We could potentially see changes to the FTSE 100 and FTSE 250 indices as a knock-on effect to proposals by the UK financial regulator to change the UK stock market listing rules.

The Financial Conduct Authority wants to make it easier for companies to join the UK stock market by revamping the listing requirements. One of the proposals is for the London market’s standard and premium segments to become a single category.

This matters to the FTSE 100 and FTSE 250 baskets of UK companies because only those in the premium listing category qualify for inclusion in the prestigious indices under the current rules.

By simplifying everything into a single category it implies that more companies could jostle for a place in these indices. That matters because investors often have exposure to these parts of the UK market through their ISA or pension through tracker funds.

WHAT ARE THE CURRENT LISTING RULES?

To stand a chance of qualifying for the index, a company must be in the premium listing category with a sterling denominated price and traded on the SETS electronic order book. It must also meet certain tests on nationality, free float (shares readily available in the market for trading) and liquidity.

Once a quarter index provider FTSE Russell reviews the value of qualifying companies in order to promote or demote names to and from different indices.

HOW MIGHT THE LISTING RULES CHANGE?

Frustratingly, FTSE Russell – owned by London Stock Exchange (LSEG) – seems to have been caught off guard by the FCA’s announcement regarding proposals for listing changes. That means we do not know how the index qualification criteria will change if the proposals are green-lit.

A spokesperson for the London Stock Exchange said: ‘At this stage we are reviewing the proposal.’ A message on FTSE Russell’s website says an update on the index rules will follow once the FCA has published its follow-up consultation paper in the autumn.

For now, all we can do is speculate about the names which might stand a chance of inclusion in the indices assuming the FCA goes ahead with the proposals.

WHO MIGHT SOON QUALIFY FOR FTSE INDICES?

Relevant names on the market which do not currently qualify for the FTSE indices because they have the wrong listing category – i.e., they are standard, not premium listed stocks – but might do under the new rules include fast food delivery firm Deliveroo (ROO).

Other names in the same situation include sequencing products group Oxford Nanopore Technologies (ONT), e-commerce platform provider/retailer THG (THG), leisure group Dalata Hotel (DAL), advertising agency S4 Capital (SFOR) and semiconductor specialist Alphawave IP (AWE).

Should any of these names qualify for the FTSE 250 (they are certainly the right size) as a result of the listing rule change then one could assume their shares would suddenly be in demand as relevant tracker funds would need to buy the stock to accurately mirror the performance of the index.

‹ Previous2023-05-11Next ›