NGX, SEC Consider Stricter Free-Float Requirements to Deepen Nigeria’s Equity Market

The Nigerian Exchange Group (NGX) and the Securities and Exchange Commission Nigeria (SEC) are reviewing existing free-float requirements for listed companies as regulators seek to improve liquidity, strengthen price discovery and deepen Nigeria’s equity market.

The move comes amid concerns that many of Nigeria’s largest listed companies have highly concentrated ownership structures, leaving limited shares available for public trading and reducing overall market liquidity.

Free float refers to the proportion of a company’s outstanding shares that are freely available for trading by the investing public. Low free-float levels often result in limited trading activity, wider price swings and reduced participation from institutional investors.

Under current Nigerian market rules, large companies listed on the exchange must maintain a minimum public shareholding of 20 percent or have at least ₦40 billion worth of shares available for public trading.

However, regulators are now evaluating whether the current framework remains adequate as the Nigerian capital market expands and seeks greater global investor participation.

Chief Executive Officer of NGX Group, Temi Popoola, said the exchange is working with the SEC to review key areas affecting market liquidity, including the adequacy of free-float thresholds and the accuracy of data used to measure public shareholding.

According to Popoola, the objective is to ensure that listed companies maintain sufficient publicly tradable shares to support a more efficient and transparent market.

“We are reviewing issues around free float and market liquidity. This includes assessing how we optimize 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.

The review comes at a time when global index providers such as MSCI Inc. have tightened their methodologies for measuring free float in equity markets.

Benchmark providers including FTSE Russell and MSCI rely on free-float data to determine how easily investors can access shares in a given market. Stocks with higher free-float levels typically receive greater weightings in global indices, making them more attractive to international funds and passive investment vehicles.

Nigeria’s equity market currently has several large-cap companies with relatively low public shareholding.

For example, Dangote Cement Plc has an estimated free float of about 11 percent, while BUA Cement Plc, the second-largest company on the Nigerian Exchange by market capitalization, has less than three percent of its shares available for trading.

Both companies remain compliant with Nigerian regulations because the value of their publicly traded shares exceeds the ₦40 billion minimum threshold.

However, market analysts say the structure limits liquidity and restricts trading volumes in some of the exchange’s most valuable companies.

Managing Director of CardinalStone Securities Ltd., Peter Omoregie, said tightening free-float requirements could increase market liquidity by encouraging companies with concentrated ownership structures to release more shares to the public.

According to Omoregie, higher public shareholding levels would expand the pool of tradable shares and strengthen investor participation across the market.

He noted that such reforms could also attract more foreign portfolio inflows into Nigerian equities as global investors typically prefer markets with deeper liquidity and stronger price transparency.

International experience shows that stronger free-float requirements can significantly expand capital markets.

India introduced similar reforms in 2010 when regulators required listed companies to maintain a minimum public shareholding of 25 percent. Companies below the threshold were required to gradually increase their public shareholding over time.

The reform strengthened market participation and contributed to significant growth in India’s equity market, helping the country attract more than $1 trillion in foreign portfolio inflows.

Beyond reviewing free-float thresholds, the Nigerian Exchange is also evaluating whether free-float levels should play a greater role in determining the structure of market indices.

Currently, many Nigerian indices are primarily weighted by market capitalization rather than the proportion of shares available for trading.

According to Popoola, aligning index methodology more closely with free-float principles could improve market representation and provide investors with more accurate benchmarks.

The ongoing review reflects broader efforts by Nigerian regulators to strengthen the structure of the capital market, enhance liquidity and position the Nigerian Exchange as a more competitive destination for both domestic and international investors.