SEC doubles minimum public ownership to 20%

SEC chairman Teresita Herbosa FILE PHOTO

The Securities and Exchange Commission will require listed companies to keep a public ownership of at least 20 percent, doubling the existing minimum public float requirement, citing the need to deepen the domestic capital market and raise the bar for corporate governance.

Based on a proposed memorandum circular disseminated for public comment by SEC chair Teresita Herbosa, the SEC will require, starting July 1, that all companies applying to list on a local exchange must bring to public hands at least 20 percent of issued and outstanding shares.

Based on the SEC’s definition, significant shareholdings of 10 percent or more of the total issued and outstanding shares of the company are considered “strategic” and thus, excluded in the public float of the company.

Companies that are already listed on an exchange but below the 20 percent new public float requirement will be given three years to comply. They will be required to increase their public float to at least 15 percent on or before the end of 2018, and then to at least 20 percent on or before the end of 2020.

Public float refers to the portion of the issued and outstanding shares that are freely available and tradable in the market and are non-strategic in nature or those not meant for the purpose of gaining substantial influence on how the company is being managed.

In its proposed memorandum circular dated May 31, the SEC said a higher level of public float would “market depth and is essential for sustaining a continuous market for listed securities to provide liquidity which in turn attracts good quality and long-term investors.”

The increase in liquidity in turn “improves market efficiency, reduces volatility and helps in better price discovery,” the SEC said. At the same time, the corporate regulator said “a large and dispersed shareholding lowers the opportunities for collusive market action or price manipulation and encourages good governance.”

The corporate regulator issued a reminder that failure to comply with the minimum public float may result in administrative sanctions. Trading of shares of non-compliant companies may also be subject to higher tax rate.

Under Bureau of Internal Revenue (BIR) Revenue Regulations No. 16-2012, all publicly listed companies are required, at all times, to maintain a minimum public ownership as prescribed by the SEC to enjoy preferential tax treatment.

The sale, barter, exchange, or other disposition of shares of stock of publicly listed companies that meet the minimum public ownership through the local stock exchange other than the sale by a dealer in securities, is subject to stock transaction tax of one-half of one percent of the gross selling price.

However, the trading of shares of publicly-listed companies that fail to meet the public ownership requirement is subject to final tax of 5 percent or 10 percent on the net capital gains, and documentary stamp tax.