The London Stock Exchange in the 19th Century: Ownership Structures, Growth and Performance
Over the course of the nineteenth century the London Stock Exchange evolved from a market dealing primarily in new issues of British government debt to become the preeminent exchange of the first global capital market. By 1914, one-third of the public capital available to investors anywhere in the world was listed and traded on the London Stock Exchange. In contrast to these examples of spectacular growth of the business conducted within the exchange, however, the microstructure of the London Stock Exchange remained remarkably constant over the entire century. The remarkable expansion in scale and diversification of activity in the London Stock Exchange was sustained over the century with such minimal organizational change due to three factors. First, the evolution of the London Stock Exchange's microstructure was path dependent – the initial conditions for membership set the incentives for the owners and operators of the exchange, and these determined how they responded to successive shocks over time. Second, the continued success of the exchange was due to the peculiar structure of property rights in the exchange. Ownership of the exchange by the Proprietors was separated from governance of the operation of the exchange by the Members. Innovations were spurred by the owners of the exchange, who sought constantly to expand the membership. Newer members were then induced to take risky searches for new sources of revenue. This is how foreign securities were added permanently to the listings of the exchange in the 1820s. The third factor, the exchange’s insistence on separating members in to two classes – brokers and jobbers (dealers) – with different incentives led to the increasing ineffectiveness of the exchange over time. By the turn of the 20th century, brokers increasingly outweighed jobbers within the membership and exercised their political power to restrict membership, enforce minimum commissions, and confine arbitrage to a limited class of members. In short, the adverse consequences of a self-regulating club of self-interested members began to appear, but only after a century of remarkable growth, innovation, and effectiveness in mobilizing the savings of the world to realize the material benefits of the first industrial revolution.
|Date of creation:||13 Feb 2006|
|Date of revision:|
|Contact details of provider:|| Postal: P.O. Box 61, A-1011 Vienna, Austria|
Phone: +43/1/404 20 7205
Fax: +43/1/404 20 7299
Web page: http://www.oenb.at/
More information through EDIRC
|Order Information:|| Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peter L. Rousseau, 2003.
"Historical perspectives on financial development and economic growth,"
Federal Reserve Bank of St. Louis, issue Jul, pages 81-106.
- Peter L. Rousseau, 2002. "Historical Perspectives on Financial Development and Economic Growth," NBER Working Papers 9333, National Bureau of Economic Research, Inc.
- Peter L. Rousseau & Richard Sylla, 2001.
"Financial Systems, Economic Growth, and Globalization,"
NBER Working Papers
8323, National Bureau of Economic Research, Inc.
- Peter L. Rousseau & Richard Sylla, 2003. "Financial Systems, Economic Growth, and Globalization," NBER Chapters, in: Globalization in Historical Perspective, pages 373-416 National Bureau of Economic Research, Inc.
- Peter L. Rousseau & Richard Sylla, 2001. "Financial Systems, Economic Growth, and Globalization," Vanderbilt University Department of Economics Working Papers 0119, Vanderbilt University Department of Economics.
- Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-65, September.
- Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
- Carmine Di Noia, 2001. "Competition and Integration among Stock Exchanges in Europe: Network Effects, Implicit Mergers and Remote Access," European Financial Management, European Financial Management Association, vol. 7(1), pages 39-72.
- Davis, Lance & Neal, Larry & White, Eugene N., 2003. "How it all began: the rise of listing requirements on the London, Berlin, Paris, and New York stock exchanges," The International Journal of Accounting, Elsevier, vol. 38(2), pages 117-143.
- Green, Christopher J. & Maggioni, Paolo & Murinde, Victor, 2000. "Regulatory lessons for emerging stock markets from a century of evidence on transactions costs and share price volatility in the London Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 24(4), pages 577-601, April.
- Pirrong, Craig, 2000. "A Theory of Financial Exchange Organization," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 437-71, October.
- Pirrong, Craig, 1999. "The organization of financial exchange markets: Theory and evidence," Journal of Financial Markets, Elsevier, vol. 2(4), pages 329-357, November.
- Larry Neal, 1998. "The financial crisis of 1825 and the restructuring of the British financial system," Review, Federal Reserve Bank of St. Louis, issue May, pages 53-76.
When requesting a correction, please mention this item's handle: RePEc:onb:oenbwp:115. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Markus Knell and Helmut Stix)
If references are entirely missing, you can add them using this form.