Hello. My name is Clara Furse, and I’m chief executive of the London Stock Exchange.

The subject I’d like to discuss today is that of equity markets across the globe and their role in economic development. Inevitably, much of what I will touch on is drawn from my own experience at the Exchange and previous jobs elsewhere in the City. But, it is also based on two firm beliefs for which there is significant evidence: first, equities have proved to be the best performing asset class over the long-term; and second, of any asset class, equities provide the broadest and most direct exposure to – and alignment with – economic development.

The origins of share ownership and trading date back at least 400 years and are embedded in the concept of the company. The creation of companies in the early Modern era was a response to the vast cost and significant risk of conducting international business. When adventurers first wanted to fund their expeditions to the new world they knew that there was a very real possibility that they might never return. Pirates might intercept their vessels or bad weather could make a shipwreck of their fortunes.

To spread the risk, explorers and ship owners looked for a group of investors who would finance the expedition in return for a share of the proceeds if the voyage was a success. Investors were able to invest in more than one venture at once and so spread their own risk. The eventual formation of the Dutch East India Company in 1602 and the advent of the joint stock company made possible for the first time the selling on of such investments. It was this last innovation – making shares tradable – that created the necessary ingredients for a stock market. It made the prospect of initial investment more attractive because investors knew that they had a way to dispose of their economic interest should they need to. It thereby vastly increased the pool of potentially interested investors.

The high-tech stock markets of today, where shares change hands in a matter of milliseconds, may appear to bear little resemblance to the disparate collections of individuals who met informally to monitor stock prices and to exchange their paper certificates in the coffee houses of London over three hundred years ago. However, strip away the complexity and sophistication of modern markets, and the fundamental nature of an equity market, its raison d’être, remains the same.

Put simply, stock markets exist to bring buyers and sellers together for mutual benefit. They bring together those who have capital to invest with those who want to use that capital to fund business ventures. In return, investors large and small are given a stake in the enterprise and a share in its future.

The emergence of stock exchanges as discrete institutions over the last two centuries has been a largely organic process which has helped to facilitate the growth of the markets they serve. If in their first blush they were quite clubby, stock exchanges today, by and large, exist to create an environment as conducive as possible to the raising of capital and trading of shares. To be successful this process relies on trust. In essence, investors want to know they can trust that what they are being told about a company is a fair reflection of its activities and its prospects, and that their trading counterparties can be trusted either to pay for the asset or to transfer the asset. Successful exchanges therefore provide a neutral and regulated venue that is able to manage the potential conflicts of interest between the issuers, the investors and the intermediaries or brokers.

To gauge the extent to which the concept of the stock market has taken hold, one need only consider a few statistics. If one looks just in the UK, the market capitalisation of domestic companies amounts to over one and a half times the GDP of the country.

Companies listed in London raised £45 billion in new and further issues last year.

Almost every country in the world has a stock market of some sort, and the domestic capitalisation of those exchanges that are members of the World Federation of Exchanges now amounts now to over $60 trillion .

Why does any of this matter? After all, some people – even in the UK – think that what happens on the stock market doesn’t affect them. Indeed, the performance of companies on the stock market barely gets a mention on national TV in Britain, and when it does it’s usually because the news is particularly bad. And even then, the audience is rarely treated as if they are investors, or as if they have a financial stake in the company.

This is a real shame, because almost every significant company in Britain, nearly every salary that is paid and just about every citizen’s pension pot is dependent in some way on the health of the UK equity market. Without the superior returns that equity markets deliver over the long term, most of us would be a great deal poorer in retirement.

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