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The evolution of the structure and performance of the London Stock Exchange in the first global financial market, 1812 1914

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  • NEAL, LARRY
  • DAVIS, LANCE

Abstract

By 1914, the London Stock Exchange listed and traded one-third of the public capital available to investors anywhere in the world. No other exchange could match it in terms of scale and scope of securities on offer, or in terms of the number of stockbrokers available to potential customers. The reason, we argue, is that the microstructure of the London Stock Exchange was also unique. The owners of the exchange (Proprietors) left governance of the exchange to the users of the exchange (Members). Because the owners of the exchange could only increase revenue by increasing the number of users, newer members constantly sought new sources of revenue through financial innovations. The evolution of the London Stock Exchange s microstructure was path-dependent the initial conditions for membership set the separate incentives for the owners and operators of the exchange, and these determined how they responded to successive shocks over time. Path dependency, unfortunately, eventually led to decreasing effectiveness and innovation by the members over time.

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Bibliographic Info

Article provided by Cambridge University Press in its journal European Review of Economic History.

Volume (Year): 10 (2006)
Issue (Month): 03 (December)
Pages: 279-300

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Handle: RePEc:cup:ereveh:v:10:y:2006:i:03:p:279-300_00

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Cited by:
  1. Benos, Evangelos & Wetherilt, Anne, 2012. "The role of designated market makers in the new trading landscape," Bank of England Quarterly Bulletin, Bank of England, vol. 52(4), pages 343-353.
  2. Eugene N. White, 2007. "The Crash of 1882, Counterparty Risk, and the Bailout of the Paris Bourse," NBER Working Papers 12933, National Bureau of Economic Research, Inc.
  3. Burhop, Carsten & Chambers, David & Cheffins, Brian, 2014. "Regulating IPOs: Evidence from going public in London, 1900–1913," Explorations in Economic History, Elsevier, vol. 51(C), pages 60-76.
  4. Marc Flandreau, Juan Flores, Norbert Gaillard, Sebasti‡n Nieto-Parra, 2011. "The Changing Role of Global Financial Brands in the Underwriting of Foreign Government Debt (1815-2010)," IHEID Working Papers 15-2011, Economics Section, The Graduate Institute of International Studies, revised 05 Dec 2011.

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