Subdivision doesn’t change company value but creates liquidity premium

On Nov 3, 2021

CA Sri Lanka President and SEC Member Manil Jayesinghe noted that when shares are subdivided, they increase the liquidity of the security and this creates value to prospective shareholders through means of a liquidity premium.

Jayesinghe was responding to recent amendments to the listing rules of the Colombo Stock Exchange that call upon companies to maintain the theoretical price of a share post subdivision being equal to the minimum tick size of the automated trading system. Jayesinghe was of the view that the recent amendments do not impede the functioning of a free and fair market. Jayesinghe was speaking on November 3 on the sidelines of an event. Jayesinghe noted that through subdivision companies do create some value to shareholders.