Government Prepares IDX Demutualization To Strengthen National Capital Market

IDX (Photo: Antara)

JAKARTA - The government plans to make changes to the institutional structure of the Indonesia Stock Exchange (IDX). If previously the IDX was in the form of an securities exchange with limited ownership of stock exchange (mutual structure) members, in the future the IDX will be transferred to a company whose ownership can be reached by a wider party.

The changes will be included in the Draft Government Regulation (RPP) on the Demutualization of the Stock Exchange, as a follow-up to the mandate of Law Number 4 of 2023 concerning the Development and Strengthening of the Financial Sector (UU P2SK).

"Demutualization will open IDX ownership for parties other than securities companies by separating membership and ownership. This is a strategic step to reduce potential conflicts of interest, strengthen governance, improve professionalism, and encourage global competitiveness of the Indonesian capital market," said Director General of Stability and Development of the Ministry of Finance's Finance, Masyita Crystallin in an official broadcast, quoted Monday, November 24.

The demutualization policy is nothing new in the development of the world's capital market. Currently, the IDX includes a handful of exchanges that still maintain a mutual structure, while many countries such as Singapore, Malaysia, and India have already switched to a demutualization structure.

This transformation is considered to be able to make the management of the stock exchange more professional and responsive in dealing with changes that occur in the global financial system.

Through this new structure, it is hoped that product and service innovations will emerge, such as derivative instruments, Exchange-Trad Fund (ETF), to financing instruments for infrastructure and energy transitions, which can ultimately deepen and increase market liquidity.

"Through demutualization, we want to ensure that IDX governance is in line with the best international practice, while maintaining the public interest and market integrity," he said.

He explained that demutualization does not run alone enough, but needs to be supported by strengthening the capital market both in terms of supply side and demand side.

In terms of supply, one of the main problems is the low level of free float which causes less dynamic trading activity and stock prices do not fully reflect market conditions.

With Indonesia's capital market liquidity still lagging behind compared to equivalent countries, increasing free float is an important policy that needs to run in line with the implementation of demutualization.

"The demutualization policy of the stock exchange needs to be accompanied by ecosystem strengthening, including an increase in free float, so that the impact on the depth and liquidity of the capital market is truly optimal," he said.

Meanwhile, in terms of demand, increasing the number of domestic and retail investors is an important focus. The government prepares regulations that support domestic institutional investors, including the sui generalist institution that manages pension funds, one of which is policies related to the cut loss mechanism.

"This cut loss policy will later be directed to provide certainty for retirement fund managers in investing in the capital market, so that they can play a more active role and act as investor anchors that encourage capital market deepening," he explained.

In addition, the government also conducted a comparative study with a number of countries, including India, in drafting capital market development strategies.

Over the past ten years, India has experienced an acceleration of capital market growth through a combination of improving institutional governance, increasing the participation of domestic investors through the Systematic Investment Plan (SIP) scheme, increasing the number and quality of issuers, and increasing efficiency thanks to the use of technology.