Executive Summary

Stockbroking in the UK is facing a period of significant change, as developments in technology bring new exchanges and new dealing practices into the market. The value of market turnover on the London Stock Exchange for 1995 is estimated to have broken through the £3,000bn barrier for the first time, reaching an estimated £3,113bn by the end of the year; 5.5% up on 1994 and in real terms more than 65% higher than 1990.

The UK securities market is dominated by institutions which own more than 62% of the shares on issue, compared with less than 18% held by private investors. However, industry watchers believe that cash from the big institutions is dwindling and as stockbrokers aim more marketing activity towards private investors they face increasing competition from new `execution-only' share services, private banks and a growing number of solicitors and accountants.

Institutional stockbroking has not escaped the spate of takeovers and mergers, which has left the City with only two independent private banks remaining and many leading brokers now part of very large overseas financial institutions.

Whilst some 21% of the UK's adult population own shares, more than half acquired them over 5 years ago, largely as a result of Government privatisations and only one in four made further investments during 1995. Nearly 20% have an option to buy shares in the place where they work, but only 8% do so.

Market makers' spreads, brokers' commission levels and the costs of new electronic trading systems are all under intense scrutiny, as the London stock market faces challenges from new exchanges and share dealing services over the Internet. In 1996, further difficulties are likely to arise, as the European Union's Investment Services Directive comes into effect, allowing stockbrokers to become remote members of other EU exchanges.

The approach to the next millennium could be a difficult time for the London stock market, as it strives to adjust to the many changes taking place in a period which includes a general election, the outcome of which is uncertain, and the possibility of a change in Government. Key Note is forecasting only moderate growth, with market turnover increasing at an average of 4% per annum to reach £3,657bn by the end of 1999. Trading in UK equities and bonds is likely to outperform gilts, which could suffer as a result of the fluctuating forecasts from Government for the performance of spending and growth in the UK economy.

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