Corporate Governance forces FTSE to consult on changing indices
By Mark Hoskin, IFA at Holden & Partners
2 November 2011 | Market News | Comments (0)
The FTSE is to consult on whether to increase the proportion of a company's shares which need to be listed on the UK market in order to be included in the FTSE indices over concerns about corporate governance.
Under current rules, companies can be included in an index if at least 15pc of their shares are free to be traded - although firms with a market capitalisation of more than $5bn (£3.1bn) can have a free float as low as 5pc. This has been causing growing alarm among fund managers because it enables companies to list, without giving up any control, or forcing the company involved to have an acceptable level of corporate governance.
This is having a greater and greater impact on the FTSE indices as more and more companies try and take advantage of capital markets in the UK. Russian miner Polygus Group is currently planning to list 20% of its shares. In 2007 Kazakh miner ENRC listed just 18% of its shares. Whilst Glencore, the commodity trader, listed with 20% of its shares in May 2011.
The consultation launched by FTSE is an indication that the old way of doing business is adding unacceptable risks to the future performance of FTSE indices. The lack of control these sort of shareholdings give to public markets carries significant risk for investors, particularly in an era where passive investing, through exchange traded funds, has taken hold.
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Mark Hoskin is a Partner at Holden & Partners. Holden & Partners are Chartered Financial Planners who provide financial advice to high net worth clients, the majority of whom have a significant interest in ethical or environmental issues.
Mark Hoskin graduated with a History degree from Keble College, Oxford and went on to become a Chartered Accountant with Price Waterhouse. He cofounded Holden & Partners in 2003 and is a Certified Financial Planner and Chartered Financial Planner. Holden & Partners set up Worldwise Investor to help both advisers and investors understand quickly and easily how they can benefit from ethical and environmental investment in the UK market.
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