Sri Lanka to set minimum share float to up liquidity, curb malpractice
COLOMBO Dec 21 (Reuters) - Sri Lanka's securities regulator on Saturday ordered main listed companies to ensure that at least 20 percent of their shares were available to trade by the end of 2016 to raise liquidity, attract foreign funds and curb manipulation.
The long-debated directive came after foreign investors repeatedly complained about a lack of liquidity on the Colombo Stock Exchange. The bourse, capitalised at 2.44 trillion rupees ($18.64 billion), has also suffered from market manipulation through some illiquid shares.
According to Securities and Exchange Commission (SEC) data, more than 100 listed firms out of 288, have less than 20 percent of their shares available for trade. Some have less than 5 percent.
The total amount of shares available for trade, or floating, had fallen to 26.1 percent by the end of June, compared with 26.4 percent at the end last year.
"The overall liquidity in the market should increase by 9 to 10 percent with the implementation of a minimum free-float rule," Nalaka Godahewa, the head of the SEC, told Reuters.
"The SEC is following the example of many other regional and global regulators by making a minimum free-float mandatory," he said adding that the decision was taken after public consultations.
According to the rule, companies listed on the main board of the Colombo Stock Exchange should have a minimum public holding of 20 percent of total listed ordinary voting shares in the hands of a minimum of 750 public shareholders.
Otherwise, they should have a market capitalisation of 5 billion rupees of its public holding in the hands of a minimum of 500 public shareholders while maintaining a minimum public holding of 10 percent.
A listed entity on the second board of the bourse should maintain a minimum public holding of 10 percent of total listed shares in the hands of a minimum of 200 public shareholders, under the rule.
There are 226 companies listed on the main board and 58 firms on the second board. Another four firms have listed their debt.
The market welcomed the move and said it would help Sri Lanka's share market attract more foreign funds into companies other than the 10, including top conglomerate John Keells Holdings, which are the favourites of offshore funds.
"It is a positive move. If there is no liquidity, what is the purpose of listing," Danushka Samarasinghe, head of TKS Securities research, told Reuters.
"Increase in floating will make manipulation difficult as those who want to do it may need much more money to drive prices."
Manipulation and insider dealing in late 2010 and 2011 hit the bourse, which was Asia's best performing in 2009 and 2010 because of optimism after the end of a nearly three-decade war.
Sri Lanka's broader stock index is down 25.5 percent from a record high of 7,863.74 points on Feb. 15, 2011. ($1 = 130.7000 Sri Lanka rupees) (Reporting by Shihar Aneez; Editing by Robert Birsel)
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