea Bubble bursts. Having set up the unprofitable

The South Sea Company nine years previous ly , the

government hoped to wipe out the large debts

accumulated by offer ing shares to the publ ic. Shares in

the company, which had started at 128 each at the start

of the year, were soon fetch ing as much as 1,050 by

June. The bubble inevi tably burst , w ith share prices

plunging to 175, then 124. The incident caused outcry,

forcing the government to pass leg is lation to prevent

another bubble, and i t took a long t ime for the stock

exchange to recover.

(c) 1748. Fire sweeps through Change Alley,

destroying most of the coffee houses. They are

subsequently rebuilt.

(d) 1761. A group of 150 stock brokers and jobbers

form a club at Jonathan's to buy and sell shares.

(e) 1773. The brokers erect the ir own bui lding in

Sweetings Alley, with a dealing room on the ground floor

and a coffee room above. Briefly known as New

Jonathans, members soon change the name to The

Stock Exchange.

(f) 1801. On 3 March, the business reopens under a

formal membership subscription basis. On this date, the


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f irst regulated exchange comes into existence in London,

and the modern Stock Exchange is born.

(g) 1802. The Exchange moves into a new building inCapel Court.

(h) 1812. The first codified rule book is created.

(i) 1836. The first regional exchanges open in

Manchester and Liverpool.

(j) 1845. More speculative fever this time Railway

mania sweeps the country.

(k) 1854. The Stock Exchange is rebuilt.

(l) 1876. A new Deed of Settlement for the Stock

Exchange comes into force.

(m) 1914. The Great War means the Exchange market

is c losed from the end of Ju ly unt i l the new year. The

Stock Exchange Battalion of Royal Fusi liers is formed

1,600 volunteered, 400 never returned.

(n) 1923. The Exchange receives i ts own Coat of

Arms, with the motto Dictum Meum Pactum (My Word is

My Bond).

(o) 1939. The start of World War Two. The Exchange

is c losed for 6 days and reopens on 7 September. The

floor of the House closes for only one more day, in 1945


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due to damage from a V2 rocket trading then continues

in the basement.

(p) 1972. Her Majesty the Queen Elizabeth II opensthe Exchange's new 26-storey o ffice block wi th its

23,000sq ft trading floor on Threadneedle Street.

(q) 1973. Fi rs t fema le members admi tted to the

market. The 11 Bri ti sh and Iri sh reg iona l exchanges

amalgamate with the London exchange.

(r) 1986. Deregulation of the market occured known

as Big Bang. Among other things, this deregulat ion

a llowed outside corporations to own member f irms,

eliminated vot ing r ights for indiv idual members, and

transformed the face-to-face trading system into one

largely operated over computers and telephones. The

Exchange becomes a private l imited company under the

Companies Act 1985.

(s) 1991. The governing Counci l of the Exchange is

rep laced with a Board o f Di rec tors d rawn f rom the

Exchange's executive, customer and user base. The

trading name becomes The London Stock Exchange.

(t) 1995. Alternative Investment Market (AIM) is

launched the Exchanges international market for

growing companies.

(u) 1997. SETS (Stock Exchange Electronic Trading

Service) is launched to bring greater speed and efficiency

to the market. The CREST settlement service is launched.


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(v) 2000. The transfer of role as UK Listing Authority

with HM Treasury to the Financial Services Authority (FSA)

took place. Shareholders vote to become a public l imited

company: London Stock Exchange plc.

(w) 2001. The Exchange was l isted on its own Main

Market in July. 200th anniversary celebrations begun.

(x) 2003. EDX London, a new international equity

derivatives business, in partnership with OM Group was

created. Proquote Limited, a new generation supplier of

real-time market data and trading systems was acquired.

(y) 2004. The Exchange moved to brand new

headquarters in Paternoster Square, close to St Paul 's

Cathedral. It was officia lly opened by Queen Elizabeth

II once again, accompanied by The Duke of Edinburgh, on

27 July 2004. The new bui ld ing conta ins a special ly

commissioned dynamic sculpture called "The Source", by

artists Greyworld.

(z) 2007. The London Stock Exchange merges with

Borsa Italiana, creating London Stock Exchange Group.

THE TAKEOVER ATTEMPT

5. In December 2005, the London Stock Exchange rejected a

1.6 bil lion takeover offer from Macquarie Bank. The London

Stock Exchange described the offer as "derisory", a sentiment

echoed by shareho lders in the exchange. Short ly af ter

Macquar ie withdrew i ts offer, the London Stock Exchange

received an unsolicited approach from NASDAQ valuing the
http://www.londonstockexchangegroup.com/http://www.londonstockexchangegroup.com/


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company at 2.4 bill ion. This too it duly rejected. NASDAQ later

pulled its bid, and less than two weeks later on 11 April 2006,

struck a deal with London Stock Exchange largest

shareho lder, Ameripri se F inanc ial 's Threadneed le AssetManagement unit, to acquire all of that firm's stake, consisting

of 35.4 mil lion shares, at 11.75 per share. NASDAQ also

purchased 2.69 mil l ion additional shares, resulting in a total

stake of 15%. While the seller of those shares was undisclosed,

it occurred simultaneously with a sale by Scottish Widows of

2.69 mil l ion shares. The move was seen as an effort to force

the Exchange to the negotiating table, as well as to l imit the

Exchange's strategic flexibility.

6. Subsequent purchases increased NASDAQ's stake to

25.1%, holding off competing bids for several months. United

Kingdom financial rules required that NASDAQ wait for a period

of t ime before renewing i ts effort. On 20 November 2006,

within a month or two of the expiration of this period, NASDAQ

increased its stake to 28.75% and launched a hosti le offer at

the minimum permitted bid of 12.43 per share, which was the

highest NASDAQ had paid on the open market for its existing

shares. The London Stock Exchange immediately rejected this

bid, stating that it "substantially undervalues" the company.

7. NASDAQ revised its offer (characterized as an

"unsolicited" bid, rather than a "hosti le takeover attempt") on

12 December 2006, indicating that it would be able to complete

the deal with 50% (plus one share) of London Stock Exchanges

stock, rather than the 90% it had been seeking. The U.S.

exchange did not, however, raise its bid. Many hedge funds had

accumulated large positions within the London Stock Exchange,and many managers of those funds, as well as Furse, indicated


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that the bid was stil l not satisfactory. NASDAQ's bid was made

more d if ficu lt because i t had descr ibed i ts offer as " fina l" ,

which, under Brit ish bidding rules, restr icted their abil i ty to

raise its offer except under certain circumstances.

8. In the end, NASDAQ's o ffe r was round ly rejec ted by LSE

shareholders. Having received acceptances of only 0.41 per

cent of rest of the register by the deadl ine on 10 February

2007, Nasdaq's offer duly lapsed. Responding to the news,

Chris Gibson-Smith, the London Stock Exchanges Chairman,

said: "The Exchanges strategy has produced outstanding

results for shareholders by facil itat ing a structura l shi ft in

volume growth in an increasingly international market at the

centre of the worlds equity f lows. The Exchange intends to

build on its exceptionally valuable brand by progressing various

competitive, collaborative and strategic opportunities, thereby

reinforcing its uniquely powerful posit ion in a fast evolving

global sector."

9. On Monday, 20 August 2007, NASDAQ announced that i t

was abandoning its plan to take over the LSE and subsequently

look for options to divest i ts 31% (61.3 mi ll ion shares)

sharehold ing in the company in l ight of i ts fai led takeover

attempt. In September 2007, NASDAQ agreed to sel l the

majority of its shares to Borse Dubai, leaving the United Arab

Emirates-based exchange with 28% of the LSE.


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ORGANISATION

10. The London Stock Exchange is one of the worlds largest

stock exchange. I t is a lso one of the most wel l organ ised

exchanges in the world. The division of line and staff functions

in its management is most noticing. The London Stock

Exchange thrusts in four core areas towards achieving i ts

objectives.

COAR BUSINESS AREAS

11. Equity Markets. The equity market segment of London

Stock Exchange enables companies from around the world to

raise capital. There are four primary markets operates under

the equity market. They are:-

(a) Main Market

(b) Alternative Investment Market (AIM)

(c) Professional Secur it ies Market (PSM)

(d) Special is t Fund Market (SFM).

12. Trading Services. Trading services segment is a highly

active market for trading in a range of securities, including UK

and international equities, debt, covered warrants, Exchange

Traded Funds (ETFs), Exchange Traded Commodities (ETCs),

rei ts , f ixed interest, Contracts for D if ference (CFDs) and

depositary receipts.


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13. Information Services. The London Stock Exchange

provides real-time prices, news and other financial information

to the global financial community. Live financial broadcasts are

transmitted throughout the day from the Exchange's own TVstudios.

14. Derivatives. This segment was more recent only created

in 2003 to bring the cash equity and derivatives markets closer

together. The Exchange is second largest market in Europe for

securitised derivatives and third market in Europe by turnover.

THE MANAGEMENT

15. The cal ibre and performance of people who matters in the

success of the Exchange are the management and other key

employees. To manage this, the Exchange regularly reviews its

reward and incentive systems to ensure they are competitive,

operates performance appraisal systems and provides executive

development opportunities. Addit ionally, the Nominat ions

Committee considers the succession plans for key posit ions.

The key personnel of the Exchange are:-

(a) Chris Gibson Smith (Chairman). He is also the

cha irman of The Bri ti sh Land Company p lc and Non-

Executive Director of Qatar Financial Centre Authority. He

is a Trustee o f the London Bus iness School. He was

previously Chairman of National Air Traff ic Services Ltd

and Director of Lloyds TSB plc.

(b) Angelo Tantazzi (Deputy Chairman and Senior

Independent Director). He has held the position of Chairman and a Non-Executive Director of Borsa Ital iana


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S.p.A. and Prometeia S.p.A.. He is also Vice-Chairman of

the publishing house Il Mulino.

(c) Xavier Rolet (Chief Executive). Joined the Boardas a Director on 16 March 2009 and took over as Chief

Executive on 20 May 2009. Pr ior to this he was CEO of

Lehman in France.

(d) Massimo Capuano (Deputy Chief Executive). He

has been President and CEO Borsa Italiana S.p.A..

Chairman of the World Federation of Exchanges and an

adv iser to the Board o f the Federat ion o f European

Securities Exchanges.

(e) Doug Webb (Chief Financial Officer). Appointed to

the Board in June 2008. Previously Chief Financial Officer

and Chief Operating Officer, North America.

(f) Baroness Cohen (Non-Executive Director). He

was Vice Chairman of Borsa Italiana S.p.A. before merger.

He has been Non-Executive Chairman of Trillium Partners.

(g) Sergio Ermotti (Non-Executive Director). He has

been Deputy CEO of UniCredit Group, Deputy General

Manager and Head of Markets and Investment Banking at

UniCredit Group.

(h) Oscar Fanjul (Non-Executive Director). He has

been Vice-Chairman of Omega Capital. He is also a Trustee

of the International Account ing Standards Committee

(IASC) Foundation.


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(i) Andrea Munari (Non-Executive Director). He has

been Managing Director of Banca IMI and Morgan Stanley

Fixed Income Division.

(j) Paolo Scaroni (Non-Executive Director). He has

been CEO of ENI S.p.A. and a member of the Board of

Overseers of Columbia University Business School, New

York.

(k) Nigel Stapleton (Non-Executive Director). He has

been Chairman Postal Services Commission. Non-Executive

Director of Samruk Energy and KazPost, Chairman of the

Mineworkers Pension Scheme.

(l) Robert Webb QC (Non-Executive Director). He

has been Non-Executive Chairman of Autonomy

Corporation plc. Board member of the BBC, Hakluyt Ltd

and Argent Group plc. Formerly Head of Chambers at 5

Bell Yard London.

16. Board of Directors. The Board is the principal

decision making forum for the Company and is responsible to

shareholders for achieving the Groups strategic objectives and

for delivering sustainable shareholder value. The Board has

adopted a formal schedule of matters specifically reserved to it

including Corporate strategy, Annual budget, Increases or

variations to borrowing faci l it ies, Committing to major capital

expenditure or acquisitions and Dividend policy.

17. Board Committees. A unique feature at London Stock

Exchange is the Board Committees. There are three committees


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in p lace to monitor the act iv it ies and create overa ll value

addition. They are:-

(a) Remuneration Committee. All members of theCommittee are cons idered to be independent. The

Committee meets at least twice a year to review and

present recommendations to the Board regarding

remuneration and conditions of service of the Chairman,

Chief Executive and executive d irectors, including the

grant of entitlements under the Companys share schemes.

(b) Audit Committee. All members of the Committee

are considered to be independent . The commit tee i s

responsible for audit activities, security arrangements and

governance of the Group.

(c) Nomination Committee. The Committees role

is to review the size and structure of the Board,

succession planning and to make recommendations to the

Board on potential candidates for the Board.

18. Internal Control. The Board has overal l responsibi l ity

for the system of internal controls. The Board has delegated

responsibility to the Audit Committee for reviewing the Groups

system of internal control and for regular ly monitor ing i ts

effectiveness. The principal features of the Companys internal

control framework are described under the following headings:-

(a) Delegation of Authority. The Board has

implemented a management structure with defined lines of

responsibility and appropriate delegation of authority.


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(b) Planning and Reporting. The Chief Executives of

London Stock Exchange and Borsa Ital iana report to the

Board on key business matters at each meeting. The Chief

F inancial Off icer reports on f inancial , HR and investorrelations matters. The Deputy CEO reports on integration.

The Board reviews performance through a comprehensive

financial review process which includes an annual budget

approved by the Board, monthly reporting of financial and

key performance indicators, analysis of var iances and

corrective action where required.

(c) Audit Committee. The Board receives regular

reports from the Audit Committee on the effectiveness of

the internal control environment and the risk management

procedures. The Audit Committee also receives reports

from the Groups external auditors on certa in internal

controls and relevant financial reporting matters.

(d) Risk Management. Responsibility for risk

management rests ful ly w ith l ine management. Each

bus iness area i s requi red to maintain a r isk reg ister

outlining the key risks it faces and the controls in place to

mitigate these r isks. The r isk registers are periodical ly

updated, with the most senior executive in each business

area required to confirm the effectiveness of the controls

in place.

(e) Policies and Procedures. Policies and

procedures have been developed for key business areas

including the Groups finance function. These are reviewed

and kept up-to-date to meet changing business needs.


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THE SOURCE ART n TECHNOLOGY

19. The Source, c reated by Greyworld, i s a symbo l o f the

Exchanges place at the centre of Londons financial markets. Itis an innovat ive application of technology, and a bold and

groundbreaking work of art.

20. The Source stretches eight storeys from the ground f loor

to the glass roof of the Exchanges main entrance atrium. It is

a visual representation of the financial markets in an age when

trading is electronic and physical trading floors are no longer

necessary.

21. The Source marks the opening of the trading markets at

08.00 when the ar twork comes to l if e, spheres begin to

progress up the cables and create a fluid, dynamic sculpture.

Throughout the day, spheres gently move through the atrium,

rising and falling, continuously changing, just like the markets

The Source represents. At the end of the trading day, when the

market closes at approximately 16.30, so The Source reflects

this by reforming into the cube shape at the base of the

structure.

22. The Source is used to highl ight important Exchange events

and in particular to welcome new companies onto market, when

a guest will be invited to bring The Source to life and mark the

start of that days trading.


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FUNCTIONS

23. There has been considerable restructuring and

consolidation in the exchange industry over the last few years.

This has been driven by the scale economies of exchange

services and the major benefits mergers can bring to

customers, as wel l as the benef its o f d iversi fi cation and

synergies for shareholders. There remain signif icant strategic

opportunities for cooperation or combination. Accordingly, the

funct ions of the Group has become demanding as wel l as

customer oriented. The functions of the group can be classified

into following four types:-

(a) Issuer Services. Help companies to raise capital

on a choice of markets.

(b) Trading Services. Provide secondary markets

for efficient trading on a wide range of securities.

(c) Information Services. Provide the global f inancial

community with high quality real-time and historical data.

(d) Post Trade Services. Provide a wide range of

efficient post trade services including clearing, routing,

netting, settlement and custody.

ISSUER SERVICES

24. Companies from around the world join its markets gaining

access to one of the worlds deepest and most l iquid pools of

low-cost capital . The London Stock Exchange Group offerscompanies a number of benefits including the abil ity to raise


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money, increase their prof i le and obtain a market valuation

through a variety of routes. With a choice of four London Stock

Exchange primary markets, UK and international companies of

al l types and sizes are able to access the capital they need todevelop their business.

25. Main Market. The London Stock Exchanges Main Market

is the worlds most international market for the l ist ing and

trading of public equity and debt. Its location at the heart of

the worlds leading financial centre makes it the ideal home to

over 1,600 companies from 60 countries, including many of the

worlds largest, most successful and most dynamic companies.

Underpinned by Londons balanced and globally respected

standards of regulat ion and corporate governance, the Main

Market is regarded both by investors and companies as the

worlds most prestigious and sophisticated l isting and trading

environment. This is why it represents both a badge of quality

for every company listed and traded on it, and an aspiration for

companies worldwide. Companies listed on the Main Market are

as diverse as the locations from which they originate. Main

Market companies come from some 42 sectors and vary widely

in size, covering a spectrum from fledgling growth companies to

global mul tinationals . The market now has a combined

capital isation of over 4.3 tri ll ion (US$8.42 tri l l ion). The Main

Market o ffe rs a choice o f l is ting options . Equi ty , debt,

depositary receipts (DRs) plus a range of other security types

may be listed on the Main Market. The Main Market also offers

companies the choice between a primary listing and a

secondary listing. A primary listing requires a company to meet

the highest standards of regulation and disclosure in Europe; it

is not necessarily that companys first or sole listing. To obtaina secondary listing a company must meet the standards set by
http://www.londonstockexchange.com/companies-and-advisors/main-market/main-market/home.htmhttp://www.londonstockexchange.com/companies-and-advisors/main-market/main-market/home.htm


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the relevant EU directives; such a l isting is not inevitably the

issuers second listing. The Main Market supports the strategic

ambitions of companies as they evolve. The extensive benefits

provided by the Main Market are supported by its intel ligentand respec ted framework of regulation and corporate

governance.

26. Alternative Investment Market (AIM). AIM is a

sub-market of the London Stock Exchange, al lowing smaller

companies to f loat shares w ith a more f lexible regulatory

system than is applicable to the Main Market. The AIM was

launched in 1995 and has raised almost 24 bi l l ion for more

than 2,200 companies. Flexibility is provided by less regulation

and no requirements for capital isation or number of shares

issued. Some companies have since moved on to join the Main

Market, a lthough in the last few years, s igni ficant ly more

companies transferred from the Main Market to the AIM (The

AIM has significant tax advantages for investors, as well as less

regulatory burden for the companies themselves). The AIM has

also started to become an international exchange, often due to

its low-regulatory burden. The independent FTSE

Group maintains three indices for measuring the AIM, which are

the FTSE AIM UK 50 Index, FTSE AIM 100 Index, and FTSE AIM

All-Share Index.

27. AIM is an exchange regulated venue featuring an array of

princ ip les-based rules for pub li cly held companies. AIMs

regulatory model is based on a comply-or-explain option that

lets companies that are floated on AIM either comply with AIMs

relatively few rules, or explain why it has decided not to comply

with them. Aside from granting leeway in regards to regulatorycompliance, the Exchange also mandates continuous oversight


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and advice by the issuer 's underwr iter, re fer red to as a

Nominated Adviser (Nomad). The role of Nomads is central to

AIMs regulatory model, as these ent it ies p lay the role of

gatekeepers, advisers and regulators of AIM companies. Inadvising each firm as to which rules should be complied with

and the manner in which existing requirements should be met,

Nomads provide the essential service of allowing firms to abide

by tai lor-made regulation, reducing regulatory costs in the

process. Theoretically, Nomads are l iable for damages from

to lerat ing misdemeanours on behal f o f the ir superv ised

companies, including the loss of reputational capital. However,

this heavy reliance on Nomads has been criticized as creating a

conf lic t o f interest, since Nomads receive fees f rom the

companies they purported ly supervise wh ile, in pract ice,

managing to avoid liability for market misconduct.

28. Because AIM is an exchange regulated market segment, i t

escapes most of the mandatory provisions contained

in European Union directives - as implemented in the UK - and

other rules applicable to companies l isted in the LSE. AIM

bel ieves sel f-regulation is p ivotal to AIMs low regulatory

burden: companies seeking an AIM l ist ing are not subject to

significant admission requirements; after admission is granted,

firms must comply with ongoing obligations which are

comparatively lower to the ones that govern the operation of

larger exchanges; and certain corporate governance provisions

are not mandatory for AIM companies. AIM-l isted companies

usually are only required to adhere to the corporate governance

requirements of their home jurisdiction, which, as a practical

matter, vary widely.


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29. Another important element of AIMs model is the

composition of its investor base. Although AIM-listed companies

are not start-ups, most are smal l and highly r isky. This may

prove to be hazardous for unsophisticated investors who lackboth the knowledge and resources to conduct proper inquiries

into a firms prospects and activit ies, or even larger investors

which lack strong interna l control and r isk management

requirements. As a consequence, AIMs investor base is largely

composed of institutional investors and wealthy individuals.

30. Professional Securit ies Market. The Professional

Secur it ies Market was launched on 1 July 2005. It is the

Exchange regulated market for l isted debt and depositary

receipt securit ies. The Professional Securit ies Market enables

companies to raise capital through the l isting of special ist

securities, including debt and depositary receipts, to

professional investors. I t accommodates a range of

securit ies from simple Eurobonds and credit- l inked notes to

complex asset-backed issues, high yield bonds and

convertible or exchangeable bonds. This is particularly useful

for professional investors who want to pursue a debt l ist ing.

Many investors can only buy debt instruments that are listed on

a Recognised Investment Exchange.

31. The creat ion of the Profess iona l Secur it ies Market has

provided an important choice for issuers. Companies wanting to

raise capital, without being restricted in the type or value of

securit ies they issue, may do so without the additional cost of

following a retail or equity regime. Issuers of debt, convertibles

and DRs are not required to report historical financ ial

information to IFRS or an EU approved equivalent standarde ither in l is ting documents or as a continu ing obl igat ion


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requi rement, as the FSA a llow these i ssuers to use the ir

domestic accounting standards following the implementation of

TD in January 2007.

32. The Professional Securi ties Market a lso provides the best

opt ion for those issuers a lready l isted in London, who are

concerned about the impact of both PD and TD going forward.

Companies already l isted and admitted to trading on the Main

Market may choose to move to the Professional Secur it ies

Market free of charge, without the need to produce further

l is ting documentation and wi thout los ing the ir status as

Officially Listed companies.

33. Issuers choosing to admit to the Professional Secur it ies

Market wi l l have their l ist ing part iculars approved by the UK

Listing Authority and be admitted to listing, so a key

requirement for investment by funds and institutional investors

wil l have been met. Investors may also be assured that the

disclosure obl igations for l isted companies wil l apply to the

Pro fessiona l Securit ies Market, except ing o f course the

requirement to report financial information to IFRS. Therefore,

important regulatory information, such as annual reports and

on-going disclosures, will be readily available to investors.

34. The Professional Securi ties Market is an integra l part of

the London Stock Exchange and is operated within the scope of

its status as a Recognised Investment Exchange. This means

that the h igh regulatory standards current ly applied to i ts

markets, in respect of on-going monitoring and enforcement,

also apply to the Professional Securities Market. The Exchange

works closely with the UK Listing Authority (UKLA) to offer clearand consistent guidance for issuers and their advisers. This


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working relationship also helps ensure the tight turnarounds

that are so important for debt issuers.

35. Specialist Fund Market. The Special ist Fund Marketis the London Stock Exchanges dedicated market for specialist

investment funds targeting institutional, professional and highly

knowledgeable investors. It is instrumental in providing capital

raising opportunities to a range of investment funds. The

Special ist Fund Market is a newly created market, dedicated

solely to the growing number of specialist funds. It is

spec if icall y des igned around the needs of sophi sticated

investment fund structures and their expert investors. By

working with market participants in London and New York, the

Special ist Fund Market has been designed to suit a range of

highly specialised funds, including, (but not limited to):

(a) Private equ ity funds

(b) Feeder funds

(c) Hedge funds, both single and multi -strategy

(d) Special ist geographica l funds

(e) Funds with sophist icated structures or security types

( f) Spec ial is t p roperty funds

(g) Inf ras tructu re funds

(h) Sovereign wea lth funds.


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36. The Special ist Fund Market is an EU Regulated Market and

is compl iant w ith the EUs F inancial Services Act ion P lan

(FSAP). Joining the Spec ial is t Fund Market p rovides an

invaluable p latform for bui ld ing your profi le and v is ib il ityamongst peers and investors al ike. It is a market specif ical ly

created to bring alternative asset managers and their investor

audience together. A quotation on the Special ist Fund Market

also provides access to Londons secondary marketplace, with

eff ic ient trading provided by TradElect, an excel lent, next

generation trading system.

37. Borsa Italiana. In October 2007 the London Stock

Exchange merged with Borsa Italiana, creating Europe's leading

diversified exchange business, London Stock Exchange Group.

Borsa Italiana offers companies a variety of equity markets:

(a) Blue Chip. For companies with a market

capitalisation of over 1 billion.

(b) STAR. For companies with market capitalisation of

less than 1 b il lion that voluntari ly comply with str ict

requirements on l iquidity, transparency and corporate

governance.

(c) Standard. Includes all companies with a

capital isation from 40 mil l ion to 1 bil l ion that are not

listed on the STAR segment.

(d) Expandi Market. Is special ly designed for small

cap companies and offers simplified admission

requirements and a fast listing process.


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TRADING SERVICES

38. The London Stock Exchanges range of t rading servicesgive you access to some of Europes most l iquid secur it ies

markets. More business is transacted daily on our markets than

any other competing execution venue and volumes often exceed

one mil l ion trades per day across 25,000 separate securit ies.

The Exchange provide fast and efficient trading at very low cost

allowing investors and institutions access to equity, bond and

derivatives markets. The Exchange have an unrelenting focus

on market efficiency and growing liquidity.

39. Borsa I ta liana and the London Stock Exchange are now

working to integrate our trading systems to bring super ior

levels of performance, tradabi li ty and access across asset

c lasses and markets for a ll customers. The Group is now

number one in Europe:-

(a) by value and volume of equity order book trades

(b) by volume of order book trading of ETFs

(c) electronic government bond market

40. SETS (Stock Exchange Trading Service). SETS is the

Exchanges f lagship electronic order book, trading FTSE100,

FTSE250 and the FTSE Small Cap Index constituents as well as

other l iquid securit ies. The Exchange also operates a modified

version of SETS for the trading of covered warrants and other

structured products. Powered by our wor ld-leading trading

system, TradElect, SETS has experienced exponential growth


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since its launch in 1997 executing mil l ions of trades a day at

mill isecond latencies. Functional ly r ich with mult iple order

types, market maker support a ll the way up the book and

competitively cleared, SETS is one of the most liquid electronicorder books in Europe.

41. SETSqx (Stock Exchange Electronic Trading Service

quotes and crosses). SETSqx i s the Exchange s t rading

service for less liquid securities. Developed in partnership with

the investment community, SETSqx combines the world leading

order book technology with the best of the Exchanges existing

non electronica lly executable market maker quote model .

Participants can enter named and anonymous order types for

trading at four scheduled auctions a day, concentrating liquidity

and increasing the likelihood of execution.

42. SEAQ (Stock Exchange Automated Quoting Service).

SEAQ is the London Stock Exchanges non-electronically

executable quotation service that a llows market makers to

quote prices in AIM securit ies (not traded on SETS or SETSqx)

as well as a number of fixed interest securities.

43. IOB (International Order Book). The IOB is the

Exchanges dedicated electronic order book for the automated

trading of depositary receipts. It enables investors to unlock

the potential of some of the worlds fastest growing markets by

offering easy and cost efficient access to developing economies,

particularly the CIS, whilst mitigating some of the currency and

other associated risks of trading the home underlying. With a

single order book similar to SETS, the IOB provides transparent

price formation for DRs allowing investors to take advantage of


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arb it rage opportuni ties between the order book and the

underlying market.

44. ITBB (International Bulletin Board). The ITBB is the

Exchanges electronic order book for securit ies that are eithersecondary l isted in London (through the UKLA) or admitted to

trading only, based on a l ist ing outside of the UK. The ITBB

operates both continuous and auction only trading services to

suppor t li quid and less li quid secur iti es wh ils t al lowing

participants the abi li ty to register as market makers in a ll

securities.

45. EUROSETS. EUROSETS is the Exchanges e lect ronic

order book for the trading of liquid Dutch securities. Like SETS,

the market operates during normal London trading hours and

participants can register as market makers in all securities.

46. EQS (European Quoting Service). EQS is the

Exchanges quote driven market making and trade reporting

platform that supports all non-UK, European, Liquid (as defined

by MiFID) equities. Designed to enable firms to meet their pre-

trade transparency and post-trade reporting requirements

under MiFID, EQS also enables market makers to display two-

way quotes.

47. ETR (European Trade Reporting). ETR is the

Exchanges pan-European trade reporting service that enables

c lients to meet the ir post-trade reporting obl igat ions (as

defined by MiFID) whether trading on Exchange or reporting

OTC trades, off Exchange. Designed for customers to meet

their requirement for immediate real-time trade reporting with

a backstop of three minutes, members and non-members alikecan report the ir OTC and off -book t rades which are then


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published real- time to over 100,000 terminals in 150

countries.

INFORMATION SERVICES

48. Every second of the trading day, the Exchange generate

information ranging from data on individual trades and share

price movements to company announcements. The Exchange

supply h igh qua li ty , rea l t ime prices and t rading data to

member f irms, investors and insti tutions across the wor ld

creating the transparency and liquidity. Today over one million

terminals receive data from the Group.

49. Connectivity. The Exchange curren tly o ffers several

types of connectivity with varying levels of management and

performance. These range from a full host-to-host solution to a

Vendor Access Network connection, these are described below.

50. Extranex. Customers with the ir own trading and

information systems can connect directly to the Exchange via

Extranex. Extranex provides customers of the Exchange with

ded icated point to point connect ions for market data and

trading. Extranex is fully supported by the Exchange, providing

the highest reliability and lowest latency connectivity. Extranex

provides a single point of access to support a wide number of

trading and market data services.

51. Member Authorised Connection (MAC). Membership

to the Exchange is the u lt imate way to gain d irect trading

access to the world's deepest pool of l iquidity in UK equity, in

addition to International Depository Receipts and other trading

instruments. However, in some instances membership may not

be suitable for a firm. Member Authorised Connection (MAC) is


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an alternative way for non member firms to gain direct trading

access to the Exchange via an authorising member firm.

52. Exchange Hosting. Exchange Hosting is a new

connectivity service that provides customers with the fastestaccess to the Exchanges trading and information systems. It

al lows member fi rms to locate thei r servers with in the

Exchanges own data centre, providing sub-mil l isecond access

to the Exchanges matching engine and market data.

53. Network Service Providers (NSP). The Exchange has

extended its network reach g lobal ly by partnering wi th

accredited network partners. NSPs act as carriers of Exchange

information and trading services to its end clients, who contract

with the NSP for provision of network connectivity and sign

agreements directly with the Exchange for access to trading

and information. Customers of NSPs will have service

enablements set up on the Exchanges trading and information

systems in exactly the same way as a direct Extranex customer.

54. Vendor Access Network providers (VAN). In order to

extend the connectivity options available to our customers, the

Exchange introduced the Vendor Access Network model under

which market data vendors are accredited for the transmission

of secured trading data across their propr ietary networks.

Vendor Access Network providers (VANs) provide network

connectivity and pre-conformed appl ications through which

clients can interface with the Exchange.

55. Accredited Proximity Hosting. The Exchange is

committed to increasing the speed at which market data is

disseminated, thereby improving market ef fi ciency and

increasing liquidity.


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POST TRADE SERVICES

56. London Stock Exchange Group deliver Europes mos t

efficient post trade services. Post trade services are the engine

room of the Group, ensuring that once a trade has been

executed the security and cash change hands efficiently.

57. Cassa di Compensazione e Garanzia (CC&G). CC & G

acts as a central counterparty eliminating counterparty risk on

trades in Ital ian cash equit ies, derivatives and government

bonds. Last year CC&G cleared 74 mill ion contracts in cash

equities and Express II handled 160 bil l ion of contracts on a

dai ly bas is a t a set tlement rate of 99.7%, wel l above the

benchmark set by the Bank for international settlement.

58. Monte Titoli. Monte Titoli provides routing, netting and

settlement services. In 2007 Express II, the settlement system

offering straight through processing was recognized as the

lowest cost provider in the eurozone in a benchmarking study

by the European Central Bank.

PRICES AND INDICES

59. London Stock Exchange prices are quoted in pounds and

pence. This may seem a little obvious to mention, but there are

a few exceptions quoted in euro. The most accurate place for

the casual investor to receive his or her London Stock Exchange

prices is in a daily paper. The most highly regarded of these is

obviously the London Financial Times. Companies apply for and

have to pay to be l isted in the FT 'London Share Service'.


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Unless indicated, the price of shares is shown in pence. The

prices are taken at the mid-market at the close of the previous

days business. Mid-market is the price point half way between

the buying and selling price of the share.

60. On the London Stock Exchange FTSE Group calculates over

60,000 ind ices cover ing 48 countries and a ll major asset

classes, but of course, they are most famous for their London

Stock Exchange FTSE Index of the biggest 100 companies. The

first index was the FT 30 which began at a s tarting point of 100

in 1935. It is also known as the FT Ordianry Share Index. It

conta ins 30 of the UK's largest quoted companies and is

calculated as a geometric mean. The FT 30 is mainly made up

of industrial firms which means that it isn't very representative

of the UK economy or stock market.

61. FTSE also o ffer a range o f o ther ind ices to give global

values and many other things. For example: Al l-World Index

Series, Global Equity Index Series, Global Islamic Index Series,

Global Sector Index Series, Global Small Cap Index Series,

Global Style Index Series, Gold Mines Index Series,

Multinationals Index Series, Watch List Index Series.

LISTING GUIDELINES

62. Becoming listed on the London Stock Exchange is a

complicated process. The London Stock Exchange l isting rules

that must be fulf i l led before a company can 'go public' fol low.

The process of floating a company and their ongoing regulation

is controlled by the UKLA (UK Listing Authority) which is a part

of the FSA. Directors must s ign a l isting agreement which

commits the board to high standards of behaviour and reporting


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levels to shareholders. The directors must prepare a prospectus

(known as l isting particulars) to potential investors. At least

25% of the share capital must be in the hands of the public so

that the shares can be actively traded and remain reasonablyl iquid. The company should have at l east three years o f

accounts. The company needs a sponsor (bank, stockbroker or

other professional adviser) to guide and advise and to reassure

the UKLA that the company is of sufficient quality. Once listed

on the London Stock Exchange, the company and directors have

continuing obligations, which include:

(a) Giv ing the market any price sensi tive informat ion as

quickly as possible.

(b) To undertake to disclose information fully and

accurately.

(c) The directors must follow strict guidel ines relat ing to

the buying and selling of their own shares in the company.

63. One of the attractions of the Alternative Investment

Market, AIM, is that these requirements are signif icantly less

onerous and therefore costly. This helps to attract younger and

more rapidly growing companies to market.

INDIAN COMPANIES AT LSE

64. Indian Companies are preferr ing to raise capital

through international markets rather than on the

domestic exchanges. The costs of raising funds and

regulatory processes involved are perceived to be muchless overseas as compared to India. Seeking to tap this fast


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emerging trend of companies raising funds from overseas

markets, the London Stock Exchange is eyeing a large number

of Indian f irms to l ist there with sops l ike no track-record,

minimum market cap or net posit ive earnings. There are 30companies l is ted at London Stock Exchange. They are as

follows:-

Srl No

CONCLUSION

65. The wor ld economy is fac ing a per iod of unprecedented

challenge with g lobal GDP expected to decline this year. A

severe dislocation in financial markets has been characterised

by high volatil ity and risk aversion, very difficult credit market

conditions, declining equity prices and very low interest rates.

In response, the London Stock Exchange Group is see ing

governments and regulators take action to restore confidence in

markets and the banking sector in particular. Equally, the crisis

i s h ighl ight ing the value and importance of the exchange

business model and the role of regulated equity markets in the

real economy as companies raise record sums. We are working

with relevant authorities to try and ensure regulatory changes

are focused, proportionate and internationally coordinated.

66. While the origins of the current global f inancial crisis l ie in

g loba l macro-imbalances which resul ted in very low rea l

interest rates and a rapid increase of debt, faci l itated by OTC

credit market innovations in the banking sector, companies are


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returning to equity markets to repay debt and strengthen

balance sheets. Across the world, almost $1 tri l l ion has been

raised by companies in the last year. On the Groups markets a

record 99 billion of further money was raised in the year.

67. There has been considerable restructuring and

consolidation in the exchange industry over the last few years.

This has been driven by the scale economies of exchange

services and the major benefits mergers can bring to

customers, as wel l as the benef its o f d iversi fi cation and

synergies for shareholders. There remain signif icant strategic

opportunities for cooperat ion or combination. The Groups

partnerships with the Tokyo Stock Exchange, TMX Group and

Oslo Brs are examples of mutually benef ic ia l cooperation

which will bring significant strategic benefits to the Group and

the customers.

68. There are 3,304 companies on the markets o f London

Stock Exchange and Borsa Ital iana, and it has 47 per cent of

the market capitalisation of the FTSEurofirst 100 which makes

the Group the largest equity exchange business in Europe. With

656 international companies from 72 countries on our markets

in London alone, the Group also remain the international listing

venue o f cho ice. Keep ing with the synergy and surging

economic platform of the globe, the vision of the Group has

been very pract ical and need based i .e. To be the worlds

capital market.

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