Managing stock exchange

Managing stock exchange

Different from the shareholders meetings of most publicly-
listed companies which usually run for two hours at the longest
with pre-determined conclusions, the one held by the shareholders
of the Jakarta Stock Exchange Inc. on Tuesday dragged on for 16
hours into Wednesday morning.

But the lengthy meeting was expected for two main reasons.

The first reason is quite obvious. The equity of the company
which manages the Jakarta stock exchange (JSX) is shared equally
by around 200 institutional shareholders. This is strikingly
different from the companies listed on the JSX, in which the
founders remain the majority owners who can dictate their wishes
at the shareholders meetings.

The second and more important reason is the increasingly
important role of the JSX in the country's economy. The market
capitalization of the exchange has reached almost US$50 billion
or one third of the gross domestic product. No wonder, the
shareholders, greatly concerned about the future of the exchange,
have been quite assertive regarding such matters as how the JSX
should be managed and who will be responsible for the management.

Disregarding the length of the meeting, we think the depth and
breadth of the discourses between the management and the
shareholders should be a good example of how a corporate
shareholders meeting should proceed. The shareholders even have
the final say about the compensation for the directors and the
major items on the spending plans.

The quality of management is crucial for ensuring a steady,
sound growth for the JSX amid the fierce competition to attract
new listings with stock exchanges in other countries. Though law
enforcement for listed companies is the responsibility of the
Capital Market Supervisory Agency of the finance ministry, the
JSX management has a vital role in ensuring an efficient exchange
that guarantees fair, transparent transactions.

The JSX is also about to mark a new milestone in its
operations with the scheduled introduction next month of a
computerized trading system in its new headquarters. The Jakarta
Automated Trading System (JATS) is another step by the JSX toward
becoming an international exchange.

JATS will surely contribute to improving the efficiency and
liquidity of the exchange as the new system will speed up the
processing, clearing and settlement of transactions. The
automation will facilitate a speedier flow of information that is
crucial for an exchange operation and will increase the
credibility and accessibility of the exchange.

The automation also will help support the campaign of the JSX
management toward developing a broader base among the domestic
investing public because transactions can be done not only from
the local terminals at the exchange and remote trading terminals
at the brokers' offices in Jakarta, but also from remote trading
galleries in other cities, such as Medan and Semarang.

At present, more than 70 percent of the transactions at the
JSX are done by foreign investors. That is not conducive for
sound growth because the exchange is highly vulnerable to wild
fluctuations. Jittery foreign portfolio investors could suddenly
withdraw at the slightest rumors as can be seen from the recent
fallout from Mexico's financial crisis on many emerging markets.

Both international and domestic analysts agree that the
potential growth of the JSX is enormous. But this potential can
be realized only if the exchange is operated and managed
efficiently to allow for fair and transparent transactions.