OJK 'Has Office' at BEI, Market Reform Is Called After MSCI Pressure

JAKARTA - The Financial Services Authority (OJK) has taken an unusual step amid pressure on the stock market. This statement was made when the JCI weakened for two consecutive days and there was a trading halt at the beginning of trading. Chairman of the Board of Commissioners of the OJK Mahendra Siregar stated that the OJK will start "having an office" at the Indonesia Stock Exchange (IDX) starting tomorrow to oversee the acceleration of market reforms.

"To ensure this, starting tomorrow we will also have an office here," Mahendra said in his statement to reporters at the Jakarta Stock Exchange Building, Thursday, January 29.

Mahendra emphasized that the regulator's focus was not merely to hold the index, but to correct the market structure. The reform is aimed at transparency of share ownership, trading integrity, and adjustment of the definition of free float in accordance with international standards.

MSCI or Morgan Stanley Capital International is a global stock index provider that is a reference for global institutional investors. The entry or exit of a country from the MSCI index can significantly affect foreign fund flows.

MSCI previously suspended a number of changes to Indonesian stocks because it assessed that the ownership structure of shares was still too concentrated and market access was not optimal. MSCI also froze the addition of Indonesian stocks to the index and withheld the increase in the weight of shares available for trading, pending improvements from the Indonesian capital market regulator.

MSCI or Morgan Stanley Capital International is a global stock index provider that is a reference for global institutional investors. The entry or exit of a country from the MSCI index can significantly affect foreign fund flows.

According to a Bloomberg report, Goldman Sachs downgraded Indonesia's stock market to underweight. The investment bank assessed that MSCI's concerns about the aspect of investability could potentially trigger outflows of more than US$13 billion if Indonesia's market status is downgraded.

In the worst-case scenario, if Indonesia loses its developing market status, passive funds that follow the MSCI index are estimated to sell shares of up to US$7.8 billion. Additional outflows of around US$5.6 billion are also potentially occurring if FTSE Russell revises the free float methodology and Indonesia's market status.

Mahendra said OJK followed up on the adjustments that Bursa and KSEI had made. The steps are being reviewed by MSCI. OJK stated that it was ready to make further adjustments to the final standard. Mahendra also said that the government would issue a demutualization rule for the exchange in the first quarter of this year.