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Last Updated: Tuesday, 21 December 2004, 11:29 GMT
From UK coffee house to bourse?
By Joia Shillingford
BBC News business reporter

Trading was conducted over a cup of coffee at Jonathan's
Trading was conducted over a cup of coffee at Jonathan's
The London Stock Exchange (LSE), one of Britain's most venerable institutions, could soon be in foreign hands if a bid from an overseas exchange is accepted.

This would end 300 years of history as an independent exchange.

But the exchange was not always grand enough to warrant offers of more than 1bn.

Traders used to meet at Jonathan's Coffee House in Change Alley. Its location was aptly named as the exchange has seen many changes since.

Coffee at Jonathan's

At Jonathan's, the enterprising John Castaing posted a list of stock and commodity prices called "The Course of the Exchange and other things". This was the first sign of organised trading in marketable securities in London.

It became popular with share traders kicked out of the Royal Exchange, where trading in a variety of goods went on, for being too rowdy. They began to congregate in the streets and coffee houses nearby, including Jonathan's.

Traders were expelled from the Royal Exchange for being too rowdy
Traders were expelled from the Royal Exchange for being too rowdy

It was a lively scene until the South Sea Bubble in 1720. This was rather like the hype and disappointment of the dot.com boom and bust - but over future prospects for the South Sea Trading Company and others hoping to profit from trade with South America.

Despite this, the coffee houses became so popular for share dealing, and for other businesses like insurance, that eventually the traders needed bigger premises.

They had already got together to form a club of brokers and jobbers and together they arranged for a new building to be erected in Sweeting's Alley in 1773, with a coffee room on the first floor and a dealing room below.

At first this was called New Jonathan's but it soon became known as "The Stock Exchange".

In 1801, a formal membership scheme came into force, with regulations, and this was the birth of the modern stock exchange.

The exchange moved to Capel Court in 1802 - and was rebuilt in 1854.

But it wasn't until 1923 that it got the motto schoolchildren still learn today: "My word is my bond" or "Dictum Meum Pactum", and an impressive-looking coat of arms.

In 1945, damage from a V2 rocket caused the exchange to close. But just for a day - the exchange was able to reopen quickly by relocating trading to its basement.

Women arrive

It wasn't until the early 1970s that women began to make their presence felt at the exchange.

In 1972, Queen Elizabeth II opened the new 26-storey office on Old Broad Street.

Then a year later, the first female members were admitted to the market, and 11 British and Irish regional exchanges amalgamated with the London exchange.

A complex juggling act: the sculpture at the heart of the LSE's new HQ
A complex juggling act: the sculpture at the heart of the LSE's new HQ

But perhaps the biggest change of all was what was known as "Big Bang" when, in 1986, instead of "blue buttons" (or junior staff) wandering the floor, deals were conducted via computer and phone from separate dealing rooms.

Partly as a result of such changes British broking firms started to need large foreign partners to help them offer lower commissions through economies of scale.

The City became more competitive, and some would say less gentlemanly, and multi-million pound fortunes were made as partners in UK firms sold out to giant US investment banks.

In 1991, The London Stock Exchange, as it was then called, replaced its governing body with a board of directors, which today is headed by Clara Furse.

Further change took place in 1997 when a single system for computer-based trading, called the Stock Exchange Electronic Trading Service (SETS) was launched.

After much negotiation with stockbroking firms, Crest, a system for settling trades was also introduced.

Then, in 2000, in an almost incestuous move, The London Stock Exchange listed on - wait for it - the London Stock Exchange.

Being a listed company with liquid shares makes it much harder for the exchange to resist a takeover if the price is high enough to appeal to the majority of shareholders.

The exchange, which moved into brand new headquarters in Paternoster Square near St Paul's Cathedral this year, now looks vulnerable to a foreign takeover.

The suitors, which have made an approach so far include the German exchange, the Deutsche Boerse, and Paris-based Euronext, which runs the main exchanges in Paris, Amsterdam and Lisbon.

Where exactly any combined exchange would be headquartered will be hotly contested with any potential partner.

But one thing's for sure: it's unlikely to be in a coffee house, Kaffeehaus or Parisian cafe.




SEE ALSO:
Market merger would boost Euronext
20 Dec 04 |  Business
Euronext joins bid battle for LSE
20 Dec 04 |  Business
Q&A: Stock exchange takeover
20 Dec 04 |  Business
LSE rejects German takeover bid
13 Dec 04 |  Business


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