Public Float

Public Float, also known as the "free float," refers to the portion of a company's shares that are in the hands of public investors as opposed to locked-in shares held by company officers, insiders, or major shareholders. This measure reflects the true liquidity of the stock in the market.

  1. Composition and Importance:

    • Non-restricted Shares: Only the shares freely traded without restrictions count towards the public float.
    • Market Liquidity: The size of the public float is crucial as it affects the stock's liquidity and how easily shares can be bought and sold without impacting the stock price significantly.

  2. Implications for Stock Trading:

    • Stock Volatility: Stocks with a smaller public float can be more volatile than those with a larger float.
    • Market Capitalization: Public float is essential in calculating the market capitalization of a company, especially the float-adjusted market cap.

  3. Considerations for Investors:

    • Stock Analysis: Investors often consider the size of the public float when analyzing a stock's true value and potential.
    • Index Inclusion: A larger public float might make a stock more likely to be included in major indices, affecting its visibility and liquidity.

In the Philippines, the Philippine Stock Exchange (PSE) mandates specific public float requirements to ensure adequate market liquidity and fair trading practices. As per the PSE guidelines:

  • For initial public offerings (IPOs), the required public float ranges from 20% to 33% of the outstanding capital stock post-IPO, depending on the company's market capitalization post-IPO.
  • Companies with a market capitalization not exceeding PHP 500M must have a public offer of 33% or PHP 50M, whichever is higher.
  • Companies with a market capitalization over PHP 500M to PHP 1B must have a public offer of 25% or PHP 100M, whichever is higher.
  • Companies with a market capitalization over PHP 1B must have a public offer of 20% or PHP 250M, whichever is higher.
  • The company must maintain a public ownership level of at least 20% at all times after initial listing.
  • Companies applying for listing by way of introduction or doing a backdoor listing are required to have at least 20% public float upon and after listing.

These regulations ensure transparency and equitable trading, maintaining investor confidence in the market.

Additional Reference: https://documents.pse.com.ph/CircularOPSPDF/CN-2020-0076.pdf

Common Questions:

  1. How does public float affect stock price movements?

    • A smaller public float can lead to more significant price movements in response to trading activity, while a larger public float generally means more stability in stock prices.

  2. Why is public float important for investors?

    • Investors consider public float as a crucial factor in their investment decisions due to its impact on stock liquidity, volatility, and the likelihood of a company being included in major stock indices.

  3. Can the size of the public float change?

    • Yes, the public float can change if major shareholders sell their stakes, the company issues new shares, or there are changes in insider holdings or stock buybacks.