The FTSE 100 is a broad based financial index comprised of a select group of one hundred publicly traded stocks listed on the London Stock Exchange. The basis for inclusion within the index is market capitalization. These one hundred companies have the highest market capitalization of all stocks listed on the exchange. Stocks within the index include such firms as British Petroleum, Rolls Royce and the Royal Bank of Scotland. The index, often referred to by its nickname, “footsie”, is seen as a leading indicator for the health of the UK economy as these one hundred stocks account for approximately 80% of the London Stock Exchange’s full market capitalization.
The index’s name is an acronym derived from a shortening of “Financial Times” and London “Stock Exchange” and the tracking of the index is overseen the FTSE Group. The trading of the index was initiated on January 3, 1984 with a starting value of 1000. Since then, the index has seen a high of 6950.6 and a low reading of 3500. The current value of the index is calculated in real time during market hours with updates every fifteen seconds and its closing price is set at 16:35 London Time.
Each quarter, the FTSE Group reevaluates the composition of the stocks listed in the index. They replace one stock with another if warranted by changes in market capitalization. The firms included on the list must meet certain requirements, such as a full listing on the London Exchange, a stock price trading in Sterling or Euros and levels of liquidity. Also, except for a few historical instances, the law dictates that each firm is a public limited company or “plc”. Currently, The FTSE 100 actually has 102 listings to take into consideration the two classes of shares associated with Royal Dutch Shell and Schroders.
The index is market weighted and calculated using a free float method. This means that the movement in price of a heavily weighted stock has a greater impact than that of a less heavily weighted company. The result is that a large move either up or down, of a major firm can significantly affect the price of the index.
Along with the US Dow Jones Industrial Average, The Australian All Ordinaries, the Japanese Nikkei and the German DAX, the FTSE 100 is one of the most widely reported and followed financial indicators in the world.