SEC doubling listed firms’ required minimum public float

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

Starting July 1, the SEC will require all companies applying for listing on the exchange to bring to public hands at least 20 percent of their issued and outstanding shares, according to a proposed memorandum circular disseminated for public comment by SEC Chair Teresita Herbosa.

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

Companies that are already listed on the 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 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 nonstrategic in nature or those not meant for the purpose of gaining substantial influence on how the company is being managed.

In the proposed memorandum circular dated May 31, the SEC said a higher level of public float would ensure “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 “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 share holding lowers the opportunities for collusive market action or price manipulation and encourages good governance.”

The SEC also believes that a higher public ownership would increase the free float market capitalization and enhance the Philippines’ relative weight in globally tracked free float-adjusted market capitalization weighted indices. This will help in attracting more capital especially with the ongoing integration of the Association of Southeast Asian Nations (Asean).
The SEC said that failure to comply with the minimum public float could result in administrative sanctions. Trading of shares of noncompliant companies may also be subject to higher tax rates.

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 1 percent of the gross selling price.

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