Mumbai: The finance ministry has proposed to make it mandatory for companies listed on stock exchanges to maintain a minimum public holding of 25 per cent, so that there is limited scope for price manipulation on the stock exchanges.

"For a company to be listed and continue to be listed, it must have a public stake of 25 per cent," the finance ministry said while releasing a discussion paper on 'Public holdings for listing'.

"The larger the number of shares and the number of shareholders, ie, the larger the public float, the less is the scope for price manipulation," the paper pointed out.

As of now, most companies dilute just about 10 per cent of their stake through public offers at a high premium. Close to 10 per cent of over 2,000 actively traded stocks on the BSE and NSE have non-promoter holdings of less than 25 per cent.
 
The finance ministry discussion paper further said that a large number of shareholders was essential for providing sustained liquidity to the investors and to discover fair prices of shares.

The paper pointed out that if for any reason, the public holding falls below 25 per cent, it would be the responsibility of the promoters, management and the company to ensure it is maintained above the threshold limit within three months.

The ministry proposed that the market regulator SEBI should be entitled to take enforcement action, including delisting of the shares, in case the company fails to increase the public holding to 25 per cent limit within three months.

However, "if public means non-promoters and includes FIs, FIIs, MFs, employees, NRIs/OCBs, private corporate bodies, etc., the floating stock would be insignificant," the paper commented.

Quoting the NSE data, the paper said, only 13.35 per cent of the equity of the NSE listed companies (as of June 30, 2007) was held by public despite reservation of 35 per cent for retail investors at the public issue stage.

Indian promoters held as much as 48.35 per cent of equity followed by FIIs (10.53 per cent) and foreign promoters (6.97 per cent), the paper pointed out.

It said there should also be no discrimination between a government and non-government company for the purpose of listing requirements.

The paper said the Securities Contracts Regulations should speak in terms of allotment to the public and not just public offer.  Similarly, SBI's powers to relax listing requirements may be withdrawn, it said.