The Colombo Stock Exchange (CSE) is to take punitive actions against the listed entities which fail to meet the minimum public floating rules even after the grace period, by way of transferring them to the ‘Watch List,’ but the instructions given by the Securities and Exchange Commission (SEC) appear to have offered a further 12-month period before such actions are enforced.
In a directive on November 16, 2016, the capital market regulator issued the revised public floating rules, which gave the listed entities a wider range of options in their compliance, effective from January 1, 2017, with a grace period of six months.
However, the original rules pertaining to minimum public free float were brought in 2013 with the objective of increasing the market liquidity, which has been a serious concern in the Colombo bourse, unlike in the government securities market.
“This extension of time is characteristic of the accommodative and perceptive regulatory approach adopted by the SEC, and takes cognizance of the need for a reasonable timeframe within which non-compliant companies may take remedial action with respect to public holding requirements”, a SEC communiqué issued yesterday noted.
The SEC said they have given instructions to the CSE to transfer those entities, which are non-compliant with the public floating rules by July 1 to the Watch List on July 1, 2018.
“Companies found non-compliant with the minimum public holding requirement as of 1st July 2017 would be transferred to the Watch List on 1st July 2018 unless due compliance is achieved prior to that date”, SEC added.
The November 2016 directive asked the Main Board listed entities to maintain between 10 to 20 percent public free float among a minimum of 500 public shareholders.
The precise amount of free float depends on the different levels of float-adjusted market capitalization.
Similarly for, Diri Savi Board listed entities, the public free-float must be maintained between 7.5 percent and 10 percent among a minimum of 200 shareholders, which also differ based in the level of float-adjusted market capitalization.
Meanwhile, for entities, which become non-compliant after July 1, 2017 would be transferred to the Watch List within six months of such non-compliance or on July 1, 2018, whichever date is later.
Also, the SEC said, the companies which become non-compliant on any date following 1st July 2018 would be transferred to the Watch List within six months from the date of non-compliance unless due compliance is achieved in the interim.
Further, the companies are also required to make timely market disclosures on public holding positions of non-compliance and disclosures on remedial actions proposed by such companies.