FTSE Group is tightening its entry rules to help protect minority investors and address concerns that companies with poor corporate governance are able to secure a spot in London's prestigious FTSE 100 index by exploiting loopholes.

Under the rules, which follow a month-long consultation, companies will be required to maintain a free float -- shares that are freely tradeable -- of at least 25 percent.

The group, which runs indexes including the UK's blue-chip FTSE 100, was responding to concerns from some of the country's largest investor groups.

Existing companies that fall below the 25 percent threshold, including those on the mid-cap FTSE 250 index and the FTSE All Share, will have 24 months to boost the ratio of tradeable shares, FTSE Group said Wednesday.

The rules come into force for new entrants on Jan 1, 2012.

The resources sector will be hardest hit by the rule change and four of its members already in the FTSE 100 -- ENRC , Fresnillo , Evraz , and Essar Energy -- will be affected. FTSE 250 miner Ferrexpo will also have to raise its free float to meet the new rules.

ENRC, whose corporate governance troubles this year prompted concerns over minority investor rights, has a free float of around 18.6 percent.

I'm not a big fan of these overseas mining companies coming in and only listing 15 or 20 percent of their share capital and expecting investors to have faith in the integrity of the directors, said Michael Hewson, analyst at CMC Markets.

You can use News Corp as an example of a case in point, he said. The main bulk of the shares are either non-voting or concentrated in the hands of a few individuals. How do shareholders influence boardroom pay or anything like that?

FTSE Group told journalists that companies affected by the change were already relatively close to meeting the free float requirement and so it expected them to meet the new rule.

SAFEGUARDS

A greater free float improves a stock's liquidity and ensures a more diverse shareholder base, a particular issue for some of the largest resources firms, whose assets are based outside the UK and whose ownership tends to be concentrated among two or three powerful individuals. This ownership model is less common in Britain or the United States.

Both the Association of British Insurers and the National Association of Pension Funds, whose members own a large slice of the UK stock market, have fretted firms enter the FTSE 100 too easily and without sufficient safeguards for minority investors.

NAPF Chief Executive Joanne Segars, in a letter to the FTSE Group earlier this week, said the threshold should be raised not just to 25 percent, but, in time, to as much as 50 percent for UK companies. That would bring UK-based firms into line with requirements for companies incorporated overseas eying a FTSE spot.

Firms incorporated outside of the UK are already subject to a 50 percent free float threshold. However, most of the recently foreign arrivals on the FTSE have incorporated in Britain so come under the less stringent free-float requirements.

NO MORE WAIVERS?

The UK Listing Authority (UKLA) already requires firms seeking a premium listing to have a 25 percent free float, but has at times waved this rule -- usually for large firms where it does not consider liquidity would be dented -- meaning companies with lower free floats have made it in to the FTSE.

London has seen a number of Russian companies jostle for premium listings in recent months, seeking increased liquidity and a stronger acquisition currency. Precious metals miner Polymetal
and steelmaker Evraz became the first Russian firms in the FTSE 100 last week.

Polymetal has a majority free float and 24.8 percent of Evraz shares are already tradeable. Polyus Gold, seen obtaining a premium listing in the new year, was expected to list with a smaller-than-required free float.

Glencore has a free float of 17 percent at the moment but the percentage of tradeable stock will grow to over 50 percent next May when lock-up provisions expire.

(Additional reporting by Tricia Wright, David Brett and Christopher Vellacott; Editing by Paul Hoskins and Jodie Ginsberg)