Stock trading automated

Efficiency, liquidity and transparency were some of the key words in President Soeharto's address at the inauguration of the Jakarta Stock Exchange's automated trading system yesterday. The Jakarta Automated Trading System (JATS), which began trial operations last May, is designed to increase the frequency and volume of transactions, thereby minimizing errors in transactions, reducing costs and, consequently, improving efficiency.

The system speeds up transactions dramatically by computerizing order routing and execution, thereby increasing market liquidity and making the stock exchange more attractive to investors. Soeharto said the stock exchange will be performing its function properly and well when it can provide a transparent mechanism and protection for the investing public.

The new system ensures that investors are treated fairly and efficiently in the handling and execution of orders. It is effective in maintaining and developing liquidity in new markets.

Even though there are many other factors which influence investors' decisions to buy shares, such as market conditions, liquidity and interest rates, fair and efficient treatment of investors is one of the prerequisites for broadening the base of domestic investors on the Jakarta stock exchange (JSX). Today, as the President noted, the JSX is faced with the major challenge of increasing the number of domestic investors.

A broad base of domestic investors is required, he said, to enable the JSX to play a bigger role in efficiently raising and mobilizing private savings. A greater number of domestic investors is also needed to increase market liquidity, in the sense that entry to and exit from particular shares can be made efficiently and speedily.

Moreover, the present situation, in which daily trading is dominated by foreign portfolio investors, is not conducive to the future development of a sound stock market. Recent experiences have shown that foreign investors often fail to act rationally and can make decisions on the strength of wild rumors.

Further down the line, a larger number of domestic investors is also needed to help improve the JATS' operation through high capacity utilization. The JATS is designed to route and execute 40,000 orders and process 50,000 transactions every hour. During the four months of trial operations, the largest number of orders ever handled by the system in one whole day was only 10,000.

Consistently with the fast developments in information technology, the JATS offers virtually unlimited opportunities for further developing the stock market. An opportunity that will soon be able to be tapped is remote trading. That will contribute greatly to broadening the base of domestic investors, as people in other provinces will be able to deal in stocks on the JSX. The next advance will be the development of scripless trading, as already practiced on many international stock exchanges.

The JATS also contributes greatly to facilitating fast flows of information through on-line communications, something which is very important in view of the crucial role of timely and accurate information in developing a sound stock market.

The introduction of the JATS will undoubtedly place the JSX on a level with the stock exchanges in other markets. Even though the JSX is still the smallest stock market among the ASEAN countries -- with only about 230 listed companies and a total market capitalization of approximately US$58 billion -- the opportunities for market expansion are huge, given the predicted robust growth of the economy in the years to come and the massive volume of investment funds that will be required.

It is a happy coincidence that the JATS' inauguration took place a day after the passing of a new law on the stock exchange, which provides a stronger legal foundation for the development of the stock market and better protection for the investing public.