US – Standard & Poor’s is to change its US indices so they more closely reflect the amount of shares available to investors.

S&P said it would shift the S&P 500, the S&P MidCap 400, S&P Small Cap 600 and its other US indices to “float-adjusted market capitalization weights”.

The move to ‘free float’ is seen as being a way of reducing index turnover and improve investability. Free float is defined as the percentage of a company's shares that is available for purchase.

S&P has already shifted some of its non-US indices to free-float. Rival index firms MSCI and FTSE shifted to ‘free-float’ two and three years ago respectively.

S&P said the transition would be implemented over 18 months. In September 2004 it will publish procedures and float adjustment factors, and begin the calculation of provisional float-adjusted indices.

Next March it will see the official index series for the US indices shift to partial float adjustment – with the shift being completed in September 2005.

“Throughout the transition period there will always be one, and only one, official variant of the S&P 500 and each other Standard & Poor's index,” it said.

“Over the last few years providing float-adjusted indices, where the share counts of stocks in the index are adjusted to eliminate strategic blocks of stock and cross holdings, has become increasingly important to investors and index users,” said David Blitzer, chairman of S&P’s index committee.

He added: “Preliminary analyses suggest that the turnover should be comparable to typical annual turnover in the indices.”

“Further, we have always considered liquidity and investability in qualifying stocks for the indices, and are providing an extensive transition period. Therefore, the market should take these changes in its stride with little difficulty.”