Indonesia's Capital Market Enters New Phase: Will These 6 Policies Benefit Investors?
Indonesia’s capital market is entering a new phase with the Financial Services Authority (OJK) and the Indonesia Stock Exchange (BEI) proactively issuing a series of structural regulations to maintain the stability and quality of the domestic capital market.
This series of reforms was triggered by market dynamics and evaluations from global index providers such as MSCI regarding liquidity and transparency levels. Each new policy brings significant changes to the ecosystem, ultimately providing benefits while demanding risk management from investors.
- Gradual Increase in Public Shares to 15%
The BEI has officially set an increase in the minimum limit for publicly circulating shares, or free float, to 15%. To prevent market shocks, implementation is carried out through a transitional scheme.
Issuers with a market capitalisation of Rp 5 trillion and above are given until 2027 or 2028 to meet that portion, depending on their initial percentage.
For issuers with valuations below Rp 5 trillion, the deadline is March 2029. For investors, this policy is beneficial because share liquidity in the secondary market will become more abundant, and transaction executions will run more efficiently.
However, the risk of losses may arise if controlling shareholders release shares hastily, which could flood the market and pressure prices in the short term.
- Transparency of UBO and 1% Ownership Reporting
To strengthen governance, the authorities require clear disclosure of the identity of the Ultimate Beneficial Owner (UBO). In addition, the BEI and KSEI have now lowered the ownership reporting threshold from 5% to 1%, with the data to be published periodically.
This transparency greatly benefits investors by providing earlier signals of movements by medium to large investors. Nevertheless, the emerging risk is an abundance of information or market disruptions.
Panic may occur if investors mistakenly respond to reasonable portfolio adjustments from 1% owners as indications of strategic corporate actions.
- Minimum Free Float Standards for Initial Public Offerings (IPO)
Adjustments to the free float limit are also applied to companies newly listing their shares. The proportion of shares to be released is determined based on the size of the market capitalisation, namely a minimum of 15% for valuations above Rp 50 trillion, 20% for the Rp 5-50 trillion range, and 25% for valuations below Rp 5 trillion.
This policy benefits investors because price formation from the first day of trading becomes more rational based on pure market mechanisms.
On the other hand, the large supply of shares from the start demands that investors be more thorough in analysing fundamentals, as price movements will be more sensitive to sectoral sentiment.
- Regulation of Share Ownership Concentration (HSC)
In response to the potential downgrade to Frontier Market status by MSCI, the authorities are tightening oversight of issuers with High Shareholding Concentration (HSC) status, which is deemed to create an illusion of liquidity.
This exchange intervention provides protection for investors from the risk of prices being too easily controlled unilaterally by powerful parties. However, this policy brings high volatility risks.
If the relevant issuer fails to restructure its ownership, the shares risk experiencing a reduction in weighting or even exclusion from global index lists, which could trigger massive selling by foreign institutional investors.
- Intervention Through Liquidity Providers
To maintain smooth transactions for certain less liquid shares, the exchange is activating the Liquidity Provider facility. This party is tasked with maintaining the availability of continuous buy and sell quotes.
This facility benefits investors by providing certainty of a counterparty when executing portfolio changes. Its weakness lies in the potential for non-organic liquidity.
If the liquidity provider’s tenure is terminated by the exchange, the related shares risk experiencing a sharp decline in trading volume again.
- Demutualisation Agenda and Danantara’s Role
The demutualisation plan aims to change the BEI’s governance structure from a broker membership entity to a profit-oriented corporation. The presence of the Danantara Investment Management Agency as a prospective strategic investor also colours this agenda.
In general, demutualisation is beneficial because it can reduce conflicts of interest among securities firms and raise the exchange’s operational standards in the eyes of the global market.
However, Danantara’s entry presents its own challenges to governance stability. Given that this entity manages state funds and red-plate companies have a dominant market capitalisation portion on the exchange, strict regulatory limits are needed to avoid new conflicts of interest between the investment manager role and exchange authority holders.