Foreign investors have long complained about lack of volumes on the island nation's bourse, currently worth $18.3 billion with 223 companies listed on the main board and 68 firms on the second board.
The securities regulator reported a high level of non-compliance with its December 2013 order that at least 20 percent of shares in companies already listed, and 25 percent in newly floating firms, must be available to trade by the end of 2016.
"The main reason for non compliance was attributed to the limited options afforded in the rules for companies to comply with the public float requirements," it said in a statement.
"The revision of the public float criteria and the flexibility it affords is expected to encourage more listing."
Five different regimes will now apply to firms listed on the stock exchange's main board, according to their size.
Firms with at least 7.5 billion rupees of floated shares must ensure a minimum of 5 percent can be traded while for those with 5 billion rupees of shares the minimum will be 7.5 percent.
Firms with less than 2.5 billion rupees' worth of listed shares must still ensure 20 percent are tradable.
The 20 percent rule now also applies to firms that are listing for the first time while companies with a minimum 10 billion rupees of shares listed and at least 500 shareholders can ignore it.
Firms listed on the secondary board must ensure at least 10 percent of their shares are tradable or maintain both 1 billion rupees worth of shares and 7.5 percent for trading.
The new thresholds will be effective from Jan. 1, 2017 with a six-month grace period for compliance.
Sri Lanka's stock index is down 8 percent so far this year. ($1 = 147.7500 Sri Lankan rupees)