Following the recent publication of the new UK Listing Rules (UKLRs), FTSE Russell published guidance on how the criteria for inclusion in the FTSE indices will change to reflect the new regime.

We summarised the changes to the listing regime being introduced by the UKLRs in our recent LawFlash, Publication of Final Listing Rules Marks Fundamental Overhaul of UK Listing Regime.

While the UKLRs represent a significant overhaul of the UK’s listing regime, the proposed changes to the rules for inclusion in the FTSE indices are likely to have little practical impact on which companies will be included in the relevant indices, at least in the short term.

FTSE Russell, a subsidiary of the London Stock Exchange, produces, maintains, and markets a number of well-known UK market indices, including the FTSE 100, FTSE 250, FTSE All-Share and the Russell 2000, among others.

Inclusion in an index can be important for listed companies, as certain institutional investors (e.g., tracker funds) can only invest in securities which are included within specified indices. On 11 July 2024, FTSE Russell published guidance on what the introduction of the new UKLRs will mean for determining which stocks will be eligible for the FTSE indices (and in particular the FTSE UK Index Series) once the UKLRs come into effect on 29 July 2024.

Overall, in practice, changes to the various FTSE UK indices are likely to be minimal.

EXISTING REGIME

Under the current Listing Rules, certain categories of securities are eligible to choose between two listing segments (with differing sets of rules applicable to them): premium and standard. Only premium-listed shares, being shares issued by companies that are expected to meet a higher threshold with respect to listing and corporate governance standards, are currently potentially eligible for the FTSE UK Index Series (provided that they meet the other applicable criteria, such as meeting the minimum public voting rights and market capitalisation tests and being determined to have a UK nationality as defined by the FTSE UK Index Series Determining Nationality guidelines).

CHANGES TO INDEX ELIGIBILITY

Among other changes being introduced under the UKLRs, the two-segment system is being abolished. Instead, there will be different categories of listing into which listed securities can be allocated, with the applicable category depending on the nature of the issuer and the securities being listed. These new categories include, among others, the Equity Shares (Commercial Companies) category (into which companies which currently have premium-listed equity shares will transition), and the Closed Ended Investment Fund category (into which existing premium listed closed-ended investment funds will transition).

Following the new UKLRs becoming effective, companies within the Equity Shares (Commercial Companies) category and the Closed Ended Investment Fund category will be eligible for the FTSE UK Index Series (provided they meet the other applicable criteria).

Equity shares that currently have a standard listing will move into the Equity Shares (Transition) Category (which will be closed to new entrants) under the new regime but will be encouraged to migrate to one of the other categories over time (if they meet the applicable eligibility criteria). This could include migrating into the Equity Shares (Commercial Companies) category, which would then render those shares potentially eligible for inclusion in the FTSE UK Index Series.

It is expected that the Equity Shares (Commercial Companies), Equity Shares (Transition), and the Equity Shares (International Commercial Companies Secondary Listing) categories will be the categories eligible for potential inclusion to FTSE Global Equity Index Series and associated indices. Given the shares expected to transition into these categories, this is not expected to impact index composition on transition to the new regime.

FTSE Russell therefore anticipates that any changes to the indices will be small in the short term. Indeed, in the immediate term, when the changes come into effect on 29 July 2024, there will be no changes to the composition of the FTSE UK indices.

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