Free float

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Under the free float ( English : public float or free float ) is meant for public companies the sum of the shares that the stock market trading are available.

General

Ideally, 100% of the shares in a stock corporation are traded on the stock exchange. If the proportion of exchange-traded shares is less than 100%, the non-exchange-traded part is owned by large investors as a “share package”. In the USA, the majority of shares belong to the free float, while in Germany between 1988 and 2000 the percentage of companies that are majority (> 50%) in free float in the 100 largest German stock corporations tended to decrease. Accordingly, larger blocks of shares in a stock corporation are often owned by individual major shareholders both nationally and internationally and are not available for stock market trading. The residual size remaining for stock exchange trading is then called the free float. It is the percentage value of the shares traded on the stock exchange.

Free float stock corporations have the following characteristics:

  • Aim of continuously increasing shareholder value ,
  • Shifting power relations to managers,
  • Redistribution of profits to shareholders and management.

Companies with a high free float usually do not have long-term oriented shareholders , but rather partners who, in case of doubt, can have a very short-term interest in the company ( profit-taking ). Major shareholders, on the other hand, usually pursue strategic and long-term goals with their participation .

Shares with a lock-up of at least 6 months are not part of the free float; Lock up is an agreement with a shareholder that they are not allowed to sell the shares for a certain period of time. With regard to voting rights at general meetings, the free float can lead to an atomization of the vote , while large majority of shares can influence important decisions through share packages through uniform voting behavior and can send supervisory board representatives.

Statutory Regulations

There are different views on free float, which are mostly determined by the respective stock exchange laws. In the United States, for example, the weekly trading volume determines the reporting requirement under Article 144 of the Securities Act of 1933 . For this reason, many custodian banks no longer count the transactions reported in this way, which often account for less than 3% of the total number of shares, as part of the free float, so that the information given by Deutsche Börse is different.

Free float and stock market price

Economists have examined the relationship between free float and stock market price. The larger the free float for a particular share, the “broader” the market, and the lower the free float, the greater the market tightness . The tradability ( fungibility ) of a share increases as the free float increases. In the case of extensive free float, it can be assumed that there is a herd instinct of ignorant shareholders in the case of consonant reporting . Companies with only a small amount of free float are likely to be less susceptible to trends that analysts or media reports have triggered or reinforced. However, a small free float can mean that price-relevant information has a significantly greater impact on the share price. The volatility of a share increases when its free float ratio is low , because just a few transactions can have a relatively large impact on the price on the stock exchange . Conversely, in addition to values higher susceptibility course conceivable high float.

In June 2002, Deutsche Börse AG switched its index calculation to a free float weighting. The determination of the free float share (free float) for the weighting of the respective share class of a company in the indices is based on a free float definition, according to which all shares of a shareholder, which cumulatively make up at least 5% of the share capital of a company allocated to a share class, are considered permanent holdings . Shares held by persons closely related to the shareholder within the meaning of the Market Abuse Ordinance are also deemed to be shares of a shareholder . As a result, the values ​​in the stock indices are weighted according to stock exchange turnover and market capitalization on the basis of the free float (free float market capitalization). In addition to continuous trading in the Xetra trading system of the Frankfurt Stock Exchange, a qualitative feature for shares in the selection indices of Deutsche Börse AG is the minimum free float of 5%. In May 2016, Deutsche Börse presented a differentiated definition of the term, according to which a share is removed from the share index if its free float falls below 10%.

Individual evidence

  1. ↑ Jan von Hein: The reception of US corporate law in Germany . Mohr Siebeck, 2008, ISBN 978-3-16-149667-7 , pp. 376 ( preview in Google Book search).
  2. ^ Inge Lippert, Ulrich Juergens: Corporate Governance and Employee Participation in the Varieties of Capitalism . edition sigma, 2012, ISBN 978-3-8360-8743-8 , pp. 76 ( Preview in Google Book Search).
  3. ^ Klaus Rainer Kirchhoff, Manfred Piwinger: Practical Guide Investor Relations . Springer-Verlag, 2010, ISBN 978-3-8349-8810-2 , p. 269 ( preview in Google Book Search).
  4. ^ Bertram Scheufele, Alexander Haas: Media and shares . Springer-Verlag, 2008, ISBN 978-3-531-15751-1 , pp. 15 ( Preview in Google Book Search).
  5. ^ Bertram Scheufele, Alexander Haas: Media and shares . Springer-Verlag, 2008, ISBN 978-3-531-15751-1 , pp. 50 ( preview in Google Book Search).
  6. ^ Bertram Scheufele, Alexander Haas: Media and shares . Springer-Verlag, 2008, ISBN 978-3-531-15751-1 , pp. 124 ( preview in Google Book search).
  7. ↑ Wolfgang Grundmann, Rudolf Rathner: Final exams in banking, accounting and control, economics and social studies . Springer-Verlag, 2009, ISBN 978-3-8349-8371-8 , pp. 352 ( preview in Google Book Search).
  8. ^ Philipp Maas: Necessary and sufficient conditions for welfare development conform economic policy . Universitätsverlag Göttingen, 2012, ISBN 978-3-86395-068-2 , p. 278 ( preview in Google Book search).
  9. ↑ Free float in the stock exchange dictionary of Deutsche Börse, accessed on August 14, 2017.
  10. ↑ This does not apply to blocks of shares from asset managers, funds, trust and pension companies
  11. ↑ This percentage was based on the reporting threshold applicable until January 20, 2007 for notification of voting rights , which is regulated in the Securities Trading Act.
  12. ↑ Deutsche Börse AG, Guide to the Equity Indices of Deutsche Börse from May 2016 , p. 33.