Can the 15 Per Cent Free Float Rule and Share Ownership Disclosure Address MSCI Concerns?
Jakarta — Since the beginning of the year, Indonesia’s capital market has been shadowed by the influence of Morgan Stanley Capital International (MSCI) index movements that have rattled investor confidence.
Shortly thereafter, the stock exchange authorities and regulators agreed on an immediate remedy to raise the minimum free float (shares owned by the public) to 15 per cent and introduce mandatory disclosure requirements for share ownership above 1 per cent.
Economist and professor at the Faculty of Economics and Business at the University of Indonesia, Budi Frensidy, said the decision appears supportive of investors and would calm many stakeholders.
“However, the capital market is not a machine that can be operated with a single numerical lever. It is an ecosystem that thrives on trust, liquidity, and policy consistency,” he told Kompas.com on Wednesday (11 March 2026).
Nevertheless, making it a single target risks leading the capital market into numerical fetishism.
“It is as if numbers have their own truth, when in reality they emerge from complex relationships between ownership structures, market participant behaviour, incentives, and law enforcement quality,” he added.
Frensidy believes that transparency cannot be simplified into a single threshold either.
A uniform increase in the free float threshold for all listed companies could trigger a large supply without ensuring demand increases proportionally.
When many issuers are forced to release shares simultaneously, supply will become extremely abundant.
Meanwhile, Indonesia’s domestic institutional investors remain insufficient in depth, whilst foreign investors are currently sensitive.
Frensidy explained that investors have just witnessed increased selling pressure and rising volatility.
The Composite Stock Price Index (IHSG) fell from the 9,000 range to the 8,000 range, and even to the 7,500 range last week.
Foreign investors experienced net selling of hundreds of millions of US dollars over several days.
“In such a situation, strong medicine that adds supply risks deepening the wound,” said Frensidy.
More concerning, he said, overreactive policy could erode Indonesia’s weighting in MSCI.
A key note: weighting is determined by free-float adjusted market capitalisation and liquidity.
A 1 per cent disclosure threshold could result in more investors being excluded from the free float group in MSCI’s eyes, causing free-float market cap to shrink and weighting to decline.
If market cap is also pressured by oversupply and weakening confidence, weighting could diminish even if emerging market status remains.
When weighting falls, passive fund inflows shrink and future capital outflows could actually increase.
This is because index funds move mechanically following weights, not driven by fundamental narratives.
“The stock market operates through market microstructure. When MSCI announcements occur, ETFs and index funds undertake forced buying or forced selling,” he explained.
This combination creates order imbalances and causes prices to move mechanically without awaiting fundamental developments.