Securities and Exchange Commission (SEC) Chairman Francis Lim’s recent statement on the tiered public-float proposal serves as a firm reminder that the circular remains a living draft, not a predetermined outcome. By stressing that “no one should expect to have their way” and nothing is final, Lim positions the SEC as an institution committed to open consultation rather than regulatory capture. His message is aimed equally at large issuers lobbying for lower floats and investor groups pressing for stricter thresholds: the reform will move only on the strength of data, liquidity considerations, and long-term market impact, not on pressure campaigns or political noise.

By asserting that the SEC “will decide solely on what is right for the market, not on who shouts the loudest,” Lim is signaling a recalibration of regulatory discipline at a critical moment for Philippine capital markets. The remark reinforces the agency’s independence and asserts that the final framework will balance competing interests with an eye toward credibility, liquidity depth, and investor protection. In a market hungry for both modernization and trust, this posture of principled neutrality may prove as important as the float reform itself.

The arrival of Lim at the helm of SEC has injected an unusual burst of energy into a capital market long accustomed to incrementalism. 

Lim, a seasoned capital-markets lawyer and former Philippine Stock Exchange (PSE) president, has wasted little time diagnosing the country’s structural deficiencies: too few listed companies, chronically shallow liquidity, and a regulatory architecture that has not kept pace with neither the scale of modern issuers nor the demands of global investors. 

In the Organization for Economic Cooperation and Development (OECD) cross-country comparisons, the Philippines consistently posts one of the lowest market-capitalization-to-GDP ratios among members of the Association of Southeast Asian Nations (ASEAN) and an anemic pipeline of new listings. For years, regulators lamented these indicators but delivered only modest reforms. Lim, to his credit, is attempting a more comprehensive reset. The OECD is a global policy institution made up of 38 member countries, mostly high-income economies, that work together to shape economic, social, financial, and regulatory standards. (READ: Value trap: Why the PSE is one of world’s worst-performing markets)

The most controversial — and potentially transformative — piece of that reset is the SEC’s newly released exposure draft introducing a tiered minimum public-float framework for initial public offerings (IPO). It replaces the long-standing flat 20% rule with a size-sensitive ladder: 33% float for companies valued at P500 million or below; 25% for those up to P1 billion; 20% for those with mid-capitalization up to P50 billion; 15% for large issuers between P50 billion and P150 billion; and a sharply lower 12% for mega-capitalized ones above P150 billion, provided they still comply with minimum peso-value thresholds.

Applause, concerns

Unsurprisingly, this triggered applause from some corners of the market and discomfort from others. Large issuers, particularly financial technology companies (fintechs) and conglomerate carve-outs contemplating blockbuster listings, see at last a regulatory regime that understands the absorptive limits of a shallow market. 

But governance advocates worry that a 12% float is dangerously thin, potentially entrenching already powerful controlling families, while conferring on them the reputational benefits of public status. 

As with most things in market microstructure, the truth lies in the interplay of incentives, liquidity dynamics, and regulatory discipline.

To understand the logic of the reform, one must begin with the basic arithmetic of an IPO. Under the old flat 20% rule, a ₱300-billion company contemplating a listing would have been forced to unload ₱60 billion worth of shares. In a market where annual total turnover often hovers at levels smaller than that single issuance, such supply would overwhelm both domestic institutions and foreign funds. The policy, well-intentioned as it was, all but guaranteed that large, fast-growing companies would stay private, list abroad, or avoid the public markets entirely. The tiered framework is an explicit attempt to remove this structural bottleneck.

By contrast, a small- or mid-sized issuer presents an entirely different problem. Thin public floats in the micro-cap and small-cap segment are notorious breeding grounds for cornering, insider-driven spikes, and price manipulation. Requiring a higher float — 33% for the smallest, 25% for the next tier — improves price discovery, broadens investor participation, and protects retail buyers who rely on transparent, competitive order books rather than insider networks. These companies tend to have limited analyst coverage, small free floats, and often volatile trading profiles. 

More public float in this space — not less — is precisely the corrective the market needs.

Regulatory move

Viewed through this lens, the tiering system is not a deregulation of floats; it is a reallocation of regulatory strictness. 

The SEC is tightening the float requirement where governance and liquidity risks are highest and loosening it where the 20% threshold was practically preventing listings altogether. In pure policy design terms, it is one of the more rational calibrations that the market has seen in a decade.

But the reform’s potential must be weighed against its risks. 

A 12% float for mega-caps raises legitimate concerns about market integrity. In markets where shareholder activism is weak and related-party transactions remain a systemic governance challenge, allowing controlling shareholders to retain 88% of equity, while tapping public capital, magnifies the risk of minority squeeze-out, valuation opacity, and governance complacency. 

If the peso-value floor is not rigorously enforced, a mega-cap could list with just enough public shares to meet the letter of the rule, while starving the market of genuine liquidity. Worse, if such companies are admitted to the main index, passive funds with mechanical allocation rules would be compelled to buy into a tightly held name with limited free float, magnifying price distortion in both directions.

Strengthening guardrails

For this reason, the float rule cannot be evaluated in isolation. It lives or dies based on the SEC’s ability to strengthen the surrounding regulatory guardrails: audit enforcement, related-party scrutiny, valuation standards, and disclosure discipline. 

This is where Lim’s broader reform agenda becomes relevant. 

The SEC under his leadership has begun clearing internal backlogs, simplifying procedural requirements, redesigning registration and IPO workflows, and pushing the implementation of the Capital Markets Efficiency Promotion Act (CMEPA). The commission is also refining the rules governing REITs, syncing reinvestment timelines with market realities and widening the definition of income-generating assets. On the non-bank financial side, consumer-protection reforms aim to curb abusive collection practices and strengthen disclosure obligations.

In other words, the tiered float is arriving within a larger regulatory modernization plan, not as a standalone experiment. If the SEC follows through, this creates a scaffolding robust enough to support a more flexible float regime.

The remaining question is whether such a regime is favorable to the market as a whole. On this, a forensic reading of liquidity mechanics, investor behavior, and historical precedent points to a cautiously affirmative answer.

• First, the Philippine market desperately needs a deeper bench of large-cap names. The PSE Index is dominated by a small cluster of conglomerates whose combined trading volumes have been declining. New sectors — digital finance, logistics, data infrastructure — are underrepresented. 

When markets lack sector diversity, foreign investors treat them as tactical short-term trades rather than strategic long-term allocations. A more flexible float structure is a prerequisite for bringing in the kind of mega-cap issuers that alter index composition, attract global funds, and produce spillover liquidity across the board.

• Second, liquidity is not determined solely by float percentage; it is driven by absolute float value, institutional participation, and the velocity of shares. A 12% float of a P300-billion issuer is still P36 billion of tradable paper — larger than the entire free float of many existing index constituents. The structural risk is not insufficiency of float, but weakness in valuation enforcement or regulatory capture. If the SEC disciplines inflated valuations and enforces peso-value floors tightly, liquidity concerns become less material.
• Third, for small caps, increasing the float is a long-overdue correction. Too many Philippine micro-cap IPOs over the years have had float sizes so small they were functionally controlled markets, vulnerable to circular trading and price orchestration. Retail investors, in particular, have clamored for greater transparency and deeper float to cushion volatility. In this segment, the SEC’s move is explicitly pro-investor.

A bet grounded on economic realities

The biggest unknown is issuer behavior. 

Will SMEs balk at the higher float requirement and opt out of the IPO track altogether? Possibly. Some family-owned businesses may prefer debt or private equity to preserve control. But others — especially those eyeing expansion capital — may find that a larger float broadens their appeal and stabilizes post-IPO trading. Conversely, will mega-caps list more readily now that they can float 15% or 12% instead of 20%?  Yes. The cost-benefit calculus shifts, particularly for issuers whose scale would have required unloading tens of billions of pesos under the old rule.

Ultimately, the tiered float framework is not a guarantee of market revival. It is merely the removal of one of the structural barriers that kept the market stagnant. Its success will hinge on execution: whether the SEC enforces the new rules without exception, whether it cracks down on valuation abuses like the recent audit and appraisal controversies, and whether the exchange revisits index inclusion rules to avoid overweighting tightly controlled companies.

Francis Lim has placed a strategic wager: that market expansion, not rigid governance orthodoxy, is what the Philippine capital market needs most at this moment. It is a bet grounded in the economic realities of a shallow market that must compete regionally for listings, liquidity, and investor attention. But it is not without risk. A float that is too low can breed opacity; a float that is too high for mega-caps can kill deals. The new framework attempts to walk that tightrope.

The real test will come not in the rule’s publication, but in the deals it enables — or fails to enable — over the next 24 months. If major issuers finally list, if liquidity deepens, and if governance enforcement keeps pace, the reform will be remembered as the turning point. If not, it will join the long list of well-meaning regulatory adjustments that failed to move the needle.

For now, the verdict is neither triumph nor cautionary tale. It is a rare moment of regulatory ambition in a market that sorely needs it. The revival of Philippine capital markets will require more than a new float regime. But without it, revival would not come at all. – Rappler.com

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