Реферат: The City of London and its role as a financial centre

Pension Funds.

Pension Funds collect savings Pension Funds collect savings from occupational pension schemes and personal pension schemes. 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.

Specialized institutions.

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”.

Money markets.

London’s money markets channel wholesale short-term funds between lenders and borrows. These operations are conducted by all the major banks and financial institutions. The Bank of England regulates the market. There is no physical market place; negotiations are conducted mostly by telephone or through automated dealing systems. The main financial instruments are CDs (Certificates of Deposit), bills of exchange, Treasury and local authority bills and short-term Government stocks.

Financial Futures and Traded Options.

Financial futures are legal contracts for the purchase or the sale  of financial products, on a specified future date at a price agreed in the present. Trading and financial futures developed out of the numerous futures markets in commodities which originate from London’s position as a port and from Britain’s need to import food and raw material.

Options  are contracts which give the right to buy or sell financial instruments or physical commodities for a stated period at a predetermined price.

Financial futures and options are traded on the London International Futures and Option Exchange (LIFFE) which was established in 1982..

Commodity Exchanges

Britain remains the principal international center for transactions in a large number of commodities, though the consignments themselves never pass through the ports of Britain. The need for close links with sources of finance, shipping and insurance services often determines the locations of these markets in the City of London. There are futures markets in cocoa, coffee, grains, rubber, sugar, pigmeat,  potatoes there.

Gas, oil for heating and petroleum are traded through the International Petroleum Exchange, Europe’s only energy futures exchange.

Copper, lead, zinc, nickel, aluminum, aluminum alloys and tin are treaded through the London Metal Exchange (LME), the world’s largest non-ferrous base metals exchange.

The Baltic Exchange is the world’s leading international shipping exchange. It contributed to 292 Mln pounds in net overseas earnings to Britain’s balance of payments in 1995. Baltic dealers handle more than a half the world’s bulk cargo, transportation of oil, ore, coal and grain. All Britain’s agricultural futures markets are operated from the Baltic Exchange and physical trading and commodities is also carried out there.

Chapter 4.

The International Role of the City of London in the World Monetary and Currency Fields. 

A recent comprehensive study of four world cities - London, Paris, New York and Tokyo - confirmed many strength of London and described it as possibly the most international of all world cities. The study said that London and New York are the only two pre-eminent international financial centers with advantages over other cities. One city that is emerging as a financial center of the Asian continent is Tokyo.

Strengths of London include:

1.   The concentration of business and service functions - among them support services such as legal services, accountancy, and management consultancy.

2.   Efficient world-wide communication links.

3.   A favorable position in the time zone between the United States and Far East.

4.   A stable political climate.

5.   World-class service industries including hotels, restaurants, theaters and other cultural attractions.

Britain and the City of London as a financial symbol, encouraged international liberalization in financial services. It played a major role in negotiating agreements closely connected with GATT (General Agreement of Tariffs and Trade) as well as negotiations within the Organization for Economic Cooperation and Development. Briefly, apart from  world-wide insuarence and banking strength, Britain’s important features include:

·    Its foreign exchange market,. whose daily turnover of 294 Mln pounds in 1995 represented 30% of Global turnover and was more than the turnover of New York and Tokyo combined.

·    The London Stock Exchange which is the biggest trade center for overseas equities in the world; it makes 55% of global turnover.

·    The world’s second largest fund management center, after Tokyo.

·    One of the world’s biggest markets in financial futures and options.

·    One of three largest international bond centers in the world.

Britain’s international role in the world monetary and financial fields became particularly in the late 1980s.

Deregulation has been the main catalyst in increasing the City’s role as an international financial center. Fundamental reforms of 1986, known as Big Bang affected the London Stock Exchange tremendously, because any foreign financial institution can now participate in the London money market. “What we were trying to do”, in the words of a former Deputy Chairman of London Stock Exchange, “ was to create a new market, not one just oriented toward the UK, but one that can become international”. It was intended to secure London as the leading financial center of Europe, and the third in the world alongside New York and Tokyo.   

Many foreign banks and finance houses tried to profit from the deregulation, some by direct competition and others by buying long-established City enterprises. Before the Big Bang all  City stockbroking firms were British. By 1990 one hundred fifty four out of four hundred and eight were foreign owned. The main investors in British stockbroking are the United States, Japan and France (also see Chapter 2, The Stock Exchange).

British banks, insurance companies, building societies, and other money lenders often prefer to invest in other areas, rather than industry, in contrast with Britain’s competitors, for example Germany and Japan, where the level of industrial development is higher.

Britain strongly supports the removal of national regulations and exchange controls which restrict the creation of common market in financial services. London is a major center for international banking. Altogether five hundred sixty one foreign banks are represented in Britain. They employ about 40.000 people and provide different services in many parts of the world.

Japan and the United States are the two countries with most banks represented in London (see the table attached). Assets/liabilities of overseas banks in Britain have doubled in the last ten years. Overseas banks have a very high proportion of their operations in foreign currency.

Since the end of 1920s the Moscow Narodny Bank has been operating in London to deal with transactions with the Soviet Union and Russia now.

A number of British banks have their head offices in Britain but operate mainly abroad. Standard Chartered is the major bank in this sector: it has a network of over 600 offices in more than 40 countries and employs over 25.000 people. Standard Chartered’s activities are concentrated in Asia, Africa and Middle East.

British banks are developing innovative banking services in their overseas operations. For example Standard Chartered has opened the first fully automated branches in Hong Kong and Singapore. Satellite dishes have been installed in Barclays’ branches in Zimbabwe

London and Tokyo are the main world centers for eurocurrency dealings. The euromarket  began with eurodollars - US Dollars lent outside the United States - and now has developed into a powerful market of currencies lent outside their domestic marketplace. Transactions can be carried out in eurodollars, eurodeutschmarks, euroyen, and so on. So, euroloans are short-term trances (three to six months) given by banks at the LIBOR rates. Eurobonds are issued for periods of five to twenty years in currencies other than that of the issuing country.

The London International Futures Exchange trades on the floor of the Royal Exchange building. Over 200 banks and other financial institutions, both British and foreign, are members of the market. In fact over 70% are overseas-owned. They make contracts in British, German, Italian, and Japanese Government bonds.

In 1995 LIFFE announced new linking agreements with the Tokyo International Financial Futures Exchange and Chicago Board of Trade. In 1996 LIFFE merged with the London Commodity Exchange, which is Europe’s primary market for trading futures and options contracts in cocoa, coffee, sugar, wheat, potatoes.

Anyone may deal in gold but, in practice, dealings are largely concentrated in the hands of five members of the London gold market. Around 60 banks and often financial companies participate in the London gold and silver markets. Trading is done by telephone and electronic communications links. The five members of the London Bullion Market Association meet twice daily to establish a London fixing price for Gold and this price is a reference for world-wide gold dealings.

Chapter 5.

Recent Financial Institutions (the London Club, Britain in the IMF, British Banks in Russia).

The International Monetary Fund (IMF) and the London Club can not be properly described as recent institutions but it is important to note their recent activities in the light of the financial problems in Russia.

The IMF was founded in 1944 to secure international monetary cooperation and stabilize exchange rates. Operating funds are subscribed by member Governments according to the volume of their international trade, their national income and their international reserve holdings. Members with temporary difficulties in their international balances of payments may purchase or get credits form the IMF of the foreign exchange they need at fixed rates if they meet the required conditions. Russia applied to the IMF for credits.

Great Britain plays an important role in the IMF. On the 10th of September 1999 the Сhancellor of the Exchequer Gordon Brown was appointed to the Interim Committee of the IMF. The Committee was established in 1974 to advise the IMF on the management of the international monetary system as well as on dealing with any sudden shock to the world money system. The Chancellor will lead discussions on the reform of the Interim Committee after the proposals of the G7 Finance Ministers.

There will be also discussions on reforms to involve the private sector in presenting the world financial prices. It is the aim of IMF to relieve third world debt to avoid large-scale financial crises.

Among the recent developments it is important to mention the choice of London as the location of NASDAQ-Europe. In his speech on the 5th of November 1999, the Chancellor of the Exchequer Gordon Brown it was excellent news for the City of London to launch a joint venture to create a pan-European security market.

Gordon Brown said: ”NASDAQ’s  decision to locate its European exchange here represents a massive vote of confidence in the City. NASDAQ - Europe will strengthen the UK financial services industry and reinforce London’s position as one of the worlds’ top international financial centers”. Mr. Brown added, “NASDAQ’s presence here will be good for the wider economy too, not just in the UK but Europe as a whole. Job creation and economic growth depend on efficient capital markets sending funds to businesses to finance their expansion”.

An important move in the European monetary life was the introduction of a single European currency, the Euro, on the 1st of January 1999. A separate protocol recognizes that Britain is not obliged to join the currency without a separate decision by British Government and Parliament.

So far the Bank of England has not voted to adopt the single currency. On the 6th of September 1999  Mr. Cook , the Foreign Secretary, stated that if the Euro proves to be a success, it would be in Britain’s interest to join it. Britain will first have to test whether there is enough flexibility in British  economy and if the Euro will promote strong international investment and boost British financial services industry.

According to the decision of European Union (EU) Heads of Government single currency notes and coins will be introduced at the beginning of 2002 at latest.

The London Club set up in the 1980s under an agreement in London, comprises over 600 big commercial banks whose credits are not covered by government guarantees or insurance. There is a steering committee of the Club which operates between the Club’s sessions.  The Sessions are held at the request of the debtors in different cities of the world.

After the collapse of the USSR, the Soviet Union bank for Foreign Economic Affairs owed the London Club a total of over 32 Bln Dollars. Under the latest decision on restructuring the Russian debt it was agreed in February 2000 that the debt would be restructured. Nearly one third of the total amount will be written of and Russia will be allowed to have a grace period of seven years, during which it will pay only reduced interest rates on the remaining sum. In return, the Russian Government undertakes the responsibility for the debt and would be considered defaulting if it fails to meet the stated conditions.

Although the London Club is not entirely a British entity the title speaks for the significance of the city of London.

The world-wide network of British banks is not directly represented on Russian market. Operations available are carried out only through the branches of British banks based in other cities of the world.

Conclusions.

1.   Although historically the heart of the financial services sector in Britain was located in the “Square Mile” of the City of London, and this is broadly the case now, financial institutions have moved outside the area all over the country.

2.   The City of London is concentration of British financial power which makes London an angle of the New York-Tokyo-London triangular.

3.   Though Great Britain is still a leading industrialized nation and a member of G7 group it real power and international influence centers around its financial activities.

Reference list.

1.David McDowall, Britain in close-up/Longman Singapore Publishers Pte Ltd.

2.Britain’s Banking and Financial Institutions/Reference Services, Central Office of Information, London.

3.   Angela Fiddles, The City of London (the historic square mile).

4.   Talking Points on Britain’s Economy/October 1999, December 1999. 

5.   Банковское дело, выпуск №12, 1998г.

Appendix :

Table 1 .

Net Overseas Earnings of Britain’s Financial Institutions

Table 2.

Notes in circulation.

Source : Bank of England.

Table 3.

Major British Banks 1995.

Figure 1.

Major Banks lending to British Residents December 1995.

Table 4.

Largest Building Societies.

Table 5.

Overseas Banks in Britain

(Main Countries Represented).

Source: Bank of England.

Table 6.

General and Long-term Insurance Business 1985 - 1995.

General Insurance net premiums.

Table 7.

Growth in Unit Trusts and Investment Trusts.

Definitions.