Trading Equities At The London Stock Exchange
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welcome to the presentation of trading equities on London Stock Exchange my name is Brian Schwieger I am the global head of equities of London Stock Exchange group today the presentation will cover four areas why trade equities on LSE what are the equity products and their volumes on our markets what are the available ETF and ETP products and their trading volumes on the LSC and finally how to access these markets now let’s start with the first point why trade equities on the LSE I think there are four main reasons first the LSE has a wide range of products about 4 thousand equity instruments including shares depository receipts and ETF and other ATP’s they give investors exposure not only to the UK but also to other global economies covering both developed and emerging markets these include companies that are global conglomerates as well as vibrant small and medium enterprises secondly the LSE is the most liquid primary exchange in Europe every day over 5.3 billion pounds worth of UK listed securities are traded on our market despite the fragmentation of European market structure and competition from other trading venues over seventy percent of UK lit order book trading still happens on the LSE where investors can find deep liquidity and tight spreads thirdly our time zone trading hours of the UK is from 8 a. m: to 4: 30 p. m. London time it is between the market hours of Asia and the u. s: Asian investors can start trading the UK in their afternoon after their home market closes some Asian markets like Hong Kong and India could have overlap with the UK trading hours which provide unique opportunities for investors equally the UK has a couple of hours overlap with US markets every day which can benefit investors with certain trading strategy finally being such a diverse and global economy the UK provides opportunity for diversification for equity investors it’s blue chip index the footsie 100 with over 70% of its revenues coming from outside the UK has been performing well let’s look at the chart on the right hand side we normalized some major blue chip indices from the beginning of January 2016 to see how they’ve performed through to October 2017 the UK’s footsie 100 index the dark blue line went up 20% comparatively the footsie euro first 300 index the Blue Line which tracks the 300 largest companies by market capitalization and the footsy developed Europe index was up 8% the u. s. blue chip index the sp500 in green on the chart went up by 26% and China’s CSI 300 the red line went up 7% while Hong Kong’s Hang sang the orange line was up 29% looking at the global picture the UK is an investment destination which can offer valuable diversification here we will take a closer look at the UK indices we mentioned the footsie 100 the footsie 100 sometimes referred to as the footsie was established in 1984 and is made up of the 100 largest UK listed companies by market capitalization it is the dark blue line on the chart and it went up about 20% from the beginning of 2016 to the end of October 2017 during and after the volatility surrounding the referendum in 2016 when UK voters voted to leave the European Union the footsie 100 showed some real resilience it is a testament to the international nature and sector diversity of its issuers and the institutional nature and long term outlook of its investors the light blue line represents the footsie 250 index which covers mid cap stocks traded on the LSE it went up 16% during the same period the footsie aim 100 the brown line on the chart went up 52 percent the footsie aim 100 features the largest 100 companies on the lscs alternative investment market also known as aim for growth companies all these major UK indices have shown strong performance today investors have an increasingly global outlook this presentation will provide you with the information on LLC’s equity products their liquidity and market access as we mentioned earlier over 70% of the revenues of footsie 100 companies came from overseas in 2016 as you can see from this slide about 25% were from North America 25% from Europe and 21% from the rest of the world less than 30% of those revenues were actually generated in the UK this bar chart shows over 90 percent of the revenues for footsie 100 companies in the basic materials technology healthcare and oil and gas sectors are earned from outside the UK in other industries including consumer goods industrials financials telecoms consumer services and utilities the overseas proportion of the company’s revenues were also significant we can say that the footsie provides truly global diversification to investors it is also one of the reasons why it has had resilient and strong performance next we will take a look at the equity products and their volumes about 4,000 equity instruments are available for trading these are mainly categorized as shares Depositary Receipts and exchange traded products there are over 2000 listed shares with aggregate market value of over 4 trillion pounds about 1,000 companies are on the aim market the growth market for small companies our issuers operate in more than 100 different countries well for 500 listings are incorporated outside the UK depository receipts are traded on a dedicated market called the international order book also known as the IOB we have 263 instruments whose issuers are from 35 countries in particular 55 securities are incorporated in Russia making IOB the largest market in Russian instruments outside of Moscow about one third of the securities are from Asia mainly Taiwan India and South Korea last but not least exchange traded products also known as eg peas have seen tremendous growth in past couple of years we now have over 1,300 ET peas from 25 issuers listed on the LSE 11 of these are our QV chefs which give investors direct exposure to Chinese equity and fixed income markets LLC’s Sherriff trading accounts for 45% of the total European ETP market in the first nine months of 2017 assets invested in ETF listed in Europe increased 31% reaching a new record of 750 1 billion dollars London Stock Exchange has the biggest turnover inequities among Europe’s primary exchanges every day over 5.3 billion pounds worth of UK listed securities aren’t transacted on our markets despite the fragmented market structure in Europe Elysee enjoyed over 72% share of trading in UK listed securities on lit markets in October 2017 I believe many investors are familiar with the concept of market fragmentation in the US in this slide you can see for example in October 1998 about 90% of the S&P 500 stocks were traded on listed venues of the nicey or Nasdaq but in October 2017 only 25% were on these venues most of the liquidity in the u. s. is traded on alternative platforms which is the opposite experience for the UK in Europe method the markets and financial instruments directive went live on the 1st of November in 2007 promoting transparency competition and investor protection in February 2008 96% of the footsie 100 turnover was on the LSE and 4% on alternative venues today in October 2017 the share of trading on the LSE was 69 percent which is still more than twice the value traded on alternative venues here are the most traded companies of the footsie 100 ranked by average daily turnover from January to October 2017 we can see that the most liquid names such as British American Tobacco HSBC and Rio Tinto are well known brands and come from well diversified industries many of these stocks are listed or traded in multiple venues and time zones for example HSBC Prudential and Standard Chartered are listed in both the UK and Hongkong and many of these names have a DRS traded in the US let’s look at the industry weighting of the footsie 100 and 250 the industries which are most heavily weighted on the footsie 100 are the financials at 23 percent followed by consumer goods at 19 percent and oil and gas at 14 percent for the footsie 250 the biggest industry is still the financials at 35 percent followed by industrials at 26 percent and consumer services at 18% besides the blue chips and mid caps many investors are interested in growth companies LLC’s alternative investment market aim is one of the world’s most successful growth markets here are some figures from 2014 to 2017 average share price increase of the companies which joined aim was 54% in the last 10 years average market cap of aim companies increased from 41 million pounds to 97 million pounds and their average money raised at IPO rose from 23 million pounds sixty two million pounds in the last three years 76% of all capital raised in European growth markets was through London’s aim aim is also very international in the past five years ninety six international companies floated our name in total 17 percent of aim companies are incorporated outside of the UK let’s look at the industries of aim companies among the total capitalization of 100 billion pounds 18 percent comes from consumer services 17% from financials and 16% from industrials some of the companies grew from small enterprises to industry giants the table on the right shows the top 10 aim companies by market capitalization in September 2017 for example a sauces of global online fashion and beauty retailer it was admitted to aim in 2001 raising 300 thousand pounds with a market capitalization of twelve point three million pounds today it has grown into a company with a market capitalization of over 5 billion pounds another example Hutchison China Meditec the holding company of a pharmaceutical and healthcare group based primarily in China was admitted to aim in 2006 with a market capitalization of about 140 million pounds by the end of September as shown on the table the company had grown to 2.4 billion pounds in October is successfully conducted further issues which made it a company worth over 3 billion pounds moving to the International order book the IOB a dedicated market for global depository receipts also known as GDRs IOB offers cost efficient access to some of the world’s fastest growing markets through 263 GDR instruments from a hundred and forty four issuers of 35 different countries mainly Russia Taiwan India South Korea and Egypt investors can trade in the currency rules and settlement regimes that they are familiar with securities are denominated in u. s.
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dollars can be centrally cleared at the London Clearing House and are settled in Euro clear io B’s daily turnover is 354 million dollars on the order book the table on the right shows a 10 most traded IOB company’s majority are Russian companies with Samsung Electronics the most liquid from Asia trading about 221 million dollars per day the graph on the Left shows a daily value traded for Samsung electronic GDRs for with its common shares and preference shares combined and the ggr share price of its common share line SMS n we can see a growing trend for both the turnover and share price from the beginning of 2016 Samsung Electronics started trading on the London Stock Exchange in GDR form in 2001 it has its own price formation in London after South Korean market closes or during trading holidays in the local market its turnover in London is about 6% of its turnover in the South Korean market according to the feedback from our investors the GTRs and Samsung Electronics who provide them with trading and hedging opportunities when the local market is closed the overlapping trading hours between the US and UK has also helped to enhance its liquidity as an important part of LLC’s equity product suite now let’s take a closer look at the LLC’s exchange traded products which include etf’s exchange traded funds ET sees exchange traded commodities and ET ends exchange traded notes globally ETB assets have been growing 25 percent annually since 2003 assets invested in ET peas listed globally reached a record high of four point three trillion dollars in September 2017 assets invested in ETFs listed in Europe have increased over 31 percent in the first nine months of 2017 to reach a new record of 750 1 billion dollars accounting for 17% of total global assets equity ETFs gathered a record level of 51 point five billion dollars of net inflows in the first nine months fixed income ETFs had net inflows of twenty two point eight billion dollars which was less than the same period last year make the commodity ETS net inflows were at seven point six million dollars again less than last year LSE is a market leader in ET peas by the end of October 2017 we have over 1,300 ETS and other ET peas from 25 issuers they are available in six currency lines pounder pence sterling US dollars euro CNY Hong Kong dollars and Swiss franc LS sees on exchange Sheriff trading takes 45 percent of all ETFs traded in Europe 20 registered market makers constantly provide two way prices and over 200 member for participate in the trading London Stock Exchange group was voted the most proactive ETF exchange in Europe and the largest exchange for ETFs in Europe at the 13th annual global ETF Awards in New York our order book activity for these products is rapidly growing in 2016 our order book turnover neared 100 billion pounds by October 2017 seventy seven point three billion pounds were traded on the order book with an average trade size of 38,000 pounds we have seen a 94 percent increase in order book turnover of over the past five years looking at the number of products by asset class and trading currency you will see 56 percent of our products are equity TTP’s followed by 22 percent commodity and 17 percent fixed income in terms of currencies many people may not know that 50 percent of the products are traded in u. s. dollars pound sterling and pence sterling denominated products combined only take up 42 percent the most liquidity piece on our order book are again equity products mainly tracking the footsie 100 and S&P 500 for fixed income products tracking emerging market bonds corporate bonds and high yield corporate bonds are among the top three in terms of liquidity and for commodity ETS the most traded once tracked gold silver and oil in order to access such a wide range of equity products on the London Stock Exchange here I would like to give you an overview of our trading services there are three trading services sets sets Q X and IOB sets is our flagship electronic order book it allows market maker executable quotes and provides central counterparty clearing for anonymous pre and post trading investors can access both lit and dark liquidity on sets through the mid price pegged order for example one can rest orders pegged at the mid price of the primary market bid and offer and interact with both lit and dark contour liquidity instruments traded on sets include the footsie 100 footsie 250 fritzy small cap indexed constituents each EPS and liquid aimed securities sets QX is designed for securities less liquid than those traded on sets it combines continuous quote driven market supported by market makers providing two way quotes with 5 electronic auctions 8 a. m. 9 a. m. 11 2 p. m. and 4: 30 5 p. m: last but not least the International order book it is dedicated for the trading of global depository receipts using the same online technology as sets market maker executable quotes are enabled and almost all securities are traded in US dollars given the UK markets are open between the trading hours of Asia and the Americas investors from around the world can easily participate during the UK trading hours the two major regular trading sessions of sets trading services start at 8: 00 a. m. and finish at 4: 30 p. m.
before the market opens in the morning there is a 10 minute opening auction call from 750 until 8 in the midday there is a 2 minute midday auction after regular trading in the afternoon the closing auction runs from 4: 30 to 4: 35 p. m: after that investors can still trade for another 5 minutes at the closing price during the close price Crossing session auctions can represent as much as 30% of the LLC’s daily turnover we also provide various order types to trading participants including market limit stop and stop limited which are familiar to many brokers and investors recently icebergs and hidden orders such as the mid point that we spoke about earlier are becoming increasingly popular if you are interested to see how these order types work please visit the london stock exchange website and consult your brokers the LSE has 350 3 member firms which can help you access our markets DLSE is an international stock exchange and many of our members have parent companies outside the UK such as the US and Asia in 2015 LSE PLC was granted licenses by the Hong Kong Securities and Futures Commission to provide automated trading services in Hong Kong for LSE equities and derivatives we have seen an increasing number of member firms from Greater China 11 so far in total please contact your broker see if you are considering accessing the London Stock Exchange markets we hope this presentation provides you with an overview of our equity products and markets access if you have further questions please get in touch via this contact thank you for listening you..