SEC says won’t split hairs over public float percentages
Some 30 – 40 listed firms have asked for more time to comply with the Securities and Exchange Commission’s (SEC) minimum public float rules, officials said. This was revealed on the sidelines at a discussion on ‘Minimum Public Float: An Open Discussion’ for company directors on Wednesday at the Cinnamon Lakeside, Colombo organised by the SEC. This discussion came on the back of many listed firms which don’t fall into the SEC’s minimum public float requirements announcing their intention to be delisted from the Colombo Stock Exchange (CSE). Public float or free float represents the portion of shares of a corporation that are in the hands of public investors as opposed to shares owned by the company’s institutional shareholders. The SEC rules say that from 1 January 2014, all main board listed companies are instructed to have a minimum public float of 20 per cent in the hands of a minimum of 750 public shareholders or a market capitalisation of Rs. 5 billion of firm’s public holding in the hands of minimum of 500 public shareholders whilst maintaining a public holding of 10 per cent.
SEC board members with CSE officials.
The new rules were introduced with the objective of promoting a liquid and transparent market with a better price discovery mechanism. Vajira Wijegunewardene, Director General SEC said that the rationale for a minimum public float is mainly because a sizeable public float is a necessity to ensure a market that is fair, orderly and efficient. “The introduction of a minimum public float as a continuous listing requirement is considered by all regulators in order to promote liquidity and ensure a better price discovery mechanism. It’s an established fact that greater the public float less is the potential for market abuse.” So far some seven firms have announced their delistings – Finlay’s and Carsons Group company, Equity One being the latest – delisting last month. According to Mr. Wijegunewardene, since 2010 comments from the public was sought on three occasions by the SEC by way of Public Consultations.
This discussion was the fourth such instance. ”The views of the Colombo Stock Exchange (CSE), the comments received from the public, from listed companies, comments of the IOSCO members and the public float rules of jurisdictions such as Malaysia, Thailand, Singapore, Australia, Japan and the UK were considered and included in the Draft Rules,” he said. So when some participants requested for more time, some officials pointed out that time was granted since 2014 for firms to comply with these rules. “The commission is flexible with regard to timelines but would like to maintain the public float which will have wider benefits to our market as a whole. For a fair, transparent and efficient market, public float is essential. Then price manipulation and abuse is less,” Mr. Wijegunewardene said.
Splitting hairs
SEC Chairman Tilak Karunaratne insisted that any amendments to the percentage of public float won’t be implemented. “PLCS will have to support us and we will support you but we have to stop splitting hairs over percentages,” he said. Mr. Wijegunawardane added that the SEC doesn’t want to see any firms delisting, but stressed on compliant behaviour. “We don’t like to see companies delist. Please comply, but we would welcome your representations. Please send to us in writing before too long. If there are any compelling reasons and we would consider it,” he said. SEC Commissioner Ranel Wijesinha said that instead of timeline extensions, the regulator would welcome alternative suggestions in terms of rules and regulations similar to the market capitalisation requirement.
In his presentation, Mr. Wijegunawardane said that most stock exchanges in the region have a minimum public float rule of 25 per cent which has been implemented since their inception with the exception of Singapore which has a 10 per cent requirement. Research by the SEC found that as at June 2011, 35 per cent of the firms listed on the CSE’s Main Board had a public float below 20 per cent and 36 per cent of the Diri Savi Board Companies had a percentage below 10 per cent. Only 12 per cent of the Main Board Companies had a public float below 10 per cent.
As at 31st December 2015, 98 companies were compliant with the ultimate rule and 61 were compliant with the transition rule.