Lahore - Pakistan Stock Exchange (PSX) is planning to ask listed firms having share free float of less than 25% of capital and 5mn shares to increase, and maintain at all times, their float to at least 25% within 3 years.
Companies with lesser float need to submit a compliance plan with quarterly report to the exchange. According to proposed rules, new companies desired to list should also have 25% of post issue capital as minimum float in market at all times.
Free float as per new proposed regulation in Pakistan means all outstanding shares excluding government shareholding, directors/sponsors shares, shares in physical form, shares of associate companies, employees share scheme, substantial shareholders, treasury stocks and any other category barred from selling shares.
In case of non compliance that is if listed firms fail to reach 25% float target, they will be shifted from Main Counter to Less Liquid Securities Counter. However, trading rights privileges and obligations of such firms will not be affected due to transfer to this counter. Experts believe this move is an attempt to increase share float in Pakistan market. According to available information, close to one third of 561 listed companies at PSX has share float of less than 25%.
Similar float restriction is there in other markets like India.
Higher float will increase trading, help in better price discovery and will reduce chances of manipulation. MSCI also consider higher share float to determine weights of shares in their indices.
However, the proposed amendments did not specify any strict action or penalty for non compliance neither there is any benefit to the firm having higher float.
Therefore we believe that most of the companies instead of increasing the share float may prefer to move to Less Liquid Securities Counter.