UK Financial Markets Overview Flashcards

What is the primary function of the London Stock Exchange (LSE)?

Answer: To provide a marketplace where buyers and sellers can trade shares and other securities

The London Stock Exchange provides a regulated market where companies can list their shares and other securities, enabling investors to buy and sell those securities in an organised and transparent environment.

What is the difference between the primary market and the secondary market?

Answer: The primary market is where new securities are first issued; the secondary market is where already-issued securities are traded between investors

In the primary market, companies raise new capital by issuing shares or bonds for the first time (e.g., via an IPO). The secondary market is where investors subsequently trade those already-issued securities among themselves.

What is the role of a 'market maker' on the London Stock Exchange?

Answer: To provide continuous two-way prices (bid and offer) for securities, ensuring market liquidity

Market makers quote continuous bid (buy) and offer (sell) prices for specified securities, committing to buy or sell at those prices. This provides liquidity, meaning investors can always buy or sell shares quickly.

What does the term 'gilts' refer to in UK financial markets?

Answer: UK government bonds issued by HM Treasury

Gilts are UK government bonds — debt securities issued by HM Treasury to finance public spending. They are called gilts because the original certificates had gilded edges. They pay a fixed coupon and return the principal at maturity.

What is the FTSE 100 index?

Answer: An index of the 100 largest companies listed on the London Stock Exchange by market capitalisation

The FTSE 100 is a market capitalisation-weighted index of the 100 largest companies listed on the main market of the London Stock Exchange. It is the primary benchmark for the performance of UK large-cap equities.

What is 'stamp duty reserve tax' (SDRT) and when does it apply?

Answer: A 0.5% tax on the purchase of UK shares traded electronically through CREST

SDRT at 0.5% is charged on the purchase of UK shares settled electronically via CREST. It is paid by the buyer and collected automatically at the point of settlement. Physical share transfers use Stamp Duty, also at 0.5%.