FTSE Russell Insights

Which UK shares will the FTSE 100 include in future?

David Sol

Head of Policy, FTSE Russell
  1. The UK listing rules are undergoing a major overhaul at the end of July 2024
  2. What does this mean for the universe of stocks eligible for the FTSE UK Index Series?
  3. We explain the new Equity Shares (Commercial Companies) listing category and how the FTSE 100, FTSE 250 and FTSE All-Share indices will change.

As the UK financial regulator prepares to simplify its listing rules, the FTSE UK Index Series will evolve to keep pace.

The Financial Conduct Authority (FCA) is poised to undertake what the Financial Times recently called “the biggest overhaul of the country’s listing regime in 40 years”.

What does this mean for the FTSE UK Index Series, the home of well-known benchmarks such as the FTSE 100, the FTSE 250 and the FTSE All-Share?

How the listing rules work currently

The FCA sets the UK share market’s listing rules via its handbook, which all banks, insurers and investment businesses in the UK have to follow.

Since 2010, the rules have specified two types of share listing—premium and standard. In turn, the London Stock Exchange (LSE) maintains two listing ‘segments’ for these two categories of share.

Premium-listed shares are issued by companies that are expected to meet the highest listing and corporate governance standards. Companies issuing standard-listed shares meet minimum standards that derive from European Union legislation.

Currently, before the incoming changes to the listing regime (see the next section) only premium-listed shares are eligible for the FTSE UK Index Series. However, the FTSE Global Equity Series (our family of global equity benchmarks) includes both premium- and standard-listed UK shares.

Replacing the two listing categories with Equity Shares (Commercial Companies)

With effect from 29 July, the Financial Conduct Authority will abolish the premium and standard listing segments, replacing them with a single category called “Equity Shares (Commercial Companies)”.

What does this mean in practice? Among the principal changes to the listing regime, companies listing Equity Shares (Commercial Companies) via an initial public offering (IPO) will no longer require a minimum three-year track record of audited accounts, as the current listing rules require.

There will also be significantly more flexibility under the new regime for dual-class share structures of the type favoured by many Silicon Valley tech companies. And there will no longer be a mandatory shareholder vote for related party transactions.

Why the changes?

Broadly, the rule changes follow the recommendations of the 2021 UK Listings Review chaired by Lord Hill.

In the Review, Hill said that while the premium listing category had been viewed as a gold standard amongst global stock exchanges, it had had an adverse effect on the number and type of companies joining the UK stock market.

“Between 2015 and 2020, London accounted for only 5% of IPOs globally. The number of listed companies in the UK has fallen by about 40% from a recent peak in 2008,” Hill wrote.

“The most significant companies listed in London are either financial or more representative of the ‘old economy’ than the companies of the future. At one point [in 2020], Apple alone was worth more than the combined value of every company in the FTSE 100,” he went on.

Aligning to international standards

Deciding what goes into and what stays out of the stock market has always been the subject of debate and a reflection of changing investor norms.

Take dual-class share structures, for example. These are now very common in the US equity market, where companies as well-known as Alphabet (Google), Meta (Facebook), Dell and Berkshire Hathaway have at least two classes of common stock.

Dual-class share structures were also common in the UK during the post-war period, when many founding families had minority equity stakes but still controlled companies via restricted classes of shares with superior voting rights. However, by the end of the 1960s, split share structures had become much less popular on the LSE as institutional investors shied away from non-voting shares.

But, as we’ve seen, such structures have re-emerged in the US without raising too many concerns. The new UK listings regime will bring the governance standards in the United Kingdom more in line with the standards of other exchanges in major global financial centres. It should also provide easier access for companies to the UK stock market.  

Mapping the market

This brings us to the role of the index provider.

FTSE Russell’s indices are designed to reflect the market universe available to investors. In light of the planned changes to the UK listings regime, FTSE Russell engaged extensively with our Advisory Committees, which consist of representatives from the investor community, to understand how (if at all) we should adjust the FTSE UK Index Series eligibility rules. 

As a result of these consultations, when the FCA changes the UK listings rules at the end of July, subject to ratification by the FTSE Russell Index Governance Board, Equity Shares (Commercial Companies) will become the eligible index universe for the FTSE UK Index Series, replacing the premium segment.

The index impact of the change is likely to be small in the short term.

Due to the automatic mapping of premium-listed companies to the Equity Shares (Commercial Companies) category on day one of the new regime, there will be no immediate impact on the FTSE UK Index Series’s composition.

Similarly, closed-ended investment funds with a premium listing will also map automatically to a new closed-ended investment fund category and retain index eligibility.

What about companies with a standard listing? In time, some of these companies may join the FTSE UK Index Series if they decide to transition to the new Equity Shares (Commercial Companies) category. Initially, however, companies with a standard listing will join a new “transition category” under the post-July listing regime.

To give an idea of the potential future index impact, in January 2024 three UK companies with standard listings were provisionally eligible for the FTSE 100 index because of their size (collectively representing 3.71% of the index by weight).

FTSE Russell’s role is to ensure that its indices remain fit for purpose. Central to the evolution of indices is a constant dialogue between pension funds, insurance companies, asset managers, banks, regulators, academia, consultants and other stakeholders on the best way forward.  

The latest changes to the universe of stocks underlying the FTSE UK Index Series are another good example of this interaction amongst professional participants in the financial market.

For more detail on the impact of the proposed changes to the UK listing regime on the FTSE UK Index Series, please read our summary and FAQ on the subject.

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