Pension contributions are invested through intermediaries in securities and other investment markets. Pension fund have a become a major force in securities markets because they hold about 28% of the securities listed on the London Stock Exchange. Total Pension fund assets are very big. To protect them the Pensions Act was introduced in 1995 to increase confidence in the security of the funds.
Investment trusts and unit trusts.
Both investment trusts and unit trusts offer investors the opportunity to benefit from pools investments, although their respective structures are somewhat different. Assets have grown considerably in the last few years. So individuals are attracted by the possibility to invest rather small amounts either on a regular basis, usually monthly, or in a lump sum.
Investment trusts companies are companies which are listed on the London Stock Exchange and must invest mostly in securities for the benefit of their shareholders. The trusts are exempt from tax on money which they get within the trusts. Some trusts specialize in particular geographical areas or in particular markets. At the end of June 1996 there were about 350 investment trusts companies listed on the London Stock Exchange.
In unit trusts the investors’ fund are pooled together but are divided into units of equal size. Unit trusts are open ended collective funds where the funds are managed by management groups. The unit trust sector has grown rapidly in recent years. Nearly three million people are estimated to have holdings in unit group.
The origin of the London Stock Exchange goes back to the coffee houses of the 17th century, where those who those who wished to invest or raise money bought and sold shares of joint-stock companies. Brokers later opened their own subscription rooms and in 1773 this was named the Stock Exchange. During the 19th century the Stock Exchange developed as the demand for capitol grew with Britain’s Industrial Revolution. The Exchange also financed the construction of railways, bridges and dams across the world. Today it is one of a number of highly organized financial markets of the City. It provides trading platform and the means of raising capital for British and foreign companies, Government securities, eurobonds and depository receipts. Official list is the Exchanges main market, while AIM, the Exchanges new market is for smaller rapidly growing companies. It opened in 1995. Companies which apply for a listing on the Exchange must provide a full picture of their operations, i9ncluding their financial record, management and business prospects. If a company wants to join AIM the rules are less strict. Such companies include multimedia and high technology business.
Today the Exchange has moved away from face-to-face dealing on the trading floor to system of dealing from member firms’ offices. The quotations are displayed on electronic screen. Before 1986 only British companies were allowed to operate. In 1986 deregulation, known as “the Big Bang” allowed any foreign financial institution to participate in the London money market. Other changes involved a system under which negotiated commissions were allowed instead of fixed rates and dealers are permitted to trade in securities both as principals and as agents. Traditional retail stockbrokers are facing growing competition from operations running by large banks and building societies.
The Exchange has its administrative center in London, with regional offices in Belfast, Birmingham, Glasgow, Leads and Manchester.
Many companies raise new capital on the London money market. The quiet-edged market, that is the market of Government shares, allows the Government to raise money by issuing stock through the Bank of England.
The Exchanges now going through a further period of change which has been described as the most significant period since “The Big Bang”.
London’s money markets channel wholesale short-term funds between lenders and borrows.