Protecting the investing public

Protecting the investing public

In the next several months, the House of Representatives (DPR)
will review a new bill on Indonesia's capital market. It should
be greatly welcomed.

In view of the rapid developments in the business sector,
notably financial transactions, it would indeed be too risky to
let the capital market, whose capitalization of US$48 billion
already represents about one third of the country's gross
domestic product, be governed by a law enacted in 1952.

Moreover, the draft legislation focuses attention on the right
area by vesting more power with the Capital Market Supervisory
Agency (Bapepam). Instead of trying to tighten market control by
providing the statutory body with licensing authority, the bill
zeroes in on improving the rules of the games -- and by
empowering Bapepam to properly enforce the rules. Bapepam will
then be better suited to ensure the development of a fair,
efficient, transparent and liquid capital market.

Of course, many of the rules stipulated in the bill are
currently in effect, but they are based on numerous government
regulations and ministerial decrees issued separately over the
last two decades.

The draft legislation takes the right approach in that the
government (Bapepam) will not approve of or license a share
listing, a measure that could be construed as a recommendation
for a share issue. Bapepam instead focuses its attention on
enforcing full disclosures and monitoring disclosures, after
listing, by share issuers. Such rigor will provide the investing
public with adequate, fair and accurate information, which is
essential for assessing the normal business risks of a particular
corporate stock.

Bapepam also sees to it that the boards of directors and
commissioners of listed companies fulfill their prescribed
responsibilities. Financial intermediaries and other supporting
institutions in the capital market, such as public accountants,
legal consultants, appraisal companies, underwriters and brokers,
will also be held to the same standard.

These boards and institutions will be responsible for the
truth and accuracy of all the information provided in the
statement for the registration of a share listing. Should they
fail to carry out their responsibilities properly, they will be
subject to heavy penalties.

The bill also empowers Bapepam to conduct investigations into
suspected market manipulation, such as artificially hiking share
prices, and other forms of securities fraud. They may also take
legal actions against those suspected of involvement in similar
forms of manipulation.

All these rules are indeed necessary to protect the interests
of the investing public, especially because most of the companies
listed on the domestic stock exchanges have sold less than 50
percent of their total shares. As a result, those publicly listed
companies, and consequently their management and boards of
commissioners (supervisors), remain controlled by the founders,
who are also the majority shareholders.

So all in all, the provisions of the bill on the capital
market are designed mainly to ensure a fair, transparent and
efficient market to enable investors to adequately analyze the
normal business risks of their portfolio management. There is not
a single provision in the bill that can be construed as a
recommendation, let alone a guarantee, that investments in the
capital market will produce profits.

Investing in the stock exchange presents greater risks than
placing money in savings accounts or time deposits. That is
normal. The potential returns or rewards from investments in
corporate stocks are also bigger than those in bank deposits.
Share owners may get dividends and capital gains, whereas
depositors benefit only from interest incomes.