Stock-market / Stock Market / MPS Norms
About
- 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.
