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.