FTSE Group is tightening its entry rules to help protect minority investors and stop companies with poor corporate governance from exploiting loopholes to secure a spot on London's prestigious stock market.

Companies which want to be included in FTSE's UK indices -- including the bluechip FTSE 100 -- must ensure at least 25 percent of their shares are freely tradeable.

The resources sector will be hardest hit by the change and four companies 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.

The rules come into force on January 1, 2012 for new companies while firms which are already listed, including those on the mid-cap FTSE 250 index and the FTSE All Share, have 24 months to comply.

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

Investors -- many of whom had been pressing for tougher rules -- greeted the move as a step in the right direction which could help balance a bluechip index heavily weighted to mining and oil and gas firms.

I think it's probably a positive thing, said Richard Hunter, head of equities at stockbroker Hargreaves Lansdown.

It also potentially means that you're going to get a better spread sector-wise of companies that are entering the market going forward.

KAZAKH BATTLES

Kazakh miner ENRC, whose boardroom battle earlier this year prompted concerns over minority investor rights and debates over the FTSE 100, has a free float of around 18.6 percent.

Its shares are currently controlled by three individual founder shareholders, rival Kazakhmys and the Kazakh government.

It will have to sell more than 520 million pounds worth of stock to meet the new rules -- a potential boon for capital markets bankers -- but it declined to comment on which of its major holders was likely to sell down.

ENRC is fully committed to retaining its listing on the FTSE and will take appropriate steps to comply with the updated ground rules over the next 24 months, a spokesman said.

Essar said the two-year period provided a considerable amount of time to consider our options and decide the most appropriate course of action. Fresnillo declined to comment.

Evraz, which joined the FTSE 100 earlier this month, is already at 24.8 percent and has said it will raise that level to meet listing requirements.

IMPROVED SAFEGUARDS

Michael Hewson, analyst at CMC Markets, said the rules could help create improved safeguards for minority investors.

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?

A greater free float improves a stock's liquidity and ensures a more diverse shareholder base, a particular issue for some large, foreign-owned resources firms, where ownership tends to be concentrated among two or three powerful individuals.

This ownership model is less common in Britain or the United States.

The Association of British Insurers and the National Association of Pension Funds (NAPF), whose members account for a large proportion of investment in the UK stock market, have complained that some of these firms offer poor safeguards for minority investors, which include millions of Britons investing their retirement savings in funds that track major indices.

NAPF Chief Executive Joanne Segars has called for the free float to be raised in time to as much as 50 percent. That would bring UK-based firms into line with requirements for companies incorporated overseas eyeing 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.

FTSE said it would take fresh soundings on whether to raise the free float further and whether the exchange needed different corporate governance standards.

The UK Listing Authority (UKLA) already requires firms seeking a premium listing to have a 25 percent free float, but has at times waived this rule -- usually for large firms where it does not consider liquidity would be dented.

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, though rival Polyus Gold, seen obtaining a premium listing in the new year, was expected to list with a smaller-than-required free float.

Glencore, one of the largest initial public offerings this year, 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 Clara Ferreira-Marques, David Brett, Adveith Nair and Christopher Vellacott; Editing by Jodie Ginsberg and David Cowell)