Given London's vibrant and varied trading history, it is not surprising that many UK companies listed on the London Stock Exchange are themselves geographically diverse with a broad range of business interests. In recent years, this dynamic has been reflected in the origin of profits and the locations of operations for companies listed on the Main Market. What this means for London as a financial centre is a dramatically different offering from most other markets, which primarily feature domestic securities and provide a snapshot of the local economy.
The UK's headline tradable index – the FTSE 100 Index (the 'FTSE 100')– is a prime example of the diverse nature of the companies listed on the Main Market. Most of its constituents' operations are not limited to the UK, with companies, including GlaxoSmithKline and Vodafone, instead having a corporate structure which reaches across the globe. Although the FTSE 100 is often thought of as a yardstick for the UK economy, its purpose is actually to capture the returns of the largest 100 companies domiciled in the UK. This index has fulfilled this purpose since its inception in 1984, providing a global measure that spans far beyond the UK economy.
As companies in the UK continue to expand and adapt their business models against a global backdrop, the UK stock market is set to grow and diversify further, creating a unique opportunity for London. The following section covers some of the key elements that underpin the UK market and set it apart from other financial centres across the globe.
A diversified investment landscape
Situated in the middle of the world day, the UK market enjoys unique exposure during its trading hours to investors around the world. As a globally recognised index provider, FTSE's UK Index Series is by no means confined to domestic investment, being widely followed by both retail and institutional investors. This ensures that no single group of investors dominates the share registers of UK listed companies. The combination of this global economic exposure and attraction of global funds ensures that the UK is less exposed to specific conditions pertaining to any one economy. In recent years, such factors have led to a wealth of companies showing an interest in Premium Listings to qualify for the FTSE UK Index Series, particularly the top two tradable indices – the FTSE 100 Index and FTSE 250 Index.
Inspiring investor confidence
As a financial market, London imposes some of the highest standards in the world for governance and investor protection. This inspires confidence in investors following the UK market and its major indices. Governance comes in the form of listing rules, company law and market practice, all of which are designed to protect shareholder interests and allow them to hold management to account.
This includes rules such as pre-emption rights, which offer shareholders any new issue of shares before being offered to non-shareholders. The purpose of this rule is to ensure that shareholders are able to prevent their stake from being diluted by new issuance.
Similarly, factors such as strict disclosure, which are included in company law and the UK's Listing Rules, are important, as they allow investors to assess companies in an accurate and timely manner. This focus on transparency remains the key to building trust amongst investors, which in turn leads to strong market activity, creating a more liquid market.
Ensuring liquidity
As an award-winning index provider, FTSE creates market-leading indices using robust data and methodologies, keeping tradability front of mind through the use of tough liquidity and market capitalisation screening. By doing so, FTSE ensures that its indices are highly suitable for the creation of financial products such as Exchange Traded Funds ('ETFs'), derivatives and structured products. The availability and proliferation of these products has not only increased opportunities for investors to .access the UK market, but has also provided a further catalyst for the increase in liquidity within the market.
The FTSE UK Index Series has been one of the most sought-after indices upon which products such as ETFs are built. The year 2000 saw the first ETF listed on the Exchange and based on the FTSE 100 Index. Many have followed since then. There are now over 350 ETFs admitted to the Main Market from major global providers including ishares, Lyxor and db-X trackers, with £58.4 billion in Assets under Management.
Companies incorporated in the UK looking to be included in the FTSE UK Index Series, and in particular the FTSE 100 Index, need to comply with the requirements of a Premium Listing, which go beyond the minimum standards set out by EU legislation.
For companies domiciled overseas which aspire to be constituents of the FTSE UK Index Series, the process works a little differently and involves a programme of engagement with FTSE, through the company's chosen corporate broker. FTSE is committed to working closely with a company to assess it against the relevant requirements. This process is normally undertaken well before the publication of the prospectus, giving the company enough time to understand the steps it may need to take to ensure its eligibility for inclusion in the index series.
The requirements these companies must meet include a wealth of reporting requirements, compliance with the UK Corporate Governance Code and the City Code for Takeovers and Mergers. By meeting these criteria, companies show their ability to adhere to good practice across several elements of business including:
board structure, accountability and relations with shareholders. In order to be included in an index in the FTSE UK series, companies without a UK incorporation must be incorporated in a developed market or other domicile approved by FTSE, as well as having a minimum 50 per cent free float.
Though the requirements for a Premium Listing are the toughest in Europe, the benefits of entering the liquid and internationalised UK market, as well as achieving FTSE 100 status, often far outweigh as well as justify these, especially amongst more ambitious companies.
The FTSE UK Index Series has been designed to represent the performance of UK-domiciled companies with a Premium Listing on the Exchange's Main Market. Investors are provided with a comprehensive and complementary set of indices that measure the performance of a range of capital and industry segments within the UK equity market. In addition to the standard UK series detailed below, FTSE has also launched a range of investment strategy versions, such as the FTSE 100 and FTSE 250 Short and Leveraged indices. These enhanced indices are created with FTSE's quantitative expertise and provide investors with new passive strategies and risk management opportunities.
All indices in the series are market capitalisation-weighted and currently priced off trading on the London Stock Exchange.
Throughout the years, and on the advice of investors, FTSE has taken governance very seriously. Indeed, alongside the Financial Services Authority ('FSA'), FTSE has led the debate on improving market quality through its stringent requirements to include securities with Premium Listings (previously known as Primary Listings), as well as its treatment of non-UK companies. These publicly available rules are set out in the index series' ground rules. They are reviewed regularly, together with market consultation, to ensure the FTSE UK Index Series remains robust and in line with investors' requirements.
FTSE 100 Index
The FTSE 100 Index is one of the world's most recognised indices and accounts for 7.8 per cent of the world's equity market capitalisation. It represents the performance of the 100 largest UK-domiciled blue chip companies which meet FTSE's size and liquidity screening. The Index represents approximately 85.2 per cent of the UK's market and is currently used as the basis for a wealth of financial products available on the Exchange and globally.
FTSE 250 Index
The FTSE 250 Index is comprised of mid-sized companies. This index is designed to measure the performance of the mid-cap capital and industry segments of the UK market which fall just below the FTSE 100 Index in both size and liquidity. The FTSE 250 Index represents approximately 12.5 per cent of the UK market capitalisation.
FTSE Small Cap
The FTSE SmallCap consists of companies outside of the FTSE 350 Index and represents approximately 2 per cent of the UK market capitalisation.
FTSE All-Share Index
The FTSE All-Share Index represents the performance of all eligible companies listed on the Exchange's Main Market. It is considered to be the best performance measure of the overall London equity market, with the vast majority of UK-focused money invested in funds which are benchmarked to it. The FTSE All-Share Index is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices and currently covers 630 constituents with a combined value of nearly £1.6 trillion – approximately 99 per cent of the UK's market capitalisation.The FTSE All-Share Index represents the performance of all eligible companies listed on the Exchange's Main Market. It is considered to be the best performance measure of the overall London equity market, with the vast majority of UK-focused money invested in funds which are benchmarked to it. The FTSE All-Share Index is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices and currently covers 630 constituents with a combined value of nearly £1.6 trillion – approximately 99 per cent of the UK's market capitalisation.