The City of London

The Square Mile of the City of London has fewer than 10,000 residents and 300,000 people working in it. It is home to some of Britain’s greatest buildings and has played a key role in its history for centuries, contributing 3 per cent of the UK’s gross domestic product. It is still at the heart of the world’s economy, as it has been since Roman times, with 75 per cent of Fortune 500 companies having offices there and more than $750 billion in foreign exchange traded every day.

Some of the related figures are staggering, but they give an idea of the scale of the financial operation that takes place in the City:

• there are 350 foreign companies listed on the London Stock Exchange
• 70 per cent of all Eurobonds are traded in London
• around 20 per cent of the world’s annual bank lending is arranged in the UK
• £2,700 billion of assets are under management in the UK
• there are 287 foreign banks and more than £1,400 billion pension funds assets in London
• the UK’s annual insurance premium income is more than £150 billion.

While the reputation of the City is built around its role as the world’s premier financial powerhouse, it has a number of other areas of employment. For example, it has its own police service and acts as a port authority; it is the third largest funder of the arts in the UK; it runs three commercial food markets and over 10,000 acres of open space around the capital. It regularly entertains foreign heads of state and even maintains the four bridges across the Thames into the City, all at no cost to the taxpayer. It is rich, but it carries out immense charitable activity, including a vast grant-giving charity, affordable housing, schools and hospitals.

It is impossible in this short article to give more than just a taste of some of the organisations that make up this unique institution, together with an explanation of the main roles of the key players.

The Bank of England

The Bank of England is the central bank of the UK. It sets interest rates to meet the government’s inflation target, it runs the government’s stock register and it prints bank notes for England and Wales. It operates a payments system for the markets, and collects and publishes money and banking data to monitor the stability of the financial sector. It no longer supervises other institutions, and is not responsible for managing the government’s debt or issuing Treasury bills and gilt-edged stock.

Merchant banks, clearing banks and building societies

Merchant banks are basically business banks. They lend money to big businesses, they invest, they finance initiatives including flotations on an exchange and the issue of shares, and they deal on financial markets. Private individuals can invest with a merchant bank, if they have a large enough sum available, but their core business is investing in industry and commerce.

Clearing banks are the high-street banks where most people keep their money. They run cashing accounts and deposit accounts that earn interest, they finance small businesses, they lend money to individuals, and provide a range of insurance, mortgage and pension advisory and selling services. They invest in the markets and in big business in a similar way to merchant banks but their primary focus is the customer.

Until a few years ago, building societies borrowed money from investors and lent to people buying houses using mortgages. They included an element of life, and house and contents insurance as well, primarily to protect their investment. More recently, they have effectively become banks, offering customers current accounts, loans and similar advisory and selling services.

Markets

The City is home to several markets where traders buy and sell a variety of assets on their own behalf or for clients. Simply described, market makers set prices at which they will buy and sell the asset they are registered to trade in, with the difference between buying and selling price known as ‘the turn’ on which they make their money. Brokers represent clients and invest their money for commission. They deal directly with market makers.

The best-known market is the London Stock Exchange. This is the world’s largest market for stocks and shares. (Stock is a loan to a company that returns a set rate of interest and repayment at the end of the period, while shares are ownership of part of a company that carry the right to a share in its success, called dividends.)

The Alternative Investment Market (AIM) is the part of the Stock Exchange that specifically meets the needs of smaller, growing companies that do not fulfil the strict criteria for a full listing but still require access to the type of finance available through the markets.

The London Metal Exchange (LME) is the world’s biggest market dealing with non-ferrous metals. It trades in aluminium, copper, zinc, nickel, lead, tin and silver.

Euronext-LIFFE (London International Financial Futures and Options Exchange) deals in derivatives, which are instruments through which the world’s biggest financial institutions can hedge against changes in interest or exchange rates. This means that they can manage risk by buying and selling at prices agreed for a specified time in the future.

The International Petroleum Exchange (IPE) was formed after dramatic oil price fluctuation showed that market stability was over and that companies would need to hedge against future changes. It uses new trading instruments, including swaps, futures and options.

The London Clearing House clears trades at LIFFE, LME and IPE. Its staff calculate margins and monitor positions constantly, and administer all payments and receipts. It ensures that all deals made are properly administered and settled within the due time.

Lloyds, the world’s best-known insurance market, is still the leader in marine insurance and a major player in aviation insurance. It is home to more than 100 separate businesses, which compete and cooperate to offer terms of insurance. Corporate bodies are now also able to invest in this market. Reinsurance is also big business in the management of risk.

Staying in the maritime area, the Baltic Exchange is the world’s only self-regulated shipping market. Its members match shipping with cargoes, buy and sell ships and aircraft, and deal in freight rates and futures.

Lloyd’s Register, founded in a London coffee house, produced ‘A List of Ships’ in 1760. It has evolved into the world’s leading ship classification register with a great deal of shipping obeying its construction and survey rules. It inspects shipping to ensure that it obeys national and international regulations, as well as certifying offshore structures and even some land-based industries.

Regulation

The Financial Services Authority (FSA) has taken over from several smaller regulators and looks after everything from shares to insurance, and from stocks to mortgages. For multinational organisations, regulation needs to be international, so the FSA works with its counterparts in other financial centres. Its Complex Groups Division deals with financial conglomerates in the City.

Employment

City institutions employ a vast number of people from an equally vast variety of backgrounds. Front-office staff are those who deal directly with clients or other traders, while people in the back office carry out all the functions that support trading.

Front-office jobs include market makers, brokers, dealers, traders, advisers, consultants ... and many more besides. It can tend to be a young person’s business – many of them work very long hours under extremely high pressure and burn out by the time they are 40. They may make a great deal of money if they are good and quick, but much of it will be on commission and therefore performance-related.

Back-office jobs are hugely varied. In direct support of the front office are investment analysts, who research companies, products and even entire economies to forecast performance and trends. Settlement staff ensure that trades and the billions of pounds that change hands every day are properly accounted for. Compliance staff check internal procedures and practices in companies.

With the vast number of systems in use, IT skills are much valued. When a system goes down, every minute can cost an organisation millions of pounds, so it needs to be up and running again as soon as possible. City companies like Reuters and Bloomberg specialise in the provision of detailed financial information to the screens of companies subscribing to their services.

Facilities managers look after security, administration and cleaning. Each organisation needs paper, duplication, post and printing. Telephones, computers, faxes and photocopiers require installation, maintenance and repair. Staff need desks, chairs, food, ventilation and heating.

Training

It is impossible to cover all the courses that get people ready for a career in the City. A course in computer networking will suit some people, an accounting or legal qualification will be right for others, while yet more would benefit from learning a second or even third language (useful in an institution that may see itself as an international player). Computer literacy is a must – even to find out about employment opportunities people are directed to pages on a website.

Salaries

Pay varies enormously with the job, although central London salaries are usually higher that elsewhere in the UK due to the higher cost of living. Junior staff might expect to start at £10,000 with the sky being the limit at the other end of the spectrum. Job security, however, may not be particularly high in this cut-throat environment.

Recruitment

Many jobs are advertised on organisations’ own websites. However, a number of recruitment firms operate specifically or largely for City clients, which have a constant need for high-quality individuals in all their departments.

Contact details

All City institutions may be contacted through the City of London website at: www.cityoflondon.gov.uk