SEC to decide fate of errant firms in public float by month end

Timelines to enforce new directions on listed company public float is fast approaching with the Securities and Exchange Commission (SEC) meeting next week to decide on the fate of errant firms, informed sources said.

The Colombo Stock Exchange's (CSE) timeline to issue directions on non-compliance is end June. The Commission is to decide the penalties on non-compliant firms as well, the sources told the Business Times, declining to say what they were.

The free float market capitalisation or the float adjusted market capitalisation is computed by multiplying the public holding percentage of a listed company by the market capitalisation of such company.

The SEC approved minimum public float rules that represent the portion of shares of a listed firm that are in the hands of public investors as opposed to shares owned by a company's institutional shareholders last year. The rationale for a minimum float is that a sizeable public float is a necessity to ensure a market that is fair, orderly and efficient, and 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.

The revised thresholds for compliance at the main board of the CSE says that firms with Rs. 10 billion capitalisation should have 500 public shareholders and those with Rs. 7.5 billion capitalisation should be with 5 per cent public holding that also includes 500 shareholders.

Firms with Rs. 5 billion capitalisation have to be with 7.5 per cent public holding and 500 shareholders and those with a cap of Rs. 2.5 billion have to show 10 per cent public float and 500 shareholders.

Research by the SEC found that as at June 2011, 35 per cent of the companies listed on the 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.

Some firms’ public float is dangerously low that there isn't a point in them being listed. Trade Finance ( 0.32 per cent), Asia Capital (5.13 per cent), Odel (2.49 per cent), Kotmale Holdings (0.49 per cent), BRAC Lanka Finance (0.24 per cent), etc are some firms that aren't compliant now.