FTSE to shake up indices

Rule changes will bring benchmarks' movements in line with free float
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DAILY MAIL & General Trust, Schroders, BSkyB, Orange, Anglo American, Associated British Foods and Telewest will be the worst losers under controversial rule changes announced yesterday by FTSE International on how companies will be weighted in its indices.

The biggest winners will include BP Amoco, Vodafone AirTouch, British Telecom, HSBC and Glaxo Wellcome.

The changes are aimed at removing distortions in the market produced by cross holdings, family stakes and other situations where the proportion of a company's shares available to investors is not properly reflected in its ranking in the various FTSE indices.

In a move that will stir yet more debate in the City, the FSTE Steering Committee has been given discretionary powers to decide which companies should be dropped from the benchmark FTSE 100 index.

For instance, it is unlikely that the Committee will allow Daily Mail & General Trust or Associated British Foods to drop out of the FTSE 100, unless the Committee decides that rival companies have a good enough claim to displace them. The Committee's next quarterly meeting is in September.

FTSE International is also to remove the existing ban on UK subsidiaries having a separate listing on the FTSE All Share Index. This means that Freeserve, the recently floated Internet subsidiary of Dixons, can be included in the FTSE All Share for the first time.

More than 130 organisations from 17 countries responded to FTSE's consultation paper issued in June. The good news for the so-called "losers" is that FTSE's working party has given them until June 2001 to consider and then implement the changes. New entrants will come under the new rules earlier, from 1 January 2000.

FTSE International said weightings for individual stocks would be restricted where the "free float" of shares available was less than 75 per cent.

Companies with a free float of 15 per cent or less will be ineligible for inclusion in FTSE indices. Companies with 15-25 per cent will have a 25 per cent weighting; 25-50 per cent - a 50 per cent weighting; and 50-75 per cent a 75 per cent weighting. Any free float over 75 per cent gains 100 per cent weighting.

The losers thus include Associated British Foods, roughly half of which is owned by Gary Weston. It will also hit Daily Mail & General Trust, the newspaper group, around half of which is owned by the Rothermere family. Also hit will be Schroders, the investment bank, where Bruno Schroder and his family own about 40 per cent.

Graham Colbourne, the operations director of FTSE International, said: "These proposals were supported by the overwhelming majority of the people we talked to. We have given the market a good long time to implement these changes."

Mr Colbourne added that the problem of cross holdings and double counting was much worse in other markets such as Germany and Japan. In Japan, for instance, around 40 per cent of the entire market's capitalisation is accounted for by cross holdings between companies. The changes will affect all FTSE's indices except three: The old FT30, the FTSE Eurotop 100 and the FTSE Eurostar.

Opinion, page 15

Ups and Downs


Daily Mail & General Trust




Anglo American

Associated British Foods





Vodafone AirTouch

British Telecom


Glaxo Wellcome