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CSE to implement minimum free float from January

2013-12-17 03:49:56
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The capital market watchdog Securities and Exchange Commission (SEC) is likely to issue a directive in early part of next year, setting out rules on the ‘minimum mandatory continuous free floating limits’ for Colombo Stock Exchange (CSE) listed companies, according to a top official.

SEC’s Officer in Charge (OIC) and Director Investigations Dhammika Perera said the directive would come as a blanket rule which must be applied by all listed entities— big or small, domestic or multinational.

The new rules will require a Main board listed company to maintain a minimum of 20 percent stake in the hands of the public while the requirement for a Diri Savi board listed company is 10 percent.

“Having said that, we do not expect all these companies to have their 20 percent or 10 percent stake in the hands of the public on the following day of the directive. We will give them some time to increase their existing public stakes to the stipulated levels over time. But eventually all will have to up their public free float to these levels,” he insisted.

The draft rules in the public consultation paper issued by SEC in September 2013 said they would allow two years from the effective date of the rules for all the listed entities to increase their public shareholding to the stipulated levels, but the increase must happen at least by 5 percent per annum.

Furthermore, SEC will have the discretion to reject or grant extensions for companies that fail to maintain the minimum public float. In the event of no further extension time is granted, those companies will be penalized by transferring them to the Default board.

However, the yet to be issued directive will have some leniency on Main board listed companies while some exemptions might be granted for them if the circumstances warrant.

“We might consider some of the requests on a case-by-case basis and they might be allowed some kind of leniency on the rule if the circumstances warrant. But no exemptions will be granted for Diri Savi board listed companies,” he added.

Mirror Business learns that exemption might be granted for entities whose market capitalization of the public float is maintained at minimum Rs.5 billion. But this will also depend on the number of shares and the percentage stake held by the public is in agreeable terms to the SEC.

The absence of a sizable free float is often cited as a deterrent to a more transparent and a liquid stock market. Hence the Colombo bourse is becoming less attractive for foreigners and foreign funds who seek easy exit whenever they want.

However the lack of liquidity in the Colombo bourse was also proved helpful to avert sudden massive capital outflows during the heightened Fed tapering fears this year. On the contrary, emerging markets like Indonesia, India and Brazil which have liquid capital markets saw massive outflows during the same period.

Setting up of minimum continuous free float limits has been on SEC’s agenda for the last three years and it never took off having twice called for the public comments back in September 2010 and July 2011.

“This time we received many representations for our consultation paper and we took all the measures to incorporate their concerns as much as possible in drafting the directive,” Perera said. (DK)


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