Regulators to reassess minimum shareholding requirements due to market liquidity worries

The Securities and Exchange Commission, SEC and Nigerian Exchange Limited, NGX are set to review free float thresholds for listed companies over liquidity concerns, in a bid to enhance the equities market and attract more investors.

Free float refers to the proportion of a company’s shares available for public trading, excluding those held by insiders, founders or government entities. The requirement is designed to ensure adequate market liquidity and reduce price volatility.

The review, according to a report by Bloomberg, is being undertaken following growing concerns that a number of Nigeria’s largest listed companies are tightly held by dominant shareholders, limiting the volume of tradable shares and heightening volatility risks.

Under existing rules, listed firms are required to maintain a minimum public shareholding of 20 per cent or at least N40 billion worth of shares available for trading.

Speaking on the development, Chief Executive Officer of NGX Group, Temi Popoola, said the planned review would ensure more companies comply with free float requirements, while also aligning the market with global best practices.

According to him, the exercise will focus on optimising current free float levels, improving the accuracy of market data and determining whether existing thresholds remain suitable as the market evolves.

He said: “This includes assessing how we optimise existing free-float levels, ensuring the accuracy of free-float data captured by the exchange and evaluating whether current free-float requirements remain appropriate as the market evolves.”

Popoola also disclosed that regulators are considering incorporating free-float factors into index construction, rather than relying solely on market capitalisation.

He noted that the move is in line with global standards adopted by leading index providers such as MSCI Inc. and FTSE Russell.

“We are considering whether elements of free float should play a greater role in how some of our indexes are structured, given that many indexes are currently based primarily on market capitalisation,” he added.