PARTICIPANTS AND ISSUES TRADED

PARTICIPANTS AND ISSUES TRADED 

On March 25, 1973, the stock exchanges in the United 

Kingdom and the Republic of Ireland were merged into 

a single organization called  "The Stock Exchange". 

In August 1975 the Stock Exchange had admitted 4084 

members who - according to choice - had joined one of 

the seven regional subdivisions which are known as 

"Administrative Units". With the exception of the 

Provincial Brokers Administrative Unit these subdivisions 

maintain trading floors and other facilities for trading 

and settlement. Table A-1  lists the Units, the location 

of their trading floors, and the number of their 

members. Members in the same firm may join different 

Units.

 At present the Units operate seven trading floors. 

There were 24 floors in the British Isles before the 

Scottish exchanges amalgamated in 1964. Data on the 

turnover of individual Units are not available.

 Thus, this information is missing from Table A-1. However, 

specific information on the importance of the Units 

outside London was published in the Exchange's report 

of the One-Day Transaction Study of 7 August1974. 

This study was repeated for the first time on 

8 October 1975. From these studies it can be seen 

that stock broking firms outside London handled only 

2.9%  (3.8%) of all purchases and sales at market value,

 but that judged on the number of transactions 

handled they had a 25%  (29%) share of all business. 

If government and public authority securities are 

left out of account and only stocks and shares of 

private-sector firms are considered, the proportions 

are 9.7%  (11.5%) and 26%  (30%) respectively. The figures 

in brackets are those for the date of the second 

study. 

Table A -1 

The Administrative Units of the Stock Exchange in August1975 

Although the Administrative Units are governed by 

the same rules as to the admission of new members 

and the listing of securities, the structure of the 

Units and their methods of dealing and settlement 

continue to show certain differences. 

Judged on the basis of the volume at market value, 

stock exchange transactions are dominated by the 

institutional investors; by the Stock Exchange's 

definition, these comprise banks  (particularly  

clearing banks, merchant banks, discount houses and 

overseas banks), insurance companies, pension funds, 

investment and unit trusts, co-operative  societies  

and public authorities. According to the information 

obtained in the "Transaction Studies", these 

investors account for just under 90% of total volume 

in fixed-interest securities. They also account for 

approximately half of the turnover in equities, 

while nearly 30% of equity turnover is attributable 

to domestic private investors and the remainder to 

foreign investors and members of the stock exchange -

excluding dealings by jobbers. These proportions of 

turnover attributable to institutional investors 

are somewhat higher than comparable estimates by the 

Bank of England for earlier years would have led one 

to expect. One will have to wait and see therefore 

whether future studies by the Stock Exchange and the 

Bank of England confirm the findings of the two 

"TransactionStudies". 

Judged on the basis of the number of transactions, 

private investors are the largest participators 

in stock exchange business. They are responsible 

for 75% of all transactions. More than half of their 

orders are obtained not directly  by the broking 

firms themselves but indirectly  through the  agency  

of clearing banks and others. For this service  the  

banks receive 25% of the commission. Branches  of  

banks usually work with two or three  local  firms  

of stockbrokers with whom they have had  good  

experience. In addition to dependable handling  of  

orders, banks' branches expect to receive  demand  

deposits  from their brokers. 

In a financial  centre as prominent  as London  secondary  

market transactions are naturally not confined  to  

members of the Stock Exchange  and their clients, even 

if one disregards  the discount houses, the  institutions  

specializing  in money market transactions. Many 

foreign security-dealing  firms, particularly  American  

and Canadian, have branches  in London and not only 

constitute  a link with overseas markets but also  deal  

in Euro-securities  in London. There  is also to a 

certain extent a market in domestic  securities  outside  

the Stock Exchange. Here the place of the  Stock  

Exchange  is taken by merchant banks or  security-dealing  

firms licensed by the Board of Trade under the 

Prevention of Fraud  (Investments) Act, 1958. Recently 

one such firm, Automated Real-Time  Investments  

Exchange Ltd.  (Ariel),

 has attained  a certain  degree  of importance. A description of the dealing methods  of  this firm will be given below. 

Basically, anyone who carries on the business of 

dealing  in securities  is subject to the  supervision  

of the Board of Trade. However, the Prevention  of  

Fraud  (Investments) Act, 1958, provides  for  exemptions  

from the obligation to obtain  a license  and from the 

associated requirements and provisions. The Bank 

of England, public corporations and certain groups 

of co-operative societies are statutorily exempt 

from the obligation to be licensed. Summary 

exemptions - via recognition as stock exchange 

association of dealers or as authorised unit trust 

scheme - are currently granted by the Board of Trade 

to, for example, the members of the Stock Exchange, 

the members of an American and a Canadian association 

of security-dealing  firms in London, the members of 

the London Discount Market Association and recognized 

unit trusts. In addition, a great many firms, 

particularly banks and insurance companies, have 

obtained individual exemptions. It is a prerequisite 

for obtaining an individual exemption that the 

security-dealing business in question should either be 

an activity in the new issue market or that it should 

be an incidental activity within  which dealings with 

private investors play a subordinate role, apart from 

the passing on of orders to domestic licensed or 

exempted firms or to members of foreign stock exchanges. 

But anyone who carries on secondary market business as 

his principal activity or who otherwise principally 

deals on behalf of private clients without regularly 

using the services of other firms, must hold a license 

unless he is covered by a statutory or summary exemption. 

The Board of Trade has appointed  four full-time 

officials to grant and monitor licenses and exemptions 

and to investigate complaints. 

At March 31 19 909 securities with a market value 

of h 210 000 million had been listed by the Stock 

Exchange;

 they may be broken down as follows: Table A-2

Number and value of Stock Exchange listed 

securities on March 31,1975

The private-sector securities were issued by 3716 

companies  (3165 British, 154 Irish and 397

 foreign). Since these figures give much less weight to foreign 

securities than the market-value figures do, it appears 

advisable to consult the turnover statistics to obtain 

a picture of the importance of dealings in foreign 

issues. However, the London Stock Exchange's periodical 

Table A  - 3 

Stock Exchange  volume  

(in hthousand  millions)  

1)  Purchases and sales by jobbers. In most other countries 

"stock exchange volume" means the total of all sales; 

for the purpose of international comparison, the volume 

figures in the above table must therefore be halved. 

On the other hand, dealings by members for their own 

account on other stock exchanges are included in full 

in the volume figures. 

2)  These figures include a small amount of turnover in 

preference shares. 

turnover statistics do not distinguish turnover in 

foreign shares from that in domestic issues, and one 

is therefore compelled to refer to the One-Day 

Transaction Study of 1974

  (1975). According to the study's findings, total turnover breaks down as follows; domestic fixed-interest 84% (88%) foreign 

fixed-interest 0.4% (0.2%) domestic shares 12.1% 

(10.4%),foreign shares 3.4%(1.4%).

 The overwhelming predominance of fixed-interest turnover is due hot least to the fact that government stock is placed via 

the Stock Exchange. 

Besides listed securities, other issues may be traded 

on the Stock Exchange; these comprise principally 

British money market bills, securities listed on 

foreign stock exchanges and all stock traded over the 

counter in Canada and the United States. A member may 

also deal in any other security provided he obtains 

the approval of the Stock Exchange authorities for each 

individual transaction. Whilst the issuers of all 

listed securities are obliged by the listing agreement 

to provide information to investors on a continuous 

basis over and above the statutory requirements, the 

issuers of unlisted stock are not affected by the 

Stock Exchange disclosure regulations. 

the source by Dr.Hartmut Schmidt