- The Minimum Public Shareholding (MPS), also known as free float, rule mandates that listed companies in India must ensure that at least 25% of their equity shares are held by non-promoters, i.e., the public.
- Public shareholders can be individuals or financial institutions, and they typically acquire shares through public offers or secondary markets.
- The concept of minimum public shareholding was introduced to enhance transparency in listed companies’ operations.
- In 2010, the Securities and Exchange Board of India (SEBI) amended the Securities Contracts Regulation Rules to enforce this 25% public float requirement for private sector companies.
- The average promoter holding in India is one of the highest globally.
- In the 2019-20 Budget, the government proposed to increase the minimum public float from 25% to 35%.
Compliance Status
- The deadline for achieving 25% Minimum Public Shareholding (MPS) for listed companies was originally set for 2013.
- However, for public sector companies like PSUs and public sector banks (PSBs), the deadline was extended multiple times due to insufficient efforts from these entities to comply.
- The most recent extension allowed them to work towards compliance until 2nd August, 2021.
- In a recent amendment, the Central government has granted itself the authority to exempt selected public sector companies from the 25% MPS requirement.
Significance
- Having adequate free float in a listed company is crucial for ensuring ample liquidity in stock trading, which in turn supports efficient price discovery and preserves market integrity.
- Public float helps to mitigate price manipulation in stocks.
- Encouraging promoters to loosen their control over listed companies can enhance corporate governance by granting public shareholders and institutions more influence over corporate decisions.
- Increasing the supply of shares by compelling promoters to sell shares would address the limited investment opportunities in the stock market.
FAQs
1. What are minimum public shareholding norms?
A: Minimum public shareholding norms are regulations set by stock exchanges and regulatory bodies requiring listed companies to ensure a certain portion of their shares are held by the public. This promotes market liquidity, transparency, and fair pricing.
2. Why are minimum public shareholding norms important?
A: These norms prevent concentrated ownership, ensuring a wider distribution of shares among investors. This enhances market depth, reduces volatility, and prevents market manipulation. Additionally, it promotes corporate governance and protects minority shareholders’ interests.
3. What happens if a company fails to comply with minimum public shareholding norms?
A: Non-compliance can result in penalties such as fines, delisting from stock exchanges, or trading restrictions. Companies failing to meet the requirements are typically given a timeline to comply, failing which regulatory action is taken.
4. How do companies comply with minimum public shareholding norms?
A: Companies can comply by either increasing public shareholding through additional offerings, including IPOs or follow-on public offers, or by divesting shares held by promoters or through institutional placements. Alternatively, companies may opt for buybacks or bonus issues to increase public shareholding.
5. What are the implications of minimum public shareholding norms on investors?
A: For investors, these norms signify increased market transparency and reduced risk of insider trading or price manipulation. Moreover, it offers opportunities for retail investors to participate in the growth of listed companies and promotes a fairer investment environment.
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