Minimum public shareholding

Indian Economy glossary

Also called: MPS · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT

Meaning

Minimum public shareholding (MPS) is a rule that the public must hold at least 25% of a listed company's shares. "Public" means shareholders other than the promoters. The rule is in rule 19A of the Securities Contracts (Regulation) Rules (SCRR) 1957. Its purpose is to make sure enough shares are actually traded, so prices reflect real demand and no small group can easily control or manipulate the price. Companies are given time after listing to reach 25%. Large issuers and PSUs such as LIC have received relaxations.

Example

Suppose the promoters of a listed company own 80% of its shares, so the public holds only 20%. To meet MPS, the promoters must bring their holding down to 75%. They can do this by selling shares through an Offer for Sale (OFS), or the company can issue new shares to institutions through a QIP (Qualified Institutional Placement).

Don't confuse with

  • Free float: this is the number of shares actually available for trading, and it is used to weight index stocks. MPS is a legal minimum that the public must hold.

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