Aside from the prestige, inclusion in the FTSE 100 is good for a stock thanks to index-tracking funds but how does a stock make it into the blue-chip index?
The index is intended to reflect the top tier of the UK market and as such only premium-listed equity shares quoted in UK currency are eligible. So, no AIM shares and no overseas giants that have a UK listing with shares quoted in a foreign currency.
Today saw the FTSE Russell committee, which determines the index constituents, turf Just Eat Takeaway.com NV (LSE:JET, NASDAQ:GRUB) out of the FTSE 100 after it determined it is no longer a UK company.
If a company is not incorporated in the UK, the company must meet the following conditions in order to be considered eligible for UK Nationality assignment:
- The company must publicly acknowledge adherence to the principles of the UK Corporate Governance Code, pre-emption rights and the UK Takeover Code as far as practicable.
- The company must have a free float greater than 50%
“Free float” refers to the percentage of a company’s shares that are not owned by committed long-term investors, such as company founders, directors or cornerstone investors.
For UK incorporated companies, the free float requirement is only 25% and there are moves afoot to reduce this to 15%.
The FTSE 100 ostensibly consists of the largest 100 UK companies by full market capitalisation that qualify for inclusion in the index; however, for a stock to make it into the index it must have risen to 90th or above in the ranking of companies by market capitalisation while for an existing constituent to fall out of the index it must fall to 111th or below.