Minimum float requirement to be strictly imposed 

  • CSE Chair says new methodology to ensure companies with low float do not have a significant impact on the index

BY Shenal Fernando

The Colombo Stock Exchange (CSE) going forward, will strictly require all listed companies to comply with the Minimum Public Holding Requirement stipulated in CSE Rule 7.13.1(b).

This statement was made by the CSE Chairman Dumith Fernando, who speaking to The Morning Business last week (12) stated that when the Minimum Public Holding Requirement was introduced there were some exceptions given so that the company would be moved to the second board instead of enforcement.

However, the CSE will commence enforcing the Minimum Public Holding Requirement strictly from next week onwards and will be speaking to companies regarding this change.

“We have to balance it, we don’t want a whole bunch of companies delisting either. So, we have to give them a path to increase their float and stay on,” stated Fernando.

He further stated that the CSE had revised its index calculation methodology in response to the issues arising from the low public float of listed companies and that in certain companies with a low public float a person can change the share price by trading Rs. 100,000 worth of shares.

“We learned that someone figured out this tactic last May and so by June itself we started working on it (new methodology). Unfortunately, this required a lot of back testing and we had to redo scenarios for about five years of data.”

Explaining further he stated that the change in the calculating methodology will ensure that companies with less float will not have a significant impact on the index.

The implementation of the aforementioned methodology revision is scheduled to take place on 24 January 2022 aftermarket closure.

On the implementation date of the revised index calculation methodology, the All Share Price Index (ASPI) will start moving from the same value that it closed on the day immediately prior to the changes. Therefore, when this methodology revision is implemented, the serial continuity of the index will be maintained and there will be no sudden shift of the index level solely due to the launch of the new index.

This methodology revision was announced by a CSE media release on 15 November 2021 which stated that  the Board of Directors of the CSE had approved the revision of the index calculation methodology of the ASPI from full market capitalisation-weighting to free float-adjusted market capitalisation-weighting.