Part III UK Derivatives, Money, and Debt Markets, 9 London Stock Exchange: Regulation of the Main Market and Alternative Investment Market (AIM)

This chapter focuses on the London Stock Exchange (LSE), which took its origins from the early days of trading in London's coffee houses. It talks about John Castaing, who began issuing a list of stock and commodity prices called “The Course of the Exchange and other things” in 1698 at Jonathan's Coffee House. It also mentions that trading occurred on an informal and unregulated basis until the aftermath of the South Sea Bubble, in which afterwards a new “Stock Exchange” was established in 1773. This chapter talks about the Financial Services and Markets Act 2000 (FSMA) that includes the bulk of the UK's current regulatory framework, the statutory basis for the regulation of the LSE. It points out the exemption of investment exchanges, such as the LSE, from the “General Prohibition” on the undertaking of financial services activities when they are subject to a recognition order by the Financial Conduct Authority (FCA).

The Informational Role of Investor Relations: Evidence from the Debt Market

We explore the role of investor relations (IR) in debt markets. Using earnings announcements as a laboratory, we examine whether, when, and to what extent IR departments help credit investors assimilate information. We find that the presence of IR decreases (increases) the negative (positive) impact on CDS spreads stemming from bad (good) earnings news, suggesting that IR efforts improve information precision and reduce transparency risk. Cross-sectional analyses suggest that IR matters more when uncertainty is high and creditors are concerned about the credit-risk implications of firm performance. We also find that IR firms receive higher credit ratings and fewer covenants when issuing bonds, and CDS markets react less negatively when IR firms' bond ratings are downgraded below investment grade. Because firms choose their IR activities, we show that our inferences are robust to multiple methods of addressing endogeneity. Overall, we find that IR departments are influential in debt markets.