Many credit the financial development of the United Kingdom as a cause of the Industrial Revolution which got underway there in the late 18th century. Of course, stock exchanges may have had their own role to play in funding industry. However, it was not the London Stock Exchange that filled this role, either alone or even primarily. Until well into the 19th century, the exchange in London was hardly active in hosting trading in the shares of private firms. This was largely left to a number of regional exchanges, active in the country outside London. These provincial exchanges listed the shares of new firms sprouting up across Britain, including those issued by rapidly multiplying railway and banking companies.
One of the largest and oldest stock exchanges in the world, the London Stock Exchange was arguably established back in the 1690s. Yet, in its early history, it was hardly active in the trading of shares in private companies. Indeed, the exchange hosted trading almost exclusively in government securities for its first 150 years in operation.
Listed private firms were very few and they consisted of the Bank of England, the British East India Company, and the South Sea Company, firms that were in any case closely tied to the government at the time, essentially quasi-governmental institutions. Even 150 years later, in 1840, only 11% of securities traded on the London market were not issued by a government. If we exclude the aforementioned government sponsored entities and count only ‘true’ private firms, this was even less.
When it came to British government securities though, the exchange was no doubt the dominant trading venue. Even investors outside London, and outside England altogether, traded in these securities chiefly in London. Consider that though a stock exchange was established in Dublin in 1799, Irish banks would nonetheless give their London agents power of attorney to trade on their behalf in the London market. Only in London was the market for these securities large enough and well organized enough to cope with large orders. As one of the world’s largest and most organized exchanges, it has received the most scholarly attention, at least in Britain. That said, after the mid-19th century, it was no longer the only stock exchange in the country.
Railways and Exchanges
The rise of Britain’s provincial stock exchanges, those outside the capital, is closely tied to the Industrial Revolution. In fact, it was during the first railway boom of the 19th century that new stock exchanges were formed outside London. In 1836, new exchanges were formed in both Liverpool and Manchester. The one in Manchester would go on to be the largest provincial exchange in the country; it would grow to cover trading in 282 listed securities by 1870 and 378 by 1900. The Liverpool exchange would be the second largest and not that much smaller than the one in Manchester.
Railways and banks, of which many were formed in the 19th century, were each more likely to list on provincial exchanges. After all, many of these firms were established outside London and they captured the interest of local investors, the nouveau riche industrialists of the 19th century, who seeded these ventures in their own backyard. Investors in London would often have little interest in or even basic familiarity with these local firms so trading in their shares was left almost exclusively in the hands of the provincial exchanges. For example, in 1840, only a little over one-third of Scottish securities were also traded in London, the rest found a market only locally.
In the case of comparing London to Edinburgh, consider two brokerage firms active in the 1830s, the London-based Marjoribanks, Capels & Co. and the Edinburgh-based John Robertson & Co. The London firm was the far larger company and did £1.5 million in business per month, virtually all of it in British or foreign bonds, not in the shares of private firms. Non-government issues, even from domestic firms, were largely alien to their business. By contrast, the Scottish broker did just £13,000 of business per month but virtually all of this was in the shares of local private firms. The nature of their markets could not be more different.
A second wave of railway formation took place in the mid-1840s and this coincided with yet another wave of exchange formation. New stock exchanges were launched in Glasgow, Aberdeen, and Edinburgh in Scotland, all between 1844 and 1845, and other new exchanges were founded in twelve English towns and cities. Some were rather small, listing shares in only a few dozen firms, while others achieved far grater success, largely on the backs of railway firms. By the end of 1845, the exchange in Glasgow hosted trading in 110 listed railway companies alone.
Listing and Location
At least in the first half of the century, simple geography had much to say about the reason for the new exchanges. While London-based and foreign firms usually opted to list in the capital, regional companies often chose to list on a provincial exchange, one closer to their existing investors and where their name would be most recognizable in this era of less instantaneous communication.
Smaller firms were also more likely to rely on a provincial exchange, unless they were London-based or located elsewhere in the South-East of England, in which case the London Stock Exchange was of course their local market. Larger firms located outside London might list on their local exchange as well as in London; this cross-listing was a common practice with many firms listed in multiple provincial markets or in both London and in the provinces. While location and size influenced listing choices so too did industry. Over time, the regional exchanges developed industry niches corresponding to their local economies – engineering firms in Sheffield, iron and coal companies in Glasgow, shipping in Cardiff, and insurance in Liverpool.
As time and technology progressed, listing location began to matter little; listing locally simply diminishes in importance in a period of rapidly improving communications. In the middle of the century, telegraph offices were opened near or even in stock exchanges and telephones allowed for further integration. The floor of the London Stock Exchange was even linked to the local telegraph office by a system of pneumatic tubes, all to enable quicker communication.
Firms with shares cross-listed on more than one exchange saw little price advantage in one as compared to the others. No longer would merely local supply and demand conditions determine the price of a security on any particular exchange. Indeed, from the 1890s onward, provincial markets became more correlated with price movements in London and vice versa.
Collectively, the provincial exchanges were not at all miniscule in comparison to London. Whereas there were 440 companies whose shares were traded chiefly in London in 1869, there were still 353 chiefly traded on provincial exchanges. Excluding foreign companies listed in Britain, provincial exchanges actually saw more domestic companies’ shares listed than did the London Stock Exchange. Sixty years later however, it was another matter entirely. By 1929, just 279 companies’ shares were chiefly traded in the provinces as compared to 1,360 in London. Further, many of these companies listed in London only saw trading there, rather than also being listed in the provinces. Though around 40% of listed securities traded only in London in the late 1860s, by the late 1920s this had risen to 75%.
The increasing reliance on London is at least partially explained by the relative decline of railway and bank listings which were disproportionately served by provincial exchanges. Many railways and banks merged through the turn of the century, reducing the number of listed stocks covered by the smaller exchanges. Seven of the dozen or so English exchanges formed in the second wave of railway formation did not survive the dissipation of railway mania. Over time, the proportion of London-based and foreign firms listed in the United Kingdom grew, giving the capital city a further advantage.
Curiously enough, even more exchanges opened or reopened during this period. This included new exchanges in Scotland, at Dundee in 1879 and Greenock in 1888, and Ireland, at Cork in 1886 and Belfast in 1897. Those established in England and Wales included new exchanges in Oldham, Cardiff, Halifax, Huddersfield, Bradford, Swansea, Nottingham, and Newport. In absolute terms, the trading volumes of the provincial exchanges were still growing, at least until the last years of the century, even if their relative importance and market share fell.
After 1900 though, the provincial exchanges began to lose ground more definitively. Consider the Scottish exchanges as an example. By 1959, the exchange at Greenock had just sixteen members, the one at Aberdeen just nine and Edinburgh had fifty-four. True, Glasgow’s exchange still had 136 members but even this was just over half the number in 1914.
In the 1960s, these provincial exchanges amalgamated. In Scotland, the Scottish Stock Exchange was formed, a combination of the existing exchanges save the one at Greenock which simply shut. In 1973, the last of the old provincial exchanges, including the last exchange in Scotland, merged with the London Stock Exchange. The United Kingdom had just one stock exchange yet again.
Though London’s may have been the first, many cities in Britain and Ireland housed stock exchanges at some point in the 19th century. However, their origins and roles were very different. The establishment of London’s exchange was tied to the reorganization of the public finances that saw the consolidation of the public debt and schemes to finance or refinance that debt, from the establishment of the Bank of England to the South Sea Company. The other exchanges, which used to be numerous but are today extinct, had their origins in the Industrial Revolution and the myriad of new private ventures it spawned. Though they may no longer exist, they were underappreciated participants in the country’s financial story.
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1. Michie, R.C. “The London Stock Exchange and the British Securities Market, 1850-1914.” The Economic History Review, vol. 38, no. 1, Feb. 1985, pp. 61–82.
2. Rogers, Meeghan, et al. “From Complementary to Competitive: The London and U.K. Provincial Stock Markets.” The Journal of Economic History, vol. 80, no. 2, June 2020, pp. 501–530.
3. Rogers, Meeghan, et al. “The Rise and Decline of the UK’s Provincial Stock Markets, 1869-1929.” QUCEH Working Paper Series, No. 2016-03, Queen’s University Centre for Economic History (QUCEH), Belfast, 2016.
4. The Newsroom. “A History of Scotland’s Stock Exchanges.” The Scotsman, JPIMedia Publishing Ltd., 18 Mar. 2016.