What Is the FTSE?
The FTSE pronounced “Footsie” is the term used to describe a share index of the 100 most highly capitalised UK companies listed by the London Stock exchange.
It is was jointly owned by two companies, the Financial Times and the London Stock Exchange who maintain the index under the independent FTSE group but the London Stock Exchange recently announced it has signed a definitive agreement to acquire the 50 per cent stake in FTSE International Limited, from Pearson, that the London Stock Exchange Group does not already own. Following the transaction which is expected to close in Q1 2012 subject to customary closing conditions, FTSE International Limited will be wholly owned by the London Stock Exchange Group..
When it began originally in January of 1984 it had a base level or starting point of 1,000 points and has since moved to a level around 5,500 as of November 2011.
It reached its peak in December of 1999 when during the height of the Internet bubble the index reached 6,950.
The FTSE is in essence a league table with the FTSE 100 being the top league and then the FTSE 250 and the FSE 350 and the FTSE All- Share bringing up the rear respectively.
The FTSE 100 is considered a badge of honour when attached to a company and the companies eligible are all highly capitalised. It is the benchmark of performance for the listed companies.
Component companies must meet a number of requirements set out by the FTSE Group, including having a full listing on the London Stock Exchange with a Sterling or Euro denominated price on the Stock Exchange Electronic Trading Service, and meeting certain tests on nationality, free float, and liquidity. In the FTSE, share prices are weighted by market capitalisation, so that the larger companies make more of a difference to the index than smaller companies.
Companies can be demoted and promoted between the FTSE leagues. They are reviewed quarterly and subject to certain conditions. A company who’s capitalisation has fallen below a certain amount will be demoted and replaced with a lower league company who’s capitalisation has performed highly. When you hear about the FTSE 100 “rising”, what it basically means is that the value of shares in the top 100 companies on the London Stock Exchange is increasing.
A demotion from any of the FTSE index’s can have a very negative effect on shares with investors moving away.