Markets need to remain open

This has impacted not only the performance of individual pensions and investments, but also the real-world economy, affecting economic growth and, ultimately, jobs.

In recent weeks, the Organisation for Economic Co-operation and Development (OECD) has stated that for each month of containment, it expects there will be a loss of two percentage points in annual GDP growth in the major economies.

While markets have fallen sharply, it is important that stock exchanges remain open both to support companies who will continue to need access to capital and to ensure pricing is conducted in a fair and transparent manner for retail and institutional investors who need ongoing access to liquidity.

Over the last century, there have only been a few occasions where London’s markets have temporarily closed, the last being in 1987 when storm damage prevented traders from reaching their offices for a day.

Importantly, London Stock Exchange has never suspended trading due to market volatility. London Stock Exchange has a number of measures in place to ensure an orderly and fair market. These include price monitoring functionality, including so-called ‘circuit breakers’ or ‘price monitoring extensions’.

These will temporarily halt regular trading or delay an auction execution if certain price movement tolerances on a security are breached. These tolerances can differ per security, based on factors such as market capitalisation. Following the halt, the affected security is placed into auction allowing a price to be formed in an orderly fashion.

Multiple price monitoring extensions are not unusual, particularly during periods of extreme market volatility. Circuit breakers were first introduced in the US following the Black Monday crash in 1987 as a means of managing extreme volatility and preserving orderly trading. However, not all circuit breakers work in the same way. In the US, market-wide circuit breakers will enforce a trading halt for all stocks for 15 minutes.

London Stock Exchange’s price monitoring functionality instead employs a security-by-security price monitoring mechanism that allows trading to continue for other securities and for markets to remain open.

Despite the market turbulence, companies listed on London’s markets have not only been able to continue to access capital to strengthen their working capital requirements, but also to drive innovation.

In the first quarter of 2020, companies across a wide range of sectors, from technology to leisure, have raised almost £5bn in IPO and further capital, enabling companies to strengthen their balance sheets and liquidity positions. One such company was the AIM-listed Synairgen plc, who recently raised £14mto fund its clinical trial on the effectiveness of its SNG001 respiratory drug on COVID-19 patients.

Using the experience of the 2008 financial crisis as an example, we saw that companies were able to access markets very efficiently with new and existing investors willing to take a long-term view and to continue to deploy capital to support businesses. Our expectation is that investors will continue to do that through this crisis.

However, it will be important for companies to maintain good communication with investors. Firms that build trust through regular and transparent communication with investors are the ones that are better able to go back to their investors and raise further capital if they need to.

In fixed income, we strongly believe that social and sustainability bonds with use of proceeds aligned to funding essential services such as healthcare, water and sanitation, supporting employment, or with a link to the relevant UN Sustainable Development Goals can have a role to play in directing capital to initiatives that will help mitigate the impact of COVID-19.

Such instruments could help issuers in both developed and emerging markets unlock funding for a wide range of critical projects in both the short and long term.

We remain committed to supporting our clients and the development of the social and sustainability bond markets during this unprecedented period. London Stock Exchange will therefore be waiving admission fees for eligible bonds for an initial three-month period.

As in previous crises, stock exchanges not only enable investors to benefit from growth and opportunities created by UK and international companies, but also provide issuers with access to global pools of capital when they need it most, to fund innovation, sustain jobs and support the global economy.