Capital Market regulator Securities and Exchange Commission (SEC) is currently “deliberating” on the mandatory minimum public float rules imposed on listed firms that came into effect on January 01, 2016, a top SEC official said.
“We are deliberating about the minimum free float at the moment, but we cannot confirm anything further as yet,” SEC Chairman Thilak Karunaratne said yesterday. A firm decision is to be made in the coming weeks, he said.
However, a Colombo Stock Exchange (CSE) official on the grounds of anonymity told Mirror Business that the “vibe” from the SEC so far on the issue has been “flexible.” H o w e v e r the official refrained from commenting whether flexibility will be offered by way of reducing the percentage of free float to be maintained, or extending the deadline for compliance.
The free float rules were introduced in 2013 making it mandatory for a Main Board listed company to have a minimum of 20 percent public free float, scattered among at least 750 shareholders. Else, the Main Board listed companies should have shares having a market capitalization of Rs.5 billion in the hands of at least 500 shareholders, while maintaining a minimum public holding of 10 percent. In the case of a Diri Savi Board listed company, the public float requirement stands at 10 percent and, it should be scattered among at least 200 public shareholders.
Companies were directed to comply with the rules by 31 December 2015. However, the SEC said, they would deal with companies who weren’t able to comply with the deadline on a case-by-case basis. The new rules were introduced with the objective of promoting a liquid and transparent market with a better price discovery mechanism.
Despite the optimism, the scheme backfired as a number of companies opted to go private instead of complying with the rules, impacting the market capitalization. CSE Chairman Va j i r a Kulatilaka said it’s not reasonable to direct companies to unload shares to comply with free float rules, specially at a time when the market is down.
“It is their hard earned wealth and asking for that is unfair. Everyone wants some realistic valuation. The rules may have to be changed depending on how the market is moving,” opined Kulatilaka. Taking into account the current market conditions, he stressed it is imperative to be “flexible and reasonable.”