As well as providing a new series of benchmarks against which to judge performance, the new series may also provide the bases for trading derivatives - options and futures.
As we revealed in yesterday's paper, the FT-SE 100, which measures movements in the 100 largest shares, will be joined by the FT-SE 250, which will reflect changes in the next largest 250 companies. They will be combined in the FT-SE 350, which will be used as an important measure of stock market movements. In addition the Stock Exchange is planning a series of sector indices, a smaller companies index and the enlargement of the FT All-Share index.
Sceptics argue that derivatives trading on these new indices - for example, allowing an investor to buy a future on the textile sector - will be no more succesful than on the Eurotrack indices. These measures of European share price movements failed to appeal, with the embarrassing result that trading stopped on Liffe.
But there is good reason for thinking the new UK indices will be more successful. Govett has already started a unit trust, which it will launch publicly later this autumn, designed to perform in line with the new FT- SE 250 index. It is hoping that investors will want to invest in the fund in the belief that middle-sized companies will perform better than the largest 100 in an upturn. Other fund management groups may be tempted to launch similar funds on the back of the new Small Cap or smaller companies index.
Derivatives trading should start a few months later. In New York Standard & Poors introduced a mid-market index - roughly equivalent to the new FT-SE 250 - last year and already there is a future.
If the same happens here traditional stockbrokers should watch out, or adapt. If investors can buy exposure to property or drinks companies without buying Land Securities or Guinness they will. Futures trading is cheaper than dealing in the underlying shares.Reuse content