PSX calls for market feedback on free-float reforms

July 17, 2025 (MLN): The Pakistan Stock Exchange (PSX) has invited market participants and stakeholders to provide feedback on a Consultation Paper proposing sweeping reforms to minimum free-float requirements to enhance market liquidity, improve price discovery, and align regulatory standards with global practices.

The proposal forms part of PSX’s broader push to deepen capital markets, foster long-term capital formation, and build investor confidence.

Tiered free-float thresholds

To tackle low trading activity and weak investor participation, the PSX has proposed a tiered structure for minimum free-float requirements, based on company size, with a phased rollout over three years.

• Companies with paid-up capital of up to Rs2.5 billion would be required to maintain a 25% free float.
  
• Those with capital between Rs2.5bn and Rs5bn must meet a 15% threshold.
  
• Firms with capital between Rs5bn and Rs10bn would need to ensure 10% free float.
  
• For companies exceeding Rs10bn, the minimum would be 5%.

These reforms aim to ensure continued compliance while significantly improving trading volumes and overall market liquidity.

Compliance snapshot and potential impact

As of June 11, 2025, 347 out of 527 listed companies on PSX comply with the current minimum free-float rules, while 180 companies remain non-compliant.

If all non-compliant firms meet the proposed requirements, the market could witness a net increase of approximately 1.34 billion shares in free float.

A breakdown shows:

• 23 companies and 2 state-owned enterprises (SOEs) fall in the "Up to Rs2.5bn" category.
  
• One company is non-compliant in the Rs2.5bn–5bn range.
  
• Two SOEs lie in the "Above Rs10bn" bracket.

Excluding public sector firms, the proposed thresholds could still inject around 1.23 billion shares into the market.

Global benchmarks and research support

The reforms draw from global practices adopted by exchanges such as NYSE, TSE, HKEX, ASX, and SET, where free-float compliance is strictly enforced, often with penalties for violations.

Empirical research from the UK, India, Turkey, and Indonesia confirms that higher free float correlates strongly with improved liquidity, higher trading volumes, and price efficiency.

Addressing schemes of arrangement and stock accessibility

The paper also raises concerns about listings via Schemes of Arrangement, which often result in limited public shareholding. PSX proposes minimum free-float requirements for such listings to avoid market distortion.

In addition, the exchange encourages listed companies to conduct stock splits to increase the number of outstanding shares, improving stock accessibility for retail investors and supporting liquidity growth.

Way forward

With the Consultation Paper, PSX intends to usher in a more dynamic, liquid, and transparent equity market.

The exchange has urged all stakeholders to share their input, which will play a critical role in shaping the final regulatory framework aligned with international standards.

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