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)