How to Invest in the London Stock Exchange - SmartAsset

The London Stock Exchange (LSE) is the largest in Europe, and the seventh largest globally, with more than 2,000 companies listed as issuers of debt or equity securities. Its listed companies represent more than 95 countries around the world, including 2,548 from Europe, 191 from North America, 133 from India and 19 from South America. It also claims to be the most diverse stock exchange on the planet in terms of where its investors are located. The total market cap for equities is more than 5.2 billion British pounds, which is the currency used for pricing.

Investing overseas can enhance your investment portfolio, but before you take such a step consider working with a financial advisor who’s familiar with global exchanges.

How the LSE Works

Securities on the LSE may be listed and traded any one of several major divisions. They include:

Alternative Investment Market (AIM), the exchange’s market for young, fast-growing small and medium-sized companies from around the world.
Main Market High Growth Segment, where mid-sized high-growth companies from the U.K. and Europe are listed.
Main Market Standard Segment, which is for more established companies that aren’t necessarily growing rapidly
Main Market Premium Segment, which has the highest listing standards and includes companies that are part of the FTSE indices.

LSE Listing Requirements

The different divisions all have different listing requirements. AIM has the least-restrictive standards and Main Market Premium is the most demanding in terms of requirements.

Main Market Premium companies can be located anywhere and must file a prospectus and eligibility letter with the Financial Conduct Authority (FCA), the U.K. independent financial regulatory agency and have a listing sponsor. They must have at least 25% free float and 75% of the business must be supported by a revenue of at least three years.
Standard Main Market companies can be located anywhere, must file a prospectus with the FCA and have at least 25% free float.
Main Market High Growth Segment companies have to be in the U.K. or Europe, submit an eligibility letter to the exchange and a prospectus to the FCA, have at least 10% float and have posted at least 20% compound annual growth for three years.
AIM companies can be located anywhere and must submit an admission document and declaration of suitability from a nominated adviser, which is a financial services firm approved by the LSE work with AIM companies

Largest LSE Stocks

The five largest stocks by market capitalization on the LSE include companies headquartered in Japan and Bermuda as well as the U.K. They are:

Toyota Motor Corp., Japan, a global automaker,
Unilever PLC, U.K., a worldwide consumer products company
Jardine Matheson Holdings LD, Bermuda, a Hong Kong-based trading company
Royal Dutch Shell PLC, U.K., parent of the Shell energy company
Astrazeneca PLC, U.K., a major pharmaceutical firm.

Special LSE Considerations

Stock brokers in front of a digital stock price screen

The LSE traces its origins to 1698, when a list of prices for stocks, currencies and commodities was posted at Jonathan’s Coffee House in London. In the intervening centuries, the exchange has relocated several times within the city and survived numerous wars and other crises, including a rocket strike in World War II that forced it to suspend operations for a day. In 1986 U.K. financial markets were deregulated in an event referred to as the “Big Bang.”

It ended the practice of charging fixed commissions and simultaneously switched trading from the traditional open outcry system using a trading pit to electronic screen trading.

How to Invest on the LSE

Investors can choose from several ways to invest in securities trading on the LSE, including opening an account with a foreign stock broker or international broker, buying American depositary receipts for LSE issues or trading Contracts for Difference (CFD) for LSE-listed shares.

The most straightforward way to trade LSE issues is to open an account with an international broker that is a member of the LSE. This allows investors located anywhere to trade LSE stocks in the form of global depositary receipts. These accounts typically require significant minimum deposits, however.

Another approach many U.S. investors favor is trading ADRs secured by LSE securities. These are listed on U.S. exchanges. Not all LSE companies will have ADRs, however.

The Bottom Line

The London Stock Exchange is one of the world’s largest and most diverse securities exchanges, listing companies from all over the world. It has several divisions for companies ranging from fast-growth startups to well-established blue chips. Investors from many different countries participate in trading on the exchange, including U.S. investors using international brokers and buying and selling ADRs listed on U.S. exchanges and using U.S. dollars.

Tips for Investing

If you are a retail investor and want to trade shares on the London Stock Exchange, an experienced financial advisor can help guide you through the process. Finding one doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready, get started now.
Since investing in non-U.S. securities can be more complicated than investing on a U.S. exchange, it’s important to keep close tabs on how much of your portfolio goes into such investments. A free, easy-to-use asset allocation calculator can be immensely helpful in keeping your investments balanced.