JSX cuts transaction fee rate

JSX cuts transaction fee rate

JAKARTA (JP): The Jakarta Stock Exchange (JSX) yesterday
lowered the rate of its transaction fees from 0.07 percent to
0.04 percent of cumulative monthly transaction value in a bid to
rejuvenate trading on the capital market.

"The cut of the fee rate, which has been approved by the
Capital Market Supervisory Agency (Bapepam), is designed to
attract more investors and to boost the participation of
securities companies," a director of the JSX, Mas Achmad Daniri,
told The Jakarta Post yesterday.

The JSX requires investors to pay commissions to brokerage
houses for buying and selling shares on the exchange. The size of
the commissions is based on an agreement between the investors
and the brokers but they must not exceed 1 percent of the
transaction value made by the investors.

The brokerage houses then pay transaction fees to the JSX out
of their accumulated commissions.

"We have made such a decision because we found out that total
funds needed for investment this year can be reduced from Rp 20
billion (US$8.5 million) to only Rp 10 billion," Daniri said.

The JSX has often been criticized for defending a high rate of
transaction fees despite the fact that it is a non-profit
oriented business entity. Last year, the JSX cut the fee rate by
only 0.01 percent from 0.08 percent, saying that it still needed
large sums of money to finance several projects.

Daniri said that before the annual general meeting of JSX
shareholders on April 14, the management had actually proposed
0.05 percent as the new rate.

"However it didn't come into force as it was still subject to
Bapepam's approval," Daniri added.

The JSX, according to Daniri, will take equity participation
in the establishment of a Securities Clearing and Guarantee House
and a Central Depository House.

The new law on capital markets, which came into effect earlier
this year, stipulates the split of the current Indonesian
Securities Clearing Depository into the two different
institutions.

The law also requires the JSX and the Surabaya Stock Exchange
(SSX) to become the majority shareholders in the planned Clearing
and Guarantee House.

"We realize that other parties are interested in investing in
the two planned houses. Therefore, the reduction of our
investment will not hinder the plans for the establishment of the
two houses," he added.

A senior trader from PT Sanyo Primarindo, Nadjib Usman, told
the Post that the 0.03-point cut of the transaction fee rate is
not surprising as many securities companies have urged the JSX to
reduce it.

"It's very positive although we realize that the rate of
transaction fees is not the key factor which will boost our
earnings," he said.

A senior dealer from PT Baring Securities Indonesia, who
preferred anonymity, said that the new rate might not affect the
revenues of securities companies.

"It depends on how a securities company sets the commissions
from investors. I think the new rate will not influence the
securities companies which do not charge fixed rates of
commission," the dealer said.

Ignasius Yonan from PT Sigma Batara echoed the idea that the
new rate will attract more investors but it is not likely to
increase the incomes of brokerage houses.

"I think investors will also ask brokerage houses to reduce
their commission rates," he added.

Yonan and Nadjib concurred that the lowering of the fee rate
will particularly benefit big securities companies which usually
get big orders from institutional investors.

He said that because of settlement risks, most institutional
investors will prefer to contact big securities companies.

"On the other hand, there is almost no difference in the
operational costs between big transactions and small
transactions. Therefore, it's very difficult for a securities
company which concentrates merely on serving retail investors to
take advantage from the new rate," Yonan added.

"In some cases, small transactions mean higher costs. That's
why most local brokers don't want to open branches in other
cities in the country since most domestic investors make small
transactions," Nadjib said.

The two analysts also said that the lowering of the rate will
further tighten competition among brokerage houses because many
of them usually use lower commission rates to attract investors.

"I believe that no securities companies have charged a
commission rate of up to 1 percent. Most of them set their
commission rates below 0.50 percent," Nadjib added.

The new rate established by the JSX management is equal to the
rate set by the SSX.

Many brokers have made use of lower fee rates to win big
transactions, known as crossing transactions, through the
Surabaya-based exchange.

Therefore, the new rate is likely to have a bad impact on the
inactive SSX. (08)