Tradition and innovation can rub shoulders – Part 1

Innovation is borne out of adversity. Countless technological breakthroughs – including radar, jet engines, and nuclear power – emerged from research conducted during wartime. By Richard Latter

Sometimes though, innovation arrives out of necessity – you only have to look at the early stages of the pandemic, when a COVID-19 vaccine was expected to likely take years to develop. But ultimately, developing a vaccine took only a matter of months.

In turbulent times, the appetite for innovation, and the desire simply to change things for the better, is particularly high, but the rate of adoption can often be slow. The number of people who rejected the idea of a COVID vaccination is a reminder that not everyone is immediately willing to accept inevitable progress.

Nowhere is this uneasy relationship between tradition and innovation more apparent than within the investment industry. The concept of owning shares in publicly-traded companies – via specific stock ‘markets’ – can be traced back to the early 1600s. As the practice became more popular, more share owners recognised the benefits of pooling their capital with other investors to buy shares, and share the risks and the potential rewards.

The first stock listing

As the popularity of these joint ventures grew, the need for a formalised marketplace to trade shares emerged. In the UK, that marketplace began in the form of Jonathan’s Coffee House on Change Alley in 1698, broker John Castaing published the first recognised list of currency, stock and commodity prices in a newspaper called the ‘Course of the Exchange’. This was the site, and the beginnings, of the London Stock Exchange. And their motto to this day is “Trust and Innovation since 1698”. That coffee house location is where London’s newest stock exchange, IPSX, is headquartered today.

For centuries, buying and selling shares in the UK was largely the preserve of wealthy individuals and the ‘merchant classes’, as well as early institutional investors. As more companies issued shares and stock markets evolved, investing became slightly more accessible to a broader number of investors. But you have to fast-forward to the mid-1980s to when the democratisation of investing truly became widespread.

Big Bang theory

In 1986, the ‘Big Bang’ was the name given to a series of UK-based reforms designed to modernise, deregulate and liberate the financial industry, and remove some of the restrictions and barriers that had been in place for decades. One of the biggest changes was the introduction of electronic trading systems which revolutionised the process of buying and selling shares. Before then, trading was mostly conducted on the stock exchange trading floor, through the same ‘open outcry’ system used since the 17th Century. But since the Big Bang, most trading takes place electronically, aided by computer networks and sophisticated trading platforms.

Electronic trading has increased speed, efficiency, and transparency in the markets. Whilst share certificates continue to exist, the majority of shares in the UK are now held in dematerialised form and are settled in Crest, which was first introduced in the mid 1990’s and is a UK-based central securities depository that holds UK equities and gilts and provides for the simultaneous exchange of payment and securities at the moment of settlement.

The Big Bang’s impact was a paradigm shift, transforming London into a global financial hub, attracting international firms and foreign investment, and expanding the scale and sophistication of the UK’s financial activities. It also resulted in the development and growth of new financial products and services available to a broader customer base. Around the same time, the UK public were being encouraged to own stakes in many formerly state-owned enterprises, everything from telecoms to steel. And in the case of British Gas, following a highly popular tv ad campaign (‘Tell Sid’) millions of Britons took money out of their savings, and bought shares by posting in a cheque to participate in the company’s initial public offering (IPO).

Other countries followed the UK’s lead, and the modernisation – and expansion – of financial services transformed financial markets worldwide. Investors today have far greater control, access to information, and options for executing trades compared to the traditional methods of the 1980s.

Overall, the result of this innovation helped to make investing more accessible, efficient, and global.

But today, those practices seem old-fashioned. The way that companies list and offer shares today, and how investors choose to actively buy and sell them, has changed across multiple levels, driven by advancements in technology and market infrastructure.

The idea of commercial real estate investment via a property stock exchange would have been unheard of in the 1980s. But thanks to a number of technological innovations, IPSX – which runs the world’s first regulated commercial real estate stock exchange – is making investing in commercial property and buying and selling shares in commercial real estate, something easily achievable. In part two, we look at some of the future innovations likely to reshape investing, particularly commercial real estate investing, as we know it.
 

Richard Latter is Director of Distribution at IPSX, the world’s first regulated stock exchange, dedicated to trading commercial real estate.