CSE new rules on errant firms of public float in June
The Colombo Stock Exchange (CSE) will issue directions on non-compliance pertaining to public float by June, officials said.
The Securities and Exchange Commission (SEC) has now sanctioned the minimum public float rules that represent a portion of shares of a listed firm that are in the hands of public investors as opposed to shares owned by the company’s institutional shareholders and will enforce penalties for those who don’t comply, they said.
Early last year, 30 – 40 listed firms requested more time to comply with these rules. Also certain listed firms which don’t fall into SEC’s minimum public flat requirements announced their intention to get off the CSE. The officials said that the penalties on non-compliant firms will also kick in by June. They declined to say what they were.
The rationale for a minimum float is that a sizeable public float is a necessity to ensure a market is fair, orderly and efficient, a CSE official said. 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, he added. “It’s an established fact that greater the public float less is the potential for market ” he said. The time duration for compliance will end in June.
Research by the SEC found that as at June 2011, 35 per cent of the listed firms in the Main Board had a public float below 20 per cent while 12 per cent had a public float below 10 per cent. Data showed that 36 per cent of the Diri Savi Board companies had a percentage below 10 per cent.
| Stockbrokers want brokerage increased, CAR relaxed | |
| Stockbrokers who met with Treasury officials late last month to appraise the Finance Ministry of their plight had urged the authorities to increase their brokerage on trades amongst other issues. The brokers at this meeting had said that the Colombo Stock Exchange (CSE) is now facing an unfavourable situation due to the continued slump. The main All Share Price Index peaked in August 2014 after breaking past the 7,000 point mark, they had said noting that it has steadily declined since then, due to many uncertainties. While the brokers are faced with several serious issues especially operational and their cash-flows are strapped, they added that some companies are mulling pay cuts from this month. The SEC’s new rules in capital adequacy which direct the implementation of a risk based Capital Adequacy Requirement (CAR) of 1.2 times the risk requirement of stock brokers subject to a minimum liquid capital requirement of Rs. 35 million was also criticised. Treasury officials said that the regulator had pointed out that certain broking firms had ‘minted’ cash during the 2010 – 2012 era, but they had extracted cash from their main broking firm to start ‘unrelated’ businesses. They had said that while it’s their onus to carry out their own business, it was also their responsibility to retain buffers for the core business. Analysts say while this argument is debatable, the onus also falls on the trading firms to cut costs and manage their businesses. The current rules on minimum Net Capital applicable to stockbroker firms do not address the different risks these firms are exposed to, one Treasury official said adding that the SEC had noted that due the foregoing limitations of the then rules and in keeping with international standards, a dire need to establish stock brokers a risk-based capital adequacy requirement was felt. Having considered the capitalisation of stockbroker firms, their current activities and CAR regimes implemented in regional markets, the CSE together with the SEC developed the methodology for the rules, the SEC had said. This meeting followed a discussion over the prevailing crisis situation which had been held between the heads of stock broking companies and CSE authorities on March 27. |