By Majeed Salaam
The Securities and Exchange Commission (SEC) and Nigerian Exchange Limited (NGX) are set to review free float requirements for listed companies as part of a broader effort to enhance market liquidity, strengthen investor confidence, and align Nigeria’s equities market with global best practices. The move comes amid growing concerns that many of the country’s largest listed companies are tightly held by dominant shareholders, limiting tradable shares and contributing to heightened price volatility.
Free float refers to the proportion of a company’s shares available for public trading, excluding stakes held by insiders, founders, or government entities. Under current regulations, listed firms are required to maintain a minimum public shareholding of 20 percent or ensure at least N40 billion worth of shares are available for trading. Analysts say these requirements were designed to ensure sufficient liquidity in the market and provide investors with meaningful access to equity securities.
Mr. Temi Popoola, Chief Executive Officer of NGX Group, said the review would focus on optimising existing free float levels, improving the accuracy of market data, and evaluating whether current thresholds remain appropriate in a market that is evolving rapidly. “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,” Popoola said.
He stated that the review would examine whether elements of free float should play a more significant role in index construction, rather than relying exclusively on market capitalisation. “Many of our indexes are currently based primarily on market capitalisation. In considering free float, we are looking at whether these elements should play a greater role in how some of our indexes are structured,” he explained. This approach follows the practices of leading global index providers, including MSCI Inc. and FTSE Russell, which incorporate free float factors to better reflect market dynamics and investor accessibility.
Market participants say that inadequate free float has been a structural challenge in the Nigerian market for years. In companies where insiders or founding shareholders hold disproportionately high stakes, trading volumes can be thin, making it difficult for investors to buy or sell significant positions without affecting prices. Mr. Popoola noted that the SEC and NGX would engage stakeholders extensively throughout the review process. Listed companies, institutional investors, fund managers, and other market operators will have the opportunity to provide input before final adjustments are made. “We want to ensure that any changes to free float requirements are practical, achievable, and ultimately supportive of a healthier market,” he said.
The move also comes against the backdrop of efforts to strengthen Nigeria’s capital markets by promoting broader investor participation. In recent years, foreign portfolio inflows have fluctuated, with periods of high volatility reflecting both domestic and global economic developments. Regulators say that increasing public shareholding could improve market resilience by spreading ownership across a larger pool of investors.
Industry experts argue that the benefits of adjusting free float thresholds extend beyond liquidity. A higher free float can improve the accuracy of market indices, enhance price discovery, and make equities more attractive to institutional investors seeking larger positions with lower execution risk. Additionally, companies with higher public shareholding may enjoy improved corporate governance, as a more diverse shareholder base demands greater accountability from management.
“The free float review is about building investor confidence,” said Akinola Adeyemi, a portfolio manager at a Lagos-based fund. While the proposed review is primarily aimed at boosting liquidity, it may also have implications for Nigeria’s benchmark indices. Currently, most indices weigh companies according to market capitalisation, which can give disproportionate influence to firms with tightly held shares. By incorporating free float adjustments, index providers can create benchmarks that more accurately reflect the tradable market, making them more relevant to both domestic and international investors.
The SEC has previously emphasised that ensuring sufficient free float is critical for investor protection and market development. A spokesperson for the commission noted that the review aligns with the regulator’s ongoing efforts to modernise market practices, promote transparency, and attract sustainable capital inflows. “Our objective is to create an equities market that is both efficient and inclusive, where investors can participate meaningfully, and companies can access growth capital fairly,” the spokesperson said.
Ultimately, the SEC and NGX’s review of free float requirements is expected to influence trading dynamics, index composition, and investor behaviour. By optimising the proportion of shares available for public trading, regulators hope to encourage deeper participation, reduce price volatility, and strengthen the overall integrity of Nigeria’s equities market.
