SEC oks 20% minimum public float for IPOs

The Securities and Exchange Commission (SEC) has ordered all companies planning to conduct an initial public offering to make way for a minimum public float of 20 percent.

All companies that will file registration statements and with intention to list their shares for trading in an exchange must apply for registration with such a minimum public float, the SEC said.

Public float of a company refers to the portion of the issued and outstanding shares that are freely available and tradeable 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.

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.

All public companies must also maintain a minimum public ownership (MPO) of at least 20 percent. If the MPO of a listed company falls below 20 percent at any time after registration, such company should comply within a maximum period of 12 months.

“The current average free float requirement in the region is at 25 percent, which is significantly higher than the mandated level of 10 percent in the Philippines. Additionally, more and more countries are now advocating for higher public float and taking steps to encourage increased liquidity,” the SEC said in a press statement.

Several reasons support higher public float levels such as increased liquidity, large and dispersed shareholding which lowers the opportunities for collusive market action or price manipulation, and reduced ownership concentration which also encourages good governance, the SEC said.

“Increasing the current MPO level is part of the Commission’s efforts to encourage more Filipinos to participate in the capital markets. In turn, this will enhance the overall attractiveness of listed shares in the Philippines,” the SEC said.

This is seen to boost liquidity, improve price discovery and lessen the opportunities for price manipulation.

The SEC will issue a separate circular to cover the public float requirement for existing publicly listed companies.