New capital market law improves legal framework
New capital market law improves legal framework
JAKARTA (JP): The new capital market law provides an improved legal framework for development of the domestic market, Chairman of the Indonesian Capital Market Supervisory Agency (Bapepam) I Putu Gede Ary Suta said yesterday.
The law, passed by the House of Representatives early last month, is to be implemented early next year to replace the 1952 Bourse Law.
"With this new law, we have a sound legal basis for domestic market development," Putu told a two-day seminar on economic law reform in Southeast Asia, organized by the Inter-Pacific Bar Association.
Putu said that there are four substantial points in the new law which can improve the Indonesian capital market.
First, the institutional position of a securities company is strengthened. Along with banks, securities companies are now classified as custodians and may offer full securities administrative services to clients, with safe-keeping of assets, collection of dividends, and monthly account statements. This will make investments in the capital market as convenient as a bank accounts.
Second, open-end investment funds are authorized in an efficient collective investment contract format. This will stimulate the development of two important new investment products: money market funds and mutual funds. These funds are practical vehicles for channeling savings of retail investors to the capital market.
Third, investor protection is greatly enhanced, with effective criminal investigatory powers assigned to Bapepam and with the imposition of severe criminal sanctions for securities fraud.
Fourth, scripless trading and book-entry settlement, guaranteed by a special Clearing Guarantee Institution, will directly improve the ease and reliability of securities trading.
Putu said that once the private sector invests in securities companies, the institutions will be forced to meet high standards of safety, professional services and product efficiency.
"Bapepam encourages the securities industry to develop and introduce new retail investment products. Successful capital market development will depend directly upon the professionalism and commitment of the securities companies," said Putu.
He said Bapepam will insist that securities companies have strong internal accounting control, close supervision of employees and responsible sales techniques.
Savers will be attracted to the capital market by improvements in the systems, products and staffing of local securities companies, said Putu.
He estimates that initial progress will be in non-equity products, such as money market funds.
Open-end mutual funds will be permitted for the first time next year. This fund will provide small investors with access to managed and diversified portfolios of equities, said Putu.
Some observers fear that the high interest paid on savings accounts will be a barrier to market development. However, Putu said, experience in other emerging markets shows that this is not so.
In terms of stock market trading, efficiency will improve. The new capital market law authorizes book-entry settlement, scripless trading and requires stock exchanges through a new clearing guarantee institution, to guarantee settlement of exchange transactions, he added.
Putu observed that once securities companies and supporting institutions have set up the proper systems under the new law, investors will be able to buy and sell securities more easily and with greater assurance regarding settlement.(kod)