The Nigerian Stock Exchange (NSE) has disclosed it would begin implementation of its new free float rules staring from the first trading day in 2020.
The new free float rules which had been approved by the Securities and Exchange Commission (SEC) since May 2019 were initially expected to take effect on Monday, June 3, 2019, but the NSE suspended it.
Free float, also known as public float, refers to the shares of a company that can be publicly traded and are not held by insiders. Insiders meaning parent, subsidiary or associate companies or any subsidiaries or associates of its parent company; its directors who are holding office as directors of the entity and their close family members and any single individual or institutional shareholder.
What you need to know about the new rules: The new free float rules require all quoted companies to publish in their half-year reports the shareholding structure and level of compliance in relation with the minimum number of shares being held by all minority shareholders.
The new rules also mandate all quoted companies to undertake periodic self-assessment of their free float compliance and report any breach or shortfall to the Exchange. The new rules place priority on the investigation and compliance on the path of the companies, in addition to existing surveillance by the capital market authorities.
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Penalty for failure to meet up: Failure to meet up with the new regulations mandates, the NSE would commence the process of delisting such company, either after failure to respond to a free-float rule default notice within 10 business days.
The NSE is also expected to commence delisting process if the company’s compliance plan is not acceptable to the Exchange, and the company fails to produce and submit an acceptable alternative plan within 21 business days of the Exchange’s rejection of the initial plan. Also, if the defaulting company is unable to return to a state of full compliance within such period as indicated in the company’s compliance plan approved by the Exchange, delisting will still carry on.
The new amendments, expect that free float of companies on the premium and mainboards must be held by not less than 300 shareholders while those on Alternative Securities Market (ASeM) must be held by not less than 51 shareholders. A new growth will be constituted and will have free float of between 10 to 15%, which must be held by persons between 25 to 51.
The minimum value of free float for companies on the mainboard is N20 billion while ASeM and growth board have alternative value of N50 million, The Nation reported.
Upshot: The implementation of the new free float regulations could mitigate price manipulation through increased transparency while improving liquidity in the Nigerian stock exchange.