What Is Free Float? Why the NGX Cares How Many Shares Are Available to Trade
Free float is the portion of a listed company's shares that ordinary investors can actually buy and sell. Here is how it is measured, what NGX requires and why it shapes liquidity.
Free float is the portion of a listed company's issued shares that is held by the general investing public and is therefore available to be bought and sold on the Nigerian Exchange (NGX). It excludes shares locked up by founders, directors, parent companies, governments and other strategic holders who are not expected to trade. NGX sets a minimum free float for every company on its boards because a share that few people can trade is hard to price fairly and hard to buy or sell without moving the price.
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Important disclaimer. This article is for educational purposes only. It is not financial advice and is not a recommendation to buy any specific share or investment product. Always do your own research and consider seeking independent financial advice before making any investment decision.
How Free Float Is Worked Out
Start with the total number of shares the company has issued. Take away the shares that are not genuinely in public hands. Under NGX's rules these typically include holdings of directors and their close associates, holdings of a parent company or other strategic investor, government holdings, shares under a lock-in following a listing or placement, and holdings large enough to be treated as controlling rather than investing. What is left is the free float. It is usually quoted as a percentage of the issued shares, and NGX also expresses it as a naira value, meaning the number of free-float shares multiplied by the market price.
Two companies with the same number of issued shares can therefore have very different free floats. A company where a founding family owns 80 per cent has a float of about 20 per cent; a company whose shares are spread across thousands of institutional and retail holders may have a float well above that.
NGX Free Float Requirements
NGX publishes rules governing free float requirements, and the minimum depends on the board a company is listed on. As published by NGX, companies on the Premium Board and the Main Board must maintain a free float of at least 20 per cent of issued shares, or a free-float value above a naira threshold that is set higher for the Premium Board than for the Main Board. The Growth Board has lower minimums, with the Entry Segment at 10 per cent and the Standard Segment at 15 per cent, or a smaller naira value. The figures have been amended before and can be amended again, so check the current rule on NGX's website before relying on a number.
The rule is enforced by NGX Regulation Limited (NGX RegCo), the regulatory arm of the Exchange. A company that falls below the minimum is expected to submit a plan to restore compliance, and NGX RegCo can grant an extended timeframe on application. Companies that are deficient, the waivers they have requested and their compliance deadlines are published by NGX RegCo, so an investor can see whether a company is meeting the rule. Persistent non-compliance can lead to sanctions and, ultimately, to delisting.
A company can be below its free-float minimum and still trade normally on NGX while it works towards compliance. The published compliance status tells you the position; it does not tell you anything about the company's business.
Why Free Float Matters for Liquidity
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Liquidity is how easily a share can be bought or sold at a price close to the last traded price. Free float is one of its main drivers, because only free-float shares are realistically available to the order book.
- Fewer shares available means fewer orders on either side. A buyer may find no sellers at the current price, and an order for a modest quantity can be filled only by paying more or waiting.
- Price moves can be sharper. With a small float, a single large order can move the price by more than it would in a widely held company. Daily price limits cap the move within a day, not over several days.
- Spreads can be wider. The gap between the highest bid and the lowest offer tends to be wider when few investors are active in a share, which is a cost to anyone who trades it.
- Index inclusion often depends on it. Some indices weight companies by free-float market capitalisation rather than total market capitalisation, so a company with a small float carries less weight than its size alone suggests.
What Free Float Does Not Tell You
Free float describes how a company's shares are distributed, not how the company is performing. A large float does not mean a company is well run, and a small float does not mean it is badly run. Some closely held companies are large and profitable; some widely held ones are not. Free float is a piece of information about tradability, and it sits alongside the company's accounts, its disclosures and your own circumstances rather than replacing them.
How Free Float Changes
A company's float can rise when a major holder sells shares to the public through an offer for sale, when the company issues new shares to the public, or when a lock-in period ends. It can fall when a strategic investor buys a large block, when a company buys back its own shares, or when a major shareholder increases its stake. NGX requires listed companies to disclose significant changes in shareholding, and these appear in company announcements on the NGX website.
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See How It WorksFree Float in Nigeria: FAQs
Where can I find a company's free float?
The company's annual report shows its major shareholders and directors' interests, which lets you estimate the float. NGX RegCo's published compliance reports identify companies below the required minimum. Some data providers also quote a free-float percentage, though their definitions can differ slightly from NGX's.
Is free float the same as market capitalisation?
No. Market capitalisation is the value of all issued shares at the current price. Free-float market capitalisation is the value of only the freely tradable shares. The second figure is always the same as or smaller than the first.
Does a low free float affect my existing shares?
Your ownership is unchanged. What can be affected is how quickly you could sell and at what price, because fewer buyers are active in a thinly traded share. A limit order lets you set the price you are prepared to accept if you decide to sell.
What happens if a company never restores its free float?
NGX can apply sanctions and, in the end, delist the company. Delisting does not cancel your shares; they remain registered to you at CSCS or with the registrar, but they can no longer be traded on the Exchange. A separate article on this site explains what happens after a delisting.
Important disclaimer. This article is for general information and educational purposes only. It does not constitute financial advice, investment advice, or any recommendation to buy, sell, or hold any security. The value of investments can fall as well as rise. You should seek independent regulated financial advice before making any investment decision. Shares Saver does not provide financial advice.
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