SEC raises minimum public float requirement to 20%

MANILA, Philippines — The Securities and Exchange Commission (SEC) has issued a circular, increasing the minimum public float requirement for listed companies to 20 percent from the current 10 percent.

In a briefing yesterday, SEC commissioner Ephyro Amatong said the new circular would take effect 15 days after its scheduled publication this week.

The SEC has long been planning to increase the minimum public float requirement for listed companies but has deferred this many times because of volatile market conditions.

The new circular, however, will cover only new market entrants or companies that have yet to list in the market.

“For existing companies, we are still looking at it. All options are on the table,” said SEC Market and Securities Regulation Department chief Vicente Graciano Felizmenio Jr.

Felizmenio hopes to come up with a decision for existing listed companies by the first quarter of next year.

The SEC eventually plans to raise the public float to 25 percent and gradually increase it to 30 percent and then to 35 percent.

SEC chairman Teresita Herbosa said the 20 percent is enough for minority shareholders to secure at least one board seat.

Public float refers to the portion of share of a corporation that is owned by public investors. It is freely available and tradable in the market and is non-strategic in nature or  not meant to gain substantial influence on how the company should be managed.

According to the SEC, 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.

The SEC warned that non-compliance with the minimum public ownership requirement may result to publicly listed companies being subjected to the administrative sanctions provided under Section 54 of the Securities Regulation Code.

They may also be subject to a higher tax rate as all publicly listed companies are required at all times to maintain a minimum public ownership as prescribed by the SEC to enjoy preferential tax treatment. 

According to the Bureau of Internal Revenue, the sale, barter, exchange, or other disposition of shares of stock of publicly listed companies that meet the MPO through the local stock exchange other than the sale by a dealer in securities, is subject to stock transaction tax of one-half of one percent of the gross selling price.

However, the sale, barter, transfer and or assignment of shares of stock of publicly-listed companies that fail to meet the MPO is subject to final tax of five percent or 10 percent on the net capital gains, and documentary stamp tax.