IDEAS home Printed from https://ideas.repec.org/p/onb/oenbwp/115.html
   My bibliography  Save this paper

The London Stock Exchange in the 19th Century: Ownership Structures, Growth and Performance

Author

Listed:
  • Larry Neal

    (University of Illinois at Urbana-Champaign; Research Associate, NBER)

Abstract

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.

Suggested Citation

  • Larry Neal, 2006. "The London Stock Exchange in the 19th Century: Ownership Structures, Growth and Performance," Working Papers 115, Oesterreichische Nationalbank (Austrian Central Bank).
  • Handle: RePEc:onb:oenbwp:115
    as

    Download full text from publisher

    File URL: https://www.oenb.at/dam/jcr:728ab5d7-b672-44d9-8dea-7ad33d428027/wp115__tcm16-38822.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Peter L. Rousseau, 2003. "Historical perspectives on financial development and economic growth," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 81-106.
    2. 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.
    3. Pirrong, Craig, 2000. "A Theory of Financial Exchange Organization," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 437-471, October.
    4. 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.
    5. Pirrong, Craig, 1999. "The organization of financial exchange markets: Theory and evidence," Journal of Financial Markets, Elsevier, vol. 2(4), pages 329-357, November.
    6. 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.
    7. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-1465, September.
    8. 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.
    9. 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.
    10. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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). General contact details of provider: http://edirc.repec.org/data/oenbbat.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.