'Financial Times Stock Exchange (FTSE)' is explained in detail and with examples in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
The Financial Times Stock Exchange represents an enormous group of indices owned by the London Stock Exchange. The acronym originated in the days when it was half owned by the Financial Times newspaper and the LSE. Now this group is an entirely owned subsidiary of only the London Stock Exchange.
When individuals use the word FTSE, they are most commonly referring to the most important benchmark index of the group the FTSE 100. These 100 companies are the hundred largest British companies which the London Stock Exchange lists. As such the Blue Chip companies of the British economy represent the biggest companies by market capitalization in the U.K. Besides this FTSE 100 index, the group produces the FTSE 250, the 350, the Small Cap, and the All-Share.
The FTSE 250 companies are those next 250 largest companies after the FTSE 100. Combining the 250 and the 100 yields the 350 index. Merging the 350 and Small Cap provides the All Share Index.
London Stock Exchange launched the FTSE 100 on January 3, 1984. The companies in the index are calculated for size based on their market capitalization, or number of existing shares times the price per share. The group recalculates the indices every quarter to adjust for any of the companies in the 250 index that have moved up to the 100 index and those in the 100 group that have dropped to the 250 group.
Besides this, they have to remove companies that have been taken over or merged with others. The index must also be updated for name changes, as happened with British Gas becoming BG Group and Centrica, Midland Bank becoming HSBC, and Commercial Union Assurance becoming Aviva. Name changes, mergers, and takeovers are changed as soon as they become effective.
FTSE 100 updates its composite companies based on those which rise to a position in the top 90 largest companies on the London Stock Exchange. Those which fall to the 111th position or lower are dropped. They maintain this overlapping band so that there will not be too much change in the index in any given quarter. The group is concerned about the stability of the index and the rate of change because it forces investment companies and funds to rebalance when the benchmark 100 index changes. This is an expensive process for the large investors that the group tries to mitigate.
The 100 index and other benchmark indices are calculated up every 15 seconds throughout the trading days. The values are published in real time all day. The indices are open from 8am to 4:30pm on all weekdays that are not market holidays.
FTSE 100 is considered to be a good barometer for geopolitical and economic events throughout the world. When the major global markets soar, it does as well. When they plummet, it falls in sympathy. The largest single point drop for the 100 index happened on the day following Black Monday in the U.S. on October 20th of 1987. On this occasion, the 100 index fell 12.22% in a single trading session.
FTSE is not only a series of British stock indices. The group also produces and compiles every day more than 100,000 additional indices around the globe. Among these are the Global Equity, Italy’s MIB, the China A50 and 50, the Portugal 20, and the TWSE Taiwan. In 2015 the group merged with Russell to become the FTSE Russell Group. This gave it reach into a number of American stock market indices like the Russell 2000.