SEC's Bold Float Reform: A New Dawn for Philippine Markets
Securities and Exchange Commission Chairman Francis Lim has emerged as a transformative figure in Philippine capital markets, introducing a groundbreaking tiered public-float framework that could finally awaken our dormant stock exchange from years of stagnation.
The new system replaces the rigid 20% flat rule with a sophisticated ladder: 33% float for companies valued at P500 million or below, scaling down to just 12% for mega-capitalized firms above P150 billion. This represents the most significant regulatory overhaul in decades.
Breaking the Structural Bottleneck
For too long, our capital markets have suffered from chronic ailments: too few listed companies, shallow liquidity, and regulatory frameworks that failed to attract major issuers. In OECD comparisons, the Philippines consistently ranks among ASEAN's weakest performers in market capitalization relative to GDP.
Under the old 20% rule, a P300-billion company would have been forced to unload P60 billion worth of shares in a market where annual turnover often falls short of such massive issuances. This arithmetic impossibility drove large, fast-growing companies to stay private or list abroad, depriving Filipino investors of premium opportunities.
Smart Regulation, Not Deregulation
Critics worry that 12% floats for mega-caps could entrench powerful controlling families while conferring public status benefits. However, the reform's logic lies in reallocating regulatory strictness where it matters most.
For smaller companies, higher float requirements of 25-33% combat price manipulation and improve transparency. These firms often lack analyst coverage and suffer from volatile trading, making broader public participation essential for fair price discovery.
Conversely, mega-caps face different challenges. Their sheer size would overwhelm our shallow market under the old rules, effectively barring them from local listing. The tiered approach acknowledges this reality while maintaining minimum peso-value thresholds to ensure adequate liquidity.
Lim's Broader Vision
Chairman Lim, a seasoned capital markets lawyer and former PSE president, has launched comprehensive reforms beyond float requirements. The SEC is clearing internal backlogs, simplifying procedures, and implementing the Capital Markets Efficiency Promotion Act.
His administration has also refined REIT rules, strengthened consumer protections, and enhanced disclosure obligations. This creates a robust regulatory scaffolding to support the flexible float regime.
Balancing Risks and Rewards
The reform's success hinges on rigorous enforcement. Low floats could breed opacity if peso-value floors aren't strictly maintained. Index inclusion rules must prevent overweighting of tightly controlled companies, protecting passive fund investors from price distortions.
Yet the potential rewards are substantial. More flexible floats could attract mega-cap issuers that alter index composition, draw global funds, and generate spillover liquidity across the market. This addresses our chronic lack of sector diversity, which relegates us to tactical trading rather than strategic investment destinations.
The Path Forward
Lim has positioned the SEC as an institution committed to data-driven decisions rather than political pressure. His recent statement that "no one should expect to have their way" signals regulatory independence at a critical juncture.
The real test comes over the next 24 months. Will major issuers finally list? Will liquidity deepen while governance enforcement keeps pace? Success requires not just rule changes but cultural shifts toward transparency and accountability.
For a market that has long punched below its weight, this represents a rare moment of regulatory ambition. The tiered float framework alone won't revive Philippine capital markets, but without it, revival would remain impossible.
As we navigate this transformation, we must remember that building robust capital markets serves not just Manila's financial district but every Filipino seeking investment opportunities, retirement security, and participation in our nation's economic growth.