A shortage of shares or liquidity at the Colombo bourse which has delayed the entry of mega players like investment fund manager Mark Mobius has prompted the Securities and Exchange Commission (SEC) to look at a minimum public float/free float for firms listed in the main board and the second board of the Colombo Stock Exchange (CSE) to be implemented by end 2010.
Often institutionalised foreign investors have said the lack of sufficient shares in the market has led to delays in investing in Colombo. Mr Mobius who visited Sri Lanka some months back also raised this issue.
Malik Cader, Deputy Director SEC told the Business Times that the regulator is trying to bring in directives to ensure minimum free float in publicly listed firms to negate the inadequate liquidity issues in the market which according to some players has led to share price manipulations in recent times.
“There are firms which have less than 10% free float in the market which isn’t adequate. This is an area that we’re trying to correct and we released a consultation with regard to this on Wednesday requesting for public comments and we’ll try to implement it by this year end,” he said.
Mr Cader said that it is proposed that the listed companies be given a time span of two years to implement the requirement and increase their public float and after this specified implementation date, if a company’s public float falls below the minimum requirement such a company shall be given a period of six months to remedy the matter.
“We are proposing to introduce this requirement of a minimum public float as part of the listing rules of the stock exchange. Hence, any violation would amount to a violation of the rules. A company which does not abide by the requirement could be transferred to the default board as an initial penalty and finally de-listed,” he said.
The SEC has posed questions to the public pertaining to what should be the minimum public float, should it be a uniform percentage for all companies or be dependent on the market capitalization of the company or based on the sector in which each company is listed, how long should a company be given to comply with the new requirement, etc, he added.
It has also pointed out that once implemented, the public float of a company needs to be continuously monitored. If a company’s public float is found to have dropped beyond the minimum level, how much time should a company be given to increase the float, what should be the consequences of non compliance are also issues that SEC has requested for comments from the public.