Purisima Wants Public Float Increased to 30%

Finance secretary Cesar Purisima wants the average public float of listed companies to increase to 30 percent to deepen the domestic capital markets.

Purisima said on the sidelines of the SEC (Securities and Exchange Commission)-PSE (Philippine Stock Exchange) Corporate Governance Forum yesterday the average public ownership rule must be raised from the current average of 20 to 25 percent.

“Here in the Philippines, the float is still not deep enough. We need to further expand that,” Purisima said.

“The market needs to be deep enough so that there is true price discovery,” he added.

The PSE requires publicly listed companies to maintain a minimum 10 percent public float.

The PSE implemented the minimum public float rule to increase market liquidity and for the efficient price discovery in the stock market.

When the minimum public ownership was set at 10 percent in 2011, several listed companies decided to voluntarily delist themselves from the market.

Many foreign investors have complained that the number of shares traded in the country is limited.

The compulsory 10 percent float had long been considered as too small. 

The shallow float also makes price manipulation easier. 

Meanwhile, in the same event, Purisima said the Department Order (DO) issued by the Department of Finance in April which prescribes the “fit and proper rule” for directors of insurance and public companies is his recommendation.

“The DO is not an order in the real sense because it is very clear that it is a recommendation, it is not compulsory to adopt it. I just felt that I needed to share my thoughts on it,” Purisima said.

DO No. 054-2015 prescribes that covered entities have directors who are fit and proper to hold such positions in the interest of building a strong and stable financial system by virtue of upholding the highest standards in corporate governance.

“Good governance extends to corporate governance. We want our insurance and public companies to reflect the highest corporate standards of integrity and excellence. For company directors in the country to be ‘fit and proper’ is a given; this rule merely enforces good practice,” he earlier said.

The DO sets forth minimum qualifications of directors and independent directors. 

For directors, s/he must ideally be at least 25 years old and a college graduate or an individual with at least five years experience in the business. Ideally, s/he must also have attended a special seminar on corporate governance for board of directors conducted or accredited by SEC or the Insurance Commission (IC) as may be applicable. 

Lastly, s/he must be fit and proper for the position of a director of the covered entity, taking into account several factors including integrity or probity, competence, relevant education/training (e.g., financial literacy), physical and mental fitness, diligence, and knowledge or experience.

Meanwhile, the DO prescribes that an independent director is ideally an individual not more than 80 years old, unless otherwise found fit to continue serving as such by SEC or IC. 

Ideally, s/he must also not be (or has been) a member of the executive committee of the board of directors, or an officer or employee, of the covered entity, its subsidiaries, affiliates or related companies during the three years immediately preceding the date of his election.

An independent director must not be a “substantial shareholder,” i.e., does not own/hold shares of stock sufficient to elect one seat in the board of directors of either the covered entity, its subsidiaries, affiliates or any related companies of its majority corporate shareholders.

The DO prescribes the ideal minimum number of independent directors as at least 20 percent but not less than two members of the board of directors. 

For publicly-listed corporations, the DO holds that the number of independent directors shall be proportionate to the percentage of shares held by the public.

Further, the DO describes an ideal tenure as five consecutive years, after which re-election is possible after a “cooling period” of two years.

source:  Malaya