The Nigerian Exchange (NGX) has revealed plans to overhaul free-float requirements as part of a broader strategy to deepen Nigeria’s equity market and attract more investors.
The NGX Group Chief Executive Officer, Temi Popoola, made this known, according to a report by Bloomberg
He hinted that the exchange is working closely with the Securities and Exchange Commission (SEC) to reassess how free float is defined, measured and enforced.
The review comes amid concerns that many of Nigeria’s largest listed companies remain tightly held by controlling shareholders, limiting liquidity and increasing the risk of price volatility.
“The bourse is working with Nigeria’s Securities and Exchange Commission on ‘reviewing issues around free float and market liquidity,’” Popoola said.
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“This includes assessing how we optimise existing free-float levels, ensuring the accuracy of free-float data captured by the exchange and evaluating whether current free-float requirements remain appropriate as the market evolves.”
Currently, Nigeria mandates large companies to maintain a minimum public shareholding of 20 per cent or at least N40 billion worth of shares available for trading.
However, some major firms fall short of the percentage threshold while still meeting the value requirement.
For instance, Dangote Cement Plc has a free float of about 11 per cent, while Bua Cement Plc has less than 3 per cent available for trading.
The issue has gained urgency following changes by MSCI Inc., which recently tightened its definition of free float, a move that triggered sell-offs in markets with low tradable shares, such as Indonesia.
Popoola indicated that the regulators are considering new rules to ensure more companies comply with free-float expectations, potentially aligning the market with global standards and improving its appeal to international investors.
He also disclosed that the regulators are exploring structural changes beyond shareholding thresholds, including how market indices are calculated.
“We are considering whether elements of free float should play a greater role in how some of our indexes are structured, given that many indexes are currently based primarily on market capitalisation,” he said.
“All of these efforts form part of our broader objective of deepening the market and ensuring that its structure continues to support growing investor participation.”
The reform efforts may draw lessons from India, which addressed similar challenges in 2010 by mandating a minimum public shareholding of 25 per cent and requiring companies below the threshold to gradually increase their free float.
The policy helped the country attract significant foreign inflows and expand its retail investor base.
Market participants believe similar measures could yield positive results in Nigeria.
The Managing Director of CardinalStone Securities Limited, Peter Omoregie, was quoted as saying that stricter free-float requirements would likely improve liquidity.
“An increase in free-float requirements will lead to increased liquidity in the market as managers of some closely held companies may have to find ways to release more shares to the public,” Omoregie added.
Benchmark providers such as MSCI Inc. and FTSE Russell rely on free float to determine how easily investors can trade a stock, making the measure critical to a market’s global competitiveness.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X
