The Mother Of All Stock Exchanges

The London Stock Exchange started it all off.

If history had its way, it would only be right and proper that London Stock Exchange's (LSE: LSE) Xavier Rolet heads up the merged London and Toronto exchanges.

That's because the one he runs right now is the spiritual mother of many the world's securities-trading houses, including the Canadian one. And since Rolet will be chief executive, history really is having its way.

And for the same reason, the much older Deutsche Boerse should automatically take control of its merger with NYSE Euronext. But the New York exchange, which is nearly 220 years old if we apply the coffee-house test (see below), is assuming the mantle. So that's a draw for history.

Fuelled by caffeine

But let's look at the profound global influence of the LSE since a bunch of apparently uncouth and noisy traders got together at Jonathan's coffee house in Change Alley in 1698.

For a start there'd hardly be a Canada, as we know it, without the LSE because the public shares of its founding commercial entities such as Hudson Bay Company were held in London. The Toronto Exchange didn't see the light of day until late 1861.

In fact, applying the coffee house test again, the TSX is nearly 30 years younger than the Montreal Exchange, which started in Exchange coffee house in the city. Even the French-speaking bourse owes something to the LSE because it was founded by J. Lorn MacDougall of Scots extraction, who saw it as a child of the mother of all exchanges.

In passing, here's one to ponder for history buffs. When is an exchange an exchange?

Is it when a group of brokers formally establish an association, or when they open for business in a building, or when they just sit down in a coffee house and start trading securities, which is what a few New York traders did in Tontine's instead of standing on the kerb?

The Deutsche Boerse is in no doubt: it daringly hails 1585 as its debut when somebody first began running a market in securities, probably in a bierhalle.

Britain rules the exchanges

Look around half the planet and you see mum's many progeny.

One among several, the Alexandria stock exchange was established -- in the Café de l'Europe, believe it or not -- with the support of expatriate British brokers in 1883 and, in an unwanted demonstration of how the LSE model helped build an economy, it became the fifth-busiest in the world, until Egypt fell victim of centrally-run, Soviet-style policies and the exchange was put in mothballs for 30 years.

The Tel Aviv exchange, the only one in Israel and known generally as the "bourse", also owes its heritage to the LSE, having been established in 1935 by the Anglo-Palestine Bank.

And we haven't mentioned Asia yet, where the LSE model travelled with the expansion of the old Empire.

The Colombo stock exchange in Sri Lanka started in 1896, buying and selling shares in mainly British-owned plantations. By then, the Bombay exchange, which claims rather dubiously to be the oldest in Asia and inevitably modelled along LSE lines, had been operating for more than 20 years.

And so was the very British Hong Kong exchange in business by then -- it dates its origins to 1866.

As you would expect, it's the same story Down Under where the Australian exchange, now embroiled in its own much-disputed merger with its Singapore counterpart, harks back to the opening of the Sydney bourse in 1871.

The ASX started out proud of its British heritage but breast-beating patriots now fiercely defend its Aussie credentials, even though its 80 year-old merger partner is another child of the LSE. It first started trading under the umbrella of the Malaysian exchange. (Editor's note -- Aussie Fools will be pleased to hear we launched http://www.fool.com.au/ last week).

A century of mergers

And while we're picking over history's entrails, much has been made of the relentless pace of mergers as mighty exchanges crash together across the globe.

In fact, it was ever thus. Hardly were exchanges established than they began to merge, albeit within national boundaries, for exactly the same reasons as today. Namely, because improvements in communications and systems steadily made isolated exchanges vulnerable.

That's why the original Alexandrian and Cairo exchanges became the Egyptian one, while the Manila and Makati exchanges became the Philippine one.

New Zealand's four exchanges merged in 1974, Canada's three exchanges did so in all but name just before the turn of the millennium. Australia's six exchanges became what was eventually called the ASX, and today's Hong Kong Exchanges and Clearing is the combination of four different houses.

And it may not be too long before somebody snaps up the newly-opened Laos exchange. As the Financial Times reported, this hotbed of capitalism quotes just two shares, both in government-controlled companies. Plus ca change…

source - www.fool.co.uk